WENDY BEETLESTONE, DISTRICT JUDGE.
A long-simmering commercial dispute between two players in the medical equipment sales business has boiled over into the controversy presently before the Court. Plaintiff, Freedom Medical Inc., is a Pennsylvania-based medical equipment sales company; Defendants are: Med One Equipment Services ("Med One"), a medical sales company; a family of corporations linked to Med One ("Corporate Affiliates"); and three individual ("Individual Defendants"), all of whom recently left the employ of Plaintiff to take new roles with Med One. The dispute arises out of allegations that the Individual Defendants misappropriated Freedom Medical's confidential and proprietary information to solicit customers for Med One; and, that Med One facilitated the misappropriation by poaching Freedom Medical's employees. On September 26, 2018, Freedom Medical filed both a Complaint and a Motion for a Temporary Restraining (TRO) and Preliminary Injunction. On October 4, 2018, the Court granted in part and denied in part the TRO. Specifically, the Court enjoined the Individual Defendants from divulging or using Freedom Medical's trade secrets, and ordered the Defendants to return any confidential or proprietary information to Freedom Medical.
Presently before the Court is Freedom Medical's Motion for Preliminary Injunction. Based upon the parties' submissions and testimony elicited at a hearing held on October 23 and 25, 2018, Plaintiff's motion will be granted in part and denied in part.
Freedom Medical is in the business of renting and selling medical equipment to
To maintain an advantage in the competitive healthcare industry, Freedom Medical has developed certain information related to its business, which it contends is both confidential and proprietary, including, inter alia, pricing information, business plans and customer lists.
Plaintiff brings suit against two sets of Defendants. The first group of Defendants consists of Med One, a Utah-based seller of medical equipment, and various corporate entities tied to Med One.
The second group of Defendants consists of three former employees of Freedom Medical who left to take roles at Med One, namely Gerry Whitman, Joshua Oderlin, and Jason Cavanaugh ("Individual Defendants"). All three Individual Defendants
Defendant Cavanaugh was the first to leave Freedom Medical, resigning on February 12, 2018. On April 3, 2018, Defendant Whitman left, and, finally, on July 6, 2018, Defendant Oderlin resigned. All three were hired to be sales representatives for Med One. Both Defendant Cavanaugh and Defendant Oderlin remained in their respective territories. Defendant Whitman, however, moved territories, switching to the Florida Panhandle.
As of October 24, 2018, Defendant Cavanaugh was no longer employed at Med One. Defendant Oderlin, while still employed, was on unpaid leave pending an investigation related to this case. Defendant Whitman remains employed at Med One.
On September 26, 2018, Freedom Medical filed suit against Defendants, bringing the following claims: (1) Violation of the Defend Trade Secret Act (DTSA), 18 U.S.C. § 1836, against all Defendants; (2) Misappropriation of Trade Secrets and Confidential Information in violation of the Pennsylvania Uniform Trade Secrets Act (PUTSA), 12 Pa. C.S.A. § 5301, against all Defendants; (3) Breach of Contract against Defendants Cavanaugh, Whitman, and Oderlin; (4) Tortious Interference with Contractual Relations against Med One; and (5) Breach of Fiduciary Duty against Defendants Cavanaugh, Whitman, and Oderlin. Plaintiff petitioned for various forms of injunctive relief, including asking the Court to:
On October 4, 2018, following a hearing, the Court granted in part and denied in part Freedom Medical's TRO. Specifically, the Court enjoined the Individual Defendants "from divulging to Defendant Med One or any other person, company, or entity or using for any purpose any trade secrets, proprietary information, or confidential information belonging to Plaintiff," and further ordered the Individual Defendants to "immediately return to Plaintiff any ... confidential or proprietary information of Plaintiff that is in their possession or control, in whatever form that information exists, including, but not limited to any physical or electronic documents and copies thereof, with the exception of documents and information pertaining to Defendants Whitman, Oderlin and Cavanaugh's personal compensation."
The Court held hearings on Freedom Medical's motion on October 23 and October 25, 2018. At the hearings, the parties elicited testimony from the following witnesses: Michael Boylan, Chief Executive Officer for Freedom Medical; Jim Acker, Senior Vice President (SVP) for Freedom Medical; Phil Henry, SVP for Freedom Medical; Eric Wenzel, Chief Financial and Operations Officer for Freedom Medical; Brad Johnson, Regional Manager for Med One; Defendant Whitman; and, Defendant Oderlin.
"A plaintiff seeking a preliminary injunction must establish that he is likely to succeed on the merits, that he is likely to suffer irreparable harm in the absence of preliminary relief, that the balance of equities tips in his favor, and that an injunction is in the public interest." Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7, 20, 129 S.Ct. 365, 172 L.Ed.2d 249 (2008). The "failure to establish any element...renders a preliminary injunction inappropriate." NutraSweet Co. v. Vit-Mar Enters., Inc., 176 F.3d 151, 153 (3d Cir. 1999). The movant bears the burden of showing that these four factors weigh in
Freedom Medical moves for preliminary injunctive relief across a broad front, seeking to enjoin all Defendants for misappropriating trade secrets, enjoin the Individual Defendants for breach of contract and breach of a fiduciary duty, and enjoin Med One for tortious interference with contractual relations.
Freedom Medical claims that all of the Defendants — Med One, the Corporate Affiliates, and each of the Individual Defendants — misappropriated its trade secrets in violation of both the DTSA and PUTSA. Accordingly, it seeks to enjoin all of the Defendants for the alleged misappropriation. The evidence, however, differs as to each of the Defendants — different Defendants are alleged to have taken different information. Therefore, an individualized determination is necessary as to whether Freedom Medical carried its burden of showing an injunction should issue. Certainteed Ceilings Corp. v. Aiken, 2015 WL 410029, at *4 (E.D. Pa. Jan. 29, 2015) ("Determining whether particular information is a trade secret is a fact- and context-specific process.").
Freedom Medical claims that Defendant Whitman misappropriated its trade secrets, when on April 2nd, 2018 — the day before he left Freedom Medical — he sent himself an email, attaching four Excel spreadsheets that contained Freedom Medical's price schedules. There is no evidence that Defendant Whitman took or used any other information that Freedom Medical considered trade secrets. Thus, the question is whether the email and the four attachments are sufficient to support an injunction against Defendant Whitman.
To be entitled to an injunction against use or disclosure of confidential information, Freedom Medical must show:
SI Handling Sys., Inc. v. Heisley, 753 F.2d 1244, 1255 (3d Cir. 1985) (citing Felmlee v. Lockett, 466 Pa. 1,351 A.2d 273, 277 (1976)).
The first question is whether the spreadsheets containing Freedom Medical's pricing information constitutes a trade secret. "Although the DTSA and the PUTSA use different wording to define a trade secret, they essentially protect the same type of information." Teva Pharm. USA, Inc. v. Sandhu, 291 F.Supp.3d 659, 675 (E.D. Pa. 2018). That is, both define a
Here, Freedom Medical has taken reasonable steps to keep its price schedules secret. In its Acceptable Use Policy, Freedom Medical defines pricing information as the company's confidential information and restricts the disclosure of such information. Further, Freedom Medical's employment agreements contain restrictive covenants that prohibit employees from taking or using confidential information, including price schedules, once they leave Freedom Medical.
Second, Freedom Medical also derives independent economic value from having its pricing schedules kept secret. Boylan testified that the pricing schedules are based on Freedom Medical's understanding of the healthcare-equipment market and the company's own economics. As Henry explained, the pricing schedules are valuable because they are the baseline from which Freedom Medical negotiates with healthcare providers to sell and rent medical equipment. Widespread-publication of the pricing schedules would allow competitors to undercut Freedom Medical's bids to GPO members and other healthcare equipment purchasers.
Relatedly, having access to Freedom Medical's price schedules would be of value to Med One because that information could be used to undercut Freedom Medical's offers to healthcare providers, and allow Med One to steal sales. Although Johnson testified that the prices charged by Freedom Medical were not relevant to Med One's pricing model, it is not credible to suggest that having a potential competitor's pricing would not be of some value for Med One. After all, as Wenzel testified, healthcare providers seeking to obtain movable medical equipment — whether by renting it or purchasing it — are price sensitive because the products are, in effect, fungible. Thus, knowing another provider's price would allow Med One to consistently undercut Freedom Medical's offer.
Whether price schedules are protected trade secrets, then, turns on if the pricing schedules were "readily ascertainable by proper means." Teva Pharm, 291 F.Supp.3d at 675. Generally, pure pricing information is not protectable because that information is known to the customer, "who has every right to disclose this information, if it so chooses, to inquiring competitors of the plaintiff." Tyson Metal Prod., Inc. v. McCann, 376 Pa.Super. 461, 546 A.2d 119, 122 (1988). The Third Circuit, however, has distinguished between pure pricing information, readily obtainable from other sources, and proprietary pricing formulae derived from a "range of data relat[ed] to materials, labor, overhead, and profit margin," which is entitled to protection as a trade secret. SI Handling, 753 F.2d at 1260. Moreover, courts have afforded greater protection to "the compilation of [pricing] information — its aggregation and organization into the spreadsheets" where "the compilation of information is not readily obtainable from publicly available sources." Amerisourcebergen Drug Corp. v. Am. Associated Druggists, Inc., 2008 WL 248933, at *25 (E.D. Pa. Jan. 29, 2008); see also Nat'l. Risk Mgmt., Inc. v. Bramwell, 819 F.Supp. 417, 430-31 (E.D.Pa. 1993) (holding that customer information, such as costing and price information, compiled by a business represents a material investment of time
Here, the pricing schedules are more than "pure pricing information" because they are the product of a proprietary pricing formulae derived from a "range of data relat[ed] to materials, labor, overhead, and profit margin." SI Handling, 753 F.2d at 1260. Wenzel testified that the pricing schedules are the product of Freedom Medical's proprietary financial model. Freedom Medical factors in the cost of equipment, cost of overhead, and depreciation costs to set monthly cash-on-cash return targets (return in months or RIMs) for each of its products. Freedom Medical's finance team then works with sales teams to adjust prices based on what market conditions will bear. The adjusted prices and RIMs are then then used in Freedom Medical's capital budgeting process. More than "pure price information," the price schedules are instead the product of a comprehensive budgeting process. As such, the pricing schedules are protected trade secrets.
In addition, the compilation of Freedom Medical's pricing information into aggregated and organized pricing schedules renders the information protected trade secrets. Although Freedom Medical's customers — and thus, also its competitors — can access Freedom Medical's price information for a given product, the full compilation of pricing information is not readily obtainable from publicly available sources. As Henry testified, Freedom Medical's sales representatives would not include a full price list in a bid; rather, reps would include only the pricing information for the products relevant to the bid. And while any GPO member may access Freedom Medical's pricing information through an online portal, Wenzel testified that members do not have access to the compiled pricing information organized into readily accessible spreadsheets. Thus, the compilation of Freedom Medical's pricing information into organized schedules further supports the conclusion that the schedules are protected trade secrets.
The second question is whether the price schedules "[were] of value to [Freedom Medical] and important in the conduct of [its] business." Id. at 1255. This inquiry is largely redundant with the inquiry into whether the price schedules are a protected trade secret. As noted, Freedom Medical's price schedules are critical to its business because they are the baseline from which Freedom Medical negotiates with healthcare providers to sell and rent medical equipment. The price schedules ensure that Freedom Medical remains profitable in its rental and sales business, and are therefore valuable to Freedom Medical.
The third question is whether "by reason of discovery or ownership [Freedom Medical] had the right to the use and enjoyment of the secret." Id. The pricing schedules are produced and owned by Freedom Medical. As Wenzel testified, all the pricing schedules were generated by Freedom Medical for the company's use. Thus, Freedom Medical had the right to the use and enjoyment of the secret.
The final question is whether "the secret was communicated to [Defendant Whitman] while employed in a position of trust and confidence under such circumstances as to make it inequitable and unjust for him to disclose it to others, or to make use of it himself, to the prejudice of his employer." Id. "Under Pennsylvania law, the duty of an employee not to disclose the secrets of his employer may arise either from an express contract, or may be implied from the confidential relationship
"A court may enjoin the actual or threatened misappropriation of a trade secret." Bimbo Bakeries USA, Inc. v. Botticella, 613 F.3d 102, 110 (3rd Cir. 2010). Here, Freedom Medical has not carried its burden to show that Defendant Whitman actually misappropriated its trade secret. The only evidence offered by Freedom Medical of appropriation was the email Defendant Whitman sent to himself on the eve of his resignation. Freedom Medical argues that the timing of the email is evidence that Defendant Whitman intended to use the pricing information in his role with Med One. And indeed, Defendant Whitman had received an offer from Med One before he officially left Freedom Medical's employment.
Defendant Whitman, however, testified that he sent the email only so that he could wrap-up client work for Freedom Medical. Specifically, he explained that he used the pricing schedules to complete client work to ease the burden on his successor. He further stated that he deleted the email from his personal account within twenty-four hours — that is, before his employment with Freedom Medical officially came to an end. Finally, Defendant Whitman testified that in his current role with Med One, he has no need for the pricing schedules. Although the timing of the email is suspicious, the Court finds Defendant Whitman's testimony credible, and concludes that Freedom Medical has not carried its burden of showing actual misappropriation.
Where there is no actual misappropriation of trade secrets, "courts applying Pennsylvania law" are nevertheless "empowered to enjoin ...the threatened misappropriation of trade secrets." Id. at 112. When disclosure is merely threatened, the Pennsylvania courts have employed the "inevitable disclosure" doctrine, which provides that an injunction may issue so long as "defendant's new employment `is likely to result in the disclosure' of a former employer's trade secrets." Id. (quoting Air Prod. & Chemicals, Inc. v. Johnson, 296 Pa.Super. 405, 442 A.2d 1114, 1120 (1982)). While it is a closer call, the Court again concludes that Freedom Medical has not carried its burden of showing that Defendant Whitman's employment with Med One "is likely to result" in misappropriation. Id. As noted, Defendant Whitman testified that he deleted the email containing the pricing schedules over six months ago. Moreover, while knowing Freedom Medical's pricing schedule would likely benefit Med One's business generally, the Court finds credible Defendant Whitman's testimony that he has no need for the pricing schedules in his new role, especially because, as Johnson testified, a sales representative — like Defendant Whitman — does not have the power to adjust Med One's prices.
In sum, Freedom Medical has failed to show that it is likely to succeed on the merits of its claim for misappropriation of trade secrets against Defendant Whitman
Freedom Medical claims that Defendant Cavanaugh misappropriated trade secrets — including GPO pricing schedules and Freedom Medical's 2017 business plan for the Southern California region — by sharing that information with Med One employees.
Freedom Medical has put forth sufficient evidence to support a conclusion that it is likely to succeed on the merits of its claim against Defendant Cavanaugh.
First, for the reasons discussed above, Freedom Medical's pricing information is a protected trade secret. In addition, Freedom Medical's regional business plan is also a protected trade secret. See BIEC Int'l, 791 F.Supp. at 546 (finding plaintiff's business plans enjoyed trade secret protection); Air Prod., 296 Pa.Super. at 418-20, 442 A.2d at 1121-22 (same). Freedom Medical took reasonable steps to keep its business plan secret. Wenzel testified that business plans are covered by Freedom Medical's Acceptable Use Policy, and that business plans are not shared outside the company. Further, Freedom Medical derives economic value from business plans being kept secret, as such plans identify current customers, identify prospect customers, set forth actions plans on how to move non-customers to customers, and include general strategy for the upcoming year. Boylan testified that, if Freedom Medical's business plans were disclosed to its competitors, then Freedom Medical's business would be threatened because competitors could take preemptive steps to foil Freedom Medical's objectives. Freedom Medical's business plans are also not readily ascertainable because, as Wenzel testified, they are not shared outside the company. Finally, as noted, if business plans were disclosed to Freedom Medical's competitors, those competitors could obtain economic value from that disclosure by crafting strategies to counteract Freedom Medical's objectives.
Second, Freedom Medical's business plans and price schedules are important to its commercial success. Boylan testified that Freedom Medical's business plans are the roadmap for the company's financial success, and the pricing schedule, as the basis from which its sales teams negotiate with customers, are the tools its employees use to execute on that plan.
Third, Freedom Medical enjoys the right to use its business plans and price schedules because both are fully produced and owned by the company.
Fourth, and finally, Freedom Medical introduced evidence that Defendant Cavanaugh actually misappropriated its trade secrets. Defendant Cavanaugh, like Defendant Whitman, had a contractual duty not to disclose the secrets of Freedom Medical. BIEC Int'l, 791 F.Supp. at 548. Nevertheless, Freedom Medical produced emails showing Defendant Cavanaugh did just that. First, Freedom Medical introduced an email Defendant Cavanaugh sent from his Freedom Medical email address to his personal email address that had pricing information and business plans attached. In addition, Freedom Medical produced emails Defendant Cavanaugh sent as a Med One employee to other Med One sales representatives that included Freedom Medical's pricing schedule and business plans. In one such email, Defendant Cavanaugh attached a copy of Freedom Medical's business plan and stated: "Attached is the So Cal report for 2017 it will give you an idea of whats going on in your territory
For an injunction to issue, Freedom Medical must also establish that it stands to suffer immediate irreparable harm, absent the issuance of preliminary relief. In the context of trade secrets, the Third Circuit has stated that "an intention to make imminent or continued use of a trade secret or to disclose it to a competitor will almost certainly show immediate irreparable harm." Campbell Soup Co. v. ConAgra, Inc., 977 F.2d 86, 92-93 (3d Cir. 1992). However, irreparable harm will not be presumed merely because the elements of a trade secret claim have been satisfied. Id. Instead, a party seeking a preliminary injunction must make "a clear showing of immediate irreparable injury." Thus, in a misappropriation claim, while "[a] threat of disclosure may establish immediate irreparable harm," "further disclosure of something already revealed cannot." Id.
Freedom Medical has failed to carry its burden of showing that Defendant Cavanaugh has "an intention to make imminent or continued use of a trade secret or to disclose it to a competitor." Id. Although the evidence shows that he misappropriated Freedom Medical's trade secrets while working for Med One, Defendant Cavanaugh is no longer employed for Med One. Defendant Cavanaugh's past misappropriation is insufficient, without more, to support the issuance of a preliminary injunction. See Continental Group, Inc. v. Amoco Chems. Corp., 614 F.2d 351, 359 (3d Cir.1980) ("Injunctions will not be issued merely to allay the fears and apprehensions or to soothe the anxieties of the parties. Nor will an injunction be issued to restrain one from doing what he is not attempting and does not intend to do.") (internal quotation marks omitted). Freedom Medical produced no evidence to establish that it is likely to suffer immediate irreparable harm from Defendant Cavanaugh's future misappropriation of trade secrets. Thus, no preliminary injunction will issue against Defendant Cavanaugh on the misappropriation of trade secret claim.
The story is different as to Defendant Oderlin. Freedom Medical produced evidence that Defendant Oderlin misappropriated its trade secrets, specifically by sharing Freedom Medical's pricing schedules with employees at Med One.
As discussed at some length above, Freedom Medical's pricing schedule "constitutes a trade secret," "was of value to [Freedom Medical] and important in the conduct of [its] business," and "by reason of discovery or ownership [Freedom Medical] had the right to the use and enjoyment of the secret." SI Handling Sys., 753 F.2d at 1255. Furthermore, Defendant Oderlin had a contractual duty not to disclose the secrets of Freedom Medical. BIEC Int'l, 791 F.Supp. at 548.
In addition, Freedom Medical established that Defendant Oderlin actually misappropriated its trade secretes by sharing Freedom Medical's pricing information with Med One employees. In one email, Defendant Oderlin sent another Med One employee a copy of Freedom Medical's agreement with a GPO that included, as an attachment, a price schedule for all of Freedom Medical's equipment. Another email, with the subject line "Competitive Pricing," shows Defendant Oderlin telling another Med One sales representative that: "Freedom is currently charging the rates below on the [GPO]," followed by a table of prices for Freedom Medical's prices. The table corresponds exactly to a Freedom Medical GPO pricing schedule that Defendant Cavanaugh had in his possession as of September 20, 2018. While Defendant Oderlin testified that he did not use Freedom Medical's price schedule and, instead, recalled those price figures from memory, such testimony is not credible. Thus, Freedom Medical has demonstrated it is likely to succeed on the merits of its misappropriation claim against Defendant Oderlin.
The evidence introduced by Freedom Medical demonstrates that Defendant Oderlin has "an intention to make imminent or continued use of a trade secret or to disclose it to a competitor." Campbell Soup, 977 F.2d at 92. Defendant Oderlin remains employed by Med One as a sales representative. Unlike Defendant Cavanaugh, Defendant Oderlin remains in a position to take advantage of Freedom Medical's trade secret. Thus, Freedom Medical has carried its burden of showing that it stands to suffer immediate irreparable harm from Defendant Oderlin's actual or threatened misappropriation of its trade secrets.
Balancing of the equities requires evaluating whether the harm done to Freedom Medical through the misappropriation of its trade secrets outweighs the potential harm done to Defendant Oderlin through the issuance of a preliminary injunction. See, e.g., Bimbo Bakeries, 613 F.3d at 118-19. As noted, Freedom Medical stands to suffer irreparable harm in the absence of an injunction. While Defendant Oderlin will suffer no harm if enjoined from using trade secrets that he has no legal authority to use, "even a temporary injunction prohibiting someone from pursuing his livelihood in the manner he chooses operates as a severe restriction on him that a court should not impose lightly." Id. at 119. The Court, however, "may fashion a trade secret injunction that is broad enough to ensure that the information is protected." SI Handling Sys., 753 F.2d at 1265. Thus, the equities tilt toward the issuance of an injunction short of "a
Finally, Freedom Medical must show that the public interest weighs in favor of issuing an injunction. In a misappropriation of trade secrets case, "there are several public interests at play." Id. "[T]here is a generalized public interest in upholding the inviolability of trade secrets and enforcing of confidentiality agreements." Id. (internal quotation marks omitted). At the same time, "there is a public interest in employers being free to hire whom they please and in employees being free to work for whom they please." Id. In balancing these interest, "Pennsylvania courts consider the right of the employee to be the more significant." Id. (citing Wexler v. Greenberg, 399 Pa. 569, 160 A.2d 430, 434-35 (1960)). Nevertheless, "extensive precedent supports an injunctive remedy where" — as here — "the elements of a trade secret claim are established" and injunctive relief is necessary to protect the holder of the trade secret. SI Handling Sys., 753 F.2d at 1265; see also Bimbo Bakeries, 613 F.3d at 119 (upholding the issuance of a preliminary injunction). Thus, an injunction will issue against Defendant Oderlin on the misappropriation claim.
Freedom Medical also seeks to enjoin Med One. The basis of Freedom Medical's argument is that Med One acquired Freedom Medical's trade secrets and "kn[ew] or ha[d] reason to know that the trade secret [s] was acquired by improper means." 18 U.S.C. § 1839(5)(A); see also 12 Pa.C.S.A. § 5302 (same). Under Pennsylvania law, an employer that acquires a competitor's trade secrets may be held liable if it knew or should have known that the trade secret was acquired by improper means. PNC Mortg. v. Superior Mortg. Corp., 2012 WL 628000, at *25 (E.D. Pa. Feb. 27, 2012). And, while at least one federal court has held an employer may be held vicariously liable for misappropriation, see Advanced Fluid Sys., Inc. v. Huber, 295 F.Supp.3d 467, 486 (M.D. Pa. 2018), neither the Third Circuit nor the Pennsylvania Supreme Court have definitively addressed the issue. Id. ("No court has yet addressed whether PUTSA allows for vicarious trade secret liability.").
Here, the evidence is sparse as to what, if anything, Med One knew about the misappropriation of Freedom Medical's trade secrets. Freedom Medical introduced emails in which Defendants Cavanaugh and Oderlin shared Freedom Medical information with Med One sales representatives. The evidence suggests that those representatives likely should have known that the information shared — specifically, Freedom Medical's business plan and contract with Tri-City Medical Center — was, at the very least, confidential.
Despite that, it is far from clear that Freedom Medical would likely prevail in a misappropriation claim against Med One. First, no evidence was produced showing that Med One knew or should have known that Defendants Oderlin or Cavanaugh misappropriated trade secrets when they were hired. Second, although some Med One employees had access to this information, Johnson, who managed the sales representatives, testified that he was not aware of that fact. Third, Boylan testified that Freedom Medical had access to competitor's GPO pricing information, which suggests possession of such information was not necessarily uncommon in the industry. The record is insufficient for the Court to draw a firm conclusion as to whether it was common practice, rather than an indication of misappropriation, to share information like that shared here.
The parties' briefing, or lack thereof, and the sparse factual record developed is insufficient to support a conclusion that Freedom Medical is "likely to succeed on the merits" on its misappropriation claims against Med One. Winter, 555 U.S. at 20, 129 S.Ct. 365. Moreover, Freedom Medical has not shown that the balance of the equities or the public interest weigh in favor of issuing a preliminary injunction. Thus, no such preliminary injunction will issue against Med One.
For the same reasons no preliminary injunction will issue against Med One, none will issue against the Corporate Affiliates either.
Freedom Medical also seeks to enjoin Individual Defendants from continuing their employment with Med One on the grounds that the Individual Defendants breached the restrictive covenants contained in their Freedom Medical employment contracts.
To prevail on its breach of contract claim, Freedom Medical must establish (1) the existence of a contract, including its essential terms, (2) a breach of the contract; and, (3) resultant damages. Meyer, Darragh, Buckler, Bebenek & Eck, P.L.L.C. v. Law Firm of Malone Middleman, P.C., 635 Pa. 427,137 A.3d 1247, 1258 (2016).
The Court must first determine what law applies to the Individual Defendants' employment contracts. A federal court sitting in diversity must apply the choice-of-law-rules of the forum state — here, Pennsylvania. Hammersmith
Here, Pennsylvania has a substantial relationship to the parties because Freedom Medical is a Pennsylvania-based company. Select Med. Corp. v. Hardaway, 2006 WL 859741, at *3 (E.D. Pa. Mar. 24, 2006) ("That [a business] is incorporated and has its principal place of business in Pennsylvania is sufficient to establish a relationship with this forum"). And, regardless of whether Pennsylvania law would be contrary to the policy of California, Pennsylvania law applies because California does not have a materially greater interest than does Pennsylvania in the dispute. The only connection California has with the dispute is that two of its citizens — Defendants Oderlin and Cavanaugh — voluntarily entered into agreements with a Pennsylvania-based employer. California's "interest in the transactions of its citizens," however, does not materially outweigh Pennsylvania's interest in ensuring corporations based in the state have "uniformity in dealings with [its] locations through the country." Id.; see also DePuy Synthes Sales, Inc. v. Edwards, 23 F.Supp.3d 472, 483 (E.D. Pa. 2014) ("Although [plaintiff] may live, work, and have signed the...agreement in California, Pennsylvania has a substantial interest in enforcing agreements freely entered into by the parties and related to business conducted within Pennsylvania borders....I cannot say that California's interest in this case is materially greater than that of Pennsylvania.") (internal quotation marks omitted). Thus, Pennsylvania law applies.
Even if Pennsylvania law applies, the Court must determine if the restrictive covenants are appropriate under Pennsylyania law. Although still disfavored, restrictive covenants are permitted under Pennsylvania, if: (1) they relate to a contract for employment; (2) are supported by adequate consideration; and (3) the application of the covenant is reasonably limited in both time and territory. See Piercing Pagoda, Inc. v. Hoffner, 465 Pa. 500, 351 A.2d 207, 210 (1976). Nevertheless, restrictive covenants are closely scrutinized: "A court must make an in-depth inquiry before entering a preliminary injunction that may have an impact on a person's livelihood." PharMethod, Inc. v. Caserta, 382 F. App'x 214, 220 (3d Cir. 2010).
Here, the restrictive covenants were incident to an employment agreement between the parties. The covenants were also supported by adequate consideration because they were based on the "employment itself." Barb-Lee Mobile Frame Co. v. Hoot, 416 Pa. 222, 206 A.2d 59, 61 (1965) ("Where the restrictive covenant is ancillary to a contract establishing an employment relationship, where none existed previously thereto, the employment constitutes consideration supporting that covenant, as well as all other terms of the employment contract."). Further, the temporal limitation on the covenant — one
The issue, then, is whether the covenants' lack of a territorial limitation renders them unreasonable. Court applying Pennsylvania law "have found broad geographic restrictions reasonable so long as they are roughly consonant with the scope of the employee's duties." Victaulic Co. v. Tieman, 499 F.3d 227, 237 (3d Cir. 2007), as amended (Nov. 20, 2007) (calling a per se rule against broad geographic restricts "antiquated"). Nevertheless, in cases concerning sales-based employees responsible for a defined territory:
Boldt Mach. & Tools, Inc. v. Wallace, 469 Pa. 504, 366 A.2d 902, 908 (1976); see also Certainteed Ceilings Corp, 2014 WL 5461546, at *11 (limiting non-compete covenant to sales representative's territory); Allied Orthopedic Assocs., Inc. v. Leonetti, 2018 WL 4051801, at *8 (E.D. Pa. Aug. 24, 2018) (same). "An overbroad covenant may be enforced `but only to the extent of the employee's sales territory.'"Certainteed Ceilings Corp, 2014 WL 5461546, at *11 (quoting Boldt Mach., 366 A.2d at 908).
Here, though all three Individual Defendants were Branch Managers with Freedom Medical, the role was essentially a sales role. Moreover, each of the Individual Defendants were limited to a specific sales territory: Defendant Whitman in Georgia and parts of Alabama, namely Birmingham; Defendant Oderlin in San Diego; and, Defendant Cavanaugh in San Francisco. The restrictive covenants, however, contain no geographic limitation; the Individual Defendants are barred from working for any competitor anywhere in the nation, or, for that matter, the world. Such an expansive geographic reach is not "roughly consonant with the scope of the employee[s'] duties." Victaulic Co., 499 F.3d at 237. Freedom Medical's interest in "the customer relationships developed by" the Individual Defendants "extends no farther than the sales territory to which the employee[s] w[ere] assigned." Boldt Mach., 366 A.2d at 908. Thus, Freedom Medical has not shown a likelihood of success on its breach of contract claims against the Individual Defendants to the extent that the restrictive covenants seek to preclude the Individual Defendants from working for Med One in a sales area beyond "which the [Individual Defendants]" were assigned. Id. Any preliminary relief on Freedom Medical's breach of contract claims will be limited accordingly.
Because Freedom Medical is likely to succeed on a limited breach of contract claim, the next question is whether Freedom Medical stands to suffer irreparable harm from the Individual Defendants' breach of the restrictive covenants. Under Pennsylvania law, "the threat of the unbridled continuation of the violation [of a restrictive covenant] and the resultant incalculable damage to the former employer's business" establishes irreparable harm. John G. Bryant Co. v. Sling Testing & Repair, Inc., 471 Pa. 1, 369 A.2d 1164, 1167 (1977); see also Healthcare Servs. Grp., Inc. v. Fay, 597 F. App'x 102, 104 (3d Cir. 2015).
To determine whether an injunction should issue against Defendant Oderlin, the Court must weigh his interests against that of Freedom Medical. As noted, Freedom Medical has an interest in enforcing the terms of its employment agreement and protecting its business from harm that will result from the breach of that agreement. Defendant Oderlin, though, has an interest in "pursuing his livelihood in the manner he chooses." Bimbo Bakeries, 613 F.3d at 119. On balance, however, the equities tilt toward the issuance of an injunction. Defendant Oderlin took employment with Med One in the region in which he previously worked, and seemingly tried to poach Freedom Medical's customers in that region. The equities, then, weigh in favor of an injunction "where, as here, the facts demonstrate that the restriction is necessary to prevent greater irreparable harm from befalling another party." Id.
As noted, "there is a public interest in employers being free to hire whom they please and in employees being free to work for whom they please." Bimbo Bakeries, 613 F.3d at 119. At the same time, "courts have not been reluctant to hold that the public has a greater interest in seeing the non-compete covenant enforced than in allowing the employee to work in the new job." Quaker Chem. Corp. v. Varga, 509 F.Supp.2d 469, 481 (E.D. Pa. 2007). Thus, to the degree that Defendant Oderlin breached the terms of his non-compete, public interest weighs in favor of issuing a preliminary injunction.
In sum, then, a preliminary injunction will be granted against Defendant Oderlin to enforce the terms of the restrictive covenant, limited to the sales areas in which he worked as Freedom Medical employee. No preliminary injunction will be issued to enforce the terms of Defendant Whitman's restrictive covenant because he took active steps to avoid infringing upon that covenant. Finally, no preliminary injunction will issue on Freedom Medical's breach of contract claim against Defendant Cavanaugh because he is no longer employed, and thus no longer in breach of his restrictive covenant.
Freedom Medical also seeks an injunction against Med One related to the
Here, Freedom Medical has not put forth any evidence that it stands to suffer "immediate irreparable harm" from Med One's tortious interference. To the degree that Med One interfered with Freedom Medical's contracts by recruiting the Individual Defendants away from Freedom Medical, such conduct occurred entirely in the past. Any harm that Freedom Medical suffered, such as the Individual Defendants leaving its employment, has also already occurred. Freedom Medical has not put forth evidence that Med One is currently interfering, or immediately threatens to interfere, with Freedom Medical's employment contracts. Absent such a showing, no preliminary injunction will issue.
Finally, Freedom Medical seeks injunctive relief related to Individual Defendants' breach of their fiduciary duty to Freedom Medical. Pennsylvania law permits a limited cause of action for a breach of fiduciary duty to an employer as follows:
Bro-Tech Corp. v. Thermax, Inc., 651 F.Supp.2d 378, 414 (E.D.Pa.2009) (internal citations omitted). Again, though, Freedom Medical has failed to establish that it stands to suffer irreparable harm absent the issuance of an injunction because any harm Freedom Medical suffered occurred entirely in the past. All of the Individual Defendants have already left Freedom Medical's employment. There is no ongoing or threatened breach of a fiduciary duty. Therefore, no preliminary injunction
In conclusion, the Court will grant Freedom Medical's motion for a preliminary injunction as to Defendant Oderlin on Freedom Medical's misappropriation of trade secrets claim and breach of contract claims. The Court will deny the remainder of Freedom Medical's motion.
An appropriate order follows.
