In Rare Move, Court Strikes Down Non-Compete From the Get-Go
It's not every day that you see a court strike down a non-compete in its entirety - and certainly not before discovery. Yet that's precisely what this Illinois Federal Court did in an April 17, 2018 opinion in Medix Staffing Solutions, Inc. v. Dumrauf.
The Facts Underlying Medix's Claims
According to Medix (for purposes of deciding a motion to dismiss, the Court is obligated to assume the truth of the plaintiff's claims), Dumrauf initially began working as Medix's Director of Business Operations at its Scottsdale, Arizona office in 2011. In the following two years, Dumrauf was twice promoted, ultimately becoming the Director of Medix Scientific. In that role, Dumrauf assumed responsibility for Medix’s sales and recruiting strategy within the biotechnological, pharmaceutical, and medical device realms.
The Non-Compete Clause
In conjunction with his employment, Medix required Dumrauf to execute a restrictive covenant containing the following language:
2.3 Covenant Not to Compete. Medix and Employee agree that the nature of Employee’s employment with Medix will place Employee in a close business and personal relationship with the Customers of Medix. Therefore, both during Employee’s employment with Medix and for a period of eighteen (18) months following the termination of Employee’s employment with Medix for any reason, Employee shall not, within a radius of 50 miles from any Medix office(s) where the Employee performed services as an employee of Medix, directly or indirectly, own, manage, operate, control, be employed by, participate in or be connected in any manner with the ownership, management, operation or control of, any business that either: (1) offers a product or services in actual competition with Medix; or (ii) which may be engaged directly or indirectly in the Business of Medix.
Dumrauf Resigns, Takes New Position With a Competitor
In August, 2017, Dumrauf resigned, and told Medrix - up front - that he was taking on a new position with ProLink, a competitor based out of Cincinnati, and that his new position - unlike his position with Medrix - would entail little to no client interaction, and that he would be well outside the 50-mile radius contemplated in his non-compete, as he would be relocating from Arizona at the end of the year.
But that wasn't good enough for Medrix.
The Court Strikes Down the Non-Compete on a Pre-Answer Motion to Dismiss
Notwithstanding the fact that no discovery had yet taken place in this case, the Federal Court felt obliged to dismiss Medrix's claims in their entirety. Here are some "money quotes" that lay out the Court's reasoning:
"The Covenant, in essence, bars Dumrauf from being employed by any company that also works in the same fields as Medix within 50 miles of Medix’s Scottsdale office whether that company is an actual competitor or not. Furthermore, the types of employment the Covenant bars him from taking with those companies extend beyond roles that were similar to those he held at Medix to any position whatsoever at other companies in the industry. Dumrauf argues that this would bar him from even working as a janitor at another company. While that example is a bit far-fetched, the Court sees no language in the Covenant that makes it an inaccurate statement of its prohibitions. Regardless, the Covenant clearly would prevent Dumrauf from taking any number of more plausible roles at another industry player, no matter how far removed from actual competition with Medix. Such a prohibition is unenforceable ...
"[I]t is clear from the grammatical structure of the Covenant that employment is not limited by the clause “in any manner with the ownership, management, operation or control.” The only limitation on the scope of the employment prohibition is the types of companies for whom Dumrauf is prohibited from working: competitors of Medix and companies engaging in the Business of Medix. The unambiguous meaning of the Covenant is that Dumrauf may not work for any company in the same business as Medix in any capacity whatsoever ...
"Thus the Covenant is so broad that it is unreasonable on its face and unenforceable. There is no factual scenario under which it would be reasonable; therefore, allowing additional discovery or delaying disposing of this case until summary judgment would be a futile exercise. This is an “extreme case” where dismissal at the motion to dismiss stage is permissible and appropriate."
In the first instance, I imagine that Medrix will appeal this ruling; it's always an uncomfortable thing to have your case tossed on a motion to dismiss. That being said, I find it very hard to fault any of the judge's reasoning. After all, what legitimate business interest can Medrix have in preventing one of its employees from taking on a non-competing role more than 50 miles away from its offices?
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