Regular readers here at Suits by Suits know that we’ve continued to monitor the status of proposed changes to the law governing the enforceability of covenants not to compete in Massachusetts, from the state legislature’s proposal to restrict such covenants to six months in length to more recent pronouncements by Gov. Deval Patrick (D) that his administration would like to ban the enforcement of all such clauses, moving Massachusetts into the same space currently occupied by the state of California.

One question we get here pretty frequently regards the political and business implications of states that are moving in this direction.  Certainly, it is generally regarded as an article of faith that enforcing non-competes is pro-business, and states that are considering restricting or outright banning such clauses are prioritizing fairness concerns above economic growth.  (This intuition is undoubtedly reinforced by the fact that the most high-profile discussions are coming from one of the most liberal states in the union, Massachusetts.)  But is this intuition correct?  Many would argue that the case for and against non-competes is considerably more complex; read on.

• Noncompete Agreements ‎

We’re getting over the withdrawal symptoms we suffered on Tuesday, which was National Snark-Free Day – something we learned from this article in the venerable Washington Post.  Yes, many thanks, Washington Post, for filling your pages with only the most important information. 

In the meantime, several items of interest came over our transom – some with their own built-in snark; others waiting, Ikea-furniture-like, to be brought to life with your snark – but all noteworthy in our area of expertise:

• To hell with this unpaid labor – it’s just too expensive, says Devil Wearing Prada: Magazine publisher Conde Nast – famous for being sued by its interns last year for labor law violations and for a fictional profile that purports to reflect life at one of its leading publications, among other things – has announced it is discontinuing its internship program.
• End your career in 140 characters or less: We’ve written “B4” about social media and the problems they can create for employers and employees but – sigh – some people just haven’t read our cautions yet.  Including, apparently, this now-former National Security Council staffer who was tweeting snarky tweets from his workplace just across an alley from the White House that really annoyed his colleagues – often the subject of the anonymous barbs – to no end.  Fun fact: Jofi Joseph was fired after he tweeted false information planted as part of an internal “sting” operation to smoke him out. 
• Insert your own snarky comment for this one: Pop star Lady Gaga has settled a suit brought by her former personal assistant, seeking overtime for being on call 24/7. 
• Night Of The Living…er, well, whatever: Just in time for Halloween, the Wall Street Journal has this piece on the “security horror” caused by departing employees.  Maybe that’s a strong way to put it – this or this, frankly, is much more horrifying to us, but we admit it’s a subjective call.  In any event, we’ve written about these issues before, but the WSJ piece is an informative (if hyperbolic) read.
• Also, Law360 has republished this great article about the perils of marriage between executives of competing businesses and whether or not firing one (or both) spouses is prohibited discrimination, written by our good friend and colleague John Connolly (and which first appeared at your favorite blog).  

• The Inbox

A judge in the U.S. District Court for the Southern District of New York ruled Monday that the Dodd-Frank Act’s whistleblower protection provision does not protect an employee in China who was allegedly fired for raising concerns about corruption.  Judge William H. Pauley III found “no indication” that Congress wanted Dodd-Frank’s anti-retaliation provision to apply extraterritorially, and as a result invoked the “strong presumption” against the international application of U.S. laws.  Liu v. Siemens A.G., No. 13 Civ. 317 (WHP) (S.D.N.Y. Oct. 21, 2013).

The plaintiff in the case, Meng-Lin Liu, is a Taiwanese resident who worked as a compliance officer for Siemens China.  Liu alleged that he was fired after giving a speech, attended by the Siemens China CEO, in which he claimed that Siemens would lose 30% of its business if it started following its compliance guidelines.  Two months after his firing, Liu reported to the SEC that Siemens had violated the Foreign Corrupt Practices Act (FCPA).  He then brought his suit for whistleblower retaliation, asserting that although Siemens is a German company, it has listed American depository receipts on the New York Stock Exchange.

• Dodd-Frank Act
• Motions to Dismiss
• Whistleblowers

Listen…
Do you want to know a secret?
Do you promise not to tell?

With all due respect to the Beatles – and the full lyrics of their 1963 hit are here – perhaps they weren't asking the most important questions to ask about secrets.  Maybe the more important, or at least existential question is: is the secret really a secret at all? And how exactly do you tell?

The Fifth Circuit Court of Appeals confronted that issue last week in Heil Trailer v. Kula, et al. The question came up in a suit brought by Heil – which makes tractor-trailers – against three of its former employees and their new employer, Troxell.  We’ve written often about confidentiality agreements between employers and employees, and the issues those agreements can raise when an employee goes to work for the competitor down the street.  But we don’t see too many opinions about whether the trade secret or other protected information is really “secret-worthy,” although our friends in the federal government sector seem to have it down to a whole system.   

• Trade Secrets

• James Whitney, the former CEO of Illinois-based Tallgrass Beef Company has sued the company and its owner Bill Curtis for unpaid wages.  Whitney claims that he was not paid his regular wages starting in 2011 and was never paid his final compensation, and seeks to hold Curtis personally liable.  The Illinois Wage Payment and Collection Act is not unusual in providing that an officer of a corporation can be found personally liable to an employee for violating the Act if the officer knowingly permitted the corporation to violate the Act.
• Dan Allen and the defense contractor CACI, where Allen had been CEO, agreed to modify Allen’s separation agreement to reduce his lump-sum cash severance from $1.6 million to $1 million, and, in return, his non-compete agreement has been made less restrictive.  The company’s SEC filing describing the modification can be found here.
• Amicus (or friend of the court) briefs are pouring into the Supreme Court in the case of Lawson v. FMR, which is set for oral argument in November (see our own Jason Knott’s most recent post on the case) and raises the question of whether the Sarbanes-Oxley Act protects employees of privately-held contractors and subcontractors of public companies from retaliation when they blow the whistle on suspected fraud.  The WSJ reports that business groups and a group of former SEC officials (including former SEC Chairman Christopher Cox) are lining up on the side of the court finding that the employees are not protected, while the National Whistleblowers Center and other pro-whistleblower groups are lining up on the other side.
• We found interesting this commentary in Corporate Counsel earlier this week about reasons that companies with employees who blog at work should be mindful when considering whether to fire those employees for their blogging – including laws in some states that make it illegal to fire an employee for expressing political views, and federal and state laws protecting whistleblowers (including “whistlebloggers”) from retaliation for raising concerns about unlawful conduct in the workplace.

• The Inbox

In a decision last week, Judge Ewing Werlein Jr. of the U.S. District Court for the Southern District of Texas addressed the question of whether an employer had successfully alleged a claim under the Computer Fraud and Abuse Act (“CFAA”), such that the employer could properly bring its numerous claims against former employees and their companies in federal court.  He ruled that the employer had properly pleaded the CFAA claim, and that as a result, the court had subject matter jurisdiction over the case.  Beta Technology, Inc. v. Meyers, Civ. No. H-13-1282, ‎2013 WL 5602930‎ (S.D. Tex. Oct. 10, 2013‎).

Before we get into the substance of the decision, some background is in order.  Subject matter jurisdiction is an important issue for federal judges.  If there’s no basis for subject matter jurisdiction, a case doesn’t belong in federal court.  First-year civil procedure students learn this rule from the venerable decision in Capron v. Van Noorden, in which the Supreme Court allowed a plaintiff to obtain reversal of a final judgment because he hadn’t properly alleged that the court below had subject matter jurisdiction over his claim.

The two main categories for federal jurisdiction in non-criminal cases are diversity jurisdiction and federal question jurisdiction.  Diversity jurisdiction, as defined in 28 U.S.C. § 1332, permits the federal courts to hear disputes between citizens of different states – i.e., “diverse” citizens – so long as more than $75,000 is at stake.  Federal question jurisdiction, which is defined in 28 U.S.C. § 1331, allows the federal courts to address “all civil actions arising under the Constitution, laws, or treaties of the United States.”  And under 28 U.S.C. § 1367, once the court has jurisdiction to hear one claim, it can hear any other claims that form “part of the same case or controversy,” even when those claims drag additional parties into the mix.

• Breach of Contract
• Civil Litigation
• Confidentiality
• Motions to Dismiss
• The Basics
• Trade Secrets

"We cannot comment on pending litigation." You have no doubt seen that or a similar quote countless times from litigants in press coverage about ongoing lawsuits. But Sheldon Adelson did not trot out that refrain after he and the casino operator Las Vegas Sands (of which he is Chairman and CEO) were sued in Nevada state court by Steven Jacobs for breach of contract and wrongful termination. Jacobs had been President of Las Vegas Sands’ casinos in Macau but was fired in 2010. After Las Vegas Sands and Adelson moved to dismiss Jacobs’s lawsuit and a hearing was held on their motion, Adelson sent an e-mail to a Wall Street Journal reporter covering the hearing with this statement:

While I have largely stayed silent on the matter to this point, the recycling of [Jacobs’s] allegations must be addressed. We have a substantial list of reasons why Steve Jacobs was fired for cause and interestingly he has not refuted a single one of them. Instead, he has attempted to explain his termination by using outright lies and fabrications which seem to have their origins in delusion.

Jacobs promptly amended his complaint to add a new claim against Adelson for defamation.

• Defamation

The federal government is closed, but the Suits by Suits news continues to roll in:

• Johnson & Johnson shareholders are amending their derivative suit against the company and its directors, alleging that the company didn’t act properly when it decided that the lawsuit was not in J&J’s best interest.  According to Joshua Alston of Law360 (subscription required), the shareholders argue that an investigation conducted by K&L Gates was a whitewash and that former CEO Bill Weldon shouldn’t have been paid $175 million over a six-year period.  On the bright side, Weldon may have had a better tenure than the similarly well-compensated Alex Rodriguez.
• In more J&J news, subsidiary DePuy Synthes sued three of its former sales reps and their new company, Globus Medical, Inc., for allegedly violating noncompete agreements.  Brad Perriello of Mass Device described the allegations, which accuse Globus of recruiting the reps “in an effort to rapidly build its own business . . . by appropriating and capitalizing on the goodwill, customer relationships, and confidential information that DePuy Synthes necessarily entrusts to its sales employees.” 
• It’s not hard to translate how Rosetta Stone wants this forum dispute to come out.  Carolina Bolado of Law360 (again, subscription required) reports that competitor Open English sued the company, along with several new hires, in Florida for allegedly breaching noncompete agreements.  Rosetta filed a lawsuit in the employees’ home state of California seeking a declaration that the agreements weren’t violated, and has now asked the Florida judge to dismiss in favor of that lawsuit.  Open English, meanwhile, argues that it won the race to the courthouse and is entitled to take its legal talents to South Beach.
• Big whistleblower news last week, as the SEC announced an award of $14 million to a whistleblower under its Dodd-Frank bounty program.  Further details were not forthcoming, as the law protects recipients of bounties from having their identities revealed.  Given all the press about miserable lottery winners, this could be a very good thing for them.
• A Virginia sheriff’s deputy is suing his former boss, claiming that he was fired after he reported that another officer slapped an inmate at the county jail.  Rhonda Simmons of the Culpeper Star-Exponent writes that the deputy, who is pursuing a wrongful termination claim, was rehired after the sheriff who fired him was voted out of office.

• Executive Compensation
• Noncompete Agreements ‎
• Whistleblowers
• Wrongful Termination

Usually, a plaintiff feels pretty good when he gets the opposing party to sign a settlement agreement promising to pay him money.  It’s nice to wrap up a hotly disputed case and move forward with the assurance that you’ll get what is promised under the settlement.

But then there’s the unusual case of Joe Martinez.  Martinez was the president of Rocky Mountain Bank before the bank fired him in 2010.  His contract entitled him to one year’s base pay ($200k) if he was terminated without cause.  However, he didn’t get the money after he was fired, because three months earlier, the Federal Reserve had notified the bank that it was in a “troubled condition” as defined by federal regulations.  If a bank’s in a “troubled condition,” under rules established by the Federal Deposit Insurance Corporation, it can’t make a so-called “golden parachute” severance payment.

Martinez quickly sued for the money due under his employment contract, and eventually negotiated a settlement with Rocky Mountain Bank for $100,000.  The bank told Martinez that it needed to get approval for the payment from the Federal Reserve.  Shortly thereafter, the Federal Reserve told the bank that it couldn’t pay.  As a result, Martinez had to ask the district court to enforce the settlement, which it refused to do.

Last week, the Tenth Circuit affirmed the district court’s decision on three grounds.  Martinez v. Rocky Mountain Bank, No. 11-8076 (10th Cir. Oct. 4, 2013). 

• Breach of Contract
• Civil Litigation
• Severance Agreements

Joseph Guinn’s case started with a phone call.  Leigh Sargent, the president of Applied Composites Engineering (“ACE”), made the call.  Randy Sutterfield, an executive at AAR Aircraft Services, Inc. (“AAR”), was on the other end of the line.

The subject of Sargent’s call was Guinn, who at the time was employed by ACE as an airline mechanic, but who had given notice that he intended to leave ACE and join AAR.  Sargent told Sutterfield in no uncertain terms that “Guinn was under the terms of a non-compete agreement and that he believed that it was a violation [for] him to come work for [AAR].”  Guinn v. Applied Composites Engineering, Inc. (Ind. Ct. App. Sept. 30, 2013).  After some more pressure from ACE, and an (un)friendly reminder that ACE was one of AAR’s customers, AAR knuckled under and fired Guinn.

Unsatisfied with this capitulation, ACE sued both AAR and Guinn.  It claimed that Guinn had breached his employment agreement by accepting the job with AAR, and that AAR had intentionally induced the breach.  Guinn, now without any job at all, didn’t take this lying down.  He countersued ACE for interfering with his own contractual relationship with AAR.

• Breach of Contract
• Civil Litigation
• Noncompete Agreements ‎