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Healthwerks, Inc. v. Howmedica Osteonics Corp.

United States District Court, E.D. Wisconsin

September 30, 2016

HOWMEDICA OSTEONICS CORP. d/b/a STRYKER SPINE, Defendant, and BIOMET SPINE, LLC, Involuntary Plaintiff,




         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.


         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 in this 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.


         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 a material 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 in favor of the nonmoving party. Herzog v. Graphic Packaging Int'l, Inc., 742 F.3d 802, 806 (7th Cir. 2014). But, if the court “cannot resolve the conflict between these two positions without deciding which side to believe, ” summary judgment is not appropriate. Wolf v. Buss (America) Inc., 77 F.3d 914, 922 (7th Cir. 1996)(quoting Sarsha v. Sears, Roebuck & Co., 3 F.3d 1035, 1041(7th Cir. 1993)). Credibility determinations and choosing between competing inferences is a jury function. Id.

         With that said, “inferences that are supported by only speculation or conjecture will not defeat a summary judgment motion.” Herzog, 742 F.3d at 806 (quoting Tubergen v. St. Vincent Hosp. & Health Care Ctr., Inc., 517 F.3d 470, 473 (7th Cir. 2008)). The opposing party cannot simply rely on allegations or denials in its pleadings; it must also “introduce affidavits or other evidence setting forth specific facts showing a genuine issue for trial.” Anders v. Waste Mgm't of Wis., 463 F.3d 670, 675 (7th Cir. 2006). “[A] party will be successful in opposing summary judgment only when that party presents definite, competent evidence to rebut the motion.” EEOC v. Sears, Roebuck & Co., 233 F.3d 432, 437 (7th Cir. 2000)(quoting Smith v. Severn, 129 F.3d 419, 427 (7th Cir. 1997)). Thus, a court appropriately grants summary judgment “against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial.” Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).


         The 2008 agreements contain a New Jersey choice of law provision. Dkt. No. 87 at ¶ 44. Because the parties dispute whether New Jersey or Wisconsin law governs the claims arising out of the 2008 agreements, the court must start with a choice-of-law analysis. Dkt. No. 158 at 7; See Auto-Owners Ins. Co. v. Websolv Computing, Inc., 580 F.3d 543, 547 (7th Cir. 2009) (quoting Wood v. Mid-Valley Inc., 942 F.2d 425, 427 (7th Cir. 1991))(“Courts do not worry about conflict of laws unless the parties disagree on which state's law applies.”).

         “Where a district court's jurisdiction is based on diversity . . . the court must follow the choice of law rules of the forum state to determine the applicable substantive law.” Progressive N. Ins. Co. v. Mick White Renovations, No. 04 C 7465, 2007 WL 899398, at *2 (N.D. Ill. Mar. 16, 2007)(citations omitted). Under Wisconsin choice of law principles, a contractual choice of law provision is enforceable only if it does not contravene important state law public policies that would apply if the contract did not contain a choice of law provision. Drinkwater v. Am. Family Mut. Ins. Co., 714 N.W.2d 568, 573-574 (Wis. 2006). Essentially, courts determine (1) the presumptive state law if no choice of law provision existed and (2) whether enforcing the forum clause in the contract would contravene important public polices of the presumptive state. Id.

         In the absence of a choice-of-law provision, “the law of the forum should presumptively apply unless it becomes clear that nonforum contacts are of the greater significance.” Id. at 575-76 (quoting State Farm Mut. Auto. Ins. Co. v. Gillette, 641 N.W.2d 662, 676 (Wis. 2002)). Wisconsin courts apply the “grouping of contacts” rule to determine the state with which the contract has its most significant relationship. State Farm Mut. Auto. Ins. Co., 641 N.W.2d at 671 (citing Haines v. Mid-Century Ins. Co., 177 N.W.2d 328 (1970)). “Relevant contacts include: [1] place of contracting; [2] the place of negotiation of the contract; [3] the place of performance; [4] the location of the subject matter of the contract; and [5] the respective domiciles, places of incorporation and places of business of the parties.” Sybron Transition Corp. v. Sec. Ins. Co. of Hartford, 107 F.3d 1250, 1255 (7th Cir. 1997)(quoting Hystro Prods., Inc. v. MNP Corp., 18 F.3d 1384, 1387 (7th Cir. 1994)). The quality of the contacts determines which contacts are significant. Sybron Transition Corp., 107 F.3d at 1255.

         The 2008 agreements have the most significant relationship with Wisconsin. Spine Group distributed Stryker products in Wisconsin and Michigan. Dkt. No. 114 at ¶6. The collective parties referred to in this decision as “Spine Group” are Wisconsin companies and residents. Dkt. No. 138 at ¶1; Dkt. No. 19 at ¶1-3. The only ties these contracts had to New Jersey were the fact that Stryker is a New Jersey corporation and the fact that the contracts provide a New Jersey choice of law provision. Dkt. No. 87 at ¶1, 44. Because the contract covers product sales in Wisconsin with Wisconsin companies and residents, it follows that Wisconsin law should apply.[2]

         Moving on to the second step, applying New Jersey law would contravene Wisconsin public policy. Wisconsin has a strong public policy invalidating any covenant imposing an unreasonable restraint on employment. Wis.Stat. § 103.465. The purpose of this law is to encourage mobility of workers. See, e.g. Farm Credit Servs. of N. Cent. Wis., ACA v. Wysocki, 627 N.W.2d 444, 447 (Wis. 2001)(citing Gary Van Zeeland Talent, Inc v. Sandas, 267 N.W.2d 242 (1978)). Wisconsin courts will not enforce a provision that imposes an unreasonable restraint, “even as to any part of the covenant or performance that would be a reasonable restraint.” Wis.Stat. §103.465. New Jersey has a similar standard requiring reasonable covenants, but, in contrast to Wisconsin courts, if a New Jersey court finds a clause to be unenforceable, “rather than deem the covenant void ab initio, [c]ourts will enforce them to the extent reasonable under the circumstances.” Richards Mfg. Co. v. Thomas & Betts Corp., No. CIV. 01-4677, 2005 WL 2373413, at *4 (D.N.J. Sept. 27, 2005).

         Wisconsin, then, requires the employer to craft, at the outset, covenants which contain only such restrictions are reasonably necessary; if the employer includes unreasonable restrictions, the entire covenant is unenforceable. New Jersey, in contrast, will not deem the entire covenant unenforceable if it contains unreasonable restrictions. Rather, New Jersey law encourages courts to try to partially enforce the covenants if they can do so “without injury to the public and without injustice to the parties.” Id. If this court were to apply New Jersey law, it would contravene Wisconsin's stronger public policy against unreasonable restraints. The court concludes that Wisconsin law governs this dispute.


         A. Stryker Does Not Have A Breach Of Contract Claim Against Spine Group Or The Sales Associates.

         In Count I of the amended counterclaim, Stryker alleges that Spine Group breached several provisions of the 2008 agreements. Dkt. No. 87 at ¶116. In Count VIII of the amended counterclaim, Stryker alleges that the sales representatives breached the sales representative agreements. Id. at ¶219.

         In direct contrast, the plaintiffs as, in Count I of the amended complaint, that the court find that the 2008 agreements were no longer enforceable after January 1, 2012; in other words, they ask the court to find that there were no contracts in place with Stryker that they could have breached. Dkt. No. 86 at ¶46.

         Under Wisconsin law, a plaintiff must demonstrate three elements in order to prove a breach of contract claim: (1) that a valid contract existed (2) that the defendant breached that contract and (3) that damages flowed from that breach. Matthews v. Wisconsin Energy Corp., 534 F.3d 547, 553 (7th Cir. 2008) (citing Nw. Motor Car, Inc. v. Pope, 187 N.W.2d 200 (Wis. 1971)).

         i. The First Element (Existence of a Valid Contract): Spine Group and Stryker did not have a valid contract after December 31, 2010.

         Spine Group does not dispute the existence of the 2008 agreements or their terms. Dkt. 140 at 5. The parties dispute only whether any of the terms extended beyond December 31, 2011. Id. at 5.

         a. The 2008 agreements expired on December 31, 2010.

         The 2008 agreements terminated under an express provision requiring Stryker to extend the agreements, in writing, no less than sixty days prior to the last day of the initial term. Dkt. No. 138 at ¶15. Instead of extending the terms in writing, Stryker sent a revised renewal agreement which Spine Group did not execute. Dtk. No. 114 at ¶36. Because Stryker did not extend the agreements and because the parties failed to enter into a new contract, the 2008 agreements terminated on December 31, 2010, by their own terms. Dkt. No. 102 at ¶17. As a result, the one year non-compete restriction lapsed on December 31, 2011. Dkt. No. 138 at ¶14-15.

         b. The only provisions in the 2008 agreements which extended beyond December 31, 2011-the ...

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