In a recent decision issued by the Supreme Court of the State of New York, New York County, a lawsuit brought by Marsh USA Inc. against two former employees and a competitor was sustained in the face of the defendants’ challenge to the complaint on grounds of forum non conveniens and failure to state a cause of action.  The decision is notable for its application of New York non-competition law to California residents, and Marsh’s inclusion of forum selection clauses and choice of law provisions in its agreements with the individual defendants appears to have enabled it to avoid the draconian effect of California law upon those individual’s non-compete agreements.

The decision denying defendants’ motion to dismiss, by Justice Bernard J. Fried, was entered on July 23, 2010 in the matter of Marsh USA Inc. v. Hamby, Index No. 600636/10.

The individual defendants, John A. Hamby and Lida Davidians, both reside in California and worked over five years in Marsh’s Entertainment Practice, in which they were senior employees.  The complaint alleges that Hamby and Davidians each breached several non-compete agreements, misappropriated confidential information, and unfairly competed when they went to work for DeWitt Stern Group, Inc. in late January 2010.  After their resignations, in short order, numerous clients terminated their relationship with Marsh and appointed DeWitt as their new insurance broker, and 8 of 20 employees of Marsh’s Los Angeles Entertainment Practice abruptly defected to DeWitt.

The defendants moved to dismiss the complaint first on the ground that the New York court is an inconvenient form.  The Court refused to dismiss on this ground, because both Hamby and Davidians had signed multiple agreements containing forum selection clauses and choice of law provisions that obligated the parties to litigate in New York, applying New York law.  Defendants’ arguments that connections to California outweighed connections to New York, and that California’s public policy would render the non-compete agreements void under California law, did not convince the New York court to dismiss.  The New York court noted, among other things, that a lawsuit commenced by defendants against Marsh in the Superior Court of the State of California, No. BC 430457, seeking a determination that the agreements were unenforceable under California Business and Professions Code Section 16600, was stayed upon Marsh’s motion, allowing the dispute to be heard in the New York court.

Defendants’ second motion to dismiss, for failure to state a cause of action, focused on Marsh’s allegations of misappropriation of trade secrets, which defendants argued were conclusory and did not identify what trade secrets had been stolen.  The New York court found that the defection of numerous Marsh employees and clients quickly following Hamby and Davidians’ resignations raised a strong enough inference of misappropriation of trade secrets, that the complaint would therefore survive the motion to dismiss.