Trading Secrets : Trade Secrets Lawyers & Attorneys : Seyfarth Shaw Law Firm : Computer Fraud, Confidentiality Agreements, Corporate Espionage

Jerry Powers, the founder of Miami's successful magazine, Ocean Drive, has sued the purchaser of the business and now-publisher of the magazine, Niche Media Holdings, LLC ("Niche Media")  seeking a declaratory judgment that the non-compete restrictions contained in the parties' asset purchase agreement ("APA") and the employment agreement he entered into following the sale do not (a) prevent Powers from helping inner-city youth publish their own magazine (Inspire, Enrich & Empower or IE2) as part of a non-profit effort and (b) prevent Powers from working in the luxury magazine world after November 1, 2009.   In the 126-page complaint, including exhibits, Powers alleges that there are inconsistencies in the provisions of the APA and his employment agreement, but that under the APA, his restrictive covenants cease as of November 1, 2009.  Niche Media, according to the complaint, contends that the restrictive covenants last until February 17, 2011 -- a rather significant difference in time.  In support of his theory, Powers points to the provision in the employment agreement that says that terms of the APA are controlling if there is any conflict between the APA and the employment agreement.

In the complaint, Powers claims that he filed suit based on the "intermeddling" of Niche Media in his efforts to publish IE2.  Indeed, Powers claims that Niche Media threatened to sue to stop the publication of IE2. 

The parties' dispute has attracted some media attention with the Miami Herald   and Law360 reporting on it.  The interest may derive in part from the charity involved in publishing IE2, Overtown Youth Center, is supported by Alonzo Mourning Charities.  Alonzo Mourning is a retired NBA star who played for the Miami Heat.  

Yet, without so much as an opposing brief being filed by Niche Media, the day after filing, the Court denied Powers's request for emergency relief.  The Court rejected the emergency nature of the brief, saying

the Complaint and Motion fail to set out in detail good cause of the necessity of expedited procedures, as required in an emergency motion.  Finally, the Court notes that the Complaint does not clearly allege a case or controversy that is ripe for adjudication, specifically as to the request for declaratory and injunctive relief regarding the expiration of the non-competition and non-solicitation provisions. 

This early of a set-back in a case of this sort may not bode well for Powers.  And, solely in my opinion (of course), Powers may need to be considering amending his complaint to avoid a motion to dismiss based on the Court's statements in her order. 

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On July 30, 2009, the Eleventh Circuit reversed a district court decision granting over $1.6 million in damages to a former employer, but upheld an injunction against the former employee, enforcing a non-compete agreement. In Proudfoot Consulting Co. v. Gordon, No. 09-14075, Judge Trager issued an opinion finding that a non-compete agreement that prevented a former Project Director from competing in North America and any other territory to which the employee had been assigned during his employment for six months following his employment was enforceable under Florida law.

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In Zupnik v. All Florida Paper, Inc., No. 3DO8-1371, 2008 WL 5412090 (Fla. 3rd D.C.A. Dec. 31, 2008), the Florida Court of Appeals for the Third Circuit reversed a trial court’s entry of a temporary injunction against Stewart Zupnik and Dade Paper & Bag Company. The Court’s reasoning was that the restrictive covenants in question had expired and All Florida Paper did not provide evidence of misappropriation. The facts of the case are as follows:

Zupnik is a sales representative with experience selling paper and janitorial products to customers in the food industry. On March 14, 2004, Zupnik signed an Agreement with All Florida that stated that the "employment shall be for a term of two years." The Agreement gave Zupnik the option to remain with All Florida as an at-will employee if he so elected within 72 hours of the expiration of the two-year term. The Agreement also contained a one-year non-compete and five-year non-disclosure of confidential information provisions, both of which were triggered post-employment by the termination of the term of employment.

After the expiration of the two-year term, Zupnik formed his own company – South Florida Paper Products – and conducted negotiations with Dade Paper & Bag Company as a potential supplier. All Florida subsequently alleged that Zupnik shared confidential information with Dade Paper in a meeting at a local restaurant. At an evidentiary hearing, the only evidence that All Florida offered of such a disclosure was testimony from a private investigator that: (1) Zupnik appeared to give Dade Paper operations manager William Baltzell a folder; and (2) Zupnik and Baltzell had All Florida invoices at the table..

The trial court enforced the non-compete provision and also found that Zupnik had shared trade secrets and confidential information with Dade Paper. The Third Circuit Court of Appeals reversed, holding that the non-compete and non-disclosure restrictions expired at the end of the two-year term. The expiration of the two-year term did not constitute a "termination" to trigger the post-employment restrictions. The Court of Appeals also overturned the trial court’s finding that Zupnik and Dade Paper misappropriated trade secrets and confidential information. The Court of Appeals held that All Florida did not show that its invoices and pricing information were confidential or that defendants misappropriated pricing information.

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In this breach of employment contract and misappropriation of trade secrets case, plaintiff moved to compel production of e-mails from defendant’s personal Yahoo! account. 

Plaintiff contended that Defendant used this specific e-mail account to engage in the activities upon which this entire lawsuit is based. Defendant claimed that he could not produce these e-mails, because they had been destroyed by Yahoo!. However, the defendant offered only a copy of a generic response from Yahoo! about deactivating accounts.  The court declined to accept defendant’s explanation that production was "impossible," particularly given the important evidentiary value of the e-mails and the "feeble offering" by defendant in support of the contention. Indeed, the Court indicated that it "will not accept Defendant's position that [defendant] cannot produce these emails until assurance is given from an executive at Yahoo! responsible for such tasks that this request is indeed impossible."

In addition, the court held that defendant's representation that he was being "completely truthful" when he did not identify the account, because he knew it would be impossible to ultimately produce these e-mails, to be sanctionable: "It will figure largely into the sanctions ultimately awarded in this matter if it is learned that Defendant's failure to identify this account earlier is the cause of the alleged impossibility."  The court stated the particular sanctions awarded would depend on the outcome of defendant's efforts to obtain the documents, and what was revealed by these efforts as to defendant's actions, if any, that resulted in spoilation of evidence or other more serious discovery violations.

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