This is a much overdue case law update, so it's a little lengthy. But on the upside, it touches on a number of different subjects from around the country.
A federal district court in Indiana excluded significant parts of an expert's lost profits testimony in the hotly contested case of CDW, LLC v. NETech Corp. The case arose out of an allegation that NETech lifted out CDW's Indianapolis branch office and suffered millions in losses in "advanced technology" revenue. On a Daubert motion, the district court excluded a financial expert's "yardstick" methodology for predicting what CDW's Indianapolis branch would have earned but for the alleged wrongful conduct by the ex-employees. The ruling effectively excluded opinions that would have established lost profits of over $17,000,000. The district court allowed an alternative formulation of lost profits in a much lower amount to go to the jury.
The extension of non-competes past their expiration date (as measured from the date of termination of employment) is one of the most controversial, hotly contested remedies in litigation. As a federal district court in Idaho noted a few weeks ago, judges normally impose this remedy - when it's available - after a jury finding of breach or after a favorable ruling on summary judgment for the enforcing party. But in unusual cases, like that in MWI Veterinary Supply Co. v. Wotton, 2012 U.S. Dist. LEXIS 131784 (D. Idaho Sept. 14, 2012), the court can issue an extension remedy at a TRO or preliminary injunction phase. That finding was important in the Wotton case since the court had to find extension was appropriate to determine likelihood of success on the merits of the case. The non-compete, which arose out of the sale of a business, expired by the time the court addressed the preliminary injunction motion.
Temporary Restraining Orders
An Ohio court refused to grant a temporary restraining order against a departed sales executive in Chart Industries, Inc. v. Spagnoletti, 2012 U.S. Dist. LEXIS 140102 (N.D. Ohio Sept. 28, 2012), because the non-competition covenant contained no geographic or job-scope limitations. Though careful to note that such covenants were not per se unenforceable, the court stated it was important that the employer did not ask the court to impose any sort of limitation on the covenant at the TRO stage that would make it reasonable. The case demonstrates the continued difficulty courts have enforcing non-competes that contain no limiting language whatsoever. Delaware law applied.
Necessary and Indispensable Parties
In non-compete cases, the plaintiff sometimes will elect to forego suing the new employer and will proceed simply against the employee. There are a number of strategic and substantive reasons why this may be the case. The ruling in OneCommand, Inc. v. Beroth, 2012 U.S. Dist. LEXIS 122587 (S.D. Ohio Aug. 29, 2012), shows that a new employer is not a necessary party who must be part of the litigation under Federal Rule of Civil Procedure 19. Even if the plaintiff has potential claims against a new employer (for interference, trade secrets theft and the like), it is not necessary to make that company a party to a breach of contract suit with the employee.
Jury Trial Waivers
The right to a jury trial can be waived by contract if the waiver is knowing and voluntary. Generally, such waivers are strictly construed, however. One question that frequently arises is how far the contractual waiver extends to non-contract claims, like trade secrets misappropriation. A Delaware court concluded that a jury waiver provision in an asset purchase agreement encompassed related tort claims of trade secrets theft, conversion, and common-law unfair competition - reasoning that the "arising out of" language in the agreement was sufficiently broad to include torts intrinsically related to the contract action. The case is Coface Collections North Am., Inc. v. Newton, 2012 U.S. Dist. LEXIS 124342 (D. Del. Aug. 31, 2012).
Non-compete litigation can sometimes perpetuate itself solely because of fees that are incurred. An illustration of this problem comes from the case of Cumulus Broadcasting v. Okesson, 2012 U.S. Dist. LEXIS 124836 (D. Conn. Sept. 4, 2012). After the parties settled, they left it to the district judge to award attorneys' fees under a provision of the employment agreement that enabled the plaintiff to recover fees enforcing the non-compete.
The court, seemingly none-too-pleased (particularly since it was not allowed to see the terms of the parties' settlement agreement (?)), significantly pared back what the plaintiff thought it was owed. It essentially limited its fees to those incurred to obtain a preliminary injunction. And even that apparently gave the plaintiff only a small slice of what it wanted. The court ripped about $10,000 in fees off what it cost to take the matter to hearing.
The fee award was $80,317 (inclusive of some $21,000 in costs) - about 1/4 of what the plaintiff incurred and claimed it was entitled to. If nothing else, the case highlights for clients what a preliminary injunction can cost. And it further shows that weak non-compete cases can cost a lot more than the value of the benefit received.
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