Tag Archives: United States district court

Third Circuit Affirms Award of Damages in Misappropriation of Trade Secrets Case and Denial of Recovery on Injunction Bond After Employee’s Partial Success on Appeal

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The United States Court of Appeals for the Third Circuit affirmed the district court’s award of damages against employees on a claim brought by their former employer for, inter alia, misappropriation of trade secrets.  Latuszewski v. Valic Financial Advisors, Inc., No. 08-1511, 2010 WL 3582434 (3rd Cir. Sept. 15, 2010).   Former employer, VALIC Financial Advisors, Inc., bought claims against former employees Gary Latuszewski and James Rogan alleging breach of contract, breach of fiduciary duty, misappropriation of trade secrets, and tortious interference with contract. Id. *1. Employees appealed arguing that this award was in error and also that the District Court erred in declining to award them damages under VALIC’s injunction bond after this court vacated part of the District Court’s temporary injunction against them. Id. Continue reading

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Eighth Circuit Upholds 2-Year Restrictive Covenant

The U.S. Court of Appeals for the Eighth Circuit considered an appeal from a judgment following a bench trial, in Mayer Hoffman McCann, P.C. v. Barton, et al., No. 09-2061,  — F.3d —-, 2010 WL 3155177 (8th Cir. Aug. 11, 2010).  The district court granted judgment to Plaintiff Mayer Hoffman McCann, P.C. (“MHM”) , awarding MHM permanent injunctive relief and $1,369,921 in liquidated damages.  Defendant appellant appealed, contending, among other things, that enforcement of the restrictive covenants is contrary to Missouri law.  The Eighth Circuit rejected these contentions and affirmed the judgment of the district court.

Mayer Hoffman McCann, P.C. is national certified public accounting (CPA) firm. MHM sued its former employees and shareholders-Thomas L. Barton, Anthony W. Krier, James N. Stelzer, and John C. Walter (collectively, “appellants”), all CPAs licensed by the State of Minnesota-to enforce restrictive covenants contained in contractual agreements between the appellants and MHM.  Following a bench trial, the district court granted judgment to MHM, awarding MHM, inter alia, permanent injunctive relief.

As part of a stock repurchase agreement, Appellants agreed that for the “Post-Employment Restrictive Period,” a period of two years following the termination of their employment, they would not: (1) solicit, directly or indirectly, or attempt to solicit MHM’s clients or otherwise interfere with MHM’s relationship with its clients, or (2) solicit MHM’s employees. Appellants further agreed not to copy, disseminate, or use MHM’s confidential information at any time.

Appellants asserted that the restrictive covenants are unreasonable in scope and, therefore, unenforceable.  The court rejected this argument, holding that the two year restrictive covenant “has been found reasonable under the “overwhelming weight of case authority” and was “reasonable under Missouri law”.  Id. *10 (citing Missouri Alltype Fire Prot. Co. v. Mayfield, 88 S.W.3d 120, 123 (Mo. Ct. App. 2002)).

Although the restrictive covenants in this case are not restricted geographically, Missouri law recognizes that a customer restriction may substitute for an explicit geographical restriction. See Schott, 950 S.W.2d at 623-24, 627 (concluding that a two-year restriction on CPAs soliciting their former employer’s customers, or doing any accounting work for them, was enforceable, without a geographical restriction, because “the covenant does not prevent employees from practicing in any particular geographical area, it merely prohibits them from soliciting employer’s clients”); Mills v. Murray, 472 S.W.2d 6, 11-12 (Mo. Ct. App. 1971) (determining that a three-year restrictive covenant was reasonable, even absent a geographical restriction, because the former employee was only restricted from soliciting his former employer’s clients such that he could even “conduct a competing business at [his former employer’s] doorstep as soon as [he] left [his former employer’s] service”). As the Schott Court observed, where “the specificity of limitation regarding the class of person with whom contact is prohibited increases, the need for limitation expressed in territorial terms decreases.” 950 S.W.2d at 627 (quoting Seach v. Richards, Dieterle & Co., 439 N.E.2d 208, 213 (Ind. Ct. App. 1982)). Under Schott and Mills, the restrictive covenant at issue here is not unenforceable, even though it lacks a geographical restriction, because it only prohibits appellants from soliciting MHM clients-not from performing services for MHM’s clients whom the appellants did not solicit. Furthermore, even if the restrictive covenant completely barred the appellants from doing any accounting work for MHM clients, the appellants would still be free to provide accounting services to all non-MHM clients anywhere. Therefore, the scope of the restrictive covenants at issue here is reasonable under Missouri law.

Judges and Attorneys

Before Judge Raymond Gruender, Judge Bobby E. Shepherd of the Eighth Circuit Court of Appeals and Hon. John A. Jarvey, United States District Judge for the Southern District of Iowa, sitting by designation.

The trial court judge was Hon. Gary A. Fenner, United States District Judge for the Western District of Missouri.

Kay Nord Hunt, argued, Minneapolis, MN (Phillip A. Cole, Robert Kent Sellers, Michael Jat Abrams, Diane M. Odeen, Hudson, WI, on the brief), for Appellant.

John C. Aisenbrey, argued, Kansas City, MO (Patricia Konopka, Robin K. Carlson, on the brief), for Appellee.

By CHARLES H. JUNG

 

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Second District Holds that Federal Choice of Law Provision in Arbitration Agreement Requires Application of Vacatur Provisions of FAA

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In a 3-0 opinion, the Second District held that while California state courts do not apply the FAA vactur provisions, because of the choice of law provision in the arbitration agreement, the trial judge was required to utilize the vacatur provisions of the FAA in passing on the amended petition to vacate the partial arbitration awards.

In Countrywide Financial Corp. v. Bundy, — Cal.Rptr.3d —-, 2010 WL 3064481 (Cal. Ct. App. 2d Dist. August 06, 2010), Defendants, Thomas Bundy, Misty Sanchez, Kevin Prevost and David Godina, appealed from an order vacating partial arbitration awards against plaintiffs, Countrywide Financial Corporation and Full Spectrum Lending, Inc.

The underlying case involved two arbitrations that were ultimately consolidated. The Bundy-Sanchez-Prevost arbitration demand sought classwide arbitration of claims for unpaid wages including incentive compensation, waiting penalties, costs and attorney fees pursuant to Labor Code section 200 et seq., Business and Professions Code section 17200 et seq., and common law principles.  The Godina arbitration demand alleged many of the same matters in terms of plaintiffs’ operations.

The arbitrator issued partial arbitration awards in favor of defendant.  Judge Elizabeth A. White vacated the partial arbitration awards on the ground the arbitrator committed a number of legal errors.  The Second District concluded that because of the unambiguous choice of law language in the agreements to arbitrate, “we must apply the vacatur provisions applicable before a United States District Court in a case subject to the Federal Arbitration Act. (9 U.S.C. § 1 et seq.)”  Applying the vacatur provisions of the Federal Arbitration Act, the Court of Appeal reversed, finding “no grounds permitted the partial awards to be vacated.”

The Court expressed doubt regarding whether the “manifest disregard of the law standard” survives Hall Street Associates L.L.C., but it chose to evaluate the interim awards under both title 9 United States Code section 10(a)(4) and the manifest disregard of the law test.  ; the course chosen by the Supreme Court in Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., supra, 559 U.S. at page —- [130 S.Ct. at page 1768].”  The Court described the manifest disregard standard as follows:

The first element is the arbitrator must know the governing rule of law and refuse to apply it or ignore it. The second element is that the law ignored by the arbitrator is well-defined, explicit, and clearly applicable to the case.

Presiding Justice Paul A. Turner wrote the opinion.  Hon. Sandy R. Kriegler and Hon. Richard M. Mosk concurred.

Defendants and appellants were represented by Caryl L. Boies, Sigrid S. McCawley and Lauren E. Fleischer of Boies, Schiller & Flexner.

Plaintiffs and Respondents were represented by Andrew M. Paley, Gregg A. Fisch and Jennifer Sloane Abramowitz of Seyfarth Shaw.

By CHARLES H. JUNG

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$26 Million Verdict in Florida Trade Secrets Trial

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An Eastern District of Virginia jury returned a $26 million verdict for Florida-based mining tire design company Tire Engineering and Distribution, LLC and CEO Jordan Fishman in a trade secret case.   Plaintiffs accused the Chinese firm Shandong LingLong Rubber Co Ltd and Dubai distributor Al Dobowi Tyre Co LLC of conspiring with former Alpha Executive Sam Vance in 2005 to steal Fishman’s unique, proprietary designs for underground mining tires.  Read a news report here.  Vance failed to make an appearance.

By CHARLES H. JUNG

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