Healthwerks, Inc. v. Howmedica Osteonics Corp., Case No. 14-cv-93-PP

HEALTHWERKS, INC., SPINE GROUP OF WISCONSIN, LLC,

GREAT LAKES SPINE GROUP, LLC, andPAUL R. BREITENBACH, Plaintiffs,andBIOMET SPINE, LLC, Involuntary Plaintiff, v. HOWMEDICA OSTEONICS CORP.d/b/a STRYKER SPINE, Defendant, v. MIKE ROGERS, SCOTT OLIN, DAN GRAY, JOHN MURRAY,NICK NOVAK, ANNIE BRAUER,and TODD POTOKAR, Third-Party Defendants.

Case No. 14-cv-93-PP

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF WISCONSIN

September 30, 2016

ORDER GRANTING BIOMET'S MOTION FOR SUMMARY JUDGMENT (DKT. NO. 100); DENYING STRYKER'S MOTION FOR SUMMARY JUDGMENT (DKT. NO. 112); GRANTING IN PART AND DENYING IN PART THE PLAINTIFFS' MOTION FOR SUMMARY JUDGMENT (DKT. NO. 120); AND GRANTING THE SALES REPRESENTATIVES' MOTION FOR SUMMARY JUDGMENT (DKT. NO. 121)

I. INTRODUCTION

Before the court are several motions for summary judgment filed by (1) the plaintiffs (Healthwerks, Inc., Spine Group of Wisconsin, LLC, Great Lakes Spine Group, LLC, Paul R. Breitenback) with one of the third party defendants (Todd Potokar), (2) the involuntary plaintiff, Biomet Spine, LLC, ("Biomet"), (3) the defendant, Howmedica Osteonics Corp. d/b/a Stryker Spine ("Stryker"), and (4) the rest of the third party defendants (Mike Rogers, Scott Olin, Dan Gray, John Murray, Nick Novak and Annie Brauer) (collectively "the sales representatives"). In the main, the parties dispute the extended enforceability of the last written contract between "Spine Group" (consisting of Spine Group of Wisconsin, LLC, Great Lakes Spine Group, LLC, and Paul Breitenbach) and Stryker. Dkt. No. 140 at 1. After reviewing the pending motions, briefs, proposed facts, and relevant law, the court will grant in part the motion filed by Spine Group, Healthwerks, and third-party defendant Potokar. Dkt. No. 120. The court will deny Stryker's motion. Dkt. No. 112. The court will grant Biomet's motion. Dkt. No. 100. Finally, the court will grant the sales representatives' motion. Dkt. No. 121. In sum, the court will dismiss Counts I, II, III, IV, V, VII, VIII, IX, and X of the amended counterclaim. The court will grant summary judgment in favor of the plaintiffs on Count I of the amended complaint. The court will allow the parties to proceed to trial on Count VI of the amended counterclaim and Count II of the amended complaint.

II. RELEVANT UNDISPUTED FACTS

A. Summary Of The Facts

Stryker and Biomet compete against each other in the spine-related instrument and implant market. Stryker Spine's Civil L.R. 56 Proposed Material Facts In Support of Motion For Summary Judgment, Dkt. No. 114 at ¶1. Both companies manufacture and sell spinal instruments and implant products. Id. In 2005, Stryker granted Spine Group the exclusive right to distribute its products in Wisconsin and Northern Michigan.¹ Id. at ¶6. Spine Group employed the third party defendants—Mike Rogers, Scott Olin, Dan Gray, John Murray, Nick Novak and Annie Brauer—to act as sales representatives for the products. Id. at ¶17. Spine Group failed, however, to execute sales representative agreements ("SRAs") with Brauer and Murray. Id. at ¶¶17-18. In 2010, Todd Potokar started working with Spine Group. ¶31.

In January 2008, the parties reaffirmed their relationship based on terms similar to those in the 2005 agreement, but through two separate agency agreements ("the 2008 agreements"). Id. at ¶8. When the 2008 agreements expired, Spine Group continued to distribute Stryker's products while the parties negotiated a new agreement. Id. at ¶59; Plaintiffs' and Third-Party Defendants' Proposed Material Facts in Support of Their Motions For Summary Judgment, Dkt. No. 138 at ¶¶14, 15, 53. Biomet proposed a contract during the same time period. Dkt. No. 114 at ¶114. The plaintiffs filed the complaint inthis case after Spine Group and Healthwerks entered into a contract with Biomet, rather than with Stryker. Id. ¶114.

B. Stryker's Contract With Spine Group

Among other things, the 2008 agreements contained prohibitions on disclosing confidential information, a non-compete provision ending one year after termination of the agreements, obligations requiring Spine Group to procure SRAs with express language, and obligations requiring both parties to follow set procedures upon termination. Id. at ¶¶9, 12, 14-16, 59.

The 2008 agreements started with an "Initial Term" encompassing a one-year period, which automatically extended for two years—until December 31, 2010—because Spine Group met its performance quotas. Id. at ¶34. Stryker could extend the Initial Term only if it notified Spine Group "in writing not less than sixty (60) days prior to the last day of the Initial Term that it desires to extend this Agreement." Dkt. No. 138 at ¶15.

On December 9, 2010, instead of extending the existing agreements, Stryker sent a revised renewal agreement to Spine Group. Dkt. No. 114 at ¶36. Spine Group did not sign that agreement, and the 2008 agreements terminated on December 31, 2010. Id. at ¶36; Biomet Spine, LLC's proposed material facts in support of its motion for summary judgment Dkt. No. 102 at ¶17. Termination triggered the availability of the one year non-compete and termination procedures, but neither party initiated the procedures. Dkt. No. 114 at ¶¶12, 59. Instead, the parties continued to negotiate. Dkt. No. 138 at ¶53.

C. Negotiations Between Spine Group And Stryker

As of August 2013, two and a half years into negotiations, Stryker and Spine Group still had "major contract concerns." Id. at ¶53. At this point, Stryker proposed an extension agreement retroactively changing the termination date of the 2008 agreements, but Spine Group did not sign. Dkt. No. 102 at ¶¶23, 26. The parties met again in September to negotiate, but no contract resulted. Dkt. No. 114 at ¶121. In December, the parties scheduled telephone conferences to discuss the contract, and Stryker sent a revised agency agreement on January 6, 2014. Id. at ¶¶123, 124, 127, but see Dkt. No. 163 at 55 (Spine Group disputes that the conferences actually happened). Despite not having a contract, Spine Group continued to sell Stryker products and maintain the business relationship. See e.g. id. at ¶125 (On December 20, 2013, Breitenbach asked his assistant to register him and a few representatives for Stryker's national sales meeting, set to begin on January 16, 2014); Id. at ¶128 (Potokar left a voicemail, on January 6, 2014, for one of Stryker's sales leaders, stating that he called to go through the 2014 budgeting exercise).

On January 14, 2014, Spine Group informed Stryker that it was terminating their relationship. Id. at ¶132. Stryker sent a reminder email to Spine Group concerning its ongoing obligations, including the one year non-compete. Id. at ¶134.

D. Negotiations Between Biomet And Spine Group

In 2013, there was minimal overlap between Biomet's and Stryker's customers in the region served by Spine Group. Id. at ¶74. In early 2013, during the same period that Stryker and Spine Group were negotiating, Spine Group and Biomet began meeting to discuss a new partnership and to assess Spine Group's obligations to Stryker. Id. at ¶¶75, 95; Dkt. No. 102 at ¶31; Dkt. No. 138 at ¶53. On May 13, 2013, Potokar proposed merging Spine Group with another company, called Healthwerks, which would become Biomet's distributor. Dkt. NO. 102 at ¶35.

Spine Group negotiated terms with Biomet throughout much of 2013. Id. at ¶37. On June 27, 2013, Spine Group provided Biomet with signed copies of the 2008 agreements. Dkt. No. 114 at ¶95. Biomet and Spine Group entered into a mutual non-disclosure agreement on July 16, 2013, id. at ¶88, and outside counsel exchanged emails concerning restrictions on disclosing confidential materials in September of 2013, id. at ¶101.

On December 12 and 13, 2013, the sales representatives signed SRAs with Biomet. Id. at ¶¶112-13. On December 26, 2013, Spine Group, Healthwerks, and Biomet executed an exclusive SRA, effective January 1, 2014 (later amended to January 14, 2014). Id. at ¶114; Dkt. No. 102 at ¶38. Finally, Biomet, Healthwerks, and Spine Group executed an indemnity agreement in the event that Stryker decided to sue. Dkt. No. 114 at ¶116.

Healthwerks became Biomet's distributor on January 14, 2014. Dkt. No. 102 at ¶40.

E. Litigation Commences

On January 15, 2014, Healthwerks and Spine Group filed a complaint in state court, seeking a declaratory judgment that the 2008 agreements no longer were enforceable. Dkt. No. 1-1. Stryker removed the case to this court on January 28, 2014. Dkt. No. 1. On February 27, 2014, the parties filed a joint submission substantiating jurisdiction. Dkt. No. 19. On September 26, 2014, Stryker filed an answer, counterclaims, and a third party complaint. Dkt. No. 40.

The court resolved two motions to dismiss and a prior summary judgment motion. Dkt. No. 39; Dkt. No. 81.

On June 15, 2015, the plaintiffs filed an amended complaint, Dkt. No. 86, and Stryker filed an amended counterclaim and third-party complaint, Dkt. No. 87. Biomet filed its summary judgment motion on October 13, 2015, Dkt. No. 100. On November 16, 2015, Stryker (Dkt. No. 112), Spine Group, Healthwerks and Potokar (collectively "the plaintiffs") (Dkt. No. 120); and the sales representatives (Dkt. No. 121) filed their motions for summary judgment. All counts of the amended complaint, amended counterclaim and third party complaint are at issue. The court will address each count in turn.

III. SUMMARY JUDGMENT STANDARD

A court must grant summary judgment when "there is no genuine dispute as to any material fact and the moving party is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). Material facts are those "facts that might affect the outcome of the suit under the governing law," and a dispute about amaterial fact is genuine if a reasonable jury could find in favor of the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).

When determining whether summary judgment is appropriate, the court views all facts and draws all reasonable inferences...