Thermal Surgical, LLC v. Brown
Filing
141
OPINION AND ORDER granting in part and denying in part 129 Motion for Summary Judgment; denying without prejudice 137 Motion to Amend 9 Counterclaim. If dft chooses to renew his motion to amend, he shall submit his filing within 30 days of the date of this Opinion and Order. Signed by Judge William K. Sessions III on 6/30/2020. (jam)
UNITED STATES DISTRICT COURT
FOR THE
DISTRICT OF VERMONT
THERMAL SURGICAL, LLC,
Plaintiff/Counterclaim
Defendant,
v.
JEFF BROWN,
Defendant/CounterClaimant/Third-Party
Plaintiff,
v.
JASON LESAGE, GREGORY SWEET,
NUVASIVE, INC.,
Third-Party Defendants,
and
NUVASIVE, INC.,
Plaintiff,
v.
JEFF BROWN,
Defendant.
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Case Nos. 2:15-cv-220
2:19-cv-75
OPINION AND ORDER
Plaintiffs Thermal Surgical, LLC (“Thermal Surgical”) and
NuVasive, Inc. (“NuVasive”) bring claims in this consolidated
action against defendant Jeff Brown for, among other things,
breach of a non-competition agreement.
Mr. Brown was formerly
employed by Thermal Surgical as a sales representative, and is
now allegedly employed by one of Thermal Surgical’s competitors.
Thermal Surgical is a distributor of NuVasive medical products.
Mr. Brown asserts counterclaims against Thermal Surgical, and
third-party claims against NuVasive and Thermal Surgical’s
founders, Jason Lesage and Gregory Sweet.
Now before the Court is a motion for summary judgment filed
by Thermal Surgical, NuVasive, Mr. Lesage and Mr. Sweet (“the
NuVasive parties”).
The movants contend that all pending claims
were resolved in a prior proceeding before the United States
Bankruptcy Court for the District of New Hampshire, and that the
doctrine of res judicata entitles them to judgment.
Mr. Brown
opposes the summary judgment motion, claiming that the bankruptcy
proceeding did not provide him with sufficient due process.
He
also seeks leave to amend his counterclaims to add a defamation
claim based upon post-bankruptcy events.
For the reasons set forth below, the motion for summary
judgment is granted in part and denied in part, and the motion
for leave to amend is denied without prejudice.
Factual Background
The following facts are undisputed.1
Prior to this
litigation, Mr. Brown was employed by Thermal Surgical as a
1
Despite receiving the special notice required for a selfrepresented litigant facing a summary judgment motion, Mr. Brown
did not file a response to the movants’ statement of undisputed
facts. His opposition memorandum contends that there are issues
of fact related to his representation in the bankruptcy
proceeding and the damages claimed by NuVasive and Thermal
Surgical.
2
medical sales representative.
Thermal Surgical is the exclusive
distributor for NuVasive, which is in the business of designing,
manufacturing and marketing medical devices used in spinal
surgery.
Thermal Surgical claims that beginning in or about
October 2014, Mr. Brown began working for a competitor.
In doing
so, he allegedly undercut sales and commissions for both Thermal
Surgical and NuVasive.
The Complaint asserts four causes of
action: Count I, for breach of contractual non-competition and
non-solicitation obligations; Count II, for breach of the common
law duty of loyalty; Count III, for misappropriation of trade
secrets; and Count IV, for punitive damages.
Mr. Brown, through counsel, answered the Complaint.
He also
asserted counterclaims against Thermal Surgical and a third-party
suit against NuVasive, Mr. LeSage and Mr. Sweet.
The
counterclaims allege that Mr. Brown’s employment agreements,
which included non-competition provisions, were breached by
Thermal Surgical and never executed.
The counterclaims consist
of 11 causes of action, including claims of fraud, defamation,
tortious interference with business relationships, and civil
conspiracy.
The Third-Party Complaint alleges joint tortfeasor
liability, statutory liability and civil conspiracy.
This litigation continued from its filing date in October
2015 until September 2016, when Mr. Brown filed for Chapter 7
bankruptcy relief in the New Hampshire federal bankruptcy court.
3
His attorney filed with this Court a notice of the bankruptcy
filing, and the case was stayed.
Counsel for Mr. Brown also
moved to withdraw from the case, and Mr. Brown has since been
representing himself in this matter.
Mr. Brown was represented in the bankruptcy case by New
Hampshire bankruptcy counsel.
His first attorney was reportedly
a well-respected practitioner with 35 years of experience in
bankruptcy law.
His second attorney was also well-respected
locally, with 15 years of experience.
The movants contend that Mr. Brown misled the bankruptcy
court about the nature of his financial affairs, and specifically
about whether he had transferred any assets to his ex-wife in the
previous five years.
Investigative efforts reportedly revealed
that Mr. Brown had, in fact, directed over $500,000 of his
payroll to his ex-wife during that time period.
Records also
showed that Mr. Brown’s ex-wife still held over $100,000 in her
account, and the Chapter 7 trustee worked to recover those
proceeds for the benefit of the estate.
NuVasive and Thermal Surgical each filed proofs of claim in
the bankruptcy case.
Thermal Surgical sought $315,000 for lost
commissions and violations of the non-competition agreement.
NuVasive sought $1.5 million in lost sales.
The Chapter 7
trustee disputed NuVasive’s claim to the extent it sought amounts
already recovered from Mr. Brown’s current employer, A2 Medical.
4
NuVasive subsequently agreed to reduce its proof of claim by
$250,000 due to the amount received from A2 Medical, and by
another $50,000 in satisfaction for the claims brought here.
Those agreements resulted in an assented-to motion for approval
in lieu of a formal objection to NuVasive’s proof of claim.
On November 30, 2018, Mr. Brown waived his right to
discharge in the bankruptcy case.
On December 17, 2018, the
bankruptcy court ordered NuVasive’s claim reduced to $1.2
million, and allowed Thermal Surgical’s claim of $315,000.
The
court further ordered that:
Thermal Surgical, LLC, NUVASIVE, Inc., Gregory Sweet
and Jason Lesage are authorized to file motion(s) to
dismiss the various counterclaims and third party
claims by [Mr. Brown] against them in the matter of
Thermal Surgical, LLC v. Jeff Brown, United States
District Court for the District of Vermont, Case No.
2:15-cv-00220-wks. All claims or potential claims held
by [Mr. Brown] against Thermal Surgical, LLC, NUVASIVE,
Inc., Gregory Sweet and Jason Lesage as of the petition
date of September 20, 2016 are hereby resolved and
satisfied by this Order.
Thermal Surgical, NuVasive, Mr. Sweet and Mr. Lesage filed such
motions to dismiss in this Court, with assent from the Chapter 7
trustee on behalf of the bankruptcy estate.
Copies were also
served upon Mr. Brown’s bankruptcy counsel, who did not file an
objection or other response.
This Court subsequently denied the
motions to dismiss without prejudice, ruling that the claims at
issue would be addressed in the context of the pending motion for
summary judgment.
5
The bankruptcy trustee’s final report (“TFR”), consistent
with the bankruptcy court’s order, showed allowed amounts of $1.2
million for the NuVasive claim and $315,000 for the Thermal
Surgical claim.
The TFR also set distributions of $48,077.97 on
NuVasive’s claim and $12,620.47 on Thermal Surgical’s claim.
After the deadline for objections passed, and absent any
objection, the TFR was accepted and acted upon by the trustee.
Accounting for the paid distributions, NuVasive’s claim was
reduced to $1,151,922.03 and Thermal Surgical’s to $302,379.53.
Public records indicate that the Chapter 7 proceeding was closed
in December 2019.
When settlement efforts proved unsuccessful, NuVasive
brought suit against Mr. Brown in this Court in 2019.
The Court
subsequently consolidated the NuVasive case with Thermal
Surgical’s case, which included Mr. Brown’s Counterclaims and
Third-Party Complaint.
The Court has lifted the stay, and the
NuVasive parties now collectively move for summary judgment on
all pending claims, arguing that Mr. Brown’s causes of action
were resolved in the bankruptcy proceeding and that this Court
may now enter judgment in their favor on the basis of res
judicata.
Mr. Brown opposes the motion for summary judgment, arguing
in part that he was not properly represented in the bankruptcy
case and that he was thus denied due process.
6
He also seeks
leave to amend his pleadings to add a claim of defamation.
The
defamation claim is based upon statements allegedly made by Mr.
Sweet in December 2017.
The motion to amend is opposed, with the
NuVasive parties arguing that it is conclusory and that any
effort to supplement the claim would be futile.
They also argue
that the motion was filed in bad faith in an attempt to avoid the
implications of the bankruptcy court’s ruling.
Their final
contention is that the motion to amend should have no impact on
the motion for summary judgment.
Discussion
I.
Motion for Summary Judgment
A.
Legal Standard
Summary judgment is appropriate when the record 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); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322
(1986).
Disputes concerning material facts are genuine where the
evidence is such that a reasonable jury could return a verdict
for the non-moving party.
U.S. 242, 248 (1986).
Anderson v. Liberty Lobby, Inc., 477
In deciding whether genuine issues of
material fact exist, the court construes all facts in a light
most favorable to the non-moving party and draws all reasonable
inferences in the non-moving party’s favor.
See Jeffreys v. City
of New York, 426 F.3d 549, 553 (2d Cir. 2005).
7
However, the
non-moving party “may not rely on conclusory allegations or
unsubstantiated speculation.”
F.D.I.C. v. Great Am. Ins. Co.,
607 F.3d 288, 292 (2d Cir. 2010) (quotation omitted).
B.
Res Judicata
“Under the doctrine of res judicata, or claim preclusion, a
final judgment on the merits of an action precludes the parties
or their privies from relitigating issues that were or could have
been raised in that action.”
EDP Med. Comput. Sys., Inc. v.
United States, 480 F.3d 621, 624 (2d Cir. 2007) (internal
quotation marks, alteration, and citation omitted).
Res judicata
“is a rule of fundamental repose important for both the litigants
and for society.”
Cir. 1985).
In re Teltronics Servs., 762 F.2d 185, 190 (2d
It “relieve[s] parties of the cost and vexation of
multiple lawsuits, conserve[s] judicial resources, and, by
preventing inconsistent decisions, encourage[s] reliance on
adjudication.”
Allen v. McCurry, 449 U.S. 90, 94 (1980).
The
Second Circuit has noted that “[t]hese virtues have no less value
in the bankruptcy context; this is particularly true in a Chapter
7 liquidation where it is desirable that matters be resolved as
expeditiously and economically as possible.”
EDP Med. Comput.
Sys., Inc., 480 F.3d at 624-25 (citing Bank of Lafayette v.
Baudoin (In re Baudoin), 981 F.2d 736, 740 (5th Cir. 1993)).
Res judicata bars a subsequent litigation when “(1) the
prior decision was a final judgment on the merits, (2) the
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litigants were the same parties [or in privity], (3) the prior
court was of competent jurisdiction, and (4) the causes of action
were the same.”
Corbett v. MacDonald Moving Servs., 124 F.3d 82,
88 (2d Cir. 1997).
In this case, the bankruptcy court clearly
ordered that all claims being brought by Mr. Brown against the
NuVasive parties as of September 20, 2016 were resolved.
was no objection and no appeal of that ruling.
There
The bankruptcy
case is concluded, and there are no disputes about privity,
jurisdiction, or similarity of causes of action.
Accordingly,
the Court finds that the assertion of res judicata with respect
to Mr. Brown’s counterclaims and third-party claims is
appropriate, and those claims are dismissed.
In addition to dismissal of the claims brought against them,
the NuVasive parties ask the Court to apply res judicata with
respect to the proofs of claim allowed by the bankruptcy court,
and to thus order judgment against Mr. Brown on their affirmative
claims.
For support, they rely on the Second Circuit’s holding
that “a bankruptcy court order allowing an uncontested proof of
claim constitutes a ‘final judgment’ and is thus a predicate for
res judicata.”
EDP Med. Comput. Sys., Inc., 480 F.3d at 625.
Mr. Brown protests that the amounts of those proofs of claim,
totaling over $1.5 million dollars, are unsupported and have
never been proven.
In asking this Court to enter judgment on their affirmative
9
claims, the NuVasive parties are asserting res judicata as an
offensive, rather than defensive, tool.
Offensive application of
res judicata is rare, as it is “typically a defensive doctrine.”
St. Paul Mercury Ins. Co. v. Williamson, 224 F.3d 425, 439 (5th
Cir. 2000).
“The Supreme Court has cautioned that the offensive
use of res judicata should be examined carefully to determine
whether it would be unfair to the defendant.”
Sharp Kabushiki
Kaisha v. ThinkSharp, Inc., 448 F.3d 1368, 1371 (Fed. Cir. 2006)
(citing Parklane Hosiery Co. v. Shore, 439 U.S. 322, 330–32
(1979)).
In Parklane, the Supreme Court provided a non-
exhaustive list of fairness considerations, including whether the
party in the first action had sufficient incentive to defend
himself vigorously.
439 U.S. at 330.
If the Court were to grant the NuVasive parties’ motion for
summary judgment on their affirmative claims, its ruling would
transform the bankruptcy court’s decision into an enforceable
monetary judgment.
At least one Circuit Court has noted,
however, that “[a]n allowed claim in bankruptcy serves a
different objective from that of a money judgment——it permits the
claimant to participate in the distribution of the bankruptcy
estate.”
Ziino v. Baker, 613 F.3d 1326, 1328 (11th Cir. 2010)
(citations omitted).
Similarly, “the assertion of a claim in
bankruptcy is, of course, not an attempt to recover a judgment
against the debtor but to obtain a distributive share in the
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immediate assets of the proceeding.”
Id. (quoting Matter of
Mobile Steel Co., 563 F.2d 692, 700 (5th Cir. 1977)).
Depending
upon the size of the bankruptcy estate, a distributive share
could be far smaller than payment on the entire proof of claim.
Correspondingly, and with respect to the fairness considerations
encouraged by Parklane, the incentive to engage in vigorous
litigation would be smaller as well.
Here, the distributions from the bankruptcy estate to
NuVasive and Thermal Surgical were far smaller than their proofs
of claim, which suggests that the incentive to object was also
reduced.
Mr. Brown now submits that those claims are
considerably exaggerated and not based in fact.
the payment already made by his employer.
He also cites
There is no dispute
that the proofs of claim were allowed with only a minor objection
by the Chapter 7 trustee, and have not been established in any
sort of contested factual presentation.
Without proving their
claims, the NuVasive parties ask the Court to fully endorse the
bankruptcy court’s limited ruling and thereby achieve what could
amount to a windfall.
endorsement.
The Court declines to issue such an
See Chemetron Corp. v. Bus. Funds, Inc., 682 F.2d
1149, 1191 (5th Cir. 1982), vacated on other grounds, 460 U.S.
1007, and cert. denied, 460 U.S. 1013 (1983) (“[T]he finality
requirement does not necessarily demand the ministerial act of
executing a judgment.
It does not elevate form over substance in
11
that fashion——the accurate definition of ‘finality’ in the
offensive collateral estoppel context is ‘fully litigated.’”).
Furthermore, it is not clear from the summary judgment
record that NuVasive’s affirmative claims meet all of the
elements for claim preclusion.
Specifically, it is not clear
that the factual support for NuVasive’s proof of claim was based
upon the same claims asserted in the Complaint it brings here.
In the bankruptcy proceeding, NuVasive attached to its proof of
claim the pleadings filed by Thermal Surgical in 2015.
No. 129-12.
See ECF
NuVasive did not file its own causes of action in
this Court until 2019, after the bankruptcy court had already
allowed the proof of claim.
Because the claims asserted in the
two actions are not the same, NuVasive’s assertion of res
judicata is limited to the doctrine of issue preclusion.
As with
claim preclusion, issue preclusion requires the Court to consider
questions of fairness, and in this case those considerations
counsel against granting summary judgment on the affirmative
claims.
See Flood v. Just Energy Mktg. Corp., 904 F.3d 219, 236
(2d Cir. 2018).
While Second Circuit precedent supports treatment of an
allowed proof of claim as res judicata, the NuVasive parties have
offered no case law sanctioning offensive use of a bankruptcy
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court ruling.2
The Supreme Court has determined that “the
preferable approach for dealing with these problems in the
federal courts is not to preclude the use of offensive collateral
estoppel, but to grant trial courts broad discretion to determine
when it should be applied.”
331.
Parklane Hosiery Co., 439 U.S. at
Here, Mr. Brown’s objections to summary judgment are
essentially that he was not represented well in the bankruptcy
proceeding, that the proofs of claim are unproven, and that
imposing a significant monetary judgment against him without
further proof would be unfair.
The Court agrees, and the motion
for summary judgment on the movants’ affirmative claims is
denied.
II.
Motion to Amend Counterclaims
Mr. Brown’s most recent filing, submitted pro se, is a
motion to amend his counterclaims.
seeks to add a claim of defamation.
As noted above, the motion
Mr. Brown alleges that Mr.
Sweet, acting as a representative of Thermal Surgical and
NuVasive, encountered Jason Vallincourt during a business visit
to Fletcher Allen Hospital in December 2017.
2
Mr. Vallincourt is
In EDP Medical Computer Systems, Inc., the bankruptcy
court entered an order allowing an uncontested claim filed by the
IRS. The Chapter 7 trustee paid the claim in full. The debtor
subsequently initiated a second proceeding contesting the
validity of the taxes underlying the claim and seeking a refund.
The Second Circuit held that the order allowing the claim
constituted a final judgment, and ruled in favor of the IRS’s
defensive assertion of res judicata. 480 F.3d at 627.
13
an executive with Spinewave, a medical device company that
competes with Thermal Surgical and NuVasive.
Mr. Brown, in his
work for A2 Medical, represents Spinewave throughout New England.
The proposed counterclaim alleges that Mr. Sweet defamed Mr.
Brown during the encounter with Mr. Vallincourt.
The proposed
amendment does not disclose the content of the alleged statement
by Mr. Sweet.
The NuVasive parties argue that the proposed amendment is
too conclusory to state a plausible defamation claim and is
therefore futile.
“An amendment to a pleading will be futile if
a proposed claim could not withstand a motion to dismiss pursuant
to Rule 12(b)(6).”
Dougherty v. Town of N. Hempstead Bd. of
Zoning Appeals, 282 F.3d 83, 88 (2d Cir. 2002).
To survive a
motion to dismiss under Rule 12(b)(6), “a complaint must contain
sufficient factual matter . . . ‘to state a claim to relief that
is plausible on its face.’”
Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570
(2007)).
A plausible claim requires factual allegations that
permit the Court “to infer more than the mere possibility of
misconduct.”
Iqbal, 556 U.S. at 679.
The Second Circuit has
held that all complaints, including those submitted pro se, must
allege facts that state a plausible claim for relief.
See
Fowlkes v. Ironworkers Local 40, 790 F.3d 378, 387 (2d Cir.
2015).
14
Although a court “should freely give leave” to amend “when
justice so requires,” Fed. R. Civ. P. 15(a)(2), “it is within the
sound discretion of the district court to grant or deny leave to
amend.
A district court has discretion to deny leave for good
reason, including futility, bad faith, undue delay, or undue
prejudice to the opposing party.”
McCarthy v. Dun & Bradstreet
Corp., 482 F.3d 184, 200 (2d Cir. 2007) (citations omitted).
In
addition to futility, the NuVasive parties contend that Mr. Brown
submitted his amended counterclaim in bad faith.
With respect to the question of bad faith, “not much case
law exists in this Circuit about what constitutes bad faith for
the purpose of denying a motion for leave to amend a pleading.”
Youngbloods v. BMG Music, No. 07 Civ. 2394 (GBD) (KNF), 2011 WL
43510, at *9 (S.D.N.Y. Jan. 6, 2011).
Nonetheless, “it is the
defendants’ burden to show bad faith.”
307 F.R.D. 107, 113 n.4 (S.D.N.Y. 2015).
Blagman v. Apple, Inc.,
The NuVasive parties
suggest that Mr. Brown has asserted his counterclaim in an effort
to keep this litigation alive in the face of summary judgment.
That suggestion is speculative, and does not satisfy the movants’
burden.
The Court therefore turns to the question of futility.
Under Vermont law, a defamation cause of action requires: (1) a
false and defamatory statement; (2) negligence, or greater fault,
in publishing the statement; (3) publication to at least one
15
third party; (4) lack of privilege in the publication; (5)
special damages, unless actionable per se; and (6) actual harm
warranting compensatory damages.
546–47 (1983).
Lent v. Huntoon, 143 Vt. 539,
A defamation plaintiff “need not specifically
plead the alleged defamatory words but must provide the opposing
party with sufficient notice of the communications complained of
to enable him to defend himself.”
Benning v. Corp. of Marlboro
Coll., 2014 WL 3844217, at *4 (D. Vt. Aug. 5, 2014) (internal
quotation marks omitted); see also Solomon v. Atlantis Dev.,
Inc., 147 Vt. 349, 358 (1986) (citing Vt. R. Civ. P. 8(a) and
concluding that “[a]lthough the defendant failed to plead the
defamatory statements in haec verba, he fully informed the
plaintiff of the nature and subject matter of the counterclaim”).
Here, the proposed amendment alleges a defamatory statement
to a third party causing Mr. Brown unspecified damage.
The
proposed amendment does not provide any context aside from an
interaction in December 2017.
Unless Mr. Brown is asserting per
se defamation, there are no facts supporting a claim of special
damages.
See Knelman v. Middlebury Coll., 898 F. Supp. 2d 697,
726 (D. Vt. 2012), aff’d, 570 F. App’x 66 (2d Cir. 2014)
(“Vermont law recognizes four categories of slander per se; (1)
imputation of a crime; (2) statements injurious to one’s trade,
business or occupation[;] (3) charges of having a loathsome
disease. . . ; or (4) charging a woman to be unchaste.”)(citation
16
omitted)).
The bases for actual and punitive damages are also
unclear.
The proposed amendment also lacks a clear statement of
federal jurisdiction.
If the NuVasive parties ultimately succeed
in having their claims brought to a final judgment, only the
proposed defamation claim would remain.
Because defamation is a
state law cause of action, subject matter jurisdiction would need
to be based upon diversity of citizenship.
Federal diversity
jurisdiction requires an amount in controversy of at least
$75,000.
See 28 U.S.C. 1332(a).
The amount in controversy “is
measured as of the time that a complaint is filed, and it is
established by the face of the complaint and the dollar amount
actually claimed.”
Lapaglia v. Transamerica Cas. Ins. Co., 155
F. Supp. 3d 153, 154–55 (D. Conn. 2016) (internal citations
omitted).
Mr. Brown has not alleged an amount in controversy
arising out of his proposed claim.
In the context of Rule 12(b)(6), a pro se plaintiff will
ordinarily be given the opportunity “to amend at least once when
a liberal reading of the complaint gives any indication that a
valid claim might be stated.”
Shomo v. City of New York, 579
F.3d 176 (2d Cir. 2009) (quoting Gomez v. USAA Fed. Sav. Bank,
171 F.3d 794, 795-96 (2d Cir. 1999) (internal quotation marks
omitted)).
Here, the Court will not grant Mr. Brown’s pending
motion, but will allow him another opportunity to present a
17
proposed Amended Counterclaim.
Accordingly, his motion for leave
to amend is denied without prejudice, and Mr. Brown may resubmit
a proposed amended pleading, together with an appropriate motion
for leave to amend, within 30 days of this Opinion and Order.
Conclusion
For the reasons set forth above, the pending motion for
summary judgment (ECF No. 129) is granted in part and denied in
part, and the motion to amend counterclaims (ECF No. 137) is
denied without prejudice.
If Mr. Brown chooses to renew his
motion to amend, he shall submit his filing within 30 days of the
date of this Opinion and Order.
DATED at Burlington, in the District of Vermont, this 30th
day of June, 2020.
/s/ William K. Sessions III
William K. Sessions III
U.S. District Court Judge
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