On July 11, 2012, the Delaware Court of Chancery found that former employees are not indispensable parties for purposes of dismissal pursuant to Chancery Court Rule 19 in an action against their new employer for breach of covenants not to compete, misappropriation of trade secrets, and aiding and abetting a breach of fiduciary duty, based on allegations that the new employer improperly persuaded the employees to breach agreements with their former employer.
NuVasive, Inc. v. Lanx, Inc., C.A. No. 7266-VCB (Del. Ch. July 11, 2012) involved claims that Lanx, a medical device company, induced employees of NuVasive, a competitor, to work for Lanx. Specifically, NuVasive alleged that Lanx persuaded employees of NuVasive to breach various restrictive covenants that the employees had with NuVasive and to misappropriate NuVasive’s trade secrets and other proprietary information. NuVasive further alleged that Lanx aided and abetted breaches of fiduciary duty by the former employees. Neither party asserted that the former employees are subject to personal jurisdiction in Delaware or could otherwise be joined. Lanx then moved to dismiss pursuant to Chancery Court Rule 12(b)(7), which allows a defendant to move for dismissal because of a failure to join an indispensable party under Rule 19.
Under Chancery Court Rule 19(a), the Court must determine whether an absent person is a necessary party to the litigation. If an absent party is deemed necessary and cannot be joined, the Court must then, pursuant to Rule 19(b), “determine whether in equity and good conscience the action should proceed among the parties before it, or should be dismissed, the absent person being thus regarded as indispensable.” Rule 19(b) lists four factors for the court to consider in determining if a necessary party is indispensable to the action, including the extent to which a judgment rendered in the person’s absence would be prejudicial to those already parties, and whether the plaintiff will have an adequate remedy if the action is dismissed for nonjoinder.
In NuVasive, the Court found that, while the former employees of NuVasive were necessary parties to the litigation concerning the restrictive covenant-based claims, they were not indispensable parties because the court could protect the rights of the absent parties by declining to enter injunctive relief, or by crafting a limited injunction that did not inappropriately prejudice the absent employees.
As to the remaining allegations, the Court found that the former NuVasive employees were not necessary parties for claims based on trade secret misappropriation and aiding and abetting a breach of fiduciary duty. Specifically, the Court concluded that any ruling on the issues raised by this litigation would only affect the former employees’ employment prospects with the new employer to the extent that their employment actually did rely on the misappropriation of trade secrets. Thus, the Court found that they were not necessary parties for the trade secret misappropriation claim. Nor were they necessary parties as to the aiding and abetting breach of fiduciary duty claims, because any potential reputational harm that could be suffered by the former employees in this litigation, in their absence, would not be sufficient to render them necessary parties.