Stryker Non-Compete Law Applied Correctly in Ex-Sales Rep Appeal
Posted on May 31, 2017 by Medtech[y] Staff
On Wednesday, May 24, a Sixth Circuit panel held up a ruling that former Stryker sales rep, Chris Ridgeway, violated his noncompete and confidentiality agreements and misappropriated trade secrets, saying the court correctly applied Michigan rather than Louisiana law.
In 2013, Stryker fired and sued Ridgeway, claiming he conspired with Biomet to steal Stryker's trade secrets, pricing, and obtain a distributorship deal through Ridgeway's side business, Stone Surgical, LLC.
Ridgeway was hired by Stryker as a sales representative in 2001 and worked his way up to District Sales Manager for Stryker CMF in the South Louisiana Territory. According to the claim, he was the highest ranking employee for Stryker CMF in Louisiana.
During his employment at Stryker, Ridgeway started a side business called Stone Surgical, which is a direct violation of the Stryker Code of Conduct as he was exploiting relationships with Stryker's customers to sell medical devices for his side business. To make matters worse, Ridgeway was spending more than half of his time running Stone Surgical and even forcing some of his Stryker co-workers to participate in his side business.
Ridgeway was terminated once Stryker found out he was meeting with one of Stryker's biggest competitors, Biomet, and disclosing trade secrets and confidential pricing information in an effort to get a distributorship deal with them through Ridgeway's Stone Surgical.
After his termination, Stryker learned more about Ridgeway's dealings, including operating the side business, not hiring qualified candidates to support the market, and fraudulently manipulating the billing process at one of Stryker's largest customers in order to trick them into ordering more product.
Stryker filed suit against Ridgeway in the Western District of Michigan claiming breach of contract, breach of fiduciary duty and misappropriation of trade secrets.
Once Stryker's suit was filed, Ridegway filed his own suit in the Eastern District of Louisiana on behalf of his company, Stone Surgical. The case was later transferred to Michigan to be consolidated with the Michigan case, which was filed first.
After a two-week trial, the jury found in favor of Stryker and that Ridgeway owed Stryker more than $745,000 for violating non-compete and confidentiality agreements and misappropriating trade secrets.
The kicker is Stryker's claim that they are entitled to recover its attorneys' fees.
According to the claim, under the "common core doctrine," federal law and lodestar method of calculation and utilizing discounted, but prevailing hourly rates for the Western District of Michigan, Stryker seeks attorneys' fees amounting to $2,319,877.68.
In total, Stryker claims they are entitled to a total of $3,479,853.45 which includes the following components:
- $223,351 in attorneys' fees for the Second Sanction;
- $745,195.00 for damages awarded by the jury;
- $2,318,877.68 for attorneys' fees for the Trade Secret Misappropriation Fee Petition;
- $143,535.29 in unliquidated costs;
- $47,705.74 in unliquidated interest;
- $188.58 for post-judgement interest; and
- unknown amount of interest accruing after judgement
Within two weeks of the judgement, Ridgeway filed for bankruptcy protection.
At that point, Ridgeway appealed to the U.S. Court of Appeals, with his team arguing that Louisiana law should govern as their laws are more protective of employee rights and can prevent employer overreach. With Stryker being based in Michigan and Ridgeway in Louisiana, the panel had to determine which laws should rule. Judge Julia Smith Gibbons, who was writing for the panel, agreed that the lower court correctly applied Michigan law because Michigan has a strong interest in protecting its business from unfair competition. If they were to apply Louisiana law, Stryker would suffer economic losses as a result of Ridgeway's breach of his noncompete agreement.
“Absent such evidence that Louisiana’s interest was not just greater but materially greater, there is no reason to disturb the parties’ choice of Michigan law,” the panel wrote.
From the panel regarding his noncompete agreement:
Ridgeway argues that the internal Stryker emails show that the company was engaged in fraud. Specifically, he asserts that Stryker management knew that Ridgeway did not have a noncompete, a fact that Ridgeway alleges they tried to conceal by filing the initial complaint with a form copy of the non-compete rather than with his original agreement. Ridgeway offered no other evidence to demonstrate that the agreement attached to the complaint was not his, and therefore that Stryker’s statement that it was a “true and correct copy” was false. Nor did Ridgeway offer any further evidence of fraudulent activity. The law does not permit Ridgeway to rely on the emails themselves to prove the fraud. The district court did not require Ridgeway to unequivocally prove the fraud but instead asked for some evidence to establish a reasonable basis for believing that fraud occurred. Because Ridgeway did not make such a showing, the district court did not abuse its discretion by rejecting Ridgeway’s crime-fraud-exception argument.
Ridgeway’s argument that Stryker put the validity of the noncompete “at issue” also fails because he never raised it before the district court. He points to two places in the record where he raised this argument: first, in his memorandum in support of the motion to retain disclosed documents; and second, in his appeal to the district court of the magistrate’s decision to deny his motion to retain disclosed documents. However those two sources provide little clarity as to Ridgeway’s argument. It was not until his brief on appeal that he developed these cursory references into a full-fledged argument. The fact that Ridgeway never raised this alternate argument outside of ambiguous language in two briefs below indicates that the argument was not squarely presented to the district court and, therefore, the argument is waived.
We will follow this case for any future developments.