Opinion
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
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 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.
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
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 motion, Dowell and Chapman submitted declarations stating that if the noncompete clauses were enforced, they would be precluded from working in their chosen professions because they would be unable to sell or support the sales of any catheters, since they had worked with catheters for Biosense.
In opposition, Biosense argued there were triable issues of fact as to whether (1) a common law trade secret exception applied, and (2) plaintiffs’ unclean hands barred their claims. As to the trade secret exception, Biosense relied on the declaration of its then vice-president of human resources, Roy Chen, who stated that in his experience “[m]ere confidentiality agreements are not adequate” to protect trade secrets because, for example, “[mjisappropriation is often difficult to discover and prove,” and that Dowell and Chapman had “access” to Biosense’s trade secrets consisting of business, marketing and pricing strategies. Biosense requested a continuance of the motion pursuant to Code of Civil Procedure section 437c, subdivision (h) so that it could take further discovery.
On Feb. 27, 2007, the trial court entered an order granting the motion for summary adjudication (the February 27, 2007 order), finding that “the restrictive covenants” in the agreements signed by Dowell and Chapman were “void ab initio and unenforceable under [section] 16600,” and that “they constitute[d] unfair and unlawful competition under [section] 17200.” The trial court expressly limited its adjudication to the Dowell and Chapman agreements, and struck from plaintiffs’ proposed order references to Biosense’s agreements with other employees and the proposed permanent injunction seeking to enjoin Biosense from attempting to enforce such clauses against any current or former California employee.
Plaintiffs’ Motion for Summary Adjudication of Biosense’s Unclean Hands Defense
Plaintiffs also moved for summary adjudication of Biosense’s unclean hands defense, arguing that the defense failed as a matter of law. In opposition, Biosense once again requested a continuance of the motion to take discovery. In an order dated April 25, 2007, the trial court denied Biosense’s request for a continuance and granted the motion for summary adjudication, restating its reasoning in the February 27, 2007 order, and adding the legal conclusion that the defense cannot be used to excuse unlawful conduct.
St. Jude’s Motion for Summary Judgment of Cross-complaint
Finally, St. Jude and SJMI moved for summary judgment of Biosense’s cross-complaint, arguing that Biosense’s claims for unfair competition failed as a matter of law. St. Jude relied on the declarations of Dowell, Chapman and Plaza, stating that there was no agreement among them to leave Biosense; Dowell applied to SC at the suggestion of a friend and colleague from a hospital at which she had previously worked; Plaza applied to Pacesetter at the suggestion of a Biosense employee; and neither Dowell, Chapman nor Plaza had disclosed to St. Jude any information about other Biosense employees or solicited any Biosense employees.
The trial court denied the request for a continuance and granted the motion for summary judgment on the cross-complaint, finding no triable issue of fact existed.
The Request for a Permanent Injunction
Following the rulings on the motions for summary adjudication and summary judgment, plaintiffs voluntarily dismissed without prejudice their second and fourth causes of action. St. Jude took the position that the issue of whether it was entitled to permanent injunctive relief had not been resolved by the summary adjudication of the third cause of action and remained to be tried. Although the trial court disagreed, it nevertheless allowed the parties to submit trial briefs on the issue.
In its trial brief, St. Jude stated that it believed the court had before it all the evidence sufficient to issue a permanent injunction, but that in the event it was necessary to produce additional evidence at trial, St. Jude would demonstrate standing to seek a permanent injunction, and produce evidence that Biosense uses the same or similar restrictive clauses in its agreements with California employees.
St. Jude requested a final judgment permanently enjoining Biosense “from having its California-resident employees sign employment agreements that include non-competition or customer non-solicitation clauses that are the same as or substantially similar to the broadly worded covenants found by the Court to be unlawful” and “from enforcing, or attempting to enforce, non-competition or customer non-solicitation clauses that are the same as or substantially similar to the broadly worded covenants set f[or]th above against any current or former California-resident employee who signed an agreement containing such clauses as a condition of employment with Biosense in California.” St. Jude also sought as part of the permanent injunction a requirement that Biosense “provide written notice to its current California employees and to former employees who worked for Biosense in California within the past two years by sending a copy of this Order via
Following a further hearing on the matter, the trial court concluded that St. Jude had no standing to seek a permanent injunction. The court then signed an order denying the requested permanent injunction “in the exercise of its discretion” for the following reasons: (1) the noncompete and nonsolicitation clauses in Dowell’s and Chapman’s employment agreements with Biosense had already expired by their terms; (2) “the inherent difficulty in fashioning an injunction of the nature sought”; (3) the injunction sought would “affect agreements with persons not before the Court and whose interests are not represented in this litigation”; (4) St. Jude lacked standing under section 17203 to obtain an injunction that would affect agreements of persons not before the court; and (5) the injunction sought was inconsistent with the court’s prior adjudication that the first and third causes of action were limited to Biosense’s agreements with Dowell and Chapman.
The Judgment
The trial court entered judgment as follows: (1) On plaintiffs’ complaint, the court declared that the noncompete and nonsolicitation clauses in the agreements with Dowell and Chapman violated section 16600 and were void ab initio and unenforceable against Dowell and Chapman; (2) Plaintiffs “shall take nothing” by way of their complaint, other than the declaration described above, and the request for injunctive relief was dismissed with prejudice; and (3) Biosense “shall take nothing” by way of its cross-complaint, which was dismissed with prejudice.
Plaintiffs’ Memorandum of Costs
St. Jude, SJMI, Dowell and Chapman filed a memorandum of costs in the amount of $20,323. The trial court granted Biosense’s motion to strike the cost memorandum in its entirety, exercising its discretion to determine that no party was a “prevailing party.” At the hearing on the motion, the court stated its belief that plaintiffs’ true objective in the litigation was “to get a more global form of injunctive relief,” and to that extent they did not succeed.
Appeals
St. Jude has appealed from the judgment and Biosense has filed a cross-appeal from the judgment. St. Jude, SJMI, Dowell and Chapman have also appealed from the order granting Biosense’s motion to strike the cost memorandum. The appeals have been consolidated.
Before we can address St. Jude’s contention that the trial court erred in failing to grant a permanent injunction against Biosense’s use in its California employment agreements of the noncompete and nonsolicitation clauses that the court found were void and unenforceable under section 16600, we must first address Biosense’s contentions that the trial court erred in summarily adjudicating both this finding and Biosense’s unclean hands defense.
I. The Trial Court Properly Determined that the Noncompete and Nonsolicitation Clauses in the Agreements are Void Under Section 16600 as a Matter of Law.
A. Standard of Review
A motion for summary adjudication shall be granted if it completely disposes of a cause of action, an affirmative defense, a claim for damages, or an issue of duty. (Code Civ. Proc., § 437c, subd. (f)(1).) We review de novo a trial court’s decision to grant summary judgment or summary adjudication.
(Wiener
v.
Southcoast Childcare Centers, Inc.
(2004)
B. The Noncompete and Nonsolicitation Clauses are Void as a Matter of Law
Section 16600 states: “Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” There are only three statutory exceptions to this prohibition on noncompete agreements: One who sells the goodwill of a business, or all of one’s ownership interest in a business entity (which includes partnerships or corporations), or substantially all of its operating assets and goodwill, to a buyer who will carry on the business may agree with the buyer not to carry on a similar business within a specified geographic area, if the business will be carried on by the buyer (§ 16601); upon dissolution of a partnership or dissociation of a partner, such partner may agree not to carry on a similar business within a specified geographic area, if the business will be carried on by remaining partners or anyone deriving title to the business or its goodwill (§ 16602); and a member of a limited liability company may agree not to carry on a similar business within a specified geographic area, so long as other members or anyone deriving title to the business or its goodwill carries on a like business (§ 16602.5).
Based on the foregoing it is clear that the noncompete and nonsolicitation clauses in the agreements with Dowell and Chapman are void and unenforceable under section 16600 and that their use violates section 17200. The broadly worded noncompete clause prevents Dowell and Chapman, for a period of 18 months after termination of employment with Biosense, from rendering services, directly or indirectly, to any competitor in which the services they may provide could enhance the use or marketability of a conflicting product by application of confidential information to which the employees had access during employment. Similarly, the broadly worded nonsolicitation clause prevents the employees for a period of 18 months postemployment from soliciting any business from, selling to, or rendering any service directly or indirectly to any of the accounts, customers or clients with whom they had contact during their last 12 months of employment. Ultimately, these provisions restrain the employees from practicing their chosen profession. Indeed, these clauses are similar to those found to be void under section 16600. (See, e.g.,
D’Sa, supra,
Biosense contends that the clauses are valid because they were tailored to protect trade secrets or confidential information, and as such satisfy the
The court in
Edwards
concluded that section 16600 “prohibits employee noncompetition agreements unless the agreement falls within a statutory exception.”
(Edwards, supra,
Plaintiffs argue that the trade secret exception rests on shaky ground in the first place. They point out that many of the cases recognizing a trade secret exception cite to
Muggill
and that the language in
Muggill
regarding a trade secret was dicta, as no trade secrets were at issue in that case. Plaintiffs also point out that
Muggill,
in turn, relied on
Gordon
v.
Landau
(1958)
At oral argument, plaintiffs’ counsel discussed the recent case of
The Retirement Group v. Galante
(2009)
Although we doubt the continued viability of the common law trade secret exception to covenants not to compete, we need not resolve the issue here. Even assuming the exception exists, we agree with the trial court that it has no application here. This is so because the noncompete and nonsolicitation clauses in the agreements are not narrowly tailored or carefully limited to the protection of trade secrets, but are so broadly worded as to restrain competition. (See
Kolani v. Gluska, supra,
Biosense argues that the clauses in the agreements are narrowly tailored to protect trade secrets and confidential information because they are “tethered” to the use of confidential information, and are triggered only when the former employee’s services for a competitor implicate the use of confidential information. As such, to the extent that no confidential information was disclosed or made known to Dowell and Chapman during their employment with Biosense, the noncompete clause would never be triggered. But this argument ignores the broad wording of the agreements. The noncompete clause prohibits an employee from rendering services, directly or indirectly, to a competitor where those services could enhance the use or marketability of a conflicting product through the use of confidential information to which the employee had access at Biosense. “Confidential information” is broadly defined as information disclosed to or known by the employee, including such information as the number or location of sales representatives, the names of customers, customer preferences, needs, requirements, purchasing histories or other customer-specific information. Given such an inclusive and broad list of confidential information, it seems nearly impossible that employees like Dowell and Chapman, who worked directly with customers, would not have possession of such information. The prohibition here is not unlike the noncompete clause found facially invalid by the court in
D’Sa, supra,
We also reject the argument of Biosense that the nonsolicitation clause is narrowly tailored to protect trade secrets and confidential information. The same argument was rejected by the
Galante
court, which noted: “However,
Edwards
rejected the claim that antisolicitation clauses could be exempt from section 16600 if the conduct covered by such clauses fell within the ‘narrow-restraint’ exception discussed in
Campbell (Edwards, supra,
44 Cal.4th at pp. 948-950), and we decline TRG’s implicit invitation to engraft that exception onto this case.”
(Galante, supra,
We also reject Biosense’s argument that the trial court failed to interpret the clauses in such a way as to make them lawful. Any attempt to construe the noncompete and nonsolicitation clauses in such a manner as to make them lawful would not be reforming the contract to correct a mistake of the parties but rather to save a statutorily proscribed and void provision. (See
D’Sa, supra,
Biosense also argues that the trial court improperly determined the invalidity of the noncompete and nonsolicitation clauses by summary adjudication because the court failed to consider Biosense’s evidence that trade secrets existed and that the clauses were necessary to protect them. But we are satisfied that the trial court could properly make this determination as a matter of law. (See, e.g.,
Kolani v. Gluska, supra,
C„ D. *
II.-IV.*
The judgment is affirmed. The parties to bear their own costs on appeal.
Ashmann-Gerst, J., and Chavez, J., concurred.
A petition for a rehearing was denied November 19, 2009, and the petition of appellant Steven Chapman for review by the Supreme Court was denied February 24, 2010, S178811. Baxter, J., did not participate therein.
Notes
Unless otherwise noted, all statutory references shall be to the Business and Professions Code.
Plaza signed a different agreement which contained a two-year noncompetition clause. After this lawsuit was filed, Plaza went to work for a third party and voluntarily dismissed his claims without prejudice.
At our invitation, the parties submitted additional briefing on this case and another recent case mentioned by plaintiffs’ counsel,
Meyer v. Sprint Spectrum L.P.
(2009)
See footnote, ante, page 564.
