Filed: August 3, 2012
Opinion by Judge Ellen Lipton Hollander
Held: State law claims related to an employment agreement's confidentiality and non-soliciation provisions in the transportation industry are not preempted by the Interstate Commerce Commission Termination Act ("ICCTA") because the Act's preemption provision was created to ensure that the States would not undo federal deregulation with regulation of their own.
Facts: Cowan Systems, LLC ("Employer"), a broker in the transportation industry, filed suit against Jeffrey Shane Ferguson ("Employee"), a former employee, for breach of his employment agreement, and Lipsey Logistics Worldwide, LLC ("Competitor"), also a broker in the industry, for tortious interference with contract, tortious interference with prospective economic advantage, violation of the Maryland Uniform Trade Secrets Act, and civil conspiracy.
Employee entered into an employment agreement with Employer that contained confidentiality and non-solicitation provisions prohibiting him from from ever disclosing Employer's business secrets and from soliciting Employer's customers for one year post-termination. Employee resigned from Employer and began working for Competitor, a direct competitor of Employer's, the next day. Employer alleges that Employee violated his employment agreement by communicating and soliciting Employer's customers on Competitor's behalf before and after his tenure with the company. Employer also claims that both Employee and Competitor are causing an immediate threat to Employer's business.
Competitor filed a motion to dismiss based on the premise that state law claims are preempted the ICCTA which provides in part, "a State...may not enact or enforce a law, regulation, or other provision having the force and effect of law related to a price, route, or service of any motor carrier...or any...broker...with respect to the transportation of property." Employer opposed the motion.
Analysis: The USDC for Maryland denied Competitor's motion following the ruling in Aloha Airlines, Inc. v. Mesa Air Group, Inc., No. 07-00007, 2007 WL 842064 (D. Haw. Mar. 19, 2007), which found that an intentional tort claim was not preempted by the Airline Deregulation Act ("ADA"), a federal law in which the Supreme Court has recognized as having a preemption provision with identical scope as that of the preemption provision of the ICCTA. The Aloha Court found that courts have upheld state tort claims against entities subject to the ADA when those claims do not contravene the law's purpose to promote competition in that industry. That Court concluded that to find otherwise would indeed undermine the purpose of the ADA which was to ensure the components of the transportation industry relied upon competitive market forces. It found that the ADA's preemption provision was to prevent the States from superceding federal deregulation with its own regulation.
The Court denied Competitor's motion to dismiss finding that the same principles in the ADA apply to the ICCTA preemption provisions. The purpose of the ICCTA preemption provision was to promote competition within the transportation industry and to free it from state laws and regulations that could interfere with interstate commerce. The fact that Employer's claims against Competitor pertained to pricing information "should not serve to insulate Competitor from liability" because it engages in brokerage services. Congress never intended to shield individual bad actors from "thwarting competitive enterprise."
The full opinion is available in PDF.
Showing posts with label non-solicitation. Show all posts
Showing posts with label non-solicitation. Show all posts
Monday, September 17, 2012
Tuesday, February 23, 2010
TEKsystems, Inc. v. Bolton (Maryland U.S.D.C.)
Filed: February 4, 2010
Opinion by Judge Richard D. Bennett
Held: A covenant not to compete is enforceable even where the competing former employee does not solicit his former employer's clients or use its confidential information if the scope of the restrictive covenant is limited to reasonable temporal and geographical limits, the employer is protecting legitimate business interests with the covenant, the employee has unique and specialized skills, there is no undue hardship on the employee to comply with the restriction and the public interest is served by enforcing the restrictive covenant; and the court held that it would extend the duration of the restrictive covenant for so long as the employee was in breach of it.
Facts: In 1999, the Defendant signed an employment agreement with Plaintiff, containing (among other provisions) a covenant not to compete against Plaintiff for 18 months after his employment terminated and within a 50-mile radius of his former office. Substantively, the covenant prohibited Defendant from engaging “in the business of recruiting or providing on a temporary or permanent basis technical service personnel, industrial personnel, or office support personnel” within these temporal and geographic limitations.
A separate covenant also prohibited Defendant from soliciting or competing for any persons or entities who were clients or customers of Plaintiff within the two years prior to the termination of the Defendant's employment. In 2008, the Defendant resigned from his employment with Plaintiff and, immediately thereafter, accepted a similar position in the IT-staffing business with one of Plaintiff's competitors and within the temporal and geographic limits of the covenant not to compete. None of the IT-staffing placements Defendant made for his new employer (Plaintiff's competitor) involved solicitation of or competition for Plaintiff's clients or customers. Plaintiff admitted at deposition that it was unaware of any such solicitation by Defendant.
Analysis: Under Maryland law, covenants not to compete may be enforced only against those employee who provide unique services or to prevent the future misuse of trade secrets, routes or lists of clients or solicitation of customers. Such covenants will be enforced if the restraint is confined within limits which are no wider as to area and duration than are reasonable for the protection of the business and do not impose undue hardship on the employee or disregard the interests of the public.
In reaching its decision, the court analyzed and concluded on the following:
(1) the 18-month temporal and 50 mile geographic scope of the covenant is facially reasonable and comports with similar limitation upheld by Maryland courts;
(2) the Plaintiff was protecting its legitimate business interests by enforcing the covenant because the employee was critical to the growth in revenue for the region, was key to building the personal relationships with clients in the area as required for the staffing industry, and had access to high level client contacts and confidential information;
(3) the employee at issue possessed unique and specialized skills because of his training and success in the banking industry in New York and had the most knowledge of each customer in the area;
(4) the employee would not suffer undue hardship by enforcing a covenant with the temporal and geographical restraints in this case because the employee was able to conduct business everywhere else in the world except for the area within 50 miles of New York City; and
(5) the public interest is protected by enforcing reasonable restrictive covenants against former employees of high technology and high-growth business.
In reaching its decision with respect to each factor, the court relied on Becker v. Bailey, 268 MD. 93, 299 A.2d 835 (1973); Ruhl v. F.A. Bartlett Tree Expert Co., 245 Md. 118, 225 A.2d 288 (1967); TEKsystems, Inc. v. Spotswood, 05-CV-1532-RDB, Memorandum Opinion (D. Md. June 28 2005); Intelus Corp. v. Barton, 7 F. Supp. 2d 635 (D. Md. 1998) and PADCO Advisors, Inc. v. Omdahl, 179 F. Supp. 2d 600 (D. Md. 2002).
The court granted summary judgment for Plaintiff, finding that Defendant breached the covenant by competing against Plaintiff in the IT-staffing business within the agreed temporal and geographic limits. The Plaintiff, however, would not be awarded monetary relief exceeding nominal damages because there was no proof that the Defendant solicited Plaintiff's customers or clients.
Injunctive relief against future violations of the covenant was warranted. The court held that the Plaintiff was entitled to an equitable extension of the entire 18-month period, running from the date of the court's opinion, because Defendant began violating the non-compete provision almost immediately after the termination of his employment with Plaintiff.
Practice Pointer: Plaintiff's affidavit, alleging that Defendant did, in fact, solicit Plaintiff's clients while working for his new employer, would not be considered on summary judgment. The affidavit contradicted Plaintiff's prior deposition testimony, and there was no showing that the facts asserted in the affidavit were unknown or inaccessible at the time of the deposition. Given this ruling, litigators are cautioned to prepare a Rule 30(b)(6) witness thoroughly. A party may not, on summary judgment, contradict its own Rule 30(b)(6) deposition testimony with evidence that was reasonably accessible at the time of the deposition.
The full opinion is available in PDF.
Opinion by Judge Richard D. Bennett
Held: A covenant not to compete is enforceable even where the competing former employee does not solicit his former employer's clients or use its confidential information if the scope of the restrictive covenant is limited to reasonable temporal and geographical limits, the employer is protecting legitimate business interests with the covenant, the employee has unique and specialized skills, there is no undue hardship on the employee to comply with the restriction and the public interest is served by enforcing the restrictive covenant; and the court held that it would extend the duration of the restrictive covenant for so long as the employee was in breach of it.
Facts: In 1999, the Defendant signed an employment agreement with Plaintiff, containing (among other provisions) a covenant not to compete against Plaintiff for 18 months after his employment terminated and within a 50-mile radius of his former office. Substantively, the covenant prohibited Defendant from engaging “in the business of recruiting or providing on a temporary or permanent basis technical service personnel, industrial personnel, or office support personnel” within these temporal and geographic limitations.
A separate covenant also prohibited Defendant from soliciting or competing for any persons or entities who were clients or customers of Plaintiff within the two years prior to the termination of the Defendant's employment. In 2008, the Defendant resigned from his employment with Plaintiff and, immediately thereafter, accepted a similar position in the IT-staffing business with one of Plaintiff's competitors and within the temporal and geographic limits of the covenant not to compete. None of the IT-staffing placements Defendant made for his new employer (Plaintiff's competitor) involved solicitation of or competition for Plaintiff's clients or customers. Plaintiff admitted at deposition that it was unaware of any such solicitation by Defendant.
Analysis: Under Maryland law, covenants not to compete may be enforced only against those employee who provide unique services or to prevent the future misuse of trade secrets, routes or lists of clients or solicitation of customers. Such covenants will be enforced if the restraint is confined within limits which are no wider as to area and duration than are reasonable for the protection of the business and do not impose undue hardship on the employee or disregard the interests of the public.
In reaching its decision, the court analyzed and concluded on the following:
(1) the 18-month temporal and 50 mile geographic scope of the covenant is facially reasonable and comports with similar limitation upheld by Maryland courts;
(2) the Plaintiff was protecting its legitimate business interests by enforcing the covenant because the employee was critical to the growth in revenue for the region, was key to building the personal relationships with clients in the area as required for the staffing industry, and had access to high level client contacts and confidential information;
(3) the employee at issue possessed unique and specialized skills because of his training and success in the banking industry in New York and had the most knowledge of each customer in the area;
(4) the employee would not suffer undue hardship by enforcing a covenant with the temporal and geographical restraints in this case because the employee was able to conduct business everywhere else in the world except for the area within 50 miles of New York City; and
(5) the public interest is protected by enforcing reasonable restrictive covenants against former employees of high technology and high-growth business.
In reaching its decision with respect to each factor, the court relied on Becker v. Bailey, 268 MD. 93, 299 A.2d 835 (1973); Ruhl v. F.A. Bartlett Tree Expert Co., 245 Md. 118, 225 A.2d 288 (1967); TEKsystems, Inc. v. Spotswood, 05-CV-1532-RDB, Memorandum Opinion (D. Md. June 28 2005); Intelus Corp. v. Barton, 7 F. Supp. 2d 635 (D. Md. 1998) and PADCO Advisors, Inc. v. Omdahl, 179 F. Supp. 2d 600 (D. Md. 2002).
The court granted summary judgment for Plaintiff, finding that Defendant breached the covenant by competing against Plaintiff in the IT-staffing business within the agreed temporal and geographic limits. The Plaintiff, however, would not be awarded monetary relief exceeding nominal damages because there was no proof that the Defendant solicited Plaintiff's customers or clients.
Injunctive relief against future violations of the covenant was warranted. The court held that the Plaintiff was entitled to an equitable extension of the entire 18-month period, running from the date of the court's opinion, because Defendant began violating the non-compete provision almost immediately after the termination of his employment with Plaintiff.
Practice Pointer: Plaintiff's affidavit, alleging that Defendant did, in fact, solicit Plaintiff's clients while working for his new employer, would not be considered on summary judgment. The affidavit contradicted Plaintiff's prior deposition testimony, and there was no showing that the facts asserted in the affidavit were unknown or inaccessible at the time of the deposition. Given this ruling, litigators are cautioned to prepare a Rule 30(b)(6) witness thoroughly. A party may not, on summary judgment, contradict its own Rule 30(b)(6) deposition testimony with evidence that was reasonably accessible at the time of the deposition.
The full opinion is available in PDF.
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