A very important decision out of the Western District of Michigan touches upon several important aspects of non-compete litigation and particularly non-compete defense. Not surprisingly, the case pits Stryker against a former sales rep. Stryker, as many folks know, is notorious for aggressively enforcing its non-compete agreements. Let’s take a look:
Christopher Ridgeway was hired by Stryker as a sales representative in November 2001. Ridgeway was based in New Orleans and that was his territory. After eleven years with Stryker, Ridgeway was promoted to District Sales Manager for Stryker’s Craniomaxillofacial and Neuro Spine Divisions. This is basically skull and spine. While still employed by Stryker, a competing company called Biomet approached Ridgeway about working for them. Biomet and Ridgeway entered into serious talks about Ridgeway becoming a distributor of their spine and skull products. In September 2014, Stryker learned of these negotiations and immediately terminated Ridgeway. Shortly thereafter, Ridgeway, through his limited liability company Stone Surgical, became a Biomet distributor.
As expected, Stryker sued Ridgeway and Biomet for breach of a non-compete agreement, breach of fiduciary duty, misappropriation of trade secrets and tortious interference. Now here’s where things start to get interesting. Stryker attached an employee non-compete to the complaint and alleged this was a true and correct copy of Ridgeway’s Agreement. After Biomet got word of the lawsuit and learned of Ridgeway’s non-compete, Biomet terminated Ridgeway distributorship. Ridgeway, in turn, filed a counterclaim in the Michigan action alleging numerous claims including fraud, tortious interference and defamation. At the same time, Ridgeway’s Stone Surgical LLC filed a separate action in the Eastern District of Louisiana alleging substantially identical claims. The crux of Ridgway’s two actions was that Ridgeway had never signed a non-compete agreement with Stryker, that the “true and correct copy” of the non-compete attached to Stryker’s complaint was not his, and that Stryker used this fabricated non-compete to interfere with the relationship between Stone Surgical and Biomet. Stryker then amended its complaint, withdrew the “true and correct copy” language, and added the allegation that it had sent Ridgeway a form non-compete agreement, that Ridgeway had executed that agreement and then faxed back only the signature page. As it turns out, the “true and correct copy” that Stryker had attached to the complaint was a redacted copy of another employee’s non-compete. Ultimately, the Louisiana case was sent to Michigan and consolidated with the other action. The consolidated case has been in litigation for roughly a year.
After discovery closed, Stryker moved for summary judgment on everything. The court denied that motion in its entirety.
Fraud & LUPTA Claims
First, Stryker sought summary judgment on Ridgeway’s claims for fraud and violations of the Louisiana Unfair Trade Practices Act (“LUTPA”). The gist of those claims was that Stryker made false representations about a non-compete agreement that didn’t actually exist. In seeking summary judgment, Stryker argued that it had conclusively established the existence of Ridgeway’s non-compete agreement, thereby disposing of the fraud and LUPTA claims. Stryker argued that although it did not have a complete copy of Ridgeway’s executed non-compete agreement, it had the signature page, which contained the document control number 573287.03. That same document control number correlated to a form non-compete agreement that Stryker used for more than 100 employees. Stryker put in declarations stating that this form agreement was the only non-compete the company used, that all sales representatives were required to sign it and that the company did not allow any changes to the document.
Ridgeway did not deny that the non-compete at issue was an accurate reflection of what he signed, instead he took the position that he couldn’t be sure and that the fact was disputed. First, there was the issue of Stryker’s false representation in its complaint regarding the “true and correct copy” of Ridgeway’s agreement. Beyond this, Ridgeway pointed to testimony that cast doubt on Stryker’s version of events. Specifically, a number of individuals employed in Stryker’s HR department at the time Ridgeway was hired testified that the company requested employees return all pages of their employment agreement, not just the signature page. More importantly, other individuals who worked in Stryker’s HR department throughout Ridgeway’s tenure testified that some sales reps did not sign non-compete agreements. And at least two Stryker employees testified that the terms of the non-compete agreements sometimes varied. Ridgeway presented evidence of multiple non-compete agreements bearing the same document control number but containing materially different terms, or with handwritten modifications to those terms. Now for the kicker: Ridgeway’s boss recalled sitting in management meetings where they discussed the fact that they did not have a non-compete agreement for Ridgeway. And a number of Ridgeway’s superiors recalled either conversing with Ridgeway about his lack of a non-compete or talking amongst themselves about his lack of a non-compete.
Based on all the foregoing, the court denied Stryker’s motion for summary judgment on the fraud and LUPTA claims. The court held that there was more than enough evidence for a jury to conclude that Ridgeway didn’t have a non-compete and that Stryker’s case against him was built a lie, thereby giving rise to claims for fraud and unfair trade practices.
Next, Stryker sought summary judgment on Ridgeway’s defamation claim. Ridgeway alleged that Stryker had defamed him to former customers and other players in the industry. Stryker’s motion for summary judgment argued that Ridgeway had no competent evidence of defamation. In attacking Ridgeway’s proffered evidence, Stryker argued that this evidence was opinion, hearsay, privileged or otherwise inadmissible to prove defamation. In response, Ridgeway pointed to record evidence that did not suffer from any such defects. For example, Ridgeway pointed to a Stryker email that was disseminated to third parties in which a Stryker employee made numerous allegations about Ridgeway breaching his fiduciary duties, sabotaging Stryker’s hiring process, stealing the company’s confidential information and misappropriating the company’s money. Ridgeway also pointed to evidence that certain higher ups at Stryker accused him scamming a hospital so he was paid the same commission twice. In short, although Ridgeway did not have a ton of evidence that Stryker defamed him, the court found that he had enough to send the case to a jury.
Next, Stryker moved for summary judgment on Ridgeway’s claim of promissory estoppel. Apparently, Stryker argued that Ridgeway had “no evidence” to support this claim. Stryker’s (or rather counsels’) penchant for overstatement is almost laughable. The judge was kind enough to call this “disingenuous” and leave it at that. The record contained a litany of evidence in support of Ridgeway’s promissory estoppel claim. Someone from Stryker’s HR department admitted telling Ridgeway that she did not see a non-compete agreement in his file, then followed-up that conversation with an email confirming that he did not have a non-compete on file. And no less than 7 Stryker employees (nearly all of them Ridgeway’s superiors or HR managers) represented to Ridgeway that he did not have a non-compete. In a tremendous display of circular logic, Stryker then argued that Ridgeway’s promissory estoppel claim was barred because Ridgeway had a non-compete agreement and, therefore, should have known better! The court quickly disposed of that argument, noting that it assumed the fact that Ridgeway had a non-compete, a fact still very much in dispute.
- Representations to the Court: Call me old-fashioned, but I take the concept of candor to the tribunal very seriously. And what happened here goes beyond a simple, sloppy mistake. Stryker (and its lawyers) took another employee’s non-compete agreement, redacted it, attached it to a complaint and said – point blank – that this was a true and correct copy of Ridgeway’s non-compete. Stryker (and its lawyers) did this in spite of the fact that (1) they did not have an actual copy of Ridgeway’s non-compete (2) they had no way of knowing for certain whether or not such an agreement existed and, if so, what its terms were. The court repeatedly highlights the fact that Stryker made false representations. This is a problem for Stryker not only in this case but going forward. Remember, this is Stryker’s home court. They’re in front of these judges all the time. And it’s hard to forget when litigants, basically, lie.
- Overplaying its Hand: Stryker (and its lawyers) badly overplayed their hand. Not only did they make false representations about Ridgeway’s non-compete agreement, they also took outlandish positions, repeatedly arguing that Ridgeway had “no evidence” of anything. That’s more on the lawyers. This is rookie league nonsense. Good lawyers cede points. Look, you’re dealing with a federal judge and a staff of law clerks. If the record contains plausible evidence that could support a promissory estoppel defense, you are not going to fool anyone by saying that there is utterly no evidence in support of promissory estoppel. That is not a strong argument posture. It’s just disingenuous and foolish. You don’t say there’s no evidence. You say the evidence doesn’t rise to the level. And if you can’t make the argument credibly (i.e. grant us summary judgment), then don’t make it at all.
- Non-Compete Counterclaims: I’ve been involved in hundreds of non-compete disputes and I’ve handled both sides. These cases often have interesting factual wrinkles. I’ve seen document issues on several occasions. This included a missing non-compete, a signature page divorced from the rest of the agreement, allegations of a forged signature, confusion over which draft was final, etc. These sorts of facts can give rise to interesting counterclaims for things like fraud, unfair competition or deceptive trade practice. This can be good leverage.
- Promissory Estoppel: This can be raised either as an affirmative claim (in some states) and as an affirmative defense. Equitable estoppel, too. In defending non-compete claims, always consider whether or not you have an estoppel defense. If the existence of the actual agreement isn’t in dispute, then that agreement probably contains integration clause. But that alone is not dispositive. Remember, it doesn’t have to be a representation that the employee did not have a non-compete agreement. It could be a representation by someone in HR or management saying that the company will not enforce the non-compete or that the employee does not have to honor it. This is fertile ground for an equitable estoppel defense.
- Audit HR: Apparently, lots of people high up the food chain at Stryker either knew that Ridgeway did not have a non-compete, heard that he did not have one or suspected this. In spite of this, Ridgeway worked at Stryker for years. And then when he left, Stryker was so concerned at the prospect of unfair competition that they filed a lawsuit against him. This is not rocket science. Companies should audit employee files at least once every six months to a year. If its company policy to have a non-disclosure, non-compete or non-solicitation for every employee (or every employee of a certain level), then the audit needs to check off that box. If the audit reveals that certain employees who should have these agreements in place don’t have one in their personnel files, that can be fixed immediately. It all depends on the governing state law, but in many states, continued employment or a small one-time bonus is enough consideration to exchange for a non-compete.
The case is Stryker Corp. v. Ridgeway, No. 1:13-CV-1066, 2015 WL 7738094, at *6 (W.D. Mich. Dec. 1, 2015).
Jonathan Pollard is a competition lawyer based in Fort Lauderdale, Florida. He has extensive experience litigating non-compete, trade secret and antitrust disputes. For more information, contact his office at 954-332-2380.