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GOOGLE, INC. v. MICROSOFT CORP.
415 F.Supp.2d 1018 (2005)
United States District Court, N.D. California, San Jose Division.
October 27, 2005.
Rest. (Second) Confl. Laws § 6. These factors suggest that California could be "the state of applicable law" under sections 188 and 6. Although section 188(2)(a) favors applying Washington law—Microsoft and Lee negotiated and signed the employment agreement in Washington—the Washington court could conclude that "the place of performance" of the covenant not to compete was California. Cf. Application Group, 61 Cal. App.4th at 904, 72 Cal.Rptr.2d 73 (rejecting
argument that "place of performance" of covenant not to compete was place of employment because "the contracting parties were undoubtedly well aware that the purpose of the noncompetition clause was to prevent Hunter's competitors, especially those in California, from recruiting and hiring Hunter's consultants") (emphasis in original). In addition, under section 188(2)(e), Microsoft has a significant California presence, Google is a Californiabased employer, and Lee is now a California resident.8See Ku Decl. Supp. Mot. Summ. J. ¶¶ 2, 4; Lee Decl. ¶ 6; Taylor Decl. Supp. Mot. Summ. J. Ex. D. Moreover, as noted, under section 6(c), California likely qualifies as an "interested state" with a strong stake "in the determination of" the covenant's validity. Thus, nothing prevents Google and Lee from making the same arguments in the Washington state proceeding that they make here. Google and Lee cite McGill v. Hill,31 Wn.App. 542, 644 P.2d 680 (1982) and Sparling v. Hoffman Const. Co., Inc.,864 F.2d 635 (9th Cir.1988) for the proposition that Washington courts will only strike down choice-of-law provisions that violate Washington law. In McGill, a Washington appellate court announced that "[a]n express choice of law clause in a contract will be given effect, as expressing the intent of the parties, so long as application of the chosen law does not violate the fundamental public policy of the forum state." McGill, 31 Wash.App. at 547, 644 P.2d 680. Similarly, citing McGill, Sparling posited that "Washington law gives effect to an express choice of law clause in a contract as long as application of the chosen law does not violate Washington's fundamental public policy." Sparling, 864 F.2d at 641. However, neither case involved a Washington court deciding whether to apply another state's law despite a Washington choice-of-law clause. See McGill, 31 Wash.App. at 546-48, 644 P.2d 680 (declining to apply Washington law in light of a Pennsylvania choice-of-law clause); Sparling, 864 F.2d at 641 (declining to apply Washington law in light of an Alaska choice-of-law clause). In addition, the Washington Supreme Court has refused to apply Washington law under sections 188 and 6 out of deference to another state's interests. See Pac. Gamble Robinson Co. v. Lapp,95 Wn.2d 341, 345-48, 622 P.2d 850 (1980) (applying Colorado law to issue of whether creditor could recover community property because "numerous contacts, competing policies, and justifiable expectations of the parties show Colorado's interest in the contract to be far more significant than Washington's"), overruled on other grounds by dedeElche v. Jacobsen,95 Wn.2d 237, 247, 622 P.2d 835 (1980). Google and Lee can thus urge the Washington state court to apply California law. In fact, doing so would simply entail repeating the same arguments they make here. For these reasons, the court concludes that there is no meaningful difference between this case and the Washington state proceeding.9 Because the two cases are "parallel," this court declines to declare the rights and
other legal relations of the parties pending the outcome in the Washington state court. 2. Whether Advanced Bionics Holds Otherwise Google and Lee also contend that the California Supreme Court's decision in Advanced Bionics "expressly addressed the issue [of] whether two cases pending in courts in different states, but involving the same dispute over a non-compete provision, should proceed simultaneously" and "concluded that allowing both proceedings to go forward in parallel was the appropriate course of action." Opp. Mot. Dism. at 11:22-26 (emphasis in original). The court disagrees. Advanced Bionics held that a California court improperly enjoined parties from litigating the validity of a covenant not to compete in Minnesota state court. Advanced Bionics, 29 Cal.4th at 707-08, 128 Cal.Rptr.2d 172, 59 P.3d 231. However, the court reached this conclusion out of respect for principles of sovereignty and comity: [E]ven assuming a California court might reasonably conclude that the contractual provision at issue here is void in this state, this policy interest does not, under these facts, justify issuance of a TRO against the parties in the Minnesota court proceedings. A parallel action in a different state presents sovereignty concerns that compel California courts to use judicial restraint when determining whether they may properly issue a TRO against parties pursing an action in a foreign jurisdiction. Id. at 706-07, 128 Cal.Rptr.2d 172, 59 P.3d 231. No similar circumstances are present here. Microsoft's request—that this court permit the first-filed Washington state proceeding to continue—is far less intrusive and extreme than a request to enjoin parties from litigating before a foreign tribunal. In any event, "[t]he propriety of granting declaratory relief in federal court is a procedural matter" governed by federal law. DeFeo, 831 F.Supp. at 779. Accordingly, because Advanced Bionics applied California law, it does not control this court's decision to decline to entertain a request for declaratory relief. See Hanna v. Plumer,380 U.S. 460, 465, 85 S.Ct. 1136, 14 L.Ed.2d 8 (1965) (in diversity cases "federal courts are to apply state substantive law and federal procedural law").
1. Lee has now relocated to California. Lee Decl. ¶ 6. 2. The court also rejected DeFeo's argument that Proctor & Gamble could not challenge federal jurisdiction after removing the case, noting that California state courts also may decline to issue declaratory relief under similar circumstances. See DeFeo, 831 F.Supp. at 779 & n. 10. 3. Google and Lee claim that Microsoft improperly cites Schmitt in violation of Local Rule 3-4(e), which prohibits parties from citing "[a]ny order or opinion that is designated: `NOT FOR CITATION.' However, Schmitt does not appear to be such a case". 4. Federal courts sitting in diversity apply federal law to the issue of whether a forum selection clause is valid. See Manetti-Farrow, Inc. v. Gucci. America, Inc.,858 F.2d 509, 513 (9th Cir.1988). 5. "In a diversity case, the district court must apply the choice-of-law rules of the state in which it sits." Abogados v. AT&T, Inc.,223 F.3d 932, 934 (9th Cir.2000). 6. Section 187(2), comment G, illustration 9 explains that courts may look to another state's public policy in determining whether to enforce a choice-of-law clause:
In state X, A and B, who are both domiciled in that state, negotiate the terms of a contract which is to be performed in X. The contract provides that it shall be governed by the law of state Y; it is signed first by A in X and then by B in Y. A suit involving the validity of the contract is brought before a court of state Z. The court will be more inclined to deny effect to the choice-of-law provision in deference to X policy than it would have been if the elements had not been massed to so great an extent in X. 7. The covenant provided that "[d]uring the term of [Pike's] employment, and for a period of [one year] after the date of its termination, [Pike] agrees that [she] will not render, directly or indirectly, any services of an advisory or consulting nature, whether as an employee or otherwise, to any business which is a competitor of [Hunter]." Application Group, 61 Cal. App.4th at 887, 72 Cal.Rptr.2d 73. 8. Although a California resident, Lee's anticipated assignment with Google is in China. 9. The one difference is the issue of the enforceability of the forum selection clause. As noted, this court would apply federal law to the issue. The United States Supreme Court has held that courts should presume that forum selection clauses are valid and only invalidate them when they are "unreasonable." See Bremen v. Zapata Off-Shore Co.,407 U.S. 1, 10, 92 S.Ct. 1907, 32 L.Ed.2d 513 (1972). A forum selection clause is "unreasonable," inter alia, if the clause's opponent makes a strong showing that "enforcement of the clause would contravene a strong public policy of the forum in which the suit is brought." Richards v. Lloyd's of London,135 F.3d 1289, 1294 (9th Cir.1998) (quoting Bremen, 407 U.S. at 12-13, 92 S.Ct. 1907) (emphasis added). Thus, this court would determine whether the forum selection clause violated California policy, while the Washington state court would determine whether the forum selection clause violated Washington policy.
However, this distinction has no practical significance. If Google and Lee successfully prove that California's interest in striking down the covenant not to compete is sufficiently strong, the Washington state court should apply California law regardless of whether the forum selection clause is valid. If Google and Lee cannot make this showing, then the validity of the forum selection clause is not critical: the case should proceed under Washington law. Either way, the validity of the forum selection clause cannot be dispositive in the Washington state proceeding.
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