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MEADOX MEDICALS, INC. v. LIFE SYS.

April 24, 1998

Meadox Medicals, Inc.
v.
Life Systems, Inc.



The opinion of the court was delivered by: POLITAN

SECOND AMENDED LETTER OPINION

 ORIGINAL ON FILE WITH CLERK OF THE COURT

 Dear Counsel:

 This matter comes before the Court on cross-motions for summary judgment as to defendant Life System, Inc.'s liability for breach of a covenant not to compete with plaintiff Meadox Medicals, Inc. *fn1" Defendant has also cross-moved for leave to file antitrust counterclaims. Both parties have moved to strike particular affidavit testimony from the record. For the reasons explained more fully below, defendant's motion for summary judgment is GRANTED and plaintiff's motion for summary judgment is DENIED. The motions to strike testimony, as well as defendant's motion for leave to file a counterclaim, are DISMISSED AS MOOT.

 FACTUAL BACKGROUND

 Life Systems, Inc. ("LSI") was for many years the exclusive distributor of Meadox Medical, Inc.'s ("Meadox") vascular graft products in Michigan and Ohio. The last contract between Meadox and LSI was executed on or about December 6, 1994, and granted LSI the exclusive right to distribute the grafts in its territory between January 1, 1995 and December 31, 1996. See Distributor Appointment Letter, attached as Exhibit A to Declaration of Mark W. Batten.

 The agreement contained a promise by LSI that it would not offer products competitive with Meadox's during the term of the contract and for one year thereafter:

 
Neither the Company [LSI] nor any of its subsidiaries, parents, principals, stockholders or affiliates, will, for itself or on behalf of any person, firm, entity or corporation other than [Meadox], directly or indirectly, offer for sale or solicit orders for, within the Territory, any products or services the intended use of which is competitive with those Products offered by [Meadox].

 Distributor Appointment Letter, § 3. In the event that the contract was terminated or otherwise expired, LSI further agreed "to cooperate with [Meadox] in an orderly winding up of [LSI]'s affairs with Meadox and extend all reasonable assistance to any successor for its territory," id. at § 10(a), which also required LSI to introduce the new representatives to the customers. See id. at § 10(b).

 Meadox decided not to extend the contract beyond its natural expiration on December 31, 1996. As Meadox informed LSI in May 1996, Meadox had decided to sell its products directly, without an intermediate distributor, beginning no later than January 1, 1997. See Letter attached as Exhibit E to Batten Decl.

 In August of 1996, Michael Wierzbinski, LSI's President, Chief Operating Officer, and Treasurer, discussed with Vice-Presidents Peter Molina and Michael DeMars the possibility of starting a separate company to sell the Meadox-competitive products that LSI could no longer sell itself. See Wierzbinski Dep. 48-49, Molina Dep. 55:3-9, DeMars Dep. 61:23-62:4, attached as exhibits to Deposition Excerpts Submitted in Support of Plaintiff's Motion for Summary Judgment. The three officers expressly discussed LSI's non-competition obligations to Meadox, and concluded that "any contractual obligations that Life Systems had with Meadox would not affect [them]." Wierzbinski Dep. 60:20-25.

 The LSI executives also sought permission from LSI's shareholders, David Blake and Sheldon Davis, to establish the new company, "Orion Medical," to market the products of Impra, Vascutek, and Baxter, each of which makes grafts that compete with Meadox products. See Wierzbinski Dep. 51:20-53:8, Blake Dep. 1:17:24-1:19:14, 11:49:21-11:50:2. Indeed, Sheldon testified that he and Blake were pleased by the Orion proposal, because they feared that LSI's non-compete agreement with Meadox would drive LSI's sales force to other companies. See Davis Dep. 52:7-53:13, 55:6-56:23.

 In September 1996, Wierzbinski, Molina, and DeMars attended a one and a half day trade conference in Chicago and spoke with numerous Meadox competitors about the prospect of selling their products. Wierzbinski incorporated Orion Medical, Inc. the same month. Shortly thereafter, Wierzbinski, still LSI's president, entered into a distribution agreement on behalf of Orion with Vascutek and Baxter Healthcare Corporation--both of which compete with Meadox.

 In mid-December, 1996, just weeks before the expiration of the Distribution Agreement, LSI's officers hosted an "Orion Medical/Life Systems Sales Meeting" in Indianapolis, which was attended by the LSI sales representatives who had been invited to sell on behalf of Orion. The agenda, drafted by Molina and printed on LSI letterhead, welcomed the ...


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