Co-authored by Joseph E. Gallo.
The Court of Chancery for the State of Delaware recently rejected an effort to dismiss an unfair competition / employee raiding lawsuit against a Delaware corporation on the theory that the departing employees, who were not named as defendants, were indispensible parties to the action.
The plaintiff NuVasive, a medical corporation, sued Lanx, another medical corporation, after Lanx hired a number of former NuVasive employees. NuVasive did not sue the former employees in Delaware because they were not subject to personal jurisdiction in Delaware – suits were pending against them in several other jurisdictions. NuVasive asserted several claims against Lanx, alleging, in part, that Lanx had induced the employees to breach their employment agreements and aided and abetted thefts of trade secrets and a breach of the employees’ fiduciary duties to NuVasive. Lanx moved to dismiss the claims, arguing that the employees were indispensible parties to the litigation pursuant to Court of Chancery Rule 12(b)(7), and that the litigation could not proceed without the employees. The Chancery Court disagreed.
To be deemed an indispensible party to a litigation under Delaware procedural law, the party must be necessary in the sense that the missing party will be subject to substantial harm if the litigation is resolved without their inclusion. With respect to the non-contract based claims against Lanx, the Court held that even though it would have to consider the departing employees’ conduct, they were not necessary parties because they would not suffer any direct harm from the Court’s determination of those issues. It was significant that the plaintiff agreed that it would not seek to prevent the employees from litigating those issues in the cases pending against them in other jurisdictions.
However, the Court did find that the former NuVasive employees could potentially suffer substantial harm if the Court were to resolve the contract-based claims without their involvement in the litigation. Those claims required the Court to interpret the former employees’ agreement with NuVasive to determine whether, among other things, their current employment violated the post-employment restrictions in those agreements. Since NuVasive was seeking a permanent injunction to prevent violations of the terms of those agreements, such relief could directly effect the former employees ability to continue to work for Lanx. Accordingly, with respect to the contract-based claims, the Court determined the employees were necessary parties.
Nonetheless, the Court did not take the further step of deeming the departing employees indispensible parties and dismissing NuVasive’s suit. The Court reasoned that although a judgment against Lanx might be prejudicial to the employees, the Court could shape any relief to minimize the prejudice to the former employees, such as denying the request for injunctive relief and awarding only monetary damages. Thus, the Court allowed the plaintiff to press forward with its claims and noted that the plaintiff was choosing to do so cognizant of the limited scope of remedies available in the forum.
NuVasive, Inc. v. Lanx, Inc., No. 7266-VCG (Del. Ch. July 11, 2012).