Cardiovascular Support Perfusion Reliance Network, LLC et al v. SpecialtyCare Inc et al
Filing
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MEMORANDUM OPINION OF THE COURT. Signed by District Judge Todd J. Campbell on 2/18/2015. (DOCKET TEXT SUMMARY ONLY-ATTORNEYS MUST OPEN THE PDF AND READ THE ORDER.)(eh)
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF TENNESSEE
NASHVILLE DIVISION
CARDIOVASCULAR SUPPORT,
ET AL.,
Plaintiffs,
v.
SPECIALTYCARE, INC.,
ET AL.,
Defendants.
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NO. 3:13-CV-1171
JUDGE CAMPBELL
MEMORANDUM
Pending before the Court are Plaintiffs’ Motion for Partial Summary Judgment (Docket No.
85) and Defendants’ Motion for Summary Judgment (Docket No. 73). For the reasons stated herein,
the Court will DENY Plaintiffs’ motion and GRANT Defendants’ motion.
FACTUAL BACKGROUND AND PROCEDURAL HISTORY
The facts set forth below are undisputed unless otherwise indicated. Plaintiffs (collectively
referred to as “Cardiovascular Support”) provide perfusion services and perfusion-related goods to
various hospitals in Texas. Defendants (collectively referred to as “SpecialtyCare”) provide a variety
of clinical services, including perfusion services, to hospitals across the country. Perfusion services
are provided to patients who are having open-heart surgery. The perfusionist operates the heart/lung
bypass machine, which provides life support to a patient during open heart surgery.
On December 9, 2010, Cardiovascular Support and SpecialtyCare entered into a nondisclosure agreement, the purpose of which was to protect Cardiovascular Support as it provided
SpecialtyCare’s mergers and acquisitions team with qualified access to its confidential business
information so that SpecialtyCare could evaluate a possible investment, acquisition, divestiture,
merger, or other strategic acquisition of Cardiovascular Support. Ultimately, no such transaction
occurred.
At the time the non-disclosure agreement was executed, Cardiovascular Support had an
existing contract to provide perfusion services and products to Baylor University Medical Center
(“Baylor”) in Dallas County, Texas. Cardiovascular Support’s contract with Baylor expired in mid2011, about the same time that Cardiovascular Support and SpecialtyCare entered into the nondisclosure agreement. Cardiovascular Support attempted to negotiate a new contract with Baylor.
Lloyd Yancey was the individual with Cardiovascular Support who was responsible for negotiations
with Baylor. Mike Sanborn, Baylor’s Vice President of Cardiovascular Services, handled the
negotiations for Baylor, although there were other decision makers at Baylor as well.
Baylor was satisfied with Cardiovascular Support’s perfusionist services but felt that it could
save money by purchasing its own supplies. Sanborn Dep. 8–9 (Docket No. 65-1). Baylor considered
bringing both services and supplies in house, and extended Cardiovascular Support’s contract by
ninety days to allow time to hire its own perfusionists. Sanborn Dep. 11, 13. When it encountered
difficulty with bringing perfusionist services in house, Baylor next considered seeking a service-only
contract in which it contracted with an outside company for perfusionist services, with the intention
to purchase its own supplies in order to save money. Sanborn Dep. 15.
At some point in this process, Baylor learned that one of its affiliate hospitals in another city
already had a service-only contract with SpecialtyCare. Indeed, Jonathan Womack, who was the Vice
President of Sales for SpecialtyCare and its various predecessors-in-interest, testified that he had
been trying to get SpecialtyCare “in the door at Baylor for a while before 2011.” Womack Dep. 29
(Docket No. 70). Baylor solicited a service-only bid from SpecialtyCare. Sanborn Dep. 18. Mr.
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Sanborn, who handled this matter for Baylor, testified that Baylor had a standardized form with the
information it wanted included in the bid. Sanborn Dep. 20. SpecialtyCare used Baylor’s form to
create its proposal. Baylor liked SpecialtyCare’s proposal, which in addition to having the benefit
of being a services-only bid, also included monitoring, bench marking, and some other services
Baylor was not currently getting from Cardiovascular Support, such as blood management. Sanborn
Dep. 24.
At the same time Baylor was exploring the possibility of entering into a services-only
contract with SpecialtyCare, Mr. Sanborn was also considering the possibility of Baylor’s continuing
to contract for perfusionist services with Cardiovascular Support. The primary point of negotiation
between Baylor and Cardiovascular Support was whether, and how much, Cardiovascular Support
would lower its charges for supplies. At Mr. Sanborn’s request, Cardiovascular Support created a
proposal that would eliminate about one million dollars of expenses from supplies. However, Mr.
Sanborn did not like that the bid was on a flat-fee basis, which he thought would not be financially
advantageous to Baylor. Sanborn Dep. 16. In response to Baylor’s stated desire to purchase its own
supplies, Cardiovascular Support indicated it would be willing to enter a contract in which Baylor
would purchase its own heart valves only if Baylor paid Cardiovascular Support a ten percent
handling fee and agreed to disclose the pricing it received from the manufacturers of the heart valves.
Yancey Dep. 115 (Docket No. 64). As Mr. Yancey himself testified on behalf of Cardiovascular
Support, Baylor was not comfortable with that proposal because Baylor had confidentiality
agreements with its vendors. Yancey Dep. 115. The discussions between Cardiovascular Support and
Baylor were all verbal. The parties never exchanged draft agreements related to the contract renewal.
Yancey Dep. 116. Mr. Yancey testified that Mr. Sanborn assured him that Cardiovascular Support
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would not lose the contract for services, as Baylor was only considering changing the way it obtained
supplies. Yancey Dep. 117. Mr. Sanborn testified, to the contrary, that he “would not have made that
statement.” Sanborn Dep. 16. In any event, Mr. Sanborn testified that Cardiovascular Support’s
proposals were not “adequate” and that Baylor was “not prepared to move forward with the
renewal.” Sanborn Dep. 18. He further testified that there was “zero chance” Baylor would renew
the contract as written because of Baylor’s “significant amount of concern over the pricing of the
supplies.” Sanborn Dep. 10. On October 14, 2011, Baylor and SpecialtyCare entered into a servicesonly contract, with services to begin December 1, 2011.
The gravamen of Plaintiffs’ complaint is that SpecialtyCare’s merger and acquisitions team
disclosed Plaintiffs’ confidential information to its sales team, which in turn improperly used the
confidential information to obtain the contract with Baylor for provision of perfusionist services.
Defendants dispute both the allegation that their merger and acquisitions team gave the confidential
information to the sales team and also that it used the confidential information in creating its
proposal for the Baylor contract.
On March 29, 2013, Cardiovascular Support brought this action in state court in Dallas
County, Texas. On May 6, 2013, Defendants removed the case to the United States District Court
for the Northern District of Texas on the basis of diversity of citizenship, pursuant to 28 U.S.C. §
1332. Plaintiffs are citizens and residents of the State of Texas. Defendant companies were
incorporated in states other than Texas and have their principal places of business in Tennessee. On
May 28, 2013, Plaintiffs filed an Amended Complaint. On October 22, 2013, this action was
transferred from the Northern District of Texas to this Court by agreement of the parties.
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Plaintiffs assert claims for breach of contract, promissory estoppel, fraud, negligent
misrepresentation, tortious interference with prospective relations, and trade secret misappropriation.
Defendants raise defenses of statute of limitations, contributory negligence, comparative negligence
of third parties, failure to mitigate damages, release, waiver, estoppel, laches, unclean hands, and
accord and satisfaction.
Plaintiffs move for summary judgment as to liability on each of its claims, but not as to
damages. They also move for summary judgment as to each of Defendants’ defenses. Defendants
move for summary judgment dismissing all claims in Plaintiffs’ First Amended Petition.
ANALYSIS
I. Summary Judgment Standard
Rule 56 requires the court to grant a motion for summary judgment if “the movant shows
that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a
matter of law.” Fed. R. Civ. P. 56(a). If a moving defendant shows that there is no genuine issue of
material fact as to at least one essential element of the plaintiff’s claim, the burden shifts to the
plaintiff to provide evidence beyond the pleadings, “set[ting] forth specific facts showing that there
is a genuine issue for trial.” Moldowan v. City of Warren, 578 F.3d 351, 374 (6th Cir. 2009); see also
Celotex Corp. v. Catrett, 477 U.S. 317, 322–23 (1986). “In evaluating the evidence, the court must
draw all inferences in the light most favorable to the non-moving party.” Moldowan, 578 F.3d at 374
(citing Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986)).
At this stage, “‘the judge’s function is not . . . to weigh the evidence and determine the truth
of the matter, but to determine whether there is a genuine issue for trial.’” Id. (quoting Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 249 (1986)). But “[t]he mere existence of a scintilla of evidence
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in support of the [non-moving party’s] position will be insufficient,” and the party’s proof must be
more than “merely colorable.” Anderson, 477 U.S. at 252. An issue of fact is “genuine” only if a
reasonable jury could find for the non-moving party. Moldowan, 578 F.3d at 374 (citing Anderson,
477 U.S. at 252).
II.
Choice of Law
“Because this is a diversity action, the law of the forum state, including the choice-of-law
rules, apply.” Montgomery v. Wyeth, 580 F.3d 455, 459 (6th Cir. 2009). “In Tennessee, the
‘construction and validity of a contract are governed by the law of the place where the contract [wa]s
made.’”Baxter Bailey Investments, Inc. v. Mars Petcare US, Inc., No. 11-2860-STA-DKV, 2012 WL
1965612, at *3 (W.D. Tenn. May 31, 2012) (quoting Ohio Cas. Ins. Co. v. Travelers Indem. Co., 493
S.W.2d 465, 466 (Tenn. 1973)). As the Tennessee Court of Appeals has held:
Tennessee follows the rule of lex loci contractus. This rule provides that a contract
is presumed to be governed by the law of the jurisdiction in which it was executed
absent contrary intent. If the parties manifest an intent to instead apply the laws of
another jurisdiction, then that intent will be honored provided certain requirements
are met. The choice of law provision must be executed in good faith. The jurisdiction
whose law is chosen must bear a material connection to the transaction. The basis for
the choice of another jurisdiction’s law must be reasonable and not merely a sham
or subterfuge. Finally, the parties’ choice of another jurisdiction’s law must not be
contrary to a fundamental policy of a state having a materially greater interest and
whose law would otherwise govern.
Vantage Tech., LLC v. Cross, 17 S.W.3d 637, 650 (Tenn. Ct. App. 1999) (internal quotation marks,
brackets, citations omitted).
Plaintiffs bring claims that sound in contract and tort, and the Court must consider which
state’s law to apply to these different categories of claims. The non-disclosure agreement at issue in
this matter contains the following choice of law provision: “This Agreement shall be construed in
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accordance with the laws of the State of Delaware.” Docket No. 7, at 18 (Exhibit to First Amended
Petition). The parties are in agreement that Delaware law governs the breach of contract claim in this
case. There is no indication that the contract was entered into in bad faith and neither party has
pointed to any evidence that their choice of Delaware law was a sham or that it is contrary to a
fundamental policy of a state having a materially greater interest whose law would otherwise govern.
Other than the fact that one of the Defendant companies was incorporated in Delaware, the parties
do not address the manner in which this transaction is materially connected to the state of Delaware.
Because the other factors are easily met, the parties are in agreement that Delaware law governs the
breach of contract claim, and there does not appear to be a conflict of laws on this legal issue, the
Court will apply Delaware law to the breach-of-contract claim.
However, the non-disclosure agreement’s choice of law clause is narrowly written to cover
only the interpretation of the contract, not the entirety of the relationship between the parties. Other
than Plaintiffs’ breach of contract claim, the remainder of Plaintiffs’ claims sound in tort, to which
the Court will apply Tennessee’s choice of law rules. Tennessee applies the “most significant
relationship” test set forth in the Restatement (Second) of Conflicts of Laws to determine which law
applies to those claims. Hataway v. McKinley, 830 S.W.2d 53, 59 (Tenn. 1992). This test considers
the place of the injury, the place where the conduct causing the injury occurred, the place of
incorporation or place of business of the parties, and the place where the relationship is centered. Id.
In cases in which it is unclear which state possesses the most significant relationship, “[t]he
applicable law will usually be the local law of the state where the injury occurred.” Restatement
(Second) of Conflicts of Law § 156(2) (1971). Plaintiffs alleged injury in this matter is economic
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loss, which occurred in Texas, the location of Plaintiffs’ principal place of business. Thus, the Court
will apply Texas law to Plaintiffs’ tort claims.1
A conflict of law exists with respect to Plaintiffs’ trade-secret misappropriation claim.
Tennessee enacted the Uniform Trade Secrets Act (the “Act”) in 2000 (see Tenn. Code Ann. § 4725-1701). In contrast, while Texas adopted the Act effective September 1, 2013, the pre-Act Texas
common law applies to any alleged misappropriation that occurred before that effective date. (See
Tex. Civ. Prac. & Rem. Code Ann. § 134A.001, historical and statutory notes). Because of
differences between the Act and Texas common law with respect to the definition of a “trade secret”
and also with respect to the types of damages methodologies available, the Court will apply Texas
law, as it is the state with the most significant relationship to this claim.
III.
Breach of Contract
Under Delaware law, the elements of a breach of contract claim are as follows: “first, the
existence of the contract, whether express or implied; second, the breach of an obligation imposed
by that contract; and third, the resultant damage to the plaintiff.” VLIW Tech., LLC v.
Hewlett-Packard Co., 840 A.2d 606, 612 (Del. 2003). After thorough review of all the evidence
Plaintiffs argue supports their claim, the Court finds that Plaintiffs have no evidence that Defendants
breached the non-disclosure agreement. The deposition testimony to which Plaintiffs direct the
Court’s attention, in support of their motion and in opposition to Defendants’ motion, all consists
of unsupported assumptions. In essence, Plaintiffs’ witnesses testify that the mergers and acquisitions
section of SpecialtyCare “must have” shared Plaintiffs’ confidential information with its sales
division, which in turn used the information to craft its proposal to Baylor.
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The parties are in agreement that Texas law applies to Plaintiffs tort claims.
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Even if the dispute between the parties about whether the mergers and acquisitions section
of SpecialtyCare shared Plaintiffs’ confidential information with the sales division were genuine, a
question the Court need not reach, that dispute is not material to Plaintiffs’ claims. There is simply
no evidence from which a reasonable jury could conclude that Defendants used Plaintiffs’ protected
information to steal the Baylor contract from them. The most specific allegation Mr. Yancey, who
negotiated the Baylor contract for Plaintiffs, could make in deposition, was the following: “[A]ll the
salaries [in Defendants’ bid to Baylor] looked a little bit higher than what [Defendants] were paying
their staff perfusionist in Fort Worth or for the most part. They knew exactly what all of my people
were making, and they adjusted it up.” Docket No. 72-1, at 118. This statement, as with the other
evidence presented by Plaintiffs, is pure speculation.
Mr. Sanborn, in charge of contract negotiations for Baylor, testified that he made the decision
to solicit a proposal from Defendants and that Baylor provided all the information necessary for the
proposal. Defendants had contracts with other hospitals in Texas for perfusionist services and had
been trying for several years to get a contract with Baylor. Mr. Womack, who handled the Baylor
negotiations, testified that he did not receive Plaintiffs’ confidential information from anyone within
his office, nor did he use any confidential information in preparing the Baylor proposal. Plaintiffs
have presented nothing but insinuation and speculation to contradict his unequivocal testimony on
this issue.
Furthermore, the Court agrees with Defendants that Plaintiffs cannot prove that Baylor would
have contracted with Plaintiffs but for Defendants’ actions. It is clear from Mr. Sanborn’s testimony
that Baylor was dissatisfied with Cardiovascular Support’s proposed renewal contract, even after it
reduced the cost of supplies by one million dollars. Docket No. 65, at 9–10, 16–18. Mr. Yancey
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testified that Cardiovascular Support proposed a contract in which Baylor would purchase its own
heart valves, but only if Baylor paid it a ten-percent handling fee and agreed to disclose the pricing
it received from the manufacturers of the heart valves. Docket No. 64-1, at 115. As Mr. Yancey
himself testified, Baylor was not comfortable with that request because it had confidentiality
agreements with its vendors. Id. It is clear from Mr. Yancey’s own testimony that Baylor was not
pleased with Cardiovascular Support’s proposal. Baylor was seeking a services-only contract, which
Mr. Sanborn believed was not an option with Cardiovascular Support and for which, in fact,
Cardiovascular Support never submitted a proposal. Mr. Sanborn testified that “[t]here was zero
chance that [Baylor] would renew [Cardiovascular Support’s] contract as written.”
Without proof of a breach of contract or damages therefrom, Plaintiffs’ have not established
that they are entitled to judgment on this claim. In contrast, Defendants have demonstrated
entitlement to judgment on this claim.
IV.
Promissory Estoppel
Because Defendants have conceded that the non-disclosure agreement is a valid contract
between the parties, the Plaintiffs, in turn, concede that their claim for promissory estoppel fails.
Defendants are entitled to judgment in their favor on this claim.
V.
Fraud and Negligent Misrepresentation
Under Texas law, “[a] fraud cause of action requires a material misrepresentation, which was
false, and which was either known to be false when made or was asserted without knowledge of its
truth, which was intended to be acted upon, which was relied upon, and which caused injury.”
Formosa Plastics Corp. USA v. Presidio Eng’rs & Contractors, Inc., 960 S.W.2d 41, 47 (Tex.
1998).
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Under Texas law, the elements of negligent representation are:
(1) a defendant provides information in the course of his business, or in a transaction
in which he has a pecuniary interest; (2) the information supplied is false; (3) the
defendant did not exercise reasonable care or competence in obtaining or
communicating the information; (4). the plaintiff justifiably relies on the information;
and (5) the plaintiff suffers damages proximately caused by the reliance.
Larsen v. Carlene Langford & Assocs, Inc., 41 S.W.3d 245, 249–50 (Tex. Ct. App. 2001).
Plaintiffs claim that Defendants did not intend to perform the promises of the non-disclosure
agreement at the time the promises were made, intending instead to use the confidential information
to compete with Plaintiffs for the Baylor perfusionist contract. They further claim that Defendants’
sales team members obtained their confidential information from Defendants’ merger and
acquisitions team, and used the confidential information to create their competing bid. Plaintiffs have
no evidence from which a reasonable jury could conclude that Defendants made a material
misrepresentation or otherwise gave false information to Plaintiffs. For the same reasons that
Plaintiffs cannot prevail on their breach of contract claim, they also fail to present evidence sufficient
to establish that Defendants used Plaintiffs’ information to create their bid to Baylor. Plaintiffs also
cannot prove that Defendants’ actions caused them injury– that is, that Defendants’ actions were the
proximate cause of Plaintiffs’ failure to obtain the contract with Baylor. Accordingly, the Court will
deny Plaintiffs’ motion for summary judgment on this claim, and grant summary judgment to
Defendants.
VII.
Tortious Interference with Prospective Relations
Under Texas law, to prevail on a claim for tortious interference with prospective contracts
the plaintiff must prove the following:
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(1) a reasonable probability that the parties would have entered into a contractual
relationship; (2) an “independently tortious or unlawful” act by the defendant that
prevented the relationship from occurring; (3) the defendant did such act with a
conscious desire to prevent the relationship from occurring or knew that the
interference was certain or substantially certain to occur as a result of his conduct;
and (4) the plaintiff suffered actual harm or damage as a result of the defendant's
interference.
Faucette v. Chantos, 322 S.W.3d 901, 914 (Tex. App. 2010).
Plaintiffs have failed to present evidence to support the first, second, or fourth of these
elements. As to the third element, Defendants had every right to pursue a contract with Baylor. As
the Texas Supreme Court has held, “when two parties are competing for interests to which neither
is entitled, then neither can be said to be more justified or privileged in his pursuit. If the conduct
of each is lawful, neither should be heard to complain that mere unfairness is actionable.” Wal-Mart
Stores, Inc. v. Sturges, 52 S.W.3d 711, 727 (Tex. 2001). Defendants are entitled to judgment on this
claim.
VIII. Trade Secret Misappropriation
To state a claim for trade secret misappropriation under Texas law, “a plaintiff must (1)
establish that a trade secret existed; (2) demonstrate that the trade secret was acquired by the
defendant through a breach of a confidential relationship or discovered by improper means; and (3)
show that the defendant used the trade secret without authorization from the plaintiff. . . . The
existence of a trade secret is properly considered a question of fact to be decided by the judge or jury
as fact-finder.” Gen. Universal Sys., Inc. v. Lee, 379 F.3d 131, 149–50 (5th Cir. 2004).
To determine whether something constitutes a trade secret protected from disclosure or use,
Texas courts examine six “relevant but nonexclusive criteria.”
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(1) the extent to which the information is known outside the business; (2) the extent
to which it is known by employees and others involved in the business; (3) the extent
of measures taken to safeguard the secrecy of the information; (4) the value of the
information to him and to his competitors; (5) the amount of effort or money
expended in developing the information; and (6) the ease or difficulty with which the
information could be properly acquired or duplicated by others.
Id.
Plaintiffs argue that all the confidential information given to Defendants, as defined by the
non-disclosure agreement, constitutes a trade secret. This includes employment agreements, entity
names, W-9 forms, tax forms, e-mails between SpecialtyCare and Cardiovascular Support, internal
e-mails, SpecialtyCare’s financial analysis of Cardiovascular Support information, Cardiovascular
Support’s financial statements and tax returns, and notes of phone calls. Plaintiffs offer no case law
to support the proposition that information is legally protected as a trade secret by virtue of the fact
that the parties to a contract have defined it as “confidential information.” Furthermore, there is no
evidence that Plaintiffs expended any effort or money in developing the information beyond the
effort required by any business to prepare its financials, tax forms, and business documents. There
is no evidence that Plaintiffs made its employees sign confidentiality agreements with respect to this
information. It is unclear that any of Plaintiffs’ information constitutes a trade secret. But even
assuming Plaintiffs’confidential information constituted legally-protected trade secrets, for reasons
already articulated, Plaintiffs do not have sufficient evidence to demonstrate the second or third
elements of a trade-secret misappropriation claim. Accordingly, the Court will deny Plaintiffs’
motion for summary judgment on this claim and grant Defendants’ motion.
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CONCLUSION
For the foregoing reasons, the Court will DENY Plaintiffs’ Motion for Partial Summary
Judgment (Docket No. 85) and GRANT Defendants’ Motion for Summary Judgment (Docket No.
73). The Court will enter judgment in favor of Defendants as to all claims in Plaintiffs’ Amended
Complaint.
An appropriate order is filed herewith.
___________________________________
TODD J. CAMPBELL
UNITED STATES DISTRICT JUDGE
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