Quick Analysis and a Copy of the Second Circuit's Opinion in MacDermid, Inc. v. Dieter

For those interested in today's Second Circuit opinion in MacDermid, Inc. v. Dieter, I have embedded the file below.

Though not a non-compete case, the decision is a boon for U.S. employers looking to police trade secret theft activity that occurs outside the country. The suit was based on Connecticut's trade secret statute, not the federal Computer Fraud and Abuse Act. But the suit reads like a CFAA claim.

In short, MacDermid claimed Dieter improperly forwarded confidential business information just before her termination of employment. The conduct occurred in Canada. But MacDermid maintained its data on servers in Connecticut. Dieter's defense to jurisdiction - that she did nothing in the United States - did not carry the day, according the Second Circuit.

Read the Chicago Tribune's article for a summary of the case, and then the short Second Circuit opinion below.

MacDermid v. Deiter - Second Circuit Opinion

Type of Nonsolicitation Clause May Influence Proper Venue

In the past, I have assiduously avoided discussion of venue and jurisdiction disputes. These arise with alarming frequency in non-compete litigation. By and large, they are dull and uninteresting topics that only lawyers can warm up to.

One issue, though, does warrant some mention on this blog. And (as the title of this post indicates) it has do with the interplay between the type of non-solicitation covenant at issue and the considerations courts give to determining proper venue.

Start with this premise: non-solicitation covenants come in two shapes and sizes. First, some covenants prohibit only true customer "solicitation" by an employee. Second, others prohibit an employee from not only soliciting certain customers but also from working with them. The distinction lies in who initiates the contact - the customer or the employee. In the latter class, a broader range of competition is off-limits.

So let's discuss how this can factor into a venue dispute. Take, for example, a case out of Nebraska - Farm Credit Svcs. of America v. Opp, 2012 U.S. Dist. LEXIS 171818 (D. Neb. Dec. 4, 2012). It yields a common fact pattern:

1. Agreement contains a mandatory choice-of-law and forum selection clause of Nebraska, where the plaintiff maintains its corporate nerve center.

2. Employee works in South Dakota and deals with customers only in South Dakota.

3. Employee contends that customers will say they sought him out - not the other way around.

4. Those witnesses will be inconvenienced by having to travel to Nebraska to testify.

The argument has some appeal. But only if the non-solicitation covenant is of the first kind I described above - one that only limits "solicitation."

Why is that the case? Because customer testimony likely is very relevant to determine how the initial contact with the ex-employee started. Those customers are often decisive in resolving the critical fact question - who solicited whom? Courts will discount the employee's testimony, but they're more likely to credit what a non-party has to say on the stand.

The problem in the Nebraska case is that the agreement was broader - the second kind I described above. The non-solicitation covenant prohibited both active and passive solicitation. Customer testimony was, in the court's mind, irrelevant. If the ex-employee sold to those customers, it matters not at all who initiated the contact.

Back to venue clauses a second. There are two types - consent to jurisdiction and consent to venue. In a consent-to-jurisdiction clause, a selected venue is permissible, but not mandatory. In a true forum selection clause, however, an employee waives any challenge to venue based on his or her incovenience.

But the analysis does not end there. Federal courts have the power to transfer a case out of the mandatory venue if third-party witnesses will be inconvenienced. In non-compete cases, this would include customers who are at the heart of the dispute. And when the clause is drafted in such a way that precludes any work with certain customers, then a federal court is much less likely to view their testimony as relevant in the case. A broader non-solicitation clause, in effect, means that an employee will have a far more difficult time claiming third-parties will be inconvenienced by the agreed-upon forum. 

Non-Compete Suits and TROs - Part 3

In the last installment of my series on temporary restraining orders (TROs), I will discuss some practical problems and considerations for parties who argue these motions in court.

I will address this both from the perspective of the moving party (usually the employer) and the responding party (usually the employee). One caveat first. The first, most important consideration is to understand local practice.

From my perspective, it is harder to obtain a TRO in federal court than it is in state court. But practice varies widely among jurisdictions - and even within jurisdictions among judges. Preliminarily, any attorney needs to understand what it is judges want and expect at a TRO hearing.

Practical Problems and Considerations - The Moving Party's Perspective

Start with the premise that judges aren't inclined to grant many TROs. By definition, the relief is extraordinary. It will cause problems with the court's docket. And it may require the court to do a lot of work in a short amount of time.

So any party moving for a TRO better tie up every single loose end. In my experience, TROs are often poorly put together, likely because of the haste in getting something on file. But taking shortcuts and failing to cover the necessary areas is the surest (and easiest) way for a court to deny the motion.

I have come up with five key considerations that a moving party must keep in mind, irrespective of the particular merits of any case.

(1) Describe the immediate harm. This sounds obvious. But many TROs fail to address this. In a non-compete case, for instance, a moving party should attempt to show that customer solicitation efforts are occurring as of the filing (not that they once occurred) and that valuable customer relationships are at risk. If data has been taken or compromised, the moving party must show what type of harm could occur absent a court order. Conclusions are not enough. Specificity rules.

(2) Identify compelling facts in affidavits. TROs that overemphasize conclusions and speculation are destined to fail. Sworn declarations should identify customers solicited, orders lost, data taken, or other specific acts of unfair competition. If a moving party doesn't have at least some hard evidence to point to, then the motion won't carry the day.

(3) Keep it short. A party seeking a TRO will have a judge's attention - but not for very long. A TRO brief does not have to cite every case or come in just at the word limit (it's a limit, not a goal). A concise brief highlighting sworn declaration testimony, touching upon the key TRO elements, is much better than a sprawling 200-page filing that a judge will only glance at and quickly discount.

(4) Tell a story. This is my advice for just about any motion or brief. But on a TRO, you have a narrow window to make a quick, powerful impression. A strong introduction demonstrating ongoing harm and the need for an immediate order is critical. Even more important is a story describing why the non-compete is reasonable and enforceable. Because a court likely won't be considering anything but a movant's submission, it is important not to get bogged down into unnecessary details.

(5) Be prepared with a bond. It is essential for a moving party to know that it may have to post a bond to get a restraining order. Federal Rule 65(c) discusses the requirement of posting security. Courts must consider the amount of a bond when granting any type of preliminary injunction or TRO. If the court is inclined to grant the motion, it may ask counsel for the moving party what its position is on security. It is not enough simply to ask for a waiver. Counsel must be prepared to acknowledge some amount has to be posted and give a rationale for what that amount is.

Practical Problems and Considerations - The Responding Party's Perspective

A party responding to a TRO is both in the driver's seat and somewhat stuck. On the one hand, most TRO motions are denied - so that's naturally a plus-fact. However, the responding party often is caught flat-footed and has little opportunity to tell his or her side of the story.

Practical tips? There are many. Here's five:

(1) Identify procedural problems. As TROs are almost always slapped together, it is inevitable that a moving party will make mistakes. It's incumbent upon a defendant to know the TRO rules and standards, and describe for the court why the plaintiff failed to meet its burden. For instance, in Illinois state courts, our pleading rules require a moving party to show specific facts concerning irreparable injury. Conclusions won't suffice. I have defeated TROs when plaintiffs make undeveloped or conclusory arguments concerning this critical TRO element.

(2) Focus on what is being requested. Often times, a court may agree that a TRO - in comcept - is warranted. But the plaintiff may overplay its hand and ask for too much relief. For instance, a draft order submitted may sweep too broadly or not describe with specificity the conduct to be enjoined. A responding party should always seek to narrow the TRO the plaintiff seeks, or describe why the scope of the relief is too broad or vague to be enforced. This often dooms a TRO seeking some relief concerning use of trade secrets.

(3) Point to delay, lack of an emergency. Courts will require a moving party to act quickly if it wants a TRO. But sometimes a plaintiff will wait too long; even a week's delay in acting can spell the end of a TRO motion. A defendant is well-advised to point to evidentiary holes or facts demonstrating that the plaintiff was aware of the challenged conduct and sat on its rights for an unreasonable period of time.

(4) Submit a concise response - if you can. Difficult as it may seem, a responding party should try to submit a response brief, with or without affidavits. Again, brevity is very important because a judge won't have time to review a lengthy submission. And, also, it may give the court a better idea of the defendant's story before any hearing. In federal court, it is common for courts to give the responding party a few days to submit a brief before conducting any sort of a hearing. In state court, this is less common.

(5) Consider an agreed order. It's never fun conceding. But a defendant can do well by averting a TRO hearing altogether. It can propose an agreed injunction order that gives a plaintiff some relief, but not all of what it's asking for. A plaintiff has a natural incentive to consider this, given the reluctance with which courts grant TROs. Common ways to resolve a TRO in a non-compete case include an agreement not to solicit a narrow (as opposed to broad) group of customers, to return documents or information, and not to work in a defined role at a competitor pending an injunction hearing.

Non-Compete Suits and TROs - Part 2

Last Saturday, I discussed a difficult procedural issue concerning TROs - appellate rights.

Today, I want to discuss a more practical problem clients face when deciding whether to move for a TRO in a non-compete case: what are the benefits and drawbacks of seeking an immediate restraining order?

Benefits

I think there are three potential benefits to moving for a TRO, but like anything else, they're subject to some qualification.

First, pursuing a TRO often times leads to an agreed order that may be less than what the client wants, but still gives some measure of relief before an evidentiary hearing on a preliminary injunction motion. Look at it this way: if you don't move for a TRO, you're not getting anything until the injunction hearing - which could be 2 months down the road. And if you take something less than what you're asking for to resolve the motion, you're still getting more than you would without seeking the TRO in the first place.

Second, a TRO motion gives the plaintiff the ability to frame the dispute for a judge right away. My experience is that judges - despite their heavy dockets - remember cases that are before them on TROs and preliminary injunctions. They immediately dive into the merits, which doesn't happen in the vast majority of cases. By seeking a TRO, the plaintiff is able to tell a story and get it right before a judge, who is more likely to remember the case as opposed to those that just sit around or are a regular staple of his or her docket. In a strong case, this can be very beneficial for future disputes or contested motions.

Third, the client often benefits from a TRO motion, even if it's not entirely successful. The lawyer must communicate that TROs are difficult to obtain, and that a loss is really not a huge setback. Even unsuccessful TROs can force an immediate settlement discussion or a concession, and the very pursuit of it may achieve some measure of relief. The defendant, for instance, may prevail and defend the TRO successfully, but decide that - to minimize risk - he or she is going to stop soliciting the accounts protected by the covenant.

Drawbacks

Despite these benefits, TROs suffer from some drawbacks, too. Again, I'll stick with three.

First, a loss can embolden a defendant into thinking he or she has a strong defense. The standards for determining a TRO are much different than at final judgment, but if a judge expresses skepticism at a TRO hearing about the covenant's enforceability, then a defendant may feel as if the cost of litigation is justified for achieving a favorable result.

Second, the compressed timeframe in which an attorney must file and present a TRO motion often leads to sloppy or incomplete work. Unless a client is prepared to provide the evidence and testimony required to support a TRO, an attorney could be hamstrung and ill-prepared to demonstrate for the court the immediate need for a TRO. In my experience, these poor evidentiary presentations doom most TRO motions.

Third, the compressed timeframe can be detrimental even if the motion is successful. Some clients are ill-prepared to go to an injunction hearing in 14 days. Since a TRO is temporary, the grant of a motion speeds up the case; the court must conduct a hearing to determine whether to convert the TRO into a preliminary injunction. And if the defense insists on a quick hearing date (that is, it doesn't consent to an extension), the plaintiff must be prepared with its witnesses and supporting evidence. In some cases, this won't be an issue. But for a client that hasn't prepared sufficient affidavits or conducted a strong factual investigation, this short turnaround time could be fatal to the success of an injunction motion.

Non-Compete Suits and TROs - Part 1

Companies that face competition from ex-employees often want a temporary restraining order. As readers of this blog know, there is a significant difference between a temporary restraining order and its big brother - the preliminary injunction. This past week, I had a lengthy TRO hearing on behalf of a client in federal district court in Minnesota. TRO practice and procedure differs widely from federal to state court, and even within certain courts - depending on what judge one draws.

This is the first in a three-part series about TROs in the context of non-compete disputes. Today's post reflects on a confusing issue of timing under Federal Rule 65: what does it mean, under the law, for an order to be "temporary" and for how long can courts issue TROs? Part II will focus on the benefits and drawbacks of seeking a TRO, as opposed to a preliminary injunction. And Part III will discuss some practical considerations when presenting and arguing TROs.

(Because it is the end of the year - a notoriously frenetic time for law firms - and because I have an infant who I'd rather spend time with right now, it is unknown when Parts II and III will appear. But let's just say within the next seven days...)

So onto timing. A "temporary" restraining order can only be...temporary.

The confusion for many parties in terms of a TRO's duration stems from the two types of TROs that courts see: those with notice and those without notice (called ex parte TROs). A TRO sought without notice clearly can extend no longer than 14 days under the terms of Federal Rule 65, and courts are highly skeptical of parties who seek such relief without letting the defendant know of the proceeding. In essence, courts will require parties to make an additional showing of why giving the defendant notice is either impractical or itself poses a threat of irreparable harm.

But the issue of TRO duration is less obvious when a party seeks a TRO with notice. Federal Rule 65 (and most state court rules of procedure) do not specifically address this. The 14-day duration limit is expressed in terms of a TRO sought without notice. There is simply no corollary in Rule 65 addressing duration limits for a TRO sought with notice.

So how long can a noticed TRO last? 14 days? Longer, at the court's discretion? The answer has to do with appeal rights. Under the federal rules, a grant or denial of a TRO is not appealable. This differs from the practice of some state courts - Illinois, for instance - which have specific rules of appellate procedure that allow for an appeal of a TRO ruling.

But just looking at Federal Rule 65, if a TRO is not appealable, then it has to be time-limited - whether the petition is filed with or without notice. Interpreting the rule otherwise, a court could simply foreclose an appeal right by calling a preliminary injunction a TRO. Remember: TROs issued with notice resemble preliminary injunctions. Notice concerns are gone. A party may respond with affidavits, exhibits, and even an answer denying material allegations. At that point, a court - depending on what exactly is presented - will have at worst a broad sketch of what an actual preliminary injunction hearing will look like.

So the answer is 14 days in either case. This issue is not the subject of much reported case law for two reasons. First, TROs aren't appealable in federal court so there is almost no circuit law on the subject. Second, parties often agree on how long a TRO should last - even if it's past 14 days. There is a natural incentive for parties to agree so they can adequately prepare for a preliminary injunction hearing.

Pennsylvania Court Rejects Sherman Act Challenge to Non-Solicitation Agreement

A while back, I posted on EBay's current dispute with the Department of Justice over a no-poaching agreement it had with Intuit concerning the companies' tacit understanding not to poach management level employees. The Justice Department sued under the Sherman Act, claiming the agreement was a violation federal antitrust law.

A recent decision out of Pennsylvania demonstrates that such an argument is difficult for a court to accept.

The agreement at issue was between a staffing company, Select Medical, and its client, Consol Energy. The agreement contained a fairly common no-poaching clause that precluded Consol from hiring Select's employees during the term of the staffing agreement and for a trailing period of 18 months.

Though the Amended Complaint was less than clear, it appears the plaintiff - Molinari - was employed by Select Medical and impacted by the no-poaching clause when he sought to work at Consol in a safety coordinator position through another staffing company.

Molinari claimed that the Select Medical/Consol agreement was illegal under the Sherman Act because it produced anticompetitive effects within the following relevant market:

"...labor and services for sale to any employer who provides, or who may provide, services to Consol, directly or indirectly."

And that ended up being fatal to Molinari's attempt to claim a Sherman Act violation.

Molinari couldn't define the relevant market in a way that allowed him to state a plausible antitrust claim. In essence, Molinari made two mistakes:

(1) he never alleged what his skills were and how they were impacted by the agreement; and

(2) he claimed the market was a single entity - those who may work or provide "services to Consol."

Under federal law, a plaintiff must show that an agreement produces anticompetitive effects "within the relevant product and geographic markets." Molinari may have been right that the Select Medical/Consol agreement produced such effects as it pertained to his ability to work at Consol.

But he couldn't - indeed, didnt try to - demonstrate that the agreement precluded him from applying his general skills and knowledge elsewhere, even to companies that may provide energy services like Consol. Instead, he defined the relevant services market in a narrow, unrealistic way that didn't match up with the allegations of his complaint.

He also couldn't - again, didn't try to - allege that the Select Medical/Consol agreement precluded companies from hiring safety coordinators generally, or that the agreement made it unreasonably difficult for companies to find and retain such workers.


Molinari v. Consol Energy - Opinion

Georgia Case Demonstrates Importance of Addressing Choice of Venue and Law Clauses

Readers know from prior posts that Georgia is one of the "red-flag" states when it comes to non-compete disputes.

Non-compete contracts entered into before the ratification of a constitutional amendment in 2011 are governed by the common law, and that body of law remains exceedingly treacherous for companies enforcing covenants.

A recent Georgia appellate case illustrates why procedural choice of venue and choice of law rules are vitally important.

The case of Carson v. Obor Holding Co., LLC yields a fairly common fact-pattern. Carson wore two hats for Obor Digital, a company that supplies staffing and software services in the defense industry. He was a member of the holding company (the defendant in the case) and an employee of the operating entity (not a defendant). He resigned in April of 2011, claiming "constructive discharge" by virtue of a reduction in his commissions. He then immediately filed suit in Georgia state court seeking an injunction against enforcement of the restrictive covenants contained in the Holding Company operating agreement.

The trial court dismissed his case, finding a Florida choice-of-forum clause was valid. That contract also required application of Florida law. Florida, in direct contrast to Georgia, is an exceedingly friendly enforcement state.

The Court of Appeals of Georgia reversed and held that the forum selection clause was invalid. It is important to note that courts won't invalidate forum selection clauses simply because one state's law (here, Georgia) is more favorable to employees than another state's (here, Florida). Rather, the difference has to implicate some fundamental public policy.

Florida tends to pose special problems with choice-of-forum and choice-of-law clauses if the suit is brought in another state. This is so for two primary reasons. First, Florida has a mandatory blue-pencil rule, requiring courts to modify overbroad covenants to the extent necessary for protection of the enforcing party. Georgia (pre-2011) is the exact opposite, essentially adopting an all-or-nothing policy. Second, Florida disallows a court from considering any employee hardships - economic or otherwise - that may result from enforcement. Georgia requires courts to consider such hardships in the balancing analysis. (Illinois adopted a similar rationale a few years back to invalidate Florida choice-of-law provisions in non-compete cases pending in Illinois courts.)

Turning to the substance of the covenants, Obor Holding's operating agreement had the following deficiencies in the restrictive covenants:

(1) The non-disclosure covenant did not define "confidential information," and it barred use of confidential information in perpetuity. Georgia law holds this is invalid if the non-disclosure for non-trade secret information is unlimited. (This is ridiculous, but maybe more on this in another post.)

(2) The non-solicitation covenant was not limited either (a) to a discrete class of customers, or (b) territorially. It also barred Carson from accepting business from a customer. Georgia cases hold that non-solicitation covenants that bar this so-called "passive solicitation" are invalid. (Again, stupid. How can an enforcing party know who contacted whom?)

(3) The non-compete covenant was invalid because it applied throughout the country and had no discernible territory limitation and because it had no activity scope tied to it. That is, it barred any affiliation with a competitor, not just some particular competitive conduct.

Because of the fundamental difference in how Georgia and Florida courts view non-competes, the Court of Appeals found that the operating agreement covenants violated Georgia public policy and that a Florida court would enforce them (at least to some extent). That means that, in Georgia, the choice-of-venue clause was invalid. A Georgia court had to hear the case and had to apply Georgia law. IIt must be nice to be a Georgia non-compete lawyer. No shortage of cases. And plenty of contract rewrites given the change in the law in 2011.

Other states that will pose similar procedural problems like this are Wisconsin, Oklahoma, North Dakota, and California. States that are viewed as more employee-friendly may not have robust public policy considerations that require courts to override choice-of-forum and choice-of-law clauses.

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Court: Court of Appeals of Georgia
Opinion Date: 11/20/12
Cite: Carson v. Obor Holding Co., LLC, 2012 Ga. App. LEXIS 971 (Ga. Ct. App. Nov. 20, 2012)
Favors: Employee
Law: Georgia

Product Disparagement At Heart of Merge/Medstrat Lawsuit Over Lost Customers

As reported in Crain's Chicago Business on Monday, Merge Healthcare Inc. has filed suit against rival Medstrat for allegedly using unfair means to target a specific group of clients. Merge and Medstrat are competitors in the field of medical-imaging technology.

The central allegations it the Complaint revolve around a marketing plan Medstrat allegedly developed to poach customers away through a series of inaccurate or disparaging remarks, including claims that Merge was not "stable" and that Merge had retained an investment bank, ostensibly suggesting Merge was trying to combine itself with another industry player.

The meatier allegations of unfair competition concern a claim that Medstrat used improper tactics to poach away specific customers from Merge's prior acquisition of Stryker Imaging. Those so-called "legacy" customers had a different type of imaging system (that is, a hardware/software system that captured and stored medical images) that other Merge customers.

The crux of Merge's claim is that Medstrat was "scaring" customers into believing that Merge was going to convert these legacy Stryker customers into using (or migrating to) a different imaging platform. Ostensibly, the alleged purpose of these communications was to suggest the transition or conversion would be costly, painful, and difficult.

Merge's take is that no customer would be forced to convert to a single imaging product and that it would continue providing support for any legacy product that ex-Stryker customers use. Interestingly, Merge alleges that it is aware of nearly 40 accounts that have switched to Medstrat during the time period proximate to disparaging remarks. It claims that lost profits easily could reach into the eight figures.

The lawsuit seeks both injunctive relief and damages. Any time a court issues an injunction that ostensibly affects speech (which disparagement is), a First Amendment concern arises. And an injunction against speech could easily be deemed an improper prior restraint.

The law in Illinois is not particularly well-developed but it appears Merge recognizes the First Amendment difficulties that its injunction could pose. In my opinion, plaintiffs sometimes pursue a shotgun approach that seeks a broad injunction against false or misleading remarks - without specifically exactly what a court should enjoin. That clearly is wrong and would lead to significant legal problems crafting an injunction order.

Merge, though, was pretty careful. With its preliminary injunction motion, it has submitted a proposed order identifying what types of communications it wants enjoined. It outlined very specific comments that it believes should be enjoined and also wants the court to prevent Medstrat from distributing certain marketing communications that it believes incorporate disparaging material.

This is an example of a injunction request that affects speech, but which may be appropriately and narrowly crafted to avoid the latent First Amendment "prior restraint" problem that often crops up in disparagement cases between competitors.

Medstrat has not yet responded to the Complaint, but it will be interesting to see if the prior restraint issue is part of its defense at the preliminary injunction phase.

A copy of the Merge Complaint is embedded below. The case is No. 12-cv-9140 (N.D. Ill.). Judge Samuel Der-Yeghiayan.

Merge Healthcare v. Medstrat, Inc. - Complaint

Supreme Court of the United States Reverses Oklahoma Non-Compete Decision

It is not often - never? - that the Supreme Court of the United States renders a decision that impacts non-compete law.

But such is the case in one of the year's more significant non-compete developments. In Nitro-Lift Techs. v. Howard, the Court held that the Supreme Court of Oklahoma improperly decided the enforceability of a non-competition agreement between a company and two former employees. The Court held that the mandatory arbitration clause required an arbitrator, not a state court, to decide the enforceability question under Oklahoma law.

This is a rare Oklahoma non-compete case, because non-competes are not enforceable in Oklahoma. Some limited activity restraints are, to be sure, but general non-competition covenants are treated in Oklahoma like they are in California and North Dakota.

It is perhaps for this reason why the ex-employees decided to file suit against their former employer, Nitro-Lift Technologies, when they quit and joined a competitor. Faced with a demand for arbitration, the employees went on the offensive to a court of law. This is a common tactic in employee friendly states like Oklahoma or California.

But, with an arbitration clause in the underlying agreement, did the ex-employees pursue the wrong avenue? The Supreme Court of Oklahoma said "no." A year ago, it boldly declared that "[o]ur jurisprudence controls this issue." The Supreme Court of the United States did not like that, chastising the state court for disregarding the law and not bowing to the broad policy favoring arbitration (even in state court) under the Federal Arbitration Act.

Due to that minor little thing called the Supremacy Clause, Oklahoma had to follow the Supreme Court's interpretation of the FAA. And because there was no challenge to the validity of the arbitration clause, an arbitrator - not a court - had to pass on whether the covenants not to compete were enforceable under Oklahoma law. Whatever arbitration panel is seated just might be influenced, however, by the Supreme Court of Oklahoma's decision that the non-competes were void against public policy.

A copy of Nitro-Lift, a per curiam decision, is below.

Nitro-Lift v. Howard

Preliminary Injunction Order Cannot Be Used As Substantive Evidence at Trial

This one completely baffles me.

Lawyers have to make judgment calls at trial over evidence all the time. Just as important as deciding what to introduce by way of oral testimony or documentary evidence is deciding what to leave out - even if it may be marginally helpful.

In a South Carolina competition dispute, the plaintiffs tried to introduce for a jury the temporary injunction order that the judge entered at the start of the case. And the court agreed to admit it and let the jury review an 11-page order the judge signed after the case was filed.

The case arose out of a business divorce in the PEO industry. PEO stands for professional employer organization, and it is common now for firms to, in effect, outsource their human resources departments. When a shareholder of Allegro failed in his efforts to buy out the majority owner, he left to start his own PEO firm. Lawsuit follows. Injunction entered. Trial ensues.

But why would the grant of an injunction ever be something the jury should see? And how did this happen?

Those questions aren't answered by the Court of Appeals' decision, except for the following:

"It is hard for this court to determine an instance where admission of a preliminary injunction order into the trial record would not be highly prejudicial."

Truth.

It's not hard to see the prejudice. Injunctions are misunderstood. It takes a lot of effort, at least in this lawyer's experience, to explain to a client what a preliminary injunction is, and how that piece fits into the total litigation puzzle. Clients who prevail on an injunction motion think they've "won the case." Not so. They're surprised they may have to testify again. Injunctions are decided on truncated records. In some courts, the judge may not hear live evidence. And by their very nature, only part of the evidentiary record is developed.

Even if an aggressive plaintiff's lawyer wanted to trumpet its injunction order before a jury (which is something I can't come to terms with), a judge should know better. The court should have known its findings on a temporary injunction order would greatly influence a jury.

This was a basic mistake that never should have happened. And the plaintiff now has to retry its case at great cost. As I tell my clients, always expect the unexpected in competition disputes.

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Court: Court of Appeals of South Carolina
Opinion Date: 7/11/12
Citation: Allegro, Inc. v. Scully, 2012 S.C. App. LEXIS 334 (S.C. Ct. App. July 11, 2012)
Favors: Employee
Law: South Carolina