Synthes, Inc. v. Knapp
| Decision Date | 18 April 2017 |
| Docket Number | No. 2:13-cv-02261-MCE-DB.,2:13-cv-02261-MCE-DB. |
| Citation | 250 F.Supp.3d 644 |
| Parties | SYNTHES, INC. and DePuy Synthes Sales, Inc., Plaintiffs, v. Gregory KNAPP, Defendant. |
| Court | U.S. District Court — Eastern District of California |
Howard M. Knee, Michael Lester Ludwig, Blank Rome LLP, Kathy PourSanae, CBRE, Inc., Los Angeles, CA, Andrew B. Cohen, PHV, Ann E. Querns, PHV, Anthony B. Haller, PHV, Scott F. Cooper, PHV, Blank Rome, LLP, Philadelphia, PA, for Plaintiffs.
John T. Kinn, Malcolm S. Segal, Segal & Associates, PC, Sacramento, CA, Ralph J. Kelly, PHV, John P. McShea, III, PHV, McShea Law Firm, P.C., Philadelphia, PA, for Defendant.
Plaintiffs Synthes, Inc. and DePuy Synthes Sales, Inc. ("DSS") bring this suit against one of its former employees, Defendant Gregory Knapp. They allege that Knapp violated his non-competition agreement, violated his non-disclosure agreement, misappropriated trade secrets, and breached his fiduciary duty to his employer. Before the Court is Defendant's Motion for Summary Judgment ("MSJ"), ECF No. 77, in which he challenges both Plaintiffs' standing to enforce the non-competition agreement and the non-competition agreement's general enforceability. He also contends that Plaintiffs have failed to put forth sufficient evidence for the other claims against him to proceed to trial. As explained below, Defendant's MSJ is GRANTED IN PART and DENIED IN PART.1
Knapp worked as a salesman for Synthes products since 1989, and began selling Synthes spine implants to surgeons in 1993. When Knapp was originally hired, he worked for the unincorporated Spine Division of Synthes, Inc. Some time prior to 1993, Synthes Spine Company was created as a corporate subsidiary of Synthes, Inc. In 1993, Synthes Spine Company became Knapp's direct employer, and in 1994, he signed a non-disclosure agreement ("NDA"). In 2006, Synthes Spine Company required that Knapp sign a Confidentiality, Non–Solicitation, and Non–Competition Agreement ("NCA"). Knapp signed the NCA in consideration for a compensation plan offered to certain Synthes sales consultants called the Long Term Sales Incentive Plan ("LTSIP") as well as "a guarantee of 60 days advance notice of termination or severance pay in lieu of notice." NCA, ECF No. 92–1, Ex. 8, at 3. Plaintiffs describe the LTSIP as a primary tool to prevent their sales consultants from being hired away by competitors.
In June 2012, Johnson & Johnson ("J & J") acquired Synthes, Inc.'s stock in a reverse merger. The following year, Knapp began working for K2M, Inc., a competitor. Knapp transferred millions of dollars' worth of clients from Synthes products to K2M products. Plaintiffs allege that in doing so, Knapp violated both his NDA and NCA, as well as misappropriated trade secrets and violated his duty of loyalty to his employer.
To a large degree, this case involves the effect of Synthes, Inc.'s merger with J & J, so a brief description of that transaction as it relates to Knapp's employment is necessary. As described above, prior to J & J's acquisition of Synthes, Knapp's direct employer was Synthes Spine Company, a corporate subsidiary of Synthes, Inc. In 2008, Synthes Spine Company was converted into a Delaware limited liability company and changed its name to Synthes USA Sales LLC ("SUSA"). As part of the merger with J & J, SUSA was merged into J & J's existing spine implants division, DePuy Spine, Inc, and its assets were distributed to the newly created DSS, a subsidiary of DePuy Spine, Inc. These transactions made DSS Knapp's direct employer.
The Federal Rules of Civil Procedure provide for summary judgment when "the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a) ; see also Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). One of the principal purposes of Rule 56 is to dispose of factually unsupported claims or defenses. Celotex, 477 U.S. at 325, 106 S.Ct. 2548.
Rule 56 also allows a court to grant summary judgment on part of a claim or defense, known as partial summary judgment. See Fed. R. Civ. P. 56(a) (); Allstate Ins. Co. v. Madan, 889 F.Supp. 374, 378–79 (C.D. Cal. 1995). The standard that applies to a motion for partial summary judgment is the same as that which applies to a motion for summary judgment. See Fed. R. Civ. P. 56(a) ; State of Cal. ex rel. Cal. Dep't of Toxic Substances Control v. Campbell, 138 F.3d 772, 780 (9th Cir. 1998) ().
In a summary judgment motion, the moving party always bears the initial responsibility of informing the court of the basis for the motion and identifying the portions in the record "which it believes demonstrate the absence of a genuine issue of material fact." Celotex, 477 U.S. at 323, 106 S.Ct. 2548. If the moving party meets its initial responsibility, the burden then shifts to the opposing party to establish that a genuine issue as to any material fact actually does exist. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586–87, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) ; First Nat'l Bank v. Cities Serv. Co., 391 U.S. 253, 288–89, 88 S.Ct. 1575, 20 L.Ed.2d 569 (1968).
In attempting to establish the existence or non-existence of a genuine factual dispute, the party must support its assertion by "citing to particular parts of materials in the record, including depositions, documents, electronically stored information, affidavits[,] or declarations ... or other materials; or showing that the materials cited do not establish the absence or presence of a genuine dispute, or that an adverse party cannot produce admissible evidence to support the fact." Fed. R. Civ. P. 56(c)(1). The opposing party must demonstrate that the fact in contention is material, i.e., a fact that might affect the outcome of the suit under the governing law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 251–52, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) ; Owens v. Local No. 169, Assoc. of W. Pulp & Paper Workers, 971 F.2d 347, 355 (9th Cir. 1992). The opposing party must also demonstrate that the dispute about a material fact "is ‘genuine,’ that is, if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson, 477 U.S. at 248, 106 S.Ct. 2505. In other words, the judge needs to answer the preliminary question before the evidence is left to the jury of "not whether there is literally no evidence, but whether there is any upon which a jury could properly proceed to find a verdict for the party producing it, upon whom the onus of proof is imposed." Anderson, 477 U.S. at 251, 106 S.Ct. 2505 (quoting Improvement Co. v. Munson, 81 U.S. 442, 448, 14 Wall. 442, 20 L.Ed. 867 (1871) ). As the Supreme Court explained, "[w]hen the moving party has carried its burden under Rule [56(a) ], its opponent must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita, 475 U.S. at 586, 106 S.Ct. 1348. Therefore, "[w]here the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no ‘genuine issue for trial.’ " Id. at 587, 106 S.Ct. 1348.
In resolving a summary judgment motion, the evidence of the opposing party is to be believed, and all reasonable inferences that may be drawn from the facts placed before the court must be drawn in favor of the opposing party. Anderson, 477 U.S. at 255, 106 S.Ct. 2505. Nevertheless, inferences are not drawn out of the air, and it is the opposing party's obligation to produce a factual predicate from which the inference may be drawn. Richards v. Nielsen Freight Lines, 602 F.Supp. 1224, 1244–45 (E.D. Cal. 1985), aff'd, 810 F.2d 898 (9th Cir. 1987).
Defendant argues that California law applies to the NCA, and because such agreements are void under California law, he is entitled to summary judgment. See Def.'s MSJ, at 6–7 (citing Cal. Bus. & Prof. Code § 16600 ). Plaintiffs, conversely, argue that Pennsylvania law applies because of the choice of law provision contained within the NCA. See Pls.' Opp'n to MSJ, at 8–9. "In Pennsylvania, restrictive covenants are enforceable if they are incident to an employment relationship between the parties; the restrictions imposed by the covenant are reasonably necessary for the protection of the employer; and the restrictions imposed are reasonably limited in duration and geographic extent." Hess v. Gebhard & Co., 570 Pa. 148, 808 A.2d 912, 917 (2002). Defendant argues first that California law applies to the NCA and, in the alternative, that the NCA is unenforceable even under Pennsylvania law.
As mentioned above, the NCA specifically includes a choice of law clause: "This agreement will be governed by Pennsylvania law applicable to contracts entered into and performed in Pennsylvania." Statement of Undisputed Facts ("SUF"), Ex. 8, ECF No. 92–1, at 111. "The first step in interpreting [a choice-of-law] clause is to apply the correct choice-of-law rules." Paracor Fin., Inc. v. Gen. Elect. Capital Corp., 96 F.3d 1151, 1164 (9th Cir. 1996). Generally, "[i]n determining the enforceability of a choice of law provision in a diversity action, a federal court applies the choice of law rules of the forum state." Hatfield v. Halifax PLC, 564 F.3d 1177, 1182 (9th Cir. 2009). However, when a suit is transferred pursuant to 28 U.S.C. § 1404(a), the substantive law of the state in which the suit was originally filed applies. "A change of venue under § 1404(a) generally should be, with respect to state law, but a change of courtrooms." Van Dusen v. Barrack, 376 U.S. 612, 639, 84 S.Ct. 805, 11...
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