HR STAFFING CONSULTANTS, LLC et al v. BUTTS

Filing 46

MEMORANDUM AND ORDER Denying 37 Motion for a partial stay of the preliminary injunction pending appeal. Signed by Judge Kevin McNulty on 6/4/15. (js)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY

HR STAFFING CONSULTANTS, LLC, and
Upstream Healthcare Management of
New Jersey, LLC,
Plaintiffs,

Civ. No. 2:15-3155
(KM)(SCM)

MEMORANDUM and ORDER

V.

Richard BUTTS,
Defendant.

KEVIN MCNULTY, U.S.D.J.:
I have preliminarily enjoined the defendant, Richard Butts, from
being employed by CarePoint within a five county area for a period of one
year, and from sharing confidential information of the plaintiffs. The
order was based on a non-compete covenant in Butts’s employment
contract with Plaintiff,’ who was until recently his employer. My reasons
are stated at length in my opinion of May 29, 2015, corrected version
filed June 1, 2015. (Corrected version under seal, ECF No. 34; redacted
version for public filing, ECF No. 39). Defendant immediately filed a
notice of appeal on May 29, 2015 (ECF No. 33). Because I had given the
parties the weekend to settle the form of order, the preliminary
injunction itself was not filed in final form until June 2, 2015. (ECF No.
40)
Defendant has now flied an emergent motion for a stay of the

For simplicity, I refer to HR Staffing and Upstream collectively as
“Plaintiff.”
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portion of my order that enforced his restrictive employment covenant
with Plaintiff. (ECF No. 37) I gave Plaintiff one day to file an opposition,
and they have done so. (ECF No. 44) Defendant has today filed a Reply.
(ECF No. 45)
Mr. Butts in effect seeks reinstatement to his position at CarePoint
pending appeal. My consideration and disposition of his motion is, as a
practical matter, a prerequisite to his seeking similar relief in the Court
of Appeals. See Fed. R. App. P. 8(a)(1). I therefore consider it on an
expedited basis.
A court that grants an injunction always retains the power to
modify or vacate it, even while an appeal is pending. See generally Fed.
R. Civ. P. 60(c); Landis v. N. Am. Co., 299 U.S. 248, 254—55 (1936). What
Mr. Butts seeks here, however, is more akin to a traditional stay pending
appeal. The Federal Rules of Appellate Procedure explicitly contemplate
such a motion. See Fed. R. App. P. 8(a)(1)(C) (motion for “an order
suspending, modifying, restoring, or granting an injunction while an
appeal is pending”). For such relief, “[aj party must ordinarily move first
in the district court.” Fed. R. App. P. 8(a)(1); see also Fed. R. App. P.
8(a)(2) (motion may be filed in the Court of Appeals only if district court
filing is “impracticable” or district court has already denied the stay).
The defendant, Richard Butts, has promptly filed his motion for a
stay in this Court, as is procedurally proper. “[T]he standard for
obtaining a stay pending appeal is essentially the same as that for
obtaining a preliminary injunction.” Conestoga Wood Specialities Corp. v.
Secretary of U.S. Dept. of Health and Human Services, 2013 WL 1277419
at *1 (3d Cir. Feb. 8, 2013). Like most preliminary injunctions, a stay
pending appeal is governed by four equitable factors:
“(1) whether the stay applicant has made a strong showing that he
is likely to succeed on the merits;

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(2) whether the applicant will be irreparably injured absent a stay;
(3) whether issuance of the stay will substantially injure the other
parties interested in the proceeding; and
(4) where the public interest lies.”
Nken v. Holder, 556 U.S. 418, 434 (2009) (line breaks added for clarity)
(quoting Hilton v. Braunskill, 481 U.S. 770, 776 (1987). Accord Kos
Pharm., Inc. v. Andrx Corp., 369 F.3d 700, 708 (3d Cir. 2004).
A stay pending appeal is extraordinary relief that is not routinely
granted. The bar is particularly high where, as here, the movant is
seeking immediate relief from a preliminary injunction granted after an
evidentiary hearing. In such a case, the movant is effectively asking the
court to negate the preliminary injunction that it just granted. See
Conestoga, 2013 WL 1277419, at *1 (“Therefore, in assessing the present
motion for a stay pending appeal, we must consider the same four
factors that the District Court considered after an evidentiary hearing,
ultimately concluding that preliminary relief was not warranted.”).
In this case, a stay pending appeal would be particularly
inadvisable. Far from a mere preservation of some neutral status quo, it
would be tantamount to victory for the defendant. As a practical matter,
it would obliterate the one-year ban on employment and enshrine the
defendant’s defection to CarePoint, without the required 30 days’ notice

and in violation of the non-compete provision in his employment
contract.
Because the stay that defendant seeks is simply the other side of
the preliminary injunction coin, I need not write at length. The reasons
for denying a stay are those set forth in my opinion granting the
preliminary injunction. (ECF No. 34). In that opinion, after briefing and
an evideritiary hearing, I resolved the four injunction factors in a manner
diametrically opposed to the defendant’s positions in this stay motion.

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I do, however, briefly address a few matters raised by the
defendant’s stay motion that were not addressed in my opinion. These
relate primarily, but not entirely, to the likelihood of success on appeal.
1. Standard of review
The standard of review in the Court of Appeals will be a daunting
one:
We employ a tripartite standard of review for preliminary
injunctions. “We review the District Court’s findings of fact
for clear error. Legal conclusions are assessed de novo. The
ultimate decision to grant or deny the injunction is reviewed
for abuse of discretion.” K.A. ex rel. Ayers v. Pocono Mountain
Sch. Dist., 710 F.3d 99, 105 (3d Cir. 2013) (quoting
Sypniewski v. Warren Hills Reg’l Bd. of Educ., 307 F.3d 243,
252 (3d Cir. 2002)).
Geneva College v. Secretary U.S. Dept. of Health and Human Services, 778

F.3d 422, 434—35 (3d Cir. 2015).
Legal matters, of course, receive plenary review, but there was little
disagreement as to the general principles of New Jersey law governing
noncompetition covenants. The opinion from which defendant appeals
contains detailed findings of fact. These were entered after an evidentiary
hearing at which the court heard testimony and received exhibits.
Defendant challenges, certain of those factual findings, which will be
reviewed only for clear error. Finally, defendant will have to demonstrate
that, in light of the law and the factual findings, this Court nevertheless
abused its broad discretion in awarding injunctive relief.
2.

Prevention of disintermediation as a protectable interest

The main issue of law dividing the parties was the permissibility of
considering the prevention of “disintermediation” as a legitimate
employer interest, independent of an impermissible desire merely to
suppress competition. In general support of that proposition, I cited
principles of New Jersey case law governing the enforceability of non

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competes. (Opinion at 20—21) As to disintermediation specifically, I cited
Consultants & Designers, Inc. v. Butler Serv. Grp., Inc., 720 F.2d 1553
(11th Cir. 1983) (interpreting law of New Jersey and other states).
(Opinion at 18—19) That case holds, soundly in my view, that protection
against disintermediation is a legitimate basis for enforcement of a noncompete provision. This issue of law, although subject to de novo review,
does not import a likelihood of reversal.
3.

PSSA paragraph 1(d) and the placement fee waiver

Both parties acknowledge that Butts’s Employment Agreement
contains a non-compete covenant. Defendant argues that an agreement
between Plaintiff and CarePoint (the PSSA), gave CarePoint the right to
“disintermediate,” i.e., to hire him directly. This argument was before me
in connection with the preliminary injunction, but I did not discuss it at
length, because it primarily concerned relations between the companies,
not between Plaintiff and Defendant Butts. (Opinion at 26—27. A copy of
the PSSA, which is Plaintiff’s Exhibit 27, may be found at ECF No. 6-1 .)2
The PSSA provides that Plaintiff will place long term permanent
staff, including Butts, at CarePoint. Such staff remain employees of
Plaintiff, and their salaries are paid by Plaintiff. See PSSA part IV.
CarePoint is billed for such employees “on a cost plus 15% basis.” PSSA
Ex. B. Should such an employee be hired by CarePoint, there is a
placement fee of (to simplify a bit) 10% of that employee’s first year
salary. Id. Paragraph 1(d) of the PSSA provides, however, that “[U]pon
notice by CarePoint, these Existing LTP Staff [i.e., those on an attached
list, including Buttsl can be hired directly by CarePoint without payment
of a placement fee.”
Carepoint, in the PSSA, also protected itself by prohibiting Plaintiff from
soliciting employees within 6 months of termination, and prohibiting Plaintiff
from providing staffmg or recruiting services to any direct competitor of
CarePoint—defined as any hospital in Hudson County or within five miles of
future-acquired hospitals. PSSA Section VI.
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According to Butts (and CarePoint’s witness Dobin), the words “can
be hired directly by CarePoint” waive the non-compete to which Butts
was subject. I disagree. Read most naturally, this is not a grant of
permission to hire away employees, but merely a waiver of the placement
fee, in the event certain personnel were hired. The hiring of any particular
person might be impossible, impractical, or prohibited for any number of
reasons. One of those might be the existence of a non-compete
restriction. As stated in my Opinion, Butts and CarePoint acted with
their eyes open; they had full knowledge of Butts’s non-compete and of
Plaintiff’s unwillingness to waive it.
But I do not purport to give a comprehensive or authoritative
statement of the rights of Plaintiff and CarePoint vis-à-vis each other,
which are being litigated in state court. This federal action is primarily
governed by the Employment Agreement between Plaintiff and Butts. As
pointed out in my Opinion, Butts’s Employment Agreement could be
altered or waived only by a written instrument signed by both Butts and
the Plaintiff. There is no such written waiver. The PSSA was an
agreement between the Plaintiff and CarePoint, not between Plaintiff and
Butts. The PSSA does not grant Butts the right to disregard the noncompete in his Employment Agreement.
4.

The C-Port-E program and alleged harm to CarePoint

As to the reasonableness of the non-compete (as well as the public
interest and harms to third parties), Defendant submits a declaration of
Nizar Kifaieh, CarePoint’s Chief Medical Officer. (ECF No. 37-2) Kifaieh
primarily contends that Defendant Butts’s continued employment by
CarePoint is critical to the continuation of the C-PORT-E (elective
angioplasty) program, which is apparently in the process of graduating
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from the preliminary study phase. According to Kifaieh, the

The study “invited hospitals licensed to perform primary percutaneous

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promulgation of new regulations is “imminent,” and CarePoint will soon
be resubmitting a Certificate of Need application to continue providing
this service. (CarePoint has seemingly been performing the procedure at
its Bayonne facility.)
Nothing about the C-PORT-E program was raised in connection
with the preliminary injunction application. Because no one testified
about it at the hearing, Kifaieh’s statements about the crucial role of
Defendant Butts were not explored or tested by cross-examination. For
that reason alone, I would give it little weight. I nevertheless consider it
in connection with the application for a stay.
Plaintiff has submitted a Declaration of Paul Ingledue (ECF No.
44-1) in opposition to that of Kifaieh. Ingledue documents that the C
PORT-E study concluded in May 2012. The new regulations, far from
being “imminent,” have been pending since then and the date of their
promulgation, he says, is unknown. C-PORT-E involves a single
procedure—elective angioplasties—and does not affect others. In
addition, it is not known which hospitals will be authorized to perform
the procedure as contemplated by the study. Finally, Ingledue points out
that he himself (now acting as CarePoint’s COO) was directly involved in,

and is knowledgeable about, the C-PORT-E initiative. And the persons
who worked under Ingledue in connection with the initiative, other than
Butts, remain at CarePoint.
In reply, Defendant offers the declaration of CarePoint’s CEO,
Dennis Kelly. (ECF No. 45-1) Kelly states that Ingledue (unlike Kafaieh) is
not a physician; that Butts, in addition to being an administrator, plays
a clinical role and has been “coordinating and spearheading” the critical
C-PORT-E initiative; and that elective angioplasty is important for the
transluminal coronary angioplasty (PTCA), but not licensed to perform cardiac
surgery, to submit CN applications to perform elective PTCA.” Cooper University
Hosp. v. Jacobs, 922 A.2d 731, 733—34 (N.J. 2007).

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long-term economic health of CarePoint. He states that the final
amended regulations are “expected to issue on June 20, 2015,” based on
Butts’s email report of a conversation. The affidavit then adds a plethora
of new allegations about threats to expansion, and so on.
Nothing about these affidavits upsets the essential balancing of
equities in my preliminary injunction opinion and order. As to the alleged
additional harms to CarePoint, I add the following:

First, if Butts’s continued participation in C-PORT-E matters were
so critical, I would expect it to have been raised in connection with the
preliminary injunction hearing.

Second, if Butts’s continued role is so critical, there is little excuse
for his disruptive and risky switch from Plaintiff to CarePoint, in violation
of his non-compete and without the required 30 days’ notice.

Third, if Butts’s continued role is so critical, there is even less
excuse for CarePoint’s having jeopardized it by hiring him with full
knowledge of the non-compete and Plaintiff’s refusal to waive it. Any
harm to CarePoint, assuming it is real, is self-inflicted.
Fourth, Butts’s continued participation in C-PORT-E and any other
program at CarePoint was easy to ensure. He could have continued on at
CarePoint indefinitely pursuant to the PSSA. Even now, Plaintiff has
expressed willingness to rehire Butts and reinstate the prior
arrangement. (Hearing Tr. 142—43)
5.

Incorporation of prior Opinion

This Opinion highlights some matters newly raised in connection
with the stay application. In all other respects, I incorporate my prior
Opinion (ECF’ No. 34), in which I granted the motion for a preliminary
injunction. For the reasons expressed there, and here, the applicable
factors—likelihood of success, irreparable harm, harm to others, and the
public interest—do not weigh in favor of a stay pending appeal.
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factors—likelihood of success, irreparable harm, harm to others, and the
public interest—do not weigh in favor of a stay pending appeal.

ORDER

Accordingly, IT IS this 4th day of June, 2015,
ORDERED that Defendant’s motion for a partial stay of the

preliminary injunction pending appeal be DENIED.

I
yIN MCNULTY
United States District Judge

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