Covidien LP et al v. Esch

Filing 38

Judge Nathaniel M. Gorton: ENDORSED ORDER entered. MEMORANDUM AND ORDER, PRELIMINARY INJUNCTION. "For the forgoing reasons, plaintiffs motion for a preliminary injunction (Docket No. 14) is ALLOWED and such an injunction in the form attached hereto marked A shall be entered. So ordered." See Attached. (Attachments: # 1 A (Preliminary Injunction))

United States District Court
District of Massachusetts
)
Covidien LP and Covidien Holding )
)
Inc.
)
)
Plaintiffs,
)
)
v.
)
)
Brady Esch
)
)
Defendant.
)

Civil Action No.
16-12410-NMG

MEMORANDUM & ORDER
GORTON, J.
This dispute arises out of alleged breaches of an
employment agreement and a separation agreement between Covidien
LP and Covidien Holding Inc. (“plaintiffs” or “Covidien”), on
the one hand, and Brady Esch (“defendant”), Covidien’s former
employee, on the other.

Plaintiffs allege defendant breached

those agreements by 1) assigning rights to three patents to his
new company rather than to Covidien and 2) disclosing
plaintiffs’ confidential information in the patent applications.
Pending before this Court is plaintiffs’ motion for a
preliminary injunction.

For the following reasons, plaintiff’s

motion will be allowed.
I.

Background
Covidien is global healthcare company and a manufacturer of

medical devices and supplies.

At issue in this case are

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Covidien’s Endovenous (“EV”) products, which are used to treat
superficial venous disease, commonly known as varicose veins.
A.

The NNC Agreement

Brady Esch began working for Covidien in 2009 when Covidien
acquired VNUS Technologies, Esch’s employer at the time.

In or

about December, 2009, Esch entered into a “Non-Competition, NonSolicitation, and Confidentiality Agreement” (“NNC Agreement”)
with Covidien.
The NNC Agreement provides that Esch must disclose to
Covidien all “inventions” (defined broadly in the NNC Agreement)
created during his employment with Covidien or within one year
after leaving the company:
You shall promptly disclose to the Company all
Inventions (as defined in Subsection II.B), which are
made or conceived by you, either alone or with others,
during the term of your employment with the Company,
whether or not during working hours. . . . In
addition, in order to avoid any dispute as to the date
on which Inventions were made or conceived by you,
they shall be deemed to have been made or conceived
during your employment with the Company if you take
affirmative steps to have them reduced to practice
either during the term of your employment or within
one year after separation from employment.
The NNC Agreement further states that Esch “hereby assign[s]”
all interest in such inventions to Covidien and that Esch will
not disclose any of Covidien’s confidential information.

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B.

The Separation Agreement

In or about November, 2013, Esch was terminated from
Covidien.

At that time, he was the Director of Global Marketing

for the VNUS business.

As part of his termination, Esch signed

a “Separation of Employment Agreement and General Release”
(“Separation Agreement”).
The Separation Agreement provides in pertinent part, that:
any provisions of [the NNC Agreement] concerning the
disclosure or ownership of inventions, methods,
processes or improvements shall continue in full force
and effect and shall not be superseded by any
provision of [the Separation Agreement].
The Separation Agreement also states that Esch shall
abide by all previous agreements with respect to “nondisclosure of confidential information.”
C.

Esch’s Patent Applications

Soon after Esch was terminated from Covidien, he formed his
own company called Venclose, Inc.

In March, 2014, Esch filed a

provisional patent application 61/970,498 (“’498 application”).
Along with that patent application, Esch filed a document with
the United States Patent and Trademark Office (“USPTO”)
purportedly assigning all rights to the ’498 application to
Venclose, Inc.
A year later in March, 2015, Esch and Darius Pryzgoda filed
the patent application 14/670,339 (“’338 application”), claiming
priority to the ’498 application.

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Esch listed himself,

Pryzgoda, Rory Christian and Cody Schlinder as inventors in the
application.

As with the ’498 application, Esch assigned his

rights to the ’338 application to Venclose.
Also in or about March, 2015, Esch filed a Patent
Cooperation Treaty application, PCT/US2015/022849 (“PCT
application”) with the USPTO as a receiving office for the World
Intellectual Property Organization.

Venclose was listed as the

applicant and Esch and Pryzgoda were listed as the inventors.
All three patent applications are directed toward a threewire catheter system.
D.

Procedural History

In November, 2016, Covidien filed a five-count complaint in
this Court.

In December, 2016, shortly after United States

District Judge George A. O’Toole, Jr. recused himself from the
action, Covidien filed a motion for a preliminary injunction.
This session held a hearing on that motion on January 6, 2016.
Plaintiff’s motion is the subject of this memorandum.
II.

Plaintiffs’ Motion for a Preliminary Injunction
A.

Personal Jurisdiction

As a threshold matter, defendant avers that this Court
lacks personal jurisdiction over him.

Although defendant

indicates that he plans to file a motion to dismiss for at
least, in part, lack of personal jurisdiction and the Court
hesitates to address the merits of a hypothetical question, this

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Court must have personal jurisdiction over the defendant in
order to enter the requested injunction. United Elec., Radio &
Mach. Workers of Am. v. 163 Pleasant St. Corp., 960 F.2d 1080,
1084 (1st Cir. 1992).

Accordingly, the Court will address

defendant’s jurisdictional argument in the context of
plaintiffs’ motion for a preliminary injunction.
Defendant contends without citation, that there is no
personal jurisdiction in this case because 1) plaintiffs’ claim
of personal jurisdiction is based on the forum selection and
jurisdictional clauses in the two subject agreements and 2)
those agreements are void under California law.
In the NNC Agreement, however, defendant consented to
personal jurisdiction in federal courts in Massachusetts.

That

clause is not subject to any purported policy that California
might have with respect to non-compete agreements. Optos, Inc.
v. Topcon Med. Sys., Inc., 777 F. Supp. 2d 217, 230 (D. Mass.
2011).

Moreover, plaintiffs base their claim for a preliminary

injunction on the confidentiality and patent assignment clauses
not the non-compete provisions. See id. at 229-30 (“[T]he nonsolicitation and non-disclosure clauses in the Agreement fall
squarely within California’s trade secret exception.”).
Defendant also submits that § 4.d of Separation Agreement
provides that the forum selection and jurisdictional clauses in
the NNC Agreement do not carry over.

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That argument is

unavailing, however, because § 4.d applies to non-solicitation,
non-competition, confidentiality and reasonableness, but not to
forum selection or jurisdiction.
Accordingly, because defendant has consented to
jurisdiction in this Court, the Court concludes that it has
personal jurisdiction over defendant.
B.

Merits of the Preliminary Injunction
1.

Legal Standard

To obtain a preliminary injunction, the moving party must
establish 1) a reasonable likelihood of success on the merits,
2) the potential for irreparable harm if the injunction is
withheld, 3) a favorable balance of hardships and 4) the effect
on the public interest. Jean v. Mass. State Police, 492 F.3d 24,
26-27 (1st Cir. 2007).

Out of these factors, the likelihood of

success on the merits “normally weighs heaviest in the
decisional scales.” Coquico, Inc. v. Rodriguez-Miranda, 562 F.3d
62, 66 (1st Cir. 2009).
The Court may accept as true “well-pleaded allegations [in
the complaint] and uncontroverted affidavits.” Rohm & Haas Elec.
Materials, LLC v. Elec. Circuits, 759 F. Supp. 2d 110, 114 n.2
(D. Mass. 2010) (quoting Elrod v. Burns, 427 U.S. 347, 350 n.1
(1976)).

The Court may also rely on otherwise inadmissible

evidence, including hearsay, in deciding a motion for a
preliminary injunction. See Asseo v. Pan Am. Grain Co., Inc.,

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805 F.2d 23, 26 (1st Cir. 1986).

Ultimately, the issuance of

preliminary injunctive relief is “an extraordinary and drastic
remedy that is never awarded as of right.” Peoples Fed. Sav.
Bank v. People’s United Bank, 672 F.3d 1, 8-9 (1st Cir. 2012)
(quoting Voice of the Arab World, Inc. v. MDTV Med. News Now,
Inc., 645 F.3d 26, 32 (1st Cir. 2011)).
2.

Application

Plaintiffs’ complaint alleges five different counts.
Plaintiffs seek preliminary injunctive relief, however, based
only on 1) plaintiffs’ claim for a declaratory judgment that
Covidien is the owner of the rights to the three patent
applications at issue (Count I) and 2) defendant’s alleged
breaches of the NNC Agreement and Separation Agreement (Counts
IV and V).
Because plaintiffs’ argument with respect to the
declaratory judgment action is underdeveloped, the Court will
address only the alleged breaches of contract.
a.

Likelihood of success on the merits

Plaintiffs aver that defendant has breached the NNC
Agreement and the Separation Agreement by disclosing Covidien’s
confidential information in the three patent applications.
Defendant responds that:

1) the assignment provision in the NNC

Agreement is unenforceable under California law, 2) the
assignment provision is overbroad under Massachusetts law, 3)

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the statute of limitations has run and 4) patent law presumes
that Esch, as a named inventor, is the true inventor of the wire
catheter system.
With respect to defendant’s first argument, he assumes,
without explanation, that California law applies to the NNC
Agreement.

Even if that were so, defendant focuses exclusively

on the assignment provision of the NNC Agreement without
addressing the non-disclosure provisions which also form a basis
for the issuance of an injunction.

Non-disclosure clauses are

valid and severable from other provisions in a contract under
California law. Optos, 777 F. Supp. 2d at 232-33.

Because the

NNC Agreement contains a severability clause, the non-disclosure
clause is severable from the assignment provision and would be
valid even assuming California law applies. See id.
Alternatively, defendant contends that the assignment
provision is overbroad under Massachusetts law but again he
ignores plaintiffs’ claims with respect to the non-disclosure
provisions in the NNC Agreement.

Plaintiffs’ argument supports

the imposition of an injunction.
Third, defendant suggests in his opposition memorandum that
the statute of limitations has run on plaintiffs’ breach of
contract claims.

That conclusory statement is, however,

unexplained and thus unpersuasive.

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Finally, defendant appears to assert that under patent law,
the patent applications were validly assigned to Venclose
because Esch was the inventor of the subject system.

His

supporting citations relate primarily to patent infringement
claims, however, while here plaintiffs’ motion for a preliminary
injunction is based upon alleged breaches of contract (and a
petition for declaratory judgment based on two contracts).
Moreover, defendant’s argument is compromised by his
contradictory statements in his written memorandum that state
contract law applies rather than patent law.
Accordingly, the Court concludes that plaintiffs have shown
a likelihood of success on the merits at least with respect to
the alleged breaches of contract involving the non-disclosure
provisions.
b.

Irreparable harm

Plaintiffs contend that defendant’s disclosure of
confidential information as a result of defendant’s conduct with
respect to the patent applications constitutes irreparable harm.
Defendant responds that plaintiffs have not shown any
irreparable harm because plaintiffs did not file suit soon after
the patent applications were publicly available.
Although an unreasonable delay can undermine a showing of
irreparable harm, improper disclosure of confidential
information “is, in itself, an irreparable harm.” Bos. Sci.

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Corp. v. Lee, Docket No. 13-13156, 2014 WL 1946687, at *16 (D.
Mass. May 14, 2014).

Because defendant released plaintiffs’

confidential information with respect to a three-wire catheter
system and a reuse limiter mechanism in the patent applications,
the Court finds that defendant will suffer irreparable harm in
the absence of an injunction. See id. (concluding that company
suffered irreparable harm after defendant disclosed confidential
information).
c.

Balance of hardships

The Court concludes that the balance of hardships weighs in
plaintiffs’ favor.

Because plaintiffs’ confidential information

was released, they stand to lose significant investment of
resources from the development of their EV products. See
Corporate Techs., Inc. v. Harnett, 943 F. Supp. 2d 233, 244-45
(D. Mass. 2013) (concluding that any harm from a narrow
injunction would not outweigh the harm of disclosure of
plaintiff’s confidential information).
d.

Public interest

Defendant claims that 1) it is not in the public interest
to put him and his “small company” out of business and 2) that
non-compete agreements are disfavored in California.

Although

plaintiffs do not submit a specific rebuttal, enforcing
contractual provisions, including non-disclosure provisions
which are at issue here, typically benefits the public interest.

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Cf. id. at 245.

Therefore, the Court finds that the public

interest factor weights in plaintiffs’ favor.
C.

Other Defenses

Defendant asserts several reasons for denying plaintiffs’
motion for a preliminary injunction:

1) unclean hands, 2)

failing to join an indispensable party, 3) laches and 4) failure
to comply with Local Rule 7.1.
Defendant contends that plaintiffs have “unclean hands”
because 1) they “purposely delayed” in filing a law suit against
him and 2) they told him the NNC Agreement does not apply to
him.
Defendant’s assertion of plaintiffs’ unclean hands based
upon of his reliance on Covidien’s allegedly fraudulent
statements is unreasonable as a matter of law because the
purported statements contradict the terms of the NNC Agreement.
See HSBC Realty Credit Corp. (USA) v. O’Neill, 745 F.3d 564, 571
(1st Cir. 2014) (reliance on alleged misrepresentations that
contradict the terms of a contract is unreasonable as a matter
of law).

Defendant also asserts an unclean hands defense based

upon a purported purposeful delay by plaintiffs to induce him to
develop a product but that claim is unsupported speculation.
With respect to the second argument, defendant merely
contends that plaintiffs improperly failed to join Venclose, a

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purported “indispensable party,” without explanation or
citation.

The Court finds that conclusory claim underwhelming.

Defendant’s laches argument also fails.

The application of

laches is within the “sound discretion” of the Court. K-Mart
Corp. v. Oriental Plaza, Inc., 875 F.2d 907, 911 (1st Cir. 1989)
(quoting Puerto Rican–American Ins. Co. v. Benjamin Shipping
Co., 829 F.2d 281, 283 (1st Cir. 1987)).

At oral argument,

defendant contended that plaintiffs unreasonably waited more
than three years from the time Esch was terminated to bring this
action.

Plaintiffs correctly noted, however, that this is not a

non-compete case and thus the alleged delay here is between the
date on which the patent applications became public and the
filing of plaintiffs’ motion for a preliminary injunction (about
one year).

This Court finds that such a delay is not untoward

because defendant did not receive approval from the FDA to
market its product based on the subject patents until September,
2016, two months before plaintiffs filed suit.
Finally, defendant complains that plaintiffs failed to
comply with Local Rule 7.1(a)(2), which provides that parties
must confer and “attempt in good faith” to resolve or narrow any
issues.

Defendant’s contention is made on behalf of counsel for

Venclose, however, who are not counsel of record in this action.
Even if they were counsel of record, any purported breach of
Local Rule 7.1 is not controlling in this case. Cf. Steele v.

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Turner Broad. Sys., Inc., 746 F. Supp. 231, 239 (D. Mass. 2010)
(declining to deny a motion for entry of default despite
plaintiff’s failure to comply with Local Rule 7.1).
D.

Security under Fed. R. Civ. P. 65(c)

A movant for a preliminary injunction must give
security in an amount that the court considers proper
to pay the costs and damages sustained by any party
found to have been wrongfully enjoined or restrained.
Fed. R. Civ. P. 65(c).

The provisions of Rule 65(c) are not

mandatory, however, and the Court has “substantial discretion”
to fashion the terms of the bond. Int’l Ass’n of Machinists &
Aerospace Workers v. E. Airlines, Inc., 925 F.2d 6, 9 (1st Cir.
1991).
Defendant suggest that if any injunction is imposed,
plaintiffs should be required to post a security bond of
$30,000,000 to forestall any purported harm to Venclose.
Venclose, however, is not a party to this action.

At oral

argument, plaintiffs responded, that although a minimum bond
would be warranted, they would not object to a requirement to
post a bond of $312,000 which is equivalent to Esch’s annual
consulting salary.

The Court will accept the lesser amount as

appropriate in this case.
Plaintiffs also requested at oral argument that the Court
allow them to post a letter of credit in lieu of a bond.
Although other district courts may have allowed plaintiffs to

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satisfy Fed. R. Civ. P. 65(c) with a letter of credit, in the
absence of controlling authority to that effect this Court will
decline to do so.

ORDER
For the forgoing reasons, plaintiffs’ motion for a
preliminary injunction (Docket No. 14) is ALLOWED and such an
injunction in the form attached hereto marked “A” shall be
entered.

So ordered.

/s/ Nathaniel M. Gorton
d
Nathaniel M. Gorton
United States District Judge
Dated January 11, 2017

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