Orthofix, Inc. v. Hunter
55 F. Supp. 3d 1005, 2014 WL 5422838, 2014 U.S. Dist. LEXIS 151378 (2014)
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Rule of Law:
For information to qualify as a trade secret under Ohio law, the owner must make reasonable efforts to maintain its secrecy, and a broad non-disclosure agreement functioning as an unlimited non-compete is unenforceable under Texas law. An employee commits tortious interference by intentionally hoarding and converting customer orders from a former employer to a new one.
Facts:
- Eric Hunter was employed by Orthofix as a medical device salesman, primarily selling bone growth stimulators, from 2000 until November 2012.
- Hunter signed an employment agreement with Orthofix containing non-compete and non-disclosure clauses, specifying that it would be governed by Texas law.
- In April 2012, Hunter and fellow Orthofix salesman Bob Lemanski proposed becoming independent distributors for Orthofix, which the company rejected.
- Following Orthofix's rejection, Hunter and Lemanski secretly plotted with Richard Spina, an area vice president of DJO (Orthofix's competitor), over several months to join DJO.
- During their plotting, Hunter and Lemanski shared Orthofix sales reports and an account-by-account breakdown of their Orthofix stimulator sales with Spina.
- Hunter resigned from Orthofix via email at 12:16 AM on November 13, 2012, and signed an employment agreement with DJO that same morning.
- Leading up to his departure, Hunter and Lemanski intentionally hoarded 46 unsubmitted customer orders for Orthofix bone growth stimulators.
- After joining DJO, Hunter returned the hoarded Orthofix orders to the doctors, stating he could no longer fulfill them, and then solicited those same doctors to purchase DJO stimulators instead, which most doctors did.
Procedural Posture:
- Orthofix, Inc. sued Eric Hunter in the United States District Court for the Northern District of Ohio, alleging misappropriation of trade secrets under Ohio law, breach of contract (non-disclosure provision), and tortious interference.
- Eric Hunter filed a counterclaim against Orthofix for disputed unpaid commissions and expenses.
- The parties previously stipulated to an Order (Doc. 47) reforming Hunter's non-compete clause to a one-year and 100-mile limitation.
- The District Court held a bench trial on the remaining claims from July 15-17, 2014, and heard final arguments on August 21, 2014.
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Issue:
1. Does a medical device salesman's compiled customer information, including physician preferences and prescribing habits, qualify as a trade secret under Ohio law when the employer does not take reasonable steps to maintain its secrecy? 2. Is a broad non-disclosure provision in an employment agreement enforceable under Texas law if it effectively creates an unlimited non-compete clause? 3. Does an employee's act of intentionally withholding pending customer orders from a former employer and redirecting them to a new employer constitute tortious interference with business relationships?
Opinions:
Majority - Jack Zouhary
No, the "playbook" information collected by Hunter does not qualify as a trade secret under Ohio law because Orthofix failed to take reasonable efforts to maintain its secrecy. While a compilation of individually publicly available information can constitute a trade secret, Orthofix did not demonstrate the requisite active steps to protect this information. Hunter's supervisor did not require sales representatives to submit or maintain "playbooks" consistently, nor did Orthofix have a central directive or meaningful protocol to protect this information or seek its return upon an employee's departure. Additionally, Orthofix disclosed wholesale prices to customers without confidentiality provisions, and much of the information was generally known within the industry. The court found that generalized employee confidentiality agreements and codes of conduct were insufficient to preserve trade secret status without active enforcement and monitoring. No, the broad non-disclosure provision in Hunter's employment agreement is not enforceable under Texas law as applied to the "playbook" information. The court found that the scope of "confidential information" in the non-disclosure clause was coterminous with information protected as a trade secret. Since Orthofix failed to prove trade secret status for this information, the breach of contract claim for non-disclosure also fails. Furthermore, if not limited to actual trade secrets, the provision would function as an unenforceable lifetime non-compete clause without geographic or time limitations, as it would effectively prohibit Hunter from using general knowledge, skill, and experience acquired during his employment, which is contrary to Texas law. Yes, Hunter committed tortious interference with Orthofix’s prospective business relationships by orchestrating the withholding and conversion of unsubmitted customer orders. Hunter and Lemanski intentionally hoarded 46 customer orders for Orthofix stimulators, knowing they were for Orthofix products. Upon leaving Orthofix, Hunter returned these orders to the doctors, claiming he could no longer fulfill them, and immediately offered to fill them with DJO products. This was an intentional and improper act to prevent contract formation between Orthofix and its customers, for which Hunter lacked justification. Orthofix suffered damages in the form of lost profits from these orders, and the court found Hunter to be the "ringleader" in this scheme. The court awarded Orthofix $62,039 in damages for Hunter's tortious interference. Regarding Hunter's counterclaim, the court found that Hunter failed to prove his claimed amount for unpaid commissions ($20,262) with sufficient evidence beyond his resignation email. Orthofix stipulated to owing $8,710 and provided evidence of its calculation. The court awarded Hunter $8,710 for his counterclaim.
Analysis:
This case establishes critical guidance for employers regarding trade secret protection, emphasizing that mere contractual provisions are insufficient without active and reasonable efforts to maintain secrecy. It clarifies that non-disclosure clauses, if too broad and lacking specific definition or enforcement, can be deemed unenforceable if they function as unlimited non-compete agreements. Furthermore, the decision draws a clear line for departing employees, indicating that while competition is permissible, the deliberate diversion of specific, pending customer orders constitutes illegal tortious interference, holding the employee liable for the resulting damages.
