Monday, October 9, 2017

Much Overdue Case Law Update, Part I

It has been a while since I surveyed new reported decisions. So over the next few weeks, I'm going to summarize very briefly some of the cases I've seen that piqued my interest. The topics are varied, which is kind of the point.


Non-Recruitment Clauses in Georgia

Georgia courts have proved to be tough venues when it comes to enforcing restrictive covenants. The prevailing rule of non-severability (for older agreements) generally means that an unenforceable restrictive covenant will void other similar covenants, even if they (standing alone) might be considered reasonable.

But as the Court of Appeals in Georgia recently noted, this non-severability rule does not apply to non-recruitment/no-hire provisions that bar employees from soliciting co-workers. Simply put, those types of restraints to do not rise to the upper tier of restrictive covenants. And so a void non-compete will not invalidate a reasonable no-hire clause. Other courts in other States seen to equate no-hire clauses with more restrictive covenants.

The case is CMGRP, Inc. v. Gallant, and it's written by Twitter star Chief Judge Stephen Dillard. A link to the opinion can be found here.

Seventh Circuit Discusses Sale of Business Non-Compete Dispute

The Seventh Circuit hears about one or two non-compete cases per year. They generally involve questions of Indiana, Illinois, or Wisconsin law. And those States have non-compete laws that are interesting and nuanced.

But E.T. Products, LLC v. D.E. Miller Holdings, Inc. did not require the court to delve much into substantive State law (here, Indiana) because the case hinged on whether certain activity amounted to a breach of the non-competition clause. The case involved a business acquirer's attempt to enforce a sale-of-business non-compete against the seller, after the seller rendered post-closing assistance to the acquirer's distributor. The court found that the seller's conduct did not amount to prohibited competition, saying that "a firm whose sole conduct in the relevant market consists of distributing one manufacturer's product plainly isn't that manufacturer's competitor." The court also noted the seller terminated its relationship with the distributor and rendered no assistance at all once the distributor began competing on some product lines. The facts, as the court recited them, amply demonstrated the defendant's good faith and intent to adhere to the non-compete. The pursuit of the case appeared to be vast overreach.

The opinion, written by Judge Diane Sykes, is available here.

The Protocol for Broker Recruiting and "Good Faith"

Those of us who represent advisory firms and financial advisors have a good deal of familiarity with the Protocol for Broker Recruiting. But many don't. The Protocol's design is to foster client choice, a recognition of the intensely personal nature of the advisory relationship. More broadly, the Protocol represents an industry solution to expensive, uncertain non-compete litigation - in effect, a contractual way around flexible legal standards being applied by judges who generally lack deep knowledge of particular industries.

The Protocol's basic tenets allow an advisor to avoid liability if she takes client information to her departing firm (generally, it must be related to those clients she serviced and the information must be provided to her firm on departure). If followed in good faith, the employee will not be bound by any contractual restrictive covenant or held liable under trade secrets law pertaining to the taken (and disclosed) client information and subsequent solicitation efforts of those clients.

The term "good faith" is a bit nebulous and fact-specific. If an employee engages in bad faith, the she cannot avail herself of the Protocol and courts default back to any signed agreement the employee has. The district court decision in UBS Financial Svcs., Inc. v. Fiore, No. 17-cv-993, 2017 WL 3167321 (D. Conn. July 24, 2017), contains a lengthy discussion of good faith in the context of advisor departures. Ultimately, it found that despite some wrongful behavior, the defendants did not forfeit the Protocol's protections since their notice was proper and they took only information pertaining to their client lists. The court focused on the fact that UBS still had all the information it needed to contact the same clients.

In the past, courts have found that the Protocol did not apply when employees took information beyond what was allowed, altered information in a client database, or deleted contact information in a work e-mail account. Like most good-faith inquiries, each case turns on its facts. The Fiore decision is interesting and well worth a read because it is not particularly clear cut factually. The departing defendants complied with the Protocol in the most crucial ways but still did some things that appeared designed to hinder UBS' ability to retain its wealth-management clients.

Tuesday, September 19, 2017

The Farewell to Judge Posner: Ten Opinions for Non-Compete Lawyers to Read

Less than two weeks ago, Judge Richard Posner left the Seventh Circuit Court of Appeals. Immediately. No senior status. No notice. Just up and left. Presumably to hang out with his cat, Pixie.

And like that, the most widely cited appellate judge since at least Henry Friendly (and probably well before that) was gone.

His post-retirement exploits are being met with more than a little skepticism and head-scratching, as he promptly released a long book airing some of his dirty laundry with his Seventh Circuit colleagues. The early returns are, how shall we put it, not great.

I met Judge Posner once, when I was a 3L at the University of Illinois College of Law and editor of the Moot Court Board. He had come down for the annual competition, and I was sort of coordinating it. He was as you'd expect. Passively intimidating, somewhat aloof, lost in his thoughts. Not on my dream dinner guest list. I've argued three cases in the Seventh Circuit but never had him on a panel, which was probably just as well. Oral arguments with him are just torture to listen to, as the whole thing seemed to resemble a reflexive exercise in self-indulgence.

In truth, I can't say he was my favorite judge. I liked his writing style, to a point, and I appreciated the unconventional approach he took with cases. I think his overly academic view of non-compete agreements, however, was not at all pragmatic (even though he claims to have been the great pragmatist). I found many of his recent opinions to be a bit out there, such as his bizarre concurring opinion in the Hively case that brought sexual orientation within Title VII's sexual discrimination ambit. And I certainly don't think he was the best judge on his own court. I always have felt Judge Frank Easterbrook was stronger, more consistent, and more clear in his writing. And even Judges Diane Sykes and David Hamilton have approaches to deciding cases that I can grasp with much greater confidence.

But, he's Posner and everyone seems to worship him. So some tribute seems in order. Though the Seventh Circuit only decides one or two trade secrets or non-compete cases per year, his influence in this area is profound with a number of important decisions under his belt. I thought I'd offer a farewell to Posner with a top ten list of cases he wrote that influence this field of law:

10. Outsource Int'l, Inc. v. Barton, 192 F.3d 662 (7th Cir. 1999). This is the one dissent from Judge Posner I am including, and it's from an appellate decision that endorses a staffing industry non-compete. Posner thought the result was correct in principle, but not under Illinois law. So he dissented. But in doing so, he outlined the historical hostility to non-competes and concluded "[t]here is no longer any good reason for such hostility." He does a nice job wading through the policy choices behind non-compete enforcement and the courts' antagonism to these restraints. But, I think he has it all wrong. His concerns are, no doubt, academically grounded. But he largely misses the point that a disparity in bargaining power, coupled with asymmetrical resources, create a large deadweight loss to society from breezy judicial attitudes towards non-compete arrangements.

9. Nightingale Home Healthcare, Inc. v. Anodyne Therapy, LLC, 626 F.3d 662 (7th Cir. 2010). This is a trademark case, but it's instructive for analyzing fee petitions. Trademark defendants can obtain fees only if the case is exceptional. In Nightingale Home Health Care, Judge Posner says that a defendant can meet the exceptionality standard by showing the case was an "abuse of process," designed to impose disproportionate costs on the defendant. This standard mirrors that under the Trade Secret Act's "bad faith" provision and reflects a pragmatic approach. Just as important, Posner cautions against an elaborate state-of-mind inquiry on the fee petition, preferring that fee-petition hearings be summary proceedings rather than drawn-out affairs.

8. Confold Pacific, Inc. v. Polaris Indus., Inc., 433 F.3d 952 (7th Cir. 2006). I call this a "trade-secrets light" case. It confronts the frequent fact-pattern of what happens when one party, bound by a contractual relationship, tries to subvert contract law and claim a host of related remedies from a relationship gone wrong, such as unjust enrichment and trade-secrets theft. Judge Posner deftly explains, as if lecturing the plaintiff's counsel, what trade secrets are and how they fit into a broad continuum of other intellectual property and informational rights.

7. Rockwell Graphic Systems, Inc. v. Dev Indus., Inc., 925 F.2d 174 (7th Cir. 1991). This is a terrific read for trade-secret practitioners who are litigating the issue of whether one made reasonable efforts to keep proprietary information secret. Factually, the case addresses a common issue. Can one claim trade-secret status for information that is disclosed to others - in this case, vendors who receive part drawings? Judge Posner says yes and explains in very simple, easy-to-understand language why that's the case.

6. Micro Data Base Systems, Inc. v. Dharma Systems, Inc., 148 F.3d 649 (7th Cir. 1998). The first of three damages cases, this one involving a claim of trade-secret misappropriation by a software developer against a buyer who disclosed the program to a third-party. The proof of damages was relatively simple, in effect allowing a non-expert to base a claimed damage award on projected lost future sales. Judge Posner rejected the argument that because the testimony was self-serving, it was inadmissible. The case also contains a good discussion of the point made earlier in Rockwell Graphic Systems - that some trade secrets (to be useful) must be disclosed to others. That won't destroy secrecy in the legal sense.

5. ATA Airlines, Inc. v. Federal Express Corp., 665 F.3d 882 (7th Cir. 2011). From a simple damages presentation to a downright intimidating one, Judge Posner vacated a jury verdict in excess of $65,000,000. Key to the discussion was the failure of the parties and the district court judge to understand the expert's damages testimony. Posner tears into the regression analysis that ATA's expert applied to the breach-of-contract suit. He makes a couple of crucial points. First, if a district court judge doesn't understand what the expert is saying he can either require him to speak in plain English or appoint the court's own expert. Second, he concluded the attorneys in the case did not understand the regression analysis central to the damages presentation (kind of shocking, given the size of the damages requested and granted by the jury). And as if to prove a point, Posner spends pages dissecting the damages analysis and ripping it apart, concluding ultimately that the expert's "regression had as many bloody wounds as Julius Caesar when he was stabbed 23 times by the Roman Senators led by Brutus." For the lawyers in the case, this must have been a tough one to read.

4. Schiller & Schmidt, Inc. v. Nordisco Corp., 969 F.2d 410 (7th Cir. 1992). Another case on damages, this one with a simpler and punchier analysis, is one of my favorite opinions. It is decidedly defense friendly, but the gist of it is that courts must pay close attention to expert witness damages theories and not let those witnesses get away with what Judge Posner calls "simplistic extrapolation and childish arithmetic." Posner's opinion chastises both the expert and the plaintiff for their failure to attribute lost revenue to causes unrelated to the act of trade secret misappropriation. This is a must-read for any defense counsel litigating a claim on damages where several intersecting causes may have played a part in the alleged loss.

3. Grip-Pak, Inc. v. Illinois Tool Works, Inc., 694 F.2d 466 (7th Cir. 1983). The hidden gem of all Judge Posner cases. I love this decision for many reasons. The gist of the action was Grip-Pak's claim that baseless anti-competitive litigation behavior violated antitrust laws under the Sherman and Clayton Acts. The essence of Posner's commentary is found in this passage: "The existence of a tort of abuse of process shows that it has long been thought that litigation could be used for improper purposes even when there is probably cause for the litigation; and if the improper purpose is to use litigation as a tool for suppressing competition in its antitrust becomes a matter of antitrust concern."

2. Roland Machinery Co. v. Dresser Indus., Inc., 749 F.2d 380 (7th Cir. 1984). If you didn't study this case in law school, you're very old or went to a shitty law school. This is the case that in effect teaches the preliminary injunction standard and how courts should evaluate the standard in light of the evidence. Not only does Judge Posner give an in-depth analysis of the "inadequate remedy at law" test, but he also gives courts a new way to think about how the traditional four injunction factors fit together. He articulates what is still called the "sliding scale" analysis, in which courts weigh the moving party's likelihood of success and the relative harms associated with grants or denials of injunctive relief. In other words, he reformulates the test so that courts may balance one against the other. A strong case for injunctive relief does not require a substantial showing of harm from a denial of that relief.

1. Curtis 1000, Inc. v. Suess, 24 F.3d 941 (7th Cir. 1994). At the time, Curtis 1000 seemed like a garden-variety non-compete case in which the employer simply failed to demonstrate a protectable interest supporting the covenant. But the case has taken on added importance in Illinois, given the ongoing and unresolved debate on just what constitutes adequate consideration for at-will employee restrictive covenants. In classic Judge Posner style, he dissects the justification for the consideration rules and then reconstructs them in a way that is readable and satisfying.

Thursday, September 7, 2017

Judicial Engagement and Non-Compete Litigation

The lack of judicial engagement is a serious thing - particularly in competition disputes.

What do I mean by judicial engagement? For simplicity, I mean a bridge between judicial activism and judicial restraint. It's a method of evaluating and deciding cases, plain and simply.

The term is somewhat in vogue in libertarian circles (which I inhabit) and used when litigants challenge economic regulations on the grounds that they are irrational or impinge on personal liberties.

So when a government enacts a law that restricts economic freedom - say, an occupational licensing requirement - those who favor judicial engagement do not want courts to abdicate their roles. That is to say, courts should not simply defer to whatever the legislature says is a rational justification for the law.

Rather, courts must engage with the evidence and ensure that it supports the need for the law. And on that score, advocates for judicial engagement would argue that protectionism is never a valid governmental interest. Unfortunately, the black-letter rules that attend government economic regulation all but invite trial judges to defer entirely to whatever the legislature says. An overreading of these black-letter principles leads courts to the wrong results, in which they often time rely on theoretical assumptions or abstract hypotheticals.


The same decisional framework, judicial engagement, applies to non-compete cases because the applicable legal rule already demand a searching analysis without granting undue deference to the party in whose favor a non-compete runs. So that seems easy enough and a perfectly reasonable analogue to the traditional playing field for the theory of judicial engagement.

I digress for a second, but only a second. As my colleague Jonathan Pollard writes in a recent post, non-competes are first and foremost restraints of trade. Unless we are discussing a negotiated agreement (such as in a sale of business) with real consideration, non-competes are not traditional contracts. They may not even be contracts at all.

When an employer involves the government, here the judiciary, the same liberty concerns arise - with just as much force as an irrational, generally applicable regulation that the legislature passes. The problem that has vexed courts, lawyers, and litigants is how to engage or grapple with the facts in a non-compete dispute. To be sure, judicial restraint is no method of deciding such cases at all.

But many courts employ a burden-shifting approach that all but requires an employee to prove the impossible: that the employer lacks a legitimate business interest in enforcing a restraint. Allowing employers, for instance, simply to mouth some variant of a "legitimate business interest" is not the proper way for a judge to sanction a restraint and impede someone's livelihood.

Let me be clear: nothing in the philosophy of judicial engagement calls upon courts usurp their roles. Just as it is crucial for courts to assess the rationale for governmental regulations of economic activity, it is a moral imperative for them to scrutinize an employer's attempt to enforce through court order a restraint of trade. This is particularly so given the dead weight that enforced and unenforced non-competes have on the economy and productivity.


Let's take an example of judicial abdication, rather than engagement. The Kansas case of Servi-Tech, Inc. v. Olson is as bland of a non-compete case as you can get. I've handled some variation of this dispute for 20 years, and this fits within the most basic of fact-patterns, summarized (for simplicity as follows):

  • Employee signs a non-compete agreement, containing a broad 2-year market-based restraint wherever the company's clients are located;
  • Employee's non-compete also contains a 2-year restriction against soliciting clients with whom he had contact;
  • Employee works for 2 years before the company terminates him;
  • Employee receives nothing but his job for signing the agreement;
  • Employee is assigned 10 clients when he starts;
  • Employee's friends and family then comprise 5 additional clients after he starts;
  • After being fired, employee stays in the same field and works only with his 5 "friends-and-family" contacts.
The district court enforces the non-solicitation agreement against the employee and includes within the injunction the 5 new clients that joined the company because of their relationship with the employee.

I am simplifying the case for purposes of this discussion. And there are elements of the court's ruling that are proper (if not in reasoning then certainly in result). For instance, the court found the market-based restraint unenforceable, which seems fairly obvious.

But I am concerned about the reasoning in the injunction opinion, particularly its lack of engagement with the facts. On this score, the court seems just to be accepting at theoretical value whatever the employer has said in defense of its broad restraint.

For instance, in discussing the employer's proof of a legitimate business interest, the court said this:

"Olson received some special crop consulting and agronomy training from Servi-Tech, so Servi-Tech has a legitimate business interest to enforce the non-competition clause to protect its investment in him. This, coupled with Servi-Tech's interest of not losing customers, justifies the non-solicitation provision ... that prevents Olson from contacting customers he had worked with as a Servi-Tech employee."

Let's examine this further.

First, the court never describes any aspect of this "training" that the employee, Olson, received. Training if an oft-asserted, rarely convincing "interest" in need of protection. Would companies fail to train people if they lacked non-competes? Does all training incentivize performance or build goodwill? Hardly. The interest is easy to state in the abstract but it often falls apart under even the most basic level of scrutiny. More problematically, the court in Servi-Tech never explains why the particular training received justifies a 2-year work ban (to be fair, it later found the non-compete unreasonable on other grounds). Put differently, the court abdicated its role to assess the proper fit between the asserted interest and the scope of the restriction. 

Second, the interest in "not losing customers" is hardly one to justify a restraint of trade. True, there may be something special about a particular customer relationship - exclusivity, large up-front capital investment - that could justify a customer-based restraint. But no business wants to lose customers. Classifying this as an interest, much less a proven rationale, is judicial abdication and the product of undue deference to whatever the employer says.

Third, the court uses this purported interest to justify a restraint on all customers Olson had worked with at Servi-Tech. But what about the five family members who came to Servi-Tech because of Olson. What does the court say about them: "...they still became Servi-Tech's clients - not Olson's. Once they became Servi-Tech's clients, Servi-Tech was entitled to the benefits of doing business with them." True. That only is relevant, though, for the time Olson worked there. Nothing indicates that Servi-Tech did anything to create goodwill with those small group of personal contacts Olson had. Perhaps they would have come even if Servi-Tech had a poor marketplace reputation. In all likelihood, their fealty was to Olson himself. The court simply used an overbroad rationalization - "they're the employer's clients" - to justify a restraint that limits not just Olson's rights, but those of the clients themselves.

This is not to say, of course, that enforcement of all non-solicitation covenants leads to the same analytical problem. All I am asking for is for courts to engage and not defer. Engage with the facts, as well as the logical conclusions and implications of what the employer alleges.


So what must judges do to engage, rather than defer or abdicate? Here are some preliminary suggestions and steps:

(1) Hold the employer to a strict burden of proof. In some states, this is not an option for judges. Unless the legislature has made a qualitative judgment concerning this burden, the employer must bear it at all times.

(2) Evaluate the fit between the asserted business interests, the evidentiary facts, and the scope of the restriction. It is not enough for the employer simply to state an interest it deems worthy of protection. The court must demand hard evidence that supports an interest over and above protectionism. And the employer must demonstrate the logical relationship between the interest and the restraint's reach.

(3) Disaggregate special skills, training, or customer relationships from those that are ordinary or common. Too often, we see employers recasting easily acquired industry knowledge (even if through day-to-day work experience) as trade secrets. And training that is conventional on-the-job training, or gained via everyday work experience, is often something that employers provide regardless of having a signed non-compete. 

(4) Examine the time period of the restraint and assess its fit to the asserted interest. It is insufficient for courts to point to some case 20 years ago where a durationally similar non-compete was enforced. That is not engagement - that's punting.


Of course, these are just starting points. I have advocated, too, other approaches such as "quick-look" hearings on adequacy of consideration or facial validity of the agreement. Those may have some utilitarian, pragmatic benefit. But if we're constrained at this point to evaluate all non-compete cases individually, then judges really need to start doing so. No more deference to the employer. No more blind acceptance of allegations that have some theoretical appeal. And no more forgiveness of evidentiary lapses.

Friday, September 1, 2017

The Reading List (2017, No. 25): Eighth Circuit Affirms Damages Award in West Plains Litigation

Non-Compete and Trade Secrets News for the week ended September 1, 2017


Jury Verdict Affirmed in West Plains Litigation

The Nebraska case of West Plains, LLC v. Retzlaff Grain is unique in that it belongs in the limited group of trade secrets and unfair competition cases to proceed to jury verdict. The case is garden-variety lift-out, engineered by a former owner of the plaintiff who systematically recruited away key employees to replicate his former business. A Nebraska jury returned a verdict of $1,513,000 in compensatory damages (along with compensation forfeiture in varying amounts against certain ex-employees).

The case is valuable for its discussion of a very common tort that usually accompanies trade-secret or non-compete claims: interference with business relationships. In most cases, interference can be privileged or legally justified if it's for competitive purposes. But interference can be tortious (or wrongful) if done in bad faith, with improper means, or as part of a fraudulent or illegal scheme. Here, the Eighth Circuit found that enough evidence of unjust interference was present in the employees' mass exodus from their former employer. Specifically, the employees used customer lists, documents, and other internal confidential information to plan a coordinated departure. Too, the plaintiff introduced communications that suggested the defendants knew they were acting inappropriately in using their then-employer's information to establish a turn-key competitor from day one.

West Plains shows the value that ancillary tort claims can play in competition cases. With the right facts, it is not always necessary to have a restrictive covenant. To be sure, finding evidence of bad faith or willful misconduct is not easy. But employees seem to keep finding a way to leave digital fingerprints all over the place.

A link to the opinion is available here.


Privilege in the Waymo/Uber Fight

Privilege issues in trade secrets litigation can arise in a variety of ways. But those issues extend well beyond garden-variety claims of attorney-client or work-product privilege.

The trade-secrets battle-of-the-millennium in Waymo, LLC v. Uber Technologies, Inc. has featured several intricate disputes over production of privileged materials. In July, Magistrate Judge Corley denied Waymo's efforts to compel Anthony Levandowski - the ex-Google engineer in charge of driverless car technology - to produce documentation and media that would have reflected his retention of 14,000 files belonging to Waymo and that concerned its proprietary LiDAR technology. Given that Levandowski's pre-termination conduct posed a risk that he would be prosecuted for trade-secrets theft, the court found that compelling the production of those files would implicate his Fifth Amendment privilege against self-incrimination.

But Judge Corley's order denying Waymo's motion to compel went further. She extended the Fifth Amendment privilege to a privilege log that Levandowski had to prepare. The court had required Levandowski to develop the privilege log with enough substance so that Waymo could respond to his Fifth Amendment arguments. As her ruling shows, even the outlines and parameters of a privilege log, without a corresponding production of the logged materials, can provide enough of a link to a potential crime so as to implicate constitutional concerns.

The Order is available at Waymo, LLC v. Uber Techs., Inc., No. 17-cv-939, 2017 WL 2864854 (N.D. Cal. July 5, 2017).

Friday, August 18, 2017

An Analysis of Two California Cases. Big California Cases.

Over the past week, we received two big decisions from two different California courts on two vastly different issues. One was a decision that has no precedential effect, but which garnered a lot of headlines, particularly in tech circles. That case was decided correctly. The other received almost no attention, but which is precedential. And that case was wrongly decided.


The Computer Fraud and Abuse Act and Data Scraping

I have a been a long-time critic of the CFAA, a law put together so haphazardly and over so many years that it is difficult to resolve important questions of statutory interpretation. The key legal question that arises under the CFAA - at least in the context of employee claims - is when one exceeds her authorized access to a protected computer or accesses that computer "without authorization." Put another way, many cases have analyzed claims of insider misappropriation within the CFAA's statutory text, even though it seems clear the statute didn't really have that type of case in mind.

But applying the "without authorization" language of the CFAA goes beyond just employment claims, as reflected in the important case of hiQ Labs, Inc. v. LinkedIn Corp. The case involved another question of statutory interpretation: whether the CFAA prohibited access to public LinkedIn profiles after LinkedIn revoked permission to such access.

A little background is essential, since the idea of an open internet is crucial to the case's disposition. hiQ Labs is a data analytics company. Its business model revolves around scraping data off of LinkedIn users' public profiles. It then can offer products to its client companies: an analysis of which employees are likely to leave or be recruited (such as by employees updating their skills and other LinkedIn fields) and a separate analysis of which skills individual workers possess.

LinkedIn demanded that hiQ stop scraping public data from its website, relying on its User Agreement and the term that prohibited data collection. hiQ sought injunctive relief, arguing that LinkedIn's threats undermined its business model and violated state statutory and common law. The analysis, though, hinged on the CFAA - for a reading of that statute in LinkedIn's favor would have preempted the offensive claims hiQ brought.

The district court found that the CFAA likely did not preclude hiQ's claims, and it relied on two general concepts. First, it distinguished other cases where CFAA infractions involved access to private, as opposed to public, data. And second, it looked to the law of trespass to conclude that, despite LinkedIn's supposed revocation of hiQ's access to public profiles on its website, hiQ hadn't circumvented any sort of authentication system to view those profiles. This analysis incorporated Professor Orin Kerr's influential Columbia Law Review article that discussed the law of trespass as explaining some of the ambiguity and context of the "without authorization" language in the CFAA.

The decision seems intuitive and obvious, but in large part it was constrained by the text of the CFAA itself, which has confounded courts over the years. Thank goodness we have thought leaders like Orin Kerr to make sense of the statute and provide the appropriate analytical framework on which courts can reconcile very difficult questions. Public websites need to be open and accessible, and operators cannot erect artificial barriers under the guise of an unread, boilerplate user agreement to invoke the specter of criminal liability for viewing and using what's freely available.

Malicious Prosecution

The second decision comes from the Supreme Court of California, where the Court absolved Latham & Watkins for its pursuit of a frivolous trade-secrets claim many years ago. That case made its way up to the Court of Appeal and is somewhat well-known to lawyers (like me) who believe that a robust, common-sense interpretation of "bad faith" is essential to defense fee-shifting claims. The case of FLIR Systems, Inc. v. Parrish, 174 Cal. App. 4th 1270 (2009), was the precursor to Parrish v. Latham & Watkins. In FLIR Systems, the Court of Appeal affirmed a fee award for the prevailing defendants after the plaintiff's trade-secret claim (and the expert testimony girding that claim) fell apart at trial. As the Court had held, the plaintiff's modest success in defeating summary judgment did not insulate the bad-faith fee award. That was a sound rationale: trade secrets plaintiffs often dodge, duck, and distract a trial court into believing there are factual issues in need of resolution.

Unfortunately, for the defendants in that case, the summary-judgment "loss" hurt them in a later, independent malicious prosecution claim that they brought against Latham & Watkins, the law firm that represented FLIR Systems. The Court of Appeal held that the so-called "interim adverse judgment" rule barred the malicious prosecution claim, a decision the Supreme Court of California affirmed last week.

That rule says that a malicious prosecution plaintiff cannot maintain a claim if a "trial court judgment or verdict" is rendered in favor of the plaintiff in the underlying suit - here the FLIR Systems litigation. The problem with applying this rule is that FLIR Systems' defeat of a summary judgment motion is not a judgment in and of itself. It's an interlocutory order that is not even appealable and is a reflection of the trial judge's perception that fact issues need a full airing in court. Indeed, a denial of a summary judgment motion is not a ruling on the merits in any sense.

California is ground-zero for crummy trade secrets claims, so the ruling is an important one. It is particularly important if the plaintiff cannot satisfy a fee award or if the pursuit of the claim caused collateral damage that flowed from the pursuit of the action (such as lost investors, delayed market entry, jettisoned goodwill). A fee award won't cover those damages, but a malicious prosecution suit will. The "interim adverse judgment" rule, applied to denials of summary judgment motions, is an artificial construct that insulates attorneys who pursue claims without an objective, good-faith basis. That they survive a summary judgment is by no means a reflection of the suit's merit, since the trial is where the facts are most tested. Courts need flexibility to assess whether the entirety of the prosecution was malicious, not whether the plaintiff's lawyers were skilled enough to defeat a motion.

An obvious consequence? California courts may see less summary judgment motions. Why risk it after the Latham & Watkins case?

Friday, August 11, 2017

The Reading List (2017, No. 24): Idaho Non-Competes Featured in NYT Article

Non-Compete and Trade Secrets News for the week ended August 11, 2017


The New York Times Continues to Explore Non-Compete Agreements

Over the past few months, The New York Times has published several stories and editorial pieces concerning non-compete agreements than I ever can recall. The latest, published July 14, takes readers far away from New York to Idaho, where Conor Dougherty explores the change in the law that makes it much more difficult for employees to contest the validity of restrictive covenants. the NYT piece explores the motivations for how the law changed to favor employers and the lobbying efforts behind the legislative efforts.

Idaho's statute is focused on "key employees," which actually includes independent contractors too. The applicable definition is fairly broad and applies automatically to the top 5 percent in terms of wage earnings. But it goes beyond that to include those who "have the ability to harm or threaten an employer's legitimate business interests."

The statute does more. It creates a series of rebuttable presumptions concerning reasonableness. For time, 18 months is presumed reasonable. For territory, it's where the key employee provided services. And for activity scope, reasonableness is presumed if the covenant is limited to the type of employment that the key employee conducted. The upshot of the Idaho law is this: the employee has the unenviable burden of proving a negative, that he or she is incapable of impairing the employer's legitimate business interests.

This sort of burden-shifting approach turns non-compete law on its head. The employer, seeking to restrain trade, always should justify and establish both the legitimate business interest (beyond mere protectionism) and the imminent harm it faces to that interest. The Idaho approach is reminiscent of the way courts have analyzed 14th Amendment challenges to economic legislation through rational-basis review. That standard, which fairly can be called judicial abdication and not judicial review, requires a challenging party to disprove every conceivable basis which might support the law. And in some jurisdictions, a legitimate basis might even be economic protectionism or a pure economic interest.

The dynamism of our economy requires much more engagement by the judiciary to assess, meaningfully, the asserted interest and justification for a non-compete clause. Requiring the employee to bear the burden of proving he or she won't harm the employer will lead courts to embrace covenants that are too protectionist and safeguard against only theoretical or irrationally perceived harm.

Contractual Injunction Clauses

Non-compete agreements contain a number of important terms beyond the restrictive covenants themselves. Clauses pertaining to fee-shifting, jury trial waivers, arbitration, and venue play a big role in determining how a case gets litigated and decided.

One standard clause that receives a lot of intention is the "stipulation" that a breach necessitates an injunction. Put another way, employers try to use these clauses to convince courts that they need not prove the essential elements of an injunction. They, instead, can point to the agreement itself as the basis for equitable relief.

Most courts are not receptive to this argument, finding that contractual clauses (particularly since they're not negotiated) must give way to court rules and procedures concerning injunctions. But not all courts say that. The Court of Appeals of Minnesota in St. Jude Medical, Inc. v. Carter, found an injunction remedies provision valid, relying on a general contract principle that court must enforce unambiguous terms. The problem with this reasoning is that it equates a non-compete with a freely bargained-for, non-adhesive agreement. In reality, a non-compete is not a conventional contract but a restraint of trade. Courts should always assess whether a moving party has met its burden to obtain an injunction, regardless of any contractual stipulations.

A copy of the opinion is available here.

Wal-Mart Trade Secrets Verdict

In April, Wal-Mart was hit with a jury verdict in excess of $12 million for misappropriating technology pertaining to e-commerce software. The trade-secret owner, Cuker Interactive, thereafter moved for entry of a permanent injunction as is available under the Arkansas Trade Secret Act. The district court agreed that such an injunction was available to protect the development time Wal-Mart avoided by misappropriating Cuker's technology. The district court's opinion is an engaged discussion on the availability of injunctive relief even after entry of a damages award.

But Cuker's win was slightly tempered. The court also reduced the damages award by over $2 million based on a limitation-of-liability clause in the contract between Wal-Mart and Cuker. 

Friday, August 4, 2017

The Reading List (2017, No. 23): The "Welcome Back, Ken" Edition

Non-Compete and Trade Secrets News for the week ended August 4, 2017


This week, I welcome myself back!

I'm happy to be here, really I am. The time away from blogging was great, a much-needed break. What did I do? I went camping (in the rain). I ran a race (the Bix7 in the lovely Quad Cities), and - oh yea - I tried a case in Chicago. Eventful. Not as eventful as Anthony Scaramucci's month, but eventful nonetheless.

Speaking of my trial, it was a doozy. A replevin trial over a stolen shipment of Mexican cheese, which the Chicago Tribune reported on. And, you know your case is good when it merits discussion in Food & Wine magazine. Just so you know, cheese heists appear to be a thing. But I'll take the set of facts I tried over any of these half-baked schemes. And it turned out great a - a replevin judgment about three weeks after we filed the case.

It did get me thinking about remedies, because you know I'm always looking to relate something to non-compete and trade-secrets law. Readers of this blog know that I've written a lot about the ex parte seizure order available under the Defend Trade Secrets Act. That procedure allows for an early court hearing, without notice, through which a federal court can empower a U.S. Marshall to seize stolen items containing protected trade secrets.

This replevin remedy is kind of similar, though there's process afforded. A replevin is simply an interim order that directs the seizure of property. In my case, cheese. But it could in theory be the replevin of a trade secret, too, depending on the facts. In Illinois, at least, replevin is only available for chattels or tangible goods. Again, cheese would be an example. Most trade secrets exist electronically, making the statute in Illinois a somewhat poor fit. Also, most items that a plaintiff would want back are legitimate in and of themselves (a computer, a thumb drive). In a replevin case, the plaintiff must show a superior possessory right to the thing itself - not what may reside on it.

Depending on the facts, a replevin order could issue on an ex parte basis. But in the main, a replevin claim really is an early trial that is akin to a mandatory injunction proceeding, which if successful results in a sheriff seizing property. All that said, don't overlook replevin as a potential remedy in a trade secrets case.

Anyway, on to news and updates.


Consideration for Non-Competes in Illinois

Illinois courts continue to debate and discuss the so-called Fifield rule of continued employment. Generally, that case suggests two years of continued employment is required to serve as adequate consideration for a restrictive covenant. The case, however, is more a result of sloppy legal writing than it is a bold pronouncement of what amounts to lawmaking.

In reality, the facts of Fifield weren't particularly compelling and the case wasn't that close. The employee had been working only for a few months before leaving, meaning his tenure was far short of the rough two-year guidepost old Illinois cases had established. And there certainly was no indication he received anything more than the job itself.

The Appellate Court of Illinois (Second District) weighed in somewhat in Paul Joseph Salon & Spa, Inc. v. Yeske in affirming the grant of a temporary restraining order. There, the defendant resigned two days before the expiration of the two-year employment period. The court held that, at least when reviewing a TRO, the court did not abuse its discretion in finding the consideration adequate even if it fell just short of the two-year mark. The case is not particularly useful since it's an unpublished decision and given the "quick-look" review afforded TROs. And in fact, the Second District in prior cases never has embraced a bright-line rule of two years' continued employment. It appears the reason why is that the two-year rule only sort of exists and stems from an unforced error in the drafting of the Fifield decision.

A link to the case is available here.

From the Southern District of Illinois, we received another district court memorandum order that rejects any bright-line rule concerning continued employment. This follows a trend of cases from Illinois federal courts. In Apex Physical Therapy, LLC v. Ball, No. 17-cv-119, 2017 WL 3130241 (S.D. Ill. Jul. 24, 2017), the court noted the problem with bright-line rules and inequitable results which could occur. Interestingly, the court stated that "consideration can be comprised of benefits beyond continued employment." As with many of the federal decisions, it is not clear what the employee's agreement said about consideration or what else the employer might have alleged in addition to continued employment.

Injunction Bonds

One overlooked aspect of injunction practice in competition cases is the need for a bond. A bond generally provides the defendant some security in case the court was wrong in issuing a preliminary injunction. To be sure, those orders can inflict economic harm on the defendant. And to complicate the equation, courts must issue those orders on a relatively undeveloped record.

In my experience, plaintiffs who seek an injunction treat the bond requirement as an afterthought. It's one thing to ask for a low or nominal bond. It's quite another to be totally unprepared in contacting a broker, filling out a surety application, and getting the bond issued. Assuming a plaintiff does secure a bond, however, it must recognize that it has responsibilities to continue with the litigation responsibly. Or else, the bond may provided the defendant with a ready source of damages.

Against this backdrop, I was interested by the North Carolina Court of Appeals' opinion in Van-Go Transportation, Inc. v. Sampson County. This is not a non-compete case, but it's about the closest analogue and certainly relevant for the bond discussion. It involved a public contract for the transportation of Medicaid patients seeking health-care services. The incumbent, Van-Go, obtained a temporary restraining order against a competing ride company that prevailed in a request-for-proposal process with a municipality. As a condition of the TRO, the court required Van-Go to post a bond.

After the defendant filed a motion to dismiss, Van-Go voluntarily dismissed its case but also sought a release of the TRO bond. The trial court denied that effort and awarded the bond proceeds among the defendants. The Court of Appeals affirmed that decision, holding that a voluntary dismissal is equivalent to an admission that the TRO was wrongfully obtained in the first instance. The ruling is obviously defense-friendly, and it forces the plaintiff to take a long-view of litigation. In rejecting Van-Go's argument that it discontinued the litigation for "responsible financial business practices," it effectively tells plaintiffs that they must continue a case in which they have secured an injunction at pain of forfeiting a bond.

Depending on the amount of the bond (and the damages a defendant can prove), that may be an acceptable risk for the plaintiff to take. But it's crucial to understand that getting an early injunction comes at a price. The plaintiff may not be able to abandon its case free of charge.

A link to Van-Go Transportation can be found here.

Independent Contractors

The enforcement of non-competes against consultants and independent contractors raises a host of tough questions. After all, the essence of being an independent contractor is freedom and, importantly, freedom to control your own work. Non-competes, by definition, stifle freedom and seem to be at odds with an independent contractor relationship. Still, many companies use non-competes with consultants or sales representatives much as they would with ordinary W-2 employees.

A pair of cases reveals the limitations, though, of shoehorning consultants into the typical employment non-compete framework. The first comes from the Eighth Circuit, where a panel concluded that a company could not restrict an outside sales representative from engaging in competing crop management and fertilizer sales since he had developed his customer contacts through his own labor and without support from the company. The case, Ag Spectrum v. Elder, is a great read on the reasonableness inquiry through its analysis of the company's protectable interest. In particular, the opinion emphasized the resources that the sales representative invested and the absence of any specialized training or assistance that the principal provided. In those circumstances, a customer non-solicitation covenant was unreasonable as applied.

The opinion from the Eighth Circuit panel is available here.

In a similar case, an Ohio federal district court denied an injunction brought by a company that sells, among other things, office chair mats against a former consultant. The non-compete entered into between the company and the consultant broadly prohibited him from competing in the sale of chair mats and other products. The problem for the company is that the consultant's work, following the end of the relationship, involved those other products. And the consultant's services had nothing to do with them. Put another way, the company was trying to prevent competition for work related to products over which its consultant had no involvement.

The opinion, written by Judge Edmund Sargas, reflects a terrific example of judicial engagement - a perspective I often find lacking in non-compete cases. Judge Sargas credited the consultant's prior history in developing the same type of products that he was offering after the end of the relationship, concluding that the consultant in fact did not try to capitalize on anything confidential he learned through his contract arrangement.

Together, both cases demonstrate the difficulty of enforcing non-competes in a more arms-length relationship where the employer simply cannot demonstrate a protectable interest - that is, an interest that stems from a significant investment of time, resources, or information.


Much more next week, including an update on the big Wal-Mart trade secrets case and more non-compete coverage in the New York Times.

Friday, June 30, 2017

The Reading List (2017, No. 22): The "Not Precedent Opinions Can Be Interesting" Edition

Non-Compete and Trade Secrets News for the week ended June 30, 2017


LinkedIn "Solicitations"

From the Appellate Court of Illinois this week, we got treated to a non-precedential Rule 23 order that addresses a fertile area of non-compete litigation. What effect should courts make of LinkedIn invitations to a former employee's co-workers and do those invitations amount to improper "solicitation"?

The court in Bankers Life and Casualty Co. v. American Senior Benefits LLC, 2017 IL App (1st) 160687-U, says no. Justice Simon's order gives a nice summary of similar cases from various jurisdictions and notes that the issue of "solicitation" really turns on the content of the social media post, communication, or invitation to connect. In this particular case, the LinkedIn e-mails were "generic" and mentioned nothing about either the employee's past or current employer. Nor did the e-mails invite former co-workers to leave their job or view an employment opportunity posting.

UPDATED (Aug. 8, 2017): The Appellate Court has now published the Bankers Life opinion, apparently agreeing that it sets forth a new rule of law or helps clarify an existing one. The link to the published opinion can be found here.

The Defend Trade Secrets Act and "Inevitable Disclosure"

John Marsh of Bailey Cavalieri has a very insightful post on the Third Circuit's non-precedential order in Fres-Co Systems USA, Inc. v. Hawkins. The case was a typical one in the non-compete field. Sales executive with influence over key accounts bolts for a competitor and then gets sued.

After the district court entered a preliminary injunction in favor of the employer, the Third Circuit reversed and remanded for it to consider the injunction standard more fully. As John notes, however, some of the language in the Third Circuit's order was a little loose (at best) concerning the threat of "irreparable harm" posed by the employee's move to a competitor. In particular, some of the order's reasoning implicitly suggests "inevitable disclosure" may be grounds for enjoining conduct under the Defend Trade Secrets Act. But it never comes right out and says that.

I think there's a danger of reading too much into this non-precedential order. For starters, the court lumped together its irreparable harm analysis for all the substantive legal claims, appearing never to appreciate the limits on injunctive relief under the DTSA. (The court never cites or quotes the limitation at all.) It could have instructed the district court to reconsider the irreparable harm factor in light of the DTSA, but failed to do so. Opportunity missed. That said, the plaintiff moved as well under the Pennsylvania Uniform Trade Secrets Act, which does not contain any DTSA-like limits on injunctive relief. And to be sure, the employee's non-compete would provide a separate grounds on which to analyze irreparable harm.

The Hawkins order is available here.

Trade Secrets Damages

Quantlab Financial prevailed in the Fifth Circuit Court of Appeals, which upheld a jury verdict of $11.2 million stemming from a claim of trade-secrets misappropriation. The case arose before the financial crisis and concerned the then-nascent business of high-frequency trading. The facts sounded a familiar refrain, with the evidence demonstrating large-scale copying and appropriation of trading technology source code and improper computer access by insiders.

The Fifth Circuit's unpublished disposition is located here.

Nevada Changes Non-Compete Statute

Last year, the Nevada Supreme Court in the case of Golden Road Motor Inn v. Islam held that courts could not modify overbroad non-competes, a decision I analyzed at some length. The analysis endures; the rule doesn't. Effective June 3, 2017, Nevada has a new non-compete statute that requires courts to modify overbroad non-competition covenants - a wholesale abrogation of Golden Road Motor Inn. The new law seems to strike a more employee-friendly balance, however, in that it specifically provides that a covenant cannot restrict a former employee if a customer "voluntarily chose to leave and seek services from the former employee." That's a gaping carve-out, sure to invite fact disputes about whether the customer voluntarily left. In other words, Nevada places customer choice above any countervailing employer interest.

Russell Beck's Fair Competition Law blog has an analysis of the new law here.

The Non-Compete PR Crisis

The firm Butzel Long released a Client Alert (really, a white paper) that deconstructed a number of problematic non-compete cases involving low-wage or mid-tier employees. This terrific publication addresses the Jimmy John's,, and Goldfish Swim School cases and offers practical guidance about how these companies could have avoided the nightmare public-relations fallout. I highly recommend this release for any practitioner who works in the non-compete and trade secrets field.

Non-Compete Crackdown in Australia?

The Guardian reports on concerns that the use of non-competes is stifling innovation in Australia, noting the concentration of market power in select industries. The report notes the same general concerns that reform advocates in the United States have, with the most compelling concern being the declining number of start-ups. This concern is all the more acute as the large technology companies continue to expand their reach into non-traditional markets - Amazon's pending acquisition of Whole Foods simply the latest example.

Uber's "Reason to Know" of Trade-Secret Theft

Android Headlines reports that members of Uber's board saw evidence of trade-secret theft concerning Anthony Levandowski's alleged appropriation of LiDAR technology from Google/Waymo. Uber was required to file an accounting with the court disclosing the names of people who may have had access to the files at the heart of Waymo's case. Uber has resisted disclosing a critical due diligence report authored by a firm before it acquired Levandowski's start-up, which likely will color Waymo's theory that Uber had "reason to know" that Levandowski was using Waymo's materials on behalf of Uber. That "reason to know" standard is crucial if Waymo is going to hold Uber liable. This discovery dispute appears to be the make-or-break moment in the biggest trade-secret action of the past several years.


I will be taking a few weeks off from updating this blog. See you in mid-July!

Wednesday, June 21, 2017

North Carolina's Odd Rule on Appealing Injunctions

Lawyers deal with rules that are substantive and procedural.

For the most part, substantive rules - those governing the merits of a claim - contain some flexibility. That is particularly true in non-compete cases, where the flexibility is a direct reflection on the fact-specific nature of each dispute. Bright-line rules don't work as well because they are subject to manipulation. That is, they run counter to the idea that judges must rule on each case according to the facts presented.

Procedural rules, however, benefit from rigidity. Take the rules concerning time limits on when a party must file a case or respond to discovery. Without bright-line standards, there are no rules for how to conduct the litigation. The whole system becomes a game.

One area of procedural law that is smartly inflexible is appellate jurisdiction.

For many years, courts have noted that clear jurisdictional rules are essential. The Supreme Court, for its part, has worked in recent years to eliminate holes in old case law suggesting that some cases are "practically" or "effectively" final for appeal purposes.

Rules of appellate jurisdiction are crucial in non-compete disputes. Why? Most cases are practically decided at the preliminary injunction stage. In federal court, a grant or denial or injunctive relief affords the litigants a right to appellate review, even if the action itself may result in a damages trial down the road. This basis for appellate jurisdiction - known to lawyers as an "interlocutory" appeal - is crystal clear and provided for by statute.

Not all State court systems follow the federal rules, of course. In Illinois, rulings on temporary restraining orders are immediately appealable. Not so in federal court. One particularly odd rule, though, comes from North Carolina.

There, appeals from interlocutory orders - which preliminary injunctions are, because they are not "final" - are allowed only if they deprive the appellant of a "substantial right that will be lost absent review before final disposition of the case."

North Carolina's rule, as applied to preliminary injunction orders, is hard to square with the common-sense proposition that, above all, jurisdictional rules must be clear to lawyers and litigants.

What, for instance, is a "substantial right"?

That issue has led to some strange decisions involving non-compete cases. For instance, the North Carolina appellate courts have found that bona fide non-competition clauses that bar work in an industry rise to the level of a "substantial right." But they also have found that restraints on working with customers (non-solicitation covenants) do not meet this standard. The idea is that these activity-based restrictions do not prevent a person from earning a living. They merely limit it.

But what if the individual's customer contacts are her stock in trade - the way she makes her living? How is an appellate court to make that decision in the context of a jurisdictional inquiry? In fact, a 2015 case called A&D Environmental Services v. Miller noted this very problem. The court dismissed an employee's appeal from a preliminary injunction order, which limited his work with certain customers. The rationale was that the order only limited his right to earn a living but did not prevent him from doing so. In a footnote, the court then stated the problem with this approach: "We do not suggest that an injunction which merely prevents a person from working with a defined group of customers could never affect a person's substantial rights."

Good luck figuring that out when deciding whether to appeal.

I have no idea why North Carolina courts would embrace such an odd jurisdictional regime, where the appellate court must examine the substance of an injunction order to evaluate the "substantial right" argument and then determine whether the appeal from that order was jurisdictionally sound. The court's work, by that point, is already done. Why not rule on the merits? The obvious danger in avoiding the merits is that by the time the case reaches true finality, the non-compete will by over and therefore moot.

Strangely, North Carolina's appellate jurisdiction analysis may actually incentivize employers to seek narrower relief. If an employer, for instance, has two different restraints to enforce, why go for the broader non-compete if you can foreclose immediate appellate review by enforcing through a preliminary injunction only a non-solicitation covenant? This decisional process, of course, depends on the strength of the evidence and what the employer is trying to protect. But the current appellate jurisdiction case law would seem to discourage enforcement of broader, market-based restraints against salespersons whose value to a third-party employer lies in her customer contacts.

To be sure, that is an odd way for appellate courts to handle non-compete cases and injunction orders. Jurisdictional rules - as opposed to substantive ones - are meant to provide firm, clear guidance. North Carolina's framework does anything but.

Friday, June 16, 2017

The Return of the Fourth Justice: My Concurring Opinion in BHB Investment Holdings v. Ogg

My dear readers may not realize that, despite not being a Michigan attorney, I recently sat as the Fourth Justice on the Court of Appeals of Michigan for the case of BHB Investment Holdings, LLC v. Ogg, or as it should be known for eternity the "Goldfish Swim School Case."

For reasons I haven't quite figured out, my concurring opinion is not available online. Nor does the official reporter appear to recognize my contribution to the Court. So I thought I'd repost my concurrence here.

BHG Investment Holdings, LLC
d/b/a Goldfish Swim School of Farmington Hills


Steven Ogg and Aqua Tots Canton, LLC

No. 330045

Court of Appeals of Michigan

February 21, 2017

Vanko, J., concurring in the judgment and ruminating about other stuff.

"You know, we're living in a society !"
-- George Costanza (Seinfeld, multiple episodes)

I have an Uncle Frank (doesn't everybody?), who is as salt-of-the-earth as you can get. He built his own house, tinkers with small engines, and drinks beer at the Moose Lodge on Sundays. Uncle Frank understands things viscerally and intuitively, in a way that speaks to a man's soul. In other words, you can't bullshit the old curmudgeon. When I see him at family gatherings, he always wants to hear what "the bastard lawyers" are up to. But he says it somewhat in jest.

The analysis of this case is no more difficult than asking a simple question: What would Uncle Frank do?


I know of two people named Steven Ogg. One is a character actor in TV serial dramas like The Walking Dead and Better Call Saul. The other - the defendant in this case - is a kid who works a job that pays him just enough that one day, if he's frugal, he might be able to buy a used scooter or rent a cheap apartment.

Ogg, a former competitive swimmer, teaches little urchins how to swim at a quaint little place called Aqua-Tots. I mean, seriously, how cute is that name? Unfortunately for Ogg, he used to work at Goldfish Swim School doing basically the same thing. For his work as an instructor, Ogg netted $10.50 per hour. At some point, Goldfish promoted him to a position called "deck supervisor," which sounds more walking around than swimming. For this step up the corporate food-chain, Goldfish upped Ogg's pay by $1.50 per hour. He must have celebrated with a small Slurpee.

Aside from paying Ogg what amounts to minimum-wage work, Goldfish had him sign a one-year non-compete agreement that said he couldn't teach tots to swim within a 20-mile radius. Goldfish later terminated Ogg - apparently deciding he wasn't valued enough. Ogg did what most enterprising young adults do. He found another job.

It was at that point that Goldfish lost its proverbial shit. Ogg did not - it turns out - earn his next meager paycheck by flipping burgers at McDonald's, folding shirts at the Gap, or futzing around with neighborhood landscape projects. He took the job at Aqua-Tots, which technically put him in "breach" of the 20-mile restriction Goldfish had him sign. The record does not reveal any dickering over terms or conventional contract negotiation.

For reasons that confound and amaze, Goldfish decided it was worth the money to sue and keep Ogg from working at Aqua-Tots. It was at this point that the clerk's office should have read the complaint and sent it to my Uncle Frank. He would have called up the courthouse and demanded someone toss the whole file in the shredder. No one would have been worse off had this occurred.

True, this sounds a bit third-world, but these are the times in which we live. Autocrats are celebrated these days. And a hell of a lot of lawyers' fees could have been saved. We'd end up at exactly the same place. Since Goldfish admitted that Ogg hadn't taken anything and hadn't tried to solicit parents of the kids he taught, this third-world approach would have made no difference. I could end my analysis right there.

But I won't. I'll go beyond the framework we should use - WWUFD? - and ruminate some more.


The majority's opinion is kind of a boring, hackneyed read. Ultimately, it reaches the right result, but whatever happened to snark and sarcasm? Has it no place in appellate jurisprudence?

I give the majority some credit. It at least engages Goldfish's arguments and tries to reason through its motivations for filing suit. I would like to have seen some acknowledgment that Goldfish filed this suit not because Ogg was some grave competitive threat, but because it wanted to send a message to other competitors to stay away from its employees. In other words, I just would have liked to have seen more skepticism through the process of judicial engagement.

So I shall be that skeptic.

Goldfish claims that by using this non-compete agreement for instructors like Ogg it was trying to protect its "techniques and ways in which we do things in our curriculum." I've seen more specificity in a Trump policy proposal. What exactly is Goldfish talking about? Ogg, again a competitive swimmer, obtained the same kind of training and knowledge that any worker anywhere would gain just by working. Every business has "techniques" and "ways in which [they] do things." That hardly justifies the need to claim secrecy over everything or to prevent the movement of labor.

Goldfish even lets the parents observe these "techniques." True, most parents these days dick around on their cellphones while Little Johnny or Jane thrashes around in the water. I mean, what's more important than checking out what Aunt Judy has to say about planting her begonias? But Goldfish wants parents to know these techniques, presumably so they can work with their kids and help them learn. Without this transparency, the whole swim class would be kind of pointless. The curriculum is built on the opposite of secrecy.

The majority also skirts over an obvious point. Goldfish paid Ogg in such a way that undercuts any argument that it "invested" in some proprietary training. So we know that can't be what Goldfish is trying to protect. To be sure, there are a number of municipalities where Ogg earned less than the legal minimum wage. And the 20-mile restriction is awfully significant given that Ogg's pay scale may not have allowed him to cover the cost of driving outside the red zone. If I made as much as Ogg, I'd be eating bologna sandwiches and drinking Natural Light.

I am quite troubled by the majority's statement that it was "reasonable to prevent Ogg from using specific Goldfish methods for a one-year period." That doesn't at all square with its comment that those same instructional methods were not proprietary since they were displayed "in front of hundreds of people daily." The majority seems perfectly willing to accept the contract language for what it is, without evaluating whether the restriction itself protected anything the law deems reasonable. Since when was economic protectionism a legitimate business interest that warranted the court's indulgence?


We could have made short work of this case. This whole proceeding is uncomfortable and annoying, like water in the ears or that lingering chlorine smell that won't go away. For its part, I hope Goldfish is embarrassed by this. We should have issued a more straightforward ruling that said its non-compete is categorically unenforceable against retail employees who can't possibly cause damage or further a corporate espionage scheme.

I fear we are entering a new realm in which employers will use restrictive covenants by asserting broad, vague interests that are wholly disconnected from the realities of the environment in which they operate. And by doing so, they can tie up competitors and employee in expensive litigation, the cost of which is disproportionate to any conceivable economic gain they ever could possibly obtain through a victory.

We have a name for this in the law: abuse of process. Uncle Frank has a name for this at the Moose Lodge: a pile of crap.


For these reasons, I concur in the judgment and remain deeply skeptical that we live in an ordered, civilized society.