Thursday, February 10, 2011

Wisconsin Court Dismisses Claim for Breach of Non-Solicitation Covenant On Grounds of Reasonableness (Share Corp. v. Momar)

Last year I wrote about a dispute between two competitors in the chemical sales industry, Share Corporation and Momar, Inc. This non-compete case is pending in Wisconsin, and last March the federal court hearing the case denied Share Corp.'s motion for a temporary restraining order on the grounds that the client non-solicitation covenants were likely overbroad.

A few weeks ago, the court granted the defendants' Rule 12(b)(6) motion to dismiss those claims, holding effectively that the non-solicitation covenants were unreasonable as a matter of Wisconsin law. The fundamental problem with the non-solicitation covenant was its lack of any backward-looking temporal provision. Put another way, the clause applied to bar client solicitation of any client who the employee may have serviced during the course of his employment. Wisconsin law requires a a backward restriction that would provide, for example, such a restriction to take effect only as to customers the employee serviced during the last year of his or her employment.

The ruling is significant for Wisconsin attorneys and litigants because of the procedural posture of the case. A defendant can and should be aggressive in seeking an early dismissal of a non-compete case where the covenant is facially overbroad, at least in Wisconsin. In other states, the law may not be as inviting for the defense at the initial pleadings stage.

Another word is in order for Wisconsin non-competes. Attorneys have to be really careful in drafting agreements. There are numerous permutations based on Wisconsin case law that must be considered during the drafting process. The dispute in Share Corp. v. Momar, Inc. is but one. Attorneys also must be scrupulous in drafting non-disclosure clauses, as Wisconsin will scrutinize them for reasonableness to a much greater degree than other states.
Court: United States District Court for the Eastern District of Wisconsin
Opinion Date: 1/26/11
Cite: Share Corp. v. Momar, Inc., 2011 U.S. Dist. LEXIS 10782 (E.D. Wis. Jan. 26, 2011)
Favors: Employee
Law: Wisconsin

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