Smooth Transitions : Rob Radcliff : Texas Non-Compete Lawyer & Attorney : Langley Weinstein LLP Law Firm : Dallas Employment & Employee Departures : Smooth Transitions Law Blog

In July we discussed IBM's non-compete case against former director David Johnson.  The trial court denied IBM's injunction and IBM appealed to the Second Circuit.  The Second Circuit denied IBM's appeal. 

The summary order addressed IBM's failure to show a likelihood of success on the merits:

We do not reach the question because IBM failed to make sufficient showings that it had a likelihood of success on the merits or that a balance of the hardships tipped decidedly in its favor.  The district court's conclusions on these issues were well-supported by the court's findings that Johnson was extremely credible, and that IBM's designated witness was much less credible chiefly because IBM's designated witness lacked familiarity with documents bearing on the controversy.

So, Johnson will continue to work with Dell which recently announced plans to purchase Perot Systems Corp. for $3.9 billion.  Johnson was the former director of mergers and acquisitions at IBM and started at Dell 4 months before the Perot acquisition was announced. 

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The Texas non-compete statute reverses the burden of proof in certain limited situations:

If the primary purpose of the agreement to which the
covenant is ancillary is to obligate the promisor to render
personal services, for a term or at will, the promisee has the
burden of establishing that the covenant meets the criteria
specified by Section 15.50 of this code. If the agreement has a
different primary purpose, the promisor has the burden of
establishing that the covenant does not meet those criteria. For
the purposes of this subsection, the "burden of establishing" a
fact means the burden of persuading the triers of fact that the
existence of the fact is more probable than its nonexistence.
 

An example is a franchise agreement that prevents a franchisee from competing with a franchiser during the term of agreement or a non-compete that is included within a buy/sell agreement of a business.  In those circumstances the party subject to the non-compete will have to establish that the non-compete at issue is not enforceable.  (For purposes of an injunctive relief, the party seeking to enforce the non-compete will still have to meet its injunction burden.)  In the typical non-compete case this will not be an issue, but always be on the lookout for an opportunity to reverse the burden.

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On October 3rd, Starbucks determined through an Internet search that former senior vice-president Paul Twohig had accepted a position with rival Dunkin Donuts.  In response Starbucks filed a lawsuit in Seattle seeking to enforce the18 month non-compete agreement Twohig signed.  He left Starbucks in March.

Twohig was responsible for developing the Starbucks brand and according to the complaint was involved in formulating business plans to counter competitors like Dunkin Donuts.   His non-compete prevents him from participating in management operation or control of any business that competes with Starbucks. Apparently, Twohig contacted Starbucks in August and asked to be released from the non-compete. Starbucks refused the request.  Starbucks has asserted claims for breach of contract, unjust enrichment, and a request for injunctive relief.

Surely Dunkin and Twohig discussed his non-compete prior to his hiring?  Dunkin would have to assume that Starbucks would sue to enforce the non-compete.  The law and facts seems to be on Starbucks' side but there are two sides to every story.  We'll keep you posted.

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The difference between equitable claims and legal claims goes back hundreds of years when there were essentially 2 different courts depending upon the relief sought.  District courts and county courts in Texas can award both equitable and legal relief.  So what does that mean?

A claim for injunctive relief is equitable.  Also, a claim for quantum meruit (basically an action for work done or services provided) arises in equity.  In cases where injunctive relief is sought, like a non-compete case or business control case, the Courts may make equitable considerations.  Put another way, courts balance the equities. 

Typically individuals trying to get out of a non-compete identify numerous equitable facts in their favor: (1) they were fired; (2) the non-compete prevents them from carrying out their livelihood; (3) they didn't take any trade secrets; and (4) they aren't talking with their former client's customers or employees.  While these factors in and of their own right may not be sufficient to legally defeat a non-compete, the Court will certainly consider them in issuing an injunction or temporary restraining order.

Parties going into court need to be aware of whether they appear to be the good guy or the bad guy.  A person that takes the customer list with him as they walk out the door generally isn't a good guy.  Neither is the employer that has a 4 year non-compete that prevents an employee from working anywhere in the world.  Parties need to use common sense and think about how their respective side is going to appear to the judge. 

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