Monday, August 13, 2012

The "I'm Too Busy Edition": Non-Compete Case Law Update

I swear I try to multi-task. But it's not easy.

Running a law firm, being a husband, being a dad (!), tending to a completely out-of-control garden, and actually practicing law sometimes creates the perfect storm where I realize I'm three weeks behind on, literally, everything. For instance, I just started Season 1 of "Breaking Bad." I think the Olympics are coming up, too...I can hardly wait!

So this blog has been neglected, but I promise to make up for it. I thought I would update my readers with five interesting decisions from the past several weeks in non-compete land.

Florida: Probably the most employer friendly state, any Florida decision starts with the presumption that the employee is out of luck. So too with DePuy Orthopaedics, Inc. v. Waxman, 2012 Fla. App. LEXIS 12654 (Fla. Ct. App. Aug. 3, 2012). In that case, the Court of Appeal interpreted the Florida statute that allows for assignment of restrictive covenants from an employer to an assignee. The court reversed a trial court order holding that the assignment was ineffective, relying upon the plain language of the statute. The assignment provision was contained a separate clause in the so-called general terms and conditions of the contract. The dissenting opinion would have held that the restrictive covenant itself had to reference assignability. In its view, the general assignment language was not enough under the plain language of Florida's governing statute.

Illinois: The Fourth District Court of Appeals - where all the madness started a few years back - has reversed an employee-friendly judgment on a non-solicitation covenant. In Zabaneh Franchises, LLC v. Walker, 2012 IL App (4th) 110215, the Appellate Court reversed a judgment entered following a temporary restraining order proceeding where an H&R Block franchisee tried to enforce a covenant against a tax preparer. The court found a two-year, client-specific covenant to be reasonable under Reliable Fire Equipment v. Arredondo. It is somewhat surprising the court found it reasonable on its face, rather than remanding for the trial court to make such a determination.

South Dakota: Home of the Black Hills, Custer State Park, and Wall Drug, one of my favorite states does not produce many competition decisions. But the district court's opinion denying injunctive relief to Little Caesar Enterprises is actually very interesting. The court in Little Caesar Enterprises, Inc. v. Sioux Falls Pizza Co., Inc., 2012 U.S. Dist. LEXIS 108828 (D.S.D. Aug. 3, 2012), confronted the age-old problem of trade secrets identification. This is often a major issue for trade secrets litigants because plaintiffs frequently don't inventory or understand their trade secrets until after something bad (more accurately, something perceived to be bad) has occurred.

Unlike patents, trade secrets are not known or registered or objectively verifiable. There is no incentive, apart from litigation preparedness, to document and monitor internally how trade secrets are kept, developed, and maintained. Little Caesar could not identify a trade secret, sufficient to obtain an injunction, over its Hot-N-Ready pizza method. That method, apparently, allowed Little Caesar to sell ready-for-pickup pizzas according to a particular system - that is, what products to prepare on an hour-by-hour basis, with specific ingredients and preparation requirements. (I say "apparently" because I have not eaten a Little Caesar's pizza in at least 10 years and am in no position to understand how this is any different than your standard fare carry-out. But it must be).

The court, in denying injunctive relief, noted that the description of the Hot-N-Ready system was too generic or general to amount to a trade secret. The court also relied on evidence that many of the specifics in terms of pizza preparation were common to other proprietors. Perhaps most importantly, the end product - the actual pizza - was admittedly different and bore no similarity to Little Caesar's. If that's really the case, it's a mystery why this case is even a case.

Virginia: Hamden v. Total Car Franchising, Corp., 2012 U.S. Dist. LEXIS 111432 (W.D. Va. Aug, 7, 2012), presents one of those interesting contract interpretation questions. In this case, the court found that the expiration of a franchise agreement did not trigger post-termination obligations. Holding "expiration" and "termination" were not synonymous, the court focused on the fact that the contract listed a series of conditions under which the contract terminated automatically. Most employment contracts are at will, meaning expiration rarely comes up. But the plaintiff (the franchisee, who sued for a declaratory judgment) was able to dodge a few unfavorable cases from other jurisdictions to prevail.

Wisconsin: Section 103.465 is the Wisconsin statute that has given management lawyers fits over the years. It applies to "restrictive covenants in employment contracts." For non-employment covenants, Wisconsin's common law rule of reason analysis applies. In Key Railroad Development, LLC v. Guido, 2012 Wisc. App. LEXIS 625 (Wisc. Ct. App. Aug. 7, 2012), the Court of Appeals found that Section 103.465 applies to employees who shared equal bargaining power with the company. The court was able to distinguish a recent case involving a stock option agreement, which was not governed by Section 103.465. In Key Railroad, the employees - though they were higher level management, no doubt - still were classified under the contract as "at-will."

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