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Mich. choice-of-law prevails, noncompete restricts sales rep’s work in La., which disfavors noncompetes

By Marjorie Johnson, J.D.

A medical devices salesperson found liable for violating a noncompete agreement after he left his former employer (headquartered in Michigan) to work for a competitor covering his same territories in Louisiana, failed to convince the Sixth Circuit that the agreement’s Michigan choice-of-law clause was invalid and that Louisiana law disfavoring noncompetes should have been applied. While Louisiana may have had the most significant relationship to the agreement since it was where the services were performed, its interest in protecting its employee from unfair noncompete clauses was not “materially greater” than Michigan’s interest in protecting its businesses from unfair competition (Stone Surgical, LLC v. Stryker Corp., May 24, 2017, Gibbons, J.).

Noncompete agreement. The salesperson worked for medical device maker Stryker Corp. for over a decade, selling specialized surgical equipment in his Louisiana-based sales territories. Upon acceptance of the job via facsimile, he returned an executed signature page for the form noncompete agreement he had been provided. The agreement included a Michigan choice-of-law clause and a Michigan forum-election clause.

Hired by competitor. In 2013, he decided to seek other business opportunities with a regional competitor, Biomet, and allegedly inquired with Stryker management as to whether he had a noncompete agreement. He claimed he was told he did not, but Stryker vehemently disagreed. In any event, Stryker fired him once it learned he was considering working for Biomet. Afterwards, he began working for the competitor in the same Louisiana-based sales territories.

Jury rules against him. Stryker filed this suit in a federal court in Michigan, claiming breach of contract, breach of fiduciary duty, and misappropriation of trade secrets. The salesperson moved to dismiss for lack of personal jurisdiction, which the district court denied based on the forum-selection clause in the noncompete agreement. He also filed a counterclaim and a separate lawsuit (through his company Stone Surgical) in Louisiana, which was transferred and consolidated with this action. After several contentious pre-trial disputes, the consolidated actions eventually went before a jury, which returned a verdict in favor of Stryker, awarded it $745,195 in damages, and rejected all of the salesperson’s counterclaims.

Couldn’t challenge whether he signed it. The salesperson forfeited or waived any challenge to the jury’s verdict specifically finding that he signed the noncompete. Therefore, the appeals court only considered his challenges to the forum-selection clause, personal jurisdiction, and the application of Michigan law.

Forum-selection clause, personal jurisdiction. The noncompete’s forum-selection clause stated that any dispute must be brought in a Michigan court. Since Michigan law favoring forum-selection clauses controlled, the clause was valid and enforceable. Moreover, the district court had personal jurisdiction over salesperson since he consented to Michigan jurisdiction through the forum-selection clause.

Choice-of-law clause valid. The bulk of the Sixth Circuit’s opinion addressed the salesperson’s challenge to the validity of the noncompete agreement choice-of-law clause, with the court ultimately determining that Michigan law (which favors noncompetes) was properly applied since Louisiana’s interests in determining the validity of the noncompete were not “materially greater” than Michigan’s. This was a fatal blow for the salesperson, who sought to have Louisiana law govern since it generally disallowed noncompete clauses.

Louisiana had most “significant relationship.” Addressing this complex choice-of-law issue, the Sixth Circuit first determined that—absent the choice-of-law clause—Louisiana law would have applied since it had the most significant relationship to the transaction and the parties. Looking to the relevant factors, the court found that the place of contracting and negotiation were unclear. The domicile of the parties also did not favor one state over the other since Stryker was based in Michigan, and the sales rep was domiciled in Louisiana.

However, the place of performance was primarily Louisiana since the noncompete prevented the sales rep from competing with Stryker in Louisiana. The location of “the subject matter of the contract” also favored finding that Louisiana had the most significant relationship to the transaction since the noncompete told the sales rep what he could and could not do in his Louisiana sales territories, should he leave Stryker. Thus, absent a choice-of-law clause, Louisiana law would have governed.

But not “materially greater interest.” Nevertheless, the district court properly applied Michigan law since Louisiana did not have a “materially greater interest” in the determination of the validity of the noncompete. Notably, this analysis was distinct from which state’s law would have applied absent the choice-of-law clause, and Michigan had a clear interest in the issue at hand since Stryker was a Michigan corporation with its headquarters and management centered there. The state had a strong interest in protecting its businesses from unfair competition as well as in protecting Stryker from suffering economic loss as a result of the salesperson’s breach of the noncompete agreement.

Balancing the two state’s interests, the appeals court found that Louisiana’s interest in protecting its employee from unfair noncompete clauses was not materially greater than Michigan’s interest in protecting its businesses from unfair competition. Thus, there was no reason to disturb the parties’ choice of Michigan law. And while Michigan law favors noncompetes and Louisiana law severely restricts them, the Sixth Circuit declined to opine on whether these two fundamental policies conflicted since district court properly applied Michigan law pursuant to the parties’ choice-of-law agreement.

Attorney-client privilege. The Sixth Circuit also rejected the salesperson’s challenge the district court’s decision to exclude certain internal Stryker emails from evidence pursuant to the attorney-client privilege, which he claimed may have shown management knew he did not have a noncompete agreement. His assertion that he should have been granted an adverse-inference jury instruction also failed.