noncompete bookA recent decision from one of New York's federal courts underscores why timing is crucial when seeking a TRO to try to prevent clients from being unfairly diverted to a competitor. Naturally, there is a strong practical component - from a business perspective, the (former) employer is highly incentivized to try to stem the bleeding of its clients and good will.

But, as the Court pointed out in LoanDepot v. CrossCountry Mortgage, there is a big reason to do so from a purely legal perspective as well, stating:

“It is well established in this Circuit that the loss of client relationships and customer goodwill . . . generally constitutes irreparable harm.” Willis Re Inc. v. Herriott, 550 F. Supp. 3d 68, 105 (S.D.N.Y. 2021). “That is because ‘it would be very difficult to calculate monetary damages that would successfully redress the loss of a relationship with a client that would produce an indeterminate amount of business in years to come.’

Critically, the Court's reasoning and analysis was not limited to prospective damages; rather, the Court highlighted challenges the plaintiff'former employer would face in proving its damages with regard to clients that had already left, stating:

"As the court in the Chicago Action observed, “[d]amages [to loanDepot] would have to be calculated customer-by-customer, likely devolving into dozens of mini-trials to determine if a customer left or did not borrow through loanDepot because of the Defendants’ allegedly illegal conduct or, instead, for other, permissible reasons.”

The Takeaway

In other words, just because a customer left the former employer does not, as a matter of law, automatically lead to the conclusion that the client's departure was specifcally motivated and caused by the defendants' actions; rather, that is a contention for which the plaintiff still bears the burden of proof. Consequently, from a legal vantage point, it behooves a plaintiff in these circumstances to move sooner rather than later to seek injunctive relief, if for no other reason than to avoid this evidentiary problem with regard to as many customers as possible.

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