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.
Novus Anti-Aging Center, Inc. (“Novus”) was founded by Dustin Wolff and Stephanie Wolff. Stephanie Wolff was a Board-Certified Physician Assistant and chief executive officer of Novus. Dustin Wolff was Novus’ president. Novus provided holistic healthcare and wellness services for the older population. Novus signed up for membership in SMDS’ program, entered the SDMS Agreement, and gained access to SMDS’ Portal. SMDS provided training to Dustin Wolff and Stephanie Wolff in its business operations, marketing and sales, as well as clinical training. The parties dispute whether the SMDS Agreement was still in effect. Dustin Wolff asserts that he informed Mr. White that Novus wished to discontinue the relationship. According to Mr. White, Dustin Wolff did not terminate the SMDS Agreement, but merely requested to downgrade his membership to ‘Silver.’ Providers with a Silver membership had access to SMDS’ password protected Portal and confidential information but are not listed on SMDS’ directory. Novus continued to pay SMDS a reduced monthly fee of $500. The parties dispute the reason for this monthly fee. Dustin Wolff asserts that it is a licensing fee, and Mr. White asserts that it is a fee is for access to the Portal.
Dustin Wolff met Jon Hoffman (“Hoffman”) during a medical visit at Novus. Dustin Wolff told to Mr. Hoffman that if somebody could develop a low-cost home-use device, it would serve 99 percent of the population that could never afford or could not come to an actual clinic. Mr. Hoffman returned to the clinic, a few weeks later, with a prototype of such a device (hereinafter the “Device”). At the time Mr. Hoffman developed the Device he was not aware of SMDS or any of its marketing and sales information. Dustin Wolff and Mr. Hoffman created Moon Pool, LLC for the purposes of marketing the Device. Dustin Wolff designed a direct-to-consumer presale marketing campaign for the Device which was successful.
SMDS filed a lawsuit and sought an injunction against Novus, Dustin Wolff and Stephanie Wolff (the “Defendants”) for, among other things, breach of the SMDS Agreement. SMDS requested a preliminary injunction to prohibit the defendants and others from “offering, marketing, promoting, or introducing the [Device]…for sale” or any other similar device which utilize SMDS’ proprietary trade secrets in any way. SMDS contended that the Defendants used SMDS’ training and proprietary information, along with another defendant, Moon Pool, LLC, to compete with SMDS. Defendants contended that an injunction should not be issued because SMDS did not have a substantial likelihood of success on its breach of contract action.
A preliminary injunction may only be granted when the moving party established four factors: (1) a substantial likelihood of success on the merits; (2) an immediate and irreparable injury absent injunctive relief; (3) a threatened harm to the plaintiff that outweighs any injury the injunction would cause to the nonmovant and (4) the injunction will not disserve the public interest. Carillon Imps. v. Frank Pesce Int’l Grp. Ltd., 112 F.3d 1125 (11th Cir. 1997). Defendants assert that the particular defendants that were planning on selling the Device are not signatories to the SDMS Agreement, only Novus signed it. The defendants further contended that since Dustin Wolff and Stephanie Wolff were not signatories to the SDMS Agreement, then the companies they had control over, i.e., Wolff Marketing Enterprises LLC and Moon Pool LLC, also had no liability. The district court disagreed.
“Florida courts have not hesitated to enforce noncompete agreements against both the employee who signed the agreement as well as against the corporation through which the ex-employee conducted business.” N. Am. Prod. Corp. v. Moore, 196 F. Supp. 2d 1217 (M.D. Fla. 2002) (“Straw man” tactic could not be used to avoid obligations under a non-solicitation agreement). “The Court can enjoin non-parties to the non-compete agreement, such as a family member of the signator or an alter ego corporation, where the nonparty is either under the signator’s control or otherwise being used to aid or abet the signator in violating the non-compete clause.” Winmark Corp. v. Brenoby Sports, Inc., 32 F. Supp. 3d 1206 (S.D. Fla. 2014).
The district court also held that Rule 65(d)(2) of the Federal Rules of Civil Procedure allowed the Court to enjoin not only the parties, but “the parties’ officers, agents, servants, employees, …. attorneys[ ] and other persons who are in active concert or participation [with those individuals].” Fed. R. Civ. P. 65(d)(2). The district court stated that under this rule, it could enjoin Novus’ agents, Dustin Wolff and Stephanie Wolff, as well as the companies they control from acting in such a manner as to circumvent Novus’s obligations under the non-compete in the SDMS Agreement.
Novus further contended that the non-compete agreement is unenforceable under Florida law. Non-compete agreements must be reasonable “with regard to time, area and line of business.” Proudfoot Consulting Co. v. Gordon, 576 F.3d 1223 (11th Cir. 2009) (citing Fla. Stat. § 542.335(1)). Novus challenged the “business scope” of the non-compete agreement as being too broad. Novus contended that the non-compete does not have a clearly defined scope as to the line of business. Novus further argued that SMDS and the defendants target different markets.
Based on the evidence presented, the district court found that the scope of the non-compete in the SDMS Agreement was reasonably necessary to protect SMDS’s legitimate business interests. In addition, the district court held that the lack of a geographical limitation does not render the restrictive covenant unreasonable because it does not prohibit all competition. “[A] relatively narrow restriction … is not invalid because it fails to contain a geographic limitation.” Envtl. Servs., Inc. v. Carter, 9 So. 3d 1258 (Fla. 5th DCA 2009). Here, the district court found that the non-compete only prohibited such treatments using ESWT or technologies similar to ESWT.
The district court granted SMDS’ Motion for Preliminary Injunction. The district court enjoined Dustin Wolff, Stephanie Wolff, Wolff Marketing Enterprises, LLC, Novus, and Moon Pool, LLC, in addition to “each of their respective agents, brokers, intermediaries, servants, employees, representatives, contractors, principles, members, affiliates, successors-in-interest, or anyone acting on each of their behalves, at their direction, or in concert with any of them,” from marketing and selling the Device or any other ESWT treatment, or using SMDS’ proprietary trade secrets and confidential marketing information. The injunction, however, did not prohibit non-party Jon Hoffman from independently marketing and selling the Device under a different name with no involvement from the named defendants.
Peter Mavrick is a Miami non-compete lawyer who also practices non-compete litigation in Fort Lauderdale, Boca Raton, and Miami. This article does not serve as a substitute for legal advice tailored to a particular situation.