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Conway v. C.R. Bard, Inc.

United States District Court, D. Minnesota

February 12, 2015

C.R. BARD, INC., Defendant

Michael E. Florey and Tasha M. Francis, FISH & RICHARDSON P.C., for plaintiffs.

Yosef J. Riemer and Shireen A. Barday, KIRKLAND & ELLIS LLP; Steve W. Gaskins and Sarah H. Daggett, GASKINS BENNETT BIRRELL SCHUPP LLP, for defendant.

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Patrick J. Schiltz, United States District Judge.

Plaintiffs Anthony and Philip Conway founded and operated Rochester Medical Corporation (" RMC" ), a publicly traded medical-device company. C.R. Bard, Inc., (" Bard" ) offered to purchase RMC at a very attractive price. There was a hitch, though: Bard would go forward with the deal only if the Conways would sign five-year non-compete agreements. The Conways reluctantly agreed to sign the non-compete agreements, Bard purchased RMC at the agreed-upon price, and the Conways were paid tens of millions of dollars for their stock and other interests in RMC.

Soon afterwards, however, the Conways experienced sellers' remorse, particularly over the fact that, although they had been required to sign non-compete agreements for the deal to go forward, the per-share price that they received for their stock was the same as the per-share price received by the other stockholders. The Conways filed suit, alleging that the non-compete agreements are unenforceable under Minnesota law because they were not supported by consideration.

This matter is before the Court on Bard's motion to dismiss. Because it is clear on the face of the complaint that the Conways did, in fact, receive consideration for signing the non-compete agreements, Bard's motion is granted, and the complaint is dismissed.

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The Conways founded and essentially operated RMC, which develops and manufactures catheters and other medical devices for sufferers of incontinence. Compl. ¶ 10. The Conways hold " numerous patents related to urinary incontinence devices," and, in large part because of the Conways' success as inventors, RMC " grew to become a leading developer, innovator, and marketer of continence care products worldwide." Id. Anthony Conway served as RMC's President and Chief Executive Officer, and Philip Conway served as Vice President of Production Technologies. Id. ¶ ¶ 11-12. Between them, the Conways owned 14% of the publicly traded shares of RMC. Id. ¶ 13.

In 2013, Bard and RMC began negotiating a transaction that, while styled as a merger, was in substance a sale of RMC to Bard. Id. ¶ 16. After months of negotiation, the two companies informally agreed on a purchase price of $20 per share. Id. ¶ ¶ 17-18. The complaint alleges--and the parties agree--that this represented " a significant premium to [RMC] shareholders." Id. ¶ 16. Specifically, the $20-per-share price represented " a 53 percent premium over $13.09, the closing price of the Common Stock on the NASDAQ on August 30, 2013, the last full trading day before the public announcement of the merger agreement." Id. ¶ 18.

The complaint alleges that " Rochester Medical Corporation and Bard reached an agreement on the terms for the proposed [sale] in August of 2013." Id. ¶ 17. But the Conways concede that neither Bard nor RMC was legally obligated to go forward with the deal until it was approved by both companies' boards of directors. Mot. Hr'g Transcript, Aug. 20, 2014, at 13 (hereinafter " T. 13" ). RMC's board approved the transaction on August 13, 2013. Compl. ¶ 19. Bard's board also approved the transaction on or about August 13, but its approval was conditioned on both Anthony and Philip Conway signing non-compete agreements. Id. ¶ 20.

Bard, RMC, and the Conways negotiated over the course of several days about Bard's demand that the Conways sign non-compete agreements. Id. ¶ 21. Bard was unwilling to go forward with the deal unless the Conways signed non-compete agreements, but the Conways were unwilling to sign non-compete agreements because they wanted to continue to work in the continence field. Id. Eventually, however, the Conways relented because they recognized that the sale " was in the best interests of [RMC's] shareholders," and they felt a fiduciary obligation to " the investors who had backed and supported [RMC]." Id. ¶ 22. After further haggling about the length of the non-compete agreements, the Conways each signed a five-year non-compete agreement. In the words of the complaint: " Given the fiduciary duty of Plaintiffs to act in the best interest of [RMC], and believing their refusal to sign the Non-Compete Agreement would jeopardize the merger, Plaintiffs executed

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the Non-Competition Agreement . . . on September 3, 2013, the same day in which [RMC] and Bard finalized the merger ...

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