Medical Equipment Non-Compete Cases: Call It a Trend

Call it a trend.  These days, non-compete litigation is everywhere:   All across the country and in every industry imaginable.  Some industries generate more non-compete litigation than others.  And perhaps no industry has more non-compete litigation than the healthcare industry.   In any field that is remotely connected to healthcare or medicine, you will find widespread use of non-compete agreements, hoards of lawyers, and well-capitalized companies willing to protect their edge – and their market share – through any (legal) means necessary.  This is a recipe for a wave of non-compete lawsuits.  In recent months, we have seen a number of medical equipment non-compete cases.

A recent example comes out of the Middle District of Florida, Fort Myers Division, and the medical equipment industry.  The case is consistent with what I have seen in my own practice.  At present, I’m involved in one ongoing non-compete and trade secrets case in the Middle District.  And over the past year, I have been involved in two disputes related to the medical device and equipment industry.

The case follows a fairly standard fact pattern:  PSS World Medical, Inc. is a company “engaged in medical and pharmaceutical supplies and equipment business.”   As is turns out, PSS is a pretty big player in the industry.   The company the sells more than 50,000 different medical products, including supplies, equipment and pharmaceuticals, representing more than 1,000 different manufacturers.  Back in 2010, PSS hired several individuals as area business managers and account managers.  These individuals included Clay Cibula, John Heilman, Lauren Bell, Lindsey Klement and Hayes Capps (“Individual Defendants”).  All of them signed non-compete and non-disclosure agreements.

During their tenure with the company, the Individual Defendants essentially managed customer accounts and customer relationships.  The customers are mostly physicians.   Between late February and mid-July 2013, all of the Individual Defendants left the company.  During this same time period, Cibula and Heilman formed Trident Medical Group, LLC.   Trident then hired the rest of the Individual Defendants and immediately began competing with PSS and soliciting PSS’s customers.  It appears that Trident’s early efforts have been successful:  According to the complaint, Trident has lured away a number of PSS customers.   PSS claims that Trident has already taken customers who generate more than $2 million in annual sales for PSS.   PSS filed its lawsuit on August 6, 2013, alleging violations of the employment agreements, breach of fiduciary duty, tortious interference and violations of Florida Uniform Trade Secrets Act.

Preliminary Impressions

Let’s take the breach of contract claim first.  Given the nature of breach of contract claims, that one will stick.  It won’t be dismissed and probably won’t be kicked on summary judgment.  Next, there are the tortious interference and fiduciary duty claims.  The best shot of getting those claims dismissed at this stage is preemption.   When a plaintiff pursues a claim for misappropriation of trade secrets under the FUTSA, that Act preempts any non-contract claim based solely on the alleged misappropriation.

Then there is the FUTSA claim itself.  PSS alleges that it possessed confidential information and trade secrets.  It explains that this information consisted of “identifies of its customers and customer contacts . . . information on the identity, authority and responsibilities of key contacts at each customer and prospective customer, information on the contents of customer or consultant contracts, information on current and anticipated customer requirements and bids, financial information including . . . fiscal reports, computer software programs, internal memoranda and other office records, product lines . . . pricing, policies, price lists, market studies, business plans, operational methods, marketing plans and strategies.”  These medical equipment non-compete cases are always about customers.

The defense lawyer in me wants to push back on these allegations and argue that much of this information is not confidential and is widely available within the industry.  For instance, if I start a company that sells medical equipment to doctors, I can easily open the Yellow Pages, start calling doctors’ offices and trying to get appointments.  If I’m selling medical equipment, I can offer better prices and better service and win that business.   But even assuming that PSS has adequately alleged the existence of a trade secret, there are other problems with the claim:  Misappropriation.   The strongest misappropriation claims involve actual theft of something:  The employee downloaded files to a flash drive, emailed himself a copy of a database or actually stole a corporate laptop.  Those are compelling examples of actual misappropriation.  Yes, PSS could still have a misappropriation claim if it can prove that the defendants are using its trade secrets.  But PSS is in for a fight.  The defendants obviously will argue that they are not using PSS’s trade secrets and that all of the allegedly confidential and proprietary information is readily available to anyone in the industry.  PSS will have to counter by relying on the doctrine of inevitable disclosure, which Florida courts have not embraced in the trade secrets context. Either way, the defendants will have to fight this with an eye toward winning at summary judgment.

There is one last wrinkle:  PSS is based in Jacksonville, FL.  All of the Individual Defendants and Trident are in Georgia.  All of the Individual Defendants signed employment contracts containing forum selection clauses subjecting them to jurisdiction in the Middle District of Florida.  In an effort to avail themselves of Georgia law, which is arguably more favorable to their position, the defendants beat PSS to court and filed an action in Georgia seeking a declaratory judgment holding the non-compete agreements unenforceable.  This is the proverbial race to the courthouse.   It will be interesting to see how this one plays out.

The case is PSS World Medical, Inc. v. Clay Cibula, John Heilman, Lauren Bell, Lindsey Klement, Hayes Capps, and Trident Medica, Group, LLC, 2013 WL 4410871 (M.D.Fla.)

Jonathan Pollard is a competition lawyer based in Fort Lauderdale, Florida. His office can be reached at 954-332-2380.