Saint Louis University v. Medtronic Navigation, Inc. et al

Filing 17

MEMORANDUM AND ORDER: IT IS HEREBY ORDERED that Defendant's Motion to Dismiss or Transfer [ECF No. 6 ] is DENIED in part and GRANTED in part. The case is transferred to the United States District Court of Colorado. That part of the motion req uesting dismissal of Plaintiff's claims is denied without prejudice pending transfer of the case to the District of Colorado. IT IS FURTHER ORDERED that the Clerk of Court shall transfer this action to the United States District Court of Colorado pursuant to 28 U.S.C. § 1404(a). Signed by District Judge E. Richard Webber on September 13, 2012. (BRP)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
EASTERN DIVISION

SAINT LOUIS UNIVERSITY,
Plaintiff,
vs.
MEDTRONIC NAVIGATION, INC., et al.,
Defendants.

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Case No. 4:12CV01128 ERW

MEMORANDUM AND ORDER
This matter comes before the Court on Defendants Medtronic Navigation, Inc. and
Medtronic Sofamor Danek, Inc.’s Motion to Dismiss the complaint, Motion to Dismiss Defendant
Medtronic Sofamor Danek, Inc., or in the alternative, to Transfer Venue [ECF No. 6].
I.

BACKGROUND AND PROCEDURAL HISTORY
In March 1994, Plaintiff Saint Louis University (“Plaintiff”) and Defendants Medtronic

Navigation, Inc. (“Medtronic”) and Medtronic Sofamor Danek, Inc. (“Sofamor Danek”)
(collectively, “Defendants”) entered into a License Agreement, whereby Medtronic agreed to pay
Plaintiff royalties on the sales of products licensed to Medtronic by Plaintiff [ECF No. 1 at *2].1
Medtronic is a Delaware corporation with its principal place of business in Colorado; it
“manufactures, markets, sells and sublicenses products . . . for use in surgical procedures.” [ECF
No. 1 at *2]. Sofamor Danek is an Indiana corporation with its principal place of business in
Tennessee.

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At the time the License Agreement was executed, Medtronic was doing business as Stealth Technologies,
Inc. (“Stealth”). Stealth became Surgical Navigation Technologies, Inc. (“SNT”) in March 1995, and was
subsequently acquired by Sofamor Danek Group, Inc. (“SDG”). SDG was then acquired by Medtronic, becoming
Sofamor Danek. SNT became Medtronic in January 2005 [ECF No. 1 at *2-4].

Sales of Plaintiff’s licensed products commenced in June 1995, with royalty payments
beginning in October 1995 [ECF No. 1 at *4]. Pursuant to the License Agreement, in January
2007. Plaintiff engaged an accounting firm to audit the royalty payments by Medtronic, resulting
in a conflict over how Medtronic was calculating the royalty payments.
In August 2010, Plaintiff and Medtronic began discussing the appropriate measure of past
royalties paid; the parties entered into a Tolling Agreement in January 2011 “[p]ursuant to
subsequent settlement negotiations” [ECF No. 1 at *6]. The Tolling Agreement was amended
twice, and was set to expire on June 30, 2012.
Notwithstanding the Tolling Agreement, Plaintiff filed suit with this Court on June 22,
2012 against Medtronic and Sofamor Danek, eight days before expiration of the agreement,
alleging breach of contract for failure to pay royalties and failure to provide copies of sublicense
agreements obtained by Medtronic; Plaintiff also sought declaratory judgment on its claims [ECF
No. 1]. Defendants filed a Motion to Dismiss, or in the alternative, to Transfer Venue on July 13,
2012, arguing that the covenant not to sue contained in the Tolling Agreement bars the suit; that
Sofamor Danek is not a party to the license agreement and should be dismissed, and alternatively
that this Court should transfer to the District of Colorado.2 Plaintiff filed its response July 23,
2012, arguing that enforcement of the covenant not to sue does not warrant dismissal of the suit,
that Sofamor Danek ought not be dismissed from the suit, and that venue is appropriate in this
Court [ECF No. 10]. Defendants filed their reply August 2, 2012 [ECF No. 13].

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On June 30, 2012, the day the Tolling Agreement expired, Defendants filed their own lawsuit in the
United States District Court of Colorado. Medtronic Navigation, Inc. v. Saint Louis University, No. 1:12CV01706
PAB-MJW (D. Col. June 30, 2012). That litigation is currently pending.

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II.

DISCUSSION
A.

DEFENDANTS MOTION TO DISMISS BASED UPON THE COVENANT
NOT TO SUE

Defendants ask this Court to dismiss Plaintiff’s complaint because it was filed eight days
prior to expiration of the covenant not to sue [ECF No. 6]. Plaintiff does not dispute that the
covenant was breached, but argues that specific performance is not the appropriate remedy and
that its breach was immaterial. This Court concludes that under existing Missouri law, the
appropriate remedy for breach of a covenant not to sue is damages, and that dismissal does not
accord with the rationale behind such covenants.
Missouri substantive law governs contract interpretation. Kelly v. Golden, 352 F.3d 344,
846 (8th Cir. 2003). A federal court sitting in diversity is bound by the decisions of the forum
state’s highest court. Minn. Supply Co. v. Raymond Corp., 472 F.3d 524, 534 (8th Cir. 2006).
Regarding covenants not to sue, the Missouri Supreme Court has ruled that such covenants do
not present a bar to an action on the claim, “the only remedy of the covenantee being a suit for
damages on the covenant or agreement.” Hosea v. Rowley, 57 Mo. 357 (1874) (quoting Rucker
v. Robinson, 38 Mo. 158 (1866)). Because these cases appear to be Missouri’s most recent
discussion of covenants not to sue, this Court will indulge in a more detailed analysis of the
appropriate remedy for breach of a covenant not to sue.
As an initial matter, it is important to distinguish a temporary covenant not to sue (a shortterm agreement not to sue another party) from a permanent covenant not to sue (a release of one
party from liability to the other). One is a contractual promise not to sue, while the other is a
discharge of liability. See 12 Richard A. Lord, Williston on Contracts § 36:16, at 677-78 (4th
ed.). The distinction is most important when analyzing damages, due to the risk of circuity: “[A]
covenant not to sue [at all] . . . is a bar to the original cause of action. This is to avoid circuity of
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action; for if the plaintiff in the original action were to recover, the defendant could recover
precisely the same damages back for breach of the covenant to forbear or not to sue.” Id. “The
circuity of action that occurs when there is a covenant to perpetually forbear from bringing suit
does not occur” where the parties agree not to sue for a limited time. Kunza v. St. Mary’s
Regional Health Center, 747 N.W.2d 586, 593 (Minn. Ct. App. 2008); see also 3M Co. v.
Ivoclar Vivadent AG, 2012 WL 1438989 at *2 (D. Minn. 2012) (applying Kunza). This Court
finds the rationale of these Minnesota cases persuasive: In analyzing a breach of a temporary
covenant not to sue, “a breach occurs when an action is brought early, not when any action is
brought, and it is not necessarily the case that the damages to respondents caused by bringing the
action early are precisely the same damages that appellant could recover in her underlying action.”
747 N.W.2d at 593. In other words, while circuity is a convincing rationale for dismissing a suit
brought in breach of a permanent covenant not to sue, that same rationale does not exist when the
breach is of a temporary covenant not to sue. This result also accords with the well-established
rule that equitable remedies will only be granted where there exists no adequate remedy at law.
See, e.g., Oliver v. Johnson, 238 Mo. 359 (Mo. 1911).
This Court notes that the Restatement of Contracts § 285 conflicts with this result: “[A]
contract not to sue for a limited time bars an action to enforce the duty during that time.”
However, Missouri has not adopted Rest. § 285. Nor has Missouri expressed an intent to adopt
all or substantially all of the Restatement of Contracts. As Plaintiff points out, Missouri courts
have frequently declined to adopt the Restatement’s position, and have elected in cases to adopt
contrary positions. See, e.g., State ex rel. PaineWebber, Inc. v. Voorhees, 891 S.W.2d 126 (Mo.
1995); State v. Maryville Land P’ship, 62 S.W.3d 485 (Mo. Ct. App. 2001); Jake C. Byers, Inc.

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v. JBC Investments, 834 S.W.2d 806 (Mo. Ct. App. 1992). Again, this Court finds persuasive
Kunza’s analysis of the Restatement’s position:
We see some merit in [Rest. § 285's] straightforward principle that a party who
contracts not to sue for a limited time is barred from bringing an action during that
time. But because appellant only agreed to temporarily refrain from bringing her
cause of action and did not give up her claims against respondents, we are not
persuaded that her contract not to sue for a limited time period should be given the
effect of a release and serve as a bar to appellant’s action. Instead, respondents
may pursue their available remedies to enforce their rights under the contract.
Kunza, 747 N.W.2d at 593.
Defendants cite two cases that have elected to adopt Rest. § 285's approach barring suits
brought in violation of a covenant not to sue. Shay v. First Fed. of Miami, Inc., 429 So.2d 64
(1983); New York State Energy Research and Dev. Auth. v. Nuclear Fuel Servs., Inc., 561 F.
Supp. 954, 965-66 (W.D.N.Y. 1983). Defendants suggest that Missouri would likely adopt the
position laid out in the Restatement and these two cases, as opposed to the position of Williston
and the recent Minnesota cases. This Court disagrees. There is no indication that Missouri
intends to depart from its precedent. Moreover, this Court finds Defendant’s logic attacking the
Missouri cases to be dubious.
Defendant suggests that the Minnesota court’s decisions, and by implication this Court’s
decision, “have regressed back to the out-dated logic of the 1800's [ECF No. 7 at *7]. This
outdated logic, Defendant asserts, is that the only rationale for not barring a suit brought in
violation of a covenant not to sue is that courts “mistakenly assumed that a dismissal would
preclude a plaintiff from raising the same claims after the covenant not to sue expired.” [ECF No.
13 at *3]. However, as demonstrated, there are valid contemporary rationales for not requiring
dismissal. Regardless of whether dismissal would have resulted in preclusion, equitable remedies

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are generally disfavored in contract law, and where the breach is of a temporary covenant not to
sue, there is no reason damages would not adequately compensate the aggrieved party.
Moreover, contrary to Defendant’s assertion, this Court is not convinced that to hold
otherwise would “deter parties from engaging in pre-litigation settlement negotiations and punish
those who attempt to settle their disputes outside of court,” or that it would “stymie the very
discussions they are intended to promote and induce a race to the courthouse” [ECF No. 7 at *8].
Parties routinely engage in settlement negotiations without the benefit of temporary covenants not
to sue. Moreover, these covenants are valid and enforceable, and damages are available against a
party who breaches them. Lastly, whether dismissal is appropriate against a party who breaches a
covenant not to sue does not resolve the venue discussion in favor of the violating party.
Defendants should be aware of this, as the case they cite in support of the above conclusions,
Eveready Battery Co. v. Zinc Products Co., 21 F. Supp.2d 1060 (E.D. Mo. 1998), resulted in
transfer of venue, not dismissal.
Because the Missouri Supreme Court’s last ruling on covenants not to sue concluded that
damages, and not specific performance, was the appropriate remedy for a violation of that
covenant, and because this Court finds no reason that Missouri would divert from that holding,
this Court concludes that Defendants’ Motion to Dismiss should be denied.
B.

DEFENDANTS MOTION TO TRANSFER VENUE

Defendants ask this Court, in the alternative, to transfer the case to the United States
District of Colorado in the interests of convenience and justice [ECF No. 7]. Plaintiffs argue in
their response that this Court should retain jurisdiction.
Where concurrent jurisdiction exists, generally the first court in which jurisdiction attaches
has priority to hear the case. U.S. Fire Ins. Co. v. Goodyear Tire & Rubber Co., 920 F.2d 487,

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488 (8th Cir. 1990); Eveready Battery Co., 21 F. Supp.2d at 1061. This “first filed” rule
preserves judicial resources and helps to avoid conflicting judgments. G.S. Robins & Co. v.
Alexander Chemical Corp., 2011 WL 1431324 (E.D. Mo. 2011) However, the first filed rule is
not to be applied rigidly; the prevailing rule is that exceptions are made where “compelling
circumstances” establish that jurisdiction should be maintained in the second forum. U.S. Fire.
Ins. Co., 920 F.2d at 488-89; Northwest Airlines, Inc. v. American Airlines, Inc., 989 F.2d 1002
(8th Cir. 1993) (“The [first filed] rule . . . yields to the interests of justice, and will not be applied
where a court finds ‘compelling circumstances’ supporting its abrogation”). It is well established
in this circuit that “compelling circumstances” includes situations where it would penalize parties
for their efforts to settle, where the plaintiff filed its suit during settlement negotiations with the
defendant without the defendant’s knowledge, or where there was insufficient notice of a change
in the first-filing party’s position on the dispute. See U.S. Fire Ins. Co., 920 F.2d at 488-89;
Eveready, 21 F. Supp.2d at 1062; Boatmen’s First Nat’l Bank of Kansas City v. Kansas Pub.
Employees Retirement Sys., 915 F. Supp. 131, 144 (W.D. Mo. 1996).
Accepting Plaintiff’s assertion that it did not mislead Defendants as to its position during
settlement negotiations, the record nonetheless establishes that the parties were operating under a
valid Tolling Agreement which had been renewed twice by the parties and was set to expire eight
days after Plaintiff filed their suit [ECF No. 1 at *6]. Whether settlement negotiations were
ongoing as of June 22, the record establishes that counsel for Defendants was operating under the
assumption that the period for settlement discussions had not ended, [Plaintiff’s Response in
Opposition, Phone Message of counsel Kurt Niederluecke, ECF No. 10 at *3], and that any
decision to forego settlement discussions was one-sided and was not communicated to
Defendants. The record also establishes that Plaintiff’s counsel did not inform Defendant’s

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counsel of their intent to file this suit before it was actually filed [ECF No. 10 at *3 (“[C]ounsel
for SLU responded . . . indicating the law suit against Medtronic had been filed) (italics added)].
These facts are sufficient to establish “compelling circumstances” in this jurisdiction such that
application of the “first filed” rule is not appropriate. To hold otherwise would be to punish
Defendants for focusing on settlement negotiation during the period of time agreed to by the
parties, which would violate the well-established public policy encouraging out-of-court
settlement. See Eveready, 21 F. Supp.2d at 1062 (citing Boatmen’s First Nat’l Bank, 915 F.
Supp. at 144). Because this Court concludes that compelling circumstances warrant abrogation
of the first filed rule, it is appropriate to consider the general venue factors to determine whether
it should retain jurisdiction over this case. As both parties note, this Court considers the factors
expressed in 28 U.S.C. § 1404(a) in determining whether venue is appropriate: convenience of the
parties, convenience of the witnesses, and the interests of justice.
Convenience to the parties is not a compelling factor in this case. Each potential forum is
convenient to one of the parties, and neither appears to be particularly more convenient than the
other. In any event, the Court does not believe that the inconvenience of either forum would
actually prejudice the ability of the parties to litigate this case. As such, this Court concludes that
this factor does not weigh heavily in favor of granting or denying the requested transfer.
Courts in this circuit have indicated that convenience of the witnesses is the most
significant factor in considering the propriety of transfer under § 1404(a). See, e.g., AnheuserBusch, Inc. v. City Merch., 176 F. Supp. 2d 951, 959 (E.D. Mo. 2001). It appears from the
record that the majority of identified witnesses currently reside in Colorado. While Plaintiff
correctly points out that the majority are party witnesses, that does not abrogate Colorado’s
convenience in favor of Missouri.

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This Court finds that the interests of justice factors do not weigh more favorably in either
direction. However, this Court does conclude that Plaintiff’s decision to file early, in breach of
the covenant not to sue, is a compelling factor operating in favor of transfer. While a plaintiff’s
choice of forum generally is given great weight in determining interests of justice, to do so under
these circumstances would be to reward Plaintiff’s breach of the covenant not to sue. This Court
is not inclined to reward that decision, and concludes in light of the other factors that transfer is
appropriate.
C.

DEFENDANT’S MOTION TO DISMISS SOFAMOR DANEK

Because this Court concludes that venue is improper in this Court, it will deny
Defendant’s Motion to Dismiss Sofamor Danek, without prejudice, pending transfer.
Accordingly,
IT IS HEREBY ORDERED that Defendant’s Motion to Dismiss or Transfer [ECF No.
6] is DENIED in part and GRANTED in part. The case is transferred to the United States
District Court of Colorado. That part of the motion requesting dismissal of Plaintiff’s claims is
denied without prejudice pending transfer of the case to the District of Colorado.
IT IS FURTHER ORDERED that the Clerk of Court shall transfer this action to the
United States District Court of Colorado pursuant to 28 U.S.C. § 1404(a).
Dated this 13th Day of September, 2012.

_______________________________________
E. RICHARD WEBBER
SENIOR UNITED STATES DISTRICT JUDGE

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