OBTAINING TEMPORARY INJUNCTION TO ENFORCE NON-COMPETE AGREEMENT

Posted on June 1, 2016November 8, 2024 by Edward Garber

When a party breaches a non-compete agreement (with a non-solicitation clause), the non-breaching party typically moves for a temporary injunction. The breaching party is the party that signed the non-compete agreement, such as a former employee or consultant that agreed not to solicit its employer’s customer lists or referral sources upon leaving. The non-breaching party or the party moving for the temporary injunction is the party that is looking to protect its trade secret customer lists or referral sources, such as the employer.

“In order to obtain a temporary injunction…[the non-breaching party is] required to establish (1) the likelihood of irreparable harm, (2) the unavailability of an adequate remedy at law, (3) a substantial likelihood of success on the merits, and (4) that the injunction will serve the public interest.” Smart Pharmacy, Inc. v. Viccari, 41 Fla. L. Weekly D1274a (Fla. 1^st DCA 2016). Again, a party moving to enforce a non-compete agreement will and should move for a temporary injunction.

In the recent case, Smart Pharmacy, an employer regarded its referral sources to be confidential trade secrets. The employer had its employee sign a non-compete agreement that precluded the employee from competing against its employer in a certain geographic area for two years upon the employee’s departure from the employer. The non-compete agreement prevented the employee from soliciting its employer’s referral sources upon leaving (a non-solicitation clause). The employee left and started soliciting the referral sources in violation of the non-compete agreement. The employer sued the employee and the employee’s new employer and moved for a temporary injunction preventing them from soliciting the referral sources.

In analyzing the four temporary injunction factors set forth above:

(1) Likelihood of Irreparable Harm

The violation of a non-compete agreement creates the presumption of likelihood of irreparable harm. Thus, this factor is established.

(2) Inadequate Remedy of Law

An employer has an inadequate remedy at law for the irreparable harm because money damages in this context are difficult to prove with a reasonable degree of certainty and would not fully compensate the employer for a violation of a non-compete agreement. Thus, this factor is established.

(3) Substantial Likelihood of Success

Soliciting customers of a business is a legitimate business interest. An employee breaches a non-compete agreement that contains a non-solicitation clause when the employee solicits the customers or sources of his or her former employer, meaning the employer has a substantial likelihood of success. Thus, this factor is established.

(4) Injunction will Serve the Public’s Interest

An injunction will serve the public’s interest since it would protect an employer’s legitimate business interest in protecting its customer lists and referral sources. Thus, this factor is established.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

DON’T MESS WITH THE GENERAL AGREEMENT OF INDEMNITY

Posted on December 31, 2014November 8, 2024 by Edward Garber

I have previously posted articles about the all mighty General Agreement of Indemnity (“Agreement of Indemnity”) that a surety requires a contractor bond-principal and designated guarantors to execute before issuing payment and performance bonds to the contractor. In cases forming the basis of the articles, the surety demands rights under the Agreement of Indemnity such as the right for collateral security to protect the surety from anticipated or pending claims and the contractor bond-principal refuses. In these cases, the surety files a lawsuit and moves for an injunction which, among other things, requires the principal to post the very collateral security it refused to post to begin with. As reflected in these cases, the surety gets the injunction granted because the Agreement of Indemnity is designed to protect the surety’s interests. In other words, don’t mess with the Agreement of Indemnity because the surety will typically get the recourse it pursues.

Recently, another opinion came out further supporting the rights of a surety under the Agreement of Indemnity and why it is beneficial to figure out an avenue to work with the surety instead of against it. In this case, Travelers Casualty and Surety Co. of America v. Design Build Engineers and Contractors Corp., 2014 WL 7274803 (M.D.Fla. 2014), the contractor bond-principal was working on two public projects. On one project, a dispute with a subcontractor resulted in a claim that the surety paid plus substantial attorney’s fees awarded to the subcontractor by the court. Although the contractor reimbursed its surety for the principal amount of the claim, it refused to reimburse the surety for the substantial attorneys’ fees awarded to the subcontractor. And, on the other project, the contractor was terminated resulting in pending performance bond and payment bond claims against the surety.

The contractor, in furtherance of trying to shield major property and assets, did some creative asset transfers forming holding companies, etc. This did not work. The surety filed a lawsuit against the contractor and guarantors under the Agreement of Indemnity and moved for a preliminary injunction to require the contractor to post collateral security and to prevent the contractor from disposing of assets. Guess what? The surety prevailed on its motion for an injunction and the Middle District Court ordered that the contractor post the requested collateral that included properties the contractor tried to shield and prevented the contractor and certain holding companies it formed from disposing or encumbering of assets (inclusive of the real property is was ordered to post as collateral).

VALIDITY OF NON-COMPETE AGREEMENTS

Posted on December 5, 2014November 8, 2024 by Edward Garber

The validity of a non-compete agreement (also referred to as a restrictive covenant since it imposes a restriction on trade or commerce) will be governed by Florida Statute s. 542.335. (A copy of this statute is set forth below). Written and signed non-compete agreements or clauses are presumptively valid if they are reasonable in time (the non-compete time period), area (geographic limitation), and line of business; these clauses cannot be overbroad.

Even if the non-compete agreement is in writing and signed by the employee, it still needs to be supported by a proven legitimate business interest justifying its enforcement (e.g., learning of trade secrets or confidential business information, relationships with customers or clients, customer or client goodwill associated with the business). Stated differently, the employer seeking to enforce the non-compete agreement against a former employee still needs to establish that the enforcement of the non-compete is reasonably necessary to protect its legitimate business interests.

To enforce non-compete agreements, a party (typically, the former employer) moves for injunctive relief.

The case of Ankarli Boutique, Inc. v. Ortiz, 2014 WL 6674727 (4^th DCA 2014) held that a two-year non-compete agreement, to the extent valid, applied from the time the former employee left the company. The case also maintained that the non-compete period could not be “nullified because the non-compete period was devoured by the time it took to appeal an erroneous ruling on the interpretation of the [non-compete] clause.” Ankarli Boutique, supra, at *1. In other words, if there is a delay in entering a ruling (i.e., an injunction) enforcing the non-compete clause, or the non-compete time period is consumed during the pendency of an appeal, the employer or party enforcing the clause is still entitled to reap the benefit of a valid non-compete clause. Thus, any delay tactic by litigating the issue or appealing the issue should not nullify an otherwise valid non-compete clause.

Florida Statute s. 542.335

(1) Notwithstanding s. 542.18 and subsection (2), enforcement of contracts that restrict or prohibit competition during or after the term of restrictive covenants, so long as such contracts are reasonable in time, area, and line of business, is not prohibited. In any action concerning enforcement of a restrictive covenant:

(a) A court shall not enforce a restrictive covenant unless it is set forth in a writing signed by the person against whom enforcement is sought.

(b) The person seeking enforcement of a restrictive covenant shall plead and prove the existence of one or more legitimate business interests justifying the restrictive covenant. The term “legitimate business interest” includes, but is not limited to:

1. Trade secrets, as defined in s. 688.002(4).

2. Valuable confidential business or professional information that otherwise does not qualify as trade secrets.

3. Substantial relationships with specific prospective or existing customers, patients, or clients.

4. Customer, patient, or client goodwill associated with:

a. An ongoing business or professional practice, by way of trade name, trademark, service mark, or “trade dress”;

b. A specific geographic location; or

c. A specific marketing or trade area.

5. Extraordinary or specialized training.

Any restrictive covenant not supported by a legitimate business interest is unlawful and is void and unenforceable.

(c) A person seeking enforcement of a restrictive covenant also shall plead and prove that the contractually specified restraint is reasonably necessary to protect the legitimate business interest or interests justifying the restriction. If a person seeking enforcement of the restrictive covenant establishes prima facie that the restraint is reasonably necessary, the person opposing enforcement has the burden of establishing that the contractually specified restraint is overbroad, overlong, or otherwise not reasonably necessary to protect the established legitimate business interest or interests. If a contractually specified restraint is overbroad, overlong, or otherwise not reasonably necessary to protect the legitimate business interest or interests, a court shall modify the restraint and grant only the relief reasonably necessary to protect such interest or interests.

(d) In determining the reasonableness in time of a postterm restrictive covenant not predicated upon the protection of trade secrets, a court shall apply the following rebuttable presumptions:

1. In the case of a restrictive covenant sought to be enforced against a former employee, agent, or independent contractor, and not associated with the sale of all or a part of:

a. The assets of a business or professional practice, or

b. The shares of a corporation, or

c. A partnership interest, or

d. A limited liability company membership, or

e. An equity interest, of any other type, in a business or professional practice,

a court shall presume reasonable in time any restraint 6 months or less in duration and shall presume unreasonable in time any restraint more than 2 years in duration.

2. In the case of a restrictive covenant sought to be enforced against a former distributor, dealer, franchisee, or licensee of a trademark or service mark and not associated with the sale of all or a part of:

a. The assets of a business or professional practice, or

b. The shares of a corporation, or

c. A partnership interest, or

d. A limited liability company membership, or

e. An equity interest, of any other type, in a business or professional practice,

a court shall presume reasonable in time any restraint 1 year or less in duration and shall presume unreasonable in time any restraint more than 3 years in duration.

3. In the case of a restrictive covenant sought to be enforced against the seller of all or a part of:

a. The assets of a business or professional practice, or

b. The shares of a corporation, or

c. A partnership interest, or

d. A limited liability company membership, or

e. An equity interest, of any other type, in a business or professional practice,

a court shall presume reasonable in time any restraint 3 years or less in duration and shall presume unreasonable in time any restraint more than 7 years in duration.

(e) In determining the reasonableness in time of a postterm restrictive covenant predicated upon the protection of trade secrets, a court shall presume reasonable in time any restraint of 5 years or less and shall presume unreasonable in time any restraint of more than 10 years. All such presumptions shall be rebuttable presumptions.

(f) The court shall not refuse enforcement of a restrictive covenant on the ground that the person seeking enforcement is a third-party beneficiary of such contract or is an assignee or successor to a party to such contract, provided:

1. In the case of a third-party beneficiary, the restrictive covenant expressly identified the person as a third-party beneficiary of the contract and expressly stated that the restrictive covenant was intended for the benefit of such person.

2. In the case of an assignee or successor, the restrictive covenant expressly authorized enforcement by a party’s assignee or successor.

(g) In determining the enforceability of a restrictive covenant, a court:

1. Shall not consider any individualized economic or other hardship that might be caused to the person against whom enforcement is sought.

2. May consider as a defense the fact that the person seeking enforcement no longer continues in business in the area or line of business that is the subject of the action to enforce the restrictive covenant only if such discontinuance of business is not the result of a violation of the restriction.

3. Shall consider all other pertinent legal and equitable defenses.

4. Shall consider the effect of enforcement upon the public health, safety, and welfare.

(h) A court shall construe a restrictive covenant in favor of providing reasonable protection to all legitimate business interests established by the person seeking enforcement. A court shall not employ any rule of contract construction that requires the court to construe a restrictive covenant narrowly, against the restraint, or against the drafter of the contract.

(i) No court may refuse enforcement of an otherwise enforceable restrictive covenant on the ground that the contract violates public policy unless such public policy is articulated specifically by the court and the court finds that the specified public policy requirements substantially outweigh the need to protect the legitimate business interest or interests established by the person seeking enforcement of the restraint.

(j) A court shall enforce a restrictive covenant by any appropriate and effective remedy, including, but not limited to, temporary and permanent injunctions. The violation of an enforceable restrictive covenant creates a presumption of irreparable injury to the person seeking enforcement of a restrictive covenant. No temporary injunction shall be entered unless the person seeking enforcement of a restrictive covenant gives a proper bond, and the court shall not enforce any contractual provision waiving the requirement of an injunction bond or limiting the amount of such bond.

(k) In the absence of a contractual provision authorizing an award of attorney’s fees and costs to the prevailing party, a court may award attorney’s fees and costs to the prevailing party in any action seeking enforcement of, or challenging the enforceability of, a restrictive covenant. A court shall not enforce any contractual provision limiting the court’s authority under this section.

(2) Nothing in this section shall be construed or interpreted to legalize or make enforceable any restraint of trade or commerce otherwise illegal or unenforceable under the laws of the United States or of this state.

(3) This act shall apply prospectively, and it shall not apply in actions determining the enforceability of restrictive covenants entered into before July 1, 1996.

TIPS FOR DRAFTING RESTRICTIVE COVENANT (SUCH AS NON-COMPETE / ANTI-COMPETITION) LANGUAGE IN EMPLOYMENT AGREEMENT

Posted on March 16, 2014November 8, 2024 by Edward Garber

Parties sometimes seek counsel to enforce a restrictive covenant in an agreement or a provision in an agreement that prohibits the other party from doing something or limiting the use of something. Such provisions are sometimes found in employment agreements to prevent an employee from learning how the employer conducts business, obtaining valuable information such as client contacts and client and pricing lists, and then starting a competing business. The recent decision of Richland Towers, Inc. v. Richland Towers, LLC, 39 Fla. L. Weekly D535b (Fla. 2d DCA 2014), is a new opinion that emphasizes the importance of including the following language in any agreement that contains a restrictive covenant such as an agreement that contains a non-compete / anti-competition provision:

“Covenants Independent. Each restrictive covenant…set forth in this Agreement shall be construed as a covenant independent of any other covenant or provisions of this Agreement or any other agreement which the Corporation and Employee [parties to the agreement] may have, fully performed and not executory, and the existence of any claim or cause of action by the Employee against the Corporation, whether predicated upon another covenant or provision of the Agreement or otherwise, shall not constitute a defense to the enforcement by the Corporation of any other covenant.” Richland Towers, supra.

By identifying that each covenant in the agreement is INDEPENDENT instead of dependent on one another, it should prevent the party opposing the restrictive covenant from arguing that the party enforcing the covenant committed a prior material breach of contract and, thus, can no longer enforce the restrictive covenant. This is a common argument from parties opposing the enforcement of a restrictive covenant such as non-compete language.

The above language was in the employment agreement in the dispute. The former employer moved for a temporary injunction to enforce non-compete / anti-competition language in the employment agreement. The trial court denied the injunction finding that because the employer did not pay certain bonuses, the employer committed a prior breach of contract and, thus, the restrictive covenant (non-compete provision) was not enforceable. The Second District, however, reversed the trial court court’s denial of the temporary injunction based on the above quoted language in the agreement. Since one covenant was independent of the other, whether the bonuses were paid would not render the non-compete language unenforceable. So, if drafting a restrictive covenant, having language that clarifies the intent that the covenants in the agreement are independent is important. On the other hand, if agreeing to non-compete language, consider the significance of the provision and the fact that the provision may be deemed independent of any other provision in the agreement.

Restrictive covenants are enforced through requesting a temporary injunction. To prevail on a temporary injunction, the moving party must establish: “the threat of irreparable harm to the movant for which there would be no adequate legal remedy, the movant’s substantial likelihood of success on the merits, and a determination that granting the injunction would serve the public interest.” Richland Tower, supra, citing Atomic Tattoos, LLC v. Morgan, 45 So.3d 63, 64-65 (Fla. 2d DCA 2010). Furthermore, if a temporary injunction is ordered, the court should require the moving party to post an injunction bond to cover damages in the event the injunction is determined to have been wrongly ordered. Richland Tower, supra (reversing trial court’s denial of the injunction and holding that if the injunction is ordered, the trial court must require the moving party to provide an injunction bond.)

For more on the requirements for temporary injunctions, specifically in the bit protest arena, please see: https://floridaconstru.wpengine.com/the-difficulty-in-prevailing-in-a-bid-protest/

THE DIFFICULTY IN PREVAILING IN A BID PROTEST

Posted on August 14, 2011November 8, 2024 by Edward Garber

The difficulty in prevailing in a bid protest is illustrated in the non-construction case of Charlotte County v. Grant Medical Transportation, Inc., 36 Fla. L. Weekly D173a (2d DCA 2011). In this case, Charlotte County solicited bids to provide the County with bus drivers and washers for a transit program for disabled persons. An unsuccessful bidder sued the County arguing that the winning bidder’s bid was nonresponsive because it failed to comply with requirements of the solicitation. In particular, the unsuccessful bidder argued that the bid solicitation required all bidders to acknowledge receipt of any addenda to the bidding documents prior to the close of the bids, i.e., bid opening, and the winning bidder failed to comply with this requirement making its bid nonresponsive. (A bid is nonrespnsive if it materially fails to comply with the solicitation. While minor irregularities can be waived by the public entity, material irregularities cannot in that they impact the integrity of the public procurement process which requires all bidders to be on an equal playing field.) After the bid opening, the County required the winning bidder to confirm its receipt of all addenda to the bid documents. (Notably, material portions of a bid should never be able to be changed after bid opening.)

The unsuccessful bidder moved for a temporary injunction preventing the County from awarding the contract at-issue to the winning bidder. The trial court granted the temporary injunction and the County appealed. At the time the trial court granted the injunction, the County had already contracted with the winning bidder and services had been provided in accordance with the contract.

The Second District relied on the following standard for granting injunctive relief:

“To obtain temporary injunctive relief, the movant must satisfy each of the following elements: (1) the movant has a clear legal right to the requested relief or, in other words, it has a substantial likelihood of success on the merits; (2) the movant will suffer irreparable harm if the trial court refuses to grant the injunction; (3) the movant does not have available another adequate remedy at law; and (4) a public interest will be served by the imposition of the injunction.” Grant Medical citing Snibbe v. Napoleonic Soc’y of Am., Inc., 682 So.2d 568, 570 (Fla. 2d DCA 1996).

The Second District reversed the granting of the temporary injunction primarily because the unsuccessful bidder offered no evidence at the noticed and contested hearing (to determine whether an injunction should be entered) to support any of the above-mentioned elements. Although the Second District noted that the winning bidder failed to confirm its receipt of all addenda prior to bid opening, at the injunction hearing, the Senior Division Manager of the County’s Purchasing Department testified that the winning bidder’s failure to confirm receipt was simply a minor deficiency or irregularity. The Second District also noted that at the time the trial court entered the injunction, the contract between the County and the winning bidder had been finalized, with services starting to be performed pursuant to the contract.

It is exceedingly difficult to satisfy each of the above-mentioned elements for the entry of a temporary injunction, especially in the bid protest arena. This case exemplifies the uphill battle an unsuccessful bidder has to prevent the public entity from awarding the contract to the winning bidder.

First, when a public entity waives a known irregularity with a winning bidder’s bid, it will always claim the irregularity is minor and, thus, waiveable at their discretion. This is the reason the County offered testimony at the injunction hearing to basically acknowledge the deficiency with the winning bidder’s bid but to say “it was not big deal.” Well, if it was not a big deal, then why did the County require the winning bidder to confirm receipt of the addenda AFTER bid opening? From a logical standpoint, it would seem that if it is important enough for the County to require that the winning bidder confirm in writing that it received all addenda to the solicitation after the bids were already opened and they knew who the winning bidder was, then it was a material component of the bid solicitation.

Second, unless something totally egregious transpires during the solicitation process, how can a unsuccessful bidder truly establish each and every element to the entry of injunctive relief at what is ultimately an early stage in the lawsuit when discovery should be ongoing? In other words, unless the movant can establish a substantial likelihood of success on the merits or a public interest will be served by the imposition of the injunction, an injunction should not be entered. In Grant Medical, the trial court actually granted the injunction, but the Second District found reasons to reverse the entry of the injunction.

Finally, if the movant does not act quickly in getting the hearing on a temporary injunction, which should mean little discovery, if any, has been conducted, then the movant risks the public body finalizing and entering into the contract with the winning bidder and the winning bidder starting to perform services pursuant to the contract. A no-win situation for an unsuccessful bidder.

While unsuccessful bidders should certainly explore the possibility of protesting, it is important to consider the uphill battle that will be encountered. If the trial court will consider having a hearing and entering injunctive relief in a an ex parte (and, thus, uncontested hearing), that should be explored to avoid the undesirable situation of the contract being entered and services performed by the winning bidder. For this to take place, legal arguments and factual arguments need to be well framed to establish entitlement to the entry of injunctive relief. If a noticed and contested hearing is required, legal and factual arguments still need to be very well framed, but it is important to offer evidence at the hearing. Specifically, if your protest is based on the argument that the winning bidder’s bid was nonrespnsive, you need to know that the public body will argue that the deficiency was minor so that you are prepared to rebut this argument in order to establish a substantial likelihood of success on the merits. You should also offer evidence to show that the deviation is material in that it affects the public interest by detrimentally impacting the competitive procurement process (i.e., it would affect some material component of your bid such as price or scope, etc.).