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MWI Veterinary Supply Co. v. Wotton

United States District Court, D. Idaho

September 14, 2012

MWI VETERINARY SUPPLY CO., Plaintiff,
v.
Harold M. WOTTON, III and Darroll Wotton, Defendants.

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[Copyrighted Material Omitted]

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Eugene A. Ritti, Hawley Troxell Ennis & Hawley, Boise, ID, Alan D. Berkowitz, Jeffrey Rubin, Dechert LLP, Philadelphia, PA, for Plaintiff.

Jeff R. Sykes, Anna E. Eberlin, Jason G. Dykstra, Meuleman Mollerup LLP, Boise, ID, Kevin J. O'Connor, Hinckley, Allen & Snyder LLP, Boston, MA, for Defendants.

MEMORANDUM DECISION AND ORDER

B. LYNN WINMILL, Chief Judge.

INTRODUCTION

The Court has before it a motion for preliminary injunction filed by plaintiff MWI. The Court heard oral argument on August 29, 2012, and took the motion under advisement. For the reasons explained below, the Court will grant the motion.

FACTUAL BACKGROUND

In 1997, Harold Wotton formed a business called Securos to sell products in the field of veterinary orthopedics. Six years later he formed another business— IVDN— to provide wholesale distribution services primarily to the veterinary industry. In 2004, Harold's brother Darroll joined Harold at Securos.

Eventually the Wottons received 5 patents for products used to make veterinary orthopedic surgery more efficient. Securos and IVDN sold not only the patented products but also other items such as hand-held tools (for example, surgical scissors, scalpels and forceps), bone screws, sutures, and bandages. See Harold Wotton Affidavit (Dkt. No. 48) at ¶ 11.

By 2006, one of Securos main customers was Webster Veterinary Supply. Id. at ¶ 13. Securos granted to Webster the right to be the " exclusive reseller" of Securos's patented veterinary equipment, allowing Webster to maintain a competitive advantage over its " major competitor" — MWI— according to the Wottons. Id. at ¶ 16.

In 2007, MWI approached the Wottons about buying the assets of Securos/IVDN, including the 5 patents. Id. at ¶ 15. The Wottons understood that MWI intended, with this purchase, to (1) take away the competitive advantage Webster had as exclusive reseller of Securos's patented equipment, and (2) to expand MWI's presence on the East Coast, where Webster was the largest veterinary supply company. Id. at ¶ 16.

Page 908

MWI and the Wottons entered into two agreements known as the Asset Purchase Agreement (APA) and the Key Employee Employment Agreement (EA). [1] The APA covered MWI's purchase of the assets of Securos/IVDN, including the 5 patents. The EA governed the terms of the Wottons' continued employment with MWI, by which they would operate what was now called the Securos/IVDN division of MWI.

Each agreement contained a separate non-compete clause that barred the Wottons from competing with MWI. The purpose of the clauses was set forth in the APA: The provisions were necessary to provide MWI with " a period of time to benefit from the purchase, and that [the Wottons] should be restricted from competing with [MWI's] business acquired from [the Wottons] or benefitting from the Proprietary Information and Goodwill purchased by [MWI]." See Exhibit 1 to Complaint (Dkt. No. 1) at ¶ 9.1.

Each clause took effect at a different time and had a different term. The APA non-compete clause started immediately— on the day of closing, June 8, 2007— and ran for 5 years until June 8, 2012. The EA non-compete provision did not go into effect until the Wottons's employment with MWI ended, and it lasted for 2 years thereafter. Because the Wottons left MWI within the last year, the EA non-compete provision remains in effect.

The two provisions differed not only in time but also in scope. The APA provision barred the Wottons from, among other things, (1) selling any products " that were provided or sold by [IVDN/Securos] ... prior to Closing" ; and from (2) solicit[ing] any of [MWI]'s customers, clients or employees for the purpose of establishing relationships for any business or services that directly or indirectly compete with [MWI]'s business or causing any client, customer or employee to terminate any relationship with [MWI]."

The EA non-compete clause, on the other hand, states that the Wottons will not " compete" with MWI. The word " compete" is defined by the agreement to mean " to engage in the business of veterinary orthopedic equipment design, manufacture ... [or] selling...."

The Wottons signed the agreements on June 8, 2007. Pursuant to the agreements, MWI paid the Wottons $5 million and employed them as executives running the Securos/IVDN division of MWI.

In February of 2008, while working at MWI under the terms of the two agreements, the Wottons organized Stealth Medical LLC, and brought in Jay Ray to help with manufacturing products which, the Wottons allege, would be used for surgery on humans, not animals. See Wotton Affidavit (Dkt. No. 48) at ¶ 30. The Wottons allege that for the next three years, Stealth remained " an idle shell." Id. at ¶ 33. In 2011, Stealth purchased STAR machine which made bone screws for use on animals or humans. The Wottons leased the STAR machine to a German company, Detech, which made animal screws and sold them to MWI. The Wottons allege that they themselves never sold bone screws to MWI but simply rented the machine to Detech who sold the screws to MWI. Id. at ¶ 38. The Wottons further allege that Detech sold exclusively to MWI, never competed with MWI, and sold the screws at the lowest price on the market, thereby offering a substantial benefit to MWI. Id.

Before being purchased by MWI, the Wottons' business (Securos) purchased surgical instruments from vendors in Germany, repackaged them for individual sale,

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and sold them to Webster. Id. at ¶ 45. Immediately after the sale of Securos to MWI, Webster cut off all dealings with what was ...


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