Isu Veterinary Serv. Corp.. v. Reimer, 4:11–CV–00093–JAJ.

• Decision Date: 27 April 2011
• Docket Number: No. 4:11–CV–00093–JAJ.,4:11–CV–00093–JAJ.
• Citation: 779 F.Supp.2d 970,270 Ed. Law Rep. 624
• Parties: ISU VETERINARY SERVICES CORPORATION, Plaintiff,v.Steven Brent REIMER, Derek Nestor, Stan Wagner, Paul Hanika, and Iowa Veterinary Referral Center, Defendants.
• Court: U.S. District Court — Southern District of Iowa

779 F.Supp.2d 970

270 Ed. Law Rep. 624

ISU VETERINARY SERVICES CORPORATION, Plaintiff,

v.Steven Brent REIMER, Derek Nestor, Stan Wagner, Paul Hanika, and Iowa Veterinary Referral Center, Defendants.

No. 4:11–CV–00093–JAJ.

United States District Court, S.D. Iowa, Central Division.

April 27, 2011.

Michael R. Reck, Kelsey J. Knowles, Belin McCormick, P.C., Des Moines, IA, for Plaintiff.Jesse Linebaugh, Britt L. Teply, Faegre & Benson LLP, Des Moines, IA, for Defendants.

ORDER

JOHN A. JARVEY, District Judge.

This matter comes before the Court pursuant to Plaintiff Veterinary Services Corporation's February 28, 2011 Motion for Preliminary Injunction. (Dkt. No. 2). Defendants filed a Resistance (Dkt. No. 22) on March 18, 2011, and Plaintiffs filed a Reply (Dkt. No. 33) on March 29, 2011. A hearing was held over three days—March 18, 2011, April 5, 2011, and April 8, 2011. At the hearing, Plaintiff clarified that it seeks preliminary injunctive relief against only Steven Brent Reimer, Derek Nestor, and Paul Hanika. For the following reasons, Plaintiff's motion is granted with regard to Drs. Nestor and Reimer and is denied with regard to Mr. Hanika.

I. Introduction

Iowa State University (“ISU”) is the sole shareholder of ISU Veterinary Services Corporation (“VSC”), a non-profit corporation formed in 1987 that has held various assets for the benefit of ISU over its twenty-four-year history. This litigation relates to VSC's purchase of Iowa Veterinary Specialties, P.C. (“IVS”), a specialty veterinary clinic previously owned by 26 general practice veterinarians in the Des Moines area. ISU is home to the oldest veterinary college in the United States, and it purchased IVS—through VSC—to enhance the college's clinical education offerings.

Here, VSC claims that IVS employees—two doctors and its operations manager—violated duties of confidentiality and, in some cases, contractual non-competition obligations by starting a competing clinic called Iowa Veterinary Referral Center (“IVRC”), which opened on March 1, 2011. Specifically, Plaintiff claims that Drs. Nestor and Reimer are in violation of non-competition agreements they entered with IVS, which were later assigned to VSC pursuant to its Asset Purchase Agreement with IVS's previous shareholders. VSC also claims that Drs. Nestor and Reimer further breached those agreements by hiring IVS's operations manager, Paul Hanika, for IVRC. Finally, VSC argues that these three defendants stole confidential information from IVS to plan and execute their competing venture, breaching Drs. Nestor and Reimer's contractual duties of confidentiality and Hanika's common-law duty of loyalty. For these reasons, VSC seeks to preliminarily enjoin Defendants from operating IVRC, arguing that VSC will be irreparably harmed absent such relief.

Defendants argue that ISU is competing with private enterprise in violation of Iowa statutory law. Further, they argue that VSC cannot lawfully own a veterinary practice under Iowa's Veterinary Practice Act. And for these reasons, Defendants contend, VSC has no legitimate business interest in enforcing Drs. Reimer and Nestor's non-competition agreements. Moreover, Defendants argue that the non-competition agreements at issue are unenforceable on other grounds. Last, Defendants claim that all information accessed or retained by Reimer, Nestor, and Hanika was publicly available and therefore not subject to either contractual or common-law duties of confidentiality.

II. Factual Background

On January 13, 2011, ISU sought permission from the Iowa Board of Regents to (1) purchase real estate from IVS; (2) approve Restated Articles of Incorporation and Bylaws of Iowa State University Equities Corporation, which shortly thereafter became Plaintiff VSC; and (3) give VSC the authority to execute an Asset Purchase Agreement, Affiliation Agreement, and a Repayment Agreement in order to acquire the assets of IVS. When asked to explain the University's reasons acquiring IVS during a January 13, 2011 Board of Regents meeting, the dean of the College of Veterinary Medicine, John Thompson, stated:

The College of Veterinary Medicine has been on a mission to enhance and regain its academic preeminence in the United States, and this is one part of us regaining this preeminence and being able to have a visible opportunity to serve the main metropolitan area in the State of Iowa. [It] is an opportunity for us to enhance our—to expand our caseload and exposure of cases for our students; our residents and also our faculty, and it gives our faculty an opportunity to enhance the healthcare for animals through translational research and through an opportunity of real life experience in a clinic such as this.

(Def. App. 27–33). On February 1, 2011, after an extended negotiation, VSC acquired substantially all of IVS's assets through the Asset Purchase Agreement. As part of the acquisition, IVS's previous 26 shareholders agreed to exclusively refer cases to IVS for a period of years.

Defendants, Drs. Derek Nestor, Steven Reimer, and Mr. Paul Hanika were employees of IVS before VSC's ownership. Drs. Reimer and Nestor were highly compensated veterinarians at IVS, and Mr. Hanika was its operations manager. Previously, in January of 2008, Drs. Nestor and Reimer had offered to buy IVS, but the board of directors rejected their offer. Upon learning that IVS was soliciting offers to purchase the clinic in early 2010, Drs. Nestor and Reimer submitted a second offer, which was again rejected by the board of directors in favor of VSC's higher bid. Shortly thereafter, Dr. Reimer informed both IVS and VSC that he would not remain at the clinic under VSC's ownership, and he ultimately was not offered a position at IVS following the acquisition. However, VSC purchased Dr. Reimer's non-competition and confidentiality agreement and seeks to enforce it here. Dr. Nestor and Mr. Hanika continued employment with IVS under VSC's ownership.

Before VSC's ownership, both Drs. Nestor and Reimer entered non-competition and confidentiality agreements with IVS.¹ The agreements provide that they are prohibited from competing with IVS within the Des Moines metropolitan area for a period of two years. The agreements further provide that (1) they were assignable by IVS to any purchaser of the business; (2) breach of the agreements would constitute irreparable harm to IVS justifying injunctive relief; and (3) the writings constitute the entire agreements between the parties.

When the Defendants learned of VSC's pending acquisition of IVS, they began making plans to leave IVS and open a competing veterinary clinic, IVRC, in the Des Moines area. Defendants began planning IVRC while still employed with IVS, and they used VSC's business information to plan their competing venture, including IVS's shareholder list, employee summary, referral activity, and vendor information. Dr. Nestor also negotiated a lease for IVRC while still employed with IVS. In December of 2010, Defendants Hanika, Reimer, and Nestor divided up work for IVRC's business plan using IVS's computer and email systems. IVRC's business plan identifies IVS as one of its primary competitors and includes a chart comparing IVRC and IVS on price, service, reputation, location, hours, credit policies, and methods of promotion.

Dr. Reimer's last day at IVS was January 28, 2011, and Mr. Hanika and Dr. Nestor left on February 10, 2011. On February 1, 2011—the day VSC closed its acquisition of IVS—Defendants sent an IVRC solicitation to IVS's previous shareholders. The solicitation stated that IVRC was taking appointments and planned to open March 1, 2011. IVRC opened as planned and is in direct competition with IVS. Plaintiff presented testimony that IVS has since experienced a drop in both revenue and patients.

III. Discussion

The movant has the burden of “establishing the propriety” of preliminary injunctive relief. Baker Elec. Co-op., Inc. v. Chaske, 28 F.3d 1466, 1472 (8th Cir.1994) (citing Modern Computer Sys., Inc. v. Modern Banking Sys., Inc., 871 F.2d 734, 737 (8th Cir.1989) (en banc)). In evaluating Plaintiff's motion, the Court considers the familiar Dataphase factors, which are: (1) plaintiff's probability of success on the merits; (2) the threat of irreparable harm to plaintiff; (3) the balance between this harm and potential harm to others if relief is granted; and (4) whether an injunction serves the public interest. Dataphase Sys., Inc. v. C L Sys., Inc., 640 F.2d 109, 114 (8th Cir.1981) (en banc). “A court should balance these considerations when deciding whether to issue an injunction.” Mid–America Real Estate Co. v. Iowa Realty Co., Inc., 406 F.3d 969, 972 (8th Cir.2005) (citing Taylor Corp. v. Four Seasons Greetings, LLC, 315 F.3d 1039, 1041 (8th Cir.2003)).

A. Likelihood of Success on Merits

Although no single factor is dispositive, Lankford v. Sherman, 451 F.3d 496, 503 (8th Cir.2006), the first factor—the movant's likelihood of success on the merits—is the most significant. S & M Constructors, Inc. v. Foley Co., 959 F.2d 97, 98 (8th Cir.1992), cert. denied, 506 U.S. 863, 113 S.Ct. 184, 121 L.Ed.2d 129 (1992). Under this factor, the Court need not decide whether the movant will ultimately prevail but only whether it has a “fair chance of prevailing” on the merits. Planned Parenthood Minnesota, North Dakota, South Dakota v. Rounds, 530 F.3d 724, 732 (8th Cir.2008). The Court first considers Plaintiff's likelihood of success against Mr. Hanika and then collectively against Drs. Nestor and Reimer because they are more similarly situated.

1. Mr. Hanika

Plaintiff has not demonstrated a likelihood of success on the merits sufficient to justify an injunction against Hanika, who does not have a non-competition or confidentiality agreement with IVS. Hanika was the operations manager at IVS before and after VSC's acquisition, and Plaintiff argues that he violated a common-law duty of loyalty to IVS, which he owed by reason of his ...