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Zimmer, Inc. v. Masters

United States District Court, N.D. Indiana, South Bend Division

March 31, 2014

ZIMMER, INC., Plaintiff.


ROBERT L. MILLER, Jr., District Judge.

Zimmer, Inc. asks the court to enforce non-solicitation covenants executed by two of its former employees. The court granted Zimmer's motion for a temporary restraining order on February 26 and heard evidence and argument on the preliminary injunction motion on March 26 and 27. Because the covenant appears to be unreasonable under Indiana law (which provides the rule of decision in this case), Zimmer has shown itself to have, at most, a barely greater than negligible likelihood of success on the merits. Zimmer has shown the balance of risks of an erroneous ruling to favor Zimmer only slightly, if at all. Accordingly, the court denies the motion for a preliminary injunction.

Zimmer develops, manufactures, distributes, and sells orthopaedic reconstructive, trauma, extremity, biologic and surgical devices, products, processes, and services. It markets, distributes, and sells those products throughout the United States and in foreign countries. David Masters and Andrew Masters worked together for Zimmer Southwest, Inc., which was an independent distributor of Zimmer products, from November 2003 until they began working directly for Zimmer in October 2012.

In 2012, Zimmer decided to bring its sales in the Arizona area in-house. Zimmer offered employment to David Masters and Andrew Masters. David and Andrew Masters became Zimmer employees on October 1, 2012. David Masters received a bonus of $50, 000 and a $100, 000 loan against his commissions. In their Zimmer Southwest years, Team Masters (David and Andrew Masters were known by this name within Zimmer) worked with surgeons, hospitals, and surgery centers from the Phoenix Valley to Tucson, and further west to Yuma, Arizona. Everyone at Zimmer, including Zimmer's regional manager Ray Richmond, generally understood that David and Andrew Masters would retain the accounts they had serviced with Zimmer Southwest. Mr. Richmond understood that the retention would last only through the transition period, but he didn't say anything to David or Andrew Masters about that limitation.

David and Andrew Masters had access to confidential, proprietary, and trade secret information about Zimmer's business. They learned about Zimmer's sales force and employees, marketing plans and strategies, pricing, profit margins and business plans, customers and active prospects, customer preferences, and other confidential customer information. Sales reps help customer surgeons during surgical procedures, providing technical support to surgeons and their staff, showing Zimmer's products to surgeons, and providing surgeons with information about Zimmer's products. Sales reps are the face of Zimmer.

David and Andrew Masters each signed a non-competition/non-solicitation agreement with Zimmer that contained restrictive covenants in paragraph 7 of the agreements. Summarizing brutally, those covenants provide that for one year after leaving Zimmer, the signer can't attempt or assist selling competing products to any Zimmer customer of active prospect in the geographic area assigned to the employee within the last two years of employment with Zimmer. The agreements recited that the covenants were reasonable and necessary for protection of Zimmer's confidential information, inventions, and goodwill. Paragraph 17 of the agreements was an integration clause stating that no agreements existed apart from what was in the written agreements.

In late January 2013, Zimmer hired Mike Murphy as a sales rep in the southwest territory. Mr. Murphy was an experienced sales rep in the field and was unencumbered by a non-compete provision. Among the accounts Mr. Richmond assigned to Mr. Murphy were fourteen of the accounts that Team Masters had been servicing for Zimmer and, before that time, for Zimmer Southwest. David Masters vigorously protested the change of assignments, believing that he and Andrew had been promised that they could keep their original accounts. David Masters accused Zimmer of breaching its contract. Mr. Richmond appears to have engaged in little actual dialogue with David Masters, but he gave Team Masters responsibility for four additional surgeons, at least two of whom produced a lot of business for Team Masters and Zimmer. Communication between Mr. Richmond and Team Masters about the transfer of surgeons from Team Masters to Mr. Murphy appears to have ceased after that.

Team Masters generated some $4.5 million in revenue for Zimmer in 2013.

Sometime around the beginning of 2014, two of the surgeons with whom David Masters worked told him he should try to find a better product to sell than that offered by Zimmer. Soon after that, David Masters told Zimmer he was resigning from Zimmer to become a distributor for a competitor named Medacta. David Masters told Zimmer that Andrew Masters would be joining him, but Andrew Masters never told anyone at Zimmer that he intended to leave. Andrew Masters testified at the hearing that he hadn't decided whether to leave the profitable Zimmer business behind.

David Masters's last day at Zimmer was February 7, 2014. Mr. Masters had had several conversations with Medacta in the day before that, while he still was an employee at Zimmer. Zimmer believes Mr. Masters was providing Medacta with confidential Zimmer information while he still worked for Zimmer. Zimmer might be able to prove that belief at trial, but, at this point, the evidence isn't especially compelling.

Zimmer fired Andrew Masters on February 3, believing that Andrew Masters had been trying to get customers to switch from Zimmer to Medacta. Mr. Richmond testified at the hearing that Andrew Masters's failure to reach sales targets was another ground for his termination; this explanation is puzzling because none of the papers before the court associate any accounts with Andrew Masters alone. It's difficult to understand how Andrew Masters could have been falling behind on his targets. In any event, Andrew Masters appeared at a surgery the next day at the surgeon's invitation. When it became apparent that an item essential to the surgery was missing, Andrew Masters drove off to get the part and the surgery was completed.

Zimmer filed this suit on February 14, together with its request for a temporary restraining order. Zimmer is incorporated in, and has its principal place of business in, Indiana. David and Andrew Masters are citizens of Arizona. The court has jurisdiction under 28 U.S.C. § 1332(a). The court heard argument on that motion on February 26 and granted the motion, forbidding the defendants from anything that could give Medacta a competitive advantage in connection with twenty-five named hospitals and surgical centers "and all surgeons affiliated therewith." Zimmer then moved for a preliminary injunction, and the TRO was extended to March 26. The court heard evidence and argument on the preliminary injunction on March 25 and 26. With the parties' agreement, the court extended the TRO to April 2.

A preliminary injunction isn't to be granted unless the movant carries its burden of persuasion." Mazurek v. Armstrong , 520 U.S. 968, 972 (1997) ( quoting 11A C. WRIGHT, A. MILLER & M. KANE, FEDERAL PRACTICE AND PROCEDURE § 2948, pp. 129-130 (2d ed. 1995)). A preliminary injunction is meant to minimize the hardship to the parties pending judgment in the case. Anderson v. U.S.F. Logistics (IMC), Inc. , 274 F.3d 470, 474 (7th Cir. 2001). One seeking a preliminary injunction must demonstrate a reasonable likelihood of success on the merits of its claim, a lack of an adequate remedy at law, and that irreparable harm will result if the injunction isn't granted. Lambert v. Buss , 498 F.3d 446, 451 (7th Cir. 2007). If that showing is made, the court must then consider any irreparable harm the preliminary injunction might impose upon the party against whom the injunction is sought and whether the preliminary injunction would harm or foster the public interest. Lambert v. Buss , 498 F.3d at 451. These factors are weighed on a sliding scale: as the plaintiff's chance of success on the merits increases, the less the balance of harms must weigh in its favor. Promatek Indus., Ltd. v. Equitrac Corp. , 300 F.3d 808, 811 (7th Cir. 2002).

By the agreements' terms, Indiana law governs the non-compete agreements. Indiana law generally disfavors restrictive covenants in employment contracts, construes them strictly against employers, and denies enforcement if the restrictions are unreasonable. Central Indiana Podiatry, P.C. v. Krueger , 882 N.E.2d 723, 729 (Ind. 2008). The reasonableness of a non-compete agreement is a question of law. Id . The agreements signed by David and Andrew Masters each contain a covenant not to compete with Zimmer and a covenant not to solicit Zimmer ...

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