Preliminary Injunctions

Court Limits Preliminary Injunction in Non-Compete Case Based on Indefinite Contractual Term – EXFO America, Inc. v. Herman

April 24, 2013 | Peter S. Lubin and Patrick Austermuehle

A communications company sought to enjoin a former employee from working for a competitor or divulging any trade secrets, pursuant to a non-competition agreement signed by the parties. The employee contended that the agreement was unenforceable because it failed to define a key term. The U.S. District Court for the Eastern District of Texas, in EXFO America, Inc. v. Herman, granted a limited preliminary injunction against the employee, finding the non-competition agreement to be indefinite, but still enforceable.

The plaintiff, EXFO America, Inc., manufactures and sells products under the brand name NetHawk. The company formerly employed the defendant, Dan Herman, under a contract that included a non-competition agreement. The court’s opinion does not describe the circumstances of Herman’s departure from EXFO, but Herman subsequently took a job with Spirent Communications, a competitor of EXFO. EXFO filed a complaint in federal court in April 2012 and requested a preliminary injunction prohibiting Herman from working for Spirent for a six-month period, and prohibiting him from revealing any trade secrets or other confidential information belonging to EXFO for at least five years, beginning on his termination date.

The non-competition agreement between EXFO and Herman purported to prohibit Herman, upon the termination of his employment with EXFO, from working or participating in any way in the “Business” for a period of six months anywhere within the United States. Where a definition of the term “Business” would normally appear, however, the clause merely contained the form language “{describe products or attach a list as an exhibit}.” Herman argued to the court that this lack of definition of a clearly essential term rendered the non-competition agreement unenforceable.

Court Denies Preliminary Injunction for Alleged Violation of a Covenant Not to Compete – Matter of Richard Manno & Co., Inc. v. Manno

April 5, 2013 | Peter S. Lubin and Patrick Austermuehle

A business sought to enforce a covenant not to compete against a former employee in Matter of Richard Manno & Co., Inc. v. Manno, requesting a preliminary injunction from the Supreme Court of Suffolk County, New York pending the outcome of arbitration. The agreement between the parties was part of the former employee’s severance agreement rather than a condition of his employment. The court denied the application, finding that a preliminary injunction was not an available remedy under the parties’ agreement.

The petitioner, Richard Manno & Co., Inc. manufactures and distributes steel fasteners and machined parts, with a market covering much of the United States. The respondent, Anthony Manno, was an employee of the petitioner until the two entered into a severance agreement in October 2010, in which the petitioner agreed to make various lump sum payments to the respondent in exchange for his resignation and other consideration. The agreement also included provisions for forfeiture of future payments from the petitioner upon certain acts deemed, in the sole discretion of the petitioner, to be in direct competition with the petitioner’s business. The respondent could not work with a domestic company that directly competed with the petitioner, nor could he solicit any person or business that he knew the petitioner was employing or soliciting.

The respondent allegedly formed his own business, Anthony Manno & Co., Inc., in January 2011 to engage in the same business as the petitioner. The petitioner alleges that this new company violated the non-compete agreement by engaging in direct competition in the U.S. market. It also alleged that the respondent’s new business, through such direct competition, interfered with its business relationships with its clients.

Literal Reading of Non-Compete Agreement Applied to Veterinary Practice – Heiderich v. Florida Equine Veterinary Services

January 24, 2013 | Peter S. Lubin and Patrick Austermuehle

An appeals court reversed a trial court’s temporary injunction, which had prohibited a veterinarian from practicing within a thirty-mile radius of her former employer. The dispute in Heiderich, et al v. Florida Equine Veterinary Services, Inc. involved a veterinarian who, after termination of her employment by the plaintiff, established a veterinary practice located outside the restricted area established by a non-compete agreement. However, she served clients within that area, which the plaintiff contended violated the non-compete agreement. The trial court agreed with the plaintiff and granted a temporary injunction, but the appeals court, with one dissent, reversed.

Dr. Heather Heiderich Farmer, a veterinarian, signed a one-year employment contract in August 2009 with Florida Equine Veterinary Services (FEVS) in Clermont, Florida. The contract included a two-year covenant not to compete. The non-compete agreement specifically prohibited Dr. Farmer’s involvement with any “general equine practice located” (emphasis added) within thirty miles of FEVS’ Clermont location.

FEVS terminated Dr. Farmer’s employment when the one-year contract expired. Dr. Farmer subsequently opened a veterinary practice outside of the thirty-mile radius, providing veterinary services for horses. She occasionally practiced within the restricted area, however, because some FEVS clients located within that area requested her services.

FEVS sued Dr. Farmer, alleging that her practice of veterinary medicine within the restricted area violated the non-compete agreement, regardless of her office’s physical location, because the non-compete agreement prohibited practicing veterinary medicine within that area. The trial court agreed and granted an injunction against Dr. Farmer, noting that it did not believe the parties intended for Dr. Farmer to locate a practice outside the restricted area in order to treat clients within that area. Dr. Farmer appealed to the Florida Second District Court of Appeals.

Court Grants Preliminary Injunction in Non-Compete Case, Grants equitable Extension of Non-Compete Covenant’s Duration – Travelhost v. Modglin

January 10, 2013 | Peter S. Lubin and Patrick Austermuehle

A Texas federal court, after initially dismissing a motion for preliminary injunction as moot, granted the plaintiff’s motion for reconsideration in Travelhost, Inc. v. Modglin. The court ruled that, although the two-year time period of the non-compete agreement had already expired, the plaintiff was entitled to a preliminary injunction and an equitable extension of the non-compete agreement for an additional two years. The court based its reversal of its prior ruling on evidence subsequently obtained from the defendant through discovery, which suggested that the defendant had engaged in an ongoing pattern of behavior in violation of the non-compete agreement.

The plaintiff, Travelhost, publishes print and online materials related to travel. It entered into a contract with the defendants, The Real Chicago Publishing LLC (RCP) and Trent Modglin, in 2007, in which RCP would distribute Travelhost’s Chicago magazine and sell advertising in the downtown Chicago area. The contract included a two-year covenant not to compete with Travelhost within the Chicago area. Modglin is RCP’s sole member, and he reportedly agreed to be individually bound by the non-compete agreement.

RCP distributed eight issues of the magazine between 2007 and late 2009. According to Travelhost, RCP began distributing and selling advertising for a competing magazine, “The REAL Chicago,” sometime after November 2009. Travelhost sued RCP and Modglin in March 2011, requesting preliminary and permanent injunctions. RCP never filed an answer to the suit, so the court entered a default preliminary injunction and default judgment against it. The suit proceeded against Modglin alone.

Georgia Federal Court Enjoins Enforcement of Covenant Not to Compete Against Former Employee

December 27, 2012 | Peter S. Lubin and Patrick Austermuehle

In a dispute over the enforcement of two restrictive covenants in an employment contract, a federal court in Georgia granted a preliminary injunction preventing their enforcement. The plaintiff in Moorad v. Affordable Interior Systems, LLC filed a declaratory judgment action against his former employer to have the restrictive covenants declared unenforceable under Georgia law. The court considered the plaintiff’s request for an injunction and the defendant’s motion to dismiss for lack of subject matter jurisdiction, and ruled for the plaintiff on both.

The plaintiff, David Moorad, worked for the defendant, Affordable Interior Systems (AIS), from 2004 to May 2011 as the Vice President of Sales for Government Services Administration (GSA). Moorad’s employer asked him to sign an amended contract containing two restrictive covenants, a non-competition agreement and a non-solicitation agreement. According to the court’s ruling, the defendant implied that Moorad could lose his job if he refused to sign the new contract. The non-competition covenant stated that, upon termination or departure from AIS, Moorad could not work, for a period of twenty-four months, in office furniture sales or manufacturing. The clause explicitly described the geographic scope of the restriction as the entire United States. The non-solicitation clause purported to prohibit Moorad from soliciting any customers of AIS within the same twenty-four month period, including anyone who had been a customer in the prior twelve months.

Court Enforces Covenant Not to Compete Against Former Franchisee of Pizza Restaurant – Singas Famous Pizza Brands v. New York Advertising

December 13, 2012 | Peter S. Lubin and Patrick Austermuehle

A former franchisee of a regional pizza restaurant chain were barred from operating pizza restaurants within certain geographic areas, according to the Second Circuit Court of Appeals in New York City. In Singas Famous Pizza Brands Corp., et al v. New York Advertising, the plaintiffs sought to enjoin the defendant from opening two new pizza restaurants shortly after the termination of the defendant’s franchise agreement with the plaintiffs. The franchise agreement included a covenant not to compete, stating that the franchisee could not operate similar pizza restaurants within a specified geographic area. The defendant challenged the enforceability of the geographic restriction. The district court ruled for the plaintiffs, and the appeals court affirmed the ruling.

The plaintiffs, Singas Famous Pizza Brand Corp. and Singas Famous Pizza & Restaurant Corp., collectively referred to as “Singas,” operate or franchise multiple pizza restaurants in the New York City metropolitan area. Each restaurant uses Singas’ unique branding and menu. The defendants operated two pizza restaurants, a former Singas franchise in the East Village, Manhattan, and a new restaurant in Jackson Heights, Queens. Singas obtained a preliminary injunction that barred the defendant from operating both restaurants. The defendant appealed only as to the Jackson Heights restaurant, arguing that the ten-mile geographic restriction was unduly broad.

Court Rules that Parent Company, After Acquiring a Subsidiary, May Not Sue to Enforce the Subsidiary’s Employment Agreement – CDW, LLC, et al v. NETech Corporation

November 29, 2012 | Peter S. Lubin and Patrick Austermuehle

An Indiana federal district court ruled, in CDW, LLC, et al v. NETech Corporation, that neither a parent company nor one of its subsidiaries may sue to enforce the employment contracts of another of its subsidiaries, when one subsidiary is clearly the party to the agreement. The dispute involved covenants of noncompetition in a company’s employment contract and a claim for tortious interference with a business contract.

Berbee Information Networks Corporation employed several individuals as sales executives. These three individuals signed employment contracts that included a paragraph stating that they agreed, upon termination of their employment with Berbee, not to accept employment in direct competition with Berbee for up to twelve months. “Competition” included solicitation of Berbee employees or clients and use of Berbee’s proprietary business information. In September 2006, Berbee became a subsidiary of CDW, LLC when CDW purchased it and merged it with another subsidiary. Berbee, all parties to the eventual lawsuit agreed, was the surviving corporation of the merger.

CDW operated several subsidiaries that, like Berbee, engaged in the business of technology sales. Each subsidiary served a different market, such as commercial businesses, nonprofits, or government agencies. CDW transferred the three Berbee employees at the center of the dispute to another subsidiary, CDW Direct, between 2008 and 2009. These employees all left CDW Direct at different times to work for NETech Corporation. They each received letters after commencing work at NETech from an attorney for CDW alleging that they were in violation of their noncompetition agreement, demanding that they cease work for NETech and return all confidential materials obtained from Berbee or CDW.

Service Agreements Require Timely Payment, Compliance with Contractual Terms to Be Enforceable by Consumers – M&B Graphics v. Toshiba Business Solutions

October 18, 2012 | Peter S. Lubin and Patrick Austermuehle

A company that leased photocopier machines to a printing company prevailed on a motion for summary judgment in a breach of contract claim brought by the business leasing the copy machines. In M&B Graphics, Inc. v. Toshiba Business Solutions (USA), Inc., the U.S. District Court for the Eastern District of Michigan ruled that the defendant was justified in terminating service agreements for its machines due to the plaintiff’s noncompliance with the terms of the agreements.

M&B Graphics (M&B), a Michigan printing company, began leasing three photocopiers from Toshiba Business Solutions on August 10, 2009. The lease had a term of sixty-three months, with monthly payments of $2,520. The parties also executed service agreements for each of the three copiers. Toshiba would perform routine repairs and maintenance on the copiers, and M&B would pay a flat monthly fee and a per-copy fee. Toshiba had the right to terminate the service agreements if M&B failed to make timely payment of the monthly service fees or failed to use the copiers in strict accordance with Toshiba’s specifications. Either party could terminate the agreements by giving written notice thirty (30) days prior to the anniversary date.

Illinois Appellate Court grants Preliminary Injunction in Action to Enforce Non-Competition Clause in Employment Contract

March 29, 2011 | Peter S. Lubin and Patrick Austermuehle

While most businesses strive to maintain employee stability, the fact of the matter is that during the course of any company’s existence there will be a certain amount of turnover. In states like Illinois, many employers utilize employment contracts that contain non-compete clauses and other restrictive covenants to protect themselves when employees depart. In spite of these precautionary measures, disputes will often still occur, which is why our Aurora non-compete lawyers are always watching developments in this area of the law.

In Steam Sales Corp. v. Summers, Defendant Summers worked for Plaintiff soliciting and servicing customer accounts pursuant to a written employment agreement that contained both non-compete and liquidated damages clauses. The clauses were to be effective for two years after the cessation of Defendant’s employment with Plaintiff. Plaintiff had several exclusive relationships with manufacturers, which gave it access to information not available to its competitors that served as an advantage in the marketplace. Defendant had access to this information, and after working for Plaintiff for almost two years, he quit to form a competing company and subsequently obtained the business of two of Plaintiffs (now) former clients.

In response, Plaintiff filed suit for Defendant’s violation of the restrictive covenant contained in the employment agreement between the parties and demanded injunctive relief pursuant to the liquidated damages clause in the contract. The circuit court granted the preliminary injunction based upon the non-compete clause and enjoined Defendant from soliciting or selling any service or product similar or identical to Plaintiff’s. Defendant then filed an interlocutory appeal. The Appellate Court found that Plaintiff had not breached the parties’ contract and that the restrictive covenant was enforceable because it was reasonable in its geographic (Defendant’s sales territory when he worked for Plaintiff) and temporal scope and in its application.

Reuter’s Reports: “Kraft Loses Bid to Keep Distributing Starbucks”

February 6, 2011 | Peter S. Lubin and Patrick Austermuehle

It is very difficult to obtain an injunction when monetary damages can compensate for a business’s losses. A recent article in Reuter’s regarding Kraft Food’s bid to require Starbucks to allow it to continue to distribute Star Buck’s coffee illustrates the point. Reuter’s reports:

A federal judge rejected Kraft Foods’ bid to force Starbucks Corp to keep using Kraft to distribute packaged coffee to supermarkets in North America and Europe, a decision that allows Starbucks to move ahead with a new partner.

In a ruling from the bench, U.S. District Judge Cathy Seibel in White Plains, New York, on Friday also noted that Starbucks could end up owing Kraft “a boatload of money” if an arbitrator decided the coffee chain breached a 1998 agreement with Kraft.