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EBI Holdings, Inc. v. Butler

February 17, 2009

EBI HOLDINGS, INC. AND EBI, L.P., PLAINTIFFS,
v.
DAN BUTLER, PANACEA HEALTH LLC, BLACKSTONE MEDICAL, INC., ANTHONY JAMIE RILEY, AND ANTHONY J. PAGANO, INDIVIDUALLY AND IN THEIR PROFESSIONAL CAPACITIES, DEFENDANTS.



The opinion of the court was delivered by: Jeanne E. Scott, U.S. District Judge

OPINION

This matter is before the Court on Plaintiffs' Motion to Dismiss Defendant Butler's Counter Complaint and to Strike Affirmative Defenses (d/e 42) (Motion to Dismiss and to Strike). Plaintiffs EBI Holdings, Inc. and EBI, L.P., doing business as Biomet Spine, Biomet Trauma, Biomet Osteobiologics, and Biomet Bracing, are in the business of developing, manufacturing, and marketing medical products. Defendant Butler was hired by Plaintiffs in June 2000 to sell Plaintiffs' products in central Illinois and eastern Iowa. Butler's employment with Plaintiffs terminated effective June 1, 2007. Plaintiffs' First Amended Complaint (d/e 35) alleges claims of breach of contract (Count I), breach of duty of loyalty and fiduciary duty (Count II), breach of duty of loyalty (Count III), threatened and actual misappropriation of trade secrets (Count VI), unjust enrichment (Count VIII), civil conspiracy (Count IX) and tortious interference with prospective economic advantage (Count X) against Defendant Butler. Plaintiffs also seek an order requiring Butler to specifically perform alleged agreements that he signed (Count VII). Butler filed an Answer to First Amended Complaint (d/e 39), asserting two affirmative defenses and alleging one counterclaim. Plaintiffs ask the Court to strike Butler's Affirmative Defenses and to dismiss his Counterclaim. See Fed. R. Civ. P. 12(b)(6) & 12(f). For the reasons set forth below, the Motion to Dismiss and to Strike is allowed.

BACKGROUND

Butler was employed by Plaintiffs as the Central Illinois and Central Eastern Iowa territory sales manager, selling Plaintiffs' products including electrical bone growth simulator devices. Butler's customer base consisted of approximately forty hospitals and approximately 300 orthopedists, neurosurgeons, and podiatrists. At the time Butler was hired, he executed a Confidentiality and Non-Competition Agreement, dated June 20, 2000. First Amended Complaint, Ex. B, Confidentiality and Non-Competition Agreement, dated June 20, 2000 (June 2000 Agreement). A year later, Butler executed a second Confidentiality and Non-Competition Agreement, dated July 18, 2001, and signed July 20, 2001. First Amended Complaint, Ex. C, Confidentiality and Non-Competition Agreement, dated July 18, 2001 (July 2001 Agreement).

Plaintiffs assert that, in 2006, they decided to streamline certain sales and marketing efforts. According to Plaintiffs, as a result of this decision, they entered into a Distribution Agreement with One Medical, Inc., effective June 1, 2007, to distribute Plaintiffs' products in parts of Illinois, Iowa, and Indiana. In 2006, Plaintiffs informed Butler that his employment would terminate on June 1, 2007, and that if Butler wished to continue to market Plaintiffs' products, he must accept employment with One Medical. Defendant Butler's Answer to First Amended Complaint, p. 24, ¶ 4. Butler states that he sought assurances from Plaintiffs and One Medical that, at One Medical, his salary and territory would remain the same as it was with the Plaintiffs. Id., p. 8, ¶ 57. According to Butler, Plaintiffs and One Medical failed to make assurances as to the continued integrity of his sales territory or compensation package and it was Butler's belief that his sales territory would be significantly affected and his compensation package would be significantly reduced should he accept a position with One Medical. Id., p. 24, ¶ 5. Butler did not accept employment with One Medical and his employment with Plaintiffs terminated effective June 1, 2007. Butler admits that, prior to June 1, 2007, One Medical had not distributed medical products in his territory.

Plaintiffs assert that Butler was asked to transfer his inventory and confidential and customer information to One Medical. According to Plaintiffs, Butler failed to transfer his entire inventory and provided One Medical with only cursory customer information. Plaintiffs further assert that they also did not receive Butler's entire inventory and that they received only small amounts of confidential and customer information from Butler. According to Plaintiffs, Butler formed a new competing entity, Defendant Panacea Health LLC (Panacea), with Defendants Anthony Riley and Anthony Pagano. Panacea entered into an agreement with Defendant Blackstone Medical (Blackstone) relating to the sale of electrical bone growth simulator devices. According to Plaintiffs, Blackstone agreed to give Panacea an override commission on all electrical bone growth simulator sales made in Butler's territory to former and existing customers of the Plaintiffs. Plaintiffs assert that since Butler's employment with Plaintiffs terminated, Butler has been working for and with competitors of Plaintiffs and directly competing for business against Plaintiffs in the same territory in which he worked as an employee of the Plaintiffs. Plaintiffs further allege that Butler gave Panacea and Blackstone confidential information while he was still employed by Plaintiffs.

Plaintiffs' First Amended Complaint alleges, among claims, that Defendant Butler breached the June 2000 and July 2001 Agreements. Butler's Answer to First Amended Complaint asserts two affirmative defenses and raises one counterclaim. Butler's First Affirmative Defense asserts that Plaintiffs materially breached the July 2001 Agreement by altering the integrity of Butler's sales territory as well as his compensation package. Butler's Second Affirmative Defense alleges that "[b]y ending its [sic] employment relationship with the Defendant, Plaintiffs effectively abandoned the Contract entered into in July of 2001." Defendant Butler's Answer to First Amended Complaint, p. 25, ¶ 6. Butler also alleges a breach of contract counterclaim, asserting that Plaintiffs breached the July 2001 Agreement in several specifically identified ways. Plaintiffs ask the Court to dismiss Butler's Counterclaim and to strike his Affirmative defenses.

ANALYSIS

A. MOTION TO DISMISS COUNTERCLAIM

Butler alleges a breach of contract counterclaim, asserting that Plaintiffs breached the July 2001 Agreement by: (1) altering the integrity of Butler's sales territory and his compensation package, (2) failing to make assurances as to the continued integrity of Butler's sales territory and compensation package, and (3) terminating Butler's employment. Butler's Answer to First Amended Complaint, p. 26, ¶¶ 4, 5, & 8. Plaintiffs move to dismiss the Counterclaim for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6). In analyzing Plaintiffs' request to dismiss Butler's Counterclaim, the Court must accept all well-pleaded allegations in the Counterclaim as true and draw all reasonable inferences in Defendant Butler's favor. See Petrakopoulou v. DHR Intern., Inc., 2008 WL 5273517, at *1 (N.D. Ill. (December 17, 2008) (citing McMillan v. Collection Prof'ls, Inc., 455 F.3d 754, 758 (7th Cir. 2006)). "Dismissal is warranted only if the factual material in the counterclaim[] fails plausibly to suggest that defendant is entitled to relief." Id. (citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007)). Generally, at the motion to dismiss stage, the Court limits its analysis to the allegations set forth in the pleadings; however, "[a] copy of a written instrument that is an exhibit to a pleading is a part of the pleading for all purposes." Fed. R. Civ. P. 10(c). Thus, because the July 2001 Agreement is attached as an exhibit to the First Amended Complaint and referenced in the Counterclaim, the Court may consider it in ruling on the Motion to Dismiss.

The July 2001 Agreement provides, in part, as follows: In consideration of the Employee's employment, the addition of a Sales Associate to Employee's territory, the receipt of certain confidential information from the Company, the mutual covenants contained in this Agreement and other good and valuable consideration, the parties agree as follows: . . . .

First Amended Complaint, Ex. C, July 2001 Agreement, p. 1. Butler's Counterclaim alleges that "[a] material consideration for Butler entering into the agreement was the 'other good and valuable consideration' which was that [Plaintiffs] would continue their employment relationship, insure the integrity of his territory, and that his compensation would remain substantially the same." Butler's Answer to First Amended Complaint, p. 26, ¶ 2.

The July 2001 Agreement provides that "New Jersey law shall govern [its] construction, enforceability and interpretation . . . ." First Amended Complaint, Ex. C, July 2001 Agreement, p. 6. "In a suit where the federal court's subject matter jurisdiction is based on diversity, such as this one, the forum state's choice of law rules determine the applicable substantive law." Sound of Music Co. v. Minnesota Min. & Mfg. Co., 477 F.3d 910, 915 (7th Cir. 2007) (citing Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941); Thomas v. Guardsmark, Inc., 381 F.3d 701, 704-05 (7th Cir. 2004)). The Seventh Circuit has recognized that Illinois courts generally adhere to a contract's choice of law provisions if the contract is valid and the law does not contradict Illinois public policy. Thomas, 381 F.3d at 705. The parties agree that New Jersey law controls the instant dispute, and the Court finds that the application of New Jersey law would not contravene Illinois public policy because it is substantially similar to relevant Illinois law.

To prevail on his breach of contract counterclaim, Butler must establish: (1) the existence of a valid contract; (2) that Plaintiffs breached the contract; (3) that Butler performed his obligations under the contract; and (4) resulting damages. Ford Motor Co. v. Edgewood Properties, Inc., 2009 WL 150951, *4 (D. N.J. January 20, 2009) (applying New Jersey law). As set forth below, even when viewed in the light most favorable to Butler, the allegations of the ...


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