Opinion
No. C7-97-1185, C9-97-1186.
Filed November 25, 1997.
Appeal from the District Court, Anoka County, File Nos. C69614687 (Anderson) C79615475 (Sun).
William Z. Pentelovitch, Richard G. Wilson, Wayne S. Moskowitz, Maslon Edelman Borman Brand, LLP, (for respondent).
Timothy D. Kelly, Wendy A. Snyder, Madge S. Thorsen, Kelly Berens, P.A., (for appellants Sun, et al.).
Timothy D. Kelly, Wendy A. Snyder, Kelly Berens, P.A., (for appellants Anderson, et al.).
Considered and decided by Short, Presiding Judge, Parker, Judge, Crippen, Judge.
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (1996).
UNPUBLISHED OPINION
After lengthy bench trials in two separate suits, the trial court determined that respondent Medtronic, Inc. was entitled to one-year injunctions prohibiting appellants Russell Anderson and Weimin Sun from performing any services for Medtronic's primary competitor, appellant Cardiac Pacemakers, Inc. Appellants contend that the trial court wrongfully interpreted Medtronic's noncompete agreements and applied them without adequate proof that appellants were engaging in prohibited conduct. In its notice of review, respondent contends that the trial court erred in declining to impose two-year injunctions and in dismissing claims that Cardiac Pacemakers tortiously interfered with respondent's contract rights. We affirm.
FACTS
Appellant Anderson, an integrated circuit design engineer, began work at Medtronic in 1982 and resigned on October 28, 1996. On November 14, 1996, he began work at Cardiac Pacemakers. He worked exclusively on brady pacemakers while at Medtronic and was hired to work on implantable cardiac defibrillators (ICD's) or "tachy-devices" for Cardiac Pacemakers.
Bradycardia is a condition is which the heart beats too slowly. Thus, a pacemaker, which solves this problem by sending low voltage electric shocks to the heart, is also known as a brady device. Anderson's most recent work for Medtronic was on the Kappa-700, a new model brady pacemaker, which is scheduled to be marketed in this country in mid-1998.
Tachycardia is a condition in which the heart beats too rapidly. This condition is more acutely threatening to a patient's health than bradycardia because it can lead to fibrillation, in which the heart beats in a rapid, uncoordinated fashion causing death if not halted within a few minutes. An implantable cardiac defibrillator (ICD) gives a heart in tachycardia a strong electric shock to reduce its pace.
Appellant Sun, an electrical engineer, conducted research at Medtronic on sensing algorithms used for detecting and discriminating electrical waves in the heart. His work for Medtronic began in March 1994 and ended with his departure on October 31, 1996. At Cardiac Pacemakers, his work involved research with swine related to improving the ability of defibrillation shocks to stop ventricular fibrillation.
Medtronic's employment agreement, signed by both Anderson and Sun when they began working for the corporation, permits a former Medtronic employee to work for a Medtronic competitor. For two years after leaving Medtronic, however, the former employee is prohibited from rendering services "in connection with the design, development, manufacture, marketing, or sale" of a "Competitive Product" in the market area of a "Medtronic Product." Medtronic products are defined as those "with respect to which" Medtronic has acquired confidential information for use in creating or selling a product or service. Competitive products are defined as those, including components, that are the "same" or "similar," in terms of type, function, or purpose, to Medtronic products on which the former employee worked during the last two years of employment or about which the employee received or had knowledge of confidential information.
In its extensive May 1997 order and memorandum, the trial court made detailed findings of fact on the functioning of the heart, the brady pacemakers produced by Medtronic, and the tachy-devices manufactured by Cardiac Pacemakers. The trial court examined in detail the role of Anderson and Sun with each employer, found that Cardiac Pacemakers' tachy-devices were the "same or similar" to Medtronic's brady pacemakers, which Anderson and Sun had worked on in different ways, and concluded that the Medtronic employment agreement applied to Anderson and Sun's work with Cardiac Pacemakers.
The court further determined that the agreement was reasonable and enforceable and that the injunctions were necessary to avoid the risk of the use of confidential information by Anderson and Sun. The court blue-penciled the agreement, permitting only a one-year injunction in each case, plus a small additional time period to account for the previous inequitable behavior of Anderson and Sun. Anderson's injunction has already expired on November 17, 1997, and Sun's will expire on January 14, 1998.
DECISION
Application of agreement.
A trial court's fact finding will only be reversed if clearly erroneous, Minn.R.Civ.P. 52.01, but a reviewing court need not give deference to a trial court's decision on a purely legal issue. Frost-Benco Elec. Ass'n v. Minnesota Pub. Utils. Comm'n , 358 N.W.2d 639, 642 (Minn. 1984). The construction and effect of a contract are questions of law for the court. Turner v. Alpha Phi Sorority House , 276 N.W.2d 63, 66 (Minn. 1979).
The trial court's underlying findings of fact are largely undisputed. But appellants contend the court erred in construing the Medtronic agreement and finding the circumstances of this case permitted its application. Appellants also contend that Cardiac Pacemakers' product line was confined to tachycardia control devices and that these are not the same or similar product (or do not perform the same function) as a brady pacemaker on which both Anderson and Sun worked at Medtronic.
a. Application of Agreement to Anderson.
The trial court found and it is undisputed that Anderson worked on brady pacemakers for Medtronic and was assigned to work on ICD's with brady pacing features for Cardiac Pacemakers. Because ICD's now have brady pacing features, the trial court made a factual finding of a "brady-to-tachy coalescence." "[T]he single most important innovative feature that's been added to the ICD * * * is the ability of today's ICD — a traditional tachy device — to deliver brady pacing." Citing an author employed by Cardiac Pacemakers, the trial court found authority for the proposition that the word "coalescence" properly described the ever-increasing rate of incorporating brady technology into tachy ICD's. Thus, the court found that the type, function, and purpose of an ICD with brady pacing, the type of product Anderson is slated to work on at Cardiac Pacemakers, is similar to that of the brady pacemaker on which Anderson worked while employed by Medtronic.
The trial court's construction and application of the agreement rested singularly on its analysis of similarities between the primary products of the two employers. Its observations on these similarities are amply supported by the record and are not clearly erroneous.
Appellants urge a contrary decision by reason of disfavor under Minnesota law for noncompete agreements. See Ecolab, Inc. v. Gartland , 537 N.W.2d 291, 294 (Minn.App. 1995) (calling for close scrutiny of noncompete agreements). But there is no evidence that the trial court's approach lacked close scrutiny or showed undue favor for the agreement. And there is cause to uphold the trial court's observation that the circumstances here differ from Ecolab because the pacemaker and ICD industry involves highly confidential information and unusually skilled professional workers. See Eutectic Welding Alloys Corp. v. West , 281 Minn. 13, 20 n. 8, 160 N.W.2d 566, 571 n. 8 (1968) (noting cause for different approaches to covenants upon professional employees).
b. Application of Agreement to Sun.
Sun contends that his circumstances are different from Anderson's because he does not work directly on products. Sun and Cardiac Pacemakers contend that research work is outside the scope of the agreement. The agreement, indeed, expressly permits some employment of a former Medtronic employee with a competitor. But the agreement's restrictions specifically included employment in research, describing services as "including services in research."
The trial court rejected Sun's contention that the agreement only applied to identical forms of research (the so-called "research to research" comparison), concluding that the agreement requires a product-to-product comparison, that is, a determination of whether a researcher proposes to render services on two similar products. The court sustained this construction by observing (a) that the agreement spoke of comparisons by type, function, and purpose and that these concepts were descriptive of products, (b) that the agreement centered around the word product, including "Medtronic Product" and "Competitive Product," and (c) that research in this industry is always oriented toward products and sales of products. There is no cause to correct the trial court's analysis of the agreement in this regard.
Finally, Sun contends that the agreement was at least ambiguous and that as such the trial court was obligated to adopt Sun's construction of the agreement under the "construe against the drafter" rule. See Blattner v. Forster , 322 N.W.2d 319, 321 (Minn. 1982) (declaring the determination of ambiguity to be a question of law); Restatement (Second) of Contracts § 206 (1979) (stating preference for meaning that operates against the drafter). The trial court concluded the agreement was not ambiguous, and this conclusion was not erroneous; although the court considered logical alternative interpretations of the agreement, the court properly determined the dominant meaning of the agreement and did not resort to extrinsic evidence to do so.
Validity of agreement.
Appellants contend that that the Medtronic employment agreement, as viewed by the trial court, is not lawful. See Bennett v. Storz Broadcasting Co. , 270 Minn. 525, 533, 134 N.W.2d 892, 898 (1965) (holding that validity of noncompete restrictions requires, inter alia, a showing that the agreement is (a) reasonable as between the contracting parties and (b) aimed at protection of a legitimate interest). Appellants assert that Medtronic failed to show that its confidential business information had been used or would necessarily be used in Anderson's and Sun's new job functions with Cardiac Pacemakers.
As the trial court noted, "reasonableness" of a noncompete agreement has been defined in Minnesota by the "necessity" test, a determination of whether the agreement provides protection beyond what is needed for the employer's business. Id. at 534, 134 N.W.2d at 899. Need is examined by considering the nature and character of the employment, together with the length of time and the territorial extent of the competition restriction. Id. The trial court found that Medtronic needed the restriction enforced by the court, given (a) the "intensely competitive nature" of the cardiac-rhythm-management industry, (b) the "critical importance of confidential information" within that industry, (c) the "likelihood that an integrated circuit design engineer and a research scientist will receive and have that confidential information," (d) the world-wide competition of the two employers, and (e) the number of years required to get the results of research "inside" a product and to get the product from the drawing board to the market. There are ample precedents for finding an employment restriction spanning two or more years necessary or needful. Dean Van Horn Consulting Assoc. v. Wold , 367 N.W.2d 556 (Minn.App. 1985) (three-year covenant held reasonable), review denied (Minn. July 17, 1985); Cherne Indus., Inc. v. Grounds Assoc., Inc. , 278 N.W.2d 81 (Minn. 1979) (enforcing two-year covenant); Alside, Inc. v. Larson , 300 Minn. 285, 220 N.W.2d 274 (1974) (enforcing three-year covenant); Granger v. Craven , 159 Minn. 296, 199 N.W. 10 (1924) (enforcing three-year covenant).
Appellants argue that in spite of this analysis of need, the Medtronic agreement cannot be enforced because the trial court made no finding that the new jobs of Anderson or Sun will necessarily call on them to use Medtronic confidential information. Again, appellants contend that there are no Minnesota precedents favoring enforcement of a noncompete agreement to the end of merely preventing potential or even inadvertent disclosure of confidential information. This consideration bears on the need analysis and appellants stress its bearing on the question of whether Medtronic has a legitimate interest in enjoining the employment of Anderson and Sun by Cardiac Pacemakers.
We find authority for the trial court's enforceability conclusion in Modern Controls, Inc. v. Andreadakis, 578 F.2d 1264, 1270 (8th Cir. 1978) (determining the legal significance of "possible" disclosure of trade secrets and confidential information and "potential" harm to a former employer; quoting Blake, Employee Agreements Not to Compete , 73 Harv. L.Rev. 625, 669-670 (1960), that a former technical or "creative" employee, even "in the best of good faith," "can hardly prevent" his knowledge of confidential information from "showing up in his work"). In the immediate case, this concern is spelled out in the employment agreement itself, where the observation is stated that "it is virtually impossible" for Medtronic to know what information the employee learns or for the employee to avoid using such information, "even inadvertently," in work on a competitive product. See Modern Controls , 578 F.2d at 1268, cited with approval by Minnesota Mining Mfg. Co. v. Kirkevold , 87 F.R.D. 324, 333-34 (D.Minn. 1980). Minnesota cases clearly establish a "reasonableness" test for enforcement of covenants not to compete, not an "inevitable disclosure" test, as appellants seem to argue. See Bennett , 270 Minn. at 533 , 134 N.W.2d at 898.
The trial court found and appellants do not dispute that they had access to confidential information while at Medtronic. Because the trial court applied the correct legal standard and made findings sufficiently supported in the record while applying that standard to the facts of this case, we affirm the court's ruling that the Medtronic employment agreement is enforceable under Minnesota law.
It is unclear on appeal if appellants maintain their earlier argument to the trial court that its enforcement action, if taken, should be limited to a "boxing-in" injunction against appellants, one that would confine employment of Anderson and Sun to their initial jobs at Cardiac Pacemakers and work in those jobs that does not require the disclosure of Medtronic's trade secrets. Neither law nor logic permits us to grant relief to appellants on this proposition. First, the trial court's imposition of equitable relief will be reversed only when it constitutes a clear abuse of discretion. Nadeau v. County of Ramsey , 277 N.W.2d 520, 524 (Minn. 1979). Second, as the trial court noted, a boxing-in injunction would be unenforceable because it would require the court to monitor continuously Anderson's and Sun's work environments and assignments. Third, as the trial court stated, such an equitable remedy would risk eviscerating the rule of law that an employer is legally entitled under Bennett to enforcement of reasonable restrictions. Finally, we note that there is no precedent in Minnesota for fashioning a boxing-in injunction.
Duration of injunction.
Respondent Medtronic contends that the trial court improperly reduced the duration of the covenants because (a) it had already found that the two-year provision was reasonable, and (b) it had no equitable grounds to modify the agreement.
As already stated, an injunction is an equitable remedy, and the trial judge has broad latitude in fashioning such relief. Id. at 520; Cherne, 278 N.W.2d at 91. Minnesota law holds that a court blue-penciling a valid contract must explain its reasons for doing so. Satellite Indus., Inc. v. Keeling , 396 N.W.2d 635, 640 (Minn.App. 1986), review denied (Minn. Jan. 21, 1987). In this case, the trial court explained that (a) appellant Anderson was a circuit-design engineer who had less exposure to confidential information than research scientists, and (b) appellant Sun worked for Medtronic for less than three years.
Respondent cites Cherne for the proposition that injunctive relief based on a contract must be coextensive with the terms of a reasonable contract. 278 N.W.2d at 93. But the trial court merely found that the agreement was "generally" reasonable. It explicitly declined to find that the noncompete covenant here was reasonable as applied to the specific facts and circumstances of Anderson's and Sun's employment with Medtronic. Further, read in context, Cherne observed the contract length as a maximum term for an injunction, not its minimum term. Id. The trial court's adjusted one-year injunctions were not an abuse of its equitable discretion.
4. Tortious interference.
Acknowledging its burden to show an intentional act of interference for its tort claim, Kjesbo v. Ricks , 517 N.W.2d 585, 588 (Minn. 1994) (citing Bennett , 270 Minn. at 537, 134 N.W.2d at 900), Medtronic asserts that it can prove the intent of Cardiac Pacemakers by showing that it knew its conduct was likely to interfere with Medtronic's contract. It is not necessary that the defendant act with the purpose and desire to interfere with a contract or act with a bad motive. Restatement (Second) of Torts § 766, cmt. j (1979). "Ordinarily, whether interference is justified is an issue of fact, and the test is what is reasonable conduct under the circumstances." Kjesbo , 517 N.W.2d at 588 (citing Bennett , 270 Minn. at 537, 134 N.W.2d at 900).
The critical question on Medtronic's tort claim is whether Cardiac Pacemakers intentionally tried to procure a breach of Sun's and Anderson's employment agreements or whether Cardiac Pacemakers acted reasonably (and therefore justifiably) when it concluded that Anderson's and Sun's new employment with Cardiac Pacemakers would not constitute a breach of the agreement.
The trial court determined that Cardiac Pacemakers did not tortiously interfere with Anderson's and Sun's contracts with Medtronic "because it thought hiring Anderson and Sun did not constitute a breach and because it had justification for that thought." Pursuant to Kjesbo , the trial court concluded that the new employer engaged in "reasonable conduct under the circumstances." Because the Cardiac Pacemakers decision to hire Anderson and Sun was made in the absence of the intense, objective analysis that has now been made by the trial court, and in light of the historic reservations of Minnesota courts to enforce restrictive covenants, we hold that the trial court did not err in finding that appellant was reasonable, and therefore justified, in hiring Anderson and Sun. The trial court did not err in finding that Medtronic failed to prove all elements of the tort of intentional interference with contractual relations.
5. Motion to strike.
Sun's motion to strike portions of Medtronic's brief is denied. The assertions by Medtronic that Sun is seeking to strike, mostly in the nature of argument on the evidence, have not entered into the determination of the issues on appeal.