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Bakotic v. Bako Pathology LP

Superior Court of Delaware

December 10, 2018

BRADLEY BAKOTIC and JOSEPH HACKEL, Plaintiffs,
v.
BAKO PATHOLOGY LP and BPA HOLDING CORP., Defendants.

          Submitted: July 13, 2018

         Plaintiffs' Rule 12(c) Motion for Judgment on the Pleadings DENIED IN PART, GRANTED IN PART

          Bruce W. McCullough, Esquire; Bodell Bove, LLC, Attorney for Plaintiffs.

          Kristoffer V. Sargent, Esquire; Salmeh K. Fodor, Esquire; KF Law, LLC, Attorneys for Plaintiffs.

          Lauren E.M. Russell, Esquire; Adam W. Poff, Esquire; Robert M. Vrana, Esquire; Young Conaway Stargatt & Taylor, LLP, Attorneys for Defendants.

          Robert W. Capobianco, Esquire (Argued); Adriana R. Midence, Esquire; Mary Claire Smith, Esquire; Jackson Lewis P.C., Attorneys for Defendants.

          MEMORANDUM OPINION

          WILLIAM C. CARPENTER JR. J.

          Before the Court is Bradley Bakotic's ("Bakotic") and Joseph Hackel's ("Hackel") (Jointly "Plaintiffs") Rule 12(c) Motion for Judgment on the Pleadings. For the reasons set forth in this Opinion, Plaintiffs' Rule 12(c) Motion for Judgment on the Pleadings is denied as to Count I and Counterclaims I and II. Counterclaims III, IV, and VI are dismissed. Counterclaim V against Hackel is dismissed, but remains as to Bakotic.

         I. FACTUAL & PROCEDURAL BACKGROUND

         The crux of this case is whether Plaintiffs' various post-term non-compete agreements with Bako Pathology LP and BPA Holding Corporation (jointly "Defendants") are enforceable.

         Bakotic and Hackel are both licensed physicians.[1] Plaintiffs were previously employed by Bakotic Pathology Associates, LLC, a Georgia company providing clinical pathology, anatomic pathology, and dermatopathology-related services to podiatrists (the "Company").[2] Defendant Bako Pathology LP owns Defendant BPA Holding Corporation, which is the sole member of the Company.[3]

         Prior to their separation from the Company, Bakotic was President and Chief Executive Officer, and Hackel served as Medical Director and Vice President.[4] As President and Chief Executive Officer, "Plaintiff Bakotic's job duties included ... marketing, regulatory matters, management, sales, lecturing, and supervision."[5]Defendants allege Plaintiff Hackel had similar responsibilities in his position, which he denies.[6]

         On September 8, 2017, Bakotic was allegedly terminated by the Company for cause, and Hackel subsequently resigned from his position on September 30, 2017.[7]A few days later, on October 3, 2017, Plaintiffs formed the Rhett Foundation for Podiatric Medical Education, Inc. ("Rhett Foundation"), an alleged educational institution.[8] Plaintiff Bakotic also registered Rhett Diagnostics, LLC ("Rhett Diagnostics"), a medical laboratory, with the Georgia Secretary of State on December 28, 2017.[9] One former employee and one prospective employee of Defendants both now work for Plaintiffs at the Rhett Foundation and/or Rhett Diagnostics.[10]

         Plaintiffs' post-term relationships with Defendants are governed by three agreements: (1) a 2011 Employee Confidentiality, Non-Solicitation, and Non-Competition Agreement; (2) a 2015 Merger Agreement; and (3) a 2016 Partnership Agreement (collectively "the Agreements").[11] In light of the Agreements, Plaintiffs filed this action on December 17, 2017, seeking a declaratory judgment that their various covenants not to compete are unenforceable under Delaware law.[12]Defendants filed an answer and several counterclaims against Plaintiffs in response.[13] Their counterclaims against both Plaintiffs are for declaratory judgment, breach of contracts, breach of the duty of loyalty, unjust enrichment, and tortious interference with business, contractual, and employment relations.[14] Defendants also have a counterclaim for slander against Plaintiff Bakotic.[15]

         Shortly after Defendants filed their answer and counterclaims, Plaintiffs made the instant Motion for Judgment on the Pleadings. Plaintiffs request that judgment be entered in their favor on Count I of the Complaint (declaratory judgment) and against Defendants on Count I of the Counterclaims (declaratory judgment).[16]Plaintiffs also seek judgment against Defendants for Counterclaims II (breach of contracts), III (breach of duty of loyalty), IV (unjust enrichment), V (tortious interference), and VI (slander).[17]

         On April 30, 2018, the Court heard oral arguments on Plaintiffs' Motion for Judgment on the Pleadings, and reserved its decision. The Court urged the parties to attempt to reach an agreement before the Court issued its opinion on the Motion. In spite of the Court's comments, the parties were unsuccessful in reaching an agreement. In fact, the dispute has expanded into the Court of Chancery, where the Defendants filed for injunctive relief on July 18, 2018.

         II. STANDARD OF REVIEW

         Pursuant to Superior Court Civil Rule 12(c), any party may move for judgment on the pleadings after the pleadings are closed but within such time as not to delay trial.[18] However, "[t]he standard for granting a motion for judgment on the pleadings is stringent, "[19] and the motion will be denied unless there are no material issues of fact and the movant is entitled to judgment as a matter of law.[20] Importantly, a court considering a motion for judgment on the pleadings must "view the facts pleaded and the inferences to be drawn from such facts in a light most favorable to the non-moving party."[21] Where a document is integral to the pleadings, the court may consider it in deciding a Rule 12(c) motion without converting it to one for summary judgment.[22]

         III. DISCUSSION

         Before the Court begins its analysis, it would like to make clear that Delaware law will be applied in the decision on Plaintiffs' Motion. Section 6.5.1 of the Partnership Agreement expressly states that Delaware Law shall be applied. Accordingly, "Delaware courts will generally honor a contractually-designated choice of law provision so long as the jurisdiction selected bears some material relationship to the transaction."[23] Here, the Court sees no reason not to use Delaware law, even for the Defendants' Counterclaims, which do not all stem from the Partnership Agreement, and the parties have not requested the Court to do otherwise.

         A. DECLARATORY JUDGMENT

         Plaintiffs argue that they are entitled to declaratory judgment invalidating the various non-compete agreements at issue.[24] More specifically, Plaintiffs contend that the Agreements are unenforceable under 6 Del. C. § 2707, which invalidates covenants restricting a physician's right to practice medicine.[25] The applicable statute states:

Any covenant not to compete provision of an employment, partnership or corporate agreement between and/or among physicians which restricts the right of a physician to practice medicine in a particular locale and/or for a defined period of time, upon the termination of the principal agreement of which the said provision is a part, shall be void; except that all other provisions of such an agreement shall be enforceable at law, including provisions which require the payment of damages in an amount that is reasonably related to the injury suffered by reason of termination of the principal agreement. Provisions which require the payment of damages upon termination of the principal agreement may include, but not be limited to, damages related to competition.[26]

         Defendants, on the other hand, believe the Court should declare the Agreements as valid and enforceable against Plaintiffs because the covenants at issue are not between and/or among physicians, and therefore are not covered by § 2707.[27] They also argue that the non-compete provisions only prevent Plaintiffs from carrying out the same or similar duties previously performed for Defendants, which did not include the practice of medicine.[28] Therefore, according to Defendants, Plaintiffs have failed to establish how the covenants restrict their practice of medicine and why § 2707 should be applied to invalidate them.[29]

         The Court finds that material issues of fact remain as to what Plaintiffs are actually doing in their new venture at the Rhett Foundation and/or Rhett Diagnostics, and whether that activity falls within the purview of the various non-compete provisions contained in the three Agreements. The Plaintiffs' current roles and responsibilities at the Rhett Foundation and/or Rhett Diagnostics have only been vaguely defined, and it remains to be seen if they are the "same or similar" to those previously performed for Defendants, within the meaning of the Agreements. The assertion that Plaintiffs simply wanted to be physicians again and practice podiatric medicine is hotly contested by the Defendants and, without discovery, the Court is unwilling to assume the representations of counsel are consistent with the conduct of his clients.

         Without this basic factual foundation, the Court cannot determine if or how § 2707 applies to the parties' present situation and, consequently, whether or not the various non-compete covenants are enforceable against Plaintiffs. Therefore, Plaintiffs' Motion for Judgment on the Pleadings as to Count I and Counterclaim I is denied.

         B. COUNTERCLAIM II: BREACH OF CONTRACTS

         In Delaware, a breach of contract claim requires Defendants to demonstrate: (1) a contractual obligation, (2) a breach of that obligation, and (3) resulting damages.[30]

         Plaintiffs argue that the Court should grant judgment on the pleadings in their favor as to Defendants' Counterclaim II because Defendants have failed to make any well-pled allegations that Plaintiffs, especially Plaintiff Hackel, solicited their employees or disclosed any confidential information, in violation of the Agreements.[31] They also claim that Defendants only offered conclusory allegations as to damages.[32]

         Defendants contend that "the pleadings are rampant with facts demonstrating that both Plaintiffs have solicited and/or induced Defendants' employees/contractors to end their relationships with Defendants, and are abusing their roles as former executives to access and/or use Defendants' confidential information to compete with Defendants and solicit their current and potential investors, clients, and other business relationships."[33]

         When viewing the facts pleaded and the inferences to be drawn from those facts in a light most favorable to Defendants, the Court finds that Plaintiffs are not entitled to judgment as a matter of law on the breach of contracts counterclaim. At least one former employee and one prospective employee of Defendants now work for Plaintiffs at the Rhett Foundation and/or Rhett Diagnostics[34] and, recognizing the acidic relationship between the parties, the Court believes it is a logical inference that Plaintiffs likely recruited these individuals in breach of their non-solicitation covenants contained in the Agreements.

         Furthermore, the prospective employee of Defendants actually accepted an offer to serve as Director of Podiatric Medicine for the Company, but ultimately rescinded his acceptance before starting that position.[35] The Court again finds it likely that Plaintiffs used and/or disclosed Defendants' confidential information in order to persuade that individual to rescind his acceptance of the offer and instead work for them in their new venture. Given these factual inferences and because the case is in the early stages of litigation, the Plaintiffs are not entitled to judgment as a matter of law on Defendants' breach of contracts claim.

         The Court also finds that factual issues remain regarding the role that Bakotic and Hackel each may have played in the alleged breach. Therefore, Plaintiffs' Motion for Judgment on the Pleadings as to Counterclaim II for breach of contracts is denied.

         C. COUNTERCLAIM III: BREACH OF DUTY OF LOYALTY

         Under Delaware law, officers and directors of a corporation are bound by the duty of loyalty, which "mandates that the best interest of the corporation and its shareholders takes precedence over any interest possessed by a director, officer or controlling shareholder and not shared by the stockholders generally."[36]

         Plaintiffs again claim Defendants failed to offer any well-pled allegations that they used or disclosed Defendants' confidential information, and therefore breached the duty of loyalty.[37] They also argue that their duty of loyalty to Defendants ended when the agency relationship was terminated, and that a former agent's potential misappropriation of confidential information does not constitute a breach of the duty of loyalty.[38]

         Defendants argue that Plaintiffs violated their common law duty of loyalty owed to the Company. More specifically, Plaintiffs breached their duty of loyalty by "(1) soliciting employees to cease working for Defendants and/or to work for a Competing Business; (2) convincing a person to revoke his acceptance to serve as Director of Podiatric Medicine for Defendants; (3) utilizing and disclosing Confidential Information to build a Competing Business; and/or (4) soliciting customers and/or other prohibited parties to a Competing Business."[39]

         While the Court has concerns about whether this Court is the proper jurisdiction to hear such a claim, the allegations here are nothing more than a repackaging of the same claim set forth in the breach of contracts count. While Plaintiffs may not breach their non-competition covenants, to assert they have some duty of loyalty once they are terminated from the Defendants' company is not supported. As such, to the extent such claim is even recognized as a valid one under Delaware law, which the Court doubts, the facts simply do not support it in this litigation. Therefore, Count III of Defendants' Counterclaims is dismissed.

         D. COUNTERCLAIM IV: ...


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