St. Jude Medical S.C., Inc. v. Biosense Webster, Inc.

United States Court of Appeals
For the Eighth Circuit
___________________________
No. 14-3886
___________________________
St. Jude Medical S.C., Inc., a Minnesota corporation
lllllllllllllllllllll Plaintiff - Appellee
v.
Biosense Webster, Inc., a California corporation; Johnson & Johnson, a New
Jersey corporation; Jose B. de Castro, an individual
lllllllllllllllllllll Defendants - Appellants
____________
Appeal from United States District Court
for the District of Minnesota - Minneapolis
____________
Submitted: November 18, 2015
Filed: April 12, 2016
____________
Before SMITH, BYE, and BENTON, Circuit Judges.
____________
SMITH, Circuit Judge.
Biosense Webster, Inc. ("Biosense"), a subsidiary of Johnson & Johnson,
recruited and hired Jose B. de Castro while de Castro was working for St. Jude
Medical S.C., Inc. ("St. Jude"). St. Jude had signed a three-year employment
agreement with de Castro, which would not expire for almost two more years. Soon
after de Castro's departure, Sequoia Hospital, a large St. Jude client, took its business
to Biosense. St. Jude sued de Castro and Biosense alleging, among other things, state-
law claims of breach of contract and tortious interference. The district court1 granted
summary judgment to St. Jude with respect to de Castro's breach and Biosense's
liability for tortious interference. After a jury trial on damages, the district court
entered judgments against de Castro and Biosense and awarded damages for the cost
of replacing de Castro, lost profits from Sequoia Hospital, and attorney's fees.
Biosense and de Castro appeal. We affirm.
I. Background
St. Jude and Biosense are competitive manufacturers of medical equipment.
Both companies employ sales representatives assigned to specific geographical areas.
In 2009, St. Jude promoted de Castro from field engineer to sales representative for
an area including San Francisco and San Jose, California. After two years as a sales
representative, in January 2011, St. Jude and de Castro executed a three-year
employment agreement. In relevant part, their agreement limited St. Jude's ability to
terminate de Castro and prevented de Castro from leaving St. Jude during the term of
the agreement.
Later in 2011, after St. Jude and de Castro entered into the agreement, Biosense
began courting de Castro as a potential employee. Biosense selected de Castro on the
basis of his relationship with Sequoia Hospital, a then-current St. Jude client that
Biosense desired to obtain. After multiple meetings, Biosense offered to hire de
Castro and promised to defend him from the repercussions of terminating his
employment agreement with St. Jude before the term expired. The day after de Castro
resigned in February 2012, Biosense filed a declaratory judgment action against St.
Jude, asking a federal court in California to declare the employment agreement
invalid. St. Jude, a Minnesota-based company, sought application of the Minnesota
1
The Honorable Ann D. Montgomery, United States District Judge for the
District of Minnesota.
-2-
choice-of-forum provision in the employment agreement, and the California court
transferred the case to Minnesota.
The district court in Minnesota granted summary judgment to St. Jude on all
issues except damages, which St. Jude tried to a jury and to the court. The jury
awarded St. Jude damages from Biosense and de Castro for the cost of replacing de
Castro and for lost profits; the court awarded St. Jude attorney's fees. After the trial,
the district court denied Biosense's motion for a judgment as a matter of law with
respect to damages for lost profits. Biosense and de Castro appeal. We have
jurisdiction to review this final judgment of the district court pursuant to
28 U.S.C. § 1291.
II. Discussion
Biosense and de Castro challenge the district court's grant of summary
judgment to St. Jude, arguing that (A) Minnesota substantive law does not apply
despite the written choice-of-law provision and that (B) de Castro's employment
agreement with St. Jude was a restrictive covenant rather than a valid term-of-years
employment contract. Biosense further argues that (C) St. Jude cannot recover
damages for lost profits on the basis of its tortious-interference claim. Biosense also
challenges the district court's denial of its motion for judgment as a matter of law,
arguing that (D) the evidence at trial was insufficient to support damages for lost
profits. Our review of these matters is de novo. Pittari v. Am. Eagle Airlines, Inc.,
468 F.3d 1056, 1061 (8th Cir. 2006); St. Paul Fire & Marine Ins. Co. v. Schrum,
149 F.3d 878, 880 (8th Cir. 1998).
A. The Minnesota Choice-of-Law Provision is Valid
The parties agree that the district court is bound to follow Minnesota's choice-
of-law rules. Applying these rules, the district court concluded that the Minnesota
choice-of-law provision in St. Jude's agreement with de Castro was binding because
it was entered into in good faith and without an intent to evade the law. In appealing
-3-
that ruling, Biosense and de Castro argue that the choice-of-law provision is invalid
because it was not negotiated and because it avoids the application of California law.
We disagree.
The Minnesota Supreme Court "is committed to the rule that parties may agree
that the law of another state shall govern their agreement and will interpret and apply
the law of another state where such an agreement is made." Milliken & Co. v. Eagle
Packaging Co., 295 N.W.2d 377, 380 n.1 (Minn. 1980) (quotation and citation
omitted). And we have recognized that under Minnesota law a contractual choice-of-
law provision will govern so long as the parties "'act[ed] in good faith and without an
intent to evade the law.'" Medtronic, Inc. v. Gibbons, 684 F.2d 565, 568 (8th Cir.
1982) (quoting Combined Ins. Co. of Am. v. Bode, 77 N.W.2d 533, 536 (Minn.
1956)).
Biosense and de Castro argue that the choice-of-law provision is invalid
because it was not negotiated. But they cite no authority to support the proposition
that good faith requires an actual negotiation. Indeed, the word negotiate appears
nowhere in either of the cases that Biosense cites on the matter. See Combined Ins.
Co. of Am., 77 N.W.2d at 533; Nesladek v. Ford Motor Co., 46 F.3d 734 (8th Cir.
1995). Minnesota law only requires that the parties "act[] in good faith." Combined
Ins. Co. of Am., 77 N.W.2d at 536. And Biosense and de Castro have not shown that
either St. Jude or de Castro failed to act in good faith when executing the employment
agreement.
Biosense and de Castro also argue that the choice-of-law provision is invalid
because it attempts to evade the law of California, where de Castro worked. Agreeing
to be bound by the law of the state where an employer is based, as opposed to the law
of the state where an employee works, does not reveal "an intent to evade the law."
See id. at 536. The very purpose of a choice-of-law provision is to select one body of
governing law even though more than one could apply. It is unsurprising that the
-4-
selected body of law will often favor one party over the other; that preference is
simply part of the exchange of rights and obligations under the agreement.
In sum, the district court correctly concluded that the Minnesota choice-of-law
provision in St. Jude's employment agreement with de Castro is valid because the
parties acted in good faith and without the intent to evade the law.
B. St. Jude's Agreement with de Castro Is Not a Restrictive Covenant
The district court concluded that, under Minnesota law, de Castro's
employment agreement with St. Jude was a valid term-of-years employment contract,
not a restrictive covenant, because it is enforceable by damages only. Biosense and
de Castro argue that the damages at issue have the same effect as a restrictive
covenant. We disagree.
In St. Jude Medical S.C., Inc. v. Biosense Webster, Inc., No. A13-0414,
2013 WL 5508389 (Minn. Ct. App. Oct. 7, 2013), the Minnesota Court of Appeals
addressed a similar dispute. In fact, de Castro is the only party in the case at hand that
was not also a party in the prior case. Id. at *1. And the employment contract, the
facts, and the legal questions in the prior case bear remarkable resemblance to those
at issue here. Id. In that case, the court upheld St. Jude's term-of-years employment
agreement, noting that it was enforceable only by damages, not an injunction, and was
limited to a fixed term. Id. at *1–2. The same is true in this case.
Biosense and de Castro argue that the prior case, as an opinion of the
Minnesota Court of Appeals, is not binding. Instead, they argue that we should look
to the Minnesota Supreme Court's opinion in Harris v. Bolin, 247 N.W.2d 600 (Minn.
1976). In that case, the court considered a provision whereby an employee would
forfeit vested contributions that he had received through the employer's profit-sharing
plan if he violated a noncompete clause. Id. at 601–02. The court held that the clause
was an invalid restrictive covenant "because it [was] not limited as to time, harm to
-5-
the employer, or geographical area." Id. at 603. While Harris may stand for the
proposition that monetary forfeiture may operate as a restrictive covenant, it is readily
distinguishable. The provision at issue in Harris was a perpetual prohibition of
competition, not a term-of-years agreement as in this case. Id. Also unlike this case,
the amount of the forfeiture in Harris was unrelated to the damages the breach
actually caused. Id. Accordingly, Harris is inapplicable here.
Biosense and de Castro also argue that new evidence of St. Jude's intent to lock
up employees renders this case distinguishable from the prior case. But even under
Harris, St. Jude's intent is immaterial. See id. at 602–03. St. Jude intended to lock up
employees using the fixed-term employment contract. But in doing so, St. Jude
bargained for the lock-up period by providing its employees with valuable
compensation and protection from termination. And it limited the lock-up period and
penalty to the term of the agreement and the damages actually incurred.
Finally, Biosense argues that the district court erred in granting partial
summary judgment with respect to St. Jude's tortious-interference claim. Biosense's
challenge on this issue, however, relies on establishing the invalidity of the
underlying employment contract. Because we conclude that the district court correctly
upheld the employment contract, Biosense's challenge to the tortious-interference
claim also fails.
In sum, the district court correctly concluded that St. Jude's term-of-years
employment agreement with de Castro is valid and enforceable under Minnesota law
and that Biosense was liable for tortuously interfering with that agreement.
C. St. Jude Can Recover Lost-Profit Damages
The district court concluded that, under Minnesota law, St. Jude could seek
damages for lost profits on the basis of Biosense's tortious interference with St. Jude's
-6-
employment agreement with de Castro. Biosense argues that only contract damages
are available for tortious interference. We disagree.
Biosense cites our opinion in Storage Technology Corp. v. Cisco Systems, Inc.,
395 F.3d 921 (8th Cir. 2005), arguing that it supersedes our holding in H.J., Inc. v.
International Telephone & Telegraph Corp., 867 F.2d 1531 (8th Cir. 1989). In H.J.,
we held that if "liability is based upon . . . tortious interference, the proper measure
of damages is the present value of profits lost as a result of [the] improper actions."
867 F.2d at 1549 (citation omitted). In Storage Technology, we noted that "[t]he usual
remedy provided by Minnesota law for interference with contract is to compensate
the victim for the damages that resulted from the loss of the contract." 395 F.3d at
925. On the basis of this language from Storage Technology, Biosense argues that
lost-profit damages are not available for a tortious-interference claim because they
are not contract damages. But in Storage Technology we recognized that Minnesota
law allows "damages [that] would not be available in a suit on the contract itself." Id.
(citation omitted). We held that "Minnesota courts would allow a restitutionary
remedy in a case in which the interference alleged was inducing an employee's breach
of noncompetition and nondisclosure covenants and fiduciary duties." Id. at 926. In
short, Storage Technology does not stand for the proposition for which Biosense cites
it. The district court correctly concluded that St. Jude could recover damages for lost
profits based on Biosense's tortious interference.
D. The Evidence Was Sufficient to Support Lost-Profit Damages
The district court denied Biosense's motion for judgment as a matter of law
with respect to lost-profit damages. The court determined that St. Jude had provided
evidence from which a reasonable jury could conclude that Biosense's tortious
interference caused St. Jude's lost profits. Biosense points to the conflicting testimony
of a key witness from Sequoia Hospital and the evidence indicating a corresponding
shift in profits from St. Jude to Biosense, arguing that this conflict renders the
evidence insufficient to support causation. We disagree.
-7-
In reviewing the denial of a motion for a judgment as a matter of law, we must
"view[] the evidence most favorably to the nonmoving party and draw[] all reasonable
inferences in its favor." Hinz v. Neuroscience, Inc., 538 F.3d 979, 984 (8th Cir. 2008)
(citation omitted). "If the evidence . . . would permit reasonable jurors to differ in the
conclusions they draw, judgment as a matter of law cannot be granted." Id. (quotation
and citation omitted).
In this case, the district court concluded that the following evidence supported
causation: St. Jude's decline in profits corresponded with Biosense's increase in
profits after de Castro changed employers. Internal Biosense documents indicated that
hiring de Castro was part of a strategy to win over Sequoia Hospital—one of de
Castro's clients on behalf of St. Jude. After de Castro joined Biosense, he offered
Biosense's competitive equipment free of charge to Sequoia Hospital on a trial basis.
A key physician witness from Sequoia Hospital testified that neither St. Jude's nor
Biosense's product was superior to the other. And the founding physician at Sequoia
Hospital's cardiology group continued to use St. Jude's system exclusively, even after
Biosense's system was available.
Biosense challenges the evidence supporting loss causation on two bases. First,
Biosense argues that St. Jude has failed to establish loss causation because the key
physician witness from Sequoia Hospital testified that a corporate representative such
as de Castro "has no role whatsoever in the decision as to which technology" the
hospital uses. That physician also testified that Sequoia Hospital was already looking
at the Biosense product before de Castro switched. We have held that a jury is free
to believe all, some, or none of a witness's testimony. Stevenson v. Union Pac. R.R.
Co., 354 F.3d 739, 745 (8th Cir. 2004). Accordingly, the jury was free to believe that
de Castro's move to Biosense initiated and played a role in Sequoia Hospital's
decision to use Biosense's product, thereby ignoring the part of the physician
witness's testimony regarding de Castro's role, while believing the other part of his
testimony that neither product was superior.
-8-
Second, Biosense argues that the evidence of a corresponding shift in profits
from St. Jude to Biosense is weak because it fails to account for other market
variables like product quality and customer purchasing decisions. For support, it
points to our opinion in Hinz, where we held that a drop in sales for a company
corresponding with an increase in sales for its competitor is insufficient alone to
establish loss causation. 538 F.3d at 985. Unlike in Hinz, the profit data in this case
were accompanied by specific information about the purchasing decision of the client
accounting for the shift of profits. The evidence here also suggested that the products
were comparable. Hinz's disapproval of bald evidence of a profit shift is thus
inapplicable.
In sum, the district court correctly determined that there was sufficient
evidence from which a reasonable jury could conclude that Biosense caused St. Jude
to lose profits.
III. Conclusion
Accordingly, we affirm the judgment of the district court.
______________________________
-9-