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Federal Appellate Court Lacks Jurisdiction To Hear Appeal of Expired Non-Compete Preliminary Injunction

Posted in Non-Compete Enforceability, Practice & Procedure, Trade Secrets

The Eleventh Circuit recently dismissed an appeal of a preliminary injunction order on the grounds that the appeal was moot because the injunction had expired.

Summary of the case.  Leedom Management, a credit card processing company serving automobile dealers, sued a former employee and charged her with violating covenants not to (a) compete with Leedom, (b) solicit its clients, and (c) disclose its trade secrets and confidential information.  Leedom sought and obtained a preliminary injunction, but the order contained a very limited territorial restriction and was to expire in December 2012, six months after it was entered rather than the one year provision in the covenants.  Leedom appealed. 

Last week, while the appellate proceedings were pending, the Eleventh Circuit Court of Appeals granted the former employee’s motion to dismiss the appeal as moot because the injunction had expired.  Leedom Management Group, Inc. v. Perlmutter, Case No. 12-13017 (11th Cir., Sept. 25, 2013) (not for publication).

The injunction and the ruling below.  After Leedom terminated Perlmutter in December 2011, she established a Tennessee company in the same line of business.  Leedom sued her and her company in a Florida district court, accusing her of violating covenants which restricted her activities for one year “within a 50 mile radius of any location in which Leedom is conducting its business.”  The district court granted Leedom’s motion for entry of a preliminary injunction.  However, the order was silent regarding its geographic limits.  The parties were directed to negotiate those limits.  When they could not agree, the case was referred to a magistrate judge for a ruling.  

Interpreting the phrase in the covenant “any location in which Leedom is conducting its business,” the magistrate judge concluded that the appropriate territorial scope of the non-competition and non-solicitation restrictions was all zip codes in which Leedom had a client.  Perlmutter filed an objection in the district court.  In June 2012, the district court overruled the magistrate judge and held that the covenants applied only within 50 miles of Sarasota, Florida, where Leedom had its sole place of business.  The injunction’s December 2012 termination date, 12 months after Perlmutter left Leedom but only six months after the order was entered, was not changed.  Leedom filed an interlocutory appeal.

Proceedings on appeal.  In January 2013, while the appeal was pending, Perlmutter moved to dismiss it as moot because the subject of the appeal was an injunction which had expired.  Leedom responded that, notwithstanding expiration of the injunction, the appeal remained viable since the district court could equitably extend the time period of the injunction in order to give Leedom the benefit of its 12-month bargain.  Further, Leedom argued that the appeal was not moot because it presented an issue capable of repetition.  The appellate court was not persuaded.  It held that Leedom was free to make the same arguments below in support of a motion for entry of a new preliminary injunction, after the case was remanded.  The case below was not moot, obviously, and the grant or denial of a new injunction, or a final decision resolving all disputes, could be appealed.

Takeaways.  The phrase “location in which Leedom is conducting its business,” as used in the covenants, seems ambiguous in the circumstances of a company having clients or customers in diverse locales distant from its physical assets.  More precise drafting might have led the district court to enter an injunction more to Leedom’s liking. 

With regard to Leedom’s appeal becoming moot before it could be decided, that potentiality often is present when the duration of the covenant is short, for example one year or less.  In a contested case such as this one, with a subsequent district court decision likely and with little risk that that decision would evade review, a claim that prejudice will result from dismissal of the initial appeal on the ground of mootness can be expected to fail.