Zimmer, Inc. v. Stryker Corp.
| Decision Date | 06 August 2014 |
| Docket Number | Case No. 3:14-CV-152-JD |
| Parties | ZIMMER, INC., Plaintiff, v. STRYKER CORP., STRYKER ORTHOPAEDICS, and CODY STOVALL, Defendants. |
| Court | U.S. District Court — Northern District of Indiana |
This matter is a business dispute between two orthopedic medical device manufacturers, plaintiff Zimmer, Inc. and defendants Stryker Corporation, Stryker Orthopaedics (collectively, "Stryker1"), and former Zimmer sales representative (and present Stryker sales representative) Cody Stovall. Zimmer has accused Stryker of poaching Stovall from it, inducing him to breach his non-competition, non-solicitation, and confidentiality agreements with Zimmer, and implementing a fraudulent plan to get Stovall in operating rooms with Stovall's former Zimmer customers while circumventing his non-competition agreement. The Complaint alleges breach of contract against Stovall (Count I), breach of fiduciary duty against Stovall (Count II), unfair and deceptive trade practices against Stryker and Stovall (Count III), tortious interference with contracts against Stryker (Count IV), tortious interference with contract and business relationships against Stryker and Stovall (Count V), and civil conspiracy against all defendants(Count VI) [DE 1]. For the reasons below, the motion is GRANTED in part and DENIED in part.
On February 21, 2014, Stovall filed an Answer to the Complaint [DE 21]. Stryker, on the other hand, has not filed an Answer, and has moved to dismiss the counts against it instead [DE 22; DE 252]. Zimmer responded to the motion on March 6, 2014 [DE 27], and Zimmer replied on March 28, 2014 [DE 28].
Before delving into the facts of the underlying dispute, a brief review of the short but eventful history of this litigation is in order. In addition to seeking damages and requesting a jury trial, the Complaint sought a preliminary injunction. On the same day it filed the Complaint, Zimmer filed a motion for a preliminary injunction, seeking to enjoin Stovall from violating his agreements with Zimmer by working for Stryker [DE 7]. Also on the same day it filed its Complaint, Zimmer filed a motion to expedite discovery in advance of the preliminary injunction hearing [DE 8]. Following briefing on the motion, on February 11, 2014, the Court granted the motion in part and denied it in part, granting Zimmer's request for expedited discovery but limiting the scope of the requests [DE 19]. A hearing on the motion for preliminary injunction was set for May 9, 2014, but on April 3, 2014, Zimmer and Stovall moved for the entry of an agreed order that would obviate the need for a preliminary injunction hearing and withdrew Zimmer's motion for a preliminary injunction [DE 31]. The Court entered the order on April 4, 2014 [DE 7].
Zimmer and Stryker are both manufacturers of orthopedic devices that are used in medical procedures and compete directly against one another [DE 1 at 1, ¶¶ 1, 12]. To sell its products, Zimmer (like other competitors in the field) uses sales representatives that it sends into assigned territories to sell its wares to surgeons and hospitals [Id. at ¶ 11]. Zimmer spends millions of dollars to train and assist its sales force [Id. at ¶ 18]. Sales representatives are responsible for cultivating relationships with customers, providing technical support to surgeons and staff during surgeries, and training doctors on how to use Zimmer's products [Id. at ¶ 13]. In doing so, sales representatives have access to doctors that allows them to become acquainted with different surgeon's preferences and ways of doing their jobs, which Zimmer contends is information that isn't available to the public, is of great value to Zimmer, and, if it fell into the hands of a competitor, would give the competitor an unfair advantage [Id. at ¶¶ 15-16].
In exchange for performing these functions for Zimmer, the sales representatives are well-compensated [Id. at ¶ 17]. Stovall's compensation as a Zimmer sales representative was $238,681.43 in 2013 [Id. at ¶ 49]. Sales representatives are also required to sign confidentiality and non-competition agreements to protect its relationships, course of dealing, and customer goodwill, which Zimmer contends are the result of its investment in its sales force and are assets with significant value [Id. at ¶¶ 19-20]. The purpose of the non-disclosure, non-competition, and non-solicitation agreements are to permit Zimmer to retain customer relationships when a sales representative departs [Id. at ¶ 21].
In February 2008, Stovall began working for Zimmer Southwest, a former distributor of Zimmer products, assigned to a territory that included Amarillo, Texas, and its surrounding areas [Id. at ¶ 22]. He was a part of a unit called Team Brittain, which was led by Zimmer salesrepresentative Carla Brittain [Id. at ¶¶ 22-23]. Stovall was new to the area, and Brittain and other Zimmer representatives assigned to the area mentored Stovall and introduced him to their contacts and customers [Id. at ¶¶ 24-26].
In 2012, Zimmer switched to an in-house sales force, and offered Stovall a position as a Zimmer sales representative [Id. at ¶ 28]. He accepted and signed the Zimmer Confidentiality, Non-Competition, and Non-Solicitation Agreement for Sales Managers and Representatives on September 11, 2012 ("the Agreement"), acknowledging that he would have access to Zimmer's trade secrets and confidential information; participate in the development, execution, and usage of Zimmer's products, technologies, and strategies; receive specialized training from Zimmer; and have access to Zimmer's customers and other business relationships [Id. at ¶¶ 29-30].
The Agreement provided that during and after his employment, Stovall would "not disclose, transfer, or use (or seek to induce others to disclose, transfer or use) any Confidential Information for any purpose" other than for authorized purposes [DE 1 at ¶ 31]. It forbid Stovall from engaging, "directly or indirectly, in any activity, employment, or business venture" that competed with Zimmer; "deprives or potentially could deprive [Zimmer] of any business opportunity;" "conflicts or could potentially conflict with [Zimmer's] business interests;" or was "otherwise detrimental or potentially detrimental to [Zimmer]" [DE 1 at ¶ 32]. The Agreement specifically forbid Stovall from even preparing to undertake any of those activities [Id.]. The Agreement also provided that for one year following his departure from Zimmer, Stovall would be subject to non-competition and non-solicitation covenants that limited the location in which he could work, the products he could sell, the customers he could work with, and the capacity in which he could work for Zimmer's competitors [Id. at ¶ 33]. The Agreement specifically forbid the solicitation of Zimmer customers, prospective customers, or employees [Id.].
Zimmer eventually divided the Amarillo territory between Stovall and Brittain, who retained some customers with whom she had years-long relationships [Id. at ¶¶ 39-40]. As a result, Stovall had exclusive responsibility for a number of Zimmer's surgeon customers, and he provided technical support by being present in surgeries with customers and otherwise interacted closely with surgical staff, with assistance from Zimmer [Id. at ¶¶ 42-47].
On January 10, 2014, Stovall resigned from Zimmer [Id. at ¶ 48]. Shortly thereafter, he began working for Stryker, a Zimmer direct competitor, as a sales representative, selling a Stryker product called RegenKit Platelet-rich plasma spray in his old territory, to his former Zimmer customers [Id. at ¶ 50]. According to the Complaint, Stryker and Stovall are using the plasma spray - which is not an orthopedic product - as a way for Stovall to circumvent his agreement with Zimmer and to call upon his former Zimmer surgeon customers [Id. at ¶¶ 51-52, 63]. The scheme, which Zimmer describes as a "Trojan Horse" ploy that Stryker has used elsewhere, would allow Stovall to get into surgeries that his former Zimmer customers are performing so that Stovall can assist Stryker and its orthopedic sales representatives and get his former Zimmer customers to switch to Stryker products, in direct violation of Stovall's Zimmer Agreement [Id. at ¶¶ 64-67].
Zimmer also contends that Stryker has incentivized Stovall to breach his agreement by promising him a large salary and bonuses based on the amount of Zimmer orthopedic implant business that he can bring to Stryker - specifically, that Stryker has guaranteed Stovall a $27,000 per month salary, on top of a $30,000 bonus for every $500,000 of Zimmer business that he converts to Stryker [Id. at ¶¶ 53-54]. Stryker, through its employee Lance Cowart, made a similar offer to Zimmer employee Brittain, promising an annual salary of $300,000 in exchange for working for Stryker, selling the plasma spray [Id. at ¶ 55-56].
Zimmer alleges that after Stryker offered to pay Stovall to convert Zimmer customers to Stryker, Stovall, while still employed by Zimmer, tried to undermine Zimmer by telling his customers that he was leaving Zimmer for Stryker because Zimmer couldn't properly support the customers; that he helped Stryker schedule surgeries with Zimmer customers; and that Stovall himself participated in the surgeries and attempted to convince surgeons to switch from Zimmer to Stryker products [Id. at ¶¶ 57-60]. Additionally, before he resigned from Zimmer, Stovall solicited multiple Zimmer sales representatives to join Stryker and to take their Zimmer customers with them to Stryker [Id. at ¶ 61].
Zimmer contends that at Stryker, Stovall is serving or will be serving in a capacity where he will directly violate his agreement with Zimmer, by virtue of using his relationships with Zimmer's customers and his knowledge of Zimmer's confidential information, including "sales and marketing information, organizational and sales employee information, advertising information, confidential pricing...
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