Medtronic, Inc. v. Gibbons

• Decision Date: 23 July 1982
• Docket Number: No. 82-1084,82-1084
• Parties: 1982-2 Trade Cases 64,855 MEDTRONIC, INC., a Minnesota corporation, Appellee, v. S. Todd GIBBONS, an individual, Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 565

684 F.2d 565

1982-2 Trade Cases 64,855

MEDTRONIC, INC., a Minnesota corporation, Appellee, v. S. Todd GIBBONS, an individual, Appellant.

No. 82-1084.

United States Court of Appeals Eighth Circuit.

Submitted April 14, 1982.

Decided July 23, 1982.

Henson & Efron, P. A., Robert F. Henson, Stuart T. Williams, William E. Drake, Thomas N. Lindstrom, Medtronic, Inc., Minneapolis, Minn., for Medtronic, Inc.

Cox & Goudy, Charles A. Cox and Craig A. Goudy, Minneapolis, Minn., Lynch, Sherman & Cox, Erwin A. Sherman and Donald L. Cox, Louisville, Ky., for appellant; Robert A. Sandler, Gen. Counsel, Pacesetter Systems, Inc., Sylmar, Cal., of counsel.

Before McMILLIAN, Circuit Judge, STEPHENSON, Senior Circuit Judge, and ARNOLD, Circuit Judge.

McMILLIAN, Circuit Judge.

S. Todd Gibbons appeals from an order entered in the District Court ¹ for the District of Minnesota granting Medtronic, Inc.'s motion for a preliminary injunction restraining Gibbons from violating a restrictive covenant in an employment contract. Medtronic, Inc. v. Gibbons, 527 F.Supp. 1085 (D.Minn.1981). For reversal Gibbons argues that the district court erred in (1) refusing to apply California substantive law on restrictive covenants in employment contracts, (2) finding a threat of irreparable harm, and (3) refusing to find that Medtronic was collaterally estopped from claiming irreparable harm. For the reasons discussed below, we affirm the grant of preliminary injunctive relief.

The facts are fully set forth in the district court's thorough memorandum opinion. This court recently clarified the factors to be considered in determining whether to grant preliminary injunctive relief in Dataphase Systems, Inc. v. C L Systems, Inc., 640 F.2d 109, 114 (8th Cir. 1981) (banc):

(1) the threat of irreparable harm to the movant;

(2) the state of balance between this harm and the injury that granting the injunction will inflict on other parties litigant; (3) the probability that movant will succeed on the merits; and (4) the public interest.

See also, Moore v. Curtis 1000, Inc., 640 F.2d 920, 921-22 (8th Cir. 1981) (restrictive covenant in employment contract; Georgia substantive law). The district court found that Medtronic established the threat of irreparable harm from the loss of goodwill, the disclosure of confidential business information, and the loss of business, the monetary value of which would be almost impossible to calculate. Medtronic, Inc. v. Gibbons, 527 F.Supp. at 1090-92. The district court also found that Medtronic had shown a likelihood of success on the merits because it appeared that under Minnesota law the employment contract was valid and the restrictive covenant enforceable. Id. at 1092-94. The district court further found that the balance of the threat of irreparable harm against the possible injury caused by injunctive relief favored Medtronic because enjoining Gibbons from violating the restrictive covenant would not prevent Gibbons from working as a sales representative for his new employer, Pacesetter Systems, Inc., in the same territory he covered for Medtronic. Id. at 1094. Under the terms of the restrictive covenant Gibbons would be prohibited only from contacting or communicating with recent customers of Medtronic for 360 days following his termination of employment. Id. Moreover, as noted by the district court, Pacesetter had agreed to pay Gibbons a substantial monthly stipend if he were enjoined from contacting former Medtronic customers. Id. The district court lastly found that consideration of the public interest only slightly favored Gibbons, who argued that he performed important and beneficial public services by making the best medical equipment available to doctors and hospitals, id. at 1095, and did not prevent granting injunctive relief on the basis of the other three Dataphase factors. Id. The district court granted a preliminary injunction restraining Gibbons from violating the restrictive covenant, effective until a decision is rendered after a trial on the merits or September 4, 1982 (360 days after his termination of employment on September 8, 1981), whichever occurs first. This appeal followed.

"The scope of review on appeal from an order granting or denying a preliminary injunction is limited. It has been repeatedly ruled that such an interlocutory order may be reversed only if the trial court abused its discretion or based its decision on an erroneous legal premise." Rittmiller v. Blex Oil, Inc., 624 F.2d 857, 859 (8th Cir. 1980), citing FTC v. National Tea Co., 603 F.2d 694, 696 (8th Cir. 1979).

Gibbons first argues that the district court erred in refusing to apply California substantive law to determine the validity and enforceability of the restrictive covenant. Gibbons argues that this type of restrictive covenant is not enforceable under California law, citing Cal.Bus. & Prof.Code § 16600 (West 1964) ² and Hollingsworth Solderless Terminal Co. v. Turley, 622 F.2d 1324 (9th Cir. 1980) (excellent discussion of California law on enforceability of restrictive employment covenants). We hold that the district court did not err in applying Minnesota substantive law. "The conflict-of-law rules of the forum state control which substantive law should apply." Jump v. Goldenhersh, 619 F.2d 11, 13 (8th Cir. 1980), citing Klaxon Co. v. Stentor Electric Manufacturing Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 1021, 85 L.Ed. 1477 (1941), and Manchester Premium Budget Corp. v. Manchester Insurance & Indemnity Co., 612 F.2d 389, 391 n.8 (8th Cir. 1980). Minnesota courts allow the parties to a contract to control the choice of law by express contractual provision. See, e.g., Milliken & Co. v. Eagle Packaging Co., 295 N.W.2d 377, 380 n.1 (Minn.1980); Combined Insurance Co. v. Bode, 247 Minn. 458, 464, 77 N.W.2d 533, 536 (1956) ("(This court is) committed to the rule that the parties, acting in good faith and without an intent to evade the law, may agree that the law of (another state) shall govern."). See generally R. Leflar, American Conflicts Law § 147 (3d ed. 1977). Here, the employment contract contained an express choice of law provision providing that any disputes arising under the contract would be governed by Minnesota law. We see no federal constitutional obstacle to the choice of Minnesota law; here, Minnesota clearly has the requisite "significant contact or significant aggregation of contacts, creating state interests, such that choice of its law is neither arbitrary nor fundamentally unfair." Allstate Insurance Co. v. Hague, 449 U.S. 302, 313, 101 S.Ct. 633, 640, 66 L.Ed.2d 521 (1981). As noted by the district court, the employment contract was executed in Minnesota at a time when both parties were residents of Minnesota, and Gibbons worked under the employment contract in Minnesota for almost a year and then in California for almost three years.

In any event, we think that the question of the enforceability of the restrictive covenant may be a "false conflict" issue. Under Minnesota law restrictive covenants are strictly construed but will be enforced to the extent they are reasonable and protect a legitimate interest of the employer. Minnesota Mining & Manufacturing Co. v. Kirkevold, 87 F.R.D. 324, 328 (D.Minn.1980), citing Cherne Industrial, Inc. v. Grounds & Assocs., 278 N.W.2d 81, 88 n.2 (Minn.1979); Walker Employment Service, Inc. v. Parkhurst, 300 Minn. 264, 219 N.W.2d 437 (1974); Eutectic Welding Alloys Corp. v. West, 281 Minn. 13, 160 N.W.2d 566 (1968); and Bennett v. Storz Broadcasting Co., 270 Minn. 525, 534, 134 N.W.2d 892, 899 (1965); see also Modern Controls, Inc. v. Andreadakis, 578 F.2d 1264 (8th Cir. 1978) (Minnesota law). In particular, Minnesota courts have granted injunctive relief "against a party who has, in violation of an explicit agreement or a common law duty, wrongfully used confidential information or trade secrets obtained from his employer." Cherne Industrial, Inc. v. Grounds & Assocs., 278 N.W.2d at 92, citing Equipment Advertiser, Inc. v. Harris, 271 Minn. 451, 136 N.W.2d 302 (1965); see also Thermorama, Inc. v. Buckwold, 267 Minn. 551, 125 N.W.2d 844 (1964). Moreover, contrary to Gibbons' argument, the law of California is apparently similar. See Hollingsworth Solderless Terminal Co. v. Turley, 622 F.2d at 1329-34, 1338; Klamath-Orleans Lumber, Inc. v. Miller, 87 Cal.App.3d 458, 151 Cal.Rptr. 118 (1978); Greenly v. Cooper, 77 Cal.App.3d 382, 143 Cal.Rptr. 514 (1978). Thus, even assuming for the purposes of argument that Minnesota conflicts law would have referred to California substantive law, the...