Howmedica Osteonics v. Zimmer Inc. ( 2012 )


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  •                                                            NOT PRECEDENTIAL
    UNITED STATES COURT OF APPEALS
    FOR THE THIRD CIRCUIT
    ____________
    No. 11-2342
    No. 11-2343
    ____________
    HOWMEDICA OSTEONICS,
    a subsidiary of Stryker Corporation, a New Jersey corporation
    v.
    ZIMMER INC, a Delaware corporation;
    ZIMMER US INC; ZIMMER SPINE INC; PAUL GRAVELINE, an individual;
    CHRISTOPHER GIEBELHAUS, an individual; CHRISTOPHER LOUGHRAN,
    an individual; RYAN LIVELY, an individual; RYAN HERMANSKY, an individual;
    ZACH HILTON, an individual; THOMAS FALLON, an individual;
    RUBEN BURCIAGA, an individual; ALEX POULEMANOS, an individual;
    BRIAN ROWAN, an individual,
    Christopher Giebelhaus, Paul Graveline,
    Zimmer Spine, Inc, Zimmer US, Inc., Zimmer Inc.,
    Appellants
    ____________
    On Appeal from the United States District Court
    for the District of New Jersey
    (D.C. No. 11-cv-01857)
    District Judge: Honorable Katharine S. Hayden
    ____________
    Argued January 26, 2012
    Before: AMBRO, CHAGARES and HARDIMAN, Circuit Judges.
    (Filed: February 15, 2012)
    David M. Monachino
    James S. Yu
    Seyfarth Shaw
    32nd Floor
    620 Eighth Avenue
    New York, NY 10018
    Michael D. Wexler [Argued]
    Seyfarth Shaw
    131 South Dearborn Street
    Suite 2400
    Chicago, IL 60603
    Attorneys for Plaintiff-Appellee
    Dana E. Becker
    Rebecca Hillyer
    Thomas B. Kenworthy [Argued]
    Kenneth L. Racowski
    Morgan, Lewis & Bockius
    1701 Market Street
    Philadelphia, PA 19103-0000
    James P. Walsh
    Morgan, Lewis & Bockius
    502 Carnegie Center
    Princeton, NJ 08540-0000
    Attorneys for Defendant-Appellants
    Thomas F. Doherty
    McCarter & English
    100 Mulberry Street
    Four Gateway Center, 14th Floor
    Newark, NJ 07102-0652
    2
    Michael S. Elvin [Argued]
    Heather J. Macklin
    Edward F. Malone
    Barack Ferrazzano Kirschbaum & Nagelberg
    200 West Madison Street
    Chicago, IL 60606
    Attorneys for Defendant-Appellee
    ____________
    OPINION OF THE COURT
    ____________
    HARDIMAN, Circuit Judge.
    A subsidiary of Stryker Corp., Howmedica Osteonics Corp. (Stryker), brought
    breach of contract and tort claims against Zimmer, Inc., Zimmer U.S., Inc., Zimmer
    Spine, Inc., Paul Graveline, and Christopher Giebelhaus (the Zimmer Defendants), and
    against Christian Loughran,1 Ryan Lively, Ryan Hermansky, Zach Hilton, Thomas
    Fallon, Ruben Burciaga, Alex Poulemanos, and Brian Rowan (the Individual
    Defendants). Stryker sought and obtained a temporary restraining order from the District
    Court. Stryker later obtained a preliminary injunction, from which the Zimmer
    Defendants and the Individual Defendants have appealed.
    1
    Christian Loughran was incorrectly named as “Christopher Loughran” in the
    pleadings.
    3
    I
    Because we write for the parties, who are well acquainted with the case, we
    recount only the essential facts and procedural history.
    Stryker designs, manufactures, and sells spine-related medical devices. It employs
    sales representatives to market its products to hospitals and surgeons. Sales
    representatives are supervised by sales managers and branch managers, who are
    responsible for building customer relations and improving sales.2
    The spinal products industry is a competitive field that relies heavily on customer
    relationships. Stryker sales representatives receive lists of surgeons in their respective
    sales territories and are expected to meet those customers and establish connections with
    them. After gaining the surgeons‟ trust, representatives typically are invited to attend
    surgeries, where they provide technical support and advice regarding the use of Stryker
    products. Representatives familiarize themselves with surgeons‟ individual preferences,
    and they assist surgeons in a variety of ways. As a result, representatives foster close
    relationships with their customers, and that loyalty redounds to Stryker‟s benefit.
    2
    Before this suit began, Stryker‟s Arizona branch manager was Loughran, its
    Arizona sales manager was Lively, and its Arizona sales representatives included
    Hermansky and Hilton. Stryker‟s Las Vegas branch manager was Fallon, and its Las
    Vegas sales representatives included Burciaga, Poulemanos, and Rowan.
    4
    Sales representatives are responsible primarily for servicing their own clients, but
    they “cover” one another‟s surgeries when conflicts arise. In such cases, the assigned
    representative typically informs the substitute of the surgeon‟s protocols and preferences
    to ensure the best possible service. This preserves the loyalty and trust that the assigned
    representative has cultivated with the surgeon.
    Both managers and representatives sign non-compete agreements prohibiting
    “direct or indirect” competition with Stryker. For example, the agreements prohibit them
    from inducing Stryker‟s employees to resign or soliciting Stryker‟s customers, both
    during their employment with Stryker and for one year thereafter.3 Stryker maintains that
    these agreements protect it from its competitors, like Zimmer, which also use
    representatives to sell spine-related products.
    In December 2010, Zimmer had virtually no market presence in Las Vegas or
    Arizona. Kevin Brothen, Zimmer‟s Area Director for the West and a former Stryker
    manager, developed plans to acquire all but one of Stryker‟s branch managers, sales
    managers, and sales representatives in Arizona and Las Vegas. These plans were called
    Project Sun Devil and Project Viva, respectively. Brothen began by contacting Stryker‟s
    3
    Some of the agreements vary in what they expressly prohibit. For example,
    managers‟ agreements prohibit them from competing in their former “Sales and
    Marketing Regions,” while representatives‟ agreements prohibit them from soliciting
    business from Stryker‟s “customers” whom they “had contact with or serviced, directly
    or indirectly” in their respective sales territories.
    5
    Las Vegas branch manager (Fallon) and its Arizona branch manager (Loughran), both of
    whom gave him compensation data and sales information. Brothen used this information
    to calculate what he would offer Stryker employees to induce them to join Zimmer.
    Brothen devised a “flip-flopping” scheme to facilitate the employees‟ compliance
    with their non-compete agreements while still working for Zimmer. Pursuant to this
    scheme, Fallon would manage Zimmer‟s Arizona branch, while Loughran would manage
    its Las Vegas branch. Sales representatives would remain in their respective branches but
    would service different customers. This scheme was feasible because of Stryker
    representatives‟ personal familiarity with each other‟s customers.
    Around this time, Giebelhaus, a representative in Stryker‟s Chicago branch, also
    spoke to Zimmer about defecting from Stryker. Giebelhaus received permission to bring
    along two other representatives, William Williams and Brian Miller. As in Projects Sun
    Devil and Viva, the plan was for all three to “flip-flop” sales territories to avoid violating
    their non-compete agreements.
    Brothen‟s plans were so successful that on March 21, 2011, eleven employees
    resigned en masse from Stryker‟s Arizona and Las Vegas branches.4 In Chicago,
    however, only Giebelhaus resigned.
    4
    Three employees ultimately changed their minds and decided to stay with
    Stryker. The eight who did not return are the Individual Defendants in this case.
    6
    On April 1, 2011, Stryker filed a complaint, along with a motion for a temporary
    restraining order and preliminary injunction, in the United States District Court for the
    District of New Jersey, alleging breach of contract and several business torts. The
    District Court issued a temporary restraining order that same day. A preliminary
    injunction hearing followed, and on May 13, 2011, the Court issued an oral opinion and
    entered a written order granting a preliminary injunction. The Individual and Zimmer
    Defendants both filed timely appeals, which we have consolidated for review.
    II5
    A preliminary injunction may be issued if “„(1) the plaintiff is likely to succeed on
    the merits; (2) denial will result in irreparable harm to the plaintiff; (3) granting the
    injunction will not result in irreparable harm to the defendant; and (4) granting the
    injunction is in the public interest.‟” P.C. Yonkers, Inc. v. Celebrations the Party &
    Seasonal Superstore, LLC, 
    428 F.3d 504
    , 508 (3d Cir. 2005) (quoting NutraSweet Co. v.
    Vit-Mar Enters., Inc., 
    176 F.3d 151
    , 153 (3d Cir. 1999)). “[W]e exercise plenary review
    over the district court‟s conclusions of law and its application of law to the facts, but
    review its findings of fact for clear error.” 
    Id.
     (citing Duraco Prods., Inc. v. Joy Plastic
    Enters., Ltd., 
    40 F.3d 1431
    , 1438 (3d Cir. 1994)). We review the grant of a preliminary
    5
    The District Court had jurisdiction pursuant to 
    28 U.S.C. § 1332
    , and we have
    jurisdiction under 
    28 U.S.C. § 1292
    (a)(1).
    7
    injunction for abuse of discretion. E.g., Stilp v. Contino, 
    613 F.3d 405
    , 409 n.3 (3d Cir.
    2010).
    III
    The District Court applied the proper test in concluding that Stryker was entitled
    to a preliminary injunction. First, the Court determined that Stryker was likely to succeed
    on the merits of its breach of contract and tort claims under New Jersey law because the
    record revealed solicitations of both its employees and customers in violation of its non-
    compete agreements with the intent to “decimate” its Arizona and Las Vegas operations.6
    The Court also concluded that Stryker would be irreparably harmed without an injunction
    because it stood to lose nearly all of its customer relationships and goodwill in Arizona
    and Las Vegas. By contrast, the Individual Defendants had been indemnified and were
    guaranteed contracts with Zimmer. And although Zimmer stood to lose the value of its
    customer relationships, the Court noted that such an injury could be discounted because
    Zimmer likely was at fault. Finally, the Court determined that the public interest in
    6
    The Individual Defendants argue that New Jersey‟s “economic loss doctrine”
    bars Stryker‟s tort claims. By contrast, the Zimmer Defendants argue that New Jersey
    law does not apply and that the District Court should have analyzed Stryker‟s tort claims
    under Arizona or Nevada law. Both of these arguments have been waived because they
    were not raised below. See, e.g., Srein v. Frankford Trust Co., 
    323 F.3d 214
    , 224 n.8 (3d
    Cir. 2003) (“We have consistently held that we will not consider issues that are raised for
    the first time on appeal absent „compelling reasons.‟” (quoting Patterson v. Cuyler, 
    729 F.2d 925
    , 929 (3d Cir. 1984))).
    8
    enforcing non-compete agreements and in promoting lawful competition supported an
    injunction.
    Although we largely agree with the District Court‟s thorough analysis, we hold
    that portions of the injunction are overbroad. Accordingly, we will affirm in part and
    vacate in part the order granting a preliminary injunction and remand for proceedings
    consistent with this opinion.
    A
    We begin by holding that the injunction must be vacated as to Graveline,
    Giebelhaus, Rowan, and Poulemanos. “In an action tried on the facts without a jury . . .
    the court must find the facts specially and state its conclusions of law separately.” Fed.
    R. Civ. P. 52(a)(1). This requirement is not “hypertechnical.” Prof’l Plan Examiners of
    N.J., Inc. v. Lefante, 
    750 F.2d 282
    , 289 (3d Cir. 1984). “[T]he judge need only make
    brief, definite, pertinent findings and conclusions upon the contested matters; there is no
    necessity for over-elaboration of detail.” Fed. R. Civ. P. 52(a) advisory committee‟s note
    (1946). But if “the record does not provide a sufficient basis to ascertain the legal and
    factual grounds for issuing the injunction or if the findings are inadequate,” the injunction
    cannot stand. Educ. Testing Servs. v. Katzman, 
    793 F.2d 533
    , 537 (3d Cir. 1986)
    (quoting Lefante, 
    750 F.2d at 289
    ).
    9
    The District Court made ample factual findings with respect to six of the
    Individual Defendants: Hermansky, Hilton, Burciaga, Lively, Fallon, and Loughran. The
    Court did not, however, explain why it enjoined Rowan or Poulemanos. Though the
    Court suggested that they resigned from Stryker and planned to participate in the “flip-
    flopping” scheme, it did not cite any evidence that they actually breached their non-
    compete agreements or acted tortiously. Absent specific findings of fact, the injunction
    against Rowan and Poulemanos cannot stand.
    As for Graveline and Giebelhaus, the District Court did not discuss either
    Defendant until after reading its order into the record, which prompted their counsel to
    ask whether they were included in the injunction. The Court then simply noted that it
    was “very reluctant to unhitch them from the corporate entity . . . and the individuals that
    are part of it.” Because the Court made no factual findings as to how Graveline or
    Giebelhaus engaged in tortious activity, the injunction was not proper as to them as well.
    B
    Defendants argue that the injunction is overbroad. We agree, but only with
    respect to paragraphs A and F of the injunction.
    “District courts are afforded considerable discretion in framing injunctions,” but
    “„injunctive relief should be no broader than necessary to provide full relief to the
    10
    aggrieved party.‟” Meyer v. CUNA Mut. Ins. Soc’y, 
    648 F.3d 154
    , 169–70 (3d Cir. 2011)
    (quoting Ameron, Inc. v. U.S. Army Corps of Eng’rs, 
    787 F.2d 875
    , 888 (3d Cir. 1986)).
    Paragraph A states:
    Defendants, and all parties in active concert or participation with them, are
    preliminarily enjoined from soliciting or moving the business of any current
    Stryker Spine customer of the Las Vegas and Arizona Branches, defined as
    any physician who was serviced by any of the Stryker employees who were
    solicited and acquired by Zimmer under Project Sun Devil and Project
    Viva, to Zimmer, for a period of 12 months, effective April 1, 2011[.]
    We are concerned that the phrase “moving the business” might be read to completely
    preclude Stryker‟s customers in Arizona and Las Vegas from using Zimmer products,
    even when they have not been solicited by Defendants. In such cases, Stryker‟s business
    would be “moving” only because of fair competition. Restricting such competition
    would go beyond restoring the status quo as it existed before Projects Sun Devil and
    Viva, when Zimmer was free to service Stryker customers so long as it did so fairly.
    Insofar as the injunction now prohibits Zimmer from competing fairly, the injunction is
    overbroad.7
    7
    The District Court expressed concern that trying to return to the status quo would
    present a “problem in terms of capitalism and free competition” because the Individual
    Defendants already may have severed Stryker‟s customer relationships by soliciting
    surgeons in Arizona and Las Vegas. We agree that this is a valid concern, but Stryker
    can seek damages for business that was “moved” tortiously or in violation of non-
    compete agreements.
    11
    We also agree with Defendants that Paragraph F is overbroad. That
    paragraph states:
    Defendants, and all parties in active concert or participation with them, are
    preliminarily enjoined from soliciting, inducing or influencing, or
    attempting to solicit, induce or influence, any person engaged as an
    employee, independent contractor or agent of Stryker to terminate his, her
    or its employment and/or business relationship with Stryker[.]
    Paragraph F reasonably prohibits Defendants from soliciting Stryker‟s branch managers,
    sales managers, and sales representatives in Las Vegas and Arizona to terminate their
    employment. But it also precludes them from soliciting any Stryker employees,
    independent contractors, and agents in any Stryker branch. The District Court made no
    findings to support such a broad injunction. Though the District Court found that some
    of Stryker‟s Chicago employees were solicited, it concluded that Stryker had not shown
    any irreparable harm there. No findings were made with respect to any other Stryker
    office outside of Las Vegas and Arizona, and there were no findings of fact relating to
    independent contractors or agents. Paragraph F must be circumscribed accordingly.
    C
    Finally, we consider Defendants‟ argument that the District Court erred by not
    establishing an injunction bond as required by Rule 65 of the Federal Rules of Civil
    Procedure. “The court may issue a preliminary injunction or a temporary restraining
    order only if the movant gives security in an amount that the court considers proper to
    12
    pay the costs and damages sustained by any party found to have been wrongfully
    enjoined or restrained.” Fed. R. Civ. P. 65(c). The bond “serves to inform the plaintiff of
    the price they [sic] can expect to pay if the injunction was wrongfully issued.” Instant
    Air Freight Co. v. C.F. Air Freight, Inc., 
    882 F.2d 797
    , 804–05 (3d Cir. 1989). The
    amount of the bond is left to the district court‟s discretion. Zambelli Fireworks Mfg. Co.
    v. Wood, 
    592 F.3d 412
    , 426 (3d Cir. 2010).
    The District Court set the bond at $800,000 to secure the temporary restraining
    order but declined to require the posting of a new bond at the preliminary injunction
    hearing, reasoning:
    We are recreating in this 12 month period a time during which Zimmer[,]
    had it played fair according to the testimony shown in the prima facie
    showing . . . would have trained its own fleet. It has already trained
    people[,] which puts it [ahead] of the game. And what we‟re saying is, they
    are not going to go into action now. There‟s no loss that I see.
    The Individual Defendants have been indemnified and guaranteed salaries, so they bear
    no financial risk if they are wrongfully enjoined. But concluding that the Zimmer
    Defendants bear no risk of loss assumes that Projects Sun Devil and Viva were improper
    and that the Zimmer Defendants were properly enjoined. The purpose of the bond
    requirement is to protect the enjoined party in the event the injunction should not have
    been imposed. Accordingly, the District Court must impose a new bond after considering
    what is necessary to protect Zimmer in the event the injunction is later deemed unlawful.
    13
    We express no opinion as to the value of such a bond and leave that decision to the sound
    discretion of the District Court following a full hearing on the issue.
    IV
    For the reasons stated, we will affirm in part and vacate in part the District Court‟s
    order granting a preliminary injunction and remand the matter for further proceedings
    consistent with this opinion.
    14