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With Non-Competes, Choose to Win the War, Not the Battle


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1/24/2018
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Image: Stuart Miles/FreeDigitalPhotos

Following two days of witness testimony at a hearing in Federal Court to determine whether our clients' business would effectively be shut down due to alleged violations of their non-compete agreement with the plaintiff (a competing company), the judge called the lead trial attorney for the plaintiff and me back into chambers, and stated as follows:

"Counselors; it seems to me that your clients don't particularly hate each others' guts. We've been going for two full days here, and we've still got another full day to go. Perhaps there's a better way forward than continuing to litigate this case?"

My Dilemma

At this point, I was confronted with an interesting dilemma:

On the one hand, my adversaries (who were from out of town) didn't seem to have a firm grasp on New York law regarding non-competes. They had made some mistakes in the way they pled the causes of action in their complaint. More specifically, they only claimed that my client was liable for breach of a non-compete agreement, and didn't claim that my client was also liable for breach of fiduciary duty.

The chief problem plaintiff faced - but didn't know yet - was that based on the facts presented, they wouldn't be able to demonstrate that they had a "legitimate business interest" worthy of judicial protection, and, if the Court were going to strictly apply New York's substantive law (a Federal court is obligated to apply the substantive law of the host state), there was a very strong chance the complaint could have been dismissed following the hearing. (Naturally, there were other substantive problems with plaintiff's case, e.g., that, contrary to plaintiff's subjective belief, they didn't really have anything proprietary or "confidential," but those issues were secondary).

On the other hand, I was fully cognizant of the fact that the plaintiff had gone to the trouble of hiring a big-name, large law firm. And, from the way they were conducting themselves, it was apparent that to them, cost wasn't really an object. After all, the plaintiff had at least two attorneys present (and half the time, more than that) at every court appearance. And, even if they lost this particular battle, plaintiff would still have an opportunity to appeal the dismissal, or, if they were smart and recognized their errors, to simply amend the complaint to assert what they should have done in the first instance - and assert a breach of fiduciary duty claim instead.

So, even if I won this particular "battle," my client - who had far shallower pockets than the plaintiff - would stand to lose huge sums of money in legal fees just to end up, more or less, back in the same place, and still facing the stark reality that they had, in fact, competed with the plaintiff while still working with/for them.

What I Did

Fortunately, my client came into the hearing with realistic expectations, and recognized where they were vulnerable. As a result, they authorized me to make a very fair offer to resolve the matter - before they incurred tens of thousands (or more) dollars in additional legal fees.

Candidly, these weren't pleasant negotiations; my adversaries were afraid to commit to anything, which naturally makes settlement rather challenging. But, in the end of the day, it got done, and my client was able to resume their business.

The Takeaway

In this situation, it was rather easy to remain myopically focused on the immediate win, and getting the complaint dismissed. But that would have been, at best, a short-term win for the client, and would have cost them far more the intermediate and long term. 

The best results for the client can only be obtained when you keep perspective of the whole picture.

 



Category: Non-Compete & Employment Agreements

Jonathan Cooper
Non-Compete, Trade Secret and School Negligence Lawyer

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