On April 3, 2018, the Department of Justice Antitrust Division (“DOJ”) announced that it had entered into a settlement with two of the world’s largest railroad equipment manufacturers resolving a lawsuit alleging the defendant employers had entered into unlawful “no-poach” agreements.  The DOJ’s Complaint, captioned U.S. v. Knorr-Bremse AG and Westinghouse Air Brake Technologies Corp., 18-cv-00747 (D. D.C.) alleges that three employers referred to as Knorr, Wabtec and Faively,[1] unlawfully promised one another “not to solicit, recruit, hire without approval, or otherwise compete for employees.”  It goes on to allege “[t]hese no-poach agreements denied American rail industry workers access to better job opportunities, restricted their mobility, and deprived them of competitively significant information that they could have used to negotiate better terms of employment.”

This development should come as no surprise; since October 2016 federal antitrust enforcement agencies[2] have been vocal about their increased focus on no-poaching and wage-fixing agreements among employers.  This past January, the U.S. Assistant Attorney General for the Antitrust Division reiterated that no-poaching agreements among employers remained an enforcement priority and employers could expect the DOJ to announce an increasing number of enforcement actions in the coming months.

Although the allegations against Knorr and Wabtec concern agreements between high-level corporate officers, employers should take steps to ensure that all managers, recruiters, and human resources professionals comply with applicable antitrust laws. For example, seemingly innocuous activities like discussing employee salary and benefits at industry conferences can constitute an unlawful information exchange.  Consulting the joint FTC and DOJ Antitrust Red Flags for Employment Practices provides an accessible starting point for understanding this area of the law.  However, employers will be well served to take additional steps to audit their business practices and communications with competitors throughout the organization in order to detect, and mitigate any legal risk associated with potentially unlawful agreements with competitors.

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[1] “Knorr” refers to Knorr-Bremse AG, including its wholly owned US subsidiaries.  “Wabtec” is an abbreviation of Westinghouse Air Brake Technologies Corporation.  “Faiveley” refers to Faiveley Transport S.A.  Faiveley is not included in the case caption because it was acquired by Wabtec in 2016.

[2] The DOJ Antitrust Division and the Federal Trade Commission (“FTC”)

Peter A. Steinmeyer

In Bridgeview Bank Group v. Meyer, the Illinois Appellate Court recently affirmed the denial of a temporary restraining order (“TRO”) against an individual who joined a competitor and then, among other things, allegedly violated contractual non-solicitation and confidentiality obligations.

As a threshold matter, the Appellate Court was troubled by what it described as Bridgeview’s “leisurely approach” to seeking injunctive relief.  The Appellate Court noted that Bridgeview filed the lawsuit three months after Meyer joined a competitor, waited two more weeks to file a motion for a TRO, and then did not notice its motion for a TRO as an emergency motion —  instead waiting to present the motion on the trial court’s regular motion call.  The Appellate Court emphasized that Bridgeview did not offer any explanation for its slowness to act and explained that “[i]f, as Bridgeview now contends, Meyer’s possession of the contact list, standing alone, is an obvious breach of his confidentiality agreement, we can conceive of no reason why Bridgeview would take such a leisurely approach to protecting that information.”

Although the Appellate Court explained that Bridgeview’s delay, standing alone, did not warrant denial of the TRO, “it was a relevant consideration.”

But that delay in acting was just one of many noted problems with Bridgeview’s case.  Starting with Bridgeview’s complaint, the Appellate Court explained it was lacking necessary detail:

there are virtually no well-pled facts in Bridgeview’s complaint regarding information Meyer allegedly took with him or customers he solicited after he left.  Rather, the complaint is replete with nonspecific and conclusory allegations.  For example, Bridgeview alleged that it had developed ‘unique marketing strategies, processes and information’ without ever describing, even generally, the nature of those strategies, processes or information or what made them ‘unique’ in the banking industry.

The Appellate Court further wrote that “[m]onths after it terminated Meyer, Bridgeview should have been able to identify specific customers it had lost and with which Meyer interacted during his tenure, if there were any.”  The Appellate Court added that “Bridgeview’s failure to identify in its complaint even one customer or describe with any specificity the confidential information used or disclosed is inexplicable and, hence, insufficient.”

The Appellate Court then turned to whether the additional materials submitted by Bridgeview at the TRO hearing were sufficient.  Here, the Appellate Court held that e-mails and attachments that were not referenced in Bridgeview’s verified complaint and which were not supported by any affidavits were merely “unverified allegations of wrongdoing” which “the trial court could properly have refused to consider.”

Nevertheless, because the trial court did consider these, so, too, did the Appellate Court.  The primary focus of the trial court was on a so-called “customer list.”  The Appellate Court held that “while certain information on the list may be ‘confidential’ in the sense that it was unknown outside the bank, Bridgeview made no preliminary showing that the information was of any particular value to Meyer or his current employer.”  Moreover, the Appellate Court explained that “while, under appropriate circumstances, a customer list can qualify as a trade secret, there is no per se rule affording it such status.”  Here, Bridgeview “made no showing that it had a protectable interest in its SBA customer base.  Other than a newsletter describing its ‘loyal’ customers, Bridgeview provided no evidence as to the resources devoted to acquiring and retaining customers or the longevity of their relationships with the bank.”

As for alleged violations of Meyer’s confidentiality agreement, the Appellate Court held that the only evidence presented involved a past violation; there was no “indication that the threat of Meyer’s use or disclosure of confidential information was ongoing.”

Ultimately, the Appellate Court concluded that Bridgeview failed to establish either a likelihood of success on the merits or that it would suffer irreparable harm in the absence of a TRO.

Practitioners can take several lessons from this case.  First, when it comes to requests for injunctive relief, time is of the essence.  Second, when drafting a complaint, even though a plaintiff must take care not to unwittingly publish trade secrets or other confidential information, enough detail must be provided to establish the necessary elements for injunctive relief.  Finally, to justify the powerful remedy of an injunction, the requesting party must be able to demonstrate imminent harm, and its claims must be supported by competent evidence.

Employers across all sectors of industry rely on narrowly tailored employment agreements to prevent employees from unfairly competing and stealing clients and customers post-employment. Last week, the adult nightclub chain, Penthouse Club, filed a suit seeking a temporary restraining order and other injunctive relief against a former director for violating a noncompete and nondisclosure agreement.

Penthouse claims that after the former director was fired for cause, he became employed at a rival nightclub not far from the Penthouse Club. Such mere employment allegedly directly violated the terms of his noncompete agreement. Penthouse also alleges that he is now using his contacts and intimate knowledge of Penthouse’s customers and employees to bring business to his new employer. As a result of his high-level position, which included access to the club’s VIP room where members pay a $2,500 fee to join and then a $1,000 fee each year, the former director obtained extensive knowledge concerning the real names of members and exotic dancers who worked there. Penthouse is relying on the “inevitable disclosure” theory to assert that it would be inevitable that the former director would use his knowledge of clients and employees to his and his new employer’s competitive advantage.

The agreement that the former director signed in 2004 contained restrictive covenants including a noncompete, nondisclosure, and nonsolicitation provisions. Penthouse is relying on the unique nature of its business, and, in particular, the fact that its exotic dancers and entertainers specifically attract particular customers, in order to establish its legitimate business interests and the competitive disadvantage that the former director’s solicitations could cause to Penthouse.

Penthouse attempted to resolve the dispute informally through a cease and desist letter but ultimately filed suit in federal court in Illinois seeking an injunction and monetary damages in excess of $75,000.
 

A Florida trial court should not have entered a temporary injunction enforcing a non-compete agreement against a former employee on an ex parte basis, i.e., without notice to the employee, according to Florida’s Fourth District Court of Appeals in a recent decision, Bookall v. Sunbelt Rentals, Case No. 08-26291 (Fla. 4th DCA, December 3, 2008).

The employer, a company that rents construction equipment, employed the former employee until February 7, 2008, under a written agreement containing a non-compete and non-solicitation provision. Shortly after the employee resigned, he began to work at a competing company. Upon discovering this, the employer sent the former employee a letter advising him of the breach of the agreement. The former employee’s counsel responded that the employee understood and would comply with his obligations under the agreement.

Upon learning that the former employee continued to work for the competitor, the employer filed a verified complaint with supporting affidavits and an ex parte emergency motion for temporary injunction. The motion sought a temporary injunction against the former employee and the competitor based on the noncompete and non-solicitation provisions of the employment agreement. The duty judge assigned to the case entered the temporary injunction.

In its opinion, the Fourth DCA noted that under the Florida Rules of Civil Procedure, a temporary injunction “may be granted without written or oral notice to the adverse party only if: (A) it appears from the specific facts shown by affidavit or verified pleading that immediate and irreparable injury, loss, or damage will result to the movant before the adverse party can be heard in opposition; and (B) the movant’s attorney certifies in writing any efforts that have been made to give notice and the reasons why notice should not be required.” Furthermore, “[e]very temporary injunction granted without notice . . . shall define the injury, state findings by the court why the injury may be irreparable, and give the reasons why the order was granted without notice if notice was not given.” See Fla. R. Civ. P. 1.610(a).

According to the Fourth DCA, the injunction suffered from a “fatal defect”: it failed to give the reasons why the order was granted without notice. The court noted that “[t]his deficiency could have been cured if the employer articulated in its complaint or motion reasons why notice should be dispensed with….Unfortunately for the employer, neither the complaint nor the motion cured the deficiency in this case.”

One lesson from the Bookall decision is clear: follow the civil procedure rules carefully. The rules are just that – rules – not guidelines or suggestions. The employer’s and the court’s failure to articulate why the order was granted without notice required a reversal of the injunction order under a plain reading of Rule 1.610(a).

One might surmise that there was no good reason why notice was not given to the former employee. After all, the opinion notes that the former employee was represented by counsel. How hard is it to fax, email and/or call opposing counsel before a hearing, even on an emergency motion?

But perhaps the former employee’s counsel was on vacation or otherwise unavailable to receive notice of the hearing. In that case, an ex parte injunction may have been appropriate, and the employer’s and the court’s failure to state why the order was granted without notice a mere oversight.

However, even where an ex parte injunction is appropriate, employers and their counsel should be aware that it may be short-lived. Under Fla. R. Civ. P. 1.610(d), “[a] party against whom a temporary injunction has been granted may move to dissolve or modify it at any time. If a party moves to dissolve or modify, the motion shall be heard within 5 days after the movant applies for a hearing on the motion.” Thus, if a court enters a temporary injunction on an ex parte basis, the employer’s counsel should clear his calendar for the next week. The employee is entitled to a file a motion to dissolve and obtain an expedited hearing, and he may stand a good chance of getting the injunction modified or dissolved entirely once he tells his side of the story.