Mimedx Grp., Inc. v. Fox
| Decision Date | 02 August 2017 |
| Docket Number | No. 16 CV 11715,16 CV 11715 |
| Parties | MIMEDX GROUP, INC., Plaintiff, v. MICHAEL FOX, Defendant. |
| Court | U.S. District Court — Northern District of Illinois |
MEMORANDUM OPINION AND ORDER
MiMedx Group, Inc., brings various contract and tort claims against Michael Fox, a former vice president of the company. Fox moves to dismiss all claims against him. For the following reasons, Fox's motion to dismiss is granted in part, denied in part.1
To survive a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), a complaint must contain factual allegations that plausibly suggest a right to relief. Ashcroft v. Iqbal, 556 U.S. 662, 677-78 (2009). The court must accept all factual allegations as true and draw all reasonable inferences in the plaintiff's favor, but the court need not accept legal conclusions or conclusory allegations. Id. at 678-79.
MiMedx Group, Inc., is a regenerative medicine company selling medical products throughout the United States. Michael Fox began working for MiMedx as a Sales Director in 2012. Prior to and as a condition of his employment with MiMedx, Fox executed a Non-Competition Agreement and a Confidentiality and Non-Solicitation Agreement. Fox became an Area Vice President in 2013, reporting directly to Mike Carlton, MiMedx's Vice President of Global Sales. Fox supervised more than 50 MiMedx employees, including regional managers and account executives and had access to MiMedx's trade secrets and confidential business sales information concerning its customers, including accounts receivables reports, sales reports (detailing the sale of every MiMedx product to hospitals and medical facilities), commission reports, forecasts, quotas, and other reports concerning MiMedx's business, product, and sales strategies. In January 2016, Fox assumed the newly-formed position of Vice President, Federal & Academic Institutions, with nationwide responsibility. He continued reporting directly to Carlton and to have access to MiMedx's trade secrets and confidential business sales information, but now on a national scale.
In early 2015, Jess Kruchoski, one of Fox's Regional Sales Directors, began exploring the option of selling non-MiMedx products. Around this time, Fox sent a confidential report detailing nationwide volumes and total sales to Kruchoski and several other MiMedx employees, stating: The report contained data outside the employees' regions of responsibility that they were not authorized to see. A few days after receiving the report—and without the knowledge or approval of MiMedx's Chairman and CEO (as required by company policy)—Kruchoski executed an Independent Distributor Agreement with a MiMedx competitor. Kruchoski made non-MiMedx sales to at least three Veterans' Affairs hospitals listed on the report from Fox, all of which were outside of Kruchoski's assigned sales region. (Fox also sent Kruchoski another similar report in October 2016.)
MiMedx also alleges that Fox told Jason Mahnke, one of Fox's subordinates, that Mahnke could sell non-MiMedx products for a competitor selling wound care medical products. Fox told Mahnke it was permissible for him to sell non-MiMedx products and encouraged him to do so, even though Mahnke did not have approval from MiMedx's Chairman and CEO. Fox also did not report Mahnke's sale of non-MiMedx products.
MiMedx terminated Fox's employment on December 29, 2016, and filed this lawsuit the same day. [1].2 MiMedx filed an amended complaint in February 2017, bringing claims for breach of the Confidentiality and Non-Solicitation Agreement (Count I), breach of the Non-Competition Agreement (Count II), specific performance (Count III), breach of fiduciary duty (Count IV), breach of the duty of loyalty (Count V), and a claim for replevin (Count VI), asserting that Fox had not returned three company devices (a laptop, iPad, and iPhone) since his termination despite MiMedx's repeated requests. [18]. Shortly thereafter, MiMedx moved for an order of replevin, or in the alternative for a preliminary injunction, for Fox to return the devices. [24]. The motion was granted in part, and Fox was ordered to return the devices. [32]. Fox now moves to dismiss the amended complaint. [34].
MiMedx raises a choice of law issue, invoking a Florida governing law clause in both agreements. Fox (who cited Illinois law) responds that MiMedx waived this clause by citing Illinois law in support of its preliminary injunction, that MiMedx should be judicially estopped from invoking Florida law, and that MiMedx has failed to identify an actual conflict between Illinois and Florida law. Fox further argues that the choice of law provision only applies to construction of the contract, not breach of contract claims arising from the agreements.
When sitting in diversity, federal courts apply the forum state's choice-of-law rules. Spitz v. Proven Winners N. Am., LLC, 759 F.3d 724, 729 (7th Cir. 2014). Illinois holds that a choice-of-law determination is required only if the party seeking a choice-of-law determination has established an actual conflict between state laws. Id. (citing Bridgeview Health Care Ctr., Ltd. v. State Farm Fire & Cas. Co., 2014 IL 116389, ¶ 14 (2014)). MiMedx has raised the choice-of-law issue and seeks to apply Florida law, but MiMedx has not identified any actual conflict between Illinois and Florida law that would make a difference in the outcome of this motion. See Bridgeview, 2014 IL 116389, ¶ 14 (). In these circumstances, no choice-of-law determination is required, and I will apply Illinois law. See Spitz, 759 F.3d at 729 ().
To state a claim for breach of contract, a plaintiff must allege: (1) the existence of a valid and enforceable contract; (2) substantial performance by the plaintiff; (3) defendant's breach; and (4) resultant damages. Reger Dev., LLC v. National City Bank, 592 F.3d 759, 764 (7th Cir. 2010). Fox argues that his alleged conduct does not amount to breach of the Confidentiality and Non-Solicitation Agreement.
The Confidentiality and Non-Solicitation Agreement required Fox to "faithfully perform the duties assigned to [him]," "to abide by all of the Company's policies and procedures," and to "not directly or indirectly divulge or make use of, copy, publish, summarize or remove any Confidential Information or Trade Secrets outside of employment with Company without prior written consent." [18-2] §§ 2-3. It also required Fox to return all MiMedx property within three days of the end of his employment. [18-2] § 4. MiMedx asserts that Fox breached the Confidentiality Agreement by sending confidential reports to MiMedx employees who were unauthorized to see them, by ignoring company policy on reporting conflicts of interest, and by failing to return the company's devices upon the termination of his employment. Fox argues that the Confidentiality Agreement did not prevent his disclosure of confidential information to other MiMedx employees, did not require him to report other employees' misconduct, and did not incorporate the terms of MiMedx's Code of Conduct. The Code of Conduct directed all employees "to make prompt and full disclosure of any potential conflict of interest" to the employee's immediate supervisor (who would then transmit that information up through the chain of authority to the Chairman and CEO, who decided whether a conflict exists and if so, any corrective action to take). [18-3] at 17, 19. The Code of Conduct also lists business dealings with competitors of MiMedx as an example conflict of interest. [18-3] at 18.
MiMedx argues that Fox did not report Mahnke's sales to a competitor as a conflict of interest, in violation of company policy expressed in its Code of Conduct, and therefore that Fox breached the Confidentiality Agreement's requirement that he abide by all company policies. Fox contends that internal employment policies do not create contractual rights, the Code includes a disclaimer that it is not an employment contract, [18-4] at 2, and that the Code cannot be incorporated into the Confidentiality Agreement, which contains a merger clause. Fox cites to a few cases holding that internal policies (such as a code of business conduct or employee handbook) do not themselves create contractual rights. These cases explain that "[i]n Illinois, the general rule is that an employment handbook is not part of an employment contract" because it is "a gratuity which merely serves as a code of conduct and to define general duties" but does not alter the at-will relationship between the employer and employee. Enis v. Continental Ill. Nat'l Bank & Trust Co. of Chicago, 582 F.Supp. 876, 878 (N.D. Ill. 1984), aff'd sub nom. Enis v. Continental Ill. Nat'l Bank & Trust Co. of Ill., 795 F.2d 39 (7th Cir. 1986); see Miller v. Illinois Bell Tel. Co., 157 F.Supp.3d 749, 758 (N.D. Ill. 2016) (). But as recognized in Enis, there is an exception to this general rule ...
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