DePuy Synthes Sales, Inc. v. Jones et al

Filing 27

OPINION and ORDER: the Court hereby ADOPTS and APPROVES the findings and recommendations set forth in the report of the United States Magistrate Judge, as supplemented herein. The two pending motions to dismiss are therefore DENIED, ECF Nos. 5 MOTION to Dismiss for Failure to State a Claim, 7 MOTION to Dismiss by Sky Surgical, Inc.. Signed by District Judge Mark S. Davis on 3/21/14. (tbro)

:
UNITED

STATES DISTRICT

EASTERN DISTRICT

OF

COURT

VIRGINIA

Norfolk Division

CLLHK, U S. [JlS];-,,;, CUUR1
DEPUY SYNTHES

SALES,

INC.,

Plaintiff,
Civil.

v.

No.

2:13cv392

MICHAEL JONES,
JACOB

SCHOOLS,

and

SKY

SURGICAL,

INC.,

Defendants.

OPINION

and

ORDER

This matter is currently before the Court on two motions to
dismiss Counts III and IV of the complaint for failure to state a
claim,

one filed by corporate defendant Sky Surgical,

Surgical"),

and one filed collectively by Michael Jones

and Jacob Schools ("Schools").1
motions

to

Inc.

a

United

States

("Sky

("Jones")

This Court previously referred such
Magistrate

Judge,

pursuant

to

the

provisions of 28 U. S .C. § 636 (b) (1) (B) for report and recommendation.
The

Magistrate

thereafter

Judge

issued

a

assigned
detailed

to

this

Report

case

and

held a

hearing

Recommendation

and

("R&R")

recommending that the pending motions be DENIED in their entirety.
Sky Surgical thereafter filed objections to the R&R, and defendants

Jones and Schools filed collective objections to the R&R.

1 All three defendants are referred to collectively as

Plaintiff

"Defendants".

DePuy Synthes Sales, Inc. ("Plaintiff")

filed a response to such

objections, but did not itself object to the R&R.
After carefully considering the Magistrate Judge's thorough
R&R, the parties'

subsequent filings,

and the relevant law, this

Court hereby ADOPTS and APPROVES the findings and recommendations

set forth in the R&R.

The instant Opinion supplements the R&R in

order to address Defendants'

objections and the Virginia Supreme

Court's recent opinion in Dunlap v. Cottman Transmission Systems,
LLC,

--Va.--,

754 S.E.2d 313
I.

FACTUAL

(2014).

AND

PROCEDURAL

HISTORY

The parties have not filed objections challenging the accuracy
of the factual and procedural background as detailed in the R&R.

2-5, ECF No. 21.

R&R

Upon review of the R&R and record, this Court finds

no clear error in the R&R as to such matters, and thus, hereby adopts

and incorporates such background herein.

Subsequent
objections

to

to
the

the

issuance

R&R

of

the

challenging

R&R,

the

Defendants

Magistrate

filed

Judge's

interpretation of Virginia law and his application of such law to
the facts of this case.

Plaintiff filed a brief responding to such

objections, arguing in favor of the Magistrate Judge's position.
Subsequent to the issuance of the R&R and the filing of the parties'
briefs, the Supreme Court of Virginia issued its opinion in Dunlap.

As

discussed in greater detail below,

the

ruling in Dunlap is

consistent with, and lends additional support to, the Magistrate
Judge's thorough and well-reasoned analysis.
II.

STANDARD OF

REVIEW

The well-established standard of review governing motions to

dismiss filed pursuant to Rule 12(b)(6) is accurately set forth in
the R&R and is not objected to by the parties.

Accordingly, this

Court incorporates such standard herein.
As to the review procedure for an R&R,
file

written

objections"

to

the

"any party may serve and

proposed

findings

and

recommendations set forth in the R&R within fourteen (14) days after
service

of

the

R&R.

28

Magistrates

Act

requires

a

U.S.C.

§ 636(b)(1).

district

court

to

"The

'make

a

Federal

de

novo

determination of those portions of the [magistrate judge's] report

or specified proposed findings or recommendations to which objection
is made.'"

Diamond v.

Colonial Life & Ace. Ins. Co., 416 F.3d 310,

315 (4th Cir. 2005) (quoting 28 U.S.C. § 636(b)(1))

original) .

(alteration in

As to those portions of the R&R that no party has

challenged through advancing a "'specific written objection,' [a]
district

court

[is]

free

to

adopt

[the]

magistrate

recommendation . . . without conducting a de novo review."
316.

As to these unchallenged portions,

judge's
Id. at

the reviewing court need

only "'satisfy itself that there is no clear error on the face of
the record in order to accept the recommendation.'"

(quoting Fed. R. Civ. P. 72 Advisory Committee's Note).

Id. at 315

III.

DISCUSSION

A. Unobjected-to Portions of R&R

Having reviewed the Magistrate Judge's detailed R&R, relevant
case law,

and the relevant portions of the record,

this Court is

satisfied that there is no clear error as to all portions of the R&R
that were not specifically objected to by the parties.
F.3d at 315.

Diamond, 416

Accordingly, this Court hereby ADOPTS the findings and

recommendations set forth in the R&R as to all unobjected-to matters.
B. Objections to the R&R

Defendants'

specific

objections

objections

to

the

warranting

a

R&R

de

appear

novo

to

include

review,

and

both

broader

conclusory objections contending that the Magistrate Judge erred,
but not

explaining the purported error.

Because,

in

the end,

Defendants' collective objections to the R&R are specific enough to

challenge the bulk of the Magistrate Judge's legal reasoning, this
Court

fashions

the

instant

Opinion

in

a

manner

that

directly

addresses the primary legal issues in dispute, rather than attempting
to

address

filings.

each individually numbered objection in Defendants'

Stated differently,

this Court has conducted a de novo

review of the analysis set forth on pages 7-22 of the R&R.

Having

conducted such de novo review, this Court adopts and incorporates
herein

the

entirety of

the

Magistrate

Defendants'

objections

are

not

Judge's

well-founded.

analysis

as

Moreover,

the
the

Virginia Supreme Court's recent opinion in Dunlap only buttresses

the Magistrate Judge's analysis, and lends further support for the
denial of the two pending motions to dismiss.
at 316-17,

Dunlap, 754 S.E.2d

319.
1.

Count

III

Count III of the complaint alleges that Sky Surgical tortiously
interfered with employment contracts that Jones and Schools each
entered into with Plaintiff, their former employer.
and

Plaintiff

employment

are

direct

contracts

non-disclosure,

competitors,

with

Plaintiff

and

Jones'

include

and non-solicitation clauses.

Sky Surgical
and

Schools'

non-compete,

According to the

allegations in the complaint, which this Court is required to accept
as true at this stage in the case, Sky Surgical was on notice of such

employment contracts.

Sky Surgical nevertheless hired Jones and

Schools shortly after they stopped working for Plaintiff and employed
them in a manner that directly competed with Plaintiff in the same

geographical area where they had previously worked for Plaintiff.
Although the analysis in the R&R is detailed,

distilled to its

essence, the R&R concludes that Count III states a claim against Sky

Surgical because: (1) Plaintiff is not required under Virginia law
to allege tortious interference with contract through the use of

"improper methods" since the employment contracts at issue included

post-employment clauses that were not "terminable at will"; and (2)
drawing all reasonable inferences in Plaintiff's favor, sufficient
facts are included in the complaint to plausibly allege that Sky

Surgical knew of the existence of the employment contracts,

and

tortiously interfered with them.

Sky Surgical's objections to the R&R's analysis of Count III
contend that:

(1) the only duties at issue in this case arise from

contracts,

and there being no

"source of

duty"

outside of

such

contracts,

this Court should not allow Plaintiff to convert breach

of contract claims into tort claims; and (2) the Court should look

behind Plaintiff's employment contracts with Jones and Schools to

the purported "real interests at stake," which Sky Surgical contends
are the contracts between Plaintiff and its customers, and because

Plaintiff's customer contracts are "terminable at will," Count III

should be dismissed based on Plaintiff's failure to allege the use

of "improper methods or means" to interfere with such terminable at
will contracts.
to the R&R,

Having fully considered Sky Surgical's objections

this Court adopts, without restating,

the Magistrate

Judge's analysis of both the relevant law and the sufficiency of the
allegations in the complaint.
a.

Source of Duty-

Supplementing the analysis
Surgical's objections, first,

in the R&R in response to Sky

this Court rejects Sky Surgical's

contention that the only "source of duty" at issue in this case is
contractual,

because:

(1)

Virginia law has

long-recognized that

interference with a contract by a third-party competitor is a tort,
not a contract claim, Chaves v. Johnson, 230 Va. 112, 121, 335 S.E.2d

97,

103

(1985),

see Dunlap,

754 S.E.2d at 319

(indicating that

"tortious interference with contract . . . [is an] intentional tort []

predicated on the common law duty to refrain from interfering with
another's contractual and business relationship[]" and "[t]hat duty
does not arise from the contract itself but is,

law corollary of the contract"

instead,

a common

(citing Wyatt v. McDermott, 283 Va.

685, 693, 725 S.E.2d555, 558 (2012)))

(emphasis added) ; and (2) Sky

Surgical is not a party to the employment contracts at issue, and

thus,

its

purported

interference

with

such

contracts

is

a

quintessential example of tortious interference by a third party.
Accordingly,

it

is

clear

that

duties

arising

outside

of

the

employment contracts are squarely at issue in this case.
b.

Improper Methods or Means

Second, the objections to the analysis in the R&R, regarding
whether "improper methods or means" must be pled by Plaintiff, are

rejected.

The parties do not dispute the fact that a cause of action

for tortious interference with contract has four elements when the

contracts at issue are not terminable at will,

but that a

fifth

element, the use of "improper methods or means," must be pled and

proven when the contracts at issue are terminable at will.
v. Adams,

234 Va.

221,

226-27,

360 S.E.2d 832,

836 (1987).

Duggin
Such

additional element reflects the fact that while a party to a contract

generally has "property rights in the performance" of such contract,
as well as anticipated profits therefrom, a party's "interest in a

contract terminable at will is essentially only an expectancy of
future economic gain,

and he has no legal assurance that he will

realize the expected gain."

Viewed

from

a

Id. at 225-26,

slightly

different

360 S.E.2d at 835-36.

perspective,

in

the

"rough-and-tumble world comprising the competitive marketplace," a
third-party competitor has the right to compete, and necessarily owes

a lessor duty not to interfere with a competitor's mere expectancy

of future economic gain (terminable at will contract), as compared

with the duty not

property right

to interfere with a competitor's contractual

(non-terminable at will

contract).

Lewis-Gale

Medical Center, LLC v. Alldredge, 282 Va. 141, 153, 710 S.E.2d 716,

722 (2 011)

(internal quotation marks and citations omitted).

Here, as explained in the R&R, the contracts that Sky Surgical
is alleged to have interfered with, the employment contracts between
Plaintiff and Jones, and Plaintiff and Schools, include obligations
(non-disclosure, non-solicitation, and non-competition) that apply

for a period of eighteen months after the end of the employment
relationship.
contractual

Therefore, Jones and Schools could not terminate such
obligations

"at

will."

Stated

differently,

the

complaint alleges that Sky Surgical owed a duty to Plaintiff not to
interfere

with

Plaintiff's

non-terminable

contracts

with

its

employees/former employees, and that Sky Surgical's violation of

such duty constituted a tort under Virginia law.

In light of the

duty alleged, and the non-terminable nature of the contract clauses

at issue, the law does not require Plaintiff to allege the use of
"improper methods or means" in order to state a claim of tortious

interference with its employment contracts.

See CaterCorp, Inc. v.

Catering Concepts, Inc. , 246 Va. 22, 27-28, 431 S. E. 2d 277, 281 (1993)

(reversing the trial court's dismissal of a tortious interference

count in a case involving a non-competition agreement and omitting
from the list of elements the requirement that the plaintiff plead

"improper methods"

(citing Chaves,

23 0 Va. at 120, 335 S.E.2d at

102)) .

In light of the above, Sky Surgical contends, in essence, that

the Court should disregard the cause of action that is actually pled

in the complaint (tortious interference with employment contracts) ,
and instead shift its focus to what Sky Surgical labels as the "true"

issue

in this

case-the

impact

that Defendants'

actions had on

Plaintiff's terminable at will contracts with its customers.

As

discussed below, such argument fails because it improperly invites

the Court to ignore the duty, and breach, as pled in the complaint.
There are two separate duties potentially implicated by the
facts as alleged in the complaint: (1) Defendant has a duty not to
interfere with Plaintiff s binding and non-terminable contracts with

its employees; and (2) Defendant has an entirely separate duty not

to use "improper methods or means," such as violence, bribery, or
misuse of Plaintiffs confidential information,

to interfere with

Plaintiffs terminable at will contracts with its customers.

Sky

Surgical seeks to convert the allegations in the complaint from an
alleged violation of the first duty to an alleged violation of the
second duty.

However, Sky Surgical fails to cite any legal authority

that would permit the Court to convert the legal claim for relief
set forth in the complaint into a claimed violation of an entirely
separate duty,

based on an entirely separate series of contracts.

The

likewise

Court

following

is

such

a

unaware

course.

of

any

Accordingly,

legal

the

justification

Court

rejects

for

Sky

Surgical' s efforts to transform the allegations in the complaint into
alleging interference with a series of customer contracts that are
not

even before

Moreover,

the Court.

assuming arguendo that this Court agreed with Sky

Surgical that the Court should transform the cause of action pled
in the complaint into an allegation of interference with customer
contracts, the Court would find that the complaint sufficiently

alleges the use of "improper methods or means" to interfere with such
customer contracts.

See Compl. M

29, 39, ECF No. 1 (discussing the

types of confidential information Jones and School had access to
while working for Plaintiff and the loss of Plaintiff's customer
accounts

shortly after Jones and Schools began working for Sky

Surgical, supporting the inference of unfair competition and misuse
of

confidential

information);

id.

10

at

1 62

(alleging,

albeit in

conclusory fashion, unfair competition and misuse of confidential

information).2
Having considered this issue anew, this Court agrees with, and
adopts,

the

Magistrate

Judge's

analysis.

The

R&R

correctly

concludes that Virginia law does not require Plaintiff to allege
"improper methods or means"

because the relevant clauses in the

employment contracts at issue were not terminable at will.

To the

extent Sky Surgical contends that the opinion in Preferred Systems
Solutions, Inc. v. GP Consulting, LLC, 284 Va. 382, 403-04, 732 S.E.2d

676, 688 (2012) permits this Court to ignore the cause of action pled

in the complaint and consider a separate duty associated with a

separate series of contracts not before the Court, such argument is
rejected.

Because Count III adequately states a claim against Sky

Surgical, a non-party to the employment contracts at issue,

for

2 Sky Surgical accurately notes that, when considering whether Company B
tortiously interfered with Company A's terminable at will contracts with
its customers, the "mere breach of a non-compete" does not itself constitute
the use of "improper methods or means." Preferred Systems Solutions, Inc.
v. GP Consulting, LLC, 284 Va. 382, 404, 732 S.E.2d 676, 688 (2012).
However, if Company B hires one of Company A' s former employees and obtains
and uses Company A's "inside or confidential information," or otherwise
engages in "unfair competition," such acts constitute "improper methods
or means" and thus support a claim for tortious interference with Company
A's terminable at will contracts with its customers.

Id.

Accordingly,

here, viewing the facts in favor of Plaintiff, as well as the reasonable
inferences that can be drawn from such facts,

Plaintiff has plausibly

alleged that Sky Surgical used "improper methods or means" to obtain and
later misuse Plaintiff's "inside or confidential information" and/or to

unfairly compete with Plaintiff through utilizing Jones'

and Schools'

knowledge of Plaintiffs' proprietary business information.
See id.
(noting that "improper methods" had not been proven in that case because,
after discovery and a trial, there was "no evidence" that the defendant

acquired or used the plaintiff's trade secrets or confidential information
in order to compete with the plaintiff).
11

tortiously interfering with such contracts, Sky Surgical's motion
to dismiss Count III is denied.
2.

Count

IV

Count IV of the complaint alleges that Sky Surgical, Jones, and
Schools engaged in a statutory conspiracy to injure plaintiff in its
trade or business, in violation of §§ 18.2-499 and -500 of the Code

of Virginia.

It is undisputed that, as set forth in the R&R, Virginia

law provides that "'a conspiracy merely to breach a contract that
does not involve an independent duty arising outside the contract
is insufficient to establish a civil claim' under the statue."

R&R

14, ECF No. 21 (quoting Station #2, LLC v. Lynch, 280 Va. 166, 174,

695 S.E.2d 537, 541 (2010)).
Judge's

conclusions

allegedly
violation

violated
of

relationship,

that:

the

fiduciary
and

thus,

Defendants object to the Magistrate

(1)

some of

employment
duties
the

Defendants'

contracts
inherent

duties

at

also

in

the

issue

are

actions

that

represent

a

employment
not

purely

contractual; and (2) under Virginia law, tortious interference with
contract

can

constitute

an

"unlawful

act"

in

violation

of

an

"independent duty arising outside the contract, " and thus can support
a statutory conspiracy claim.
a. Analysis Set Forth in the R&R

After conducting a de novo review of the record and the relevant

case law, including Station #2 and the Virginia Supreme Court cases
cited therein, this Court agrees with and adopts the analysis in the

12

R&R

concluding

that

the

complaint

sufficiently

alleges

that

Defendants violated common law fiduciary duties that exist outside

of the employment contracts, and thus, Plaintiff has sufficiently
stated a statutory business

conspiracy claim.

The

Magistrate

Judge' s interpretation of Virginia law was also correct in concluding
that

Sky Surgical's

tortious

interference

with

the

employment

contracts can form the requisite "unlawful act" necessary to support
a statutory conspiracy claim.

See Station #2, 2 80 Va. at 174, 695

S.E.2d at 541-42 (finding that the mere failure to perform a contract

is insufficient to support a statutory conspiracy count, but leaving
in place prior precedent holding that a statutory conspiracy existed
where a third-party competitor "knew its actions would constitute

actionable tortious interference" but nevertheless

"purposefully

proceeded with its plan to hire employees of the plaintiff who were
subject

to

a

Enterprises,

covenant
Inc. v.

not

to

PRC Inc.,

compete"
256 Va.

151 (1998))); see also CaterCorp,

Inc.,

(citing Advanced Marine
106,

112,

246 Va.

501 S.E.2d 148,

at 28, 431 S.E.2d

at 281 (noting that "[t]he common law recognizes a cause of action

[for conspiracy] against those who conspire to induce the breach of
a contract, even when one of the alleged conspirators is a party to
the contract." (citing Worrie v. Boze, 198 Va. 533, 540-41, 95S.E.2d
192,

198-99

(1956))).

The cases cited by Defendants in an effort to demonstrate the
non-existence

of

common

law

fiduciary

13

duties

fail

to

support

Defendants' position, and instead support the conclusion that acts
committed

an

by

employee

or

agent

after

termination

of

such

employment or agency can still constitute a breach of fiduciary

duties.3

For example, in Peace v. Conway, 246 Va. 278, 435 S.E.2d

133 (1993), the Supreme Court of Virginia labeled the Restatement
of Agency as "instructive," and quoted the following provision:
Unless otherwise agreed,
agency,

after the termination of

the

the agent:

(a) has no duty not to compete with the principal;
(b) has a duty to the principal not to use or to disclose
to third persons, on his own account or on account of
others, in competition with the principal or to his injury,
trade secrets, written lists of names, or other similar

confidential matters given to him only for the principal •s
use or acquired by the agent in violation of duty.
The
agent is entitled to use general information concerning
the method of business of the principal and the names of
the customers retained in his memory, if not acquired in
violation of his duty as agent[.]

Id. at 281-82, 435 S.E.2d at 135 (quoting Restatement (Second) of
Agency

§

396

(1958))

(emphasis

added);

see

also

Nortec

Communications, Inc. v. Lee-Llacer, 548 F. Supp. 2d 226, 231-32 (E.D.

Va. 2008) ("'Resignation or termination does not automatically free
a

director or

employee

from his

or her

fiduciary obligations.

Liability post-termination continues only for those transactions
completed after termination of the officer's association with the
corporation, but which began during the existence of the relationship

3 The Court further agrees with Plaintiff that it is not clear at this early
stage in the case whether any fiduciary duties were violated while Jones
However, as discussed above,
or Schools was still employed by Plaintiff.
assuming that the facts prove that no violations occurred during the
employment relationship, even the law cited by Defendants acknowledges that
some fiduciary duties survive the end of the employment relationship.
14

or that were founded on information gained during the relationship. ' "
(quoting Today Homes, Inc. v. Williams, 272 Va. 462, 474, 634 S.E.2d
737,

744

(2006))).

Here,

the

complaint

sufficiently

alleges

post-termination

misuse of Plaintiff's confidential business information, including
Plaintiff's variable product pricing information that was specific
to each medical facility, hospital, or hospital system, and Plaintiff
therefore sufficiently alleges a breach of a fiduciary duty that:
(1) arises from the employment relationship itself; and (2) continues
beyond the termination of such relationship.
256 Va. at 112,

501 S.E.2d at 152 (labeling information about the

former employer's

"confidential
contention that

Cf. Advanced Marine,

"workload,

and

and the value

proprietary

an express

of

certain work"

information").

written agreement

adding

as

Defendants'
additional

post-employment duties that do not exist under the common law somehow

eliminates the baseline common-law duties is simply not compelling.
b. Impact of Dunlap v. Cottman Transmission Systems/

LLC

Subsequent to the issuance of the R&R and the filing of the

objections and responsive brief, the Supreme Court of Virginia issued

its opinion in Dunlap, and answered a question certified by the United
States Court of Appeals for the Fourth Circuit that directly supports
the analysis in the R&R and is dispositive of the pending motions
to dismiss Count IV.

The opinion states:

15

The common law has long recognized actions based on a

conspiracy resulting in business-related damages. . . .
Because there can be no conspiracy to do an act that the

law allows, we have held that an allegation of conspiracy,
whether criminal or civil, must at least allege an unlawful
act or an unlawful purpose to survive demurrer.

In other

words, actions for common law civil conspiracy and
statutory business conspiracy lie only if a plaintiff
sustains damages as a result of an act that is itself
wrongful or tortious. ... As we discussed in Station
# 2, the only duties at issue in a breach of contract claim
are those arising solely from the contract itself;
therefore, a breach of contract does not, without more,
create a basis for recovery in tort.
In contrast, both
tortious

interference

with

contract

and

tortious

interference with business expectancy are intentional
torts predicated on the common law duty to refrain from
interfering with another's contractual and business
relationships.
That duty does not arise from the contract
itself but is, instead, a common law corollary of the
contract.
The duty arises outside the contract even
though the intentional interference must induce or cause
a breach or termination of the contractual relationship
or business expectancy.
Accordingly, we hold phat
tortious

interference

with

contract

and

tortious

interference with business expectancy each constitute the
requisite "unlawful act" to proceed on a business
conspiracy claim under Code §§ 18.2-4 99 and -500.
Dunlap,

754

S.E.2d at 316-17,

citations omitted).

319

(internal quotation marks and

Pursuant to the analysis in Dunlap, tortious

interference with contract, which is sufficiently alleged in Count

III

of

Plaintiff's

complaint,

is

sufficient

to

constitute

the

predicate "unlawful act" necessary to plead a statutory business
conspiracy claim under §§ 18.2-499 and -500.

Accordingly,

the

opinion in Dunlap confirms the analysis in the R&R recommending the
denial of the motions

to dismiss

Count

16

IV.

For the reasons discussed in the R&R,

and the subsequent but

entirely consistent opinion of the Supreme Court of Virginia in

Dunlap, the motions to dismiss Count IV of the complaint are denied.'1
IV.

CONCLUSION

As set forth in detail above, this Court has performed a clear
error review of all portions of the R&R to which no objections were
filed and has performed a de novo review of all portions of the R&R
to which specific objections were filed.
review,

the

Court

recommendations

hereby ADOPTS

set

forth

in

After performing such

and APPROVES

the

report

of

the
the

findings
United

and

States

Magistrate Judge, as supplemented herein.

The two pending motions

to dismiss are therefore DENIED,

5,

ECF Nos.

7.

The Clerk is DIRECTED to send a copy of this Opinion and Order
to

all

counsel

IT

IS

SO

of

record.

ORDERED.

IbI
Mark

S.

Davis

United States District Judge
Norfolk,

Virginia

March 3-\ , 2014

4 To the extent Defendants sought a stay of this case pending the Supreme
Court of Virginia's ruling in Dunlap, such request is obviously now moot
as a result of such ruling.
17