Dowell v. Biosense Webster, Inc.

• Decision Date: 20 October 2009
• Docket Number: No. B203501.,No. B201439.,B201439.,B203501.
• Citation: Dowell v. Biosense Webster, Inc., 179 Cal.App.4th 564, 102 Cal. Rptr. 3d 1 (Cal. App. 2009)
• Court: California Court of Appeals
• Parties: DEANA DOWELL et al., Plaintiffs and Appellants; PACESETTER, INC., et al., Plaintiffs, Cross-defendants and Appellants, v. BIOSENSE WEBSTER, INC., Defendant, Cross-complainant and Respondent. PACESETTER, INC., et al., Plaintiffs, Cross-defendants and Respondents, v. BIOSENSE WEBSTER, INC., Defendant, Cross-complainant and Appellant; ST. JUDE MEDICAL, INC., Cross-defendant and Appellant.

179 Cal.App.4th 564

102 Cal. Rptr. 3d 1

DEANA DOWELL et al., Plaintiffs and Appellants;

PACESETTER, INC., et al., Plaintiffs, Cross-defendants and Appellants, v. BIOSENSE WEBSTER, INC., Defendant, Cross-complainant and Respondent.

PACESETTER, INC., et al., Plaintiffs, Cross-defendants and Respondents, v. BIOSENSE WEBSTER, INC., Defendant, Cross-complainant and Appellant;

ST. JUDE MEDICAL, INC., Cross-defendant and Appellant.

No. B201439.

No. B203501.

Court of Appeals of California, Second District, Division Two.

October 20, 2009.

CERTIFIED FOR PARTIAL PUBLICATION^*

Feldman Gale, James A. Gale and Todd M. Malynn for Plaintiffs and Appellants, for Cross-defendant and Appellants, for Plaintiffs, Cross-defendants and Appellants and for Plaintiffs, Cross-defendants and Respondents.

Steptoe & Johnson, Mark A. Neubauer, Rebecca Edelson and Carla A. Veltman for Defendant, Cross-complainant and Respondent and for Defendant, Cross-complainant and Appellant.

OPINION

DOI TODD, Acting, P.J.

Plaintiffs and appellants St. Jude Medical S.C., Inc. (SC), and Pacesetter, Inc. (Pacesetter) (collectively, St. Jude), along with employees Deana Dowell, Steven Chapman and Claudio Plaza, sued defendant and cross-complainant Biosense Webster, Inc. (Biosense), to enjoin it from enforcing noncompete and nonsolicitation clauses in employment agreements used in California, including agreements it had with the individual plaintiffs. The trial court summarily adjudicated that the clauses were facially void under Business and Professions Code¹ section 16600 and that their use violated California's unfair competition law (UCL) (§ 17200 et seq.). The trial court also summarily adjudicated that Biosense's unclean hands defense and its cross-complaint for unfair competition failed as a matter of law. The court determined that there was no "prevailing party" and ordered the parties to bear their own costs.

On appeal, St. Jude contends that the trial court's ruling "did not go far enough" because the court failed to issue a permanent injunction against Biosense's use of such restrictive clauses in all agreements with California employees. Plaintiffs also contend that they are entitled to costs. In its cross-appeal, Biosense contends that the trial court erred in summarily adjudicating the validity of the clauses because there was a triable issue of fact as to whether the so-called "common law trade secret exception" applied, and that the court erred in summarily adjudicating its unclean hands defense and its cross-complaint.

We affirm the judgment. We conclude that the trial court properly determined that the clauses were void as a matter of law, that no defense applied and that the cross-complaint failed to state a cause of action. We also conclude that the trial court did not abuse its discretion in denying a permanent injunction and costs.

FACTUAL AND PROCEDURAL BACKGROUND

The Parties

SC and Biosense are competitors in the market for atrial fibrillation products (e.g., anatomical mapping systems and electrophysiology catheters). Both companies have their principal place of business in California. SC and Pacesetter are subsidiaries of St. Jude Medical, Inc. (SJMI). In 1999, Biosense hired Plaza and eventually promoted him to senior engineer developing electrophysiology catheters. In 2003 and 2004, Biosense hired Dowell and Chapman, respectively, as professional education specialists to educate physicians and their staff about the company's three-dimensional anatomical mapping system. Dowell, Chapman and Plaza are California residents.

The Agreements

Upon accepting employment with Biosense, Dowell and Chapman signed an "Employee Secrecy, Non-Competition and Non-Solicitation Agreement" (the agreements).² The agreements each contained a covenant not to compete which provided that for 18 months after termination of employment the employee would "not render services, directly or indirectly, to any CONFLICTING ORGANIZATION" in which such services "could enhance the use or marketability of a CONFLICTING PRODUCT by application of CONFIDENTIAL INFORMATION" to which the employee "shall have had access" during employment. A conflicting product was defined as any product, process, technology, machine, invention or service which resembles or competes with one upon which the employee worked or of which the employee was knowledgeable as a result of employment. A conflicting organization was defined as a person or organization engaged or about to become engaged in research, development, production, marketing or selling of a conflicting product. And "CONFIDENTIAL INFORMATION" was defined as "information disclosed to me or known by me as a result of my employment by the COMPANY, not generally known to the trade or industry in which the COMPANY is engaged, about products, processes, technologies, machines, customers, clients, employees, services and strategies of the COMPANY, including, but not limited to . . . marketing, merchandising, selling, sales volumes or strategies, number or location of sales representatives, names or significance of the COMPANY's customers or clients or their employees or representatives, preferences, needs or requirements, purchasing histories, or other customer or client-specific information."

The agreements also contained a nonsolicitation clause which provided that the employee "recognize[s] that the COMPANY's relations with its accounts, customers and clients represents an important business asset that results from the COMPANY's significant investment of its time and resources" and that the employee has "gained or may gain relationships with the accounts, customers and clients of the COMPANY, and because of such relationships, [he/she] could cause the COMPANY great loss, damage, and immediate irreparable harm" if the employee should "sell, offer for sale, or solicit or assist in the sale of a product or service that could compete with a product or service being sold or developed by the COMPANY." The employee "therefore agree[s]" that for 18 months after termination of employment, the employee "will not solicit any business from, sell to, or render any service to, or, directly or indirectly, help others to solicit business from or render service or sell to any of the accounts, customers or clients" with whom the employee had contact during the last 12 months of employment.

The agreements contained New Jersey choice-of-law and consent-to-venue clauses.

Between April and July 2005, Dowell and Chapman accepted sales positions with SC and Plaza accepted an engineering position with Pacesetter. By the terms of the agreements with Biosense, Chapman's noncompete obligations expired in October 2006 and Dowell's in January 2007.

The Cease-and-desist Letter

On July 1, 2005, Biosense sent a letter to St. Jude demanding that it cease its "unlawful raiding" of Biosense's employees, including Dowell, Chapman and Plaza. The letter stated that the former employees had covenants not to compete which precluded their employment with St. Jude and their use of confidential and trade secret information relating to the business and personnel of Biosense. While expressing its hope to avoid litigation, Biosense made clear that it was prepared to pursue litigation if necessary and asked for a response within two weeks. St. Jude responded that it needed more time to review the matter. In the meantime, St. Jude initiated this lawsuit.

The Complaint

On July 26, 2005, St. Jude, Dowell, Chapman and Plaza filed a complaint against Biosense alleging two causes of action for declaratory relief and two causes of action for unfair competition. The first cause of action sought a declaration that the contractual restraints of trade imposed on Dowell, Chapman and Plaza by Biosense were void. The second cause of action sought a declaration that none of the plaintiffs had violated any duty owed to Biosense and that St. Jude could lawfully employ Biosense employees consistent with St. Jude's legal rights. The third cause of action for unfair competition sought an injunction permanently enjoining Biosense from "including covenants not to compete in its employment contracts in California." The fourth cause of action for unfair competition sought an antisuit injunction prohibiting Biosense from trying to enforce its noncompete covenants in any forum other than the Superior Court of Los Angeles County.

The Answer and Cross-complaint

Biosense answered the complaint asserting an affirmative defense of unclean hands based on the following alleged conduct: St. Jude used employment agreements with provisions similar to those used by Biosense; Dowell, Chapman and Plaza signed employment agreements with St. Jude that contained provisions similar to those used by Biosense; St. Jude used deception to induce Biosense into delaying its own lawsuit in the jurisdiction of its choice; plaintiffs made misleading statements in ex parte pleadings filed with the trial court; and St. Jude had unlawfully raided Biosense's employees.

Biosense filed a cross-complaint against St. Jude and SJMI for unfair competition. Biosense alleged that St. Jude and SJMI unlawfully raided Biosense employees in California and elsewhere in such a manner as to disrupt Biosense's business; attempted to induce Biosense employees to breach their noncompete agreements with Biosense; and used the insider knowledge of former Biosense employees to unfairly recruit personnel from Biosense. Biosense sought an injunction prohibiting St. Jude and SJMI from using or disclosing Biosense's confidential information and from soliciting Biosense's employees.

Plaintiffs' Motion for Summary Adjudication of First and Third Causes of Action

Plaintiffs moved for summary adjudication of their first and third causes of action, arguing that the agreements' noncompete and nonsolicitation clauses in the agreement were facially invalid under section 16600 and that their use violated section 17200. In support of the...