Court Opinion

ID: 997942
Source: CourtListenerOpinion
Date Created: 2013-07-04 17:04:01.872382+00
Date Added: 2024-06-11T11:52:52.681533
License: Public Domain

UNPUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

BAXTER RESEARCH MEDICAL,
INCORPORATED,
Plaintiff-Appellant,

v.

MEDTRONIC, INCORPORATED,
Defendant-Appellee,

and

KOL BIO-MEDICAL INSTRUMENTS,
INCORPORATED; ROGER S. KOLASINSKI;
                                                               No. 98-1608
TIMOTHY D.C. MCINERNEY;
MICHAEL C. WHITAKER,
Defendants,

TIM HOLLY; TONY ANTONACCIO;
ROBERT CURRAN; DONNA EARLEY;
GLENN CONSOR; KATHY KEARNS;
STEVE ARCHIBALD; JAKE HOLTZINGER;
R. J. KUZNITZ; BRIAN DOORLEY;
BRUCE ANGESKI,
Intervenors-Defendants.

Appeal from the United States District Court
for the Eastern District of Virginia, at Alexandria.
Albert V. Bryan, Jr., Senior District Judge.
(CA-97-1117-A)

Argued: January 27, 1999

Decided: February 24, 1999

Before WILKINSON, Chief Judge, and NIEMEYER and
TRAXLER, Circuit Judges.

_________________________________________________________________
Affirmed by unpublished per curiam opinion.

_________________________________________________________________

COUNSEL

ARGUED: Warren Eugene Zirkle, MCGUIRE, WOODS, BATTLE
& BOOTHE, L.L.P., Richmond, Virginia, for Appellant. Bernard
Joseph DiMuro, DIMURO, GINSBERG & LIEBERMAN, Alexan-
dria, Virginia, for Appellee. ON BRIEF: Darryl S. Lew, Robert M.
Tyler, MCGUIRE, WOODS, BATTLE & BOOTHE, L.L.P., Rich-
mond, Virginia, for Appellant. Michael E. Barnsback, Elizabeth H.
Cronise, DIMURO, GINSBERG & LIEBERMAN, Alexandria, Vir-
ginia; David C. Forsberg, J. Patrick McDavitt, Kathleen Erickson
DiGiorno, BRIGGS & MORGAN, Saint Paul, Minnesota, for Appel-
lee.

_________________________________________________________________

Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).

_________________________________________________________________

OPINION

PER CURIAM:

Baxter Research Medical, Inc. appeals the grant of summary judg-
ment in favor of appellee Medtronic, Inc. on Baxter's tortious inter-
ference with contract claim. Baxter argues that Medtronic tortiously
interfered by hiring away the sales force of one of Baxter's distribu-
tors. Because Virginia law requires a contract breach to support a tor-
tious interference with contract claim, and we find no breach, we
affirm the judgment of the district court.

I.

In 1993 KOL Bio-Medical Instruments, Inc. signed an exclusive
distributorship agreement with Research Medical, Inc. (RMI) under
which KOL was to sell RMI's cardiovascular surgical supplies in

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much of the East and Southeast. The agreement provided that KOL
was to render its "best efforts" to "promote, market and advertise"
RMI's products, and that it was not to compete with RMI by manu-
facturing competing products or selling the goods of a manufacturer
that did. The contract allowed either party to terminate the relation-
ship without cause. If KOL desired to terminate, the agreement
required that it provide RMI with six months notice, a period during
which KOL's best efforts obligation continued. KOL's covenant not
to compete extended twelve months past the notice of termination
date.

For a few years, the relationship proceeded well. In late 1996, how-
ever, Baxter International, a large manufacturer of surgical supplies,
announced that it was purchasing RMI. KOL became concerned that
it would lose its distributorship because Baxter had a history of using
a direct sales force to sell its products. At the same time, the change
to managed care began to erode the profits KOL generated from its
sales of cardiovascular products. KOL thus made the decision to exit
the cardiovascular products market.

In early 1997 KOL approached Medtronic, another medical device
manufacturer, to gauge its interest in acquiring KOL. Medtronic pro-
posed instead that it pay KOL to assist Medtronic in acquiring KOL's
cardiovascular sales force. The parties signed a contract wherein
Medtronic agreed to pay KOL $6 million for the right to employ
KOL's cardiovascular sales team, $4.5 million of which hinged on the
final number of salesmen who would ultimately join Medtronic. For
its part, KOL agreed to release its salesmen from their covenants not
to compete with KOL, sign its own covenant not to compete with
Medtronic to begin after its six-month termination period with Baxter
ended, and to "use all reasonable efforts to encourage each KOL Sales
Representative to accept employment with Medtronic." The agree-
ment also provided that KOL would "fully perform" its obligations
under its distributorship agreement with Baxter.

On June 23, 1997, KOL gave its notice of termination to Baxter.
Shortly thereafter, KOL informed its sales representatives that, if they
joined Medtronic, KOL would release them from their covenants not
to compete and pay each a sizable severance bonus. Each of KOL's
eleven cardiovascular salesmen joined Medtronic. In their place KOL

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substituted three of its principals and its critical care sales force -- a
group selling a separate product line. During the termination period
KOL's sales of RMI products totaled $3.5 million, an 11.9% increase
over the same six-month period of the previous year.

Baxter brought suit in the Federal District Court for the Eastern
District of Virginia alleging, inter alia, that Medtronic tortiously
interfered with Baxter's distributorship agreement with KOL. The
district court, after finding that KOL did not breach the agreement,
granted summary judgment to KOL. Baxter appeals, and we affirm.

II.

Baxter claims that Medtronic tortiously interfered with its distribu-
torship agreement with KOL. Under Virginia law, one must demon-
strate a contract breach to support a tortious interference claim.
Chaves v. Johnson, 335 S.E.2d 97, 102 (Va. 1985). We hold that Bax-
ter cannot demonstrate such a breach.

A.

Initially, Baxter alleges that KOL breached the contract's best
efforts clause. Paragraph 3.A of the contract provided that "[t]he Dis-
tributor shall use its best efforts to promote, market and advertise the
sale of the Products in the Territory." When KOL released its cardio-
vascular team, it replaced it with its three principals who were fully
trained in and who possessed extensive knowledge of the cardiovas-
cular products market. In addition, KOL used its critical care sales
force which already sold similar products to the same accounts.
Together, this sales force generated $3.5 million in sales, an 11.9%
increase over the same six-month period of the previous year and
more than KOL had ever sold in any six-month period in its entire
history with RMI. Nevertheless, Baxter contends that KOL failed to
provide its best efforts because it released its cardiovascular sales
force and replaced it with an inferior team.

Baxter's reading of the contract contradicts its plain language. The
best efforts clause pertains to nothing more than efforts to "promote,
market and advertise" Baxter's products. It says nothing about per-

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sonnel. Indeed, its silence should come as no surprise since another
provision of the contract, Paragraph 3.B, deals specifically with per-
sonnel. Paragraph 3.B provides that "[t]he Distributor shall employ
competent and professional sales personnel." Interpreting the best
efforts clause to contain a personnel component would render the per-
sonnel clause superfluous. And reading the two clauses together, as
we must, leads to the conclusion that the best efforts clause means
nothing more than KOL is to provide its best efforts with the people
it has. The personnel clause dictates their qualifications.1

Baxter, however, seeks to convert the best efforts clause into a
repository for unbargained-for contract conditions. Baxter maintains
that the best efforts clause barred KOL's efforts to help its sales repre-
sentatives find jobs after KOL decided to exit the business. No read-
ing of the words "best efforts to promote, market and advertise" could
support such a restriction. If Baxter desired a contract with these
terms, it was free to negotiate for them. This court, however, is not
free to rewrite the bargain of the parties.

Baxter's reliance on PRC Realty Systems, Inc. v. National Associa-
tion of Realtors, Inc. does not change our analysis. 766 F. Supp. 453
(E.D. Va. 1991), aff'd in pertinent part, 972 F.2d 341 (4th Cir. 1992)
(unpublished table decision). In PRC Realty, a distributor obligated
itself to provide its best efforts to promote the products of two com-
peting manufacturers. Id. at 460. The court held that such a dual obli-
gation violated the best efforts clause. Id. Baxter contends that KOL
impermissibly attempted to "serve two masters" when it agreed to use
all reasonable efforts to ensure that its salesmen joined Medtronic
while it simultaneously was under a best efforts contract with Baxter.
The rule in PRC Realty, however, is inapposite. KOL made no agree-
ment to serve a Baxter competitor. Rather it successfully sold Baxter
products. The most that can be said is that KOL released its cardio-
vascular sales representatives. It is true that it released them to one of
Baxter's competitors, but that act did not run afoul of any contractual
provision.
_________________________________________________________________
1 Baxter does not argue that KOL violated the personnel clause.

                     5
B.

Baxter also claims that KOL breached its covenant not to compete.
The distributorship contract provided that "[d]uring the term of this
Agreement, Distributor covenants not to manufacture or purchase
from third parties for resale or to act as a representative or agent for
third parties with respect to products which are directly competitive
with Manufacturer's Products." Under the contract, KOL also agreed
to "a twelve (12) month non-compete of Manufacturer's Products
from the day of [KOL's] termination notice." Again, Baxter maintains
that KOL breached these provisions because it released its sales force
to Medtronic.

As with the best efforts clause, Baxter's argument defies the plain
language of the contract. The covenant not to compete is between
Baxter and KOL; it makes no provision for members of KOL's sales
force. It thus does not prevent individual salesmen from shifting to a
competitor to sell its products. Baxter seeks for a second time to
transform a clause for which it bargained -- a covenant restricting
KOL's ability to sell for a competitor -- into one for which it did not
-- a pass-through covenant restricting KOL's sales force from leav-
ing to work for a competitor. The place for Baxter to strike such a
bargain was at the conference table, not in this court.

It is clear that Baxter cannot demonstrate that KOL violated the
covenant not to compete. KOL did not manufacture competing prod-
ucts or represent another manufacturer that did. Indeed, the only evi-
dence presented at trial demonstrated that KOL sold $3.5 million in
Baxter's products during the six-month termination period. Without
some showing that KOL began to sell for a competitor, Baxter cannot
establish that KOL breached the agreement.2
_________________________________________________________________
2 Baxter also appeals the district court's grant of summary judgment to
Medtronic on Baxter's tortious interference with economic advantage
claim. Baxter maintains that Medtronic interfered with Baxter's relation-
ships with the end-users of its products by purchasing the rights to
KOL's sales force. To demonstrate such a claim, Baxter must show the
existence of a business relationship or its expectancy. Commercial Bus.
Sys. v. Halifax Corp., 484 S.E.2d 892, 896 (Va. 1997). We agree with
the district court that Baxter had no relationship or expectancy of one
with the end-users of its products because they bought only from KOL.

                    6
III.

Here Baxter seeks to use tort law to restructure contractual commit-
ments. In particular, Baxter seeks to bar KOL's efforts to improve the
lot of its employees and Medtronic's efforts to improve its workforce.
"Nobody has ever thought, so far as we can find, that in the absence
of some monopolistic purpose every one has not the right to offer bet-
ter terms to another's employe, so long as the latter is free to leave.
The result of the contrary would be intolerable, both to such employ-
ers as could use the employe more effectively and to such employes
as might receive added pay. It would put an end to any kind of com-
petition." Triangle Film Corp. v. Artcraft Pictures Corp., 250 F. 981,
982 (2d Cir. 1918). Here, Medtronic engaged in permissible, albeit
aggressive, competition. Baxter may wish it had an agreement that
prevented this competition, but the one for which it bargained did not
do so. The judgment of the district court is hereby

AFFIRMED.

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