MiMedx Group, Inc. v. Fox
MEMORANDUM Opinion and Order. Signed by the Honorable Manish S. Shah on 8/2/2017: Defendant's motion to dismiss, 34 , is granted in part, denied in part. Counts III and V are dismissed. [For further detail see attached order.] Notices mailed. (psm, )
UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
MIMEDX GROUP, INC.,
No. 16 CV 11715
Judge Manish S. Shah
MEMORANDUM OPINION AND ORDER
MiMedx Group, Inc., brings various contract and tort claims against Michael
Fox, a former vice president of the company. Fox moves to dismiss all claims against
him. For the following reasons, Fox’s motion to dismiss is granted in part, denied in
To survive a motion to dismiss under Federal Rule of Civil Procedure
12(b)(6), a complaint must contain factual allegations that plausibly suggest a right
to relief. Ashcroft v. Iqbal, 556 U.S. 662, 677–78 (2009). The court must accept all
factual allegations as true and draw all reasonable inferences in the plaintiff’s
favor, but the court need not accept legal conclusions or conclusory allegations. Id.
Diversity jurisdiction exists. MiMedx is incorporated in Florida and headquartered in
Georgia, and Fox is a citizen of Illinois.
MiMedx Group, Inc., is a regenerative medicine company selling medical
products throughout the United States. Michael Fox began working for MiMedx as
a Sales Director in 2012. Prior to and as a condition of his employment with
MiMedx, Fox executed a Non-Competition Agreement and a Confidentiality and
Non-Solicitation Agreement. Fox became an Area Vice President in 2013, reporting
directly to Mike Carlton, MiMedx’s Vice President of Global Sales. Fox supervised
more than 50 MiMedx employees, including regional managers and account
executives and had access to MiMedx’s trade secrets and confidential business sales
information concerning its customers, including accounts receivables reports, sales
reports (detailing the sale of every MiMedx product to hospitals and medical
facilities), commission reports, forecasts, quotas, and other reports concerning
MiMedx’s business, product, and sales strategies. In January 2016, Fox assumed
the newly-formed position of Vice President, Federal & Academic Institutions, with
nationwide responsibility. He continued reporting directly to Carlton and to have
access to MiMedx’s trade secrets and confidential business sales information, but
now on a national scale.
In early 2015, Jess Kruchoski, one of Fox’s Regional Sales Directors, began
exploring the option of selling non-MiMedx products. Around this time, Fox sent a
confidential report detailing nationwide volumes and total sales to Kruchoski and
several other MiMedx employees, stating: “DO NOT FORWARD TO ANYONE! FOR
YOUR EYES ONLY.” The report contained data outside the employees’ regions of
responsibility that they were not authorized to see. A few days after receiving the
report—and without the knowledge or approval of MiMedx’s Chairman and CEO (as
required by company policy)—Kruchoski executed an Independent Distributor
Agreement with a MiMedx competitor. Kruchoski made non-MiMedx sales to at
least three Veterans’ Affairs hospitals listed on the report from Fox, all of which
were outside of Kruchoski’s assigned sales region. (Fox also sent Kruchoski another
similar report in October 2016.)
MiMedx also alleges that Fox told Jason Mahnke, one of Fox’s subordinates,
that Mahnke could sell non-MiMedx products for a competitor selling wound care
medical products. Fox told Mahnke it was permissible for him to sell non-MiMedx
products and encouraged him to do so, even though Mahnke did not have approval
from MiMedx’s Chairman and CEO. Fox also did not report Mahnke’s sale of nonMiMedx products.
MiMedx terminated Fox’s employment on December 29, 2016, and filed this
lawsuit the same day. .2 MiMedx filed an amended complaint in February 2017,
bringing claims for breach of the Confidentiality and Non-Solicitation Agreement
(Count I), breach of the Non-Competition Agreement (Count II), specific
performance (Count III), breach of fiduciary duty (Count IV), breach of the duty of
loyalty (Count V), and a claim for replevin (Count VI), asserting that Fox had not
returned three company devices (a laptop, iPad, and iPhone) since his termination
despite MiMedx’s repeated requests. . Shortly thereafter, MiMedx moved for an
order of replevin, or in the alternative for a preliminary injunction, for Fox to return
Bracketed numbers refer to entries on the district court docket.
the devices. . The motion was granted in part, and Fox was ordered to return
the devices. . Fox now moves to dismiss the amended complaint. .
Choice of Law
MiMedx raises a choice of law issue, invoking a Florida governing law clause
in both agreements. Fox (who cited Illinois law) responds that MiMedx waived this
clause by citing Illinois law in support of its preliminary injunction, that MiMedx
should be judicially estopped from invoking Florida law, and that MiMedx has
failed to identify an actual conflict between Illinois and Florida law. Fox further
argues that the choice of law provision only applies to construction of the contract,
not breach of contract claims arising from the agreements.
When sitting in diversity, federal courts apply the forum state’s choice-of-law
rules. Spitz v. Proven Winners N. Am., LLC, 759 F.3d 724, 729 (7th Cir. 2014).
Illinois holds that a choice-of-law determination is required only if the party seeking
a choice-of-law determination has established an actual conflict between state laws.
Id. (citing Bridgeview Health Care Ctr., Ltd. v. State Farm Fire & Cas. Co., 2014 IL
116389, ¶ 14 (2014)). MiMedx has raised the choice-of-law issue and seeks to apply
Florida law, but MiMedx has not identified any actual conflict between Illinois and
Florida law that would make a difference in the outcome of this motion. See
Bridgeview, 2014 IL 116389, ¶ 14 (“The party seeking the choice-of-law
determination bears the burden of demonstrating a conflict, i.e., that there exists a
difference in the law that will make a difference in the outcome.”). In these
circumstances, no choice-of-law determination is required, and I will apply Illinois
law. See Spitz, 759 F.3d at 729 (no choice-of-law determination was required, and
the district court was correct to apply Illinois law, where plaintiff failed to identify
the purported conflict between Illinois and California law).
Breach of Contract
Confidentiality and Non-Solicitation Agreement
To state a claim for breach of contract, a plaintiff must allege: (1) the
existence of a valid and enforceable contract; (2) substantial performance by the
plaintiff; (3) defendant’s breach; and (4) resultant damages. Reger Dev., LLC v.
National City Bank, 592 F.3d 759, 764 (7th Cir. 2010). Fox argues that his alleged
conduct does not amount to breach of the Confidentiality and Non-Solicitation
The Confidentiality and Non-Solicitation Agreement required Fox to
“faithfully perform the duties assigned to [him],” “to abide by all of the Company’s
policies and procedures,” and to “not directly or indirectly divulge or make use of,
copy, publish, summarize or remove any Confidential Information or Trade Secrets
outside of employment with Company without prior written consent.” [18-2] §§ 2–3.
It also required Fox to return all MiMedx property within three days of the end of
his employment. [18-2] § 4. MiMedx asserts that Fox breached the Confidentiality
Agreement by sending confidential reports to MiMedx employees who were
unauthorized to see them, by ignoring company policy on reporting conflicts of
interest, and by failing to return the company’s devices upon the termination of his
employment. Fox argues that the Confidentiality Agreement did not prevent his
disclosure of confidential information to other MiMedx employees, did not require
him to report other employees’ misconduct, and did not incorporate the terms of
MiMedx’s Code of Conduct. The Code of Conduct directed all employees “to make
prompt and full disclosure of any potential conflict of interest” to the employee’s
immediate supervisor (who would then transmit that information up through the
chain of authority to the Chairman and CEO, who decided whether a conflict exists
and if so, any corrective action to take). [18-3] at 17, 19. The Code of Conduct also
lists business dealings with competitors of MiMedx as an example conflict of
interest. [18-3] at 18.
MiMedx argues that Fox did not report Mahnke’s sales to a competitor as a
conflict of interest, in violation of company policy expressed in its Code of Conduct,
and therefore that Fox breached the Confidentiality Agreement’s requirement that
he abide by all company policies. Fox contends that internal employment policies do
not create contractual rights, the Code includes a disclaimer that it is not an
employment contract, [18-4] at 2, and that the Code cannot be incorporated into the
Confidentiality Agreement, which contains a merger clause. Fox cites to a few cases
holding that internal policies (such as a code of business conduct or employee
handbook) do not themselves create contractual rights. These cases explain that
“[i]n Illinois, the general rule is that an employment handbook is not part of an
employment contract” because it is “a gratuity which merely serves as a code of
conduct and to define general duties” but does not alter the at-will relationship
between the employer and employee. Enis v. Continental Ill. Nat’l Bank & Trust Co.
of Chicago, 582 F.Supp. 876, 878 (N.D. Ill. 1984), aff’d sub nom. Enis v. Continental
Ill. Nat’l Bank & Trust Co. of Ill., 795 F.2d 39 (7th Cir. 1986); see Miller v. Illinois
Bell Tel. Co., 157 F.Supp.3d 749, 758 (N.D. Ill. 2016) (employee failed to state
statutory wage payment claim, which required a valid employment contract,
because employer’s code of business conduct was not an employment contract and
contained a disclaimer to that effect). But as recognized in Enis, there is an
exception to this general rule “where another document exists which can be
construed as an express employment contract and the contract can be construed as
subject to the ‘policies’ of the employer. In this situation, the personnel policies
contained in an employee handbook will be deemed incorporated into the contract.”
Enis, 582 F.Supp. at 879 (citing Piper v. Board of Trustees of Cmty. Coll. Dist. No.
514, 99 Ill.App.3d 752 (4th Dist. 1981)). Although Fox argues that mere reference to
another contract or document is not sufficient to incorporate its terms into a
contract because there must be “an express intent to incorporate,” Rosenblum v.
Travelbyus.com Ltd., 299 F.3d 657, 666 (7th Cir. 2002), this agreement expressly
required Fox to abide by company policies. The Code of Conduct, which outlines
MiMedx’s policies, required disclosure of any potential conflict of interest to be
transmitted up the chain of authority to the company’s Chairman and CEO.
MiMedx has sufficiently alleged that Fox breached the Confidentiality Agreement’s
requirement that he abide by company policies when he failed report a
subordinate’s conflict of interest.
MiMedx also alleges that Fox disclosed confidential information to
Confidentiality Agreement prohibited only disclosure of confidential information
“outside of employment with Company,” [18-2] § 3, meaning that he was prohibited
from disclosing information outside MiMedx but not from disclosing it to other
MiMedx employees. In support of his interpretation, Fox looks to the agreement’s
definition of “Confidential Information” as “information about the Company . . .
which is not generally known outside of the applicable entity.” [18-2] § 1(d).
The interpretation of an unambiguous contract is a question of law
appropriate for determination on a motion to dismiss, but the interpretation of an
ambiguous contract is a question of fact. Quake Constr., Inc. v. American Airlines,
Inc., 141 Ill.2d 281, 288–89 (1990) (“If the language of an alleged contract is
ambiguous regarding the parties’ intent, the interpretation of the language is a
question of fact which a circuit court cannot properly determine on a motion to
dismiss.”). Whether a contract is ambiguous—i.e., whether it is reasonably
susceptible to more than one meaning—is a question of law for the court.
Morningside N. Apartments I, LLC v. 1000 N. LaSalle, LLC, 2017 IL App (1st)
162274, ¶ 15. At this stage of the case, Fox has not shown that “outside of
employment with Company” unambiguously means outside of Fox’s employment
with MiMedx, as opposed to outside the scope of an employee’s area of responsibility
within MiMedx. The definition of Confidential Information refers, in part, to
“information about the Company, its parent and the other subsidiaries of its parent
and their respective employees, Customers, products, patients and/or business
relationships with other parties which is not generally known outside of the
applicable entity, which Employee learns of . . . in connection with Employee’s
employment with the Company, and which would be useful to competitors of the
applicable entity.” [18-2] § 1(d). Fox’s argument implies that the “applicable entity”
means MiMedx, but the agreement defines and refers to MiMedx as the “Company.”
[18-2] at 2. “Applicable entity” does not have a separate definition in the agreement,
and Fox does not explain how “applicable entity” specifically means MiMedx and
not something else—for example, a separate division or unit of organization within
MiMedx. Therefore, the Confidentiality Agreement is ambiguous on this point, and
Fox has not shown that MiMedx’s interpretation is unavailing as a matter of law.
This theory of breach survives Fox’s motion to dismiss.3
Fox also argues that MiMedx’s argument that he breached the confidentiality
agreement by failing to return his electronic devices is now moot. That argument is
addressed in relation to MiMedx’s specific performance and replevin claims.
Fox also moves to dismiss the breach of contract claim based on the NonCompetition Agreement, which required that during his employment, Fox “will
faithfully devote [his] best efforts to advance the interests of the Company and will
not directly or indirectly, on Employee’s own behalf or another’s behalf, engage in
any manner in any business” competing with MiMedx. [18-1] § 1(c). Fox contends
that this provision only prevents him competing with MiMedx and there is no
MiMedx argues that under the Code of Conduct, conduct noncompliant with company
policy is “outside the scope of employment.” See [18-3] at 6, ¶ 1. This, however, is extrinsic
evidence that is not considered in determining whether an agreement is ambiguous on its
allegation that he competed with MiMedx. In the alternative, Fox argues that there
is no allegation that he failed to devote his best efforts to his job. MiMedx does not
assert that Fox himself competed with the company but maintains that this
provision involves independent clauses that obliged him to both (1) devote his “best
efforts” to advance MiMedx’s interest and (2) to not compete with MiMedx.
MiMedx’s interpretation is correct. The Non-Competition Agreement
unambiguously required Fox to both devote his “best efforts” to advance MiMedx’s
interest and to not compete with MiMedx. MiMedx has alleged that Fox failed to
devote his “best efforts” to advance the company’s interests by turning a blind-eye to
and encouraging a subordinate’s conflict of interest and by disclosing sensitive
information to unauthorized employees, who then used that information to compete
with MiMedx. MiMedx has sufficiently alleged a breach of contract claim based on
the Non-Competition Agreement.
Breach of Fiduciary Duty and the Duty of Loyalty
Fox moves to dismiss the breach of fiduciary duty and breach of the duty of
loyalty claims against him (Counts IV and V) as duplicative of each other and the
breach of contract claims. Fox also contends that these claims fail because MiMedx
fails to allege that Fox engaged in self-dealing for his own benefit. MiMedx responds
that its claims are not duplicative, are not pled in the alternative, and that selfdealing is not required to allege breach of fiduciary duty or the duty of loyalty.
MiMedx’s claims for breach of fiduciary duty and breach of the duty of loyalty
are duplicative. To state a claim for breach of fiduciary duty, a plaintiff must allege:
(1) that a fiduciary duty exists; (2) that the fiduciary duty was breached; and (3)
that such breach proximately caused plaintiff’s injury. Lawlor v. North Am. Corp. of
Illinois, 2012 IL 112530, ¶ 69. The duty of loyalty is a fiduciary duty owed by both
employees and corporate officers, id., although (as MiMedx points out) corporate
officers owe a heightened fiduciary duty of loyalty to their corporate employer.
Enterprise Recovery Sys., Inc. v. Salmeron, 401 Ill.App.3d 65, 81 (1st Dist. 2010).
But the elements and relief for these claims are the same, as is the underlying
conduct. MiMedx’s claim for breach of the duty of loyalty is therefore dismissed as
MiMedx’s breach of fiduciary duty claim is not duplicative of its breach of
contract claims, however. Although based on the same alleged conduct by Fox, the
claims have different elements, and MiMedx seeks additional relief (i.e., punitive
damages) through its breach of fiduciary claim that is not available through its
breach of contract claims. See, e.g., ICD Publ’ns, Inc. v. Gittlitz, 2014 IL App (1st)
133277, ¶ 59 (punitive damages may be awarded for breach of fiduciary duty).
Fox also argues that MiMedx cannot state a claim for breach of fiduciary duty
without alleging that he engaged in self-dealing or in an activity that benefitted
himself. Fox cites several cases where a defendant breached their fiduciary duty
through self-dealing or by seeking personal gain. None of these cases hold, however,
that self-dealing is the only way to breach a fiduciary duty. A breach of fiduciary
duty may involve hindering the plaintiff rather benefitting the defendant. See Veco
Corp. v. Babcock, 243 Ill.App.3d 153, 160 (1st Dist. 1993) (corporate officers “owe a
fiduciary duty of loyalty to their corporate employer not to (1) actively exploit their
positions within the corporation for their own personal benefit, or (2) hinder the
ability of a corporation to continue the business for which it was developed”)
(emphasis added); see also Halperin v. Halperin, 750 F.3d 668, 672 (7th Cir. 2014)
(Under Illinois law, “[a] failure to comply with the duty to inform that prevents the
beneficiary from learning something the fiduciary is duty-bound to communicate to
him . . . is taking advantage of the beneficiary’s dependence on the fiduciary.”). Selfdealing or personal gain is not necessarily required to state a claim for breach of
fiduciary duty. A corporate officer who sabotages the company may do so for no
personal gain, but nevertheless breach a fiduciary duty owed to the firm.
MiMedx has stated a claim for breach of fiduciary duty, but its claim for
breach of the duty of loyalty (Count V) is dismissed as duplicative.
Specific Performance and Replevin
Fox moves to dismiss the specific performance and replevin claims (Counts
III and VI), arguing that they are moot after the preliminary junction was granted
and he returned his MiMedx devices. He also seeks dismissal by arguing that
specific performance is a remedy, not a cause of action, and that MiMedx failed to
file a verified pleading. MiMedx responds by requesting entry of judgment and
damages for these claims because Fox returned the property after the court order.
MiMedx’s claim for specific performance is dismissed because “specific
performance is a remedy, not a cause of action.” LaSalle Nat’l Bank v. Metropolitan
Life Ins. Co., 18 F.3d 1371, 1376 (7th Cir. 1994). This principle was also recognized
in AT & T Capital Services, Inc. v. Shore Financial Services, Inc., cited by MiMedx.
No. 09 CV 1360, 2010 WL 2649874, at *17 (N.D. Ill. June 30, 2010) (“[I]njunctive
relief and specific performance are remedies, not independent causes of action.”). As
MiMedx concedes, courts often interpret a “claim” for specific performance as a
breach of contract claim seeking specific performance. See, e.g., JNS Power &
Control Sys., Inc. v. 350 Green, LLC, 624 Fed. App’x 439, 445 (7th Cir. 2015)
(affirming remedy of specific performance where damages were inadequate remedy
for breach of contract, noting that “[t]o state a cause of action for specific
performance, there must first be a valid, binding, and enforceable contract”); Ladien
v. Presence RHC Corp., 2017 IL App (1st) 152778-U, ¶¶ 21–22 (A cause of action for
“specific performance” is “essentially a claim for breach of contract, but with its
remedy limited to specific performance.”). But here, MiMedx’s claim for specific
performance is duplicative of its claim that Fox breached the Confidentiality
Agreement by failing to return the company’s devices after his employment was
terminated (Count I). Therefore, MiMedx’s claim for specific performance (Count
III) is dismissed.
In Illinois, a plaintiff may bring a replevin claim under 735 ILCS 5/19-101 to
recover property or goods. Fox seeks dismissal of the replevin claim because Illinois
law requires a complaint for replevin to be verified, 735 ILCS 5/19-104, and MiMedx
did not file a verified complaint. MiMedx argues that Illinois pleading requirements
do not apply in federal litigation, citing to Farzana K. v. Indiana Department of
Education, 473 F.3d 703, 705 (7th Cir. 2007). Although Fox cites to several district
court cases dismissing replevin claims because the complaint was not verified,
MiMedx is correct that state pleading requirements are inapplicable here. Federal
Rule of Civil Procedure 11(a) provides that “[e]xcept when otherwise specifically
provided by rule or statute, pleadings need not be verified or accompanied by
affidavit.” The “rule or statute” in Rule 11(a) “means federal rule or federal statute,
because state requirements for pleading do not apply in federal litigation. Rules
established under the Rules Enabling Act supersede state norms.” Farzana K., 473
F.3d at 705 (emphasis added) (citing Walker v. Armco Steel Corp., 446 U.S. 740
(1980), and Hanna v. Plumer, 380 U.S. 460 (1965)); see Royalty Network, Inc. v.
Harris, 756 F.3d 1351, 1360 (11th Cir. 2014) (“‘[S]tate rules requiring verified
pleadings . . . are wholly inapposite [in federal court]’ in light of Rule 11.”).4 Fox’s
cited cases were decided before Farzana K. and therefore are not persuasive
authority on this matter. See Combined Metals of Chicago Ltd. P’ship v. Airtek, Inc.,
985 F.Supp. 827 (N.D. Ill. 1997); Metal Forge Co. v. Vogel Tool & Die Corp., No. 95
C 6045, 1995 WL 702628 (N.D. Ill. Nov. 27, 1995); ITT Commercial Fin. Corp. v. Tuf
Racing Prod., Inc., No. 94 C 50403, 1995 WL 57601 (N.D. Ill. Jan. 27, 1995).
Fox also contends that his return of the devices makes replevin moot, citing
district court cases finding an action for replevin moot when the property had
already been returned. But, as MiMedx argues, these cases did not involve a
defendant who returned the property only after a replevin order was entered.
MiMedx contends that, under 735 ILCS 5/19-125, it is entitled to judgment and
Even if verification had been required, failure to verify a complaint is a technical defect
curable by amendment. Moreover, within two weeks of filing its amended complaint,
MiMedx moved for replevin and submitted affidavits corroborating the replevin allegations
in its complaint. .
damages on its replevin claim because its motion for replevin or a preliminary
injunction was successful and Fox was required to turn over the devices. In addition
to the return of property, the Illinois replevin statute also contemplates an award of
damages. See 735 ILCS 5/19-125 (“If judgment is entered in favor of the plaintiff in
replevin, the plaintiff shall recover damages for the detention of the property while
the same was wrongfully detained by the defendant.”). MiMedx’s replevin claim is
not moot because it still may seek damages. See, e.g., Wright & Miller, 13C Fed.
Practice & Procedure § 3533.3 (3d ed.) (“The availability of damages or other
monetary relief almost always avoids mootness.”).5
MiMedx’s request for entry of judgment and damages is essentially a request
for summary judgment raised in an opposition brief to the defendant’s motion to
dismiss. I decline to enter judgment for MiMedx as procedurally premature,
although MiMedx has already shown a likelihood of success, , and for a
successful replevin claim, a plaintiff need only prove that it is lawfully entitled to
the possession of property that the defendant wrongfully detained and refused to
deliver—fault is not a defense. See 735 ILCS 5/19-107; Carroll v. Curry, 392
Ill.App.3d 511, 514–17 (2d Dist. 2009). MiMedx’s replevin claim is not dismissed.
For the same reason, MiMedx’s breach of contract claim based on Fox’s failure to return
company devices is not moot either. Damages may be available, although specific
performance is no longer a necessary remedy.
Defendant’s motion to dismiss, , is granted in part, denied in part. Counts
III and V are dismissed.
Manish S. Shah
United States District Judge
Date: August 2, 2017
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