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DEFEO v. P&G

September 23, 1993

Neil P. DeFeo, a California resident, and The Clorox Company, a Delaware Corporation, Plaintiffs,
v.
The Procter & Gamble Company, an Ohio Corporation, and Does 1 through 100, Defendants.



The opinion of the court was delivered by: STANLEY A. WEIGEL

 I. BACKGROUND.

 The Procter & Gamble Company ("Procter & Gamble") is an Ohio corporation with its principal place of business in Hamilton County, Ohio. *fn1" Neil P. DeFeo is former Vice President and Managing Director, Worldwide Strategic Planning for Laundry and Cleaning Products, at Procter & Gamble in Cincinnati, Ohio. On July 8, 1993, Mr. DeFeo resigned from Procter & Gamble and accepted a position as Group Vice President for U.S. Operations with The Clorox Company ("Clorox") in Oakland, California. Clorox is a Delaware corporation with its principal place of business in Oakland, California.

 As an employee of Procter & Gamble, Mr. DeFeo participated in several stock option plans. Pursuant to those plans, he reportedly purchased more than 50,000 shares of Procter & Gamble common stock, and agreed in writing to be bound by non-compete provisions for three years from the date the options were granted. Specifically, Mr. DeFeo promised to refrain from certain competitive employment in order to protect confidential information, including trade secrets. He further consented to the enforcement of equitable relief by any court having jurisdiction over him.

 Upon tendering his resignation on July 8, 1993, Mr. DeFeo was informed that Procter & Gamble did not consent to his employment by Clorox, and that if he violated the non-compete provisions he would be sued. Later that day, Mr. DeFeo and Clorox filed suit in Superior Court in Oakland, seeking a declaratory judgment that the non-compete provisions are unenforceable for public policy reasons. *fn2" On July 9, 1993, Procter & Gamble filed suit in Ohio state court, seeking temporary, preliminary, and permanent injunctions. *fn3"

 The parties agree that the California and Ohio actions present the very same issue-- whether and to what extent Procter & Gamble can enforce the non-compete provisions against Mr. DeFeo. See Corrected Memorandum of Points and Authorities of Specially Appearing Defendant The Procter & Gamble Company in Support of Motion to Dismiss or, in the alternative, Stay Action at 15; Plaintiffs' Memorandum of Points and Authorities in Opposition to Defendant's Motions to Dismiss, Stay, or Transfer at 2.

 On August 9, 1993, Procter & Gamble removed the California declaratory judgment action to this Court. Procter & Gamble now moves to dismiss the action for lack of personal jurisdiction, or alternatively, to transfer the case to the U.S. District Court for the Southern District of Ohio, or alternatively, to stay dismiss the action in light of the pending Ohio proceeding. Plaintiffs oppose all three motions and move for summary judgment. Defendant opposes the motion for summary judgment.

 On August 13, 1993, the Ohio state court entered an Agreed Order providing that Mr. DeFeo would not work in bleach and hard surface cleaners at Clorox pending the outcome of Procter & Gamble's motion for preliminary injunction. The preliminary injunction hearing is scheduled for October 26, 1993.

 II. DISCUSSION.

 The Declaratory Judgments Act grants federal courts discretion to award declaratory relief in cases otherwise within their jurisdiction. *fn4" 28 U.S.C. ยง 2201; Public Affairs Press v. Rickover, 369 U.S. 111, 112, 82 S. Ct. 580, 7 L. Ed. 2d 604 (1962). Declaratory relief is appropriate where the judgment will "serve a useful purpose in clarifying and settling the legal relations in issue, and . . . will terminate and afford relief from the uncertainty, insecurity, and controversy giving rise to the proceeding." Guerra v. Sutton, 783 F.2d 1371, 1376 (9th Cir. 1986) (quoting Bilbrey by Bilbrey v. Brown, 738 F.2d 1462, 1470 (9th Cir. 1984)).

 However, a district court ordinarily should not exercise its discretion to grant declaratory relief "'where another suit is pending in state court presenting the same issues, not governed by federal law, between the same parties.'" Continental Casualty Co. v. Robsac Industry, 947 F.2d 1367, 1370 (9th Cir. 1991) (quoting Brillhart v. Excess Ins. Co., 316 U.S. 491, 495, 86 L. Ed. 1620, 62 S. Ct. 1173 (1942)). In such cases, there is a presumption that the entire suit should be heard in state court. Chamberlain v. Allstate Ins. Co., 931 F.2d 1361, 1366-67 (9th Cir. 1991).

 There are several rationales for the Brillhart presumption against federal declaratory judgment jurisdiction when there is a parallel state proceeding: (1) avoiding needless decisions of state law; (2) discouraging forum shopping; and (3) averting duplicative litigation. Continental Casualty, 947 F.2d at 1391. The Declaratory Judgments Act is not to be invoked to deprive a plaintiff of his conventional choice of forum and timing, precipitating a disorderly race to the courthouse. Gribin v. Hammer Galleries, 793 F. Supp. 233, 234-35 (C.D.Cal. 1992).

 Certain countervailing factors may help overcome the presumption in individual cases. For example, if the federal action will continue even if the claim for declaratory relief is dismissed, or if the federal litigation is far enough advanced that declining jurisdiction would be a waste of judicial resources, then the federal court may proceed. See, Chamberlain, 931 F.2d at 1373-74.

 In the present case, there is a pending state court action involving the same issues, not governed by federal law, between the same parties. Therefore, the presumption against jurisdiction applies. The rationales behind the presumption support the conclusion that this Court should decline jurisdiction. This case involves exclusively questions of state law, Plaintiffs filed the declaratory relief action in order to secure a California forum, *fn5" and the Ohio suit is a "mirror image" of the one before this Court. *fn6" Therefore, were this Court to proceed, it would be making needless decisions of state law, rewarding forum shopping, and ...


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