Anatomy of a Big-Time Noncompete Dispute

| Jason M. Knott


“Nasty, brutish, and short” isn’t just Hobbes’s famous explanation of human life in the state of nature.  It also hits close to the mark in describing how litigation over non-compete provisions often proceeds, as a recent case illustrates.

The plaintiff in the case was American Realty Capital Properties, Inc. (ARCP), a publicly-traded REIT (a real estate investment trust).  Allied on the other side were the Carlyle Group LP and Jeffrey Holland.  Holland used to work for Cole Real Estate Investments, a company that ARCP bought in February of 2014.  According to ARCP’s court filings, it paid Holland handsomely when it acquired Cole, giving him $7.1 million in connection with the change.  Holland then told ARCP that he wanted to take some time off.  ARCP was comfortable with that, given that Holland had previously signed both an employment agreement and a consulting agreement in which he agreed not to solicit Cole’s or ARCP’s investors for 12 months.

Within a couple of months, Holland joined Carlyle, one of the world’s largest investment firms, to raise funds for its products.  To put it mildly, ARCP was not pleased with this development.  At the beginning of April, it sued both Holland and Carlyle and filed an application for a preliminary injunction and temporary restraining order (TRO). 

When a party seeks a preliminary injunction or a TRO, it accelerates a dispute and puts the opposing parties immediately at risk.  Here, ARCP sought an injunction preventing Holland from soliciting any of its stockholders to invest in Carlyle funds.  Under this injunction, the lucrative contacts that Holland may have established while at Cole would be useless to him – and to Carlyle. 

ARCP asked for and received a quick resolution to its claims that Holland and Carlyle were in danger of breaching Holland’s noncompete agreement.  The court held a hearing and decided whether or not to issue a TRO within one week after ARCP filed its application.  Nasty, brutish, and short, indeed.

So how did it come out?  You’ll have to wait for next week, when we’ll take a more detailed look at the parties’ arguments and how the judge resolved them.