Advanced Bionics Corp. v. Medtronic, Inc.

• Decision Date: 19 December 2002
• Docket Number: No. S097308.,S097308.
• Citation: 29 Cal.4th 697,128 Cal.Rptr.2d 172,59 P.3d 231
• Court: California Supreme Court
• Parties: ADVANCED BIONICS CORPORATION, et al. Plaintiffs and Respondents, v. MEDTRONIC, INC., Defendant and Appellant. Medtronic, Inc., Petitioner, v. The Superior Court of Los Angeles County, Respondent, Advanced Bionics Corporation, et al., Real Parties in Interest.

128 Cal.Rptr.2d 172

29 Cal.4th 697

59 P.3d 231

ADVANCED BIONICS CORPORATION, et al. Plaintiffs and Respondents, v. MEDTRONIC, INC., Defendant and Appellant.

Medtronic, Inc., Petitioner, v. The Superior Court of Los Angeles County, Respondent, Advanced Bionics Corporation, et al., Real Parties in Interest.

No. S097308.

Supreme Court of California.

December 19, 2002.

As Modified on Denial of Rehearing March 5, 2003.

Horvitz & Levy, David M. Axelrad, Andrea M. Gauthier, Mary-Christine Sungaila, Encino; Robins, Kaplan, Miller & Ciresi, Roman M. Silberfeld, Los Angeles, Ernest I. Reveal, Bernice Conn and Susan L. Dunbar, for Defendant and Appellant and for Petitioner.

Gibson, Dunn & Crutcher, John J. Swenson, Miguel A. Estrada, Salinas, Georgiana G. Rodiger and Tanya M. Acker, Los Angeles, for Aetna, Inc., Aetna U.S. Healthcare Inc., and Aetna U.S. Healthcare of California, Inc., as Amici Curiae on behalf of Defendant and Appellant and Petitioner.

Mike Hatch, Attorney General (Minnesota), for State of Minnesota as Amicus Curiae on behalf of Defendant and Appellant and Petitioner.

King & Kent, K. Andrew Kent, Santa Barbara, and Gregory N. Albright, Cambria, for Southern California Intellectual Property Rights Coalition as Amicus Curiae on behalf of Defendant and Appellant and Petitioner.

No appearance for Respondent Superior Court.

Loeb & Loeb, Fred B. Griffin, Todd M. Malynn, Century City; Feldman, Gale & Weber, Michael J. Weber, James A. Gale, Miami, FL; Greines, Martin, Stein & Richland and Robin Meadow, Los Angeles, for Plaintiffs and Respondents and for Real Parties in Interest.

Donald E. Warner, Jr., Los Angeles, for California Staffing Professionals as Amicus Curiae on behalf of Plaintiffs and Respondents and Real Parties in Interest.

Ronald J. Gilson, Stanford, as Amicus Curiae on behalf of Plaintiffs and Respondents and Real Parties in Interest.

Bill Lockyer, Attorney General, Richard M. Frank, Chief Assistant Attorney General, Herschel T. Elkins, Assistant Attorney General, Ronald Reiter and Joseph Ragazzo, Deputy Attorneys General, as

Amici Curiae on behalf of Plaintiffs and Respondents and Real Parties in Interest.

James P. Stoneman II, Claremont, for California Employment Lawyers Association as Amicus Curiae on behalf of Plaintiffs and Respondents and Real Parties in Interest.

Wilson, Sonsini, Goodrich & Rosati, Ulrico S. Rosales, Tait Graves and David R. Burtt, Palo Alto, for Broadcom Corporation as Amici Curiae on behalf of Plaintiffs and Respondents and Real Parties in Interest.

CHIN, J.

We granted review to consider whether the superior court properly enjoined a party to a California lawsuit from taking any action in a Minnesota proceeding involving the same dispute. We conclude that under principles of judicial restraint and comity the temporary restraining order (TRO) issued here was improper. We therefore reverse the Court of Appeal's judgment.

FACTS

Medtronic, Inc. (Medtronic), a Minnesota corporation with headquarters in Fridley, Minnesota, manufactures implantable neurostimulation devices used to treat chronic pain. In 1995, Medtronic hired plaintiff Mark Stultz in Minnesota as a senior product specialist responsible for spinal cord stimulator lead wires. He was soon promoted to senior product manager in the "Neurostimulation-Pain Division," where he was responsible for managing Medtronic's neurostimulation products.

On accepting employment, Stultz signed the "Medtronic Employee Agreement" (Agreement). The Agreement contained a covenant not to compete, providing that for two years after employment termination, Stultz would not "directly or indirectly render services (including services in research) to any person or entity in connection with the design, development, manufacture, marketing, or sale of a Competitive Product that is sold or intended for use or sale in any geographic area in which Medtronic actively markets a Medtronic Product or intends to actively market a Medtronic Product of the same general type of function." The Agreement defined a "Competitive Product" as "of the same general type, performs similar functions, or is used for the same purposes as a Medtronic Product on which the employee worked during the last two years of employment or about which he/she received or had knowledge of Confidential Information."

The Agreement included a choice-of-law provision: "The validity, enforceability, construction and interpretation of this Agreement shall be governed by the laws of the state in which the Employee was last employed by Medtronic." For the duration of his employment, Stultz worked for Medtronic's Minnesota office.

On June 7, 2000, Stultz resigned from Medtronic and went to California to work for Advanced Bionics Corporation (Advanced Bionics), a Delaware corporation with headquarters in Sylmar, California. The company, a competitor of Medtronic's, develops and manufactures implantable medical devices used to restore hearing to the profoundly deaf. It hired Stultz as a director of business development to market its own spinal cord stimulation device. On the same day, in Los Angeles County Superior Court, Stultz and Advanced Bionics sued Medtronic for declaratory relief, alleging that Medtronic's covenant not to compete and choice-of-law provisions violate California's law and public policy and are void under Business and Professions Code section 16600.¹ Section 16600 provides in pertinent part that "every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void."²

On June 8, 2000, Stultz and Advanced Bionics notified Medtronic that they intended to apply for a TRO. They applied for an order "enjoining Medtronic from taking any action, other than in this court, to enforce its non-competition agreement with Mr. Stultz, or to otherwise restrain Mr. Stultz from working for Advanced Bionics...." The trial court put over the matter for one day in order to give Medtronic an opportunity to respond. The court rejected Stultz and Advanced Bionics' assertion that Medtronic would use the time to "race to court" in Minnesota. Medtronic immediately removed the action to federal court in order to avoid a hearing on the TRO.

On June 9, 2000, while the action was pending in federal court, Medtronic filed an action in Minnesota state court alleging claims for breach of contract against Stultz and tortious interference with contract against Advanced Bionics. Medtronic filed the action in order to prevent Stultz from working on a competing product at Advanced Bionics. Medtronic then obtained a TRO from the Minnesota court enjoining Advanced Bionics from hiring Stultz in any competitive role. The order also barred both parties "[f]rom making any motion or taking any action or obtaining any order or direction from any court that [would] prevent or interfere in any way with [the Minnesota court's] determining whether it should determine all or any part of the claims alleged in [the Minnesota] lawsuit, including claims for temporary, preliminary or permanent relief."

Within a week, the federal court remanded the California action to the trial court, finding, among other things, that Medtronic had filed its removal notice without evidentiary support and "for the improper purpose of avoiding an unfavorable ruling upon a pending motion before a state court." The federal order stated that removal was improper because Medtronic, a Minnesota company, purported to rely on diversity jurisdiction, even though it knew Stultz was still a Minnesota resident. The federal court also noted that Medtronic had removed the California action "not to have the matter heard in this court, but to interfere with [the TRO] matter being heard."

Thereafter, on July 21, 2000, Medtronic filed a motion in Los Angeles County Superior Court to dismiss or stay the California action on the ground the matter should be decided in Minnesota. The court denied the motion, finding that under a totality of the circumstances, staying or dismissing the California action would not serve the interests of substantial justice.

On August 3, 2000, the Minnesota court issued a preliminary injunction that was similar to its TRO, except it did not include the provision restraining Stultz and Advanced Bionics from pursuing other litigation; it simply restricted Stultz's activities as an Advanced Bionics employee. The court also dissolved the TRO. In Minnesota, Stultz and Advanced Bionics appealed the order issuing the preliminary injunction. On August 8, 2000, Stultz and Advanced Bionics applied ex parte to the California court for a TRO and order to show cause re preliminary injunction to prohibit Medtronic from taking any further steps in the Minnesota action. The court granted the application, finding there was a "substantial chance" that Medtronic would "go to the Minnesota court [and] attempt to undercut the California court's jurisdiction." Medtronic was "restrained and enjoined from taking any action whatsoever, other than in this Court, to enforce [its covenant not to compete] against ... Stultz or to otherwise restrain ... Stultz from working for Advanced Bionics in California, including but not limited to making any appearance, filing any paper, participating in any proceeding, posting any bond, or taking any other action in the second-filed [Minnesota] lawsuit...."³ This TRO was the subject of Medtronic's appeal in the California Court of Appeal.

On August 16, 2000, the Minnesota court amended its August 3 preliminary injunction (purportedly nunc pro tunc), stating it had "failed to incorporate language enjoining [Stultz and Advanced Bionics] from obtaining relief in another court that would effectively stay or limit [the Minnesota] action." The court added a provision enjoining Stultz and Advanced Bionics "from seeking any interim or temporary relief from any other court that would effectively stay, limit or restrain [the Minnesota] ...