Updated July 18, 2024 at 1:15 ET (see below in red).
Lots happening in the ATS Tree Services, LLC v. FTC case challenging the FTC’s noncompete rule.
In case you forgot, preliminary injunctions are an extraordinary remedy
On Tuesday, July 16, the FTC filed a notice of supplemental authority, attaching a July 15 decision from the 3rd Circuit Court of Appeals in Delaware State Sportsmen’s Ass’n v. Delaware Department of Homeland Security.
That case involved the appeal of the denial of a preliminary injunction prohibiting implementation of new state gun laws in Delaware.
The opening line of the 3rd Circuit’s decision is, “A preliminary injunction is not a shortcut to the merits.” That should tell you all you need to know about why the FTC provided it.
But wait, there’s more…
The case focused on the need for true irreparable harm that cannot be remedied at the end of the case — harm that would render the rest of the case moot. The court observed that, “[t]hough courts recognize this primary purpose, they have strayed from it and started using preliminary injunctions just to prevent harm.” Noting that preliminary injunctions are an extraordinary remedy, the court said, “This extraordinary remedy has become ordinary.” Despite that, the court explained — in permissive rather than mandatory language — that “[c]ourts may withhold this extraordinary remedy if a plaintiff’s alleged injury does not threaten to moot the case.” (Emphasis added.)
I am not sure that this case really changes anything about the law generally or in this case. It certainly does not change the stated standards.
That said, it’s obvious why the FTC submitted it: It is a stark admonition that preliminary injunctions should not be issued absent significant irreparable harm — a particularly potent point given the challenges that ATS faced articulating its irreparable harm at the preliminary injunction hearing.
ATS supplements its showing of irreparable harm
On the other side of the issue, it is no surprise that yesterday, July 17, ATS filed a motion to supplement the record to provide more details about the harm it will suffer without a preliminary injunction. That supplementation was in the form of a supplemental affidavit from the company’s CFO, David Serwin.
In his affidavit, Mr. Serwin details the training that ATS provides, the number of ATS employees, the terms of ATS’s noncompetes, and the specific irreparable harm that ATS will face if an injunction is denied.
Mr. Serwin also explains that ATS’s noncompetes are designed, in part, to prevent the free-rider problem: where ATS spends years and money training its employees only to have them poached by a competitor who can benefit from the training without paying for it. In short, the affidavit provides an example of some very real difficulties faced by small businesses that were ignored, or far too heavily discounted, by the FTC in issuing its noncompete rule.
On July 18, in response to ATS’s motion, Judge Hodge issued an order that, if the FTC intends to respond, it has until July 19 at 5:00 PM ET to do so.
Assuming these filings do not change the timing of the court’s decision, we’ll know what the judge thinks by Tuesday (July 23).
* * *
*Hat tip to Justin Wise for quick reporting on the FTC’s filing.