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Synthes USA LLC v. Davis

United States District Court, D. South Carolina, Florence Division

December 1, 2017

Synthes USA, LLC; DePuy Spine, LLC; and DePuy Synthes Sales, Inc., Plaintiffs,
v.
Stephen N. Davis, Jr.; Jeffrey A. Domico; and K2M Incorporated, Defendants.

          ORDER AND LIMITED PRELIMINARY INJUNCTION

          R. BRYAN HARWELL, UNITED STATES DISTRICT JUDGE.

         This matter is before the Court on Plaintiffs' motion for preliminary injunction and motion for expedited discovery. See ECF Nos. 5 & 6. The Court held a hearing on the motions on November 28, 2017, and took them under advisement. See ECF No. 37. The Court now grants in part and denies in part the motions as set forth below.

         I. Motion for Preliminary Injunction

         As explained below, the Court will grant in part and deny in part Plaintiffs' motion for preliminary injunction and issue a Limited Preliminary Injunction Order. In so ruling, the Court makes the following findings of fact and conclusions of law as required by Federal Rules of Civil Procedure 52(a)(2) and 65(d). To the extent that any findings of fact constitute conclusions of law, or vice-versa, they shall be so regarded.

         Findings of Fact[1]

         The three plaintiffs-Synthes USA, LLC, DePuy Spine, LLC, and DePuy Synthes Sales, Inc. (collectively, “Plaintiffs” or “DePuy Synthes”)-are a family of companies that design, manufacture, and sell medical devices used in orthopedic surgeries. See Verified Complaint[2] [ECF No. 1] at ¶ 2. The two individual defendants-Stephen N. Davis, Jr. and Jeffrey A. Domico-are longtime friends and until recently were employed by DePuy Synthes as sales consultants with the principal responsibility of selling implants used in spinal surgeries. Id. at ¶ 3. The corporate defendant, K2M Incorporated (“K2M”), is a competitor company that likewise designs, manufactures, markets, and sells implants used in spinal surgeries. Id. at ¶ 5. Davis and Domico recently left employment with DePuy Synthes and now work for K2M as sales consultants selling spinal implants. Id. at ¶¶ 5-6.

         Davis began his employment with DePuy Synthes in October 2002, and Domico began his employment with DePuy Synthes in October 2005. See Davis Aff. [ECF No. 11-4] at ¶ 2; Domico Aff. [ECF No. 11-1] at ¶ 3. At the beginning of their respective employment, both men signed a document entitled “Synthes® Spine Sales Consultant Confidentiality, Non-Solicitation, and Non-Competition Agreement” (hereinafter, “the Agreements”). See ECF Nos. 1-1, 1-2, 11-2, & 11-5. These Agreements contain several restrictive covenants, including non-competition and non-solicitation clauses, [3] and a choice-of-law provision selecting Pennsylvania law. During their employment with DePuy Synthes, Davis was responsible for accounts in the Charleston and Beaufort areas, while Domico was responsible for the Florence and (later) southern North Carolina areas.

         On September 28, 2017, Domico resigned from DePuy Synthes and began working for K2M the next day (September 29). ECF No. 11-1 at ¶¶ 30, 35. Domico's new K2M territory encompasses the Charleston and Beaufort areas. Id. ¶ 37. On October 2, 2017, Davis resigned from DePuy Synthes and began working for K2M the next day (October 3). ECF No. 11-4 at ¶¶ 29, 31. Davis's new K2M territory encompasses the Florence, Conway, and Myrtle Beach areas, including McLeod Regional Hospital in Florence. Id. at ¶ 33. In essence, Davis and Domico now work for K2M in the other's previous territory to which they were assigned while working for DePuy Synthes.

         On October 25, 2017, Plaintiffs commenced this action pursuant to 28 U.S.C. § 1332 by filing a verified complaint, a motion for a preliminary injunction, and a motion for expedited discovery. See ECF Nos. 1, 5, & 6. Plaintiffs asserted four causes of action: breach of fiduciary duty, breach of contract, aiding and abetting breach of fiduciary duty, and tortious interference with contract. See ECF No. 1 at pp. 20-28. On November 8, 2017, Domico and Davis jointly filed a response in opposition to both motions, and K2M filed a response in opposition to the preliminary injunction motion. See ECF Nos. 11, 14, & 15. That same day (November 8), Plaintiffs' counsel called the Clerk's Office, left a voice message, and sent an email stating: “Given that counsel for Defendants have now made their appearance, Plaintiffs respectfully request that a hearing on Plaintiffs' Motion for Preliminary Injunction be set at the Court's earliest convenience.” ECF No. 32 at p. 9. On November 15, 2017 (the deadline for filing a reply), Plaintiffs filed a reply in further support of their motion for preliminary injunction.[4] See ECF No. 20. Two days later, the Court scheduled a hearing on Plaintiffs' preliminary injunction motion, as well as their motion for expedited discovery; the Court set the hearing for November 28, 2017 (the week after Thanksgiving), stated it would rule on Plaintiffs' motions based on affidavits, briefs, and arguments from the lawyers, and permitted the parties to file additional affidavits up until the day before the hearing. See ECF Nos. 22 & 23.

         At the hearing, Plaintiffs' counsel presented a proposed order to the Court narrowing the limited injunctive relief they sought.[5] Plaintiffs' counsel informed the Court that, at the present time, Plaintiffs were seeking an injunction only against Davis and Domico and not against K2M.[6] Plaintiffs' counsel further informed the Court that Plaintiffs were still seeking limited expedited discovery, notwithstanding the November 8 email requesting a hearing on the preliminary injunction hearing. The Court took the preliminary injunction motion (and expedited discovery motion) under advisement after the hearing ended.

         Conclusions of Law

         I. Preliminary Injunction Standard

         Federal Rule of Civil Procedure 65 establishes the procedure for federal courts to grant preliminary injunctions. See Fed. R. Civ. P. 65. The usual purpose “of a preliminary injunction is to protect the status quo and to prevent irreparable harm during the pendency of a lawsuit ultimately to preserve the court's ability to render a meaningful judgment on the merits.” Pashby v. Delia, 709 F.3d 307, 319 (4th Cir. 2013) (citation omitted). Because of the extraordinary nature of injunctive relief, the United States Supreme Court has admonished that preliminary injunctions “may only be awarded upon a clear showing that the plaintiff is entitled to such relief.” Winter, 555 U.S. at 22.

         A plaintiff seeking a preliminary injunction must satisfy each of the following four factors: (1) that the plaintiff is likely to succeed on the merits, (2) that the plaintiff is likely to suffer irreparable harm in the absence of preliminary injunctive relief, (3) that the balance of equities tips in the plaintiff's favor, and (4) that the injunction is in the public interest. League of Women Voters of N. Carolina v. N. Carolina, 769 F.3d 224, 236 (4th Cir. 2014) (citing Winter, 555 U.S. at 20). A plaintiff must make a clear showing that it is likely to succeed on the merits of its claim. Winter, 555 U.S. at 20-22. Likewise, a plaintiff must make a clear showing that it is likely to be irreparably harmed absent injunctive relief. Id. Only then may the court consider whether the balance of equities tips in the plaintiff's favor. Real Truth About Obama, Inc. v. Fed. Election Comm'n, 575 F.3d 342, 346-47 (4th Cir. 2009), vacated on other grounds, 559 U.S. 1089 (2010), reissued in part, 607 F.3d 355 (4th Cir. 2010), overruling Blackwelder Furniture Co. of Statesville v. Seilig Mfg. Co., 550 F.2d 189 (4th Cir. 1977). Finally, the court must pay particular regard to the public consequences of employing the extraordinary relief of injunction. Id. at 347.

The purpose of a preliminary injunction is merely to preserve the relative positions of the parties until a trial on the merits can be held. Given this limited purpose, and given the haste that is often necessary if those positions are to be preserved, a preliminary injunction is customarily granted on the basis of procedures that are less formal and evidence that is less complete than in a trial on the merits. A party thus is not required to prove his case in full at a preliminary-injunction hearing, and the findings of fact and conclusions of law made by a court granting a preliminary injunction are not binding at trial on the merits.

Univ. of Texas v. Camenisch, 451 U.S. 390, 395 (1981) (internal citations omitted). “Because preliminary injunction proceedings are informal ones designed to prevent irreparable harm before a later trial governed by the full rigor of usual evidentiary standards, district courts may look to, and indeed in appropriate circumstances rely on, hearsay or other inadmissible evidence when deciding whether a preliminary injunction is warranted.”[7] G.G. ex rel. Grimm v. Gloucester Cty. Sch. Bd., 822 F.3d 709, 725-26 (4th Cir. 2016), vacated and remanded on other grounds, 137 S.Ct. 1239 (2017).

         An order granting a preliminary injunction “must: (A) state the reasons why it issued; (B) state its terms specifically; and (C) describe in reasonable detail-and not by referring to the complaint or other document-the act or acts restrained or required.” Fed.R.Civ.P. 65(d)(1). A district court cannot issue a preliminary injunction unless “the movant gives security in an amount that the court considers proper to pay the costs and damages sustained by any party found to have been wrongfully enjoined or restrained.” Fed.R.Civ.P. 65(c).

         II. Discussion

         A. Likelihood of Success on the Merits - Breach of Contract Claim

         The first Winter factor requires Plaintiffs to clearly show they are likely to succeed on the merits of at least one of the claims for which they seek preliminary injunctive relief. See Pashby, 709 F.3d at 321, 328; Handsome Brook Farm, LLC v. Humane Farm Animal Care, Inc., 193 F.Supp.3d 556, 566 (E.D. Va. 2016) (“Under the standard analysis, a plaintiff must make a ‘clear showing' that it is likely to succeed on the merits of at least one of its claims at trial.”), aff'd, 700 Fed.Appx. 251 (4th Cir. 2017). “Although this inquiry requires plaintiffs seeking injunctions to make a ‘clear showing' that they are likely to succeed at trial, Real Truth, 575 F.3d at 345, plaintiffs need not show a certainty of success.” Pashby, 709 F.3d at 321. As explained below, and only for the limited purpose a preliminary injunction, the Court concludes Plaintiffs have clearly shown a likelihood that they will succeed at least to some extent on their breach of contract claim that they assert against Davis regarding the non-solicitation of a customer with whom he had “direct” responsibility while working for DePuy Synthes (namely, Dr. Christopher Paramore).[8] As to both Davis and Domico, no serious argument can be made regarding the enforceability of the respective territory restrictions set forth in their Agreements and implicitly recognized in their offer letters from K2M. Accordingly, the Court need not discuss Plaintiffs' likelihood of success on their three remaining claims (i.e., breach of fiduciary duty, aiding and abetting breach of fiduciary duty, and tortious interference with contract). See, e.g., Handsome Brook Farm, 193 F.Supp.3d at 574 (“Because a plaintiff need only show a likelihood of success on one claim to obtain an injunction, the Court will not address the sufficiency of Plaintiff's [other] claims.”).

         The Court has diversity jurisdiction over this action pursuant to 28 U.S.C. § 1332. As a federal court sitting in diversity, the Court must apply the choice of law rules of the forum state-South Carolina. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496-97 (1941); CACI Int'l, Inc. v. St. Paul Fire & Marine Ins. Co., 566 F.3d 150, 154 (4th Cir. 2009). South Carolina law looks favorably on choice of law clauses and enforces them except in unusual circumstances. Team IA, Inc. v. Lucas, 717 S.E.2d 103, 108 (S.C. Ct. App. 2011). The Agreements state they “will be governed by Pennsylvania law applicable to contracts entered into and performed in Pennsylvania.” ECF Nos. 1-1 & 1-2 at p. 5. The Supreme Court of Pennsylvania has explained:

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. Our law permits equitable enforcement of employee covenants not to compete only so far as reasonably necessary for the protection of the employer. However, restrictive covenants are not favored in Pennsylvania and have been historically viewed as a trade restraint that prevents a former employee from earning a living.

Hess v. Gebhard & Co. Inc., 808 A.2d 912, 917 (Pa. 2002) (internal citations and quotation marks omitted).

         “Generally, under South Carolina choice of law principles, if the parties to a contract specify the law under which the contract shall be governed, the court will honor this choice of law.” Nucor Corp. v. Bell, 482 F.Supp.2d 714, 728 (D.S.C. 2007). “However, a choice-of-law clause in a contract will not be enforced if application of foreign law results in a violation of South Carolina public policy.” Id. Other judges in the District of South Carolina have “held a post-employment agreement not to solicit employees or customers to the same standards as a covenant not to compete.” Id. at 730 (Judge Norton's order relying on Judge Duffy's decision in Rockford Mfg., Ltd. v. Bennet, 296 F.Supp.2d 681, 690 (D.S.C. 2003)). “Accordingly, before applying [Pennsylvania's] rule of contract construction, the court must first consider whether this rule violates South Carolina public policy. Id. at 728.

         “The South Carolina Supreme Court has held that a covenant restricting the activities of an employee after the termination of his employment is not violative of public policy only if it is ‘[1] partial or restrictive in its operation, either as to time or place, [2] on some good consideration, and [3] [is] reasonable, that is, it afford[s] only a fair protection to the interests of the party in whose favor it is made.'” Id. at 728 (alterations in original) (quoting Standard Register Co. v. Kerrigan, 238 S.C. 54, 65, 119 S.E.2d 533, 539 (1961)). At this juncture, and for the limited purpose of considering the propriety of preliminary injunctive relief, the Court notes the Agreements (including the noncompetition and non-solicitation restrictive covenants) appear to be valid.

         Pennsylvania law governs Plaintiffs' claim for breach of contract. The elements for a breach of contract claim in Pennsylvania are “(1) the existence of a contract, including its essential terms, (2) a breach of the contract; and, (3) resultant damages.” Meyer, Darragh, Buckler, Bebenek ...


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