Sulzer Carbomedics v. Oregon Cardio-Devices

• Decision Date: 10 July 2001
• Docket Number: No. 99-50978,INC,CARDIO-DEVICE,CARDO-DEVICE,99-50978
• Citation: 257 F.3d 449
• Parties: (5th Cir. 2001) SULZER CARBOMEDICS, INC., Plaintiff-Counter Defendant-Appellee-Cross-Appellant, v. OREGON, WALTER DOUGLAS CLARK, NORTHWEST, Defendants-Counter Claimants-Cross-Appellees, SAINT JUDE MEDICAL, INC. and SAINT JUDE MEDICAL S.C., INC., Defendants-Appellants-Cross-Appellees
• Court: U.S. Court of Appeals — Fifth Circuit

Page 449

257 F.3d 449 (5th Cir. 2001)

SULZER CARBOMEDICS, INC., Plaintiff-Counter Defendant-Appellee-Cross-Appellant, v. OREGON CARDIO-DEVICES, INC., WALTER DOUGLAS CLARK, NORTHWEST CARDO-DEVICES, INC., Defendants-Counter Claimants-Cross-Appellees, SAINT JUDE MEDICAL, INC. and SAINT JUDE MEDICAL S.C., INC., Defendants-Appellants-Cross-Appellees.

No. 99-50978

IN THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT

July 10, 2001

[Copyrighted Material Omitted]

Appeals from the United States District Court for the Western District of Texas, Austin Division

Before KING, Chief Judge, WIENER, Circuit Judge, and LYNN¹, District Judge.

LYNN, District Judge:

Doug Clark is the sole shareholder of two corporations through which he has conducted a business selling medical devices, Oregon Cardio-Devices, Inc. ("OCD") and Northwest Cardio-Devices, Inc. ("NCD") (Doug Clark, OCD and NCD will be collectively referred to in this opinion as "Clark" unless a distinction between them is necessary). In 1996, Clark entered into two agreements with Sulzer Carbomedics ("Carbomedics") to sell Carbomedics's heart valves. One agreement covered Oregon and a small part of the state of Washington ("Oregon contract"), and the other covered other parts of the state of Washington ("Washington contract").² For a term of four years, those contracts gave Clark the exclusive right to sell Carbomedics's heart valves in the covered regions, and made Clark exclusive to Carbomedics, subject to termination provisions in the two contracts. That right of termination is "absolute," and provides that a "party availing itself of such right will not be liable to the other party for any loss, damage, indemnity, cost, expense, or thing of any kind or nature whatsoever, and any and all claims of such liability and the right to make such claims are . . . expressly waived." The contracts further provide: "In no event will either party be liable to the other for incidental, special or consequential damages, including but not limited to loss of anticipated revenues or profits or good will, for the [lawful]³ termination or cancellation of this Agreement for any reason whatsoever." The contracts also contain no-compete clauses. For one year after his relationship with Carbomedics ended, for any reason, the contracts prohibit Clark and his subrepresentatives from contacting former customers for "purposes of selling, offering for sale or promoting the sale" of any competing heart valves.

In the fall of 1997, Clark communicated with⁴ St. Jude Medical, Inc. and St. Jude Medical S.C. (together, "St. Jude"), another seller of heart valves. Clark met with St. Jude's top executives to discuss his becoming a St. Jude sales representative. At the end of 1997, Clark entered into five agreements with St. Jude. Two of these contracts, both effective January 1, 1998, involved the sale of St. Jude's medical devices. One contract was for the sale of St. Jude's pacemakers in Oregon and the other was for the sale of St. Jude's heart valves in eight designated hospitals and medical centers in Oregon.⁵ Under the heart valve contract, Clark was not eligible for commissions for two years. However, Clark and St. Jude entered into a separate agreement guaranteeing Clark a minimum commission of $815,000 annually for the first two years, under both of the St. Jude contracts. The latter agreement also provided that Jed Reay, a subrepresentative of Clark, would be entitled to a guaranteed minimum commission of $215,000 annually for the first two years. The parties also executed an indemnity agreement, under which St. Jude would indemnify Clark against third-party claims arising from his contractual relationship with St. Jude.

On December 31, 1997, after his contracts with St. Jude were in place, Clark sent a letter to Carbomedics, terminating his contracts with Carbomedics effective January 1, 1998. Ten months later, Carbomedics filed this lawsuit. In its Complaint, Carbomedics asserted claims against Clark for breach of contract and fiduciary duty for terminating the agreements early, for sharing confidential information, for engaging in activity that conflicts with Clark's faithful performance under the Carbomedics contracts, and for breaching the non-compete clauses, and claims against St. Jude for tortious interference with economic relations and unjust enrichment.

Defendants Clark and St. Jude moved for summary judgment, and Carbomedics moved for partial summary judgment. The district court granted Clark's motion on the claim that he breached the contract by terminating early, holding that the plain language of the Oregon contract was unambiguous and clearly precluded any damages for early termination. The district court denied Clark's summary judgment motion on the non-compete, confidentiality, conflict of interest and breach of fiduciary duty claims. However, it stated that "there is no direct evidence that any breach by Clark caused any damages to Carbomedics whatsoever" and thus further cautioned that unless, at trial, Carbomedics presented more evidence of damages, it would grant a directed verdict for Clark. The district court also entered summary judgment for St. Jude on the unjust enrichment claim.

Following presentation of Carbomedics's case in chief, St. Jude and Clark filed Motions for Judgment as a Matter of Law under Fed. R. Civ. P. 50. The district court carried the motion as to the tortious interference claim against St. Jude, but granted Defendants' motions on many other issues, finding no evidence that any violation by Clark of the conflict of interest, confidentiality, and non-compete clauses of his Carbomedics contracts or the alleged fiduciary duty violations caused any damages to Carbomedics. Thus, the court submitted to the jury only the tortious interference claim against St. Jude. On that claim, the jury returned a verdict for Carbomedics of $2 million in compensatory damages and $8 million in punitive damages.

After the jury rendered its verdict, the court considered St. Jude's Motion for Judgment as a Matter of Law and its Motion for Judgment Notwithstanding the Verdict or for New Trial. In ruling on these motions, the court remitted the jury's award to $923,743 in compensatory damages, and held that the evidence was insufficient to support the jury's punitive damages award.

Appellant St. Jude first asserts that the district court erroneously interpreted Oregon law when it denied St. Jude's Motion for Judgment as a Matter of Law on the tortious interference claim. The standard of review of the court's decision to deny judgment as a matter of law is de novo. Stokes v. Emerson Elec. Co., 217 F.3d 353, 356 (5th Cir. 2000). Judgment as a matter of law is proper after a party has been fully heard by the jury on a given issue, and "there is no legally sufficient evidentiary basis for a reasonable jury to have found for that party on that issue." Fed. R. Civ. P. 50(a).

There is no dispute that Oregon's "intentional interference with economic relations" law applies here. The elements of such a claim are: (1) the existence of a professional or business relationship, (2) intentional interference with that relationship, (3) by a third party, (4) accomplished through improper means or for an improper purpose, (5) a causal effect between the interference and damage to the economic relations, and (6) damages. Uptown Heights Assocs. Ltd. P'ship v. SeaFirst Corp., 891 P.2d 639, 646 (Or. 1995) (en banc). In its post-trial Order, the district court stated that it had "struggled" with the fourth element of the above analysis, but nevertheless found that St. Jude's inducement of Clark to breach his ongoing contract with Carbomedics constituted an "improper means," such that the fourth element was satisfied. The district court found that the other elements were satisfied and thus denied St. Jude's Rule 50 motion on the tortious interference claim. St. Jude contends that the court erred in denying its motion on that issue, because inducement to breach the contracts, which the court found, does not satisfy the "improper means" requirement.

The improper motive or means requirement reflects the longstanding Oregon rule that to prove the tort of intentional interference with economic relations, the claimant must show that the "interference resulting in injury to another is wrongful by some measure beyond the fact of the interference itself." Top Serv. Body Shop, Inc. v. Allstate Ins. Co., 582 P.2d 1365, 1371 (Or. 1978) (en banc). The court in Top Service elaborated that these "improper motive or means" may be "wrongful by reason of a statute or other regulation, or a recognized rule of common law, or perhaps an established standard of a trade or profession." Id. It further described as examples of improper motive or means "violence, threats or other intimidation, deceit or misrepresentation, bribery, unfounded litigation, defamation, or disparaging falsehood." Id. n.11. In Top Service, Allstate discouraged claimants from taking their repair work to Top Service by disparaging Top Service's work and directing business from Top Service to repair shops on Allstate's preferred list. Id. at 1372. Top Service was formerly on the preferred list, but after a dispute with Allstate, the owner of Top Service decided not to be a drive-in shop for Allstate. The Oregon Supreme Court held that Allstate's behavior did not constitute improper motive because it was "wholly consistent with Allstate's pursuit of its own business purposes as it saw them . . . ." Id. However, the court noted that such behavior may have constituted improper means, but since that theory had not been presented to the jury, the court did not reach it. Id. at 1373.

St. Jude argues that the mere inducement to breach a contract cannot satisfy the improper motive or means test. Carbomedics responds that inducing the breach of a binding contract is wrongful conduct under Oregon law, and that the record contains...