Elkin Medical Systems, Inc. v. Laufersky et al

Filing 11

MEMORANDUM OPINION AND ORDER denying 2 Plaintiff's motion for preliminary injunction ; signed by Judge Robert Holmes Bell (Judge Robert Holmes Bell, kcb)

UNITED STATES DISTRICT COURT F O R THE WESTERN DISTRICT OF MICHIGAN S O U T H E R N DIVISION

E K L IN MEDICAL SYSTEMS, INC, a Delaware Corporation, P l a in tif f , F ile No. 1:09-CV-808 v. H O N . ROBERT HOLMES BELL R A N D Y L. LAUFERSKY, an individual, a n d CORE ULTRASOUND EQUIPMENT, L L C , a Michigan Limited Liability Company D e f e n d a n ts . / M E M O R A N D U M OPINION AND ORDER T h is matter is before the Court on a motion by Plaintiff Eklin Medical Systems, Inc. (" E k lin " ) for a preliminary injunction specifically enforcing Sections 3, 4, and 5 of a nonco m p etitio n agreement between Plaintiff and Defendant Randy Laufersky ("Defendant"), e n jo in in g Defendant from associating with Defendant Core Ultrasound Equipment, LLC (" C o re " ), and requiring Core to cease all business operations until this action can be a d ju d ic a te d on the merits. (Dkt. No. 2.) For the reasons that follow, this motion will be d e n ie d . On September 1, 2009, Plaintiff filed a nine-count complaint against Defendants L a u f ers k y and Core alleging breach of a non-competition agreement, breach of the duty of lo ya lty, claim and delivery, fraud, interference with employment relationship, unjust

e n r i c h m e n t, misappropriation of trade secrets, unfair competition, and violation of the C o m p u te r Abuse and Fraud Act. (Dkt. No. 1.) Though Plaintiff seeks permanent injunctive re lie f for five of the eight claims contained in Plaintiff's complaint,1 Plaintiff's motion for p re lim in a ry injunctive relief is based solely on Plaintiff's claim that Defendant breached the n o n -c o m p e titio n agreement. Specifically, Plaintiff claims that Defendant breached three se p a ra te provisions of the non-competition agreement, the covenant-not-to-compete in S e c tio n 3, the non-solicitation of employees provision in Section 4, and the non-solicitation o f customers provision in Section 5. In determining whether Plaintiff is entitled to preliminary injunctive relief, the Court m u s t balance four factors: (1) whether Plaintiff has shown a strong likelihood of success on th e merits; (2) whether Plaintiff is likely to suffer irreparable harm if the injunction is not iss u e d ; (3) whether the issuance of a preliminary injunction would cause substantial harm to o th e rs ; and (4) whether the public interest would be served by the issuance of an injunction. L e a r y v. Daeschner, 228 F.3d 729, 736 (6th Cir. 2000). Plaintiff has not demonstrated that it is likely to succeed on the merits of its claim that D e f e n d a n t breached Sections 3, 4, or 5 of the non-competition agreement. California law, w h ic h governs the non-competition agreement pursuant to a choice-of-law provision in the a g re e m e n t, provides that:

Plaintiff seeks permanent injunctive relief for Plaintiff's claims for breach of the noncompetition agreement, breach of the duty of loyalty, claim and delivery, interference with employment relationship, and unfair competition. (Dkt. No. 1.) 2

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[ a ]n y owner of a business entity selling . . . all of his or her ownership interest in the b u s in e ss entity, . . . may agree with the buyer to refrain from carrying on a similar b u s in e ss within a specified geographic area in which the business so sold . . . has been c a rrie d on, so long as the buyer, or any person deriving title to the goodwill or o w n e rs h ip interest from the buyer, carries on a like business therein. C a l. Bus. & Prof. Code § 16601. Thus, as a precondition to the enforceability of the co v en an t-n o t-to -co m p ete in Section 3, Plaintiff Eklin must demonstrate that it -- the "buyer" o f Defendant's former business Ultrasource -- "carries on a [] business" of providing u ltra so u n d technology and services to third parties, the business in which Ultrasource was e n g a g e d . See also Wolf v. James G. Barrie, P.A., 858 So.2d 1083, 1085 (Fla. Dist. Ct. App. 2 0 0 3 ) ("If the employer is not in a like business, it has no legitimate interest in protecting a g a in st competition in that business."). In addition, the covenant-not-to-compete itself im p lie s a requirement that Plaintiff continuously "carries on a [] business" by prohibiting D e f en d a n t from participating in the veterinary technology market only to the extent that he " c o m p e te s " with Plaintiff. (Dkt. No. 4, Ex. B ¶ 3.) O n July 1, 2009, VCA Antech, Inc. ("VCA Antech") acquired Eklin through a reverse tria n g u la r merger. Eklin Medical Systems, Inc., as a registered corporate entity, survived the m e rg e r. However, the determination that Eklin currently exists as a corporate entity does not c o m p e l a conclusion that Eklin currently "carries on a [] business" of providing ultrasound te c h n o lo g y and services to third parties. It appears to the Court that, although Eklin c o n tin u e s to exist in corporate form, it no longer "carries on" any business substance. The su b sta n tiv e business operations formerly conducted under the Eklin name are now wholly a ttrib u ta b le to VCA Antech. 3

A variety of considerations support this conclusion. The first indication that the Eklin c o rp o ra tio n is merely an inactive shell entity is that no business is actually conducted under th e Eklin name. Business operations formerly conducted under the Eklin name are now c o n d u c te d under the name Sound-Eklin. Although a change in a company's trade name does n o t necessarily mean that the company has ceased doing business, Sound-Eklin's website d e sc rib e s Sound-Eklin as "a VCA Antech company." (Dkt. No. 7, Def.'s Resp. Ex. E; see a ls o Def.'s Ex. D 2 ("Sound-Eklin TM is a Division of VCA Antech.").) Second, Eklin's e m p l o ye e and managerial structures were not left undisturbed by the merger, suggesting V C A Antech has asserted logistical control over Eklin. For example, some Eklin employees w e re offered positions with Sound-Eklin, and some were not. (Dkt. No. 7, Ex. A ¶¶ 17, 24.) In addition, the president of Sound-Eklin was associated with VCA Antech, not Eklin, prior to the merger. (Id. at Ex. E.) Third, Sound-Eklin has ceased selling Philips equipment in o rd e r to sell GE equipment exclusively, suggesting Eklin's business operations have taken a back-seat to those carried on by VCA prior to the merger. (Id. at Ex. A ¶ 21.) In light of the Court's determination that Eklin no longer "carries on a [] business" in its own right, and is therefore not entitled to enforce the covenant-not-to-compete in Section 3 of the non-competition agreement, the Court must also conclude that Plaintiff is not likely to succeed on its claims that Defendant breached Sections 4 and 5 of the non-competition a g re e m e n t. Section 4 prevents Defendant from taking any action "which is intended to

Exhibits cited only as "Def.'s Ex." refer to exhibits introduced by Defendant during the December 15, 2009, hearing on Plaintiff's motion for a preliminary injunction. 4

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in d u ce any person employed by [Eklin] to terminate his or her employment with [Eklin]." (D k t. No. 4, Ex. B ¶ 4.) Because business operations formerly conducted under the Eklin n a m e have been wholly attributable to VCA Antech since the July 1, 2009, merger, the f o rm e r Eklin employees that began Core with Defendant on July 13, 2009, appear to have te rm i n a t e d their employment with VCA Antech, not Eklin, to do so. Likewise, Section 5 p re v e n ts Defendant from taking any action "which is intended to induce any customer of [ E k lin ] to terminate his, her or its relationship with [Eklin]." (Dkt. No. 4, Ex. B ¶ 5.) B e c a u s e a corporate entity that does not conduct business cannot have any customers, D ef en d an t's advertising and marketing techniques run the risk of soliciting only customers o f VCA Antech, not Eklin. The Court does not believe that the remaining three factors involved in the preliminary in ju n c tio n analysis overcome the Court's determination that Plaintiff is not likely to succeed o n the merits of its breach of contract claims and tip the scale in favor of granting the in ju n c tio n . Accordingly, IT IS HEREBY ORDERED that Plaintiff's motion for a preliminary injunction (Dkt. N o . 2) is DENIED.

Dated: December 16, 2009

/s/ Robert Holmes Bell ROBERT HOLMES BELL UNITED STATES DISTRICT JUDGE

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