DENISE J. CASPER, District Judge.
Plaintiff NuVasive, Inc. ("NuVasive") seeks preliminary injunctive relief against Defendants Timothy Day ("Day") and Adam Richard ("Richard")
For the reasons discussed below, the Court ALLOWS IN PART and DENIES IN PART the motion for preliminary injunction against Day, Day, D. 8, and DENIES the motion for preliminary injunction against Richard, Richard, D. 4.
NuVasive is a manufacturer of products used to treat spinal disease. Day, D. 1 at ¶ 2. NuVasive is incorporated in Delaware and maintains its principal place of business in San Diego, California.
Day worked as a sales representative for an exclusive distributor of NuVasive's products and then as a sales director for NuVasive from August 2011 to April 2019.
Richard also began as a sales associate for an exclusive distributor of NuVasive's products, with a territory of fifteen Massachusetts hospitals. Richard, D. 1 at ¶ 13. In January 2018, Richard became a sales representative for NuVasive.
Day was the principal of Rival. Day, D. 1 at ¶ 4. On March 30, 2019 and April 1, 2019, Day sent emails to NuVasive's President, U.S. Commercial, Paul McClintock stating that Rival was dissolving and that April 1, 2019 would be Day's last day.
Both Day and Richard currently are affiliated with Alphatec Spine, Inc. ("Alphatec"), which NuVasive identifies as a competitor in the spinal products market.
While both Defendants have multiple contracts that NuVasive might seek to enforce, NuVasive relies upon the NuVasive PIIA as to Day, Day, D. 8 at 1, and upon the Rival PIIA as to Richard, Richard, D. 4 at 1, for the injunctive relief it seeks here. Accordingly, the Court turns to the relevant portions of both agreements.
As to Day, NuVasive relies upon the Proprietary Information, Inventions Assignment, Arbitration, and Restrictive Covenants Agreement (the "NuVasive PIIA"). D. 1-1. Although NuVasive alleges that each Defendant executed this agreement as a condition of their employment, Day, D. 1 at ¶ 14; Richard, D. 1 at ¶ 15, NuVasive has only produced the NuVasive PIIA as executed by Day. D. 1 at 12-13 (signed by Day on January 6, 2018). The NuVasive PIIA includes both a non-solicitation clause (Section VI) and a non-competition clause (Section VII). Day, D. 1-1 at 6-9. Both clauses include provisions extending the terms of the clauses for one year following the termination of Defendants' engagement with NuVasive, "regardless of the reason for the termination."
As to Richard, NuVasive relies upon the Proprietary Information, Inventions Assignment, Arbitration, and Restrictive Covenants Agreement between Richard and Rival (the "Rival PIIA"). The Rival PIIA contains a substantially identical non-solicitation clause (Section VI) and non-competition clause (Section VII) as the NuVasive PIIA. Richard, D. 1-2 at 7-9. The Rival PIIA also includes a third-party beneficiary clause that identifies NuVasive as an intended third-party beneficiary of the agreement.
To obtain a preliminary injunction, a plaintiff must show: "(1) a substantial likelihood of success on the merits; (2) a significant risk of irreparable harm if the injunction is withheld; (3) a favorable balance of hardships, and (4) a fit (or lack of friction) between the injunction and the public interest."
On April 22, 2019, NuVasive filed its complaint against Day asserting claims for tortious interference, breach of contract and injunctive relief. Day, D. 1 at 7-8. Four days later, on April 26, 2019, NuVasive filed its complaint against Richard asserting claims for breach of contract and injunctive relief. Richard, D. 1 at 7-8. On April 23, 2019, NuVasive moved for a preliminary injunction against Day, Day, D. 8, and followed three days later, April 26, 2019, with a motion for a preliminary injunction against Richard, Richard, D. 4. On May 15, 2019, the Court heard the parties on the pending motions and took the matters under advisement. Day, D. 27; Richard, D. 22.
The NuVasive PIIA includes a "Governing Law" provision that provides "[t]his Agreement shall be interpreted and enforced in accordance with Delaware law, without giving effect to its laws pertaining to conflict of laws."
As a general rule, Massachusetts courts will give effect to a contractual choice-of-law clause.
None of the contentions raised by Day warrant not giving effect to the choice of Delaware law by the parties in the NuVasive PIIA. First, Delaware has a substantial relationship to the parties as it is the place of incorporation of NuVasive.
Finally, although Day's contentions about the application of Delaware being contrary to the fundamental public policy merit some further discussion, they do not merit a different choice of law than the ones the parties chose in the NuVasive PIIA. Day maintains there are two independent fundamental public policies of Massachusetts to which application of Delaware law would be contrary: 1) the "material change" doctrine; and 2) Massachusetts' policy against applying other states' laws in the context of non-competition and non-solicitation provisions, as expressed in the recently enacted Massachusetts Noncompetition Agreement Act ("MNCA"), Mass. Gen. Laws ch. 149, § 24L.
As to the "material change" doctrine, it is at best unclear to the Court that such doctrine reflects a fundamental public policy. "`Public policy' in this context refers to a court's conviction, grounded in legislation and precedent, that denying enforcement of a contractual term is necessary to protect some aspect of the public welfare."
Next, Day argues that applying Delaware law would be contrary to the public policy against certain choice of law provisions barred by the MNCA. Day, D. 21 at 3-5. The MNCA reads, "[n]o choice of law provision that would have the effect of avoiding the requirements of this section will be enforceable if the employee is, and has been for at least 30 days immediately preceding his or her cessation of employment, a resident of or employed in Massachusetts at the time of his or her termination of employment." Mass. Gen. L. c. 149, § 24L(e). Day acknowledges that the MNCA does not apply to the agreements at issue here since the MNCA, effective as of October 5, 2018, applies only to agreements entered on or after October 1, 2018. Mass. Gen. L. c. 149, § 24L. Even as Day relies upon MNCA not as a statutory bar, but as public policy of the Commonwealth, his argument fails for at least two reasons. First, Day has not shown that, even if the MNCA applied here, that the NuVasive PIIA would violate its terms. The MNCA only applies to non-competition agreements as it expressly excludes "covenants not to solicit or hire employees of the employer" or "covenants not to solicit or transact business with customers, clients or vendors of the employers."
Finding no "fundamental policy" against application of Delaware law to interpretation of the NuVasive PIIA, the Court need not reach the remaining considerations in Massachusetts choice of law analysis (whether Massachusetts has a materially greater interest than Delaware in the litigation and is the state whose law would apply absent the provision) and will apply Delaware law, as agreed in the contract, to its interpretation of the NuVasive PIIA.
Although NuVasive also asserts a tortious interference claim against Day, the focus of its preliminary injunction motions is on the claims for breach of contract that it asserts against both Day and Richard. Accordingly, the Court's analysis of its reasonable likelihood of success on the merits will focus on this claim.
Under Delaware law, which the Court applies to the NuVasive PIIA, the elements of a breach of contract claim are "first, the existence of the contract, whether express or implied; second, the breach of an obligation imposed by that contract; and third, the resultant damage to the plaintiff."
Both PIIAs, including their respective non-competition and non-solicitation clauses, are valid and enforceable contracts. Under Delaware law, for such a clause to be enforceable, it must "(1) be reasonable in geographic scope and temporal duration, (2) advance a legitimate economic interest of the party seeking its enforcement, and (3) survive a balancing of the equities in order to be enforceable."
Similarly, under Massachusetts law, restrictive covenants "are enforceable only if they are `necessary to protect a legitimate business interest, reasonably limited in time and space, and consonant with the public interest.'"
The scope of both provisions is reasonable in scope (limited to customer matters handled, respectively, by each defendant) and duration (limited to twelve months) and are reasonably structured to protect NuVasive's legitimate business interests, namely its confidential information and goodwill. Day and Richard instead challenge whether NuVasive has shown a reasonable likelihood of success in proving that they each breached these contracts and the Court now addresses each of these alleged breaches in turn.
NuVasive devoted a considerable amount of its principal brief, Day, D. 9, and its reply brief, Day, D. 22-1, to addressing whether the NuVasive PIIA was enforceable and considerably less time to showing how Day had breached that agreement. To show that he had breached the non-competition provision, NuVasive would have to show that Day "serve[s] as a . . . employee . . . or otherwise for, . . . work or consult for or otherwise affiliate myself with any Conflicting Organization." D. 1-1 at 7. The parties do not dispute that Alphatec is a competitor of NuVasive's in the spinal products market. Day, D. 26 at 2; Richard, D. 21-1 at 1-2. NuVasive's burden to show a breach of contract of the non-competition clause of the NuVasive PIIA, however, is not limited to such showing, but requires a showing that Alphatec falls within the definition of "Conflicting Organization": "any person, group of persons, or organization that is engaged in, . .. development, production, marketing or selling of any product, . . . or service upon which I shall have worked or about which I became knowledgeable as a result of my relationship with [NuVasive], and whose use or marketability could be enhanced by the application of Proprietary Information to which I shall have had access during such relationship." D. 1-1 at 7. Day contends that NuVasive has failed to make this showing and the Court agrees.
Colin Ennis, a NuVasive salesperson, attests that "Alphatec's products directly compete with NuVasive products that Mr. Day and Mr. Richard sold prior to ending their NuVasive engagements." Day, D. 22-2 at ¶ 6. Day does not appear to dispute this point, but Ennis' further attestation that Day and Richard "could improve the marketability of Alphatec's . . . products by disseminating the confidential and proprietary information that NuVasive provides to its sales force,"
The Court, however, reaches a different conclusion as to the non-solicitation clause of the NuVasive PIIA, concluding that the plaintiff has shown a reasonable likelihood of success as to this breach of contract claim against Day. To show a breach of this clause, NuVasive must show a breach of Day's agreement that "during the term of my engagement and for one (1) year immediately thereafter, I will not: (a) solicit, . . . call upon or provide services to any of the Customers (as defined in Section VII [which is defined there to include hospitals, payers and physicians]), accounts or clients that I worked with, had responsibility or oversight of, provided services related to, or learned significant information about during my employment (or other association) with [NuVasive] for any purpose other than for the benefit of [NuVasive]." D. 1-1 at 7.
Although Ennis's affidavit was less precise about Day's alleged breach of this provision— attesting that he had observed Day speaking with surgeons at Beth Israel to whom he had previously sold products during his NuVasive employment and believed he was soliciting him to utilize Alphatec products, Day, D. 22-2 at ¶¶ 9-12, MacDermott's affidavit provides an uncontroverted basis for such breach. MacDermott attests that Day gave his Alphatec card to a surgeon with whom Day worked while at NuVasive and, in a handwritten note, urged the surgeon to reach out to take advantage of the "immense opportunity" with Alphatec, Day, D. 24-2 at 2-4. At the very least, such evidence amounts to Day having "call[ed] upon" a Customer of NuVasive and given the substance of the note and his current position at Alphatec, such contact was for purpose other than for the benefit of NuVasive, his former employer.
To the extent that Day belatedly argues that any such breach by him is excused by an alleged breach by NuVasive of its sales agreement with Rival, D. 26 at 3, there is no legal basis for such defense, even if Day raises it to explain his motivation for dissolving Rival and moving to Alphatec.
Moreover, having found such breach, the Court concludes that NuVasive has also shown a reasonable likelihood of showing injury as a result of this breach as Day acknowledged in the preamble to the non-solicitation clause, D. 1-1 at 6, and as neither defendant disputes here.
As to the alleged breach of contract claim against Richard regarding the non-competition clause of the Rival PIIA, the Court concludes, for the same reasons stated above as to Day, that NuVasive has not shown a reasonable likelihood of success as to this claim.
Unlike the analysis above as to Day's alleged breach of the non-solicitation clause, the Court concludes that NuVasive has not shown, at this juncture, a reasonable likelihood of success as to this claim.
Assuming arguendo that Rival PIIA was fully executed by both parties (a point Richard does not necessarily dispute, but complains of NuVasive's failure to produce same here), the facts NuVasive proffers as to Richard's alleged breach of the non-solicitation clause are less compelling than those proffered as to Day. Ennis attests that he observed Day (without Richard) speaking with a surgeon who was a Customer while they were at NuVasive on April 22, 2019. Richard, D. 5-2 at 2. Ennis does not suggest that Richard was present for that conversation and Richard denies being at the hospital that day. Richard, D. 21-1 at 2. Ennis further attests that Richard was present the following day, April 23, 2019, with Day at the hospital while a surgeon to whom both Day and Richard had sold products for NuVasive performed a surgery utilizing Alphatec products, Richard, D. 5-2 at 2. Richard, unlike Day, avers that he has not solicited any of his previous NuVasive customers and has only contacted Alphatec's current client physicians and hospitals. Richard, D. 21-1 at 2. Given this current state of the record, there is no specific evidence of "call[ing] upon" or solicitation as to Richard soliciting Customers. Accordingly, the Court concludes that NuVasive also has not shown a likelihood of success on the merits with respect to its breach of contract claim against Richard pertaining to the non-solicitation clause.
Having ruled that NuVasive has not made the requisite showing of a breach by Richard, the Court need not reach Richard's other arguments that NuVasive has failed to identify the proprietary information with specificity or the "ownership" of any goodwill generated during his employment at NuVasive.
Since NuVasive has failed to make the requisite showing as to a reasonable likelihood of success of its claim against Richard, the Court addresses the remaining prongs of the standard for preliminary relief only as to Day as to the non-solicitation clause.
To obtain injunctive relief, a plaintiff must also show a "significant risk of irreparable harm if the injunction is withheld."
"Any potential harm caused to [NuVasive] by a denial of its motion must be balanced against any reciprocal harm caused to [Day] by the imposition of an injunction."
A preliminary injunction is not appropriate unless there is "a fit (or lack of friction) between the injunction and the public interest."
For the above reasons, the Court ALLOWS IN PART and DENIES IN PART NuVasive's motion for preliminary injunction against Day, Day, D. 8 (pending the posting of a bond of $5,000 under Fed. R. Civ. P. 65(c) by no later than June 5, 2019) and DENIES NuVasive's motion for preliminary injunction against Richard, Richard, D. 4. Accordingly, the Court ORDERS that Day to comply with the non-solicitation clause of the NuVasive PIIA with respect to solicitation of NuVasive Customers (as defined by the PIIA) pending further Order of this Court.