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First Circuit Holds that Solicitation is Barred by Non-Compete Agreement Regardless of Who Initiates Contact

Posted in Non-Compete Enforceability, Practice & Procedure, Restrictive Covenants

In Corporate Technologies, Inc. v. Harnett, et al., U.S. Court of Appeals for the First Circuit recently upheld the issuance of a preliminary injunction barring a former employee (Harnett) from doing business with his former employer’s (CTI) customers, even if the customers initiated the contact. 

CTI had employed Harnett as an account executive/salesman for nearly a decade, and required that he sign an agreement when he joined the company that contained non-solicitation and non-disclosure provisions.  In October 2012, Harnett “jumped ship” to work for a competitor, OnX Enterprise Solutions.  As the court noted, “following his departure from CTI, Harnett participated in sales-related communications and activities with certain of his former CTI customers on behalf of  OnX.”  CTI quickly filed suit in state court, which Harnett removed to the U.S. District Court for the District of Massachusetts.  CTI sought, and obtained, a preliminary injunction that prohibited Harnett from engaging “in any marketing or sales efforts . . . for a period of twelve months” with respect to several CTI customers whom he formerly had serviced.  “With regard to those customers, [the preliminary injunction] also compelled [Harnett and OnX] to withdraw any bids that Harnett had helped to develop.”  Harnett and OnX appealed. 

The First Circuit (Selya, J.) opened its decision with the following statement:

Businesses commonly try to protect their good will by asking key employees to sign agreements that prohibit them from soliciting existing customers for a reasonable period of time after joining a rival firm. When a valid non-solicitation covenant is in place and an employee departs for greener pastures, the employer ordinarily has the right to enforce the covenant according to its tenor. That right cannot be thwarted by easy evasions, such as piquing customers’ curiosity and inciting them to make the initial contact with the employee’s new firm. As we shall explain, this is such a case.

The Court went on to note that “[t]he dispute between the parties turns on the distinction between actively soliciting and merely accepting business — a distinction that the Massachusetts Appeals Court aptly termed ‘metaphysical’” in Alexander & Alexander, Inc. v. Danahy, 488 N.E.2d 22, 30 (Mass. App. Ct. 1986).   Harnett argued that “because the customers in question initiated contact with Harnett, he was thereafter free to deal with them without being guilty of solicitation.”  The First Circuit disagreed, noting that “the customers only contacted Harnett following their receipt of a blast email announcing his hiring by OnX.”   After recognizing that “Massachusetts trial courts have accorded varying degrees of significance to initial contact depending on the facts at hand,” and that the Supreme Judicial Court has not addressed the issue directly, the First Circuit concluded:

After careful consideration, we conclude that the Massachusetts Supreme Judicial Court, if confronted with the question, would hold that a per se rule vis-à-vis initial contact has no place in this equation. . . .  In the employment context, restrictive covenants are meant to afford the original employer bargained-for protection of its accrued good will. . . .  According decretory significance to who makes the first contact would undermine this protection because that factor, standing alone, will rarely tell the whole tale. And because initial contact can easily be manipulated — say, by a targeted announcement that piques customers’ curiosity— a per se rule would deprive the employer of its bargained-for protection.  

* * * *

In the last analysis, we believe that the better view holds that the identity of the party making initial contact is just one factor among many that the trial court should consider in drawing the line between solicitation and acceptance in a given case.  This flexible formulation not only reflects sound policy but also comports with well-reasoned case law from other jurisdictions. . . .  Thus, we decline the defendants’ invitation to assign talismanic importance to initial contact.

Discerning no error of law, we need not tarry over the district court’s weighing of the facts. This is a situation in which the initial contacts by customers are necessarily preliminary, the sales process is sophisticated, and the products are custom-tailored. Viewed against this backdrop, the evidence of record is adequate to underpin the lower court’s binary determination that Harnett violated the non-solicitation covenant and that the plaintiff is therefore likely to succeed on the merits.

As no opinion by Judge Selya is complete without an extra helping of erudition, the Court went on: 

There is no need for us to wax longiloquent.  Solicitation can take many forms, and common usage suggests that the word has a protean quality. Seee.g., The Compact Edition of the Oxford English Dictionary 2911 (1971) (“To entreat or petition (a person) for, or to do, something; to urge, importune; to ask earnestly or persistently.”). Here, moreover, the non-solicitation provision specifically forbids Harnett from “entic[ing] away” customers of CTI.

Harnett’s own words and actions with respect to customers covered by the non-solicitation provision lend considerable credence to the district court’s tentative conclusion that he violated that provision. His calendar, email, and testimony show significant business communications with at least four of his former CTI customers on behalf of OnX. This persistent pattern of pursuing patronage permits a plausible inference that he was urging those customers to do business with OnX rather than CTI (in other words, an inference that he was trying to entice them away)

What is perhaps most interesting about this case is that Harnett’s agreement did not even include a non-acceptance provision, which are oftentimes included in non-solicitation provisions as an additional safeguard against an argument, like that raised by Harnett, that the customers initiated contact.