BUCKWALTER, District Judge.
TABLE OF CONTENTS FOR CROSS-MOTIONS FOR SUMMARY JUDGMENT TO
LIABILITY
I. STATEMENT OF FACTS .............................................................630
A. Persons Relevant to the Suit ...............................................631
1. The Parties ............................................................631
2. Other Relevant Individuals .............................................633
B. Background of the Key Players' Employment With Synthes .....................634
1. Defendant Marotta's Employment With Synthes ............................634
2. Defendant Brown's Employment With Synthes ..............................636
3. Powell's Employment With Synthes .......................................637
4. Trafka's Employment with Synthes and Magnum Tool .......................639
C. Written Obligations of the Parties and Other Individuals ...................640
1. Synthes Written Obligations ............................................640
a. Contractual Obligations ............................................640
b. Employment Policies and Obligations ................................645
2. Emerge's Written Contracts and Policies ................................645
3. Vendors' Written Contractual Obligations to Synthes ....................646
4. SIMS and Customers' Written Contractual Obligations to Synthes .........647
D. The Formation of Emerge Prior to April 15, 2010 ............................647
1. Brief Background of Emerge .............................................647
2. Detailed Timeline of Emerge-Related Activities Prior to April 15,
2010 .................................................................648
3. Emerge's Business Plans and Investor Materials (Pre-April 2010) ........652
a. The Private Placement Memorandum ...................................652
b. Investor Presentations .............................................653
c. Additional Statements Regarding Emerge's Business Model ............653
4. Emerge's Finding of Investors and Raising Money ........................653
5. Early Design and Development of Emerge Product .........................654
E. Emerge's Use of Synthes Products and Information ...........................655
1. Acquisition and Use of Synthes Product .................................655 2. Acquisition, Use, and Disclosure of Synthes's Confidential and Proprietary Information ..............................................655 a. Information Related to Synthes's Manufacturing Costs ...............655 b. Information Related to Synthes' External Fixation and LCP Products .........................................................656 c. Information Related to Synthes's Critical Features, Dimensions, and Tolerances .......................................656 d. Information Related to Synthes's Engineering Specifications ........657 e. Information Related to Synthes's Cortical and Cancellous Screws ...........................................................657 f. Information Related to Synthes's Usage Data in Emerge's Early Accounts ...................................................658 g. Information Related to Synthes's Cannulated Screw Comparison Chart ............................................................658 h. Synthes Documents Marotta Emailed to His Personal Email Address ..........................................................658 i. Marotta's & Powell's Retention of Synthes's Emails .................659 j. Information Related to Synthes's Strategic Business Acquisition Discussions ..........................................659 F. Emerge Obtains FDA Clearance ...............................................659 G. Emerge's Pilot Customers ...................................................660 1. Banner Health ..........................................................660 2. AOSH/USPI ..............................................................661 3. Catholic Healthcare West ...............................................662 4. Other System-Wide Sales and Early Targets ..............................662 H. Emerge's Sales Process, Strategy, Implementation, and Commingling of Product ...............................................................662 I. Cardinal Health ............................................................664 J. Procedural History .........................................................665 II. STANDARD OF REVIEW .............................................................665III. DISCUSSION .....................................................................666 A. Claim Against Marotta for Breach of Fiduciary Duty (Count I)................666 1. Defendant's Motion for Partial Summary Judgment on Breach of Fiduciary Duty .......................................................668 2. Plaintiffs' Motion for Summary Judgment on Breach of Fiduciary Duty .................................................................670 B. Claim of Aiding and Abetting Breach of Fiduciary Duty Against Emerge ...................................................................674 C. Claim Against Marotta for Breach of Contract Under the Non-Competition and Non-Disclosure Agreements (Count II) .................................678 1. The Assignment Provision of the Non-Disclosure Agreement ...............678 2. The Non-Competition and Non-Solicitation Provisions of the RM NCA ..................................................................684 a. Breach of the Non-Competition Provision ............................685 b. Breach of the Non-Solicitation of Customers Provision ..............689 c. Breach of the Non-Solicitation of Employees Provision ..............691 3. Sales Consultant Non-Competition Provision .............................693 4. Return of Property Provision and Confidentiality and Non-Disclosure Provisions in the RM NCA and NDA .....................................698 a. Small Fragment Set .................................................699 b. Synthes Product in Marotta's Garage ................................701 c. Synthes Emails .....................................................703 D. Misappropriation ...........................................................704 1. Whether the Items at Issue Constituted Trade Secrets ...................705 a. Synthes Information Regarding Manufacturing Costs and Usage Data .......................................................705
b. Product Design Information .........................................707 2. Whether Emerge Misappropriated Synthes's Trade Secrets .................710 a. Information Regarding Manufacturing Costs and Usage Data ...........710 b. Synthes Product Drawings and Information Related to External Fixation Products .......................................712 c. Synthes Product Drawings and Information Related to Critical Features, Dimensions, and Tolerances for Screws Emerge Developed and Screws Emerge Identified as Additional Product Offerings ................................................712 d. Synthes Engineering Specifications and Information Related to Products Emerge Designed and Identified as Additional Product Offerings ................................................713 e. Drawings and Information Related to Synthes Cortical and Cancellous Screws and Product Emerge Identified as Additional Product Offerings .....................................714 f. Strategic Business Planning Information Related to Companies Affiliated with Prospective Emerge Investors and Advisors ........715 3. Conclusion as to Misappropriation ......................................715 E. False Advertising Under the Lanham Act .....................................715 F. Computer Fraud and Abuse Act ...............................................718 G. Trespass to Chattels .......................................................721 H. Fraud ......................................................................723 I. Tortious Interference With Contract ........................................727 1. Tortious Interference with Marotta's Contracts With Synthes ............727 a. Whether Emerge Had Knowledge of Marotta's Contractual Agreements with Synthes ..........................................728 b. Whether Emerge Did Anything to Induce Marotta to Breach Either His NDA, His RM NCA, or His SC NCA With Synthes ..........................................................729 2. Tortious Interference with Powell's Non-Compete Agreement With Synthes ..............................................................731 3. Tortious Interference With Brown's Agreements With Synthes .............733 4. Tortious Interference With Synthes's Contractual Relationships With Any of Its Customers or Vendors .................................734 a. Tortious Interference With Vendors .................................734 b. Tortious Interference with Customers ...............................735 5. Marotta's Tortious Interference With Synthes's Contractual Relations With Other Synthes Employees ...............................735 J. Civil Conspiracy ...........................................................735 IV. CONCLUSION ......................................................................737
Currently pending before the Court are the Cross-motions for Summary Judgment of Plaintiffs Synthes, Inc., Synthes USA HQ, Inc., Synthes USA, LLC, Synthes USA Sales, LLC, and Synthes USA Products, LLC (collectively "Synthes") and Defendants Emerge Medical, Inc., John P. Marotta, and Charles Q. Powell (collectively "Defendants"). For the following reasons, Synthes's Motion is granted in part and denied in part and Defendants' Motion is granted in part and denied in part.
The factual history of this case, while not particularly long in a temporal sense,
Synthes, Inc. is a Delaware corporation with its principal place of business in Pennsylvania, and is the parent company of the other Plaintiffs, which are also Delaware entities with their principal places of business in Pennsylvania. (Plaintiffs' Statement of Undisputed Facts ("PSUF") ¶ 1; Defendants' Response to Plaintiffs' Statement ("DRPS") ¶ 1.) Synthes has been described as a global leader in the highly competitive orthopedic device market. (PSUF ¶ 2; DRPS ¶ 2.) Its sales and marketing plan depends exclusively upon the preferences of orthopedic surgeons to influence the purchasing decisions of the hospitals and surgical centers where orthopedic surgeons practice. (PSUF ¶ 5; DRPS ¶ 5.)
Emerge Medical, Inc. ("Emerge") is a Colorado corporation formed on January 13, 2010, under the name Emerge Surgical, Inc. (PSUF ¶ 7; DRPS ¶ 7.) On June 23, 2010, Emerge Surgical, Inc. officially changed its name to Emerge Medical, Inc. (PSUF ¶ 8; DRPS ¶ 8.) Emerge competes with Synthes and was formed to produce and sell Generic Device Fixation Hardware "similar, but not identical to" that which Synthes also produces and sells. (PSUF ¶¶ 9-10; DRPS ¶¶ 9-10.) According to Emerge, it has "devised a new approach to the sales of [drill bits, guide wires, and screws] providing the American public with a like-numbered product that is similar to" drill bits, guide wires, and cannulated screws sold by Synthes. (PSUF ¶ 11; DRPS ¶ 11.) As of July 2012, Emerge sold only "drill bits, guide wires, and screws." (PSUF ¶ 12; DRPS ¶ 12.) Emerge's drill bits, guide wires, and screws may be "used to hold Synthes['] sophisticated implants in place." (Plaintiffs' Appendix ("Pls.' Appx.")
Defendant John P. Marotta is a former Synthes Sales Consultant and Regional
Zachary Stassen was a founding member of Emerge and was Emerge's Chief Operating Officer and Director until July or August 2010, when he became Chief Financial Officer. (PSUF ¶¶ 19-20; DRPS ¶ 19-20.) On November 4, 2011, Stassen resigned as an officer and employee of Emerge. (PSUF ¶ 21; DRPS ¶ 21.) Nonetheless, Stassen remains a shareholder of Emerge. (PSUF ¶ 25; DRPS ¶ 25.) Although originally a named Defendant in this action, Synthes and Stassen reached a settlement and the Court dismissed him from this action, without prejudice, on January 23, 2013. (PSUF ¶¶ 28-29; DRPS ¶¶ 28-29.)
Eric Brown is a former Area Vice President of Sales for Synthes Trauma. (PSUF ¶ 30; DRPS ¶ 30.) At some point during his employment with Synthes, Marotta reported directly to Brown. (PSUF ¶ 31; DRPS ¶ 31.) In 2009, during Brown's employment with Synthes, Brown was contemplating a new business that involved providing consulting services to distributors and start-up companies that sold orthopedic medical devices, and had hired Stassen as a business consultant in connection with that idea. (PSUF ¶ 32; DRPS ¶ 32.) Following the introduction of Marotta to Stassen in or about the summer of 2009, Brown, Marotta, and Stassen began to discuss other possible means for a new business, including the idea to sell generic medical device commodities. (PSUF ¶ 34; DRPS ¶ 34; Pls.' Appx. 26, at Interrog. Resp. No. 2.) Brown, however, was focused on a sales force model rather than the business model envisioned by Marotta and Powell. (Pls.' Appx. 19, Dep. of Zachary Stassen ("Stassen Dep."), 228:16-229:3, July 22, 2011.) Nonetheless, Brown remained involved in discussions with Marotta and Stassen regarding the formation of a new company. (PSUF ¶ 36; DRPS ¶ 36.) By the time of incorporation, however, it was determined that Brown would have no place in either the formation or management of Emerge because Stassen and Marotta believed that Brown's Non-Compete Agreement would be a barrier to his participation. (PSUF ¶¶ 37-38; DRPS ¶¶ 37-38; Pls.' Appx. 3, Dep. of John Marotta ("Marotta Dep."), 151:24-152:24, July 5, 2011.)
Charles (Chaun) Q. Powell is a former Synthes Sales Consultant for Synthes Trauma who, during Marotta's tenure as Regional Manager of the Rocky Mountain
Marcy Slone served as Emerge's Vice President of Operations from the summer of 2010 until her termination in January 2011. (PSUF ¶ 52; DRPS ¶ 52.) In that role, her responsibilities included overseeing the operations of the company, supplier management responsibilities, some inventory management responsibilities, day-to-day management responsibilities, and some interaction with Orchid on the design of Emerge's products. (PSUF ¶ 53; DRPS ¶ 53.) According to Marotta, Slone had intimate knowledge of the design and development efforts of Emerge's "initial phase products," including Emerge's cannulated screws, drill bits, and guide wires. (PSUF ¶ 54; DRPS ¶ 54; Pls.' Appx. 36, Marotta Dep., 654:13-55:8, July 6, 2011.)
Victoria Trafka was employed by Synthes in 1998 as a manufacturing engineer at Synthes's Monument facility. (PSUF ¶ 58; DRPS ¶ 58.) In 2009, Marotta contacted Trafka regarding potential assistance with Emerge. (PSUF ¶ 59; DRPS ¶ 59.) Thereafter, in March 2010, Trafka began working for Emerge as a part-time consultant to assist Emerge in developing product concepts. (PSUF ¶ 60; DRPS ¶ 60.) During the period of time for which she served as a part-time engineering
Preston Baus is a former Synthes Sales Consultant for Synthes Trauma and began working for Synthes in June 2004. (PSUF ¶ 72; DRPS ¶ 72.) In March 2006, Synthes promoted Baus to a new role within Synthes as a Market Development Manager in Solothurn, Switzerland, where he was responsible for driving sales of Synthes's trauma product line within his assigned areas of responsibility. (PSUF ¶ 73; DRPS ¶ 73.) Thereafter, in January 2009, Baus became Business Manager of EMEA Vet in Oberdorff, Switzerland, where he oversaw efforts to grow business for Synthes Veterinary in his area. (PSUF ¶ 74; DRPS ¶ 74.) In September 2010, he became a Sales Consultant for Synthes Trauma again, and remained in that position until he resigned from Synthes on April 7, 2011. (PSUF ¶ 75; DRPS ¶ 75.)
From June 2004 through April 15, 2010, Marotta was employed by Synthes in its Trauma Division. (PSUF ¶ 79; DRPS ¶ 79.) Prior to his employment with Synthes, Marotta had no experience in the orthopedic medical device industry. (PSUF ¶ 80; DRPS ¶ 80.) As part of his employment with Synthes, Marotta received specialized training, had some limited access to Synthes's resources and information, and would travel to existing and prospective customers of Synthes. (PSUF ¶¶ 81-82, 85-86; DRPS ¶¶ 81-82, 85-86.) On occasion, Marotta would have access to Synthes's product development and manufacturing facilities. (PSUF ¶ 87; DRPS ¶ 87.)
When Synthes first hired Marotta in 2004, he was employed as a sales consultant in a territory in the Desert Valley region of Arizona. (PSUF ¶ 88; DRPS ¶ 88.) In connection with his hiring, and as a condition of his employment with Synthes, Marotta entered into two agreements with Synthes: a Sales Consultant Confidentiality, Non-Solicitation, and Non-Competition Agreement ("SC NCA") and an Employee Innovation and Non-Disclosure Agreement ("NDA"). (PSUF ¶ 89; DRPS ¶ 89.) According to Marotta's resume, his responsibilities as a Synthes Sales Consultant included "[m]anag[ing] a customer base including 97 surgeons," and
Marotta received a substantial amount of field inventory to help support operations in his territory. (PSUF ¶ 98; DRPS ¶ 98.) His territory included, among others, the following customer accounts: Banner Gateway Medical Center, Banner Baywood Medical Center, Banner Desert Medical Center, Chandler Regional Hospital, Mercy Gilbert Medical Center, and Arizona Orthopedic Hospital. (PSUF ¶ 99; DRPS ¶ 99.) Some of the physicians that worked at sales facilities within Marotta's Sales Consultant Territory include: Neil Motzkin, Peter Seipel, Dan Aschenbrener, Salvatore La Cognata, John Duggan, Danton Dungy, Dennis Armstrong, Daniel Mullen, Earl Feng, Jason Tani, and Anthony Theiler. (PSUF ¶ 100; DRPS ¶ 100.)
Marotta was a highly successful sales consultant in his Synthes Sales Consultant territory and had developed very good relationships and goodwill with both the physician customers and the hospitals. (PSUF ¶ 110; DRPS ¶ 110.) As such, Synthes promoted Marotta to Regional Manager for the Rocky Mountain Region in September 2007. (PSUF ¶ 111; DRPS ¶ 111.) Marotta's promotion took effect on February 1, 2008, however, Marotta indicated that he effectively became acting Regional Manager of Rocky Mountain Region back in October 2007. (PSUF ¶¶ 113-14; DRPS ¶¶ 113-14.) In connection with this promotion, Marotta received a compensation package, which included a minimal annual income guarantee of $320,000 for two years, and he executed a Regional Manager Confidentiality, Non-Solicitation, and Non-Competition Agreement ("RM NCA"). (PSUF ¶¶ 115-16; DRPS ¶ 115-16.) In addition, Marotta received a relocation package of approximately $190,000. (PSUF ¶ 117; DRPS ¶ 117.)
According to Marotta's resume, his responsibilities as Synthes Regional Manager involved management of a "$36 million P & L" and a total of twenty-six direct reports. (PSUF ¶ 118; DRPS ¶ 118.) He handled high level, multi-million dollar sales and negotiations in major integrated delivery networks ("IDN") and established warehouse, distribution, and office operations in Colorado. (PSUF ¶ 119; DRPS ¶ 119.) In addition, among other job duties, Marotta had responsibility for maintaining and growing sales in his region; leading a sales time to achieve ongoing company sales goals; handling Regional business; establishing and nurturing effective working relationships with key accounts, surgeons, and AO faculty in the Region; and maintaining good customer relations with the hospitals and physicians in his region. (PSUF ¶¶ 120-22; DRPS ¶ 120-22.) Customer accounts within Marotta's region during this time included: Denver Health, Swedish Medical Center, University of Colorado University Hospital, St. Mary's Hospital and Regional Medical Center, Banner Health Facilities, USPI
One of the physicians who worked at the Denver Health facility in the Rocky Mountain Region was Dr. Steve Morgan. (PSUF ¶ 128; DRPS ¶ 128.) Dr. Morgan is a leader in the field of orthopedics, is regarded as an expert in orthopedic trauma surgery, and is a member of the AO faculty. (PSUF ¶¶ 130-31; DRPS ¶¶ 130-31.) Marotta first met Dr. Morgan in Arizona and continued to have dealings with him on Synthes's behalf. (PSUF ¶¶ 126-27; DRPS ¶¶ 126-27.)
During Marotta's tenure as a Synthes Regional Manager, Synthes dispatched Marotta to Arizona in January 2010 while the assigned Regional Manager for that region, Chance Leonard, was on medical leave. (PSUF ¶ 132; DRPS ¶ 132.) As a regional manager, Marotta made some introductions between Leonard and the physicians in Marotta's former Sales Consultant territory. (PSUF ¶ 134; DRPS ¶ 134.) Marotta also attended some meetings with customer accounts in his former Sales Consultant territory. (PSUF ¶ 136; DRPS ¶ 136.) While Regional Manager, Marotta also assisted Leonard with his role in Arizona and helped him with an initiative called "Operation Checkmate." (PSUF ¶ 138; DRPS ¶ 138.)
During his employment, Synthes provided Marotta with information regarding its products and customers. (PSUF ¶ 141; DRPS ¶ 141.) Marotta also had access to and received technical, customer, prospect, financial, and other information that is proprietary and confidential to Synthes. (PSUF ¶ 142; DRPS ¶ 142.) Among this information was Synthes sales data, product introduction plans, profit and loss information, information related to the performance and ranking of Synthes Sales Consultants and territories/regions, information related to Synthes product development plans and product-specific promotions, information related to the compensation of Synthes's Sales Consultants, and information related to Synthes pricing strategies and negotiations. (PSUF ¶¶ 143-44; DRPS ¶¶ 143-44.) Marotta also visited Synthes's product development and manufacturing facilities, including Synthes's facilities in Monument, Colorado and Paoli, Pennsylvania. (PSUF ¶ 145; DRPS ¶ 145.)
During his career with Synthes, Marotta earned in excess of $2.5 million. (PSUF ¶ 146; DRPS ¶ 146.) In addition to his compensation and relocation package, Marotta received business expense advances and tuition reimbursement for his MBA degree received in March 2010. (PSUF ¶¶ 148-50, 152; DRPS ¶¶ 148-50, 152.) According to Synthes's employee policy manuals and the applications for tuition reimbursement, if an employee leaves Synthes within one year of completing the courses for which reimbursement was paid by Synthes, the employee is required to reimburse Synthes for any tuition reimbursement paid within the past year. (PSUF ¶ 153; DRPS ¶ 153.) Marotta acknowledged this policy. (PSUF ¶ 154; DRPS ¶ 154.)
Brown was employed by Synthes from November 9, 1995 to August 2, 2010. (PSUF ¶ 159; DRPS ¶ 159.) Prior to commencing employment, Brown was required to execute an Employee Innovation and Non-Disclosure Agreement ("Brown NDA"). (PSUF ¶ 160; DRPS ¶ 160.) In addition, Brown received and reviewed Synthes's Employee Policy Manuals and Sales Policy Manual, and Synthes's Global Code of Business Conduct and Ethics and IT Security Policy. (PSUF ¶ 162; DRPS ¶ 162.) During his tenure with Synthes,
In April 2006, Brown received a promotion to Regional Manager of the Rocky Mountain Region, effective June 1, 2006. (PSUF ¶ 165; DRPS ¶ 165.) As a condition of his promotion, Brown executed a Regional Manager Confidentiality, Non-Solicitation and Non-Competition Agreement ("Brown RM NCA") on April 24, 2006. (PSUF ¶ 166; DRPS ¶ 166.) He then received a second promotion to Area Vice President of the Rocky Mountain Area effective January 1, 2008, a condition of which required execution of an Area Vice President Confidentiality, Non-Solicitation and Non-Competition Agreement ("AV NCA"). (PSUF ¶¶ 167-68; DRPS ¶¶ 167-68.)
During his employment with Synthes, Brown had regular and direct contact with Synthes's customers and became intimately familiar with their business needs. (PSUF ¶ 170; DRPS ¶ 170.) In addition, he had access to Synthes's confidential, sensitive, proprietary, and trade secret information. (PSUF ¶ 171; DRPS ¶ 171.)
Around the same time that Marotta and Powell tendered their resignations from Synthes on March 15, 2010, Brown requested and obtained a transfer to a lower level position with Synthes as Regional Manager of the Lone Star Region of Texas, effective April 1, 2010. (PSUF ¶ 174; DRPS ¶ 174.) In close proximity to his transfer, Brown contacted Synthes Human Resources to inquire into the effect of his AVP NCA after taking the position as Regional Manager in Texas and whether a Regional Manager Non-Competition Agreement would supersede his AVP NCA. (PSUF ¶ 175; DRPS ¶ 175.) Synthes indicated that if Brown signed a Regional Manager Non-Competition Agreement for this new position in Texas, his AVP NCA would remain in effect. (Id.)
Defendant Powell applied to Synthes on March 11, 2004, without any background in the orthopedic medical device industry. (PSUF ¶ 176; DRPS ¶ 176.) On March 18, 2004, Powell accepted a position as a Territory Assistant in Synthes's Trauma division based in the Great Lakes West Territory in the area of Chicago, Illinois. (PSUF ¶ 177; DRPS ¶ 177.) In connection with his hiring, Powell executed an Employee Innovation and Non-Disclosure Agreement ("Powell NDA"). (PSUF ¶ 178; DRPS ¶ 178.) Powell also received and reviewed Synthes's Employee Policy Manual and amended Employee Policy Manual, Sales Policy Manual, Global Code of Business Ethics, and IT Security Policy. (PSUF ¶ 179; DRPS ¶ 179.)
In September 2004, Synthes promoted Powell to Associate Sales Consultant and, in June 2006, to Sales Consultant for the territory covering Vail, Colorado. (PSUF ¶ 180; DRPS ¶ 180.) As part of his promotion, Powell reviewed and executed a Sales Consultant Confidentiality, Non-Solicitation, and Non-Competition Agreement on June 1, 2006. ("Powell SC NCA"). (PSUF ¶ 181; DRPS ¶ 181.) One of Powell's key responsibilities as a Sales Consultant was to build relations with surgeons, operating room personnel, and other key hospital personnel. (PSUF ¶ 183; DRPS ¶ 183.) Powell reported directly to Marotta during the time period when Marotta was Regional Manager for the Rocky Mountain Region. (PSUF ¶ 187; DRPS ¶ 187.)
On March 15, 2010, Powell tendered his resignation to his direct supervisor, Marotta. (PSUF ¶ 197; DRPS ¶ 197.) Prior to that time, Powell had given his resume to Marotta for other positions within Synthes. (PSUF ¶ 198; DRPS ¶ 198.) Ultimately, Powell was offered employment with Sonoma Orthopedic Products, Inc., on February 25, 2010. (PSUF ¶ 199; DRPS ¶ 199.) He accepted the offer on March 1, 2010, and signed an employment agreement with Sonoma on March 15, 2010. (PSUF ¶ 200; DRPS ¶ 200.) Powell then disclosed to Synthes that he would be joining a competitor. (PSUF ¶ 201 DRPS ¶ 201.) In turn, Synthes sent a letter to Powell, on March 25, 2010, enclosing copies of the Powell SC NDA and Powell NDA, and indicating, in part, as follows:
(PSUF ¶ 202; DRPS ¶ 202; Pls.' Appx. 113.) On the same day, Synthes sent a letter to Sonoma Orthopedic Products, Inc., which enclosed copies of the Powell SC NCA and Powell NDA, and stated, in part, as follows:
(PSUF ¶ 203; DRPS ¶ 203; Pls.' Appx. 115.)
Powell began his employment with Sonoma Orthopedic Products, Inc. as a Trauma Sales Representative on March 15, 2010. (PSUF ¶ 204; DRPS ¶ 204.) That employment included a three-month guarantee of $10,000 per month. (PSUF ¶ 205; DRPS ¶ 205.) On August 2, 2010, Powell tendered his resignation to Sonoma Orthopedic Products, Inc., to take effect on September 1, 2010. (PSUF ¶ 206; DRPS ¶ 206.)
Synthes offered Trafka a position as a manufacturing engineer at Synthes's Monument, Colorado facility on May 29, 1998. (PSUF ¶ 207; DRPS ¶ 207.) In connection with her employment, Trafka executed an Employee Innovation and Non-Disclosure Agreement and reviewed Synthes's Employee Policy Manual. (PSUF ¶¶ 208-09; DRPS ¶ 208-09.) As a manufacturing engineer at Monument, Trafka's duties were to create aid to manufacturing processes and then document those manufacturing processes. (PSUF ¶ 211; DRPS ¶ 211; Pls.' Appx. 39, Dep. of Victoria Trafka ("Trafka Dep."), 44:15-4:1, June 12, 2013.) In that role, she worked directly with both product development engineers and quality control engineers. (PSUF ¶ 212; DRPS ¶ 212; Trafka Dep. 48:9-49:14.) In April or May of 2001, Trafka resigned from Synthes. (PSUF ¶ 213; DRPS ¶ 213.)
From May 2005 until December 2010, Trafka was employed by Magnum Tool ("Magnum"). (PSUF ¶ 214; DRPS ¶ 214.) Magnum was a vendor used by Synthes for certain manufacturing products. (PSUF ¶ 218; DRPS ¶ 218.) At Magnum, Trafka held positions as project engineer, engineering manager, senior project development engineer, and International Standards Organization manager. (PSUF ¶ 215; DRPS ¶ 215.) During this time, Trafka agreed to maintain the confidentiality of Synthes's proprietary and confidential information accessible to Magnum employees in connection with Magnum's vendor relationship with Synthes. (PSUF ¶ 219; DRPS ¶ 219.) Indeed, she personally
(PSUF ¶ 220; DRPS ¶ 220; Pls.' Appx. 122.) During Trafka's employment with Magnum, she also entered into additional non-disclosure agreements with Synthes. (PSUF ¶ 221; DRPS ¶ 221.)
In connection with her employment with both Synthes and Magnum, Trafka was privy to information about Synthes's specifications for raw materials, machining and manufacturing of product, the finishing of Synthes products, and the inspection of Synthes products. (PSUF ¶ 222; DRPS ¶ 222.) She was also given information about how and where Synthes stores its product drawings and how and where Synthes stores specifications related to raw materials, machining and manufacturing, finishing, and inspection. (PSUF ¶ 223; DRPS ¶ 223.) Finally, Trafka admitted that she had access to Synthes specifications and information regarding raw materials, machining, manufacturing, finishing, and inspection. (PSUF ¶ 224; DRPS ¶ 224.)
Under Synthes's employee policies, "All employees are required to sign an Employee Innovation and Non-Disclosure agreement prior to employment." (PSUF ¶¶ 225-26; DRPS ¶¶ 225-26.) In addition, Non-Competition Agreements are required as a condition of employment for all new Sales Consultants and other positions which may have access to proprietary and/or confidential business information. (PSUF ¶¶ 227-28; DRPS ¶¶ 227-28.) Further, in connection with a promotion, Synthes also requires employees, such as Regional Managers, to execute Synthes's Confidentiality, Non-Solicitation, and Non-Competition Agreements. (PSUF ¶ 229; DRPS ¶ 229.)
Marotta's Regional Manager Non-Competition Agreement ("RM NCA") required that he acknowledge the following:
(PSUF ¶ 230; DRPS ¶ 230; Pls.' Appx. 68.) This language is typical of many of the other NCA's signed by Synthes employees, including those of Brown and Powell. (PSUF ¶ 231 (citing similar agreements).) These agreements also specified what constituted confidential and proprietary information, including information concerning: (1) the identity of customers and prospects, their specific requirements, and their names, addresses, and telephone numbers; (2) prices, renewal dates, and other detailed terms of customer and supplier contracts and proposals; (3) pricing policies, methods of delivering services and products, marketing and sales strategies, product know-how, product technology, and product development strategies; (4) physical security systems, access control systems, network, and other equipment designs; (5) employment and payroll records; (6) forecasts, budgets, and other non-public financial information; (7) product performance information, product technical information, and product know-how; and (8) expansion plans, management
Under these agreements, Marotta, Brown, and Powell agreed that, upon termination of their employment with Synthes, they would immediately return "all correspondence files, business card files, customer and prospects lists, price lists, product lists, software, manuals, technical data, forecasts, budgets, notes, electronically stored information or data, and other materials that contain any of this information." (PSUF ¶ 233; DRPS ¶ 233.) The agreements indicated that the provisions applied "even to information of this type that is developed or conceived by me, alone or with others, at Synthes' instruction or otherwise" and that "these provisions apply to all information I may receive that is confidential and/or proprietary to any customer or other person or entity who does business with Synthes." (PSUF ¶ 234; DRPS ¶ 234; Pls.' Appx. 49, 68, 98, 104.)
Under Marotta's, Brown's, and Powell's and Employee Innovation and Non-Disclosure Agreements ("NDA-s"), the three individuals agreed to the following:
(PSUF ¶ 237; DRPS ¶ 237; Pls.' Appx. 52, 96, 100.) Synthes employees Victoria Trafka, Chance Leonard, Sean North, Brennen Warren, Preston Baus, Brian Hahn, and Craig Lynn had similarly-worded obligations under their respective Employee Innovation and Non-Disclosure Agreements. (Pls.' Appx. 118, 126, 127, 128, 129, 130, 131.) Baus also maintained an additional confidentiality and non-disclosure obligation in connection with his promotion within Synthes to Market Development Manager in Solothurn, Switzerland, as follows:
(Pls.' Appx. 132.)
Under their respective Sales Consultant Non-Competition Agreements ("SC NCA"), Marotta and Powell agreed as follows:
(PSUF ¶ 240; DRPS ¶ 240; Pls.' Appx. 49, 104.) "Competitors" as stated in the SC NCAs, were deemed to be "any persons or entities who now, or in the future, sell, or intend to sell, orthopedic, bone fixation, maxillofacial, medical, endoscopic and/or spinal implant devices or instrumental technologies, products, or services." (PSUF ¶ 241; DRPS ¶ 241; Pls.' Appx. 49, 104.) Again, Synthes employees Colin Brown and Brennen Warren had similarly-worded obligations in their own Confidentiality, Non-Solicitation, and Non-Competition Agreements. (Pls.' Appx. 133, 135.)
Upon his promotion to Regional Manager, Marotta again agreed to certain non-competition provisions in his RM NCA, as follows:
(PSUF ¶ 243; DRPS ¶ 243; Pls.' Appx. 68.) The term "Customer" included hospitals, hospital employees that influenced medical device purchasing decisions "including material management, operating room, sterile processing, and related personnel; and physicians who may use the devices, together with their partners, employees, and staff nurses." (PSUF ¶ 245; DRPS ¶ 245; Pls.' Appx. 68.)
Synthes employees Chance Leonard, Colin Brown, Mike Saunders, Sean North, and Andy White had similarly-worded obligations under their respective Regional Manager Confidentiality, Non-Solicitation, and Non-Competition Agreements. (Pls.' Appx. 134, 136, 137, 139.) Likewise, Synthes employees Josh Gorman, Jason Fowler, Brian Hah, and Preston Baus had similarly-worded obligations under their respective Sales Consultant Confidentiality, Non-Solicitation, and Non-Competition Agreements, with the exception of the non-competition covenant limiting competition in their former Sales Consultant territory, as opposed to a regional manager region. (Pls.' Appx. 140, 141, 142, 143.)
Under his Area Vice-President Non-Competition Agreement ("AVP NCA"), Brown agreed to similar prohibitions on a national scale, as follows:
(PSUF ¶ 251; DRPS ¶ 251; Pls.' Appx. 98.)
All of the Synthes Confidentiality, Non-Solicitation, and Non-Competition Agreements cited above, including Marotta's SC NCA and RM NCA, Brown's AVP NCA, and Powell's SC NCA, have choice of law provisions under which Pennsylvania law is to govern the agreements. (PSUF ¶ 257; DRPS ¶ 257.)
In connection with his employment at Synthes, Marotta received the Synthes Employee Policy Manual, the Global Code of Business Ethics, the Synthes Sales Policy Manual, and Synthes's IT Security Policy, and, in 2009, Marotta received and reviewed Synthes's amended Employee Policy Manual. (PSUF ¶ 259; DRPS ¶ 259.) Marotta was trained on all of these policies. (PSUF ¶¶ 261, 263, 265, 267; DRPS ¶¶ 261, 263, 265, 267.) Marotta generally understood, based on these policies, that computer systems belonged to Synthes, that he was expected to operate in accordance with the terms of the Employee Policy Manuals, that he understood that he had an obligation to abide by Synthes's rules as an employee of Synthes, and that, as a Regional Manager, he should enforce Synthes's rules. (PSUF ¶¶ 269-72; DRPS ¶¶ 269-72.)
Upon joining Emerge, Marotta executed an Executive Employment Agreement. (PSUF ¶ 273; DRPS ¶ 273.) Marotta's Executive Employment Agreement contained, among others, the following relevant provisions:
(Pls.' Appx. 146 (emphasis in original).) In addition, this Employment Agreement contained its own non-competition and confidential information provisions. (Id.)
Emerge also required its employees-including Marotta and Powell-to sign Confidential Information and Innovations and Proprietary Rights Assignment Agreements. (PSUF ¶ 276; DRPS ¶ 276.) Aside from provisions regarding the protection of Emerge proprietary information, the document contained the following provision:
(Pls.' Appx. 147.)
Synthes entered into Supplier Quality Agreements and Non-Disclosure Agreements with the following vendors for the provision of the vendors' goods or services to Synthes: Orchid Unique, Orchid Stealth, Orchid Bio-Coat, LLC, Magnum Tool Company, Inc., and Precision Edge
Synthes' Inventory Management Systems ("SIMS") are cabinets which store Synthes products. (PSUF ¶ 283; DRPS ¶ 283.) The SIMS cabinets are designed to "enhance and standardize inventory management practices of [Synthes] customers as they relate to Synthes products" and provide customers with "access to critical components ... with storage units and workstations designed to improve organization and response in the operating room." (Pls.' Appx. 152.) The SIMS cabinets include features such as high-density drawer storage, a visual inventory, fully enclosed compartments, lockable cabinets, adjustable dividers, and labeled plastic dividers. (Id.)
Notably, Synthes SIMS cabinets are placed into a customer account and are either owned by Synthes, the customer, or a combination of both. (PSUF ¶ 299; DRPS ¶ 299.) Generally, if not on loan, Synthes enters into agreements with customers concerning the SIMS placed at the customer account. (PSUF ¶ 300; DRPS ¶ 300.) Each of the SIMS agreements states that "the storage units will house only Synthes products." (Pls.' Appx. 260-76, 278-80 (emphasis in original).) These provisions appear in SIMS agreements regardless of whether the customer owns all or part of the SIMS units. (PSUF ¶ 303; DRPS ¶ 303.)
In 2009, Brown, while still employed with Synthes, was contemplating a new business that involved providing consulting services to distributors and start-up companies that sold orthopedic medical devices. (PSUF ¶ 308; DRPS ¶ 308.) In connection with this idea, Brown hired Zachary Stassen as a consultant. (Id.) This business model was different from the business model that ultimately became Emerge. (PSUF ¶ 309; DRPS ¶ 309.)
In or around the spring of 2009, Marotta first conceived the business plan upon which Emerge would later be based. (PSUF ¶ 310; DRPS ¶ 310.) Shortly thereafter, Marotta discussed this idea with Brown. (PSUF ¶ 311; DRPS ¶ 311.) Following the introduction of Marotta to Stassen in or about the summer of 2009, Brown, Marotta, and Stassen began to discuss other possible means for a new business, including the idea to sell generic medical device commodities. (PSUF ¶ 312-13; DRPS ¶ 312-13; Pls.' Appx. 26, Interrog. Resp. No. 2.) Brown, Marotta and Stassen saw an opportunity to create a business that would sell non-patented generic medical device commodities, although Brown remained focused on his distributorship idea. (Pls.' Appx. 6; Marotta Dep. 351:6-352:1.) At some point, Brown proposed naming the new company "Emerge" and, upon agreement by the others, a company was incorporated under the name "Emerge Surgical, Inc." (PSUF ¶ 316; DRPS ¶ 316.) Before incorporation, however, it was agreed that Brown would have no further place in the formation or management of Emerge. (Marotta Dep. 152:8-24.)
Following the initial meeting, Marotta and Stassen began analyzing the market to
In January 2010, Stassen resigned from his primary employment. (PSUF ¶ 323; DRPS ¶ 323.) Emerge's Articles of Incorporation were filed on January 13, 2010. (PSUF ¶ 324; DRPS ¶ 324.) Prior to Marotta's resignation from Synthes, he had spoken with potential investors on behalf of Emerge and engaged in numerous other actions to get Emerge up and running. (PSUF ¶¶ 328, 332-35; DRPS ¶¶ 328, 332-335.) Thereafter, from January 2010 to March 2010, Marotta and Stassen were focused on finding investors for Emerge's initial round of financing. (PSUF ¶ 329; DRPS ¶ 329.) As of March 26, 2010, a substantial amount of money had already been raised and was in the bank. (PSUF ¶ 331; DRPS ¶ 331.) Marotta did not terminate his employment with Synthes until April 15, 2010. (PSUF ¶ 337; DRPS ¶ 337.)
Prior to Marotta's and Stassen's introduction, Brown and Stassen worked together on a business plan for an "out-sourced sales force business concept." (PSUF ¶ 338; DRPS ¶ 338.) Marotta first conceived of the business plan on which Emerge would later be based-the concept of a company that sells generic orthopedic products-in the spring of 2009. (PSUF ¶ 341; DRPS ¶ 341.) Shortly thereafter, Marotta discussed his idea with Brown. (PSUF ¶ 342; DRPS ¶ 342.) In late July 2009, Brown met with Stassen and Stassen's father to discuss Brown's "out-sourced sales force business concept," but Stassen and his father did not think this was a viable idea. (PSUF ¶¶ 343-44; DRPS ¶¶ 343-44.)
As noted above, in the summer of 2009, following Brown's introduction of Marotta to Stassen, the three began to discuss a possible idea to sell generic medical device commodities. (PSUF ¶¶ 346-47; DRPS ¶¶ 346-47.) On August 2, 2009, Marotta emailed Stassen and Brown a "first cut" of the Emerge business model, which identified an initial offering of drill bits and cannulated screws, a market strategy of no sales representatives and low-cost, non-surgeon preference items, and a management team of Brown, Marotta, and Stassen. (PSUF ¶¶ 348-50; DRPS ¶¶ 348-50.)
Following this "first cut" email, Marotta and Brown continued to formulate ideas for the new business. (PSUF ¶ 356; DRPS ¶ 356.) Marotta and Brown then inquired with various manufacturing companies as to the types of products they could make. (PSUF ¶¶ 357-58; DRPS ¶¶ 357-58.) During the remainder of August 2009, Marotta and Brown exchanged numerous emails regarding this new business venture. (PSUF ¶¶ 359-64; DRPS ¶¶ 359-64.) Marotta also sought out Synthes invoices for 2008 and 2009, which contained customer purchasing information, including historical purchases and specific pricing. (PSUF ¶ 365-67; DRPS ¶¶ 365-67.)
On August 13, 2009, Marotta met with Stassen and Brown in Colorado to discuss
At one point, Marotta accidentally sent an Emerge-related email to Brown's Synthes account. (PSUF ¶ 390; DRPS ¶ 390.) When Brown identified the error and Marotta recognized his mistake, the two agreed to forego using personal email from phones, use only personal computers and phone, and discuss only bare essentials with everyone from there on, i.e. their "stealth" plan. (PSUF ¶¶ 391-92, 396-99; DRPS ¶¶ 391-92; 396-99.) This plan continued throughout Emerge's sales efforts in 2010. (PSUF ¶¶ 401-02; DRPS ¶¶ 401-02.)
On September 2, 2009, in Denver, Colorado, Marotta had dinner with Charlie Knight, a Synthes employee, concerning Emerge. (PSUF ¶ 403; DRPS ¶ 403.) Marotta was considering retaining him in connection with the formation strategy for the business described in Marotta's August 2, 2009 "first cut" email. (PSUF ¶ 404; DRPS ¶¶ 404.) Marotta then submitted an expense report to Synthes for the cost of this dinner, in the amount of $120.58, and identified a Dr. Fitzgerald as the Synthes customer entertained for this expense. (PSUF ¶¶ 405-06; DRPS ¶¶ 405-06.) Following some discussion about Knight's non-compete obligations, Marotta ultimately retained Knight on behalf of Emerge in the fall of 2009. (PSUF ¶¶ 409-11; DRPS ¶¶ 409-11.)
On September 18, 2009, Stassen sent Marotta and Brown a PowerPoint presentation with the file name "Emerge Surgical — Zach Sections." (PSUF ¶ 417; DRPS ¶ 417.) This presentation identified Brown as one of the "key management members." (PSUF ¶ 418; DRPS ¶ 418.) Brown, in turn, noted that he was "organizing an amazing amount of data," was "planning to create a Sales Strategy," and "our combined efforts will result in a very tangible plan to take this to market." (PSUF ¶ 420; DRPS ¶ 420.) In the September and October time frame, Marotta met with venture capitalists and began working with a vendor for the design of Emerge's corporate logos. (PSUF ¶¶ 421-22; DRPS ¶¶ 421-22.)
Also in October 2009, Marotta met with Brown and Knight to discuss the noncompete agreements Marotta and Brown each had with Synthes. (PSUF ¶ 423; DRPS ¶ 423.) In subsequent emails, Brown "emphasized [their] adherence to the `stealth' plan in order to avoid detection from Synthes and identified a number of legal issues that [they] needed to address in the upcoming week, including the recruitment of Synthes employees and whether Emerge could be formed prior to [Brown's] and Marotta's resignations from Synthes." (Pls.' Appx. 24, Brown's Statement ¶ 72; PSUF ¶ 426; DRPS ¶ 426.) Brown also "described in detail the idea of [Emerge's] model as an `unbundling' of trauma segments" and "identified potential customers to target, including hospitals,
Throughout the remainder of September and October of 2009, Brown, Marotta, and Stassen exchanged many additional emails addressing strategy for Emerge. (PSUF ¶¶ 438-86; DRPS ¶¶ 438-86.) Synthes contends that many of these emails were sent during the course of Brown and Marotta's employment by Synthes and that several business lunches were expensed to and paid for by Synthes. (Id.)
In late October 2009, Marotta met with Victoria Trafka to discuss her interest in doing contract design work for Emerge. (PSUF ¶ 487; DRPS ¶ 487.) Marotta had originally been introduced to Trafka in 2008, through her husband Richard Brown, and was aware that Trafka was formerly a manufacturing engineer for Synthes at its Monument, Colorado facility. (PSUF ¶ 490 DRPS ¶ 490.) Marotta contacted Trafka in October 2009 because no one at Emerge had engineering knowledge and Trafka had compiled an extensive engineering background. (PSUF ¶ 490 DRPS ¶ 491.)
Thereafter, in November 2009, Marotta and Stassen developed a Private Placement Memorandum for Emerge to use with investors, which identified Brown as a "founder," "majority owner," "Chief Executive Officer," "President," and "Chairman of the Board." (Pls.' Appx. 292.) Brown and Marotta had also developed a listing of potential Emerge products and customers. (PSUF ¶ 496; DRPS ¶ 496.) In the twenty-first version of the draft, the memorandum stated, under "Company Ownership," that "Emerge was established in January 2010 by founders John Marotta, Zack Stassen and Eric Brown whom are company owners." (Pls.' Appx. 216.) The business plan also contained a table and chart of "milestones" reflecting a formation date in January 2010 and targeted dates for other objectives running from February 2010 to November 2010. (Id.) On December 2, 2009, however, Stassen sent Marotta an "initial draft of the Company Overview for the Investment Memorandum," which contained no reference to Brown under the Management Team. (PSUF ¶¶ 507-08; DRPS ¶¶ 507-08; Pls.' Appx. 712.) Indeed, as of December 14, 2009, it was determined that Brown could no longer participate in the company because of the national scope of his AVP NCA with Synthes. (PSUF ¶ 528; DRPS ¶ 528.)
The record reflects that Stassen and Marotta, on behalf of Emerge, met with several Synthes customers in the December 2009 time frame. Both Stassen and Marotta met with Denise Rosnick from Denver Health in an effort to become Denver Health's supplier for low-cost trauma products. (PSUF ¶ 510-14; DRPS ¶ 510-14.) In addition, Stassen and Marotta began working with Dr. Morgan, also from Denver Health, with respect to the concepts portrayed in Emerge's business plan. (PSUF ¶¶ 520-23.) In connection with Stassen and Marotta's meetings with Dr. Morgan, Marotta expensed his meals to Synthes under the guise of meetings with other Synthes clients. (PSUF ¶¶ 532-58; DRPS ¶¶ 532-38.) Marotta also met with Dr. Motzkin regarding Motzkin's interest in investing in Emerge-meetings which were likewise subsidized by Synthes. (PSUF ¶ 556-57, 566-71; DRPS ¶ 556-57, 566-71.)
Emerge's Articles of Incorporation were filed with the Colorado Secretary of State on January 13, 2010, and they listed Emerge's principal executive office as Marotta's home address in Denver, Colorado. (PSUF ¶ 545-46; DRPS ¶¶ 545-46.) The Initial Written Consent of the Board of Directors indicated that Marotta and
On February 9, 2010, Marotta emailed Stassen's father identifying Synthes employees Bryan Murray, Brennen Warren, and Colin Brown as potential employees for Sonoma Orthopedics. (PSUF ¶ 578-79; DRPS ¶¶ 578-79.) Thereafter, on February 11, 2010, a meeting was scheduled between Marotta and Powell. (PSUF ¶ 583; DRPS ¶ 583.) Powell emailed his resume to Marotta's personal account. (PSUF ¶ 584; DRPS ¶ 584.) Marotta then forwarded the resumes of several Synthes people to Sonoma for consideration. (PSUF ¶ 590; DRPS ¶ 590.)
Notably, throughout 2009 and 2010, Marotta submitted his telephone bills to Synthes and Synthes reimbursed him for these payments. (PSUF ¶ 603-04; DRPS ¶¶ 603-04.) In addition, Marotta submitted an expense report to Synthes for reimbursement of his February communication expenses, including for wireless numbers used, in part, for Emerge purposes. Synthes also reimbursed Marotta for these expenses. (PSUF ¶¶ 605-08; DRPS ¶¶ 605-08.)
On March 15, 2010, Marotta submitted his official letter of resignation to Brown, his Synthes Area Vice President and supervisor. (PSUF ¶ 614; DRPS ¶ 614.) That same day, he submitted an inventory check out memorandum to Synthes, effective April 15, 2010, and then forwarded both the letter and memorandum to Stassen and Knight. (PSUF ¶¶ 615, 617; DRPS ¶¶ 615, 617.) After submission of his resignation, but while still employed by Synthes, Marotta had two separate meetings with Synthes sales management personnel, Tony Randazzo and Ken Carpenter, at which time he suggested that he was going to work with his uncle. (PSUF ¶¶ 618-19; DRPS ¶¶ 618-19; Pls.' Appx. 18, Marotta Dep., 116:18-117:7, June 26, 2013.) Specifically, he stated that "I will be working for one of my Uncle's companies, he is a Health Care Sendees guy. It's a good move for me. One of his companies in which he is on the board of is in Tennessee called Centerre." (PSUF ¶ 620; DRPS ¶ 620; Pls.' Appx. 18, Marotta Dep. 113:16-21, June 26, 2013.) Brown knew that Marotta "was planning to join Emerge and that Emerge's plan was to enter the orthopedic market focused on drill bits and cannulated screws." (Pls.' Appx. 24, Brown Statement ¶ 93, PSUF ¶¶ 621-22; DRPS ¶¶ 621-22.) Brown, however, never told anyone at Synthes what Marotta's plans were. (PSUF ¶ 623; DRPS ¶ 623.)
As of March 26, 2010, Emerge's initial round of financing brought in approximately $2 million. (PSUF ¶¶ 630-31, DRPS ¶¶ 630-31.) Around that time, Emerge sent physical samples of Synthes products to Orchid for reverse engineering and design of Emerge's initial product offerings of drill bits, guide wires, and cannulated screws. (PSUF ¶¶ 632-33; DRPS ¶¶ 632-33.) In addition, Trafka sent Marotta information regarding the manufacture of reaming rods, including information regarding the production of Synthes reaming rods. (PSUF ¶ 634; DRPS ¶ 634.) By late June 2010, Orchid was evaluating samples of reaming rods and working on reverse engineering Synthes reaming rods on behalf of Emerge. (PSUF ¶ 635; DRPS ¶ 635.)
Multiple other steps were taken by Marotta and Stassen to finalize Emerge's start up in March 2010. The two men toured potential office space, obtained business cards, and purchased office supplies.
Marotta was personally involved in the preparation and finalization of Emerge's Private Placement Memorandum ("PPM") for its initial round of financing, which occurred during the course of Marotta's employment with Synthes. (PSUF ¶¶ 649-51; DRPS ¶¶ 649-51.) Marotta and Stassen understood that the PPM needed to be accurate and truthful. (PSUF ¶¶ 652-56; DRPS ¶¶ 652-56.) The description of the business indicated that Emerge "plans to take a new approach to distribution, focusing more on hospital administration and department heads rather than marketing to individual surgeons." (Pls.' Appx. 166; PSUF ¶ 664; DRPS ¶ 664.) Emerge's initial plan was to target specific products in specific segments of the orthopedic implant industry, referred to as "unbundling." (PSUF ¶ 667; DRPS ¶ 667.) Emerge's target market was the entire $92 billion U.S. device market, but it chose to initially focus on the $2 billion trauma segment of the orthopedic device market. (PSUF ¶¶ 668-69; DRPS ¶¶ 668-69.) The PPM identified Emerge's initial products as representing a potential $500 million market. (PSUF ¶ 670; DRPS ¶ 670.) In order to accomplish this goal, the PPM noted that "it is our observation that hospitals have been and continue to decrease the presence of sales representatives in the hospital in an effort to disintermediate the sales reps with the physicians." (PSUF ¶ 672; DRPS ¶ 672.) This concept of disintermediation involved selling to hospitals directly and attempting to take sales representatives and physicians out of purchasing decisions. (PSUF ¶ 673; DRPS 673.) Under the "Initial Products" section of the PPM, Emerge identified its initial product portfolio as cannulated screws, drill bits, and guide wires. (PSUF ¶ 675; DRPS ¶ 675.)
The PPM identified Marotta and Stassen as 50/50 owners in Emerge as of January 30, 2010. (PSUF ¶ 680; DRPS ¶ 680.) The PPM also listed Dr. Steven Morgan, John Lewis (Marotta's uncle), and Stassen's father as advisors. (PSUF ¶ 681, DRPS ¶ 681.) Notably, Dr. Morgan is currently a director of Emerge and was granted additional options for his involvement as a director and his duties as a medical advisor. (PSUF ¶ 682; DRPS ¶ 682.) As part of the potential risks for investors, the PPM contained a discussion of Marotta's RM NCA. (PSUF ¶ 683; DRPS ¶ 683.) It did not, however, identify or discuss Marotta's SC NCA or NDA or Synthes's written employment policies. (PSUF ¶ 686; DRPS ¶ 686.) Notably, Marotta did not provide his SC NCA or NDA or Synthes's employment policies to Stassen or Knight for review and had not even thought about the NDA until after Synthes filed suit. (PSUF ¶¶ 687, 689; DRPS ¶¶ 687, 689.)
During Emerge's second round of financing, Emerge circulated another Private Placement Memorandum that contained language characterizing certain aspects of Emerge's business model as "new" and "unique." (PSUF ¶ 692; DRPS ¶ 692.) This second Private Placement Memorandum was distributed to existing investors, some of whom
In January 2010, Emerge gave an investor presentation in order to attract investor interest in the organization. (PSUF ¶¶ 694-95; DRPS ¶¶ 694-95.) The stated "Corporate Goal" in the presentation indicated that "Emerge Surgical will be the first medical device company willing to partner with hospitals to provide true and meaningful cost savings while at the same time delivering product of the highest quality." (Pls.' Appx. 436; PSUF ¶ 696; DRPS ¶ 696.) The presentation identified a "Unique Approach to Product Distribution" and noted that Synthes was one of Emerge's competitors. (PSUF ¶¶ 697-98; DRPS ¶¶ 697-98.)
The slide entitled "Implementation" depicted how a hospital manages product inventory and how Emerge fits in. (PSUF ¶ 699; DRPS 699.) The photographs on this slide contained photographs of Synthes Inventory Management System (SIMS) and dividers with Synthes's logo on them. (PSUF ¶ 700; DRPS ¶ 700.)
In order to have someone from the medical community represented and to show that the organization had credible business minds behind it, Dr. Morgan was listed as an advisor on the final investor presentation. (PSUF ¶¶ 702-03; DRPS ¶¶ 702-03.) Stassen testified that Dr. Morgan's listing may have helped raise money. (PSUF ¶ 704; DRPS ¶ 704; Stassen Dep. 203:10-15.)
Marotta has stated that "Emerge has devised a new approach to the sales of Implantation Hardware providing the American public with like-numbered, [sic] product that is similar to the Synthes Implantation Hardware and that can be stored alongside Synthes' sophisticated orthopedic implants and used with Synthes' inventory management systems and surgical sets." (Pls.' Appx. 7, Marotta Answer to Am. Compl. ¶ 156; Pls.' Appx 2, Emerge Answer to Am. Compl. ¶ 156.) A press release of April 4, 2011 characterized Emerge as offering "the industry's first-ever line of high-quality generic implants and instruments." (Pls.' Appx. 141; PSUF ¶ 708; DRPS ¶ 708.) In a subsequent press release dated April 7, 2011, Marotta indicated that Emerge's "supply chain model offers hospitals and physicians high-quality products at significantly lower cost, changing the way medical device sales are approached ..." (Pls.' Appx. 167; PSUF ¶ 709; DRPS ¶ 709.)
Beginning in January 2010, Marotta was personally involved in Emerge's fundraising efforts and contacted a number of potential investors regarding the formation of Emerge. (PSUF ¶ 710; DRPS ¶ 710.) From January 2010 to March 2010, Marotta and Stassen were focused on finding investors for Emerge's initial round of financing. (PSUF ¶ 711; DRPS ¶ 711.) In these efforts, Marotta used the Private Placement Memorandum. (PSUF ¶ 712; DRPS ¶ 712.) Prior to leaving Synthes, Marotta, on behalf of Emerge, targeted a lengthy list of orthopedic surgeons regarding investment in Emerge. (PSUF ¶ 713; DRPS ¶ 713.) Dr. Morgan also became involved in soliciting investors on behalf of Emerge. (PSUF ¶ 714; DRPS ¶ 714.) Synthes Sales Consultant Brennen Warren also introduced Marotta and Stassen to Dr. David Laverty for purposes of discussing Emerge and soliciting potential investments in Emerge. (PSUF ¶ 715; DRPS ¶ 715.) Ultimately, twenty-one orthopedic surgeons invested in Emerge during
Aside from speaking with surgeons, Marotta was also involved in discussions with Synthes employees — including Colin Brown, Mike Saunders, Andy White, Craig Lynn, and Brian Hahn — regarding potential investments in Emerge. (PSUF ¶ 717; DRPS ¶ 717.) All of them or their spouses, with the exception of Brian Hahn, invested in Emerge in the initial round of financing. (PSUF ¶ 718; DRPS ¶ 718.) Synthes later terminated these Synthes employees because it believed that investment in a privately-held competing business such as Emerge constituted a violation of Synthes's policies. (PSUF ¶ 719; DRPS ¶ 719.)
As noted above, in January 2010, Marotta had discussions with Orchid about contracting for design and manufacturing services for Emerge. (PSUF ¶ 721; DRPS ¶ 721.) Stassen was aware that Orchid was a vendor of Synthes at that time. (PSUF ¶¶ 724; DRPS ¶ 724.) Emerge and Orchid discussed the fact that Synthes's product would be the "gold standard" for the design and development of Emerge product. (PSUF ¶ 725; DRPS ¶ 725.) Marotta and Orchid representative Brian McLaughlin exchanged a series of emails between January 26, 2010 and February 24, 2010, regarding product designs for Emerge. (PSUF ¶¶ 727-32; DRPS ¶¶ 727-32.) On March 16, 2010, Orchid sent Emerge a proposal on which Marotta's approval appears on behalf of Emerge as CEO. (PSUF ¶¶ 737-38; DRPS ¶¶ 737-38.) The proposal required payment of an $8,000 deposit, which Marotta believes he paid and for which he was later reimbursed by Emerge. (PSUF ¶ 739; DRPS ¶ 739.)
Prior to April 15, 2010, Emerge sent physical samples of Synthes cannulated screws to Orchid to assist in reverse engineering those products and begin the design of Emerge's initial product offerings. (PSUF ¶ 740; DRPS ¶ 740.) The process of reverse engineering cannulated screws involved, in part, looking at the screw samples provided by Emerge, taking measurements from those samples, looking at industry standards for screws, and then creating CAD models and drawings. (PSUF ¶ 742; DRPS ¶ 742.) Orchid had also begun working on draft versions of prints for Emerge's initial product offerings of drill bits, guide wires, and cannulated screws, and was in communication with Emerge regarding those drawings. (PSUF ¶¶ 745-46; DRPS ¶¶ 745-46.) The design prints Emerge ultimately submitted to the FDA in the 510(k) submission for its "cannulated screw fixation system" are dated March 29, 2010, which is prior to the termination of Marotta's employment with Synthes. (PSUF ¶ 747; DRPS ¶ 747.)
On August 24, 2010, Orchid emailed Marotta and Stassen regarding the possible development of an "external fixation" system and attached a Synthes technique guide for a large external fixation system. (PSUF ¶¶ 748-49; DRPS ¶¶ 748-49.) In addition, on September 16, 2010, Orchid sent Marotta and Stassen a proposal for the design and development of locking screws, which was also something being considered and discussed at Emerge. (PSUF ¶¶ 750-51; DRPS ¶¶ 750-51.) On August 30, 2011, however, Emerge received a letter from the CEO of Orchid, Michael E. Miller, informing Emerge that Orchid would fulfill existing contractual agreements with Emerge, but would not take any additional orders, as follows:
(Pls.' Appx. 624; PSUF ¶ 752; DRPS ¶ 752.)
As of at least early April 2010, Emerge was shipping Synthes products to Orchid. (Pls.' Appx. 178; PSUF ¶ 753; DRPS ¶ 753.) Marotta had a significant volume of Synthes-branded product in his home garage. (PSUF ¶ 758; DRPS ¶ 758.) By the time Marcy Slone joined Emerge in early 2010, Emerge already had obtained Synthes product that was being stored at the Emerge office and covered with a black curtain. (PSUF ¶¶ 760-61; DRPS ¶¶ 760-61.) When Powell later joined Emerge in September 2010, he brought some Synthes product with him. (PSUF ¶ 762; DRPS ¶ 762.) Even before Powell officially joined Emerge, however, Powell provided product to Emerge while he was employed with Sonoma Orthopedic Products, Inc. (PSUF ¶ 762; DRPS ¶ 763.) Later in 2010, Emerge, through Marotta and Powell, asked for sample Synthes product from a number of Synthes representatives, including: Jason Fowler, Colin Brown, Josh Gorman, Blake Whitson, Brad Chun, Jason Ramirez, and Scott Jones. (PSUF ¶¶ 764-65; DRPS ¶ 764-65.) Only Gorman, Fowler, and Brown provided any such product. (PSUF ¶¶ 766, 768; DRPS ¶¶ 766, 768.)
Emerge does not have any records documenting the origins of the tested product, but Marotta believed that the Synthes product sent to Orchid came from Josh Gorman, Jason Fowler, and Colin Brown. (PSUF ¶ 772; DRPS ¶ 772.) In connection with the 510(k) submission for Emerge's "cannulated screw fixation system, Orchid conducted engineering testing in the summer of 2010 on the Synthes products that were selected by Emerge to be the predicate devices." (PSUF ¶ 774; DRPS ¶¶ 774.)
The record reflects that Emerge received Synthes confidential and proprietary information from several sources, including Marcy Slone, who was later terminated by Emerge on January 27, 2011, and Preston Baus, a former Synthes employee. (PSUF ¶ 796; DRPS ¶ 796; Pls.' Appx. 29, 503, 504, 507, 514.) This information took multiple different forms.
On April 17, 2010, Marotta emailed Baus requesting that Baus send him "Synthes manufacturing costs," to which Baus replied with an Excel file containing Synthes manufacturing costs. (Pls.' Appx. 504; PSUF ¶¶ 810-11; DRPS ¶¶ 810-11.) Synthes contends that its manufacturing costs constitute highly confidential information. (PSUF ¶ 812.) At the time Baus sent the Excel spreadsheet, Emerge was in the "design input phase," which is the first step in developing product so that
On August 2, 2010, Marotta emailed Slone various design drawings, including drawings for Synthes external fixation products. (PSUF ¶ 815; DRPS ¶ 815; Pls.' Appx. 508, 513.) Marotta had received these drawings from Baus on July 17, 2010, while Baus was still employed by Synthes. (PSUF ¶ 817; DRPS ¶ 817.) Marotta testified that he assumed Baus should not have been giving him this information. (Pls.' Appx. 3, Marotta Dep., 38:4-5, July 5, 2011; PSUF ¶ 819, DRPS ¶ 819.) Nevertheless, these documents were ultimately circulated among Emerge employees. (PSUF ¶ 820; DRPS ¶ 820.)
Around that same time in August 2010, Emerge was exploring the possibility of producing a limited number of external fixation components and locking screws as additional product offerings, and they received proposals for their design and development from Orchid. (PSUF ¶¶ 821-22; DRPS ¶¶ 821-22.) By that point in time, Emerge had already obtained certain external fixation prints from Preston Baus. (PSUF ¶ 824; DRPS ¶ 824.)
On July 17, 2010, Baus also provided Marotta with a Synthes Critical Features document, which bore a Synthes logo and included critical features, dimensions, and tolerances for certain Synthes products, including locking, non-locking, and cannulated screws. (PSUF ¶ 826; DRPS ¶ 826.) Synthes has characterized its Critical Features document as highly confidential and trade secret information belonging to Synthes. (PSUF ¶ 827, DRPS ¶ 827.) Slone agreed that the specific tolerance information on the Synthes Critical Features document is not something Synthes would want a competitor to obtain. (PSUF ¶ 829; DRPS ¶ 829.)
This Critical Features document was circulated among Emerge employees and, in addition, was sent by Slone to Orchid. (PSUF ¶¶ 830-31; DRPS ¶¶ 830-31.) In July 2010, when Orchid received this document, Orchid shredded it because it "looked like something [Orchid] shouldn't have had" and was something that "wasn't in the public domain." (Pls.' Appx. 489, Dep. of Ron Litke ("Litke Dep."), 132:7-134:7, Sep. 16, 2011.) Slone indicated that she then altered the Synthes Critical Features document by removing information related to products other than cannulated screws, changing the font, removing the Synthes employee email header, and substituting an Emerge logo for the Synthes logo. (PSUF ¶ 835; DRPS ¶ 835.) The document, however, still contained some critical features for cannulated screws. (PSUF ¶ 837; DRPS ¶ 837.) Notably, Emerge claims that Slone altered this document without Emerge's consent. (PSUF ¶ 835; DRPS ¶ 835.) Slone then sent the altered document to Ron Litke at Orchid, stating "Here is a brief document outlining some critical features for the cannulated screws. It may be helpful at some point." (Pls.' Appx. 520.) Also on July 21, 2010, Emerge sent the same altered document, entitled "Emerge Critical Features 7-21-2010.doc," to Tom Berg and Steve Sorlie at Mountain Manufacturing. (PSUF ¶ 840; DRPS ¶ 840.) Mountain Manufacturing is a vendor Emerge had initially used for the prototyping of Emerge's cannulated screws. (PSUF ¶ 842; DRPS ¶ 843.)
Around this time, Emerge was making revisions to its initial cannulated screw design. (PSUF ¶¶ 845-46; DRPS ¶¶ 845-46.) In the summer and early fall of 2010, there were differences between Emerge's
In April 2012, Emerge produced in discovery five Synthes documents containing Synthes engineering specifications. (PSUF ¶ 856; DRPS ¶ 856.) These documents contain standards and specifications for, among other things, the design and dimensioning, tolerancing, manufacturing, finishing, and inspection of certain Synthes products. (PSUF ¶ 858; DRPS ¶ 858.) According to Stassen, these documents, in their native electronic format, came to be in Emerge's possession when Stassen transferred these documents from a thumb drive used by Trafka to perform her work for Emerge to his Emerge laptop. (PSUF ¶ 861.) Stassen then transferred the documents from his Emerge laptop onto a new thumb drive and returned both drives to Trafka. (PSUF ¶ 862.) Trafka, however, denies that the files were transferred from her thumb drive. (DRPS ¶¶ 861-62; Trafka Dep. 207:1-208:11.)
In the spring of 2010, Emerge and Hammill Manufacturing began discussions about the manufacture of certain products, and Marotta met with John Hammill. (PSUF ¶ 870; DRPS ¶ 870.) Initially, Emerge's discussions focused on quotes for the manufacture of Emerge's drill bits, guide wires, and cannulated screws, with Emerge sending Hammill Manufacturing the latest versions of all the screw and washer prints Orchid had prepared on April 30, 2010. (PSUF ¶ 874; DRPS ¶ 874.) On May 19, 2010, however, Hammill Manufacturing emailed Emerge that it had "decided to pass" on Emerge's manufacturing request. (PSUF ¶ 875; DRPS ¶ 875.) Nonetheless, Marotta met with John Hammill again on May 25, 2010 to discuss budgetary pricing for the manufacturing of Emerge screws and, subsequently, on June 3, 2010, Emerge sent out prints to John Hammill. (PSUF ¶¶ 876-81; DRPS ¶¶ 876-81.) Ultimately, in mid-June 2010, Hamill Manufacturing sent Emerge a quote for the manufacture of cancellous screws. (PSUF ¶¶ 883-85; DRPS ¶¶ 883-85.) The quote file had six drawings for cancellous and cortical screws, each of which contained Synthes's logo and an admonition that, "This drawing and/or the electronic model used to create it are the property of Synthes and may not be reproduced by any means or transmitted to third parties without prior written permission of Synthes. All rights reserved." (Pls.' Appx. 577; PSUF ¶¶ 886, 891, 895; DRPS ¶¶ 886, 891, 895.) Hammill Manufacturing testified that these drawings must have been received from Emerge. (PSUF ¶¶ 887-90, 892-94; DRPS ¶¶ 887-90; 892-94.) Marcy Slone admits that before sending paper copies of these Synthes cortical and cancellous screw prints to Hammill Manufacturing,
On May 19, 2010, Karen Foster, a Synthes sales support specialist in West Chester, Pennsylvania, emailed to Chance Leonard an attachment containing Synthes's usage reports for multiple facilities within the Catholic Healthcare West system, including Chandler Regional Hospital and Mercy Gilbert Medical Center. (PSUF ¶ 906; DRPS ¶ 906.) The following day, Foster emailed Leonard the 2008 and 2009 usage files for multiple Banner Health Facilities. (PSUF ¶ 907; DRPS ¶ 907.)
In the early summer of 2010, Marotta traveled to Arizona to meet with investors and potential customers of Emerge, and recalls visiting Leonard around this time. (PSUF ¶¶ 909-10, 913 DRPS ¶¶ 909-10, 913.) On May 1, 2010, Leonard executed an Emerge Confidentiality and Non-Disclosure Agreement. (PSUF ¶¶ 911; DRPS ¶ 911.) At some point in 2010, Emerge came to possess the identical usage data that Foster had prepared for Leonard. (PSUF ¶ 914; DRPS ¶ Pls.' Appx 655.) Marotta, as Emerge's corporate designee, had no information as to how Emerge came into possession of Synthes usage and pricing information for these hospitals. (PSUF ¶ 920; DRPS ¶ 920.) According to Stassen, however, following Marotta's May 2010 trip to Arizona, Marotta gave Stassen a thumb drive containing Excel spreadsheets, which provided, among other things, usage data for Synthes products for approximately fifteen hospitals and ambulatory surgery centers in Arizona, information on the sales volume of particular Synthes products over a two-year time period, and the specific pricing offered to those institutions for those specific products at those times. (PSUF ¶¶ 921-22; DRPS ¶¶ 921-22.)
Marotta did not know if this usage data was used by Emerge in any way during the summer of 2010. (PSUF ¶ 923; DRPS ¶ 923.) According to Stassen, however, he used the Synthes Arizona usage data "to assess sales potential of various products and to determine the volume of various products that Emerge might manufacture" because "at this time, Emerge was in the process of determining what products to produce and what quantities to produce." (Pls.' Appx. 20, Stassen Decl. ¶ 69; PSUF ¶ 927; DRPS ¶ 927.) According to Slone, she used the Arizona usage data often throughout her employment with Emerge "to determine what quantities of product to manufacture and order." (PSUF ¶ 930; DRPS ¶ 930.) Powell also acknowledged using Arizona usage data in his role at Emerge. (PSUF ¶ 932; DRPS ¶ 932.) Ultimately, Emerge's first accounts in late 2010 and early 2011 included Banner Gateway, Chandler Regional, and Mercy Gilbert. (PSUF ¶ 933; DRPS ¶¶ 933.)
During his employment with Synthes, Marotta obtained a chart listing various dimensions and characteristics for Synthes's cannulated screws entitled "Cannulated Screw Comparison Chart." (PSUF ¶ 934; DRPS ¶ 934.) He kept it in a folder a maintained for competitive product. (PSUF ¶ 935; DRPS ¶ 935.) On March 23, 2010, Marotta sent the "Cannulated Screw Comparison Chart" to Orchid to aid Orchid in the development of Emerge's cannulated screw designs. (PSUF ¶ 936; DRPS ¶ 936.)
While still employed with Synthes, Marotta sent various Synthes information to
After the initiation of litigation in March 2011, Emerge produced numerous emails that were sent or received during Marotta's and Powell's employment with Synthes using Marotta's and Powell's Synthes email accounts that each had retained after their resignations from Synthes and during their employment with Emerge. (PSUF ¶ 946; DRPS ¶ 946.) These emails included a presentation of an evaluation done on Synthes's performance in the surgery center market, as well as an email concerning Synthes screws on consignment at Denver Health. (PSUF ¶¶ 947, 949; DRPS ¶¶ 947, 949.)
On January 10, 2010, Ken Carpenter, one of the Synthes sales management personnel, emailed to Brown and other Synthes Area Vice Presidents a Business Development Discussion Slide Deck noting that the presentation was "Extremely Confidential! ! !" (PSUF ¶ 952; DRPS ¶ 952.) This slide deck contained reference to Sonoma Orthopedics and Cayenne Medical, both of which were part of Stassen's father's partnership's portfolio. (PSUF ¶¶ 953-54; DRPS ¶¶ 953-54.) At the end of January 2010, Stassen had lunch with Brown, at which time Brown showed Stassen a PowerPoint presentation containing Synthes's confidential information regarding strategic acquisition targets. (PSUF ¶ 956; DRPS ¶ 956.) Stassen indicated that he recognized two or three of the companies and remarked that Synthes might be targeting those companies because they were part of his father's partnership portfolio. (PSUF ¶ 957; DRPS ¶ 957.) Shortly thereafter, Stassen's father emailed him regarding the names on the list and, although Stassen understood it to be "super top secret," he went on to describe the information he saw in the presentation. (PSUF ¶¶ 958-60; DRPS ¶¶ 958-60.) Stassen's father then shared this information with Jim Hart, the former CEO of Cayenne Medical. (PSUF ¶ 961; DRPS ¶ 961.)
On August 17, 2010, Emerge filed a 510(k) submission with the FDA for its "cannulated screw fixation system." (PSUF ¶ 962; DRPS ¶ 962.) Thereafter, on November 23, 2010, Emerge obtained FDA 510(k) clearance for this system. (PSUF ¶ 963; DRPS ¶ 963.) The FDA determined that "the device is substantially equivalent (for the indications for use stated in the enclosure)." (Pls.' Appx. 483; PSUF ¶ 964; DRPS ¶ 964.) That indication for use provided that "The Emerge Cannulated Screw Fixation System is intended to provide bone fixation in the management of fractures of both small and large bones and bone fragments, including those in the foot, patella, ankle, wrist, and elbow and arthrodesis of the foot, wrist, and elbow and small and long bone osteotomies."
Emerge's drill bits and guide wires have not been cleared by the FDA under the 510(k) process and were not the subject of a 51000 submission. (PSUF ¶ 968; DRPS ¶ 968.) In August 2012, Emerge submitted a 510(k) submission for its solid bone screw line. (PSUF ¶ 969; DRPS ¶ 969.) An email from an FDA reviewer stated that, based on a review of that submission, it could not "determine if the device is substantially equivalent to a legally marketed predicate device based solely on the information you provided." (Pls.' Appx. 607; PSUF ¶ 970; DRPS ¶ 970.) Following the FDA's request for additional information, Emerge indicated that its intent was to use the bone screws "to provide bone fixation in the management of osteotomies, fusions, and fractures of metaphysis and diaphysis of both small and large bones in the pelvis. The screws may be used alone, or with washers." (PSUF ¶¶ 971-75; DRPS ¶¶ 971-75.)
Emerge has considered additional product offerings similar to those sold by Synthes including, but not limited to, cortical and cancellous bone screws and a locking one-third tubular plate system. (PSUF ¶ 976; DRPS ¶ 976.) Ultimately, on December 12, 2012, the FDA approved Emerge's solid bone screws and, on July 3, 2013, a "locking one-third tubular plate system." (PSUF ¶ 977; DRPS ¶ 977.) The bone screws were cleared with the indication for use described above. (PSUF ¶ 978; DRPS ¶ 978.) The locking one-third tubular plate system was cleared with the following indication for use: "fixation of fractures, osteotomies, and nonunions of the clavicle, scapula, olecranon, humerus, radius, ulna, pelvis, distal tibia, and fibula, including osteopenic bone." (PSUF ¶ 979 (citing publicly available documents); DRPS ¶ 979.) Emerge also has additional products in development at this time. (PSUF ¶ 980; DRPS ¶ 980.)
Emerge's initial sales strategy was "to get some customers that were early adopters in the new business model" so that Emerge could "prove the concept" and "then scale it up like any business." (Pls.' Appx. 18, Marotta Dep. 252:1-13, June 26, 2013.) Marotta agreed that going into a health system at the "C-Suite" level had the potential to open up sales throughout that particular health system. (PSUF ¶ 983; DRPS ¶ 983.)
Banner Gateway Medical Center ("Banner Gateway") in Gilbert, Arizona was Emerge's first customer. (PSUF ¶ 984; DRPS ¶ 984.) Marotta obtained approval at Banner Gateway for a trial of Emerge product and understood that if Emerge was successful there, it might open up the rest of the Banner Health System to Emerge. (PSUF ¶ 985-86; DRPS ¶¶ 985-86.) Currently, and prior to April 15, 2010, Banner Health had locations in multiple states, including Colorado. (PSUF ¶¶ 987-88; DRPS ¶¶ 987-88.) Those in Colorado were in Marotta's region during his last two years as Regional Manager of the Rocky Mountain Region. (PSUF ¶ 989; DRPS ¶ 989.)
Banner Health was originally identified as one of Emerge's targets in November 2009, and was proposed to the Emerge Board in October 2010. (PSUF ¶¶ 991-94; DRPS ¶¶ 991-94.) In that presentation, Emerge indicated that it had leads with the Banner Health facilities in Colorado
Emerge prepared a PowerPoint presentation for Banner Health and, in September 2010, Marotta and Powell met with Mike Hatton, Inventory Coordinator at Banner Gateway Medical Systems in Arizona, to present Emerge products as a business opportunity for the Banner Gateway system. (PSUF ¶¶ 998, 1001; DRPS ¶¶ 998, 1001.) Hatton then emailed various corporate individuals at Banner Health, including Doug Bowen and Dee Whittington, vouching for the professional reputation of Mr. Marotta and touting their corporate model that he believed would work for Banner Health. (PSUF ¶ 1002; DRPS ¶ 1002.) On September 24, 2010, Marotta and Bowen exchanged email and phone correspondence confirming the existence of a client relationship. (PSUF ¶ 1005; DRPS ¶ 1005.) Emerge shipped its first product to Banner Gateway Medical Center on September 30, 2010, making it the first sale of product by Emerge. (PSUF ¶¶ 1009-10; DRPS ¶¶ 1009-10.)
Emerge then followed up with Dee Whittington of Banner Health about hospitals and doctors and, on November 3, 2010, a draft contract between Banner Health corporate and Emerge was prepared. (PSUF ¶¶ 1012, 1015; DRPS ¶¶ 1012, 1015.) That contract was not limited to specific Banner Health facilities or geographies. (PSUF ¶ 1016; DRPS ¶ 1016.) On January 20, 2011, Powell emailed Marotta and Dee Whittington, stating in part, "John Marotta and Doug Bowen agreed to case into the implementation of Emerge so as not to raise red flags" and that with Emerge's "entire product portfolio, we estimate potential savings to be between 100k and 150k at each Banner Hospital." (Pls.' Appx. 631 (emphasis in original).) Subsequently, on February 18, 2011, Marotta emailed Stassen and Powell with the word that Banner Health was on board with Emerge and its business model and were planning on rolling out Emerge "Banner wide." (PSUF ¶ 1025; DRPS ¶ 1025.) Hatton then emailed Marotta to inform him that "Emerge Medical was brought up at OR Standards meeting last week by Dee Whittington and she said for everyone to go with Emerge products. The only problem lies in the fact that if the Synthes tray is on consignment, not purchased, that Banner lawyers say you can't put Emerge products in the trays." (Pls.' Appx. 636.) Later that same day, Marotta emailed Powell and Stassen indicating that he had received word that Banner Health had cleared Emerge on all products for all its hospitals. (PSUF ¶ 1030; DRPS ¶ 1030.)
Following these events and discussions, Emerge entered into a pricing agreement in May 2011 with the entire Banner Health system. (PSUF ¶ 1037; DRPS ¶ 1037.) Since then, Emerge has invoiced product to at least ten Banner Health facilities. (PSUF ¶ 1038; DRPS ¶ 1038.)
In a presentation to the Emerge Board, Emerge identified Arizona Orthopedic Surgical Hospital ("AOSH") as one of its targets. (PSUF ¶ 1043; DRPS ¶ 1043.) AOSH is a United Surgical Partners International ("USPI") facility located in Arizona. (PSUF ¶ 1047; DRPS ¶ 1047.) USPI has facilities nationwide, including various facilities in Colorado. (PSUF ¶ 1049; DRPS ¶ 1049.) During the last two years of his tenure as Regional Manager of the Rocky Mountain Region, Marotta's region included USPI facilities. (PSUF ¶ 1051; DRPS ¶ 1051.)
Following introductions by Marotta, Powell made various contacts at AOSH, including the CEO, CFO, materials manager, and central sterilization coordinator.
On December 7, 2010, Andrew Arreola of AOSH provided Marotta with contact information for Angie Draper, the Director of Materials Management, at USPI. (PSUF ¶¶ 1053-54; DRPS ¶¶ 1053-54.) Thereafter, Marotta emailed her regarding Emerge and requested the opportunity to explain Emerge's business model to her. (PSUF ¶¶ 1056-57; DRPS ¶¶ 1056-57.) Powell followed up with Draper in early January and subsequently scheduled a meeting with USPI on January 11, 2011. (PSUF ¶¶ 1059-60; DRPS ¶¶ 1059-60.) After the meeting, Powell provided USPI with additional information regarding the money Emerge could save USPI annually. (PSUF ¶¶ 1061-66; DRPS ¶¶ 1061-66.) Since that time, Emerge has invoiced product to at least twenty-nine different USPI facilities. (PSUF ¶ 1068; DRPS ¶ 1068.)
Chandler and Mercy Gilbert are both part of the Catholic Healthcare West ("CHW") health system, now known as Dignity Health. (PSUF ¶ 1068; DRPS ¶ 1069.) CHW and Dignity Health have operations in Arizona, California, and Nevada and, at some point, Marotta's territory included CHW facilities. (PSUF ¶ 1071; DRPS ¶ 1071.) Dr. Motzkin is affiliated with Chandler Regional and has used Emerge's products. (PSUF ¶ 1072; DRPS ¶ 1072.)
In a presentation to its Board in 2010, Emerge identified Chandler Regional, Mercy Gilbert, and CHW as some of the target facilities and systems. (PSUF ¶ 1074; DRPS ¶ 1074.) On October 21, 2010, Marotta informed the Emerge Board that it would be implementing at Chandler Regional in two weeks. (PSUF ¶ 1075; DRPS ¶ 1075.) As with Banner Health, Chandler Regional and Mercy Gilbert were described as "Marotta Hospitals." (PSUF ¶ 1077; DRPS ¶ 1077.) Emerge shipped its first order to Chandler Regional Medical Center in Chandler, Arizona on November 22, 2010, and to Mercy Gilbert Medical Center in Gilbert, Arizona on January 13, 2011. (PSUF ¶ 1079-80; DRPS ¶ 1079-80.)
On April 6, 2011, Marotta informed Emerge's Board and Emerge's human resources consultant that Emerge received "the greenlight in Catholic Healthcare West to roll out in the entire system." (Pls.' Appx. 557; PSUF ¶ 1082; DRPS ¶ 1082.) Since November 22, 2010, Emerge has invoiced product to two CHW and Dignity Health facilities. (PSUF ¶ 1083; DRPS ¶ 1083.)
According to Emerge's sales data, Emerge also invoiced the following hospitals in late 2010 and the first half of 2011: Simi Valley Hospital in California, Minnesota Valley Surgery Center in Minnesota, and Fairview Lakes Medical Center in Minnesota. (PSUF ¶ 1084; DRPS ¶ 1084.) Simi Valley Hospital is part of the Adventist Health System. (PSUF ¶ 1085; DRPS ¶ 1085.) A November 18, 2010 Emerge Board presentation identified Simi Valley Hospital and Aspen Surgery Center as recommendations from one of Emerge's investors. (PSUF ¶ 1087; DRPS ¶ 1087.) Likewise, that same presentation identified both Minnesota Valley Surgery Center and Fairview Lakes Medical Center as investor recommendations. (PSUF ¶¶ 1089, 1093; DRPS ¶ 1089, 1093.)
Emerge was formed to produce and sell Generic Device Fixation Hardware similar,
As CEO of Emerge, Marotta was responsible for Emerge's marketing strategies and for oversight of the development of sales growth in the business. (PSUF ¶ 101; DRPS ¶ 101.) Both Marotta and Powell were responsible for sales beginning in September 2010. (PSUF ¶ 102; DRPS ¶ 102.) Prior to entering into its exclusive distributorship agreement with Cardinal Health on June 20, 2012-wherein Emerge and Cardinal Health worked in combination on the sale and marketing of Emerge products-Emerge also had distributors who assisted in sales. (PSUF ¶¶ 1104, 1106; DRPS ¶¶ 1104, 1106.) Powell primarily managed these distributors, under Marotta's supervision. (PSUF ¶ 1105; DRPS ¶ 1105.)
Prior to the Cardinal Health agreement, Emerge would typically begin the sales process by approaching the hospital system directly, either by phone, email, or in person, through corporate supply chain management. (PSUF ¶ 1107; DRPS ¶ 1107.) Emerge would inform the potential customers of the need for competition in the industry and that there was no need to pay sales reps $250,000 a year and carve costs out of the system. (PSUF ¶ 1108; DRPS ¶ 1108.) During the sales pitches, Marotta would discuss and compare Emerge product to other competitors in the marketplace, including Synthes, and would make representations about the quality of Emerge products, including that Emerge's products had gone through 510(k) clearance and were tested against Synthes as predicate devices. (PSUF ¶¶ 1109-10; DRPS ¶¶ 1109-10.) Emerge's sales and marketing efforts and materials would regularly make representations about the characteristics and performance of its products, and would regularly compare its products to Synthes's. (PSUF ¶¶ 1111-14; DRPS ¶¶ 1111-14.) On many occasions, Emerge represented to customers that its products are identical to, equivalent to, or exact replicas of Synthes products. (PSUF ¶ 1119; DRPS ¶ 1119.) As a result, some Emerge customers have the impression that Emerge's products have the same specifications as Synthes products and that the products are, in fact, milled side-by-side in the same factory. (PSUF ¶ 1120-22; DRPS ¶ 1120-22.)
In the website promoting Emerge products and other marketing materials, Cardinal Health and Emerge represent to prospective customers that Emerge's products are "equivalent to market leading products when comparing composition, geometry,
Emerge's approach to the sales of Generic Device Fixation Hardware involved a process whereby Emerge product would be placed into Synthes SIMS cabinets and stored with like-numbered Synthes product, and stickers would be placed on some Synthes product directing customers to reorder from Emerge. (PSUF ¶ 1127; DRPS ¶ 1127.) As a result, Emerge products would be removed from the SIMS cabinet, sterilized, and delivered to the operating room, making it possible that Emerge products would be placed on a tray along with other Synthes product. (PSUF ¶ 1128; DRPS ¶ 11128.)
Emerge placed some of its product in Synthes SIMS cabinets and commingled it with Synthes product. (Pls.' Appx. 153, 177.) Emerge implemented its initial products at Chandler Regional on November 3, 2010. (PSUF ¶ 297; DRPS ¶ 297.) As of July 2011, Powell changed the dividers in Synthes SIMS cabinets at the following hospitals: Banner Gateway, Arizona Orthopedic, Chandler Regional, Fairview Ridges, Fairview Southdale, and Simi Valley Hospital. (PSUF ¶ 297; DRPS ¶ 297.)
To respond to representations Emerge made publicly in the field and in marketing materials, Synthes sent letters to individuals at certain customers' accounts. (PSUF ¶ 1130; DRPS ¶ 1130.) Emerge, its representatives, and its experts have all agreed that Emerge products are not identical to Synthes products, and from an engineering perspective, no product in the world is identical. (PSUF ¶¶ 1132-33; DRPS ¶¶ 1132-33.) Emerge and its representatives have testified that all of its products do not require 510(k) clearance before marketing. (PSUF ¶ 1134; DRPS ¶ 1134.) Emerge has received some negative feedback from its customers concerning the performance of Emerge's products. (PSUF ¶ 1136; DRPS ¶ 1136.)
Cardinal Health and Emerge first began to discuss a potential partnership in April of 2011 through the summer of 2011. (PSUF ¶ 1137; DRPS ¶ 1137.) Ultimately, around June 20, 2012, Emerge and Cardinal Health entered into a Senior Subordinated Note and Warrant Purchase Agreement, which made Cardinal Health the exclusive distributor of Emerge products. (PSUF ¶¶ 1138-39; DRPS ¶¶ 1138-39.) In mid-2013, Emerge and Cardinal Health entered into an Asset Purchase Agreement, whereby Cardinal Health agreed to purchase 5, 372 units of Emerge product inventory for $305,473. (PSUF ¶ 1140; DRPS ¶ 1140.) In addition, Emerge and Cardinal Health entered into a Senior Secured Line of Credit Promissory Note in which Cardinal agreed to extend a line of credit to Emerge in the amount of $14,900,000 at an interest rate of six percent compounded monthly. (PSUF ¶ 1141; DRPS ¶ 1141.) The proceeds from this line of credit could be used for, among other things, the recapitalization of Emerge, product development, general working capital, or the "defense or any settlement or judgment of the Synthes litigation." (Pls.' Appx. 12; PSUF ¶ 1142; DRPS ¶ 1142.) Finally, in mid-2013, Emerge and Cardinal Health entered into a Put and Call Rights Agreement whereby each party has respective rights concerning the sale of all shares of Emerge to Cardinal Health for purchase prices ranging
On March 4. 2011, Synthes initiated the current federal action against both John Marotta and Emerge Medical, Inc. Thereafter, on March 6, 2012, Plaintiff filed an Amended Complaint adding three new defendants-Stassen, Brown, and Powell-and setting forth thirteen causes of action as follows: (1) breach of fiduciary duty and/or duty of loyalty against Marotta and Brown (id. ¶¶ 169-88); (2) breach of contract under the Non-Competition and Non-Disclosure Agreements against Marotta, Brown, and Powell (id. ¶¶ 189-214); (3) tortious interference with contract against all Defendants (id. ¶¶ 215-26); (4) aiding and abetting breach of fiduciary duty against Marotta, Brown, Stassen, and Emerge (id. ¶¶ 227-36); (5) misappropriation of trade secrets under Pennsylvania common law and the Pennsylvania Uniform Trade Secrets Act, 12 Pa.C.S. § 5302 et seq., against all Defendants (id, ¶¶ 237-49); (6) violation of the Computer Fraud and Abuse Act, 18 U.S.C. § 1030, against all Defendants (id. ¶¶ 250-60); (7) conversion and replevin against all Defendants (id. ¶¶ 261-68); (8) false or deceptive advertising under the Lanham Act, 15 U.S.C. § 1125(a), against Defendants Marotta, Stassen, Powell, and Emerge (id. ¶¶ 269-81); (9) trespass to chattels against Defendants Marotta, Stassen, Powell, and Emerge (id. ¶¶ 282-86); (10) unfair competition against Defendants Marotta, Stassen, Powell, and Emerge (id. ¶¶ 287-97); (11) fraud against all Defendants (id. ¶¶ 298-302); (12) civil conspiracy against all Defendants (id. ¶¶ 303-09); and (13) breach of contract or, in the alternative, unjust enrichment against Powell, (id. ¶¶ 310-16.)
On April 3, 2012, Emerge filed its Answer with Affirmative Defenses and Counterclaims to Synthes's Amended Complaint. (Emerge Answer & Aff. Defenses.) Following dismissal of its antitrust counterclaims, Emerge filed an Amended Answer with Affirmative Defenses and asserted the following counterclaims against Synthes: (1) trade libel; (2) tortious interference with prospective contractual relationships; and (3) unfair competition under Pennsylvania law. (Emerge Am. Answer & Aff. Defenses.) Emerge also made a request for declaratory relief on Synthes's claims of tortious interference with contract and aiding and abetting breach of fiduciary duty. (Id.)
Fact discovery in this matter closed on July 1, 2013. (PSUF ¶ 1181; DRPS ¶ 1181.) Expert discovery closed on September 30, 2013. (PSUF ¶ 1182; DRPS ¶ 1182.) On November 18, 2013, the parties filed a multitude of dispositive motions, including the two motions currently at issue.
Summary judgment is proper "if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c)(2). A factual dispute is "material" only if it might affect the outcome
On summary judgment, the moving party has the initial burden of identifying evidence that it believes shows an absence of a genuine issue of material fact. Conoshenti v. Pub. Serv. Elec. & Gas Co., 364 F.3d 135, 145-46 (3d Cir.2004). It is not the court's role to weigh the disputed evidence and decide which is more probative, or to make credibility determinations. Boyle v. Cnty. of Allegheny, 139 F.3d 386, 393 (3d Cir.1998) (citing Petruzzi's IGA Supermkts., Inc. v. Darling-Del. Co. Inc., 998 F.2d 1224, 1230 (3d Cir.1993)). Rather, the court must consider the evidence, and all reasonable inferences which may be drawn from it, in the light most favorable to the non-moving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) (citing United States v. Diebold, Inc., 369 U.S. 654, 655, 82 S.Ct. 993, 8 L.Ed.2d 176 (1962)); Tigg Corp. v. Dow Corning Corp., 822 F.2d 358, 361 (3d Cir. 1987).
Although the moving party must establish an absence of a genuine issue of material fact, it need not "support its motion with affidavits or other similar materials negating the opponent's claim." Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). It can meet its burden by "pointing out ... that there is an absence of evidence to support the nonmoving party's claims." Id. at 325, 106 S.Ct. 2548. If the non-moving party "fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden at trial," summary judgment is appropriate. Celotex, 477 U.S. at 322, 106 S.Ct. 2548. Moreover, the mere existence of some evidence in support of the non-movant will not be adequate to support a denial of a motion for summary judgment; there must be enough evidence to enable a jury to reasonably find for the non-movant on that issue. Anderson, 477 U.S. at 249-50, 106 S.Ct. 2505.
Notably, these summary judgment rules do not apply any differently where there are cross-motions pending. Lawrence v. City of Phila., 527 F.3d 299, 310 (3d Cir. 2008). As stated by the Third Circuit, "`[c]ross-motions are no more than a claim by each side that it alone is entitled to summary judgment, and the making of such inherently contradictory claims does not constitute an agreement that if one is rejected the other is necessarily justified or that the losing party waives judicial consideration and determination whether genuine issues of material fact exist.'" Id. (quoting Rains v. Cascade Indus., Inc., 402 F.2d 241, 245 (3d Cir.1968)).
The first claim at issue in the present case is Synthes's cause of action for breach of fiduciary duty against Defendant Marotta. The Third Circuit Court of Appeals has held that obligations arising under a fiduciary duty are imposed "as a matter of social policy, rather than by mutual consensus" and that such "larger social policies [are] embodied in the law of torts rather than the terms of the contract." Bohler-Uddeholm Am., Inc. v. Ellwood Grp. Inc., 247 F.3d 79, 105 (3d Cir. 2001) (internal quotation marks omitted). Generally, "[a fiduciary] relationship exists where one person has reposed a special confidence in another to the extent that the parties do not deal with each other on
Pennsylvania law dictates that an employee, as the agent of his employer, owes his employer a duty of loyalty. Crown Coal & Coke Co. v. Compass Point Res., LLC, No. Civ.A.07-1208, 2009 WL 891869, at *5 (W.D.Pa. Mar. 31, 2009). An agent's specific duties of loyalty include a duty to refrain from competing with the principal and from taking action on behalf of, or otherwise assisting, the principal's competitors throughout the duration of the agency relationship, as well as a duty not to use property or confidential information of the principal for the agent's own purpose or those of a third party. Restatement (Third) of Agency §§ 8.04 and 8.05 (2006). Pursuant to this duty, an employee may not "act[] for a person or entity whose interests conflict[] with [the employer]." Reading Radio, Inc. v. Fink, 833 A.2d 199, 211 (Pa.Super.Ct.2003). To establish a breach of fiduciary duty under Pennsylvania law, a plaintiff must prove "(1) that the defendant negligently or intentionally failed to act in good faith and solely for the benefit of plaintiff in all matters for which he or she was employed; (2) that the plaintiff suffered injury; and (3) that the agent's failure to act solely for the plaintiffs benefit ... was a real factor in bring[ing] about plaintiffs injuries." McDermott v. Party City Corp., 11 F.Supp.2d 612, 626 n. 18 (E.D.Pa.1998) (internal quotation marks omitted).
"[E]mployees at will do not breach a fiduciary duty to the employer by making preparations to compete upon termination of employment provided the employee does not use the confidential information of his employer, solicit the customers of his employer, or otherwise engage in conduct directly damaging his employer during the period of employment." Oestreich v. Environ. Inks & Coatings Corp., No. Civ.A.89-8907, 1990 WL 210599, at *6 (E.D.Pa. Dec. 17, 1990). Thus, before the close of his employment, an employee may purchase a rival business and, upon the termination of the agency, immediately compete with his former employer. He may not, however, "solicit customers for such rival business before the end of his employment nor can he properly do other similar acts in direct competition with the employer's." Restatement (Second) Agency § 393, cmt. e (1958); see also Spring Steels, Inc. v. Molloy, 400 Pa. 354, 162 A.2d 370, 375 (1960) ("Even before the termination of agency, [the employee] is entitled to make arrangements to compete, except that he cannot properly use confidential information peculiar to his employer's business and acquired therein."). On the other
Bro-Tech Corp. v. Thermax, Inc., 651 F.Supp.2d 378, 414 (E.D.Pa.2009) (footnotes omitted).
In the present case, Defendants seek a ruling that certain of Marotta's activities claimed by Synthes to be breaches of fiduciary duty are, in actuality, preparatory activities that cannot form the basis for such a claim. Synthes, on the other hand, contends that it is entitled to summary judgment on the entirety of this claim based on the undisputed evidence of record demonstrating that, over a period of nine months, Marotta was directly competing with Emerge. The Court addresses each argument individually.
As noted, Defendants seek partial summary judgment on this cause of action by asking the Court to rule that the following activities constitute nothing more than mere preparation to compete, including: (1) conceiving the idea for Emerge; (2) discussing the business concept with former defendants Brown and Stassen; (3) analyzing the market opportunities for his business concept; (4) developing and drafting a business plan; (5) developing and drafting a private placement memorandum; (6) meeting with an attorney regarding his employment agreements with Synthes; (7) working with an accounting firm; (8) incorporating Emerge; (9) soliciting and meeting with potential investors and raising money for Emerge; (10) engaging an outside vendor for design and development of Emerge's initial product offerings; (11) developing a logo for Emerge; (12) retaining a lawyer to work on behalf of Emerge; (13) hiring a firm to file for trademark application; (14) meeting with potential members of a board of directors for Emerge; (15) recruiting a non-Synthes employee as a potential Emerge employee; (16) renting office space and buying supplies; (17) using an Emerge email address; (18) being a fifty-percent owner of Emerge; and (19) carrying out all of these activities "secretly" or in "stealth." (Defs.' Resp. Opp'n Mot. Summ. J. 5-6.) Defendants Concede that all of these activities occurred, but contend that they amount to nothing more than preparation to compete.
At first glance, nothing in these activities appears to go beyond mere preparation or rises to the level of improperly using Synthes's trade secrets or confidential
Thus, while the mere act of soliciting and meeting with potential investors for Emerge may not, on its own, constitute competitive conduct, meeting with potential investors — who are also customers of Synthes — with the intent of luring them away from Synthes may be competitive. Moreover, while meeting with accounting firms and lawyers alone may be deemed preparatory, meeting with such individuals during Synthes business time and billing such time to Synthes may be deemed competitive. Although Marotta may have been entitled to engage an outside vendor for design and development of Emerge's initial product offerings, misappropriating confidential Synthes information in order to facilitate the design and development of competing products is not permissible. Finally, the simple use of an Emerge email address may not be problematic, but the use of an Emerge email address to communicate with potential customers that are existing customers of Synthes could rise to the level of competition.
In short, Defendants' efforts to isolate various activities by Marotta and have the Court deem them preparatory is both premature and improper. Given the sheer volume of information in this case, it is
Beyond simply opposing Defendants' request for partial summary judgment on the breach of fiduciary duty claim, Synthes contends that it has affirmatively proved that Marotta actively breached his fiduciary duty resulting in cognizable damages to Synthes.
Defendants respond that "meetings with investors, whether customers or employees of the plaintiff or not, and discussing a potential business venture or raising money" do not constitute actual competition that can form the basis of a breach of fiduciary duty claim. (Defs.' Resp. Opp'n Summ. J. 11.) This argument, however, overly constricts the reach of the duty of loyalty, which provides that although an employee before the end of his employment can properly purchase a rival business and upon termination of employment immediately compete, "[hie is not ... entitled to solicit customers for such rival business before the end of his employment nor can he properly do other similar acts in direct competition with the employer's business." Restatement (Third) Agency § 8.01 cmt. e (emphasis added). Thus, while Marotta was not necessarily soliciting these surgeons to buy Emerge product on behalf of their affiliated medical facilities, the natural and logical inference from the evidence-one that is almost unavoidable-is that by obtaining physician investment, those physicians would seek to increase their investment's profitability by encouraging their affiliated medical facilities to purchase from Emerge rather than Synthes.
Second, the record remains undisputed that while Marotta was still employed at Synthes, he emailed to his personal email account various documents, including: Synthes's Fall 2009 new product pipeline and plan; Synthes's 2009 usage and pricing data for Centura Health; Synthes's
Defendants attempt to manufacture a dispute of material fact on this point by arguing that it is unclear how Marotta used the information, whether he used it all in connection with Emerge, whether it was confidential, and whether his use was intended. This litany of questions does not suffice to defeat summary judgment. In his 2011 deposition, Marotta could offer no explanation for why he forwarded most of these documents to his personal email. (Pls.' Appx. 36, Marotta Dep., 685:15-87:17, July 6, 2011.) The evidence is undisputed that much of this data ended up in Emerge's possession and was available for use by Emerge employees. (PSUF ¶¶ 946-50; DRPS ¶¶ 946-50.) Further, although Defendants attempt to contest the confidentiality of some of the information, they offer no contradictory evidence to establish that this information is not confidential.
Third, while employed by Synthes, Marotta attended several Emerge-related meetings and meals and submitted his related expenses to Synthes, all of which were reimbursed. For example, on September 2, 2009, Marotta had dinner with Charlie Knight concerning Emerge, but submitted an expense report to Synthes for the cost of dinner and identified a Dr. Fitzgerald as the Synthes customer entertained for this expense. (PSUF ¶¶ 403-08; DRPS ¶¶ 403-08.) Also in September
Defendants now attempt to minimize these actions by stating that, "[t]o the extent that such minimal and inadvertent submissions were deemed to be a breach, they are not a material breach, and could not entitle Synthes to more than $512 in damages." (Id.) The fact remains, however, that Defendants admit to a breach of fiduciary duty, which, in combination with the other activities, entitles Plaintiffs to summary judgment on this claim. See Mattern & Assocs., L.L.C. v. Seidel, 678 F.Supp.2d 256, 268 (D.Del.2010) (finding defendant's actions of providing employer with false sales reports, collecting of overpayments of draws against commissions, and charging personal expenses to the employer's line of credit constituted breaches of fiduciary duty).
Fourth and finally, Synthes provides substantial evidence in support of its allegation that Marotta, while still a Synthes employee, sent Synthes product to Orchid for reverse engineering in the initial design of Emerge product. Defendants offer two arguments in response. First, they contend that "Marotta disagreed in his deposition that Emerge was in the design development phase prior to his resignation from Synthes." (Id. at 15.) Aside from the fact that Marotta's testimony was elusive and unclear at best as to what stage Emerge's product planning was in prior to Marotta's resignation, his self-serving testimony cannot create a genuine issue of fact when unequivocal documentary evidence establishes that Marotta was personally sending Orchid samples of Synthes's products for design purposes. (Pls.' Appx. 178 (emails between Orchid, Stassen, and Marotta in early April 2010 regarding Marotta and Stassen sending samples of drill bits to Orchid for Emerge's drill prints)); Pls.' Appx. 478 (April 1, 2010 email from Orchid to Stassen and Marotta discussing Orchid's progress on cannulated screw design on behalf of Emerge); Pls.' Appx. 486 (April 14, 2010 email from Marotta to Trafka requesting
Taken individually, these various actions may not have conclusively established a breach of fiduciary duty. Considered in conjunction, however, the Court finds that no genuine issue of material fact remains as to whether Marotta breached his fiduciary duty to Synthes. While still employed with Synthes, Marotta actively solicited existing and potential Synthes customers to "invest" in Emerge, falsely charged Emerge-related expenses to Synthes, obtained and transferred confidential Synthes information to Emerge, and took Synthes product to assist in the development of competitive products. Marotta's own testimony, which often consists of an inability to recall or an uncertainty about the details of various events, simply cannot contradict the overwhelming evidence of record that Marotta went beyond mere preparation to compete and was actually competing with his employer. Accordingly, the Court grants Synthes's Motion for Summary Judgment as to liability on its breach of fiduciary duty claim against Defendant Marotta.
Next, both parties seek summary judgment on Synthes's claim against Emerge for aiding and abetting both Marotta's and Brown's breaches of fiduciary duty. Synthes contends that because Marotta was Emerge's co-founder, CEO, President, Director, and Chairman of the Board, and Stassen was a co-founder of Emerge, actions of both Marotta and Stassen may be imputed to Emerge. Defendants, on the other hand, argue that even if the Court finds that Marotta breached his fiduciary duty, Synthes's claim against Emerge for aiding and abetting nevertheless fails.
Under Pennsylvania law, the elements that must be proven in order to maintain a claim for aiding and abetting a breach of fiduciary duty are: (1) a breach of a fiduciary duty owed to another; (2) knowledge of the breach by the aider and abettor; and (3) substantial assistance or encouragement by the aider and abettor in effecting that breach. Reis v. Barley,
As to the first element, the Court has already determined that Marotta breached his fiduciary duty to Synthes. No similar finding, however, has been made with respect to Brown. Indeed, in his statement — given upon reaching a settlement with Synthes and being dismissed as a defendant from this case — Brown admits only that "[f]or a period of time beginning in August 2009 through December 2009, I was actively involved in discussions concerning the development of a company that would manufacture and sell bits and screws — products competitive with Synthes' products." (Pls.' Appx. 24, Brown's Statement ¶ 51.) Although Brown concedes that he took various actions that constituted a breach of his contractual duties to Synthes, at no point in this statement does he admit to any actions that go beyond mere preparation to compete and which could be construed as an unequivocal breach of fiduciary duty to Synthes. Nor does Synthes attempt to clarify for the Court precisely what actions constituted a breach of fiduciary duty by Brown. Accordingly, Synthes's claim against Emerge for aiding and abetting Brown's breach of fiduciary duty must be dismissed.
As to the second element — knowledge of the breach by the alleged aider and abettor — Defendants do not appear to dispute that any breach of fiduciary duty by Marotta would have been known to Emerge through its agents Stassen and Marotta. There is no dispute in the record that Stassen and Marotta were well aware of Marotta's actions. Therefore, the Court deems this element satisfied.
Thus, the Court is left with the third element — substantial assistance or encouragement. On this point, Defendants contend that Synthes's claim fails in two respects. First, Defendants assert that Emerge cannot be liable for any of the pre-incorporation acts (pre-January 13, 2010) of its founders. In support of this position, Defendants contend that under Pennsylvania law, the corporation will be deemed to not yet be in existence until articles of incorporation are filed by the Commonwealth. In re Rothman, 204 B.R. 143, 150 (Bankr.E.D.Pa.1996). Consistent with that notion, Defendants cite to the general principle that "[a] corporation is not liable for torts that its promoters committed before it came into existence. Similarly, a corporation cannot sue for a tort to the promoter if the promoter did not assign the cause of action or if the cause of action is not assignable." 1A Fletcher Cyclopedia Corporations, Ch. 9 § 218 (footnotes omitted).
This principle has been clarified, however, to recognize that "[g]enerally, a corporation is not liable for torts of its promoters prior to its creation unless it has rendered itself liable by its own act after acquiring corporate existence. A corporation is not liable for the fraud, negligence, or other torts of its promoters or corporators
Undoubtedly, in this case, Emerge ratified the acts taken by its officers and directors prior to incorporation. "Proof of ratification need not be confined to formal acts of the board of directors as shown by the minutes of the meeting. It may be established from actions or from passive acquiescence of the directors if they had full knowledge of the facts...." Blackwood Coal Co., Inc. v. Deister Concentrator Co., Inc., 626 F.Supp. 727, 729 (E.D.Pa. 1985) (quotations omitted). In this case, Emerge ultimately benefitted from any competitive acts taken by Marotta in violation of his breach of fiduciary duty. Moreover, via the Emerge Board Minutes of January 28, 2010, June 3, 2010, and July 29, 2010, the Emerge Board stated that it was "FURTHER RESOLVED, that any actions taken by such officers [including Marotta and Stassen] prior to the date of the foregoing resolutions adopted hereby that are within the authority conferred thereby are hereby ratified, confirmed and approved as the acts and deeds of this Company." (Pls.' Appx. 34 & 754.)
Defendants' second argument against this claim, however, has significantly more merit. They assert that Emerge took no action that qualified as "substantial assistance or encouragement." To defeat this claim, Synthes argues that Emerge is liable for aiding and abetting Marotta's breach of fiduciary duty given that Marotta and Stassen, as officers and agents of Emerge, were acting together in the development of Emerge during Marotta's employment with Synthes. It asserts that Marotta and Stassen founded Emerge and were intimately involved in each step of Emerge's development while remaining cognizant of the complications arising from Brown's and Marotta's development of Emerge during then' employment with Synthes. Ultimately, Synthes argues that Emerge aided and abetted Marotta's breach of fiduciary duty through the following actions:
(Pls.' Resp. Opp'n Summ. J. 68.)
None of these facts, however, rise to the level of aiding and abetting. "In order to be found liable for aiding and abetting a breach of a fiduciary duty, one must demonstrate that the party knew that the other's conduct constituted a breach of a fiduciary duty and gave substantial assistance or encouragement to the other in committing that breach." Foodtown, Inc., 296 F.3d at 174 (claim for aiding and abetting breach of fiduciary duties under ERISA); see also Restatement (Second) of Torts § 876 cmt. to clause (b) ("If the encouragement or assistance is a substantial factor in causing the resulting tort, the one giving it is himself a tortfeasor and is responsible for the consequences of the other's act."). In practice, liability for aiding and abetting often turns on how much encouragement or assistance is substantial enough. The Restatement suggests five factors in making this determination: "the nature of the act encouraged, the amount of assistance given by the defendant, his presence or absence at the time of the tort, his relation to the other [tortfeasor] and his state of mind." Bair v. Purcell, 500 F.Supp.2d 468, 496 (M.D.Pa.2007) (citing in part Restatement (Second) of Torts § 876(b)). Crucially, by definition, a defendant cannot both "breach" and "aid/abet" a breach in the same instance. In re Jamuna Real Estate, LLC, 416 B.R. 412, 437 (Bankr.E.D.Pa.2009).
In the present case, the only affirmative actions taken were by Marotta, the individual, in breach of his individual fiduciary duty. The facts set forth in support of the aiding and abetting claim are nothing more than Emerge's passive receipt of benefits from Marotta's actions. There is no suggestion that Emerge — as an entity — encouraged or substantially assisted Marotta's actions. Emerge provided no funding, no additional means for Marotta to carry out his acts, and no other encouragement. Moreover, Synthes sets forth no evidence that any action by Emerge was the "substantial factor in causing the resulting tort." In short, Emerge took no steps whatsoever to facilitate Marotta's breach. While Synthes is correct that the acts of agents of the corporation are acts of the corporation itself, Synthes seeks to extend the aiding and abetting theory to encompass Marotta's actions that constituted the actual breach.
The next claim at issue involves Synthes's allegation that Marotta breached three separate contracts: (1) his Employee Innovation and Non-Disclosure Agreement ("NDA"); (2) his Regional Manager Non-Competition Agreement ("RM NCA"); and (3) his Sales Consultant Non-Competition Agreement ("SC NCA"). Synthes has established, and Defendants do not dispute, that the Agreements are all valid and enforceable. Rather, the parties differ regarding whether Marotta actually breached any of these Agreements, such that he is liable for breach of contract. The Court considers each agreement separately.
Under his NDA, Marotta agreed, in part, to the following:
(Pls.' Appx. 52; PSUF ¶ 237; DRPS ¶ 237.) Relying on this provision, Synthes now argues that it "owns" — and Marotta is required to "assign" — all of Emerge's "offerings, business models, plans, strategies, names, logos, and slogans and all implants, instrumentation, and intellectual property associated with them and with any other products developed or marketed by Emerge." (Am. Compl. ¶¶ 204, 206.)
In support of this argument, Synthes, working under a plain interpretation theory, argues that the assignment provision "explicitly protects Synthes from having key employees in whom it invests time, money, specialized training, and access to confidential and trade secret information using Synthes' resources to develop business ideas emanating from their work and arrogating those ideas to themselves." (Pls.' Mem. Supp. Summ. J. 44.) Synthes contends that as a result of Marotta's access to the purchasing decision-makers at customer accounts during his time with Synthes, he was able to develop relationships and learn about the challenges facing various customers. It goes on to reason that Marotta and his co-founders repeatedly and affirmatively represented that Emerge was "innovative," the "first of its kind" in the orthopedic market, "game changing," "revolutionary," and part of a "unique distribution method." (PSUF ¶¶ 664, 674, 678, 691-92, 696-97, 706-09.) They included those statements in their Private Placement Memorandum, which is governed by the truth in disclosure rules under the Securities Act of 1934, and thus must be deemed truthful. In turn, Synthes argues that the idea and model for Emerge constitutes a "business innovation" as set forth in the NDA. By virtue of the fact that the Emerge business innovation was conceived by Marotta and his co-founders during the time of his employment with Synthes and was "along the lines of businesses, work or investigations of Synthes," Marotta, according to Synthes, had an affirmative contractual obligation to disclose his business innovation idea.
In response, and in its own Motion for Summary Judgment on this point, Defendants contend that the plain language of the NDA assignment provision limits its scope to assignable intellectual property and, thus, the Emerge Business Plan is not property at all and thus cannot be assigned to Emerge. In any event, Defendants argue that Synthes cannot contract to permanently prohibit employees from ever competing with it merely because the idea for a competing business arose during employment. Moreover, Defendants claim that the names, logos, slogans, and product offerings of Emerge are neither "inventions" nor "technical or business innovations" subject to the NDA.
To resolve this dispute, the Court must interpret a sparsely-worded, albeit unambiguous, contract. "A court's purpose in examining a contract is to interpret the intent of the contracting parties, as objectively manifested by them." Hullett v. Towers, Perrin, Forster & Crosby, Inc., 38 F.3d 107, 111 (3d Cir.1994). First, the court must make the preliminary inquiry as to whether the contract before it is ambiguous. Stendardo v. Fed. Nat'l Mortg. Ass'n, 991 F.2d 1089, 1094 (3d Cir. 1993). A contract provision is ambiguous if it is susceptible of two reasonable alternative interpretations. Id. Where the written terms of the contract are not ambiguous and can only be read one way, the court will interpret the contract as a matter of law. Hullett, 38 F.3d at 111. If the contract is determined to be ambiguous, then the interpretation of the contract is
Pennsylvania courts apply the "plain meaning rule" of interpretation of contracts, which assumes that the intent of the parties to an instrument is "embodied in the writing itself, and when the words are clear and unambiguous the intent is to be discovered only from the express language of the agreement." Cnty. of Dauphin v. Fid. & Deposit Co., 770 F.Supp. 248, 251 (M.D.Pa.) (quotation omitted), aff'd, 937 F.2d 596 (3d Cir.1991). "Nevertheless, a determination whether the language of an agreement is unambiguous may not be possible without examining the context in which the agreement arose." Hullett, 38 F.3d at 111 (citing Steuart v. McChesney, 498 Pa. 45, 444 A.2d 659, 662 (1982)). Thus, a court is not always confined to the four corners of the written document in determining whether ambiguity exists. Id. Rather, the court must "consider the words of the contract, the alternative meaning suggested by counsel, and the nature of the objective evidence to be offered in support of that meaning." Id. (quoting Mellon Bank, N.A. v. Aetna Bus. Credit, Inc., 619 F.2d 1001, 1011 (3d Cir.1980)). "Under ordinary principles of contract interpretation, the agreement is to be construed against its drafter." Pellegrino Food Prods. Co., Inc. v. Am. Auto. Ins. Co., 655 F.Supp.2d 569, 577 (W.D.Pa. 2008). Moreover, in the context of assignment contracts, such as the one at issue, the Pennsylvania Supreme Court has made clear that "where the product of an inventive mind is sought to be appropriated under an agreement to assign to another, the language of the agreement must be clear and show an unmistakable intention that the particular matter covered by the invention or patent is within the intention of the parties." White Heat Prods. Co. v. Thomas, 266 Pa. 551, 109 A. 685, 686 (1920).
In the present case, the key phrase in dispute in the NDA is "inventions and technical or business innovations." To that end, the Court finds that this language does not show an unmistakable intention by the parties to cover the Emerge Business Plan. As evidenced by the cases cited by Synthes, assignment provisions are valid and enforceable under Pennsylvania law, but generally involve only patented inventions that can be assigned under the terms of the assignment contract. See White Heat Prods., 109 A. at 686 (upholding contract requiring assignment of patents); Mosser Indus. Inc. v. Hagar, No. Civ.A.20, 1978 WL 21734 (Pa.Ct.Com.P1.1978) (holding that an agreement to assign all inventions developed by the defendant during his employment with plaintiff was valid and enforceable); Voith Hydro, Inc. v. Hydro West Grp., Inc., No. Civ.A.96-1170, 1997 WL 154400, at *5-6 (N.D.Cal. Mar. 26, 1997) (applying Pennsylvania law and holding that agreement to assign inventions in the scope of employment was valid and enforceable and required assignment of patented inventions that fell within contract's ambit); Univ. Patents, Inc. v. Kligman, 762 F.Supp. 1212, 1219 (E.D.Pa.1991) (holding that the general rule that an individual owns the patent rights in the subject matter of which he is an inventor even though he conceived of the subject matter or reduced it to practice during the course of employment may be modified by written contract). Given this body of law, it is well-established that the term "inventions" in an assignment contract refers to patented inventions to which rights may be assigned.
The question then becomes whether the term "business innovations" in the scope of the assignment contract at issue goes beyond
The Court's interpretation is further bolstered by the use of the word "assign" in the NDA. Black's Law Dictionary defines the word "assign" as "[t]o convey; to transfer rights or property." Black's Law Dictionary (9th ed.2009). Accordingly, to be able to "assign," a person or entity must generally have some legally identifiable rights in the thing to be assigned. "A patent is property, title to which passes from the inventor only by assignment, and an agreement to assign will be specifically enforced. As between employer and employee, rights are determined upon the contract of employment." Marshall v. Colgate-Palmolive-Peet Co., 175 F.2d 215, 216-17 (3d Cir.1949). Assignment contracts in employment are traditionally used to overcome the general rules that "an individual owns the patent rights in the subject matter of which he is an inventor even though he conceived of the subject matter or reduced it to practice during the course of employment" and that the "mere existence of an employer-employee relationship does not of itself entitle the employer to an assignment of any inventions which the employee devises during the employment." Kligman, 762 F.Supp. at 1219 (internal quotations omitted). Again, Synthes offers no case law wherein an assignment provision similar to the one it now seeks to enforce was used outside the patent or copyright context.
Synthes's attempts to liken its assignment provision to that in the Emerge nondisclosure and assignment contracts actually highlights the Court's position. Synthes argues that its NDA "parallels assignment provisions in Emerge's own agreements with its employees," which define "inventions" as "trade secrets, inventions, ideas, processes, formulas, source and object codes, data, programs, other works of authorship, know-how, improvements, discoveries, developments, designs, and techniques." (Pls.' Mem. Supp. Summ. J. 46 (quoting Pls.' Appx. 147).) Notably, however, the two contracts are markedly different. After going to great lengths to define the word "inventions" as including a broad variety of items, Emerge's assignment provision requires
Finally, as a policy matter, the Court must decline to adopt Synthes's interpretation of its NDA. Public policy strongly discourages contracts that create an unreasonable restraint on trade. Freedom Wireless, Inc., 220 F.Supp.2d at 18-19. "For over one hundred years, courts have looked skeptically upon employment contracts that require an employee to assign his inventions to his employer." Id. at 18 (citing cases). "Where such contracts are open-ended with respect to time limit or subject matter, they may be considered unenforceable as against public policy." Id. To interpret the plain language of the Synthes NDA to encompass a business plan, without any indication that the contract was so intended, would contravene this policy.
Given this interpretation, the court finds that the Emerge Business Plan, as well as the other Emerge property sought by Synthes, do not fall within the NDA. With respect to the Emerge Business Plan itself, none of the Defendants has obtained any type of intellectual property protection. Moreover, nothing in the record suggests that the Emerge Business Plan could become assignable intellectual property. In an effort to avoid this conclusion, Synthes recites a litany of representations made by Emerge employees describing the Emerge business plan as the "first of its kind," "unique," "innovative," and "game-changing," to assert that the Emerge business plan is a "business innovation" subject to the NDA. It goes on to argue that the Defendants worked tirelessly to maintain the secrecy of their business plan, suggesting it had qualities of a trade secret. These very representations that Emerge made to its customers and potential customers, however, deprive the Emerge Business Plan from being a trade secret. Under Pennsylvania law, a "trade secret" is "[i]nformation ... that (1)[d]erives independent economic value, actual or potential from not being generally known to, and not being readily ascertainable by proper means by other persons who can obtain economic value from its disclosure or use [and] (2)[i]s the subject of efforts that are reasonable under the circumstances to maintain its secrecy." 12 Pa. Cons.Stat. Ann. § 5302 (2013). To the
Second, as to Emerge's name, logos, and slogans, the Court likewise finds that they are not "inventions" or "innovations" within the scope of the NDA for two reasons. Although the name and logo are trademarked, trademark law is concerned with "securing] to the owner of the mark the goodwill of his business and ... protect[ing] the ability of consumers to distinguish among competing producers." Park `N Fly, Inc. v. Dollar Park and Fly, Inc., 469 U.S. 189, 198, 105 S.Ct. 658, 83 L.Ed.2d 582 (1985). It is not designed for the same purpose as patent law, which "seeks to foster and reward invention" and to "promote[] disclosure of inventions to stimulate further innovation and ... permit the public to practice the invention once the patent expires." Aronson v. Quick Point Pencil Co., 440 U.S. 257, 262, 99 S.Ct. 1096, 59 L.Ed.2d 296 (1979). Moreover, and perhaps more importantly, the Emerge name, logos, and slogans are neither (a) along the lines of businesses, work or investigations of Synthes; (b) the result of any work Marotta did for Synthes; or (c) products made through the use of Synthes time, facilities or material.
Third, Synthes offers no argument — let alone a plausible argument — as to how Emerge's products of cannulated screws, drill bits, and guide wires constitute "inventions" or "technical or business innovations." As Synthes and Emerge agree, Emerge's products resulted from the reverse engineering of Synthes's products. Moreover, Synthes repeatedly emphasizes that Emerge was attempting to make products identical to and compatible with Synthes's. Accordingly, the Court finds no "invention" or "technical or business innovation" which may be assigned.
Finally, although the Amended Complaint alleges that Emerge itself "belongs to Synthes," (Am. Compl. ¶ 290), Synthes has offered no argument as to how Emerge, as a Colorado-registered corporation, is an "invention" or "technical or business innovation" for purposes of the NDA. Therefore, the Court declines to find that it falls within the assignment provision.
In sum, notwithstanding Synthes's attempt to ascribe the broadest possible interpretation to the assignment provision of
Both parties also seek summary judgment with respect to Synthes's claim that Marotta breached his Regional Manager Non-Competition Agreement ("RM NCA"). In his RM NCA, Defendant Marotta agreed as follows:
As set forth above, under the Non-Competition Provision, Marotta agreed that, for a period of twelve months after termination of his employment with Synthes, he would not directly or indirectly compete in his former Region with Synthes's Business in any capacity. The "Business" is defined as "the business of developing, designing, manufacturing, and selling surgical, medical and veterinary implants, medical, biomaterial and endoscopic technologies, products and services in connection with osteosynthesis, musculoskeletal, maxillofacial and spine surgery, including, but not limited to, compression plates and screw's, intermedullary nails, external fixation devices, percutaneous devices, cranio-facial implants, mandible implants, spinal implants and screws, surgical instruments, osteobiologie and disc replacement products, and minimally invasive and endoscopic products." (Pls.' Appx. 68; PSUF ¶ 244; DRPS ¶ 244.) The term "Region" is defined as "the geographic area for which I had responsibility within the last two years of my employment with Synthes, including all accounts within the territories assigned to sales consultants in this geographic area." (Pls.' Appx. 68.) The term "Competitor" is defined to mean an "persons or entities who now, or in the future, manufacture, develop, sell, or intend to sell, technologies, products, or services in the Business described above." (Id.)
In the present case, Marotta left Synthes's employ on April 15, 2010, meaning that he was prohibited from "competing" with Synthes through April 15, 2011 in the Rocky Mountain Region, which encompassed Denver, Colorado. The evidence is undisputed, however, that during the course of his employment with Synthes and during the one year period subsequent to the termination of that employment, Marotta worked for and was involved in the business of Emerge-an admitted competitor of Synthes-in an executive, managerial, marketing, and sales capacity, both as an owner and a principal. As set forth in detail in the foregoing statement of facts, Emerge was in the business of selling the precise products sold by Synthes and it directly targeted Synthes's customers. Moreover, the undisputed evidence reveals that Marotta not only worked for Emerge, but also directly set up the business of Emerge in multiple capacities. Finally, Emerge was incorporated and maintained its principal place of business in Denver, Colorado, solicited Synthes customers for investment in the Denver area, and solicited Synthes's employees in Colorado both to obtain sample product and to offer them employment opportunities. Simply put, the extensive record before the Court leaves no genuine issue of material fact as to whether Marotta breached the Non-Competition Provision of his RM NCA.
Nonetheless, Defendants offer a multitude of arguments in an attempt to avoid liability, none of which this Court finds convincing. First, Defendants assert that some of Marotta's conduct was "preparatory" and not competitive, meaning that there was no breach. This argument, however, conflates the requirements necessary to show breach of fiduciary duty with the requirements necessary to show breach of a covenant not to compete. The Restatement of Agency, which governs a cause of action for breach of fiduciary duty, acknowledges that the mere fact "[t]hat a relationship of agency exists does not foreclose the possibility that it may be preceded by or followed by another type of
Second, Emerge contends that even if the Court enforces the NCA as written, Marotta did not breach the Agreement because he did not "compete" by making any sales in his former territory. Defendants then make a lengthy argument of the plain meaning of the word "competition" and assert that courts have construed "competition" to mean only actual competition in the marketplace. (See Defs.' Resp. Opp'n Summ. J. 35 (citing cases).) As there were no sales of product by Emerge in Colorado, Defendants claim that Marotta cannot be deemed to have competed.
Notably, however, in construing a covenant not to compete, the plain language of the contract — not some extrinsic definition of the word "competition" — controls the inquiry. See Plate Fabrication & Machining, Inc. v. Beiler; No. Civ.A.05-2276, 2006 WL 14515, at *5 (E.D.Pa. Jan. 3, 2006) (holding that plain and unambiguous language of a covenant not to compete controls the contract's interpretation); Synthes USA Sales, LLC v. Harrison, 83 A.3d 242, 250 (Pa.Super.Ct.2013) (holding that in construing a restrictive covenant, the court must determine the meaning of the contract by its contents alone when the writing is clear and unequivocal). In this case, the plain language of the non-compete agreement expressly defines what it means to not "compete." Specifically, it states that "I will not, directly or indirectly compete in my former Region with Synthes' Business." This means that I will not work for or be involved in the Business of any Competitor of Synthes in an executive, managerial marketing, sales, technical, administrative or product development capacity, whether as an owner, principal partner, employee, consultant, contractor, agent or representative. (Pls.' Ex. 68 (emphasis added).)
Third, Defendants contend that if the Non-Competition provision is construed pursuant to its plain language, then it is overbroad and unenforceable because it is not narrowly tailored to protect the employer's legitimate interests. Because they are disfavored, non-competition agreements are enforced only where they (1) are "incident to an employment relationship between the parties"; (2) impose "restrictions ... reasonably necessary for the protection of the employer;" and (3) are "reasonably limited in duration and geographic extent." Hess v. Gebhard & Co., Inc., 570 Pa. 148, 808 A.2d 912, 917 (2002). "A restrictive covenant is reasonably necessary for the protection of the employer when it is narrowly tailored to protect an employer's legitimate interests." PharMethod, Inc. v. Caserta, 382 Fed.Appx. 214, 220 (3d Cir.2010) (emphasis in original). Moreover, in determining whether to enforce a noncompetition covenant, the Pennsylvania Supreme Court "requires the application of a balancing test whereby the court balances the employer's protectible business interests against the interest of the employee in earning a living in his or her chosen profession, trade or occupation, and then balances the result against the interest of the public." Hess, 808 A.2d at 920.
In this case, the non-competition agreement was incident to the employment relationship between Marotta and Synthes and was admittedly reasonable in both temporal and geographic scope. There is also no doubt that Synthes has a legitimate protectible business interest in its wide array of trade secrets. The only question remaining, then, is whether the prohibition on all employment with a competing company imposed restrictions "reasonably necessary for the protection of the employer." The Court finds that it does. Pennsylvania law recognizes that both (a) protection of an employer's customer goodwill and protection of trade secrets, confidential information, goodwill, unique or extraordinary skills, and (b) specialized training that would benefit competitors are legitimate business interests that may be protected by a non-compete agreement. Zambelli Fireworks Mfg. Co. v. Wood, 592 F.3d 412, 424 (3d Cir.2010); see also Phar-Method, 382 Fed.Appx. at 220 ("Interests that a covenant may legitimately protect include trade secrets, confidential information, good will, and unique or extraordinary skills."). Marotta acknowledged that these were the precise interests that Synthes was trying to protect by virtue of the NCA. Specifically, the Agreement states:
(Pls.' Appx. 68; PSUF ¶ 230; DRPS ¶ 230.) Given that the non-compete provision imposes restrictions necessary to protect the legitimate business interests of Synthes, the Court rejects this portion of Emerge's argument.
Finally, Defendants assert that, even giving full force to the aforementioned language, Synthes has not produced sufficient evidence that Marotta breached the Non-Competition Agreement. Again, Defendants disregard not only the plain language of the covenant not to compete, but also the established facts of record. It is undisputed that, immediately following his employment with Synthes, Marotta took over as CEO of Emerge, which was in direct competition with Synthes in Colorado. Although Marotta and Emerge may not have directly sold product in Colorado during the following year, they operated out of a base in Denver and sold products to health systems with operations in Colorado with the hope that the solicitations would result in system-wide sales, including direct sales in Colorado. Marotta and Emerge developed, tested, and gained approval for their sales from their base in Colorado, solicited customers in the Denver area for investment, and solicited Synthes employees in Colorado to provide them with Synthes product for purposes of Emerge's intent to reverse engineer such products. Certainly, such actions violate Marotta's contractual promise in the Non-Competition Agreement that he would not, in his former Region, "work for or be involved in the Business of any Competitor of Synthes in an executive, managerial, marketing, sales, technical, administrative or product development capacity, whether as an owner, principal, partner, employee, consultant, contractor, agent or representative."
In sum, under a plain language reading of the Non-Competition Provision of the RM NCA, the Court finds an unequivocal breach by Defendant Marotta. Both during and after his employment with Synthes, Marotta used the technical skills and specialized training obtained from Synthes to create a competing company in his former region, develop competing products, finance the competitor, and actively start soliciting customers. Such
Synthes next contends that Marotta directly and indirectly solicited and contacted, and attempted to solicit or contact, customers both during his employment with Synthes and during the one-year period of time following the termination of his employment with Synthes, for the benefit of Emerge. Synthes goes on to assert that these customers included both customers from Marotta's assigned sales region in the Rocky Mountain Region and others with whom he had contact, for whom he had responsibility, or for whom he provided coverage in the last two years of his Synthes employment. Although Marotta spoke with many of these customers under the guise of seeking investment in Emerge, gaining advice as to Emerge's business model, or attempting to get such customers to participate as directors or advisors, Synthes claims that the intent was ultimately to bring these individuals or groups on as Emerge customers. Moreover, Synthes asserts that Marotta targeted for sales hospital systems with facilities in Colorado, such as Banner Health and United Surgical Partners International ("USPI").
Defendants do not seek summary judgment on this cause of action, but rather suggest that there are two genuine issues of material fact precluding a grant of summary judgment in Synthes's favor. First, they contend that contacting individual orthopedic surgeons for investment in Emerge was not a breach of the Non-Solicitation of Customers Provision since contacting investors and raising funds is not competition but rather is mere preparation to compete. Second, Defendants assert that Synthes has not produced sufficient evidence that Marotta breached the Non-Solicitation of Customers Provision since he only contacted hospital systems. In support of this position, they contend that the plain language of the agreement prohibits contact with "customers," which are defined as "hospitals [and] hospital employees," but does not include any reference to larger umbrella organizations such as hospital systems. They conclude that Synthes lacks evidence that Marotta solicited any of the individual hospitals within his Regional Manager region during his last two years of employment.
Both of these arguments adopt an excessively narrow view of the Non-Solicitation of Customers Provision. As set forth above, it provides that:
Moreover, Defendants mistakenly contend that Synthes has failed to establish that each of the surgeons who invested in Emerge was covered by the terms of the RM NCA. Synthes alleges, and Defendants readily admit, that Emerge sought interest to invest from Drs. Morgan,
As to Marotta's argument that his discussions with the corporate departments of hospitals — as opposed to individual hospitals — did not fall within the ambit of the RM NCA, his claim must fail. The Non-Solicitation of Customers Provision states that the term "Customer" shall include, "without limitation, hospitals; hospital employees who influence or may influence the use or purchase of medical devices in the Business, as defined, including materials management, operating room sterile processing, and related personnel, and physicians who use or may use the devices supplied within the Business, as defined, and their partners, employees, and staff nurses." (Pls.' Appx. 68 (emphasis added).) Again, it strains credulity to suggest that this definition excludes "hospital systems." At a minimum, the corporate individuals to whom Marotta spoke within these hospital systems fall within the definition of "hospital employees who influence or may influence the use or purchase of medical devices in the Business." Even if they did not, they certainly come within the catchall "without limitation," since hospital systems were undisputedly customers of Synthes. Defendants expressly admit that Marotta's territory included Banner Health, which has locations in multiple states including Colorado. (PSUF ¶¶ 199, 102-03; DRPS ¶¶ 99, 102-03.) Marotta
Simply put, the evidence overwhelmingly reveals that Defendant Marotta solicited and contacted, for the direct purpose of establishing the competing business of Emerge, multiple customers of Synthes that were within his assigned territory within the last two years of his employment with Synthes. Defendants' constrained readings of who constitutes a "customer" and ill-reasoned arguments as to why Marotta's activities were not competitive with Synthes simply cannot survive judicial scrutiny. Accordingly, summary judgment shall be entered on this claim in favor of Plaintiffs and against Defendants.
Lastly, under the RM NCA, Synthes seeks a summary judgment ruling that Marotta directly and indirectly solicited then-current employees for positions at competitive companies during his employment and during the one-year period of time following the termination of his employment. These solicitations related to Sonoma Orthopedics Product, Inc., a competitor of Synthes, on behalf of Synthes employee Brennen Warren; solicitations related to Chance Leonard; and solicitations involving Emerge relating to Brown and Josh Gorman. All such efforts, according to Synthes, violated the Non-Solicitation of Employees Provision of the RM NCA. In response, Defendants argue that Synthes has not produced sufficient evidence regarding any of these four employees.
As set forth above, the relevant provision provided that Marotta agreed that "during my employment and for a period of twelve (12) months after my employment with Synthes terminates for any reason, voluntary or involuntary, I will not directly or indirectly, (1) solicit, induce, or encourage any employee of Synthes to leave his/her employment with Synthes, (2) offer any employee of Synthes employment elsewhere, (3) participate in the recruitment of any employee of Synthes to work elsewhere, or (4) hire any employee of Synthes to work elsewhere." (Pls.' Appx. 68 (emphasis added).) Nothing in this contractual language requires that Marotta initiate contact with the employee to get him/her to leave Synthes or that the Synthes employee actually leave his or her employment with Synthes. Rather, Marotta remained under a one-year restriction to avoid any type of inducement or encouragement of any Synthes employee to leave Synthes employment. By the same token, however, nothing in this agreement expressly prohibits mere assistance of an employee actively looking to leave Synthes. Instead, the language of contract speaks in terms of more active involvement: "solicit," "induce," "encourage," "recruit[]," "offer," and "hire."
Applying this plain language interpretation, the Court finds that a genuine issue of material fact exists as to each of the individuals that Synthes claims were solicited by Marotta. First, as to Brennen Warren, although Marotta was involved in helping Warren obtain employment from Sonoma Orthopedics, the level of Marotta's
(Pls.' Appx. 355.) Thereafter, on February 12, 2010, Marotta emailed Synthes Sales Consultant Brennen Warren stating "I have sent your resume to Glen Coleman CEO of Sonoma. I am sure he will be in touch. Zach and I will be meeting in Austin on March 4th, would you and Laverty be available for a dinner meeting? Thanks again Brennan and I would ask you both to keep this meeting very confidential." (Pls.' Appx. 357.) It is undisputed that Marotta forwarded Warren's resume to Sonoma. (PSUF ¶ 588; DRPS ¶ 588.) Nonetheless, it is also undisputed that Warren was actively looking for another job. (PSUF ¶ 589; DRPS ¶ 589.) Given this scenario, and absent further details of what occurred at the various meetings, the Court declines to rule, as a matter of law, that Marotta's mere forwarding of an otherwise unsolicited resume was expressly prohibited by his Non-Solicitation Agreement.
As to Josh Gorman, the evidence is significantly more scant. It was Gorman who initially contacted Marotta on April 8, 2010, saying, "The more and more I think about what it is that you are doing, the more and more I want in. If there is a fit that you see possible, please let me know." (Pls.' Appx. 402.) In a follow up email on April 14, 2010, Gorman wrote to Marotta:
(Pls.' Appx. 403.) Marotta's sole response was, "Hi Josh — please find the attached. Call me anytime. Let's keep things off email due to both of our noncompetes. I am looking forward to keeping up a dialogue. Talk to you soon." (Id.) While a jury could infer from this exchange that Marotta was actively soliciting or encouraging Gorman to leave Synthes, it could just as easily find that Marotta was simply responding to Gorman's affirmative job requests and that he did nothing further. Accordingly, the Court finds that a genuine issue of material fact remains as to Gorman.
Third, with respect to Chance Leonard, the evidence is similarly sparse. On April 9, 2010, Leonard forwarded to Marotta an email exchange Leonard had with the Senior Director of Field Clinical Operations at Medtronic regarding "VP Sales Search." (Pls.' Appx. 404.) Leonard also passed on his resume to Marotta stating, "As always, I would appreciate your opinion and I value
Finally, as to Eric Brown, Synthes cites to a wealth of allegations that Brown — as detailed more thoroughly above — was an active participant in the formulation and creation of Emerge. Indeed, in November of 2009, Stassen and Brown developed a Private Placement Memorandum for Emerge to use with investors, which identified Brown as a "founder," "majority owner," "Chief Executive Officer," "President," and "Chairman of the Board." (Pls.' Appx. 292.) In the twenty-first version of the draft, the memorandum stated, under "Company Ownership," that "Emerge was established in January 2010 by founders John Marotta, Zack Stassen and Eric Brown whom are company owners." (Pls.' Appx. 216.) Until the end of 2009, Marotta, Stassen, and Brown all contemplated the possibility that Brown would be involved in Emerge. (PSUF ¶ 527; DRPS ¶ 527.)
Nonetheless, it is equally undisputed that, as of December 2009, the three men mutually determined that Brown could no longer participate in Emerge because of the national scope of his non-compete agreement with Synthes. (PSUF ¶ 528; DRPS ¶ 528.) As of December 16, 2009, Brown noted that "John, Zack and I met for a couple of hours last night and came to the same conclusions as our dinner conversation. The most prudent direction at this time is to respect my non-compete and delay any association or participation in the company while I am under an agreement." (Pls.' Appx. 231.) Although Synthes now argues that solicitations and recruitment need not be completed in order for there to be a breach, the record simply does not allow the Court to conclude that Marotta took any of the affirmative actions necessary for a breach of the Non-Solicitation of Employees Provision. A jury could plausibly find that although Brown actively sought to be part of Emerge — an action that Marotta may have initially encouraged — Marotta ultimately decided that any further recruitment of Brown would be in violation of contractual duties owed to Synthes. Even if the Court could determine that Marotta took some action that violated his Agreement, the fact that Brown did not leave Synthes's employ as a result of his actions undermines a finding of "resultant damages," which is an element of liability for breach of contract. See Vives v. Rodriguez, 849 F.Supp.2d 507, 521 (E.D.Pa.2012) (holding that the elements of a cause of action for breach of contract are "(1) the existence of a contract, including its essential terms, (2) a breach of a duty imposed by the contract and (3) resultant damages.").
Ultimately, while the evidence certainly suggests that Marotta might have engaged in some activity in violation of his Non-Solicitation of Employees Provision, there is an equally plausible inference that Marotta did nothing more than provide passive assistance. In light of this remaining issue of fact, the Court must deny Plaintiffs' Motion for Summary Judgment on this cause of action.
Synthes next alleges that Marotta is liable for breaches of the Non-Solicitation
(Pls.' Appx. 49.) Synthes contends that because Marotta's RM NCA did not supersede his SC NCA, the SC NCA remained in effect and required Marotta, in the year following his resignation from Synthes, to refrain from soliciting customers in his Synthes Arizona territory or with whom he had contact or responsibility, or for whom he provided coverage during the last three years with Synthes, i.e. April 1, 2007 to April 15, 2010. As Marotta and Emerge solicited many of those customers both for investment and regarding the purchase of Emerge products, Synthes now argues that Marotta is liable under this provision.
Defendants, on the other hand, seek summary judgment on this issue, claiming that the SC NCA was no longer in effect by the time Marotta resigned from Synthes. They assert that the SC NCA was executed in 2004 when Marotta joined Synthes. He was then promoted to Regional Manager and moved to Synthes's Colorado region effective January 1, 2008, after which he no longer had responsibility for his former Arizona sales region. In connection with his promotion, he signed a new Regional Manager Non-Compete. Defendants reason that the one-year prohibition of the SC NCA therefore began to run on January 1, 2008, leaving Marotta free to solicit customers in his Arizona region as of January 1, 2009, and meaning that, as of the time he left Synthes, his SC NCA had expired.
Defendants' interpretation is mistaken on several levels. First, it is undisputed that, pursuant to its terms, the RM NCA did not contain an integration clause or otherwise supersede the SC NCA in any manner, meaning that the SC NCA continued in full force and effect even after Marotta's January 2008 promotion. Absent such integration terms, Defendants are required to show that there was a novation. It is well established that "parties can execute two or more agreements that cover the same subject matter, and when the terms of two agreements are inconsistent and cannot stand together, the new contract takes the place of the original agreement." Parke Bank v. Bank of Am., N.A. 532 Fed.Appx. 148, 150 (3d Cir.2013). "A new agreement that replaces a prior agreement, and introduces a new party, is referred to as a `novation.'" Id. The essential elements of a novation are the displacement and extinction of a prior contract, the substitution of a new contract, the consent of the parties, and the validity of the new contract. Jones v. Commonwealth Cas. Co., 255 Pa. 566, 100 A. 450, 452 (1917). "The party asserting a novation ... has the burden of proving that the parties intended to discharge the earlier contract." Buttonwood Farms, Inc. v. Carson, 329 Pa.Super. 312, 478 A.2d 484, 486 (1984). Such intention "may be shown by other writings, or by words, or by conduct or by all three." Id. at 487. Notwithstanding this burden, Defendants have come forward with no evidence,
Second, Defendants contend that because the RM NCA prohibits Marotta from soliciting customers for whom he had responsibility in his last two years of employment with Synthes, and the SC NCA prohibits solicitation of customers for whom Marotta had responsibility in his last three years of employment with Synthes, the two contracts are irreconcilable. In other words, if both contracts apply, it is unclear which of the "look back" periods apply once Marotta leaves employment with Synthes — the two years of the RM NCA or the three years of the SC NCA. As such, they claim that the terms of the two agreements are inconsistent and cannot stand together.
This argument, however, disregards the fact that the two contracts run concurrently and seek to cover two different territories. In requiring the execution of the SC NCA, Synthes expressed its interest in ensuring that Marotta did not solicit the customers in that region within the three years following his last Synthes — related contact with them. When Marotta signed the RM NCA, the SC NCA look back period of three years continued to run. Had Marotta remained in his Regional Manager position for more than three years before leaving Synthes's employ, the Arizona territory would no longer fall within the area of prohibited solicitation and he would have only been barred from
Third, Defendants argue that Synthes's interpretation is inconsistent with the well-established case law and policy that noncompete agreements are to be construed narrowly and given effect only to the degree that they "protect the employer's legitimate interests." (Defs.' Mem. Supp. Summ. J. 29 (quoting PharMethod, Inc., 382 Fed.Appx. at 220).) They go on to argue that Synthes "clearly believed its legitimate competitive interests were adequately protected by a one-year period of freedom from competition from any Synthes employee. It is unreasonable to allow Synthes to extend indefinitely the competitive restrictions in this case at least tripling the length of the restriction — by simply asserting that its non-competes remain in effect even after the employee has moved to a different job in a different region and signed a different non-compete." (Defs.' Mem. Supp. Mot. Summ. J. 31.) They conclude that Synthes "has no legitimate protectible business interest in preventing Marotta from competing in his former sales region for more than three years after he ceased to work in that region on Synthes' behalf." (Id.)
Again, the Court finds no merit in Defendants' argument. In both the SC NCA
To now read the RM NCA as superseding the SC NCA would undermine Synthes's expressed legitimate interests. In that situation, Marotta could have accepted the promotion to Regional Manager, signed the RC NCA, worked in that capacity for a week before resigning, and would have been restricted from competing with his customers in only the past two years instead of the past three years. The necessity of protecting against this scenario is highlighted by the precise circumstances of this case. Almost immediately after leaving Synthes's employ, Marotta targeted, on behalf of Emerge, multiple Synthes customers in the Arizona region, including Banner Gateway in Gilbert Arizona, (PSUF ¶ 984-85; DRPS ¶¶ 984-85), Arizona Orthopedic Surgical Hospital in Arizona, (PSUF ¶¶ 1039-46; DRPS ¶¶ 1039-46), and Chandler Regional Hospital and Mercy Gilbert Medical Center. (PSUF ¶¶ 1073-80; DRPS ¶¶ 1073-80.). Defendant admits that, in 2007, his Arizona territory included Banner Gateway Medical Center, Chandler Regional Hospital, Mercy Gilbert Medical Center, and Arizona Orthopedic Hospital. (PSUF ¶ 99; DRPS ¶ 99.) For Marotta to now argue that Synthes did not have a legitimate business interest in avoiding this exact result would contradict the plain language of the agreements he signed.
Finally, Defendants claim that Marotta understood that upon signing the RM NCA, the SC NCA was no longer in effect, and that the Court should give effect to that understanding. This argument disregards well-established principles of contract interpretation:
Bohler-Uddeholm Am., Inc. v. Ellwood Grp., Inc., 247 F.3d 79, 92-93 (3d Cir.2001) (emphasis added) (internal citations, quotations, and alterations omitted). In this case, the SC NCA does not indicate that it would be voided upon Marotta's transfer to a new position within Synthes or upon signature of a subsequent non-compete contract. Nor does the RM NCA indicate that it supersedes or integrates all prior agreements regarding that subject matter. Thus, the mere allegation that "Marotta understood his Regional Manager Non-Compete to be the governing agreement from that point forward," (Defs.' Mem. Supp. Summ. J. 29), without any indication of the basis for that understanding, cannot overcome the clear and unambiguous contract language at issue.
In short, the Court concludes that under the plain language of the two contracts at issue, the RM NCA did not supersede the SC NCA In light of Defendants' concessions that in the year following his resignation from Synthes, Marotta solicited Arizona hospitals with whom he had contact as a Synthes Sales Consultant sometime in the last three years of his employment with Synthes, the Court must enter judgment in favor of Synthes on this claim.
Synthes's final breach of contract claim alleges that Marotta breached Return of Property provisions in both his RM NCA and NDA. Specifically, under the RM NCA, Marotta agreed that, upon termination of his employment with Synthes, he would immediately return "all correspondence files, business card files, customer and prospects lists, price lists, product lists, software, manuals, technical data, forecasts, budgets, notes, electronically stored information or data, and other materials that contain any of this information." (Pls.' Appx. 68.) The agreement indicated that the provisions applied "even to information of this type that is developed or conceived by me, alone or with others, at Synthes' instruction or otherwise" and that "these provisions apply to all information I may receive that is confidential and/or proprietary to any customer or other person or entity who does business with Synthes." (Id.) By way of his NDA, Marotta further agreed that "... upon any termination of my employment to deliver to SYNTHES promptly all items which belong to SYNTHES or which by their nature are for the use of SYNTHES employees only, including, without limitation, all written and other materials which are of a secret or confidential
Synthes now contends that it is undisputed that Marotta retained (a) a fragment set and used it for Emerge; (b) product, including Synthes product, in his home garage immediately after the termination of his employment with Synthes; and (c) emails from his Synthes email account following the termination of his employment with Synthes. Based on Marotta's retention of this information and product, and subsequent disclosure of this information and product to Emerge, Synthes contends that it is entitled to partial summary judgment as to Marotta's liability on this claim. Defendants respond that genuine issues of material fact remain both as to whether Marotta failed to return Synthes product and whether Marotta disclosed or used Synthes information.
With respect to the "small fragment set," Defendants argue that this set (I) belonged to a hospital, not to Synthes; (ii) was given freely by the hospital that owned it to Marotta in his personal capacity, since it was part of an obsolete system; and (hi) was ultimately donated by Marotta, as the hospital requested. Accordingly, Defendants claim that Synthes is unable to prove that the small fragment set was actually Synthes's property at any point during which it was in Marotta's possession.
It is undisputed that, beginning in March 2010, Marotta and Emerge were shipping Synthes product to Orchid. (PSUF ¶ 753; DRPS ¶ 753.) On April 14, 2010, one day prior to his resignation, Marotta emailed Trafka stating, "I can't remember if you still have that small fragment set? If so, can you please send it and anything else I left from VetOrthx." (Pls.' Appx. 486.) Trafka sent that small fragment set to Marotta at that time. (Pls.' Appx. 39.) When asked about that fragment set at his deposition, Marotta testified as follows:
Victoria Trafka testified that this was a manufacturer's set that Marotta had given her out of his car, however she had no knowledge of how he came to possesses it or whether he paid for it. (Trafka Dep. 100:21-101:13.) She testified that she understood that Marotta had originally given her the set "[f]or reference in understanding the vet project" to produce designs of veterinary orthopedic products. (Id. at 104:21-106:5.) She did not know what became of the small fragment set subsequent to her sending it to Marotta. (Id. at 106:15-107:4.)
Synthes now argues that there is no proof that the set was ever donated to anyone and that the only reasonable inference from the evidence is that Marotta had the set shipped to him for purposes of Emerge's reverse engineering the product. The Court, however, disagrees. While the evidence adduced by Synthes is compelling, it is insufficient to eliminate an obvious issue of credibility. As Emerge does not manufacture or produce small fragment sets, it is entirely possible that Marotta accurately stated that set was donated, in which case it would not have been improperly retained by Marotta following his resignation from Synthes. On the other hand, there is a plausible inference that Marotta improperly took Synthes product for purposes of usage by Emerge. Such a conflict is properly resolved by a jury and not by the Court on summary judgment review.
Second, Synthes argues that Marotta's retention of Synthes product in his home garage immediately after the termination of his employment with Synthes constituted a violation of his contractual obligations to return "all items which by their nature belong to or are for the use of Synthes employees only." Defendant responds that Synthes has no evidence to establish that Marotta possessed any Synthes product that belonged to Synthes at the time he left Synthes.
On this point, Defendants have failed to create a genuine issue of material fact sufficient to avoid summary judgment. Zachary Stassen provided a sworn statement as follows:
(Pls.' Appx. 20, Stassen Statement ¶¶ 54-55.) Stassen confirmed this statement in his June 4, 2013 deposition and indicated that he did know where Marotta had gotten the product. (Pls.' Appx. 21, Stassen Dep. 117:14-118:10.) Marcy Slone also indicated that by the time she started to work with Emerge in June 2010, Marotta had stored Synthes product at Emerge's office. (Pls.' Appx. 29, Slone Statement ¶¶ 1, 16-18.) In addition, the documentary evidence clearly indicates that, just prior
Defendants fail to produce contradictory evidence to create a genuine issue of material fact as to Marotta's failure to return Synthes product after his resignation. First, Defendants argue that Slone and Stassen did not know the source of the Synthes product in question and that the product could have come into Marotta's possession after the termination of his employment. This point is speculative at best. Aside from the fact that Marotta offers no competing explanation or evidence for how or when he came to possess this product, the fact that he had Synthes product after his resignation is, in itself, a violation of his duty to return Synthes property.
More importantly, contrary to Defendants' belief that this testimony alone is sufficient to create a genuine issue of material fact, it is well established that:
Johnson v. MetLife Bank, N.A., 883 F.Supp.2d 542, 549 (E.D.Pa.2012). Marotta's testimony — which fails to contradict Slone and Stassen's statements, neglects to explain the documentary evidence showing his shipment of Synthes product to Emerge prior to and just after his resignation, and merely claims lack of recall as to the other events of that time — simply cannot raise a genuine issue of material fact when juxtaposed against the contrary evidence. Accordingly, the Court grants summary judgment in favor of Synthes on this claim.
In the final portion of this claim, Synthes contends that Marotta breached not only his NDA, but also his RM NCA, by retaining emails from his Synthes email account following his termination of employment with Synthes and then by subsequently disclosing that information to Emerge. As set forth in more detail above, while still employed with Synthes, Marotta sent various Synthes information to his personal email account, including: Synthes Fall 2009 new product pipeline and plan; Synthes 2009 usage and pricing data for Centura Health; Synthes November 2008 to October 2009 usage and pricing data for Denver Health; October 19, 2009 pricing proposal and email negotiations with Access Mediquip; October and November 2009 P & L reports; Synthes's price increase information (including an explanation of the differences from the prior year's increase); and Marotta's contacts, calendar, tasks, and notes from his Synthes Outlook account. (PSUF ¶ 937; DRPS ¶ 937.) Marotta could not recall the reason for forwarding these documents to his personal email account. (PSUF ¶¶ 938-39; DRPS ¶¶ 938-39.) After the initiation of litigation in March 2011, Emerge produced numerous emails that were sent or received during Marotta's and Powell's employment with Synthes using Marotta's and Powell's Synthes email accounts that each had retained after their resignations from Synthes and during their employment with Emerge. (PSUF ¶ 946; DRPS ¶ 946.) These emails included a presentation of an evaluation done on Synthes's performance in the surgery center market, as well as an email concerning Synthes screws on consignment at Denver Health. (PSUF ¶¶ 947, 949; DRPS ¶¶ 947, 949.)
Notably, Defendants do not attempt to dispute that Marotta actually retained these emails following his departure from Synthes. Indeed, Marotta concedes this fact, but simply remarks that the retention was "inadvertent." Regardless of whether the retention was willful or inadvertent, however, Marotta's actions constituted a breach of the provision of the NDA requiring the return of all Synthes property upon termination of employment. Therefore, the Court grants Synthes' Motion on this issue.
The only remaining question is whether Marotta breached the RM NCA by disclosing these emails to third parties. As noted above, Marotta agreed that he would not "use publish or otherwise disclose (except as my SYNTHES duties may require) either during or subsequent to my
Synthes next seeks summary judgment on its allegation of misappropriation against Emerge. Although Defendants do not seek a contrary summary judgment ruling, they nonetheless dispute Synthes's Motion.
The Pennsylvania Uniform Trade Secrets Act ("PUTSA") "creates a statutory cause of action for injunctive relief, compensatory damages and exemplary damages for the actual loss caused by misappropriation of trade secrets and the unjust enrichment caused by such misappropriation." Youtie v. Macy's Retail Holding, Inc., 626 F.Supp.2d 511, 522 (E.D.Pa.2009) (citing 12 Pa. Cons.Stat. § 303-1). PUSA "displaces conflicting tort, restitutionary and other law of this Commonwealth providing civil remedies for misappropriation of a trade secret," with the exception of "(1) contractual remedies, whether or not based upon misappropriation of a trade secret; (2) other civil remedies that are not based upon misappropriation of a trade secret; or (3) criminal remedies, whether or not based upon misappropriation of a trade secret." 12 Pa. Cons.Stat. § 5308(a)-(b).
Under PUTSA, a person has misappropriated a trade secret "when he acquires knowledge of another's trade secret in circumstances giving rise to a duty to maintain
Defendants now argue that Synthes is not entitled to summary judgment because Synthes has not shown: (1) that manufacturing costs, customer usage data, and product designs were trade secrets or (2) that Emerge improperly acquired or used any trade secret information. The Court addresses each argument individually.
To constitute a "trade secret" under PUTSA, it must be an actual secret of peculiar importance to the business and constitute competitive value to the owner. Parsons v. Pa, Higher Educ. Assistance Agency, 910 A.2d 177, 185 (Pa. Commw.Ct.2006); see also O.D. Anderson, Inc. v. Cricks, 815 A.2d 1063, 1070 (Pa.Super. Ct.2003) (citations omitted) ("The crucial indicia for determining whether certain information constitutes a trade secret are `substantial secrecy and competitive value to the owner.'"). Pennsylvania courts look to the following factors to determine whether information is protected as a trade secret:
Bimbo Bakeries, 613 F.3d at 109. Whether information rises to the level of a trade secret under PUTSA is a question of fact. Kimberton Healthcare Consulting, Inc. v. Primary PhysicianCare, Inc., No. Civ. A.11-4568, 2011 WL 6046923, at *4 (E.D.Pa. Dec. 6, 2011).
"Courts have found `trade secrets' to include `certain business and marketing information including the costing and pricing information of an employer's product or services, an employer's business plans, marketing strategies, and financial projections and the terms of specific customer accounts including contract expiration dates and revenues generated.'" Youtie v. Macy's Retail Holding, Inc., 653 F.Supp.2d 612, 621 (E.D.Pa.2009) (quoting BIEC Int'l Inc. v. Global Steel Servs., Ltd., 791 F.Supp. 489, 545 (E.D.Pa.1992) (citing SI Handling Sys., Inc. v. Heisley, 753 F.2d 1244, 1260 (3d Cir.1985) (protecting cost and pricing information for the final product); Union Carbide Corp. v. UGI Corp., 731 F.2d 1186, 1191 (5th Cir. 1984) (applying Pennsylvania law to protect marketing information and strategies);
"Customer lists and confidential business information cannot be trade secrets if they are easily or readily obtained, without great difficulty, through some independent source other than the trade secret holder." BIEC Int% 791 F.Supp. at 545 (citations omitted). Courts have also recognized that prices charged are not protectible because they can be obtained by the customer. Brett Senior & Assocs., P.C. v. Fitzgerald, No. Civ.A.06-1412, 2007 WL 2043377, at *7 (E.D.Pa. July 13, 2007); Tyson Metal Prods., Inc. v. McCann, 376 Pa.Super. 461, 546 A.2d 119, 121-22 (1988) (holding that pricing information could be obtained from other sources and therefore trade secret protection was unwarranted). Nonetheless, "[a] compilation of data that has independent economic value can be protected as a trade secret." Youtie, 653 F.Supp.2d at 621-22 (citing cases). Thus, "[t]he fact that the same information can be gathered on any one customer by talking with the customer herself is irrelevant. The value in [a company's] customer information is in the compilation, categorization, and organization of information on thousands of customers, combined with the ability to search and format it into a readily usable form. This is what a competitor does not have and cannot easily recreate." Latuszeivski v. Valic Fin. Advisors, Inc., No. Civ.A.03-540, 2007 WL 4462739, at *17 (W.D.Pa. Dee. 19, 2007), aff'd, 393 Fed.Appx. 962 (3d Cir.2010).
The Court must now determine whether Synthes has conclusively established that the manufacturing costs and usage data at issue are trade secrets. Defendants contend that "[t]here is substantial evidence in the record that both the manufacturing costs and customer usage data identified by Synthes can be obtained from other sources." (Defs.' Resp. Opp'n Summ. J. 54.) In particular, Stassen testified that hospitals routinely share historical purchase and pricing information with vendors, including Emerge. (Stassen Dep. 256:21-257:5 ("Q. Did hospitals routinely provide similar usage data to Emerge when bidding out for business? A. Yes. Q. While you were at Emerge, were there literally hundreds of similar spreadsheets provided to Emerge by hospitals? ... Q. If you printed them out, it would be hundreds of pages, but probably not hundreds of files.").) Likewise, according to Defendants, Marotta testified that customer pricing and usage data is public. (Pls.' Appx. 36, Marotta Dep. 686:24-387:14, July 6, 2011 ("Q. Do you see that there's a series of E-mails that deal with detailed usage information for Centura? A. Uhhuh. Q. And do you see that on November 4th, 2009, that you E-mailed that information from your Synthes E-mail address to a personal address? A. I do. Q. Do you recall the reason for doing that at that time? A. No. I can tell you that this information here is immaterial. Pricing is public.").) Finally, Defendants assert that manufacturing costs and estimates are routinely obtained from vendors. (Pls.' Appx. 563, Dep. of John E. Hammill, Jr. ("Hammill Dep."), 51:9-52:7, April 29, 2013) (noting that Hammill of Hammill Manufacturing Company would have discussed prices charged to other vendors at an initial budgetary meeting with Emerge).
Defendants' argument, however, rests on the notion that the allegedly misappropriated manufacturing and usage data consists
Moreover, Defendants have failed to create a genuine issue of material fact as to the other factors for whether information is a trade secret. During their employment with Synthes, Marotta, Brown, and Powell signed agreements recognizing that the identities of customers, prices, pricing policies, usage histories, and manufacturing costs were considered confidential information. (PSUF ¶¶ 232, 235; DRPS ¶¶ 232, 235.) They specifically agreed to keep this information "in strict confidence to protect Synthes's business and maintain its competitive position in the marketplace." (PSUF ¶¶ 230-31; DRPS ¶¶ 230-31.) Finally, Synthes had in place numerous measures to maintain the secrecy of this information, including policies, nondisclosure contracts with employees and vendors, and physical security measures. Accordingly, the Court deems the manufacturing costs and usage data to be protectable trade secret information.
Synthes next argues that Emerge acquired Synthes's product designs for cannulated screws, external fixation components, locking and non-locking screws, reaming rods, and cancellous and cortical screws. Defendants contend that a genuine issue of material facts exists as to whether these product designs qualify for trade secret protection because Defendants have shown that these products can be reverse engineered. They go on to assert that Emerge did, in fact, reverse engineer cannulated screws long before it received Synthes's designs. As to the other products, Emerge has never sold external fixation components, locking or nonlocking screws, reaming rods, or cancellous or cortical screws and, thus, could not have used Synthes's designs of these products to harm Synthes. Finally, Defendants contend that neither Emerge nor Marotta could possibly have known that any drawings were acquired by improper means, since Marotta testified that he did not know how or from where Emerge obtained Synthes's drawings. Given these alleged disputes of fact, the Court should, according to Defendants, deny Synthes's Motion.
It is clear that, under Pennsylvania law, products are not entitled to trade secret protection if they are susceptible to reverse engineering,
It is equally clear, however, that "manufacturing processes, as much as products and equipment, are protectible as trade secrets." Permagrain Prods., 489 F.Supp. at 112. Product dimensions and tolerances cannot be obtained by disassembling the product. SI Handling Sys., 753 F.2d at 1256. "Indeed, tolerances have previously been recognized as trade secrets par excellence, because they cannot be obtained by even the most precise measurements." Id. (citing Williams v. Curtiss-Wright Corp., 681 F.2d 161, 164 (3d Cir. 1982); Ecolaire Inc. v. Crissman, 542 F.Supp. 196, 203 (E.D.Pa.1982); Anaconda Co. v. Metric Tool & Die Co., 485 F.Supp. 410, 418 (E.D.Pa.1980)); see also Den-Tal-Ez, Inc. v. Siemens Capital Corp., 389 Pa.Super. 219, 566 A.2d 1214, 1230 (1989) ("Our review of the record also reveals that the nature of the product information Siemens received was sufficiently secret and detailed, including for example information regarding the tolerances of various component parts of Star's handpieces, to warrant protection"); see also Mike's Train House, Inc. v. Lionel, L.L.C., 472 F.3d 398, 410 (6th Cir.2006) ("[T]he design drawings here are properly considered trade secrets even though they contain a mixture of secret information (e.g., dimensions, tolerances, and data-reference points) and non-secret information."); Faiveley Transport Malmo AB v. Wabtec Corp., 559 F.3d 110, 117 (2d Cir.2009) ("We detect no error in the District Court's conclusion that the BFC TBU manufacturing drawings pertaining to `dimensions and tolerances, surface finishes, material selection and treatments, lubrication specifications, and special instructions for manufacture, testing, and assembly,'... contain trade secrets under New York law.").
In the present case, the documents at issue include various design drawings, including "Critical Features" documents for Synthes's external fixation products. (Pls.' Appx. 507, 508, 513). While Defendants do not dispute that they acquired and disclosed these documents, they contend that the documents are not entitled to trade secret protection. In support of their argument, Defendants rely on their expert, Linda Braddon, who explained that reverse engineering is a common practice in the medical device community and that, in her opinion, the Emerge cannulated screws were reverse engineered and not based on Synthes's drawings. (Braddon Report ¶ 3.) Defendants also cite to Synthes's expert, Dean Preston, who testified that "it is a fairly simple matter to make a close approximation" to a product using reverse engineering. (Pls.' Appx. 750, Dep. of Dean Preston ("Preston Dep."), 258:8-259:1, Oct. 11, 2013.) According to Defendants, the evidence supports the fact that Emerge actually reverse-engineered cannulated screws long before it received Synthes's designs and Critical Features documents. Indeed, Marotta signed an agreement with Orchid
Defendants' argument, however, disregards several fundamental points. First, the mere fact that Emerge may have reverse engineered portions of Synthes's cannulated screws does not detract from the fact that it could not reverse engineer the product tolerances and dimensions to "seamlessly" match Synthes's screws. Contrary to Defendants' citation of Synthes's expert, Mr. Preston actually testified that "if you were going to reverse engineer a product, it is a fairly simple matter to make a close approximation of that. It is a different matter entirely to make one that would seamlessly function and that you could substitute for the original product and nobody would be the wiser." (Preston Dep. 259:6-12.) He opined that Emerge only made a close approximation. (Id. at 259:20-21.) This opinion is supported by the fact that in the summer and early fall of 2010 there were differences between Emerge's screws and Synthes's screws and, in correspondence with Orchid, Emerge expressed concern regarding these differences in light of Emerge's strategy to have its products "blend seamlessly" with the Synthes approach. (Litke Dep. 108:19-110:4, 113:20-117:9.) As of November 2010, Ron Litke of Orchid expressed concern about the tolerances on the radius of the circle diameter of the cannulated screws and the dimensions of the screws in order to match Synthes's screws. (Pls.' Appx. 533.) As such, with the Synthes Critical Features documents in hand, Orchid redesigned Emerge's screws to eliminate some of the differences. (Litke Dep. 108:19-110:4, 113:20-117:9.) In short, contrary to Defendants' assertion, the evidence is undisputed that Emerge was not able to reverse engineer the precise dimensions and tolerances of Synthes's cannulated screws prior to receipt of the Critical Features documents. Consistent with the jurisprudence recognizing that product dimensions and tolerances cannot be reverse engineered and, thus, are subject to trade secret protection, the Court likewise finds that these Critical Features documents were subject to trade secret protection.
With respect to the Critical Features documents regarding the external fixation devices, Defendants' contention that it has never sold external fixation components, locking or non-locking screws, reaming rods, or cancellous or cortical screws has no bearing on whether the Critical Features documents constituted trade secrets. Defendants do not suggest that the tolerance and dimension information contained in those documents could be obtained elsewhere or that such products could be reverse engineered. Defendants attempt to rely on Marotta's testimony that "[t]ypically, if there's a document that has tolerances, they're classified as ASTM standards," which is public information. (Pls.' Appx. 3, Marotta Dep., 50:1-13, July 5, 2011.) Notably, however, Defendants have not established that these particular documents are in the public domain.
In short, the Court finds that the Critical Features documents containing information
The second portion of Synthes's claim requires Synthes to establish that Defendants actually misappropriated Synthes's trade secrets. Misappropriation can occur either by acquisition or disclosure. To establish misappropriation by acquisition under the PUTSA, a plaintiff must establish "acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means." 12 Pa. Cons.Stat. § 5302(1). The PUTSA defines "improper means" as "[i]nclud[ing], but [ ]not limited to, theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy or espionage through electronic or other means." Id. § 5302. To establish misappropriation by disclosure under the PUTSA, a plaintiff must establish that the defendant disclosed its trade secret without express or implied consent and either:
Id.
Synthes now argues that Emerge improperly acquired the foregoing trade secrets by inducing others to breach their contractual obligations, thus constituting misappropriation. The Court addresses each type of trade secret individually,
First, with respect to manufacturing costs, Marotta, on behalf of Emerge, emailed Preston Baus, a former Synthes employee, on April 17, 2010, requesting that Baus send him "Synthes manufacturing costs." (Pls.' Appx. 505.) The same day, Baus sent Marotta an Excel file containing Synthes's manufacturing costs.
As to usage data, on May 19, 2010, Karen Foster, a Synthes sales support specialist, emailed Leonard an attachment containing Synthes usage reports for multiple facilities within the Catholic Healthcare West system and, the following day, emailed Chance Leonard the 2008 and 2009 usage files for multiple Banner Health facilities. (PSUF ¶¶ 906-07; DRPS ¶¶ 906-07.) On May 1, 2010, Leonard executed an Emerge Confidentiality and Non-Disclosure Agreement. (Pls.' Appx. 747). Thereafter, in early summer 2010, Marotta traveled to Arizona and recalled visiting Leonard. At some point in 2010, Emerge came to possess the precise usage data that Synthes had prepared for Chance Leonard. Stassen explained that following Marotta's May 2010 trip to Arizona, Marotta gave Stassen a thumb drive containing Excel spreadsheets with usage data for Synthes for approximately fifteen hospitals and ambulatory surgery centers in Arizona, which provided sales volume of particular Synthes products over a two-year time period as well as specific pricing offered to those customers. (PSUF ¶¶ 921-22.) Stassen downloaded all of the information on the thumb drive Marotta brought back from Arizona and loaded the data onto an Emerge computer.
Stassen explained that he used this usage data "to assess sales potential of various products and to determine the volume of various products that Emerge might manufacture" because "at this time, Emerge was in the process of determining what products to produce and what quantities to produce. This information helped Emerge make decisions about which products to produce and in what volume, which helped Emerge maximize its limited resources." (Pls.' Appx. 20 at ¶ 69.) In addition, Marcy Slone indicated that she used the Arizona usage data "often" throughout her employment with Emerge "to determine what quantities of known product to manufacture and order." (Pls. Appx. 29 at ¶ 33.) Marotta himself could offer no recollection — let alone a contrary explanation — for how Emerge obtained or may have used that information. (Pls.' Appx. 10, Marotta Dep. 125:15-129:1.) Again, absent some genuine dispute of material fact of record, the Court must find in favor of Synthes on this claim.
As noted above, in July 2010, Preston Baus sent Synthes design drawings to Marotta, including drawings or Synthes external fixation documents. (Pls.' Appx. 507.) Defendants contend that Emerge never sold external fixation components and that Marotta specifically told Baus that Emerge had no use for this information. (Pls.' Appx. 10, Marotta Dep., 37:20-38:5, June 27, 2013.)
Such testimony, however, does not create a genuine issue of material fact for the jury. First, it is undisputed that the critical features documents were ultimately circulated among Emerge employees. Specifically, Marotta forwarded the document to Slone's personal email address. Slone then forwarded it to "admin@emergemedical.com" and Shane Hanson's personal email address. (PSUF ¶ 820; DRPS ¶ 820.) Second, even if Marotta's testimony is fully credited and a jury could find that Emerge never used the documents, "use" of trade secrets is not a required element of misappropriation. Rather, a plaintiff need only show that the defendant improperly acquired or disclosed the trade secrets — facts that are clearly established by the undisputed evidence. Given Baus's previously-discussed non-disclosure obligations, which were known to Marotta and, therefore, to Emerge, the Court finds that Emerge misappropriated these documents.
Similarly, as noted above, on July 17, 2010, Baus sent Marotta a Critical Features document bearing the Synthes logo, which identified critical features, dimensions and tolerances for certain Synthes products, including locking, non-locking, and cannulated screws. (Pls.' Appx. 514.) Again, by doing so, Baus violated his contractual confidentiality arrangements with Synthes. Marotta then forwarded this document to Stassen's personal email on July 21, 2010 and Slone's personal email address on August 2, 2010. (Pls.' Appx. 516, 518.) Marcy Slone, then Vice President of Operations for Emerge, testified that she recognized that such information was confidential and proprietary to Synthes. (Pls.' Appx. 490, Dep. of Marcy Slone ("Slone Dep."), 110:16-111:18 (Sept. 12, 2011).) Nonetheless, she sent the critical features documents to Orchid. (Id. at 107:17-109:2; Pls.' Appx. 10, Marotta Dep., 51:9-11, June 27, 2013.) She explained that she sent this document to Ron Litke at Emerge to allow Orchid "to compare the Synthes Critical Features document with Emerge's prints and look for any differences." (Pls.' Appx. 29, 1126.) When Orchid received this document, it discarded it because it "looked like something [Orchid] shouldn't have had" and Orchid knew "it was something that wasn't in the public domain." (Litke Dep. 71:10 — 72:5, 132:7-134:7.) Slone then altered the document by removing information related to products other than cannulated screws, changing the font, removing the Synthes employee email header, and substituting an Emerge logo for the Synthes logo. (Pls.' Appx. 29, Slone Statement ¶ 30.) That altered document was then re-sent to Orchid. (Pls.' Appx. 520.)
Defendants' sole response to these inculpatory facts is that Slone's testimony creates a genuine issue of material fact as to whether Emerge "used" the materials. Indeed, according to Defendants, Slone
Defendants' argument again assumes that a misappropriation action requires a showing of use. The fact remains, and Marotta does not dispute, that Marotta improperly induced Baus to send him this information in violation of Baus's contractual obligations to Synthes. Moreover, although Marotta proclaims that he had no use for this information, he promptly forwarded it to both Slone and Stassen. Such actions foreclose any dispute of material fact as to whether he misappropriated it.
The next set of documents at issue concern Synthes documents obtained from Victoria Trafka. As set forth above, in 1998, Victoria Trafka was employed by Synthes as a manufacturing engineer at Synthes's Monument facility. (PSUF ¶ 58; DRPS ¶ 58.) In connection with her employment, Trafka executed an Employee Innovation and Non-Disclosure Agreement and reviewed Synthes's Employee Policy Manual. (PSUF ¶¶ 208-09; DRPS ¶ 208-09.) As a manufacturing engineer at Monument, Trafka's duties were to create aid to manufacturing processes and then document those manufacturing processes. (PSUF ¶ 211; DRPS ¶ 211; Trafka Dep. 44:15-4:1.) In that role, she worked directly with both product development engineers and quality control engineers. (PSUF ¶ 212; DRPS ¶ 212; Trafka Dep. 48:9-49:14.) In April or May of 2001, Trafka resigned from Synthes. (PSUF ¶ 213; DRPS ¶ 213.)
From May 2005 until December 2010, Trafka was employed by Magnum Tool ("Magnum"), who was a vendor used by Synthes for certain manufacturing products. (PSUF ¶¶ 214, 218; DRPS ¶¶ 214, 218.) During this time, Trafka agreed to maintain the confidentiality of Synthes's proprietary and confidential information accessible to Magnum employees in connection with Magnum's vendor relationship with Synthes. (PSUF ¶ 219; DRPS U 219.) As part of her employment with both Synthes and Magnum, Trafka was privy to information about Synthes's specifications for raw materials, machining, and manufacturing of product, the finishing of Synthes products, and the inspection of Synthes products. (PSUF ¶ 222; DRPS ¶ 222.)
In 2009, Marotta contacted Trafka regarding potential assistance with Emerge. (PSUF ¶ 59; DRPS ¶ 59.) Thereafter, in March 2010, Trafka began working for Emerge as a part-time consultant to assist Emerge in developing product concepts. (PSUF ¶ 60; DRPS ¶ 60.) On August 1, 2012, Trafka became a full-time Emerge employee under the title of Vice President of Engineering and Quality. (PSUF ¶¶ 65-66; DRPS ¶¶ 65-66.) Among other things, her responsibilities in that role included the design and development of instrumentation and devices used in traumabased surgeries. (PSUF ¶ 67; DRPS ¶ 67.)
In April 2012, Emerge produced the following Synthes documents: Design Standards — Conical Threaded Screw Heads: ES0146, Rev. D; Two Flute Drills: ES0268, Rev. A; Design Standards — Hex Recess for Bone Screws: ES0270, Rev. B; Design Standard — Stardrive Recess; Design Standard — Stardrive Antrieb-ICDS ES0272, Rev. F; Implant Quality 316L
The Court, however, finds a genuine issue of material fact as to how Emerge came to be in possession of these documents. Although Stassen indicates that he transferred these files from Trafka's thumb drive (Pls.' Appx. 20, Stassen Statement, at ¶¶ 84-86), Trafka explicitly denied that this happened. (Trafka Dep., 207:1-208:11.) The documents were then found in a folder named "Victoria Flash." (Pls.' Appx. 733, 5.) All of these documents were also stored on Emerge's shared "Jungle Disk" drive. (Id.) While the evidence is certainly compelling that these documents were taken by Trafka and transferred to Emerge, there are simply too many holes in the chain of custody, coupled with Trafka' own denial, for the Court to conclusively find that a misappropriation of these documents by Emerge occurred,
In the spring of 2010, Emerge and Hammill Manufacturing began discussing the manufacturing of certain products. (PSUF ¶ 870; DRPS ¶ 870.) Initially, the discussions focused on quotes for the manufacture of Emerge's drill bits, guide wires, and cannulated screws, but, as of May 19, 2010, Hammill decided to pass on Emerge's request as to the manufacture of Emerge's cannulated screws. (PSUF ¶¶ 874-75; DRPS ¶¶ 874-75.) Nonetheless, Marotta and Hammill continued to meet regarding the budgetary pricing for Emerge's screws. (PSUF ¶¶ 876-78; DRPS ¶¶ 876-78.) On June 4, 2010, Marotta indicated that he sent prints to Hammill. (Pls.' Appx. 572.) Thereafter, on June 15, 2010, Mike Librot of Hammill forwarded a "Cancellous Screw Quote from Hammill Manufacturing" to Slone and Marotta. (Pls.' Appx. 575.)
Subsequently, pursuant to a subpoena, Hammill Manufacturing produced documents, including a "quote file" with six Synthes drawings for cancellous and cortical screws that it used to draw up the quote for Emerge. (PSUF ¶ 886; DRPS ¶ 886.) John Hammill of Hammill Manufacturing testified that somebody at his company had to have seen the drawings in order to produce the quote and that he was likely the one who obtained them from Emerge, and most likely from Marotta. (Hammill Dep., 72:8-74:8.) Although Marotta testified that he had no knowledge of how Hammill came into possession of these drawings, he did indicate that Slone was the source of the information. (PSUF ¶¶ 887-89; DRPS ¶¶ 887-89.) He further admitted that the information Hammill possessed contained the same product design information, with Synthes logos obscured, as Synthes design information. (PSUF ¶ 896; DRPS ¶ 896.) Slone herself conceded that she had obscured certain information on the Synthes cortical and cancellous screw prints with white labels and correction tape before sending the paper copies to Hammill. (Pls.' Appx. 29, Slone Statement ¶¶ 10, 21.)
Defendants do not attempt to rebut any of this information other than by disavowing the actions of Slone. The evidence, however, clearly reflects Marotta's involvement in dealings with Hammill and his participation in sending design information to Hammill. Moreover, nothing in the record suggests that Slone was acting outside the scope of her employment with Emerge when sending this design information. Accordingly,
The last piece of information that Synthes accuses Emerge of misappropriating is strategic business planning information related to companies affiliated with prospective Emerge investors and advisors. Synthes asserts that, on January 10, 2010, Ken Carpenter of Synthes emailed to Eric Brown, former Area Vice President of Sales for Synthes Trauma, a Business Development Discussion Slide Deck labeled "Extremely Confidential," which contained information regarding Synthes's business plans and acquisition strategies. At the end of January 2010, Brown showed Stassen this Slide Deck since several of the companies targeted for acquisition were part of Stassen's father's partnership's portfolio. Although Stassen declined to email the list to his father, he described the information he saw in detail.
Synthes's misappropriation claim with respect to this material fails in several respects. First, aside from the fact that Synthes itself described this information as "Extremely Confidential," Synthes has made no showing that this information was entitled to legal trade secret protection. Second, although Stassen was Chief Operating Officer ("COO") of Emerge, nothing in this evidence reflects that Stassen was working in that capacity or was otherwise acting on behalf of Emerge when he shared that information with his father. Indeed, an entirely logical and reasonable inference is that Stassen was acting in his role as an investment banker and the son of another investment banker, rather than in his capacity as COO of Emerge. Therefore, the Court finds that a genuine issue of material fact remains on this point and that Synthes is not entitled to summary judgment.
In sum, the Court finds that Synthes has established, as a matter of law, that Synthes's Manufacturing Costs, Usage Data, and Product Design information-in the formats at issue here-constituted unequivocal trade secret information, but that the Business Development Discussion Slide Deck did not. Moreover, the Court also finds that the evidence clearly establishes Emerge's misappropriation of the manufacturing cost data, usage data, and much of the product design information, but that genuine issues of material fact remain as to several of the individual items identified above. Accordingly, the Court grants summary judgment in favor of Synthes in part and denies it in part.
The final claim on which Synthes seeks summary judgment is its allegation of false advertising against Emerge, Marotta, and Powell under the Lanham Act. As a matter of course, Defendants contend that summary judgment on this issue is precluded by a genuine issue of material fact, but they do not themselves seek summary judgment on the claim.
Section 43(a) of the Lanham Act states, in pertinent part:
15 U.S.C. § 1125(a). To state a claim for false advertising, a plaintiff must plead facts alleging that the defendant made false or misleading statements or descriptions of fact in commercial advertising or promotion that "misrepresent[ed] the nature, characteristics, qualities, or geographic origin of his ... goods, services, or commercial activities." 15 U.S.C. § 1125(a)(1)(B). "Only statements of fact capable of being proven false are actionable under the Lanham Act because, when personal opinions on nonverifiable matters are given, the recipient is likely to assume only that the communicator believes the statements, not that the statement is true." Parker v. Learn Skills Corp., 530 F.Supp.2d 661, 679 (D.Del.2008) (citations omitted). "[Misdescriptions or false representations of specific characteristics of a product," which are actionable under the Lanham act, are distinguished from puffery, which is not actionable. Castrol, Inc. v. Pennzoil Co., 987 F.2d 939, 945 (3d Cir.1993). The Third Circuit defined puffery as "exaggeration or overstatement expressed in broad, vague and commendatory language." Id.
The false or misleading claim may be proved in one of two ways. The movant must show that "the commercial message or statement is either (1) literally false or (2) literally true or ambiguous, but has the tendency to deceive consumers." Novartis Consumer Health, Inc. v. Johnson & Johnson-Merck Consumer Pharm, Co., 290 F.3d 578, 586 (3d Cir.2002). If the complainant can show literal falsity, "the court may grant relief without reference to the advertisement's impact on the buying public." Castrol Inc., 987 F.2d at 943. However, "only an unambiguous message can be literally false;" if the message is susceptible of more than one meaning, the complainant cannot assert literal falsity. See id. at 587. Where the movant is unable to demonstrate that the complained-of statement is literally false, a Lanham Act violation may still be established by proving that the commercial makes a false or misleading claim and that a substantial portion of consumers actually understand the ad to be making that claim. See Johnson & Johnson-Merck Consumer Pharm. Co. v. Rhone-Poulenc Rorer Pharm., Inc., 19 F.3d 125, 129 (3d Cir. 1994).
Defendants now argue that Plaintiffs are not entitled to summary judgment on this issue because: (1) Synthes has not demonstrated that the statements alleged to be misleading were sufficiently disseminated to constitute advertising or promotion; (2) whether the statements were false on their face is a disputed issue of fact; and (3) Synthes cannot establish damages under the Lanham Act.
"The threshold matter in addressing an alleged false statement actionable under 15 U.S.C. § 1125(a)(1)(B) is whether the statement constitutes `commercial advertising or promotion.'" Premier Comp Solutions, LLC v. Penn Nat'l Ins. Co., No. Civ.A.07-1764, 2012 WL 1038818, at *7 (W.D.Pa. Mar. 28, 2012) (quoting 15 U.S.C.
Notably, it is well established that "isolated statements to potential customers generally do not constitute sufficient dissemination to be defined as advertising within the meaning of the Lanham Act" and "private statements to competitors — without more — falls short of commercial advertising as defined in the Act." Pitney Bowes, Inc. v. ITS Mailing Sys. Inc., No. Civ.A.09-5024, 2010 WL 1005146, at *5 (E.D.Pa. Mar. 17, 2010) (emphasis omitted) (citing Schmidt, Long & Assoc., Inc. v. Aetna U.S. Healthcare, Inc., No. Civ.A.00-3683, 2001 WL 856946, at *11 (E.D.Pa. July 26, 2001) ("Generally, isolated private statements are not sufficiently disseminated to constitute advertising.")). Thus, "[p]roof of widespread dissemination within the relevant industry is a normal concomitant of meeting this requirement," and "isolated disparaging statements do not have redress under the Lanham Act." ConsulNet Computing, Inc. v. Moore, No. Civ. A.04-3485, 2007 WL 2702446, at *11 (E.D.Pa. Sept. 12, 2007) (quotations omitted).
In the present case, it is undisputed that Emerge and Marotta created a defined corporate marketing structure overseen by Powell as Emerge's Vice President of U.S. Sales. Prior to entering into its exclusive distributorship agreement with Cardinal Health on June 20, 2012, Emerge would begin the sales process by approaching a hospital system directly — either by phone, email or in person, through corporate supply chain management. Emerge would then describe its method of not relying on sales reps and would make representations about the characteristics and performance of its products. These statements were made via phone calls, emails, in-person meetings, websites, printed materials, presentations, trade show displays, and social media. Through all of these mediums, Emerge would discuss and compare Emerge product to other competitors in the marketplace, including Synthes. They would also
Notwithstanding the truth or falsity of such representations, however, Synthes fails to establish that the allegedly false statements were sufficiently disseminated as to constitute advertising. At the Motion to Dismiss stage, this Court remarked that "[a]t first blush — and taken in isolation — these allegations [of the Complaint] appear to identify only sporadic instances of dissemination, in lieu of the requisite public dissemination of the purportedly false advertising. Upon closer reading, however, the reasonable inferences from these allegations suggest that they merely exemplify a broad and widespread dissemination of the statements to the relevant purchasing public, such that they constitute advertising or promotion within the industry." Synthes, Inc. v. Emerge Med., Inc., No. Civ.A.11-1566, 2012 WL 4205476, at *33 (E.D.Pa. Sept. 19, 2012). Discovery, however, has not borne out these inferences, still leaving only the sporadic instances of dissemination. Although Synthes claims to have shown that "Defendants repeatedly represented through multiple means of communication and to hundreds of recipients that Emerge drill bits, guide wires and screws are `identical to' or `replicas' of those made by Synthes and that `there is literally no difference in the implants,'" (Pls.' Reply Supp. Summ. J. 66), Synthes's citation to the record does not reveal that false statements were disseminated to hundreds of customers and potential customers. Indeed, upon careful review of the evidence cited by Synthes, the identified recipients include Banner Health and several other Banner Health Facilities, Phoenix Children's Hospital, Memorial Herman Hospital, USPI facilities, Presbyterian Health Services, Premier Inc., Healthcare Management, BNYHA, Fairview Health Services, and several other hospitals in the Arizona, Texas, Massachusetts, Georgia, and California regions. (PSUF ¶¶ 1094, 1114-20, 1131-33, 1160.) By all accounts, however, the relevant orthopedic device market is national since each hospital and surgeon is a potential customer. (See PSUF ¶¶ 668-69 (conceding that Emerge's target market was the entire $92 million U.S. device market and that it chose to focus initially on the $2 billion trauma segment of the orthopedic market).) At best, then, Synthes has only established that Emerge made allegedly false statements to some customers or potential customers of Emerge and not that Emerge has widely disseminated such statements throughout the relevant market. Absent a conclusive showing on this issue, Synthes is not entitled to summary judgment on this claim.
Defendants seek summary judgment as to Count VI, in which Synthes alleges that Defendants violated the Computer Fraud and Abuse Act ("CFAA"), 18 U.S.C. § 1030 (2012).
The statute defines "loss" as "any reasonable cost to any victim, including the cost of responding to an offense, conducting a damage assessment, and restoring the data, program, system, or information to its condition prior to the offense, and any revenue lost, cost incurred, or other consequential damages incurred because of interruption of service." 18 U.S.C. § 1030(e)(11). Courts have held that, to fall within this definition, the alleged "loss" must be related to the impairment or damage to a computer or computer system. Fontana v. Corry, No. Civ. A.10-1685, 2011 WL 4473285, at *7 (W.D.Pa. Aug. 30, 2011); see also Clinton Plumbing & Heating of Trenton, Inc. v. Ciaccio, No. Civ.A.09-2751, 2010 WL 4224473, at *6 (E.D.Pa. Oct. 22, 2010) ("Various courts have interpreted `loss' to mean the remedial costs of investigating a computer for damage, remedying damage done, and costs incurred while the computer is inoperable."). Thus, lost revenue resulting from an interruption of service or the inoperability of computers constitutes "loss" for purposes of the statute. Fontana, 2011 WL 4473285, at *7-8 (citing cases). Notably, however, a claim for future lost revenue due to the dissemination of trade secrets does not qualify as a "loss" under the CFAA. Clinton Plumbing, 2010 WL 4224473, at *6 (citing cases). Likewise, harm to ongoing business ventures, i.e., an alleged loss of business, is insufficient to show "loss." Fontana, 2011 WL 4473285, at *8. Finally, a "loss of assets, overdraft fees, returned check fees, late fees, reputational damages arising from a damaged credit score, and termination of certain contracts due to insufficient funds for payment" are insufficient to constitute loss. Clinton Plumbing, 2010 WL 4224473, at *7. A failure to prove a cognizable loss is a basis for a grant of summary judgment on a CFAA claim. Grant Mfg. & Alloying, Inc. v. McIlvain, No. Civ.A. 10-1029, 2011 WL 4467767, at *5 (E.D.Pa. Sept. 23, 2011).
In an effort to establish loss in the present case, Synthes argues as follows:
(Synthes Resp. Opp'n Summ. J. 97-98.)
This argument, however, conflates loss resulting from the establishment/litigation of a misappropriation of data claim with loss relating to investigation of damage to the integrity of a computer system. This distinction was examined in Brooks v. AM Resorts, LLC, 954 F.Supp.2d 331 (E.D.Pa. 2013). In that case, the plaintiff alleged that the defendant had violated the CFAA when it accessed his computer in March 2010. Id. at 338. In February 2011, the plaintiff filed the complaint and, in the eleven month interim, had not hired anyone to assess and/or remedy the damage to his computer. Id. Rather, it was not until October 2011, nine months after litigation began that the plaintiff hired a computer forensic expert to investigate the computer and prove that the defendant accessed his computer and email account. Id. There was no evidence that the expert spent any time investigating or responding to damage to the plaintiffs computer that occurred as a result of the defendant's unauthorized access. Id. The court found that "[w]hile fees paid to an expert for investigating and remedying damage to a computer may be a cognizable `loss' under the CFAA ... fees paid to an expert to assist in litigation do not fall within the CFAA's definition of `loss.'" Id. As the expert's invoices covered services performed in September 2010 through February 2013, and all the invoices were addressed to the plaintiffs attorney, the court determined that the invoices were not covered by the CFAA. Id. at 339.
Similarly, in Consulting Professional Resources, Inc. v. Concise Technologies LLC, No. Civ.A. 09-1201, 2010 WL 1337723, at *7-8 (W-D.Pa. Mar. 9, 2010), the court "align[ed] itself with the courts favoring a narrow reading of the liability provisions of the CFAA." Id. at *8. It held that "[t]o understand the word `damage' to include inappropriate use of data after it has been accessed lends credence to an interpretation of the CFAA which imposes sanctions for those using computers with authorization and within their authorized access, a construction of the statute which this court has already rejected." Id. at *8; see also Telquest Int'l Corp. v. Dedicated Bus. Sys., Inc., No. Civ.A.06-5359, 2009 WL 3234226, at *2 (D.N.J. Sept. 30, 2009) (holding that a plaintiff must allege facts that the damage or loss incurred was related to investigating or remedying damage due to the computer or the computer's service and that costs incurred to investigate unauthorized access to a computer is not "damage" under the CFAA).
In the present case, Synthes asserts that the alleged unlawful access by Marotta took place in the summer of 2010, and Synthes did not file suit until March 2011. In the interim, Synthes took no action to investigate and remediate any damage done to its computer systems. Synthes's expert, Brian Wolfinger, expressly states in his report that he was contacted, not by Synthes officials, but rather by "Michael Broadhurst, Esquire from the law firm Blank Rome, LLP ("Blank Rome"), requesting digital forensics and data analysis services for an ongoing litigation." (Pls.' Appx. 206, Wolfinger Report, 1 (emphasis added).) Mr. Wolfinger's firm did not begin incurring any costs until October of 2011, well after litigation commenced. (Id. at 15-17.) In short, the damages allegedly sustained by Synthes as result of investigating Defendants' alleged unlawful access to Synthes computers are not fees incurred
Defendants next contend that they are entitled to summary judgment as to Count IX, which alleges trespass to chattels. This claim, set forth against Defendants Marotta, Powell, and Emerge, is based on the allegation that Defendants put Emerge product into, removed, or changed Synthes's labels on Synthes Inventory Management System cabinets ("SIMS cabinets") that were on loan or consignment from Synthes at hospitals. Synthes disputes this Motion, but does not itself seek summary judgment.
Pennsylvania law defines trespass to chattels as the act of intentionally "(a) dispossessing another of their chattel, or (b) using or intermeddhng with chattel in the possession of another." Healthcare Advocates, Inc. v. Harding, Earley, Follmer & Frailey, 497 F.Supp.2d 627, 650 (E.D.Pa.2007) (citing Pestco, Inc. v. Assoc. Prods., Inc., 880 A.2d 700, 708 (Pa.Super. Ct.2005)); see also Restatement (Second) of Torts ¶ 217. The Restatement (Second) of Torts defines a person who is "in possession of a chattel" as "one who has physical control of the chattel with the intent to exercise such control on his own behalf, or on behalf of another." Restatement (Second) of Torts § 216.
Defendants now set forth three bases for dismissal of this claim. First, they contend that there is no evidence, or even an allegation, that Marotta himself accessed any SIMS cabinets. Second, they assert that although Powell, acting in the scope of his employment for Emerge, did place Emerge products and dividers in SIMS cabinets at certain medical facilities, Synthes has not adduced any evidence that it owned the particular SIMS cabinets at issue. To the extent that Emerge accessed the SIMS cabinets and placed Emerge products in them, Powell testified that it did so only after receiving authorization from the particular medical facility. Finally, Defendants contend that there is no evidence that Emerge's access to the SIMS cabinets through Powell dispossessed Synthes of its property, impaired Synthes's property as to its "condition, quality, or value," or deprived Synthes of its use of property for a substantial period of time.
None of these arguments suffice to eliminate all genuine issues of material fact. First, as to Defendants' claim that Marotta did not access any SIMS cabinets, Synthes has produced two photographs of Marotta standing in front of a SIMS cabinet at Banner Gateway holding a divider labeled with an Emerge sticker. (PSUF ¶ 293.) Emerge had placed the photograph in a presentation made to the Emerge Board in 2010 to explain the implementation of its products in the Synthes SIMS cabinets. (id. ¶¶ 293, 297-98.) Such photographs unequivocally create a genuine issue of material fact as to whether Marotta accessed the SIMS cabinets.
With respect to Defendants' second argument, Defendants concede that Powell placed Emerge products and dividers in SIMS cabinets, but assert that there is no evidence that Synthes owned the particular SIMS cabinets at issue. While there is no direct evidence as to precisely which SIMS cabinets Synthes owned, however, Defendants have conceded that Powell changed the dividers in multiple SIMS cabinets at Banner Gateway, Arizona Orthopedic, Chandler Regional, Fairview Ridges, Fairview Southdale, and Simi Valley
Moreover, the Court finds no merit in Defendants' argument that Powell placed product in Synthes's SIMS cabinets only after receiving authorization from the particular medical facility. Comment (a) to the Restatement (Second) of Torts § 253 states that "[i]f the person in possession of a chattel consents to the dealing with it pursuant to the power to do so, such authorization will prevent a recovery by the person entitled to the immediate possession of the chattel under the rule stated in § 219." Restatement (Second) o Torts § 253, cmt. a (emphasis added). As Synthes accurately notes, however, it had entered into agreements with customers concerning SIMS cabinets, expressly stating, "the storage units will house only Synthes products." (PSUF ¶¶ 300, 302-03; DRPS ¶¶ 300, 302-03.) As such, the hospitals did not have the authorization to consent to the use of the SIMS cabinets by a third party. In response to this evidence, Defendants contend that Synthes must show that Emerge, Marotta, or Powell "knew or had reason to know of the peculiar restriction" and nothing conclusively proves that they knew. (Pls.' Reply Supp. Summ. J. 61 (quoting Restatement (Second) of Torts § 253 & cmt. c).) At his deposition, however, Marotta testified as follows:
(Pls.' Appx. 18, Marotta Dep. 206:1-207:16, June 26, 2013.) Marotta agreed that he was generally familiar with some of the contractual agreements related to the Synthes Inventory Managements Systems. (Id. at 205:19-24.) Based on such testimony, an objective factfinder could easily make the reasonable inference that given Marotta's and Powell's employment with
Finally, the Court finds no merit to Defendants' last argument that "there is no evidence that Emerge's access to the SIMS cabinets ... dispossessed Synthes of its property, impaired Synthes property `as to its condition, quality, or value,' or deprived Synthes of its use of its property `for a substantial time.'" (Defs.' Mem. Supp. Summ. J. 54 (quoting Restatement (Second) Torts of § 218).) Under § 217 of the Restatement, a trespass to a chattel may also be committed by intentionally "using or intermeddling with a chattel in the possession of another." Restatement (Second) Torts § 217; see also Healthcare Advocates, Inc. v. Harding, Earley, Follmer & Frailey, 497 F.Supp.2d 627, 650 (E.D.Pa.2007). "Intermeddling" means to interfere. Healthcare Advocates, 497 F.Supp.2d at 650. Clearly, an objective factfinder could find that Powell and/or Marotta, on behalf of Emerge, intermeddled with Synthes's property by mixing Emerge's labels and inventory with Synthes's labels and products in Synthes-owned SIMS cabinets.
In short, summary judgment is simply not appropriate on this claim. Defendants' Motion to that effect is denied.
Count XI of Synthes's Amended Complaint sets forth a cause of action for fraud on the grounds that Marotta defrauded Synthes "during and after [his] employment with Synthes by misappropriating Synthes' resources, by materially misrepresenting [his] compliance with [his] fiduciary and contractual obligations to Synthes, by misrepresenting and omitting [his] intention to compete with Synthes (and Marotta's intention to do so immediately after his resignation), and by misrepresenting and omitting [his] conception, development, and operation of Emerge."
As a general rule, Pennsylvania courts are cautious about permitting tort recovery on contractual breaches. Glazer v. Chandler, 414 Pa. 304, 200 A.2d 416, 418 (1964). In eToll, Inc. v. Elias/Savion Advertising, Inc., 811 A.2d 10 (Pa.Super. Ct.2002), the Pennsylvania Superior Court emphasized that the "gist of the action" doctrine "is designed to maintain the conceptual distinction between breach of contract claims and tort claims [by] preclud[ing] plaintiffs from recasting ordinary breach of contract claims into tort claims."
"When a plaintiff alleges that the defendant committed a tort in the course of carrying out a contractual agreement, Pennsylvania courts examine the claim and determine whether the `gist' or gravamen of it sounds in contract or tort." Sunquest Info. Sys., Inc. v. Dean Witter Reynolds, Inc., 40 F.Supp.2d 644, 651 (W.D.Pa.1999). To make this determination, the court must ascertain the source of the duties allegedly breached. Sunburst Paper, LLC v. Keating Fibre Intl., No. Civ.A.06-3957, 2006 WL 3097771, at *2 (E.D.Pa. Oct. 30, 2006). The doctrine bars tort claims: "(1) arising solely from a contract between the parties; (2) where the duties allegedly breached were created and grounded in the contract itself; (3) where the liability stems from a contract; or (4) where the tort claim essentially duplicates a breach of contract claim or the success of which is wholly dependent on the terms of a contract." Id. (citing eToll, 811 A.2d at 19). "In other words, if the duties in question are intertwined with contractual obligations, the claim sounds in contract, but if the duties are collateral to the contract, the claim sounds in tort." Id. Whether the gist of the action doctrine applies in any particular setting is a question of law. Alexander Mill Servs., LLC v. Bearing Distrib., Inc., No. Civ.A.06-1116, 2007 WL 2907174, at *8 (W.D.Pa. Sept. 28, 2007).
Pennsylvania courts have wrestled with whether the gist of the action doctrine applies to a cause of action for fraud. The elements of a fraud claim under Pennsylvania law include "a misrepresentation, an intent by the maker that the recipient be induced to act, justifiable reliance by the recipient upon the misrepresentation, and damage to the recipient as the proximate result." Olkowski v. Prudential Ins. Co. of Am., 584 F.Supp. 1140, 1141 (E.D.Pa.1984). A claim for fraudulent inducement includes an additional element, that the misrepresentation was made with the specific intent to induce another to enter into a contract when the person had no duty to enter into the contract. In re Allegheny Int'l, 954 F.2d 167, 178 (3d Cir.1992).
The Pennsylvania Superior Court has explicitly recognized that Pennsylvania law has "not carved out a categorical exception for fraud, and [has] not held that the duty to avoid fraud is always a qualitatively different duty imposed by society rather than by the contract itself." eToll, 811 A.2d at 19. Rather, as the court explained, the cases turn on the question of whether the fraud concerned the performance of contractual duties. Id. "If so, then the alleged fraud is generally held to be merely collateral to a contract claim for breach of those duties. If not, then the gist of the action would be the fraud, rather than any contractual relationship between the parties." Id. Accordingly, the gist of the action doctrine generally bars fraud claims in cases where a defendant's alleged failure to perform its duty under the contract is transformed into a claim that this failure amounts to fraud. Asbury Auto. Grp. LLC v. Chrysler his. Co., No. Civ.A.01-3319, 2002 WL 15925, at *3 (E.D.Pa. Jan. 7, 2002); see also Horizon Unlimited Inc. v. Silva, No. Civ.A.97-7430, 1998 WL 88391, at *4-5 (E.D.Pa.
Nonetheless, "[c]ourts have generally held that the gist of the action doctrine does not apply when the defendant not only breached the contract, but also made misrepresentations about the breach with the intent to deceive the plaintiff, such that the unsuspecting plaintiff continued the contractual relationship or failed to assert its contractual rights against the defendant." Greater Phila. Health Servs. II Corp. v. Complete Care Servs., L.P., No. Civ.A.2387, 2000 WL 33711052, at *2 (Pa. Com.Pl. Nov. 20, 2000) (emphasis in original) (citing Ne. Power Co. v. Balcke-Durr, Inc., No. Civ.A.97-4836, 1999 WL 674332, at *12 (E.D.Pa. Aug. 23, 1999) (holding that gist of the action doctrine did not apply to bar a fraud claim where the defendant made specific misrepresentations about its performance under the contract with the intent to deceive the plaintiff); Polymer Dynamics, Inc. v. Bayer, No. Civ.A.99-040, 2000 WL 1146622, at *6-7 (E.D.Pa. Aug. 14, 2000) (holding that gist of the action doctrine did not bar fraud claim where the defendant made false representations about its performance under a contract to induce plaintiff to continue its relationship with the defendant and to reveal confidential information to the defendant); Am. Guar. & Liab. Ins. Co. v. Fojanini 90 F.Supp.2d 615, 623 (E.D.Pa. 2000) (holding that gist of the action doctrine did not bar fraud claim where the defendant's false representations about its financial health caused the plaintiff to continue investing time and energy in its venture with the defendant); Fox's Foods, Inc. v. Kmart Corp., 870 F.Supp. 599, 609 (M.D.Pa.1994) (denying summary judgment on fraud claim, among other reasons, because the complaint alleged that the defendant intentionally made false assurances about its performance under a contract in order to keep the plaintiff from asserting its contractual rights against the defendant)).
For example, in Orthovita, Inc. v. Erbe, No. Civ.A.07-2395, 2008 WL 423446 (E.D.Pa. Feb. 14, 2008) — a case strikingly similar to the one at bar — the defendant, who was under multiple non-compete, assignment, and confidentiality contracts with his employer, undertook extensive efforts during the term of his employment to establish a competing company, relying on many of plaintiffs trade secrets in doing so. Id. at *2-3. While still an officer of the plaintiff, the defendant tried to hide his copying of computer files by deleting more than 5, 500 files from his company laptop and transferring information to non-traceable
In the present case, the record is replete with evidence that Marotta made affirmative efforts to conceal his efforts in forming Emerge. Indeed, on repeated occasions, Marotta and the co-founders of Emerge agreed to work in "stealth" mode to avoid detection while Marotta was still employed with Synthes in an apparent effort to avoid detection by Synthes, skirt the inevitable termination that would result upon detection, and preclude Synthes's assertion of contractual rights against him. Under the foregoing jurisprudence, such alleged fraud falls outside the bounds of the contractual agreements and, if proven true, could give rise to a separate claim of fraudulent misrepresentation.
Similarly, the Court finds that Marotta's submission of fraudulent expense reports constitutes extra-contractual fraud. As set forth in great detail above, Marotta — in connection with many of his meetings with Emerge investors and co-founders — expensed the costs of those meetings to Synthes under the guise that Marotta was engaging in Synthes-related work. Defendants now argue that the expenses were only fraudulent because they were actually incurred in connection with Marotta's improper competition with Synthes under the terms of his non-competition agreement. This argument is mistaken. The mere fact that Marotta submitted expenses to Synthes for non-Synthes work-regardless of whether such expenses were incurred in forming Emerge or competing with Synthes — is sufficient to allege fraud. In other words, the alleged fraud is not inextricably bound up with the contractual agreements at issue.
Accordingly, the Court does not find that the gist of the action doctrine bars the fraud claim. In turn, Defendants Motion
Synthes also brings a claim against (a) Emerge alleging that it tortiously interfered with Synthes's contracts with Marotta, Brown, and Powell; and (b) all Defendants alleging that they tortiously interfered with Synthes's contracts with customers and vendors. Defendants now seek summary judgment on the entirety of this claim.
Pennsylvania has adopted section 766 of the Restatement (Second) of Torts which sets out the tort of intentional interference with an existing contract. Adler, Barish, Daniels, Levin & Creskoff v. Epstein, 482 Pa. 416, 393 A.2d 1175, 1183 (1978). Section 766 provides that:
Restatement (Second) of Torts § 766. To prove tortious interference with an existing or prospective contract under Pennsylvania law, a plaintiff must prove four elements: (1) the existence of a contractual relationship or prospective contractual relationship between the plaintiff and another party; (2) an intent on the part of the defendant to harm the plaintiff by interfering with that contractual relationship or preventing the relationship from occurring; (3) the absence of privilege or justification on the part of the defendant; and (4) the occasioning of actual damage as a result of defendant's conduct. See Phillips v. Selig, 959 A.2d 420, 428-29 (Pa.Super. Ct.2008); BP Envtl. Servs., Inc. v. Republic Servs., Inc., 946 F.Supp.2d 402, 407 (E.D.Pa.2013) see also Restatement (Second) of Torts, § 766-766B (1979).
Five separate allegations of tortious interference are at issue here: tortious interference with Marotta's contracts with Synthes; tortious interference with Powell's contracts with Synthes; tortious interference with Brown's contracts with Synthes; tortious intererence with Synthes's contractual relationships with vendors and customers; and tortious interference with Synthes's contractual relationships with its other employees. The Court addresses each allegation separately.
Defendants first contend that summary judgment on the claim of tortious interference with Marotta's contract is warranted because: (1) there is no evidence in the record that Emerge had knowledge of Marotta's Employee Innovation Agreement or his Sales Consultant Non-Competition Agreement with Synthes; and (2) there is no evidence that Emerge did anything to induce Marotta to breach his Employment Innovation Agreement or Non-Competition Agreements with Synthes.
Defendants initially allege that there is no evidence in the record that Emerge had knowledge of Marotta's Employee Innovation Agreement or his Sales Consultant Non-Competition Agreement with Synthes, and therefore, no evidence exists that Emerge induced or intentionally caused Marotta to breach those agreements. They assert that, at the time Emerge was being formed, Marotta did not recall signing the Employee Innovation Agreement, which was executed in 2004, and he did not become aware of its existence until he received a copy of Synthes's Complaint in 2011. Nor is there evidence establishing that anyone else at Emerge had knowledge of Marotta's Employment Innovation Agreement. Similarly, Defendants argue that Marotta did not inform anyone at Emerge about his Sales Consultant Non-Competition Agreement because, at the time he resigned from Synthes in April 2010, Marotta understood his Regional Manager Non-Competition Agreement to be the governing agreement.
As a primary matter, the Court notes that this argument effectively concedes that Marotta, and thus Emerge, had knowledge of Marotta's RM NCA. Therefore, the absence of knowledge argument will not suffice to dismiss any claim that Emerge tortiously interfered with Marotta's RM NCA.
As to the NDA, the Court finds that a genuine issue of material fact exists. Marotta testified that he did not recall the existence of the NDA until after Synthes filed suit. (Pls.' Appx. 3, Marotta Dep., 205:3-15, July 5, 2011.) Defendants, however, admit that Synthes's employee policies explicitly state that "All employees are required to sign an Employee Innovation and Non-Disclosure agreement prior to employment" and that Marotta was informed of this upon being offered a position with Synthes. (Pls.' Appx. 49, 88.) Given this competing evidence, the Court cannot find, as a matter of law, that Marotta had no knowledge of his NDA at the time he was working on Emerge's behalf — knowledge which would then be imputed to Emerge.
Finally, as to Marotta's SC NCA, Marotta does not deny that he had knowledge of this contract. Rather, he simply argues that, at the time he resigned from Synthes in April 2010, Marotta understood his Regional Manager Non-Competition Agreement to be the governing agreement. In other words, Marotta merely asserts that he was well aware of his SC NCA, but simply did not understand its ongoing legal ramifications at the time he joined Emerge. As set forth in the Restatement (Second) of Torts:
Restatement (Second) of Torts § 766, cmt. I. Certainly, a jury can find that Marotta, knowing of the existence of this agreement, should have consulted with an attorney to ensure that it was no longer at
Alternatively, Defendants contend that even if Emerge had knowledge of the NDA or the SCA NCA, there is no evidence that Emerge did anything to induce Marotta to breach any of his agreements with Synthes. According to the Restatement:
Restatement (Second) of Torts § 766, cmt. h. It is well established under Pennsylvania law that a tortious interference claim cannot lie against the party to the contract in question because that party cannot also be a third-party interloper. Surya Sys., Inc. v. Sunku, No. Civ.A.05-146, 2005 WL 1514225, at *3 (E.D.Pa. June 24, 2005); see also Center for Concept Dev., Ltd. v. Godfrey, No. 97-7910, 1999 WL 163006, at *3 (E.D.Pa. March 23, 1999) (citing as "hornbook law" the established principle that a party to a contract cannot tortiously interfere with its own contract); Fishkin v. Susquehanna Partners, G.P., 563 F.Supp.2d 547, 587 (E.D.Pa.2008) ("Because a company like TABFG can only act through its employees or managers, the claim that TABFG induced Fishkin and Chernomzav to breach their contracts is essentially that Fishkin and Chernomzav, acting through TABFG, induced themselves into breach. Imposing liability under such a theory is problematic because it is not clear that the defendant corporation can be said to have induced a breach by a third party under these circumstances.").
The question now becomes whether Emerge, separately from Marotta, acted in a manner where interference was certain or substantially certain to occur as a result of Emerge's conduct. Synthes argues that "[t]he evidence of record demonstrates that, both during and after his employment with Synthes and through the use of Synthes' information, time, and resources, Marotta breached his fiduciary and contractual obligations to Synthes acting in concert with Emerge and Stassen." (Pls.' Resp. Opp'n Summ. J. 84-85.)
(Pls.' Resp. Opp'n Summ. J. 85-86.)
Synthes's allegations, however, simply do not establish — or create any genuine issue of fact regarding — this tortious interference claim. Primarily, almost all of the actions identified were actions taken by Marotta. For example, Marotta obtained Synthes customer purchasing information (PSUF ¶¶ 356-37; DRPS ¶¶ 356-57), worked with Victoria Trafka, (PSUF ¶ 487; DRPS ¶ 487), met with customers of Synthes, including Dr. Morgan and Dr. Motzkin, as potential investors, (PSUF ¶¶ 532-38, 556-57, 710; DRPS ¶¶ 532-38, 556-57, 710), worked with the accounting firm that billed Emerge for services, (PSUF ¶ 332; DRPS H332), spoke with Synthes employees as potential investors, (PSUF ¶¶ 710-20; DRPS ¶¶ 710-20), engaged Orchid and sent Orchid physical samples of Synthes product for reverse engineering, (PSUF ¶¶ 335-36, 724, 737-38, 721-23, 740, 753; DRPS ¶¶ 335-36, 724, 737-38, 721-23, 740, 753), and asked Synthes representatives to supply samples of Synthes product, (PSUF ¶¶ 764-65; DRPS ¶¶ 764-65.) Thus, Marotta's own actions in breach of his contract cannot form the basis for a tortious interference claim against Emerge simply by imputing Marotta's actions to the company.
More importantly, although Synthes broadly alleges that Stassen, as an agent of Emerge, also participated in these actions, it does not identify precisely what actions Stassen took on behalf of Emerge to induce Marotta's breach. Indeed, the evidence reflects that out of the actions
In short, Synthes has failed to identify any evidence that Emerge — separate and apart from Marotta — induced Marotta in any way to breach his contracts with Synthes. Nor has Synthes demonstrated that Emerge, acting through Stassen, had an intent to harm Synthes by interfering with that contractual relationship. Rather, the sole evidence of record is that Marotta, acting of his own accord, breached his contracts with Synthes and that Emerge and Stassen benefitted from this breach. As such, the Court declines to find that liability can lie against Emerge for tortious interference with Marotta's contracts.
Defendants next claim entitlement to summary judgment on Synthes's allegation that Emerge tortiously interfered with Powell's non-compete agreement with Synthes. Specifically, they contend that Powell terminated his employment with Synthes of his own accord approximately six months prior to coming to work for Emerge, and initially began to work for a company called Sonoma Orthopedics. Powell testified that, when he resigned, he had no idea that Marotta had formed a company called Emerge Surgical and Marotta did not discuss Emerge with Powell until the summer of 2010, several months after Powell had voluntarily terminated his employment at Synthes. In addition, according to Defendants, there is no evidence that Emerge engaged in any active persuasion, encouragement or inciting of Powell to breach his non-compete agreement with Synthes after he began working for Emerge. Indeed, when Emerge hired Powell, it required him to sign a contract wherein he agreed to abide by the terms of his non-competition agreements with Synthes.
Synthes responds that the evidence of record creates a genuine dispute of material fact as to whether Emerge tortiously interfered with Powell's contracts in two respects. First, Synthes contends that the facts establish that Marotta and Emerge placed Powell at Sonoma following his employment with Synthes and worked with Powell while at Sonoma. As Powell was responsible for the Colorado market while at Sonoma and worked with various Colorado physicians, this was in violation of Powell's noncompetition obligations to Synthes.
The Court, however, disagrees. The evidence of record does not establish that
Second, Synthes asserts that Emerge induced Powell to breach his obligations to return all Synthes property and information to Synthes at the termination of his employment. In support of this claim, it asserts that there is ample evidence that Powell began assisting Emerge with collecting Synthes product as early as May 10, 2010, and continued doing so once he joined Emerge as an employee. In addition, he solicited then-Synthes employees for additional product, accessed Synthes's price quotation software system on his personal laptop, and used/disclosed Synthes's usage and pricing data in connection with his Emerge employment.
On this point, the Court finds that a genuine issue of fact remains. The evidence is clear that, in May 2010, during his employment with Sonoma, Powell provided Synthes product to Emerge. (PSUF ¶ 763; DRPS ¶ 763; Pls.' Appx. 487.) Ultimately, when Powell joined Emerge as an employee in September 2010, he brought some Synthes product with him. (Pls.' Appx., Slone Statement, ¶ 19.) Moreover, Powell expressly conceded that upon joining Emerge, he and Marotta contacted several Synthes employees and asked them for Synthes product. (Pls.' Appx. 35, Powell Dep. 30:15-301:7, July 7, 2011.) Finally, Powell acknowledged that he used Synthes Arizona usage data in his role at Emerge, (PSUF ¶¶ 928-37; DRPS ¶¶ 928-37), which would have violated his non-compete clause. Faced with such evidence, a reasonable factfinder could easily conclude that Emerge induced Powell to breach both his NDA and his SCA NCA with Synthes in order for him to obtain employment with and remain employed by Emerge.
Defendants also assert that summary judgment should be entered in their favor on Synthes's claim of tortious interference with Eric Brown's contractual agreements with Synthes. As discussed above, Synthes cites to a wealth of allegations that Brown was an active participant in the formulation and creation of Emerge. Indeed, in November of 2009, Stassen and Brown developed a Private Placement Memorandum ("PPM") for Emerge to use with investors, and it identified Brown as a "founder," "majority owner," "Chief Executive Officer," "President," and "Chairman of the Board." (Pls.' Appx. 292.) In the twenty-first version of the draft PPM, the memorandum stated, under "Company Ownership," that "Emerge was established in January 2010 by founders John Marotta, Zack Stassen and Eric Brown whom are company owners." (Pls.' Appx. 216.) Until the end of 2009, Marotta, Stassen, and Brown all contemplated the possibility that Brown would be involved in Emerge. (PSUF ¶ 527; DRPS ¶ 527.)
As the Court also found above, however, as of December 2009, the three men mutually determined that Brown could no longer participate in Emerge because of the national scope of his non-compete agreement with Synthes. (PSUF ¶ 528; DRPS ¶ 528.) As of December 16, 2009 — well before Emerge's incorporation — Brown noted that "John, Zack and I met for a couple of hours last night and came to the same conclusions as our dinner conversation. The most prudent direction at this time is to respect my non-compete and delay any association or participation in the company while I am under an agreement." (PSUF ¶ 531; DRPS ¶ 531.) Although Synthes now argues that Emerge ratified the conduct of Marotta and Stassen in conjunction with Brown by using information Brown supplied during the development phase in its investor materials, this record simply does not allow the reasonable inference that Emerge induced Brown in any manner to breach his contracts with Synthes. Synthes has not produced any evidence that Stassen and Marotta made any effort to bring Brown into the business or to encourage him to disregard his contractual arrangements. Thus, even if Emerge "ratified" Stassen's and Marotta's pre-incorporation discussions with Brown, there is no proof that those discussions involved inducement of any breach. Moreover, and more importantly, Synthes concedes that Emerge, acting through Stassen and Marotta, declined to have any further dealings with Brown upon becoming fully aware of the scope of his agreements with Synthes.
The fourth tortious interference of contract claim asserts that Defendants tortiously interfered "with certain vendors" and "with its customers." (Am. Compl. ¶¶ 222-23.) The Court addresses each of these allegations separately.
Defendants argue that Synthes fails to either identify any vendor contracts with which Defendants are alleged to have tortiously interfered or show that any vendors breached their contracts. Quite to the contrary, however, Synthes identifies two different vendors with whom it entered into Non-Disclosure Agreements: Magnum Manufacturing Center, a part of Magnum Tool Company ("Magnum"), and Orchid. (PSUF ¶ 280; DRPS ¶ 280.) In those Non-Disclosure Agreements, the vendors agreed not to disclose, without prior written consent, any "Confidential Information," defined as "proprietary or confidential information, whether or not marked as such, including, but not limited to, information regarding the Disclosing Party's business, operations, finances, customers, prospects and employees .... any analysis, compilation, summary, study or other report prepared by either the Disclosing Party or the Recipient in connection with the Stated Purpose." (PSUF ¶¶ 281-82; DRPS ¶¶ 281-82.) The Magnum agreement was actually signed by Victoria Trafka on behalf of Magnum. (PSUF ¶ 282; DRPS ¶ 282; Pls.' Appx 122.)
Moreover, Synthes has more than adequately identified evidence of actions that a reasonable factfinder could construe as vendor breaches of the contract. In connection with her employment with both Synthes and Magnum, Victoria Trafka was admittedly privy to information about Synthes's specifications for raw materials, machining and manufacturing of product, the finishing of Synthes products, and the inspection of Synthes products. (PSUF ¶ 222; DRPS ¶ 222.) Trafka also admitted that she had access to Synthes specifications and information regarding raw materials, machining, manufacturing, finishing, and inspection. (PSUF ¶ 224; DRPS ¶ 224.) Marotta contacted Trafka in October 2009 to take advantage of her engineering knowledge and background. (PSUF ¶ 491-92; DRPS ¶¶ 491-92.) Although Defendants suggest the existence of evidence that the work Trafka did for Emerge was outside the scope of her Magnum employment and done by her individually, such evidence does not eliminate the remaining issues of material fact regarding the extent to which she used knowledge gained from her employment at Magnum on behalf of Emerge.
The same holds true for Orchid. Indeed, as set forth at length above, Emerge solicited and retained Orchid to reverse engineer Synthes products and design Emerge products as replicas of Synthes products. Such facts would certainly allow a reasonable jury to determine that Emerge tortiously interfered with Synthes's vendor contract with Orchid.
As to Synthes's tortious interference with customers claim, Synthes asserts that it entered into SIMS contracts with its customers. As explained above, Synthes SIMS cabinets are placed into a customer account and are either owned by Synthes, the customer, or a combination of both. (PSUF ¶ 299; DRPS ¶ 299.) Generally, if not on loan, Synthes enters into agreements with customers concerning the SIMS placed at the customer account. (PSUF ¶ 300; DRPS ¶ 300.) Each of the SIMS agreements states that "the storage units will house only Synthes products." (Pls.' Appx. 260-76 (emphasis in original).) These provisions appear in SIMS agreements regardless of whether the customer owns all or part of the SIMS units. (PSUF ¶ 303; DRPS ¶ 303.)
As set forth in greater detail above, there is ample evidence that Marotta and Powell were familiar with the SIMS contracts in hospitals and understood that it was a breach of those contracts to place Emerge product in them. Marotta also understood that some of the contracts contained a provision that SIMS cabinets only be used for Synthes inventory. To the extent Defendants allege that Emerge placed its product in SIMS cabinets only with the consent of the hospitals that possessed the cabinets, a genuine issue of material fact remains as to whether Emerge knew that the hospitals under a SIMS contract could not give such consent. Thus, summary judgment on this claim is not proper.
Finally, Defendants move for partial summary judgment on Synthes's claim that Marotta tortiously interfered with Synthes's contractual relationships with other Synthes employees by soliciting them for employment elsewhere because that claim is barred by the "gist of the action doctrine." Synthes concedes this point. (Pls.' Resp. Opp'n Summ. J. 95.) As such, this portion of the claim is dismissed. Synthes's remaining claims against Defendants for tortious interference with Synthes's contractual relationships with employees as a whole, however, shall remain viable in this case.
The final claim at issue is Synthes's cause of action for civil conspiracy. To state a cause of action for civil conspiracy, the plaintiff must demonstrate: "(1) a combination of two or more persons acting with a common purpose to do an unlawful act or to do a lawful act by unlawful means or for an unlawful purpose; (2) an overt act done in pursuance of the common purpose; and (3) actual legal damage." Gen. Refractories Co. v. Fireman's Fund Ins. Co., 337 F.3d 297, 313 (3d Cir.2003) (citation and internal quotations omitted). An "`actionable civil conspiracy must be based on an existing independent wrong or tort that would constitute a valid cause of action if committed by one actor.'" Levin v. Upper Makefield Twp., 90 Fed.Appx. 653, 667 (3d Cir.2004) (citing In re Orthopedic Bone Screw Prods. Liab. Litig., 193 F.3d 781, 789 (3d Cir.1999)). Ultimately, "only a finding that the underlying tort has occurred will support a claim for civil conspiracy." Alport v. Gen. Land Partners, Inc., 574 F.Supp.2d 491, 506 (E.D.Pa.2008) (quotation omitted).
Importantly, "[p]roof of malice, i.e., an intent to injure, is essential in proof of a conspiracy." Thompson Coal Co. v. Pike Coal Co., 488 Pa. 198, 412 A.2d 466,
In this Court's prior opinion in connection with Defendant Powell's Motion to Dismiss, the Court found that the element of "sole purpose" to injury was lacking:
Synthes, Inc. v. Emerge Med., Inc., No. Civ.A.11-1566, 2012 WL 4205476, at *37 (E.D.Pa. Sept. 19, 2012) (footnotes omitted). Although that ruling was made only with respect to Defendant Powell as the moving party, the holding applies with equal force to the remainder of the Defendants. Synthes concedes this fact and does not otherwise dispute the entry of summary judgment in favor of Defendants on this claim. Therefore, this claim must be dismissed.
At the close of this most lengthy opinion, the Court recognizes that, while much of this case has been conclusively resolved, there still remain several outstanding claims that require jury resolution. To summarize:
It is so ORDERED.
Synthes's argument, however, is misplaced. Although the employee policies may give rise to separate causes of action, Synthes has cited no authority to show that the policies expand the fiduciary duty owed by Marotta to encompass activities that are otherwise not actionable in tort. For example, Synthes cites the Code of Business Ethics, which mandates that employees avoid conflicts of interests and should not engage in ownership of other businesses that may conflict with Synthes's interests. (PSUF ¶ 260.) The jurisprudence is clear, however, that preparation to compete, including affiliating with a competing business, is not per se violative of the breach of fiduciary duty. Synthes may not alter that principle through its own written policies.
The same principle holds true for Synthes's argument that the fiduciary duty is expanded by Marotta's RM NCA, which prohibited him from soliciting customers or prospects, soliciting employees, or competing in the same region during his employment with Synthes. It is well established that "[a] breach of fiduciary duty claim is barred by the gist of the action doctrine if the fiduciary duty alleged is grounded in contractual obligations." Alpart v. Gen. Land Partners, Inc., 574 F.Supp.2d 491, 499 (E.D.Pa.2008) (citing eToll, Inc. v. Elias/Savion Adver., Inc., 811 A.2d 10, 19 (Pa.Super.Ct.2002)). Claims for breach of fiduciary duty and breach of contract can only coexist if the fiduciary duty is based on duties imposed as a matter of social policy and if the fiduciary duty is not based on a contractual agreement between the parties. Id. (citing Bohler-Uddehohn Am., Inc. v. Ellwood Grp., 247 F.3d 79 (3d Cir.2001)).
This case, unlike Total Containment, is at the summary judgment stage, meaning that Synthes must not merely allege that Emerge aided and abetted Marotta's breach. Rather, Synthes must set forth evidence showing precisely how Emerge provided substantial assistance to Marotta's breach. Synthes has not done so. Moreover, in Total Containment, the corporate defendants against whom the aiding and abetting count survived were actually parties to the underlying transactions that constituted the breach. None of the conduct identified by Synthes, however, establishes that Emerge took any action whatsoever. Rather, Synthes attempts to impute liability to Emerge based solely on the fact that Marotta, the person controlling Emerge, breached his duties to Synthes, not because Emerge took any action in substantial support thereof. This theory was squarely rejected by Total Containment.
Intermetro Indus. Corp. v. Kent, No. Civ.A.07-0075, 2007 WL 1140637, at *6 n. 6 (M.D.Pa. April 17, 2007) (emphasis added).
Given that the Court finds that both contracts were in force, this issue need not be resolved.
Likewise, Defendants citations to various Massachusetts cases are inapposite. "It is well-settled under Massachusetts law that each time an employee's employment relationship with the employer changes materially such that they have entered into a new employment relationship a new restrictive covenant must be signed." Grace Hunt IT Solutions, LLC v. SIS Software, LLC, No. Civ.A.12-80, 2012 WL 1088825, at *4 (Mass.Super. Feb. 14, 2012) (quotation omitted). Defendants have not identified any comparable principle under Pennsylvania law, nor is this Court aware of one.
While Synthes's handling of this similar situation is suggestive of their intent, it is applicable only to the contract between Brown and Synthes. It does not instruct the Court whether the same result was intended in the contracts between Marotta and Synthes. As such, the Court does not consider this evidence in ruling on this issue.
Defendants' argument, however, is irrelevant to the current issue. The question is whether Marotta disclosed confidential and proprietary Synthes information to a third party. The evidence is clear that Marotta disclosed these emails to Emerge. To the extent that information was never used by Emerge or any other third party in a way that harmed Plaintiffs, Defendants can later argue lack of damages.
Defendants' argument, however, misunderstands the summary judgment standard. Were Synthes seeking summary judgment on this claim, the Court would agree with Defendants that too many issues of material fact remain in order for Synthes to prevail. It is Defendants, however, seeking summary judgment. Plaintiffs are not required to produce "smoking gun" evidence to avoid summary judgment, but rather must produce evidence sufficient to establish that a reasonable jury could find in their favor. Nutrition Mgmt. v. Harborside Healthcare Corp., No. Civ.A.01-0902, 2004 WL 2755547, at *3 (E.D.Pa. Nov. 30, 2004). While Plaintiffs' evidence on this claim is certainly not ironclad, it is more than sufficient for a reasonable jury to infer that Powell breached his contract under the inducement of Emerge.
