In reviewing recent cases from around the country involving temporary restraining orders (TROs), preliminary injunctions, and similar orders during the COVID-19 pandemic, I was trying to discern what lessons we might be able to draw.
Spoiler alert: none.
Okay, that’s perhaps an overstatement.
The real answer is that there are not enough decisions available to draw many reliable conclusions, but those that are available indicate that even though the COVID-19 pandemic continues to wreak untold havoc for individuals, families, communities, businesses, and the global economy, the cases we have found suggest that courts are not reflexively responding to the impacts of COVID-19 by denying preliminary injunctive relief. Rather, they continue to evaluate the need for injunctive relief as before, and are simply adding the impacts of the pandemic into the mix as appropriate.
And, that approach does not seem to have changed over time, despite the suggestion of the very first case to hit the news.
To highlight the absence of a trend against granting injunctions based on COVID-19, the cases that I and my paralegal (Erika Hahn) have been able to find are listed in chronological order.
Before delving into them, however, it bears noting that a significant impact of COVID-19 that has not yet found its way into the case law is how COVID-19 has impacted the requirement of trade secret law that companies take reasonable measures to protect their trade secrets. Because COVID-19 has fundamentally changed so many companies’ and employees’ workspaces and processes, it has created substantial challenges to harmonizing those new environments and processes with the law’s requirement of reasonable measures. I (and many others) expect that we will see this issue arise as the impacts of so much of the workforce working from home creep into the facts. For some tools to assess and address those challenges in light of COVID-19 (and generally), see “PSA: Employee Trade Secret Training Video Now Available,” “A primer and checklist for protecting trade secrets and other legitimate business interests before, during, and after lockdown and stay-at-home orders,” and “Protecting Trade Secrets During (and After) a Global Pandemic: Practical Tips for Employers.”
Now, onto the cases…
March 18, 2020
United States District Court, Northern District of Illinois
Art Ask Agency v. The Individuals, Corporations, Limited Liability Companies, Partnerships and Unincorporated Associations Identified on Schedule A Hereto
The first readily available decision (and certainly highly publicized decision, including by me) involving a court ruling on an injunction during COVID-19 came on March 18, 2020 from the United States District Court, Northern District of Illinois in Art Ask Agency v. The Individuals, Corporations, Limited Liability Companies, Partnerships and Unincorporated Associations Identified on Schedule A Hereto. (Yes, that is the actual case name.)
The case involved allegedly counterfeit unicorn drawings and a requested TRO and another emergency relief (including presumably takedown orders against third parties). The court observed:
Meanwhile, the world is in the midst of a global pandemic. The President has declared a national emergency. The Governor has issued a state-wide health emergency. As things stand, the government has forced all restaurants and bars in Chicago to shut their doors, and the schools are closed, too. The government has encouraged everyone to stay home, to keep infections to a minimum and help contain the fast-developing public health emergency.
Ultimately, after wondering if “fake fantasy products are experiencing brisk sales at the moment” and observing that the plaintiff filed yet another emergency motion, the court concluded:
The filing calls to mind the sage words of Elihu Root: “About half of the practice of a decent lawyer is telling would-be clients that they are damned fools and should stop.” See Hill v. Norfolk and Western Railway Co., 814 F.2d 1192, 1202 (7th Cir. 1987) (quoting 1 Jessup, Elihu Root 133 (1938)).
The world is facing a real emergency. Plaintiff is not.
That case was widely publicized and raised the concern that COVID-19 was going to strip away the ability of parties to protect their legitimate business interests through injunctive relief until the pandemic passed. People feared that trade secrets, customer goodwill, and other legitimate business interests would be left unprotected (by the courts) and become fair game for misappropriation the foreseeable future (with the parties being relegated to relying exclusively on monetary damages – assuming plaintiffs survived long enough to bring the claims and see them through to the end and defendants remained viable and able to pay for the harm they caused).
None of that happened. That case quickly proved to be a sensationalized aberration. What I (and others) observed at the time, continues to be true: Even during the current COVID-19 emergency, there are still instances where judicial intervention is needed to prevent (further) irreparable harm. And, in those cases, the courts will come to the plaintiff’s aid.
Enter the Southern District of Florida…
March 19, 2020
Southern District of Florida
Office Depot, Inc. v. Babb
The next case to be decided (in fact, it was decided the next day after the so-called “unicorn case”) was Office Depot, Inc. v. Babb, in which the plaintiff, Office Depot, brought an action in federal court in Florida alleging that the defendant, Megan Babb, a “Major Account Manager,” who had access to “among other things, sales information, sales and marketing strategy information, and the identity and lists of actual and potential customers, . . . had connected multiple external storage devices to [her] computer and accessed them” and, in violation of a noncompete, went to work for W.B. Mason Co, Inc. (a competitor of Office Depot).
Convinced that there was a risk to Office Depot’s information and customer goodwill, the court granted a preliminary injunction, including a prohibition on the defendant working for a competitor or otherwise competing.
For more on the first two cases, see “Preliminary Injunctions, Rainbows, and Unicorns During a National Emergency.”
Following those initial cases, the cases continued as follows…
April 21, 2020
Northern District Indiana
Ligtel Communications, Inc. v. Baicells Technologies, Inc.
Plaintiff LigTel Communications Inc. (“LigTel”) provides internet, tv, and wireless telephone service to approximately 1,500 customers in northeastern Indiana. Defendants Baicells Technologies, Inc. and Baicells Technologies North America, Inc. (together, “Baicells”) “manufacture[] and sell[] Long-Term Evolution (“LTE”) wireless broadband equipment to operators of wireless networks. . . . They are, in essence, equipment vendors that provide LTE service equipment and LTE core solutions to wireless ISPs that are in the same business as LigTel.”
In 2019, an issue surfaced concerning Baicells’s use of certain codes necessary to provide wireless services – to which LigTel claimed the rights. Additional details about the technology and dispute are necessary only to the parties, the court, and others in the same industry; they are not relevant to the issues here, and therefore are not discussed. The result, however, was that LigTel sued Baicells for false designation of origin and false or misleading representations under the Lanham Act, 15 U.S.C. § 1125(a), and its Indiana counterpart, and misappropriation of trade secrets pursuant to the Defend Trade Secrets Act (“DTSA”), 18 U.S.C. § 1831-39, and the Indiana Uniform Trade Secrets Act (“IUTSA”), Ind. Code § 24-2-3-3, and sought a preliminary injunction requiring (among other things) that Baicells’ migration from LigTel’s codes and related systems be ordered to proceed faster than planned.
Following expedited discovery, the court considered the motion for a preliminary injunction.
Quickly disposing of the trademark and related state law unfair competition claims, the court turned to the misappropriation of trade secrets claims.
The trade secrets at issue were LigTel’s encryption code, network architecture, and network engineering.
After observing that a trade secret misappropriation claim requires acquisition through improper means or use or disclosure without consent, the court observed that “LigTel contends that Baicells ‘appears’ to have misappropriated its trade secrets above by acquiring them without authorization. To reach this conclusion, LigTel strings together what it admits are a series of circumstantial facts akin to a conspiracy theory.” The court found that LigTel failed to establish a likelihood of success on the merits given (among other things) that “mere possession of trade secrets” (which is all LigTel may have been able to establish) “does not suffice to plausibly allege disclosure or use of those trade secrets.”
Also finding that LigTel would suffer no irreparable harm in the absence of the requested injunction, the court then turned to the balancing of the harm. It was there that the court explored the impacts of COVID-19.
The court began its analysis of this factor as follows:
The Court is mindful of the unprecedented magnitude of the COVID-19 pandemic and the Court takes judicial notice of the present national (and world-wide) emergency, see Presidential Proclamation #9994, 85 F.R. 15337, 2020 WL 1272563 (March 13, 2020) (proclaiming that the Covid-19 outbreak in the United States constitutes a national emergency under §§ 201 and 301 of the National Emergencies Act, 50 U.S.C. 1601, et seq.) Given the constantly-developing emergency, there is little point in the Court providing a detailed snapshot of its status other than to acknowledge that much of the nation is under voluntary or mandatory “stay-at-home” orders which require or encourage minimal contact between citizens in an effort to slow the spread of the virus. Restaurants, schools, universities, hotels, bars, and many retail establishments and businesses have closed. Employees are asked to work remotely and students at all educational levels have been asked to engage in online instruction. Medical professionals are encouraged to rely on tele-health appointments with patients. Under these conditions, it suffices to say that wireless internet has become critical for the public to engage in work, school, and commerce.
Baicells’ customers currently consist of 544 wireless ISPs providing wireless services to rural communities. In turn, these customers currently serve about 26,248 end users. However, “those end users include families and businesses” making the number of actual individual users relying on internet access much higher.
(Citations omitted.)
In opposing LigTel’s request that the court order that Baicells’ migration from LigTel’s systems be expedited, Baicells noted that it’s “doing this work during a pandemic, during a time where there’s peak demand to add subscribers and to add internet service. And so, you know, it’s not a great time. And it’s not like just flipping a switch.” In contrast, LigTel argued that Baicell is using LigTel’s code, causing harm to LigTel.
Assessing the two positions, the court reasoned as follows:
In practical terms, LigTel’s request asks this Court to weigh the potential elimination of internet access to members of the public in the midst of a national emergency against what LigTel itself acknowledges as minimal or no additional harm to it. LigTel’s requested relief creates numerous practical concerns. For instance, LigTel’s argument that no customers need lose internet access presumes that this Court has some degree of control over whether Baicells’ ISPs (all 544 of whom are non-parties in this action), in fact, comply with any directive from Baicells that it conduct an expedited upgrade to its system. The potential cost, in terms of public harm, if even a small percentage of ISPs decline to make the upgrade during this pandemic is massive.
Second, LigTel requests that the SIM cards for existing end users be immediately replaced to avoid the continued use of the HNI code 311-98. The specifics of how such a task would, or even could, be accomplished in the midst of voluntary and mandatory “stay at home” orders is not addressed. Moreover, whether these SIM cards need to be changed out at all is the subject of debate. During oral argument, the parties made abstruse arguments about the workings of SIM cards and how they do or do not broadcast an HNI code. After oral argument, LigTel submitted a Supplemental Declaration of Wentworth intended to clarify the issue. The Declaration, while didactic in the details of SIM cards, does little to alter this Court’s conclusion that the immediate replacement of the SIM cards is neither feasible nor practicable, especially in light of the Covid-19 pandemic. What is relevant and worthy of focus is the potential risk to the public if the Court were to order injunctive relief in the form LigTel seeks. That risk to the public outweighs any benefit obtained by LigTel in expediting the migration process, especially when considered in combination with its unlikely success on the merits and failure to make a showing of irreparable harm.
(Citations omitted.)
Based on that assessment, the court denied the preliminary injunction.
The takeaway from this case is that the impacts on the public is where the COVID-19 pandemic is likely to have its broadest controlling effect on a court’s analysis of whether to issue a TRO or preliminary injunction. That said, it is the rare case where the public interest will be so obviously and significantly impacted by COVID-19.
Note that this case is on appeal to the Seventh Circuit.
June 2, 2020
First Circuit
Russomano v Novo Nordisk Inc.
On June 2, 2020, the First Circuit issued its third case involving restrictive covenants this year: Russomano v Novo Nordisk Inc.*
While not technically a case involving COVID-19 considerations, the court nevertheless addressed the impacts of a very brief layoff (just three weeks) on the operation of noncompetes. Given the increased fluidity in the job market resulting from COVID-19, this case is one to be mindful of.
The facts are fairly simple: the plaintiff (Thomas Russomano) began working for Novo Nordisk on January 25, 2016, and less than a year later, was part of a RIF (reduction in force), effective November 18, 2016. He almost immediately applied for rehire for a similar job in a different territory and was rehired effective December 12, 2016 (just three weeks after he had been laid off).
In his new role, “[h]is salary was higher, the region his position covered was larger, and he interacted with patients less often.” And, he signed a new confidentiality and noncompete.
A about a year and a half later, Mr. Russomano was RIF-ed again, this time effective August 3, 2018 (a Friday). And, again, he applied for, and received, a new position at Novo Nordisk, this time as Senior Hemophilia Community Liaison – New York, NY (a role newly created by the company), with a start date “effective August 6, 2018,” the very next business day (i.e., the following Monday).
In connection with that new position, “Novo Nordisk sent Russomano a letter ‘formally confirm[ing his] transfer’ to the new position.” However, Novo Nordisk did not ask Mr. Russomano to sign a new confidentiality and noncompete agreement.
On January 6, 2020, Russomano resigned and, on January 21, 2020, started with BioMarin Pharmaceutical, Inc. (“BioMarin”) as a “Senior Account Manager – Hemophilia Gene Therapy.”
Russomano requested written assurance from Novo Nordisk that it would not enforce the noncompete against him. When Novo Nordisk refused, Russomano sued (in a state court action that was subsequently removed to the District of Massachusetts) for “a declaratory judgment that his future employment with BioMarin would not violate a confidentiality and non-compete agreement he signed while working at Novo Nordisk.” After the removal, Novo Nordisk counterclaimed against Russomano and “filed a third-party complaint against BioMarin for tortious interference with a contract, unfair competition, and misappropriation of trade secrets.”
The First Circuit summarized United States District Court Judge Allison Burroughs’ denial of a preliminary injunction as follows:
The court denied Novo Nordisk’s motion for a temporary restraining order and preliminary injunction on February 5, 2020. It wrote that “at this stage,” based on a “review of the evidence presented,” Russomano’s employment subject to his December 7, 2016, agreement with Novo Nordisk was terminated on August 3, 2018. The court viewed the language Novo Nordisk used in its letter notifying Russomano that his position would be eliminated as unambiguous, and it rejected Novo Nordisk’s argument that the termination of Russomano’s employment was conditional upon him not finding a new position with the company. It found that the twelve-month non-compete provisions he agreed to in 2016 had expired in August 2019, twelve months after he left his position in August 2018, and Russomano thus was free to work in any role at BioMarin.
The First Circuit affirmed the decision, finding no error in the district court’s analysis.
Further, the First Circuit observed that the history of how the job changes were handled were “quite similar”:
Both times he was laid off as a result of restructuring. Both times Russomano had to re-apply for open positions in the organization with no guarantee of being re-hired. His new roles were both markedly different than his previous ones. Both times he received a new title and different compensation, and he worked with different populations and in different geographic areas.
Instructively, the First Circuit also found that certain arguments about the effect of the August 3 termination notice (including whether it was an offer to terminate employment) were waived. Those arguments should be evaluated in the context of other cases (as they might mitigate the precedential impact of this case).
The takeaway from this case is that any break in employment, no matter how short – here it was over a weekend – can trigger the start of restrictive covenant restricted periods. As COVID-19 has resulted in so many layoffs and furloughs, this case is likely to feature prominently in future arguments.
*The other two First Circuit decisions were TLS Management and Marketing Services, LLC v. Rodríguez-Toledo (discussed in “Trade secret misappropriation judgment reversed”) and NuVasive v. Day (discussed in “New First Circuit Noncompete Case Sheds No Light on Massachusetts Noncompetition Agreement Act”).
June 15, 2020
Eastern District of Pennsylvania
Schuylkill Valley Sports, Inc. v. Corporate Images Co.
Plaintiff Schuylkill Valley Sports (“SV Sports”) “is a sporting goods retailer and athletic team supplier . . . sell[ing] athletic equipment, sporting goods, sports gear for a vast array of sports, individual and team sportswear, and related items. It also provides customized screen-printing and embroidering of apparel and promotional items.”
Defendant Phil Snyder worked for SV Sports since 1989, most recently as manager of Team Sales Development. During his employment, Snyder “signed a Company handbook, the 2020 version includes a non-solicitation and a confidentiality provision prohibiting the disclosure of SV Sports trade secrets.” In 2005 (16 years after he started to work for SV Sports), he signed (for the first time) a noncompete, nonsolicit, and no-raid agreement.
In late March 2020, SV Sports sent a letter to its employees: “[A]s of March 30th, SV Sports will be implementing a company-wide layoff. With the everyday uncertainty of Covid-19 and state employment restrictions, we feel it necessary to reduce our operating staff to a minimal SWAT team.” (Footnote referencing the various governmental orders omitted.) The letter continued,
While being laid off, you will be able to collect unemployment during this time period. For those of you that are enrolled in our health insurance, you will continue to be covered through the month of April without having to enroll and pay for Cobra. Depending on how long the situation lasts, we will revisit this in late April to determine if the company will continue to pay for your premiums or whether you will need to be enrolled in Cobra. . . . You will be required to return all company possessions to SV Sports by Monday, March 30th.
The letter also provided that SV Sports is “going to continue to monitor the situation daily and adjust as we see fit.”
Snyder spoke with SV Sports’ CEO (who sent the letter) stating that the “SV Sports’ Sales Team deserved a phone call, not simply a letter notifying them they were being laid-off. . . . [Some of the] employees . . . might want to come back [. . . but] will make other plans because their perception will be that SV Sports doesn’t care about them or want them going forwards. . . . [F]or the company’s sake it’s the prudent thing to do since any signed team noncompete agreements are null and void given the last paragraph of those agreements.” (Citations and internal quotation marks omitted.)
The court addressed certain activities that often arise in these cases and can have a significant impact on a court’s perception of the trustworthiness of departing employees. Specifically, the court noted the following:
- Snyder emailed his customers explaining that he was laid off, and pointing them to the person at SV Sports who would be taking over their account. Snyder copied himself (at his personal email address) on these emails. Instructively (and presumably confirming that Snyder’s email was not a problem), the court observed that another SV Sports employee (who was remaining with the company) “sent an email to SV Sports customers, copied to Snyder, introducing himself as the new SV Sports Sales Representative and referring to the ‘former’ SV Sports sales representatives.” The court later explained that “[t]he mere fact that Snyder and [an other former employee, Mike] Morris, independently, forwarded their customer lists to their personal email accounts prior to their separation from SV Sports is also insufficient to show that either has used or disclosed, or intends to use or disclose, this information.”
- “On March 27, 2020, Mike Morris, an SV Sports Sales Team member, forwarded an attachment called ‘MM Contacts Spring 2020.ods’ to his personal email under the subject ‘My Customers.’” However, the court also observed that “[t]here is no evidence that Morris, Snyder, or any other former SV Sports Team member subsequently used or disclosed any such customer information, or any confidential information of SV Sports. There is no evidence that [defendant Corporate Images (“CI”)], [defendant] Reenie Rich, Inc., or [defendant Rich] McGinnis ever requested customer information or any confidential information of SV Sports.”
Next, the court explained that “[f]ollowing his separation from SV Sports, Snyder communicated and accepted employment with CI. On April 18, 2020, Snyder, as the Sales Director for CI and Team Sales, sent an email, copying CI’s President, to nine former SV Sports Sales Team members who had been laid-off, soliciting them to join CI.”
On May 7, 2020, SV Sports learned of Snyder’s conduct and sent him a termination letter.
On May 18, 2020, SV Sports sued Snyder, CI, and the other defendants for “(i) unfair competition; (ii) misappropriation of trade secrets/confidential information under the Defend Trade Secrets Act of 2016 (DTSA), 18 U.S.C. § 1836 et seq.; (iii) misappropriation of trade secrets under the Pennsylvania Uniform Trade Secrets Act (PUTSA), 12 Pa. C. S. § 5301 et seq.; (iv) unjust enrichment; (v) tortious interference with business and contractual relationships; (vi) breach of fiduciary duty/duty of loyalty; (vii) breach of contract; and (viii) civil conspiracy.” SV Sports also sought both (a) a TRO and preliminary injunction enforcing its restrictive covenants and preventing use or disclosure of its trade secrets and (b) expedited discovery.
As the court observed, “The request for injunctive relief is based largely on assumptions that Defendants did something wrong. However, injunctions will not be issued merely to allay the fears and apprehensions or to soothe the anxieties of the parties. Nor will an injunction be issued to restrain one from doing what he is not attempting and does not intend to do.” (Internal citations omitted.)
The court ultimately found that there was no need for a hearing and that expedited discovery was inappropriate, given the overly broad nature of the requests.
Significant to the court’s analysis was that the individual defendants had been laid off, which, according to the express language of the agreements, vitiated the noncompete and nonsolicitation obligations. The court rejected SV Sports’ argument that the employees had been furloughed as opposed to laid off, which arguably would not have triggered the clause waiving the restrictive covenants. The court found it significant in that regard that “even if SV Sports anticipated that the lay-off would be only temporary, it offered no end date for the lay-off and continuously refused to guarantee that anyone would be reinstated.”
The court rejected each of SV Sports’ other claims as well.
With regard to unfair competition based on a raiding theory, the court noted that those claims fell with the noncompete claim and, regardless, “systematic inducing of employe[es] to leave their present employment and take work with another is [only] unlawful when the purpose of such enticement is to cripple and destroy an integral part of a competitive business organization rather than to obtain the services of particularly gifted or skilled employe[es],” which SV Sports failed to prove. Similarly, the court found that SV Sports “also failed to show ‘the inducement is made for the purpose of having the employe[es] commit wrongs, such as disclosing their former employer’s trade secrets or enticing away his customers.’”
With regard to the trade secrets claims, the court primarily focused on the paucity of evidence, including the lack of any evidence of use or disclosure of a trade secret (the customer information), concluding that SV Sports failed to establish a likelihood of success on the merits.
With regard to the unjust enrichment claim, the court explained that “[t]he most significant element of the doctrine is whether the enrichment of the defendant is unjust. The doctrine does not apply simply because the defendant may have benefited as a result of the actions of the plaintiff. . . . Rather, “a claimant must show that the party against whom recovery is sought either ‘wrongfully secured or passively received a benefit that it would be unconscionable for her to retain.’” (Citations omitted.) The court then noted that the absence of evidence that CI received any confidential information disposes of the unjust enrichment claim.
With regard to the tortious interference claim, the court looked to section 768 of the Restatement (Second) of Torts: “A competitor that intentionally causes another’s employee ‘not to continue an existing contract terminable at will does not interfere improperly with the other’s relation if: (a) the relation concerns a matter involved in the competition between the actor and the other; (b) the actor does not employ wrongful means; (c) his action does not create or continue an unlawful restraint of trade; and (d) his purpose is at least in part to advance his interest in competing with the other.’” (Citations and certain internal quotations omitted.) The court tempered that rule with the following:
An employment contract … may be only partially terminable at will. Thus it may leave the employment at the employee’s option but provide that he is under a continuing obligation not to engage in competition with his former employer. Under these circumstances a defendant engaged in the same business might induce the employee to quit his job, but he would not be justified in engaging the employee to work for him in an activity that would mean violation of the contract not to compete. Thus, the competitor’s privilege does not shield a company from tortious interference with an employee bound by a covenant not to compete.
(Citations and internal quotations omitted.) Nevertheless, having found that the noncompete was not enforceable, that the handbook (also relied on by SV Sports) was not a contract, that the complained of conduct took place after the layoff, and that there was no evidence of improper solicitation of customers, the court found that there was no tortious interference.
With regard to the breach of fiduciary duties / duty of loyalty claim, the court found that “[t]he only alleged activity Snyder took prior to leaving SV Sports was to send an email to his customers, which he copied to his personal email account, notifying them of his lay-off. This was permissible under Pennsylvania law and did not violate his non-compete agreement. [And, d]espite SV Sports’ assumptions, it has not shown that Snyder forwarded the email to his personal account for any improper purpose or used any confidential information. [Nor has it] shown that Snyder intends to disclose any confidential information he gained during his employment and, also, because it terminated its employment relationship with Snyder, there is no ongoing threat of a breach that would warrant injunctive relief.”
(The remaining claims also failed, but raise no issues helpful to discuss here.)
With regard to irreparable harm, the court found that the alleged harms caused by the violation of the noncompete were conclusory and unsupported by the evidence. Similarly, the court found that the alleged harms associated with the use of SV Sports’ confidential information were nonexistent because there was no evidence of a threat of their use or disclosure. “The mere fact that Snyder works for CI, or that any other former SV Sports’ employee works for or intends to work for CI, is insufficient to show there is a risk of imminent disclosure.”
In balancing the harms, the court noted that, “even were the Court to find that the non-compete agreements are enforceable, Defendants’ belief that they did not apply was reasonable. This distinguishes the case from those in which the harm to the defendants was self- inflicted and less worthy of protection.” Further, recognizing that Snyder would want to work in the same field in which he has worked for the past 30 years, the court considered the impact of COVID-19 as follows:
In light of the coronavirus pandemic and closing of non-essential businesses, employment opportunities were limited.
The harm to Snyder if an injunction is granted is great as he will once again be without a job and income. Although the stay-at-home orders issued by the Governor of the Commonwealth of Pennsylvania ended on June 4, 2020, not all businesses are open. The coronavirus shutdown is ending in three phases, county-by-county, based on the number of new cases. Lehigh County remains in the yellow phase, along with the entire Eastern District of Pennsylvania. The likelihood of Snyder finding employment at this time is therefore reduced, especially if Snyder is enjoined from working with a competing company, which is the area in which he has the most experience. According to the Bureau of Labor Statistics, the unemployment rates over the past few months are the highest in more than seventy years. The harm to SV Sports, on the other hand, is much less given that it had laid Snyder off and he was not making any sales for SV Sports.
(Footnote concerning the number of COVID-19 cases in Pennsylvania omitted.)
Based on the above and other considerations, the court found that “the balance of equities overwhelmingly weighs in favor of Defendants.”
With respect to the public interest, the court stated the following:
Issuing a preliminary injunction where SV Sports failed to satisfy any of the first three elements would necessarily be against the public interest. Moreover, if the non-compete agreements are enforceable, SV Sports has failed to show that granting a preliminary injunction is in the public interest.
There are several competing public interests at play in this case. The public at large benefits by allowing companies to compete freely. [A]s a matter of public policy, Pennsylvania courts are reluctant to enforce any contracts in restraint of free trade, particularly where they restrain an individual from earning a living at his trade. [T]here is a public interest in employers being free to hire whom they please and in employees being free to work for whom they please. Nonetheless, it is generally in the public interest to uphold an agreement freely entered into by the parties. (Restrictive covenants only have value if they are enforced.) Though disfavored, Pennsylvania courts recognize that covenants have developed into important business tools to allow employers to prevent their employees and agents from learning their trade secrets, befriending their customers and then moving into competition with them.
The Court recognizes the public interests in upholding enforceable contracts, preventing unfair competition, and protecting trade secrets. However, because SV Sports has not shown that the non-compete agreements are enforceable, there is no evidence of ‘unfair’ competition. In the absence of any evidence that SV Sports’ confidential information is being improperly used or disclosed, the public interest in preserving competition weighs in favor of denying the injunction that would significantly limit CI’s ability to compete. Moreover, in light of SV Sports’ decision to lay-off Snyder and the former Sales Team members and of the fact they would be forced out of work when the country is facing the highest unemployment rates in more than seven decades, the public interest does not favor granting an injunction that would prevent these individuals from working for CI.
(Internal citations and quotations omitted.)
The takeaway is that the layoff featured prominently in the case, whereas if the employees had been (clearly) furloughed instead, the outcome might have been different. Further, COVID-19 may (as one might expect) come into play insofar as it has resulted in extremely high unemployment rates and significantly enhanced difficulties in finding a job.
June 19, 2020
Southern District of Florida
Delivery.com Franchising, LLC v. Moore
Plaintiff Delivery.com Franchising, LLC (“Delivery.com”) is a food delivery franchise business that operates “an e-commerce technology marketplace that enables customers to order food from local restaurants using the website www.delivery.com and a related app.” Defendant Moore operates a food delivery service called Pooler Takeout LLC (“PTO”).
Moore had been operating PTO under a franchise agreement with a company whose assets were acquired by Delivery.com. Following Delivery.com’s acquisition of that company’s assets, and before switching to Delivery.com’s platform, Moore disavowed any obligations under the preexisting franchise agreement.
In response Delivery.com sued, seeking a mandatory preliminary injunction requiring that Moore/PTO operate under the franchise agreement (as opposed to merely not competing with Delivery.com). After a series of delays, the court held an evidentiary Zoom hearing on May 20, 2020.
During the hearing, Moore/PTO offered the following about the impacts of COVID-19:
While PTO has maintained a steady stream of business during the COVID-19 pandemic, it has also lost drivers due to the pandemic. Pooler, Georgia is currently experiencing the COVID-19 pandemic like many other areas of the country. Most of Pooler Takeout’s restaurants rely exclusively on PTO for delivery of their food to customers. In Moore’s opinion, if PTO is not available to deliver food during the COVID-19 pandemic, then the restaurants in Pooler would be forced to shut down completely. Most of PTO’s customers rely exclusively on PTO to get their food deliveries so that they do not have to risk exposing themselves to COVID-19. Moore believes it would not be possible to complete the onboarding of PTO on Delivery’s platform during the current COVID-19 pandemic.
Without regard to that testimony, the court determined that the franchise agreement was enforceable and Moore/PTO did not properly terminate it, but found that the other factors weighed against issuance of an injunction. Having done so, the Magistrate Judge did not need to evaluate the public interest factor. Nevertheless, the court proceeded to reject Moore/PTO’s COVID-19-related testimony based on the following rationale:
Moore and PTO argue the public interest would be harmed by a preliminary injunction because it would be issued in the midst of the COVID-19 pandemic. They contend that most of PTO’s restaurants rely exclusively on PTO for delivery of their food to their shared customers and that requiring restaurants that rely on PTO to train on a new platform and transition would be fatal to many of those businesses (and would also harm the customers, many of whom are elderly and/or disabled). They further argue that a preliminary injunction (forcing PTO to onboard with Delivery.com and use a new Delivery.com-provided software platform) would cause their customers, who they say would otherwise stay at home, to leave their homes to pick-up from these restaurants or dine-in, which is contrary to the best interests of the public health, safety, and welfare.
Many of the factors urged by Moore and PTO are unduly speculative. To say that PTO’s food delivery customers in Pooler would confront a greater COVID-19 health risk because they would not switch to a new software platform and would travel on their own to pick up food (thereby increasing the health risk) is to urge an unduly speculative theory. And predicting the failure of Pooler restaurants because food delivery customers would no longer use PTO is also a forecast based upon speculation.
So Moore’s public interest argument is largely based on conjecture, unsupported by evidence (such as testimony from a PTO customer about not wanting to switch platforms).
On June 19, 2020, the Magistrate Judge issued a report and recommendation recommending denial of the preliminary injunction. On July 14, 2020, the district court adopted the report and recommendation.
The takeaway is that the parade of horribles that may flow from an injunction issued during the COVID-19 pandemic cannot be proffered as a defense without proof that alleged consequences will actually occur.
July 7, 2020
Middle District of Pennsylvania
Greenway Logistics, LLC v. White
Plaintiff Greenway Logistics, LLC (“Greenway”) provides trade show and special events shipping services. Defendant Laxmi White was an account manager for almost nine years, starting in 2011.
“On August 31, 2016, Greenway and White entered into a nonsolicitation and noncompete agreement” prohibiting “White from soliciting Greenway customers for eighteen months after termination of her employment, in exchange for which White received additional customer accounts.”
“White’s employment with Greenway terminated on July 11, 2019,” and Greenway sued in state court on November 15, 2019, claiming that White violated her nonsolicit. White removed the action on January 10, 2020.
On February 12, 2020, Greenway moved for a preliminary injunction. That motion was deemed withdrawn for failure to file a brief. Accordingly, on May 15, 2020 (following other motions), Greenway again moved for a preliminary injunction.
On July 7, 2020, the court denied the motion finding that Greenway failed to establish “that it is likely to suffer future irreparable harm from White’s conduct.” Explaining that, “[p]erhaps the most important prerequisite for the issuance of a preliminary injunction is a demonstration that, if it is not granted, the applicant is likely to suffer irreparable harm before a decision on the merits can be rendered,” the court explained that “[s]peculative injury does not constitute a showing of irreparable harm”; “more than a risk of irreparable harm must be demonstrated. A plaintiff must make a clear showing of immediate irreparable injury, or a presently existing actual threat. An injunction may not be used simply to eliminate a possibility of a remote future injury.” (Internal quotations omitted.)
With that backdrop, the court noted the following:
- The nonsolicitation agreement was going to expire in only 3 weeks.
- Greenway suffered a quantifiable monetary loss, which can be “redressed by an award of damages . . . .”
- According to White, “due to the COVID-19 pandemic, the trade show industry, from which White solicits business, ‘has suffered greatly due to governmental restrictions placed upon large gatherings” and “many trade shows have been cancelled or postponed, thereby limiting or restricting the amount of business that can be conducted within this industry. [T]here are no June, July, or August trade shows on any convention center calendar, and almost every trade show which was scheduled for August has also been cancelled. And White is not currently actively participating in the trade show industry because of the COVID-19 pandemic.” (Internal quotations omitted.)
Denying the motion for a preliminary injunction, the court reasoned, “Given (1) the COVID-19 pandemic and ensuing restrictions have curtailed White’s ability to solicit business, (2) the non-solicitation agreement is soon to expire, and (3) Greenway has identified a financial loss that a damages award can correct, the only possible injury to Greenway as a result of White’s alleged breach of the non-solicitation agreement would be the financial injury that Greenway has already suffered. It follows that Greenway has not made made the requisite showing of irreparable harm.”
The takeaway from this case is that the pandemic may come into play in unexpected ways, including, not with respect to irreparable harm to a defendant or the public interest, but rather to establish why there could be no irreparable harm to a plaintiff.
August 31, 2020
Western District of Tennessee
Gus’s Franchisor, LLC v. Terrapin Restaurant Partners, LLC
Plaintiff Gus’s Franchisor, LLC (“Gus’s”) operates a franchise of southern fried chicken restaurants. Defendants Mark Dawejko and Terrapin Restaurant Partners, LLC (together, “Terrapin”) had operated a Gus’s World Famous Fried Chicken Franchise in Greenbelt, Maryland.
Gus’s terminated Terrapin’s franchise on May 8, 2020, but Terrapin continued to operate it, allegedly using Gus’s trademarks, trade dress, and trade secrets (including “Gus’s protected batter recipe” and the information “set forth in the Gus’s Operating and Procedures Manual and other writings provided to Defendants”).
As a result, on June 1, 2020, the District Court issued a TRO, restraining Terrapin from operating the franchise and using Gus’s trademarks, trade dress, and trade secrets. Two weeks later, the Court entered a stipulated injunction with similar restrictions.
Despite the order, Terrapin continued to operate the franchise, triggering a motion for contempt (filed on June 23, 2020).
In response, Dawejko claimed “that his lawyers advised him that it was in the best interest of the store to continue to operate despite the existence of the TRO” and “that it was in the best interest of the restaurant and its employees to remain open during the COVID-19 shutdowns . . . .” Defendants did not claim that COVID-19 (or anything else) made them unable to comply with the court’s order.
On August 31, 2020, observing that the defendants were able to, but chose not to, comply with the order, the court summarily rejected Terrapin’s defense and issued sanctions for contempt.
The takeaway from this case is not only that a defendant in a trademark or trade secret case should not assume that COVID-19 will supply an automatic defense to a TRO (or other injunctive relief), but that (absent COVID-19 rendering it impossible to comply with an injunction) the impact of COVID-19 is not a justification to ignore a court order.
September 3, 2020
Southern District of New York
International Business Machines Corp. v. Lima
Defendant Rodrigo Kede De Freitas Lima worked at IBM for approximately 25 years, at some points in the United States and others in Brazil. Most recently, Lima served as General Manager of Integrated Accounts, a senior executive position that included global responsibilities.
On December 3, 2019, just before his most recent promotion, Lima executed a new noncompete with IBM (replacing a prior agreement).
On May 18, 2020, Lima resigned and went to work for Microsoft, a competitor of IBM for cloud-based services.
Not surprisingly, on June 15, 2020, IBM sued Lima for breach of his noncompete (among other things) and, on June 18, 2020, moved for a TRO and preliminary injunction to prevent Lima from working for Microsoft in violation of his noncompete.
The court granted the TRO and, following expedited discovery, conducted a three-day evidentiary hearing on July 21, 22, and 28, with testimony taken both in person and remotely. Following the hearing, the court granted the preliminary injunction.
The court found that the noncompete protected IBM’s legitimate business interests (a requisite for enforcing a noncompete) in part based on Lima’s acknowledgement in his noncompete of “the confidential nature of the information disclosed to him, created by him, and/or learned by him that relates to IBM’s business” and that “IBM gave him ‘access to, and knowledge of, IBM Confidential Information’ as well as ‘relationships with[ ] customers of [IBM] at the time and expense of [IBM],’ and that his services were ‘extraordinary, special and unique.’”
Having found that Lima’s noncompete protected IBM’s legitimate business interests, the court turned to the hardship that an injunction would cause. The court took specific note of the following in that regard:
- While a prior noncompete “provide[d] for payment of [Lima’s] salary during the non-compete period, . . . Lima was compensated in advance by IBM in exchange for his acceptance of the terms of the Non-Compete. Indeed, Mr. Lima was being paid at IBM, all in, at a rate that could have made him close to $20 million in four years. Some of that compensation paid for these Non-Compete obligations.”
- The noncompete “does not create a complete ban on employment at Microsoft (or elsewhere) . . . . Rather, the employment is restricted only if it is with an entity in a proscribed type of competition with IBM, within a geographic area in which he had job responsibilities within the last twelve months of his employment, begins within twelve months of his termination of employment with IBM, and ‘could result’ in his use, disclosure, or reliance upon IBM Confidential Information.”
- With regard to the reasonableness of the restriction, the court again turned (in part) to the acknowledgments set out in the noncompete, in which Lima “expressly agreed in the Non-Compete that the restrictions were reasonable as to geography, scope, and duration.” As the court noted, “That promise, like the other promises he made and was paid for, has meaning in this context.”
- Perhaps most damning to the defense, however, was Lima’s acknowledgment (in testimony) “that if he was not able to commence the proposed employment with Microsoft, his plan was to spend time with his children and exercise. Mr. Lima testified that he and his wife have accumulated a net worth of $5 million, have multiple real properties, and would be able to pay his expenses until the end of the non-compete period. In fact, while the TRO was in place and during the preliminary injunction hearing, Mr. Lima was hired by Microsoft and put on Microsoft’s payroll. The record is devoid of evidence that indicates that should the Court enjoin Mr. Lima for the duration of the non-compete period Microsoft would terminate Mr. Lima and remove him from its payroll and/or refuse to find another job for him. Likewise, there is no proof that at the end of the non-compete period Microsoft would not have a job for him.”
The final consideration in its hardship analysis was Lima’s argument that an injunction would force him and his family “to return to Brazil due to immigration reasons if he were to be precluded from taking this exact position for which he was hired at Microsoft” and “he did not want to go back to Brazil out of concern for his and his family’s health and welfare in light of the COVID-19 pandemic.”
In rejecting that argument, the court noted that it “need not delve into the intricacies of the immigration law and speculate as to the significance of his visa status to determine if there is a hardship, because when Mr. Lima signed Microsoft’s written offer letter on June 2, 2020, he agreed that ‘[i]nitially, [he would] be located in Sao Paulo, Brazil’ and would wait until after his ‘first year of employment’ to move to Florida, where his job with Microsoft is actually based.” Accordingly, the court found Lima’s argument unpersuasive – not based on an assessment of the considerations raised (which it seems the court might have otherwise been willing to evaluate), but because the argument was undermined in its entirety by the employment offer: “The precise nature of the hardship claim – moving his family from Greenwich, Connecticut – fails in light of the employment terms Mr. Lima agreed to at Microsoft.”
In the last part of its analysis of the noncompete claim, the court turned to the concept of inevitable disclosure as a consideration in the need to enforce the noncompete – not as the stand-alone trade secret doctrine (see Inevitable Disclosure Doctrine – A Brief History and Summary). COVID-19 surfaced again in that context, with Lima arguing that “whatever information he might have known in his former role is now stale, especially in light of the COVID-19 pandemic.” The court quickly dispensed with the argument, noting (among other things) that Lima had been working on global strategy during the last 12 months (which, though not stated expressly, included during the pandemic).
The takeaway from this case is that COVID-19 may surface in multiple contexts (here, in the hardship factor as well as in impact on the continued utility of trade secrets) and that each context should be critically evaluated before simply adding COVID-19 to the argument.
Note that this case is on appeal to the Second Circuit.
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Based on the cases summarized above, COVID-19 seems to have impacted perception more than reality, though perhaps it has had the salient effect of reducing the number of enforcement actions being brought and the number of questionable injunction motions. (That said, some have predicted that the perceived dip in these types of lawsuits and motions is a reflection of a soft job market and that as the economy picks up, so too will the claims.) Time will tell.
As a related matter, it bears mention that, though not discussed above, COVID-19 has surfaced in other (non-injunction-related) ways as well. The following are a few examples: Brightview Group LP v. Teeters, 2020 WL 4019172 (D.Md. July 16, 2020) (additional time to permit an expert rebuttal disclosure); United States v. Xiaorong You, 2020 WL 3867421 (6th Cir. May 15, 2020) (request in a criminal trade secrets theft suit for pre-trial release based on the risks posed by COVID-19 in prison); CGB Diversified Services, Inc., v. Forsythe, 2020 WL 2193114 (D. Kan. May 6, 2020) (burdens of engaging in expedited discovery during COVID-19 lockdown orders); United States v. Zhou and Chen, 2020 WL 1643634 (S.D. Ohio April 2, 2020) (motion to revoke a detention order due to health concerns arising from COVID-19).
Stay tuned – this is a fluid situation in the context of very fact-based cases.
Photo credit: sumanley.