Florida's Fifth District Narrowly Construes Geographic Scope Provision in Non-Compete Agreement

Posted by Jason Cornell on May 17, 2013

On March 30, 2012, Florida’s Fifth District Court of Appeal issued an opinion that considered the geographic scope provision of a non-compete agreement. See Heiderich v. Florida Equine Veterinary Services, Inc., 86 So.3d 527 (Fla. 5th DCA 2012). The employer in Heiderich sought a temporary injunction enforcing a non-compete agreement against a former employee of a veterinary practice. The trial court granted the injunction and the employee appealed. Id. at 528.

While working for the employer, the employee in Heiderich signed a non-compete agreement wherein she agreed that for two years after her employment with the employer, she would not "own, manage, operate or control … a veterinary practice located within a thirty mile radius" of the employer. Id. The employer eventually terminated the employee and the employee began a veterinary practice located outside of the thirty mile radius from the employer. Id. at 529. Despite having an office outside the thirty mile radius, the employer sought an injunction prohibiting the employee from delivering veterinary services within the thirty mile radius. Id.

The trial court granted the employer an injunction against the employee, finding that the location of the employee’s "actual office is of no consequence. The issue is where she practices." Heiderich, 86 So.3d at 529. On appeal, the employee argued that the non-compete agreement was unambiguous and should be enforced as written. Accordingly, the employee argued that the non-compete merely prohibits her from being employed by a veterinary business which is located within thirty miles of the employer. Id.

The Fifth District, in considering the meaning of the non-compete agreement "undertake[s] an independent assessment" of the agreement. Id. citing Envtl. Servs., Inc. v. Carter, 9 So.3d 1258, 1263 (Fla. 5th DCA 2009)(further citations omitted). Citing to Florida’s non-compete statute, section 542.335(1)(h), the court recognized that "[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." Id. at 529, citing Fla. Stat. § 542.335(1)(h).

The Fifth District in Heiderich concluded that the non-compete agreement did not prohibit the employee from providing veterinary services within the thirty mile radius. Id. at 530. In doing so, the court relied on Tam-Bay Realty, Inc. v. Ross, 534 So.2d 1200 (Fla. 2d DCA 1988) rev. denied, 542 So.2d 1334 (Fla. 1989) for support. In Tam-Bay, a non-compete provision prevented a seller from operating a real estate brokerage business in Pinellas County. Heiderich at 529. After the sale of the real estate brokerage, the seller advertised in Pinellas County and the buyer of the business sued for breach. On appeal, the Second District found that the seller had not breached the non-compete agreement because it had not opened or operated a brokerage business in Pinellas County. Id. at 530. Applying the same rationale as the court in Tam-Bay, the Fifth District in Heiderich found the veterinary non-compete agreement did not prevent the former employee from providing services within the thirty mile radius. Instead, the agreement merely prohibited the employee from establishing a veterinary business within the thirty mile radius. Id.

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Jason Cornell is an equity partner with the law firm Fox Rothschild LLP. Jason practices in Fox Rothschild's Litigation and Financial Services departments. Jason focuses his practice on commercial and employment litigation, with an emphasis on non-compete litigation. You can reach Jason at (561) 804-4415 or jcornell@foxrothschild.com.

Below are some additional posts Jason has written on Florida non-compete litigation:

Common Defenses to Enforcement of a Non-Compete Agreement

Are Non-Compete Agreements Enforceable Against Third Parties?

What Are the Burdens of Proof When Enforcing a Non-Compete Agreement?

 

 

Understanding Florida's Mechanic's Lien Laws: What Constitutes an Improvement to Property?

Posted by Jason Cornell on May 14, 2013

Florida Statutes chapter 713, commonly referred to as Florida’s mechanic’s lien statute, or "construction lien law," is intended "to protect those who have provided labor and materials for the improvement of real property." Parc Central Aventura East Condominium v. Victoria Group Services, LLC, et al., 54 So.ed 532, 533 (Fla. 3d DCA 2011), citing WMS Constr. Inc. v. Palm Springs Mile Assocs., Ltd., 762 So.2d 973, 974-75 (Fla. 3d DCA 2000). Given how Florida’s mechanic’s lien statute protects improvements to real property, it is important to understand what does and does not constitute an "improvement."

Fla. Stat. § 713.01(15) defines improvement to include "any building, structure, construction, demolition, excavation, solid waste removal, landscaping or any part thereof existing, built, erected, placed, made or done on land or other real property for its permanent benefit." In 1986, Florida’s Fourth District Court of Appeal issued a decision addressing what constitutes an improvement which is subject to a mechanic’s lien. See Legault v. Suncoast Lawn, Inc., 486 So.2d 72 (Fla. 4th DCA 1986).

In Legault, a lawn service sought to foreclose on a mechanic’s lien for landscaping services. Id. On appeal, the property owner argued that cutting grass and shrubbery does not entitle a party to a mechanic’s lien under chapter 713. The Fourth District agreed and reversed the judgment awarding damages under the mechanic’s lien. Id. Applying the statute, the court reasoned that "an improvement, in order to support a mechanic’s lien, must result in a permanent benefit to the land or other real property." Id. at 73, citing E. and E. Electric Co. v. Gold Coast 72nd Street Diner, Inc., 116 So.2d 660 (Fla. 3d DCA 1959). The key question is whether the improvement results in a permanent benefit. The court in Legault noted that while planting for landscaping purposes may be considered a permanent improvement, "maintenance landscaping" does not produce a permanent benefit to property that would entitle a party to a mechanic’s lien. Legault, 486 So.2d at 73, citing D.M. Foley Co. v. North West Federal Savings and Loan Assoc., 461 N.E.2d 500 (Ill. 1st DCA 1984).

In Parc Central, the Third District looked at other state court decisions addressing whether work performed on property was "lienable" under the state’s mechanic’s lien statute. Parc Central Aventura East Condominium, 54 So.3d at 533-34. For example, under Illinois’ mechanic’s lien statute, cleaning stairways, restrooms and sealing wall grout were not lienable. Id. at 534, citing Watson v. Watson, 578 N.E. 2d 326, 331 (1996). Citing again to Illinois case law as an example, the court in Parc Central recognized that while the "mere maintenance of property is non-lienable … cleaning the mess of demolition and construction is lienable." Id. at 534, citing Cleveland Wrecking Co. v. Centr. Nat’l Bank, 576 N.E.2d 1055, 1061 (1991).

The above decisions show the importance, when looking to establish a mechanic’s lien, of determining whether there was a permanent benefit to the property to support the lien. Day to day maintenance and lawn care, though important to a property, does not provide the permanent and ongoing benefit which Florida’s mechanic’s lien statute requires.

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Jason Cornell is an equity partner with the law firm Fox Rothschild LLP. Jason practices in Fox Rothschild's Litigation and Financial Services departments. Jason focuses his practice on commercial litigation, including representing contractors, subcontractors and property owners in construction-related litigation. You can reach Jason at (561) 804-4415 or jcornell@foxrothschild.com.

 

Understanding Florida's Mechanic's Lien Laws: What is a Notice of Commencement?

Posted by Jason Cornell on May 12, 2013

Florida Statutes Chapter 713 governs construction liens, more commonly referred to as mechanic’s liens. Florida law governing mechanic’s liens is both comprehensive and complex. Even so, the statute provides important protections to contractors, subcontractors, suppliers and homeowners. For suppliers, contractors and subcontractors, the mechanic’s lien statute provides a method to assure full payment. Stunkel v. Gazebo Landscaping Design, Inc., 660 So.2d 623, 626 (Fl. 1995), citing Prosperi v. Code, Inc., 626 So.2d 1360, 1362 (Fla. 1993)(further citations omitted). For owner’s, Florida’s mechanic’s lien statute requires subcontractors to provide notice of possible liens, which allows owners to avoid double payment to a contractor, subcontractor, material supplier or laborer, for the same services or materials. Id., citing Aetna Casualty and Sur. Co. v. Buck, 594 So.2d 280, 281 (Fla. 1992).

One of the initial obligations of an owner under Chapter 713 is to prepare and file a "Notice of Commencement". Section 713.13(1)(a) provides in relevant part:

[A]n owner or owner’s authorized agent before actually commencing to improve any real property, or recommencing completion of any improvement after default or abandonment, whether or not a project has a payment bond complying with s. 713.23, shall record a notice of commencement in the clerk’s office and forthwith post either a certified copy thereof or a notarized statement that the notice of commencement has been filed for recording along with a copy thereof.

The Fourth District discussed the purpose of the Notice of Commencement in a 1999 decision. As the court explained:

Though the Notice of Commencement was originally required to trigger a commencement date from which to measure time limitations under the Mechanic’s Lien Law, the information contained in the Notice of Commencement provides all the details necessary to complete a Notice to Owner. Indeed, Section 713.13(1)(a), Florida Statutes, requires with Notice of Commencement information including the name and address of the owner and contractor. Thus, the legislature contemplated that the Notice of Commencement would provide the lienor with the current names and addresses of the owner and contractor, so that the lienor could properly mail the Notice to Owner. If no Notice of Commencement was ever posted or recorded by the owner as mandated by the statute, a lienor may have difficulty obtaining the names and addresses of the owners and contractor.

Sasso Air Conditioning, Inc., v. United Companies Lending Corporation, 742 So.2d 468, 470 (Fla. 4th DCA 1999), citing Symons Corp. v. Tartan-Lavers Delray Beach, Inc., 456 So.2d 1254, 1259 (Fla. 4th DCA 1984). The Notice of Commencement signals the beginning of a construction project. Gulfside Properties Corp. v. Chapman Corp., 737 So.2d 604, 607 (1stDCA 1999). Under Fla. Stat. § 713.01(5), the "commencement of the improvement" is defined as "the time of filing for record of the notice of commencement provided in s. 713.13." The key function of the Notice of Commencement is to provide the lienor and other third parties with the information they need to prepare necessary notices and related documents under Florida’s mechanic’s lien statutes. Gulfside Properties, 737 So.2d at 607.

Contractors, subcontractors and suppliers do not have to rely solely on the Notice of Commencement in order to file notices under the statute. Florida’s mechanic’s lien statute now provides other methods for a lienor to obtain information necessary to file a Notice to Owner. Id.For example, under Fla. Stat. § 713.06(2)(e), if an owner fails to file a Notice of Commencement, the lienor may rely on the information contained in the building application to serve the notice to owner. Id.

A property owner must file a Notice of Commencement before actually beginning the improvements made to his property. Lacentra Trucking, Inc., v. Flagler Federal Savings and Loan Assoc., 586 So.2d 474, 475 (Fla. 4th DCA 1991), citing Fla. Stat. § 713.13(1)(a). However, subsection (2) of 713.13 requires that if the improvement described in the Notice of Commencement "is not actually commenced within 30 days after the recording thereof, such notice shall be void and of no further effect." The validity of the Notice of Commencement is important in several respects, one being that the liens of those who later perform or furnish labor, services or materials for the improvement of property relate back and attach from the date the Notice of Commencement was filed. Lacentra Trucking at 475.

The failure by a property owner to file a Notice of Commencement does not relieve a contractor or supplier from satisfying the mechanic’s lien statute’s notice requirements. Professional Plastering & Stucco, Inc., v. Bridgeport-Strasberg Joint Venture, et al., 940 So.2d 444, 449 (Fla. 5th DCA 2006), citing Mursten Constr. Co. v. C.E.S. Indus., Inc., 588 So.2d 1061 (Fla. 3d DCA 1991). In Mursten, a supplier failed to serve written notice of nonpayment on the contractor. Despite the fact that the property owner did not file a Notice of Commencement, the supplier’s failure to adhere to the requirements of the statute prevented its recovery under a construction bond. Id. at 1062-63.

Under Fla. Stat. § 713.02(6), a property owner can avoid construction liens on its property if the owner and contractor agree to a payment bond. Professional Plastering940 So.2d at 446. Under this section, if the contractor furnishes a payment bond, the owner is exempt from liability to subcontractors, suppliers, or other parties who may seek recovery against the bond. The owner remains liable, however, for liens from the contractor. Section 713.23 provides additional requirements concerning the payment bond. Subpart (1)(a) of that section states that the "payment bond required to exempt an owner under this part shall be furnished by the contractor in at least the amount of the original contract price before commencing the construction of the improvement under the direct contract, and a copy of the bond shall be attached to the notice of commencement when the notice of commencement is recorded."

Future posts will address other key provisions of Florida’s mechanic’s lien statute. Notice of Commencement, as a requirement of the property owner under the statute, provides a good starting point in understanding the intricacies of Florida's mechanic's lien laws.

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Jason Cornell is an equity partner with the law firm Fox Rothschild LLP. Jason practices in Fox Rothschild's Litigation and Financial Services departments. Jason focuses his practice on commercial litigation, including representing contractors, subcontractors and property owners in construction-related litigation. You can reach Jason at (561) 804-4415 or jcornell@foxrothschild.com.

 

How Are Ambiguities in Non-Compete Agreements Resolved Under Florida Law?

Posted by Jason Cornell on May 07, 2013

A party opposing enforcement of a non-compete agreement may argue that a provision contained in the agreement is ambiguous and subject to multiple interpretations. The United States District Court for the Middle District of Florida recently addressed whether a provision in a non-compete agreement was ambiguous in Partylite Gifs, Inc., v. MacMillan, C.A. No. 8:10-CV-149-T-27EAJ (M.D. Fla. Sept. 10, 2012). In Partylite, the court had to consider competing summary judgment motions concerning a former Partylite consultant’s alleged breach of a non-compete, non-solicitation and non-disclosure agreement. Id. at *1. 

The parties in Partylite disagreed, among other things, regarding the scope of the consultant agreement. In interpreting the agreement, the court first had to consider whether the language contained in the agreement was ambiguous. Id. at *10. Under Florida law, contract terms are considered ambiguous where its terms "are inconsistent on their face or where the phraseology can support reasonable difference of opinion as to the meaning of the words employed." Id. at 11, citing Smith v. Shelton, 970 So.2d 450, 451 (Fla. 4th DCA 2007). "However, a true ambiguity does not exist merely because a document can possibly be interpreted in more than one manner." Partylite at *11, citing Lambert v. Berkley S. Condo Ass’n, 680 So.2d 588, 590 (Fla. 4th DCA 1996).

In Partylite, the court denied the motions for summary judgment, in part, because there were sufficient ambiguities in the consulting agreement to raise questions of fact as to whether the agreement incorporated all of Partylite’s policies and procedures. Id. at *11, citing Smith v. Shelton, 970 So.2d at 451 (holding that "[w]here the wording of an agreement is ambiguous, its interpretation involves questions of fact, precluding summary disposition.").

The Second District also addressed how courts resolve ambiguities in non-compete agreements in Emergency Assoc. of Tampa, P.A., et al., v. Sassano, 664 So.2d 1000 (Fla. 2d DCA 1995). In Sassano, a trial court entered a permanent injunction enjoining a doctor from competing against his former practice. On appeal, the Second District reversed holding that the trial court erred in finding that the geographical limitation in the non-compete agreement was ambiguous as a matter of law. Id. at 1001. The non-compete agreement at issue in Sassano restrained the doctor who sold his practice from practicing general medicine "anywhere within five (5) square miles" of the existing practice. Id. The trial court found that the phrase "five (5) square miles" was ambiguous as a matter of law and allowed the introduction of parole evidence regarding the parties’ negotiations prior to entering into the non-compete agreement and their actions after executing the agreement. Id.

On appeal, the court began by observing that "although the interpretation of a covenant not to compete is a matter of law to be resolved by the trial court, an appellate court is nevertheless empowered to undertake an independent assessment of the covenant’s meaning." Sassano at 102, citing Atkins v. Litsinger, 513 So.2d 178 (Fla. 2d DCA 1987). This flexibility affords the appellate court the ability to reconsider the meaning and effect of the parties’ non-compete agreement and reach a conclusion different than that of the trial court. Sassano at 1002, citing Angell v. Don Jones Ins. Agency, 620 So.2d 1012 (Fla. 2d DCA 1993). Using its authority to conduct an "independent assessment," the Second District in Sassano found that the phrase "five (5) square miles" is not ambiguous as a matter of law. Id.

In support of its finding, the Sassano court recognized that a phrase within a contract is ambiguous "only when it is of uncertain meaning, and may be fairly understood in more ways than one." Id., citing Friedman v. Virginia Metal Prods. Corp., 56 So.2d 515, 517 (Fla. 1952). Should the court find that a term is ambiguous, the court may admit parole evidence to explain the meaning of the words used and how the contracting parties intended for the words to be interpreted. Id. at 1002, citing Joseph U. Moore, Inc. v. Howard, 534 So.2d 935 (Fla. 2d DCA 1998). Before the court can consider extrinsic evidence to interpret the contract, it must first find that the relevant words of the contract are so unclear that the ambiguity exists "on the face of the contract." Sassano at 1002, citing Boat Town U.S.A., Inc. v. Mercury Marine Div. of Brunswick Corp., 364 So.2d 15 (Fla. 4th DCA 1978).

Applying the law to the non-compete in Sassano, the Second District found that the phrase "five (5) square miles" contains "no uncertainty of meaning." Sassano 664 So.2d at 1003. Citing Webster’s Dictionary, the court noted that a square mile, under its own meaning, is a defined unit of area. Id. Similarly, the general tables of units of measurement published by the National Institute of Standards and Technology also reflect that a square mile is an accepted unit of measurement. Id. Finally, the court noted that at trial the parties had no difficulty relying on the "within five (5) square miles" provision to determine the geographic facts of the case. Id. With this in mind, the Second District reversed with instructions that the trial court enter judgment for the appellant/doctor who had previously sold his practice.

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Jason Cornell is an equity partner with the law firm Fox Rothschild LLP. Jason practices in Fox Rothschild's Litigation and Financial Services departments. Jason focuses his practice on commercial and employment litigation, with an emphasis on non-compete litigation. You can reach Jason at (561) 804-4415 or jcornell@foxrothschild.com.

Below are some additional posts Jason has written on Florida non-compete litigation:

Common Defenses to Enforcement of a Non-Compete Agreement

Are Non-Compete Agreements Enforceable Against Third Parties?

What Are the Burdens of Proof When Enforcing a Non-Compete Agreement?

 

Recent Decisions Address "Reasonable Geographic Scope" in a Non-Compete Agreement

Posted by Jason Cornell on May 05, 2013

Florida Statute § 542.335(1) provides that Florida courts will enforce non-compete agreements, provided the agreements are reasonable in "time, area and line of business …" Section 542.335 provides guidance on what constitutes a reasonable time period for a non-compete agreement. See Fla. Stat. § 542.335(1)(d) and (e). The statute, however, provides no similar framework for determining whether the geographic scope contained in a non-compete agreement is reasonable. Instead, section 542.335(1)(c) provides as follows:

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.

What, then, constitutes a reasonable "area" of business, or geographic scope, which a court will enforce under a non-compete agreement? Recent decisions throughout the United States show some of the factors courts consider in deciding whether the geographic scope provision in a non-compete is ovebroad.

In Cottman Transmission v. Gano, et al., C.A. No. 12-cv-05223 (E.D. Pa. Mar. 6, 2013), the United States District Court for the Eastern District of Pennsylvania had to consider whether the geographic scope provision in a license agreement was too broad. Cottman involved the enforcement of a non-compete provision in a license agreement. The court found the non-compete’s geographic limitation to the Pittsburgh area reasonable. Id. at *8. In doing so, the court cited to another decision that "found as reasonable a geographic restriction of a ten-mile radius from the infringing store location in similar situations, where the store at issue was an automotive repair center." Id., citing AAMCO Transmissions, Inc. v. Dunlap, No. 11-4009, 2011 WL 3586225, at *8 (E.D. Pa. Aug. 16, 2011); Maaco Franchising, Inc., v. Augustin, No. 09-4548, 2010 WL 1644278, at *3 (E.D. Pa. Apr. 20, 2010).

The court in Cottman found unreasonable, and therefore unenforceable, the non-compete’s limitation on competition within three miles of any other Cottman center in the United States, Canada, Puerto Rico, Australia and the Virgin Islands. Id., citing Dunlap, 2011 WL 3586225 at *8. Like Florida, Pennsylvania courts can modify, or "blue pencil", non-compete agreements that are overly broad, which is what the court did in Cottman. Id. at *8 (enforcing the non-compete three mile radius limitation only to Cottman centers in the Pittsburgh area). The court in Cottman, though willing to enforce a non-compete agreement throughout the Pittsburgh area, found it unreasonable to restrain competition throughout the U.S., Canada, etc..

In Simplexity, LLC, v. Zeinfeld, et al., C.A. No. 8171-VCG (Del. Ch. Apr. 5, 2013), the Delaware Court of Chancery found that a geographic restriction contained in a non-compete agreement was not unduly burdensome even though it applied to the entire United States and the country in which the enforcing party conducts business. Id. at 11. In Simplexity, the party enforcing the non-compete agreement was an "internet-based business." Id. Because of the virtually unlimited market of a web-based business, the court found that the geographic scope provision was not unreasonable. Id.

The United States District Court for the Northern District of Illinois issued a recent opinion demonstrating what courts consider in deciding the reasonableness of a geographic scope limitation. See Fisher/Unitech, Inc., v. Computer Aided Technology, Inc., et al., No. 13C 02090 (N.D. Ill. Apr. 9, 2013). In Fisher, the district court found that the geographic scope provision in a non-compete was overly broad. In making its decision, the Fisher court explained that "courts generally look to whether the restricted area is coextensive with the area in which the employer is doing business [because] the employee should only be excluded from doing business in the territorial zone in which relationships with the employer’s customers could have been established in ways that could be detrimental in the hands of a competitor." Id. at *8, citing Cambridge Engineering, Inc., v. Mercury Partners, 879 N.E. 2d 512, 523 (Ill. App. Ct. 2007).

The court in Fisher recognized that non-compete agreements can be valid even when the agreements have no geographic limitation. Id. at *8. Regardless of the scope of the limitation, the agreements "must be tailored so that the scope of the agreement is no greater than is reasonably necessary to protect the employer’s legitimate business interest." Id. citing Whirlpool Corp. v. Burns, 457 F. Supp. 2d 806, 813 (W.D. Mich. 2006).

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Jason Cornell is an equity partner with the law firm Fox Rothschild LLP. Jason practices in Fox Rothschild's Litigation and Financial Services departments. Jason focuses his practice on commercial and employment litigation, with an emphasis on non-compete litigation. You can reach Jason at (561) 804-4415 or jcornell@foxrothschild.com.

Below are additional posts Jason has written on Florida non-compete litigation:

Common Defenses to Enforcement of a Non-Compete Agreement

Are Non-Compete Agreements Enforceable Against Third Parties?

What Are the Burdens of Proof When Enforcing a Non-Compete Agreement?

Florida Courts Do Not Always Recognize Choice of Law Provisions in Non-Compete Agreements

Posted by Jason Cornell on May 02, 2013

A good non-compete agreement should contain a choice of law provision which specifies which law governs should parties litigate over the enforcement of the agreement.  However, just because the non-compete agreement specifies which law applies does not necessarily mean that a Florida court is required to enforce the agreement according to the law of the state specified in the agreement.  Florida’s Second District Court of Appeal addressed the validity of a choice of law provision in Punzi v. Shaker Advertising Agency, Inc., 601 So.2d 599 (Fla. 2d DCA 1999).  In Punzi, the Second District had to decide whether a non-compete agreement should be enforced according to the law specified in the contract, Illinois law, or according to Florida law as that was the state where the litigation was pending.  In deciding choice of law issues, contract disputes are governed by the law agreed to by the parties so long as the law of the selected forum is not contrary to Florida public policy.  Id. at 600, citing Dept. of Motor Vehicles v. Mercedes-Benz of N. Am., Inc.,  408 So.2d 627 (Fla. 2d DCA 1981). 

Just because the law of the forum state differs from that of the law of the foreign state does not mean that the law of the foreign state is contrary to the public policy of the forum state.  Punzi 601 So.2d at 600, citing Wilkinson v. Manpower, Inc., 531 F.2d 712 (5th Cir. 1976).  Instead, the court must decide whether the law of the foreign state “is harmonious in spirit with the forum state’s public policy.”  Punzi at 600, citing Wilkinson  at 712.  In Punzi, the Second District found that Illinois law, as the law of the foreign state, was not repugnant to the law of Florida.  The court therefore construed the non-compete agreement according to Illinois law.  Id. at 600.

In Temporarily Yours, et al., v. Manpower, Inc., 377 So.2d 825 (Fla. 1st DCA 1979), the First District declined to apply the law of a foreign jurisdiction even though that was the law agreed to by the parties.  The employer in Temporarily Yours sought and received an injunction from the trail court enforcing a non-compete agreement against a former employee and his new company.  Id. at 826.  On appeal, the employee sought to reverse the injunction arguing, in part, that the non-compete agreement was void and unenforceable under Wisconsin law.  Id. at 826-27. 

At the time of the Temporarily Yours decision, Wisconsin law enforced non-compete agreements only if they are reasonably necessary to protect the employer.  Id. at 827.  If a non-compete agreement imposes an unreasonable restraint, the agreement is unenforceable even if it can be enforced in a way that would make the restraint reasonable. Id.  Even though the non-compete agreement was governed by Wisconsin law, the Temporarily Yours court declined to apply the law selected by the parties.  Id.  Instead, the court looked to “[t]he express public policy of Florida [… providing] that restrictive covenants which are reasonable in time and geographic area are enforceable in Florida.”  Id.  These decisions show how litigants may be able to convince a court to apply Florida law in non-compete dispute, provided they can establish that the foreign law specified in the agreement is contrary to Florida’s public policy.

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Jason Cornell is an equity partner with the law firm Fox Rothschild LLP. Jason practices in Fox Rothschild's Litigation and Financial Services departments. Jason focuses his practice on commercial and employment litigation, with an emphasis on non-compete litigation. You can reach Jason at (561) 804-4415 or jcornell@foxrothschild.com.

Below are additional posts Jason has written on Florida non-compete litigation:

Common Defenses to Enforcement of a Non-Compete Agreement

Are Non-Compete Agreements Enforceable Against Third Parties?

What Are the Burdens of Proof When Enforcing a Non-Compete Agreement?

When Does the Information Protected in a Non-Compete Agreement Become Stale or Obsolete?

Posted by Jason Cornell on April 28, 2013

Florida Statute § 542.335(1)(d)(1) through (3) spells out different time periods where a non-compete agreement is deemed reasonable. For example, section 542.335(1)(d)(1) provides that when a non-compete is sought to be enforced against a former employee or independent contractor, "a court shall presume unreasonable in time any restraint more than 2 years in duration." As for trade secrets, section 542.335(1)(e) provides that a court shall presume reasonable in time any non-compete agreement with a duration of 5 years or less. The statute further provides that "[a]ll such presumptions shall be rebuttable presumptions."

Recently, the Appellate Division of the Superior Court of New Jersey issued a decision addressing when a trade secret or other protectable interest under a non-compete agreement may become obsolete and therefore not subject to protection by the court. See Truong, LLC v. Tran, No. A-5752-11T1 (N.J. Super. Ct. App. Div. Jan. 9, 2013). Truong involved the enforcement of a non-compete agreement between the owner of a nail salon and his former employees. The non-compete agreement contained a two year duration which the employer sought to enforce once one of the employees opened a competing salon. The trial court granted an injunction enforcing the non-compete and the employees appealed. Truong at *6.

New Jersey law governing non-competes is similar in some respects to Florida’s non-compete statute. In order for a non-compete agreement to be "reasonable" and subject to enforcement, the non-compete must protect the legitimate interests of the employer, impose no undue hardship on the employee and not harm the public. Truong at *8, citing Solari Indus., Inc. v. Malady, 55 N.J. 571,576 (1970). However, in considering whether to enforce the non-compete agreement, the Troung court recognized that it "may also consider the relevant lifespan of a trade secret or other protectable information." Truong at 9. The court noted that a non-compete agreement "may not extend beyond the temporal point when the secret information has become obsolete." Id., citing Earthweb, Inc. v. Schlack, 71 F.Supp. 2d 299, 313 (S.D.N.Y. 1999)(holding that a one-year restrictive covenant was too long given the "dynamic nature" of an online services business in which information can quickly lose its value).

In reversing the trial court, the Truong court found that the employer provided insufficient proof that a duration longer than eight months was reasonable. Id. at 10. When enforcing a non-compete agreement to protect customer lists, "the court should consider what percentage of the employer’s customers persist after the contractual time period." Id. If only a small amount of customers persist after the time period of the non-compete, the non-compete agreement "may unreasonably bar competition to protect an obsolete list." Id. According to the appellate court, the employer in Truong failed to provide evidence of the time it would take for a new employee to solidify relationships with customers. Id. The court refused to uphold the injunction, in part, because of the lack of evidence of "how long it would take for [the employer’s] customer list to become stale." Id.

Truong demonstrates how customer lists, which are normally a protectable business interest, can nevertheless be protected under a non-compete because the information became stale. Although it is a New Jersey decision, Truong could have relevance in an action to enforce a Florida non-compete agreement. Even though Florida’s non-compete statute provides a framework for the reasonable duration of different types of non-compete agreements, section 542.335(1)(e)’s time periods are rebuttable presumptions. If a party can show that the legitimate business interest is not worth protecting because the information has become stale or obsolete, the party opposing enforcement of the non-compete agreement may be able to successfully challenge enforcement.

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Jason Cornell is an equity partner with the law firm Fox Rothschild LLP.  Jason practices in Fox Rothschild's Litigation and Financial Services departments.  Jason focuses his practice on commercial and employment litigation, with an emphasis on non-compete litigation.  You can reach Jason at (561) 804-4415 or jcornell@foxrothschild.com.

Below are additional posts Jason has written on Florida non-compete litigation:

Common Defenses to Enforcement of a Non-Compete Agreement

Are Non-Compete Agreements Enforceable Against Third Parties?

What Are the Burdens of Proof When Enforcing a Non-Compete Agreement?

 

What is the Standard for Temporary Injunction to Enforce a Non-Compete Agreement?

Posted by Jason Cornell on April 27, 2013

Introduction

Litigants seeking to enforce non-compete agreements often do so by filing motions for temporary injunction. In Florida, a party seeking a temporary injunction must plead and prove four elements: "(1) the likelihood of irreparable [injury], (2) the unavailability of an adequate remedy at law, (3) a substantial likelihood of success on the merits, and (4) that a temporary injunction will serve the public interest." DePuy Orthopaedics, Inc., v. Waxman, 95 So.3d 928 (Fla. 1st DCA 2012), citing Envtl. Servs., Inc. v. Carter, 9 So.3d 1258, 1261 (Fla 5th DCA 2009); see also, Masters Freight, Inc. v. Servco, Inc., 915 So.2d 666, 666 (Fla. 2d DCA 2005). The First District in DePuy considered an appeal from a trial court order denying a motion for temporary injunction. On appeal, the First District reversed the trial court, finding that the party enforcing the non-compete agreement established each of the prerequisites needed for a temporary injunction. DePuy at 940. The DePuy decision is helpful as it shows how the court considered each of the requirements for an injunction in the context of a non-compete agreement.

Background

The employer in DePuy manufactured and sold orthopedic products. The employee in DePuy entered into an employment agreement with the employer that contained a non-compete clause with a two year duration. Id. at 932. Years after entering into the non-compete agreement, the employee began working for a new employer and calling on customers of the old employer. Id. at 932-33. Upon learning that the employee was calling on its customers, the employer filed a complaint alleging the employee violated the agreement. The employer also filed an emergency motion for temporary injunction. Id. at 933.

Substantial Likelihood of Success on the Merits

On appeal, the First District considered whether the employer had established a substantial likelihood of success on the merits. In doing so, the court looked at Fla. Stat. § 542.335 which addresses the enforceability of a non-compete agreement. The court found that at trial, the employer "presented unrebutted evidence that it had legitimate business interests justifying the non-compete covenants." DePuy at 938. Further, the court found that the employer presented evidence at trial that its substantial relationships with existing customers were damaged due to the actions of the employee and that the non-compete agreement was reasonably necessary to protect its legitimate business interests. Id. at 939. Based on these factors, the court found that the employer established a substantial likelihood of success on the merits. Id.

Likelihood of Irreparable Injury

In considering the second factor for injunction, irreparable injury, the court in DePuy again turned to Florida’s non-compete statute, Fla. Stat. § 542.335. Section 542.335(1)(j) provides in relevant part "[t]he violation of an enforceable restrictive covenant creates a presumption of irreparable injury to the person seeking enforcement of a restrictive covenant …" Once a party establishes by prima facie evidence that the non-compete agreement has been violated, section 542.335(1)(j) shifts the burden to the opposing party to show the absence of injury. DePuy at 939, citing Variable Annuity Life Ins. Co. v. Hausinger, 927 So.2d 243, 245 (Fla 2d DCA 2006)(finding that Florida’s non-compete statute operates to create a presumption of irreparable injury to the employer and shifts the burden to the employee to show a lack of injury. The party seeking to enforce the non-compete therefore does not have to directly prove that the breaching party’s activities will cause irreparable harm if not enjoined). As to the second factor, irreparable injury, the court in DePuy found that the employer presented prima facie evidence that the employee violated the non-compete agreement and that the employee failed to show an absence of injury. Id. at 939.

Unavailability of an Adequate Remedy at Law

Next, the DePuy court considered whether the employer had established the unavailability of an adequate remedy of law. The court found that any continued breach of the non-compete agreement by the employee could further damage the employer’s goodwill and relationships with its customers. Id. at 940. Further, the court recognized that "nothing short of an injunction would prevent this loss." Id., citing Variable Annuity Life Ins. Co. v. Hausinger, 927 So.2d 243, 245 (Fla. 2d DCA 2006)(finding that "[t]he focus of preliminary injunctive relief is on maintaining long standing relationships and preserving the goodwill of a company built up over the course of years of doing business …")

The Public Interest in Issuing an Injunction

The final factor considered by the First District in DePuy was whether issuance of an injunction enforcing a non-compete agreement was contrary to public interest. Id. at 940. Again, the court turned to Fla. Stat. § 542.335 for guidance. Under section 542.335(1)(i), if a trial court refuses to enforce a non-compete agreement based on public policy grounds, it "must specifically articulate an overriding public policy reason" to justify the refusal to enforce the agreement. Having found that the employer satisfied all of the requirements for issuance of a temporary injunction, the First District in DePuy found that the trial court committed reversible error in denying the injunction. Id. at 940.

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Jason Cornell is an equity partner with the law firm Fox Rothschild LLP.  Jason practices in Fox Rothschild's Litigation and Financial Services departments.  Jason focuses his practice on commercial and employment litigation, with an emphasis on non-compete litigation.  You can reach Jason at (561) 804-4415 or jcornell@foxrothschild.com.

Below are additional posts Jason has written on Florida non-compete litigation:

Common Defenses to Enforcement of a Non-Compete Agreement

Are Non-Compete Agreements Enforceable Against Third Parties?

What Are the Burdens of Proof When Enforcing a Non-Compete Agreement?

 

Fourth District Addresses Procedural Due Process Issues That Arise When Enforcing a Non-Compete Agreement

Posted by Jason Cornell on April 26, 2013

On April 17, 2013, Florida’s Fourth District Court of Appeal issued a decision in Zodiac Records, Inc., et al., v. Choice Environmental Services, No. 4D12-906 (Fla. 4th DCA April 17, 2013), reversing a trial court’s order enforcing a non-compete agreement. The trial court in Zodiac considered an employer’s motion for a preliminary injunction based on a former consultant’s alleged violations of a non-compete, non-solicitation and trade secret confidentiality agreement. Id. at *2. Generally speaking, when an employer seeks to enforce a non-compete agreement against a former employee or contractor, the court will presume the non-compete is reasonable if the duration period in the agreement does not exceed two years. See Fla. Stat. § 542.335(1)(d)(1). However, if the non-compete is based upon the protection of trade secrets, the presumption of reasonable duration is extended from two years to five years. See Fla. Stat. § 542.335(1)(e); see also, Zodiac at *2.

During the trial in Zodiac, counsel for the party opposing enforcement of the non-compete agreement (the consultant), stated that if the court were going to consider whether trade secrets were used by the consultant, the court would need to hear evidence on the issue. Zodiac at *2. The trial court advised the parties that "[t]here is no trade secrets as of right now. I mean, [the employer’s counsel] has, for purposes of what we are doing, moved that aside." Id. At the end of the trial, the court entered an injunction in favor of the employer, however, it based its decision on the consultant’s alleged use of trade secret information. Id. at *3.

On appeal, the consultant argued that the trial court violated the consultant’s procedural due process rights. Zodiac at *1. The Fourth District agreed, finding that the employer stipulated at trial that it was not relying on trade secrets and that the employer therefore waived its right to argue that the duration of the non-compete agreement was reasonable. Id. In making its findings, the Fourth District noted that "[n]one of the elements involved in the notion of procedural due process has greater importance that the right to be heard." Id. at *3, citing Miller v. Miller, 691 So.2d 528, 529 (Fla. 4th DCA 1997). The court further observed that a "trial court may not grant a former employer’s motion for a temporary injunction against a former employee without first permitting the former employee ‘to put on its evidentiary case.’" JonJuan Salon, Inc. v. Acosta, 922 So.2d 1081, 1085 (Fla. 4th DCA 2006). Ultimately, the court in Zodiac found that granting the employer an injunction after the court had held that there were "no trade secrets as of right now" denied the consultant "a meaningful opportunity to be heard on the issue of whether trade secrets were implicated …"Id. at *3.

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Jason Cornell is an equity partner with the law firm Fox Rothschild LLP.  Jason practices in Fox Rothschild's Litigation and Financial Services departments.  Jason focuses his practice on commercial and employment litigation, with an emphasis on non-compete litigation.  You can reach Jason at (561) 804-4415 or jcornell@foxrothschild.com.

Below are additional posts Jason has written on Florida non-compete litigation:

Common Defenses to Enforcement of a Non-Compete Agreement

Are Non-Compete Agreements Enforceable Against Third Parties?

What Are the Burdens of Proof When Enforcing a Non-Compete Agreement?

Are Attorney's Fees Recoverable Against Third Parties in Non-Compete Litigation?

Posted by Jason Cornell on April 21, 2013

It is not uncommon for a party seeking to enforce a non-compete agreement to seek an injunction not only against a former employee, but also against the employee’s new employer. The law in Florida is clear that a court may enjoin a third party who aids and abets someone in the violation of a non-compete agreement. See USI Ins. Servs. of Fla. Inc. v. Pettineo, 987 So.2d 763, 767 (Fla. 4th DCA 2008)(further citations omitted). Although an employer can receive an injunction against a third party that aids another in breaching a non-compete agreement, Fla. Stat. § 542.335(1)(k) does not authorize a court to award attorney’s fees against a third party that did not sign a non-compete agreement.

In Bauer v. Dilib, 16 So.3d 318 (Fla. 4th DCA 2009), an employer sought an injunction to enforce a non-compete agreement against a former employee and a competitor of the employer who hired the employee. The trial court in Dilib awarded the employer attorney’s fees against the competitor that hired the employee. The competitor appealed and the Fourth District reversed the trial court. Bauer v. Dilib, 16 So.3d at 320. The Fourth District held that the employer was not entitled to attorney’s fees as the prevailing party against the competitor who was not a party to the non-compete agreement. According to the court, "under section 542.335(1)(k), no such statutory authority exists …" Id.

In reaching its decision, the court in Bauer noted that under section 542.335(1)(1), a court is prohibited from enforcing a restrictive covenant unless it is in writing and signed by the party against whom enforcement is sought. If the statute does not permit a party to enforce a non-compete agreement against a party who never signed the agreement, the Fourth District reasoned "that a plaintiff cannot recover its attorney’s fees from that person either." Id. at 320.

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Jason Cornell is an equity partner with the law firm Fox Rothschild LLP.  Jason practices in Fox Rothschild's Litigation and Financial Services departments.  Jason focuses his practice on commercial and employment litigation, with an emphasis on non-compete litigation.  You can reach Jason at (561) 804-4415 or jcornell@foxrothschild.com.