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Knapp v. Depuy Synthes Sales, Inc.

United States District Court, E.D. California

October 18, 2013

GREGORY KNAPP, Plaintiff,
v.
DEPUY SYNTHES SALES INC., Defendant

For Gregory Knapp, Plaintiff: Gina Marie DeVito, LEAD ATTORNEY, Angeles L. Guevara, Devito Law Group, Sausalito, CA.

For DePuy Synthes Sales, Inc., a Massachusetts Corporation, Defendant: Anthony B. Haller, PHV, LEAD ATTORNEY, PRO HAC VICE, Blank Rome LLP, Philadelphia, PA; Kathy PourSanae, Blank Rome, LLP, Los Angeles, CA.

OPINION

Page 1172

ORDER

Troy L. Nunley, United States District Judge.

This matter is before the Court on Defendant, Depuy Synthes Sales Inc.'s (" Defendant" ) motion to dismiss for lack of jurisdiction under the Declaratory Judgment Act. (See Def.'s Mot. to Dismiss, ECF 7.) Plaintiff, Gregory Knapp (" Plaintiff" ) opposes the motion. (See Pl.'s Opp'n to Def.'s Mot to Dismiss, ECF 14.) For the reasons set forth below, Defendant's motion is GRANTED. [1]

Page 1173

BACKGROUND

Plaintiff filed this preemptive action under the Declaratory Judgment Act on June 07, 2013. (Pl.'s Compl., ECF 1.) Plaintiff seeks a declaration from the court that the noncompetition and non-solicitation agreement he signed with Defendant, his previous employer, is unenforceable. (Id. at 13:26-28.)

Defendant employed Plaintiff as a medical sales consultant beginning in 1989. (Id. ¶ 37.) Plaintiff resigned on June 07, 2013, the same day he filed the instant action. (Id. ¶ 56.) Plaintiff's sales territory consisted of Kaiser in Folsom in Sacramento County and Placer County, Mercy Folsom in Sacramento County, Mercy General in Sacramento County, Sutter Auburn Faith in Placer County, Sutter Roseville Medical Center in Placer County, and Sutter Surgical Hospital in Sutter County. (Id. ¶ 39.)

Prior to resigning, " in consideration of significant beneficial changes in the terms and conditions of [his] employment with" Defendant, Plaintiff signed an agreement that, prior to eighteen months after the termination of his employment with Defendant, he would not solicit any of Defendant's customers within his assigned territory. (Id. ¶ 57; see also Def.'s Request for Judicial Notice, ECF 9, Ex. A.) Specifically, the agreement provided that Plaintiff would not " solicit[], contact[], call[] on, transact[], or engage[] in any business activity, either directly or indirectly, with any [c]ustomer with whom he had any dealings on behalf of [Defendant] at any time during the one (1) year period immediately preeceding the termination of his employment." (Id. ¶ 26c; RJN, Ex. A.) The agreement also contained a choice of law and forum selection clause, which provides that the " agreement will be governed by Pennsylvania law applicable to contracts entered into and performed in Pennsylvania" and " can be enforced by any federal or state court of competent jurisdiction in the Commonwealth of Pennsylvania . . . ." (RJN, Ex A.)

Immediately after his resignation from Defendant, Plaintiff accepted employment with K2M, Defendant's direct competitor. (ECF1 ¶ ¶ 72, 75.) Plaintiff asserts that he " has been forced to bring this action because of Defendant's prior attempts . . . to enforce the same or similar restrictive covenants in the Agreement against other former California employees, . . ." (Id. ¶ 78.)

Plaintiff asserts one claim for Declaratory relief under the Declaratory Judgment Act, 28 U.S.C. § 2201 and Federal Rule of Civil Procedure 57, and one claim for unfair business practices under California Business and Professions Code § § 16600 & 17200 et seq. (Id. ¶ ¶ 88-104.) Plaintiff seeks a judicial declaration that the claim is unenforceable and for a determination by the Court that the use and threatened enforcement of the restrictive covenant violates California Business and Professions Code § § 16600 & 17200 et seq.

Five days after Plaintiff filed his complaint, Defendant " filed its own complaint in the Eastern District of Pennsylvania" (" Pennsylvania action" ). (compare Pl.'s Compl., ECF 1 with RJN, Ex. A.) In the Pennsylvania action, Defendant seeks relief against Knapp not only for his breach of the non-solicitation agreement, but also for misappropriation of Defendant's trade secrets and breach of fiduciary duty. (RJN, Ex. A.) Thus, Defendant maintains that the Pennsylvania litigation will resolve not only the present dispute, but also the additional claims Defendant asserts against Plaintiff.

STANDARD

Federal Rule of Civil Procedure 8(a) requires that a pleading contain " a short and plain statement of the claim showing

Page 1174

that the pleader is entitled to relief." See Ashcroft v. Iqbal, 556 U.S. 662, 678-79, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). Under notice pleading in federal court, the complaint must " give the defendant fair notice of what the claim . . . is and the grounds upon which it rests." Bell Atlantic v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (internal quotations omitted). " This simplified notice pleading standard relies on liberal discovery rules and summary judgment motions to define disputed facts and issues and to dispose of unmeritorious claims." Swierkiewicz v. Sorema N.A., 534 U.S. 506, 512, 122 S.Ct. 992, 152 L.Ed.2d 1 (2002).

On a motion to dismiss, the factual allegations of the complaint must be accepted as true. Cruz v. Beto, 405 U.S. 319, 322, 92 S.Ct. 1079, 31 L.Ed.2d 263 (1972). A court is bound to give plaintiff the benefit of every reasonable inference to be drawn from the " well-pleaded" allegations of the complaint. Retail Clerks Int'l Ass'n v. Schermerhorn, 373 U.S. 746, 753 n.6, 83 S.Ct. 1461, 10 L.Ed.2d 678 (1963). A plaintiff need not allege " 'specific facts' beyond those necessary to state his claim and the grounds showing entitlement to relief." Twombly, 550 U.S. at 570. " A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. 544, 556, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)).

Nevertheless, a court " need not assume the truth of legal conclusions cast in the form of factual allegations." United States ex rel. Chunie v. Ringrose, 788 F.2d 638, 643 n.2 (9th Cir. 1986). While Rule 8(a) does not require detailed factual allegations, " it demands more than an unadorned, the defendant-unlawfully-harmed-me accusation." Iqbal, 556 U.S. at 678. A pleading is insufficient if it offers mere " labels and conclusions" or " a formulaic recitation of the elements of a cause of action." Twombly, 550 U.S. at 555; See also Iqbal, 556 U.S. at 678 (" Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." ). Moreover, it is inappropriate to assume that the plaintiff " can prove facts that it has not alleged or that the defendants have violated the . . . laws in ways that have not been alleged[.]" Associated Gen. Contractors of Cal., Inc. v. Cal. State Council of Carpenters, 459 U.S. 519, 526, 103 S.Ct. 897, 74 L.Ed.2d 723 (1983).

Ultimately, a court may not dismiss a complaint in which the plaintiff has alleged " enough facts to state a claim to relief that is plausible on its face." Iqbal, 556 U.S. at 697 (quoting Twombly, 550 U.S. at 570). Only where a plaintiff has failed to " nudge[] [his or her] claims . . . across the line from conceivable to plausible[,]" is the complaint properly dismissed. Id. at 680. While the plausibility requirement is not akin to a probability requirement, it demands more than " a sheer possibility that a defendant has acted unlawfully." Id. at 678. This plausibility inquiry is " a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Id. at 679.

In ruling upon a motion to dismiss, the court may consider only the complaint, any exhibits thereto, and matters which may be judicially noticed pursuant to Federal Rule of Evidence 201. See Mir v. Little Co. of Mary Hosp., 844 F.2d 646, 649 (9th Cir. 1988); Isuzu Motors Ltd. v. Consumers Union of United States, Inc., 12 F.Supp.2d 1035, 1042 (C.D. Cal. 1998).

Page 1175

If a complaint fails to state a plausible claim, " '[a] district court should grant leave to amend even if no request to amend the pleading was made, unless it determines that the pleading could not possibly be cured by the allegation of other facts.'" Lopez v. Smith, 203 F.3d 1122, 1130 (9th Cir. 2000) (en banc) (quoting Doe v. United States, 58 F.3d 494, 497 (9th Cir. 1995)); See also Gardner v. Martino, 563 F.3d 981 (9th Cir. 2009) (finding no abuse of discretion in denying leave to amend when amendment would be futile). Although a district court should freely give leave to amend when justice so requires under Rule 15(a)(2), " the court's discretion to deny such leave is 'particularly broad' where the plaintiff has previously amended its complaint[.]" Ecological Rights Found. v. P. Gas & Elec. Co., 713 F.3d 502, 520 (9th Cir. 2013) (quoting Miller v. Yokohama Tire Corp., 358 F.3d 616, 622 (9th Cir. 2004)).

ANALYSIS

Defendant asserts that the court should " decline jurisdiction under the Declaratory Judgment Act in favor of the Pennsylvania [l]itigation to avoid needless decisions of Pennsylvania state law, . . ." (ECF 8 at 4:4-6.) Defendant maintains that declining jurisdiction would properly prevent Plaintiff from " preemptive and anticipatory forum shopping depriving Depuy Synthes, the natural plaintiff, of its choice of forum, and [would] promote judicial economy by allowing the more-comprehensive Pennsylvania [l]itigation to proceed, which will resolve all disputes at issue in this case." (Id. at 4:6-9.)

Plaintiff concedes that the court has discretion to decline jurisdiction, but argues that the court should exercise jurisdiction in the instant case because Plaintiff filed his complaint prior to Defendant filing its complaint in the Pennsylvania litigation. (Pl.'s Opp'n to Def.'s Mot. to Dismiss, ECF 14 at 3:20-21.) Plaintiff attempts to buttress this argument by asserting that " [b]oth actions arise from the same set of facts and involve the same issues, primarily the legality and/or enforceability of the Non-Compete Agreement . . . ." (Id. at 4: 8-11.) [2] Plaintiff also argues that he did not engage in forum shopping because he currently works in California and signed the agreement in California. (Id. at 4:8-10.) In the alternative, if the court declines at this time to hear the Declaratory Judgment Action, Plaintiff requests that the case should be stayed and not dismissed; or, at a minimum, stayed pending a ruling by the court in the Pennsylvania litigation on Plaintiff's motion to dismiss, transfer or stay. (Id. at 12:20-22.)

In reply, Defendant argues that: (1) it is irrelevant that Plaintiff filed his complaint shortly before Defendant because Plaintiff clearly engaged in forum shopping by filing suit on the same day he submitted his resignation; (2) declining jurisdiction is appropriate here where it would avoid duplicative litigation; and (3) dismissal, as opposed to a stay, is appropriate here because the Pennsylvania litigation would resolve all disputes between the parties. (Def.'s Reply to Pl.'s Opp'n, ECF 18 at 1:5-16.)

The Declaratory Judgment Act provides, in relevant part:

In a case of actual controversy within its jurisdiction, [subject to exceptions not applicable here] . . . any court of the

Page 1176

United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought. Any such declaration shall have the force and effect of a final judgment or decree and shall be reviewable as such.

28 U.S.C. § 2201(a). " The Ninth Circuit has recognized that the Declaratory Judgment Act 'was enacted to afford an added remedy to one who is uncertain of his rights and who desires an early adjudication without having to wait until he is sued by his adversary.'" Plum Creek Timber Co. Inc. v. Trout Unlimited, 255 F.Supp.2d 1159, 1164 (D. Idaho 2003) (quoting Levin Metals Corp. v. Parr-Richmond Terminal Co., 799 F.2d 1312, 1315 (9th Cir. 1986).)

A lawsuit seeking federal declaratory relief must first present an actual case or controversy within the meaning of Article III, section 2 of the United States Constitution and must fulfill statutory jurisdictional prerequisites. Government Employees Ins. Co. v. Dizol, 133 F.3d 1220, 1222-1223 (9th Cir. 1998) (citations omitted). The Declaratory Judgment Act does not itself confer federal subject matter jurisdiction, but rather there must be an independent basis for such jurisdiction. Staacke v. United States Secretary of Labor, 841 F.2d 278, 280 (9th Cir. 1988). Here, subject matter jurisdiction is properly predicated on diversity of citizenship. See 28 U.S.C. § 1332.

Even when subject matter jurisdiction exists, however, when faced with an action for declaratory relief, the district court must also, in the exercise of its discretion, be satisfied that entertaining the action is appropriate. Dizol, 133 F.3d at 1223. In Brillhart v. Excess Ins. Co. of America, 316 U.S. 491, 62 S.Ct. 1173, 86 L.Ed. 1620 (1942), the United States Supreme Court articulated factors to guide district courts in the exercise of their discretion under the Declaratory Judgment Act. The Ninth Circuit summarized the Brillhart factors as follows:

The Brillhart factors remain the philosophic touchstone for the district court. The district court should avoid needless determination of state law issues; it should discourage litigants from filing declaratory relief actions as a means of forum shopping; and it should avoid duplicative litigation. If there are parallel state proceedings involving the same issues and parties pending at the time the federal declaratory action is filed, there is a presumption that the entire suit should be heard in state court. The pendency of a state court action does not, of itself, require a district court to refuse federal declaratory relief. Nonetheless, federal courts should generally decline to entertain reactive declaratory actions.

Dizol, 133 F.3d at 1225 (internal quotations and citations omitted); see also R.R. St. & Co. v. Transp. Ins. Co., 656 F.3d 966, 975 (9th Cir. 2011) (" In Brillhart, the Court articulated three factors that courts should consider when examining the propriety of entertaining a declaratory judgment action: avoiding needless determination of state law issues; discouraging forum shopping; and avoiding duplicative litigation." ) (internal quotations omitted).

This rule has been consistently extended to apply equally to parallel federal court proceedings. See e.g., Schmitt v. JD Edwards World Solutions Co., 01 WL 590039 (N.D. Cal. May 18, 2001) (declining jurisdiction under Declaratory Judgment Act in favor of subsequent breach of contract action filed by employer in federal court); Qualcomm, Inc. v. GTE Wireless, Inc., 79 F.Supp.2d 1177, 1179 (S.D. Cal. 1999) (declining jurisdiction in favor of pending federal court action " [f]or the

Page 1177

same reasons that federal courts regularly abstain from hearing declaratory relief cases when parallel state cases are pending" ); Gribin v. Hammer Galleries, Div. of Hammer Holdings, Inc., 793 F.Supp. 233, 234 n.1 (C.D. Cal. 1992) (dismissing first-filed Declaratory Judgment Action in favor of subsequently-filed federal court action, and noting that " [t]he same rule [of Brillhart] applies where the parallel action is pending in another federal district." ).

This case presents the precise situation the Brillhart court contemplated in establishing the factors a federal district court should consider when determining whether to exercise its discretion to decline jurisdiction under the Declaratory Judgment Act. Harrison v. Synthes USA Sales, LLC, 2013 WL 1007662 (E.D. Cal Mar. 13, 2013), [3] a case with uncannily similar facts, is highly instructive. In Harrison, a former employee of Synthes, the same Defendant in this case, filed suit in the Eastern District of California under the Declaratory Judgment Act seeking a declaration that an almost identical non-competition and customer non-solictation agreement constituted an unlawful restraint on trade under California Law. [WL] at *1. The agreement in Harrison also contained a similar " forum-selection clause evincing the parties' agreed to litigate disputes concerning the . . . [a]greement 'in the commonwealth of Pennsylvania." [WL] at *3. (internal quotations omitted). Finally, as is in the instant case, Plaintiff in Harrison " filed [the] federal lawsuit the day he resigned his employment with Synthes for fear that Synthes would haul him into court in Pennsylvania to enforce restrictive covenants against him which plainly violate California law." [WL] at *3.

The court, applying the Brillhart factors, found that, " [r]eview of the operative complaints in the respective federal and state law-suits reveals that retaining jurisdiction would require decision on purely state law issues that are essentially the same as those pending in the Pennsylvania lawsuit." [WL] at *2. The court also found that " dismissal [was] warranted because the Pennsylvania proceedings may afford more complete relief . . . ." [WL] at *4. Finally, the court found that Plaintiff's statement that he feared Defendant would hale him into court to enforce the restrictive covenant plainly " smack[ed] of forum shopping in light of the forum selection clause" in the agreement. [WL] at *3.

Similarly, in the instant case, " retaining jurisdiction would require decision on a purely state law issue." [WL] at *2. That is, whether or not the non-compete provision in the agreement is enforceable.

The court also finds that declining jurisdiction would save judicial resources by avoiding duplicative litigation. See R.R. St. & Co., 656 F.3d at 975 (stating that courts should consider whether " entertaining a declaratory judgment action would create duplicative litigation." ) Specifically, whether or not the agreement is enforceable is also an issue that must be resolved in the Pennsylvania litigation. Moreover, the Pennsylvania litigation would more efficiently resolve all the issues presented by the present conflict because it necessarily must adjudicate Defendant's claims for

Page 1178

misappropriation of trade secrets and breach of fiduciary duty.

Finally, as in Harrison, the court finds that Plaintiff's filing the action the same day he resigned in a more favorable forum " smacks of forum shopping in light of the forum selection clause" in the agreement. [WL] at *3. Based on the foregoing, the court concludes that Defendant has demonstrated that all three of the Brillhart factors support declining jurisdiction under the Declaratory Judgment Act.

The court acknowledges Plaintiff's reasonable arguments that abstention is not appropriate in this case because Plaintiff filed his complaint first and, unlike in Brillhart, the Pennsylvania action was not filed in state court. First, the court notes that the " first-to-file rule" is not an absolute bar under Brillhart abstention. Pacesetter Sys., Inc. v. Medtronic, Inc., 678 F.2d 93 (9th Cir. 1982). (" However, this 'first to file' rule is not a rigid or inflexible rule to be mechanically applied, but rather is to be applied with a view to the dictates of sound judicial administration." ); Alltrade, Inc. v. Uniweld Products, Inc., 946 F.2d 622, 625 (9th Cir. 1991) (" The circumstances under which an exception to the first-to-file rule typically will be made include bad faith, anticipatory suit, and forum shopping." ). [4]

Here, the court finds that the mere fact that Plaintiff filed his complaint shortly before Defendant does not require that it entertain Plaintiff's declaratory judgment action. The court has already found that the manner in which Plaintiff filed this action smacked of forum shopping. The court also finds that Plaintiff filed an anticipatory suit: he filed the very day he resigned. Indeed, it would have been impossible for Defendant to file first because they could not have known that they were possibly aggrieved until the day Plaintiff resigned and filed his complaint. Plaintiff presumably prepared his complaint in anticipation of resigning and filing this action in order to use the " first-to-file" rule as a sword. This is not the purpose of the " first-to-file" rule.

The court also finds unavailing Plaintiff's argument that Brillhart abstention is not appropriate in the instant case because the Pennsylvania litigation is not pending in federal court as opposed to state court. The court has already listed numerous cases in which courts have abstained under the Declaratory Judgment Act in favor of a parallel federal court proceeding. See Supra pp. 7:20-8:3.

The only question that remains is whether to dismiss the case or stay it. Where the court finds there is duplicative litigation, " a district court is authorized, in the sound exercise of its discretion, to stay or to dismiss an action seeking a declaratory judgment . . . ." Wilton v. Seven Falls Co., 515 U.S. 277, 288, 115 S.Ct. 2137, 132 L.Ed.2d 214 (1995). " Here, dismissal is warranted because the Pennsylvania proceedings may afford more complete relief" since it will adjudicate not only whether the noncompetition agreement is enforceable, but also Defendant's claims for misappropriation of trade secrets and for breach of fiduciary duty. Harrison, 2013 WL 1007662 at *4. Moreover, " a lingering stay in California federal court pending resolution of the Pennsylvania [litigation] is inappropriate in light of the . . . Agreement's

Page 1179

forum-selection clause." Id. As such, the court, in its discretion, declines to stay the case in lieu of dismissal.

Accordingly, the court declines to exercise jurisdiction over Plaintiff's declaratory judgment claim. [5]

CONCLUSION

Based on the foregoing, Defendant's motion to dismiss is hereby GRANTED. The clerk is directed to enter judgment and close the file.


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