Biotronik, Inc. v. Medtronic USA, Inc. et al - Document 51
Opinion and Order - This court accepts in part and rejects in part the F&R issued by Judge Hubel 43 . Plaintiff's motion to remand 17 is DENIED. Defendant's motion to dismiss and alternative motion to transfer 8 is also DENIED. Signed on 1/4/12 by Judge Michael H. Simon. (mja)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF OREGON
BIOTRONIK, INC., an Oregon corporation,
Case No.: 03:11-cv-00366-HU
OPINION AND ORDER
MEDTRONIC USA, INC., a Minnesota
corporation; and MEDTRONIC, INC.,
a Minnesota corporation;
E. Sean Donohue
DONOHUE & ASSOCIATES
1625 Umpqua Bank Plaza
One S.W. Columbia Street
Portland, OR 97258-2021
Attorney for Plaintiffs
Jeffrey M. Edelson
Matthew A. Levin
MARKOWITZ, HERBOLD, GLADE & MEHLHAF, P.C.
Suite 3000 Pacwest Center
1211 S.W. Fifth Avenue
Portland, OR 97204-3730
Jonathan S. Parritz
Nadege J. Souvenir
MASLON EDELMAN BORMAN & BRAND, LLC
90 S. 7th Street, Suite 3300
Minneapolis, MN 55402
Attorneys for Defendants
OPINION AND ORDER, PAGE 1
SIMON, District Judge.
In this lawsuit, Plaintiff seeks only declaratory relief. Plaintiff originally filed this action
in state court in Clackamas County, Oregon, and Defendants removed the case to this court
under 28 U.S.C. § 1441, asserting diversity jurisdiction under 28 U.S.C. § 1332(a). Plaintiff
moves to remand the lawsuit to state court (Doc. 17) under 28 U.S.C. § 1447(c), arguing that the
amount in controversy does not satisfy the $75,000 threshold required for diversity jurisdiction.
Defendants move to dismiss the case for improper venue or, in the alternative, to transfer venue.
(Doc. 8). On September 29, 2011, United States Magistrate Judge Dennis Hubel issued findings
and recommendations (“F&R”) on these two motions and referred them to this court (Doc. 43).
In his F&R, Judge Hubel recommends that Plaintiff’s motion to remand be granted. He
also recommends that, if this court were to find that the amount in controversy requirement has
been satisfied, Defendants’ motion to dismiss for improper venue and alternative motion to
transfer should be denied. Defendants objected to both recommendations. The court heard oral
argument on November 9, 2011.
Under the Federal Magistrates Act, the court may “accept, reject or modify, in whole or
in part, the findings or recommendations made by the magistrate.” Federal Magistrates Act, 28
U.S.C. § 636(b)(1). If a party files objections to a magistrate’s findings and recommendations,
“the court shall make a de novo determination of those portions of the report or specified
proposed findings or recommendations to which objection is made.” Id.; Fed. R. Civ. P. 72(b)(3).
De novo review means that the reviewing court “considers the matter anew, as if no decision had
been rendered.” Dawson v. Marshall, 561 F.3d 930, 933 (9th Cir. 2009) (citation omitted).
OPINION AND ORDER, PAGE 2
The court has reviewed the matter de novo and accepts in part and rejects in part Judge
Hubel’s F&R. The court rejects Judge Hubel’s first recommendation that Plaintiff’s motion to
remand be granted. For the reasons stated below, the court finds that the amount in controversy
requirement has been satisfied. Thus, Plaintiff’s motion to remand is DENIED. The court accepts
Judge Hubel’s second recommendation for the reasons stated by Judge Hubel. Thus, Defendant’s
motion to dismiss and alternative motion to transfer is DENIED.
Plaintiff, Biotronik, Inc. (“Biotronik”), is an Oregon corporation. Defendants, Medtronic
USA, Inc. and Medtronic, Inc. (collectively, “Medtronic”), are Minnesota corporations.
Biotronik and Medtronic are competitors engaged in the sale and marketing of cardiac rhythm
management (“CRM”) devices, which use electrical pulses to treat improperly beating hearts and
other cardiac diseases. As alleged in the complaint and discussed by Judge Hubel:
The market in which the parties compete is extremely competitive, and the
devices they sell are technologically complex. As such, their sales
personnel not only must be skilled salespeople, they also must have a great
deal of technical and clinical knowledge, and as a result, they receive
considerable training. To protect their investment in their employees, as
well as the proprietary information to which their employees are privy, the
parties “require their CRM sales representatives and managers to sign
employment agreements that include post-termination noncompetition,
confidentiality, and non-solicitation obligations (the “Post-Termination
F&R, at 2:20-3:3 (citations omitted).
Rory Carmichael (“Carmichael”), who is not a party in this lawsuit, worked for
Medtronic from 1997 through January 2009. In 1997, Medtronic hired Carmichael as a district
sales manager. In 2005, Medtronic promoted Carmichael to regional vice president of
Medtronic’s Florida region. Both at the time of his initial employment and upon his promotion
to vice president, Carmichael signed an employee agreement with Medtronic (the “Employee
OPINION AND ORDER, PAGE 3
Agreement”) that includes Post-Termination Obligations.1 Carmichael’s last day of work for
Medtronic was January 6, 2009.2 In connection with his separation from Medtronic, Carmichael
and Medtronic signed a Separation Agreement and Release (the “Separation Agreement”) on
January 29, 2009.3 In addition to other provisions, Carmichael’s Separation Agreement expressly
preserves certain duties and obligations set forth in his Employee Agreement, including the PostTermination Obligations.
In addition, Carmichael’s Separation Agreement provides in Article 2.1 for certain
“transition period compensation” (the “Transition Period Compensation”) and in Article 2.2 for
certain additional consideration (the “Additional Consideration”), both to be paid by Medtronic
to Carmichael, subject to certain conditions. The parties agree that the precise amounts of the
Transition Period Compensation and the Additional Consideration should be kept confidential
for business reasons and that it is factually correct and not confidential to say that the Transition
Period Compensation and the Additional Consideration are each well in excess of the $75,000
threshold amount in controversy required for diversity jurisdiction under 28 U.S.C. § 1332(a).
Article 2.3 of Carmichael’s Separation Agreement with Medtronic describes certain
forms of “Prohibited Conduct,” many of which are similar to the Post-Termination Obligations.
Among other things, Article 2.3(4) provides that, until the close of business on January 6, 2011,
Carmichael may not, without the express written permission of Medtronic, “solicit, directly or
indirectly, any person employed by Medtronic [in certain areas and during a certain time period]
to work for any other employer.” A similar restriction appears in Carmichael’s Employee
Agreement at Section 4.2, under the heading “Section 4: Post-Employment Restrictions.”
A copy of Carmichael’s Employee Agreement with Medtronic, signed in 2005, was filed under
seal as Doc. 18-1, pages 22-31.
As discussed more fully below, Biotronik hired Carmichael on February 23, 2011.
A copy of Carmichael’s Separation Agreement was filed under seal as Doc. 18-2.
OPINION AND ORDER, PAGE 4
Article 2.4(c) of Carmichael’s Separation Agreement provides, among other things, that
if a court determines that Carmichael has violated Article 2.3 of the Separation Agreement,
Carmichael must promptly repay to Medtronic the Additional Consideration payments made
pursuant to Article 2.2 (the “Repayment Amount”). Medtronic refers to this Repayment Amount
as “liquidated damages.” In addition, Article 2.4(b) of the Separation Agreement provides that
Medtronic may “terminate all payments pursuant to Articles 2.1 [the Transition Period
Compensation] and 2.2 [the Additional Consideration] if Carmichael materially breaches any
other provision of this Agreement or the Employee Agreement.”
In August and September 2010, well after Carmichael left Medtronic in January 2009,
but well before his Post-Termination Obligations and Prohibited Conduct restrictions under the
Separation Agreement would have terminated on January 6, 2011, several other Medtronic
employees (the “Other Former Medtronic Employees”) left Medtronic and went to work for
Biotronik. On September 30, 2010, Biotronik and the Other Former Medtronic Employees (but
not Carmichael) filed suit against Medtronic in Oregon’s Clackamas County Circuit Court,
seeking a declaratory judgment relating to the post-termination obligations of these Other Former
Medtronic Employees. Medtronic did not assert any counterclaims, and the lawsuit was settled
and dismissed on December 10, 2010.
One week later, on December 17, 2010, Medtronic sued Carmichael (but not Biotronik)
in Minnesota state court (the “Minnesota Action”).4 In the Minnesota Action, which is still
A copy Medtronic’s complaint against Carmichael in the Minnesota Action was filed under seal
as Doc. 18-1. Carmichael removed that case to federal court in Minnesota, and Medtronic filed a
motion to remand to Minnesota state court. The federal court in Minnesota granted Medtronic’s
motion to remand based on a clause in Carmichael’s Employee Agreement with Medtronic that
provided for exclusive jurisdiction in the state courts of Minnesota.
OPINION AND ORDER, PAGE 5
pending, Medtronic claims that Carmichael breached the provisions of both his Employee
Agreement and his Separation Agreement with Medtronic.
Medtronic alleges in the Minnesota Action that, among other things, Carmichael is
subject to the Post-Termination Obligations set forth in his Employee Agreement, including its
provision in Section 4.2 that Carmichael “not solicit, cause to be solicited, or participate in or
promote the solicitation of any person to terminate that person’s employment with
MEDTRONIC . . . .” Minnesota Action, Complaint at ¶ 19. (Doc. 18-1). Medtronic also alleges
in the Minnesota Action that Carmichael is subject to the Prohibited Conduct obligations in the
Separation Agreement, including the obligation that, until January 6, 2011, Carmichael may not,
without Medtronic’s express written permission, “solicit, directly or indirectly, any person
employed by Medtronic . . . to work for any other employer.” Id., at ¶ 34, quoting Separation
Agreement, Article 2.3(4). Medtronic asserts that Carmichael violated these contractual
obligations, among others, by recruiting the Other Former Medtronic Employees to leave
Medtronic and begin work for Biotronik. Id., at ¶¶ 41-50.
In the Minnesota Action, Medtronic seeks, among other things, an order “compelling
Carmichael to repay Medtronic all sums paid to him under Article 2.2 of the Separation
Agreement [the Additional Consideration].” Id., at ¶ 80. Medtronic also claims that it is entitled
“to recover the monetary damages it has sustained as a result of Carmichael’s breach of the
Separation Agreement, in an amount in excess of $50,000 to be proved at trial.” Id., at ¶ 83.
Although Medtronic sued only Carmichael in the Minnesota Action and did not sue
Biotronik, Medtronic further alleged in the Minnesota Action that Carmichael “has, in fact, been
working on behalf of and/or for the benefit of Biotronik, by aggressively recruiting Medtronic’s
employees, in direct violation of his contractual obligations to Medtronic [under both the
OPINION AND ORDER, PAGE 6
Employee Agreement and the Separation Agreement].” Id., at ¶ 51. During oral argument,
Medtronic explained that, when it filed the Minnesota Action, it did not have sufficient evidence
to sue Biotronik for tortious interference with contract. (Doc. 50, at 12:2-22.)
On February 23, 2011, Biotronik hired Carmichael. On or about that same day, Biotronik
filed in state court in Clackamas County, Oregon the complaint for declaratory relief that, upon
removal to this court, constitutes the pending action. (Doc. 1-1.) In the complaint, Biotronik
seeks two declarations. First, Biotronik seeks a declaration that “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 Medtronic Agreement [the Employee Agreement] and the
Parties’ Agreement.”5 Second, Biotronik seeks a declaration that “Biotronik did not cause any
violation of any of the Post-Termination Obligations set forth in the Medtronic Agreement
[Carmichael’s Employee Agreement]” (Doc. 1-1, at page 3) (emphasis added). Based on
Biotronik’s second requested declaration, the court concludes that the $75,000 amount in
controversy requirement has been satisfied.
Biotronik’s Motion to Remand
A civil action may be removed from state court to federal court if the district court would
have had original jurisdiction over it. 28 U.S.C. § 1441(a). Federal jurisdiction exists over all
civil actions between citizens of different States where the amount in controversy exceeds
$75,000. 28 U.S.C. § 1332(a). An action is removable only if none of the parties in interest
Biotronik uses the phrase “Medtronic Agreement” to refer to Carmichael’s Employee
Agreement with Medtronic and the phrase “the Parties’ Agreement” to refer to a separate
agreement between Biotronik and Medtronic. (Doc. 1-1, at ¶¶ 6-7.)
OPINION AND ORDER, PAGE 7
properly joined and served as a defendant is a citizen of the State in which the action is brought.
28 U.S.C. § 1441(b) (“forum defendant rule”). Diversity jurisdiction also requires complete
diversity among the parties. Caterpillar Inc. v. Lewis, 519 U.S. 61, 68 (1996). In this case, none
of the defendants is a citizen of Oregon, and there is complete diversity. The only question is
whether the amount in controversy requirement has been satisfied.
The federal courts “strictly construe the removal statute against removal jurisdiction.
Federal jurisdiction must be rejected if there is any doubt as to the right of removal in the first
instance.” Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992) (citations omitted). Where the
amount in controversy is in doubt, there is a “strong presumption” against removal jurisdiction,
and “the defendant always has the burden of establishing that removal is proper.” Id., at 566.
This burden may be easily satisfied if the plaintiff claims a sum greater than the jurisdictional
requirement. Id., at 566. If it is unclear, however, then “the defendant bears the burden of
actually proving facts to support jurisdiction, including the jurisdictional amount.” Id., at 567.
Courts decide whether the amount in controversy requirement has been met by first
considering whether it is “facially apparent” from the complaint. Abrego Abrego v. The Dow
Chemical Co., 443 F.3d 676, 690 (9th Cir. 2006) (quoting Singer v. State Farm Mut. Auto. Ins.
Co., 116 F.3d 373, 377 (9th Cir. 1997)). If the amount in controversy is not apparent on the face
of the complaint, “the court may consider facts in the removal petition, and may ‘require parties
to submit summary-judgment-type evidence relevant to the amount in controversy at the time of
removal.’” Id.; see also Lewis v. Verizon Communications, Inc., 627 F.3d 395, 400 (9th 2010) (a
district court may consider post-removal evidence in determining whether the requisite amount is
in controversy); Gaus, 980 F.2d at 567 (if allegations of jurisdictional facts are challenged in an
appropriate manner, a party “must support them by competent proof”) (quoting McNutt v. Gen.
OPINION AND ORDER, PAGE 8
Motors Acceptance Corp., 298 U.S. 178, 189 (1936)). In evaluating a party’s evidence, federal
courts in the Ninth Circuit “employ a preponderance of the evidence standard when the
complaint does not allege a specific amount in controversy.” Lewis, 627 F.3d at 400. Thus, in a
diversity case, a removing party relying upon summary-judgment-type evidence “has the burden
of proving, by a preponderance of the evidence, that the amount in controversy exceeds
$75,000.” Cohn v. Petsmart, 281 F.3d 837, 839 (9th Cir. 2002).
The complaint in this case does not claim that any money is owed to Plaintiff. Instead,
Plaintiff seeks, in essence, a declaration that Plaintiff will not and does not owe any money to
Defendant. When the removed lawsuit seeks declaratory or injunctive relief, the amount in
controversy is measured by the value of the “object of the litigation.” Hunt v. Wash. State Apple
Adver. Comm’n, 432 U.S. 333, 347 (1977) (“In actions seeking declaratory or injunctive relief, it
is well established that the amount in controversy is measured by the value of the object of the
litigation.”). Where, as here, the lawsuit seeks a declaration of no liability, the value of the relief
sought is measured by the value of the liability that would follow if liability were found to exist.
See Matsuda v. Wada, 128 F. Supp. 2d 659, 663-64 (D. Haw. 2000); see also 14A Charles Alan
Wright, Arthur R. Miller & Edward H. Cooper, FEDERAL PRACTICE AND PROCEDURE § 3708
(2011) (“with regard to actions seeking declaratory relief, the amount in controversy is the value
of the right or the liability of the legal claim to be declared”).
Analysis of Medtronic’s Evidence
In the complaint here, Plaintiff does not claim any money due and owing. Instead,
Biotronik seeks, among other things, a declaration that it did not cause any violation of any of
Carmichael’s Post-Termination Obligations set forth in Carmichael’s Employee Agreement with
Medtronic. (Doc. 1-1, at 5:15-16.) In other words, one object of Biotronik’s litigation in this case
OPINION AND ORDER, PAGE 9
is to obtain a declaratory judgment that it is not liable to Medtronic, even in the event that the
Minnesota court concludes that Carmichael breached his contractual obligations. Armed with
such a judgment, Biotronik could foreclose a claim by Medtronic for tortious interference with
contract. Thus, to determine the amount in controversy, this court must measure Biotronik’s
potential liability to Medtronic for tortious interference, or any similar claim, based on an
allegation that Biotronik caused Carmichael to violate his Post-Termination Obligations to
Medtronic by soliciting for Biotronik some or all of the Other Former Medtronic Employees.6
To meet its burden in proving by a preponderance of the evidence that the amount in
controversy exceeds $75,000, Medtronic offers three items of summary-judgment-type evidence.
The first is a copy of the complaint in the Minnesota Action that Medtronic brought against
Carmichael. (Doc. 18-1). The second is a copy of Carmichael’s Employee Agreement with
Medtronic. (Doc. 18-1, pages 22-31.) The third is a copy of Carmichael’s Separation Agreement.
(Doc. 18-2.) Medtronic contends that this evidence is sufficient to establish that Biotronik’s
potential liability to Medtronic for causing Carmichael wrongfully to solicit or recruit some or all
of the Other Former Medtronic Employees exceeds $75,000. The court agrees.
As discussed above, Carmichael’s Employee Agreement, at Section 4.2, expressly
provides that Carmichael “will not solicit, cause to be solicited, or participate in or promote the
solicitation of any person to terminate that person’s employment with MEDTRONIC . . . .”
(Doc. 18-1, p. 26.) That is one of Carmichael’s Post-Termination Obligations under the
Employee Agreement. Id. In addition, that prohibited conduct is precisely what Medtronic
alleges against Carmichael in the Minnesota Action. (Doc. 18-1, ¶¶ 41-50, pp. 12-14.) Moreover,
Biotronik claims that the present case and the Minnesota Action are unrelated and that the
present case seeks only a declaration with regard to conduct that occurred on and after
February 23, 2011. See F&R at 8:14-19. The court does not read Biotronik’s second request for
declaratory relief contained in Biotronik’s complaint so narrowly. (Doc. 1-1 at p. 5.)
OPINION AND ORDER, PAGE 10
in the Minnesota Action, Medtronic alleges that “Carmichael has, in fact, been working on
behalf of and/or for the benefit of Biotronik, by aggressively recruiting Medtronic’s employees,
in direct violation of his contractual obligations to Medtronic.” (Doc. 18-1, ¶ 51, p. 15.) As stated
above, in the present declaratory judgment action, Biotronik seeks a declaration that “Biotronik
did not cause any violation of any of the Post-Termination Obligations set forth in the Medtronic
[Employee] Agreement.” (Doc. 1-1, at p. 5.)
Thus, the relevant question is the value or amount of Biotronik’s potential liability to
Medtronic should it be determined that Carmichael, in violation of his contractual obligations,
recruited some or all of the Other Former Medtronic Employees of behalf of Biotronik. The
answer to that question, Medtronic argues, can be found in the “liquidated damages” provisions
of the Separation Agreement. The court agrees. The Transition Period Compensation and the
Additional Consideration provisions in Carmichael’s Separation Agreement appear to be
Carmichael and Medtronic’s agreed-upon estimate of the damages likely to be incurred by
Medtronic if Carmichael materially breaches his Post-Termination Obligations. It follows that
these liquidated damages provisions7 would also appear to be a reasonable estimate of the
amount of damages likely to be incurred by Medtronic if Biotronik tortiously interfered with
Medtronic’s contractual relations by causing Carmichael to recruit “Medtronic’s employees, in
direct violation of [Carmichael’s] contractual obligations to Medtronic,” which is precisely what
Medtronic alleges in the Minnesota Action.
If Carmichael were to materially breach any provision in either the Separation Agreement
or his Employee Agreement, or engage in any “Prohibited Conduct,” Medtronic would be
Biotronik has not argued that the liquidated damages provisions in Carmichael’s Separation
Agreement are unreasonable or unenforceable as a “penalty.” Thus, the court need not undertake
such an analysis.
OPINION AND ORDER, PAGE 11
allowed to “terminate all payments pursuant to Articles 2.1 [the Transition Period
Compensation] and 2.2 [the Additional Consideration].” Carmichael would also be obligated,
under certain conditions, to repay to Medtronic any Additional Consideration that he actually
received. (Doc. 18-2, at p. 3-5.) Each of the sums for the Transition Period Compensation and
the Additional Consideration, as previously noted, far exceed the required amount in
controversy. (Doc. 18-2, at p. 3.) The court concludes based on this evidence that Medtronic has
satisfied its burden of showing by a preponderance of the evidence that the value of the object of
the litigation in this case, or the liability of the legal claim to be declared, exceeds $75,000. See
Hunt, 432 U.S. at 347 (1977) (“In actions seeking declaratory . . . relief, . . . the amount in
controversy is measured by the value of the object of the litigation.”); see also Wood v. Stark TriCounty Bldg. Trades Council, 473 F.2d 272, 273 (6th Cir. 1973) (“The determination of the
amount in controversy is fairly uncomplicated when the plaintiff seeks liquidated damages, the
amount in controversy being the total of the liquidated damages.”).
In his F&R, Judge Hubel stated:
“At oral argument, Medtronic argued the amounts the
Separation Agreement reflects were paid to Carmichael establishes
the jurisdictional amount in controversy. However, Medtronic has
failed to provide any evidentiary link between damages it may be
able to establish in its case against Carmichael [in the Minnesota
Action], and damages it would suffer from a declaratory judgment
that Biotronik is able to employ Carmichael free of PostTermination Obligations after Carmichael’s non-competition
agreement has ended.”
F&R at 11:5-12; see also F&R at 11 n.4 (emphasis added).
If the only declaration sought by Biotronik related to its ability to employ Carmichael
after his non-competition agreement ended, the court would agree with Judge Hubel. The court
rejects the recommendation in the F&R, however, because of Biotronik’s second requested
OPINION AND ORDER, PAGE 12
declaration: “That Biotronik did not cause any violation of any of the Post-Termination
Obligations set forth in the Medtronic Agreement [with Carmichael].” (Doc. 1-1, at p. 5:15-16)
(emphasis added). By twice using the word “any” in its second requested declaration and by not
limiting its second requested declaration with such words as “caused by Biotronik’s hiring of
Carmichael on February 23, 2011,” Biotronik’s second requested declaration is broad enough to
include a finding that Biotronik did not cause Carmichael to solicit or recruit any of the Other
Former Medtronic Employees.
Medtronic’s Motion to Dismiss or to Transfer
The court has considered Judge Hubel’s recommendation that Medtronic’s motion to
dismiss for improper venue and alternative motion to transfer venue be denied, Medtronic’s
objections to that recommendation, and Biotronik’s response. Judge Hubel’s recommendation
and analysis are sound and persuasive. Accordingly, the court adopts Judge Hubel’s
recommendation that Medtronic’s motion to dismiss and alternative motion to transfer be denied
for the reasons stated by Judge Hubel in his F&R.
For the foregoing reasons, this court accepts in part and rejects in part the F&R issued by
Judge Hubel (Doc. 43). Plaintiff’s motion to remand (Doc. 17) is DENIED. Defendant’s motion
to dismiss and alternative motion to transfer (Doc. 8) is also DENIED.
IT IS SO ORDERED.
Dated this 4th day of January, 2012.
_/s/ Michael H. Simon_____
Michael H. Simon
United States District Judge
OPINION AND ORDER, PAGE 13