§ 1.1 Introduction
Non-compete laws and trade secret litigation continue to proliferate. Multiple states have enacted or amended statutes limiting use and enforcement of non-compete agreements. Over the past year, over sixty bills have been introduced that would affect non-compete laws. Limiting or banning the use of restrictive covenants is also a federal priority. In 2021, the Biden Administration issued an executive order directing multiple federal departments and agencies to take action against the unfair use of non-compete agreements and revise guidance on no-poach agreements. In addition to legislation, courts have continued to call into question the viability of non-compete and non-solicit agreements given the legislative policy disfavoring employee mobility restrictions, and have readily held unenforceable such agreements as overbroad, vague, or otherwise invalid. Although non-competes are increasingly disfavored, trade secrets may be seen as a countervailing protectable interest.
This continued focus on non-compete laws and trade secrets occurs as the COVID-19 pandemic enters its third year and employees continue to work from home or return to offices in a hybrid work model. This sustained shift to remote work compounds the legal obstacles employers face when trying to protect trade secrets. This “new normal” will continue to evolve the legal standards for the protection of work secrets.
The use of choice-of-law provisions, which allow a party to select a particular state’s law to apply to a contract, has similarly come under attack. In recent years, several states have enacted statutes prohibiting the enforcement of forum-selection and choice-of-law clauses that designate another state’s forum or law against their citizens. Even in the absence of such statutes, courts have continued to find such provisions unenforceable where they might conflict with state public policy considerations.
Courts around the country have continued to see a sustained pace of new filings of employee mobility and trade secret cases over the past few years. This Chapter provides an overview of recent developments in case law, and will serve as a practical guide for business law practitioners navigating new changes in employee mobility issues and the protection of trade secrets.
§ 1.2 Employee Mobility: Breach of Duty of Loyalty; Breach of Fiduciary Duties
§ 1.2.2 First Circuit
Sebren v. Harrison, No. 1:18-cv-00667-MSM-PAS, 2021 U.S. Dist. LEXIS 146756 (D.R.I. 2021) (unpublished). The Rhode Island District Court granted in part and denied in part an employer’s motion for summary judgment against an employee for employer’s claims of breach of contract, usurpation of opportunity and breach of loyalty, tortious interference, theft, and extortion and abuse of process because there were no triable issues of fact. There, the employee worked for the employer as an attorney. Upon leaving employment, one of employee’s previous clients sought her representation. The employer filed the above-mentioned claims against the employee. As for the breach of contract claim, the employer alleged he and employee agreed to a 50/50 contingency fee split for the client’s case. The employee denied any fee agreement. Based on this evidence, the court held that whether any such agreement existed between the parties was an issue for the jury. As to the usurpation of opportunity and breach of loyalty claim, former employees are entitled, absent noncompete contracts to do business with clients of the former employer so long as the conduct occurs post departure. There, the court reasoned that because there was not a noncompete agreement between the parties and the employee’s independent representation of the client occurred after her departure from employment with the employer, the employee had no fiduciary obligation to the employer. As to the tortious interference claim, absent a noncompete agreement, a departing employee may continue to do business with a client who follows the employee so long as the employee did not actively abuse the trust of his employer in dealing with customers while employed. There, the court reasoned that because there was not a noncompete agreement between the parties, and no evidence to establish the employee acted wrongfully, the claim was unsupported. As to the theft claim, the court reasoned that because the employer offered no evidence to suggest the employee did not have permission to possess the file during her employment with the employer, and as soon as the employee was retained by the client, she was entitled to the file independently, there was no basis for his claim. As to the extortion and abuse of process claims, the court reasoned that the employee’s advice to the employer to speak with family and friends and consider all possible consequences in a communication to settle the case was insufficient to suggest extortion and abuse of process. Based on these findings, the court denied summary judgment as to employer’s breach of contract claim but granted summary judgment as to all other claims.
§ 1.2.4 Third Circuit
Sunbelt Rentals, Inc. v. Love, 2021 U.S. Dist. LEXIS 4587 (D. N.J 2021) (unpublished). Former high-level sales employee Love assumed a national role with Sunbelt after they acquired his former employer, Interstate in 2018. The ‘national’ nature of Love’s role at Sunbelt was the product of initial negotiations between Love’s counsel and Sunbelt, which culminated in the signing of an employment agreement permitting Love to earn healthy compensation in consideration for a broad restrictive covenant. Later, after receiving approximately $300,000 in retention bonuses, Love emailed a host of proprietary Sunbelt customer, pricing, and project information to himself and his brother (a Sunbelt customer at the time) just weeks before resigning to join competitor EquipmentShare, where he planned to compete with Sunbelt nationally. Emphasizing Love’s lack of credibility when he testified that he did not know what was contained in the information he emailed himself and his brother, and when he averred that such information was deleted and never used, the court granted Sunbelt’s motion for an injunction on its breach of contract and trade secrets claims. Critically, without an injunction, “Sunbelt would have to trust the testimony of a disgruntled former employee who has demonstrated his animus towards his former employer,” which made the court uncomfortable. The court was much more comfortable holding Love to his bargain, given his voluntarily resignation and handsome compensation for the restrictive covenant. A large portion of the opinion contained interpretation about the geographic scope of the non-competition provision; the court ultimately found a national scope reasonable in light of Love’s national role and the handsome compensation that accompanied such a position. Because Love’s act of emailing information about Sunbelt’s unique nationwide strategies which he acknowledged was confidential to himself and his brother was such a clear breach of Love’s employment contract and misappropriation of Sunbelt’s trade secrets, the former employer had demonstrated success on the merits of both of its claims and that it would suffer “likely and imminent” harm absent the injunction.
Additional Cases of Note
Peoplestrategy, Inc. v. Hearthstone Advisors LLC, 2021 U.S. Dist. LEXIS 73529 (E.D.Pa 2021) (unpublished) (granting former CEO in purchase of consulting business scenario’s motion for summary judgment that he did not violate non-competition or customer non-solicitation provisions of poorly-written business purchase agreement (“BPA”); granting summary judgment to the purchasing entity on their claim that former CEO breached non-solicitation portion of BPA; and sending to jury the questions of whether the confidentiality portion of BPA was breached and whether the former CEO was acting as the alter-ego of the LLC in whose name he signed the BPA); EMC Outdoor, LLC v. Stuart, 2021 U.S. Dist. LEXIS 63438 (E.D.Pa 2021) (unpublished) (granting summary judgment to employee and new employer on breach of contract and fiduciary duty and misappropriation of trade secrets claims where all of the conduct occurred after former employer terminated employee because employment agreement’s restrictive covenants did not apply to a firing according to court’s interpretation of the contract; defendants prevailed on trade secrets claims because plaintiff could not show misappropriation where the employee acquired the customer information directly in the normal course of work for former employer).
§ 1.2.5 Fourth Circuit
Anderson v. Fluor Intercontinental, Inc., 2021 U.S. Dist. LEXIS 45526 (E.D. Va. 2021) (unpublished). Retired United States Army Brigadier General, Steve Anderson, participated in numerous business ventures after retiring, and prior to being hired by Fluor Intercontinental as its Country Manager in Afghanistan, including having served as Chief Marketing Officer of Relyant Global and owning a stake in Relyant’s holding company, as well as owner and CEO of consulting company Energistics Technologies through which he performed consulting working for several companies, including LEEP Expeditionary Buildings. As a result, during the hiring process, Fluor informed Anderson that they would need to address his potential conflicts of interests, specifically the risk that Relyant might improperly benefit from Anderson’s inside influence at Fluor. After he was hired by Fluor, Anderson entering into a consulting agreement with Relyant and a marketing agreement with LEEP, with whom he communicated his intent to use his position at Fluor for their benefit. Anderson did not report these business arrangements to Fluor when he completed its Code of Business Conduct and Ethics Certification. After Anderson’s interactions with subcontractors raised red flags and after Fluor awarded a contract to Relyant, Fluor investigated and terminated Anderson, in addition to recompeting the contract previously awarded to Relyant, who had been provided competitor pricing information that Anderson had obtained as a Fluor employee. Anderson filed this action against Fluor related to his termination and Fluor’s disclosure of his suspected conflict of interest violations; Fluor counterclaimed, resulting in the parties’ cross motions for summary judgment. Specifically, the court found Fluor’s claim for breach of duty of loyalty preempted by the Virginia Uniform Trade Secrets Act (VUTSA) to the extent it asserts a claim based on Anderson’s alleged misappropriation of the competitor pricing information in Fluor’s possession because VUTSA displaces conflicting Virginia laws providing civil remedies for misappropriation if a defendant misappropriates a trade secret under VUTSA. As such, the court held that, to recover for Anderson’s alleged breach of loyalty, Fluor must demonstrate that its theories of relief for this claim are supported by facts unrelated to Anderson’s alleged misappropriation of its trade secrets. Accordingly, the court denied Anderson’s motion for summary judgment as to this claim to the extent Fluor premises the claim on Anderson’s consulting arrangement with Relyant, which Anderson concealed from Fluor and which is unrelated to the misappropriation of trade secrets.
Additional Cases of Note
ComRent Int’l, LLC v. Smidlein, 2021 U.S. Dist. LEXIS 13715 (D. Md. 2021) (applying Maryland law) (unpublished) (denying defendants’ motion to dismiss for failure to state claim and finding that plaintiff’s claims for breach of fiduciary duty and abetting a breach of fiduciary duty state plausible claims for relief for valid causes of action because, contrary to defendants’ argument, Maryland law recognized an independent action for breach of fiduciary duty); ComRent Int’l, LLC v. Thomson, 2021 U.S. Dist. LEXIS 84320 (D. Md. 2021) (unpublished) (denying defendants’ motions to dismiss for failure to state a claim and finding that plaintiff’s claim for breach of duty of loyalty, among other claims, are not preempted by the Maryland Uniform Trade Secrets Act, because they are based on the alleged wrongful acquisition and use of its confidential and proprietary non-trade secret information, and that plaintiff sufficiently pled a claim for breach of duty of loyalty through its allegations that Thomson accessed and used confidential information during and after his employment to the benefit of himself and/or his new employer); Gordon v. Blue Mountain Therapy, LLC, 2021 U.S. Dist. LEXIS 105432 (W.D. Va. 2021) (unpublished) (denying plaintiff’s motion to dismiss defendant’s counterclaim alleging that plaintiff violated his common law duty of loyalty to defendant when he secretly entered into contracts for his own benefit that should have gone to his employer and rejecting plaintiff’s argument that claims for breach of contract and breach of the duty of loyalty are mutually exclusive).
§ 1.2.6 Fifth Circuit
Additional Cases of Note
Cyberx Grp., LLC v. Pearson, U.S. Lexis 92999, at *30 (N.D. Tex. May 17, 2021) (granting plaintiff’s request for a preliminary injunction against defendants due to breach of contract and breach of fiduciary duties, because “the evidence demonstrates that [defendants’] departure was not the result of unforeseen circumstances, but was rather a step in their plan to form a competing business, which they at least knew, if not intended, would leave [Cyberx] at a competitive disadvantage.”).
Mills v. Trustmark Nat'l Bank, No. 3:19-CV-941-CWR-FKB, 2021 U.S. Dist. LEXIS 37481, at *17 (S.D. Miss. Mar. 1, 2021) (recognizing an aiding and abetting breach of fiduciary duty claim under Mississippi Law even though the state courts had not ruled on the claim’s existence, reasoning that the Fifth Circuit requires its federal courts make an Erie guess as to how the Mississippi Supreme Court would decide a question in the absence of on-point caselaw and there is no evidence that Mississippi would not adopt the claim).
Mims v. Matrix Tr. Co. (In re Vantage Benefits Adm'rs), Nos. 18-31351-SGJ-7, 20-03055, 2021 Bankr. LEXIS 1195, at *59 (Bankr. N.D. Tex. May 5, 2021) (denying a motion to dismiss breach of fiduciary duty and aiding and abetting claims, reasoning that, given that the Texas Supreme Court had yet to decide whether aiding and abetting is a recognized cause of action, the court was unable to conclude as a matter of law that the Plaintiff was unable to bring a cause of action under Texas law).
People Source Staffing Prof'ls LLC v. Robertson, 2021 U.S. Dist. LEXIS 95665, at *24 (W.D. La. May 19, 2021) (granting defendant’s motion for summary judgment regarding plaintiff’s claim for breach of fiduciary duty because defendant “did not have a special duty as an agent or mandatory for [plaintiff]” in the role of account manager).
People Source Staffing Prof'ls LLC v. Robertson, 2021 U.S. Dist. LEXIS 105712, at *20 (W.D. La. June 3, 2021) (granting defendant’s motion for summary judgment regarding the breach of fiduciary duty claim because plaintiff failed to meet its burden to demonstrate defendant was an agent or mandatory of plaintiff, as she was “not an officer, director, or owner of [plaintiff]”).
Whitlock v. CSI Risk Mgmt., LLC, 2021 Tex. App. LEXIS 3345, at *13 (Tex. Ct. App., 5th Dist. Apr. 30, 2021) (determining a verdict in favor of a former employer in its suit against competitors, a former employee, and two others, was proper because “more than a scintilla of evidence supported the jury’s determination that Whitlock breached the confidentiality provision of the Temporary Agreement, and further conclude the jury’s verdict was not contrary to the overwhelming weight of the evidence”).
§ 1.2.7 Sixth Circuit
Ingram v. Regano, 2021 U.S. Dist. LEXIS 61856 (N.D. Ohio 2021) (applying Ohio law) (unpublished). Plaintiff Meribethe R. Ingram sued defendants Joseph V. Regano and Fred E. Bolden, II for violations of her Procedural Due process and Equal Protection rights guaranteed by the United States Constitution, for sexual discrimination in violation of Title VII of the United States Code and Ohio law, and for breach of fiduciary duty in violation of Ohio law. Ingram was employed in various capacities at Lewis Elementary School, and alleged she was harassed by another teacher. She claimed she reported the behavior to the school’s administration, including Bolden and Regano, but that they did not act in response. Rather than investigating her complaint, the administration informed her she was no longer welcome on the Lewis Elementary premises. Ingram then filed a complaint for unlawful retaliation with the school district, who allowed Bolden and Regano to oversee the investigation even though both were the subject of such investigation. Her retaliation complaint was denied. One of Ingram’s claims was that both Bolden and Regano owed her a fiduciary duty to conduct the investigation into her complaint in a fair and unbiased manner. The Sixth Circuit found that Ingram failed to properly state a claim that a fiduciary relationship existed because the plain language of the District’s anti-harassment policy explained that the defendant’s obligations run to the “accused, the accuser, but primarily to the Board,” thus it was not clear that the defendants promised to act primarily for Ingram’s benefit. Thus, the defendants were entitled to judgment in their favor on the breach of fiduciary duty claim.
Ohio Nurses Ass’n v. Ashtabula Cty. Med. Ctr., 2020 U.S. Dist. LEXIS 136336 (N.D. Ohio 2020) (unpublished). The Defendant, Ashtabula County Medical Center (ACMC) is a non-profit hospital in Ohio and is governed by a Board of Trustees. It is the only hospital in Ashtabula County that provides labor and delivery services. The Board decided to close the Maternity Ward and Skilled Nursing Unit. The Plaintiffs, brought this case seeking a preliminary injunction to enjoin the Defendants from closing the Maternity Ward alleging among other things a breach of fiduciary duty of the Trustees of the ACMC Board of Trustees. The Plaintiffs allege that the Trustees, by acting against their organizational purpose to benefit members of the community, have breach their fiduciary duty. The Northern District of Ohio denied the Plaintiffs’ motion and stated that Plaintiffs failed to prove the Trustees did not act in good faith. Additionally, Plaintiffs failed to prove that they had standing to assert a breach of fiduciary claim because Ohio law only expressly allows for claims by members of the corporation not by intended beneficiaries, which Plaintiffs claimed to be.
United States ex rel. Felten v. William Beaumont Hosp., 933 F.3d 428 (6th Cir. (Mich.) 2021). Petitioner David Felten appealed the district court’s partial dismissal of his first amended complaint alleging William Beaumont Hospital (Beaumont) violated the anti-retaliation provision of the federal False Claims Act (FCA) (31 U.S.C. § 3730(h)). He alleged he was terminated after Beaumont falsely represented to him that an internal memorandum suggested he be replaced and that his position was subject to mandatory retirement. He also claimed Beaumont “intentionally maligned” him in retaliation for his reports of Beaumont’s unlawful conduct, which prevented him from getting a job anywhere else in academic medicine. His complaint was dismissed by the district court, after the court found the FCA’s anti-retaliation provision only applies to conduct occurring during a plaintiff’s employment. This was an issue of first impression for the Sixth Circuit, with the court holding that the provision does apply to actions taken after a plaintiff’s employment ends. Beaumont argued that the phrase “terms and conditions of employment” used in the FCA precludes the Act’s application to actions taken after a plaintiff’s employment ends. The court rejected that argument, finding that the phrase does not restrict misconduct to occurrences that take place only while the plaintiff is employed, and adding that “terms and conditions of employment” can continue long after a plaintiff leaves a job, such as non-compete and non-solicitation agreements. The court noted that the FCA does not define “employee” and instead relied on the dictionary definition’s requirement that there be the formation of an employment relationship, regardless of whether or not such a relationship still exists, in order for the Act to apply. Last, the court noted a considerable policy concern, that if the statute did not apply to actions taken after a plaintiff’s employment ends, there would be a perverse incentive for employers to fire employees who might bring FCA claims, and the anti-retaliation provision is meant to encourage the reporting of fraud, not stymie it.
Additional Cases of Note
Cheryl & Co. v. Krueger, 2021 U.S. Dist. LEXIS 80868 at *66 (S.D. Ohio 2021) (applying Ohio law) (unpublished) (explaining the “faithless servant doctrine” and granting summary judgment in favor of one defendant-employee on plaintiff-employer’s breach of duty of loyalty claim because the evidence was insufficient to show that disloyalty permeated the employee’s service under the standard); Henderson v. Skyview Satellite Networks, 474 F. Supp. 3d 893, at *902-908 (W.D. Ky. 2020) (finding that by being in negotiations for employment with a new employer, even though she had not accepted employment, the plaintiff was “engaging” and “entertaining” employment offers in violation of the terms of her employment agreement); Novolex Holdings v. Wurzburger, 2020 U.S. LEXIS 147891, at *23-28 (E.D. Ky. 2020) (holding that the defendant-employee breached his fiduciary duty by withholding information from plaintiff-employer in order to earn a bonus); PSC Indus. v. Johnson, 2021 U.S. Dist. LEXIS 81350, at *41-44 (M.D. Tenn. 2021) (applying Tennessee law) (unpublished) (explaining that plaintiff’s breach of fiduciary duty claim is to be construed by the court as a claim for a breach of the duty of loyalty, emphasizing that the two claims are “undeniably . . . different”); Radiant Global Logistics, Inc. v. BTX Air Express of Detroit LLC, 2021 U.S. Dist. LEXIS 68319, at *17-30 (E.D. Mich. 2021) (applying Michigan law) (unpublished) (explaining of the elements of fiduciary duty claims and breaches thereof in detail); Vanderbilt Univ. v. Scholastic, Inc., 2021 U.S. Dist. LEXIS 99656 (M.D. Tenn. 2021) (applying Tennessee law) (unpublished) (finding a reasonable juror could conclude that defendant-employee acted adverse to plaintiff-employer’s interest by agreeing to several non-compete provisions and failing to inform plaintiff-employer about such agreements);
§ 1.2.8 Seventh Circuit
Hensiek v. Bd. of Dirs. of Casino Queen Holding Co., 514 F. Supp. 3d 1045 (S.D. Ill. 2021). Plaintiffs are former employees of the Casino Queen and participants in the Casino Queen ESOP that was created for the sole purpose of purchasing 100% of the outstanding common stock of CQ because the shareholders were unable to sell that asset elsewhere. To effectuate the sale of stock, the Board of Directors (Bidwell, Rand, Koman, Watson and Barrows) selected two of its members (Watson and Barrows) to be Co-Trustees of the ESOP and vested them with the authority to purchase from the selling shareholders (Bidwell, Rand, and Koman) all of the outstanding stock for the sum of $170 million. The Board retained the power to dismiss the Co-Trustees, which Plaintiffs asserted was functionally equivalent to having power and control over their decision making, thereby creating a fiduciary relationship between members of the Board and Plaintiffs. Plaintiffs went on to allege that two transactions served to benefit the selling shareholders who orchestrated the transactions and violated Defendants’s fiduciary duties to participants of the ESOP under the Employment Retirement Income Security Act (“ERISA”). Plaintiff contended that they were unaware of the events for several years until the shares of stock were reported to have suffered a significant loss in value and that defendants undertook acts to conceal and misrepresent their misconduct. Defendants moved to compel arbitration. The court noted that the Seventh Circuit has not directly addressed the issue of whether statutory ERISA claims are arbitrable but assumed that the “Circuit will at the appropriate time determine that statutory ERISA claims are arbitrable” based on rising trends in other circuits. Ultimately, however, the court held that arbitration was unenforceable in this case due to lack of consideration.
Additional Cases of Note
Hartford Steam Boiler Inspection & Ins. Co. v. Campbell, 2021 U.S. Dist. LEXIS 62332 (S.D. Ind. 2021) (unpublished) (applying Indiana law) (granting defendants’s motion to dismiss for failure to state a claim as to plaintiff’s allegation that defendants breached fiduciary duty of care by misappropriating trade secrets where Indiana trade secret law pre-empts any common law claim for misappropriation of trade secrets).
NPF Racing Stables, LLC v. Aguirre, 2021 U.S. Dist. LEXIS 69912 (N.D. Ill. Apr. 12, 2021) (unpublished) (granting plaintiff’s motion for summary judgment as to defendants’s counterclaims and third-party claims, explaining that fiduciary duty is not breached when the record indisputably shows that the alleged breacher’s actions were in the company’s best interest).
Switchboard Apparatus, Inc. v. Wolfram, 2021 U.S. Dist. LEXIS 105827, at *16 (N.D. Ill. June 7, 2021) (denying plaintiff’s motion to dismiss the claim as preempted by the Illinois Trade Secrets Act (ITSA) because even if the information plaintiff shared with his new employer was not a trade secret, plaintiff “breached his duty of loyalty by sharing the relevant information with E&I while employed by SAI.”).
Teague v. Healthcare Dev. Partners, LLC, 2021 U.S. Dist. LEXIS 37108, at *26 (N.D. Ill. Mar. 1, 2021) (denying defendant’s summary judgment motion because triable issues of material fact existed with respect to plaintiff’s potential breach of his duty of loyalty when he offered competing services to another company while still employed by his prior employer).
Walgreens Co. v. Peters, 2021 U.S. Dist. LEXIS 140740, at *14 (N.D. Ill. July 28, 2021) (granting Walgreens’s motion for a preliminary injunction with respect to enjoining Peters’s use of the stolen Walgreens’s information and trade secrets because Peters “owed a fiduciary duty of loyalty to Walgreens, [] he breached that duty when he took Walgreens’s data, and [] Peters’s actions proximately caused injury to Walgreens” given that Peters “and his new employer used this information to target high performing Walgreens’s stores and purchased nearly $80,000,000 worth of Walgreens’s leased property” after Peters joined his new employer).
§ 1.2.9 Eighth Circuit
ATD Tools v. Fisher, 2021 U.S. Dist. LEXIS 27315 (E.D. Mo. 2021) (unpublished). ATD sells and distributes automotive tools for its own brand and other sellers. Fisher was employed by ATD as its category manager in charge of ATD’s branded products. As a condition of his employment, Fisher entered into ATD’s standard confidentiality and nonsolicit agreement. Fisher resigned, refused to identify his new employer, and claimed that he would live off his investments while contemplating his future. Fisher actually went to work for a direct competitor. Shortly after Fisher’s last day, ATD provided a written reminder of his confidentiality obligations. ATD investigated Fisher’s computer activity and found that he deleted almost all of the emails in his account for two years prior to his departure; accessed, copied, and utilized extensive data on ATD’s computer system; and transferred ATD personnel information, internal financial information, sales and products analytics, strategic marketing plans, and operational information to his own storage devices or accounts. Some of this information was outside of the scope of Fisher’s ATD job duties. ATD moved for a TRO on several claims against Fisher including breach of his duty of loyalty. The court found that ATD was likely to succeed on its claims because Fisher deleted data from ATD’s computer systems and took ATD’s confidential information with him when he left to go work for a competitor. The court also found that ATD was likely to succeed on its trade secret misappropriation and Missouri Computer Tampering Action claims, and entered an injunction prohibiting Fisher from using or disclosing ATD’s trade secrets. See Section 1.5.9 for a summary of the court’s analysis of the trade secret misappropriation claim.
Jim Hawk Truck-Trailers of Sioux Falls v. Crossroads Trailer Sales & Serv., 2021 U.S. Dist. LEXIS 50711 (D. S.D. 2021) (unpublished). Between December 2019 and March 2020, Crossroads Trailer hired nine employee mechanics from Jim Hawk, a direct competitor trucking company. Jim Hawk claimed that the mechanics breached their duty of loyalty by preparing to compete with Jim Hawk’s business while still employed, taking information belonging to Jim Hawk, diverting business from Jim Hawk, and attempting to determine if the customers with whom they worked at Jim Hawk would do business with them at Crossroads. Jim Hawk also alleged that three of the mechanics’ resignations with a period of six days without notice harmed Jim Hawk’s ability to serve its customers. The mechanics moved to dismiss for failure to state a claim. The court noted that the line between preparing to compete and actively competing or not preferring one’s employer is difficult to discern, but found that Jim Hawk alleged facts sufficient to state a claim for breach of duty of loyalty.
§ 1.2.10 Ninth Circuit
Bafford v. Northrop Grumman Corp., 994 F.3d 1020 (9th Cir. (Cal.) 2021). Northrop Grummon sponsored an employee pension plan (Plan) subject to the requirements of the Employee Retirement Income Security Act (ERISA). Northrop delegated administration of the Plan to a Committee which then delegated administration to an outside committee called Hewitt. One of Hewitt’s responsibilities was to generate monthly statements for Plan participants outlining what their monthly pension benefits would be when they retired. Plaintiffs Stephen Bafford and Evelyn Wilson requested these statements, but the statements they received grossly overestimated the benefits to which they were entitled. After plaintiffs retired, they began collecting benefits in the amounts predicted by the statements. Upon realizing the error, Northrop notified plaintiffs, informing them of the reduced amounts they were owed. Plaintiffs then sued, alleging, among other things, that Northrop, the Committee, and Hewitt violated their fiduciary duties to provide accurate benefit information. The district court dismissed plaintiffs’ claims for breach of fiduciary duty against Northrop and the Committee, and the appellate court agreed. The appellate court distinguished between a “named fiduciary,” a fiduciary designated in the plan instrument, and a “functional fiduciary,” a party that exercises discretionary control over management or administration of a plan. For a functional fiduciary, such as Hewitt, to be liable for breach of fiduciary duty, it must be performing a “fiduciary function” at the time of the purported violation. Here, the court found that Hewitt’s calculations of plaintiffs’ pension benefit estimates were not the type of communications with beneficiaries that were fiduciary in nature. Because a breach of fiduciary duty can only occur in connection with the performance of a fiduciary function, Northrop and the Committee could not be held liable for breach of fiduciary duty for delegating a task that did not serve a fiduciary function to Hewitt.
Richter v. Ausmus, No. 19-cv-08300-WHO, 2021 U.S. Dist. LEXIS 28673 (N.D. Cal. 2021) (unpublished). Plaintiff Julia Richter is a former employee of the Oakland Police Department, who alleged, among other things, that she was subjected to a wrongful investigation to prevent her from obtaining disability retirement benefits, which ultimately resulted in her termination. Plaintiff alleged that several parties breached their fiduciary duty to her related to their assessment of her disability benefits. While California courts have held that pension associations, their board members, and some other high-level administrators of pension funds owe a fiduciary duty to beneficiaries and employees applying for benefits, mere employees of the association or bureaucratic employees do not have a fiduciary relationship with the beneficiaries. Here, plaintiff alleged that the City of Oakland Retirement Commission was charged with the administration and management of the City of Oakland’s police retirement system. However, the evidence indicates that CalPERS is in fact the relevant pension association which accepted and rejected her application for disability benefits. Therefore, CalPERS and its board members are the relevant potential fiduciaries in this case. As a result, plaintiff’s claims against the City of Oakland, an Interim City Administrator for the City of Oakland, an attorney for the city of Oakland, a Finance Director assigned to Retirement Unit for the City of Oakland all fail, as none of these parties owe a fiduciary duty to plaintiff. In addition, plaintiff’s claims against an Associate Governmental Program Analyst at Disability Retirement, CalPERS; a member of Local Safety program at Disability Retirement, CalPERS; and an employee in the Special Programs Unit at Disability Retirement, CalPERS cannot stand, as the evidence suggests that these individuals are mere bureaucratic employees of CalPERS and do not owe a fiduciary duty to plaintiff.
Additional Cases of Note
Andreoli v. Youngevity Int'l, No. 3:16-cv-2922-BTM-JLB, 2021 U.S. Dist. LEXIS 207259 (S.D. Cal. 2021) (unpublished) (suggesting that all employees, regardless of whether they are managerial or lower-level, owe a duty of loyalty to their employers); Nat'l Union Fire Ins. Co. v. Lutge, No. 1:20-cv-01809 DAD JLT, 2021 U.S. Dist. LEXIS 99066 (E.D. Cal. 2021) (unpublished) (noting that an employer-employee relationship alone is not sufficient to create a fiduciary relationship between the parties); Tuomela v. Waldorf-Astoria Grand Wailea Hotel, No. 20-00117 JMS-RT, 2021 U.S. Dist. LEXIS 14862 (D. Haw. 2021) (unpublished) (acknowledging that there is no “general fiduciary relationship” between employers and their employees); Valmet Eng'g v. Subramanian, No. CV-19-00457-TUC-RCC (BGM), 2021 U.S. Dist. LEXIS 124760 (D. Ariz. 2021) (unpublished) (stating that an individual’s vague “association” with an entity that owes a fiduciary duty to a third party is not enough to create a fiduciary duty between the individual and that third party); Youngevity Int'l, Corp. v. Smith, No. 3:16-cv-704-BTM-JLB, 2021 U.S. Dist. LEXIS 53456 (S.D. Cal. 2021) (unpublished) (noting that the duty of loyalty that underlies California Business and Professions Code section 16600 applies to independent contractors and employees alike).
§ 1.2.11 Tenth Circuit
There were no qualifying decisions within the Tenth Circuit.
Additional Cases of Note
LS3 Inc. v. Cherokee Fed. Sols., L.L.C., 2021 U.S. Dist. LEXIS 186460 (D. Colo. 2021) (unpublished) (holding that there was no breach of the duty of loyalty since the duty only applied to active business opportunities, and the purported breach occurred after the business opportunity had ended); Smart Surgical, Inc. v. Utah Cord Bank, Inc., 2021 U.S. Dist. LEXIS 36563 (D. Utah 2021) (unpublished) (finding that a claim for aiding and abetting the breach of fiduciary duty cannot depend solely on the use of confidential customer information or it will be preempted by the UTSA);
§ 1.2.12 Eleventh Circuit
777 Partners LLC v. Pagnanelli, 2021 U.S. Dist. LEXIS 43976, at *7-9 (S.D. Fla. 2021): 777 Partners LLC sued its former CEO Pagnanelli for both breach of his employment contract and breach of fiduciary duty. The contract defined Pagnanelli’s fiduciary duties, and contained other restrictive covenants. Pagnanelli allegedly breached both the agreement and his fiduciary duties by engaging in self-dealing (through the solicitation of potential investors for a new startup) and sharing confidential information with individuals outside the company. Regarding the breach of fiduciary duty claim, the court found that 777 Partners LLC failed to state a claim because of the independent tort doctrine. The court relied on the fact that 777 Partners LLC’s complaint “incorporate[d] by reference the very same facts alleged in [the] breach of contract claim” to find that there was no independent conduct to support the breach of fiduciary duty claim. The court acknowledged that “there could be circumstances where the conduct forming a plaintiff’s breach of contract claim is different than the conduct that underlies a breach of fiduciary duty claim in the same complaint.” 777 Partners LLC’s claim, however, failed to show independent conduct demonstrating a breach of fiduciary duty. Consequently, it was barred by the independent tort doctrine.
§ 1.3 Restrictive Covenants: Covenants Not To Compete
§ 1.3.2 First Circuit
CVS Pharm. v. Brown, No. 21-070 WES, 2021 U.S. Dist. LEXIS 39688 (D.R.I. 2021) (unpublished). the Rhode Island District Court granted employee's motion to transfer venue based on a lack of personal jurisdiction because employer failed to establish adequate “plus factors” to bolster a noncompete agreement’s choice of law provision.
Iorio v. Waste Connections of R.I., Inc., No. PC-2021-01558, 2021 R.I. Super. LEXIS 50 (Super. Ct. June 16, 2021) (unpublished). The Rhode Island Superior Court denied an employee's application for a preliminary injunction to prohibit an employer from enforcing a noncompete agreement because the employee failed to establish that enforcement of the agreement would result in irreparable harm. There, the noncompete agreement required that, at the time of termination, the employee would be prohibited from working for a competing business within the geographical areas the employee had worked in the prior two years of employment for 18 months. In her application for injunctive relief, the employee argued that she had suffered irreparable harm through mental anguish she suffered during employment and her prolonged period of unemployment during the underlying action would also equate to irreparable harm. The court held that while evidence of mental anguish could be sufficient for a finding of harm, the mental anguish caused during her employment, which was not due to the enforcement of the noncompete, was not applicable for the purposes of injunctive relief. The court also held that the employee’s prolonged period of unemployment was not sufficient for a finding of irreparable harm when the purpose of a noncompete agreement is to restrict a former employee's ability to work. Moreover, any loss of income would be a quantifiable claim for money damages, not injunctive relief.
Woodlands Senior Living LLC v. MAS Med. Staffing Corp., No. 1:19-cv-00230-JDL, 2021 U.S. Dist. LEXIS 96366 (D. Me. 2021) (unpublished) – the Maine District Court granted an employer’s motion for reconsideration and vacated a staffing corporation’s judgment on the pleadings because the order failed to address whether 1 M.R.S.A. § 302’s “non-application to pending proceedings” provision applied to the corporation’s underlying claim. There, the corporation sought relief under 26 M.R.S.A. § 599-B to bar the employer from enforcing a restrictive employment agreement. The question before the court was whether §599-B applied where an employer was attempting to enforce a restrictive employment agreement, but the enforcement action began prior to the statute’s enactment. 1 M.R.S.A. § 302 provides that actions and proceedings pending at the time of the passage of an Act are not affected thereby. Maine law has held that this rule is controlling absent clear and unequivocal language to the contrary. The court reasoned that because 26 M.R.S.A. § 599-B contained no explicit reference to section 302, or to “pending proceedings,” 1 M.R.S.A. § 302’s presumptive application was not overcome in this instance. Therefore, because there was no clear and unequivocal language indicating the Legislature sought to overcome §302, § 599-B did not bar the employer’s pending action to enforce the restrictive employment agreement against the staffing corporation.
Additional Cases of Note
§ 1.3.3 Second Circuit
IBM v. de Freitas Lima, 833 Fed. Appx. 911 (9th Cir. 2021). Rodrigo Kede de Freitas Lima signed a noncompete with IBM in December 2019. The noncompete, which was limited to a 12-month period, prohibited Lima from working for a competitor. In May 2020, Lima resigned from IBM and accepted an executive position at Microsoft. The district court enjoined Lima from taking the position at Microsoft, reasoning that the noncompete was reasonable under the circumstances. The court found that IBM successfully demonstrated that Lima would inevitably rely on IBM trade secrets when working in his new role at Microsoft. The Second Circuit affirmed this ruling. Because the Second Circuit has rarely reviewed injunctions enforcing such noncompetes under New York law, the case is of high precedential value. It is especially relevant for employers seeking to enjoin high-level executives from working for competitors, when the individual has been exposed to trade secrets.
§ 1.3.4 Third Circuit
Chromalox, Inc. v. Crombie, 2021 U.S. Dist. LEXIS 120745 (W.D.Pa 2021) (unpublished). Crombie was Chromalox’s former Vice President of heat trace for over two decades, which encompassed the “highest level of responsibility in the company for the entire heat trace segment on a global scale,” with heat trace comprising 25% of Chromalox’s sales and 35% of its profits. In 2017, upon Chromolox’s acquisition by new parent company Spirax, Crombie was induced by higher base pay and a new stock option program to sign Spirax’s employment agreement featuring confidentiality, non-competition, and non-solicitation provisions. In 2019 after indicating a pursuit of a career in music, Crombie resigned from Chromolox. The court found by a preponderance of the evidence that Crombie then first attempted to secure employment with Chromolox competitor Bartec, who did not advance an offer due to concerns about the restrictive covenants. Thereafter, Crombie successfully attained employment with Chromolox competitor Indeedco, and he was the architect of their new Heat Trace division, where 75% of new sales opportunities targeted were former Chromolox customers; proprietary technology that had not yet gone to market was stolen; and strategy and training presentations were plagiarized word for word from confidential Chromolox templates. The court granted an eight month preliminary injunction upholding the Spirax employment agreement’s restrictive covenants, which applied globally, as reasonable based on Crombie’s knowing breach thereof given the global nature of his role and of Chromolox and Indeedco’s business. Thus, in enjoining Crombie’s further employment at Indeedco, the court noted that the harm to Crombie was minimal, as he knew or should have known that he was violating the covenants based on the concerns expressed by Bartec.
Ethicon, Inc. v. Randall, 2021 U.S. Dist. LEXIS 102119 (D. N.J 2021) (unpublished). Randall worked for two entities wholly-owned by Johnson and Johnson’s medical device division - first DePuy Synthes, and then Ethicon - before resigning to join competitor Smith and Nephew. As part of assuming a senior leadership role at DePuy, Randall signed an employment agreement containing restrictive covenants preventing Randall from joining a competitor for 18 months. Critically, the agreement carved out the type of work that Randall could do, the terms by which Randall could work for a ‘competitor’ in a non-competitive position or other roles, and a requirement that Randall give 14 written days notice before undertaking such employment. In granting the preliminary injunction preventing Randall from working at Smith and Nephew for 18 months (on a global scale), the court held that Ethicon was properly viewed as a third party beneficiary to the employment agreement between Randall and DePuy based on the agreement’s express language; therefore, Ethicon could enforce the agreement against Randall. Moreover, the scope of the injunction was reasonable given the global nature of both Ethicon and Smith and Nephew’s business, the fact that not all employment was foreclosed to Randall, and the fact that Randall clearly acquired Ethicon’s confidential information as he admitted to forwarding certain information to his personal email before resigning. The court took stock further in Smith and Nephew’s offer to pay Randall’s base salary during the pendency of the injunction, which made the 18 month scope even less of a hardship on Randall. Lastly, although Randall technically failed to comply with the notice provision, the court gave weight to Ethicon’s attempts to place Randall in another position after he gave the deficient ‘notice’ (verbally and in an email noting he was joining the competitor); thus, the injunction would not impose undue harm upon Randall, especially given his voluntary resignation.
Additional Cases of Note
Jackson Hewitt Inc. v. Njoku, 2021 U.S. Dist. LEXIS 87407 (D.N.J 2021) (unpublished) (individual tax preparation franchising agreement gone sour where after franchising agreement was terminated, franchisee utilized his wife, who was really a nurse, to surreptitiously create a new ‘e-filing number’ whereby franchisee operated competitive tax business within 10-mile radius of former Queens, NY franchise location; questioning franchisee’s unauthorized retention of franchisor’s customer records and suspiciously-high, unexplained 60% customer retention rate; and concluding that high retention rate, along with alternative income sources, indicated that franchisee and relatives would not be harmed by enforcement of equitably-adjusted 18-month covenants not to compete and/or solicit franchisor’s customers).
§ 1.3.5 Fourth Circuit
Ihs Global Ltd. v. Trade Data Monitor, LLC, 2021 U.S. Dist. LEXIS 101952 (D.S.C. 2021) (applying New York law) (unpublished). IHS Global owns and operates Global Trade Atlas (GTA), a database providing comprehensive merchandise trade statistics. GTA was created by defendant Brasher and his brother through Global Trade Information Services (GTIS), which they sold, along with GTA, to IHS through a stock purchase agreement (SPA) that prohibited Brasher and his affiliates from using any confidential information or proprietary information related to GTIS, including GTA, for three years. Brasher also entered into a noncompetition agreement (NCA) with IHS in which he agreed that he and his affiliates would not “carry on a business that is competition to the Business” for the same three-year period. After the sale of GTIS, Brasher worked as a consultant with IHS and entered into a consulting agreement that prohibited the use of IHS’s confidential and proprietary information. Defendants Stein and Stringfield also worked for GTIS, and then IHS after the acquisition, at which time they executed employment agreements with IHS that prohibited the use and disclosure of any of IHS’s proprietary information. Approximately 15 months after the acquisition of GTIS, Brasher began developing the Trade Data Monitor Production (TDM Product), which plaintiff alleges is a copycat version of the GTA, and then formed defendant Trade Data Monitor (TDM). Shortly thereafter, Stein and Stringfield terminated their employment with IHS and began working for Brasher. Also, still within the three-year noncompete period, Brasher’s friend purchased a subscription to GTA through which Brasher and TDM frequently accessed GTA. During this time, Brasher also had access to his work laptop with GTIS’s customer relationship database, while Stein and Stringfield had access to a large volume of emails from their time at GTIS, although the parties dispute whether defendants actually relied upon any of this information in building and marketing the TMD Product, which they launched the day after the three-year noncompete period ended. IHS alleges that defendants used IHS’s product, supplier, customer trade secrets and proprietary information to create the TDM Product and that they have been using IHS’s confidential customer information to create business for TDM. The parties filed competing motions for partial summary judgment. The court denied both motions as to IHS’s claim that Brasher breached the NCA because determination of whether Brasher’s conduct, which he describes as merely preparations to compete, is prohibited by the NCA requires interpretation of the NCA and the phrase “carry on a business that is a competitive to the Business” is ambiguous as to what it prohibits. The court also found that the raw trade data and customer contacts are protected under the relevant agreements and found that Brasher, Stein, and Stringfield breached the SPA and employment agreements because it was undisputed that Brasher and TDM employees used the confidential trade data output from the GTA in developing the TDM Product. The court disagreed with defendants’ argument that, although the evidence demonstrated that they obtained access to certain confidential and proprietary information, the evidence does not demonstrate that they ever used the information to build and market the TDM Product. The court noted that obtaining, accessing, utilizing and sending confidential and proprietary information are, in themselves, prohibited “uses” and “disclosures” of that information, which is sufficient for purposes of determining whether the relevant contracts were breached.
Additional Cases of Note
ADESA, Inc. v. Lewis, 2021 U.S. Dist. LEXIS 10422 (W.D. Va. 2021) (applying Tennessee law) (unpublished) (denying request for a preliminary injunction due to a lack of clear showing that the action seeking to enforce a noncompete agreement against a former employee and his new employer is likely to succeed on the merits given questions of enforceability of the agreement under Tennessee law because the agreement was imposed after six years of employment and with only a few months of remaining employment leading to a level of financial uncertainty that likely outweighed plaintiff’s need for protection, among questions regarding the sufficiency the evidence presented regarding the training received by the employee and the justification for the restrictions); Chmura Econs. & Analytics, LLC v. Lombardo, 2021 U.S. Dist. LEXIS 143009 (E.D. Va. 2021) (unpublished) (finding, in response to cross motions for summary judgment, that the noncompetition and nonsolicitation provisions in defendant’s employment agreement with plaintiff are invalid, but severable, because the companies for whom he is restricted from working and the scope of prohibited activities are so broad that “Lombardo would seem to be forced to switch fields entirely,” which was compounded by a lack of meaningful geographic limitation); ComRent Int’l, LLC v. Smidlein, 2021 U.S. Dist. LEXIS 13715 (D. Md. 2021) (applying Maryland law) (unpublished) (denying defendants’ motion to dismiss for failure to state a claim and finding that plaintiff asserted a plausible claim that the restrictive covenants in its agreement with defendant were reasonably related to its legitimate interest given that it alleged that defendant was a highly compensated senior sales executive responsible for overseeing development of customer relationship and who was provided with confidential business records and noting that although the provisions were in some ways broad, such as a broad geographic scope, it was not obviously unreasonable);. Gordon v. Blue Mountain Therapy, LLC, 2021 U.S. Dist. LEXIS 105432 (W.D. Va. 2021) (unpublished) (denying as premature plaintiff’s motion to dismiss defendant’s counterclaim alleging that plaintiff violated the restrictive covenant in his employment agreement because determining enforceability of the restrictive covenant may not be determined in a “factual vacuum” and discovery had not yet occurred); Richards Bldg. Servs., LLC v. Hegarty, 2021 U.S. Dist. LEXIS 143660 (E.D.N.C. 2021) (unpublished) (granting plaintiff’s unopposed motion for preliminary injunction and finding that plaintiff has a strong likelihood of success on the merits based on the court’s findings that the restrictive covenants in defendant’s employment agreement were in writing and based on valuable consideration in the amount of $2,000, apart from his wages, for signing the agreement, and that the restrictive covenants were designed to protect plaintiff’s legitimate business interests and the restrictions are reasonable as to time and territory because a two years and radius of 30 miles is reasonable based on North Carolina law, and plaintiff has made a showing that defendant breached the restrictive covenants, in addition to finding that plaintiff will suffer irreparable injury if defendant is not enjoined).
§ 1.3.6 Fifth Circuit
Additional Cases of Note
Chags Health Info. Tech. v. Rr Info. Techs., 2021 U.S. Dist. LEXIS 126855, at *9 (E.D. La. May 7, 2021) (denying plaintiff’s motion for entry of temporary restraining order against defendant due to breach of the noncompete agreement, because “the triple-layered hearsay offered” by plaintiff was inadequate, in light of defendant’s adamant denial, to establish that plaintiff was likely to prove that defendant was working with a competitor to compete with plaintiff).
Champion Nat’l Sec., Inc. v. A&A Sec. Grp., LLC, U.S. Lexis 70918, at *18 (N.D. Tex. Apr. 13, 2021) (entering a limited temporary restraining order against defendants due to working for a competitor and breaching the restrictive covenants in their employment agreement, because the covenants were reasonable in time and scope and were reformed by the court so that the agreement was “limited to the geographic territory in which the employee worked and where the new company ha[d] an office”).
Delta Fuel Co. v. Abbott, 515 F. Supp. 3d 564, 571 (W.D. La. 2021) (granting plaintiff’s motion to dismiss or for summary judgment regarding the noncompetition agreement because its restrictive covenant impermissibly extended the agreement beyond the two-year period from termination stipulated by La. Rev. Stat. § 23:921).
EHO360, LLC v. Opalich, U.S. Lexis 137338, at *18 (N.D. Tex. July 23, 2021) (denying defendant’s motion to dismiss plaintiff's claims for breach of contract on the ground they hinged on events that occurred after termination of the noncompete and nonsolicitation covenants, because “the court lack[ed] the evidence and briefing necessary to determine whether the covenants were tolled”).
JTH Tax, LLC v. Johnson, No. 21-747, 2021 U.S. Dist. LEXIS 108769, at *10 (E.D. La. June 10, 2021) (applying Virginia law) (granting a preliminary injunction to enforce a non-competition covenant for a franchise agreement prospectively from the date of the injunction rather than the date the franchise agreement was terminated).
Morris-Shea Bridge Co. v. Cajun Indus., No. 3:20-cv-00342, 2021 U.S. Dist. LEXIS 173783, at *15 (S.D. Tex. Feb. 22, 2021) (denying plaintiff’s preliminary injunction to enforce non-compete agreement, finding that the agreement’s geographic restraint was too broad given that the multi-state restriction effectively prevented defendants from earning a living wage in their profession).
People Source Staffing Prof'ls LLC v. Robertson, 2021 U.S. Dist. LEXIS 95665, at *11-12 (W.D. La. May 19, 2021) (granting defendant's motion for summary judgment regarding the noncompetition agreement because "(1) it extends the provision to 'employees' of competing businesses, and (2) it extends its provisions to [plaintiff]'s business on the date the agreement is signed, and to other businesses that [plaintiff] 'from time to time' enters into during the time [defendant] is an employee," rendering the provision null and void and severed from the agreement).
Providence Title Co. v. Truly Title, Inc., 2021 U.S. Dist. LEXIS 123502, at *22, 31 (E.D. Tex. July 1, 2021) (granting Providence’s request for a preliminary injunction against Defendant Tracie Fleming due to working for a competitor, breaching the noncompete provision in her shareholders’ agreement, because (1) as a departing shareholder, the process of repurchasing her shares has begun and (2) the noncompete is enforceable because “Providence is likely to establish that the activity, time, and geographical limitations of the noncompete are reasonable”).
Southeastrans, Inc. v. Landry, 2021 U.S. Dist. LEXIS 48318, at *16 (W.D. La. Mar. 15, 2021) (granting defendant’s motion for summary judgment regarding the nonspecific noncompetition agreement claim because La. Rev. Stat. § 23:921 “requires a specific listing of every parish in which an employer intends to restrict competition and in which that employer carries on a business for an agreement not to compete or to solicit customers to be valid and enforceable”).
Volt Power, LLC v. Deville, 2021 U.S. Dist. LEXIS 76354, at *11-12 (W.D. La. Apr. 20, 2021) (denying defendant’s motion to dismiss plaintiff's claims on the ground they hinge on invalid noncompetition and nonsolicitation agreements because (1) the “provisions do not, from the face of the pleadings, fail the ‘mechanical adherence’ standard required by § 23:921(C), notwithstanding their placement in an informed consent letter” and (2) plaintiff's attorney complied with her obligations under Louisiana Rule of Professional Conduct 1.7 “by explaining the fundamentals of informed consent [letters], including the risks and consequences of waiving attorney-client privilege, and by obtaining [defendant’s] written consent to joint representation,” evidencing public policy supported the use of informed consent letters).
§ 1.3.7 Sixth Circuit
Additional Cases of Note
Abington Emerson Cap. v. Adkins, 2021 U.S. Dist. LEXIS 53083 (S.D. Ohio 2021) (rejecting defendants' summary judgment motion which contended that only the subsidiary company could be vicariously liable for an employee's negligence because the non-compete the employee signed with the parent company helped create a genuine dispute about how had the right to control the employee); Advance Wire Forming, Inc. v. Stein, 2020 US. Dist. LEXIS 153940 (N.D. Ohio 2020) (ruling that the defendant did violate the non-compete provision he had with the plaintiff by gaining proprietary information from plaintiff and sharing it with others.); AmeriSpec, L.L.C. v. Sutko Real Estate Servs., 2020 U.S. Dist. LEXIS 121040 (W.D. Tenn. 2020) (granting a motion for a preliminary injunction seeking to enforce a non-compete after determining the plaintiff would suffer irreparable harm to its reputation and customer goodwill if the defendants were allowed to continue competing in plaintiff’s market and using its name and clients to do business); Auto Konnect v. BMW of North America, 2021 U.S. Dist. LEXIS 105812 (E.D. Mich. 2021) (granting summary judgment to a plaintiff over the breach of a non-compete and holding that the defendant was required to obtain written consent to hire plaintiff's employees); Cocentrix CVG Customer Mgmt. Grp. Inc. v. Daoust, 2021 U.S. Dist. LEXIS 83830, at *25 (applying Ohio law) (explaining the nine factors courts consider to determine the reasonableness of non-compete agreements); ComForCare Franchise Sys. v. ComForCare Hillsboro McMinnville Corp., 815 F. App’x 80 (6th Cir. (Mich.) 2020) (affirming a lower court decision to grant only partial injunctive relief to a plaintiff based on the defendant’s violation of a non-compete clause and holding that a court’s decision to grant injunctive relief is discretionary and bound by case law, no the parties’ contract); D.M. Rottermond, Inc. v. Shiklanian, 2021 U.S. Dist. LEXIS 53570 (E.D. Mich. 2021) (granting a temporary restraining order to a plaintiff in a non-compete case because the defendant was in direct competition with the plaintiff's jewelry business and the geographic scope and the length of the restriction were reasonable); Dawson v. Assured Partners, NL, 2021 U.S. Dist. LEXIS 88555 (S.D. Ohio 2021) (holding that violation of an employment contract and non-compete clause is not per se severe enough behavior to establish the after-acquired evidence defense in a discrimination suit); I Love Juice Bar Franchising, LLC v. ILJB Charlotte Juice, LLC, 2020 U.S. Dist. LEXIS 146295 (M.D. Tenn. 2020) (granting a preliminary injunction after it found that the defendants violated these non-compete provisions by running a competing business with the plaintiff and using similar trademarks and trade names as plaintiff); Jannx Med. Sys. v. Agiliti, Inc., 2020 U.S. Dist. LEXIS 237184, 2020 U.S.P.Q.2D (BNA) 11506, 2020 WL 7398795 (explaining a restrictive covenant provision indefinitely prohibiting a former employee from contacting the former employer's clients "is categorically unreasonable"); JTH Tax, Inc. v. Magnotte, 2020 U.S. Dist. LEXIS 131921 (E.D. Mich. 2020) (holding that the defendants had violated the non-compete provisions of the Franchise Agreement after terminating their franchise with the plaintiff by operating a tax business within 25 miles of plaintiff’s business and continuing to use the plaintiff’s confidential information to their business.); Konica Minolta Bus. Sols. U.S.A., Inc. v. Lowery Corp., 2020 U.S. Dist. LEXIS 120082 (E.D. Mich. 2020) (holding that a non-compete provision was valid because it was reasonable in time and geographic scope); LinTech Global, Inc. v. Can Softtech, Inc., 2021 U.S. Dist. LEXIS 49958 (E.D. Mich. 2021) (holding that a defendant's motion to dismiss plaintiff's tortious interference claim was not barred because, even if the underlying facts were indistinguishable from a breach of contract claim, the legal duties owed under each claim were different); Prudential Def. Solutions v. Graham, 2020 U.S. Dist. LEXIS 253437 (E.D. Mich. 2020) (denying injunctive relief because the plaintiff did not show sufficient factual support that it would suffer irreparable harm as the plaintiff only pled “information and belief” and not personal knowledge of the facts); RECO Equip., Inc. v. Wilson, 2020 U.S. Dist. LEXIS 218410, 2020 U.S.P.Q.2D (BNA) 11391, 2020 WL 6823119 (explaining a restrictive covenant provision prohibiting competition for 36 months is not per se unreasonable); Seaman Corp. v. Flaherty, 2020 U.S. Dist. LEXIS 161635 (N.D. Ohio 2020) (holding a 24-month, national non-compete provision as reasonable and finding that the defendant had violated the non-compete provision); Union Home Mortg. Corp. v. Jenkins, 2021 U.S. Dist. LEXIS 93872 (N.D. Ohio 2021) (unpublished) (emphasizing that even if a non-compete agreement is overbroad, the court will still enforce the agreement to the extent necessary to protect the employer’s interests).
§ 1.3.8 Seventh Circuit
HCC Cas. Ins. Servs. v. Day, 2021 U.S. Dist. LEXIS 57433 (N.D. Ill. 2021) (unpublished) (applying Illinois law). Plaintiff HCC Casualty Insurance Services, Inc. brought a breach of contract suit against Day, its former president, claiming that Day violated certain restrictive covenants in his employment agreement. Plaintiff sought monetary and injunctive relief. The dispute arose out of Day’s employment agreement with plaintiff, which was originally effective through April 30, 2019, but which was amended and extended through April 30, 2020. The agreement contained three restrictive covenants around confidentiality, noncompetition, and nonsolicitation. The confidentiality restrictive covenant included plaintiff’s “trade secrets” within the information that Day was supposed to keep confidential. On May 2, 2020, two days following the expiration of his employment agreement with plaintiff, Day resigned from his position as plaintiff’s president. Shortly thereafter, Day then joined another insurance underwriter as its president. Plaintiff claimed that Day violated his previous employment agreement by hiring nine employees from plaintiff, disclosing plaintiff’s trade secrets to his new company, and directly competing with plaintiff. Day filed a motion to dismiss plaintiff’s claims for failure to state a claim. As to the noncompete and nonsolicitation provisions, Day argued that he was not obligated to adhere to those provisions because the employment agreement expired on April 30, 2020, and therefore, when he resigned on May 2, 2020, he was an at-will employee not covered under the agreement. The court rejected this argument, holding that the covenants began to run upon the expiration of the agreement on April 30, 2020. The court said that although Day was not terminated during the “term of employment,” the agreement did not contemplate any employment past the employment agreement’s term. Therefore, Day’s employment was terminated upon the expiration of the employment agreement, and he was bound by the noncompete and nonsolicitation provisions.
Day also argued that the restrictive covenants were overbroad and unenforceable. As to the noncompete provision, Day argued that, if enforced, it would prevent him from working in any capacity at a competing business. The noncompete provision prohibited Day from “engag[ing] in or contribut[ing] [his] knowledge or Confidential Information to any work which is competitive with or similar to a product, process, apparatus, service, or development on which you worked or with respect to which you had reviewed Confidential Information.” The court disagreed that the clause was overbroad in scope, and using Day’s example, said that Day would not be prohibited from taking a job as a janitor at a competitor because that “work” is not “competitive with or similar to” the work he conducted with plaintiff. As to the geographic scope of the noncompete clause, the court held that although the scope was broad in that plaintiff did business in 180 countries, it would give plaintiff time to develop the record and establish why such breadth was needed.
Additional Cases of Note
Conrad v. Jimmy John’s Franchise, LLC, 2021 U.S. Dist. LEXIS 142272 (S.D. Ill. July 23, 2021) (unpublished) (denying certification whereby class members claimed that a “No-Poach Provision” in Jimmy John’s Franchise Agreement that effectively prohibited employees from switching between rival locations stifled competition for labor in violation of the Sherman Act, finding that individualized inquiries regarding whether a given employee could have been injured by the Provision given the varied and dynamic labor markets across the country precluded satisfaction of the predominance requirement).
Fountain v. Zimmer Inc., 2021 U.S. Dist. LEXIS 96340 (N.D. Ind. 2021) (unpublished) (applying Indiana law) (granting defendants’ motion for summary judgement as to plaintiff’s allegation that defendants breached a confidentiality, noncompetition, and nonsolicitation agreement by failing to pay plaintiff his noncompetition period payments where court found that plaintiff did not meet the contractual requirements for those payments); Hartford Steam Boiler Inspection & Ins. Co. v. Campbell, 2021 U.S. Dist. LEXIS 62332 (S.D. Ind. 2021) (unpublished) (applying Connecticut law) (granting defendants’s motion to dismiss for failure to state a claim as to plaintiff’s allegation of breach of noncompete agreement where agreement imposed nationwide ban on defendants and where complaint did not provide sufficient facts to justify the breadth of that geographic scope).
Shaw v. First Communs., LLC, 2021 U.S. Dist LEXIS 7451, at *19, 22-23, 44-45 (N.D. Ill. Jan. 14, 2021) (holding that (1) plaintiff’s claim for a declaratory judgment clearly fell within the noncompetition and confidentiality provisions in the Employment Agreement’s arbitration provision signed by plaintiff and was therefore subject to arbitration; (2) plaintiff’s claim for breach of contract under the Separation Agreement was subject to arbitration because the agreement effectively incorporated relevant portions of the Employment Agreement’s arbitration provisions; and (3) the arbitration provision was enforceable because it was not procedurally or substantively unconscionable due to the employer’s inability to bypass arbitration and seek judicial remedies in court).
§ 1.3.9 Eighth Circuit
CRST Expedited, Inc. v. Swift Transp. Co. of Ariz., LLC, 8 F.4th 690 (8th Cir. (Iowa) 2021). CRST and Swift are competing long-haul trucking companies. To help combat a shortage of drivers, CRST offers to pay the cost of a driver training program in exchange for the drivers entering into a driver employment contract, which includes a noncompete clause prohibiting the driver from providing trucking services to a competitor for a certain restrictive term depending on their length of employment. This provision would immediately lapse upon payment of a termination fee. Swift recruited drivers through generalized advertisements that required the potential divers to initiate contact with Swift. When Swift verified prior employment of a CRST driver who had not completed the restrictive term, CRST would notify Swift that the driver was under contract with CRST and was not released from those contractual obligations. In 2016, Swift began hiring even if it received such a contract notice. The issue was whether Swift’s hiring of CRST drivers during the restrictive term could serve as the basis of an interference with the driver employment contract under Iowa law. The court held that it could not, reasoning that inducing a diver to work for Swift was not incompatible with the noncompete clause because the driver could pay CRST the termination fee before driving for Swift. To prevail on its interference claim, CRST must prove that Swift caused drivers not to pay the termination fee.
Perficient, Inc. v. Munley, 2021 U.S. Dist. LEXIS 72506 (E.D. Mo. 2021) (unpublished). Perficient provides consulting and business implementation services for software offered by companies such as Salesforce. Munley was a vice president of field operations at Perficient, overseeing multiple groups including the Salesforce practice. In that role, he had substantial access to confidential information regarding strategy and key customers, including Salesforce. He also spearheaded an effort to prioritize development of a Salesforce Configure, Price, Quote (CPQ) product line. This effort included potential acquisitions of CPQ businesses, re-assignment of key personnel to focus on CPQ, and a presentation of senior Perficient leadership identifying CPQ as an area of development. After being terminated by Perficient, Munley joined Spaulding Ridge as a partner and Salesforce group leader, where he would focus on obtaining referrals from Salesforce, primarily for CPQ. Salesforce is Spaulding’s second largest practice, and CPQ accounts for 95% of that business. The parties moved for summary judgment. At issue was the competitive duties provision of Munley’s noncompetition agreement with Perficient that prohibited him from engaging in any work on behalf of a competing business relating to a competitive product or service. The court found that the provision was enforceable in light of Munley’s role at Perficient because it was limited to duties that are substantially similar to Munley’s responsibilities at Perficient, or involve strategic leadership of a competing company. The 24 month duration of the provision was longer than necessary, and limited to 12 months by the court. The court found that the unlimited geographic scope of the provision was appropriate given the global nature of the software industry and Perficient’s customer relationships around the world. The court ultimately concluded that Munley’s work at Spaulding beached the competitive duties provision. The court further explained that Munley has established relationships with individuals inside Salesforce – with whom he discussed CPQ – and those relationships could be leveraged to Perficient’s detriment while at Spaulding. The court stated that this is the harm the competitive duties provision sought to prevent. See Section 18.6.9 for a summary of the court ruling on the issue of damages.
Perficient Inc. v. Gupta, 2021 U.S. Dist. LEXIS 124893 (E.D. Mo. 2021) (unpublished). Gupta was a principal for Perficient’s order management systems (OMS) practice and left to join a competitor, Blue Yonder, as a vice president also working in OMS solutions. Gupta then contacted one or more of Perficient’s clients with whom he previously dealt while a Perficient employee, including Sally Beauty. Gupta offered competing products and services to Sally Beauty on behalf of Blue Yonder. Perficient moved for, and the court granted a comprehensive TRO enforcing restrictive covenants in its agreements with Gupta, including two year employee and customer non-solicit covenants; a NDA for confidential, proprietary and trade secret information; and a noncompete prohibiting Gupta from performing competitive duties for a business offering similar products or services for two years following his separation from the metropolitan areas in which Perficient offers its products or services. The court found that Perficient demonstrated a likelihood of success on the merits because the restrictive covenants were each were narrowly tailored to keep Perficient’s information secret and retain a competitive advantage, were reasonable in scope because Gupta was a high level and highly compensated executive, the noncompete covenants were for a reasonable time period, and the geographic scope was readily enforceable under Missouri law. The court also found that Gupta would inevitably disclose Perficient’s trade secrets if he was permitted to continue to perform competitive work at Blue Yonder because the nature of his responsibilities at Blue Yonder are akin to those he held for Perficient, and his work requires his consideration of Perficient’s trade secrets and confidential information in the faithful performance of his duties. The court found that Perficient would be subject to immediate and irreparable harm if Gupta was permitted to continue to solicit Perficient’s clients and offer competitive services on behalf of Blue Yonder. Significant to the court’s finding was the statement in the noncompete agreement that a breach would result in irreparable injury and damage to Perficient. The balance of harms favored Perficient because Gupta was only prohibited from duties that are in direct competition with Perficient. The balance of equities favored Perficient because Blue Yonder’s products and services would still be publicly available, and Perficient would suffer irreparable harm without an injunction.
Pitts v. Fire Extinguisher Sales & Servs. of Ark. LLC, 2021 U.S. Dist. LEXIS 117528 (E.D. Ark. 2021) (unpublished). Fire suppression technician Pitts worked for FESSAR, which is in the business of servicing and installation of fire suppression systems. Pitts entered into a noncompetition agreement during his employment at FESSAR where he agreed not to work for or have any ownership interest in an entity that engages in the sale and service of fire extinguishers for two years after the date of his termination within a 150-mile radius of Pine Bluff, Arkansas. Pitts left FESSAR, started his own company, Rapid Action Protection, within the prohibited territory, and began servicing two of FESSAR’s customers. FESSAR sought a TRO enforcing the noncompete. Applying Arkansas common law, the court found that the noncompete was likely enforceable because (1) FESSAR had a valid protectable interest in its customer lists, customer prices, and quotes, (2) Pitts did not challenge the two year time limit, and (3) even though portions of the non-compete were overly broad, the contract contained a severability clause and a reformation clause permitting the court to modify the noncompete if any provisions were found invalid or unenforceable because the scope, duration, or area were too broad or excessive. The court entered a TRO enjoining Pitts from operating Rapid Action Protection within the 150-mile radius. However, because FESSAR did not do business in Louisiana or Tennessee, Pitts was permitted to operate in those states (including within the 150 mile radius) as long as such business did not operate in Arkansas or Mississippi with the 150 mile radius. See 1.5.9 for a summary of the court’s ruling on the issue of trade secret misappropriation.
Powerlift Door Consultants, Inc. v. Shepard, 2021 U.S. Dist. LEXIS 129189 (D Minn. 2021) (unpublished). Powerlift, a hydraulic-lift-door company, entered into a distribution agreement with Rearden Steel, a Powerlift licensee owned by Lynn Shepard. In April 2021, Shepard sent an email to at least 12 Powerlift licensees seeking support to fix what Shepard considered corporate and product-related issues with Powerlift, including a change from a licensee-based system to a franchise-based system. Powerlift terminated the agreement because of statements made in the email. Defendants continued to use Powerlift’s trademarks, and sell products represented to be affiliated with Powerlift. Powerlift moved for a TRO and preliminary injunction enforcing, inter alia, a three-year noncompete clause in the distribution agreement. Powerlift argued that the duration of the noncompete was reasonable because Shepard operated as a Powerlift licensee since 2014, built a customer base using Powerlift’s trademarks and confidential information, time is needed to separate customers’ association of Shepard with the Powerlift brand, and the email demonstrated an intent to compete with Powerlift. Shepard argued that the duration should be three months because it was “too restrictive”, but provided no further explanation. The court declined to modify the three year duration, and found that defendants breached the noncompete clause. Based primarily on defendants’ use of Powerlift’s trademarks, the court found that irreparable harm, balance of harms, and the public interest factors weighted in favor Powerlift, and granted the preliminary injunction.
Right at Home, LLC v. Gaudet, 2021 U.S. Dist. LEXIS 16832 (D. Neb. 2021) (unpublished, applying Alabama law). Right at Home, LLC, a franchise business for in-home care for elderly or infirm individuals, entered into franchise agreements with defendants to operate Right at Home franchises in two Alabama territories. The agreements contained noncompete provisions prohibiting defendants from being employed by any business that engaged in the services and business of Right at Home for one and a half years within a ten mile radius of the franchise territory. In November 2020, Right at Home terminated the agreements because defendants were operating off the books. Defendants then took steps to start a new home-care business independent from the Right at Home brand. Defendants closed one of their offices, but continued to operate a home-care business at its other office under the name Gulf Coast Care, serving the same clients, with the same referrals, and the same phone number as their former Right at Home franchised business. Right at Home sued, and sought a preliminary injunction enforcing the noncompete. Although enforceability of the noncompete was not challenged by defendants, the court found that it was the sort of partial restraint permitted under Alabama law, and was reasonable as to time and geographical range. The court also found that the balance of harms weighs in favor of Right at Home because it will be difficult to find a new franchisee with the defendants operating in the territory, and Right at Home’s reputation and goodwill has been damaged by defendants’ breach. The court found that public interest in protecting the right to contract would be served by issuing an injunction, and granted the preliminary injunction.
Ronnoco Coffee, LLC v. Castagna, 2021 U.S. Dist. LEXIS 41707 (E.D. Mo. 2021) (unpublished). Ronnoco, a seller and distributor of coffee, employed Castagna as a territory manager in Texas, and Torres as a territory manager in California. As a condition of their employment, defendants signed a fair competition agreement prohibiting them from working with a Ronnoco competitor for two years after the termination of their employment within 200 miles of any of their work locations. The defendants left Ronnoco and started working for Smart Beverage, a seller of frozen fruit juice beverages. Ronnoco sued and sought a TRO. With respect to choice of law, the court applied the agreement’s Missouri choice of law provision, and rejected application of California and Texas law. The court found that the noncompete provision was enforceable because it protects Ronnoco’s confidential information, customer contacts, goodwill, and its interest in preventing defendants from unfairly competing, and it was adequately restricted in time and geographic reach. Defendants argued that Smart Beverage did not compete with Ronnoco because it did not sell juice beverages. The court rejected this argument because Ronnoco had an 80% ownership interest in Trident Holdings, a seller of juice beverages. The court concluded that Ronnoco was engaged in the business of selling juice beverages, and defendants breached the non-compete by working for Smart Beverage. In granting the TRO, the court found that because defendants were exposed to Ronnoco/Trident’s customer list, customer contracts, and confidential information such as pricing an bid strategy, their use and disclosure of such information appeared inevitable because their responsibilities at Smart Beverage are similar to those they held for Ronnoco/Trident, and they are likely to be in situations where their knowledge of Ronnoco/Trident’s confidential information would help Smart Beverage in competing against Ronnoco/Trident.
United Healthcare Servs. v. Louro, 2021 U.S. Dist. LEXIS 32385 (D. Minn. 2021) (unpublished). Louro was United Healthcare’s vice president of underwriting in its nation accounts segment, which gave him responsibility over pricing for United’s national accounts, overseeing the Aon/Hewitt health exchange, and specialty businesses. Louro’s stock options and restricted stock units contract included a noncompete clause that prohibited Louro from “[e]ngag[ing] in or participat[ing] in any activity that competes, directly or indirectly, with any Company activity, product, or service that [Louro] engaged in, participated in, or had Confidential Information about during [Louro’s] last 36 months of employment with the Company” for one year after his termination. Louro resigned and joined Anthem as a vice president of local accounts underwriting, which is a corollary to United’s key accounts segments. Louro disclosed the noncompete to Anthem, and his position was specifically structured not to overlap with business segments Louro work with at United. United sued and sough a preliminary injunction enforcing the noncompete. United argued that Louro could only work in healthcare or underwriting without violating the restriction if he works on Medicare and Medicaid products, and is insulated from all other business segments. The court found that United’s interpretation of the noncompete was broader than reasonably necessary to protect its business, and is not supported by the balance of the equities. In denying United’s request for an injunction, the court also relied on Anthem’s representation that Louro’s new position would not provide any services for or use any confidential information related to Anthem’s nation accounts segment, and that Louro will not work on the Aon/Hewitt exchange, or in the specialty and public sector segments. See §8.5.9 for a summary of the court’s ruling on the issue of trade secret misappropriation.
§ 1.3.10 Ninth Circuit
Houserman v. Comtech Telcoms. Corp., No. 2:19-CV-00336-RAJ, 2021 U.S. Dist. LEXIS 20885 (W.D. Wash. 2021) (applying Maryland law). Plaintiff Lynne Houserman served as the Senior Vice President and General Manager of the Safety and Security Technologies Group (SST Group) at TCS, a provider of advanced communication solutions for governmental and commercial customers. When TCS was acquired by Comtech, she was promoted to President of the SST Group, where she was responsible for emergency call routing and handling services. While her employment agreement with Comtech did not include a noncompete provision, her agreement with TCS did. Plaintiff was eventually terminated for cause, and several months later, she was hired by Motorola to serve as a Vice President overseeing Motorola’s emergency call handling business. TCS then filed suit against plaintiff, alleging, among other things, that she breached the noncompete provision in her employment agreement. The noncompete provision stated that for a period of one-year, plaintiff shall not “own, manage, operate, join, control or participate in the ownership, management, operation or control of a Competitor" nor "become a director, officer, employee, consultant or lender of, or be compensated by, a Competitor." The term “Competitor” was defined as "any Person [individual or entity] which sells goods or provides services which are directly competitive with those sold or provided by a business that . . . is being conducted by [TCS, its affiliates, and subsidiaries] at the relevant time and [] was being conducted by Company at any time during the term."
In deciding whether the noncompete provision was enforceable, the court noted that while the lack of geographic scope and one-year duration are reasonable under Maryland law, the unrestricted scope of prohibited activity rendered the provision overly broad and therefore unenforceable on its face. While the court recognized that the term competitor was limited to entities that were “directly competitive” with TCS, ultimately, this limiting language was not enough to save a provision which otherwise would preclude plaintiff from competing, not only directly against TCS, but from working for any company that sold goods or services that were directly competitive with any good or service sold by TCS, its subsidiaries, and its affiliates. Because the noncompete clause was overbroad on its face, the court was not required to consider the particular facts of the case. However, even if the court were to consider the facts, the outcome would be unchanged. Although plaintiff worked as a senior executive in the specialized field of 9-1-1 call handling, the noncompete would have prevented her from working in any field or for any company that sells goods or offers services that compete with TCS, regardless of whether the employment related to handling emergency calls or not. Under Maryland law, such a restriction is broader than necessary to protect TCS’s legally protected interest. Finally, the court is unable to “blue pencil” the noncompete to render it enforceable, because the provision is not “neatly severable” and the court cannot rearrange the language in or supplement the provision.
SinglePoint Direct Solar LLC v. Curiel, No. CV-21-01076-PHX-JAT, 2021 U.S. Dist. LEXIS 148240 (D. Ariz. 2021) (unpublished). This case concerns the business relationship between SinglePoint, Inc. and defendants Pablo Diaz Curiel, Kjelsea Johnson, and Brian Odle regarding a solar energy brokerage company, SinglePoint Direct Solar, LLC (SDS), which was formed following an Asset Purchase Agreement. Aside from the Asset Purchase Agreement, Diaz was also subject to an Employment Agreement, serving as CEO of SDS. Both the Asset Purchase Agreement and Employment Agreement contained several restrictive covenants, including a noncompete clause. After Diaz and Johnson left SDS, they planned to start a rival solar energy company, and according to plaintiffs, wanted to misappropriate SDS’s confidential data in the process. As such, plaintiffs SDS and SinglePoint sought to enjoin Diaz and Johnson from competing nationally in the solar energy industry and from using any of the assets that were the subject of the Asset Purchase Agreement. However, the court found that neither of the noncompetes were enforceable and refused to grant the injunction.
In Arizona, restrictive covenants cannot be greater than necessary to protect an employer’s legitimate interests, and the scope must be limited in duration and geographic area. The noncompete in the Asset Purchase Agreement provides that, for a period of eight years, the parties may “not, directly or indirectly, render services or assistance to, own, manage, operate, control, invest or acquire an interest in . . . any Person that engages in a Competing Business . . . or otherwise engage in or conduct . . . in a Competing Business.” As this clause is completing lacking in geographic scope, it cannot be enforceable. Plaintiffs attempted to argue that the clause was national in scope by way of its reference to a “Business” and “Competing Business,” but the court was unpersuaded, finding that it could not “extrapolate” a national scope from this language. Moreover, even assuming the agreement did contain a national scope, the scope was broader than necessary to protect the plaintiffs’ legitimate business interests as neither SDS nor SinglePoint operated in all 50 states. Finally, the court was unable to “blue pencil” the noncompete clause to add a geographic scope, as courts are only able to strike provisions, and cannot add language to modify the clause. For similar reasons, the court refused to find the noncompete in Diaz’s Employment Agreement enforceable. This noncompete provided that Diaz “shall not in any manner, directly or indirectly . . . enter into or engage in any business which is engaged in any business directly competitive with the business of the Company . . . within the geographic area of the Company's business, which is deemed by the parties hereto to be nationwide." While this language did contain a geographical restriction, for the same reasons as with the Asset Purchase Agreement, the court did not find the geographical scope reasonable and declined to enforce the covenant.
Thomassen v. Gebruder Weiss, Inc., No. CV 20-08308-AB (Ex), 2021 U.S. Dist. LEXIS 144484 (C.D. Cal. 2021) (unpublished). This decision stems from plaintiff Brian Thomasson’s allegation that he was wrongfully terminated by defendant Gebruder Weiss, Inc. in violation of California Business and Professions Code section 16600. While still employed by defendant, plaintiff visit one of defendant’s clients, who expressed an interest in hiring one of plaintiff’s coworkers. Plaintiff replied that his coworker was a great employee. Later on, the coworker’s manager called plaintiff and accused him of helping the client poach the coworker, thereby betraying defendant. Defendant then terminated plaintiff, citing “ongoing concerns regarding his professional performance and judgment.” Plaintiff believes the termination was a direct result of defendant’s mistaken belief that he somehow aided his coworker in receiving a competitive job offer. He then sued, and defendant moved for a partial judgment on the pleadings as to his fifth cause of action for wrongful termination. To establish a case for wrongful termination, a party must prove that the termination was motivated by a violation of public policy. Here, plaintiff alleged that the violated public policy was section 16600, which states that “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business, of any kind, is to that extent void.” Plaintiff’s argument that section 16600 was violated as a matter of public policy fails for four reasons. First, section 16600 only applies to contracts that restrain persons from engaging in their profession, and plaintiff did not allege that he was subject to any contract. Second, while section 16600 can invalidate covenants not to compete, plaintiff does not allege that he was subject to any noncompete agreement. Third, plaintiff does not point to any statement in section 16600 which prohibits an employer from terminating an employee who assists a third party in hiring away a fellow employee. Fourth, plaintiff does not articulate any way in which he, his coworker, or anyone else was restricted from their ability to engage in a profession, trade, or business. Therefore, nothing in section 16600 could shield plaintiff from termination after he assisted his coworker in securing alternate employment. Accordingly, the court dismissed plaintiff’s claim for wrongful termination.
Additional Cases of Note
GlobalTranz Enters. Inc. v. Murphy, No. CV-18-04819-PHX-ROS, 2021 U.S. Dist. LEXIS 58689 (D. Ariz. 2021) (unpublished) (holding that overbroad confidentiality or nondisclosure covenants, even if they are not titled “noncompete agreements,” amount to covenants not to compete and are thus unreasonable and unenforceable).
§ 1.3.11 Tenth Circuit
There were no qualifying decisions within the Tenth Circuit.
Additional Cases of Note
Core Progression Franchise LLC v. O’Hare, 2021 U.S. Dist. LEXIS 63471 (D. Colo. 2021) (unpublished) (granting a preliminary injunction preventing defendants from opening a competing business after finding that a noncompete provision covering a 25 mile radius for one year was likely reasonable and enforceable); Nav Techs., Inc. v. Fugate, 2021 U.S. Dist. LEXIS 132773 (D. Utah 2021) (unpublished) (denying plaintiff’s request for a preliminary injunction in a case where the defendant had done consulting work for other companies in alleged violation of a noncompete agreement, after determining that the companies were not competitors of plaintiff’s company); Lawson v. Spirit Aerosystems, Inc., 2021 U.S. Dist. LEXIS 202278 (D. Kan. 2021) (unpublished) (finding that a supplier that could theoretically in the future become a competitor does not meet the criteria for a competitor under a noncompete provision); McConnell v. Ima Fin. Grp., 2021 U.S. Dist. LEXIS 43581 (D. Kan. 2021) (unpublished) (finding that a noncompete that does not restrict the employee from competing with the type of business conducted by the employer or geographic area of the employer, but instead only restricts competing by utilizing current, former or prospective customers, is not overly burdensome); TruGreen Ltd. P’ship v. Okla. Landscape, Inc., 2021 U.S. Dist. LEXIS 50135 (N.D. Okla. 2021) (unpublished) (granting a motion to dismiss plaintiff’s claim for breach of a noncompetition agreement since the individual defendants had not consented to the assignment of the agreement, making it unenforceable).