Advanced Bionics Corp. v. Medtronic, Inc.

59 P.3d 231, 128 Cal. Rptr. 2d 172, 29 Cal. 4th 697

• Court: California Supreme Court
• Decided: March 5, 2003
• Docket: S097308
• Status: Published

Opinions

Opinion

CHIN, J.

We granted review to consider whether the superior court properly enjoined a party to a California lawsuit from taking any action in a Minnesota proceeding involving the same dispute. We conclude that under principles of judicial restraint and comity the temporary restraining order (TRO) issued here was improper. We therefore reverse the Court of Appeal’s judgment.

Facts

Medtronic, Inc. (Medtronic), a Minnesota corporation with headquarters in Fridley, Minnesota, manufactures implantable neurostimulation devices used to treat chronic pain. In 1995, Medtronic hired plaintiff Mark Stultz in Minnesota as a senior product specialist responsible for spinal cord stimulator lead wires. He was soon promoted to senior product manager in the “Neurostimulation-Pain Division,” where he was responsible for managing Medtronic’s neurostimulation products.

On accepting employment, Stultz signed the “Medtronic Employee Agreement” (Agreement). The Agreement contained a covenant not to compete, providing that for two years after employment termination, Stultz would 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 of function.” The Agreement defined a “Competitive Product” as “of the same general type, performs similar functions, or is used for the same purposes as a Medtronic Product on which the employee worked during the last two years of employment or about which he/she received or had knowledge of Confidential Information.”

The Agreement included a choice-of-law provision: “The validity, enforceability, construction and interpretation of this Agreement shall be governed by the laws of the state in which the Employee was last employed by Medtronic.” For the duration of his employment, Stultz worked for Medtronic’s Minnesota office.

On June 7, 2000, Stultz resigned from Medtronic and went to California to work for Advanced Bionics Corporation (Advanced Bionics), a Delaware corporation with headquarters in Sylmar, California. The company, a competitor of Medtronic’s, develops and manufactures implantable medical devices used to restore hearing to the profoundly deaf. It hired Stultz as a director of business development to market its own spinal cord stimulation device. On the same day, in Los Angeles County Superior Court, Stultz and Advanced Bionics sued Medtronic for declaratory relief, alleging that Medtronic’s covenant not to compete and choice-of-law provisions violate California’s law and public policy and are void under Business and Professions Code section 16600.¹ Section 16600 provides in pertinent part that “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.”²

On June 8, 2000, Stultz and Advanced Bionics notified Medtronic that they intended to apply for a TRO. They applied for an order “enjoining Medtronic from taking any action, other than in this court, to enforce its non-competition agreement with Mr. Stultz, or to otherwise restrain Mr. Stultz from working for Advanced Bionics . . . .” The trial court put over the matter for one day in order to give Medtronic an opportunity to respond. The court rejected Stultz and Advanced Bionics’ assertion that Medtronic would use the time to “race to court” in Minnesota. Medtronic immediately removed the action to federal court in order to avoid a hearing on the TRO.

On June 9, 2000, while the action was pending in federal court, Medtronic filed an action in Minnesota state court alleging claims for breach of contract against Stultz and tortious interference with contract against Advanced Bionics. Medtronic filed the action in order to prevent Stultz from working on a competing product at Advanced Bionics. Medtronic then obtained a TRO from the Minnesota court enjoining Advanced Bionics from hiring Stultz in any competitive role. The order also barred both parties “[f|rom making any motion or taking any action or obtaining any order or direction from any court that [would] prevent or interfere in any way with [the Minnesota court’s] determining whether it should determine all or any part of the claims alleged in [the Minnesota] lawsuit, including claims for temporary, preliminary or permanent relief.”

Within a week, the federal court remanded the California action to the trial court, finding, among other things, that Medtronic had filed its removal notice without evidentiary support and “for the improper purpose of avoiding an unfavorable ruling upon a pending motion before a state court.” The federal order stated that removal was improper because Medtronic, a Minnesota company, purported to rely on diversity jurisdiction, even though it knew Stultz was still a Minnesota resident. The federal court also noted that Medtronic had removed the California action “not to have the matter heard in this court, but to interfere with [the TRO] matter being heard.”

Thereafter, on July 21, 2000, Medtronic filed a motion in Los Angeles County Superior Court to dismiss or stay the California action on the ground the matter should be decided in Minnesota. The court denied the motion, finding that under a totality of the circumstances, staying or dismissing the California action would not serve the interests of substantial justice.

On August 3, 2000, the Minnesota court issued a preliminary injunction that was similar to its TRO, except it did not include the provision restraining Stultz and Advanced Bionics from pursuing other litigation; it simply restricted Stultz’s activities as an Advanced Bionics employee. The court also dissolved the TRO. In Minnesota, Stultz and Advanced Bionics appealed the order issuing the preliminary injunction.

On August 8, 2000, Stultz and Advanced Bionics applied ex parte to the California court for a TRO and order to show cause re preliminary injunction to prohibit Medtronic from taking any further steps in the Minnesota action. The court granted the application, finding there was a “substantial chance” that Medtronic would “go to the Minnesota court [and] attempt to undercut the California court’s jurisdiction.” Medtronic was “restrained and enjoined from taking any action whatsoever, other than in this Court, to enforce [its covenant not to compete] against . . . Stultz or to otherwise restrain . . . Stultz from working for Advanced Bionics in California, including but not limited to making any appearance, filing any paper, participating in any proceeding, posting any bond, or taking any other action in the second-filed [Minnesota] lawsuit . . . ,”³ This TRO was the subject of Medtronic’s appeal in the California Court of Appeal.

On August 16, 2000, the Minnesota court amended its August 3 preliminary injunction (purportedly nunc pro tunc), stating it had “failed to incorporate language enjoining [Stultz and Advanced Bionics] from obtaining relief in another court that would effectively stay or limit [the Minnesota] action.” The court added a provision enjoining Stultz and Advanced Bionics “from seeking any interim or temporary relief from any other court that would effectively stay, limit or restrain [the Minnesota] action,” and ordered them to “move to vacate and rescind the August 8, 2000 [TRO] obtained in the California action and refrain from seeking any relief in that action that stays or restrains [the Minnesota] action in any way.”⁴

Stultz and Advanced Bionics informed the Los Angeles County Superior Court that the Minnesota court had directed them to seek vacation of the TRO. The superior court refused to vacate its order. The next day, the Minnesota court held a pretrial conference. Stultz and Advanced Bionics appeared, but Medtronic did not, claiming the California TRO prohibited it from appearing. After a telephone conversation with the Minnesota judge, however, the Los Angeles County Superior Court lifted the TRO temporarily to allow Medtronic to participate in settlement negotiations in Minnesota and in California. The negotiations were unsuccessful.

After additional procedural motions, Medtronic filed a petition for writ of mandate in the Second District Court of Appeal, seeking to continue trial to May 2001. The Court of Appeal stayed the trial (and later stayed all proceedings), issued an order to show cause, and set the matter for hearing.

The Court of Appeal considered the appeal (from the order granting the TRO) and the writ petition (challenging the denial of a trial continuance) together and issued the decision from which Medtronic seeks review. The court held that (1) the trial court’s TRO was necessary and proper to protect plaintiffs’ interests pending final disposition of the action, and thus was properly issued; (2) notwithstanding the choice-of-law provision in the Agreement, the case would be decided under California law; and (3) because California law would apply and the California action was filed first, California courts should decide the dispute. The Court of Appeal then denied the writ petition as moot. This appeal followed.

Discussion

Issuance of the TRO

Antisuit TRO’s must be granted with restraint

Although Medtronic acknowledges that, under certain circumstances, a California court has the power to issue a TRO prohibiting a party from taking action in a case pending in another jurisdiction that would interfere with the California court’s proceedings, it asserts that the Court of Appeal here erred in concluding that the TRO entered in this action was proper. Medtronic claims that the Court of Appeal did not place sufficient emphasis on principles of judicial restraint and comity that strongly inform against issuance of the TRO in this case.

We recognize this is a case of first impression, but note that nearly 100 years ago, this court observed that “[t]he courts of this state have the same power to restrain persons within the state from prosecuting actions in either domestic or foreign jurisdictions which courts of equity have elsewhere.” (Spreckels v. Hawaiian Com. etc. Co. (1897) 117 Cal. 377, 378 [49 P. 353] (Spreckels).) Spreckels then identified the circumstances under which a trial court is statutorily prohibited from issuing an order restraining litigation in another forum.

Spreckels reversed a California trial court order restraining the defendant from further prosecuting an action he had commenced in the Republic of Hawaii (which did not become United States territory until 1898). (Spreckels, supra, 117 Cal. at pp. 378-380.) The court based its holding on the fact that the Hawaii action was pending when the California action seeking a TRO commenced. The court relied on Civil Code section 3423, which remains substantially the same in substance today as it was in 1897, and which specifies the circumstances when a court may not grant a TRO: “(a) To stay a judicial proceeding pending at the commencement of the action in which the injunction is demanded, unless the restraint is necessary to prevent a multiplicity of proceedings. [If] (b) To stay proceedings in a court of the United States, [f] (c) To stay proceedings in another state upon a judgment of a court of that state. . . .” Spreckels rejected the plaintiffs’ contention that subdivision (a) was limited to California courts, concluding that it was intended as a comprehensive statement of the entire law upon the subject because it was included in part I of the fourth division of the Civil Code. (Spreckels, supra, 117 Cal. at pp. 379-380.)

Under the Spreckels rule and Civil Code section 3423, therefore, the rule barring injunctive orders in specific instances is inapplicable here. Although Spreckels recognized that a California court might have power to issue a TRO to prevent multiple proceedings, and implicitly recognized a forum court’s power to restrain proceedings, the court never suggested, implicitly or otherwise, that a court may ignore additional proceedings that arise after the initial action commences. The significant principles of judicial restraint and comity inform that we should use that power sparingly.

Several sister state decisions guide our reasoning. These decisions hold that even if a sister state applies different substantive law than the forum state, that fact alone does not justify the issuance of a TRO enjoining proceedings in the sister state. The Texas Supreme Court has observed that a single parallel proceeding in a foreign forum does not constitute a “multiplicity of suits.” (Golden Rule Ins. Co. v. Harper (Tex. 1996) 925 S.W.2d 649, 651.) Arpels v. Arpels (1960) 8 N.Y.2d 339, 341 [207 N.Y.S.2d 663, 170 N.E.2d 670, 671], held that the use of injunctive relief “to prohibit a person from resorting to a foreign court is a power rarely and sparingly employed, for its exercise represents a challenge, albeit an indirect one, to the dignity and authority of that tribunal.” (See also Pfaff v. Chrysler Corp. (1992) 155 Ill.2d 35, 43 [182 Ill.Dec. 627, 610 N.E.2d 51, 54-55] [court’s equity powers must be invoked with great restraint to avoid conflicts and reciprocal interference with jurisdiction]; Gannon v. Payne (Tex. 1986) 706 S.W.2d 304, 306 [power to enjoin proceedings pending in a foreign jurisdiction should be exercised sparingly and under special circumstances only].) Medtronic therefore claims that under the judicial restraint principle, if restraining orders are permissible, they must be used only in the most exceptional circumstances, when parallel in personam actions are at stake and “it is necessary for one court to take control of the litigation to ensure an orderly and just resolution.” (St. Paul Surplus Lines Ins. Co. v. Mentor Corp. (Minn.Ct.App. 1993) 503 N.W.2d 511, 516.)

It is true, as Stultz and Advanced Bionics observe, that certain California cases have recognized that “Where there exists two or more actions involving the same subject matter or the same facts or principles, [a TRO] is necessary to prevent a multiplicity of judicial proceedings.” (Rynsburger v. Dairymen’s Fertilizer Coop., Inc. (1968) 266 Cal.App.2d 269, 279 [72 Cal.Rptr. 102]; see Greene v. Superior Court (1951) 37 Cal.2d 307, 311 [231 P.2d 821]; see also, e.g., Code Civ. Proc., § 526, subd. (a)(1), (3), & (6) [pending litigation may be enjoined to prevent a multiplicity of judicial proceedings and for other unrelated reasons].) The above decisions, however, sought to avoid an “unseemly conflict” that might arise between California courts if they were free to make contradictory awards. (Greene, supra, 37 Cal.2d at p. 311; Rynsburger, supra, 266 Cal.App.2d at p. 279.) When the cases involve different states, as in the matter before us, judicial restraint takes on a more fundamental importance. The possibility that one action may lead to a judgment first and then be applied as res judicata in another action “is a natural consequence of parallel proceedings in courts with concurrent jurisdiction, and not reason for an injunction.” (Auerbach v. Frank (D.C. 1996) 685 A.2d 404, 407.) “[T]he possibility of an ‘embarrassing race to judgment’ or potentially inconsistent adjudications does not outweigh the respect and deference owed to independent foreign proceedings.” (Ibid.)

Stultz and Advanced Bionics also contend that although we should pay deference to foreign state proceedings, California’s strong public policy against noncompetition agreements under section 16600 weighs against allowing the action to proceed in Minnesota and provides the exceptional circumstance that warrants our upholding the California court’s TRO. As they observe, the law protects Californians, and ensures “that every citizen shall retain the right to pursue any lawful employment and enterprise of their choice.” (Metro Traffic Control, Inc. v. Shadow Traffic Network (1994) 22 Cal.App.4th 853, 859 [27 Cal.Rptr.2d 573].) It protects “the important legal right of persons to engage in businesses and occupations of their choosing.” (Morlife, Inc. v. Perry (1997) 56 Cal.App.4th 1514, 1520 [66 Cal.Rptr.2d 731].) We have even called noncompetition agreements illegal. (See, e.g., Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 123, fn. 12 [99 Cal.Rptr.2d 745, 6 P.3d 669].) Therefore, according to Stultz and Advanced Bionics, because the noncompetition provision in the Agreement is broad in application and forbids Stultz from working for any competitor on a competitive product for two years after employment termination, it is likely that a California court would conclude the provision is void under section 16600.⁵

We agree that California has a strong interest in protecting its employees from noncompetition agreements under section 16600. But even assuming a California court might reasonably conclude that the contractual provision at issue here is void in this state, this policy interest does not, under these facts, justify issuance of a TRO against the parties in the Minnesota court proceedings. A parallel action in a different state presents sovereignty concerns that compel California courts to use judicial restraint when determining whether they may properly issue a TRO against parties pursuing an action in a foreign jurisdiction.

The comity principle also supports our conclusion. Comity is based on the belief “ ‘ “that the laws of a state have no force, proprio vigore, beyond its territorial limits, but the laws of one state are frequently permitted by the courtesy of another to operate in the latter for the promotion of justice, where neither that state nor its citizens will suffer any inconvenience from the application of the foreign law. This courtesy, or comity, is established, not only from motives of respect for the laws and institutions of the foreign countries, but from considerations of mutual utility and advantage.” ’ . . . ‘The mere fact that state action may have repercussions beyond state lines is of no judicial significance so long as the action is not within that domain which the Constitution forbids.’ ” (Estate of Lund (1945) 26 Cal.2d 472, 489 [159 P.2d 643, 162 A.L.R. 606]; see also Gannon v. Payne, supra, 706 S.W.2d at p. 308 [involving parallel actions in Canada and Texas].) The comity principle requires that we exercise our power to enjoin parties in a foreign court sparingly, in line with the policy of judicial restraint discussed above.

Notwithstanding comity principles, Advanced Bionics contends that the first-filed rule provides alternative support for the Court of Appeal’s decision to uphold the TRO and to enjoin the litigants from proceeding in Minnesota. We disagree. The first-filed rule in California means that when two courts of the same sovereignty have concurrent jurisdiction, the first to assume jurisdiction over a particular subject matter of a particular controversy takes it exclusively, and the second court should not thereafter assert control over that subject matter. The first-filed rule “was never meant to apply where the two courts involved are not courts of the same sovereignty. [Citation.] Restraining a party from pursuing an action in a court of foreign jurisdiction involves delicate questions of comity and therefore ‘requires that such action be taken only with care and great restraint.’ ” (Compagnie des Bauxites de Guinea v. Ins. Co. of N. Am. (3d Cir. 1981) 651 F.2d 877, 887, fn. 10.)

We conclude, therefore, that the Court of Appeal erred in upholding the TRO issued against the parties in the Minnesota proceedings. California courts have the same power as other courts to issue orders that assist in protecting their jurisdiction. However, enjoining proceedings in another state requires an exceptional circumstance that outweighs the threat to judicial restraint and comity principles. As explained, the circumstances of this case do not provide sufficient justification to warrant our court’s issuing injunctive orders against parties pursuing the Minnesota litigation.⁶

Conclusion

We hold that the trial court improperly issued the TRO enjoining Medtronic from proceeding in the Minnesota action. We also conclude, however, that the Minnesota action does not divest California of jurisdiction, and Advanced Bionics remains free to litigate the California action unless and until Medtronic demonstrates to the Los Angeles County Superior Court that any Minnesota judgment is binding on the parties. As stated above, potentially conflicting judgments naturally result from parallel proceedings but do not provide a reason for issuing a TRO. (Ante, at pp. 705-706.) For these reasons, we reverse the Court of Appeal judgment and remand for additional proceedings consistent with this conclusion.

George, C. J., Kennard, J., Baxter, J., and Werdegar, J., concurred.

1 All statutory references are to the Business and Professions Code unless otherwise stated.

2 A few days later, Stultz and Advanced Bionics amended the complaint to add unfair competition and unfair business practices claims under section 17200 et seq. That section defines “unfair competition” to include “any unlawful, unfair or fraudulent business act or practice . . . .” (Ibid.)

3 By order to show cause, the court set a hearing to determine whether it should issue a preliminary TRO, but that matter was taken off calendar when the parties stipulated that the TRO would remain in effect.

4 In a published opinion, on June 26, 2001, the Minnesota Court of Appeal affirmed the preliminary TRO, rejecting Stultz and Advanced Bionics contention that the trial court erred by failing to defer to the “first-filed” California action and observing that the “first-filed rule” is not intended to be applied in a rigid or inflexible manner. (Medtronic, Inc. v. Advanced Bionics Corp. (Minn.Ct.App. 2001) 630 N.W.2d 438, 449-450.) The court concluded that “Minnesota . . . has a strong interest in having contracts executed in this state enforced in accordance with the parties’ expectations.” (Id. at p. 456.)

5 Because we conclude the California court improperly issued the TRO, we do not address the trade secrets issues raised in the parties’ briefs. We also deny, as inapplicable to our analysis and decision, the request for judicial notice Stultz and Advanced Bionics submitted, that includes evidence of legislative intent in drafting the Uniform Trade Secrets Act. (Evid. Code, § 459.)

6 Advanced Bionics also contends that the choice-of-law analysis in Nedlloyd Lines B. V. v. Superior Court (1992) 3 Cal.4th 459, 466, footnote 6 [11 Cal.Rptr.2d 330, 834 P.2d 1148], supports application of California law to the facts of this case and provides alternative support for the Court of Appeal’s decision to uphold the antisuit TRO. Because we have determined that the court improperly upheld the TRO against the Minnesota proceedings, we do not reach the choice-of-law issue here.