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

by Lee Gesmer on April 4, 2012

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

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