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Cytimmune Sciences, Inc. v. Paciotti

United States District Court, D. Maryland, Southern Division

June 10, 2016



          Paul W. Grimm United States District Judge.

         On February 17, 2016, Giulio Paciotti, Ph.D. ended approximately twenty-eight years of employment at CytImmune Sciences, Inc., (“CytImmune”) where he most recently worked as Chief Science Officer. There, he focused on nano-technology, specifically a theragnostic[1] called the “Aurimmune Platform, ” which employed gold to diagnose and treat cancerous solid tumors. He began employment as the Vice President of Research and Development at Senior Scientific LLC (“Senior Scientific”) two days later. His work continues to target cancerous solid tumors but now employs iron oxide in lieu of gold and focuses, at least for now, on diagnosing, not treating, cancerous tumours. Within a month, CytImmune filed suit against Dr. Paciotti in the Circuit Court for Montgomery County, claiming that he breached the confidential information and restrictive covenants of the Assignment of Inventions, Non-disclosure, Non-solicitation and Non-competition Agreement it had entered into with Dr. Paciotti, as well as breached the duty of loyalty. ECF Nos. 2, 32.[2] CytImmune also sought injunctive relief in the form of a temporary restraining order and preliminary and permanent injunction. Id. Along with its Verified Complaint, CytImmune filed a Motion for a Temporary Restraining Order and Preliminary Injunction. ECF No. 3.

         The state court denied the motion for a temporary restraining order, ECF No. 10, and Dr. Paciotti removed to this Court, ECF No. 1, where CytImmune renewed only its Motion for a Preliminary Injunction, ECF No. 30.[3] On May 12, 2016, I held a hearing on CytImmune’s motion and denied the motion without prejudice to resubmission following discovery and trial on the narrow issue of whether CytImmune is precluded from enforcing the Agreement because it materially breached it by failing to pay Dr. Paciotti his full salary. This Memorandum Opinion and Order memorializes the findings of fact and conclusions of law I reached during the hearing.

         Preliminary Injunction

         The purpose of a preliminary injunction is to “protect the status quo and to prevent irreparable harm during the pendency of a lawsuit, ultimately to preserve the court’s ability to render a meaningful judgment on the merits.” In re Microsoft Corp. Antitrust Litig., 333 F.3d 517, 525 (4th Cir. 2003). As a preliminary injunction is “an extraordinary remedy . . . [it] may only be awarded upon a clear showing that the plaintiff is entitled to such relief.” Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7, 22 (2008). To obtain a preliminary injunction, the plaintiff must “establish that [1] he is likely to succeed on the merits, [2] he is likely to suffer irreparable harm in the absence of preliminary relief, [3] the balance of equities tips in his favor, and [4] an injunction is in the public interest.” Id. at 20; see Dewhurst v. Century Aluminum Co., 649 F.3d 287, 290 (4th Cir. 2011).[4] “A preliminary injunction cannot be issued unless all four of these elements are met, and ‘“[p]laintiff bears the burden of establishing that each of these factors supports granting the injunction.”’” Williams v. JP Morgan Chase Bank, No. RDB-16-00312, 2016 WL 509426, at *3 (D. Md. Feb. 4, 2016) (slip op.) (quoting Direx Israel, Ltd. v. Breakthrough Med. Corp., 952 F.2d 802, 812 (4th Cir. 1991) (citation omitted)). “[T]he burden placed upon Plaintiffs to state a claim for a preliminary injunction is high.” EndoSurg Med., Inc. v. EndoMaster Med., Inc., 71 F.Supp.3d 525, 538 (D. Md. 2014); see Fowler v. Wells Fargo Home Mortg., Inc., No. GJH-15-1084, 2015 WL 2342377, at *2 (D. Md. May 13, 2015) (same).

         To succeed on the merits, under Maryland law, an employer seeking to enforce a non-compete agreement must show that:

all of the following four conditions are met: “(1) the employer must have a legally protected interest; (2) the restrictive covenant must be no wider in scope and duration than is reasonably necessary to protect the employer's interest; (3) the covenant cannot impose an undue hardship on the employee; and (4) the covenant cannot violate public policy.”

MCS Servs., Inc. v. Jones, No. WMN-10-1042, 2010 WL 3895380, at *3 (D. Md. Oct. 1, 2010) (quoting Deutsche Post Global Mail, Ltd. v. Conrad, 116 F. App’x 435, 438 (4th Cir. 2004) (interpreting Maryland law)); see also Gen. Parts Distribution, LLC v. St. Clair, No. JFM-11 3556, 2011 WL 6296746, at *3 (D. Md. Dec. 14, 2011) (same).

         To meet the first requirement, the plaintiff must “clearly demonstrate that he will likely succeed on the merits, ” rather than present a mere “grave or serious question for litigation.” Real Truth About Obama, Inc. v. Fed. Election Comm’n, 575 F.3d 342, 346-47 (4th Cir. 2009) (emphasis from the original). Only “providing sufficient factual allegations to meet the [Fed. R. Civ. P.] 12(b)(6) standard of Twombly and Iqbal” does not meet the rigorous standard required under the Winter and Real Truth decisions. Allstate Ins. Co. v. Warns, No. CCB-11-1846, 2012 WL 681792, at *14 (D. Md. 2012). Relevant to the present case is that post-Real Truth courts have “declined to issue a preliminary injunction when there are significant factual disputes” in breach of contract cases. Chattery Int’l, Inc. v. JoLida, Inc., No. WDQ-10-2236, 2011 WL 1230822, at *9 (D. Md. 2011) (citing Allegro Network LLC v. Reeder, No. 09-912, 2009 WL 3734288, at *3 (E.D. Va. Nov. 4, 2009) (holding that the parties’ conflicting versions of facts key to determining whether a breach of a franchise agreement occurred prevented the plaintiff from making a clear showing of the likelihood of success on the merits)); see Torres Advanced Enter. Sols. LLC v. Mid-Atl. Prof’ls Inc., No. PWG-12-3679, 2013 WL 531215, at *3 (D. Md. Feb. 8, 2013) (“In the present case, the record highlights multiple unresolved factual disputes. As the resolution of these disputes is central to the determination of a breach of contract claim, Plaintiff is prevented from making a clear showing of a likelihood of success on the merits.”).

         Validity of Non-compete Agreement at Time of Alleged Breach

         A condition precedent to enforcing a non-compete agreement is that there is a valid, applicable non-compete agreement in effect. “It is well established that an agreement is binding and enforceable only if it is a valid contract supported by consideration.” Hearn Insulation & Improvement Co. v. Carlos Bonilla, No. AW-09-990, 2010 WL 3069953, at *6 (D. Md. Aug. 5, 2010) (citing Cheek v. United Healthcare of the MidAtl., Inc., 835 A.2d 656, 661 (Md. 2003)). In the context of a restrictive covenant, “continued employment of an at-will employee for a significant period constitutes sufficient consideration . . . where there is no allegation of bad faith or other compromising circumstance.” Id. (citing Simko, Inc. v. Graymar Co., 464 A.2d 1104, 1107-08 (Md. Ct. Spec. App. 1983)). In this case, Dr. Paciotti’s more than ten years of continued employment after signing the Agreement in 2005 more than suffice for consideration. See Id. (concluding that, “[o]bviously, continuance of employment for a period of ten years imparts sufficient consideration”).

         Thus, the question here is not whether the Non-compete Agreement was supported by sufficient consideration when it came into existence. Rather, it is whether, as Dr. Paciotti argues, CytImmune materially breached its employment relationship with him by failing to pay his full salary, prior to his alleged breaches of the Agreement, such that the Agreement and the Non-compete Agreement it encompassed no longer are enforceable. Indeed, if an employer materially breaches an employment agreement that includes a restrictive covenant, its former employee’s “non-compete obligations under the agreement are discharged.” Jorgensen v. United Commc’ns Grp. Ltd. P’ship, No. 10-429-AW, 2011 WL 3821533, at *10 (D. Md. Aug. 25, 2011) (citing Jay Dee/Mole Joint Venture v. Mayor of Balt., 725 F.Supp.2d 513, 528 (D. Md. 2010)); see Maternal-Fetal Med. Assocs. of Md., LLC v. Stanley-Christian, No. 0967 Sept. Term 2009, 2013 WL 3941970, at *7 (Md. Ct. Spec. App. July 24, 2013) (unreported) (“An employee defending against a claim for breach of non-competition provision by her former-employer may assert evidence that the employer had breached the employment agreement such that the employee’s duty to perform under the non-competition agreement was extinguished.”).

         Significantly, “[a]lthough any breach of contract may give rise to a cause of action for damages, only a material breach discharges the non-breaching party of its duty to perform.” Jay Dee/Mole Joint Venture, 725 F.Supp.2d at 526 (citing Restatement (Second) of Contracts § 236 cmt. a.; 23 Williston on Contracts § 63:3 (4th ed.)) (emphasis added). Maryland law provides that “‘[a] breach is material “if it affects the purpose of the contract in an important or vital way.”’” Id. (quoting Gresham v. Lumbermen’s Mut. Cas. Co., 404 F.3d 253, 260 (4th Cir. 2005) (quoting Sachs v. Regal Sav. Bank, FSB, 705 A.2d 1, 4 (Md. Ct. Spec. App. 1999))). “[W]hat constitutes a ‘material breach’ of an employment contract is not subject to ‘a mathematically precise definition’ but rather ‘varies with the nature of the particular employment.’” Gresham, 404 F.3d at 260 (quoting Shapiro v. Massengill, 661 A.2d 202, 211 (Md. Ct. Spec. App. 1995)).

         Dr. Paciotti suggests that CytImmune’s failure to pay his full salary constitutes a material breach. Yet, even if a reduction in salary may constitute a material breach, parties to a contract may “‘modify it by mutual consent, ’” through “‘implication as well as by express agreement.’” Hovnanian Land Inv. Grp., LLC v. Annapolis Towne Ctr. at Parole, LLC, 25 A.3d 967, 978 (Md. 2011) (quoting Freeman v. Stanbern Constr. Co., 106 A.2d 50, 55 (Md. 1954)). Thus, by continuing to work for CytImmune at a reduced salary, Dr. Paciotti may have agreed to the reduced salary, and CytImmune argues that this is exactly what occurred. “A modification [such as by course of conduct] creates a new contract.” ...

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