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Articles Posted in Non-Compete Agreements

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Florida and Maryland’s non-compete laws are protective of business interests in customer relationships and goodwill.  Due to the advent of remote working capabilities, there are often cases when the non-compete laws of more than one state may be implicated.  For example, a Florida employee may work in Florida for a company based in Maryland, and sign a non-compete agreement that contains an explicit provision requiring that Maryland law controls any disputes between employer and employee.  In the context of employment law, the Florida law and Maryland law differ in contract interpretation and the burdens created by non-compete agreements on employees. Florida courts have found that a non-compete clause, itself, must be reasonably necessary to protect the established interests of the business. These subtle differences can impact the determination by the courts. Maryland courts have held that the enforcement of a non-compete clause must show, among other things, that the agreement is “no wider in scope and duration than is reasonably necessary to protect the employer’s interests.” CytImmune Scis., Inc. v. Paciotti, 2016 WL 3218726 (D. Md. June, June 10, 2016). Peter Mavrick is a Fort Lauderdale non-compete attorney, and also advocates for clients in Miami, Boca Raton, and Palm Beach, Florida.

Florida courts tend to limit their review to the wording of non-compete contracts for indications of the parties’ intent. “In construing contracts, the court’s concern is to determine the intention of the parties from the language used, objects to be accomplished, other provisions in the Contract which might shed light upon the question, and circumstances under which it was entered into.”  Bal Harbour Shops, Inc. v. Greenleaf & Crosby Co., Inc., 274 So. 2d 13 (Fla. 3rd DCA 1973). Generally, parol evidence (evidence of prior or contemporaneous negotiations and agreements that contradict, modify, or vary the contractual terms of a written contract) is admissible only to clarify ambiguous terms of contract in order to ascertain the parties’ intent. O’Neill v. Scher, 997 So. 2d 1205 (Fla. 3d DCA 2008) (Court could not indulge in modification of the unambiguous express terms).

Maryland courts use the “objective theory of contract interpretation” to determine “from the language of the agreement itself what a reasonable person in the position of the parties would have meant at the time it was effectuated.” Dennis v. Fire & Police Emp’rs’ Ret. Sys., 390 A.2d 737 (Md. 2006). Dennis held that the test is not what the parties to the contract intended it to mean, but what a reasonable person in the parties’ position would have thought it to mean. In the case of Highland Consulting Group, Inc. v. Soule, 2020 WL 1272516 (S.D. Fla. March 17, 2020), the district court, applying Maryland law, addressed whether the defendant complied with the contractual requirement to return the company’s property upon termination of employment. The former employee returned the property to the company only in response to a discovery request in the lawsuit.  Soule held that no reasonable person could have interpreted the phrase “[u]pon termination of employment,” to be satisfied only after a lawsuit was filed and only in response to a discovery request.  Soule considered this unambiguous phrase in by what a reasonable person in the parties’ shoes would have thought this phrase in the contract to mean. This standard is more arbitrary than the Florida standard, because it can encompass the subjective viewpoint of the trier of fact.

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For a non-compete agreement to be enforceable, it must be founded on a legitimate business interest which justifies the need for the restraint on competition. A substantial relationship with customers is a common reason asserted to justify the non-compete, however, courts will often examine the exclusivity and nature of the relationship with the customer to determine if the protection is reasonably necessary. Peter Mavrick is a Fort Lauderdale non-compete attorney, and also advocates for clients in Miami, Boca Raton, and Palm Beach, Florida.  Mavrick Law Firm represents clients in breach of contract litigation, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, and other legal disputes in federal and state courts and in arbitration.

An example of this occurred in the case of Anich Indus., Inc. v. Raney, 751 So. 2d 767 (Fla. 5th DCA 2000). Anich Industries, Inc. (Anich), an industrial tool and supply business, hired Deanna Raney (Raney) as a salesperson. Anich and Raney entered a non-compete agreement. A few months after entering the agreement, Raney resigned and accepted a position with Anich’s competitor, Olsen Industrial Sales, Inc. (Olsen).  Anich filed a lawsuit against Raney and Olsen seeking injunctive relief, temporarily and permanently, as well as damages based on breach of the non-compete agreement, and other claims. Anich filed a motion for temporary injunction.

At the evidentiary hearing on the motion for temporary injunction, Anich presented testimony from three witnesses who purchased tools and equipment from Anich through Raney. These witnesses testified that Raney sold them equipment on behalf of Olsen shortly after her employment with Anich ended. One witness testified that Raney sold him a tool on behalf of Olsen while still employed by Anich. Each of these witnesses, however, conceded that they did not have an exclusive relationship with Anich and that they purchased tools and equipment from whomever could most quickly and cheaply supply the necessary equipment.

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A party may seek to reform (change the terms of a contract) a contract when there is erroneous term in the wording of the contract, which was the product of a mutual mistake (made by both parties), a unilateral mistake (made by one party), or inequitable conduct by one party in making the contract. Florida law authorizes a court to reform a contract to conform to the parties’ intent for the agreement. Peter Mavrick is a Fort Lauderdale non-compete attorney, and also represents clients in non-compete disputes in Miami, Boca Raton, and Palm Beach, Florida.  Mavrick Law Firm represents clients in breach of contract litigation, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, and other legal disputes in federal and state courts and in arbitration.

An example of this was addressed in the case of Resouluna 4840, LLC v. Palceski, 2019 WL 7482222 (M.D. Fla. Sept. 5, 2019), Resouluna 4840, LLC (“Plaintiff”), a medical spa, employed Rachel Palceski (“Palceski”). When Palceski became a full-time employee for Plaintiff, she signed an employment agreement with a one-year non-competition provision. One year later, Plaintiff and Palceski negotiated a new employment agreement.  Palceski contended she would not sign an agreement with a non-competition provision that was more than six months in duration. Palceski changed the proposed non-competition provision to six months, signed it, and returned it. Plaintiff contended that it was unaware of this change until after Palceski’s employment ended. Plaintiff never signed the new employment agreement, but Palceski continued to work for Plaintiff for approximately two months after signing and returning it. Palceski resigned from her employment with Plaintiff. More than six months later, Palceski went back to work for her former employer. Plaintiff filed a lawsuit against Palceski for soliciting Plaintiff’s customers in violation of the employment agreement. Plaintiff also filed a motion for a preliminary injunction.

In federal court, the party seeking a preliminary injunction must show, “(1) it has a substantial likelihood of success on the merits; (2) irreparable injury will be suffered unless the injunction issues; (3) the threatened injury to the movant outweighs whatever damage the proposed injunction may cause the opposing party; and (4) if issued, the injunction would not be adverse to the public interest.” Forsyth Cty. v. U.S. Army Corps of Eng’rs, 633 F.3d 1032 (11th Cir. 2011). “A preliminary injunction…‘is an extraordinary and drastic remedy not to be granted unless the movant clearly establishes the burden of persuasion as to the four requisites.’” Llovera v. Fla., 576 F. App’x 894 (11th Cir. 2014).

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To enforce a non-compete agreement, it is not sufficient to merely show that the scope of the restrictions in the non-compete agreement are reasonable. There must between a connection between the restrictions of the non-compete agreement and the business information. For example, if a business has a legitimate business interest in its product pricing information, the business may need to show how that information would improve the marketability of competitor’s products. Peter Mavrick is a Fort Lauderdale non-compete attorney, and also advocates for clients in Miami, Boca Raton, and Palm Beach, Florida.  Mavrick Law Firm represents clients in breach of contract litigation, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, and other legal disputes in federal and state courts and in arbitration.

An example of this occurred in the case of NuVasive, Inc. v. Leduff, 2019 WL 5962658 (M.D. Fla. Nov. 13, 2019), NuVasive, Inc. (“NuVasive”) was a medical device company that manufactured products for spine disorders. It employed Christopher LeDuff (“LeDuff”) to market and sell its products. LeDuff was privy to the company’s confidential and proprietary information such as prices, customer preferences, products details, product research sales techniques, and sales forecasts. NuVasive also trained LeDuff on products, methodology, trade secrets and other proprietary information.

NuVasive discovered that LeDuff planned to go to work for its direct competitor, Alphatec, Inc. (“Alphatec”), and was soliciting NuVasive customers and an employee to join him. NuVasive terminated LeDuff’s employment. NuVasive then discovered that four of LeDuff’s former NuVasive customers began using Alphatec’s products. NuVasive filed a lawsuit against LeDuff for breach of the non-solicitation and non-compete provisions of his employment contract. NuVasive also moved for an injunction to prohibit LeDuff from further violation of the agreement.

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When a former employer seeks an injunction to enforce a non-compete or non-solicitation agreement, it must prove that it will suffer irreparable harm without entry of an injunction.  A party seeking to enforce a non-solicitation provision by injunction does not need to prove that defendant’s specific activities will cause irreparable injury, rather the statute provides that ‘[t]he violation of an enforceable restrictive covenant creates a presumption of irreparable injury to the person seeking enforcement of a restrictive covenant.’” America II Electronics, Inc. v. Smith, 830 So.2d 906 (Fla. 2d DCA 2002); Section 542.335(1)(j), Florida Statutes.  The burden then shifts to the former employee to prove that that there is no irreparable harm. Proof of a former employer’s known financial losses does not necessarily rebut the statutory presumption when the former employee’s breach also damaged the former employer’s longstanding relationships with customers and the protection of its confidential client information. Peter Mavrick is a Fort Lauderdale non-compete attorney, and also advocates for clients in Miami, Boca Raton, and Palm Beach, Florida.  Mavrick Law Firm represents clients in breach of contract litigation, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, and other legal disputes in federal and state courts and in arbitration.

An example of this occurred in the case of Variable Annuity Life Ins. Co. v. Hausinger, 927 So. 2d 243 (Fla. 2d DCA 2006). Variable Annuity Life Insurance Co. (VALIC) employed Jeffrey Hausinger (Hausinger) to sell annuity products to Hillsborough County school system employees. Hausinger entered an agreement with a non-solicitation provision that prohibited him from directly or indirectly soliciting any customers assigned to him within one year before his departure, and a  confidentiality provision that prohibited him from disclosing trade secrets, including customer identities and account information, at any time after his termination, and not to disclose or use any confidential and proprietary information for a period of two years after termination.

After Hausinger left his employment with VALIC, he went to work with Merrill Lynch. After Hausinger’s resignation, VALIC discovered that he was soliciting VALIC customers on behalf of Merrill Lynch. VALIC also discovered that during his employment with VALIC, Hausinger downloaded confidential customer information and trade secrets from his VALIC laptop onto a portable flash drive and brought the information with him to Merrill Lynch. VALIC demanded that Hausinger return the information. After VALIC’s demand, Hausinger returned the flash drive and returned over three hundred client files, confidential paperwork, and VALIC forms.

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Confidential business information may be considered a legitimate business interest justifying enforcement of the non-compete clause. Not all information used by a business will be considered valuable confidential business information by a court, particularly if the information can be obtained through the public domain. However, certain compilations of information, even if public, can be considered valuable to a competing business and justify a non-compete agreement. Peter Mavrick is a Fort Lauderdale non-compete attorney.  Mavrick Law Firm represents clients in breach of contract litigation, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, and other legal disputes in federal and state courts and in arbitration.

In the federal court case Estetique Inc. USA v. Xpamed LLC, 2011 WL 4102340 (S.D. Fla. Sept. 15, 2011), Estetique Inc., USA (“Estetique”) sought a preliminary injunction against Defendant Xpamed, LLC (“Xpamed”), a competing business founded by Defendant Mario Guastella (“Guastella”), a former employee of Plaintiff. Estetique alleged that Xpamed, Guastella and Jose Montilla (“Montilla”), another former employee of Estetique who worked for Xpamed, allegedly used Estetique’s confidential customer information to sell similar products to its customers.

Estetique hired defendant Montilla as a member of its sales team, and hired Guastella as a web designer to maintain and design Estetique’ internet presence. Both Montilla and Guastella executed a non-compete agreement, which provided for the protection of Estetique’s proprietary customer lists, marketing, and sales information, a non-compete period of five years post-termination of employment, and a customer non-solicitation period of five years post-termination of employment.

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In Whitby v. Infinity Radio Inc., 951 So.2d 890 (Fla. 4th DCA 2007), Florida’s Fourth District Court of Appeal decided an appeal from a former employee who had lost on summary judgment in Palm Beach Circuit Court.  The trial court had decided in favor of the employer, and against the employee, that the non-compete covenant was enforceable.   The appellate court held that the trial court erred in holding the non-compete covenant enforceable on summary judgment without allowing Appellants to present evidence as to the covenant’s reasonableness and scope.  Peter Mavrick is a Fort Lauderdale non-compete lawyer and business litigation attorney who has substantial experience with non-compete litigation, including injunction proceedings.  The Mavrick Law Firm also represents clients in non-compete litigation and business litigation in Miami, Boca Raton, and Palm Beach.

The Whitby decision involved a radio personality who was known on-air as “Jennifer Ross” but whose real name was Elena Whitby.  Whitby had signed an employment agreement that included a non-compete covenant, prohibiting Whitby from appearing on radio or television and from working for any competing business with in 125 miles of the radio station or for 12 months after leaving her employment with the radio station.  In addition, the employment agreement included an exclusivity provision that prevented Whitby from discussing or entering into any agreement with any other entity concerning her present or future services during her employment with the radio station.

Thereafter, a competing radio station approached Whitby “to discuss the possibility of her working as an on-air personality.  Whitby later accepted employment with the competing radio station.  Thereafter, Whitby’s former employer Infinity Radio Inc. (Infinity) sued Whitby and filed an Emergency Motion For Temporary Injunction.  The trial court thereafter denied the Emergency Motion For Temporary Injunction, Infinity appealed that ruling and the appellate court reversed the trial court’s decision in favor of Infinity.

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A party to a non-compete agreement that was breached by the employer, may preempt its enforcement by seeking a declaratory judgment. To be effective, the declaratory action must include all parties who have a right to enforce the non-compete agreement. “[B]efore any proceeding for declaratory relief is entertained all persons who have an ‘actual, present, adverse, and antagonistic interest in the subject matter’ should be before the court.” Fla. Dep’t of Educ. v. Glasser, 622 So.2d 944 (Fla.1993). Section 86.091, Florida Statutes states “[n]o declaration shall prejudice the rights of persons not parties to the proceedings.” Peter Mavrick is a Fort Lauderdale non-compete lawyer and business litigation attorney who has substantial experience with non-compete litigation, including injunction proceedings.  The Mavrick Law Firm also represents clients in non-compete litigation and business litigation in Miami, Boca Raton, and Palm Beach.

An example of this occurred in the case of Reinstein v. Pediatric Gastroenterology, Hepatology & Nutrition of Florida, P.A., 25 So.3d 54 (Fla. 2d DCA 2009).  L. Julio Reinstein, M.D. (Reinstein), purchased an interest in a medical practice (hereinafter the “P.A.”). Dr. McClenathan (McClenathan), the founder of the P.A., retained a majority interest. Reinstein, McClenathan, and the P.A. executed various contracts to memorialize the new practice. The pertinent contracts included: (1) an Operating Agreement; (2) a Stock Transfer Restrictions and Buy–Out Agreement (the Buy–Out Agreement); and (3) a Professional Services Employment Agreement (the Employment Agreement). The Buy-Out Agreement and the Employment Agreement contained non-compete agreements.

Reinstein filed a lawsuit seeking a declaratory judgment that the two noncompete agreements were not enforceable because the P.A. and McClenathan breached the agreements. Reinstein’s employment with the P.A. was subsequently terminated, and he opened a medical practice in the restricted area. The P.A. filed a separate lawsuit seeking injunctive relief and damages against Reinstein and his new medical practice for their alleged violations of the non-compete agreement. The P.A. and McClenathan also moved to enforce the arbitration provisions contained in the agreements. The trial court referred Reinstein’s claims for damages to arbitration and retained the claims relating to the enforceability of the non-compete agreements. The parties went to arbitration, where all of Reinstein’s claims for damages against McClenathan and the P.A. were resolved. The issues relating to the non-compete agreements were the only issues remaining for the trial court to resolve. The trial court consolidated Reinstein’s lawsuit and the P.A.’s lawsuit to decide in one case. McClenathan moved for partial summary judgment, seeking to be dismissed from the litigation. McClenathan contended that he was not the party seeking enforcement of the non-compete agreement, so he should not be named individually in Reinstein’s claims.  The non-compete clause in the Buy-Out Agreement contained a provision that provided, “the [P.A.] or any Shareholder … the right to seek monetary damages … and equitable relief” in the event of a breach of the non-compete agreement. However, the non-compete in the Employment Agreement only gave the P.A. the right to seek damages and equitable relief in the event of a breach.

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Separation agreements commonly include releases of liability for employers and employees to avoid litigation for any claims that may have been asserted by either party. The presence of a release in the separation agreement does not necessarily relieve the employee of non-compete, non-solicitation, and confidentiality clauses from a prior agreement. Peter Mavrick is a Fort Lauderdale non-compete attorney and business litigation attorney who has substantial experience with non-compete litigation, including injunction proceedings.  The Mavrick Law Firm also represents clients in non-compete litigation and business litigation in Miami, Boca Raton, and Palm Beach.

An example of this occurred in the recent case of Accuform Mfg., Inc. v. Nat’l Marker Co., 8:19-CV-2220-T-33AEP, 2020 WL 1674577 (M.D. Fla. Jan. 13, 2020), report and recommendation adopted, 8:19-CV-2220-T-33AEP, 2020 WL 634416 (M.D. Fla. Feb. 11, 2020). Accuform Manufacturing Inc. (“Accuform”) entered an employment agreement with Bradford Montgomery (“Montgomery”), Peter Bloniarz (“Bloniarz”), John Donati (“Donati”), Rebecca Longo (“Longo”) (collectively “Defendants”). The employment agreement contained non-competition, non-solicitation, and confidentiality clauses.  Accuform was later acquired by Justrite Manufacturing Company, LLC (“Justrite”). The acquisition resulted in consolidation of several departments which eliminated many jobs at the company. Accuform gave Montgomery, Bloniarz, and Donati a choice to assume a new role at Justrite or sign a separation agreement (“Separation Agreement”). Montgomery, Bloniarz, and Donati departed from Accuform and signed a Separation Agreement.

The terms of the Separation Agreement detailed certain benefits in exchange for the release of any claims against Accuform. Defendants were then hired by National Marker Company (“National Marker”), a competitor of Accuform. Accuform filed a lawsuit and a motion for a preliminary injunction against the Defendants for violation of the non-compete, non-solicitation, and confidentiality clauses. Accuform argued that preliminary injunctive relief was necessary because (a) Montgomery, Bloniarz, and Longo solicited and continued to solicit Accuform customers in violation of the employment agreements; (b) Montgomery, Bloniarz, Longo and Donati, breached and continued to breach the employment agreements by soliciting current Accuform employees to work for National Marker; and (c) all Defendants misappropriated, disclosed, and used Accuform’s confidential business information and continued to do so in violation of the confidentiality clauses of the employment agreements.

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Companies are fictional entities that can only act through their agents. So logically, if a company is bound by a non-compete agreement, then it may also be enforced against the company’s officers. In other words, if a signatory company’s officer opens up a new company for the purpose of competing in a way that violates the non-compete agreement, then both the officer and the new company may be enjoined. Peter Mavrick is a Miami non-compete attorney and business litigation attorney who has substantial experience with non-compete litigation, including injunction proceedings.  The Mavrick Law Firm also represents clients in non-compete litigation and business litigation in Fort Lauderdale, Boca Raton, and Palm Beach.

As example of this circumstance occurred in Sexual MD Sols., LLC v. Wolff, 20-20824-CIV, 2020 WL 2197868 (S.D. Fla. May 6, 2020). Sexual MD Solutions, LLC (“SMDS”), a marketing company, was founded by Mark White (“White”). Mr. White devoted a substantial amount of time and money to develop the GAINSWave program. The purpose of GAINSWave program was to market a high-frequency, low intensity shock wave therapy (“ESWT”) to the medical community. SMDS developed training courses for physicians and physicians’ assistant groups to provide training in the treatment, but more importantly in the sales, marketing and operational aspects of selling the treatment. The trade secrets and confidential information developed by SMDS included opportunity analyses, marketing techniques, sales strategies, comparison data, pipelines, lead-generation strategies, customer/client lists and data, business plans and training videos.

SMDS hired key influencers to promote the treatment and bought certain key words that would cause its advertisements to feature prominently in internet searches. The promotion drove potential clients to the website, where consumers could find a local provider that offered the treatment. Providers who paid SMDS a monthly subscription were listed on the website. The more traffic the website received, the more valuable the SMDS subscription became. SMDS required physicians and physician’s assistants who wanted access to SMDS’ proprietary information to sign a confidentiality and non-compete agreement (“SDMS Agreement”). Medical providers who signed the SDMS Agreement and paid a monthly fee, were given access to SMDS’s Portal. SMDS’ Portal contains all materials related to SMDS’s proprietary methods, the turnkey business strategies and the contents of the business.

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