Sizewise Rentals v. Mediq/Prn Life Support Service

• Decision Date: 17 February 2000
• Docket Number: No. Civ.A. 99-2304-GTV.,Civ.A. 99-2304-GTV.
• Citation: 87 F.Supp.2d 1194
• Parties: SIZEWISE RENTALS, INC., Plaintiff, v. MEDIQ/PRN LIFE SUPPORT SERVICES, INC., Defendant.
• Court: U.S. District Court — District of Kansas

87 F.Supp.2d 1194

SIZEWISE RENTALS, INC., Plaintiff, v. MEDIQ/PRN LIFE SUPPORT SERVICES, INC., Defendant.

No. Civ.A. 99-2304-GTV.

United States District Court, D. Kansas.

February 17, 2000.

COPYRIGHT MATERIAL OMITTED

Robert W. Tormohlen, Kansas City, MO, Leonard B. Rose, Lewis, Rice & Fingersh, L.C., Kansas City, MO, for SizeWise Rentals Inc., a Kansas corporation, plaintiff.

J. Eugene Balloun, Shook, Hardy & Bacon L.L.P., Overland Park, KS, Adam Cutler, Arthur S Gabinet, Dechart Price & Rhoads, Philadelphia, PA, for Mediq/PRN Life Support Services, Inc., a Delaware corporation, defendant.

MEMORANDUM AND ORDER

VanBEBBER, Chief Judge.

Plaintiff SizeWise Rentals, Inc. brings this diversity action against defendant Mediq/PRN Life Support Services, Inc., alleging breach of implied covenant of good faith and fair dealing, breach of contract, fraudulent non-disclosure, negligent non-disclosure, and breach of fiduciary duty, and requesting damages, declaratory judgment, and an accounting. The case is before the court on plaintiff's motion for preliminary injunction (Doc. 16). Plaintiff seeks to enjoin defendant from leasing any hospital beds, mattresses, support services, commodes, walkers, wheelchairs, lifts, or transfer systems that are designed to be used by patients whose weight exceeds 350 pounds to any hospital or facility that rented SizeWise equipment during the period of the contract that is at issue in this action.

Following a hearing before the court and after carefully considering the arguments of counsel, as well as the testimony of witnesses, the exhibits, and the briefings submitted by the parties, the court concludes that plaintiff is entitled to a preliminary injunction as outlined below. The court makes the following findings of fact and conclusions of law pursuant to Fed. R.Civ.P. 52(a).

I. Findings of Fact

Plaintiff SizeWise Rentals, Inc. is a Kansas corporation with its primary place of business in Ellis, Kansas. Defendant Mediq/PRN Life Support Services, Inc. is a Delaware corporation with its primary place of business in the State of New Jersey. This court has diversity jurisdiction, as the action is between citizens of different states and the amount in controversy exceeds $75,000.

Plaintiff has been in business since approximately 1994; it is engaged in the business of distributing and leasing bariatric equipment to hospitals and other acute health care facilities. The term "bariatric equipment" in the context of this case means any product that is specifically designed for a patient weighing over 350 pounds. Plaintiff's product line includes bariatric hospital beds, air mattresses, wheelchairs, commodes, walkers, lifts, and transfer systems. Plaintiff was one of the first companies to market obese patient aids as a "full room environment," which means marketing a set of bariatric products as a complete package to care for all the needs of obese patients. Plaintiff does not conduct any business activity other than the manufacture and/or distribution of bariatric products.

Defendant is currently engaged in the business of distributing and leasing all types of hospital and medical equipment, including bariatric equipment. Although bariatric products generate less than 3% of defendant's total revenues, defendant considers such products an integral part of its product line because it endeavors to be a "one-stop shop" for its customers.

In November 1997, plaintiff and defendant entered into a "Consignment for Rent/Rental Agreement" ("Agreement"). Pursuant to the Agreement, from November 1, 1997 until October 31, 1999, defendant agreed to lease, and plaintiff agreed to supply, a set of eight bariatric products for rental in certain territories.¹

For the next two years, defendant distributed plaintiff's equipment to the consumers, entered into rental contracts with them, and billed them. Plaintiff retained ownership of the equipment and maintained liability insurance for it. Plaintiff also provided marketing and technical training to defendant's employees at its Ellis, Kansas facility, employed four regional managers who assisted defendant with marketing and training, and provided a toll-free telephone number for users of the equipment. Over the course of the term of the Agreement, defendant leased plaintiff's equipment to approximately 268 hospitals, health care facilities, or other facilities.²

The Agreement contained a "covenant against piracy" prohibiting defendant from competing with plaintiff for one year following the Agreement's termination. The covenant provided that:

8. Privacy, Trade Secrets and Confidential Information

(b) During the term of this Agreement and for a period of one (1) year immediately following the termination of this Agreement, [defendant] shall not: (i) call upon, solicit, divert or take away, or accept rental business for Specialty Equipment³ from any customer in the Territory that has been referred to [defendant] by [plaintiff] or (ii) directly or indirectly request or advise any present or future customers of [plaintiff] within the Territory to withdraw, curtail, alter or cancel their business with [plaintiff]. It is specifically acknowledged, understood and agreed by [defendant] that the covenant against piracy as provided in this paragraph 8(b) is a material inducement for [plaintiff] to retain the services of [defendant], to grant the Territory to [defendant] and to allow [defendant] limited use of the SizeWise tradenames and trademarks and access to the trade secrets and proprietary and confidential information referenced below, and that [plaintiff] would not enter into this Agreement, agree to retain the services of [defendant] or grant such rights or access absent this covenant.

Sometime in mid-1999, the relationship broke down, and in July 1999, plaintiff filed its complaint in this action, alleging that defendant wrongfully sold, rented, and marketed obese patient aids manufactured by plaintiff's competitors, that defendant utilized plaintiff's confidential information to do so, and that defendant committed numerous other breaches of the Agreement. The Agreement expired by its terms on October 31, 1999. On November 9, 1999, plaintiff filed a motion for temporary restraining order and preliminary injunction, seeking to restrain defendant from violating the covenant contained in Section 8(b)(ii) of the Agreement. Defendant intends to continue to rent bariatric beds and other bariatric products to facilities in the territory.

On December 17, 1999, the court heard arguments on plaintiff's motion for preliminary injunction. Plaintiff's officers testified in the hearing that plaintiff received referrals from facilities being served pursuant to the Agreement, that referrals are an important source of its business, and that facilities being served pursuant to the Agreement were aware that they were using plaintiff's equipment. In addition, the Agreement specifies several interests of plaintiff, such as trade names, trademarks, trade secrets, and proprietary and confidential information, that plaintiff specifically sought to protect with Section 8(b)(ii). The court finds that the value of these interests cannot be measured in numerical or monetary terms.

A significant portion of the bariatric equipment industry is driven by immediate customer needs and product availability. Often, facilities rent bariatric equipment only on an "as-needed" basis, and may only occasionally rent such equipment. In the medical supply business, however, distributors often establish long-term relationships with hospitals and health care facilities in which the distributor serves as the primary vendor for all of a customer's medical equipment needs. The court finds that, despite the unpredictable and sporadic nature of bariatric equipment rental, a long-term ongoing relationship between a distributor and a facility poses a significant barrier to other manufacturers or distributors attempting to rent bariatric equipment to that facility.

By defendant's own admission, this type of long-term relationship exists currently between defendant and many of the facilities to which it rented plaintiff's bariatric equipment pursuant to the Agreement; the court further finds that these relationships will seriously impede, if not bar, plaintiff's attempts to rent bariatric equipment to those facilities. If defendant continues to do bariatric business with those facilities, the court finds that the good will, brand recognition, referral sources, and customer contacts that plaintiff has developed with the facilities will be destroyed or seriously eroded, and that plaintiff will lose the revenue it had been receiving from the facilities during the year specified in Section 8(b) of the Agreement.

II. Conclusions of Law

A preliminary injunction is an extraordinary remedy that is granted as the exception rather than the rule. See Buca, Inc. v. Gambucci's, Inc., 18 F.Supp.2d 1193, 1200 (D.Kan.1998) (citing GTE Corp. v. Williams, 731 F.2d 676, 678 (10th Cir.1984)). "The main purpose of a preliminary injunction is to preserve the status quo pending a trial on the merits in order for the trial court to render a meaningful decision." Id. at 1200-01 (citing Resolution Trust Corp. v. Cruce, 972 F.2d 1195, 1198 (10th Cir.1992)). The determination whether to grant a preliminary injunction rests within the sound discretion of the trial court. See United States v. Power Eng'g Co., 191 F.3d 1224, 1230 (10th Cir.1999) (reviewing the grant of a preliminary injunction for abuse of discretion). To prevail, plaintiff must show: (1) a substantial likelihood of success on the merits; (2) irreparable harm in the absence of an injunction; (3) the threatened harm outweighs the injury that an injunction may impose upon the opposing party; and (4) an injunction is not adverse to the public interest. See Kansas Health Care Ass'n, Inc. v. Kansas Dept. of Social & Rehabilitation Services, 31 F.3d 1536, 1542 (...