Nuvasive, Inc. v. Madsen Medical, Inc. et al

Filing 311

ORDER Granting in part and Denying in part MMI's Motion for Judgment as a Mater of Law and Denying NuVasive's Motion for Judgment as a Matter of Law. The Court Grants in part MMI's Motion for Judgment as a Matter of Law (Doc. 278 ) a s it relates to interpretation of relevant provisions of the Exclusive Sales Representative Agreement. MMI's motion is otherwise Denied, and NuVasive's Motion for Judgment as a Matter of Law (Doc. 277 ) is Denied. Signed by Judge Barry Ted Moskowitz on 3/2/2016.(rlu)

1
2

UNITED STATES DISTRICT COURT

3

SOUTHERN DISTRICT OF CALIFORNIA

4
5
6

NUVASIVE, INC., a Delaware
corporation,
Plaintiff,

7
8
9
10
11

v.
MADSEN MEDICAL, INC., a
Nevada corporation; KRIS
MADSEN, an individual residing in
Nevada; and DOES 1-10,
inclusive,

12

Case No.: 13cv2077 BTM(RBB)
ORDER GRANTING IN PART
AND DENYING IN PART MMI’S
MOTION FOR JUDGMENT AS A
MATTER OF LAW AND
DENYING NUVASIVE’S MOTION
FOR JUDGMENT AS A MATTER
OF LAW

Defendants.

13
14
15

MADSEN MEDICAL, INC., a
Nevada corporation,
Counterclaimant,

16
17

v.

18
19

NUVASIVE, INC., a Delaware
corporation,

20
21

Counterdefendant.

22
23

Counterclaimant Madsen Medical, Inc. (“MMI”) and Counterdefendant

24

NuVasive, Inc. (“NuVasive”) have filed Motions for Judgment as a Matter of Law

25

under Fed. R. Civ. P. 50(a). For the reasons set forth below, the Court GRANTS

26

IN PART MMI’s motion as it relates to interpretation of relevant provisions of the

27

Exclusive Sales Representative Agreement. For the reasons set forth on the

28

record, MMI’s motion is otherwise DENIED, and NuVasive’s motion is DENIED.
1
13cv2077 BTM(RBB)

1
2

I. BACKGROUND
A. Pertinent Provisions of the ESR Agreement

3

The Exclusive Sales Representative Agreement (“ESR Agreement”) (Trial

4

Ex. 548) provides that it will remain in effect for three years unless terminated

5

earlier as allowed under the agreement. Section 11 of the Agreement sets forth

6

the circumstances under which the ESR Agreement can be terminated.

7

Section 11.5(d) provides:

8

If NuVasive should terminate this Agreement due to a material breach
by Representative of any of their obligations under Section 2.4, 6.13,
6.15, 9 or 10 of this Agreement, then in addition to any other legal or
equitable remedies available to NuVasive, NuVasive shall have the
right in its sole discretion and for no additional consideration to
Representative: to direct Representative to immediately assign to
NuVasive all Compliance Agreements or similar agreements described
in Section 6.13 above; and to solicit, contract with, or hire any sales
representatives of Representative.

9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

NuVasive’s stated reason for terminating the Agreement was not for breach
of MMI’s obligations under § 2.4 (conflicts of interest), § 6.13 (agreement regarding
competitive products and non-solicitation), § 6.15 (interaction with health care
professionals), § 9 (trademarks), or § 10 (confidentiality).

Rather, NuVasive

terminated MMI under § 11.3 for being in “Poor Standing.”
Section 11.3 provides: “NuVasive shall have the right to terminate this
Agreement at will if Representative is deemed to be in ‘Poor Standing’ per Section
6.1. . . .” As defined in § 6.1, “Poor Standing” occurs when (1) MMI fails to secure
orders for 95% of its aggregate Quota Commitment in any two consecutive
calendar quarters, or (2) fails to secure orders for 95% of its aggregate Quota
Commitment for any given year.
Section 11.3 further provides that if NuVasive chooses to terminate the
Agreement for “Poor Standing,” NuVasive may choose to exercise “the termination
right” described in §11.6.

Under § 11.7, upon full payment of the “Stated

2
13cv2077 BTM(RBB)

1
2
3
4
5
6
7
8
9
10
11

Percentage,” as set forth in § 11.6, NuVasive obtains the following:
Additional Provisions Regarding Change of Control. In the event the
Second payment is made, all Compliance Agreements (or similar
agreements then in effect) shall be immediately assigned to NuVasive
or the Acquiring Party (at NuVasive’s discretion) and all other
reasonable steps (not to include significant cash payments by
Representative) shall be taken by Representative to ensure that the
services of all Representative Affiliates are continued uninterrupted on
behalf of the Acquiring Party of NuVasive (as appropriate). Further,
NuVasive may at any time Representative is in Poor Standing, upon
payment of the Stated Percentage, elect to terminate this Agreement
and have all Compliance Agreements assigned to it (and require that
all other reasonable steps (not to include significant cash payments by
Representative) be taken by Representative to ensure that the
services of all Representative Affiliates are continued uninterrupted on
behalf of NuVasive).

12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

(Emphasis added.)
The Compliance Agreements are described in § 6.13 of the Agreement.
Section 6.13 provides:
During the Term and for a period of one (1) year following the expiration
or termination hereof, neither Representative nor any of
Representatives’ partners, employees, sub-contractors, sales
personnel (whether employees of Representative or independent
contractors), affiliates or agents (nor any entity in which Representative
has an ownership interest) (each a “representative Affiliate”) shall
(i) develop, represent, promote or otherwise try to sell within the
Territory any lines or products that, in the Company’s reasonable
judgment, compete with the Products covered by this Agreement,
(ii) solicit (directly or indirectly) any current or former customers of
NuVasive to purchase any products or lines that are, in the Company’s
reasonable judgment, competitive with the Products covered by this
Agreement, or (iii) solicit or offer work to, directly or indirectly, any of
NuVasive’s employees, agents or representatives. Representative
represents and warrants that (A) each Representative Affiliate
engaged by it on the date of execution hereof has executed an
agreement (a “Compliance Agreement”) in form and substance
sufficient to contractually obligate such person or entity to comply with
the restrictions contained in this Section 6.13, (B) each person or entity

3
13cv2077 BTM(RBB)

1

who becomes a Representative Affiliate in the future shall execute a
Compliance Agreement prior to performing any services for the benefit
of NuVasive, (C) each Compliance Agreement will name NuVasive as
an intended third party beneficiary with full right to directly enforce
provisions necessary to comply with this Section 6.13 and (d) [sic] it
will vigorously enforce the restrictions contained in this Section 6.13
and each Compliance Agreement at its own cost (and in the event
Representative fails to adequately enforce such restrictions, NuVasive
may do so at Representative’s cost).

2
3
4
5
6
7
8
9
10
11

Section 6.13 also provides that each Compliance Agreement shall require all sales
representatives to comply with the terms of § 6.10 (requiring compliance with laws
and policies) and § 6.12 (regulatory compliance), and that MMI shall provide
NuVasive a copy of each Compliance Agreement.

12
13

B.

Pertinent Provisions of MMI’s Employment Agreement and Independent
Contractor Agreement

14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

MMI did not enter into a separate “Compliance Agreement” with any of its
sales people.

Instead, MMI incorporated the requirements of § 6.13 into its

employment agreements and independent contractor agreements.
MMI’s form Employment Agreement (Trial Ex. 46) and Independent
Contractor Agreement (Trial Ex. 1) are substantially similar.

Both agreements

include a non-competition provision as well as a non-solicitation and
noninterference provision.

The non-competition provision (§ 5.4) provides, in

pertinent part:
Employee acknowledges that the sale and distribution of medical
products such as or similar to the Medical Products handled by MMI,
is a highly competitive field and is largely dependent on the good will
that a business such as MMI has created with its customers. Thus,
Employee stipulates and agrees that it is reasonable to restrict
Employee’s ability to compete with MMI in this field not only during
Employee’s employment but also for a reasonable period following
Employee’s employment with MMI. Therefore, during the Employment
Term and for twelve (12) months following the Employment Term,
4
13cv2077 BTM(RBB)

1
2
3
4
5
6
7
8

Employee shall not, in any manner, directly or indirectly (through one
or more affiliates or otherwise), sell Competitive Products or otherwise
engage or participate in any business that is in competition with the
business of MMI in (a) the Assigned Territory, or (b) in any other locale
in which Employee conducted business activities on behalf of MMI at
any time during the twelve (12) months preceding the termination of
Employee’s employment with MMI. For purposes of this Section,
“Competitive Products” means any goods, products or product lines
that are directly or indirectly competitive with the Medical Products sold
by MMI, including without limitation NuVasive Products.
The non-solicitation and noninterference provision (§ 5.5) provides:

9
10
11
12
13
14
15
16
17
18
19
20
21
22

For twelve (12) months following the Employment Term, Employee
shall not, directly or indirectly (through one or more affiliates or
otherwise), canvas, solicit, or accept any business or patronage from
any Customer or prospective Customer of MMI or any person who or
which is an affiliate of any Customer or prospective Customer of MMI,
such as an affiliated hospital, clinic or healthcare facility, a member of
a physician group, an affiliate of a healthcare provider or otherwise.
Employee understands that, and Employee hereby confirms
Employee’s understanding that, under the law, Employee is not
permitted to improperly interfere with MMI’s contractual rights or
business expectancies. Without limiting Employee’s legal obligation in
this regard, Employee agrees that, during the Employment Term and
for twelve (12) months following Employment Term, Employee shall
not induce or attempt to induce, or assist any other person to induce
or attempt to induce (i) any Customer or prospective Customer of MMI
to discontinue or limit its relationship with MMI; (ii) any vendor or
supplier of MMI (including NuVasive) to discontinue or limit its
relationship with MMI; or (iii) any employee or salesperson of MMI to
discontinue or limit its employment or independent contractor
relationship with MMI.1

23
24
25

Both agreements also include a provision that requires employees to comply
with all applicable federal, state and local laws, regulations and ordinances (§ 4.4)

26
27
28

1

The Court has quoted the language in § 5.4 and § 5.5 of the Employment Agreement.
The language in the Independent Contractor Agreement is almost identical except the word
“salesperson” is used in lieu of “employee.”
5
13cv2077 BTM(RBB)

1
2
3
4
5
6

and a “Third Party Beneficiary” provision (§ 8.11), which provides:
Section 4.4 and Article V of this Agreement are for the benefit of not
only MMI but also NuVasive and, without limiting MMI’s right, in any
way, NuVasive shall have the right, power and authority to enforce
such provisions as though it were a party hereto. As such, NuVasive
is an express third party beneficiary to this Agreement.
C. Court’s Pretrial Rulings

7

In the Court’s Order Granting in Part and Denying in Part Cross-Motions for

8

Summary Judgment (“MSJ Order”) [Doc. 163], the Court granted summary

9

judgment in favor of NuVasive on MMI’s claim that NuVasive breached the ESR

10

Agreement by soliciting and hiring MMI’s employees. The Court found that based

11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

on the record before it, there was no basis for implying in the ESR Agreement
either a prohibition against the solicitation and hiring of MMI employees under the
circumstances of this case or an authorization to do the same.
With respect to NuVasive’s argument that § 11.7 authorized it to hire MMI’s
employees, the Court explained:
NuVasive argues that § 11.7 must be read as allowing NuVasive to
solicit and hire MMI employees upon payment of the Stated
Percentage because NuVasive already has the right to enforce the
Compliance Agreements as an intended third-party beneficiary.
NuVasive reasons that it would be nonsensical for it to pay over $1.7
million to obtain rights that it already has. However, it is possible that
the parties believed that assignment of the Compliance Agreements
would confer some additional benefit on NuVasive. In addition, it
appears that upon payment of the Stated Percentage, NuVasive
obtained the right to require MMI to take steps to ensure that the
services of MMI’s sales personnel continued uninterrupted. It is
unclear what uninterrupted services means in the context of
termination – i.e., whether sales representatives must fulfill outstanding
contracts, cooperate in transferring business to a new Representative,
and/or do something else. But it seems that NuVasive obtained some
sort of benefit that it would not otherwise have had if it terminated MMI
without payment of the Stated Percentage. Whether the benefit is
worth $1.7 million is not for the Court to say. See Frankel v. Board of

6
13cv2077 BTM(RBB)

1
2
3
4
5
6
7
8
9
10

Dental Examiners, 46 Cal. App. 4th 534, 545 (1996) (“It is not enough
to say that without the proposed implied covenant, the contract would
be improvident or unwise or would operate unjustly. Parties have the
right to make such agreements.”)
(MSJ Order at 24:8-25:6.)
Before trial, the Court denied motions in limine brought by MMI to exclude
evidence and argument regarding § 11.7 and the Stated Percentage payment.
The Court explained that although it had ruled previously that based on the record
before it, it could not interpret the contract to permit solicitation and hiring of MMI’s
employee, the contract was ambiguous and the parties would be allowed to
present extrinsic evidence regarding the meaning of § 11.7.

11
12
13
14
15
16
17
18
19
20
21
22
23

D. Evidence Presented at Trial
At trial, the only witness who offered any significant testimony about the
formation of the ESR Agreement was Jason Hannon, formerly NuVasive’s general
counsel. According to Hannon, prior to the ESR agreement being executed,
Hannon spoke with each of the distributors, including Kris Madsen, about the key
changes in the agreement, including the addition of the following language in
§11.7:
Further, NuVasive may at any time Representative is in Poor Standing,
upon payment of the Stated Percentage, elect to terminate this
Agreement and have all Compliance Agreements assigned to it (and
require that all other reasonable steps (not to include significant cash
payments by Representative) be taken by Representative to ensure
that the services of all Representative Affiliates are continued
uninterrupted on behalf of NuVasive).

24
25
26
27
28

(Trial Tr. Vol. 4A at 475:11-24; 478:3-23; 484:6-18.)
Hannon recalls that Ms. Madsen and/or her lawyer made comments
regarding how NuVasive could reduce the sales territory under the agreement,
what financial security there was for MMI, what would happen in the event of a

7
13cv2077 BTM(RBB)

1

change of control of NuVasive, and under what circumstances and how NuVasive

2

could terminate the distributorship under the contract. (Id. at 480:1-6.)

3

proceedings outside of the presence of the jury, Hannon said that he did not

4

conduct a line-by-line review of the contract with the distributors, but, rather,

5

provided a “high-level explanation to provide context for the contract.” (Trial Tr.

6

Vol. 4B at 514:-13-15.) Mr. Hannon believes that the discussion of the change in

7

§ 11.7 “would have been wrapped up in the larger changes around removing of

8

territory, change of control, and NuVasive taking territory direct.” (Id. at 513:25-

9

514:2.)

In

10

On cross-examination, Hannon conceded that comparing the 2008 version

11

of the ESR Agreement and the 2011 version, there actually was no change in

12

§ 11.7. (Id. at 573:7-12.) “My memory is clearly off that this changed from the

13

2008 agreement . . . .” (Id. at 573:18-19.)

14

Testifying about the purpose of § 11.7, Hannon explained: “This says if

15

representative is ever in poor standing, we can make a payment equal to the stated

16

percentage along with terminating the agreement, and all of the compliance

17

agreements would be assigned to us, the compliance agreements just being the

18

agreements between Madsen Medical and its employees or representatives.” (Id.

19

at 532:5-10.) Hannon described the compliance agreements as follows:

20
21
22
23
24
25
26
27

The compliance agreement is the agreement that the distributorship
signs with its employee or representative that reflects the same basic
terms that are in this agreement between NuVasive and the distributor.
The primary thing being the noncompete provisions that are in this
agreement are passed down to the individuals through the compliance
agreements that each of them signed with the distributorship . . . . We
thought we were buying all the compliance agreements being assigned
over to us and cooperation, meaning all reasonable steps to make sure
that the people who worked for Madsen Medical would continue
working uninterrupted on behalf of NuVasive.
(Id. at 535:2-9,14-18.)

28
8
13cv2077 BTM(RBB)

1

E. The Court’s Interpretation of § 11.7

2

After the close of evidence at trial, the Court determined that there was no

3

disputed extrinsic evidence regarding the meaning of § 11.7 of the ESR

4

Agreement, and that it was for the Court to interpret § 11.7 as a matter of law. The

5

Court gave the jury the following instruction (Court’s Instruction No. 19):

6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25

UNDER SECTION 11.3 OF THE ESR AGREEMENT, NUVASIVE HAD THE
RIGHT TO TERMINATE THE AGREEMENT AT WILL IF MMI WAS IN “POOR
STANDING,” AS DEFINED IN SECTION 6.1 OF THE AGREEMENT.
UNDER SECTION 11.7, IF MMI WAS IN POOR STANDING, NUVASIVE
COULD PAY A “STATED PERCENTAGE” AND ELECT TO TERMINATE THE
AGREEMENT AND (1) HAVE ALL COMPLIANCE AGREEMENTS ASSIGNED
TO IT; AND (2) REQUIRE MMI TO TAKE REASONABLE STEPS TO ENSURE
THAT THE SERVICES OF ALL OF MMI’S SALES REPRESENTATIVES
CONTINUE UNINTERRUPTED ON BEHALF OF NUVASIVE.
WHEN A PARTY TO A CONTRACT (“ASSIGNOR”) ASSIGNS ITS RIGHTS
TO SOMEONE ELSE (“ASSIGNEE”), THE ASSIGNEE OBTAINS ALL OF THE
RIGHTS UNDER THE CONTRACT PREVIOUSLY POSSESSED BY THE
ASSIGNOR.
PAYMENT OF THE STATED PERCENTAGE TO MMI RESULTED IN THE
ASSIGNMENT OF THE COMPLIANCE AGREEMENTS TO NUVASIVE. THE
COMPLIANCE AGREEMENTS CONSIST ONLY OF THE PROMISES OF MMI’S
EMPLOYEES (1) NOT TO COMPETE WITH NUVASIVE WITHIN THE SALES
TERRITORY DURING THE EMPLOYMENT TERM AND FOR TWELVE MONTHS
AFTER; (2) NOT TO SOLICIT ANY CURRENT OR FORMER CUSTOMERS OF
NUVASIVE DURING THE EMPLOYMENT TERM AND FOR TWELVE MONTHS
AFTER; AND (3) TO COMPLY WITH ALL APPLICABLE FEDERAL, STATE AND
LOCAL LAWS.
ASSIGNMENT OF THE COMPLIANCE AGREEMENTS DID NOT RESULT
IN THE ASSIGNMENT OF THE AGREEMENTS MADE BY MMI’S EMPLOYEES
THAT THEY WOULD NOT, DURING THEIR EMPLOYMENT TERM AND FOR
TWELVE MONTHS AFTER, COMPETE AGAINST MMI, SOLICIT MMI’S
CUSTOMERS OR PROSPECTIVE CUSTOMERS, OR INTERFERE WITH MMI’S
BUSINESS RELATIONSHIPS.
SECTION 11.7 NEITHER AUTHORIZES NOR FORBIDS NUVASIVE
FROM SOLICITING AND HIRING MMI’S EMPLOYEES TO SELL NUVASIVE
PRODUCTS WITHIN THE SALES TERRITORY. HOWEVER, IF, AFTER
TERMINATING MMI FOR POOR STANDING, NUVASIVE HIRED MMI’S
EMPLOYEES, THE EMPLOYEES WERE STILL BOUND BY THEIR
EMPLOYMENT AGREEMENTS WITH MMI.

26
27
28
9
13cv2077 BTM(RBB)

1

II. DISCUSSION

2

Although the Court briefly explained on the record its reasoning behind its

3

interpretation of the ESR Agreement, the Court provides a more detailed analysis

4

below.

5
6

A. Principles of Contract Interpretation

7

In interpreting a contract, the goal is “to give effect to the mutual intention of

8

the parties as it existed at the time of contracting.” Cal. Civ. Code § 1636. The

9

court looks to the objective, outward expression of the contract “rather than a

10

party’s unexpressed intention.” Winet v. Price, 4 Cal. App. 4th 1159, 1166 (1992).

11

“Undisclosed communications and understandings are not credible extrinsic

12

evidence and may not be used by the Court to determine the parties’ mutual intent.”

13

SCC Alameda Point LLC v. City of Alameda, 897 F. Supp. 2d 886, 897 (N.D. Cal.

14

2012).

15

The court may consider the circumstances under which the contract was

16

made, and the matter to which it relates. Cal. Civ. Code § 1647. “The whole of a

17

contract is to be taken together, so as to give effect to every part, if reasonably

18

practicable, each clause helping to interpret the other.” Cal. Civ. Code § 1641. If

19

uncertainty in a contract is not removed by application of the other rules of

20

interpretation, the language of the contract should be interpreted most strongly

21

against the party who caused the uncertainty to exist. Cal. Civ. Code § 1654.

22

Extrinsic evidence is admissible to prove a meaning to which a contract is

23

reasonably susceptible. Wolf v. Superior Court, 114 Cal. App. 4th 1343, 1351

24

(2004). If there is no material conflict in the extrinsic evidence, the court interprets

25

the contract as a matter of law. Wolf v. Walt Disney Pictures and Television, 162

26

Cal. App. 4th 1107, 1126 (2008). If, however, there is a conflict in the extrinsic

27

evidence, the jury must resolve the factual conflict. Id.

28
10
13cv2077 BTM(RBB)

1

B. Interpretation of the ESR Agreement

2

There was no material conflict in the extrinsic evidence presented at trial.

3

Therefore, it is proper for the Court to interpret the ESR Agreement as a matter of

4

law.

5

NuVasive contends that upon payment of the Stated Percentage to MMI,

6

NuVasive was assigned the “Compliance Agreements” between MMI’s

7

salespeople and MMI. According to NuVasive, the “Compliance Agreements”

8

consist of the entire Employment Agreement or Independent Contractor

9

Agreement, meaning MMI no longer had the right to enforce the non-competition

10

and non-solicitation/noninterference agreements against its former employees.

11

In contrast, MMI contends that the “Compliance Agreements” that were

12

assigned to NuVasive consist only of the agreements regarding non-competition

13

and non-solicitation described in § 6.13 of the ESR Agreement – i.e., agreements

14

not to compete with NuVasive or solicit any current of former customers of

15

NuVasive. Thus, the assignment did not affect the rights of MMI to enforce its non-

16

competition and non-solicitation/noninterference agreements against its former

17

employees.

18

Upon examination of the language of § 6.13, § 11.5(d), and § 11.7 in the

19

context of the entire agreement, the Court agrees with MMI’s interpretation.

20

Section 6.13 defines a “Compliance Agreement” as an agreement that “in form and

21

substance” is “sufficient to contractually obligate such person or entity to comply

22

with the restrictions contained in this Section 6.13.” There is nothing in § 6.13 that

23

suggests that the Compliance Agreement would encompass other contractual

24

duties not described in § 6.13.

25

competition and non-solicitation/noninterference agreements with its employees

26

overlap with the duties described in § 6.13 because MMI exclusively distributed

27

NuVasive products (meaning that products competing with MMI would also

28

compete with NuVasive, and MMI’s customers were also NuVasive’s customers),

Although the duties imposed by MMI’s non-

11
13cv2077 BTM(RBB)

1

the employment agreements and independent contractor agreements also contain

2

provisions that have nothing to do with agreements not to compete with NuVasive.

3

For example, the employment agreements and independent contractor

4

agreements cover employee compensation, resolution of conflicts between

5

employees, and reimbursement of expenses. There is no basis in the language of

6

§ 6.13 to conclude that “Compliance Agreement” extends to these provisions or

7

any other obligations not described in § 6.13.

8

At trial, Jason Hannon testified that he understood that the Compliance

9

Agreement was “the agreement that the distributorship signs with its employee or

10

representative that reflects the same basic terms that are in this agreement

11

between NuVasive and the distributor. The primary thing being the noncompete

12

provisions that are . . . . passed down to the individuals through the compliance

13

agreements that each of them signed with the distributorship. (Trial Tr. Vol. 4B at

14

535:2-9.) It is unclear from this testimony whether Hannon believed that the

15

Compliance Agreement was the entire employment agreement/independent

16

contractor agreement or just the portions thereof that imposed the duties set forth

17

in § 6.13. To the extent that Hannon believed the former, his belief is of no

18

consequence because there is no evidence that he discussed his understanding

19

with Ms. Madsen or her attorneys. See Headlands Reserve v. Center for Natural

20

Lands Mgmt., 523 F. Supp. 2d 1113, 1128 (C.D. Cal. 2007) (explaining that

21

evidence demonstrating the subjective and undisclosed intent of one party did not

22

reflect the objective mutual intent of the parties and did not control the

23

interpretation of the agreement).

24

The Court’s conclusion that “Compliance Agreement” is limited to the

25

obligations described in § 6.13 is bolstered by an examination and comparison of

26

§ 11.5(d) and § 11.7.

27

Agreement by NuVasive due to a material breach by MMI of specified provisions

28

of the Agreement – i.e., § 2.4 (conflicts of interest), § 6.13 (agreement regarding

Section 11.5(d) pertains to a termination of the ESR

12
13cv2077 BTM(RBB)

1

competitive products and non-solicitation), § 6.15 (interaction with health care

2

professionals), § 9 (trademarks), or § 10 (confidentiality). If NuVasive terminates

3

the Agreement for material breach of these provisions, “NuVasive shall have the

4

right in its sole discretion and for no additional consideration to Representative: to

5

direct Representative to immediately assign to NuVasive all Compliance

6

Agreements or similar agreements described in Section 6.13 above; and to solicit,

7

contract with, or hire any sales representatives of Representative.”

8

In contrast, under § 11.7, if MMI is in “Poor Standing,” NuVasive may “upon

9

payment of the Stated Percentage, elect to terminate this Agreement and have all

10

Compliance Agreements assigned to it (and require that all other reasonable steps

11

(not to include significant cash payments by Representative) be taken by

12

Representative to ensure that the services of all Representative Affiliates are

13

continued uninterrupted on behalf of NuVasive).” Significantly, § 11.7 does not

14

include the language found in § 11.5(d), which allows NuVasive to solicit, contract

15

with, or hire any sales representatives of MMI. Instead, § 11.7 includes the

16

additional language regarding uninterrupted services.

17

Comparing § 11.5(d) and § 11.7, it appears that the parties intended that

18

NuVasive be allowed to solicit and hire MMI’s employees to sell NuVasive products

19

in the instance that MMI breached essential provisions of the contract, but not be

20

permitted to do so in the event of a change of control of NuVasive or “Poor

21

Standing.”

22

specified in § 11.5(d) would likely involve culpable conduct that would justify

23

(1) requiring MMI to forfeit its right to enforce non-competition and non-solicitation

24

clauses against its employees; and (2) permitting NuVasive to hire MMI’s sales

25

representatives to continue its business without interruption.

This makes sense because material breaches of the provisions

26

In comparison, in a situation where a distributor is terminated due to a

27

change of control of NuVasive, it can be anticipated that NuVasive’s acquirer or

28

successor-in-interest would wish to replace the distributor’s sales representatives
13
13cv2077 BTM(RBB)

1

with different salespeople of its own choosing, especially if NuVasive is acquired

2

by a company with its own sales representatives in the region.

3

termination is due to “Poor Standing,” it is reasonable to expect that NuVasive

4

would want to replace the distributor’s sales representatives with new people in an

5

effort to improve performance. In both of these circumstances, the termination

6

would not be due to wrongdoing warranting a sanction against the distributor.

Similarly, if

7

Accordingly, instead of allowing NuVasive to solicit and hire MMI’s

8

employees, § 11.7 requires MMI to take reasonable steps to ensure that the

9

services of all sales representatives are continued uninterrupted on behalf of

10

NuVasive. For example, if requested by NuVasive, MMI must allow its sales

11

representatives to continue to provide services to surgeons until new sales

12

representatives are ready to take over.

13

The Court finds that the use of different language in § 11.7 was purposeful

14

and meaningful. If NuVasive were allowed to just hire MMI’s employees (as

15

expressly permitted by § 11.5(d)) upon payment of the Stated Percentage, the

16

uninterrupted services clause would not be necessary. See City of Atascadero v.

17

Merrill Lynch, Pierce, Fenner & Smith, Inc., 68 Cal. App. 4th 445, 472 (1999)

18

(“Courts must interpret contractual language in a manner which gives force and

19

effect to every provision, and not in a way which renders some clauses nugatory,

20

inoperative or meaningless.”).

21

NuVasive argues that § 11.7 must be read as allowing NuVasive to solicit

22

and hire MMI employees upon payment of the Stated Percentage because

23

NuVasive already has the right to enforce the Compliance Agreements as an

24

intended third-party beneficiary. However, the rights of a third-party beneficiary

25

are not identical to those of an assignee. For instance, a third-party beneficiary

26

seeking to enforce a contract is subject to the defenses that would be valid as

27

between the contracting parties. Stratosphere Lit. LLC v. Grand Casinos, Inc., 298

28

F.3d 1137, 1146 (9th Cir. 2002).
14
13cv2077 BTM(RBB)

1

For the Stated Percentage, NuVasive obtained (1) the rights of an assignee

2

of the Compliance Agreements and (2) the right to require that MMI take

3

reasonable steps to ensure uninterrupted services on behalf of NuVasive.

4

Accordingly, NuVasive obtained a benefit in exchange for payment of the Stated

5

Percentage. It is not for the Court to decide whether the benefit is worth $1.7

6

million.

7

As the Court instructed the jury, the assignment of the Compliance

8

Agreements did not result in the assignment of the agreements made by MMI’s

9

employees that they would not, during the term of their employment and for twelve

10

months after, compete against MMI, solicit MMI’s customers, or interfere with

11

MMI’s business relationships. After NuVasive terminated MMI and hired MMI’s

12

employees, the employees were still bound by the non-competition and non-

13

solicitation/noninterference agreements in their employment contracts.

14
15

III. CONCLUSION

16

For the reasons discussed above, the Court GRANTS IN PART MMI’s

17

Motion for Judgment as a Matter of Law [Doc. 278] as it relates to interpretation of

18

relevant provisions of the Exclusive Sales Representative Agreement. For the

19

reasons set forth on the record, MMI’s motion is otherwise DENIED, and

20

NuVasive’s Motion for Judgment as a Matter of Law [Doc. 277] is DENIED.

21
22
23

IT IS SO ORDERED.
Dated: March 2, 2016

24
25
26
27
28
15
13cv2077 BTM(RBB)