by Lee Gesmer | Mar 23, 2012 | Noncompete Agreements
Noncompete opinions from the Massachusetts Superior Court are few and far between, so the two decisions that have been issued so far this year — one from Judge Peter Lauriat sitting in the Suffolk Business Litigation Section (BLS), the other from Judge Thomas R. Murtagh in Middlesex Cournty — are worth noting. Both judges are respected judicial veterans, and each decision illustrates a legal principle basic to this controversial and often confusing area of law.
The more note-worthy of the two cases is Judge Lauriat’s decision in Grace Hunt IT Soutions v. SIS Software, LLC. There are relatively few ways to wriggle out of a non-compete, but one that should be near the top of every lawyer’s list is the question whether there has been a “material change” in the employment relationship since the non-compete agreement was signed. If so, a “pre-change” non-compete may be unenforceable. In this case the court found that there had been such a change, and therefore it denied a motion for preliminary injunction to enforce the non-compete covenant against the defendants. Of course, what constitutes a “material change” can vary, depending upon the eye of the beholder, which in a preliminary injunction context is the judge. In this case Judge Lauriat concluded that a 20% cut in salary was enough of a change to satisfy this standard. Also, the employees had signed the non-compete with a company that had subsequently been acquired, and the acquiring company was attempting to enforce the non-compete agreement. Judge Lauriat seemed to put some weight on the fact that the new employer had asked the employees to sign new non-competition agreements after the acquisition, implying that the new employer had thought the employment relationships had materially changed, requiring new agreements.* Preliminary injunction denied.
*Sometimes an acquisition alone will void a non-compete. That was not the case here, likely because the employment agreements permitted assignment. However, many agreements do not include assignment clauses, preventing the post-acquisition employer from enforcing a non-compete agreement signed with the pre-acquisition employer. See the discussion of L-3 Communications v. Reveal Imagining at this prior post (non-compete agreement signed not assigned as part of a sale to current employer was not enforceable).
The second of the two decisions illustrates more of a cookie-cutter approach to the enforcement of a non-compete covenant. In this case, A.R.S. Services v. Baker, the plaintiff, a company disaster restoration field, asked the court to enforce a one year non-compete provision against an employee who had resigned from the plaintiff’s firm . It appears that the only argument Baker could make against enforcement was that his former employer had asked him to engage in “a fraudulent act involving moral turpitude,” and that this was a “material breach” of the non-compete agreement, rendering it unenforceable. It is true that a material breach by an employer can invalidate a non-compete covenant. However, this case appears to have involved little more than an internal disagreement between Baker and the employer over a cost estimate to rebuild a home. The judge didn’t buy it – quite rightly, if the evidence in support of this assertion was as weak as the decision suggests. This case was “plain vanilla.” Preliminary injunction allowed.
Grace Hunt IT Soutions v. SIS Software, LLC
A.R.S. Services v. Baker
by Lee Gesmer | Mar 16, 2012 | General
You know all those used music stores you used to love to go to back in the day when you bought music on CDs? You could browse through used CDs and buy them for less than retail. Maybe you still do (kudos to Deja Vu Records in Natick, Mass.). Of course, you can do the same thing online.
The founders of Massachsetts-based Redigi figured, why can’t we create a marketplace that will allow people to do the same thing with their digital music files? Or, as Redigi puts it: ” Sell your old songs legally – The world’s first used digital music marketplace – Buy used music insanely cheap”. However, in starting this business Redigi may have run smack into the disconnect between the U.S. copyright statute and digital media. And, it has been forced to defend against a full-on assault by the RIAA (in the form of its apparent designee, Capitol Records).
Redigi’s service launched in October 2011, and by reason of the sheer chutzpah of its business model the copyright industry (the usual ragtag collection of lawyers, industry types, bloggers, reporters and hangers-on) was soon debating the legality or illegality of its service. By early November Redigi was holding a “roll over and die” letter from the RIAA. By early January 2012 Capitol had filed suit against Redigi in the Southern District of New York.
Issue was joined quickly when Capitol filed a motion for preliminary injunction seeking, in effect, to shut Redigi down and end the case with a single, crushing legal blow. The district court denied the motion, so Redigi remains alive for now. However, the case is on a fast track – Capitol and Redigi have waived a jury trial, and the parties will be filing summary judgment motions this summer. The case is likely to be resolved before the end of the year, at least in the trial court.
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by Lee Gesmer | Nov 10, 2011 | Arbitration
One of the risks of electing to resolve a dispute in arbitration is that, apart from a few narrow exceptions, the decision of the arbitrator is non-appealable. This can be very hard on the losing party, who believes the arbitrator completely misapplied the law or, in the terminology of the courts, “manifestly disregarded” the law.
Affymax believed it was faced with such a situation when an arbitration panel ruled in favor of Otho-McNeil-Janssen on certain issues in a complicated patent dispute. Affymax challenged the panel’s decision, and the federal district court reversed part of the arbitration panel’s award.
Wrong, said Chief Judge Easterbrook of the 7th Circuit Court of Appeals in Affymax, Inc. v. Ortho-McNeil-Janssen Pharmaceuticals, Inc., decided on October 3, 2011: “Manifest disregard of the law” is not a ground on which a court may reject an arbitrator’s award. The First Circuit, where I practice, has made this clear as well. See Ramos-Santiago v. United Parcel Service, 524 F.3d 120, 124 n.3 (1st Cir. 2008) (“manifest disregard of the law is not a valid ground for vacating or modifying an arbitral award in cases brought under the Federal Arbitration Act”).
by Lee Gesmer | Nov 7, 2011 | Noncompete Agreements
Earlier this year Massachusetts Continuing Legal Education (MCLE) asked me to update my 2009 chapter on Employee Noncompetition Agreements. The revised chapter, part of the 2-volume Massachusetts Employment Law series, was published in June.
Below are links to the cases I added to this chapter. I’ve also included a sentence or two regarding each case. However, I did not make an effort to describe every legally significant aspects of each case.
- Ethicon Endo-Surgery, Inc. v. Pemberton, 27 Mass. L. Rptr. 541 (Super. Ct. 2010). This case, decided by Judge Peter Lauriat in the Suffolk Business Litigation Session, applies New Jersey non-compete law, but Massachusetts procedural law for purposes of ruling on a preliminary injunction. The former employee filed suit in California first, but Judge Lauriat refused to dismiss this case based on the “first filed” rule. The court enforced an 18 month covenant not to compete against the former employee.
- Inner-Tite Corp. v. Brozowski, No. 2010-0156 (Worcester Super. Ct. 2010). This lenghy decision was written by Judge Janet Kenton-Walker, sitting in Worcester County, following a bench trial. The judge enforced a one year convenant not to compete against an employee who had worked for Inner-Tite in Georgia. Given Brozowski’s relatively low salary, and the fact that he was asked to sign the non-compete after beginning work for Inner-Tite, this contract would not have been enforceable under the various proposed Massachusetts non-compete statutes. Either ground would have invalidated the agreement. This was a tough outcome for the former employee, and one which might have had a different outcome in Suffolk, Middlesex or Norfolk counties, which tend to have more liberal leanings in these cases.
- Rohm & Haas Elec. Materials, LLC v. Elec. Circuits Supplies, Inc., 2010 U.S. Dist. LEXIS 136080 (D. Mass., Dec. 22, 2010). In this case, brought against a corporate distributor of Rohm, Judge Joseph Tauro denied a preliminary injunction for a variety of reasons, including Rohm’s failure to prove the distributor possessed trade secrets or confidential information, and because Rohm’s damages were quantifiable and relatively small,
by Lee Gesmer | May 26, 2011 | Trials
I was interested to read the The Wall Street Journal’s report that Raj Rajaratnam spent $300,000 on jury consultants before the trial in which he was convicted on all 14 counts of securities law violations. As my teenage daughter might say, “fail”!
OK, I admit that I’m being a bit unfair. From everything I read in the press regarding this trial it would have been astounding if Mr. Rajaratnam had been acquitted. After all, the government had something quite rare in insider trading cases: audiotapes of the defendant, convicting him with his own words. A jury consultant “fantasy team” comprised of Sigmund Freud and a certified psychic probably wouldn’t have been able to help in this case.
Nevertheless, it’s no great surprise that Raj’s attorneys chose to use jury consultants in this case. $300,000 was a drop in the bucket given the “spare no expense” approach taken by defense counsel in this case. Mr. Rajaratnam”s lawyers undoubtedly concluded that jury consultants might help, and couldn’t hurt. The decision to utilize jury consultants probably was a prudent step in minimizing future regret. (“If only we had used a jury consultant our client might not have been convicted! Darn.”).
Trial lawyers have long been deeply divided on the question of whether jury consultants are “worth it.” Some of the consultants’ recommendations in this case (as reported in the WSJ), are so obvious that it your lawyer doesn’t know them without a jury consultant’s advice, get a new lawyer. For example, the Journal reports that the consultantants concluded that jurors who were members of ethnic minority groups were more sympathetic to Mr. Rajaratnam, who was born in Sri Lanka. Hmm . . . . did OJ’s lawyers need jury consultants to tell them that people of color might be more favorably disposed to OJ than whites? I hope not. Lawyers shouldn’t need jury consultants to tell them that people are predisposed to like people like themselves. If my client is an ultra orthodox Jew, I want a jury of the same. If my client is a native American . . . . well, you get it. (more…)
