MXR Imaging, Inc. v. Zavagno

Filing 24

Memorandum Opinion and Order. Defendant's 10 Motion for partial judgment on the pleadings is granted in part and denied in part. The Motion of Defendant David Zavagno for Partial Judgment on the Pleadings pursuant to Fed. R. Civ. P. 1 2(c) (ECF # 10 ) is denied as to Counts 1 and 2 (breach of contract), count 3 (unjust enrichment), count 6 (unfair competition), and count 7 (tortious interference with business relations). The Motion is granted as to Plaintiff's defamation cl aim (Count 9). Plaintiff is given leave to amend its complaint should it wish to re-state its defamation claim with the required specificity. Any amended complaint must be filed by March 24, 2025. IT IS SO ORDERED. Judge Donald C. Nugent on 3/6/2025. (M,S)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF OHIO
EASTERN DIVISION

MXR IMAGING, INC., d/b/a,

CASE NO. 1:24 CV1269

UNIVERSAL MEDICAL SYSTEMS
JUDGE DONALD C. NUGENT

Plaintiff,
MEMORANDUM OPINION

V.

AND ORDER

DAVID ZAVAGNO,
Defendant.

This matter is before the Court on the Motion of Defendant David Zavagno for Partial
Judgment on the Pleadings pursuant to Fed. R. Civ. P. 12(c). (EOF #10). Plaintiff has filed a

brief in opposition and Defendant has filed a reply brief in support. For the reasons that follow
Defendant's Motion for partial judgment on the pleadings is granted in part and denied in part.
Factual and Procedural Background

Plaintiff MXR Imaging, Inc. d/b/a Universal Medical Systems ("MXR") brings this
action against Defendant David Zavagno alleging claims of breach of employment contract
(Count 1), breach of contract —the asset purchase agreement (Count 2), unjust enrichment

(Coimt 3), violation of the Defend Trade Secrets Act of 2016 (Count 4), misappropriation of
trade secrets under Ohio Uniform Trade Secrets Act (Count 5), unfair competition (Coimt 6),

tortious interference with business relations (Count 7), breach of duty of loyalty (Count 8), and

defamation (Count 9). Defendant Zavagno now moves for judgment in his favor on the pleadings
on the breach of contract claims (Counts 1 and 2), imjust enrichment (Count 3), unfair
competition(Count 6), tortious interference with business relations (Count 7) and defamation
(Coimt 9).

Plaintiff MXR is in the business of selling and delivering innovative medical imaging

solutions, including MRI solutions, products, training services and supplies from a single source.
Complaint (ECF #1) at ^6. MXR also sells state of the art medical equipment, including Siemens
MRI systems, which MXR sells in the secondary market. Id. at ^7. Defendant has been engaged
in the sale of MRI systems and related medical equipment for decades and was the owner of
Universal Medical Systems, a provider of computed tomography ("CT") and MRI scanners. Id.
at Tf8. On September 28,2017, MXR purchased substantially all of the assets of Universal

Medical Systems from Defendant for nearly $5 million. Id. at ^9. At the time of the asset
pmchase, MXR hired Defendant as an MXR employee, giving him the title of President of
MXR's Universal Medical Systems division subsidiary. M at |10. The parties executed an Asset
Purchase Agreement and an Employment Agreement at the time of the asset purchase. (See ECF
#1, Exhibits A and B.)

As the previous owner of Universal Medical Systems and President of MXR's Universal
Medical Systems division/subsidiary. Defendant had extensive access to, and first hand

knowledge of all aspects of MXR's valuable confidential information, including ideas, formulae,
plates, compositions, know-how, research and development information, drawings,

specifications, designs, plans, proposals, technical data, financial, business and marketing plans,
customer and supplier lists. Id. at ^11. When MXR purchased Universal Medical Systems in

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2017, MXR took ownership of, and maintains the confidentiality of, the proprietary and

confidential information of Universal Medical Systems. Id. at |13. As part of the Asset Purchase
Agreement, Defendant agreed to "treat and hold as confidential any information concerning the

Business that is not already generally available to the public [] and refrain from using any of the

Confidential Information except in connection with this Agreement," Id. at ^14, Ex. A §7.5©.
In connection with Defendant's employment. Plaintiff alleges that Defendant "agreed to

and executed the Employment Agreement, effective September 28,2017. In the Employment
Agreement, Defendant agreed to multiple additional confidentiality, non-competition, nonsolicitation, and non-disparagement covenants, all of which survive the termination of his
employment with MXR." Id. at f 18. See ECF #1 Ex. B §8(b); §8(c); §8(d). Defendant agreed to
reimburse MXR for all costs and attorneys fees incurred in enforcing these covenants. Id. at
§8(g).

On February 15,2024, MXR and Defendant entered into a Transition and Separation
Agreement & Release ("Separation Agreement"). See ECF #1 Ex. C. Pursuant to the Separation

Agreement, Defendant would remain an MXR employee until his retirement on or arormd May
31, 2024. ECF #1 at ^28. Plaintiff asserts that it recently learned that over the last two years
Defendant has been selling Siemens products directly to MXR customers without involving or
compensating MXR. Id. at ^29. MXR states that it learned of these sales through
communications from MXR customers advising MXR that Defendant sold at least 9 Siemens
products over the last two years and that such sales were memorialized by documentation that

did not mention MXR, and MXR received no profit or remuneration in connection with such
sales. Id. at ^ 30.
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MXR also learned that in August 2021, while employed with MXR, Defendant created a
separate entity unaffiliated with MXR, named Universal Systems Diagnostics, Inc., and cut a

side deal directly with Siemens so he could personally profit from the sale of Siemens products
without compensation to MXR. Id. Tnf32-33. Plaintiff believes that Defendant has been working
with a Siemens salesperson named Brian Beck and that Defendant directed all sales to MXR's

customers without involving or compensating MXR. Id. at f31. Specifically, Plaintiff notes that
Defendant facilitated the sale of a Siemens product to an MXR national customer (the "National
Customer") on August 29,2023 and MXR does not appear on the sale documentation and

because MXR was not a party to the sale, MXR received no compensation. Id. at fTf34-35.
Plaintiff asserts that Defendant continued to disclose confidential pricing information to Siemens
related to MXR's sales of other OEM medical devices presumably to undercut MXR's sales of
other OEM medical devices and divert all potential sales to Defendant's side-deal. Defendant's
disclosure of confidential pricing information was so blatantly egregious that Siemens issued a
cease and desist letter to Defendant to stop providing Siemens with confidential pricing
information and/or payment terms. Id. at

40-42. Plaintiff contends that Defendant's actions in

disclosing MXR's confidential information, particularly its pricing information and payment
terms regarding other OEM medical devices sold by MXR, constitutes a breach of the Asset
Purchase Agreement and the Employment Agreement. Id. at ff39 and 43.
Further, Plaintiff alleges that Defendant attempted to conceal his side deals from MXR.
Plaintiff asserts that it received an invoice for the sale of a Siemens MRI system to an MXR

customer of which MXR had no record of having sold. MXR's CFO traveled to Cleveland to
meet with Defendant to discuss his sale of Siemens products to MXR customers without
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compensation to MXR. Defendant apparently claimed falsely that the sale was tied to equipment
he had been permitted to retain and sell on his own. MXR emailed Defendant a number of times

requesting information on sales and the status of Defendant getting MXR paid commissions on
the previous sales made by Defendant. Defendant failed to provide any information on past sales

or sales in progress or any information on commissions that should have been paid to MXR. Id.
at 1^44-52. To date, Defendant has failed to provide MXR with any information concerning at

least 9 Siemens products sales that Defendant procured directly. Id. at ^[55. "By secretly entering
these side deals while employed at MXR, Mr. Zavagno has received compensation from
Siemens either directly or through an entity wholly owned and controlled by Mr. Zavagno." Id. at
156.
On May 10,2024, MXR sent Defendant a cease and desist letter demanding that
Defendant cease all activities directly interfering with MXR's business and directly contacting
MXR's customers. The letter also demanded information on all active deals currently being
worked on by Defendant with MXR customers without MXR's involvement. Id. at 1158-59,
ECF#1, Ex. E. Defendant has refused to provide the requested information and is believed to

still be directly contacting MXR customers, despite his employment terminating on May 31,
2024. Id. at 1158-61.
Plaintiff alleges that some of MXR's customers have reported to MXR that Defendant

told them to speak with him directly, not to MXR, after his separation of employment from
MXR and that in his communications with MXR customers. Defendant disparaged MXR's

brand and reputation. Id. at 153.

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Defendant now moves for partial judgment on the pleadings at to Count 1-Breach of
Employment Agreement; Count 2- Breach of the Asset Purchase Agreement; Count 3-Unjust
Enrichment; Coimt 6- Unfair Competition; Count 7-Tortious Interference with Business
Relations; and Count 9-Defamation. The motion is now fiilly briefed and ready for decision.
Standard of Review

The standard of review used by a district court to rule on a motion for judgment on the
pleadings pursuant to Fed. R. Civ. P. 12(c) is the same as the standard used to rule on Rule
12(b)(6) motions. See Grindstaffv. Green, 133 F.3d 416,421 (6th Cir. Term. 1998). A motion

to dismiss under Federal Rule of Civil Procedure 12(b)(6) allows a defendant to test the legal
sufficiency of a complaint without being subject to discovery. See Yuhasz v. Brush Wellman,

Inc., 341 F.3d 559, 566 (6* Cir. Ohio 2003). In evaluating a motion to dismiss, the court must
construe the complaint in the light most favorable to the plaintiff, accept its factual allegations as
\

true, and draw reasonable inferences in favorable of the plaintiff See Directv, Inc. v. Treesh,

487 F.3d 471,476 (6*'' Cir. Ky. 2007). The court will not, however, accept conclusions of law or
unwarranted inferences cast in the form of factual allegations. See Gregory v. Shelby County,

220 F.3d 433,446 (6* Cir. Tenn. 2000). In order to survive a motion to dismiss, a complaint
must provide the grovmdsof the entitlementto relief, which requiresmore than labels and
conclusions, and a formulaic recitation of the elements of a cause of action. See Bell Atl. Corp.

V. Twombly, 127 S. Ct. 1955,1964-65 (2007). That is, "[fjactual allegations must he enough to

raise a right to relief above the speculative level, on the assumption that all the allegations in the

complaint are true (even if doubtful in fact)." Id. (internal citation omitted); see Association of

Cleveland Fire Fighters v. City of Cleveland, No. 06-3823, 2007 WL 2768285, at *2 (6'^ Cir.

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Ohio Sept. 25,2007) (recognizing that the Supreme Court "disavowed the oft-quoted Rule
12(h)(6) standard oiConley v. Gibson, 355 U.S. 41,45-46,78 S. Ct. 99,2 L. Ed.2d 80 (1957)").

Accordingly, the claims set forth in a complaint must be plausible, rather than conceivable. See
Twombly, 127 S. Ct. at 1974.

On a motion brought under Rule 12(b)(6), the court's inquiry is limited to the content of
the complaint, although matters of public record, orders, items appearing in the record of the
case, and exhibits attached to the complaint may also be taken into account. See Amini v.

Oberlin College, 259 F.Sd 493, 502 (6'" Cir. Ohio 2001).
Discussion

1. Breach of Contract Claims (Cormts 1 and 2)

Defendant argues that he is entitled to judgment on the pleadings as to Plaintiffs breach
of contract claims for breach of the Asset Purchase Agreement (Count 1) and the Employment
Agreement (Count 2) because the Separation Agreement supersedes the Employment Agreement

and the applicable sections of the Asset Purchase Agreement. Specifically, Defendant argues that
Section 7 of the Separation Agreement nullifies the Employment Agreement and the
employment related sections of the Asset Purchase Agreement. Section 7 provides:
7. Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto pertaining to the subject
matter hereof and supersedes all prior and contemporaneous
agreements, understandings, negotiations, representations and
discussions of the parties, whether oral or written, express or
implied, including without limitation the Existing Agreements, it
being agreed that as of the Termination Date the Existing
Agreements shall be of no ftuther force or effect.

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(ECF #l,Ex. 3)

Plaintiff argues that the Separation Agreement does not supersede the Asset Purchase
Agreement or the Employment Agreement and that Plaintiff preserved its claims against

Defendant pursuant to the Separation Agreement. First, Plaintiff notes that the Complaint
describes Defendant's conduct that predates the execution of the Separation Agreement and
argues that Defendant's pre-February 2024 breach of those contracts cannot be superseded by a
separate agreement that did not exist at the time of the breach.

Second, Plaintiff notes that the Separation Agreement does not supersede the
agreements that relate to Defendant's employment with MXR or MXR's purchase of assets of

Universal Medical Systems- the Employment Agreement and the Asset Purchase Agreement.
Rather, the Separation Agreement only supersedes prior agreements "pertaining to the subject
matter" of the Separation Agreement. ECF#1, Ex. 3 at §7.
Plaintiff argues that the scope of the Employment Agreement and Asset Purchase
Agreement are so much broader and more detailed than the Separation Agreement that they are

not the same subject matter as the Separation Agreement. The Employment Agreement and the
Asset Purchase Agreement cover wide areas not covered by the Separation Agreement and most
importantly, both the Employment Agreement and Asset Purchase Agreement contain robust
restrictive covenants prohibiting Defendant from competing with MXR, using and disclosing

Confidential Information, soliciting MXR customers, and disparaging MXR. Both Agreements
contain tolling provisions extending the terms of the restrictive covenants should Defendant

breach the terms of the Agreements. See ECF #1, Ex. A §7; Ex. B § 8(b)-(d). The Separation
Agreement according the Plaintiff is a narrow agreement in which Plaintiff agreed to pay

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commissions to Defendant (without knowledge of his conduct) as his employment ended, while
Defendant released any prior claims.
Defendant maintains that the language of the Separation Agreement is clear and that it
supersedes the Employment Agreement and portions of the Asset Purchase Agreement. As the
parties maintain that the allegedly unambiguous language of the Separation Agreement shoiild

be interpreted in opposing ways, the court "cannot resolve the parties' dispute on a motion to
dismiss or a motion for judgment on the pleadings." U.S. Bank N. A. v. Triaxx Asset Mgmt, LLC,
No. 16 cv 08507,2017 WL 3610584, at *7 (S.D.N.Y. July 16,2017); Ohio Nat'lLife Ins. Co.

.V Cetera Advisor Networks, LLC, No. 1:19 cv 47,2021 WL 2819838 (S.D. Ohio July 7,
2021)(cross motions for judgment on the pleadings denied where each party to a contract
argued that the contract unambiguously means what each party asserted). Accordingly,
Defendant's motion for judgment on the pleadings as to Counts 1 and 2 is denied.
2. Unjust Enrichment (Count 3)

Defendant moves for judgment on the pleadings as to Plaintiffs unjust enrichment
claim asserted in Count 3 of the Complaint. While acknowledging that Plaintiff has plead the
elements of an rmjust enrichment claim-(l) a benefit conferred upon the Defendant, (2) that

Defendant knew of the benefit, and (3) that it would be unjust to allow Defendant to retain the
benefit without pajonent-Defendant asserts that an equitable claim of xmjust enrichment can
only survive in the absence of an enforceable contract. See Kent State Univ. v. Manley, 2023-

Ohio-4650 (8'^' Dist.); Bunta v. Superior VacuPress, LLC, 171 Ohio St.3d 464 (2022).
Plaintiff counters that it has pled its claim of unjust enrichment in the alternative to its
breach of contract claims which is permitted under Fed. R. Civ. P. 8(d)(2) which provides that
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"[a] party may set out 2 or more statements of a claim or defense alternatively or hypothetically,

either in a single count or defense or in separate ones. If a party makes alternative statements,
the pleading is sufficient if any one of them is sufficient." As such courts generally deny
motions to dismiss unjust enrichment claim pled in the altemative to breach of contract claims.
In order to dismiss Plaintiffs imjust enrichment claim here, the Court must find that one of the
contracts at issue here is valid, enforceable, and governs this dispute. While that may be the
case in the end, that finding cannot be made at this time. As such. Defendant's motion for

judgment on the pleadings as to Coimt 3 is denied.
3. Unfair Competition (Count 6)
Defendant asserts that Plaintiff has failed to adequately plead unfair competition. Unfair
competition ordinarily consists of representations by one person, for the purpose of deceiving
the public, that his or her goods are those of another. It may also extend to "unfair commercial
practices such as malicious litigation, circulation of false rumors, or publication of statements,
all designed to harm the business of another." Landskroner v. Landskroner, 2003-Ohio-4945, ^

52,154 Ohio App. 3d 471,490-91,797 N.E.2d 1002,1017 (citations omitted). Specifically,
Defendant argues that Plaintiffs claim is amorphous and elusive because the Complaint merely
states that "the aforementioned conduct of Mr. Zavagno constitutes an unfair method of
competition." See ECF #1, Tf 98. Defendant counters that it has pled, throughout the

Complaint, that Defendant's conduct was designed to harm Plaintiffs business. Plaintiff points
to the following allegations that support its unfair competition claim:
* Zavagno created and is operating Universal Systems Diagnostics in direct
competition with MXR, despite MXR purchasing Zavagno's prior business,
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Universal Medical Systems, for significant compensation (Compl., ECF No. 1 f
32);

* Zavagno is actively selling products sold by MXR directly to MXR customers, and
in doing so using MXR's Confidential Information that Zavagno obtained because
of his employment with MXR (id.

33-43);

* Zavagno is actively disclosing MXR's Confidential Information to MXR's
competitors and suppliers of CT and MRI products, looking to rmdercut MXR and

harm its business dealings with both its suppliers and customers (id.

40-43, 72);

* Zavagno is actively communicating directly with MXR customers, asking MXR's
customers to speak with Zavagno directly so that Zavagno can divert more business

from MXR (id. Ift 53,62, 65);
* "MXR's customers [are] not aware that they [are] not dealing with Zavagno"
(Compl. Introduction, ECF No. 1, PagelD #: 2); and
* Zavagno is actively disparaging MXR to MXR's customers (id.

53,111-113.)

These allegations are sufficient to support an unfair competition claim.
4. Tortious Interference with Business Relations (Count 7)

Defendant argues that Plaintiff has failed to state a claim of tortious interference with
business relations because it failed to allege that Defendant's conduct actually caused a

customer to cease or refrain from doing business with Plaintiff. Under Ohio law, to state a
claim for tortious interference with business relationships, a plaintiff must allege (1) the
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existence of a business relationship; (2) the tortfeasor's knowledge thereof; (3) an intentional

interference causing a breach or termination of the relationship; and (4) damages resulting
therefrom. Kuvedina, LLC v. Cognizant Tech. Sols., 946 F. Supp. 2d 749, 756 (S.D. Ohio
2013) citing Wagner v. Circle .W Mastiffs, 732 F.Supp.2d 792, 807 (S.D.Ohio 2010).

Plaintiff notes that the following allegations sufficiently support all the elements of a
tortious interference with business relations:

* It has a contractual relationship with both its customers and its CT and MRI

equipment manufacturers, like Siemens (Compl., EOF No. 157,62);
* Zavagno, because of his emplojonent with MXR, was at all times aware of MXR's

business contracts and relations with its customers and equipment manufacturers,
and Zavagno was at all times aware that those customers were customers of MXR's,

not Zavagno's or his side business Universal Systems Diagnostics (id. ^ 102);
* Zavagno intentionally procured the breach of said contracts and relations by both
customers and equipment manufacturers, like Siemens and other OEMs, by making
side deals to sell MXR products—^manufactured by Siemens or other OEMs—^to
MXR customers, cutting MXR out of the equation (id.

29, 57,103);

* Zavagno, as an employee of MXR, owed a duty to MXR to act on behalf of MXR
and not on behalf of himself, and that Zavagno had no privilege to enter into these
side deals (id. 1104); and
* MXR pled that it has been damaged by Zavagno's tortious interference, as it has

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received no consideration from Zavagno's side deals entered into (id.

35,105).

These factual assertions are sufficient to state a claim for tortious interference, including
describing damage it suffered and will continue to suffer as a result of Defendant's actions.
5. Defamation (Cormt 9)

Defendant asserts that Plaintiff has failed to plead the necessary elements of a
defamation claim. Specifically, Defendant states that Plaintiff did not identify a single statement
made by Defendant; that he made the unidentified statements without privilege to do so; that
the alleged statements were made with actual malice, negligence, or any degree of fault; or to
identify any damage it has suffered from the alleged defamatory statements.
Defamation is a false publication that injures a person's reputation. Fisher v. Ahmed,
153 N.E.3d 612, 624 (Ohio Ct. App. 2020). There are two types of defamation, slander and
libel: the former is spoken, the latter is written, id. The prima facie requirements for both are:
(1) a false statement of fact, (2) that was defamatory, (3) that was published, (4) that the
plaintiff suffered injury as a proximate result of the publication, and (5) that the defendant acted
with the requisite intent in publishing the statement. See id. (citing

Chem. Soc'y v.

Leadscope, Inc., 133 Ohio St.3d 366,978 N.E.2d 832, 852 (2012)).
Here, the Complaint alleges that "some of MXR's customers have reported to MXR...

that Mr. Zavagno, in his communications with MXR customers, has disparaged MXR's brand
and reputation." (EOF #1

53) "Mr. Zavagno's statements are defamatory, disparaging, and

injurious to the reputation of MXR, and the reputations of its principals and employees. Mr.
Zavagno's false statements are presumed harmful and indeed have harmed MXR in its trade
and business." Id. ^ 112-113. The Complaint fails to provide the exact statements allegedly

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made by Defendant-merely alleging that the statements disparaged MXR's brand and
reputation. In terms of specificity, "[a] defamation complaint must allege the substance of the

allegedly defamatory statements," but "need not... set [them] out verbatim." Mitchell v. Fujitec
Am., Inc., 518 F. Supp. 3d 1073, 1093 (S.D. Ohio 2021) citing Doe v. Univ. ofDayton, No.
3:17-ev-134, 2018 WL 1393894, at *5 (S.D. Ohio Mar. 20, 2018). Other than the allegation that

the statements disparaged Plaintiffs business, there is no allegation describing the substance of

the alleged defamatory statements. "Disparaging" is too hroad of a descriptor to be particularly
useful in identifying an alleged defamatory statement. The lack of any description of the
substance of the alleged defamatory statements requires dismissal of Plaintiff s defamation
claim in this instance.'
Conclusion

For the reasons stated above, the Motion of Defendant David Zavagno for Partial

Judgment on the Pleadings pursuant to Fed. R. Civ. P. 12(c) (ECF #10) is denied as to Counts 1
and 2 (breach of contract), count 3 (unjust enrichment), count 6 (unfair competition), and eoimt
7 (tortious interference with business relations). The Motion is granted as to Plaintiffs
defamation claim (Count 9). IT IS SO ORDEl

DONALD C. NUGENT

United States District Judge

DATED;

Plaintiff is given leave to amend its complaint should it wish to re-state its defamation
claim with the required specificity. Any amended complaint must be filed by March 24,
2025.
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