Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-5_07-cv-05897/USCOURTS-cand-5_07-cv-05897-5/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1331 Fed. Question: Breach of Contract

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United States District Court

For the Northern District of California

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 On April 18, 2008, the Court consolidated DePuy Orthopaedics, Inc. v. Gault South Bay,

Inc., et al., C 07-05897-JW with Gault South Bay, Inc. v. DePuy Orthopaedics, Inc., C 07-04659-

JW. Since the present motion was filed prior to consolidation, all docket references are to the C 07-

05897-JW docket unless otherwise noted.

2

 (Request for Judicial Notice, Ex. A, hereafter, “DePuy Complaint,” Docket Item No. 15.)

3

 (Declaration of Robert Gault in Support of Motion for Partial Summary Judgment ¶ 2,

hereafter, “Gault Decl.,” Docket Item No. 14.) 

United States District Court

For the Northern District of California

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

In re Gault South Bay Litigation

 /

NO. C 07-04659 JW 

ORDER GRANTING GAULT SOUTH

BAY’S MOTION FOR PARTIAL

SUMMARY JUDGMENT

I. INTRODUCTION

This is a consolidated diversity action between Gault South Bay, Inc., and Robert Gault

(collectively, “Gault”) and DePuy Orthopaedics, Inc. (“DePuy”). The parties assert claims against

each other for alleged unfair competition, breach of contract, and tortious interference stemming

from a sales representative agreement. Presently before the Court is Gault’s Motion for Partial

Summary Judgment. (hereafter, “Motion,” Docket Item No. 11.)1 The Court conducted a hearing on

April 28, 2008. Based on the papers submitted to date and oral argument, the Court GRANTS

Gault’s Motion for Partial Summary Judgment..

II. BACKGROUND

A. Factual Background

DePuy is an Indiana corporation that manufactures and distributes orthopedic implants and

operating room products.2 Robert Gault is an individual residing in California.3 Mr. Gault is the

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For the Northern District of California

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 The “Contractor” is specified in the Agreement to be Gault South Bay, Inc. (Gault Decl.,

Ex. A at 1.)

2

president of Gault South Bay, Inc., a California Corporation with its principal place of business in

California. (Gault Decl. ¶ 3.)

In November 2006, the parties entered into a sales representative agreement (the

“Agreement”). (Gault Decl., Ex. A.) Under the Agreement, Gault became DePuy’s exclusive

representative for the sale of DePuy’s products in the San Francisco Bay Area. (Id.) The

Agreement contains two “non-compete” provisions, which provide as follows:

Contractor4

 agrees that neither Contractor nor anyone in its employ, nor any member of the

immediate family of any one owning the majority of the stock, a controlling interest or

exercising control of the Contractor will, during the time that this appointment is in effect,

sell any competitive products or engage in any competitive activities without obtaining

DePuy’s prior written consent. Competitive activities mean [sic] selling, offering for sale,

promoting, receiving or soliciting orders for goods or services similar, or intended for a

similar use as those offered by DePuy or any other J&J company, or accepting remuneration

of any kind from any person providing such goods and services.

. . . 

Contractor agrees that, if this Agreement is terminated for any reason, that for or [sic] a

period of one (1) year after termination of the Agreement, that neither Contractor nor any of

its employees, independent contractors, or agents who were involved in the representation or

sale of the Products, will, without DePuy’s prior written consent, accept a position with a

competitor of DePuy, which involves the direct or indirect sales of competitive products in

the same Territory or sales to the same accounts covered by the Agreement or engage,

directly or indirectly in the sales of competitive products or in competitive activities . . . .

(Id. at 7.)

B. Procedural Background

 In August 2007, DePuy notified Gault that it was terminating the Agreement on the ground

that Gault had breached the contract by assisting DePuy’s competitor. On August 24, 2007, Gault

filed an action in Santa Clara County Superior Court alleging unfair competition and seeking a

declaratory judgment that the non-compete clause which restricts competitive activities for the year

following termination is unenforceable. (See C 07-04659-JW, Docket Item No. 1.) On September

7, 2007, DePuy removed the action to the Northern District of California on the basis of diversity

jurisdiction. (Id.)

Two weeks later, on September 11, 2007, DePuy filed an action against Gault in the

Northern District of Indiana. (See Docket Item No 1.) DePuy alleged breach of contract and

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tortious interference. (Id.) On November 13, 2007, the Northern District of Indiana transferred the

case to the Northern District of California. (Id.) On April 18, 2008, the Court consolidated the

actions. (See Docket Item No. 26.)

Presently before the Court is Gault’s motion for partial summary judgment.

III. STANDARDS

Although motions for partial summary judgment are common, Rule 56 of the Federal Rules

of Civil Procedure, which governs summary judgment, does not contain an explicit procedure

entitled “partial summary judgment.” As with a motion under Rule 56(c), partial summary judgment

is proper “if the pleadings, depositions, answers to interrogatories, and admissions on file, together

with the affidavits, if any, show that there is no genuine issue as to any material fact and that the

moving party is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(c). The purpose of

partial summary judgment “is to isolate and dispose of factually unsupported claims or defenses.” 

Celotex v. Catrett, 477 U.S. 317, 323-24 (1986). The moving party “always bears the initial

responsibility of informing the district court of the basis for its motion, and identifying the evidence

which it believes demonstrates the absence of a genuine issue of material fact.” Id. at 323. The nonmoving party must then identify specific facts “that might affect the outcome of the suit under the

governing law,” thus establishing that there is a genuine issue for trial. Fed. R. Civ. P. 56(e). 

When evaluating a motion for partial or full summary judgment, the court views the evidence

through the prism of the evidentiary standard of proof that would pertain at trial. Anderson v.

Liberty Lobby Inc., 477 U.S. 242, 255 (1986). The court draws all reasonable inferences in favor of

the non-moving party, including questions of credibility and of the weight that particular evidence is

accorded. See, e.g. Masson v. New Yorker Magazine, Inc., 501 U.S. 496, 520 (1992). The court

determines whether the non-moving party’s “specific facts,” coupled with disputed background or

contextual facts, are such that a reasonable jury might return a verdict for the non-moving party. 

T.W. Elec. Serv., 809 F.2d at 631. In such a case, partial summary judgment is inappropriate. 

Anderson, 477 U.S. at 248. However, where a rational trier of fact could not find for the nonmoving party based on the record as a whole, there is no “genuine issue for trial.” Matsushita Elec.

Indus. Co. v. Zenith Radio, 475 U.S. 574, 587 (1986).

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 (Motion at 10; DePuy’s Opposition to Gault’s Motion for Summary Judgment, hereafter,

Opposition at 8, hereafter, “Opposition,” Docket Item No. 19.)

4

IV. DISCUSSION

Gault moves for partial summary judgment that the Agreement’s post-termination noncompete provision is unenforceable on the ground that the provision is void under California law. 

(Motion at 10.)

As a threshold matter, the parties dispute whether California or Indiana law should apply

with respect to determining the enforceability of the non-compete provision.5

 The Agreement

contains a clause which provides:

Both Parties agree that Indiana law shall govern and interpret this appointment and the

relationship between the parties . . . . 

(Gault Decl., Ex. A at 9.) Despite this choice-of-law clause, Gault contends that the Court must

apply California law in deciding whether to void the non-compete provision at issue in this case

because California has a strong public policy against enforcing such provisions. (Motion at 15.) 

Thus, the Court must make two determinations. First, the Court must determine whether Indiana or

California law applies for purposes of determining the enforceability of the non-compete provision. 

Second, the Court must determine whether the non-compete provision is enforceable based on the

applicable state law. The Court considers each issue in turn.

In diversity cases, courts apply the choice-of-law rules of the forum state. Klaxon Co. v.

Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941). However, when a case is transferred pursuant to

28 U.S.C. § 1404(a), “[t]he transferee district court must [] apply the state law that would have been

applied if there had been no change of venue.” Van Dusen v. Barrack, 376 U.S. 612, 639 (1964).

Here, this case is a consolidated action in which the first case was initially filed in the

Northern of District of California and the second case was transferred from the Northern District of

Indiana. Thus, both California and Indiana choice-of-law rules potentially apply. However, both

Indiana and California follow the Restatement (Second) of Conflict of Laws § 187 when

determining the enforceability of a contractual choice-of-law provision. Nedlloyd Lines B.V. v.

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Superior Court, 3 Cal. 4th 459, 464 (Cal. 1992); Barrow v. ATCO Mfg. Co., 524 N.E. 2d 1313, 1315

(Ind. Ct. App. 1988). Therefore, the result is the same under either state’s choice-of-law rules.

Section 187 of the Restatement provides in pertinent part that “[t]he law of the state chosen

by the parties to govern their contractual rights and duties will be applied . . . unless . . . application

of the law of the chosen state would be contrary to a fundamental policy of a state which has a

materially greater interest than the chosen state in the determination . . . .” RESTATEMENT (SECOND)

OF CONFLICT OF LAWS § 187 (1971). This means the enforceability of the non-compete provision in

this case is governed by Indiana law unless: (1) Indiana law is contrary to a fundamental policy of

California and (2) California has a materially greater interest in the issue. The Court considers each

issue in turn.

A. Contradictions Between Indiana and California Law

Under Indiana law, “[n]oncompetition agreements are strictly construed against the employer

and are enforced only if reasonable.” Pathfinder Commc’ns. Corp. v. Macy, 795 N.E.2d 1103, 1109

(Ind. Ct. App. 2003). Moreover, “the business advantage which may attend a salesman’s close

contact with a customer” is considered “a protected interest sufficient to justify an employer’s noncompetition restriction.” Licocci v. Cardinal Assocs., Inc., 445 N.E. 2d 556, 563 (Ind. 1983). 

Consistent with this principle, spatial restraints of a former employee’s ability to compete in a given

area are considered reasonable when limited to the area where the employee used to conduct

business on behalf of the employer. S. Bend Consumers Club, Inc. v. United Consumers Club, Inc.,

572 F. Supp. 209, 213-214 (C.D. Ind. 1983). Temporal restraints of up to two to three years have

also been found to be reasonable and therefore enforceable. Id.; Cent. Indiana Podiatry, P.C. v.

Krueger, 882 N.E.2d 723, 729 (Ind. 2008).

California law, on the other hand, provides that “[e]very contract by which anyone is

restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” 

Cal. Bus. & Prof. Code § 16600. “[S]ection 16600 represents a strong public policy of the state [of

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 Gault has filed a statement of recent decision regarding Edwards. (See Docket Item No.

49.) The parties dispute whether additional briefing on the impact of Edwards II on Gault’s Motion

is necessary. (See Docket Item Nos. 50-51.) Upon review of Edwards, the Court finds that

additional briefing is unnecessary.

7

 (Gault Decl., Ex. A at 7, Appendix A; Declaration of Brad Lapoint, Audrey Frush, Dwight

Lueck, and Mark Neubauer in support of DePuy’s Opposition to Motion for Partial Summary

Judgment, Ex. 3, Docket Item No. 21.)

8

 S. Bend Consumers Club, 572 F. Supp. at 213-14; Krueger, 882 N.E. 2d at 729.

6

California.]” Edwards v. Arthur Andersen LLP, 2008 WL 3083156, at *7 (Cal. 2008);6

 Application

Group, Inc. v. Hunter Group, Inc., 61 Cal. App. 4th 881, 900 (1998). The rationale of § 16600 is

that “[t]he interests of the employee in his own mobility and betterment are deemed paramount to

the competitive business interests of the employers.” Diodes, Inc. v. Franzen, 260 Cal. App. 2d 244,

255 (1968). Under § 16600, even covenants not to compete which are limited spatially and

temporally are void. Kolani v. Gluska, 64 Cal. App. 4th 402, 406 (1998) (declaring void a provision

that barred a former sales representative from selling competing products to any former customers

within a 40-mile radius for one year.) Section 16600 may not be interpreted under a “rule of

reasonableness” or “narrow restraint” standard; its prohibition is strict. Edwards, 2008 WL

3083156, at *6-7.

In this case, the non-compete provision provides that if the Agreement is terminated for any

reason, neither Gault South Bay, Inc. nor any of its employees, independent contractors, or agents

may “accept a position with a competitor of DePuy, which involves the direct or indirect sales of

competitive products in the same Territory or sales to the same accounts covered by the Agreement

or engage, directly or indirectly in the sales of competitive products or in competitive activities . . .

.” (Gault Decl., Ex A. at 7.) The provision is effective for one year. (Id.) 

The non-compete provision protects DePuy’s interest in maintaining relationships with its

customer base. The provision is limited spatially to the twenty hospitals and physicians to which

Gault sold DePuy’s products, and limited temporally to a time period of one year.7

 These types of

restriction are within the range considered reasonable by Indiana courts.8

 However, under California

law, a non-compete provision which restrains an individual’s ability to engage his or her profession

is void, even if the restraint is arguably “reasonable.” See Edwards, 2008 WL 3083156, at *5-7. 

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Here, the Agreement restricts competition not only by the entity Gault South Bay, Inc., but also by

its employees, independent contractors, and agents. Since the provision would restrain these

individuals from engaging in their profession, it would be void under § 16600. Thus, the Court finds

there is a conflict between Indiana law and the strong public policy of California as reflected in §

16600.

B. The State with a Materially Greater Interest in Resolution of the Issue

To determine which state has a materially greater interest in resolution of an issue, a court

may consider (1) the place of contracting, (2) the place of negotiation of the contract, (3) the place of

performance, (4) the location of the subject matter of the contract, (5) the domicile, residence,

nationality, place of incorporation and place of business of the parties, (6) the impact of the

transaction on the state or its citizens, and (7) the extent to which the state has sought to regulate the

issue. RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 187-88; Brack v. Omni Loan Co., Ltd., 80

Cal. Rptr. 3d 275, 286-87 (Cal. Ct. App. 2008); see also Klussman v. Cross Country Bank, 134 Cal.

App. 4th 1283, 1300 (2005).

In this case, the Agreement primarily involves activities in California between a California

resident, a California corporation, and a foreign Corporation registered to do business in California. 

(Gault Decl., Ex. A at 1.) The Agreement was signed in California by DePuy’s California regional

manager. (Id.) The Agreement has DePuy’s California office address listed as a return address. 

(Id.) The only connection this case has with Indiana is that DePuy is headquartered in Indiana and

manufactures its products there. (DePuy Complaint ¶ 1, C 07-04659-JW, Docket Item No. 43.)

Further, California and Indiana differ in how much emphasis each has placed on regulating

the enforceability of non-compete provisions. California has a “fundamental policy” against such

provisions, which is evident from the passage of § 16600 and court decisions subjecting it to strict

interpretation. Application Group, 61 Cal. App. 4th at 900; Edwards, 2008 WL 3083156, at *5-7. 

In contrast, there is not a similarly strong public policy for or against non-compete provisions under

Indiana law, which provides such provision may or may not be enforceable depending on whether

they are reasonable. Compare Krueger, 882 N.E. 2d at 729, with Burk v. Heritage Food Serv.

Equip., Inc., 737 N.E. 2d 803, 811 (Ind. Ct. App. 2000).

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 The Court’s finding is consistent with the Northern District of Indiana’s decision to

transfer its action to California. (See Docket Item No. 1.)

8

Finally, the effects of the non-compete provision in this case would be felt by California

consumers; they would be deprived of Gault’s services if the non-compete provision is enforced.

California has an interest in protecting its employers and employees from anticompetitive conduct

by an out-of-state employer, including litigation based on a non-compete provision. Application

Group, 61 Cal. App. 4th 881, 901 (1998) (finding that California’s policy of voiding non-compete

agreements outweighs foreign states’ policies of enforcing them).

On balance, the Court finds that California has a materially greater interest in resolving this

controversy than Indiana.9 Under conflicts of laws analysis, this finding requires the Court to apply

California law to the Agreement and to find that the non-compete provision of the Agreement is

void. Accordingly, the Court GRANTS Gault’s motion for partial summary judgment.

V. CONCLUSION

The Court GRANTS Gault’s Motion for Partial Summary Judgment and finds that the noncompete provision of the Agreement is void under California law.

The parties shall appear for a Case Management Conference previously scheduled for

September 8, 2008 at 10 a.m.

Dated: August 27, 2008 

JAMES WARE

United States District Judge

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THIS IS TO CERTIFY THAT COPIES OF THIS ORDER HAVE BEEN DELIVERED TO:

Donald P. Gagliardi dgagliardi@be-law.com

Mark A. Neubauer mneubauer@steptoe.com

Rebecca Edelson bedelson@steptoe.com

Tory Edward Griffin tgriffin@downeybrand.com

Dated: August 27, 2008 Richard W. Wieking, Clerk

By: /s/ JW Chambers 

Elizabeth Garcia

Courtroom Deputy

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