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Chen v. St. Jude Medical, LLC

United States District Court, C.D. California, Southern Division

April 5, 2017

PETER CHEN, Plaintiff,




         Plaintiff Peter Chen filed this action against Defendants St. Jude Medical, Inc. (“St. Jude”), St. Jude Medical, Cardiology Division, Inc. (together, the “St. Jude Entities”), Irvine Biomedical, Inc. (“IBI”), and Does 1-50, inclusive, in Orange County Superior Court on December 27, 2016. (Dkt. 1-3 (Declaration of Katherine V.A. Smith) Ex E. [Complaint, hereinafter “Compl.”].) Chen asserts six causes of action: (1) wrongful termination; (2) breach of contract; (3) breach of the covenant of good faith and fair dealing; (4) violation of California Labor Code Sections 200, 201, 219, and 221; (5) Violation of California's Unfair Competition Law (“UCL”), California Business & Professions Code §§ 17200 et seq.; and (6) conversion. (See generally id.) Defendants removed the action to this Court on January 27, 2017, on the basis of diversity jurisdiction and fraudulent joinder. (Dkt. 1.) Before the Court is Chen's motion to remand for improper removal. (Dkt. 14 [Motion, hereinafter “Mot.”].) For the following reasons, the motion is DENIED.[1]


         According to the Complaint, Peter Chen is a resident of Irvine, California. (Compl. ¶¶ 1, 8.) In 1995 he co-founded Defendant IBI, which has its principal place of business in California, and served as its president until Defendant St. Jude, a Minnesota corporation, acquired it in 2004. (Id.) As part of the acquisition, Chen signed a written employment agreement with IBI and “any of its subsidiaries and affiliates.” (Id. Ex. A.) Chen alleges that IBI became and remains a wholly-owned subsidiary of St. Jude, and that after the acquisition, Chen remained an “executive employee of IBI, [St. Jude], and/or one or more of their affiliates” through May 2016. (Id. ¶¶ 1, 8.) In 2008, St. Jude created the Center for Innovation and Strategic Collaboration (“CISC”) in Irvine, and Chen served as its president from 2008 and May 2016. (Id. ¶ 10.) Chen was in charge of a project relating to the use of neurostimulators in medical devices. (Id.)

         In or around November 2015, a “significant percentage” of the CISC employees were terminated. (Id.) Chen learned soon after that CISC's budget was being cut to “virtually nothing, ” and that Defendants “would not approve the hiring of new employees to replace personnel that had been terminated or voluntarily left.” (Id.) Chen alleges that CISC was effectively being dissolved, its projects discontinued, and that he had been told to cease all ongoing work, including his project concerning neurostimulators. (Id.)

         Fearing that he would soon lose his own job, Chen and other CISC personnel who believed their jobs were endangered engaged in “some preliminary discussions of their potential post-[St. Jude] futures.” (Id. ¶ 11.) These discussions apparently “involved a desire to see Chen start another company” and employ some “[St. Jude ]/CISC/IBI” employees who feared they would be terminated. (Id.) However, Chen claims that he never started a new company and never employed, or offered to employ, any former or then-current employees of St. Jude, CISC, or IBI. (Id.) Chen claims he did not conceal these discussions from Defendants, who “claim they found evidence of such discussions on Chen's company computer, which they always claimed a right to monitor.” (Id. ¶ 12 (emphasis omitted).)

         Chen alleges that he was effectively terminated on May 10, 2016. (Id. ¶ 13.) He was “induced” to sign a Separation and Release Agreement in exchange for the promise of approximately six months' paid leave plus a year of salary as severance following the end of the paid leave period. (Id.) He alleges that Defendants' true intention at that time was “to try to keep him on the payroll, despite the fact that he had no continuing duties, no access to Defendants' computer systems, and was barred from the office, so that they could use that period to find/confirm some basis to terminate him for cause and thereby cancel/steal over $2 million in [Non-Qualified Stock Options (“NQSOs”)] previously granted to him as part of his compensation packages, including over $1.27 million in fully vested and exercisable NQSOs and in excess of $48, 000 in sellable market value of [Restricted Stock Units].” (Id. (emphasis omitted).)

         On August 12, 2016, he received a letter from St. Jude informing him that he was being terminated for cause for “purportedly misappropriating confidential and proprietary information and assets” of St. Jude, and as a result, Defendants refused to pay the balance of Chen's paid leave time and terminated his unexercised NQSOs. (Id. ¶¶ 14, 16.) When Chen objected, Defendants allegedly threatened him with a lawsuit they intended to file in Minnesota. (Id. ¶ 17.) Chen believes that Defendants' actions are “partially related to the pending sale of [St. Jude] and its affiliated companies to Abbott Laboratories, ” in that St. Jude wanted to reduce its liabilities and obligations to current and former employees in advance of the closing of that transaction. (Id. ¶ 18.) Chen also contends that after he was terminated for cause, Defendants “repeatedly and forcefully demanded full access to Chen's personal email account, his personal computer and his iPhone, ostensibly for the purpose of confirming whether or not Chen had in fact engaged in the conduct he was alleged to have engaged in.” (Id. ¶ 19.)

         Defendants initiated an action against Chen in Minnesota state court in August 2016 for his alleged attempts to steal St. Jude proprietary information, resources, and personnel and to exploit the confidential neurostimulator project for his own benefit. (Dkt. 1-3 Ex. I.) That litigation is ongoing, and the parties are currently engaged in discovery. (See Opp. at 4-5; id. at 5 n.3.) On November 7, 2016, Chen filed a complaint against the St. Jude Entities in California state court (Case No. 30-2016-00885316-CU-E-CJC) (the “First Action”) for wrongful termination, breach of contract, breach of the covenant of good faith and fair dealing, violation of California Labor Code Sections 200, 201, 219, 221, violation of the UCL, and conversion. (Dkt. 1-3 Ex. A.) The St. Jude Entities removed the First Action to this Court on December 7, 2016 (Case No. 8:16-cv-02178-CJC(JCGx)). Chen dismissed that action without prejudice on December 12, 2016. (Id. Ex. D.) Two weeks later, Chen filed this action in state court against the St. Jude Entities and IBI. (Compl.) The parties agree that the operative Complaint in this case is substantially similar to that filed in the First Action, except that this time, IBI is also named as a Defendant. (See Mot. at 7; Dkt. 15 [Opposition, hereinafter “Opp.”] at 4.)

         Defendants removed the present action to this Court on January 27, 2017. (Dkt. 1.) Although Chen and IBI are both California residents, Defendants removed this action on the grounds that IBI was a sham defendant named specifically for the purpose of evading federal jurisdiction. (See generally Opp.) Chen then filed the present motion to remand the case, contesting Defendants' characterization of IBI as a sham defendant. (Mot.)


         In assessing whether there is proper subject matter jurisdiction, courts disregard the citizenship of a defendant that has been fraudulently joined. Morris v. Princess Cruises, Inc., 236 F.3d 1061, 1067 (9th Cir. 2001). “Joinder is fraudulent if the plaintiff fails to state a cause of action against a resident defendant, and the failure is obvious according to the settled rules of the state.” Hunter v. Philip Morris USA, 582 F.3d 1039, 1043 (9th Cir. 2009) (quotation omitted). Conversely, “if there is any possibility that the state law might impose liability on a resident defendant under the circumstances alleged in the complaint, the federal court cannot find that joinder of the resident defendant was fraudulent, and remand is necessary.” Id. at 1044. Fraudulent joinder must be proven by “clear and convincing evidence, ” Hamilton Materials, Inc. v. Dow Chem. Corp., 494 F.3d 1203, 1206 (9th Cir. 2007), and a defendant may present additional facts to show that the joinder is fraudulent, McCabe v. Gen. Foods Corp., 811 F.2d 1336, 1339 (9th Cir. 1987). However, in determining whether a defendant was fraudulently joined, all disputed questions of fact and all ambiguities in the controlling state law must be resolved in favor of remand to state court. Hunter, 582 F.3d at 104 at 1042. “‘There is a presumption against finding fraudulent joinder, and defendants who assert that plaintiff has fraudulently joined a party carry a heavy burden of persuasion.'” Onelum v. Best Buy Stores L.P., 948 F.Supp.2d 1048, 1051 (C.D. Cal. 2013) (quoting Plute v. Roadway Package Sys., Inc., 141 F.Supp.2d 1005, 1008 (N.D. Cal. 2001)).

         Defendants assert that IBI was added as a sham defendant in this case to avoid federal jurisdiction. They state that Chen's “alleged grievances have nothing to do with” IBI, as this case is an employment dispute arising out of Chen's termination by St. Jude eight years after any connection between IBI and Chen was severed. (Opp. at 1.) Defendants also point out that after Chen filed the First Action, the parties began a meet-and-confer process for the St. Jude Entities' anticipated motion to dismiss for forum non conveniens, “premised on the mandatory forum-selection provision in the Separation and Release Agreement between the parties that requires all litigation related to Plaintiff's employment by St. Jude to be conducted in Minnesota.” (Id. at 3.) According to Defendants, they informed Chen that they planned to file that motion on ...

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