Many recent decisions concerning the enforceability of a covenant not to compete in a strictly employment context (as contrasted with a covenant arising out of the sale of a business, which is a very different situation) seem to focus on the following three principles: (a) ascertain the permissible scope set out in all relevant legislative enactments; (b) assign to the ex-employer the burden of producing evidence that the covenant fits within the statutory limits and is no broader than necessary to protect the ex-employer’s legitimate business interests; and  (c) if the ex-employer meets its burden, assign to the former employee the burden of persuading the trier of fact that enforcement would be oppressive.  These principles are not always applied.  Even when they are present, they sometimes lurk beneath the surface and are not always easy to discern in or from court rulings.  Moreover, judicial precedents within a given jurisdiction – to say nothing of those from diverse locales – often appear irreconcilable.  As a result, lawyers must be very cautious in providing advice and predictions to an employer, particularly one with operations in several states, regarding the enforceability of covenants.

Judicial interpretations of state statutes run the gamut from highly protective of ex-employers to virtually stripping covenants of any effectiveness.  (The American Law Institute’s current project drafting Restatement (Third) of Employment Law could perform a real service by trying to bring order out of this chaos.) 

Louisiana is a state that has “a strong public policy disfavoring non-competition agreements between employers and employees.”  Vartech Systems, Inc. v. Hayden, 951 So.2d 247 (La. App. 2006).  Yet, a recent Louisiana appellate court decision, Ticheli v. John H. Carter Co., Case No. 43,551-CA (La. Ct. of Appeals, Sept. 17, 2008), provided protection to an ex-employer under surprising circumstances.  In Ticheli, the Court of Appeals reversed a trial court and upheld the enforceability of a non-compete clause in an employment agreement even though (a) the clause contained a very broad geographical and subject-matter scope, (b) the non-competition requirement was to last for two years, (c) the employee was terminated by the employer seeking to enforce the clause, and (d) the issue of enforceability was not raised in the trial court.

Brian Ticheli went to work for John H. Carter Co. (“Carter Co.”) in February 2006 in the company’s West Monroe, Louisiana branch.  Carter Co. sold and repaired valves, pump regulators, filtration equipment and related instrumentation for industrial uses.  Ticheli’s job title was “Valve Repair Coordinator.”  Although his duties were not described in the reported decision, one might surmise from the job title that he was not at the top of the managerial totem pole.  He signed an employment agreement containing a clause which stated, in relevant part, the following:
 

While employed by the Employer, and for a period of two years from … the termination of Employee’s employment with Employer … with cause, Employee shall not : (a)(1) carry on or engage in a business similar to Employer’s Business within the Territory,  (2) engage or participate, directly or indirectly, whether as proprietor, partner, joint venturer, employer, employee, consultant, office or agency … of any corporation that carries on or engages in a business similar to Employer’s business within the Territory, or (b) solicit or cause to be solicited any customers or clients of Employer. 

The phrase the “Territory” was defined in the agreement by naming each and every parish in the state of Louisiana and certain counties in Arkansas, Mississippi, Alabama and Florida.  There was no elaboration of the phrases “with cause” or “business similar to Employer’s Business.”

In June 2007, Ticheli sent an offensive e-mail to several co-workers.  The e-mail violated Carter Co.’s “Sexual Harassment Policy,” and the employment agreement lists “Offensive Behavior” as a reason for termination.  He was discharged, and shortly thereafter he went to work for BC Industrial Sales, LLC (“BC”), a company that sells, maintains and repairs valves and related instruments throughout Louisiana and in parts of nearby states.  From time to time, BC and Carter Co. have purchased products from each other as needed in order to complete a sale and have visited the same customers seeking business, and the two companies once discussed merging. 

Ticheli sued Carter Co., asserting that he was terminated without cause and that, therefore, the covenant was invalid.  Carter Co. responded that his termination was for cause and sought an injunction against his employment by BC.  After conducting a trial, the lower court agreed with Carter Co. that Ticheli’s conduct was cause for termination and enjoined him from violating the covenant.  However, holding that BC and Carter Co. were not competitors, the court declined to preclude Ticheli from working for BC.  Carter Co. appealed.

The Court of Appeals first addressed the issue of whether BC was engaged “in a business similar to [Carter’s] Business within the Territory.”  The trial court’s narrow interpretation of Carter Co.’s business, and emasculation of the requested injunction for that reason, was rejected since both companies sell valves and instrumentation within Louisiana. 

Ticheli’s second contention, that the trial court erred in finding that he was not terminated for cause, was given short shrift.  Next, the appellate court held that the applicable Louisiana statute permits a non-compete clause like the one at issue in this case.  Louisiana R.S. 23:921 expressly authorizes employment agreements restraining an employee “from carrying on or engaging in a business similar to that of the employer and/or from soliciting customers of the employer within a specified [geographical area] so long as the employer carries on a like business therein, not to exceed a period of two years from termination of employment.”  Prior Louisiana cases held that each parish where competition is to be prohibited must be identified in the covenant, hence Carter Co.’s inclusion in the agreement of the name of every parish in the state.  Although the words “similar” and “like” business as used in the statute are not defined, the appellate court reasoned that since both companies sell diverse types of industrial valves and instrumentation, they are engaged in “similar” and “like” businesses.   The result, naturally, was that the trial court’s decree was modified to the extent that the entire requested injunction was issued.

What is most confusing about this opinion is the appellate court claim that the validity of the non-compete cause was not raised at the trial level, when in fact that appears to have been a substantive portion of the trial court’s opinon:   “The validity of the non-compete cause was never raised at trial, and therefore is not an issue on this appeal.  Nevertheless, we find the non-compete clause is enforceable.”  Perhaps the appellate court added this to avoid a remand, another trial, and another appeal.  Chief Judge Brown concurred in the result, but nonetheless opined on the enforceability of the non-compete using the traditional analysis for non-competition agreements.  Judge Brown wrote: 

Ticheli was employed by [Carter Co.] simply as a Valve Repair Coordinator in the West Monroe branch.  He had no particular knowledge, contacts or confidential information that would disadvantage [the company] outside of the West Monroe area.  There is a strong public policy not to lock former employees out of their ability to earn a living.  Even though [the company] operates statewide, it appears in the circumstances of this case that such a blanket prohibition is overly broad.  A savings clause in the non-compete contract would allow a reformation to make the geographic limitation conform to the parishes where Ticheli actually worked.

Unlike Judge Brown’s concurrence, the majority’s decision seems to run counter to two of the three principles set forth at the outset of this post.  First, the court did not require Carter Co. to show a bona fide need for enforcement of the non-compete before being awarded an injunction. Second, the court did not examine the hardship to Ticheli as a potential a mitigating factor.   So, although the Court found the covenant enforceable, it gave neither the parties nor readers any indication why.

 

 

 

 

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.

Wade Roush reports on xconomy.com that a Massachusetts legislator is reintroducing legislation in Massachusetts with the intent to ban non-compete agreements.    According to Roush’s article,

The bill Huang and Brownsberger are writing would outlaw non-compete agreements in new employment contracts in Massachusetts. It wouldn’t pertain to mergers, acquisitions, or other situations where competition becomes an issue, and it wouldn’t be retroactive. And it would do nothing to change the law regarding the other trade-secrets protections companies employ, such as non-disclosure agreements.

The article indicates that there may be hearings in the Spring.

Massachusetts Rule of Professional Conduct 5.6 prohibits non-competition agreements for attorneys, and provides in part: “A lawyer shall not participate in offering or making . . . a partnership or employment agreement that restricts the right of a lawyer to practice after termination of the relationship, except an agreement concerning benefits upon retirement. . . .” The Massachusetts Supreme Judicial Court recently held that a law partnership agreement imposing financial consequences on all partners voluntarily withdrawing from the partnership, whether they compete with their prior firm or not, does not violate this rule.

In the case of Pierce & others v. Morrison Mahoney, LLP, the Supreme Judicial Court evaluated claims of former Morrison Mahoney partners that their partnership agreement’s amended separation clause violated Rule 5.6 because it provided that partners voluntarily leaving the partnership forfeited certain financial benefits if they departed before having served for 20 years as a partner or after having attained the age of sixty. Originally, the clause had restricted the financial benefits to partners who did not compete with the firm, but the Supreme Judicial Court held in a prior case concerning the same law firm that such a non-competitive restriction was against the public policy in favor of allowing clients to retain an attorney of their choosing and thus violated Rule 5.6. The firm revised the clause in response to the prior case.

Despite this revision, several partners who had left the firm challenged it as violating Rule 5.6, in that it worked a de facto constraint on competition. The Supreme Judicial Court, however, rejected that argument, noting that the revised policy did not provide any disincentive in taking a particular client. That the law firm had created an appropriate incentive for its partners to stay with the firm until they turned 60 or had been partners for 20 years did not violate public policy, according to the Supreme Judicial Court, and it rejected the claims of the former partners.

This case demonstrates that although attorney non-competition agreements remain against public policy, the purpose of that policy is to promote unfettered client access to attorneys, not, as the Supreme Judicial Court put it, to “protect lawyer mobility.” Law firms employing similar restrictions should take care that they are applied across the board to all partners leaving the firm, not just ones that compete with it. In that manner, incentive programs like the one employed by Morrison Mahoney will survive judicial scrutiny, at least in Massachusetts.

Board of Regents, State of Iowa and University of Iowa v. Warren, No. 8-620 / 08-0017 (Iowa Ct. App.).

The Iowa Court of Appeals last week affirmed a trial court’s denial of an injunction sought by the College of Medicine at the University of Iowa to prevent a former professor from practicing medicine in a nearby city.

Since 2001, Dr. Thomas Warren had been employed as an assistant professor where he spent approximately eighty percent of his time conducting cancer research. With his remaining time, he provided medical care to patients at Cancer Care of Iowa City and at the University of Iowa Hospitals and Clinics under a “Faculty Practice Plan,” which was directed by and generated revenue for the University. When he began working at the University, Dr. Warren signed a non-compete agreement in which he agreed that, following a voluntary termination of his employment, he would refrain for a two-year period from engaging in the practice of medicine in any community in which he had practiced through his College of Medicine-sponsored program, defined as encompassing a fifty-mile radius from the practice sites.

Shortly after resigning from the University in 2005, Dr. Warren began treating patients at Iowa Blood and Cancer Care in Cedar Rapids, but did not bring any former patients with him. Several months later, the Board of Regents and the University sought to enforce the non-compete agreement, arguing that the University competed for patients against other facilities in the county where Dr. Warren now worked.

Although the Iowa courts have a reputation for being pro-employer in terms of enforcing restrictive covenants, the appellate court affirmed the denial of the injunction. Under Iowa law, the long-standing legal standard is whether the restriction is reasonably necessary to protect the employer’s business, unreasonably restrictive of the employee’s rights, and prejudicial to the public interest. Here, the court concluded that the University had failed to show that it suffered or will suffer a loss of business at its hospitals and clinics, as Dr. Warren had not developed close relationships with his patients and had not attempted to solicit them to follow him to his new employer. The court also found that the public interest weighed heavily against enforcement of the agreement based on the shortage of physicians in Cedar Rapids and the resulting negative effect on the community if Dr. Warren is not permitted to treat cancer patients there. The court noted that although the time and geographic area restrictions do not appear to be unduly restrictive, it need not address this element because the other elements militated against enforcement. It remains to be seen whether the University will seek to appeal this to the state supreme court.
 

By Tim Nelson and Robert Milligan

The recent decision of California’s Third Appellate District in Wallis v. PHL Associates, Inc. underscores the importance of following the terms of a protective order in trade secret litigation and acting cautiously when handling materials that arguably may be protected under a protective order.

In Wallis, the trial court imposed sanctions of $43,678.42 against an attorney and her clients. The sanctions arose out of alleged conduct by the attorney and her clients in response to a declaration and accompanying documents that opposing counsel attempted to filed under seal pursuant to a protective order, but which inadvertently ended up in the court’s public file.

Opposing counsel filed an attorney declaration with over 800 pages of documents attached, which included his client’s alleged trade secrets. The caption for the declaration indicated that it was to be filed under seal. At the bottom of each page of the declaration was a footer that indicated that it was to be filed under seal. In addition, some of the individual pages of documents that were attached were marked as confidential. The declaration was placed in an envelope and sealed, and a copy of the first page of the declaration was affixed to the envelope that indicated it was to be filed under seal. Notwithstanding the caption that the confidential declaration and exhibits thereto were to be filed under seal, the filing was made available to the public.

According to the appellate court’s decision, the sanctioned attorney discovered that the confidential declaration was in the court’s public file. She claimed she notified opposing counsel of the problem, but according to the appellate court her only evidence was a cryptic reference in an opposition brief. The attorney also claimed that she spoke to someone at the State Bar ethics hotline regarding the issue, although according to the appellate court, there was no indication that she discussed the protective order. 

The attorney allegedly notified her client that the declaration was in the court’s public file. The client then sent three people to view the public file and to take notes so that an argument could be made that the alleged trade secrets had been publicly disclosed. The client also had a copying service make a digital copy of the confidential declaration. The client apparently had third parties view the declaration to shield the client from violating the protective order but to make the argument that the trade secrets had been disclosed. There was also evidence that the confidential declaration had been posted on the internet, but emails that indicated where the declaration was posted had been deleted by one of the clients.

On appeal, the attorney and her clients argued that the trial court abused its discretion because the circumstances showed that they believed the declaration was not entitled to the protection of the protective order and that the declaration did not contain trade secrets. They also argued that the sanctions order was premature because there had yet to be a determination that the information attached to the declaration constituted protectable trade secrets.

The appellate court affirmed the imposition of sanctions. The appellate court found that the attorney’s actions were frivolous and were taken in bad faith. The appellate court found that the totality of the circumstances made it clear, and would have made it clear to any reasonable attorney, that the confidential declaration was to be filed under seal and was protected by the protective order. Furthermore, if the attorney truly believed that the declaration was not confidential, her remedy was to bring the issue to the court’s attention and have the court make the determination, according to the appellate court. The appellate court also found that the actions taken by the clients were frivolous and were taken in bad faith.

The Wallis decision makes clear the need to honor the terms of protective orders in trade secret cases and to act cautiously when handling materials that may arguably be protected under a protective order. Parties and their counsel who fail to do so risk the imposition of sanctions.

 

In D.L. Anderson’s Lakeside Leisure Co. v. Anderson, the Wisconsin Supreme Court recently upheld an award of damages for violation of a non-compete provision in a sale of business agreement. The facts of situation are as follows:

D.L. Anderson built D.L. Anderson Co., a business offering a range of marine services and products, such as shore landscaping and manufacturing and selling and servicing piers and lifts. He sold the business for $891,000 to Scott and Steven Statz in 2000. Of the purchase price, $400,000 was allocated as consideration for Anderson executing a non-compete provision that forbade him from engaging in the business of providing marine products and services within a 120-mile radius of the business. The non-compete provision also prevented Anderson from allowing his name to be used in the industry; $200,000 of the purchase price was allocated to the business’s goodwill and for use of the trade name.

Starting in 2002, Anderson performed a number of acts that the Statzes alleged violated the non-compete agreement. Specifically, Anderson: (1) worked on the development of a boat for installing and removing boatlifts; (2) acted as a factory representative of a company that manufactured and distributed boat lifts; (3) established a new business (one mile from his prior location) named “The Sailboat House at Anderson Marine” that sold, stored, and repaired boats and sold marine accessories; and (4) publicized his ability to perform shoreline restoration work.

The Statzes sued Anderson in September 2004. In April 2006, a jury awarded compensatory and punitive damages to the Statzes for breach of the non-compete provision and trademark infringement. After the entry of the verdict, the Statzes moved for injunctive relief and asked that the non-compete provision be extended by 591 days, pursuant to a tolling provision in the sale agreement. The Statzes also requested recovery of their attorney’s fees pursuant to the agreement. The trial court granted these requests. 

The Wisconsin Court of Appeals upheld the findings of breach of the agreement and trademark infringement, as well as the damages awarded for breach of the agreement. The Court of Appeals reversed the damages award for trademark infringement and remanded the attorney’s fees issue to the trial court for further consideration.

The Wisconsin Supreme Court upheld the award of compensatory damages for the violation of the non-compete provision. In so doing, the Supreme Court found that the Statzes presented evidence showing a decrease in gross receipts for pier installation, as well as testimony attributing the decline to Anderson’s competitive activities in areas where the Statzes had previously made sales. This evidence was sufficient to uphold the award of compensatory damages. 

The Supreme Court also upheld the extension of the non-compete period. In so doing, the Supreme Court recited the Court of Appeals’s finding that the extension of the period was proper because of the jury’s findings that Anderson violated the non-compete provision and the Statzes suffered damages as a result.

The Supreme Court upheld the jury’s verdict that Anderson infringed upon the trademark that he sold to the Statzes. The Supreme Court reversed the Court of Appeals’s finding that the Statzes provided insufficient evidence to support the damages awarded by the jury for infringement. In so doing, the Supreme Court found that the Statzes were not required to offer evidence of actual confusion and negative impressions on the part of customers; the $200,000 allocated to the goodwill was sufficient to support the award, as was the testimony of the Statzes as to the value of the goodwill. The Supreme Court also cited to testimony presented by the Statzes that established customer confusion and frustration resulting from billing issues caused by Anderson operating his similarly named business. The Supreme Court concluded that the jury did not have to apportion damages with mathematical precision because of the nature of the tort. 

Because the Court of Appeals’s decision to remand the attorney’s fees question was based on its reversal of the award of compensatory damages for trademark infringement, the Supreme Court reinstated the award of attorney’s fees. The Supreme Court remanded the matter to the trial court for consideration of an award of attorney’s fees to the Statzes for fees incurred during the appellate process.

On November 21, 2008, Judge Kenneth Karas of the Southern District of New York published his November 7, 2008 Amended Opinion and Order granting IBM’s Motion for Preliminary Injunction against former IBM executive Mark Papermaster. Judge Karas granted the Motion following extensive briefing from the parties, as well as a November 6, 2008 hearing on the Motion. The parties did not offer in-court witness testimony at the hearing, instead choosing to rely on the affidavits that they had submitted. Interestingly, Judge Karas notes at the outset of the Opinion and Order that IBM learned for the first time at the hearing that Papermaster had started work with Apple.  

In the Facts section of the Opinion and Order, Judge Karas synthesizes the numerous affidavits submitted by the parties. Judge Karas does reference IBM’s new type of digital storage device, the mention of which led a number of tech-focused analysts following the case to write about the possibility that IBM’s new “Racetrack” technology is at the heart of the matter. That said, Judge Karas does not reference this technology in the “Discussion” section, indicating that Racetrack is not at the center of the dispute (at least not at present).

In evaluating the legal merits of IBM’s Motion, Judge Karas engages in an analysis of whether Papermaster would inevitably disclose the IBM trade secrets known to him. In so doing, Judge Karas takes IBM’s argument, which had focused on Papermaster breaching the restrictive covenants contained in his Noncompetition Agreement, and shifts it to an inevitable disclosure argument, which is more focused on trade secret misappropriation than breach of contract. 

Judge Karas articulates that Papermaster’s new role makes him responsible for improving Apple’s iPods and iPhones, “that is, to make sure that they store more information, do it more quickly, and use less power in doing so.” Judge Karas concludes that Papermaster would inevitably disclose his knowledge of microprocessors and the “Power” architecture in performing the responsibilities of his position at Apple. In support of his conclusion, Judge Karas cites to Apple’s reference to Papermaster’s knowledge of microprocessor design in its internal deliberations prior to hiring Papermaster.

Judge Karas also focuses on the sequence of events that led to Apple hiring Papermaster. Apple initially elected not to offer Papermaster the position heading its iPod/iPhone division in early 2008. Apple then purchased P.A. Semi, a microchip company that competes with IBM in the microprocessor market, in April 2008. Apple subsequently re-interviewed Papermaster and offered him the position of Senior Vice President, Device Hardware Engineering on October 10, 2008. Apple’s change of heart regarding Papermaster after it purchased P.A. Semi led Judge Karas to conclude that Papermaster would inevitably disclose IBM trade secrets in setting the technical specifications for the microprocessors that P.A. Semi may produce for the iPod and iPhone.

Although it is by no means the centerpiece of his Opinion and Order, Judge Karas also addresses IBM’s claim that Papermaster would breach his Noncompetition Agreement by working for Apple. The Judge finds that the Agreement is reasonable in geographic and temporal scope. He also determines that Papermaster would violate the Agreement by working for Apple because Apple competes with IBM in the chip market, especially after purchasing P.A. Semi.

Papermaster filed a Notice of Interlocutory Appeal on November 20, 2008. In that Notice, Papermaster is appealing Judge Karas’s decision granting IBM’s Motion for Preliminary Injunction. The Court has sent the certified record to the Second Circuit Court of Appeals, although the appeal has not yet been docketed.

There have been several developments in the litigation between IBM and its former executive Mark Papermaster since the Court enjoined Papermaster from working for Apple on November 6, 2008. First, the Court has ordered IBM to post a bond in the amount of $3,000,000 to cover any potential finding that IBM wrongfully obtained its injunction against Papermaster. 

Papermaster filed his Answer, Affirmative Defenses, and Counterclaims on November 13, 2008. In his Counterclaims, Papermaster sets forth his arguments that the non-compete provision of his Noncompetition Agreement with IBM is unenforceable. Papermaster argues that the provision purports to prevent him from working for any company that competes with IBM, even if: (1) he is not working for the part of the company that competes with IBM; or (2) he is not doing work similar to the work he performed for IBM. Papermaster also argues that the worldwide scope of the non-compete is overly broad, as is the one-year time limitation because of the speed with which information becomes outdated in the world of technology. Finally, Papermaster argues that the New York choice of law provision in the agreement is unenforceable because he lives in Texas, he will be working for a California company, and he has no contacts with New York. Papermaster does not seek any relief in the Counterclaims beyond a declaratory judgment that the Noncompetition Agreement is overly broad and that it should be governed by Texas or California law.

One particular footnote in IBM’s Reply in Support of its Motion for Preliminary Injunction has led to a good deal of speculation regarding IBM’s motivation and interest in bringing its claims against Papermaster. In footnote 1 of its Reply, IBM states that it has developed a memory device that would enable an iPod to store 500,000 songs, all while being cheaper to produce. This device also would permit an iPod to run on a single battery charge for weeks at a time. IBM does not contend that Papermaster worked on this particular technology. 

Various observers of the technology industry have speculated that the unnamed technology referenced in the footnote is “racetrack memory,” a technology that allegedly uses the spin of an electron to keep track of data. If the observers are correct, then they may have put meat on the bones of one of IBM’s arguments to counter Papermaster’s claim that IBM and Apple do not compete. The argument, as set forth in IBM’s Reply, is that Apple used to buy personal computer chips from IBM and now buys iPod and iPhone chips from Intel, an IBM competitor. If Apple used its P.A. Semi to produce chips for the iPod and iPhone, the argument goes, then it will deprive IBM of the chance to sell such chips to Apple.

 

New York Supreme Court Justice Debra James has issued a preliminary injunction restraining a former employee of a dog care business, which provides services such as dog walking, feeding and grooming, from competing with his former employer within a ten (10) mile radius of his former employer’s business. The action is entitled The Paw Shop, LLC v. Brian Mestre, New York County Supreme Court, Index No.: 601950/08, and Justice James’s order has likely left the Defendant growling. 

Defendant commenced employment with Plaintiff in January 2007 as a receptionist, kennel manager, driver and assistant dog trainer. On July 27, 2007, Defendant signed an “Employee Non-Compete Agreement,” which included a two year, ten (10) mile radius restrictive covenant against direct competition with Plaintiff. The covenant was to be effective from the date of termination, and the restrictive radius was to be measured from the location of Plaintiff’s business at the time of termination; the covenant was to be effective regardless of the reason of Defendant’s termination. At the time of entering into the non-compete agreement, Defendant received a pay-raise as consideration.

Defendant’s employment was terminated in May 2008, and Plaintiff shortly thereafter commenced the action and moved for the preliminary injunction enforcing the restrictive covenant, alleging that the Defendant had been observed performing dog walking services for the Plaintiff’s clients within the restricted radius.

In granting Plaintiff’s motion, Justice James found that the duration and scope of the restrictive covenant were not “unduly burdensome to the defendant.” Although silent as to its reasoning with regards to the duration, the Court found that the ten (10) mile radius was reasonable because: “defendant lives more than ten miles away from plaintiff’s business, and during the period of the covenant may certainly provide services to dog owners in the neighborhood where he resides.”

The Court found that the Defendant’s services were likely to be “unique” and/or “extraordinary,” by reason of affidavits of former customers of Plaintiff averring such. Ironically, these affidavits were submitted by Defendant in opposition to the motion. Surprisingly, given the result, the Court found that Plaintiff had failed to make a showing that Defendant had either used Plaintiff’s customer lists or used confidential client information. Regardless of this lack of showing, however, the Court nevertheless granted the preliminary injunction, citing holding finding that Plaintiff was being irreparably harmed by Defendant’s providing dog walking services to Plaintiff’s clients within the restricted area.