D.T. DAVIS ENTERPRISES, LTD. v. ARJO, INC.

Filing 41

OPINION. SIGNED BY HONORABLE JAMES KNOLL GARDNER ON 9/30/13. 10/1/13 ENTERED AND COPIES E-MAILED.(er, )

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
D.T. DAVIS ENTERPRISES, LTD.,
doing business as
HOVERTECH INTERNATIONAL,

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Plaintiff
v.
ARJO, INC.,
Defendant
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Civil Action
No. 12-cv-01374

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APPEARANCES:
DOUGLAS J. SMILLIE, ESQUIRE
On behalf of Plaintiff
JEFFREY C. CLARK, ESQUIRE
DAVID J. PIVNICK, ESQUIRE
DANA WINDISCH CHILSON, ESQUIRE
HARVEY FREEDENBERG, ESQUIRE
ALAN R. BOYNTON, JR., ESQUIRE
On behalf of Defendant
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O P I N I O N
JAMES KNOLL GARDNER
United States District Judge
This matter is before the court on Plaintiff’s Motion
for a Temporary Restraining Order 1 and a Preliminary Injunction
1

On March 22, 2012 my colleague United States District Judge
Joel H. Slomsky, sitting as the emergency duty judge, conducted a telephone
conference on the record and with counsel for both parties present to address
plaintiff’s request for a temporary restraining order. Following that
conference, Judge Slomsky issued an Order dated March 22, 2012 and filed
(Footnote 1 continued):

Pursuant to Fed.R.Civ.P. 65 (Document 4)(“Plaintiff’s Motion for
Preliminary Injunction”), which motion was filed March 22, 2012. 2
Also before the court is the oral Motion for Judgment on Partial
Findings, which oral motion was made on the record in open court
on May 23, 2012 pursuant to Rule 52(c) of the Federal Rules of
Civil Procedure after the close of plaintiff’s case-in-chief on
the second day the three-day hearing on Plaintiff’s Motion for
Preliminary Injunction.
SUMMARY OF DECISION
For the reasons expressed below, I deny Plaintiff’s
Motion for Preliminary Injunction and grant defendant’s oral
Motion for Judgment on Partial Findings.

Specifically, I deny

plaintiff’s motion and grant defendant’s oral motion because
plaintiff materially breached the Distribution Agreement 3 by
failing to provide defendant with access to sell plaintiff’s
products in the United Kingdom.

Because plaintiff materially

breached the Distribution Agreement, plaintiff is not entitled

(Continuation of footnote 1):
March 23, 2012 denying plaintiff’s request for a temporary restraining order
only. Accordingly, a hearing was scheduled concerning plaintiff’s request
for a preliminary injunction which remained pending after Judge Slomsky’s
March 22, 2012 Order.
2

Plaintiff’s Memorandum of Law in Support of Motion for
Preliminary Injunction Pursuant to Fed.R.Civ.P. 65 (Document 4-2) and
plaintiff’s Exhibits 1 through 4 were filed March 22, 2012 together with
Plaintiff’s Motion for Preliminary Injunction.
3

See Plaintiff’s Exhibit 3, Distribution Agreement executed May 5,
2009 between plaintiff and defendant.

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to a preliminary injunction and defendant is entitled to
judgment in its favor on plaintiff’s breach of contact claim
asserted against defendant under the Distribution Agreement.
JURISDICTION
This court has diversity jurisdiction over the subject
matter of this action pursuant to 28 U.S.C. § 1332(a)(1).
Plaintiff D.T. Davis Enterprises, Ltd., doing business as
HoverTech International (“HTI”) is a citizen of Pennsylvania.
Defendant Arjo, Inc. is a citizen of Delaware and Illinois.

The

amount in controversy exceeds $75,000, exclusive of interest and
costs.
VENUE
Venue is proper in this court pursuant to 28 U.S.C.
§ 1441(a) because plaintiff initiated its action against
defendant in the Court of Common Pleas of Lehigh County,
Pennsylvania, which is in this judicial district, and defendant
removed the matter to this court.
Venue is also proper in this court pursuant to
28 U.S.C. § 1391(b)(1) because a substantial part of the events
giving rise to plaintiff’s claims occurred in the City of
Bethlehem, Pennsylvania, which is situated in both Lehigh and
Northampton Counties.

Both Lehigh County and Northampton County

are located within this judicial district.

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PROCEDURAL HISTORY
On March 8, 2012 plaintiff D.T. Davis Enterprises,
Ltd., doing business as HoverTech International, filed its
Complaint for Preliminary and Permanent Injunctive Relief in the
Court of Common Pleas of Lehigh County, Pennsylvania.

That same

day, plaintiff HTI filed a motion seeking preliminary injunctive
relief from the Lehigh County Court of Common Pleas.

A hearing

on HTI’s state-court motion was scheduled to commence before
Judge William E. Ford of the Lehigh County Court of Common Pleas
on Monday, March 19, 2012.
On Friday, March 16, 2012 defendant Arjo, Inc.
(“Arjo”) filed its Notice of Removal 4 in this court.
On March 22, 2012 HTI filed Plaintiff’s Motion for
Preliminary Injunction.

That same day, United States District

Judge Joel H. Slomsky, sitting as the emergency duty judge,
conducted a telephone conference on the record with counsel for
both parties.

Following that telephone conference, Judge

Slomsky issued an Order dated March 22, 2012 and filed March 23,
2012 5 which denied plaintiff’s motion only to the extent that it
sought a temporary restraining order.

4

Document 1. (Document numbers cited in this Opinion refer to
Docket Entries in the official docket number 12-cv-01374-JKG in this matter.)
5

Document 5.

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On April 5, 2012 Arjo filed Defendant’s Brief in
Opposition to Plaintiff’s Motion for Preliminary Injunction. 6
I conducted a three-day hearing on Plaintiff’s Motion
for Preliminary Injunction on April 20, 7 May 23, and May 25,
2012.
During the first day of the preliminary injunction
hearing, plaintiff made its opening statement and presented the
testimony of David T. Davis, who is the President and owner of
plaintiff HTI.
During the second day of the preliminary injunction
hearing, plaintiff presented the testimony of Jerome T. Smith,
who is the Chief Financial Officer and Chief Operating Officer
of plaintiff HTI -- and admitted into evidence Plaintiff’s
Exhibits 1 through 12, 13a. through g., 14 through 17, 18a.
through f., and 19 through 37.

Following the admission of its

exhibits, plaintiff rested.
During the second day of the hearing, defendant
admitted into evidence Defendant’s Exhibits 1 through 3, and 5
6

Document 17.

7

At the close of the first day of the preliminary injunction
hearing, an off-the-record discussion was held between lead plaintiff’s
counsel, Douglas J. Smillie, Esquire, lead defense counsel Jeffrey C. Clark,
Esquire, and the court concerning the scheduling of a subsequent date upon
which to complete the hearing. Lead plaintiff’s counsel was not available on
the court’s first available date following April 20, 2012. Lead defense
counsel was not available for the court’s second available date following
April 20, 2012. Lead counsel for each party was available on the court’s
third available date, May 23, 2012. Accordingly, the preliminary injunction
hearing was continued to May 23, 2012 and completed May 25, 2012.

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and made its oral Motion for Judgment on Partial Findings
pursuant to Rule 52(c).
Defendant argued in support of its oral motion, and
plaintiff argued in opposition.

At the close of the argument

concerning defendants’ oral motion, as noted on the record, I
exercised my discretion under Rule 52(c) and declined to rule on
defendant’s oral motion until after the close of the evidence.
Defendant made its opening statement and then
presented the testimony of Sandy Hough, Senior Clinical Manager
for Diligent Services at Arjo, and Andrew Hepburn, Senior
Director for Diligent Services at Arjo, and admitted into
evidence Defendant’s Exhibit 6.
On the third day of the preliminary injunction
hearing, defendant presented the remainder of Andrew Hepburn’s
testimony.

Plaintiff’s Exhibit 38 was marked for identification

during the Andrew Hepburn’s testimony but was not moved into
evidence.
Following completion of Andrew Hepburn’s testimony,
defendant moved for the admission of Defendant’s Exhibit 7, the
Declaration of Dan Raffensberger, and plaintiff raised a hearsay
objection.

After hearing argument on the objection, I took the

objection under advisement, but permitted the parties to make
reference to Defendant’s Exhibit 7 in their closing arguments.

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I now overrule the hearsay objection and Defendant’s Exhibit 7
is admitted into evidence. 8
At the conclusion of the preliminary injunction
hearing, I took Plaintiff’s Motion for Preliminary Injunction
under advisement. 9
Following the completion of the hearing, the parties
submitted proposed findings of fact and conclusions of law and
legal memoranda in further support of their respective
positions. 10

The matter is now ripe for adjudication.

8

See KOS Pharmaceuticals, Inc. v. Andrx Corporation, 369 F.3d 700,
718 (3d Cir. 2004). I overrule the hearsay objection to the Declaration of
Dan Raffensberger because a request for preliminary injunction is customarily
assessed on the basis of procedures that are less formal and evidence that is
less complete than in a full trial on the merits. And accordingly,
"affidavits and other hearsay materials are often received in preliminary
injunction proceedings." Id.
9

At the conclusion of the hearing, I ordered a verbatim transcript
for each day of the hearing and gave each party until June 22, 2012 to file
proposed findings of fact and conclusions of law with citations to the record
developed at the hearing. Plaintiff’s Post-Hearing Memorandum of Law in
Support of Its Proposed Findings of Fact and Conclusions of Law (Document
38)(“Plaintiff’s Post-Hearing Memorandum”) was filed with Plaintiff’s PostHearing Proposed Findings of Fact and Conclusions of Law in Support of Its
Motion for Preliminary Injunction Pursuant to Fed.R.Civ.P. 65 (Document 38-1)
(“Plaintiff’s Proposed Findings and Conclusions”) on June 22, 2012. Defendant
Arjo, Inc’s Post Hearing Proposed Findings of Fact and Conclusions of Law
(Document 39)(“Defendant’s Proposed Findings and Conclusions”) was filed with
Defendant Arjo, Inc.’s Memorandum of Law in Support of Its Proposed Findings
of Fact and Conclusions of Law (Document 39-1)(“Defendant’s Post Hearing
Memorandum”) that same day.
10

On June 22, 2012, Plaintiff’s Post-Hearing Memorandum of Law in
Support of Its Proposed Findings of Fact and Conclusions of Law (Document
38)(Plaintiff’s Post-Hearing Memorandum”), was filed together with
Plaintiff’s Post-Hearing Proposed Findings of Fact and Conclusions of Law in
Support of Its Motion for Preliminary Injunction Pursuant to Fed.R.Civ.P. 65
(Document 38-1).
(Footnote 10 continued):

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STANDARD OF REVIEW
Preliminary Injunction
The United States Court of Appeals for the Third
Circuit has held that in determining whether to grant a
preliminary injunction, I must consider
(1) whether the movant has shown a reasonable
probability of success on the merits; (2) whether the
movant will be irreparably injured by denial of the
relief; (3) whether granting preliminary relief will
result in even greater harm to the nonmoving party;
and (4) whether granting the preliminary relief will
be in the public interest.

Iles v. de Jongh, 638 F.3d 169, 172 (3d Cir. 2011); see also
Minard Run Oil Company v. United States Forest Service, 670 F.3d
236, 249-250 (3d Cir. 2011).

A plaintiff's failure to establish

any of these four elements in its favor renders a preliminary
injunction inappropriate.

Nutrasweet Company v. Vit-Mar

Enterprises, 176 F.3d 151, 153 (3d Cir. 1999).
Judgment on Partial Findings
Rule 52(c) of the Federal Rules of Civil Procedure
provides:

(Continuation of footnote 10):
Also on June 22, 2012, Defendant Arjo, Inc.’s Post Hearing
Proposed Findings of Fact and Conclusions of Law (Document 39), was filed
together with Defendant Arjo, Inc.’s Memorandum of Law in Support of Its
Proposed Findings of Fact and Conclusions of Law (Document 39-1)(Defendant’s
Post-Hearing Memorandum”).

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(c) Judgment on Partial Findings. If a party has
been fully heard on an issue during a nonjury
trial and the court finds against the party on
that issue, the court may enter judgment against
the party on a claim or defense that, under the
controlling law, can be maintained or defeated
only with a favorable finding on that issue. The
court may, however, decline to render any
judgment until the close of the evidence. A
judgment on partial findings must be supported by
findings of fact and conclusions of law as
required by Rule 52(a).
Rule 52(a) provides, in pertinent part:
(1) In General. In an action tried on the facts
without a jury or with an advisory jury, the
court must find the facts specially and state its
conclusions of law separately. The findings and
conclusions may be stated on the record after the
close of the evidence or may appear in an opinion
or a memorandum of decision filed by the court.
Judgment must be entered under Rule 58.
(2) For an Interlocutory Injunction. In granting
or refusing an interlocutory injunction, the
court must similarly state the findings and
conclusions that support its action.
In making a determination pursuant to Rule 52(c), I
may make appropriate findings of fact and resolve disputed
factual questions on a partial record.

See Rego v. ARC Water

Treatment Company of PA, 181 F.3d 396 (3d Cir. 1999).

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FACTUAL FINDINGS
Based upon the testimony and exhibits received during
the preliminary injunction hearing, and the pleadings and record
papers in this matter, I make the following findings of fact. 11
Parties
Plaintiff D.T. Davis Enterprises, Ltd., doing business
as HoverTech International, (“HTI”) is a Pennsylvania
corporation with its principal place of business in Bethlehem,
Pennsylvania.

HTI employs 23 people and primarily utilizes

independent contractors to sell and market HTI products.
David T. Davis is the founder and President of HTI.
HTI is in the business of selling safe patient
handling products, which include inflatable mattresses used in
the lateral transfer of patients in acute care (emergency
department) settings as well as short- and long-term care
settings.
The HoverMatt is one of HTI’s flagship products and is
at the center of the parties’ dispute.
HTI is a leader in the field of patient air-transfer
technology.

Indeed, HTI products account for approximately 70%

11

The Findings of Fact reflect my credibility determinations regarding
the testimony and evidence presented at trial. Credibility determinations
are within the sole province of the finder of fact, in this case the court.
Fed.R.Civ.P. 52; See, e.g., Icicle Seafoods, Inc. v. Worthington,
475 U.S. 709, 715, 106 S.Ct. 1527, 1530, 89 L.Ed.2d 739, 745 (1986).

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of the United States domestic market for patient lateral air
transfer devices.
Defendant Arjo, Inc. (“Arjo”), also known as
ARJOHuntleigh, North America, is a Delaware corporation with its
principal place of business in Addison, Illinois.

Arjo has an

extensive sales network and employs approximately 4,400 people
worldwide.
Arjo is a patient-handling company which sells and
distributes a range of health-care and patient-safety products.
Arjo sells both consumable items, such as slippery sheets to
assist in patient transfers, and capital goods.

Among the

capital goods sold by Arjo are beds, patient-handling lifts,
ceiling-mounted lifts, bathing systems, therapy tanks, and deepvein thrombosis garments.
Arjo sells a product called the “Maxi Air”, which is a
single patient lateral air transfer product, similar in
appearance and function to HTI’s HoverMatt.
In addition to individual product sales, Arjo markets
a program called Diligent Services (“Diligent”) to its hospital
and long-term-care-facility clients.

The Diligent Services

program is geared toward reducing the risk of injury to a
medical facility’s staff and patients by integrating a range of
equipment marketed by Arjo with training and consultation

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provided by Arjo’s clinical staff, which consists of various
licenced health-care practitioners.
The Diligent Services program is one of Arjo’s
flagship offerings and has been implemented at more than 600
health-care facilities across the United States.
Arjo has a strong presence in the United Kingdom’s
healthcare market, particularly in the United Kingdom’s
hospitals, or acute-care facilities.

Arjo has a an extensive

network of 40-50 sales representative in place in the United
Kingdom, which would permit Arjo to begin selling or renting
HTI’s products immediately upon gaining access to the United
Kingdom under the Distribution Agreement.
The United Kingdom has safe-patient-handling laws,
which have been in place since the 1990s and which requires
hospitals and other healthcare facilities to have equipment
available to assist in lifting and transporting patients.
Consequently, there is a high demand for safe-patiently handling
products in the United Kingdom.
Pre-Distribution-Agreement Relationship
Arjo began selling HTI products in 2003 or 2004, at
least four years before the execution of the May 5, 2009
Distribution Agreement upon which HTI brings this action.
Specifically, Arjo included HTI’s HoverMatt and other
HTI products in the product-mix available through Arjo’s
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Diligent program.

Arjo had HTI’s permission to include the

HoverMatt in its Diligent offerings.
The parties did not have any non-competition agreement
or non-solicitation agreement between them during the period
prior the Distribution Agreement, including the years 2004
through 2008, when Arjo sold the HoverMatt and other HTI
products.
In addition to making its products available to
customers through Arjo’s Diligent program prior to the parties
Distribution Agreement, HTI had its own distribution network in
place to sell its products prior to the Distribution Agreement
with Arjo.
Acquisition Talks
In 2008 defendant’s parent company, Getinge Holdings
USA, Inc. (“Getinge”) and HTI entered into discussions
concerning the potential purchase of the capital stock of HTI
and another company owned by David T. Davis called Woodlark
Circle, Inc. (“Woodlark”).
Specifically, by letter of intent dated September 10,
2008, Getinge proposed that it would acquire 70% of the capital
stock of both HTI and Woodlark for an initial payment of
$15,500,000, with the remaining 30% of the capital stock of each
entity to be acquired by the end of the calendar year 2011 based

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upon a formula related to HTI’s and Woodlark’s performance
during 2009, 2010, and 2011 and which used a multiplier of 10.
The September 10, 2008 letter of intent contained a
confidentiality provision and, in furtherance of the
acquisition, Getinge began to conduct its due diligence
concerning HTI’s business subject to the confidentiality clause.
As part of the due-diligence process relating to its
potential acquisition, HTI provided volumes of information to
Arjo and Getinge pertaining to HTI’s business and finances.
This information was provided to Arjo and Getinge pursuant to a
confidentiality agreement.

Subsequently, these confidentiality

agreements were incorporated by reference in the confidentiality
provision contained in the Distribution Agreement.
However, in December 2008, Getinge informed HTI that
the acquisition could not be consummated at that time as
intended because the added expense and debt of the acquisition
would have required Getinge to re-negotiate certain loan
covenants with its lenders, which Getinge did not want to pursue
amidst the financial turmoil ongoing at that time.
Nonetheless, the acquisition of HTI by Arjo’s parent
company remained something that the parties, and Getinge, wanted
to achieve.

The Distribution Agreement at the center of this

case was conceived as a bridging mechanism and toward the goal

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of having an acquisition agreement in place by the end of
calendar year 2009.
The parties were represented by counsel in connection
with the proposed acquisition and the negotiation of the
Distribution Agreement.
Distribution Agreement
On May 5, 2009, the parties -- plaintiff through its
CEO, David T. Davis, and defendant through its President, Philip
Croxford -- executed a Distribution Agreement (“the agreement”),
the term of which commenced June 1, 2009 and continued until
May 31, 2011. 12
The agreement provides that
HoverTech intends to supply ARJO in a worldwide
distribution agreement for the HoverTech Product line
as set forth in Exhibit A (as the same may be amended
from time to time by agreement of the parties) for the
purpose of supplying for rental and for sale into
acute care and other healthcare settings (the
“Products”), subject to the terms and conditions
hereof and with the reservations and exceptions as
hereinafter set forth. 13
The agreement further provides that “HoverTech desires
to appoint ARJO as a distributor for rental and for sale of the
Products within the territories identified in Exhibit B attached
hereto and incorporated herein by reference (the “Territory”),

12

See Distribution Agreement at ¶ 2.

13

Distribution Agreement at page 1, third “WHEREAS” clause
(emphasis added).

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and ARJO desires to rent/sell the Products in the Territory on
the terms and conditions set forth herein. 14
In short, Arjo was to be a distributor of HTI’s
products in geographic areas except those reserved and excluded
by the Distribution, and more specifically by Exhibits B and B-1
to the agreement.
Exhibit B to the Distribution Agreement defines
“Territory” as follows:
Worldwide, EXCEPT for those territories described and
further identified in yellow on Exhibit B-1 attached
hereto and incorporated herein by reference, which
territories shall be reserved to HoverTech (collectively, the “Reserved Territories”), and EXCEPT for
those portions of the Territory subject to existing
exclusive HoverTech distributorship agreements with
third parties, unless and until such time as those
existing exclusive distributorship agreements have
been terminated. 15
The Distrubution Agreement precluded Arjo from renting
or selling HTI products in the following: Washington, Oregon,
Alaska, Hawaii, California, Nevada, Idaho, Utah, Arizona, New
Mexico, Colorado, Wyoming, Montana, North Dakota, South Dakota,
Nebraska, Kansas, Texas, Florida (Gainesville to Orlando and all
of the state west and south of highway #27), Eastern half of
Pennsylvania (State College to State boundary), New York
(excluding 5 boroughs, Long Island, & Westchester County),
14

Distribution Agreement at page 1, fourth “WHEREAS” clause
(emphasis added).
15

Id. at page 18, Exhibit B.

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Connecticut, Rhode Island, Massachusetts, New Hampshire,
Vermont, Maine, the United Kingdom, Australia and New Zealand,
and Canada and British Columbia. 16
Following the listing for the United Kingdom on the
list of Reserved Territories reserved to HoverTech and, thus
closed to Arjo, Exhibit B-1 states:
to be discussed- agreement in place until 12/31/10
A separate plan will be worked out with the UK to
complement the existing distributor as they have a
vertical strategy within the bariatric surgery centers
market and AH handling the rest of the marketplace. 17
HTI did not actively discuss the establishment of a
plan for Arjo to have partial access to the United Kingdom to
complement HTI’s existing distributorship.

However, HTI did

inquire with its exclusive United Kingdom distributor about
terminating the exclusive agreement and permitting Arjo access
to the United Kingdom.

The existing exclusive United Kingdom

distributor would not agree to grant Arjo partial access or to
cancel the exclusive agreement prior to its expiration.
Following the listing for “Canada and British
Columbia”, Exhibit B-1 states “ –6/22/2009.” 18

16
Distribution Agreement at page 19, Exhibit B-1 (listing the
states included in the Reserved Territories, and, specifically, a separate
listing for “Canada and British Columbia”).
17

Id. (emphasis in original).
related to the Treatment of obesity.
18

“Bariatric surgery” means surgery

Id.

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The agreement expressly manifests the intent of both
HTI and Arjo to “be legally bound” by the “mutual covenants and
agreements” contained in the Distribution Agreement. 19
Concerning the position into which Arjo is appointed
by the Distribution Agreement, the agreement provides, in
pertinent part
Subject to the terms and conditions of this Agreement,
HoverTech hereby appoints ARJO as a distributor of the
Products within the Territory for the purpose of the
rental and sale of the Products, and ARJO hereby
accepts such appointment. The Territory shall not
include the Reserved Territories as defined in
Exhibit B and as depicted in Exhibit B-1 hereto.
Notwithstanding anything to the contrary contained in
this Agreement, ARJO acknowledges and agrees that
HoverTech will honor all order received by its
representatives other than ARJO under prior
distribution agreements for accounts relating to
certain Veterans Administration facilities as listed
in Exhibit C attached hereto and incorporated herein
by reference (collectively, the “VA Accounts”),
provided that (a) the VA Account is listed in
Exhibit C, (b) HoverTech receives the order by
October 31, 2009, and (c) the Product is shipped by
December 31, 2009. Such sales for VA Accounts are
permitted notwithstanding this Agreement, and ARJO
agrees that (x) it shall have no claim for any
monetary compensation for such orders and shipments,
and (y) it shall have no claim that HoverTech may not
honor orders or ship Products relative to the VA
Accounts and pay compensation to HoverTech’s
representatives or distributors other than ARJO
therefor. 20

19

Distribution Agreement at page 1, following “NOW, THEREFORE”.

20

Id. at ¶ 1.

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Paragraph 5 of the Distribution Agreement describes
the obligations of Arjo under the agreement, in pertinent part,
as follows:
(a) Except for the purchasers subject to GPO or IDN
contracts which shall continue to be governed thereby,
ARJO may rent or sell the Products within the
Territory at such prices and on such terms as ARJO
shall determine in its sole discretion. Nothing
herein shall be construed to require ARJO to refrain
from renting, selling or promoting products of other
manufacturers within the Territory which directly
compete with the Products, except for other air
transfer products and products which compete directly
with HoverTech’s HoverMatt® and HoverJack®, which ARJO
expressly covenants it will not rent, sell or promote.
For purposes hereof, any product consisting of an air
inflatable device to lift patients shall be deemed to
compete directly with HoverTech’s HoverJack®.
Prior to execution of the Distribution Agreement on
May 5, 2009, the parties supplemented paragraph 5(f) of the
agreement by adding the following language:
The parties hereby agree that if ARJO has the
opportunity to enter into any new GPO or IDN contracts
during the term of this Agreement, the parties shall
negotiate the sales price from HoverTech to Arjo in
good faith, to be reviewed every three (3) months and
adjusted to insure that ARJO shall be able to achieve
a 34% blended gross profit margin by the end of each
calendar year on such Products on substantially the
same terms and conditions as under the current GPO/IDN
Agreements. 21

21

Distribution Agreement at ¶ 5(f)(emphasis added).

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With respect to the reasonableness of the terms of the
Distribution Agreement, the agreement itself expressly provides
that
ARJO agrees that the terms of this Agreement,
including but not limited to Section 12 on Termination
are fair and reasonable, and will not cause any
hardship to ARJO. 22
With respect to termination and its effect, paragraph 12 of the Distribution provides, in pertinent part:
(b) Either party may terminate this Agreement upon
thirty (30) days written notice if the other party is
in default in the performance of any material
obligation under this Agreement and the other party
fails to cure such default within such period. 23
(c) The failure of ARJO to meet or exceed the Yearly
Minimum for a specific portion of the Territory shall
be grounds for immediate termination by HoverTech for
such portion of the Territory, provided however that
HoverTech shall give written notice thereof to ARJO
specifying the termination date. The Yearly Minimum
for a specific portion of the Territory shall be
determined as that portion’s share of the total
worldwide aggregate sales (as set forth in Exhibit E),
times the total Yearly Minimum for the applicable year
(i.e. $4,340,766 for Year 1 and $8,632,543 for
Year 2).
*

*

*

(e) Each party’s obligations under Sections 9 (Indemnity), 14 (Representation), 17 (Confidentiality), 18
(Restrictive Covenant), 20 (Choice of Law), 21 (Jurisdiction), 22 (Attorneys Fees), and 23 (Notices) of
this Agreement shall expressly survive the termination
of this Agreement.

22

Distribution Agreement at ¶ 5(i)(emphasis added).

23

Id. at ¶ 12(b)(emphasis added).

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The Distribution Agreement contains the following
confidentiality provision:
The parties acknowledge and agree that they will use
information disclosed to or learned by them hereunder
or in connection herewith, only to the extent
necessary for the performance of their respective
obligations hereunder. Each party hereby acknowledges
that the other party would be irrevocably damaged if
any of the confidential information (“Proprietary
Information”) were disclosed to or utilized on behalf
of any person, firm or business entity.... Said
Proprietary Information shall include, but not be
limited to, customer pricing, distributor pricing,
research and development efforts, HoverTech employees,
vendors, or methods of distribution, or other
information not generally available to the public.
Notwithstanding the preceding, Proprietary Information
shall not include information which (a) was already
known to the receiving party prior to disclosure by
the disclosing party; (b) is or had been entered to
the public domain through no breach of this Agreement
by the receiving party; (c) has been rightly received
from a third party who is not known to be under any
obligation of confidentiality with respect to such
information; (d) has been approved for release by
written authorization of the disclosing party; or
(e) has been independently acquired or developed by
the receiving party without violation of its
obligations under this Agreement. ARJO further
acknowledges that has previously executed NonDisclosure Agreements with HoverTech and its
affiliates and agrees that it continues to be bound
thereby. 24
The Restrictive Covenant at the center of this action
is found at paragraph 18(a) of the Distribution Agreement, and
provides, in pertinent part:

24

Distribution Agreement at ¶ 17.

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(a) During the term of this Agreement, and if ARJO
terminates this Agreement or this Agreement is
terminated due to the default or breach of ARJO, for a
period of two (2) years thereafter, but in all other
events for a period of one (1) year thereafter, ARJO
shall not, either solely or jointly with, or as an
agent or contractor for another person, firm or
entity, directly or indirectly, carry on or be
engaged, concerned or financially interested in any
company carrying on any business utilizing air
transfer technology, or in any way be in competition
with HoverTech by offering for sale or rental (i) any
air transfer products, (ii) any products which compete
directly with HoverTech’s HoverMatt® or HoverJack®,
and/or (iii) any air inflatable device for lifting,
transferring or transporting patients. 25
The Restrictive Covenant in Paragraph 18 of the
Distribution Agreement further provides that
[i]f ARJO violates the foregoing covenant, the damages
to HoverTech, it is agreed, are largely intangible and
incalculable, and the harm to HoverTech would be
irreparable. Therefore, if ARJO breaches, violates or
knowingly attempts or threatens to violate any of the
provisions, covenants or restrictions of this
Section 18, HoverTech shall be entitled to an
injunction, to be issued by any court of competent
jurisdiction, enjoining and restricting ARJO from
committing such violation or continuing such
violations, regardless of proof of actual damages, and
HoverTech shall be entitled to recover HoverTech’s
costs and attorney’s fees in such action and upon any
appeal there from, as well as damages which may be
recovered. 26
Paragraph 18 also contains a provision concerning the
purpose of the restrictive covenant:

25

Distribution Agreement at ¶ 18(a).

26

Id.

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(c) ARJO acknowledges and agrees that the
restrictions set forth herein are (i) reasonable for
the protection of HoverTech’s legitimate business
interests, (ii) not unduly restrictive on ARJO’s
ability to create income, and (iii) a material
inducement to HoverTech to enter into this Agreement
with ARJO. 27
The Distribution Agreement contains an express
provision concerning waiver and delay with respect to breaches
of the agreement:
No waiver by either party of any breach or series of
breaches or defaults in performance by the other
party, and no failure, refusal, or neglect of either
party to exercise any right, power, or option given to
it hereunder or to insist upon strict compliance with
or performance of either party’s obligations under
this Agreement, shall constitute [1] a waiver of the
provisions of this Agreement with respect to any
subsequent breach thereof or [2] a waiver by either
party of its right at any time thereafter to require
exact and strict compliance with the provisions
thereof. 28
The Distribution Agreement contains an integration
clause which provides:
This Agreement and its Exhibits, together with NonDisclosure Agreements and Diligent Agreements
previously executed by the parties, contain all of the
terms and conditions agreed upon by the parties hereto
with reference to the subject matter hereof. No other
agreements, oral or otherwise, shall be deemed to
exist or to bind either of the parties hereto, and all
prior agreements and understandings are superseded
hereby. Except as specifically set forth herein, this

27

Distribution Agreement at ¶ 18(c)(emphasis added).

28

Id. at ¶ 24 (emphasis added).

-23-

Agreement cannot be modified or changed except by
written instrument signed by both of the parties
hereto. 29
Continued Acquisition Talks
On December 16 2009, after the Distribution Agreement
had been in effect for six-and-a-half months, Getinge issued a
second letter of intent concerning its acquisition of HTI.
However, the proposed acquisition price was substantially lower
than the price proposed in the September 10, 2008 letter of
intent.
Specifically, the December 2009 letter of intent
proposed an initial payment for acquisition of 70% of the
capital stock of HTI and Woodlark of $11,200,000 (whereas the
September 2008 letter had proposed $15,500,000) and the
multiplier used in the formula applied to HTI’s performance
during the three-year earn-out period was reduced from 10 to 8,
thereby reducing the price for the remaining 30% of the capital
stock in HTI and Woodlark.
Based upon the substantial reduction in the proposed
acquisition price in the December 16, 2009 letter of intent, HTI
elected not to pursue the proposed acquisition.
Prior to the May 31, 2011 expiration date for the
Distribution Agreement, Arjo sought to negotiate an extension of
the Distribution Agreement and its parent company again
29

Distribution Agreement at ¶ 26.

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expressed interest in acquiring HTI.

However, no agreement was

reached to extend the Distribution Agreement and HTI was not
acquired by Arjo’s parent company.
Rather, the Distribution Agreement expired by its own
terms on May 31, 2011.

Because the Distribution Agreement

expired by its own terms, the applicable time period for the
Restrictive Covenant was one year, until May 31, 2012.
Post-Distribution-Agreement Conduct
In February 2012, HTI learned that Arjo had begun
selling an air assisted patient lateral transfer system called
the “Maxi Air”.
On February 21, 2012, after learning of Arjo’s sales
of the Maxi Air, HTI sent a letter to Arjo reminding it of its
obligations under the Restrictive Covenant.
Arjo responded by letter dated March 2, 2012, the body
of which states, in pertinent part:
This letter is in response to your February 21, 2012
letter (the “Letter”). In the Letter, you allege that
ArjoHuntleigh is somehow in violation of a restrictive
covenant contained in the Distribution Agreement (the
“Agreement”) between HoverTech (“HTI”) and ArjoHuntleigh. While you make repeated references to the
restrictive covenant, I just want to make clear that
ArjoHuntleigh believes that the restrictive covenant
is not valid or enforceable under Pennsylvania law,
and even if it was, HTI’s various breaches of the
Agreement would prevent HTI from enforcing the
restrictive covenant. We would also suggest that it

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is in the best interest of both companies to move on,
as the Agreement has been terminated for nearly a year
now. 30
The March 2, 2012 letter was the first time that Arjo
had expressed to HTI that it believed that the Restrictive
Covenant in the Distribution Agreement is unenforceable.
On March 8, 2012 plaintiff filed its Complaint in the
Court of Common Pleas of Lehigh County seeking to enforce the
Restrictive Covenant.
The annual Safe Patient Handling Show -- the largest
annual trade show for the parties’ industry -- was held over
several days commencing March 19, 2012.

Approximately one week

after the 2012 show, Jackie Tate (the employee responsible for
the safe patient handling program at Nash General Hospital, an
HTI customer) sent David Davis a document purporting to
demonstrate the annual savings which Nash General could achieve
by using Arjo’s MaxiAir product as compared to the lateral air
transfer products offered by HTI.
CONCLUSIONS OF LAW
Based upon the Findings of Fact above, and for the
reasons expressed in the Discussion below, I deny Plaintiff’s
Motion for Preliminary Injunction and grant defendant’s oral
Motion for Judgment on Partial Findings.
30

Plaintiff’s Exhibit 11, letter dated March 2, 2012 to David T.
Davis, HoverTech International, from Philip Croxford, President & CEO,
ArjoHuntleigh, North America.

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Specifically, I deny plaintiff’s motion and grant
defendant’s oral motion because plaintiff materially breached
the Distribution Agreement by failing to provide defendant with
access to sell plaintiff’s products in the United Kingdom.
Because plaintiff materially breached the Distribution
Agreement, plaintiff is not entitled to a preliminary injunction
and defendant is entitled to judgment in its favor on
plaintiff’s breach of contact claim asserted against defendant
under the Distribution Agreement.
1.

Specifically, I conclude:

The Complaint asserts a single cause of action by

plaintiff against defendant for breach of the Restrictive
Covenant in the parties Distribution Agreement.
2.

Plaintiff does not have a reasonable likelihood

of success on the merits of its breach of contract claim because
it materially breached of the Distribution Agreement.
3.

Plaintiff’s material breach of the Distribution

Agreement bars plaintiff’s breach of contract claim against
defendant.
4.

Defendant did not waive its right to assert, and

is not estopped from asserting, a material breach by plaintiff
as a defense to plaintiff’s claim.
5.

The Distribution Agreement was not modified by

the conduct of the parties.

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Accordingly, I also enter judgment in favor of
defendant Arjo, Inc. and against plaintiff D.T. Davis
Enterprises, Ltd., doing business as HoverTech International, on
plaintiff’s Complaint.
DISCUSSION
Contentions of the Parties
Plaintiff’s Contentions
Plaintiff contends that it motion for preliminary
injunction should be granted because it has satisfied each
requirement for obtaining preliminary injunctive relief under
the standard of review described above.
Specifically, plaintiff contends that it has
demonstrated a reasonable likelihood of success on the merits of
its breach of contract claim against defendant because the
Restrictive Covenant is enforceable under Pennsylvania law and
defendant sold the Maxi Air product in competition with
plaintiff’s HoverMatt and in violation of the Restrictive
Covenant.
Plaintiff further contends that it entitled to a
preliminary injunction because it has demonstrated that it will
suffer irreparable harm if a preliminary injunction enforcing
the Restrictive Covenant is not issued.
Plaintiff further contends that granting such
preliminary relief will not result in even greater harm to the
-28-

nonmoving party because defendant would, in effect, simply be
getting what it bargained for if the Restrictive Covenant were
enforced by a preliminary injunction.
Finally, plaintiff contends that granting the
preliminary relief will be in the public interest because the
public interest is served by the enforcement of contracts,
particularly, as here, the contract was negotiated at armslength, with counsel, between two business entities. 31
Defendant’s Contentions
Defendant Arjo contends that the court should deny
Plaintiff’s Motion for Preliminary Injunction and grant
defendant’s oral Motion for Judgment on Partial Findings for
several reasons.
Defendant contends that the Restrictive Covenant does
not serve any legitimate business interest, but rather is a
naked attempt to restrain competition, and is, thus,
unenforceable under Pennsylvania law.

31

In support of its public-interest argument, plaintiff describes
itself as a “small local business”, as contrasted against the larger
corporate defendant with thousands of employees and a world-wide distribution
network. As a matter of sheer size and location, and as contrasted against
defendant, plaintiff’s characterization of itself is accurate and perfectly
reasonable.
However, I note that although this dispute is between business
entities of very different sizes, it is not a dispute where one of the
individual or entity is relatively unsophisticated and the other is a very
sophisticated party.

-29-

Defendant further contends that the Restrictive
Covenant is limitless in its geographic scope and, thus,
unreasonably broad and unenforceable under Pennsylvania law.
Defendant further contends that plaintiff breached the
Distribution Agreement in several respects, plaintiff’s breaches
of the Distribution Agreement were material, and, accordingly,
defendant was no longer bound by, and plaintiff may not now
enforce, the Restrictive Covenant.
Defendant asserts the above arguments to support the
ultimate position that plaintiff is not entitled to preliminary
injunctive relief because it cannot show a reasonable likelihood
of success on the merits of its breach of contract claim, and
that defendant is entitled to judgment on partial findings
because plaintiff cannot enforce (for various reasons) the
Restrictive Covenant on which it sues.
In addition, defendant contends that plaintiff is not
entitled to preliminary injunctive relief because it can be
compensated by money damages for any sales lost because of
defendant’s violation of the Restrictive Covenant, and, thus,
plaintiff cannot demonstrate the immediate, irreparable injury
necessary to obtain preliminary injunctive relief.
Finally, defendant contends that the issuance of a
preliminary injunction would be inappropriate because, at the
time of defendant’s oral motion, there were only 8 days
-30-

remaining until the May 31, 2012 expiration of the term of the
Restrictive Covenant, and there is no basis to equitably toll or
otherwise extend the term of the restrictive covenant beyond
May 31, 2012.
Likelihood of Success/Material Breach
In order to obtain preliminary injunctive relief,
plaintiff HTI must demonstrate that it has a reasonable
likelihood of success on the merits of its breach of contract
claim against defendant Arjo.

See Iles, 638 F.3d at 172;

Nutrasweet, 176 F.3d at 153.
However, plaintiff is not reasonably likely to
succeed, and indeed cannot succeed, on the merits of its breach
of contract claim if plaintiff itself materially breached the
contract.
Under the substantive law of Pennsylania law, which
the parties agree is applicable to this action, “[w]hen
performance of a duty under a contract is due, any
nonperformance is a breach.”

Williams Engineering, Inc. v.

Dufalla, 837 A.2d 459, 467 (Pa.Super. 2003).

“If a breach

constitutes a material failure of performance, then the nonbreaching party is discharged from all liability under the
contract.

If, however, the breach is an immaterial failure of

performance, and the contract was substantially performed, the
contract remains effective.”

Dufalla, 837 A.2d at 467.
-31-

Whether a breach is material “is a question of degree”
and Pennsylvania courts consider several factors in assessing
materiality:
a) the extent to which the injured party will be
deprived of the benefit which he reasonably expected;
b) the extent to which the injured party can be
adequately compensated for that part of the benefit of
which he will be deprived;
c) the extent to which the party failing to perform or
to offer to perform will suffer forfeiture;
d) the likelihood that the party failing to perform or
offer to perform will cure his failure, taking account
of all the circumstances including any reasonable
assurances;
e) the extent to which the behavior of the party
failing to perform or offer to perform comports with
standards of good faith and fair dealing.
Dufalla, 837 A.2d at 468 (quoting Restatement (Second) of
Contracts § 241).
Upon consideration of the foregoing factors, I
conclude that plaintiff materially breached the Distribution
Agreement by failing to (A) work out a plan for Arjo to
complement HTI’s then-existing exclusive distributorship in the
United Kingdom prior to January 1, 2011, 32 and (B), at the very

32
The Distribution Agreement provides that “[t]he Commencement Date
for any portion of the Territory subject to an existing exclusive HoverTech
distribution agreement shall automatically extend until the day following the
last day of the term of any existing HoverTech distribution agreement in that
portion of the Territory.” (Distribution Agreement at ¶ 2.) The agreement
further provides that “HoverTech agrees to use commercially reasonable

(Footnote 32 continued):

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least, provide Arjo with access to the United Kingdom as of
January 1, 2011 upon the expiration of the HTI’s pre-existing
exclusive United Kingdom distributorship on December 31, 2010.
The first factor -- namely, the extent to which the
injured party will be deprived of the benefit which he
reasonably expected -- weighs heavily in favor of finding a
material breach.

Based upon the agreement that the parties,

including HTI, would work out a plan for Arjo to complement
HTI’s existing exclusive distributor, Arjo could reasonably
expect that it would have some access to the United Kingdom
prior to the December 31, 2010 expiration of the existing
exclusive HTI distributorship.
Moreover, because the existing exclusive United
Kingdom HTI distributorship expired on December 31, 2010, Arjo
could reasonably assume that it would have complete access to
the United Kingdom market from January 1, 2011 through the end
of the term of the Distribution Agreement on May 31, 2011.
That Arjo was deprived of at least five months of
complete access, and an additional period of partial access, to
sell HTI products in the United Kingdom -- a market with high

(Continuation of footnote 32):
efforts to terminate its existing exclusive distributorship agreements within
the Territory as soon as reasonably possible and to promote the successful
transfer of HoverTech independent representatives within the Territory to
ARJO representatives.” (Id.)

-33-

demand for safe patient handling equipment and in which Arjo had
an extensive presence and network of sales representatives -deprived it of the reasonably-anticipated benefits of the
Distribution Agreement to a substantial degree.
The second factor -- the extent to which the injured
party can be adequately compensated -– also supports the
conclusion that HTI materially breached the Distribution
Agreement.

Because of HTI’s failure to establish a plan to

provide Arjo with partial access to the United Kingdom prior to
January 1, 2011 and to provide complete access to the United
Kingdom from that date forward, Arjo was deprived of the
opportunity to generate revenue through the sale and rental of
HTI products, and to enhance its presence and position in the
United Kingdom healthcare market.
Because the number of sales and/or rentals (and the
price Arjo could have obtained for those rentals) which Arjo
could have made within the United Kingdom under the Agreement,
and the degree and monetary value of an enhancement in Arjo’s
presence in the United Kingdom healthcare market would be
difficult to ascertain, money damages for this breach would not
adequately compensate Arjo for its lost opportunity.
Accordingly, the second factor weighs in favor of a finding that
the breach was material.

-34-

The third factor -- the extent to which the party
failing to perform or to offer to perform will suffer forfeiture
-- does not weigh against a finding that HTI’s breach was
material because HTI will not suffer forfeiture as result of
that finding, but rather will be precluded from enforcing the
Restrictive Covenant.
The fourth factor -- the likelihood that the party
failing to perform or offer to perform will cure his failure -weighs in favor of finding a material breach.
simply, cannot now cure its breach.

Plaintiff,

HTI cannot reverse the

sands of time to provide Arjo with partial access to the United
Kingdom’s healthcare market prior to January 1, 2011, nor can
HTI provide Arjo with unfettered access to that market from
January 1, 2011 through the expiration of the distribution
agreement.
The fifth and final factor -- the extent to which the
behavior of the party failing to perform or offer to perform
comports with standards of good faith and fair dealing -- does
not weigh against a finding of materiality.

Although HTI did

not actively discuss the establishment of a plan for Arjo to
have partial access to the United Kingdom to complement HTI’s
existing distributorship, HTI did inquire with its exclusive
United Kingdom distributor about terminating the exclusive
agreement and permitting Arjo access to the United Kingdom.
-35-

However, the existing exclusive distributor would not
agree to grant Arjo partial access or to cancel the exclusive
agreement prior to its expiration.

While HTI made some effort

to obtain access to the United Kingdom for Arjo prior to January
1, 2011, Arjo was not granted access to the United Kingdom after
January 1, 2012, when the pre-existing HTI exclusive
distributorship expired.
For the reasons expressed above, I conclude that HTI’s
failure to work out a plan for Arjo to complement HTI’s thenexisting exclusive distributorship in the United Kingdom prior
to January 1, 2011, 33 and to provide Arjo with complete access to
the United Kingdom as of January 1, 2011 constituted a material
breach of the Distribution Agreement by HTI.
Because I conclude that plaintiff materially breached
the Distribution Agreement, I further conclude that plaintiff
failed to demonstrate a reasonable likelihood of success on the
merits of its claim against defendant for breach of the
Restrictive Covenant contained in the Distribution Agreement,

33

The Distribution Agreement provides that “[t]he Commencement Date
for any portion of the Territory subject to an existing exclusive HoverTech
distribution agreement shall automatically extend until the day following the
last day of the term of any existing HoverTech distribution agreement in that
portion of the Territory.” (Distribution Agreement at ¶ 2.) The agreement
further provides that “HoverTech agrees to use commercially reasonable
efforts to terminate its existing exclusive distributorship agreements within
the Territory as soon as reasonably possible and to promote the successful
transfer of HoverTech independent representatives within the Territory to
ARJO representatives.” (Id.)

-36-

and that defendant is entitled to judgment in its favor on
plaintiff’s breach of contract claim.
Waiver/Estoppel/Modification
Plaintiff argues that defendant waived its opportunity
to assert, or is estopped from asserting as a defense, prior
breaches of the Distribution Agreement by plaintiff because
defendant failed to exercise the remedy provided in paragraph 12(b) of the Distribution Agreement. 34

That argument is

undermined by the Distribution Agreement itself.
The Distribution Agreement provides that “[e]ither
party may terminate this Agreement upon thirty (30) days written
notice if the other party is in default in the performance of
any material obligation under this Agreement and the other party
fails to cure such default within such period.” 35

The

Distribution Agreement thus gives the non-breaching party the
option to (after giving the breaching party notice and an
opportunity to cure) terminate the Distribution Agreement based
upon a material breach that agreement.
Moreover, the Distribution Agreement specifically
addresses the issue of waiver and provides, in pertinent part,
34
That provision states that “[e]ither party may terminate this
Agreement upon thirty (30) days written notice if the other party is in
default in the performance of any material obligation under this Agreement
and the other party fails to cure such default within such period.” Distribution Agreement at ¶ 12(b)(emphasis added).
35

Id.

-37-

that “[n]o waiver by either party of any breach...and no
failure, refusal, or neglect of either party to exercise any
right, power, or option given to it ...shall constitute a waiver
of the provisions of this Agreement with respect to any
subsequent breach.” 36
Alternatively, plaintiff argues that the terms of the
Distribution Agreement were modified by Arjo’s continued
acceptance of performance by HTI after the actions by HTI which
Arjo now asserts were material breaches of the Distribution
Agreement.
As with plaintiff’s waiver argument, the Distribution
Agreement expressly provides that any modification of the
agreement were required to be in writing and signed by both
parties. 37

Accordingly, to the extent that plaintiff argues that

the conduct of which defendant now complains cannot be a breach
of the agreement because the agreement was modified to permit
that same conduct, that argument is similarly unavailing.
CONCLUSION
For all the forgoing reasons, I deny Plaintiff’s
Motion for Preliminary Injunction.

I grant defendant’s oral

Motion for Judgment on Partial Findings.

36

Accordingly, I enter

Distribution Agreement at ¶ 24 (emphasis added).

37

Specifically, paragraph 26 of the Distribution Agreement
provides, in pertinent part, that “this Agreement cannot be modified or
changed except by written instrument signed by both of the parties hereto.”

-38-

judgment in favor of defendant and against plaintiff on
Plaintiff’s Complaint for Preliminary and Permanent Injunctive
Relief.

-39-