Smith v. Biomet, Inc.

Decision Date24 March 2005
Docket NumberNo. 3:01-CV-753 PS.,3:01-CV-753 PS.
Citation384 F.Supp.2d 1241
PartiesWayne T. SMITH, Counter-Plaintiff, v. BIOMET, INC., Counter-Defendant.
CourtU.S. District Court — Northern District of Indiana

Barbara Kramer PHV, Mitchell A. Kramer PHV, Kramer & Kramer LLP, Rydal, PA, Edward W. Harris III, Sommer Barnard Ackerson PC, Indianapolis, IN, for Counter-Plaintiff.

Daniel P. Hann, Warsaw, IN, Elizabeth M. Keiley, H. Roderic Heard, Wildman Harrold Allen & Dixon LLP, Chicago, IL, for Counter-Defendant.



Plaintiff Wayne Smith was terminated from his position as the exclusive distributor of products for defendant Biomet, Inc. in Southwest Texas. He sued claiming principally that Biomet tortiously interfered with his prospective business relationships and then defamed him to boot. The matter proceeded to a jury trial with Smith obtaining a substantial verdict in his favor on all claims. This matter is before the Court on Biomet's renewed motion for judgment as a matter of law pursuant to Rule 50 or, in the alternative, for a new trial pursuant to Rule 59 [Doc. 167]. After a careful review of the record and the applicable legal standards, the Court now grants Biomet's motion for judgment as a matter of law on the tortious interference claim but denies it on all other claims.


This case arises out of a long-term business relationship between Wayne Smith and Biomet. Biomet is in the business of manufacturing orthopedic implants such as artificial knees and hips, and is headquartered in Warsaw, Indiana. The evidence at trial established that the orthopedic implant business is largely driven by the relationships that are developed between local distributors like Smith and orthopedic surgeons in the territory. Local distributors are responsible for calling on orthopedic surgeons and convincing them to use Biomet implants on their patients. Most surgeons get comfortable using a particular manufacturer's implant and that preference develops into a brand loyalty.

Although there is substantial brand loyalty, the business is nonetheless highly competitive, and a distributor must continually service the orthopedic surgeons. Thus, for example, part of a distributor's job, in addition to wooing surgeons to use Biomet products in the first place, is to service the account by being present during surgeries to ensure that the surgeons have the proper types of instruments to actually do the surgery. The instruments are sold to Biomet distributors and are a cost of doing business for the distributors, and it is the distributor's responsibility to ensure that the appropriate instruments are on hand for scheduled surgeries. The instruments are not fungible. Each particular device has a special set of instruments that must be used during the implanting surgery.

Smith's Termination as a Distributor

From October 1994, until July 2001, Smith was Biomet's exclusive distributor of orthopedic products in Southwest Texas. The letter agreement laying out the terms of the relationship between Smith and Biomet provided that Smith was an independent contractor and not an employee of Biomet. (Pl.Ex. 1.) The agreement also provided that either party could terminate the relationship, with or without cause, by giving the other thirty days written notice. (Id.)

Smith employed three sales reps who worked for him — Eli Garcia, Dan Cavazos and Anna Rose Arsenian. Each of these sales reps also worked within the office of an orthopedic surgeon and provided personalized service to those surgeons. This was because these surgeons were extremely important to Smith and Biomet due to the large volume of Biomet implants that they used.

Smith was terminated by letter, hand delivered by Biomet's Southwest Area Vice President, Terry Geurink, on July 10, 2001. (See Pl.Ex. 3.) The letter provided for Smith's immediate termination. According to Biomet, Smith was let go because he was not growing the market to Biomet's satisfaction. (Id.) The termination letter provided that Smith was to immediately "cease holding [himself] out as a Biomet distributor." (Id.) That same day, Biomet signed letter agreements with Mike LaGrange and Paul Eichler to become the Biomet distributors for Southwest Texas. LaGrange and Eichler divided up Smith's old territory.

Approximately two hours after delivering the termination letter to Smith, Geurink proceeded to call two of Smith's sales reps — Eli Garcia and Dan Cavazos. Geurink informed each of them that Smith had been fired and that new a distributor for each of their respective areas would be contacting them. A few days later, Geurink and Eichler met with the third of Smith's assistants, Anna Rose Arsenian. The meeting took place at the office of Dr. Swan, the surgeon with whom Arsenian was assigned to work with by Smith. Dr. Swan was so upset about Smith's termination, he kicked them out of his office before they could even bring up potential employment opportunities with Arsenian.

On the day of his termination, Wayne Smith faxed a letter to Biomet requesting that an audit of his Biomet inventory be performed that very day because he did not want to lose control over the inventory because he would not be calling on surgeons at hospitals or assisting in any surgeries after that date. (See Pl.Ex. 17.) Biomet chose not to immediately perform the audit.

On August 24, 2001, Smith received his final commission check from Biomet. The check contained a $13,906.50 deduction for inventory that Biomet claimed it could not locate when it performed the audit. However, one of Biomet's new distributors, Mike LaGrange, testified that surgeries were performed for Smith's former clients on the days immediately following Smith's termination. According to LaGrange, Biomet inventory was present at the hospitals to be used for those surgeries. That was inventory that Smith was likely responsible for, and some of this inventory was used to perform the surgeries.

The Defamation Claim

About a month after Smith's termination, on August 7, 2001, Peter Rockwood a sales representative for Depuy, a Biomet competitor, ran into Smith at a hospital in Corpus Christi, Texas. Smith and Rockwood were business acquaintances. According to Rockwood, Smith told him about his termination from Biomet and the problems he was having in bringing his relationship with Biomet to an end. Smith then said that if he did not get what he wanted from Biomet, he would take a gun to Warsaw and settle it himself. According to Rockwood, Smith was not angry when he made the statement, did not raise his voice and did not appear upset although he was plainly unhappy with Biomet. (Pl.Ex. 46 at 10-11.) Rockwood testified that he did not take the threat seriously; he thought Smith was just blowing off some steam. (Id. at 39.) For his part, Smith adamantly denied ever making any threat to Rockwood about Biomet, whether in a joking manner or otherwise. (Tr. vol. 2, at 128-29.)

Approximately a month later or so, Rockwood spoke with Terry Geurink from Biomet. Geurink resides in San Antonio, Texas. (Pl.Ex. 46 at 37.) Although they were competitors, Rockwood and Geurink were friends. (Id.) According to Rockwood, he and Geurink were talking on the phone about a variety of subjects, and at the end of their conversation, Rockwood mentioned in an off hand way that he had run into Wayne Smith in Corpus Christi. This was a reference to the August 7th meeting at the hospital between Smith and Rockwood. Rockwood then relayed to Geurink what Smith had said to him — that if his lawyers could not get things resolved with Biomet, he was going to take his gun and go to Warsaw and settle it himself. (Tr. vol. 4, at 66.). Importantly, at no time did Rockwood allege that Smith said that he was planning to go to the Biomet shareholders' meeting.

Geurink was concerned about what Rockwood had told him and so he called Dave Montgomery, Biomet's Vice President of Sales (who worked at Biomet's Warsaw, Indiana headquarters) and told him what Rockwood had said to him about Smith. (Tr. vol. 4, at 66-67.) Montgomery went immediately to Gary England, Biomet's Chief Operating Officer and told him what Geurink had called and said. (Id. at 141.) England told Montgomery to go directly to Dan Hann, Biomet's General Counsel, which he did, and relayed to him exactly what Geurink had told him. (Id.) Montgomery did not tell Hann anything about Smith coming to the Biomet shareholders' meeting. (Id. at 141-42.)

Another several weeks later, Biomet received a proxy from Smith concerning voting his Biomet shares to himself as Director. Biomet also received a note that indicated that Smith was planning to attend the annual shareholders' meeting on September 29, 2001, in Warsaw, Indiana. The conclusion was drawn by Biomet that Smith's alleged threat concerning settling matters with a gun — made some seven weeks earlier — was somehow connected to him attending the annual shareholders' meeting. (See Tr. vol. 4, at 178.) There was absolutely no evidence presented that Smith ever said to Rockwood that he was going to take a gun to the shareholders' meeting. Rather, the threat made by Smith, if one believes Rockwood (remember, Smith denied making any threat), was much less specific. It was Biomet who turned the general threat made by Smith into a much more specific one.

The evidence established that, at some point, Geurink told Mike LaGrange — one of Biomet's distributors who replaced Smith — about Smith's alleged threat. (Pl.Ex. 42 at 54-55.) LaGrange testified that he passed this information on to Dr. Bassett. (Pl.Ex. 44 at 17-18.) But when it was passed on to Dr. Bassett, the whole tenor of the statement was changed. Suddenly, Biomet, through LaGrange, was claiming that Smith was threatening to come to the Biomet shareholders' meeting with a gun. (Pl.Ex. X at 13-14.) Dr. Bassett was one of the high volume surgeons who used Biomet implants...

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