Howmedica Osteonics Corp. v. Schilling

HOWMEDICA OSTEONICS CORP., Plaintiff, v. MORGAN SCHILLING, Defendant.

Civil Action No. 20-9621

United States District Court, D. New Jersey

December 23, 2022

NOT FOR PUBLICATION

OPINION

CLAIRE C. CECCHI, U.S.D.J.

This matter comes before the Court by way of defendant Morgan Schilling's (“Schilling” or “Defendant”) motion for judgment on the pleadings, pursuant to Federal Rule of Civil Procedure 12(c). ECF No. 86. Defendant argues that plaintiff Howmedica Osteonics Corporation (“Howmedica” or “Plaintiff”) is collaterally estopped from bringing the claims it asserts herein because the underlying issues were previously litigated to final judgment in the District of Colorado. See id. (referencing ORP Surgical, LLC et al. v. Howmedica Osteonics Corp., No 20-cv-1450, (D. Colo.) (“D. Colo. Dkt.” or the “Colorado Action”)). Plaintiff filed an opposition (ECF No. 98), and Defendant replied (ECF No. 105). The Court decides this matter without oral argument pursuant to Federal Rule of Civil Procedure 78. For the reasons set forth below, Defendant's motion for judgment on the pleadings is denied.

I. BACKGROUND

A. The New Jersey Action

This case arises out of an employment dispute between Howmedica and Schilling. Howmedica is a subsidiary of Stryker Corporation (“Stryker”), a “global leader in the development, manufacture, and sale of orthopaedic implants, instruments, and other orthopaedic products and services.” ECF No. 1, ¶ 3. Schilling is a Colorado-based, former Stryker employee, who worked for the company from approximately 2006 until 2019. Id. at ¶ 7. Generally, Stryker uses sales representatives employed directly by the company, as well as third-party distributors, to sell its products. Id. at ¶ 26. Stryker deployed this sales model in Colorado-Schilling served as one of Stryker's sales managers in the Denver, Colorado marketplace, and ORP Surgical, LLC (“ORP”) was Stryker's distributor in the same region through at least May 2020. Id. at ¶¶ 27, 56.

The Complaint alleges that, on or about February 27, 2006, Schilling began his employment with Stryker. Id. at ¶ 56. Before that, Howmedica claims that Schilling worked as a sales representative and sales manager at ORP. Id. While employed with Stryker, Schilling received “significant” training and development, and moreover, Stryker “entrusted him with new and additional highly-valuable customer relationships.” Id. at ¶¶ 57-61. In his role as sales manager, Schilling formed and grew over the course of his tenure with Stryker. Id. To effectively perform his role, Stryker gave Schilling access to Stryker's confidential and proprietary information concerning, among other things: 1) Stryker's operations, products, pricing, manufacturing processes, research, and competitors; 2) customers; and 3) Stryker's sales representative in the Colorado region, including customer relationships, sales targets, and sales history. Id. at ¶¶ 62-63. Moreover, given Stryker's sales model, Schilling interacted with ORP on a daily basis. Id. at ¶ 65.

On August 6, 2019, Schilling voluntarily resigned his employment with Stryker. Id. at ¶ 66. When Schilling resigned and thereafter, despite his contractual obligations and reminders from representatives of Stryker, Schilling did not provide Stryker with any information about his new employment. Id. at ¶ 67. Instead, Schilling told Stryker he was not taking a new job at that time, but that he would “notify Stryker immediately” concerning any employment he secured pursuant to his employment agreement with Stryker. Id. at ¶ 68. Based on these representations, beginning in September 2009, Stryker began paying Schilling $29,000 a month in severance payments as required by the parties' agreement. Id. at ¶ 69. However, despite these representations, and others made by Schilling between 2011 and 2019 while still employed by Stryker that he had no financial interest in a competitor, Stryker learned that Schilling “had a Grant of Conditional Option and Agreement to Acquire Membership Interest” in ORP, dated August 1, 2013, and that Schilling “possessed a 25 percent ownership interest in ORP.” Id. at ¶¶ 70-71. According to Howmedica, holding such an interest in ORP constituted a violation of Schilling's employment agreement. Id. at ¶¶ 76, 90.

Further, Howmedica identified other instances in which Schilling violated his employment agreement by competing directly against Howmedica during and after his employment with the company. Id. at ¶ 76. Specifically, Howmedica discovered that while still a Stryker employee, Schilling negotiated a sales contract with a Colorado hospital, which included “a mix of Stryker products and competitive Acumed products.” Id. at ¶ 77. Howmedica learned that, after leaving Stryker and contrary to his non-compete agreement, Schilling trained ORP sales representatives on how to use and sell Acumed products. Id. at ¶ 73. Finally, Howmedica alleges it also became aware of communications between Schilling and ORP during Schilling's employment with Stryker concerning the promotion of competitor products, training opportunities with competitor companies, sales targets for competitor products, and ORP owners' meetings. Id. at ¶ 82.

Howmedica initiated this action on July 29, 2020, alleging claims for: 1) breach of contract; 2) breach of fiduciary duty; and 3) unfair competition. ECF No. 1. On September 22, 2020, Schilling answered Howmedica's complaint and alleged counterclaims. ECF No. 16. Howmedica answered Schilling's counterclaims on October 26, 2020. ECF No. 19. Thereafter, on May 23, 2022, Schilling moved for judgment on the pleadings pursuant to Federal Rule of Civil Procedure 12(c), arguing that the doctrine of collateral estoppel precludes Howmedica from litigating the issues underlying this case because they were already decided in a litigation in the United States District Court for the District of Colorado, and, accordingly, Howmedica's Complaint should be dismissed. ECF No. 86. Howmedica opposed the motion (ECF No. 98), and Schilling replied (ECF No. 105).

B. The District of Colorado Action

On May 21, 2020, ORP sued Howmedica in the United States District Court for the District of Colorado, alleging, among other claims, that Howmedica breached two contracts with ORP. See D. Colo. Dkt. ECF No. 1. Schilling was not a named party in this action. During the litigation, Howmedica asserted counterclaims against ORP for breach of contract, unfair trade practices, and tortious interference. Id. at ECF No. 84. Howmedica apparently raised Schilling's conduct in the Colorado Action (again, although Schilling was not a party) because it alleged that ORP's relationship with Schilling breached contracts between ORP and Howmedica, and further ORP tortiously interfered with the employment agreement between Howmedica and Schilling. See generally id. at ECF No. 84. Specifically, Howmedica alleged that ORP: 1) incentivized and utilized Schilling to breach his contractual and fiduciary obligations to Howmedica; 2) tortiously interfered with Howmedica's contract with Schilling by having Schilling train ORP employees on competitor products during Schilling's non-compete period; 3) provided Schilling with a financial interest in ORP; 4) had Schilling promote competitor products and include those products in contracts between Howmedica and its customers; and 5) had Schilling utilize Howmedica's confidential information to its detriment. Id. at ECF No. 84, ¶¶ 127, 135, 147-150

After a bench trial, the District of Colorado court denied Howmedica's counterclaims. Id. at ECF No. 398, pg. 29. As the counterclaims related to Schilling, the court made three findings.

First, the court “found the record devoid of evidence that [Schilling] improperly promoted Acumed products to Stryker's detriment.” Id. at ECF No. 398, pg. 11. Next, the court determined “to the extent that . . . [Schilling's] involvement with ORP breached his personal non-compete, the record indicates that Stryker requested that [Schilling] deal with ORP on its behalf.” Id. And, regarding Schilling's financial stake in ORP, the court concluded that “[Schilling's] close relationship with ORP was common knowledge among the parties.” Id. at ECF No. 398, pg. 12. Finally, the court noted that “the claims against [Schilling] belong in [New Jersey, as part of the instant action], not here.” Id.

II. LEGAL STANDARD

Under Rule 12(c), a party may move for a judgment on the pleadings after the pleadings are closed, but early enough not to delay trial. Fed.R.Civ.P. 12(c). To grant a motion for judgment on the pleadings, the moving party must demonstrate that there are no issues of material fact and that it is entitled to judgment as a matter of law. See Rosenau v. Uniford Corp., 539 F.3d 218, 221 (3d Cir. 2008) (citing Jablonski v. Pan Am. World Airways, Inc., 863 F.2d 289, 290-91 (3d Cir. 1988)). A fact is “material” if it “might affect the outcome of the suit under governing law.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A material fact is genuinely in dispute where “the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Id. The Court must also view the facts in the light most favorable to the nonmoving party and derive all favorable inferences from those facts. See Huertas v. U.S. Dep't of Educ., No. 08-cv-3959, 2009 WL 3165442, at *2 (D.N.J. Sept. 28, 2009); see also Watts v. H&M Int'l Transp., Inc., No. 12-cv-6703, 2014 WL 2854772, at *1-*2 (D.N.J. June 20, 2014).

III. DISCUSSION

Defendant moves to dismiss Plaintiff's Complaint pursuant to the doctrine of collateral estoppel. Under the doctrine of collateral estoppel, “once a court has decided an issue of fact or law necessary to its judgment, that decision may preclude...