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Oregon Federal Court Permits Declaratory Relief Suit To Proceed In Race To Judgment Non-Compete Dispute

Posted in Non-Compete Enforceability

By Robert Milligan and Joshua Salinas

In light of Valentine’s Day, a blog involving two competitors specializing in heart rhythm therapy seems fitting. The Oregon district court case is Biotronik, Inc. v. Medtronic, USA, Inc., No. 03:11-cv-00366-HU, 2012 WL 14031 (D. Or. Jan. 4, 2012), where the Honorable Judge Michael H. Simon, found the amount in controversy for federal diversity jurisdiction satisfied, even though the plaintiff sought only declaratory relief and did not claim damages exceeding $75,000. 

The interesting aspect of this case is that Judge Simon determined the value of the amount in controversy based on the plaintiff’s potential liability for defendants’ allegations in a separate out-of-state lawsuit.

The Parties and Background Facts

Plaintiff Biotronik, Inc. and Defendants Medtronic USA, Inc. and Medtronic, Inc. (collectively “Medtronic”) are competitors in the cardiac rhythm management device (“CRMD”) industry. CRMDs electrically stimulate the heart to pump blood when the heart is unable to keep a steady beat. Inherent in this highly competitive and technologically complex market is the necessity to have skilled salespeople with a great deal of technical knowledge. Thus, companies such as Medtronic retain noncompetition and non-solicitation agreements to protect the training and resources they invest in their employees.

A dispute arose when several employees left Medtronic to work for Biotronik. Medtronic believed former employee Rory Carmichael had wrongfully solicited these employees and caused them to leave for Biotronik.

Medtronic sued Carmichael in Minnesota state court, alleging that he solicited Medtronic’s employees, on behalf of and/or for the benefit of Biotronik, in breach his Employment and Separation Agreements with Medtronic. At the time of the alleged solicitations, Carmichael was not yet an employee of Biotronik. Medtronic did not join Biotronik in the Minnesota action because Medtronic allegedly lacked sufficient evidence to sue for tortious interference with contract. 

Biotronik’s Declaratory Relief

Biotronik formally hired Carmichael while the Minnesota action was still pending, and immediately brought a declaratory relief action against Medtronic in Oregon state court. Biotronik sought two declarations:

            1. “Biotronik has the right to employ Carmichael, free from any Post-Termination Obligations relating to noncompetition and non-solicitation that are set forth in the [Employee Agreement] and the Parties’ Agreement; and

            2. “Biotronik did not cause any violation of any of the Post-Termination Obligations set forth in [Carmichael’s Employee Agreement].”

Medtronic removed the case to federal district court based on diversity of citizenship; Biotronik was an Oregon corporation and Medtronic a Minnesota corporation. Medtronic then moved to dismiss the case for improper jurisdiction, or in the alternative, transfer to Minnesota. Medtronic hoped to transfer the case to Minnesota, which has a stronger policy in enforcing noncompetition and non-solicitation agreements compared to Oregon.

Biotronik on the other hand moved to remand the case back to Oregon state court and maintain any “home field advantage,” contending that the amount in controversy did not exceed the $75,000 requirement for federal jurisdiction. 

Determining the Amount in Controversy

Judge Simon stated that when a removed lawsuit seeks declaratory or injunctive relief, the amount in controversy is measured by the value of the “object of litigation.” (See Hung v. Wash.State Apple. Adver. Comm’n, 432 U.S. 333 (1977)). The object of litigation here was Biotronik’s potential liability to Medtronic – the value of liability if Biotronik was in fact found liable in the Minnesota action for causing Carmichael to wrongfully solicit Medtronic’s employees. 

The value of that potential liability was the liquidated damages provision in Carmichael’s Separation Agreement, which required Carmichael to repay Medtronic all post-termination compensation and additional consideration he received from his Employment and Separation Agreements. Judge Simon found the amount in controversy satisfied because the amount of these repayments would exceed $75,000.

Judge Simon found federal diversity jurisdiction satisfied, but denied Medtronic’s request for dismissal or transfer.

Important Takeaways:

  1. Noncompetition and non-solicitation cases often involve a “race to the courthouse” to file  first and secure the home forum and applicable state law because states differ in their policies toward the enforcement of non-compete clauses. 
     
  2. Plaintiffs seeking to avoid the removal of their declaratory relief actions to federal court, and potentially face dismissal or transfer, should narrow the language of their declarations to restrict the scope of their potential liability. Judge Simon noted that Biotronik’s first declaration regarding its mere ability to employ Carmichael would not have satisfied the amount in controversy requirement. Biotronik’s broad language in its second declaration, however, opened the door and allowed Judge Simon to consider Biotronik’s potential liability for causing “any violation of any of [Carmichael’s] Post-Termination Obligations.”
     
  3. Defendants seeking to remove a plaintiff’s declaratory relief actions to federal court, to ultimately dismiss or transfer the case, should anticipate this strategy when initiating any early lawsuits. While the ideal strategy for employers is to file actions in one’s own state first, the new employer is usually in the best position to know when the alleged breacher/employee is officially hired. Moreover, while there may not be sufficient evidence to join the new employer in an initial lawsuit, as in Medtronic’s case, the scope of the allegations concerning the new employer in a complaint or other pleadings may help expand the scope of the new employer’s potential liability. Thus, if the new employer’s later declarations are too broad, the allegations in the early lawsuit may help widen the scope of potential damages to satisfy the amount in controversy for federal diversity jurisdiction, and help assist in a future motion to dismiss or transfer.