ContractsProf Blog

Editor: Jeremy Telman
Oklahoma City University
School of Law

Tuesday, March 22, 2022

Forum Selection, Non-Competes, Non-Solicitation, Oh My!

In 2017, Jonathan Waber entered into an employment contract with Howmedica Osteonics Corp. (HOC), the parent corporation of his employer, Stryker Corporation (Stryker).  The contract included a one-year non-compete and non-solicitation clause and choice of law and forum-selection clauses requiring adjudication of disputes in New Jersey.  Waber is a California resident, and he worked in Palm Springs.  Nine months after starting work for Stryker, Waber left to work for Depuy Synthes Sales, Inc. (DePuy).  When Stryker threatened legal action, Waber availed himself of California Labor Code § 925, which permits a California employee to avoid forum-selection and choice-of-law clauses that would require adjudication of disputes outside of California.

Depuy and Waber then filed suit in a federal district court in Central California seeking a declaration that the forum-selection and choice-of-law clauses were void under California law and that the non-compete and non-solicitation provisions violated California Business and Professions Code § 16600.  Stryker filed a motion to transfer to the District Court of New Jersey under 28 U.S.C. § 1404(a).  

The District Court found that the forum-selection clause could not be enforced under California law.  It then weighed the appropriate factors under §1404(a) and denied Stryker's motion to transfer.

After Depuy amended its complaint to add HOC as a defendant, the District Court granted partial summary judgment in favor of DePuy and Waber, holding the forum-selection, non-compete and non-solicitation clauses in Waber’s contract void and unenforceable under California law. 

9th CircuitOn appeal before the Ninth Circuit, HOC argued that the court must transfer the cases to New Jersey under Stewart Organization, Inc. v. Ricoh Corp., 487 U.S. 22 (1988) and Atlantic Marine Construction Co. v. United States District Court for the Western District of Texas, 571 U.S. 49(2013).  In an argument reminiscent of those deployed to defeat state statutory challenges to arbitration clauses, HOC asserted that only general contracts law, not state statutes directed at forum-selection clauses, can render such clauses invalid.  In this case, however, courts have tended to find that state law governs the enforceability of forum-selection clauses, just as it would any other contractual provision. 

In Depuy Synthes Sales v. Howmedica Osteonics Corp., a Ninth Circuit panel unanimously found that HOC read Stewart and Atlantic Marine too broadly.  Those cases stand for the proposition that, given a valid forum-selection clause, federal law governs a court's decision on a motion to transfer under § 1404(a).  Here, however, where there is no valid forum-selection, state law applies and informs the § 1404(a) analysis.  Stewart assumed a valid forum-selection clause and never considered the effects of statutes like California's § 925.  The District Court undertook the proper § 1404(a) analysis in this case, and so the Ninth Circuit found no grounds for disturbing its grant of summary judgment to the plaintiffs.

H/T to Timothy Murray

https://lawprofessors.typepad.com/contractsprof_blog/2022/03/forum-selection-non-competes-non-solicitation-oh-my.html

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Comments

Nice post! The substantive outcome makes sense to me, so no comments there.

I just note the panel opinion was written by Judge Linn sitting by designation from CAFC. While in general district judges and judges from other circuits visiting CA9 is of course pretty common, someone in the latter category specifically from CAFC seems unusual to me. Maybe that's just my limited experience though.

Also, it's a bit ironic that Judge Linn ends up with a transfer case for his trip outside CAFC, considering that transfers are a frequent subject at CAFC and can get quite contentious there. Ironically as well, transfer disputes at CAFC often involve a defendant trying to get *to* California, whereas here it's the opposite. And yet a third irony is the leader of the majority in this case was himself (temporarily) transferred.

See how much *mileage* I can get from one simple transfer case? :)

Posted by: kotodama | Mar 23, 2022 4:49:14 PM