Mass Law Blog

Here is an unusual spin on Massachusetts non-compete law.  As best I can understand the facts (which require a bit of “between the lines” reading) Trillium sued Cheung, a former employee of Trillium.  Cheung had, it appears, released an employee from a non-compete agreement without company approval.

Trillium’s suit asserted breach of fiduciary duty to the company.

A trial ensued, but at the outset the judge observed that if the underlying non-compete agreement had not been enforceable the release had caused no harm to Trillium, and hence there had been no legal wrong committed by Cheung.  In other words, the trial involved a concept that lawyers dislike greatly: a “trial within a trial.”  (Think Russian nesting dolls). Here, the two trials involved the question of whether the non-compete was enforceable and, if so, whether Cheung acted illegally by releasing the employee from the agreement.

The trial began with a jury proceeding, during which the jury was asked to decide the second of these issues first  - whether Cheung had improperly given the employee a release from  the non-compete.  However, in an odd twist the parties agreed that the judge, not the jury, would rule on damages.  Before doing so, however, the judge addressed the second issue (which, one would think, should have gone first),  held that the non-compete agreement was unenforceable, and concluded therefore that Trillium had suffered no damages.  Case over.

The Appeals Court found several problems with this outcome, and sent the case back for a new trial.  First, the judge failed to describe the legal standard he had applied to determine the enforceability of the non-compete agreement. The Appeals Court had no way of reviewing a trial judge’s decision if he failed to state, on the record in open court or in a written decision, the legal grounds  for his conclusion.  Making matters even worse, the Appeals Court indicated that the trial judge had heard evidence developed during the jury  trial which contributed to his conclusion that the non-compete was unenforceable, but he failed to describe these facts so that the Appeals Court could review them and determine if the trial court had correctly applied the legal grounds to them.  The Appeals Court had no record upon which is could review the ruling on the law or the facts.

This case illustrates a crucial aspect of legal proceedings that we sometimes take for granted, but which somehow got lost in this case.  The Appeals Court observed that as far back as 1923 (and likely long before 1923) the Massachusetts Supreme Judicial Court noted “the underlying principle that a judge must set forth the legal grounds on which he makes his legal determination . . .  the court shall specify with particularity the grounds on which his mind rests in reaching his conclusion. The parties thus are advised of the exact foundation for the action taken by the judge.”  Without this information, there is no basis for appellate review.

Of course, when a case is decided by a jury things proceed a bit differently – a jury renders a verdict with no explanation of its grounds, and that decision is inviolate, so long as the judge properly instructs the jury on the law and follows the rules of evidence (more or less).

But, phase two of this case was a judge case, not a jury case, and why the judge didn’t explain the factual and legal bases for his decision is something of a mystery.  The trial took place in early 2009 and now, three years later, the parties will have to undergo a retrial. However, it will still be a “trial within a trial” – as the Appeals Court stated, “we remand the matter for a new trial on the issue of damages, which shall include determination of the predicate issue of enforceability of the [non-compete] agreement.”

Trillium v. Cheung

Continue Reading Mass. Appeals Court Reverses an Unusual Trial Order in Non-Compete Case: Trillium v. Cheung

Noncompete opinions from the Massachusetts Superior Court are few and far between, so the two decisions that have been issued so far this year — one from Judge Peter Lauriat sitting in the Suffolk Business Litigation Section (BLS), the other from Judge Thomas R. Murtagh in Middlesex Cournty — are worth noting.  Both judges are respected judicial veterans, and each decision illustrates a legal principle basic to this controversial and often confusing area of law.

The more note-worthy of the two cases is Judge Lauriat’s decision in Grace Hunt IT Soutions v. SIS Software, LLC.   There are relatively few ways to wriggle out of a non-compete, but one that should be near the top of every lawyer’s list is the question whether there has been a “material change” in the employment relationship since the non-compete agreement was signed.  If so, a “pre-change” non-compete may be unenforceable.  In this case the court found that there had been such a change, and therefore it denied a motion for preliminary injunction to enforce the  non-compete  covenant against the defendants.  Of course, what constitutes a “material change” can vary, depending upon the eye of the beholder, which in a preliminary injunction context is the judge.  In this case Judge Lauriat concluded that a 20% cut in salary was enough of a change to satisfy this standard.  Also, the employees had signed the non-compete with a company that had subsequently been acquired, and the acquiring company was attempting to enforce the non-compete agreement.  Judge Lauriat  seemed to put some weight on the fact that the new employer had asked the employees to  sign new non-competition agreements after the acquisition,  implying that the new employer had thought the employment relationships had materially changed, requiring new agreements.*  Preliminary injunction denied.

*Sometimes an acquisition alone will void a non-compete. That was not the case here, likely because the employment agreements permitted assignment.  However, many agreements do not include assignment clauses, preventing the post-acquisition employer from enforcing a non-compete agreement signed with the pre-acquisition employer.  See the discussion of L-3 Communications v. Reveal Imagining at this prior post (non-compete agreement signed not assigned as part of a sale to current employer was not enforceable).

The second of the two decisions illustrates more of a cookie-cutter approach to the enforcement of a non-compete covenant.  In this case, A.R.S. Services v. Baker, the plaintiff, a company disaster restoration field, asked the  court to enforce a one year non-compete provision against an employee who had resigned from the plaintiff’s firm .  It appears that the only argument Baker could make against enforcement was that his former employer had asked him to engage in “a fraudulent act involving moral turpitude,” and that this was a “material breach” of the non-compete agreement, rendering it unenforceable.  It is true that a material breach by an employer can invalidate a non-compete covenant.  However, this case appears to have involved  little  more than an internal disagreement between Baker and the employer over a cost estimate to rebuild a home.  The judge didn’t buy it – quite rightly, if the evidence in support of this assertion was as weak as the decision suggests.  This case was “plain vanilla.”  Preliminary injunction allowed.

Grace Hunt IT Soutions v. SIS Software, LLC

A.R.S. Services v. Baker

Continue Reading Two Recent Noncompete Cases From the Superior Court

Earlier this year Massachusetts Continuing Legal Education  (MCLE)  asked me to update my 2009 chapter on Employee Noncompetition Agreements.   The revised chapter, part of the 2-volume Massachusetts Employment Law series, was published in June.

Below are links to the cases I added to this chapter.   I’ve also included a sentence or two regarding each case.  However, I did not make an effort to describe every legally significant aspects of each case.

• Ethicon Endo-Surgery, Inc. v. Pemberton, 27 Mass. L. Rptr. 541 (Super. Ct. 2010).  This case, decided by Judge Peter Lauriat  in the Suffolk Business Litigation Session, applies New Jersey non-compete law, but Massachusetts procedural law for purposes of ruling on a preliminary injunction.  The former employee filed suit in California first, but Judge Lauriat  refused to dismiss this case based on the “first filed” rule.  The court enforced an 18 month covenant not to compete against the former employee.

• Inner-Tite Corp. v. Brozowski, No. 2010-0156 (Worcester Super. Ct. 2010).  This lenghy decision was written by Judge Janet Kenton-Walker, sitting in Worcester County, following a bench trial.   The judge enforced a one year convenant not to compete against an employee who had worked for Inner-Tite in Georgia.  Given Brozowski’s  relatively low salary, and the fact that he was asked to sign the non-compete after beginning work for Inner-Tite, this contract would not have been enforceable under the various proposed Massachusetts non-compete statutes.  Either ground would have invalidated the agreement.  This was a tough outcome for the former employee, and one which might have had a different outcome in Suffolk, Middlesex or Norfolk counties, which tend to have more liberal leanings in these cases.

• Rohm & Haas Elec. Materials, LLC v. Elec. Circuits Supplies, Inc., 2010 U.S. Dist. LEXIS 136080 (D. Mass., Dec. 22, 2010).  In this case, brought against a corporate distributor of Rohm,  Judge Joseph Tauro denied a preliminary injunction for a variety of reasons, including Rohm’s failure to prove the  distributor possessed trade secrets or confidential information, and because Rohm’s damages were quantifiable and relatively small,

• Marino Company, Inc. v. Anderson, 2010 Mass. App. Unpub. LEXIS 448 (2010).  This case was moot on appeal where the employer sought specific performance of a three year non-compete agreement, but by the time of trial more than three years had already passed.  See EMC v. Arturi, below.

• Palladium Group, Inc. v. MacGillivray, 2010-2246 (Middlesex Sup. Ct. 2010).  The court construed the non-compete agreement to provide only for forfeiture of benefits, and therefore injunctive relief against the former employee was not available to the former employer.

• Me. Pointe, LLC v. Starr, 2011 U.S. Dist. LEXIS 10442 (D. Mass. Feb. 3, 2011).  Judge O’Toole found that where a sales representative signed an independent contractor agreement on behalf of his company the agreement committed the company, but not the individual in his personal capacity.

• People’s Choice Mortgage, Inc. v. Premium Capital Funding, LLC, 26 Mass. L. Rptr. 582 (Super. Ct. 2010).  This opinion, written by Judge Stephen E. Neel sitting in Suffolk County, is notable because the new employer was found liable for tortious interference and violation of M.G.L. c. 93A.

Continue Reading Cases Cited in My 2011 MCLE Noncompete Chapter Update