Opko Health last week, responding to a court request for information, argued that a recent decision by the California Supreme Court upholding the invalidity of certain non-compete agreements clears a one-time executive of charges of wrongdoing filed by rival ophthalmic technology firm Ophthalmic Imaging Systems.
According to Opko, the California Supreme Court decision, which is unrelated to its case with OIS, “represents the current unanimous thinking … as to the paramount rights of a California employee to be free to seek new employment” and “reflects our modern ‘knowledge economy’ and ‘high-velocity labor market’ that promote innovation and entrepreneurial enterprise.”
The ruling further “affirms that an employee in California cannot be held liable for actions undertaken merely in advancement of his or protected employment activities, especially when the actions are independent of … current employment activities and involve no malfeasance by the employee (other than seeking new employment),” the company added.
In its own response last week to the court’s request, however, OIS said that the case is not relevant to the litigation against Opko and its former employee, and therefore “does not in any way control or change” the outcome of its own lawsuit.
“The complaint [against its former employee] does not allege that he is in breach of any written contract that contains a non-compete clause,” OIS said. The former employee also has not “alleged any claims against OIS relating to a non-compete clause, nor has he or the other defendants argued … that any claim by OIS is invalid as a result of a non-compete clause.”
The legal row began for Opko in April when it was added as a defendant to a lawsuit filed in a California Superior Court in which OIS charged its former president Steven Verdooner with breaching his fiduciary duty to the company by negotiating an employment deal with Opko. During the course of those negotiations, the suit claims, he disclosed OIS’ interest in pursuing a business arrangement with ocular imaging systems company Ophthalmic Technologies (see RNAi News, 5/22/2008).
OIS said in its suit that as it held confidential talks with OTI, Verdooner began meeting with Opko Chairman and CEO Phillip Frost about joining Opko. During the course of these meetings, Frost informed Verdooner that he knew of OIS’ negotiations with OTI, and that Opko was interested in striking its own business relationship with OTI.
OIS charges in its suit that while Verdooner was still its president, he failed to inform other company officials about Frost’s intentions and instead “commenced a series of negotiations with Frost, Opko, and the Frost Group to take an executive position with Opko.”
The suit also alleges that Opko persuaded Verdooner with the promise of future employment to sign a confidentiality agreement not to disclose certain confidential information about OTI with other parties even though he was still president of OIS and even though OIS was engaged in its own negotiations with OTI.
Verdooner joined Opko in mid-2007 as executive vice president of instrumentation, and Opko acquired OTI a few months later (see RNAi News, 11/29/2007). Verdooner’s employment was terminated this January, although he was indemnified by Opko as a former officer.
“Verdooner’s acts and omissions before leaving OIS were so numerous … and the harm resulting from them so obvious and so significant, that they take this case completely out of the realm of merely ‘competitive’ conduct.”
As the OIS/Opko suit moved forward, last month the California Supreme Court issued a ruling in a case between accounting firm Arthur Andersen and one of its tax managers that the Superior Court considered possibly relevant to the litigation between Opko, Verdooner, and OIS.
Arthur Andersen ceased its accounting practices in the US in 2002 after being implicated in a government investigation of wrongdoing at now-defunct energy company Enron. According to the California Supreme Court, as part of that process Arthur Andersen sold off part of its tax practice, including the tax manager’s group, to banking company HSBC.
Before being hired by HSBC, the tax manager was asked to terminate his 18-month non-compete agreement with Andersen, the court said. Part of the termination arrangement required that the tax manager resign from Andersen and release it from any and all claims while indefinitely preserving confidential information and trade secrets. In exchange, Andersen would accept his resignation and free him from his non-compete deal, which precluded his employment with HSBC.
The tax manager refused to terminate the non-compete agreement, was fired from Andersen, and HSBC withdrew its offer of employment. He later sued Andersen and HSBC for intentional interference with prospective economic advantage and anticompetitive business practices.
The California Supreme Court ultimately ruled, in part, that non-competition agreements are prohibited by law except in certain statutory situations. Additionally, the court found that contract provisions whereby an employee waives “any and all” claims does not encompass non-waivable statutory protections.
In its brief to the court hearing the OIS case, Opko said the California Supreme Court decision reinforces Verdooner’s “paramount right to seek employment and pursue employment in the enterprise of his choice. That right is in no way vitiated by his title of president at Ophthalmic Imaging Systems.”
Additionally, OIS’ claims do not allege any misappropriation of trade secrets, Opko said. “Instead, the [suit] alleges merely that Verdooner interviewed with Opko, failed to tell OIS what we learned in that interview, left the employ of OIS, and that after he left, he asked other OIS at-will sales personnel to join him at his new employer.
“This conduct is privileged by virtue of the now-clearly articulated … California public policy that fosters competition and employee mobility,” Opko added.
As for Verdooner’s failure to disclose Opko’s interest in OTI to his former company, Opko said that such knowledge was “privileged and protected by the same public policy” described in the California Supreme Court decision.
“There is no legal requirement that Verdooner disclose interview information to his current employer,” Opko argued. “The information belonged to Opko and was shared with Verdooner in the course of his pursuit of employment with Opko.”
To OIS, however, the California Supreme Court ruling “does not alter a corporate officer’s fiduciary duties to the corporation” since the case is limited to the issue of an “employer’s ability to enforce a written non-compete agreement with an employee.”
Specifically, the tax manager at the center of the Andersen case was not a partner. By comparison, Verdooner, as president, was a fiduciary officer “with heightened duties” to his employer — a policy still valid under California law, OIS argued. “There is no reason to read the [California Supreme Court’s] decision as in any way changing a fiduciary’s legal obligations.”
According to OIS, “from the moment that Verdooner learned from Phillip Frost … that Frost was interested in OTI, Verdooner knew … that OIS was at risk of losing an extremely valuable business opportunity … and that is alleged to have been worth millions to OIS. Yet he stayed silent.”
OIS added that Verdooner’s “acts and omissions before leaving OIS were so numerous … and the harm resulting from them so obvious and so significant, that they take this case completely out of the realm of merely ‘competitive’ conduct.”