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Stryker Sales Corp. v. McNany

United States District Court, W.D. Michigan, Southern Division

August 31, 2017



          JANET T. NEFF United States District Judge

         Plaintiff Stryker Sales Corporation (“Stryker”) filed this action alleging claims related to the breach of an employment non-compete agreement by Stryker's former San Francisco “Bay South” area sales representative, Defendant Johnny McNany (“McNany”), who was hired by Styker's competitor, Defendant Integra Lifesciences Corporation (“Integra”), to work in the same sales territory. The case is before the Court on Stryker's Motion for Partial Summary Judgment (ECF No.74), and Defendants' Cross-Motion for Summary Judgment (ECF No. 79). After full briefing and review, the Court concludes that oral argument is unnecessary to resolve the Motions. See W.D. Mich. LCivR 7.2(d). For the reasons that follow, the cross-motions are denied.

         I. Facts

         McNany was employed by Stryker[1] in the Bay Area South Territory of California as a sales representative selling products and services for Stryker's Neuro/Spine/Ear, Nose & Throat (NSE) business unit for nine years, until he resigned to work for Stryker's competitor, Defendant Integra. Stryker alleges that McNany violated the terms of his Sales Representative Confidentiality, Intellectual Property, and Non-Competition Agreement with Stryker (“Stryker Agreement” or “Agreement”), which contains the following confidentiality and non-compete provisions:

2.4 Non-Disclosure of Confidential Information.
At all times during and after my employment with Stryker, I will not disclose or communicate any Confidential Information to any competitor or third party or remove materials from Stryker containing Confidential Information except as necessary for me to perform services properly for Stryker during my employment.
4.1 No Solicitation of Customers and Prospects.
For a period of one year following the termination of my employment for any reason, I will not solicit or contact, directly or through others, for the purpose of competing or interfering with any part of Stryker's business (1) any customer that purchased Stryker products at any time during the last three years of my employment with Stryker, (2) any prospect that received or requested a proposal to purchase Stryker products at any time during the last three years of my employment with Stryker, (3) any affiliate of such customer or prospect, or (4) any of the individual customer or prospect contacts that I established during my employment with Stryker.
4.2 No Competition with Stryker.
For a period of one year following termination of my employment for any reason, I will not (1) work for (as an employee, consultant, contractor, agent, or otherwise) any company that competes with Stryker Neuro/Spine/ENT in the Sales Territory for which I was responsible during the last year of my employment with Stryker, or (2) become a principal or owner of any competitor of Stryker Neuro/Spine/ENT that does business in the Sales Territory for which I was responsible during the last year of my employment with Stryker.

         The Agreement also contains a choice-of-law and venue provision:

6.2 Governing Law and Venue. This Agreement will be construed in accordance with and governed for all purposes by the laws of the State of Michigan. I agree and consent that any and all litigation between Stryker and me relating to this Agreement will take place exclusively in the State of Michigan and consent to the jurisdiction of the federal and/or state courts in Michigan.

         The parties have filed a comprehensive Joint Statement of Material Facts (JSMF), consisting of 191 enumerated paragraphs with supporting exhibits (ECF Nos. 76, 78), which the parties have relied upon and cited in their arguments on the cross-motions. The following facts are summarized from the JSMF.[2]

         I. STRYKER

         3. Stryker Instruments, a division of Stryker Corporation, develops, manufactures and sells, among other things, products in the treatment of neurological, spinal and ear/nose/throat (“ENT”) surgical equipment. Stryker Neuro/Spine/Ear, Nose, & Throat (“NSE”) is a business unit of Stryker Instruments and produces the NSE line of products.

         4. McNany was previously employed by Stryker Sales to sell the Stryker NSE line of products, including the Sonopet.

         6. Among other things, Stryker NSE products assist doctors in performing surgeries to remove cancerous tumors. Stryker sells several different types of surgical equipment including, but not limited to, the Sonopet® Ultrasonic Aspirator System (“Sonopet”), which allows surgeons to control soft tissue and allow fine bone dissection so that the surgeon can then ablate tumors. Because the Sonopet is expensive and requires a large, up-front investment on the part of hospitals and medical centers, it is known in the industry as “capital equipment.” 7. Stryker also sells disposable products that are designed to be used with the Sonopet, including tubing sets, tips and suction canisters.

         8. In addition to the Sonopet, Stryker also sells Silverglide® bipolar forceps which are included in the NSE line of products. Bipolar forceps coagulate blood and stop bleeding during surgery.

         II. MCNANY

         9. McNany is a resident of California and lives and works in the city of San Jose, California.

         10. McNany was born in California and has been a California resident his entire life.

         14. Defendant Johnny McNany was hired by Stryker Sales in July 2006 to sell its NSE line of products. McNany's assigned territory was in California.

         15. While McNany was employed by Stryker, McNany sold Stryker NSE products in Stryker's Bay Area South Territory (“Territory”) in California, which includes San Jose, Santa Clara, Palo Alto, Stanford, and other towns south of San Francisco.

         16. McNany was the exclusive Stryker NSE Sales Representative assigned to the Territory and held this position in California for over nine (9) years, since the beginning of his employment with Stryker.

         17. While employed by Stryker Sales, all of McNany's customers and prospective customers were located in the Territory in California.

         18. McNany resigned from Stryker on September 15, 2015.

         III. INTEGRA

         19. Integra is a corporation organized under the laws of Delaware with its principal place of business in New Jersey.

         20. Integra is a medical device company which manufactures certain products for the NSE market that compete with certain products manufactured by Stryker.

         21. McNany was hired by Integra to service its “San Francisco 2” Territory (hereinafter, “SF2”) which is similar to Stryker's Bay Area South Territory but “[t]here are pieces in [the Bay Area] territory that are not in the SF2 territory.” 22. Stryker's Bay Area South Territory and Integra's SF2 Territory both include the hospitals and clinics associated with Stanford University in Palo, Alto, California, including Stanford University Hospital (“Stanford Main”), Stanford Ambulatory Surgical Center, Lucile Packard Children's Hospital (“LPCH”), and the VA Palo Alto (collectively, “Stanford Medical Center”), as well as Salinas Valley Memorial Hospital (“Salinas”).

         23. For one and a half years prior to Integra's hiring of McNany, there was no dedicated representative for Integra's SF2 Territory, and it was instead serviced on an “as-needed basis.” 24. McNany testified that Integra hired him in order to “secure [McNany's] assistance in representing a territory that had been hemorrhaging business because it hadn't been represented in [] a year and a half.” He elaborated that “[the territory] was hemorrhaging business because the Mayfield headrest wasn't being represented properly. [The territory] was hemorrhaging business in many areas.” 26. McNany was hired by Integra to sell its neurosurgical product line, including the CUSA and related disposables, as well as the Buzz Bipolar Forceps.

         27. The CUSA is an ultrasonic aspirator that competes directly with the Sonopet.

         28. There have been various versions of the CUSA, including the CUSA Excel, the CUSA Excel Plus (also referred to as CUSA 2) and the CUSA NXT.

         29. Integra currently sells the CUSA Excel Plus and the CUSA NXT. The main difference between the CUSA Excel Plus and CUSA NXT is the display for the settings. The CUSA Excel Plus has an analog display while the CUSA NXT has a digital display.

         30. Integra no longer sells the CUSA Excel and will stop providing service for that device as of December 31, 2016 unless the customer has an existing service contract which goes beyond that date. Integra and its representatives have referred to this process as “becoming obsolete” or “end-of-life.” 31. Integra also sells Buzz® bipolar forceps which compete with Stryker Silverglide® bipolar forceps.

         32. The remaining 90% of Integra products currently sold by McNany do not compete with Stryker NSE products.

         IV. MCNANY'S EMPLOYMENT WITH STRYKER A. McNany's Agreement with Stryker 38. The Stryker Agreement contains an “Introduction” which states:

         During my employment, I will receive and have access to materials and information regarding Stryker's medical device technologies, products, services and sales that are proprietary and confidential to Stryker. I recognize that these materials and information are an important and valuable asset to Stryker and that Stryker has a legitimate interest in protecting the confidential and proprietary nature of these materials and information.

         Stryker has spent and will continue to spend substantial time and money developing its medical device technologies, products, and services and training its employees on its technologies, products and services. I recognize that these technologies, products and services are an important and valuable asset to Stryker and that Stryker has a legitimate interest in protecting these technologies, products and services.

         Stryker also has dedicated time and resources in developing and maintaining relationships with customers and potential customers in the sales territory that I will be assigned. During my employment with Stryker, I understand that Stryker expects me to continue to develop and maintain these relationships on its behalf. Stryker will dedicate its time and resources in assisting me to develop and maintain these relationships for Stryker. I recognize that these relationships are an important and valuable asset to Stryker and that Stryker has a legitimate interest in protecting these relationships.

         39. Among other things, the Stryker Agreement contains a one year non-compete provision, a one year customer non-solicit provision, and a Michigan choice of law and forum selection clause.

         40. The Stryker Agreement also contains a non-disclosure provision which applies to Stryker's confidential information, as defined in section 2.1(B) of the Stryker Agreement.

         43. McNany admits that he took no steps to comply with the Non-Compete Provision and Customer Non-Solicit Provision of the Stryker Agreement.

         44. Section 5.4 of the Stryker Agreement provides that:

         It is reasonable and necessary for the protection of the goodwill and continued business of Stryker that [McNany] abide by the covenants and agreements contained in this Agreement during and following my employment with Stryker and that Stryker will suffer irreparable injury, loss, harm, and damage if I engage in conduct prohibited in this Agreement. My experience and abilities are such that compliance with this Agreement will not cause any undue hardship or unreasonable restriction on my ability to earn a livelihood and that the restrictions on my activities during and after employment do not prevent me from using skills in any business or activity that is not in competition with Stryker.

         45. The Agreement defines Confidential Information as:

“know-how, trade secrets, and technical, business and financial information and any other non-public information in any way learned by [him] during [his] employment with Stryker, including, but not limited to: (1) prices, renewal dates and other detailed terms of customer or supplier contracts and proposals; (2) information concerning the Stryker Entities' customers and potential customers, including, but not limited to, customer or prospect lists, customer or prospect data and compilation of customer or prospect information; (3) supplier and distributor lists; (4) pricing policies, methods of delivering services and products, and marketing and sales plans or strategies; (5) product know-how, product technology and product development strategies and plans; (6) personnel or payroll records or information; (7) forecasts, budgets and other non-public financial information; and (8) expansion plans, management policies and other business strategies and policies.

         B. McNany's Access to Training and Confidential Information

          48. Prior to his employment with Stryker, McNany had no experience selling medical devices and no relationships with any surgeons in the Stryker Territory.

         49. McNany received all of his initial training in the sales of medical devices from Stryker. Stryker provided McNany with the information needed to develop relationships with Stryker customers in the Stryker Territory.

         50. Stryker also provided free ongoing training on the sales of medical device products, including at Stryker's annual mid-year meetings and through online courses.

         51 In his role as a Stryker Sales Representative, McNany had access to the following information regarding the Stryker NSE product line:

a. Product acquisition and development in the NSE line of business;
b. Customer retention strategies, including strategies that apply to Stanford Medical Center;
c. Marketing plans and promotional strategies for all NSE products, including but not limited to the Sonopet;
d. Pricing strategies, including terms and conditions of sales, profit margins, product pricing discounts, and bulk purchase pricing for all NSE products, including Sonopet;
e. Innovative and proprietary financing, leasing and payment options for all NSE products, including the Sonopet; and
f. Competitive strategies including those against Integra.

         D. McNany's Performance Improvement Plan

         63. In July 2015, McNany was put on a Performance Improvement Plan (“PIP”).

         64. In the year or so leading up to the PIP, McNany had focused on selling the Sonopet and, as a result, struggled to meet his quota.

         66. The purpose of the Performance Improvement Plan was to encourage him to diversify his sales, specifically to encourage him to sell more high-speed drills.


         67. A recruiter contacted McNany about an open position at Integra in late July 2015.

         68. On or about August 5, 2015, McNany met with Eduardo Cortez (“Cortez”), Integra's Regional Business Manager, Northwest Region, for an initial job interview regarding potential employment at Integra.

         69. Cortez testified that at the interview McNany told him that he had a non-compete provision in his Stryker Agreement. Integra admits that it was fully aware of the Stryker Agreement before hiring McNany.

         71. After their initial meeting, Cortez contacted Integra's legal department regarding McNany, and Cortez testified that the legal department contacted McNany “in some way.” 72. McNany forwarded the non-compete to Integra's ...

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