In an effort to protect worker rights, California does not enforce no-compete clauses, which the Golden State has long held as unfair to workers.
Despite that, San Diego spinal products company NuVasive Inc. sued former Vice Chairman Patrick Miles on Oct. 10 for having the audacity to accept a higher-paying job from Alphatec Spine Inc., one of its competitors.
In order to do this, NUVA filed its lawsuit in the Delaware Chancery Court, hoping that Court might allow it to enforce a no-compete clause in Miles’ contract (a clause that violated California law).
Miles and Alphatec responded by filing a lawsuit against NuVasive in San Diego County Superior Court (Alphatec v Nuvasive, Case Number 37-2017-38583-CU-BC-CTL). That lawsuit noted correctly that California does not allow employers to enforce no-compete clauses against employees, a step that is intended to make a free market for California employees and encourage competitive wages.
Now, NuVasive is asking a San Diego judge to dismiss Miles’ San Diego lawsuit, citing a clause in Miles’ employment contract that any disputes must be resolved in the Delaware Chancery Court, or the federal courts in Delaware.
NUVA filed its motion to dismiss November 13 in San Diego County Superior Court.
All this seems to be part of an attempt by NuVasive to do an end-around on California law, and I expect judges in both states will see right through it.
So, why is this relevant to NuVasive investors? It’s yet another sign that company is bogged down by distracting litigation and completely unfocused on its most pressing need – turning around declining sales.
You might recall my first report about Nuvasive (“NUVA: Too Many Red Flags, Distractions and Question Marks”), which discussed all these distractions in detail.
I detailed some additional distractions in a follow-up story on November 3 (“A ‘NU’ Set of Problems at Nuvasive: Federal Subpoena, New Lawsuits”). Yes, in addition to all the lawsuits, NuVasive is the focus of what appears to be a federal criminal investigation.
There’s also this blistering report by Glasshouse Research that alleged the company is inappropriately categorizing some expenses as “one time,” in order to improve its non-GAAP earnings.
Something smells here, and it’s not the salty Pacific Ocean near NuVasive’s San Diego headquarters.
If NuVasive is too busy dealing with vengeful litigation, and criminal investigations, I expect it won’t devote the necessary time to its declining sales and loss of market share. For that reason, I wouldn’t touch this stock.
I also don’t expect a speedy resolution to the litigation. NuVasive’s motion to dismiss is scheduled for a hearing February 16 in the San Diego courtroom of Superior Court Judge Judith F. Hayes. That’s Department C-68 in the downtown San Diego courthouse.
Here’s hoping that NuVasive wises up, drops the matter, and decides to focus on sales.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.