Kallok v. Medtronic, Inc.

• Decision Date: 15 January 1998
• Docket Number: No. C2-96-1598,C2-96-1598
• Citation: 573 N.W.2d 356
• Parties: 13 IER Cases 1168 Michael J. KALLOK, et al., Respondents, v. MEDTRONIC, INC., Appellant.
• Court: Minnesota Supreme Court

Page 356

573 N.W.2d 356

13 IER Cases 1168

Michael J. KALLOK, et al., Respondents, v.MEDTRONIC, INC., Appellant.

No. C2-96-1598.

Supreme Court of Minnesota.

Jan. 15, 1998.

Rehearing Denied Feb. 27, 1998.

Syllabus by the Court

1.A third party's interference with an employer's valid noncompete employment agreement is a tort for which the employer may recover damages.

2.When third party's tortious interference with valid noncompete employment agreement forced employer into litigation to enforce the agreement, employer may recover attorney fees and other expenses under the third-party litigation exception to the general rule that a litigant may not recover its attorney fees and other expenses.

William Z. Pentelovitch, Richard G. Wilson, Mary R. Vasaly, Maslon Elelamn Borman & Brand, Minneapolis, for appellant.

Michael Berens, Madge S. Thorsen, Wendy A. Snyder, Andrea Carruthers, Kelly & Berens, P.A., Minneapolis, for respondents.

Heard, considered, and decided by the court en banc.

OPINION

ANDERSON, Justice.

On November 21, 1995, Dr. Michael J. Kallok resigned his position as a research scientist and senior manager at Medtronic, Inc.When Kallok submitted his resignation, he advised Medtronic that he had accepted a job offer from respondentAngeion Corp., a direct competitor of Medtronic.Medtronic informed Kallok that if he accepted a position at Angeion, he would be in breach of his noncompete employment agreements with Medtronic.To determine Kallok's rights and obligations under the employment agreements, Angeion and Kallok brought an action against Medtronic for a declaratory judgment asserting that the agreements were unenforceable.Medtronic counterclaimed against Kallok for breach of contract and for injunctive relief to prevent Kallok from working for Angeion during relevant time periods.Medtronic also counterclaimed against Angeion for tortious interference with the employment agreements it had with Kallok.

The district court concluded that the employment agreements were valid and enjoined Kallok from working for Angeion for one year.The court also concluded that Angeion had tortiously interfered with Kallok's employment and that Angeion was liable for damages as measured by the attorney fees and other expenses Medtronic incurred in its litigation with Kallok.The court of appeals affirmed the district court's grant of an injunction, but reversed the court's conclusion that Angeion tortiously interfered with Kallok's employment.We reverse, concluding that Angeion tortiously interfered with Medtronic's employment agreements with Kallok.We also hold that the district court's damages award was proper.

Medtronic, Inc. is a Minnesota company that manufactures medical devices with an emphasis in cardiovascular equipment and related medical devices.Angeion Corp. is a Minnesota company that manufactures cardiac medical devices, primarily implantable cardioverter defibrillators (ICDs).¹Medtronic and Angeion are direct competitors in the area of the management of tachyrhythmia (rapid irregular heartbeats), including the manufacture of ICDs.

Kallok has a Ph.D. in biomedical engineering from the University of Minnesota.In 1979, Medtronic hired Kallok as a Senior Staff Engineer engaged in leads research.In this position, Kallok was involved in designing and developing leads for, among other things, defibrillator and electrocardiogram sensing.Kallok signed a standard Medtronic noncompete employment agreement that contained a confidentiality provision and restrictions on his ability to work for Medtronic's competitors.Kallok subsequently signed a revised version of Medtronic's employment agreement in 1981.In pertinent part, the revised agreement states:

[F]or two (2) years after termination of employment he/she will 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 or function.It is expressly understood that the employee is free to work for a competitor of Medtronic provided that such employment does not include any responsibilities for, or in connection with, a Competitive Product as defined in this Agreement for the two year period of the restriction.²

The agreement also provided that Medtronic would compensate its employees if the agreement hampered their earning capacity after leaving Medtronic.

Throughout his tenure at Medtronic, Kallok held a variety of research positions.He worked in Medtronic's Pacing Division and by the early 1990s became the Director of Physiological Research Laboratories (PRL) within that division.As Director of PRL, Kallok was responsible for, among other things, educating physicians about Medtronic's ICDs and related products for tachyrhythmia management.In 1992, Kallok became the Director of Research, Clinical Research and Regulatory Affairs for Medtronic's Heart Valve Division.In 1994, he was named a Bakken Society Fellow.The Bakken Society includes approximately the top 25 scientists employed by Medtronic.The society holds regular meetings and symposia that provided Kallok access to a wide range of Medtronic research.In 1995 Kallok became a Senior Fellow in Medtronic's Promeon Division, Center for Biomaterials Research.During Kallok's time at Medtronic, his research and development efforts led to the issuance of 15 patents on which he was named as either the sole inventor or a co-inventor.

As Kallok advanced within Medtronic, he was invited to participate in Medtronic's Management Incentive Plan, which provided him new responsibilities, access to additional confidential information, and new benefits.In consideration for the additional benefits he received under this incentive plan, Kallok signed a series of noncompete employment agreements known as Medtronic Management Riders in 1986, 1989, and 1993, agreeing to additional restrictions on his future employment.The last management rider Kallok signed provided in relevant part that:

For a period of one (1) year after termination of my employment with Medtronic, I will not directly or indirectly render services for the benefit of any person or organization (including myself) engaged in the design, development, manufacture, marketing or sale of a product or service competitive with any product or service which was being designed, developed, manufactured, marketed or sold by Medtronic during the last year of my employment, or with respect to which Medtronic has acquired confidential business information, unless: (i) I did not have any involvement or responsibility in connection with the competitive product or service while at Medtronic and did not have access to confidential business information regarding the competitive product or service; or (ii) such other person or organization is a diversified operation and my responsibilities do not include any activities in connection with the design, development, manufacture, marketing, or sale of a competitive product or service.

As Medtronic did in the employee agreement, Medtronic agreed to supplement the employee's salary after the employee left Medtronic if the management rider restricted the employee's ability to earn a comparable salary.

In 1995, Kallok arranged to meet with Angeion's CEO Whitney McFarlin to discuss potential employment opportunities.McFarlin is a former Medtronic vice president and he and Kallok knew each other from when they both worked at Medtronic.At the meeting on May 10, McFarlin told Kallok that Angeion had no suitable positions available.During the summer of 1995, however, an Angeion official contacted Kallok regarding a position managing Angeion's catheter ablation business.McFarlin and Kallok met on September 1, 1995 to discuss Kallok's interest in this position.On September 20, 1995, Kallok again met with McFarlin and, at that time, McFarlin asked Kallok if he would be interested in serving as Angeion's Vice President of Research.In that capacity, Kallok would research tachyrhythmia, coordinate intellectual property, and develop future technologies.Kallok expressed an interest in this position.

During the months he met with McFarlin to discuss possible positions with Angeion, Kallok continued to perform his duties as an employee of Medtronic.As part of those duties, on October 3 through 6, 1995, Kallok participated in Medtronic's annual vice presidents' meeting.During this four-day conference, Kallok attended meetings and presentations relating to new technologies being pursued by Medtronic, including technologies related to Medtronic's tachyrhythmia business.After returning from the meeting, Kallok resumed discussions with Angeion about the position as Vice President of Research and Development for ICDs.Sometime during the course of these discussions, between September 20, 1995 and October 18, 1995, Kallok informed McFarlin that he might be subject to noncompete agreements with Medtronic because he signed the employment agreement and management rider.The record is unclear as to the actual date that Kallok revealed this to Angeion.The record demonstrates, however, that McFarlin, as a former Medtronic executive, assumed that Kallok was subject to a noncompete agreement.

On October 18, 1995, McFarlin contacted Angeion's outside counsel in order to ascertain whether Kallok's employment agreement and management rider prohibited Kallok from working for Angeion.³Outside counsel indicated that because they represented Medtronic in an unrelated matter, this conflict of interest prohibited them from fully researching the issue.Nonetheless, McFarlin continued to solicit an opinion from outside counsel and proceeded to tell counsel that Kallok had not worked in the...