Summary
holding personal jurisdiction existed over former employee who allegedly breached noncompete when employee regularly communicated via email and telephone with people in forum, including his supervisor and people he supervised, and regularly traveled to forum
Summary of this case from Kendall Hunt Publ'g Co. v. The Learning Tree Publ'g Corp.Opinion
Civil No. 03-5832 (JRT/FLN)
January 7, 2004
Patricia A. Bloodgood, Susan E. Ellingstad, and Matthew R. Salzwedel, LOCKRIDGE GRINDAL NAUEN P.L.L.P., Minneapolis, MN, for plaintiff
Glenn E Westreich, NIXON PEABODY LLP, San Francisco, CA Michael J. Bleck and Andrew S.Hansen, OPPENHEIMER WOLFF DONNELLY L.L.P., Minneapolis, MN, for defendant
MEMORANDUM OPINION AND ORDER GRANTING PRELIMINARY INJUNCTION
Plaintiff West Publishing Corporation ("West") brought this suit against its former employee, defendant Timothy J. Stanley ("Stanley"), alleging breach of contract and fraudulent inducement related to that contract. West seeks a preliminary injunction to enforce the non-compete provisions of the contract. Stanley asserts that the action should be dismissed because personal jurisdiction and venue are improper in Minnesota. In the alternative, Stanley seeks to transfer venue to the Northern District of California. For the following reasons, the Court denies Stanley's motion to dismiss or, in the alternative, transfer the action and grants West's motion for a preliminary injunction.
BACKGROUND
Defendant Stanley was one of the co-founders of FindLaw, an internet-based business that provides services to attorneys and law firms. At its founding, FindLaw was an independent corporation located in Santa Clara County, California. However, in January 2001, FindLaw was acquired by West, a Minnesota company. As part of the purchase, West paid Stanley a substantial sum of money and hired hi m as Vice President Technology/CTO-FindLaw. Stanley and West executed an agreement entitled "Employment Agreement and Restrictive Covenants" ("Employment Agreement"). The Employment Agreement included a two-year non-compete provision, a two-year non-solicitation provision, and a non-disclosure provision (collectively, "the non-compete provisions"), as well as forum selection and choice of law provisions. The Employment Agreement provided that Stanley's place of employment with West would be principally in California, but contemplated reasonable job-related travel. It also specified that any disputes would be litigated in California under California law.
West is a Minnesota-based company headquartered in Eagan, Minnesota. After being acquired by West, FindLaw's headquarters remained in California, although several key executives supervised its operations from Minnesota. Stanley remained stationed primarily in California, but traveled regularly to Minnesota. In February 2003, Stanley received a promotion that required him to directly supervise a team of persons in the Eagan office. In furtherance of these duties, Stanley spent 13 days in Eagan between February and April 2003, when he was terminated.
Stanley notes that he traveled frequently for his job and during the "first 69 business days of 2003" spent 23 days in California, 13 days in Minnesota, 12 days in Nevada, 11 days in Illinois and Wisconsin, 5 days in Florida, 2 days in the New York area, 2 days in Louisiana, and 1 day in Colorado.
On April 7, 2003, Deborah Monroe, General Manager of the FindLaw division and Stanley's direct supervisor, and Thomas G. Moran, West's Senior Vice President for Human Resources, held a meeting with Stanley in FindLaw's California headquarters during which he was fired. Both Monroe and Moran are based in West's Eagan office. Monroe and Moran presented Stanley with a Separation Agreement ("Separation Agreement"), which Moran had already executed on West's behalf. Stanley executed the Separation Agreement several days later and returned it to FindLaw.
The parties disagree as to whether Stanley returned the Separation Agreement to FindLaw's California office or to the Minnesota office. The resolution of that question is not material to the Court's findings in this matter.
Under the Separation Agreement, Stanley agreed that for a period of one year, he would not compete with West or solicit or hire West employees. In exchange, he would receive one year of salary. The Separation Agreement also contains a non-disclosure provision, releases West from claims Stanley might bring against it, and provides that it supercedes any prior agreements. The Separation Agreement does not contain either a choice of law or forum selection clause.
Specifically, the Separation Agreement provides:
7. You agree that you will not, directly or indirectly, except as agreed in writing by the President and Chief Executive Officer of West through the duration of the Payment Period (a) hire or solicit for employment any employee of West/TLR (or any affiliate thereof), who was such as of such date, or was so within six (6) months of the date that you hired or solicited such person, or solicit or engage any author of West/TLR (or any affiliate thereof), or (b) become associated with (as an employee of or consultant to), provide services to or have any financial interest in, any Competing Business, or any start-up venture in any of such fields . . . For purposes of this paragraph, "Competing Business" shall mean a business that competes with the business of West/TLR (or any affiliate thereof), or any business in which West/TLR (or any affiliate thereof) is contemplating being engaged as of the Effective Date, but shall not be deemed to include the business engaged in by any affiliated entity of such competing business if such affiliated entity does not itself engage in such business. You will forfeit all benefits under this letter in the event you engage in any of the activities mentioned in this paragraph.
On April 15, 2003, Stanley sent a letter to Moran at West's Eagan headquarters stating that he might "choose to engage in a `Competing Business' as defined in [the]. . . severance letter agreement by and between myself and West," and indicating that West might want to escrow any benefits he was to receive under the Separation Agreement.
The next day, Stanley incorporated a new business, Justia Inc., in Nevada. Stanley is Justia Inc.'s President, Secretary and Treasurer. Stanley, through Justia Inc., operates the website Justia.com. Justia.com offers "effective search engine optimization ("SEO") and management solutions" for law firms, services that FindLaw also offers. In addition to offering SEO services, Justia.com offers consumer product recall alerts and newsletters similar to those offered by FindLaw, and operates an internet store supplied by the same third-party product supplier and offering similar merchandise for sale.
Search engine optimization ("SEO") is a process whereby the marketing return on a website is increased, in part, through structuring the website to increase the probability that it will be listed when an internet-user performs a search using a search engine such as google.com or yahoo.com.
Stanley was involved in FindLaw's SEO services while employed by West.
Stanley was involved in the development of FindLaw's consumer product recall section.
One week later, an attorney for Stanley sent a letter to West's in-house counsel assuring West that the Separation Agreement was a "binding agreement," and that Stanley's April 15 letter was not "intended to rescind" it. The letter also stated that Stanley remained "undecided as to his future career path;" "understands the binding nature of the release; and ha[s] no intention of breaching the [Separation] agreement." West has continued to pay Stanley his salary according to the terms of the Separation Agreement.
West learned of Stanley's new business venture in mid-September and shortly thereafter notified Stanley by letter that he was in breach of the Separation Agreement. On September 19, Stanley's attorney responded that the restrictive covenants in Stanley's Separation Agreement were "unenforceable" as a matter of law, and Stanley would not honor them.
On September 30, 2003, West filed essentially this action in the United States District Court for the District of Nevada, alleging that Stanley had violated the non-compete provisions of the Separation Agreement by establishing Justia Inc. and developing Justia.com. Stanley was served on October 13, 2003. Stanley objected to the action on the grounds that jurisdiction and venue were both improper. On October 23, 2003, while the Nevada action was pending, Stanley filed an action against West in California state court seeking a judicial declaration of the parties' rights under the Separation Agreement. The District Court in Nevada refused to enter a preliminary injunction against Stanley due, in part, to concerns over jurisdiction and venue. West voluntarily dismissed the Nevada action, and then filed this action on November 3, 2003.
As in this action, the complaint included claims for breach of contract and fraudulent inducement.
ANALYSIS
As an initial matter, the Court must determine whether it has jurisdiction to consider West's motion for injunctive relief. If the Court does have jurisdiction, it will then consider whether a preliminary injunction is properly issued in this instance.
I. PERSONAL JURISDICTION
Stanley objects that his contacts with Minnesota are not substantial enough to support jurisdiction and venue in this Court. West asserts that in the course of his employment with West, Stanley had numerous contacts with Minnesota and that those contacts along with his actions in signing and breaching the Separation Agreement constitute sufficient connection with Minnesota to support personal jurisdiction.
A federal district court has personal jurisdiction over a foreign defendant to the same extent as a state court in the same forum. Digi-Tel Holdings, Inc. v. Proteq Telecommunications, Ltd., 89 F.3d 519, 522 (8th Cir. 1996). Thus, jurisdiction is proper in this Court if it would also be proper in a Minnesota state court. The Minnesota long-arm statute extends jurisdiction to the outer limits permitted by the due process clause of the U.S. Constitution. Minn. Stat. § 543.19 (1994); Jarvis Sons v. Freeport Shipbuilding, 966 F.2d 1248, 1249 (8th Cir. 1992); Valspar Corp. v. Lukken Color Corp., 495 N.W.2d 408, 411 (Minn. 1992). The due process clause requires that a defendant have "minimum contacts with [the forum state] such that maintenance of the suit does not offend `traditional notions of fair play and substantial justice.'" Int'l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945) (citation omitted).
Jurisdiction may be either specific or general. Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 414, nn. 8 9 (1984) (comparing specific and general jurisdiction). Specific jurisdiction, which plaintiff alleges in this case, exists when the cause of action arises out of or is related to the defendant's contacts with the forum state. Id. at 414, n. 8. The minimum-contacts inquiry for specific jurisdiction focuses on the "relationship among the defendant, the forum, and the litigation," Keeton v. Hustler Magazine, Inc., 465 U.S. 770, 775 (1984) (citation omitted), and requires "a substantial connection" that "come[s] about by an action of the defendant purposefully directed toward the forum state." Asahi Metal Ind. Co. v. Super. Ct. of Cal., 480 U.S. 102, 112 (1987).
General jurisdiction permits the court to exercise jurisdiction over a defendant who has continuous and systematic contacts with the forum state, regardless of where the cause of action arose. See Sondergard v. Miles, Inc., 985 F.2d 1389, 1392 (8th Cir. 1993).
Minnesota courts and the Eighth Circuit look to five factors in determining whether the exercise of personal jurisdiction is appropriate: 1) the nature and quality of the contacts with the forum state; 2) the quantity of the contacts with the forum state; 3) the relation of the cause of action to the contacts; 4) the interest of the forum state in providing a forum for its resident; and 5) the convenience of the parties. Real Properties, Inc. v. Mission Ins. Co., 427 N.W.2d 665, 668 (Minn. 1988); Land-O-Nod Co. v. Bassett Furniture Indus., Inc., 708 F.2d 1338, 1340 (8th Cir. 1983). The first three factors are most important, while the last two are considered "secondary factors." Digi-Tel Holdings, 89 F.3d at 523. No one factor is determinative, and the Court's decision is based on the totality of the circumstances. Northrup King Co. v. Compania Productora Semillas Algondoneras Selectas, S.A., 51 F.3d 1383, 1388 (8th Cir. 1995). Doubts as to whether a court has personal jurisdiction over an individual or entity should be resolved in favor of retaining jurisdiction. Valspar Corp. v. Lukken Color Corp., 495 N.W.2d 408, 412 (Minn. 1992); Medtronic, Inc. v. Camp, 2002 WL 539073, *2 (D. Minn. 2002).
To survive a motion to dismiss, a plaintiff need only establish a prima facie case of personal jurisdiction. Hardrives, Inc. v. City of LaCrosse, Wisconsin, 240 N.W.2d 814, 816 (Minn. 1976); Stevens v. Redwing, 146 F.3d 538, 543 (8th Cir. 1998). For purposes of the prima facie showing, the Court takes the allegations contained in the complaint as true, and all factual conflicts must be resolved in favor of the nonmoving party. Digi-Tel Holdings, 89 F.3d at 522.
A. The Quantity of the Contacts
Specific jurisdiction can arise from even a single contact with the forum. Marquette Nat'l Bank of Minneapolis v. Norris, 270 N.W.2d 290, 295 (Minn. 1978) (citing McGee v. Int'l Life Ins. Co., 355 U.S. 220, 223 (1957)), Marshall v. Inn on Madeline Island, 610 N.W.2d 670, 674 (Minn.Ct.App. 2000). The quantity of contacts is not determinative where specific jurisdiction has been alleged. Id. In this case, Stanley voluntarily entered into a contract, the Separation Agreement, with West, a Minnesota company. This action arises directly from his alleged breach of that contract.
Although the mere act of entering into the Separation Agreement might be sufficient to support jurisdiction, the Court is not required to base its decision on this one action. Stanley's contacts with Minnesota are much more extensive than just the Separation Agreement. Stanley entered into contracts to sell his business to and then work for West, a Minnesota company. During his employment with West, Stanley reported to a supervisor in Minnesota, maintained regular e-mail and telephone contact with West's Minnesota offices, traveled regularly to Minnesota, and for the last several months of his employment directly supervised a group of employees in West's Minnesota offices. Upon termination from West, Stanley again entered into a contract with West, the Separation Agreement, and then directed at least one piece of correspondence concerning that contract to West at its Minnesota offices. Additionally, Stanley's new business, Justia.com, is accessible to, and is directed at consumers across the country, including those in Minnesota.
Stanley argues that his contacts with Minnesota during his employment with West cannot support personal jurisdiction in Minnesota because they occurred at a time when Stanley was covered by the Employment Agreement law and forum selection provisions. In essence, Stanley argues that he would not have created those Minnesota contacts if he had known that they might subject him to jurisdiction in Minnesota. The Court is not persuaded by this argument. By contracting with, working for, communicating with, and regularly visiting a Minnesota company, Stanley was at all times running the risk that he might be pulled into Minnesota courts. That Stanley does not, and perhaps did not, wish to be subject to jurisdiction in Minnesota does not permit the Court to decline to exercise personal jurisdiction if the facts indicate sufficient contacts with the forum. See Valspar 495 N.W.2d at 411-12 (exercise of personal jurisdiction is not discretionary).
B. The Nature and Quality of the Contacts
Under this factor, the central question is "whether [the defendant] had `fair warning' of being sued in Minnesota. [The defendant] had `fair warning' if it `purposefully directed' its activities at residents of this state." TRWL Fin. Establishment v. Select Int'l, Inc., 527 N.W.2d 573, 576-77 (Minn.Ct.App. 1995) (citations omitted). Incidental contacts as a result of unilateral activity by another party are not sufficient to support personal jurisdiction. Burger King Corp. v. Rudzewicz, 471 U.S. 462, 474-75 (1985).
As previously discussed, Stanley sold his business to a Minnesota company, entered into an employment relationship with a Minnesota company, made multiple visits to Minnesota, directly supervised a team of employees based in Minnesota, and is making his current business available to Minnesota citizens through the website Justia.com. Justia.com permits Minnesota consumers to access its content and correspond with the company about the services it offers. Far from being insignificant, these are substantial contacts having direct impact on Minnesota citizens that should have given Stanley fair warning that he might be subject to Minnesota courts.
Both parties argued that the test for finding specific jurisdiction articulated in Zippo Manufacturing Co. v. Zippo Dot Com, Inc., 952 F. Supp. 1119 (W.D. Penn. 1997) and adoptedby the Eighth Circuit in Lakin v. Prudential Securities, Inc., 348 F.3d 704 (8th Cir. 2003), supports their position. Under the Zippo test, an entirely passive website alone would not support personal jurisdiction, while a website permitting the owner company to exchange information and conduct business with website users would. Zippo, 952 F. Supp. at 1124-25. In light of Stanley's more extensive contacts with Minnesota, the Court does not find it necessary to apply the Zippo test, but notes that Justia.com is not a passive site, as it solicits business from viewers anywhere in the country, including Minnesota, and receives and replies to inquiries from such persons.
C. The Source and Connection of the Cause of Action With Those Contacts
This action arises directly from Stanley's alleged breach of the Separation Agreement that he signed with West, which was in part furthered through Stanley's subsequent mail and e-mail contacts with West's Minnesota office. Additionally, Stanley's earlier contacts with West in Minnesota can be considered related to this action, since it is Stanley's intimate knowledge of West's FindLaw operation, acquired through his more than two years of employment at West, that led West to seek the non-compete provisions contained in the Separation Agreement.
D. The Secondary Factors
Generally, Minnesota has a strong interest in providing a forum for its citizens to address tortious conduct, Marshall, 610 N.W.2d at 676. In this case, West has alleged both generally tortious conduct and fraudulent conduct. Although Minnesota's interest in ensuring a forum cannot by itself establish minimum contacts, Dent-Air v. Beech Mountain Air Service, 332 N.W.2d 904, 908, it supports a finding that jurisdiction is proper in this case.
In analyzing the convenience of the parties, the Court balances the interests of the plaintiff against the inconvenience to the nonresident defendant. Shuck v. Champs Food Sys., Ltd., 424 N.W.2d 567, 571 (Minn.Ct.App. 1988). Stanley claims that his witnesses (including himself) are in California, and that the burden of litigating in Minnesota will be heavier on him, acting as an individual, than the burden of litigating elsewhere will be on West. West replies that most of its witnesses reside in Minnesota. Both parties have retained counsel both in Minneapolis and in San Francisco. The Court is not convinced that Minnesota is such an inconvenient forum for Stanley that this secondary factor could outweigh the previous four factors, all of which favor retention of jurisdiction in Minnesota.
E. Conclusion
Based upon the totality of the circumstances, and resolving all factual disputes in West's favor, the Court finds that West has made out a prima facie case that personal jurisdiction is proper in Minnesota. Stanley's motion to dismiss must therefore be denied on this ground.
II. VENUE
Stanley also asserts that venue is improper and inconvenient in Minnesota, and requests that the action be either dismissed or transferred to California on that basis.
A. Improper Venue
28 U.S.C. § 1391(a)(2) permits venue in "a judicial district in which a substantial part of the events or omissions giving rise to the claim occurred, or a substantial part of property that is the subject of the action is situated." To determine whether venue is proper, the Court examines whether Minnesota has "a substantial connection to [West's] claims, whether or not other forums ha[ve] greater contacts." Setco Enterprises Corp. v. Robbins, 19 F.3d 1278, 1281 (8th Cir. 1994).
The Court finds that West's claims have a substantial connection to Minnesota, and that a substantial part of the events giving rise to the claims occurred here. The Separation Agreement was drafted and signed by West in Minnesota. Stanley directed correspondence to Minnesota allegedly inducing West to comply with the Separation Agreement even though he was no longer doing so. Further, Stanley gained information about the operation of FindLaw that he can now use in the development of Justia.com during his employment with West through regular communications with and trips to Minnesota. These contacts are substantial, and venue is therefore proper in Minnesota. Stanley's motion to dismiss on the basis of improper venue is denied.
B. Transfer of Venue
Stanley alternatively moves to transfer venue to California under 28 U.S.C. § 1404(a). To determine whether to transfer a case, the Court must consider: (1) the convenience of the parties; (2) the convenience of the witnesses; and (3) the interests of justice. Terra Int'l, Inc. v. Mississippi Chem. Corp., 119 F.3d 688, 691 (8th Cir. 1997); Commodities Specialists Co. v. Brummet, 2002 WL 31898166 (D. Minn. 2002). "The party seeking transfer bears the burden of proof to show that the balance of factors `strongly' favors the movant." Id. (citation omitted).
Stanley is a resident of California. Although FindLaw has an office in California, West is based in Minnesota and significant members of the FindLaw team are located in Minnesota. Stanley and his potential witnesses are apparently located in California. West's witnesses, on the other hand, are largely based in Minnesota. It does not appear that physical evidence in this case is so voluminous as to favor one location over the other. Further, as discussed above, significant events related to the case took place, at least in part, in Minnesota and Minnesota has a substantial interest in the case.
The Court finds that although venue would be proper in California, Stanley has not demonstrated that the balance of the factors "strongly" favors transfer to California. See id. The Court therefore denies defendant's motion to transfer.
Stanley also asserted that the so-called "first filed rule" favors transfer of this action to California. The Court notes that this "rule" does not properly apply between two courts of different sovereignty. Adv. Bionics Corp. v. Medtronic, 59 P.3d at 237. Further, a first-filed action for declaratory judgment may be "indicative of a preemptive strike," which might justify refusal to cede to the first-filed suit. See Northwest Airlines, Inc. v. American Airlines, Inc., 989 F.2d 1002, 1007 (8th Cir. 1993); PCL Construction Services, Inc. v. Rainforest Care, Inc., 2002 WL 122612, *3 (D. Minn. 2002).
III. PRELIMINARY INJUNCTION
West requests that the Court grant a preliminary injunction enjoining Stanley from further activity in violation of the Separation Agreement. Stanley contends, as an initial matter, that California law should govern the Separation Agreement. According to Stanley, under California law the non-compete clause in the Separation Agreement is invalid. Stanley further asserts that even if, as West urges, Minnesota law applies, West has failed to establish that it will suffer irreparable harm unless an injunction issues. The Court first considers which state's law should be applied, and then whether a preliminary injunction is appropriate in this case.
A. Choice of Law
In a choice of law analysis, the first consideration is whether choice of one state's law over another's creates an actual conflict. Jepson v. General Casualty Company of Wisconsin, 513 N.W.2d 467, 469 (Minn. 1994). In this case, there is an actual conflict since under Minnesota law a reasonable non-compete agreement is generally enforceable, while almost all such agreements are unenforceable under California law. Medtronic, Inc. v. Adv. Bionics Corp., 630 N.W.2d 438, 454 (Minn.Ct.App. 2001); See also Adv. Bionics Corp. v. Medtronic, Inc., 59 P.3d 231 (Cal. 2003). The Court therefore proceeds to analyze whether California or Minnesota law is more appropriately applied to the instant case.
A federal court presiding over a diversity action applies the choice-of-law rules of the state in which it is located. Larken, Inc. v. Wray, 189 F.3d 729, 732 (8th Cir. 1999). The Court therefore applies Minnesota's choice of law rules. As a threshold matter, application of a particular state's law must be constitutional. Jepson, 513 N.W.2d at 469; Allstate Ins. Co. v. Hague, 449 U.S. 302, 312-13 (1981). In determining this question, the Court looks to whether Minnesota has "a significant contact or significant aggregation of contacts, creating state interests, such that choice of its law is neither arbitrary nor fundamentally unfair." Hague, 449 U.S. at 312-13. In this case, the substantial contacts between Stanley and Minnesota that support personal jurisdiction over Stanley also indicate that application of Minnesota law would be constitutional.
Minnesota employs the "better law" methodology in determining which state's laws to apply. Milkovich v. Saari, 203 N.W.2d 408 (Minn. 1973). Under Milkovich, the Court considers a series of five factors: (1) predictability of result; (2) maintenance of interstate and international order; (3) simplification of the judicial task; (4) advancement of the forum's governmental interest; and (5) application of the better rule of law. Jepson, 513 N.W.2d at 470. Based on the following analysis, the Court determines that the balance of these factors indicates application of Minnesota law.
1. Predictability of results
This factor applies primarily to consensual transactions such as contracts, and attempts to protect the "justified expectations of the parties to the transaction." Medtronic v. Adv. Bionics Corp., 630 N.W.2d at 454 (quotation omitted). Common sense dictates, and Minnesota courts have agreed, that parties entering into an agreement intend each of the terms of the agreement to be valid and enforceable. See Minnesota Mining Manufacturing Co. v. Kirkevold, 87 F.R.D. 324, 331; (citing Alside, Inc. v. Larson, 220 N.W.2d 274, 279 (Minn. 1974) ("[I]t strains credulity . . . that the parties would have intended a law to apply that would void the very contract they were signing. . . .[T]he parties intended the contract to be enforceable and the law should apply which would make this possible.")). To conclude otherwise would make it virtually impossible to predict what result might come from interpretation of a contract. Thus, to the extent that the Separation Agreement may be unenforceable under California law, this factor favors application of Minnesota law.
Stanley asserts that although the Separation Agreement does not contain a choice of law provision, the choice of California law in the Employment Agreement, coupled with the reference to California law relating to releases of claims in the Separation Agreement, indicates the parties' intention and expectation that California law apply to any dispute arising under the Separation Agreement. The Court does not find this argument persuasive. Had the parties wanted to ensure that California law would apply to the Separation Agreement, they would have explicitly agreed to the application of California law as they did in the Employment Agreement. Further, a reasonable reading of the language Stanley relies on is that the parties did not choose a particular state's law to apply to the Separation Agreement. Contrary to Stanley's assertion, it appears to the Court that the language in the Separation Agreement is merely an attempt to ensure that the release would function as well in California as it would anywhere else.
The Separation Agreement releases West from "any claims arising under . . . federal, state or local fair employment practices or other employee relations statutes (including without limitation . . . the employment laws and regulations of the States of California, Minnesota and Nevada)." It also provides that "[t]he provisions of Section 1542 of the Civil Code of California . . . are hereby knowingly and voluntarily waived and relinquished."
2. Maintenance of interstate and international order
This factor considers whether the application of Minnesota law would manifestly disrespect California's sovereignty or, where the interests of Minnesota are not strong, subvert the interests of California. Jepson, 513 N.W.2d at 471. Evidence of forum shopping, or that application of Minnesota's law would promote forum shopping, would indicate such disrespect. Id.
The Minnesota Court of Appeals has held that while California has a strong interest in disfavoring non-compete agreements, Minnesota's interest "in having its contract laws enforced" is equally strong. Medtronic v. Adv. Bionics Corp., 630 N.W.2d at 455. In this case, both parties have accused the other of forum shopping — in West's case by filing first in Nevada and then in Minnesota, and in Stanley's case by filing a declaratory suit in California while the Nevada action was pending but before the Minnesota case had begun. As is often the case in litigation, each filed suit in the state that best fit their case. This situation does not favor either party, or either state's law.
3. Simplification of the judicial task
As it is assumed that all courts are competent to apply different state's laws without difficulty, this factor is also neutral. Jepson, 513 N.W.2d at 472.
4. Advancement of the forum's governmental interest
In examining this factor, the Court should consider whether application of California law to this dispute would be "inconsistent with Minnesota's concept of fairness and equity." Medtronic v. Adv. Bionics Corp., 630 N.W.2d at 455 (quotation omitted). The Minnesota Supreme Court has suggested that a significant policy interest of Minnesota is that "people should get the benefit of the contracts they enter into, nothing less and nothing more." Jepson, 513 N.W.2d at 472. In Advanced Bionics Corp., the court addressed Minnesota's interest in enforcing non-compete agreements, as compared to California's interest: "Applying California law to this dispute would not advance Minnesota's interests and would reduce the protection afforded under Minnesota law to employers who enter into legal non compete contracts. This factor favors applying Minnesota law." These considerations are still applicable, and this factor thus favors applying Minnesota law.
In a companion case to Advanced Bionics Corp., the California Supreme Court explained why California's policy of disfavoring non-compete agreements was not "materially greater" than "Minnesota's countervailing interest in enforcing bargained-for restrictions on that free movement." "If . . . California law [applies] to a dispute Ike the one at issue here, then California's economic strength [would] give rise to a kind of political imperialism, absorbing every state into the California ethos." Adv. Bionics Corp. v. Medtronic, Inc., 59 P.3d 231, 238 (Cal. 2003) (Brown, J., concurring).
5. Application of the better rule of law
The better rule of law is one which makes "good-socioeconomic sense for the time when the court speaks." Jepson, 513 N.W.2d at 472 (quotation omitted). This factor is not often considered determinative. However, it has been suggested that because of Minnesota's tendency to enforce reasonable restrictive covenants, the Minnesota Supreme Court would conclude that Minnesota law is the "better law." Kirkevold, 87 F.R.D. at 3319567, *6.
Based on the above analysis, the Court concludes that Minnesota law should be applied.
B. Dataphase Factors
In deciding whether to grant a preliminary injunction, the court considers the familiar factors set forth in Dataphase Systems, Inc. v. C.L. Systems, Inc., 640 F.2d 109, 114 (8th Cir. 1981). These are: (1) threat of irreparable harm to the moving party; (2) the probability of success on the merits; (3) the balance between that harm and the injury that would be inflicted on the non-moving party; and (4) the public interest. Id.
1. Irreparable harm
Minnesota courts have consistently held that irreparable injury can result from the mere breach of a non-compete agreement, see, e.g. Cherne Indus., Inc. v. Grounds Assocs., Inc., 278 N.W.2d 81 (Minn. 1979); Retek, Inc. v. Cox, 2003 WL 22037709, at *4 (D. Minn. 2003) (citing Overholt Crop Ins. Service Co., Inc. v. Bredeson, 437 N.W.2d 698 (Minn.Ct.App. 1989)); see also Adv. Bionics Corp, 630 N.W.2d at 452 (finding irreparable harm from solicitation of a former employer's existing or future customers). West alleges that Justia.com, Stanley's new business, offers substantially similar services to those offered by FindLaw and targets the same clients, and that four former FindLaw employees have been hired by Justia.com. In the Separation Agreement, Stanley agreed not to engage in competing business, hire FindLaw employees, or disclose confidential information. As a founder of and highly placed executive at FindLaw, Stanley clearly had access to proprietary information about the FindLaw operation and its products. While it is an issue for trial to determine the extent to which any part of the Separation Agreement has been breached, it is clear that West would likely be irreparably harmed by any such violation of the Agreement.
Stanley argues that West cannot demonstrate irreparable injury because it retains the right to recover monetary damages. He asserts that the non-compete clause in the Separation Agreement should be understood to grant Stanley the right to either compete or receive the benefits offered in the Agreement. The Court declines to read the Separation Agreement in this manner. The availability of damages for past harm does not preclude equitable relief as well. See Overholt Crop Ins. Service Co. v. Travis, 941 F.2d 1361, 1371 (8th Cir. 1991). The interpretation Stanley suggests might make sense if California law governed the agreement, since California has permitted such a provision as an exception to its general reluctance to enforce non-compete agreements. Since the parties did not agree to application of California law, however, that reading is unpersuasive.
2. Probability of Success
Under Minnesota law, restrictive covenants such as those at issue here, are construed strictly, but enforced to the extent reasonably necessary to protect a legitimate business interest. Kallok v. Medtronic, Inc., 573 N.W.2d 356, 361 (Minn. 1998). "Non-compete provisions are reasonable if they are supported by adequate consideration, are temporally and geographically reasonable, and relate to a legitimate interest of the employer that is greater than the interest of the employee." Commodities Specialists Co. v. Brummet, 2002 WL 31898166, at *8 (D. Minn. 2002) (citing Webb Publishing v. Fosshage, 426 N.W.2d 445, 450 (Minn.Ct.App. 1988).
In this case, under the Separation Agreement, Stanley received $200,000 "in exchange for" the terms of the agreement. The Court finds that this constitutes adequate consideration. Although there is no geographic limitation on the provision, this is nonetheless reasonable in light of the national, and indeed international, nature of internet business. The agreement is limited to one year, which is half the originally agreed to non-compete period in the Employment Agreement. Finally, the agreement is related to legitimate business interests of West's, namely, preventing loss of customers and misuse of proprietary information, and retention of employees. These interests are greater than Stanley's interest in establishing his new business prior to expiration of the one-year non-compete period.
3. Balance of harms
Stanley argues that while West stands to lose nothing more than a little competition between now and the end of this litigation, he stands to lose his entire investment in Justia.com as well as his ability to pursue his career for one year. Stanley also argues that he would be forced to fire most, if not all, of Justia.com's employees. West counters that given Stanley's unique and intimate knowledge of their systems and products, an injunction is required to protect their significant investment in FindLaw. The Court finds that the balance of harms favors West. By offering services similar to FindLaw's through a nationally targeted and available website, Stanley has the ability to cause irreparable harm to West's business. Additionally, as discussed previously, the non-compete provision in the Separation Agreement is reasonable. Finally, that Stanley may lose his investment or be forced to lay off Justia.com employees has little persuasive value since that is a situation he could have avoided simply by waiting until the Separation Agreement expired.
4. Public interest
Stanley argues strongly that the public interest requires that persons be permitted to earn a living and pursue a career, and that this weighs against issuing a preliminary injunction that would limit his ability to do so. While this is a significant interest, this Court has also recognized that "the public interest is served by upholding valid restrictive covenants." Millard v. Electronic Cable Specialists, 790 F. Supp. 857, 863 (D. Minn. 1992). Further, the terms of the Separation Agreement do not appear to significantly limit Stanley's ability to either earn a living or further develop his career. To the contrary, the Separation Agreement requires that Stanley refrain from competing activity for only one year — half the length of time provided for in the Employment Agreement — and provides Stanley a substantial salary during that period. Stanley remains free to pursue any other employment or engage in another activity relevant to his career. In light of Minnesota's policy of enforcing reasonable non-compete agreements, the Court finds this factor to weigh in favor of enforcing the non-compete provisions in the Separation Agreement through issuance of a preliminary injunction.
C. Conclusion
The Court concludes that the Dataphase factors support issuing a preliminary injunction to enforce the terms of the Separation Agreement. The Court will issue an injunction prohibiting Stanley from pursuing any business, including operation of Justia.com, in which FindLaw is engaged or plans to engage. Additionally, for the term of the injunction, Stanley is prohibited from soliciting any employee of FindLaw, either current or who has been employed within six months of the solicitation. Finally, Stanley is prohibited from disclosing proprietary information as required by the Agreement. West remains free to seek damages for the loss of any employees already hired by Justia.com.
The injunction will be in effect through November 15, 2004, one year from the date of the agreement reached between the parties in lieu of this Court's issuance of a Temporary Restraining Order. See Travis, 941 F.2d at 1372 (injunctive relief may extend beyond period of restrictive covenant in order to effectuate purpose of covenant).
This Court is not usually inclined to enforce non-compete agreements because their terms are often onerous and unnecessary. Such restrictions are typically placed in agreements as a matter of course with little or no additional compensation to the employee and are the result of particularly unequal bargaining power. Often it is difficult for an employee to make ends meet during the period of no competition. None of those concerns, however, are present in this case.
ORDER
Based on the foregoing, all the records, files, and proceedings herein, IT IS HEREBY ORDERED that:1. Defendant's Motion to Dismiss for Lack of Personal Jurisdiction and Improper Venue or to Stay or Transfer Venue [Docket No. 10] is DENIED.
2. Plaintiffs Motion for a Preliminary Injunction [Docket No. 2] is GRANTED. A preliminary injunction is hereby entered against defendant Timothy J. Stanley as follows:
a. Defendant is prohibited from directly or indirectly, providing service to (as an employee or consultant) Justia, Inc., the website Justia.com, or any other competing business, as that term is defined in the Separation Agreement until November 15, 2004. Defendant is further prohibited from having any financial interest in any competing business as that term is defined in the Separation Agreement until November 15, 2004, other than Justia, Inc.
b. Defendant is order to cease operation of the website Justia.com until November 15, 2004.
c. Defendant is prohibited from hiring or soliciting for employment any employee or author, whether current or who has been employed by West within six months of being hired or solicited, of West/TLR (or any affiliate thereof) until November 15, 2004.
d. Defendant is ordered to maintain as confidential any and all confidential materials or information he learned or discovered during his employment with West.
The Court is amenable to suggestions from the parties as to any less restrictive measures that would nevertheless adequately accomplish the Court's order that Stanley cease competition with West for the period of the injunction.
3. In accordance with Rule 65(c) of the Federal Rules of Civil Procedure, plaintiff shall post within twenty (20) days of this Order a bond with the Clerk in the amount of Fifty Thousand Dollars ($50,000) for the payment of such costs and damages as may be incurred or suffered by defendant in the event defendant is found to have been wrongfully enjoined or restrained.
4. The preliminary injunction shall become effective as of the date of this Order.