Organogenesis, Inc. v. Ness

Filing 24

ORDER Granting Plaintiff's 9 Motion for Preliminary Injunction. This Order shall remain in place pending a full determination of Plaintiffs causes of action on the merits or upon further order of this Court. Signed by Chief Judge Gloria M. Navarro on 5/23/2016. (Copies have been distributed pursuant to the NEF - SLD)

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1 UNITED STATES DISTRICT COURT 2 DISTRICT OF NEVADA 3 ORGANOGENESIS INC., 4 Plaintiff, 5 vs. 6 FAYTHE NESS, 7 Defendant. 8 ) ) ) ) ) ) ) ) Case No.: 2:16–cv–00989–GMN–CWH ORDER Pending before the Court is the Motion for Preliminary Injunction (ECF No. 9) 9 10 filed by Plaintiff Organogenesis Inc. (“Plaintiff”) against Defendant Faythe Ness 11 (“Defendant”). Defendant filed a Response (ECF No. 19), and Plaintiff filed a Reply 12 (ECF No. 22). 13 I. 14 BACKGROUND Defendant is a former employee of Plaintiff, a medical products company that 15 specializes in regenerative medical products. (Compl. ¶ 5, 13, ECF No. 1). In 2015, she 16 was hired by Plaintiff as a Tissue Regeneration Specialist (“TRS”) with a primary job 17 responsibility to market and sell Plaintiff’s products. (Id. ¶¶ 9–10, 13). As a condition of 18 her employment, she entered into a non-compete agreement (the “Agreement”) with 19 Plaintiff, which prohibited her from participating in any business which is competitive 20 with Plaintiff’s business, both during her employment and for two years thereafter. (Id. ¶ 21 16). Specifically, the Agreement states that Defendant may not 22 23 24 25 participate within the United States, Canada, Western Europe or Japan as an owner, stockholder, option holder, manager, agent, consultant, director, lender of money, guarantor, salesperson or employee of any other business, firm or corporation which is, or by the action of Employee would become, competitive with the Business of the Company nor attempt to interfere with or entice away any customer, Page 1 of 11 1 2 3 licensee or employee or consultant of the Company. (Agreement, Ex. B to Adamson Decl., ECF No. 9-2). Furthermore, the Agreement defines “Business of the Company as the 4 research, development, biological engineering work, technical and clinical feasibility investigations (conducted or contemplated), governmental approvals (obtained or applied for) and the products and services that may be manufactured, fabricated, packaged, sold, distributed, licensed, offered or contemplated to be offered for sale or license by the Company in the field of tissue regeneration, including living and non-living tissue and organ replacement and repair constructs, related to the fields of wound repair, bio-surgery, and bio-aesthetics, including but not limited to: (a) living dermal equivalents, living epidermal equivalents, living skin equivalents, wound coverings and wound management products; (b) living connective tissue constructs and biomaterial constructs for the repair and/or replacement tendon, ligament, body-wall, cardiac tissue, vasculature, bone, cartilage, neural tissue; (c) injectable matrix compositions, injectable cell compositions, topical compositions containing cytokines, growth factors, and other cell-communication compounds; (d) natural and synthesized collagen compositions, and natural and synthesized extracellular matrix compositions; (e) cell culture media for culturing cells and living constructs; (f) stem cells [and] (g) cell-delivery constructs. 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (Id.). On April 1, 2016, Defendant informed Plaintiff of her intention to resign from her TRS position. (Id. ¶ 25). She is currently an employee of MiMedx, one of Plaintiff’s competitors. (Id. ¶ 35). Plaintiff alleges that, shortly before Defendant’s resignation, Defendant began informing Plaintiff’s current Nevada-based customers of her intent to join MiMedx. (Id. ¶¶ 30–31) Defendant allegedly continued contacting these customers, despite written correspondence from Plaintiff ordering her to cease and desist. (Id. ¶¶ 34–36). Page 2 of 11 Plaintiff’s Complaint, filed on May 2, 2016, alleges breach of contract and states 1 2 that Plaintiff will incur “immediate and irreparable injury” if Defendant is allowed to 3 continue her competitive activities. (Id. ¶¶ 37–43). On May 3, 2016, Plaintiff filed an 4 Emergency Motion for Temporary Restraining Order to prevent Defendant from 5 participating in her former sales territory under Plaintiff’s employ as a salesperson or 6 employee of any other business which is competitive with Plaintiff or from interfering 7 with or enticing away any of Plaintiff’s customer within her former sales territory. 8 (Emergency Mot. for TRO 21:4–12, ECF No. 8). That same day, the Court granted the 9 Emergency Motion for Temporary Restraining Order and scheduled a hearing on the 10 11 instant Motion for May 23, 2016. (Order, ECF No. 10). II. LEGAL STANDARD Rule 65 of the Federal Rules of Civil Procedure provides that a “court may issue a 12 13 preliminary injunction only on notice to the adverse party.” Fed. R. Civ. P. 65(a)(1). A 14 Court may issue a preliminary injunction only if a plaintiff establishes: (1) likelihood of 15 success on the merits; (2) likelihood of irreparable harm in the absence of preliminary 16 relief; (3) that the balance of equities tips in his favor; and (4) that an injunction is in the 17 public interest. Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7, 20 (2008). 18 “Injunctive relief [is] an extraordinary remedy that may only be awarded upon a clear 19 showing that the plaintiff is entitled to such relief.” Id. at 22. Finally, “[i]n deciding a 20 motion for a preliminary injunction, the district court ‘is not bound to decide doubtful and 21 difficult questions of law or disputed questions of fact.’” Int’l Molders’ & Allied 22 Workers’ Local Union No. 164 v. Nelson, 799 F.2d 547, 551 (9th Cir. 1986) (quoting 23 Dymo Indus., Inc. v. Tapeprinter, Inc., 326 F.2d 141, 143 (9th Cir. 1964)). 24 /// 25 /// Page 3 of 11 1 2 III. DISCUSSION A. 3 4 Likelihood of Success on the Merits 1. Choice of Law The Agreement contains a choice-of-law provision stating that it is governed by 5 Massachusetts law. (Agreement, ECF No. 9-2). Defendant argues that, despite this 6 provision, the Agreement should be governed by Nevada law. (Resp. 6:21–10:18, ECF 7 No. 19). 8 9 “The first step in interpreting [a choice-of-law] clause is to apply the correct choice-of-law rules.” Paracor Fin., Inc. v. Gen. Elec. Capital Corp., 96 F.3d 1151, 1164 10 (9th Cir. 1996). “In determining the enforceability of a choice of law provision in a 11 diversity action, a federal court applies the choice of law rules of the forum state.” 12 Hatfield v. Halifax PLC, 564 F.3d 1177, 1182 (9th Cir. 2009). Nevada generally follows 13 the Restatement (Second) of Conflict of Laws in answering choice-of-law questions that 14 arise in contracts. Progressive Gulf Ins. Co. v. Faehnrich, 752 F.3d 746, 750–51 (9th Cir. 15 2014). “So long as ‘the parties acted in good faith and not to evade the law of the real 16 situs of the contract,’ Nevada’s choice-of-law principles permit parties ‘within broad 17 limits to choose the law that will determine the validity and effect of their contract.’” Id. 18 at 751 (quoting Ferdie Sievers & Lake Tahoe Land Co. v. Diversified Mortg. Investors, 19 603 P.2d 270, 273 (Nev. 1979)). 20 However, the situs specified in the contract must have “a substantial relation with 21 the transaction, and the agreement must not be contrary to the public policy of the 22 forum.” Sievers, 603 P.2d at 273; see also Siy v. CashCall, Inc., No. 2:13-cv-00953-PAL, 23 2014 WL 37879, at *8 (D. Nev. Jan. 6, 2014) (upholding California choice-of-law 24 provision in employment contract because California “meets the substantial relationship 25 test, and . . . the agreement is not contrary to the public policy of Nevada”). To Page 4 of 11 1 determine whether a given situs satisfies the substantial relationship test, Nevada 2 considers the following factors from section 188 of the Restatement: (1) the place of 3 contracting, (2) the place of negotiation of the contract, (3) the place of performance, (4) 4 the location of the subject matter of the contract, and (5) the parties’ domicile, residence, 5 nationality, place of incorporation, and place of business. Sotirakis v. United Serv. Auto. 6 Ass’n, 787 P.2d 788, 790 (Nev. 1990). A court applies the law of the state having the 7 more substantial relation with the transaction unless public policy concerns outweigh that 8 relation. Id. 9 Here, there is no evidence that, in signing a contract governed by Massachusetts 10 law, the parties acted in bad faith to avoid the law of any particular state. Given that 11 Plaintiff maintains its principal place of business in Massachusetts, and conducts business 12 in a number of other states, it is reasonable that Plaintiff would include a Massachusetts 13 choice-of-law provision in the Agreement. (See Compl. ¶¶ 1, 8, ECF No. 1). Further, the 14 factors from section 188 of the Restatement do not compel a determination that Nevada 15 has a more substantial relation to this action than Massachusetts. These factors do not 16 weigh so heavily in favor of Nevada as to preclude the application of Massachusetts law. 17 See Sotirakis, 787 P.2d at 790. While the parties executed the Agreement in Nevada, the 18 place of performance and location of the subject matter of the Agreement are both 19 Massachusetts and Nevada, as Defendant’s sales activity in her assigned region of 20 Nevada presumably had an effect on Plaintiff’s business in Massachusetts. (See Resp. 21 2:24–3:6). 22 Additionally, Defendant argues that Massachusetts law is contrary to “Nevada’s 23 strong public policy for protection of a person’s livelihood and prohibiting unreasonable 24 restrictions on free trade,” as codified at NRS 613.200. (Resp. 7:25–8:1). Specifically, 25 NRS 613.200(4) provides that a non-competition agreement constitutes an unlawful Page 5 of 11 1 restraint of trade unless the agreement is (1) reasonable in its scope and duration and (2) 2 supported by valuable consideration. However, Massachusetts law similarly provides 3 that a non-competition agreement will only be enforced so long as it is “reasonable in 4 time, location, and other respects.” Struck v. Plymouth Mortg. Co., 605 N.E.2d 296, 298 5 (Mass. 1993). Thus, the Court finds that Massachusetts law is not contrary to Nevada 6 public policy. 7 Accordingly, this Court will apply Massachusetts law to the Agreement because 8 Nevada gives parties wide latitude in choosing the law they want to apply to their 9 contracts, Defendant assented to a choice of Massachusetts law by signing the 10 Agreement, Massachusetts reasonably has a “substantial relation with the transaction,” 11 and the Agreement is not contrary to the public policy of Nevada. 12 13 2. Merits The Winter test states that in order to show the necessity of injunctive relief, the 14 plaintiff must first prove a likelihood of success on the merits. 555 U.S. at 20. Here, the 15 Court recognizes that Plaintiff can likely show that Defendant violated the Agreement. 16 The Agreement requires Defendant to refrain from participating, for two years, in 17 any business which is competitive with Plaintiff’s business. (Agreement ¶ 2). Plaintiff 18 claims that Defendant violated the Agreement because she began working for a direct 19 competitor of Plaintiff, began contacting Plaintiff’s customers, and “is selling products on 20 behalf of MiMedx in her former Organogenesis sales territory that are directly 21 competitive to the Products, and calling upon the same customers on behalf of MiMedx 22 that she had called upon while working for Organogenesis.” (Compl. ¶¶ 26, 29, 36). 23 Plaintiff supports its claim with a declaration of Yvonne Irigoyen-Kirby, a Regional Sales 24 Manager of Plaintiff. (Irigoyen-Kirby Decl. ¶¶ 23–25, 27, ECF No. 9-1). 25 In Massachusetts, non–competition agreements are enforceable only if they are Page 6 of 11 1 “necessary to protect a legitimate business interest, reasonably limited in time and space, 2 and consonant with the public interest.” Boulanger v. Dunkin’ Donuts Inc., 815 N.E.2d 3 572, 577 (Mass. 2004). Courts will not enforce non-competition agreements meant 4 solely to protect employers from run-of-the-mill business competition. Marine 5 Contractors Co., Inc. v. Hurley, 310 N.E.2d 915, 920 (Mass. 1974). But the protection of 6 “trade secrets, other confidential information, [and] . . . the good will the employer has 7 acquired through dealings with his customers” constitute legitimate business interests. 8 Id.; see also Alexander & Alexander, Inc. v. Danahy, 488 N.E.2d 22, 28 (Mass. App. Ct. 9 1986). 10 Defendant asserts that the Agreement does not protect a legitimate business 11 interest. (Resp. 12:22–14:11). On the other hand, Plaintiff asserts that the Agreement is 12 necessary to protect its customer goodwill and confidential information. (Prelim. Inj. 13 14:1–15:24). Specifically, Plaintiff explains that its customer goodwill is protectable 14 because Defendant was Plaintiff’s “primary point of contact with its customers in its Las 15 Vegas territory and was responsible for building relationships with customers on 16 [Plaintiff]’s behalf.” (Id. 14:7–9). Plaintiff further explains that, in the course of her 17 employment, Defendant obtained confidential information regarding Plaintiff’s 18 customers, sales plans, sales data, and marketing strategies. (Id. 14:23–15:13 (explaining 19 that Defendant attended Plaintiff’s national sales meeting where she received confidential 20 and proprietary information concerning Plaintiff’s 2016 marketing strategy for its entire 21 product portfolio, including Plaintiff’s strategy for differentiating itself from its 22 competitors like MiMedx); Irigoyen-Kirby Decl. ¶¶ 17–19). The Court finds that the 23 Agreement protects legitimate business interests—customer goodwill and confidential 24 information—of the Plaintiff. 25 Moreover, the Agreement is reasonably limited in time. It imposes a two-year Page 7 of 11 1 restriction, and Massachusetts courts have frequently found longer time restrictions to be 2 reasonable. See, e.g., Blackwell v. E.M. Helides, Jr., Inc., 331 N.E.2d 54, 56 (Mass. 1975) 3 (finding three-year restriction to be reasonable); Marine Contractors Co., 310 N.E.2d at 4 921 (finding that non-compete lasting less than three years was not excessive); All 5 Stainless, Inc. v. Colby, 308 N.E.2d 481, 486 (Mass. 1974) (finding two-year restriction 6 to be reasonable). 7 As to the geographic scope of the Agreement, the Court finds, and Plaintiff 8 concedes, that the Agreement, as written, is too broad. However, “[i]f the covenant is too 9 broad in . . . space . . . , it will be enforced only to the extent that is reasonable and to the 10 extent that it is severable for the purposes of enforcement.” All Stainless, 308 N.E.2d at 11 485; see also Metro. Ice Co. v. Ducas, 196 N.E. 856, 858 (Mass. 1935) (“[I]f the 12 restrictive agreement would involve unreasonable restrictions in this commonwealth the 13 provision is nevertheless enforceable for so much of the performance as would be a 14 reasonable restraint.”); Whiting Milk Cos. v. O’Connell, 179 N.E. 169, 170 (Mass. 1931) 15 (“A contract in restraint of trade in which the territory is unreasonably extensive may be 16 divisible as to space and enforced in equity within a reasonable area.”). Rather than 17 enforce the Agreement to its most expansive geographical scope, Plaintiff “simply seeks 18 an injunction prohibiting [Defendant] from working for a competitor in her former [ ] 19 sales territory.” (Prelim. Inj. 16:26–28 n.3). The Court finds such a restraint on the 20 geographic scope of the Agreement is reasonable. Accordingly, because the Court finds 21 that the Agreement is enforceable and Plaintiff can likely show that Defendant violated 22 the Agreement, Plaintiff has shown a likelihood of success on the merits. 23 B. 24 To succeed on the second prong of the Winter test, the plaintiff must “demonstrate 25 that irreparable injury is likely in the absence of an injunction.” 555 U.S. at 22 (emphasis Likelihood of Irreparable Harm in the Absence of Preliminary Relief Page 8 of 11 1 in original). In the Ninth Circuit, “[t]hose seeking injunctive relief must proffer evidence 2 sufficient to establish a likelihood of irreparable harm.” Herb Reed Enters., LLC v. 3 Florida Entm’t Mgmt., Inc., 736 F.3d 1239, 1251 (9th Cir. 2013). A presumption that 4 irreparable harm is likely is not sufficient to justify the granting of a preliminary 5 injunction. See id. at 1242. 6 Irreparable harm cannot be “economic injury alone . . . because such injury can be 7 remedied by a damage award.” Rent-A-Center, Inc. v. Canyon Tele. & Appliance Rental, 8 Inc., 944 F.2d 597, 603 (9th Cir. 1991). However, the Ninth Circuit has recognized 9 “intangible injuries,” which constitute irreparable harm. Id. (indicating damage to 10 11 goodwill as such injury in a case regarding a non-compete clause of a contract). Based upon Irigoyen-Kirby’s declaration, Defendant has already begun calling 12 Plaintiff’s customers to inform them that she is now working for Plaintiff’s direct 13 competitor, MiMedx. (Irigoyen-Kirby Decl. ¶¶ 24–25, 27). Moreover, despite instructing 14 Defendant to not talk to Plaintiff’s customers, Defendant has continued to do so. (Id.). 15 The Court finds that such action by Defendant demonstrates that irreparable harm is 16 likely in the absence of an injunction. 17 C. 18 Defendant asserts that she will suffer a significantly greater hardship if she is The Balance of Equities 19 prohibited from being employed by MiMedx in Las Vegas. (Resp. 16:23–25). While the 20 Court is sympathetic to the hardship of Defendant that will result from the injunction, the 21 Court cannot find that the balance of equities tips in her favor. Defendant willingly 22 signed the Agreement upon her employment with Plaintiff. Moreover, as discussed 23 above, Plaintiff has an interest in protecting its customer goodwill and confidential 24 information. Furthermore, the Court has narrowly tailored the injunction solely to enjoin 25 Plaintiff from employment with MiMedx in her former sales territory under her employ Page 9 of 11 1 with Plaintiff. 2 D. 3 Before granting an injunction the Court must determine that an injunction is in the Public Interest 4 public’s interest. Winter, 555 U.S. at 24. The right to contract is fundamental and 5 includes the privilege of selecting those who will be employed by a company and under 6 what terms that employment will be. An injunction in this instance protects the public’s 7 interest in the integrity and enforceability of employment contracts. Therefore, the Court 8 finds that the public’s interest favors an injunction in this instance. 9 IV. 10 11 12 13 14 CONCLUSION Because Plaintiff Organogenesis has met its burden demonstrating the Winter factors, the Court hereby grants Plaintiff’s Motion for Preliminary Injunction. IT IS HEREBY ORDERED that Plaintiff Organogenesis’s Motion for Preliminary Injunction (ECF No. 9) is GRANTED, as follows: 1. Defendant Ness shall not, within her former Organogenesis sales territory, 15 participate as a salesperson or employee of any other business, firm or corporation which 16 is, or by her action would become, competitive with the Business of Organogenesis, 17 including MiMedx; and 18 2. Defendant Ness, on her own or in concert with others, shall not attempt to 19 interfere with or entice away any Organogenesis customer within her former 20 Organogenesis sales territory. 21 For the purposes of this order, the “Business of Organogenesis” shall mean the 22 research, development, biological engineering work, technical and clinical feasibility 23 investigations (conducted or contemplated), governmental approvals (obtained or applied 24 for) and the products and services that may be manufactured, fabricated, packaged, sold, 25 distributed, licensed, offered or contemplated to be offered for sale or license by Page 10 of 11 1 Organogenesis in the field of tissue regeneration, including living and non-living tissue 2 and organ replacement and repair constructs, related to the fields of wound repair, bio- 3 surgery, and bio-aesthetics, including but not limited to: (a) living dermal equivalents, 4 living epidermal equivalents, living skin equivalents, wound coverings and wound 5 management products; (b) living connective tissue constructs and biomaterial constructs 6 for the repair and/or replacement tendon, ligament, body-wall, cardiac tissue, vasculature, 7 bone, cartilage, neural tissue; (c) injectable matrix compositions, injectable cell 8 compositions, topical compositions containing cytokines, growth factors, and other 9 cellcommunication compounds; (d) natural and synthesized collagen compositions, and 10 natural and synthesized extracellular matrix compositions; (e) cell culture media for 11 culturing cells and living constructs; (f) stem cells; and (g) cell-delivery constructs. 12 Defendant Ness’s former Organogenesis sales territory shall mean the 13 14 15 16 municipalities and the associated zip codes set forth in the attached Exhibit A. This Order shall remain in place pending a full determination of Plaintiff’s causes of action on the merits or upon further order of this Court. DATED this _____ day of May, 2016. 23 17 18 _________________________ Gloria M. Navarro, Chief Judge United States District Judge 19 20 21 22 23 24 25 Page 11 of 11 Exhibit A ZIP Code 84710 84714 84719 84720 84721 84722 84725 84729 84733 84735 84737 84738 84742 84745 84746 84753 84755 84756 84757 84758 84759 84760 84761 84762 84763 84765 84767 84770 84771 84772 84774 84779 84780 84781 84782 84783 84784 84790 84791 85325 85328 85334 85344 85346 85348 85357 City State Name ST Abbrev ALTON UTAH UT BERYL BRIAN HEAD UTAH UT UTAH UT CEDAR CITY UTAH CEDAR CITY CENTRAL UTAH UTAH UT UT UT ENTERPRISE UTAH UT GLENDALE GUNLOCK UTAH UTAH UT UT HATCH HURRICANE IVINS UTAH UTAH UTAH UT UT UT KANARRAVILLE UTAH UT LA VERKIN UTAH UT LEEDS MODENA MOUNT CARMEL UTAH UTAH UTAH UT UT NEWCASTLE UTAH UT UT NEW HARMONY ORDERVILLE PANGUITCH UTAH UTAH UTAH UT UT UT PARAGONAH PAROWAN DUCK CREEK VILLAGE ROCKVILLE UTAH UTAH UTAH UTAH UT UT UT UT SANTA CLARA SPRINGDALE SAINT GEORGE SAINT GEORGE UTAH UTAH UTAH UTAH UT UT UT UT SUMMIT TOQUERVILLE UTAH UTAH UT UT VIRGIN UTAH UT WASHINGTON UTAH UT 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