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Heraeus Medical, LLC v. Zimmer, Inc.

Court of Appeals of Indiana

April 15, 2019

Heraeus Medical, LLC, a Delaware Limited Liability Company; Devin Childers, an individual; Robert Kolbe, an individual; James "Worth" Burns, an individual; Paul Cruz, an individual; and Kyle Kolbe, an individual, Appellants-Defendants,
v.
Zimmer, Inc., a Delaware corporation d/b/a Zimmer Biomet, and Zimmer US, Inc., a Delaware corporation, Appellees-Plaintiffs.

          Interlocutory Appeal from the Kosciusko Superior Court The Hon. David C. Cates, Judge Trial Court Cause No. 43D01-1802-PL-21

          Attorneys for Appellants Damon R. Leichty Barnes & Thornburg LLP South Bend, Indiana Gerald E. Burns Buchanan Ingersoll & Rooney, PC Philadelphia, Pennsylvania

          Attorneys for Appellees Joshua B. Fleming Lucy R. Dollens Quarles & Brady LLP Indianapolis, Indiana

          BRADFORD, JUDGE.

         Case Summary

         [¶1] Beginning in 2012, Heraeus Medical GmbH and Zimmer Surgical, Inc., had an agreement pursuant to which Zimmer Surgical had exclusive United States distribution rights to certain bone cements manufactured by Heraeus Medical GmbH and sold under the brand name Palacos ("the Distribution Agreement"). Zimmer Surgical is a subsidiary of Zimmer, Inc., d/b/a as Zimmer Biomet. In late 2017, Robert Kolbe was an employee of Zimmer Biomet and had signed an agreement containing non-compete and non-solicitation of Zimmer Biomet customers and employees covenants ("the Kolbe Agreement"). In January of 2018, Heraeus Medical GmbH exercised its right to terminate the Distribution Agreement as of December 2018. Soon thereafter, Heraeus Medical GmbH announced that it had established a new direct sales force for Palacos through its newly-established American affiliate, Heraeus Medical, Inc. ("Heraeus"), which included Kolbe, who had left Zimmer Biomet in November of 2017.

         [¶2] In February of 2018, Zimmer Biomet and Zimmer US, Inc. (collectively, "Zimmer"), sued, inter alia, Heraeus and Kolbe on various grounds, also seeking a preliminary injunction enforcing the Kolbe Agreement and the restrictive covenants signed by the other individual defendants. On July 12, 2018, the trial court issued a preliminary injunction in which it ordered Kolbe to generally abide by the terms of the Kolbe Agreement and ordered Heraeus to not possess, use, or disclose confidential information received from Heraeus GmbH or employ or engage the individual defendants in a way that violated their restrictive covenants with Zimmer Biomet or the trial court's preliminary injunction. Heraeus, Kolbe, and four other individual defendants ("Appellants") appeal, contending that the Kolbe Agreement is contrary to law and unenforceable, the trial court misapplied certain provisions of the Kolbe Agreement, and portions of the preliminary injunction related to Heraeus are unreasonable.[1] While we largely disagree with Appellants' arguments, we do agree that the Kolbe Agreement's covenant not to solicit Zimmer Biomet employees is overbroad and so reform it to comply with Indiana law. We also agree that in crafting its preliminary injunction, the trial court (1) incorrectly defined the geographic scope of the Kolbe Agreement and (2) applied the term "contact" in a way inconsistent with the Kolbe Agreement. We affirm in part, reverse in part, and remand with further instructions.

         Facts and Procedural History

         [¶3] As of January 1, 2012, Zimmer Surgical and Heraeus Medical GmbH were parties to the Distribution Agreement, pursuant to which Zimmer Surgical was granted an exclusive license to distribute, market, promote, and sell certain bone cements manufactured by Heraeus Medical GmbH, all sold under the name Palacos. Zimmer has also developed its own line of competing bone cement. The initial term of the Distribution Agreement was to end on December 31, 2018, subject to possible extension. Beginning on January 1, 2018, each party had the right to elect to make the Distribution Agreement nonexclusive for the final year, which Heraeus Medical GmbH did on January 3. By this time, Heraeus Medical GmbH had established a direct sales force to sell Palacos in the United States through its newly-organized affiliate Heraeus. As it happened, several former Zimmer Biomet employees had recently left to take sales positions at Heraeus, including Devin Childers, Kolbe, James "Worth" Burns, Paul Cruz, and Kyle Kolbe ("K. Kolbe").

         [¶4] Kolbe was hired by Heraeus in November of 2017, currently serves as vice- president of sales, and was previously employed by Zimmer Biomet as Group Director for Enterprise Solutions for the East. Kolbe signed the Kolbe Agreement on September 30, 2015, which contains a covenant not to compete and covenants not to solicit Zimmer Biomet customers or employees. The covenant not to solicit customers or active prospects provides, in part, that "[e]mployee will not, directly or indirectly, (i) provide, sell or market; (ii) assist in the provision, selling or marketing of; or (iii) attempt to provide, sell or market any Competing Products to any of Company's Customers or Active Prospects in the Restricted Territory." Appellants' App. Vol. IV p. 153.

         [¶5] The Kolbe Agreement defines "Active Prospect" as

[a]ny person or entity that Company, through its representatives, specifically marketed to and/or held discussions with regarding the sale of any of Company's products or services at any time during the last six (6) months of Employee's employment with Company and with respect to whom, at any time during the six (6) months immediately preceding the termination of Employee's employment with Company, Employee had (i) any marketing or sales contact on behalf of Company and/or ii) access to, or gained knowledge of, any Confidential Information concerning Company's business prospects with such Active Prospect.

         Appellants' App. Vol. IV p. 152.

         [¶6] The Kolbe Agreement's covenant not to solicit Zimmer Biomet employees provides as follows:

Employee will not employ, solicit for employment, or advise any other person or entity to employ or solicit for employment, any individual employed by Company at the time of Employee's separation from Company employment, or otherwise induce or entice any such employee to leave his/her employment with Company to work for, consult with, provide services to, or lend assistance to any Competing Organization.

         Appellants' App. Vol. IV p. 153. All covenants have terms of eighteen months after Kolbe left Zimmer Biomet, to be extended in cases of noncompliance. Moreover, the Kolbe Agreement contains the following provision: "The parties agree that any court interpreting the provisions of this Agreement shall have the authority, if necessary, to reform any such provision to make it enforceable under applicable law." Appellants' App. Vol. IV p. 156.

         [¶7] On February 23, 2018, Zimmer sued Heraeus, Childers, Kolbe, Burns, Cruz, and K. Kolbe for (1) breach of contract against the individual defendants; (2) tortious interference with contracts against Heraeus; and (3) and tortious interference with business relationships, civil conspiracy, and unfair competition against all defendants. Zimmer also sought a preliminary injunction to stop violations of the confidentiality, non-compete, and non-solicitation agreements signed by the various individual defendants. On April 17 and 18 and May 22, 2018, the trial court heard evidence relevant to Zimmer's motion for a preliminary injunction. Prior to the hearing, Zimmer withdrew its request as to K. Kolbe, and, on May 31, 2018, the trial court issued an agreed injunction order as to Cruz.

         [¶8] On July 12, 2018, the trial court denied Zimmer's motion for preliminary injunction in part and granted it in part. The trial court, in part, ordered Kolbe enjoined from

b. Directly or indirectly working or lending assistance to Heraeus, its sales managers, employees, or independently contracted distributors or sales representatives, for the sale and promotion of Heraeus' products and services in the Eastern half of the U.S. (the territory assigned to him in his last position with Zimmer Biomet), which includes: Alabama, Arkansas, Connecticut, Delaware, Florida, Georgia, Indiana, Kentucky, Maine, Maryland, Massachusetts, Michigan, Mississippi, New Hampshire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina, Tennessee, Vermont, Virginia, Washington D.C., West Virginia;
c. Providing, selling or marketing to, or contacting any of Zimmer Biomet's Customers to whom Kolbe sold during his last two years or to Zimmer Biomet's Active Prospects to whom Kolbe marketed Zimmer Biomet products in his last six months of employment;
d. Urging, inducing or seeking to induce any distributor or sales representative with whom Zimmer Biomet had a business relationship at the time of Robert Kolbe's resignation on November 3, 2017, to terminate its or their relationship with, or representation of, Zimmer Biomet or to cancel, withdraw, reduce, limit or in any manner modify any such person's or entity's business with, or representation of, Zimmer Biomet;
e. Employing or soliciting for employment, or advising Heraeus to employ or solicit for employment any individual employed by Zimmer Biomet as of November 3, 2017, or otherwise directly or indirectly induce or entice any such employee to leave his/her employment with Zimmer Biomet to work for, consult with, provide services to, or lend assistance to Heraeus.

Appellants' App. Vol. II pp. 58-59.

         [¶9] The trial court, in part, preliminarily enjoined ...


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