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Henry Schein, Inc. v. Pappas

United States District Court, N.D. Illinois, Eastern Division

September 23, 2016

HENRY SCHEIN, INC., Plaintiff,
v.
GREGORY CHARLES PAPPAS, GREGORY PAPPAS, JR., and O&R MEDICAL SALES AND SERVICE, Defendant.

          MEMORANDUM OPINION AND ORDER

          HON. JORGE L. ALONSO UNITED STATES DISTRICT JUDGE

         Plaintiff, Henry Schein, Inc., (“HSI”) has moved for partial summary judgment [59] against defendant O&R Medical Sales and Service (“O&R”) and for default judgment [67] against defendants Gregory Charles Pappas (“Pappas”) and Gregory Pappas, Jr., (“Pappas Jr.”). For the following reasons, the motions are granted in part and denied in part.

         BACKGROUND

         Henry Schein, Inc. (“HSI”) markets, distributes, and sells medical supplies and other healthcare products to medical practitioners, healthcare professionals, and healthcare organizations. (Pl.'s LR 56.1(a)(3) Stmt. ¶ 1, ECF No. 60.) HSI hired Pappas on July 1, 2013, as a “Field Sales Consultant, ” or “FSC.” (Id., ¶ 8.)

         Pappas was an experienced salesman in the industry, and HSI had high expectations for him. (Id., ¶¶ 9, 21.) To effect Pappas's hiring, on July 1, 2013, HSI and Pappas entered into three written agreements: an employment agreement (the “Agreement”), a confidentiality and non-solicitation agreement (the “Confidentiality Agreement”), and a letter agreement (the “Letter Agreement”). (Id., ¶ 10.)

         Under the Letter Agreement, HSI was to pay Pappas a guaranteed draw of $142, 000 in his first year of employment. (Id., ¶ 16.) Moreover, the Letter Agreement provided that Pappas would receive $100, 000 in additional compensation, paid in two installments in the first four months of his employment, but he would have to repay this amount if he left HSI's employment before the end of his first year. (Id., ¶¶ 17-19.) The Agreement obligated Pappas to work solely on behalf of HSI and to devote his “full loyalty” to HSI, without engaging “in any actions or conduct which compete with or which aids, furthers or assists, any competitor” of HSI. (Id., ¶ 13; see also id., ¶¶ 11-12.)

         O&R Medical Sales and Service (“O&R”) is a direct competitor of HSI. (Id, ¶ 4.) In September 2013, O&R hired Pappas Jr., Pappas's son. (Id., ¶¶ 23-24.) In April 2014, Pappas's sales manager at HSI, Stuart Jacover, came to believe that Pappas had been “selling on the side” for O&R. (Id., Ex. 9; see also id., Ex. 10.) An HSI customer, Dr. D'Costa of My Family Doc LLC, reported to Jacover that she contacted HSI seeking a sales rep, she met with Pappas, and Pappas gave her a quote on HSI letterhead. (Id., Ex. 9.) But before she could place the order, Pappas told her that he would be running the order through O&R, which Dr. D'Costa assumed was a subsidiary of HSI. (Id.)

         Jacover also learned of a “[v]ery similar situation to My Family Doc” at another HSI account. (Id., Ex. 10.) O&R invoiced an HSI customer, Dr. Danaher, for “an entire setup that should have been run through” HSI. (Id., Ex. 10.) O&R documents obtained in discovery show that Dr. Danaher's orders were attributed to Pappas Jr. (Id., ¶ 36.) O&R records also show that O&R paid Pappas a total of approximately $36, 200 while he was employed by HSI. (Id., ¶¶ 27, 49; id., Ex. 13.) O&R issued two checks to Pappas totaling $7, 000 two days after it received payment from My Family Doc. (Id., ¶¶ 27, 34.)

         Edward Reilly, the managing member of O&R, was familiar with Pappas as an experienced sales representative in the industry, and he learned at an industry event in July 2013 that Pappas was employed by HSI. (Id., ¶ 22.) O&R denies that Pappas was actively selling for O&R. (O&R LR 56.1(b)(3)(B) Resp., ¶¶ 26, 28, ECF No. 78.) However, at Reilly's deposition in this case, Reilly acknowledged that Pappas “dealt with” two O&R customers, My Family Doc LLC and Dr. Danaher, while he was employed by HSI; Pappas accompanied Reilly on four or five visits to My Family Doc LLC prior to the time the account was “set up, ” i.e., prior to the installation of equipment; and Pappas physically helped Reilly and Pappas Jr. set up the account by helping to move and install equipment. (Pl.'s LR 56.1(a)(3) Stmt., Ex. 6, Reilly Dep., at 56:6-15, 57:8-59:20.) Reilly described Pappas's role as “trying to help his son.” (Id., Ex. 6, at 59:3.) Reilly also acknowledged that O&R paid Pappas while he was working for HSI, but O&R denies that that these payments were sales commissions; rather, O&R states that it paid Pappas for helping to put together a sales manual and a computer program. (O&R LR 56.1(b)(3)(B) Resp., ¶¶ 27, 34, ECF No. 78.)

         On May 14, 2014, HSI terminated Pappas for cause. (Id., ¶ 40.) O&R hired Pappas on September 1, 2014, and O&R still has a relationship with him as an independent contractor. (Id., ¶¶ 43-44.) From September 1, 2014 to August 7, 2015, Pappas generated $232, 734 in gross profit for O&R. (Id., ¶ 46.) Pappas Jr. remains employed by O&R. (Id., ¶ 45.)

         HSI paid Pappas $78, 667.27 in guaranteed draw during the period it employed him, from July 1, 2013 to May 14, 2014. (Id., ¶ 49.) It also paid him the $100, 000 in additional compensation that it agreed to pay him under the terms of the Letter Agreement. (Id., ¶ 48.) Pappas is obligated to repay this amount because he was terminated less than a year after he entered HSI's employment, but he has not done so. (Id.)

         Before Pappas started working for HSI, HSI calculated the sales it expected Pappas to generate. (Id., ¶ 50.) HSI projected that, in his first year, Pappas would generate $600, 000 in sales from new business (i.e., new customers that Pappas would attract), resulting in approximately $150, 000 in gross profits. (Casamassa Decl., ¶ 35, ECF No. 61.) HSI believed that this estimate was very conservative for someone of Pappas's experience. (Id.) Around the same time, HSI had hired two other experienced sales representatives from competitors, and these sales reps generated $470, 000 and $370, 000, respectively, in gross profits in their first year of employment with HSI. (Id., ¶ 36.)

         Pappas was also assigned a number of existing HSI accounts, with the expectation that he would increase the sales those accounts were generating. (Id., ¶ 16.) HSI had budgeted growth of $50, 000 in gross profits for these accounts in Pappas's first year. (Id., ¶ 38.) Ninety percent of HSI's FSCs achieve at least 85% of the projected growth set forth in the budget for their territories; FSCs who achieve less are generally regarded as failing. (Id., ¶ 38 n.1.) There was virtually no growth in Pappas's accounts. (Id., ¶ 18.) The existing HSI accounts that Pappas was given had generated about $100, 000 in gross profits in the previous twelve months, and Pappas generated only about $100, 000 in gross profits during the time he worked for HSI. (Pl.'s LR 56.1(a)(3) Stmt., Ex. 7, Casamassa Dep., 75:24-78:13, 96:24-98:14.)

         ANALYSIS

         HSI moves for summary judgment against O&R on five claims: aiding and abetting breach of fiduciary duty (1st Am. Compl., Count II, ¶¶ 65-70); tortious interference with contract (id., Count VI, ¶¶ 96-102); tortious interference with fiduciary and legal duties (id., Count VII, ¶¶ 103-108); unjust enrichment (id., Count X, ¶¶ 124-126); and civil conspiracy (id., Count XIII, ¶¶ 139-141). Pappas and Pappas Jr. have not appeared before this Court or answered the complaint, and HSI has moved for default judgment against them.

         To prevail on a summary judgment motion, “the movant [must] show[] 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). At this stage, the court may not weigh evidence or determine the truth of the matters asserted. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986). The court must view all evidence and draw all inferences in favor of the non-moving party. Michas v. Health Cost Controls of Ill., Inc., 209 F.3d 687, 692 (7th Cir. 2000).

         “Upon default, the well-pled allegations of the complaint relating to liability are taken as true, but those relating to the amount of damages suffered ordinarily are not.” Wehrs v. Wells, 688 F.3d 886, 892 ...


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