O'Grady et al v. Conmed Corporation et al

Filing 33

ORDER by Judge Claudia Wilken REGARDING DEFENDANTS 6 MOTION TO DISMISS AND PLAINTIFFS 18 MOTION TO REMAND. (ndr, COURT STAFF) (Filed on 2/26/2014)

1

IN THE UNITED STATES DISTRICT COURT

2

FOR THE NORTHERN DISTRICT OF CALIFORNIA

3
4
5
6
7
8
9

United States District Court
For the Northern District of California

10

MICHAEL O’GRADY, an individual;
ALLEN SMOOT, an individual; PROSURGICAL ASSOCIATES, LLC, a
California Limited Liability
Company;
Plaintiffs,
v.

13

ORDER REGARDING
DEFENDANTS’
MOTION TO DISMISS
AND PLAINTIFFS’
MOTION TO REMAND
(Docket Nos. 6,
18)

CONMED CORPORATION, a
corporation; LINVATEC
CORPORATION, a corporation; ROB
CHRISTENSEN, an individual;
Defendants.

11
12

No. C 13-5242 CW

________________________________/
On October 16, 2013, Plaintiffs Michael O’Grady, Allen Smoot,

14

and Pro-Surgical Associates, LLC (PSA) filed this action against

15

Defendants CONMED Corporation, Linvatec Corporation, and Rob

16

Christensen in Superior Court in California.

17

2013, Defendants removed this action based on diversity of

18

citizenship.

19

venue or, in the alternative, to transfer the action to the

20

Northern District of New York; Plaintiffs move to remand the

21

action back to Superior Court.

22

suitable for disposition without oral argument pursuant to Civil

23

Local Rule 7-1(b).

24

Court GRANTS Plaintiffs' motion to remand and DENIES AS MOOT

25

Defendants’ motion to dismiss or, in the alternative, to transfer

26

venue.

27
28

On November 12,

Defendants now move to dismiss based on improper

The Court finds these motions

Having considered the papers submitted, the

1
2
3
4

FACTUAL BACKGROUND
Unless otherwise noted, the following facts are taken from
Plaintiffs’ complaint.

See Docket No. 1, Ex. A.

CONMED is the parent corporation of Linvatec, a wholly-owned

5

subsidiary through which CONMED manufactures medical and

6

orthopedic products and accessories.

7

and Linvatec are both foreign corporations doing business in

8

California.

9

resides in California.

United States District Court
For the Northern District of California

10

Docket No. 1, Ex. C.

CONMED

Christensen is the Vice President of CONMED and

Plaintiffs O’Grady and Smoot reside in California.

O’Grady

11

started working for CONMED in 1976, while Smoot began working with

12

CONMED in or about 2005.

13

create a separate entity, PSA, and execute a Manufacturer’s

14

Representative Agreement (MRA) with Linvatec on a “take it or

15

leave it basis.”

16

located in Fremont.

17

entity.

18

whereby it contracted with distributors such as PSA as independent

19

contractors.

20

substantial control over the distributors’ operations and

21

employees, even referring internally to the distributors as

22

franchisees.

23

distributor in order to avoid paying employee-associated labor

24

costs.

25

Around 2005, CONMED required O’Grady to

PSA is a California limited liability company
Both O’Grady and Smoot worked under the PSA

CONMED purported to establish a distributorship model,

In reality, CONMED acted as a franchisor by exerting

CONMED allegedly categorized PSA as a contracted

CONMED/Linvatec terminated the contract on December 31, 2012.

26

Docket No. 1, Ex. D.

27

approached several PSA representatives, who later began working

28

for CONMED directly.

Shortly before termination, Christensen

2

1

Plaintiffs filed their first action against CONMED and
Linvatec regarding these events on August 30, 2013, in Alameda

3

County Superior Court.

4

alleged that PSA employees were in fact employees of CONMED and

5

Linvatec under California law.

6

Plaintiffs argue in the alternative that PSA was a franchise of

7

CONMED and Linvatec because they exerted substantial control over

8

PSA.

9

either an employer or franchisor of PSA, asserting a number of

10
United States District Court
For the Northern District of California

2

common law and California statutory claims against Defendants.

11

Additionally, Plaintiffs charge that the MRA was unenforceable

12

because it was a contract of adhesion.

13

Defendants removed the first action on diversity grounds and then

14

moved to dismiss, or in the alternative, to transfer the action.

15

Plaintiffs did not oppose the motions, but instead voluntarily

16

dismissed the action pursuant to Rule 41(a).

17

4453, Docket No. 15.

18

See Case No. 13-CV-4453.

Plaintiffs

If they were not employees,

Plaintiffs contend that Defendants violated their duties as

On September 25, 2013,

See Case No. 13-CV-

On October 16, 2013, Plaintiffs commenced a second action

19

against Defendants, asserting a similar set of claims but adding

20

three additional causes of action against Christensen: (21)

21

interference with prospective economic advantage; (24) defamation

22

per se; and (25) defamation per quod.

23

of action arise from Plaintiffs’ allegation that Christensen told

24

a number of PSA sales representatives that Plaintiffs “had

25

mismanaged the business as it related to open territory, thereby

26

not distributing PSA sales representatives actual commissions or

27

other monies earned.”

28

allege that Christensen knew his statements were false but made

All three of these causes

See, e.g., Complaint ¶ 208.

3

Plaintiffs

1

them anyway with the intent to injure Plaintiffs’ business.

2

¶ 209.

3

caused them to leave their employment with PSA.

4

Docket No. 30, Exs. 1, 2, 3.

5

Id.

His discussions with various PSA sales representatives
See generally

On November 12, 2013, Defendants removed this action based on

6

diversity of citizenship and moved to transfer the action to the

7

Northern District of New York based on the forum selection clause

8

in the MRA.

Docket Nos. 1, 6.

9

United States District Court
For the Northern District of California

10
11

LEGAL STANDARDS
I.

Motion to remand
Title 28 U.S.C. § 1441(a) permits a defendant to remove to

12

federal court “any civil action brought in a State court of which

13

the district courts of the United States have original

14

jurisdiction.”

15

court action could have been filed in federal court in the first

16

instance.

17

(1987).

18

establishing federal jurisdiction.

19

Rest., 861 F.2d 1389, 1393 (9th Cir. 1988).

20

is strictly construed, with any uncertainty resolved in favor of

21

remand.

22

F.3d 1083, 1087 (9th Cir. 2009).

23
24

II.

Removal is therefore only appropriate if the state

Caterpillar, Inc. v. Williams, 482 U.S. 386, 392

Upon notice of removal, the defendant bears the burden of
Ethridge v. Harbor House
The removal statute

Provincial Gov't of Marinduque v. Placer Dome, Inc., 582

Motion to dismiss for improper venue

Under Federal Rule of Civil Procedure 12(b)(3), a defendant

25

may move to dismiss for improper venue based on a governing forum

26

selection clause.

27

1137 (9th Cir. 2004).

28

pleadings need not be accepted as true, and the court may consider

Murphy v. Schneider Nat'l, Inc., 362 F.3d 1133,
For purposes of such a motion, “the

4

1

facts outside of the pleadings.”

2

“draw all reasonable inferences in favor of the non-moving party

3

and resolve all factual conflicts in favor of the non-moving

4

party.”

5

Id.

However, the court must

Id. at 1138.

III. Motion to transfer

6

Title 28 U.S.C. § 1404(a) provides, “For the convenience of

7

the parties and witnesses, in the interest of justice, a district

8

court may transfer any civil action to any other district or

9

division where it might have been brought.”

A district court has

United States District Court
For the Northern District of California

10

broad discretion to adjudicate motions for transfer on a case-by-

11

case basis, considering factors of convenience and fairness.

12

Stewart Org. Inc. v. Ricoh Corp., 487 U.S. 22, 29 (1988); Sparling

13

v. Hoffman Constr. Co., 864 F.2d 635, 639 (9th Cir. 1988).

14

§ 1404(a), the district court may consider: (1) the location where

15

the relevant agreements were negotiated and executed, (2) the

16

state that is most familiar with the governing law, (3) the

17

plaintiff's choice of forum, (4) the respective parties' contacts

18

with the forum, (5) the contacts relating to the plaintiff's cause

19

of action in the chosen forum, (6) the differences in the costs of

20

litigation in the two fora, (7) the availability of compulsory

21

process to compel attendance of unwilling non-party witnesses, and

22

(8) the ease of access to sources of proof.

23

Franchising, Inc., 211 F.3d 495, 498 (9th Cir. 2000).

24

addition, "the presence of a forum selection clause is a

25

'significant factor' in the court's § 1404(a) analysis."

26

499.

27

although not dispositive, "is at least as significant a factor in

28

§ 1404(a) balancing" as the presence of the forum selection

See

Under

Jones v. GNC
In

Id. at

However, the relevant public policy of the forum state,

5

1

clause.

2

justifying the transfer by a strong showing of inconvenience.

3

Decker Coal v. Commonwealth Edison Co., 805 F.2d 834, 843 (9th

4

Cir. 1986).

Id. at 499, 499 n.21.

5
6

The movant bears the burden of

DISCUSSION
The Court first considers Plaintiffs’ motion to remand.
Defendants removed this case on the basis of diversity

8

jurisdiction.

9

civil actions where the value of the matter in controversy exceeds

10
United States District Court
For the Northern District of California

7

$75,000, exclusive of interest and costs, and is between citizens

11

of different states.

12

complete diversity: where a case involves multiple plaintiffs and

13

defendants, no plaintiff may have the same citizenship as any

14

defendant.

15

546, 553 (2005).

16

and one Defendant, Christensen, is also a resident of California,

17

Christensen’s presence in the suit destroys complete diversity.

18

Federal courts have original jurisdiction over

28 U.S.C. § 1332.

Section 1332 requires

Exxon Mobil Corp. v. Allapattah Servs., Inc., 545 U.S.
Because Plaintiffs are residents of California,

Defendants argue that diversity jurisdiction nevertheless

19

exists because Christensen was fraudulently joined.

20

plaintiff fails to state a cause of action against a resident

21

defendant, and the failure is obvious according to the settled

22

rules of the state, the joinder of the resident defendant is

23

fraudulent.”

24

(9th Cir. 1987).

25

prove fraudulent joinder.

26

F.3d 1061, 1067 (9th Cir. 2001).

27

joinder a defendant must establish that, “after all disputed

28

questions of fact and all ambiguities in the controlling state law

“If the

McCabe v. Gen. Foods, Corp., 811 F.2d 1336, 1339
A defendant is entitled to present facts that
Morris v. Princess Cruises, Inc., 236
However, to show fraudulent

6

1

are resolved in the plaintiff’s favor, the plaintiff could not

2

possibly recover against the party whose joinder is questioned.”

3

Nasrawi v. Buck Consultants, LLC, 776 F. Supp. 2d 1166, 1169-70

4

(E.D. Cal. 2011).

5

on an alleged fraudulent joinder must do more than show that the

6

complaint at the time of removal fails to state a claim against

7

the non-diverse defendant,” but must show that the plaintiff

8

“would not be afforded leave to amend his complaint” to cure the

9

deficiency.

“Accordingly, a defendant seeking removal based

Id. at 1170 (quoting Burris v. AT&T Wireless, Inc.,

United States District Court
For the Northern District of California

10

2006 WL 2038040, at *2 (N.D. Cal.)).

11

demonstrates that a plaintiff cannot prevail on any of the claims

12

asserted against the non-diverse defendant, remand must be

13

granted.

14

Defendants demonstrate that Plaintiffs cannot recover against

15

Christensen on any claim.

16

Id.

Unless a defendant

The question before the Court, then, is whether

As a preliminary matter, there is an issue of which state’s

17

law applies.

18

Plaintiffs’ claims against Christensen because of the MRA’s forum

19

24

selection clause:
Any controversy arising under, or otherwise relating to, this
Agreement shall be governed by, and construed exclusively in
accordance with, the laws of the State of New York. The
federal or state courts in Oneida County, New York (including
the United States District Court for the Northern District of
New York, if and to the extent that it shall have subject
matter jurisdiction over any claims) shall have exclusive
jurisdiction in the event of any dispute arising under or
related to the Agreement.

25

Docket No. 1, Ex. B.

26

this Agreement would apply to Christensen’s independent, allegedly

27

tortious actions.

20
21
22
23

Defendants argue that New York law governs

It is ambiguous whether the language of

Although the language of the forum selection

28
7

clause is broad, the contract governs the sales representative

2

relationship between CONMED/Linvatec and PSA.

3

were to find that Christensen’s individual tortious actions fall

4

within the purview of this clause, Plaintiffs argue the forum

5

selection clause is unenforceable because it contravenes the

6

strong public policy of California.

7

Mexicano, S.A., 87 F.3d 320, 325 (9th Cir. 1996).

8

California has expressed a strong public policy of “protect[ing]

9

California franchisees from the expense, inconvenience, and

10
United States District Court
For the Northern District of California

1

possible prejudice of litigating in a non-California venue.”

11

Jones, 211 F.3d at 498.

12

number of regulatory actions by Defendants, raises a non-fanciful

13

possibility that PSA was a franchise under California law.

14

with all favorable inferences in favor of Plaintiffs, the forum

15

selection clause would either not apply or would be unenforceable

16

in light of public policy.

17

Even if the Court

See Argueta v. Banco
Specifically,

Plaintiffs’ complaint, which lists a

Viewed

In any event, defamation in either California or New York

18

requires generally similar elements: (1) publication of a

19

statement, (2) which is false, (3) defamatory, (4) unprivileged,

20

and (5) either has a natural tendency to injure or causes special

21

damages.

22

Thompson v. Bosswick, 855 F. Supp. 2d 67, 76 (S.D.N.Y 2012).

23

Regarding the last element, defamation in either state can be per

24

se (arising from a list of categorically defamatory statements,

25

such as charging an individual with a serious crime or injuring

26

him in his business or trade) or per quod (requiring proof of

27

special damages).

28

Smith v. Maldonado, 72 Cal. App. 4th 637, 647 (1999).

See Sanders v. Walsh, 219 Cal. App. 4th 855, 862 (2013);

See id.; see also Cal. Civ. Code section 46;

8

1

Defendants contend that the statement that Plaintiffs had
“mismanaged the business as it related to open territory” was a

3

protected opinion because it is not provably false.

4

respond that the statement that Plaintiffs had mismanaged their

5

business, and had not paid their sales representatives actual

6

commissions earned, is not an opinion but a statement that

7

insinuates Plaintiffs acted illegally.

8

in the way Plaintiffs plead their defamation claims, such as that

9

Plaintiffs did not “allege the time when, place where, and manner

10
United States District Court
For the Northern District of California

2

in which the false statement was made, and specify to whom it was

11

made.”

12

additionally present declarations contesting whether Christensen

13

made these statements or not.

14

7-8 and Docket No. 29, Ex. 2 ¶ 6.

15

Plaintiffs

Defendants also find fault

Epifani v. Johnson, 65 A.D.3d 224, 233 (2009).

Both sides

See, e.g., Docket No. 30, Ex. 2 ¶¶

The alleged deficiencies raised by Defendants only serve to

16

point out ways in which Plaintiffs could improve their complaint.

17

At the complaint’s core, however, nothing prevents Plaintiffs from

18

prevailing against Christensen on these claims.

19

Plaintiffs mismanaged their business by wrongfully withholding

20

commissions is provably false because Plaintiffs could show that

21

they never did so.

22

to Plaintiffs’ business because it accuses them of incompetence

23

or, at worse, engaging in illegal activity.

24

has filed a declaration denying he made these statements, at least

25

one PSA representative has stated that Christensen did make a

26

similar statement and also offered an employment contract with

27

CONMED directly.

28

clarify their complaint with details of how the statement was

A statement that

Such a statement would appear to be injurious

Docket No. 30, Ex. 2.

9

Although Christensen

In sum, if Plaintiffs

1

made, then they may have defamation claims against Christensen.

2

For the deficiencies Defendants have pointed out, a court would

3

allow Plaintiffs leave to amend.

4

Further, Defendants have not addressed Plaintiffs’ claim

5

against Christensen for interference with contractual advantage.

6

If that claim survives but the defamation claims fail, Plaintiffs

7

will still have at least one valid claim to join Christensen, and

8

there would be no diversity.

9

1169-70.

See Nasrawi, 776 F. Supp. 2d at

Where Defendants have not shown why all of Plaintiffs’

United States District Court
For the Northern District of California

10

claims against Christensen were fraudulent, the Court is hard-

11

pressed to declare them fraudulent on its own accord.

12

The only defense raised by Defendants that could eliminate

13

all of Plaintiffs’ claims against Christensen is one arising from

14

agency principles.

15

privilege shields Christensen’s activities from liability because

16

the complaint never alleges that Christensen acted outside the

17

scope of his agency for CONMED.

18

Defendants contend that the manager’s

Generally, an agent is liable for his own tortious actions,

19

even if committed by him pursuant to his agency.

20

(Second) of Agency § 343 (1958) (generally, an agent “who does an

21

act otherwise a tort is not relieved from liability by the fact

22

that he acted at the command of the principal or on account of the

23

principal”); Kurtin v. Elieff, 215 Cal. App. 4th 455, 480 (2013)

24

(citing Cal. Civ. Code § 2343) (“agents are responsible for their

25

own independent torts and breaches of contract in connection with

26

acts in the course of their agency”).

27

privilege protects a company’s manager from liability to a third

28

party for advising or inducing his company to breach its contract
10

Restatement

However, the manager’s

1

with the third party.

2

App. 3d 67, 80 (1989); Los Angeles Airways, Inc. v. Davis, 687

3

F.2d 321, 326 (9th Cir. 1982).

4

protect a manager’s ability to advise his principal without fear

5

of individual liability.

6

rationale of this privilege is heavily based on preserving a

7

fiduciary relationship.

8

manager acts with improper intent.

9

does not apply where the manager interferes with contracts to

Klein v. Oakland Raiders, Ltd., 211 Cal.

This privilege is designed to

Klein, 211 Cal. App. 3d at 80.

Id.

The

The privilege may be lost if the
Id.

The managerial privilege

United States District Court
For the Northern District of California

10

which the employer is not a party, “[e]ven where the employee acts

11

on behalf of his employer.”

12

privilege does not apply where manager individually induced breach

13

of relationship between two outside parties, neither of which was

14

the manager’s principal).

15

were protected from liability for terminating employer principal’s

16

contractual relationships with employee); Los Angeles Airways,

17

Inc, 687 F.2d at 328 (manager could not be liable to third party

18

for inducing his company to breach its contract with a third

19

party).

20

Id. at 81 (holding that managerial

Cf. McCabe, 811 F.2d at 1339 (managers

Here, Christensen did not allegedly induce CONMED to breach

21

its contract with a third party.

22

an agent of CONMED, to interfere with the existing contract

23

between PSA and its sales representatives.

24

advising or acting on behalf of his employer regarding his

25

employer’s own contracts, but interfering with contracts to which

26

his employer was not a party.

27

deal with his employer's contracts but quite another for him to

28

reach out and meddle with contracts to which his employer has no

He is alleged to have acted, as

Christensen was not

“It is one thing for an employee to

11

1

rightful interest.”

2

“The Agent’s Privilege to Interfere Intentionally with Contractual

3

Relations: A Reappraisal of California Law,” 12 Cal. Western L.

4

Rev. 475, 484 (1976)).

5

not apply.

6

Klein, 211 Cal. App. 3d at 81 (quoting Gamer,

Accordingly, the managerial privilege does

Because Defendants have not satisfied their heavy burden of

7

proving that joinder of Christensen was fraudulent and as a result

8

that removal was appropriate, the Court must remand the case to

9

state court.

United States District Court
For the Northern District of California

10

CONCLUSION

11

The Court GRANTS Plaintiffs’ motion to remand and DENIES

12

Defendants' motion to dismiss or, in the alternative, to transfer

13

venue, as MOOT.

14
15
16

IT IS SO ORDERED.
Dated: 2/26/2014

CLAUDIA WILKEN
United States District Judge

17
18
19
20
21
22
23
24
25
26
27
28
12