§ 1.2. Employee Mobility: Breach of Duty of Loyalty; Breach of Fiduciary Duties
§ 1.2.1 United States Supreme Court
There were no qualifying decisions by the United States Supreme Court.
§ 1.2.2 First Circuit
There were no qualifying decisions within the First Circuit.
§ 1.2.3 Second Circuit
Zurich Am. Life Ins. Co. v. Nagel, 590 F. Supp. 3d 702 (S.D.N.Y. 2022), reconsideration denied, 2022 WL 1173885 (S.D.N.Y. 2022). The District Court found that an employee emailing documents to his personal account or retaining those documents after his employment was terminated did not constitute a breach of his fiduciary duties to the company because there is no evidence that he ever shared those documents with anyone other than his lawyer. Because the employee did not use the information to compete or divert business opportunities from his former employer, simply sending and keeping the information was not a breach of fiduciary duty. Further, the employee’s attempt to use those documents to leverage a severance package did not constitute a breach of fiduciary duty.
§ 1.2.4 Third Circuit
There were no qualifying decisions within the Third Circuit.
§ 1.2.5 Fourth Circuit
Adnet, Inc. v. Soni, 2021 U.S. Dist. LEXIS 177825 (E.D. Va. 2021), appeal filed (Oct. 20, 2021). The U.S. District Court for the Eastern District of Virginia denied an employer’s motion for summary judgment of claims brought against three employees for breach of loyalty, tortious interference, and business conspiracy, and granted the employees competing motion. There, the U.S. Army awarded a contract to the employer. The employer hired three employees who incorporated their own company providing similar services as the employer. The Army transitioned the work originally awarded to the employer to a third party, General Dynamics Technology, Inc. (GDIT). The employer and the employees’ company competed for the subcontract with GDIT. GDIT awarded the subcontract to the employees’ company. The work with GDIT was to begin after the employees’ job termination with the employer. The District Court denied the employer summary judgment on its breach of the duty of loyalty claim, and granted the employees competing motion, because the employer did not have a preexisting contractual or client relationship with GDIT and the employees were preparing for future employment rather than soliciting employer’s current clients. The District Court also denied the employer summary judgment on the tortious interference claim because the employer failed to establish the existence of a valid contractual relationship or business expectancy. Finally, the District Court also denied the employer summary judgment on its conspiracy claims because their predicate acts failed.
Additional Cases of Note
LStar Dev. Grp., Inc. v. Vining, 2021 U.S. LEXIS 181972 (E.D.N.C. 2021) (denying defendant’s motion to dismiss plaintiff’s breach of fiduciary duty and conflict of interest claim which alleged that employees violated their duty of loyalty to plaintiff by forming defendant entity using plaintiff’s money, equipment, employees, and facility to operate the entity, and attempted to divert plaintiff’s corporate business opportunities to defendant entity).
§ 1.2.6 Fifth Circuit
Trench Tech Int’l, Inc. v. Tech Con Trenching, Inc., 2022 U.S. Dist. LEXIS 100280 (N.D. Tex. 2022). Trench Tech Int’l designs, manufactures, and sells trench-digging machines. Trench-Tech, Ltd. (owned by Trench Tech Int’l), was the domestic seller of parts for Trench Tech Int’l. An owner of Trench Tech Int’l had a son who worked for Trench Tech Ltd. The son downloaded design drawings owned by Trench Tech Int’l to his personal laptop. He and another Trench Tech Ltd. employee then left for a competitor, Tech Con Trenching (Tech Con). Tech Con allegedly used the downloaded information to build several machines. Trench Tech Int’l and Trench Tech Ltd. (Plaintiffs) sued Tech Con and the former employees (Defendants) for trade secret misappropriation and breach of fiduciary duty, among other claims. Defendants moved for summary judgment, arguing, in part, that the son owed a duty of confidence and fiduciary duty only to his direct employer, Trench-Tech, Ltd., and not to the owner of the trade secrets, Trench Tech Int’l. The court rejected this argument, noting that defendants failed to cite any authority restricting a confidential or fiduciary relationship to employer-employee relationships. The son was entrusted with trade secrets and “knew” of his duty to maintain their confidentiality. As such, the formalities of plaintiffs’ formation did not preclude a finding that he breached his duties.
Additional Cases of Note
Winsupply E. Houston v. Blackmon, 2021 U.S. Dist. LEXIS 225067 (S.D. Tex 2021) , appeal dismissed 2022 U.S. App. LEXIS 34871 (5th Cir. (Tex.) 2022) (denying preliminary injunction stemming from defendant’s alleged breach of fiduciary duty where (1) defendant had already terminated her employment with the plaintiff, thus ending her fiduciary duty to the plaintiff and (2) the plaintiff’s ultimate harm—loss of customer sales—could be compensated by a damages award).
§ 1.2.7 Sixth Circuit
There were no qualifying decisions within the Sixth Circuit.
§ 1.2.8 Seventh Circuit
Cary v. Northeast Ill. Reg’l Commuter R.R. Corp., 2021 U.S. Dist. LEXIS 244865 (N.D. Ill. 2021). Cary resigned from her position with Metra. In connection with her employment and resignation, Cary sued Metra and forwarded certain confidential documents to her attorney and her own personal email address. Metra filed a counterclaim against Cary for breach of fiduciary duty based on Cary’s act of forwarding the confidential documents. Cary moved to dismiss the counterclaim and argued that forwarding documents to oneself and one’s counsel cannot support a claim for breach of fiduciary duty. Metra argued that any act sharing of sharing confidential documents outside the workplace could support its claim. The Court found that each party’s position was “too extreme.” While the Court noted that no Illinois court had directly addressed this issue, it found that “Illinois law would likely not punish an employee who lawfully obtains records; discloses only those records reasonably necessary to develop a lawsuit; and discloses the records only to the employee’s attorneys and, later, to the pertinent government agency.” Nevertheless, Metra’s counterclaim survived due to the need for more information regarding the nature of the confidential documents at issue.
§ 1.2.9 Eighth Circuit
Moeschler v. Honkamp Krueger Fin. Servs., Inc., 2021 U.S. Dist. LEXIS 179787, (D. Minn. 2021). The U.S. District Court for the District of Minnesota denied the employer’s motion for a preliminary injunction seeking to restrict a former employee’s ability to work for a direct competitor, in part on the grounds that soliciting customers from memory does not constitute statutory misappropriation of trade secrets. Former employee, Peter Moeschler (Moeschler), resigned from his position at asset management company, Honkamp Krueger Financial Services, Inc. (HKFS), to work for competitor Mariner, LLC (Mariner). The same day that he resigned, he filed an action for declaratory judgment that HKFS’s restrictive covenants were unenforceable. HKFS filed counterclaims against Moeschler and Mariner alleging breach of contract, violation of Iowa’s Uniform Trade Secrets Act (IUTSA), and tortious interference with contractual relations. Moeschler called former clients based on public information or phone numbers he had committed to memory, which HKFS claimed resulted in an $11 million loss of assets to Mariner. Moeschler submitted an affidavit stating that he deleted all business contacts at the time of his resignation and that he hired a forensic expert to ensure he did not have protected information on his personal devices. The court declined to consider names and general information retained in a former employee’s memory to be trade secrets, so Moeschler had not used or disclosed trade secrets. However, the District Court did find that although he did not violate IUTSA, HKFS had established a likelihood of success on the claim that Moeschler breached an agreement prohibiting use of HKFS’s client contacts. Nonetheless, the court denied HKFS’s motion for a preliminary injunction on the grounds that HKFS failed to establish irreparable harm.
§ 1.2.10 Ninth Circuit
Aitkin v. USI Ins. Serv., LLC, 607 F. Supp. 3d 1126 (D. Ore. 2022). District of Oregon held that breach of garden leave provision could not serve as a predicate breach for breach of loyalty claim law under Oregon law. Plaintiff submitted his resignation on February 4, 2021. Defendants argue that because plaintiff failed to provide 60-days’ notice as required by the Employment Agreement, his resignation was not effective until April 4, 2021. Defendants claimed that plaintiff breached a duty of loyalty he owed to USI between February 4, 2021, and April 4, 2021, when he publicly displayed on his LinkedIn page that he worked for Alliant and directed his former USI clients to call Alliant representatives.
While the court acknowledged that plaintiff breached the garden leave provision of his Employment Agreement by not providing 60-days’ notice, the employee has the power to terminate his employment at any time. Thus, defendants could not compel plaintiff to remain their employee after he resigned, and his resignation was effective on the date he provided. And plaintiff only owed defendants a duty of loyalty until the date and time he effectively resigned.
Accordingly, for defendants to have a viable claim that plaintiff breached his duty of loyalty, they must present facts showing plaintiff’s breaching conduct before he resigned on February 4, 2021. Defendants provide no such evidence. Defendants only allegation that plaintiff engaged in conduct breaching his duty of loyalty is that on information and belief, plaintiff participated in and withheld information about a planned group departure from USI. But under Oregon law, nothing prevents an employee under contract from seeking other employment. Oregon law generally favors the freedom of employees to choose where they work. Because defendants present no evidence that plaintiff engaged in conduct that breached his duty of loyalty while he was employed at USI, the Court granted summary judgment for plaintiff on this claim.
Best Label Co. v. Custom Label & Decal, LLC, 2022 WL 1189884 (N.D. Cal. 2022). California district court found that alleged unlawful statements made to divert business to customers were not preempted by state trade secret statute. Defendants argued causes of action for breach of duty of loyalty, unlawful interference with prospective economic advantage, and statutory unfair competition, respectively, are superseded by CUTSA. While it is true that CUTSA can supersede other claims, it only does so if the claim(s) are based on the same nucleus of facts as the misappropriation of trade secrets claim for relief. Plaintiff argued it premised these claims on defendants’ alleged statements made to divert business to plaintiff’s competitor, defendant CLD, while the individual defendants still worked for plaintiff. Plaintiff also premised these causes of action upon defendants’ alleged solicitation of BLCI/BLC LLC employees to join its competitor, defendant CLD, while defendants were still employed by BLCI/BLC LLC. The court found that they stand as independent claims, supported by alleged facts beyond misappropriation of trade secrets, and therefore were not superseded by CUTSA.
§ 1.2.11 Tenth Circuit
Southwest Preferred Fin., Inc. v. Bowermeister, 2022 N.M. App. Unpub. LEXIS 190 (N.M. Ct. App. 2022). Plaintiff Southwest Preferred Financial, Inc. (“Southwest”) appealed the judgment of the district court dismissing all of Southwest’s claims following a bench trial. The appellate court affirmed the district court’s judgment dismissing all claims. Southwest hired Jason Bowermeister (“Bowermeister”) to fill an entry-level, unskilled position at Southwest’s gold and precious metals store. He signed a written agreement not to compete in 2012 and another noncompete agreement in 2013 that was significantly more expansive. The 2013 noncompete agreement prohibited Bowermeister from working for or forming any competitive business within 25 miles of anywhere Southwest had a physical store or anywhere Southwest has an internet presence for three years following termination of employment. Bowermeister resigned and then later formed a business that bought and sold precious metal and coins. Southwest initiated a lawsuit; the district court held a bench trial and concluded that the noncompete agreement was too large and wide, and it was not supported by consideration because Bowermeister did not receive an increase when he signed the new agreement in 2013. Southwest failed to establish that there were any damages proximately caused by competition from Bowermeister’s business, and Southwest failed to offer any evidence of harm as a result of Bowermeister’s conduct that resulted in a breach of the duty of loyalty. The appellate court, affirming the district court’s dismissal of all claims, agreed with the district court that the 2013 agreement was unreasonably restrictive in terms of the length of time, the geographic area, and the types of employment precluded, which was sufficient to make the agreement unenforceable, and that Southwest did not suffer any harm as a result of a breach of fiduciary duty or breach of the duty of loyalty.
§ 1.2.12 Eleventh Circuit
Klaas v. Allstate Ins. Co., 21 F.4th 759 (11th Cir. (Ala.) 2021), cert. denied 143 S. Ct. 233 (2022) and 143 S. Ct. 85 (2022). Allstate, an insurance company, informed former employees who retired after 1990—in 2013—that it would stop paying the premiums on their life insurance policies at the end of 2015. For many years, Allstate offered employees who met certain qualifications life insurance that continued into retirement, and Allstate provided its employees with information about life insurance in summary plan descriptions. The summary plan descriptions reserved for Allstate the right to modify or terminate the benefit plan. Allstate had previously made representations, both orally and in writing, to employees that their retiree life insurance benefits were “paid up” or “for life.” After the company made this decision, two putative classes sued Allstate seeking declaratory and injunctive relief and alleged that Allstate (1) violated the Employee Retirement Income Security Act of 1974 (ERISA) by no longer paying the insurance premiums and (2) breached its fiduciary duty to them by failing to provide full and accurate information about their retiree life insurance. The district court granted summary judgment to Allstate on all claims, concluding that the benefit plan documents unambiguously gave Allstate the power to terminate the life insurance benefits and that retiree classes’ claims for breach of fiduciary duty were time barred. The plaintiffs appealed, arguing that the district court (1) erred by concluding that the language in the benefit plan documents was unambiguous and by failing to consider extrinsic evidence and (2) incorrectly determined that their breach of fiduciary duty claims were untimely. The Eleventh Circuit held that (1) Allstate’s actions did not give rise to an ERISA § 502(a)(1)(B) claim because the summary plan descriptions unambiguously gave Allstate the right to terminate the retiree life insurance and the district court correctly granted summary judgment to Allstate. The Eleventh Circuit also held that none of the employees filed their respective suits within six years of the last action by the employer that could constitute a breach of fiduciary duty so the actions occurred outside of statute of repose period and were subject to summary judgment.
Gimeno v. NCHMD, Inc., 38 F.4th 910 (11th Cir. (Fla.) 2022). Plaintiff Raniero Gimeno’s spouse, Justin Polga, was employed by NCHMD, Inc., which is a subsidiary of NCH Healthcare System, Inc. During the initial hiring process, with the help from NCHMD’s human resources staff, Polga completed enrollment paperwork for life insurance benefits through an ERISA plan. Gimeno was the primary beneficiary under the plan, and NCH Healthcare was the named plan administrator. Polga elected to receive supplemental coverage, but did not submit the necessary evidence of insurability form because it was not included in the enrollment paperwork. NCHMD’s human resources staff did not notify him that the form was necessary or missing. Nonetheless, for three years, NCHMD deducted premiums corresponding to the supplemental life insurance coverage from Polga’s paychecks. Polga died, and Gimeno filed a claim for benefits with the plan’s insurance company under 29 U.S.C. § 1132(a)(1)(B), which allows a beneficiary to bring a civil action “to recover benefits due to him under the terms of his plan.” The insurance company refused to pay any supplemental benefits because it had never received the form. Gimeno sought leave to amend his complaint to assert his claims for breach of fiduciary duty under section 1132(a)(3), but the district court denied. The appellate court reversed and remanded to allow Gimeno to bring a claim for breach of fiduciary duty. The appellate court found that both NCHMD and NCH Healthcare were fiduciaries under ERISA as those who “‘exercise[] any discretionary authority or discretionary control respecting management’ or ‘administration’ of the plan.” In finding NCHMD as a fiduciary despite it not being a named administrator, the appellate court relied on the factual circumstances under which NCHMD’s human resources staff effectively assumed the function of administrating the plan for Polga.
§ 1.2.13 D.C. Circuit
Hirecounsel D.C., LLC v. Connolly, 2021 U.S. Dist. LEXIS 242370 (D.D.C. 2021) (unpublished). Defendant Connolly worked for plaintiff, HIRECounsel D.C., LLC, a legal staffing and document management company. Connolly, based in HIRECounsel’s Boston office, worked as a managing director of client relations. Connolly signed an agreement with HIRECounsel. The agreement contained a nondisclosure covenant, which forbid the use, disclosure, or removal of HIRECounsel’s confidential information. The agreement also contained a noncompetition restriction, which lasted for 12 months and forbid Connolly from being employed by a competitor of HIRECounsel within 75 miles of any its offices. Connolly eventually resigned from HIRECounsel and joined a competitor, Beacon Hill Staffing, LLC, in their Boston office. Further, HIRECounsel learned that Connolly allegedly screenshotted confidential information during a virtual meeting with superiors who had shared their computer screens with meeting participants. Connolly then allegedly forwarded the screenshot to his personal email address ten days before resigning. HIRECounsel sued alleging two breaches of contract and a violation of the District of Columbia Uniform Trade Secrets Act (DCUSA). Connolly moved to dismiss. In his Motion to Dismiss, Connolly argued that the noncompete provision was unenforceable because it was not reasonable. The court disagreed, noting that HIRECounsel has legitimate business interests in stopping former employees from taking confidential client information to competing firms. Further, the court noted that courts applying DC law have upheld 100-mile restrictive noncompete agreements. Second, Connolly argued that HIRECounsel failed to allege a violation of the nondisclosure covenant. The court disagreed. The court noted that HIRECounsel sufficiently described the image as containing “a confidential internal report” and that forwarding the image to his personal email violated the agreement. Finally, Connolly argued that he did not misappropriate trade secrets under DCUTSA because he did not access the information without permission nor did he use it for purposes other than work at HIRECounsel. The court disagreed, noting that he took the screenshot for use unrelated to his employment with HIRECounsel and that it was improper for him to email the screenshot to his personal email ten days before resigning. The court also noted that the plain language of DCUTSA does not require an improper use; simply acquiring a trade secret through an improper means is sufficient to violate the statute.
§ 1.2.14 State Cases
There were no qualifying decisions within the State Cases.
§ 1.3. Restrictive Covenants: Covenants Not to Compete
§ 1.3.1 United States Supreme Court
There were no qualifying decisions by the United States Supreme Court.
§ 1.3.2 First Circuit
Idexx Lab’ys v. Bilbrough, 2022 U.S. Dist. LEXIS 136676 (D. Me. 2022), report and recommendation adopted, dismissed by, 2022 U.S. Dist. LEXIS 181179 (D.Me. Oct. 4, 2022). Magistrate Nivoson of the U.S. District Court of Maine recommended dismissal of plaintiff Idexx Laboratories’ (Idexx) claim against its former employee, Bilbrough. The Court reasoned that the majority of courts have rejected the theory that the Inevitable Disclosure Doctrine (IDD) applies based on the language and history of the Defend Trade Secrets Act (DTSA). Idexx alleged that Bilbrough would necessarily misappropriate its trade secrets in his current employment at a competitor in violation of the federal DTSA and the Maine Uniform Trade Secrets Act (MUTSA). Thus, Idexx sought to enjoin him from disclosing Idexx’s trade secrets and from working on product offers that implicated the trade secret information. The Court dismissed the claim for failing to assert an actionable federal claim. Regarding his motion to dismiss, Bilbrough focused on the third element of a misappropriation claim, arguing Idexx had not sufficiently alleged an actionable “use” of its trade secrets. Idexx’s claim was based on the information Bilbrough knew and the concern that he would disclose the information. The Court found that to the extent there is an ambiguity in the DTSA, a review of the development of the statute suggests Congress did not intend the IDD to apply to DTSA claims. Based on the plain language of the statute, the Court held that the IDD does not apply to claims brought pursuant to the DTSA, thus Idexx had not alleged an actionable claim under the DTSA. Regarding the MUTSA claim, the Court stated that whether a court could apply the IDD is an open question under Maine law and therefore, the issue should be decided in state court.
§ 1.3.3 Second Circuit
New York Packaging II LLC v. Mustang Mktg. Grp. LLC, 2022 WL 604136 (E.D.N.Y. 2022). The District Court found that a company looking to enforce a covenant not to compete had failed to show that irreparable harm would occur if a former employee breached its noncompete clause. The Court rejected the argument that irreparable harm must be assumed based on an alleged breach of the noncompete. It also held that general allegations of loss of client relationships and customer good will is not sufficient to show irreparable harm.
§ 1.3.4 Third Circuit
Howmedica Osteonics Corp. v. Howard, 2022 WL 16362464 (D.N.J. 2022). Defendants Howard and Petulla were two surgical supply sales employees who lived and worked in California for a New Jersey-based corporation. Their employment agreements contained New Jersey choice-of-law provisions, as well as noncompete and customer nonsolicit provisions. Both Howard and Petulla resigned to go to a competitor. The court conducted a conflict-of-law analysis and determined that California’s interest was not materially greater than New Jersey’s and as such, the noncompete’s enforceability should be evaluated under New Jersey law. The court found New Jersey’s interest was as great as California’s because Howmedica’s senior leadership team was partially based in New Jersey; the company’s research and development, finance, and operations departments were located in New Jersey; the equipment and inventory were shipped from New Jersey; and the agreements were voluntarily negotiated to designate New Jersey law to control. The court found that under New Jersey law, the agreements were enforceable because customer relationships and goodwill are protectable interests under New Jersey law. They were not overly broad in scope at 12 and 18 months respectively and were limited to the geographic area the sales employees serviced. The court, however, blue-penciled the definition of customer to include only current customers, not prospective customers. The court granted summary judgment to Howmedica on its breach-of-contract claims for violations of the restrictive covenants.
Syzygy Integration LLC v. Harris, 616 F. Supp. 3d 439, 2022 WL 2869317 (E.D. Pa. 2022), appeal dismissed 2022 WL 18587916 (3d Cir. (Pa.) 2022. Harris signed an operating agreement with plaintiff Syzygy midway through his employment. Syzygy is a government contractor providing communications technology to the military, law enforcement, and other related agencies. The operating agreement entitled Harris to 2% of the membership interests in Syzygy and also contained various restrictive covenants, including an agreement not to compete. After Harris resigned in March of 2022, he received a buyout of his shares of the company. Syzygy learned of Harris’s intent to join a competitor and brought suit seeking an injunction in April 2022. Despite the fact that since joining the competitor firm, Harris had not solicited any customers, been a part of any client pitches, or done any sort of business development, the court found that he was likely in violation of his noncompete because he had become “engaged in ‘any other business’ which competes ‘in whole or in part’ with any business engaged in by” Syzygy. The court held that Syzygy’s minor breaches of the operating agreement, by failing to provide Harris with certain tax forms, did not relieve him of his obligations to comply with the agreement. The court granted the application for the preliminary injunction enforcing the noncompete agreement under Pennsylvania law, and blue-penciled the five-year agreement with no geographic restriction to one with no geographic restriction for two years.
Rago v. Trifecta Techs., Inc., 2022 WL 2916688 (E.D. Pa. 2022). A former executive Rago worked for Trifecta Technologies. He brought suit against Trifecta for failure to pay wages pursuant to his employment agreement. Trifecta brought counterclaims against Rago claiming he breached his noncompetition and employment agreements by disparaging the company and competing with it after his termination. He moved to dismiss the counter claims for breach of the noncompetition agreement because he signed that agreement three days after he signed his employment agreement with Trifecta. He argued that because he already had agreed to the terms and conditions of employment, the noncompetition agreement was not supported by adequate consideration and was not “ancillary to an employment relationship” as required under Pennsylvania law. The court denied Rago’s motion to dismiss the counterclaims because his employment agreement that was signed three days prior to the noncompete referred to the noncompete agreement. Thus, as to the argument that the noncompete was not supported by adequate consideration, the Court held that the three-day gap between signing the agreements did not evince an effort by Trifecta to impose a noncompete later on in the relationship, and instead the same consideration for the employment agreement was also adequate for the noncompete.
ADP, Inc. v. Levin, 2022 WL 1184202 (3rd Cir. (N.J.) 2022). Matthew Levin, ADP’s Chief Strategy Officer, resigned his position to join competitor Benefitfocus as its president and CEO. ADP quickly filed a breach-of-contract claim, seeking a temporary restraining order and a preliminary injunction to prevent Levin from starting his new job. ADP claimed that Levin’s move violated several Restrictive Covenant Agreements that he had signed which prohibited him from providing “substantially similar services” as ADP to a competing business for 12 months after he left ADP. The District Court declined to issue a temporary restraining order and ruled from the bench denying ADP’s request for a preliminary injunction without any written opinion. ADP subsequently appealed claiming that the District Court abused its discretion. Upon review, the Third Circuit Court found that the District Court abused its discretion by failing to make findings on the record in compliance with Rule 52 of the Federal Rules of Civil Procedure and applying the wrong legal standard. However, instead of issuing a reversal and remand, the Circuit Court exercised its power under Rule 52 to issue its own ruling affirming the District Court’s decision because it reached the same conclusion under the correct legal standard. The Circuit Court held that to satisfy the irreparable harm prong of the four-factor balancing test for ruling on a preliminary injunction, the moving party had to establish they would specifically and personally risk irreparable harm if relief was denied. The Circuit Court found that ADP failed to meet its burden because it offered only conclusory allegations of how Levin had the potential to harm ADP and failed to show that Levin might actually cause any of the potential harm in his new role. Therefore, although a party seeking a preliminary injunction is not required to show actual harm by violation of the restrictive covenants, they must make a showing that is more than just speculative by showing a connection between the alleged potential harm and the employee’s new role.
§ 1.3.5 Fourth Circuit
Power Home Solar, LLC v. Sigora Solar, LLC, 2021 U.S. Dist. LEXIS 163753 (W.D. Va. 2021). The U.S. District Court for the Western District of Virginia held that a reasonable duration does not redeem a restrictive covenant where the function and geographic scope of the noncompete covenant vastly exceed a reasonable prohibition on trade. There, first, the noncompete covenant prohibited employees from engaging in “any employment or business” related to the commercial or residential solar-energy market in the entire United States. Second, the noncompete covenant’s geographic scope restricted all competition within 100 miles of each location of the employer’s locations. The District Court held that the noncompete covenant’s function and geographic scope were both exceptionally broad where it restricted employees from engaging in any employment or business related to the commercial or residential solar-energy market in the entire United States and effectively prohibited former employees from seeking employment in the solar-energy business in large swaths of the middle and eastern regions of the U.S.
§ 1.3.6 Fifth Circuit
Clark v. Truist Bank, 2022 U.S. Dist. LEXIS 17625 (N.D. Tex. 2022). Insurance broker Clark worked for insurance company McGriff Insurance Services in Texas. Clark and the predecessor company to McGriff, Regions Insurance, Inc., entered into an employment agreement that included a noncompete covenant providing that for two years following the end of his employment, Clark would not solicit, accept, service, or assist in the solicitation or acceptance of any insurance business of any customers for whom he had sold, serviced, managed, or consulted regarding insurance products in the 12 months before the end of his employment. Clark resigned and joined Edgewood Partners Insurance Center (EPIC). Nine of Clark’s customers moved their business from McGriff to EPIC to be serviced by Clark. McGriff sued, and moved for summary judgment to enforce the noncompete. After a brief application of the Texas Supreme Court’s three-part reasonableness test, the court found that Regions had a legitimate business interest in protecting its clients and business, and that a two-year prohibition on soliciting or servicing former customers whose accounts Clark serviced during his final year of employment did not unduly restrict Clark. Clark argued that the noncompete was unenforceable as to the nine clients who transferred to him because he did not solicit the clients, and McGriff had no protectable interest in customers who voluntarily left. This argument was rejected because the court “lack[ed] any indication” that Texas courts would narrow a noncompete in such a manner. Despite Texas law requiring an evaluation of any injury likely to the public due to noncompete enforcement, the court did not consider the impact of enforcement on a client’s right to work with the insurance broker of their choosing. The court found that the noncompete was enforceable and breached by Clark and granted McGriff’s motion.
Additional Cases of Note
Allied Pipe, LLC v. Paulsen, 2021 U.S. Dist. LEXIS 243510 (S.D. Tex. 2021) (declining to set aside a noncompete clause as unreasonable where the defendant expressly agreed in the contract that “the restrictions imposed herein are: (i) reasonable as to scope, time, and area; [and] (ii) necessary for the protection of the Buyer and the Company’s legitimate business interests”); Sutherland Glob. Servs., Inc. v. Sengupta, 2021 U.S. Dist. LEXIS 254355 (W.D. Tex. 2021), report and recommendation adopted 2022 WL 566191 (W.D. Tex. 2022) (applying New York law) (finding a substantial threat of irreparable harm, despite plaintiff’s two-month delay in seeking injunctive relief, where the defendant’s new position was substantially similar to his position at plaintiff’s company and the defendant violated the noncompete agreement prior to his employment ending with the plaintiff); Winsupply E. Houston v. Blackmon, 2021 U.S. Dist. LEXIS 225067 (S.D. Tex. 2021), appeal dismissed 2022 U.S. App. LEXIS 34871 (5th Cir. (Tex.) 2022) (finding that the plaintiff did not have a valid noncompete agreement with defendant because the agreement—originally between the defendant and another company, which plaintiff purchased all of the equity in but remained a separate entity from—could not be assigned or transferred to the plaintiff without the defendant’s consent); Direct Biologics, LLC v. McQueen, 2022 U.S. Dist. LEXIS 94514 (W.D. Tex. 2022), appeal filed (June 2, 2022) (denying a preliminary injunction on the grounds that there was no irreparable injury; although defendant, who left for a competitor, was a highly-trained employee who possessed critical knowledge about plaintiff’s business, that alone was not enough to give rise to a presumption of irreparable injury, which some Texas courts have found where there is “proof that a highly trained employee is continuing to breach a non-competition covenant”).
§ 1.3.7 Sixth Circuit
RECO Equip., Inc. v. Wilson, 2021 U.S. App. LEXIS 32413 (6th Cir. (Ohio) 2021). Jeffrey Wilson and Joseph Craig Russo left their jobs at RECO Equipment, Inc., to start a competing business. Wilson’s employment contract stated that he could not compete with RECO for three years after leaving and within 50 miles. After Wilson and Russo left, RECO found that they had retained or taken its confidential information, including retaining a company cell phone and uploading company files to a personal DropBox account. RECO sued for breach of contract and misappropriation of trade secrets and moved for a preliminary injunction. The district court granted the motion, ordering Wilson to comply with the noncompete agreement, among other relief. On appeal, regarding the noncompete agreement, Wilson did not dispute that he breached the agreement by opening a competitor company. He argued only that the agreement was unenforceable because it was not reasonable, a requirement under Ohio law for noncompete agreements that must be established by clear and convincing evidence. The court held that RECO failed to meet this burden because it presented no evidence about whether the three-year restriction imposed undue hardship on Wilson—one of the factors necessary to find a noncompete agreement reasonable under Ohio law. Because RECO failed to establish that the noncompete agreement was reasonable, RECO could not, at that time, be likely to succeed on the merits of its breach-of-contract claim based on the noncompete agreement. Accordingly, the court vacated this part of the district court’s preliminary injunction.
Union Home Mortg. Corp. v. Cromer, 31 F.4th 356 (6th Cir. (Ohio) 2022). Erik Cromer worked as a managing loan officer for plaintiff and signed a noncompete as part of his employment. In January 2021, Cromer left for a competitor and plaintiff filed suit. The court held the noncompete provision preventing Cromer from working within a 100-mile radius in “the same or similar capacity” for 22 months was unenforceable as written. The court vacated the district court’s preliminary injunction holding that the lower court had failed to analyze whether the noncompete provision was reasonable under Ohio law and therefore enforceable.
§ 1.3.8 Seventh Circuit
Custom Truck One Source, Inc. v. Norris, 2022 U.S. Dist. LEXIS 34291 (N.D. Ind. 2022). Norris worked for CTOS as an account manager. As part of his employment agreement, Norris agreed to certain noncompetition provisions restricting his right to compete in a geographic area defined as the “Territory.” Norris resigned from CTOS and formed his own company, which operated in the same industry. Norris resided in (and operated his company from) the Territory; however, all of Norris’s clients were located outside the Territory. CTOS sued Norris for breach of the noncompetition clause and moved for a temporary restraining order. The Court addressed whether CTOS had a legitimate protectable interest in preventing Norris’s actions. Norris argued that the provision was unenforceable because all of Norris’s clients were based outside the Territory. Norris argued that CTOS only had a protectable interest in the place where competition occurred, and Norris did not compete for any customers within the Territory. CTOS argued that “the mere formation of a business inside the Territory” was a violation regardless of where the businesses’ customers were located. According to CTOS, Norris’s acts of sending emails and making calls from within the Territory were sufficient. The Court agreed that Norris was conducting business within the Territory through his formation of the business and his communications. However, it raised questions regarding whether CTOS could possibly have a legitimate, protectable interest in preventing Norris from operating within the Territory when he was only competing for clients outside the Territory. The Court concluded that CTOS failed to meet its burden of showing a likelihood of success on the merits and it denied CTOS’s motion.
Concentric, LLC v. Mages, 2021 U.S. Dist. LEXIS 194740 (E.D. Wis. 2021). Mages worked for Courtney Industrial Battery for 28 years. When Concentric purchased Courtney Industrial Battery, it offered Mages a position. Mages accepted the position and began working for Concentric. However, Mages did not sign an employment agreement with Concentric until two months after starting her new position. The employment agreement contained noncompetition and confidentiality provisions. Two years later, Mages resigned and began working for one of Concentric’s competitors. Concentric sued Mages and moved for a temporary restraining order. Mages argued that the noncompetition provisions of her employment agreement were unenforceable because they were not supported by consideration. Mages argued that she received no consideration because she was already working for Concentric when she signed the agreement. Concentric argued that its continued employment of Mages constituted adequate consideration because Mages’s employment was strictly conditioned upon signing the employment agreement. The Court found a likelihood that Concentric could show the employment agreement was supported by consideration. It highlighted evidence demonstrating that Mages negotiated her employment agreement during the period she worked for Concentric without a signed agreement in place and that Concentric would have terminated Mages if the negotiations failed.
In re Adegoke, 632 B.R. 154 (Bankr. N.D. Ill. 2021). Adegoke worked for 3Cloud for approximately one year before resigning. When he resigned, 3Cloud sued Adegoke for, among other things, breach of restrictive covenants in Adegoke’s employment agreement. Adegoke argued that the restrictive covenants were not enforceable because he was not employed for a “substantial period of time.” The Court noted that, in the context of post-employment restrictive covenants, Illinois courts indicated that an employment must last for a “substantial period of time” to support restrictive covenants. (Otherwise, an employer could hire an employee for a short period of time for the sole purpose of imposing restrictive covenants.) However, the Court found that a “substantial period of time” should not be required under the circumstances. 3Cloud had invested significant resources in training Adegoke. Despite Adegoke’s unsatisfactory performance, 3Cloud tried to maintain the employment relationship by moving Adegoke into a different role. 3Cloud never decreased Adegoke’s salary and it paid Adegoke a bonus. Nevertheless, Adegoke voluntarily chose to resign. Under the circumstances, the Court found that no “substantial period of time” was required. Nevertheless, in an abundance of caution, the Court proceeded to evaluate whether the employment satisfied the “substantial period of time” requirement. The Court noted a split in authority among Illinois cases regarding what constitutes a “substantial period of time:” some cases upheld a bright-line rule requiring two years of employment while others found that additional factors must be considered. The Court rejected the bright-line approach and found that, under the circumstances, Adegoke’s one year of employment constituted a “substantial period of time.”
DM Trans, LLC v. Scott, 38 F.4th 608 (7th Cir. (Ill.) 2022). Six employees left DM Trans, LLC d/ba Arrive to work for a competitor named Traffic Tech. Arrive sued the employees and Traffic Tech and moved for a temporary restraining order. The Court denied the TRO, and Arrive appealed. On appeal, the defendants argued that part of the appeal was moot under Texas law because the noncompetition provisions had expired (for all except one of the defendants) and because three of the employees no longer worked with Traffic Tech. Regarding the first issue, the Court determined that the claims were not moot because, under Texas law, the District Court had the equitable authority to extend the duration of the restrictive covenants. Thus, the restrictive covenants could still have legal effect despite the expiration of their term. Regarding the second issue, the Court found that the employees’ departure from Traffic Tech did not render the issues moot because injunctive relief could still be appropriate and effective. Specifically, the Court noted that injunctive relief might prevent Traffic Tech from rehiring the defendants or prevent the defendants from working with any similar competitor of Arrive. The Court retained jurisdiction over the appeal.
Gillaspy v. Club Newtone, Inc., 2021 U.S. Dist. LEXIS 157249 (N.D. Ind. 2021). Gillaspy worked as a fitness instructor for Club Newtone. Gillaspy asserted claims for sexual discrimination and harassment under Title VII. Club Newtone asserted a counterclaim against Gillaspy for breach of contract alleging, among other things, that Gillaspy entered into a noncompetition agreement and that since she ceased working for Club Newtone she breached Section 2 of said noncompetition agreement. According to Newtone, Section 2 of the noncompetition agreement precluded Gillaspy from entering into or attempting to enter into “Restricted Business,” interfering with Club Newtone’s employees, interfering with Club Newtone’s customers, and utilizing Club Newtone’s confidential information and intellectual property. Gillaspy moved to dismiss Club Newtone’s counterclaim on grounds that the Court lacked subject matter jurisdiction over Newtone’s breach-of-contract claim. In declining to exercise supplemental jurisdiction over Newtone’s breach-of-contract claim, the Court noted that Gillaspy’s Title VII claims and Club Newtone’s breach-of-contract counterclaim have no overlapping elements and the claims necessarily rely on different evidence. The Court went on to find that Club Newtone failed to explain how evidence of conduct occurring after Gillaspy was terminated will disprove or defend liability from Gillaspy’s Title VII claims, which involve how she was treated during her term of employment. As a result, the Court held that the employment relationship between the parties, standing alone, is insufficient to establish supplemental jurisdiction and dismissed Newtone’s breach-of-contract claim against Gillaspy.
§ 1.3.9 Eighth Circuit
Miller v. Honkamp Krueger Fin. Servs., Inc., 9 F.4th 1011 (8th Cir. (S.D.) 2021). The Eighth Circuit Court of Appeals overturned a preliminary injunction a South Dakota federal judge issued in favor of former employer Honkamp Krueger Financial Services, barring former employee Cara Miller from working at Mariner Wealth Advisors, her new employer, pending the outcome of the case. Miller had entered into an employment agreement with Honkamp that contained restrictive covenants, including a noncompete provision prohibiting her from working for a competitor for a year, and a nonsolicitation provision. Later, both parties entered into an ancillary agreement that updated the nonsolicitation agreement prohibiting Miller from accepting unsolicited clients. Honkamp was subsequently acquired by company Bluecora, Inc. and terminated Miller’s employment. Miller initiated an action against Honkamp and Bluecora seeking a declaration that the restrictive covenants and ancillary agreement were unenforceable. She also began working for Mariner Wealth Advisors, a direct competitor to Honkamp. Honkamp counter-claimed seeking a preliminary injunction enforcing the noncompete and nonsolicitation provisions against Miller and Mariner. The district court granted the preliminary injunction in favor of Honkamp. The Court of Appeals vacated the preliminary injunction and reversed the district court, holding that: (1) under Iowa law, the noncompete provision of an employment agreement did not survive termination of the employment agreement; and (2) under South Dakota law, the nonsolicitation provision, which prohibited Miller from accepting unsolicited business from her former clients, fell outside South Dakota statute setting out permissible exceptions to general prohibition on restraints on exercise of trade and thus was void as violating South Dakota public policy.
Progressive Techs., Inc. v. Chaffin Holdings, Inc., 33 F.4th 481 (8th Cir. (Ark.) 2022), reh’g en banc denied 2022 WL 2906576 (8th Cir. (Ark.) 2022). Progressive sought an injunction against David Chaffin and Chaffin Holdings, Inc. for breaching a noncompete agreement. Chaffin and Chaffin Holdings appealed the district court’s preliminary injunction entered against them. The Eighth Circuit Court of Appeals overturned a preliminary injunction, holding that Progressive has not shown a fair chance of prevailing on the breach of the noncompete agreement, including the noncustomer solicitation agreement. Chaffin owned Arkansas State Security, Inc., which sold and maintained video security equipment for school districts. Chaffin in 2013 sold his business to Progressive and agreed to continue working at the company as an employee. The parties entered into an employment agreement, which contained a noncompete agreement with four restrictive covenants: The first covenant (the competition restriction) barred Chaffin from being involved in the “Video Security Business” throughout the state of Arkansas for five years. The second covenant (the customer-solicitation restriction) barred Chaffin from soliciting any of Progressive’s current or prospective customers for video security sales or for the purpose of terminating their business with Progressive for five years. The third covenant (the employee-solicitation restriction) barred Chaffin from soliciting any Progressive employees for two years. The fourth covenant (the nondisclosure clause) barred Chaffin indefinitely from disclosing any proprietary information. After six-and-a-half years, Progressive terminated Chaffin. Chaffin began soliciting Progressive clients. Progressive sued, claiming Chaffin breached the restrictive covenants in the noncompete agreement and misappropriated trade secrets in violation of the Arkansas Trade Secrets Act. While the Court acknowledged the validity of strict noncompete agreements in relation to the sale of a business, the Court categorized the agreement here as an employment agreement, drawing more scrutiny. The Court found the restrictions too lengthy and went beyond what is required to protect Progressive’s interests.
Ronnoco Coffee, LLC v. Castagna, 2021 WL 5937427 (E.D. Mo. 2021). Plaintiff Ronnoco Coffee, LLC filed this action against Defendants Kevin Castagna and Jeremy Torres to enforce noncompetition and confidentiality agreements against each of them, and to enjoin the threatened misappropriation of trade secrets. Defendants had been employed by Trident Beverage, Inc. before Ronnoco acquired 80% of Trident’s shares. Thereafter, defendants were employed by both Trident and Ronnoco. Ronnoco and defendants entered into a Fair Competition Agreement, which expressly prohibited defendants from: 1) engaging in any business or activity that competes with “the business of” Ronnoco both during their employment and for two years after employment with Ronnoco; 2) from soliciting Ronnoco’s employees, clients, or customers; and 3) from disclosing Ronnoco’s confidential and proprietary information. Defendants left their employment and began working for Thirsty Coconut, a direct competitor of Trident. The Court granted Ronnoco’s Request for a Temporary Restraining Order, and Preliminary Injunction against defendants prohibiting defendants from violating the terms of their Agreement. At the end of the bench trial, the Court dissolved the injunction and dismissed the case. In analyzing the trade secret claim, the Court held that while Ronnoco owned Trident by a stock purchase where they bought 80%, the stock purchase did not equate to the purchase of assets, and therefore Trident was still the legal holder of the trade secrets. The Court found that it was a basic principle of corporate law that a subsidiary is a legal entity separate from its parent. The shareholders may be the same but their property is distinct. Thus the parent, Ronnoco, cannot sue to enforce the subsidiary, Trident’s, property, including the trade secrets alleged in this suit.
§ 1.3.10 Ninth Circuit
Aitkin v. USI Ins. Servs., LLC, 2022 WL 1439128 (9th Cir. (Ore.) 2022). The Ninth Circuit upheld a preliminary injunction issued against an insurance sales representative for violation of his noncompetition agreement under Oregon law. In affirming the district court order, the Ninth Circuit, found, among other reasons, that the noncompete clause did not violate public policy. The Court rejected the employee’s argument that his noncompete clause violated public policy because he is entitled to the goodwill generated from his client relationships. The Court found, as the district court noted, Oregon common law establishes that employers have a protectable interest in the goodwill generated by their employees.
Millennium Health, LLC v. Barba, 2021 WL 4690949 (9th Cir. (Ore.) 2021). The Ninth Circuit upheld a preliminary injunction against two healthcare employees for violation of their noncompetition agreements governed by Oregon law. On appeal, the employees only challenged the district court’s finding that the employer had a likelihood of success on the merits in enforcing the noncompetition agreements against them. They argued that an employee seeking to void a “voidable” noncompetition agreement cannot be preempted by their employer’s effort to enforce the covenant, especially where, as here, the employee has not yet formally left their employment or violated the agreement.
The Court rejected the employee’s argument. Oregon treats noncompetition agreements that do not comply with the statutory requirements of Oregon Revised Statute § 653.295 as “presumptively valid rather than void ab initio.” Neither employee received notice that a noncompetition agreement would be a condition of their employment two weeks prior to commencing their employment. Thus, their noncompetition agreements were voidable. Oregon courts treat a voidable noncompetition agreement as valid and enforceable if the employee has not taken affirmative steps to void the agreement at the time the employer seeks to invoke the noncompetition agreement. Because the agreement had not been voided at the time that defendant sought to invoke the contract, the agreement was valid and in effect.
§ 1.3.11 Tenth Circuit
There were no qualifying decisions within the Tenth Circuit.
§ 1.3.12 Eleventh Circuit
Vital Pharms., Inc. v. Alfieri, 23 F.4th 1282 (11th Cir. (Fla.) 2022). Vital, a producer of energy drinks, hired the four relevant individuals in 2019, and these individuals signed employment agreements, which contained three restrictive covenants. The four individuals agreed to: (1) not to work for a competing company during the term of their employment with Vital and for a period one year from their termination or cessation date, (2) not to solicit Vital employees to join a competing company (which was valid for one year from termination), and (3) never to disclose or to utilize for their own benefit, or for any third party’s benefit any of Vital’s confidential information, including its product formulae and its marketing sales information. These four individuals later joined Elegance Brands, which is a company that primarily produces alcoholic beverages, but developed a cannabidiol-infused caffeinated drink in 2019, Gorilla Hemp. Vital sued the four individuals and Elegance Brands alleging that (1) all the individuals violated their noncompete covenants by working for Elegance Brands within a year after leaving Vital, (2) one individual, Christopher Alfieri, violated the employee nonsolicitation covenant by encouraging the rest of the individuals to join Elegance Brands, and (3) Elegance Brands and Alfieri engaged in tortious interference with Vital’s contractual relationships with the other three former employees. Vital moved for a preliminary injunction and asked the district court to (1) enjoin all the individuals from violating their noncompete covenants by working for Elegance Brands during the one-year term of the covenants, (2) enforce Alfieri’s nonsolicitation covenant, and (3) asked Elegance Brands be enjoined from interfering with all the individuals’ restrictive covenants and from using any confidential information belonging to Vital. The district court granted the motion in part (1) determining that the restrictive covenants were valid and enforceable under Florida law since the covenants were justified by Vital’s “legitimate business interests” in its product formulae, in its other confidential information, and in its customer relationships and (2) rejecting the argument that Vital was required to “identify specific customers” to establish a legitimate business interest in its customer relationships. One of the individuals, Amy Maros, then appealed the preliminary injunction against her and Vital timely cross-appealed the partial denial of preliminary injunctive relief against Alfieri and another individual. The Eleventh Circuit held that: (1) Maros’s appeal was moot because the noncompete and employee nonsolicitation covenants in the employment agreement had already expired, (2) Vital did not prove its entitlement to all of the preliminary relief it obtained against Maros, because it could not rely on its customer relationships to establish a legitimate business interest as Vital failed to name and prove a substantial relationship with any specific clients, and (3) the district court abused its discretion when it applied the presumption of irreparable harm to the nondisclosure covenant, because there was no finding that Maros disclosed confidential information.
Perma-Liner Indus., LLC v. D’Hulster, 2022 U.S. Dist. LEXIS 93981 (M.D. Fla. 2022), report and recommendation adopted 2022 WL 3138995 (M.D. Fla. 2022). Perma-Liner, a company specializing in rehabilitating existing sewer systems without excavation, using cured-in-place-pipe technology, alleged that Gerald D’Hulster, the company’s founder and former president, competed against it in violation of restrictive covenants contained in four contracts between the parties. The parties entered into four contracts containing restrictive covenants between 2012 and 2019. These restrictive covenants prohibited D’Hulster from engaging in any competing business, soliciting customers or suppliers that transact business with Perma-Liner, and disclosing confidential information or soliciting employees of Perma-Liner. D’Hulster’s employment at Perma-Liner ended in April 2019. Perma-Liner alleged that, months later, D’Hulster formed a competing company, Paramount Pipe Lining Products and became its CEO, in breach of the restrictive covenants, months after his employment at Perma-Liner. Perma-Liner further alleged that D’Hulster solicited Perma-Liner’s customers, vendors, and employees, and was using Perma-Liner’s confidential information and trade secrets, including customer lists and intimate knowledge of Perma-Liner’s business, pricing, and operations, to compete with it. Perma-Liner additionally alleged that due to D’Hulster’s actions it led its company to lose customers and sales revenues due to forced discounting. Perma-Liner also contended that D’Hulster disclosed confidential and trade secret information he learned with Perma-Liner to create Paramount products that directly overlap with product lines that were developed by Perma-Liner through extensive research and development. D’Hulster denied any connection to Paramount, or that he violated the restrictive covenants. The court recommended the entry of a preliminary injunction that prohibits D’Hulster from having an interest in, or being employed by, a business in the United States that inspects and rehabilitates pipes, or soliciting Perma-Liner’s customers, employees, vendors or suppliers during the pendency of litigation. The court explained that Perma-Liner satisfied the four prerequisites for entry of a preliminary injunction as to the defendant’s alleged breach of the noncompetition and nonsolicitation provisions of the 2019 equity appreciate rights agreement cancellation acknowledgment and release.
Arrington v. Burger King Worldwide, Inc., 47 F.4th 1247 (11th Cir. (Fla.) 2022). Plaintiffs were all employees of Burger King franchise restaurants at some point between 2010 and 2018. From at least 2010 until 2018, Burger King incorporated into its standard franchise agreement, a “No-Hire Agreement.” The No-Hire Agreement restricted hiring any employee of Burger King or of another Burger King franchisee for six months after the employee leaves the first Burger King restaurant. Plaintiffs alleged antitrust violations, asserting that the No-Hire Agreement prevented them from obtaining employment at other Burger King restaurants and, as a result, caused them to be paid artificially depressed wages, suffer decreased benefits, and be deprived of job mobility. The district court dismissed the action, finding that Burger King and each of its independent franchisees together constituted a single enterprise, so they were not capable of conspiring under the Sherman Act. The appellate court reversed and remanded. The appellate court reviewed the independent nature of Burger King’s and its franchisees’ hiring process, including the standard franchise agreement that expressly emphasized the “independent nature of each franchisee’s relationship with Burger King,” and the Burger King Franchise Disclosure Document that explicitly embraced competition among Burger King and its franchisees. The court then found that, in the absence of the No-Hire Agreement, each independent Burger King restaurant would pursue its own economic interests when hiring employees. As a result, the court ruled that “the No-Hire Agreement deprive[d] the marketplace of independent centers of decision making about hiring, and therefore of actual or potential competition.”
§ 1.3.13 D.C. Circuit
There were no qualifying decisions within the D.C. Circuit.
§ 1.3.14 State Cases
Blue Mountain Enters., LLC v. Owen, 74 Cal. App. 5th 537 (2022), as modified (Jan. 19, 2022). The California Court of Appeal found that Business and Professions Code section 16601 applied to a three-year post-termination nonsolicitation of customer provision in an employment agreement and upheld the trial court’s decision to enforce the provision against the executive/seller who entered into a joint venture. The court found that section 16601 applied as a matter of law because the defendant disposed of all of his ownership interest in one transaction agreement while concurrently agreeing under an employment agreement and that both contracts, along with other contracts the parties executed, were drafted to accomplish the parties’ joint venture. The court also found that the trial court correctly found that the defendant’s letter for his new business constituted a solicitation as a matter of law because the letter went well beyond an announcement by actively encouraging customers to leave and do business with his new company.
Lastly, the court affirmed the trial court’s award of $600,000 in attorney fees to the plaintiff as the prevailing party on the grounds that plaintiff secured a temporary restraining order, a preliminary injunction, and a permanent injunction against defendant based on the breach of the customer nonsolicitation provision. The court found that the trial court was diligent in arriving at its attorney fee determination and that there was no basis on which to conclude that the trial court’s attorney fee award was “clearly wrong” or that the trial court otherwise abused its discretion in determining the amount of the attorney fee award.
Prudential Locations, LLC v. Gagnon, 151 Hawai’i 136 (2022). A brokerage firm brought action against a former broker, claiming the broker violated a noncompete agreement by establishing a new group and soliciting brokerage firm’s agents. The Circuit Court denied brokerage firm’s motion for partial summary judgment and granted the former broker’s motion for partial summary judgment. Brokerage firm appealed, and the Intermediate Court of Appeals vacated the order. The Supreme Court granted certiorari review.
The Hawaii Supreme Court held that the noncompete clause was not ancillary to the protection of non-trade-secret, confidential business information and that the desire to prevent a real estate broker from forming a competing firm was not a legitimate purpose for a noncompete clause. The mere termination of three agents’ employment with the brokerage firm and subsequent employment with real estate broker’s new firm did not demonstrate a violation of the nonsolicitation clause. Solicitation, for purposes of a nonsolicitation clause in an employment agreement, requires an active initiation of contact. The Court found that there was a genuine issue of material fact regarding the broker’s active initiation or contact with coworker that precluded summary judgment on brokerage firm’s claim that broker violated nonsolicitation clause.
Skaf v. Wyo. Cardiopulmonary Servs., P.C., 495 P.3d 887 (Wyo. 2021). The Wyoming Supreme Court reversed the district court’s order confirming an arbitration award, vacated the award, and remanded the case to the district court. Dr. Michel Skaf, a cardiologist, signed an agreement not to compete when he became a shareholder in Wyoming Cardiopulmonary Services (“WCS”). The noncompete clause stated that he could not practice medicine for a period of two years following termination of employment within a 100-mile radius of Casper, Wyoming and each outreach clinic. After WCS terminated Dr. Skaf for cause, he immediately set up his own practice in Casper, providing cardiology services to patients. In arbitration, an arbitrational panel determined that the covenant not to compete was enforceable once it modified the scope of the prohibited services and narrowed the geographic area. The district court confirmed the arbitration panel’s decision to enforce the covenant not to compete. Upon appeal, Dr. Skaf argued, in part, that a noncompete agreement between physicians is a violation of public policy and is always unenforceable and that the arbitration panel’s decision should be vacated because it rests on a manifest error of law (that the noncompete agreements are strongly favored in Wyoming and their enforcement promotes public policy). The Wyoming Supreme Court declined to find that physician noncompete agreements are per se void as against public policy, reasoning that the Wyoming Legislature has not acted to ban or limit physician noncompete agreements. Additionally, the Wyoming Supreme Court determined that the arbitration panel began with a manifest error by applying a nonexistent public policy that noncompete agreements are strongly favored in Wyoming, which led to another manifest error of law—rewriting restrictions in the covenant which resulted in wholesale contract revision.
Hassler v. Circle C. Res, 505 P.3d 169 (Wyo. 2022). The Wyoming Supreme Court concluded that it is no longer tenable for courts to use the blue-pencil rule to modify unreasonable noncompete agreements. Because plaintiff’s noncompete agreement was unreasonable on its face, the Court determined it was void in violation of public policy. Plaintiff Circle C provides day and residential habilitation services to disabled clients. Plaintiff hired defendant Ms. Charlene Hassler as a CNA to provide residential habilitation care in her home for one of its long-term adult clients. At the time of hire, plaintiff signed a noncompete and nonsolicitation agreement. Plaintiff was notified that the client was changing providers and that Ms. Hassler was leaving its employ. Client remained in Ms. Hassler’s home for residential habilitation services and transferred to another provider for day rehabilitation. Upon receiving a cease-and-desist letter from plaintiff’s attorney to stop her activities for at least one year, pursuant to the noncompete and nonsolicitation agreement, Ms. Hassler responded that she would not do paid services starting August 7, 2017. However, the client continued to live in Ms. Hassler’s home, and she occasionally helped with the client’s care. Moreover, Ms. Hassler was paid through Medicaid for her services.
To be enforceable, a noncompete agreement must be (1) in writing, (2) part of a contract of employment, (3) based on reasonable consideration, (4) reasonable in duration and geographical limitations, and (5) not against public policy. When courts encounter unenforceable restrictions on trade, they have taken three approaches. The blue-pencil approach enables the court to enforce the reasonable terms of the agreement once its unreasonable provisions are excised. Noting that allowing a court to reform an agreement that otherwise would be void strays from rational and well-established black letter rules of contract interpretation and enforcement, the Wyoming Supreme Court overruled adoption of the liberal blue-pencil rule. It concluded that the noncompete agreement at issue was unreasonable on its face and, therefore, void in violation of public policy.
LGCY Power, LLC v. Superior Court, 75 Cal. App. 5th 844 (2022). The California Court of Appeal found that where a California employee is sued by the employer for trade secret misappropriation in a separate state based on an out-of-state forum selection clause, the employee may separately sue in California to void the provision, despite the ongoing litigation in a sister state.
Despite finding employee’s claims related to the same transaction or occurrence as the employer’s case in Utah and the employee having already answered that complaint, the Court of Appeal affirmed the trial court’s decision overruling employer’s demurrer to dismiss the employee’s action. The Court held that although employee signed his employment agreement prior to Labor Code Section 925 taking effect, the employment agreement had been orally modified thereafter, and therefore the statute governed the agreement. The Court further reasoned Labor Code Section 925 provided for an exception to California’s compulsory cross complaint rules and the employee did not need to bring his claims as a cross-complaint in the Utah action. Lastly, the Court held an employee can request the contract be rendered void even after the employer has initiated litigation and the employee’s compulsory claims would have otherwise been due.
§ 1.4. Customer and Employee Nonsolicitation Agreements
§ 1.4.1 United States Supreme Court
There were no qualifying decisions by the United States Supreme Court.
§ 1.4.2 First Circuit
There were no qualifying decisions within the First Circuit.
§ 1.4.3 Second Circuit
Permanens Cap. L.P. v. Bruce, 2022 WL 3442270 (S.D.N.Y. 2022), report and recommendation adopted, 2022 WL 4298731 (S.D.N.Y. 2022). The District Court found that a provision prohibiting the solicitation of employees was unenforceable as it did not protect a legitimate interest of the employer, but rather prohibited the former employee from communicating with current employees about other job opportunities. It also found that a provision prohibiting solicitation of clients was unenforceable because it encompassed prospective, dormant, and occasional clients and prohibited more than active solicitation of clients, but also anything that could interfere, disrupt, or attempt to disrupt the former employer’s relationships with the clients, which was overly broad.
§ 1.4.4 Third Circuit
There were no qualifying decisions within the Third Circuit.
§ 1.4.5 Fourth Circuit
Power Home Solar, LLC v. Sigora Solar, LLC, 2021 U.S. Dist. LEXIS 163753 (W.D. Va. 2021). The U.S. District Court for the Western District of Virginia held that an employer’s nonsolicitation clause was unenforceable because it was overly broad and unduly burdensome on its former employees. A competitor allegedly induced former employees to cease their employment with the employer and join the competitor. The employer asserts that its former employees breached the nonsolicitation covenant. The employer’s nonsolicitation covenant prohibited employees from contacting any of the employer’s active customers or customers that the employer solicited in the last two years while employed and for a period of 12 months following termination. The District Court found, however, that this covenant was too broad as it restricted employees from contacting any of the employer’s customers, regardless of the employee’s prior contact with them. The District Court also determined the nonsolicitation agreement was unduly burdensome because it prohibited a former employee’s contact with customers and those that the employer solicited (even if the customers did not become actual customers) over a two-year period. Thus, the District Court held the nonsolicitation agreement unenforceable because it was not narrowly tailored and was unduly burdensome.
Volt Power, LLC v. Butts, 2021 U.S. Dist. LEXIS 160586 (E.D.N.C. 2021). The U.S. District Court for the Eastern District of North Carolina denied summary judgment to a former employee, Butts, where it found triable issues of fact regarding Butts’s solicitation of Volt Power, LLC’s employees and customers. Volt’s employee manual prohibits personal use of Volt’s computers, network systems, electronic mail systems, and the like. Volt brought a breach-of-contract claim alleging that Butts violated the restrictive covenants prescribed under the executive common unit profits agreement by soliciting customers whom Butts worked with or whom he received confidential information from while working for Volt. Butts argued that Volt did not produce any evidence to support its solicitation allegation and moved for summary judgment. However, the court disagreed. Because there was evidence that a codefendant learned about potential opportunities with Volt’s competitor from Butts, several employees left Volt shortly after Butts resigned, Butts shared his new contact information with Volt employees, and a codefendant shared customer contact and bid information with Butts while said codefendant was still working for Volt, the court found there were still triable issues of fact and summary judgment was inappropriate as to the breach of the nonsolicitation agreement.
Wolff v. CapeSide Psychiatry, PLLC, 2021 U.S. Dist. LEXIS 153818 (D.S.C. 2021). The U.S. District Court for the District of South Carolina held that the nonsolicitation clause of an independent contractor agreement was enforceable because it contained essential terms, was sufficiently definite, and included specific nonsolicitation requirements. Wolff entered the agreement with CapeSide Psychiatry where Wolff was to provide telepsychiatry services to patients. The agreement included a nonsolicitation clause that applied during any and all periods of engagement with CapeSide Psychiatry and for two years thereafter. Pursuant to the agreement, Wolff was prohibited from enticing, soliciting, or encouraging, directly or indirectly, any of CapeSide Psychiatry’s employees, agents, representatives, or independent contractors to leave CapeSide Psychiatry’s employment. Wolff was also prohibited from soliciting or discouraging any patient, customer, or prospective customer from doing business with CapeSide Psychiatry. Because the ICA and the nonsolicitation clause contained enough detail and the required terms were sufficiently definite, the court found the ICA and nonsolicitation clause enforceable.
§ 1.4.6 Fifth Circuit
Sunbelt Rentals, Inc. v. Holley, 2022 U.S. Dist. LEXIS 64557 (N.D. Tex. 2022), appeal dismissed 2022 U.S. App. LEXIS 29597 (5th Cir (Tex.) 2022). Jimmy Holley worked at Sunbelt Rentals for over 20 years, during which time Holley signed an employment agreement containing a nonsolicitation clause. Holley later resigned and began a new job at a competitor company. Sunbelt sued Holley, claiming Holley actively solicited former customers in breach of his nonsolicitation agreement. Sunbelt sought a preliminary injunction to prohibit Holley’s solicitation. At issue was the type of conduct that establishes solicitation. Holley argued the term “solicit” required active conduct, while Sunbelt claimed the term “solicit” included a broader range of conduct. The court discussed a spectrum of possible solicitation conduct, finding that a reasonable construction of a nonsolicitation clause must include more than just active conduct. The court found that solicitation could include conduct between the middle of two extremes – active employee conduct on one side, and requests instigated entirely by former clients on the other. The court examined Holley’s conduct, including his testimony that at the time of his resignation, he communicated to clients the contact information of his successor at Sunbelt and did not provide any clients with information about his new employment. The court denied Sunbelt’s request for a preliminary injunction to prohibit Holley’s solicitation, noting that although Holley’s conduct contained bad facts, his behavior did not rise to the level of solicitation.
Additional Cases of Note
Allied Pipe, LLC v. Paulsen, 2021 U.S. Dist. LEXIS 243510 (S.D. Tex. 2021) (finding sufficient consideration supported the enforceability of the nonsolicitation agreement where plaintiffs provided defendant access to confidential information).
§ 1.4.7 Sixth Circuit
Hobbs v. Fifth Third Bank, N.A., 2021 U.S. Dist. LEXIS 227661 (S.D. Ohio 2021). Myron Hobbs, an insurance broker, moved to a new employer and brought along some of his long-term customers. He agreed to a nonsolicitation provision with the new employer prohibiting him from engaging with current or prospective customers for 24 months following termination. After several acquisitions and “corporate machinations” by the employer that left “the operative facts here a little murky,” Hobbs’s relationship with his employer soured. He would not sign a general release of claims or an offer letter sent by the entity that purchased his employer’s assets. His employer treated this as a resignation. Hobbs sued for, among other things, breach of contract, and sought a preliminary injunction preventing the employer from enforcing the restrictive covenants in his employment agreement or telling customers or potential customers that Hobbs was precluded from doing business with them. Although the typical procedural posture would be for the former employers to seek a preliminary injunction to prevent Hobbs from violating the restrictive covenants, the court did not find the posture of this case to be precluded. The court proceeded to the four preliminary-injunction factors, first concluding that Hobbs “established some likelihood of success” on at least one of his arguments and therefore that the first factor “weighs at least somewhat in his favor.” But Hobbs failed the second factor: whether movant would suffer irreparable injury without the injunction. The court agreed with Hobbs that the damages associated with depriving Hobbs of a right to solicit existing customers would be at least somewhat speculative, which supports finding irreparable harm. But the court disagreed that injunctive relief would remedy or prevent this harm. Hobbs pointed to his long-term customers’ fear of becoming enmeshed in a lawsuit as the harm to be prevented, but the court explained that a preliminary injunction would not extinguish such a fear. Specifically, adjudication on the merits would still proceed, with both parties likely seeking discovery from the long-term customers and embroiling them in the lawsuit despite a preliminary injunction. The court held that preliminary injunctive relief was therefore improper based on this conclusion for factor two.
Slinger v. Pendaform Co., 2022 U.S. App. LEXIS 16391 (6th Cir. (Tenn.) 2022). Jack Slinger was fired for cause from Pendaform, a plastic-manufacturing company, for saying “don’t be the last man standing” to his coworkers. Pendaform alleged Singer violated the nonsolicitation clause in his employment agreement which bars “soliciting any of [PendaForm’s employees] to resign from their employment.” The court held that a nonsolicitation clause that bars soliciting employees to resign their employment is void under Wisconsin law as an unreasonable restraint on trade. The court relied on precedent from the Wisconsin Supreme Court which found similar nonsolicitation clause unenforceable.
§ 1.4.8 Seventh Circuit
There were no qualifying decisions within the Seventh Circuit.
§ 1.4.9 Eighth Circuit
There were no qualifying decisions within the Eighth Circuit.
§ 1.4.10 Ninth Circuit
Aya Healthcare Servs., Inc. v. AMN Healthcare, Inc., 9 F.4th 1102 (9th Cir. (Cal.) 2021). The Ninth Circuit held in a dispute between two health care staffing agencies that nonsolicitation provisions in business-to-business collaboration agreements are not per se violations of the Sherman Act.
The Ninth Circuit framed the issue on appeal as whether a nonsolicitation provision in a collaboration agreement constitutes a “naked” restraint on trade warranting a per se Section 1 violation. Aya argued it did. Alternatively, Aya argued that the nonsolicitation provision violated Section 1 under a rule-of-reason analysis. The United States Department of Justice (DOJ) weighed in and filed an amicus brief arguing that all naked nonsolicitation agreements between market competitors are per se violations.
The Ninth Circuit rejected the arguments of both Aya and the DOJ. The Ninth Circuit explained that while Section 1 bars restraints on trade, courts distinguish between naked restraints and ancillary restraints. Naked restraints are explicitly anticompetitive. Ancillary restraints, while restraints on competition, are subordinate, collateral, and necessary to a legitimate transaction. Naked restraints are per se violations of Section 1, while ancillary restraints are evaluated through a three-step, burden-shifting, rule-of-reason factual analysis.
The Ninth Circuit then looked at the purpose of the nonsolicitation provision and the broader market effects. The Ninth Circuit said that given the purpose of an agreement was to supply travel nurses, the nonsolicitation provision was necessary for AMN to ensure it would not lose personnel. AMN could not meaningfully enter into staffing subcontractor agreements without nonsolicitation protections. Absent staffing subcontractors, there would be less nurses for hospitals facing chronic nurse shortages. Thus, the Ninth Circuit determined that the nonsolicitation agreement was ancillary to the collaboration agreement and had important pro-competitive benefits for the health care market.
§ 1.4.11 Tenth Circuit
ORP Surgical, LLP v. Howmedica Osteonics Corp., 2022 U.S. Dist. LEXIS 84398 (D. Colo. 2022), amended and superseded by 2022 U.S. Dist. LEXIS 170132 (D. Colo. 2022), appeal dismissed 2022 WL 19039680 (10th Cir. (Colo.) 2022). After a bench trial, the District Court found in favor of plaintiff/counter-defendant ORP Surgical, LLP (“ORP”) on its breach-of-contract claim and all counterclaims (breach of the two agreements, unfair trade practices, and tortious interference) and entered judgment in favor of defendant Howmedica Osteonics Corp., a subsidiary of Stryker Corp. (“Stryker”) on ORP’s claim for corporate raiding. Stryker contracted with ORP, an independent company with sales representatives, who sold Stryker products on commission. Stryker and ORP had entered into two agreements: the joint sales representative agreement (“joint SRA”) and the trauma sales representative agreement (“trauma SRA”), which both granted ORP the exclusive right to sell Stryker products in certain locations, specified which non-Stryker products ORP could and could not sell, and permitted either party to voluntarily terminate the contract so long as they complied with certain post-termination restrictions. In the event of a termination of the contract, ORP would be prohibited from selling competitive products for a year and in exchange, Stryker would pay ORP “restriction payments” equal to ORP’s commissions from Stryker sales made in the previous 12 months before termination. Additionally, both contracts included one-year nonsolicitation/non-divert provisions that would survive the contracts. Stryker terminated the contracts, contending that because termination was for “cause,” Stryker was not bound by the contracts’ terms and was not obligated to pay the restriction payments. ORP contended that there was no “cause” and that the payment obligations, sales restrictions, and nonsolicit/non-divert covenants applied.
The District Court found that Stryker’s independent “causes” for terminating the joint SRA and the trauma SRA were not credible and Stryker did not have “cause” to terminate the contracts, concluding that ORP was entitled to the restriction payments outlined in the contracts (applying New Jersey law to interpret the contracts). Additionally, the District Court determined that Stryker breached the contracts’ provisions regarding nonsolicitation of any current employee or independent contractor working for ORP, as evidenced by compelling evidence of solicitation and diversion that the defendants and their witnesses could not credibly explain away. Further, while Stryker attempted to argue that the sales representatives would have come to Stryker of their own accord, the District Court reasoned that the contracts prohibited all solicitation and diversion, not only necessary or effective solicitation and diversion. The District Court concluded that ORP is entitled to damages.
§ 1.4.12 Eleventh Circuit
Usi Ins. Servs. LLC v. Se. Series of Lockton Co., LLC, 2022 U.S. Dist. LEXIS 96215 (N.D. Ga. 2022). Three employees left USI to go work for Lockton, which are competing insurance brokerage firms. In 2017, USI purchased all issued and outstanding equity interests of Wells Fargo Insurance Services. At the time of the stock purchase and sale agreement, Dean Anderson, Taylor Anderson, and Roger Maldonado were employed by USI. Dean Anderson and Taylor Anderson executed employment agreements when employed by Wells Fargo Insurance Services, which applied to their employment with USI. Upon the closing of the purchase agreement between Wells Fargo Insurance Services and USI, Roger Maldonado accepted an at-will position at USI’s office in Atlanta, Georgia. Lockton reviewed the employment agreements of all the employees including whether the recruit was subject to a noncompete or nonsolicit provision and when and how a recruit could resign from their employer. USI filed a lawsuit and set forth the following three tortious interference with contractual and business relations claims: Lockton (1) engaged in wrongful and malicious conduct designed to induce the Andersons to breach the notice provisions and the duty of loyalty provisions of their employment agreements, (2) engaged in wrongful and malicious conduct designed to have Maldonado and the Andersons breach their noncompete covenants, client noncompete covenants, and nonsolicitation covenants, and (3) wrongfully and maliciously raided USI’s Aviation Practice Group. Lockton in its counterclaims set forth the following two substantive claims against USI: (1) tortious interference with contractual and business relations based on USI’s alleged false and misleading statements about Lockton’s ability to service its customers, and (2) deceptive trade practices based on the same allegations of false and misleading statements by USI regarding Lockton’s ability to service its customers. On March 10, 2021, the court dismissed the counterclaim for deceptive trade practice and the claim asserting tortious interference with business relations and the tortious interference with contractual relations claim to the extent that it was based on USI attorney communications. On March 29, 2022, the court held that the defendant Lockton was not entitled to summary judgment on all three tortious interference with contractual and business relations claims because while aware of the employment agreements, Lockton directly induced the employees to breach multiple provisions of their agreements plus provided them legal counsel and indemnity with regard to any legal challenges they faced from USI. The court concluded accordingly that Lockton was not entitled to summary judgment on USI’s claims against it based on an absence of evidence of improper conduct.
§ 1.4.13 D.C. Circuit
There were no qualifying decisions within the D.C. Circuit.
§ 1.4.14 State Cases
There were no qualifying decisions within the State Cases.
§ 1.5. Misappropriation of Trade Secrets
§ 1.5.1 United State Supreme Court
There were no qualifying decisions by the United States Supreme Court.
§ 1.5.2 First Circuit
Amyndas Pharms., S.A. v. Zealand Pharma A/S, 48 F.4th 18 (1st Cir. (Mass.) 2022). The First Circuit Court of Appeals affirmed a Massachusetts District Court decision to dismiss all claims against a foreign corporation according to a binding forum selection clause. Amyndas Pharmaceuticals (Amyndas) entered into a confidential disclosure agreement (CDA) with Zealand Denmark to share information pursuant to business and services relationships between the parties and their respective affiliates. In April 2017, the biotechnology companies ultimately terminated the CDA. In August 2018, Zealand Denmark announced a collaboration with Alexion to develop complement-targeted therapeutics. Amyndas filed a complaint alleging misappropriation of trade secrets. The Court ultimately held that the forum selection clause in the CDA was mandatory and unambiguous. Even so, Amyndas argued that enforcing the clause would be unreasonable in the interest of public policy and as such, the Court should refuse to enforce the forum selection clause. These arguments included the bulk of the alleged conduct occurring in the US, a strong US preference for plaintiff’s choice of forum, and the inconvenience of litigating in a distant forum. The Court stated that though the Defend Trade Secrets Act (DTSA) guarantees a federal forum for trade secret theft claims under 18 U.S.C. § 1836, the DTSA was not meant to supersede the forum selection decisions of sophisticated parties except regarding unusual cases. The entry of judgments under Fed. R. Civ. P. 54(b) is reserved for unusual cases in which the costs and risks of multiplying the number of proceedings and of overcrowding the appellate docket are outbalanced by pressing needs of the litigants for an early and separate judgment. Given Amyndas’s failure to identify facts to suggest this issue qualified as an unusual case, the Court maintained its enforcement of the forum selection clause. The fact that the DTSA provides a federal cause of action with some extraterritorial reach does not prevent private parties from contracting either outside it or around it.
§ 1.5.3 Second Circuit
Turret Labs USA, Inc. v. CargoSprint, LLC, 2022 U.S. App. LEXIS 6070 (2d Cir. (N.Y.) 2022). This case affirmed that parties asserting trade secret misappropriation claims under the Defend Trade Secrets Act (“DTSA”) or New York law, must specifically detail in a pleading the “reasonable measures” employed to maintain the secrecy of the alleged trade secret. Prior to this case, the Second Circuit had not construed the meaning of the DTSA’s “reasonable measures” requirement. In Turret Labs, the Second Circuit affirmed the lower court’s granting of a motion to dismiss, concluding that plaintiff Turret Labs failed to adequately allege that “reasonable measures” were taken. Although there was an agreement providing the plaintiff’s customer with exclusive access to the alleged trade secret, the agreement did not contractually obligate the customer to maintain confidentiality of the alleged secret. The Second Circuit explained that the DTSA gives scant guidance on what constitutes “reasonable measures” to keep information secret. The analysis “will often focus on who is given access, and on the importance of confidentiality and nondisclosure agreements to maintaining secrecy.” The Second Circuit also concluded that plaintiff Turret Labs’s failure to execute a contract with a nondisclosure obligation undermined its trade secret misappropriation claim. The Court further noted that any of the alleged security measures in place, such as servers in restricted areas and software access restricted by passwords, were basically irrelevant because all customers of Turret Labs’s customer could view the functionality.
§ 1.5.4 Third Circuit
Warman v. Loc. Yokels Fudge, LLC, 2022 WL 17960722 (W.D. Pa. 2022). Plaintiffs were an individual Warman, a trust with the same name, and a chocolate company Chocolate Moonshine, LLC that brought suit against a competing fudge maker and certain individuals to whom plaintiffs had previously licensed their recipe claiming trade secret theft under the Defend Trade Secrets Act (DTSA) and the Pennsylvania Uniform Trade Secrets Act (PUTSA). The defendants argued that all of the ingredients of the recipe, the unified process and operation of making the fudge are in the public domain, have been well known for decades and are disclosed in a patent issued to another party in 1968. Plaintiffs contended that while this information was generally known, its specific trade secret recipe and process was not public, and that several ingredients and techniques changed since the publication of the 1968 recipe. Plaintiff moved for summary judgment on the DTSA and PUTSA claims at the close of discovery, but the court denied the motion. The court held that while a fudge recipe can be a trade secret and the recipe at issue has been found to be a trade secret in prior decisions in state court, there were too many disputed issues of fact that needed to be resolved at trial, including how much the trade secret had been transformed from the original 1968 recipe, whether the compilation of ingredients and processes is unique, the extent to which the claimed trade secret was known outside plaintiffs’ business, and whether reasonable measures were taken to protect it.
§ 1.5.5 Fourth Circuit
AirFacts, Inc. v. Amezaga, 30 F.4th 359 (4th Cir. (Md.) 2022). The U.S. Court of Appeals for the Fourth Circuit vacated a district court ruling and held that “commercial use” was not a threshold requirement to obtaining reasonable royalty damages under the Maryland Uniform Trade Secrets Act (MUTSA). In AirFacts, an employer sued its former employee for trade secret misappropriation of software when the former employee disclosed the software to a noncompetitor third party during the job-interview process. The district court held the employer was ineligible for reasonable royalty damages because it failed to prove the information was disclosed for commercial use. The Fourth Circuit disagreed. In referencing Fifth and Tenth Circuit decisions, the Fourth Circuit held it was inappropriate to condition such awards on commercial use because the MUTSA authorizes reasonable royalty damages for unauthorized disclosure or use of a trade secret. The Fourth Circuit explained that although “commercial use” is not a threshold requirement, courts may factor how the trade secret was used when conducting their analyses. The Fourth Circuit also refused to decide the royalties issue on the merits and limited its holding to rejecting the district court’s ruling that the employer was ineligible for reasonable royalty damages, not that the employer was entitled to said damages.
Additional Cases of Note
GlaxoSmithKline, LLC v. Brooks, 2022 U.S. Dist. LEXIS 27483 (D. Md. 2022) (granting employer’s motion for a temporary restraining order against former employee where employee had access to and improperly obtained trade secret information before and after resignation, the alleged misappropriation risked a devastating impact on employer’s business, and any intrusion on the former employee’s privacy in conducting a forensic analysis on her devices was not outweighed by employer’s interest in confirming that any misappropriated data has been removed from employee’s personal accounts and devices).
§ 1.5.6 Fifth Circuit
Oracle Elevator Holdco, Inc. v. Exodus Sols., LLC, 2021 U.S. Dist. LEXIS 169833 (S.D. Tex. 2021). Oracle Elevator Holdco (Oracle) provides elevator services such as maintenance and repair. Another elevator company, Exodus, provides similar services to Oracle in overlapping locations. David Luxemburg (David) worked as a general manager for Oracle. His daughter, Sarah Luxemberg (Sarah), worked as the owner and operator of Exodus. On multiple occasions, David emailed his daughter pricing proposals that he had originally sent to customers on behalf of Oracle. Upon learning of these communications, Oracle terminated David and sued him for misappropriation of trade secrets. The court analyzed various factors to determine whether the pricing proposals constituted a trade secret. Two factors weighed in favor of finding a trade secret: (1) the information in the pricing proposals could provide value to competitors since customers often chose the lowest bid when deciding to contract with an elevator company and (2) without her father’s emails, Sarah would not have been able to “properly” acquire Oracle’s pricing information. But three significant factors weighed against such finding: (1) Nearly all Oracle personnel had access to the pricing information, (2) Oracle merely guarded the pricing information with password protection rather than, for example, marking the information as confidential, and (3) neither considerable time nor considerable expense was necessary to create the pricing proposal. As such, the court found that the pricing proposals did not constitute a trade secret and David was not liable for misappropriation.
Additional Cases of Note
Cox Operating, LLC, v. Wells Fargo, N.A., 2021 U.S. Dist. LEXIS 239133 (S.D. Tex. 2021), appeal dismissed 2022 WL 1916855 (5th Cir. (Tex.) 2022) (holding that plaintiff’s alleged trade secret, the status of ongoing negotiations for financing, had no “independent economic value” because it “took no investment to create and has no demonstrated value for royalties”); Giddy Holdings, Inc. v. Kim, 2022 U.S. Dist. LEXIS 87679 (W.D. Tex. 2022) (granting plaintiff’s summary judgment motion where defendant improperly acquired his former employer’s trade secrets by accessing them “after his termination” and then misappropriated those trade secrets by using the company’s “investor contact list” to reach out to investors via Twitter as well as screenshotting marketing data from his company account, also after his termination); Maxim Healthcare Staffing Servs., Inc. v. Mata, 2022 U.S. Dist. LEXIS 4944 (W.D. Tex. 2022) (granting plaintiff’s motion for preliminary injunction prohibiting former employee and competitor from using trade secrets, finding that former employee and competitor acquired a contract proposal unique to plaintiff through improper means); Pittsburgh Logistics Sys. v. Barricks, 2022 U.S. Dist. LEXIS 115706 (S.D. Tex. 2022) (determining that although defendant emailed himself his former employer’s customer list, defendant did not misappropriate trade secrets because defendant never used the customer list to garner customers); Sunbelt Rentals, Inc. v. Holley, 2022 U.S. Dist. LEXIS 64557 (N.D. Tex. 2022), appeal dismissed 2022 U.S. App. LEXIS 29597 (5th Cir (Tex.) 2022) (granting in part plaintiff’s request for a preliminary injunction, holding that plaintiff demonstrated a substantial likelihood of prevailing on its trade secret misappropriation claim where plaintiff established defendant forwarded confidential information to his personal email account); Winsupply E. Houston v. Blackmon, 2021 U.S. Dist. LEXIS 225067 (S.D. Tex. 2021), appeal dismissed 2022 U.S. App. LEXIS 34871 (5th Cir. (Tex.) 2022) (holding that plaintiff failed to prove its customer lists were trade secrets because the lists were publicly available and thus “readily ascertainable through proper means”).
§ 1.5.7 Sixth Circuit
Epazz, Inc. v. Nat’l Quality Assur. USA, Inc., __ F. App’x __, 2021 U.S. App. LEXIS 25942 (6th Cir. (Mich.) 2021). This “messy business dispute” relates to a software package that Jadian Enterprises licensed to National Quality Assurance USA, Inc. (NQA). Because this software was critical to NQA’s business and required significant support from Jadian Enterprises, the companies signed an escrow agreement that would allow NQA to obtain the software’s source code from a third party and use it to continue receiving the benefits afforded by the license agreement if Jadian Enterprises breached its agreement with NQA. The software package was later sold to Jadian, Inc., after which the technical support provided to NQA suffered. In response, NQA withheld payment, leading Jadian to withhold further support. Accordingly, NQA asked for, and received, the source code from the third party, and hired another company to provide the support it had wanted from Jadian. Jadian then sued for, among other things, trade secret misappropriation. The district court granted summary judgment to NQA on Jadian’s trade secret claims because the issues were “contractual issue[s], not a trade secret theory,” and allowing the trade secret claims to proceed “would improperly blur the line between contract and tort.” The Sixth Circuit affirmed, holding that any potential error in the summary judgment ruling was harmless, because the agreements between the parties allowed for NQA’s actions—obtaining the code from the third party and using it without paying further subscription fees—such that there could not have been trade secret misappropriation.
B&P Littleford, LLC v. Prescott Mach., LLC, __ F. App’x __, 2021 U.S. App. LEXIS 25590 (6th Cir. (Mich.) 2021). Ray Miller, the former CEO and president of B&P, left and started his own company and allegedly misappropriated trade secret schematics for the benefit of his new company. B&P performed a reasonable investigation at the time but was unable to find any evidence of misappropriation. In 2017, Miller hired a former employee of B&P who allegedly also misappropriated trade secret schematics. In 2018, B&P learned that Prescott Machinery was using B&P schematics and filed suit. The court reversed the district court’s summary judgment ruling that plaintiff’s trade secret claim was barred by a three-year statute of limitations which began to run in 2012. The court held that misappropriating one trade secret does not trigger the limitation period for a claim of misappropriation of a different, but related, trade secret. The court further held that B&P’s prior investigation had tolled the statute of limitation until discovery of misappropriation in 2018.
§ 1.5.8 Seventh Circuit
There were no qualifying decisions within the Seventh Circuit.
§ 1.5.9 Eighth Circuit
ImageTrend, Inc. v. Locality Media, Inc., 2022 U.S. Dist. LEXIS 211741 (D. Minn. 2022). ImageTrend Inc., an emergency medical services (EMS) software developer, alleged that their competitor, Locality Media, conspired with four of ImageTrend’s former employees to steal ImageTrend’s trade secrets. The amended complaint identified broad categories of documents and information, as well as several specific documents, but did not describe with sufficient specificity how those documents and information were inherently confidential or possessed economic value from their secrecy. The court therefore held that ImageTrend’s broad and vague allegations did not plausibly establish that any of the information at issue qualified as trade secret information under the Minnesota Uniform Trade Secrets Act (MUTSA) and the federal Defend Trade Secrets Act (DTSA), nor did the allegations plausibly connect any specific trade secret with a specific act of misappropriation. Thus, the court granted defendants’ motion to dismiss for counts alleging misappropriation of trade secrets.
§ 1.5.10 Ninth Circuit
Precision Indus. Contractors Inc. v. Jack R. Gage Refrigeration Inc., 2021 WL 3472377 (W.D. Wash. 2021). A Washington district court found that there was not sufficient evidence on summary judgment to establish misappropriation by a former employee who submitted competing bids for a competitor. The defendant former employee was provided access to plaintiff’s confidential information during employment, including strategies on how to secure winning bids and information about plaintiff’s existing and potential clients.
In the past, plaintiff had won about 75 percent of the bids it submitted for a specific client. Shortly after a client project was announced, defendant employee abruptly quit. Following this, plaintiff was only awarded one project for the client project even though it submitted five or six bids. Though there were other factors in play, plaintiff believed that part of the reason it lost bids was because defendant used plaintiff’s confidential information to submit bids to the client. Plaintiff eventually moved for summary judgment on its federal and state trade secret misappropriation claims, arguing that the defendant improperly took plaintiff’s confidential information, including bidding sheets, internal costs, manuals, and other techniques developed internally and exclusively for plaintiff’s own use.
Despite this, the court found that while defendant may have had access to some of plaintiff’s confidential information, that in itself did not demonstrate that he misappropriated the information. Moreover, the court noted that it was undisputed that defendant had decades of “know-how and experience,” including with submitting bids for industrial construction projects. In addition, defendant testified that he had no idea what plaintiff’s bids were going to be on the client project. In sum, there was no evidence that defendant misappropriated plaintiff’s trade secrets or acquired them through improper means, that he disclosed the trade secrets to his new company, or that he used the trade secrets in connection with submitting bids for the client project. Accordingly, summary judgment was denied as to plaintiff’s claims for trade secret misappropriation.
MBS Eng’g Inc. v. Black Hemp Box LLC, 2021 WL 2458370 (N.D. Cal 2021). A California district court ruled that plaintiff’s DTSA claim could proceed despite the defendants’ assertions that the company did not do enough to secure the technology’s secrecy when it sold the hemp dryers at issue without prohibiting buyers from reverse-engineering them. “It may be that the ease of reverse engineering bears on the question of what secrecy efforts were reasonable under the circumstances, but defendants cite no authority indicating that the mere possibility of reverse engineering by a third-party purchaser necessarily invalidates a trade secret,” the court stated. The court concluded, “[a]t most, this raises a fact question that should be resolved at summary judgment or trial.”
XpandOrtho Inc. v. Zimmer Biomet Holdings Inc., 2022 U.S. Dist. LEXIS 46698 (S.D. Cal. 2022). A California district court rejected defendant’s motion to dismiss finding allegations of trade secret misappropriation sufficient at the pleading stage. The court held that the identification of “thirteen general trade secrets along with explanations” in the complaint and allegations of facts supporting its efforts to maintain the secrecy of the trade secrets were sufficient. The court rejected defendant’s challenges to the allegations of misappropriation, reasoning that the plaintiff had alleged how defendant gained access to the trade secrets and how it used the information to develop its own offering. The court also found that plaintiff’s allegations that defendant refused to return or destroy the plaintiff’s information after calling off the acquisition were sufficient. Lastly the court rejected defendant’s contention that the trade secret claim sounded in fraud and was thus subject to Rule 9(b)’s heightened pleading requirement.
§ 1.5.11 Tenth Circuit
KeyBank Nat’l Ass’n v. Williams, 2022 U.S. Dist. LEXIS 40880 (D. Colo. 2022). The District Court found that defendants have not met their burden of demonstrating the absence of a genuine dispute as to material facts governing KeyBank’s trade secret misappropriation claims. This case involves defendants’ alleged misappropriation of trade secrets with their former employer, Plaintiff KeyBank National Association. Defendant Williams worked for KeyBank since 2007, and most recently was employed as a Senior Vice President and Regional Manager of Keybank’s commercial mortgage practice. Defendant Weldon was employed as Vice president in plaintiff’s Mortgage Bank group. Both defendants signed several agreements regarding trade secrets. In 2018, both defendants began negotiating new employment with Newmark Knight Frank. Defendant Williams provided Newmark with two types of documents: 1) PDFs containing portions of KeyBank’s internal tracking documents (“Pipeline Reports”) and 2) Excel sheets of the Pipeline Reports. The Pipeline Reports contain KeyBank’s confidential information, including KeyBank’s revenue and fees. Defendant Williams emailed copies of the Pipeline Reports to his personal email account prior to his departure.
To prove a claim for misappropriate of trade secrets, KeyBank must prove that: 1) KeyBank possessed a valid trade secrete; 2) the trade secret was acquired, disclosed, or used without consent, and 3) the person acquiring, disclosing, or using the trade secret knew or should have known that the trade secret was acquired by improper means. A claim for misappropriation does not require the “use” of the trade secret; rather, the claim can be established by the acquisition of a trade secret by another who knows or has reason to know that the trade secret was acquired by improper means. Rejecting the defendant’s reliance on a Sixth Circuit case Heartland Home Fin., Inc. v. Allied Home Mortg. Cap. Corp., 258 F. App’x 860, 861 (6th Cir. (Ohio) 2008) (unpublished), the Court determined that summary judgment was inappropriate for the trade secret claims.
§ 1.5.12 Eleventh Circuit
Fin. Info. Techs., LLC v. iControl Sys., USA, LLC, 21 F.4th 1267 (11th Cir. (Fla.) 2021). Financial Information Technologies (Fintech) and iControl Systems (iControl) were competitors who sold niche computer software that rapidly processed electronic payments between retailers and wholesale distributors of alcoholic beverages. Fintech sued iControl, alleging that iControl violated the Florida Uniform Trade Secrets Act (FUTSA) by misappropriating seven Fintech trade secrets. The jury returned a general verdict in favor of Fintech, finding that iControl misappropriated Fintech’s trade secrets and, further, that iControl acted willfully and maliciously in doing so. iControl filed a motion for a new trial on liability and a renewed JMOL motion on damages, alleging that Fintech’s seven alleged trade secrets were never actually secret, and contending that Fintech failed to prove lost profits, as required under FUTSA. Fintech moved for a permanent injunction “prohibiting iControl from doing business in the regulated commerce industry.” The district court denied all three motions. The appellate court affirmed the district court’s judgement with respect to iControl’s liability and Fintech’s request for a permanent injunction, but reversed its judgement on damages. In affirming the two motions, the appellate court made two points. First, Fintech needed to show evidence of misappropriation only as to one as the jury rendered a general verdict. In so ruling, the court reviewed evidence indicating iControl improved its software by receiving assistance from Fintech’s former employees. Second, FUTSA only “authorizes the injunction of specific, identifiable trade secrets,” not “blanket restraint of competition.” Fintech’s request for injunction “wasn’t narrowly tailored and did not identify specific acts to be restrained,” nor was it provided for a specified period of time.
§ 1.5.13 D.C. Circuit
CoStar Grp., Inc. v. Leon Cap. Grp. LLC, 2022 U.S. Dist. LEXIS 101663 (D.D.C. 2022). Plaintiff CoStar Group, Inc. (CoStar) operates a commercial real estate information database. CoStar in turn licenses the database to users. Leon Capital (Leon), a real estate investment and development firm, agreed to a license contract with CoStar. Per their License Agreement, Leon agreed to follow CoStar’s Terms and Conditions, which included a limitation on “access or use” of the database by any “direct or indirect competitors of CoStar,” and the database’s Terms of Use, which provided that only “authorized users” may access the database and forbid “direct or indirect competitors of CoStar” from accessing the database. CoStar alleged that Leon violated both sets of terms. In particular, CoStar alleged that Leon was deemed an indirect competitor, breaking the agreement and requiring Leon to pay remaining annual fees. Additionally, CoStar alleged that Leon’s new Managing Director, Wood, accessed the databased with his former employer’s credentials and “mined” beneficial data for Leon. This access occurred after CoStar terminated Leon’s access. CoStar alleges that this action violated the Terms of Use, in the alternative were fraudulent and constituted unjust enrichment, and finally violated the Computer Fraud and Abuse Act (CFFA). Leon moved to dismiss all claims. Regarding the first claim for unpaid fees, the court ruled the issue moot and dismissed it because Leon had paid the fees after initial filings. Regarding the claims centered on Wood’s access, Leon contended that was a contract dispute between CoStar and Wood’s former employer. The court disagreed, stating that “it is beside the point whether Wood’s actions also violated some [other] agreement . . . .” Additionally, per the respondeat superior doctrine, Leon may be held accountable for Wood’s actions because he used a Leon device and accessed data favorable to Leon. The court concluded that Leon is an “indirect competitor” due to its sufficient direct investments in a directly competing firm. Finally, the court stated that even though Wood had valid credentials, in the sense that they allowed him to log into the database, his access was still unauthorized and therefore met the requirements of a CFAA claim.
§ 1.5.14 State Cases
There were no qualifying decisions within the State Cases.
§ 1.6. Damages
§ 1.6.1 United States Supreme Court
There were no qualifying decisions by the United States Supreme Court.
§ 1.6.2 First Circuit
There were no qualifying decisions within the First Circuit.
§ 1.6.3 Second Circuit
Hosp. Media Network v. Henderson, 209 Conn. App. 395 (Conn. App. Ct. 2021). In this case, the plaintiff employer had employed the defendant employee as its Chief Revenue Officer until 2013, when he was fired for cause. The plaintiff employer then brought an action against the former employee, claiming that, among other things, he violated the Connecticut Uniform Trade Secrets Act (“CUTSA”) and breached his fiduciary duties by simultaneously working for a private equity firm that was involved in the same business sector as plaintiff. The lower court ruled in favor of the plaintiff employer. The Connecticut Court of Appeals affirmed, but remanded the case for a new hearing on damages. The defendant employee then appealed the judgment rendered on remand awarding damages, claiming the trial court (1) exceeded the scope of the court’s remand order, and (2) awarded damages that were inequitable, and predicated on factual findings that were not supported by the record. As to the first point, the Connecticut Court of Appeals concluded that the lower court did not exceed the scope of the remand order. However, the Court of Appeals agreed with the defendant employee that the lower court committed error in ordering the defendant to disgorge $50,000 of the $150,000 consulting fees he received. The appellate court explained that its previous decision prohibited disgorgement of amounts earned by the defendant employee outside of his period of employment with the plaintiff employer, and that the court had previously assumed the defendant employee earned the consulting fees after his employment with the plaintiff employer had ended.
ML Fashion, LLC v. Nobelle GW, LLC, 2022 U.S. Dist. LEXIS 18634 (D. Conn. 2022). This case involves former employees leaving their employer ML Fashion, LLC to form a new competitor company. Plaintiff ML Fashion, LLC lodged a number of claims against the former employees, including but not limited to, claims under the Computer Fraud and Abuse Act (“CFAA”), the Defend Trade Secrets Act (“DTSA”), conversion, breach of fiduciary duty, breach of contract, and tortious interference with a noncompetition agreement. Defendants moved for the court to order plaintiffs to pay certain costs associated with a previously-filed action in the United States District Court for the Northern District of Illinois. They also sought a stay of the proceedings until plaintiffs pay those costs. The defendants also moved to dismiss the Complaint in its entirety, in addition to moving to stay discovery and moving to amend the scheduling order, pending resolution of the motion to dismiss. The court ultimately held that it was appropriate to award defendants costs under Federal Rules of Civil Procedure 41 where plaintiffs initially filed an action in Illinois and litigated it vigorously, imposing costs on defendants, then dismissed it voluntarily and refiled their claims in another court. This case serves as a reminder that parties will likely be subject to costs if Federal Rules of Civil Procedure 41 is violated, and that Federal Rules of Civil Procedure 41 does not require any showing of bad faith in order to recover such costs.
§ 1.6.4 Third Circuit
There were no qualifying decisions within the Third Circuit.
§ 1.6.5 Fourth Circuit
There were no qualifying decisions within the Fourth Circuit.
§ 1.6.6 Fifth Circuit
There were no qualifying decisions within the Fifth Circuit.
§ 1.6.7 Sixth Circuit
There were no qualifying decisions within the Sixth Circuit.
§ 1.6.8 Seventh Circuit
Select Rehab., LLC v. Painter, 2021 U.S. Dist. LEXIS 159437 (S.D. Ill. 2021). Painter and Vasquez worked for Select Rehabilitation. When they resigned from Select Rehabilitation and began working with a competitor, Select Rehabilitation sued for, among other things, breach of the Computer Fraud and Abuse Act (“CFAA”). Select Rehabilitation alleged that Painter and Vasquez stole trade secrets. Painter and Vasquez moved to dismiss the CFAA claim on the basis that Select Rehabilitation failed to allege damages that are recoverable under the act (which defines “damage” as impairment to the integrity or availability of data and “loss” as any reasonable cost to a victim). Select Rehabilitation argued that the misuse of trade secrets constituted recoverable damages under the CFAA. The Court acknowledged a split in authority regarding whether the loss in value of trade secrets (or a competitive edge) constituted damages under the CFAA, but it determined that Select Rehabilitation failed to allege recoverable damages. The Court found that the cases Select Rehabilitation relied upon had been “discredited due to statutory changes.” Allegations of an interruption in access to data were required to state a claim under the CFAA.
§ 1.6.9 Eighth Circuit
There were no qualifying decisions within the Eighth Circuit.
§ 1.6.10 Ninth Circuit
Bladeroom Group, Ltd. v. Emerson Elec. Co., 11 F.4th 1010 (9th Cir. (Cal.) 2021), amended and superseded on denial of reh’g en banc 20 F.4th 1231 (9th Cir. (Cal.) 2021). The Ninth Circuit reversed a $60 million verdict on the grounds that the district court should not have ignored the plain language in an NDA providing that confidentiality obligations would terminate after two years. The court rejected the district court’s reasoning that the two-year limit controlled because it was contrary to the parties’ intent and would lead to an absurd result.
Dr. V Prods., Inc. v. Rey, 68 Cal. App. 5th 793 (2021). A California appellate court found that an order denying a motion for attorneys’ fees under CUTSA is not an appealable order. In the case, plaintiff filed suit against a former employee, alleging the former employee converted and destroyed documents belonging to the plaintiff, which contained “proprietary company information.” After discovery, the plaintiff voluntarily dismissed its trade secret misappropriation claim, and the defendant moved for an award of attorneys’ fees under CUTSA which the court denied. The defendant appealed, and the plaintiff moved to dismiss on the grounds that a denial of a motion for attorneys’ fees under CUTSA is not an appealable order.
The defendant argued that “if a collateral order that directs payment of attorney fees (i.e. “payment of money”) is appealable, by parity of reasoning the opposite should be true.” The appellate court disagreed, citing to case law which made no mention of an order denying the payment of money being appealable. The court also cited other examples where “statutes are not always reciprocal to the parties” and where “some authorize an appeal by one side to a matter but deny that right to the other side.”
The defendant argued that an order denying fees under CUTSA is collateral to the litigation. The court disagreed and cited authority that a party may not normally appeal from a judgment on one cause of action if determination of other causes of action is pending. Defendant’s underlying motion addressed only one of respondent’s causes of action and six remained. The appellate court also stated that because the core of the lawsuit concerned destruction and conversion of corporate documents, the trade secret misappropriation claim was intertwined with the other claims and therefore not collateral. Accordingly, in California, an attorneys’ fees claimant must litigate all claims to conclusion at the trial level, before appealing the fees’ order.
Elation Sys. v. Fenn Bridge LLC, 71 Cal. App. 5th 958 (2021). The Court of Appeal concluded that the trial court erred in granting JNOV on plaintiff’s breach of nondisclosure claim. While the trial court correctly concluded that substantial evidence did not support the jury’s finding of harm or $10,000 in damages for that harm, the Court found that it should have awarded plaintiff nominal damages on this cause of action. The Court reasoned the breach of the nondisclosure was in itself a legal wrong, regardless of whether damage was inflicted. The Court of Appeal noted that, under Section 3360, California courts have held “‘[a] plaintiff is entitled to recover nominal damages for the breach of a contract, despite inability to show that actual damage was inflicted.’” The Court further reasoned that reversal should be granted where, as here, an award of nominal damages would provide “‘absolute entitlement to costs’” or “‘determine some question of permanent right.’” Reversal was appropriate because the nondisclosure provided either party could seek specific performance for a breach, and therefore an award of nominal damages would impact plaintiff’s rights to obtain further equitable relief, such as a permanent injunction preventing the former employee from further breaching the nondisclosure.
§ 1.6.11 Tenth Circuit
ORP Surgical, LLP v. Howmedica Osteonics Corp., 2022 U.S. Dist. LEXIS 84398 (D. Colo. 2022), amended and superseded by 2022 U.S. Dist. LEXIS 170132 (D. Colo. 2022), appeal dismissed 2022 WL 19039680 (10th Cir. (Colo.) 2022). The District Court determined that Stryker did not have “cause” to terminate the two contracts and concluded that ORP was entitled to the restriction payments outlined in the contracts. The District Court awarded ORP $1,018,896 in damages for the restriction payments outlined in the joint SRA and $3,731,791.47 in damages for the restriction payments outlined in the trauma SRA. The District Court reasoned that there was insufficient evidence that Stryker’s solicitation and diversion tactics were the cause of the sales representatives leaving ORP for Stryker. The District Court explained that its order should not be misconstrued as an indication that Stryker’s solicitation and diversion tactics were okay, but awarded $1.00 in nominal damages for Stryker’s breach of the nonsolicitation provision because the Court cannot award damages where damages were not proved. The District Court awarded ORP reasonable attorney’s fees and expenses. Additionally, the District Court determined that Stryker failed to meet some of its preservation obligations and upon review of the special master’s observations, ordered Stryker and its counsel to reimburse ORP for the full amount of its shares of the special master’s fees and costs, half of which is to be paid by Stryker for its failure to preserve text messages and half to be paid by Stryker’s law firm for counsel’s misconduct during the discovery process.
§ 1.6.12 Eleventh Circuit
Ala. Aircraft Indus. v. Boeing Co., 2022 U.S. App. LEXIS 4039 (11th Cir. (Ala.) 2022). Alabama Aircraft Industries (Pemco) and Boeing were competitors in the aerospace industry. Pemco and Boeing decided to submit a joint bid to the United States Air Force concerning a contract to maintain, repair, and upgrade the Air Force’s fleet of KC-135 Stratotanker aircraft. Pemco and Boeing signed a contract, but the teaming arrangement fell apart when Boeing terminated the agreement upon finding that the Air Force reduced the number of KC-135s available for the contract. The two companies pursued the opportunity independently. Boeing’s bid was 1.28% lower than Pemco’s, and Boeing won the contract. Pemco went out of business and into bankruptcy. Pemco sued Boeing on several theories of liability, including a misappropriation-of-trade-secrets claim, damages of which allegedly amounted to $100 million. The district court dismissed the claim in a pretrial order, finding that the Alabama law, and not the parties’ choice of Missouri law for the agreement, applied and that the claim was time-barred under Alabama law. This was detrimental to Pemco as its claim was not time-barred under Missouri law. The appellate court reversed. The court reviewed the parties’ choice-of-law provision in the agreement, which provided “[t]he interpretation of this Agreement and the rights and liabilities of the parties to this Agreement shall be governed by the law of the state of Missouri[.]” The court found that the language was “broad enough to encompass Pemco’s misappropriation-of-trade-secrets claim,” noting that the parties intended Missouri law to govern the sort of misappropriation-of-trade-secrets claim that arose from “the exchange of proprietary information in connection with the parties’ teaming arrangement.” The court also performed the analysis under Alabama’s choice-of-law regime and reached the same conclusion based on a finding that Pemco suffered its trade secrets injury in Missouri. The court refused to apply Boeing’s preferred financial harm test, stating that it had no application under Alabama law, which distinguishes the concept of injury from the concept of damages.
§ 1.6.13 D.C. Circuit
Iron Vine Sec., LLC v. Cygnacom Sols., Inc., 274 A.3d 328 (D.C. 2022) (applying Virginia law). Appellant Iron Vine, a Virginia corporation, obtained a 10-year contract with the State Department in 2011. Per the State Department’s request, Iron Vine was to subcontract specific work from the State Department contract to Cygnacom, also a Virginia corporation. Iron Vine and Cygnacom entered into an agreement, stipulating to a mutual nonsolicitation agreement. Additionally, Cygnacom had noncompetition provisions with its own employees. One of those employees, Shanley, left Cygnacom and started his own company, Second Factor, with Cygnacom’s consent. Second Factor also subcontracted to work on the State Department contract. In late 2015, Iron Vine informed Cygnacom that it was not renewing the subcontract. On the same day, Iron Vine and Second Factor posted job advertisements matching those of Cygnacom employees. Together, the two companies hired six employees away from Cygnacom. Cygnacom sued Iron Vine, Second Factor, and Shanley with claims stemming from alleged breaches or interferences with the nonsolicitation and noncompetition agreements. At trial, the jury returned a verdict in favor of Cygnacom. On appeal, Iron Vine contends that the verdicts cannot stand because the nonsolicitation provision and noncompetition provisions are unenforceable under Virginia law. The court disagreed, finding the nonsolicitation provision enforceable because it was mutually accepted and the noncompetition provision narrowly drawn. Finally, Second Factor argued that the tortious interference award of compensatory damages is duplicative of the breach-of-contract award. The court held that Cygnacom cannot recover compensatory damages above its lost profits from the State Department contract unless they offer evidence of additional harm. Cygnacom argued that it lost business opportunities yet offered no evidence. As such, the court was not persuaded and ordered the trial court to reassess the compensatory damages.
§ 1.6.14 State Cases
There were no qualifying decisions within the State Cases.
