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Cancer Genetics, Inc. v. Hartmayer

February 4, 2008

CANCER GENETICS, INC., PLAINTIFF,
v.
PETER HARTMAYER, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Hochberg, District Judge

ORDER and OPINION

This matter is before the Court upon Plaintiff Cancer Genetics, Inc.'s ("CGI") Application for an Order to Show Cause why a Preliminary Injunction with Temporary Restraints Should not be Entered Against Defendants and upon Defendant Hartmayer's Motion to Dismiss pursuant to Fed. R. Civ. P. 12(b)(6).

Plaintiff CGI seeks a Preliminary Injunction with Temporary Restraints to enjoin Defendant Hartmayer from (1) making disparaging comments about Plaintiff to Plaintiff's customers and others; (2) soliciting Plaintiff's current, former, and known prospective employees; (3) soliciting current, former, and known prospective customers of CGI; (4) engaging in sales and marketing on behalf of Plaintiff's competitor; (5) disclosing Plaintiff's trade secrets and proprietary information. See Memorandum in Support of Plaintiff's Application for an Order to Show Cause why a Preliminary Injunction with Temporary Restraints Should not be Entered Against Defendants ("Pl. App.") at 1.

Defendant moves to dismiss those parts of Counts Three (common law unfair competition), Seven (misappropriation of a trade secret), Thirteen (breach of covenant of good faith and fair dealing), and Plaintiff's request for injunctive relief that rely in part on the enforceability of a restrictive covenant contained in CGI's Code of Business and Ethics ("Code" or "the Code"). Count Twelve (breach of contract) relies entirely on the enforceability of the Code's restrictive covenant and Defendant moves to dismiss that claim in its entirety. Defendant also moves to dismiss or stay all counts pending a determination of the validity of the Employment Agreement between CGI and Defendant Hartmayer.*fn1 Finally, Defendant moves to dismiss Plaintiff's unfair competition claims: Counts One (Lanham Act), Three (common law unfair competition), and Five (New Jersey statutory unfair competition claim). The Court has considered the arguments of the parties on the papers pursuant to Federal Rule of Civil Procedure 78.

I. BACKGROUND

In 1999, Defendant Hartmayer helped to found Plaintiff CGI. See First Amended Verified Complaint ("Compl.") ¶ 18. Hartmayer joined CGI as Vice President of Sales and Marketing and a member of CGI's Board of Directors. Id. ¶ 19. Plaintiff alleges that Defendant Hartmayer was responsible for sales of the Company's [diagnostic] Probes, as well as its clinical diagnostic sales and, when the Company was located in Massachusetts, was primarily responsible for establishing CGI's first clinical diagnostic laboratory, overseeing all aspects of billing, and interfacing with clients. Compl. ¶ 20. Hartmayer was and continues to be a minority shareholder of CGI, holding approximately 10% of its outstanding shares. See Declaration of Louis J. Maione ("Maione Decl.") ¶ 4; Declaration of Peter D. Hartmayer ("Hartmayer Decl.") ¶ 11.

At some time in 2002, the parties agree that Defendant Hartmayer was asked by CGI's then-president to sign an Employment Agreement, which contained a restrictive covenant. See Hartmayer Decl. ¶ 14 (alleging that Hartmayer was asked "sometime in 2002"); see also Maione Decl. ¶ 6 (alleging that Hartmayer was asked on or around June 4, 2002). The parties also agree that the Employment Agreement presented to Defendant Hartmayer contained the following language: the Employee shall not, directly or indirectly, (I) be an owner, partner, shareholder, director, consultant, agent, employee or co-venturer, (ii) invest, engage or participate in or (iii) prepare to be or do any of the foregoing . . . in or with respect to any Competing Business located within the Commonwealth of Massachusetts, the rest of the United States or anywhere else in the world.

See Maione Decl. Ex. A (Employment Agreement) at 3; see also Defendant Peter D. Hartmayer's Brief in Opposition to Plaintiff's Application for a Preliminary Injunction with Temporary Restraints ("Hartmayer Br.") at 7.

The parties differ on the remaining -- and for purposes of this Application, crucial -- details. Defendant Hartmayer denies that he ever signed the Agreement. See Hartmayer Decl. ¶ 14. Louis Maione, CGI's current CEO, avers without firsthand knowledge that Defendant Hartmayer executed the Employment Agreement. See Maione Decl. ¶ 6 ("Prior to my employment at CGI, I became aware that Mr. Hartmayer entered into an Employment Agreement with CGI on or before June 4, 2002."). Importantly for purposes of this Application, however, Plaintiff does not have a copy of an executed Employment Agreement with Defendant Hartmayer's signature. See Pl. App. at 3. Plaintiff instead relies on circumstantial evidence that Plaintiff believes gives rise to an implication that Defendant Hartmayer executed the Agreement. See Maione Decl. ¶¶ 7-14.

Both parties also agree that on March 19, 2007, Hartmayer signed the CGI Code of Business and Ethics. See Hartmayer Decl. ¶ 19; Maione Decl. ¶ 17. The Code contains the following language: those employees which the Company considers to be in possession of information, technologies, trade secrets and the like, are subject to certain restrictions, and, therefore, for a period of one (1) year from separation of employment, no officer, laboratory director, or manager shall accept employment from any other entity which competes directly or indirectly with the Company . . . .

Maione Decl. Ex. H, Part XIV. This provision notwithstanding, however, the Code also expressly provides that it "does not in any way constitute an employment contract or assurance of continued employment and does not create any rights in any employee, director, shareholder, or other person or entity." See Maione Decl. Ex. H at 1-2. Just above the signature line the Code also states that "I further understand that violations of this statement are cause for termination of employment, or any agreement or contract with [CGI]." See id. at 9.

The parties differ on the significance of the Code's disclaimer. Plaintiff argues that the Code is valid and enforceable as a restrictive covenant and that it bars Defendant Hartmayer from working for his current employer, NeoDiagnostix ("NDI"). See Pl. App. at 15. Defendant Hartmayer argues that the above-cited language expressly disclaims that it creates any rights or obligations in CGI and that, at most, "a violation of [the Code's] terms could lead to termination of employment, which was, in any event, an at-will relationship . . . ." See Hartmayer Br. at 17.

In August 2007, Defendant Hartmayer began discussing employment opportunities with Defendant NDI. See Hartmayer Decl. ¶ 23. Defendant Hartmayer resigned as an employee of CGI effective September 4, 2007. See Maione Decl. ¶ 26; see also Pl. App. Ex. K (Defendant Hartmayer's letter of resignation). Defendant Hartmayer remained on CGI's Board of Directors until he resigned in a letter dated October 13, 2007. See Maione Decl. ¶ 26. Following his resignation as a CGI employee, Hartmayer entered into a consulting agreement with NDI. See Hartmayer Decl. ¶ 35.

Plaintiff argues that Hartmayer's relationship with NDI is in violation of the Employment Agreement and CGI's Code of Business and Ethics. Plaintiff also alleges that Defendant Hartmayer attempted to solicit potential CGI employees to work at NDI, see Compl. ¶ 42; disparaged CGI products to a potential CGI investor, see Compl. ¶ 47; trespassed on CGI's property and stole files and records, see Compl. ¶ 60; attempted to lure CGI customers to NDI, see Compl. ¶ 66; and disclosed trade secrets to CGI's competitors, see Compl. ¶ 86.

II. STANDARD

A. Injunctive Relief

"Preliminary injunctive relief is 'an extraordinary remedy' that 'should be granted only in limited circumstances.'" AMG Nat. Trust Bank v. Ries, No. 06-4337, 2007 WL 2713218, *6 (E.D. Pa. Sept. 13, 2007) (quoting KOS Pharm., Inc. v. Andrx Corp., 369 F.3d 700, 708 (3d Cir. 2004)). Plaintiff bears the burden to "show: (1) a likelihood of success on the merits; (2) that it will suffer irreparable harm if the injunction is denied; (3) that granting preliminary relief will not result in even greater harm to the nonmoving party; and (4) that the public interest favors such relief." Id. (citing Rogers v. Corbett, 468 F.3d 188, 192 (3d Cir. 2006)). Further, "[w]hile all four factors are important, failure to show either likelihood of success on the merits or irreparable harm 'must necessarily result in denial of a preliminary injunction.'" Id. (quoting In re Arthur Treacher's Franchisee Litig., 689 F.2d 1137, 1143 (3d Cir. 1982)).

B. Motion to Dismiss

In a motion to dismiss "[w]e are required to accept as true all factual allegations in the complaint and draw all inferences from the facts alleged in the light most favorable to the plaintiff." Haspel v. State Farm Mut. Auto. Ins. Co., 241 Fed. App'x 837, 839 (3d Cir. 2007). The Court must determine whether the complaint "contain[s] either direct or inferential allegations respecting all the material elements necessary to sustain recovery under some viable legal theory." Bell Atl. Corp. v. Twombly, 127 S.Ct. 1955, 1969 (2007) (quoting Car Carriers, Inc. v. Ford Motor Co., 745 F.2d 1101, 1106 (7th Cir.1984)).

III. DISCUSSION

A. Plaintiff's Prayer for Injunctive Relief

1. Likelihood of Success on the Merits

Plaintiff's argument that it will likely succeed on the merits is premised on the existence and enforceability of the two restrictive covenants it believes binds Defendant Hartmayer.*fn2 See Pl. App. at 7 ("Mr. Hartmayer's blatant disregard and breach of the restrictive covenants in the Employment Agreement and the CGI Code entitle him to a preliminary injunction."). The Court will therefore begin its analysis of Plaintiff's request for injunctive relief by examining ...


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