DePuy Synthes Sales, Inc. v. Jones et al
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)
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This matter is currently before the Court on two motions to
dismiss Counts III and IV of the complaint for failure to state a
one filed by corporate defendant Sky Surgical,
and one filed collectively by Michael Jones
and Jacob Schools ("Schools").1
This Court previously referred such
provisions of 28 U. S .C. § 636 (b) (1) (B) for report and recommendation.
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
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'
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,
754 S.E.2d 313
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.
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.
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.
discussed in greater detail below,
ruling in Dunlap is
consistent with, and lends additional support to, the Magistrate
Judge's thorough and well-reasoned analysis.
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.
Court incorporates such standard herein.
As to the review procedure for an R&R,
"any party may serve and
recommendations set forth in the R&R within fourteen (14) days after
determination of those portions of the [magistrate judge's] report
or specified proposed findings or recommendations to which objection
Colonial Life & Ace. Ins. Co., 416 F.3d 310,
315 (4th Cir. 2005) (quoting 28 U.S.C. § 636(b)(1))
As to those portions of the R&R that no party has
challenged through advancing a "'specific written objection,' [a]
recommendation . . . without conducting a de novo review."
As to these unchallenged portions,
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
A. Unobjected-to Portions of R&R
Having reviewed the Magistrate Judge's detailed R&R, relevant
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.
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
conclusory objections contending that the Magistrate Judge erred,
explaining the purported error.
Defendants' collective objections to the R&R are specific enough to
challenge the bulk of the Magistrate Judge's legal reasoning, this
addresses the primary legal issues in dispute, rather than attempting
each individually numbered objection in Defendants'
this Court has conducted a de novo
review of the analysis set forth on pages 7-22 of the R&R.
conducted such de novo review, this Court adopts and incorporates
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.
Dunlap, 754 S.E.2d
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 non-solicitation clauses.
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
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,
tortiously interfered with them.
Sky Surgical's objections to the R&R's analysis of Count III
(1) the only duties at issue in this case arise from
and there being no
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
to the R&R,
Having fully considered Sky Surgical's objections
this Court adopts, without restating,
Judge's analysis of both the relevant law and the sufficiency of the
allegations in the complaint.
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
Virginia law has
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
754 S.E.2d at 319
"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"
(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
quintessential example of tortious interference by a third party.
employment contracts are squarely at issue in this case.
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
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
element, the use of "improper methods or means," must be pled and
proven when the contracts at issue are terminable at will.
360 S.E.2d 832,
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."
Id. at 225-26,
360 S.E.2d at 835-36.
"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
to interfere with a competitor's contractual
(non-terminable at will
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
Therefore, Jones and Schools could not terminate such
complaint alleges that Sky Surgical owed a duty to Plaintiff not to
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
23 0 Va. at 120, 335 S.E.2d at
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"
actions had on
Plaintiff's terminable at will contracts with its customers.
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.
Surgical seeks to convert the allegations in the complaint from an
alleged violation of the first duty to an alleged violation of the
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
based on an entirely separate series of contracts.
Surgical' s efforts to transform the allegations in the complaint into
alleging interference with a series of customer contracts that are
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
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
shortly after Jones and Schools began working for Sky
Surgical, supporting the inference of unfair competition and misuse
conclusory fashion, unfair competition and misuse of confidential
Having considered this issue anew, this Court agrees with, and
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.
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
Because Count III adequately states a claim against Sky
Surgical, a non-party to the employment contracts at issue,
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.
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'
knowledge of Plaintiffs' proprietary business information.
(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).
tortiously interfering with such contracts, Sky Surgical's motion
to dismiss Count III is denied.
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
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."
14, ECF No. 21 (quoting Station #2, LLC v. Lynch, 280 Va. 166, 174,
695 S.E.2d 537, 541 (2010)).
Defendants object to the Magistrate
contractual; and (2) under Virginia law, tortious interference with
"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
Defendants violated common law fiduciary duties that exist outside
of the employment contracts, and thus, Plaintiff has sufficiently
stated a statutory business
Judge' s interpretation of Virginia law was also correct in concluding
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
proceeded with its plan to hire employees of the plaintiff who were
151 (1998))); see also CaterCorp,
(citing Advanced Marine
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
The cases cited by Defendants in an effort to demonstrate the
Defendants' position, and instead support the conclusion that acts
employment or agency can still constitute a breach of fiduciary
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,
after the termination of
(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.
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
Communications, Inc. v. Lee-Llacer, 548 F. Supp. 2d 226, 231-32 (E.D.
Va. 2008) ("'Resignation or termination does not automatically free
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.
or that were founded on information gained during the relationship. ' "
(quoting Today Homes, Inc. v. Williams, 272 Va. 462, 474, 634 S.E.2d
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
Cf. Advanced Marine,
and the value
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/
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:
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.
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
interference with business expectancy are intentional
torts predicated on the common law duty to refrain from
interfering with another's contractual and business
That duty does not arise from the contract
itself but is, instead, a common law corollary of the
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
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.
S.E.2d at 316-17,
(internal quotation marks and
Pursuant to the analysis in Dunlap, tortious
interference with contract, which is sufficiently alleged in Count
predicate "unlawful act" necessary to plead a statutory business
conspiracy claim under §§ 18.2-499 and -500.
opinion in Dunlap confirms the analysis in the R&R recommending the
denial of the motions
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
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.
After performing such
Magistrate Judge, as supplemented herein.
The two pending motions
to dismiss are therefore DENIED,
The Clerk is DIRECTED to send a copy of this Opinion and Order
United States District Judge
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.
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