LASIK eye surgery requires a precise surgeon.  If the surgery is unsuccessful, it can result in under- or over-correction, dry eyes, or infection. 

LasikPlus of Texas, a Houston eye clinic, recently found out that it should have exercised similar precision when drafting its noncompete agreements.  Instead, the Fourteenth Court of Appeals ruled last week that because LasikPlus failed to include required language in its noncompete agreement, one of its doctors can open a competing clinic two miles from its front door.  See LasikPlus of Texas, P.C. v. Mattioli, No. 14-12-01155-CV (Tex. Ct. App. Nov. 21, 2013).  We suspect there was not a dry eye in the house after that decision.

The covenant at issue in the case was part of LasikPlus’s employment agreement with Dr. Frederico Mattioli.  Under the covenant, Dr. Mattioli, for the eighteen months following termination of his employment, could not open a competing clinic within 20 miles or solicit LasikPlus’s clients.  Dr. Mattioli could only terminate the agreement with 120 days’ notice, or 30 days’ notice if LasikPlus was already in breach.

In October 2012, Dr. Mattioli told LasikPlus that he would be leaving within the month to start his own practice less than two miles away.  LasikPlus sued Dr. Mattioli, seeking an injunction to bar him from opening the practice.  The employment agreement expressly entitled LasikPlus to an injunction in these circumstances.  Further, if the covenant was deemed unreasonable in scope of time or location, other language allowed the court to reform the covenant and enforce it to the degree it would be reasonable.

Yet Dr. Mattioli still succeeded in defeating LasikPlus’s request for an injunction, because the clinic left out a critical piece of the covenant. 

• Breach of Contract
• Civil Litigation
• Noncompete Agreements ‎
• Preliminary Injunction

Here's a tip that applies when you're negotiating any contract, although in this case we learn it from a negotiation over a severance contract: it's a rather bad idea to make a material change - like, perhaps, increasing the severance payment from 14 weeks of pay to 104 weeks - and then have the other side sign it, without telling them you inserted that change in their draft.

That tip comes from the Sixth Circuit's decision last week in St. Louis Produce Market v. Hughes. Two other helpful tips come from this case.  One, for executives seeking to claim under a severance agreement, is to return any of the company's property if it's a condition precedent to obtaining your severance benefit.  The other, for those people and their lawyers, is to not willfully disobey the court's discovery orders if you're litigating over the severance agreement. 

• Breach of Contract
• Change-in-Control Provisions
• Civil Litigation
• Discovery
• Summary Judgment

There’s a famous aphorism in journalism: “When a dog bites a man, that is not news, because it happens so often. But if a man bites a dog, that is news.”

The same is true of arbitration awards.  When a federal court confirms an arbitration award, it isn’t newsworthy, because that’s what everyone expects will happen.  But when a court tosses an arbitrator’s decision, it creates headlines.

On October 28, the Fourth Circuit made news by vacating an arbitration award issued to a former employee of an accounting firm.  Kiran M. Dewan, C.P.A., P.A. v. Walia, No. 12-2175 (4th Cir. 2013).  The former employee (Walia) was a native of Canada on a work visa who joined the Dewan firm as an accountant.  When he was terminated, he signed a release in which he gave up any tort or contract claims he had against the company in exchange for a payment of $7,000.  Three months later, the firm filed an arbitration against Walia, alleging that he had violated noncompete and nonsolicitation provisions in his employment agreement.  Walia filed counterclaims alleging that the firm underpaid him in violation of visa regulations, breached his employment agreement, and fraudulently sought to withdraw its sponsorship of his visa.  The arbitrator found that Walia’s release was legally enforceable, but also found that Dewan (the president of the firm) brought baseless claims and purposely sought to injure Walia’s immigration interests.  As a result, the arbitrator awarded Walia over $450,000.

In the build-up to its decision, the Fourth Circuit recognized the dog-bites-man principles of confirming arbitration awards.  It wrote that under the Federal Arbitration Act, “the scope of judicial review for an arbitrator’s decision is among the narrowest known at law because to allow full scrutiny of such awards would frustrate the purpose of having arbitration at all—the quick resolution of disputes and the avoidance of the expense and delay associated with litigation.”   The Federal Arbitration Act and the common law only allow an arbitration award to be vacated when

• the award was “procured by corruption, fraud, or undue means”;
• there was “evident partiality or corruption” in the arbitrators, or either of them;
• the arbitrators “were guilty of misconduct”;
• the arbitrators “exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made”; or

• “an award fails to draw its essence from the contract, or the award evidences a manifest disregard of the law.”

In other words, to vacate an arbitration award, a party must show that the winning party bought the award; the arbitrators were crooked or obviously biased; the arbitrators botched the arbitration to such a degree that a final and definite award wasn’t even made; or the arbitrators didn’t follow the contract at issue and/or disregarded binding law.

• Arbitration
• Arbitration and ADR
• Breach of Contract
• Releases
• Severance Agreements

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

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 ‎

When Yu-Hsing Tu worked at pharmaceutical company UCB Manufacturing, he signed a strict confidentiality agreement.  In the agreement, Tu promised that he would never disclose any of UCB's “secret or confidential information,” including a laundry list of items such as “designs, formulas, processes, . . . techniques, know how, improvements, [and] inventions.”  Tu's work was important to UCB: he helped formulate its cough syrup products, including Delsym, and had significant knowledge of its “Pennkinetic system” for controlled release of cough medication in liquid form. 

In 2001, Tu left UCB and started working for his friend Ketan Mehta at Tris Pharma.  Soon after, Tu and Tris Pharma began formulating generic versions of UCB’s cough syrups.  Six years later, Tris's competitive products were on the market, and UCB lost a lot of market share. 

UCB immediately went to court and sued Tu and Tris for misappropriation of trade secrets, breach of contract, and unfair competition.  It asked for a preliminary injunction -- a court order early in the lawsuit that would require Tris to stop using its trade secrets until the merits were finally decided.  After a five-day hearing focused on the misappropriation claim, the trial judge denied the injunction, maintaining the status quo for Tris.

Shortly after that win, Tu and Tris took the offensive in the litigation, moving for summary judgment.  At that point, UCB made a decision that would end up costing it later on: it voluntarily gave up its claim for misappropriation of trade secrets.  The trial court then granted Tu and Tris’s motion for summary judgment on the other claims, relying on its finding during the preliminary injunction phase that Tu and Mehta were credible when they testified that they didn’t misuse UCB’s confidential info.  UCB appealed.

• Breach of Contract
• Civil Litigation
• Confidentiality
• Summary Judgment
• Trade Secrets

Even in the pre-Labor Day lull, things still happen here at the Suits by Suits Global Operations Center in our Nation’s Capital.  This week, we welcomed a new panda cub at the National Zoo, and celebrated the 50th anniversary of the famous March on Washington for Civil Rights, which remembered Martin Luther King Jr.’s historic “I Have A Dream” speech. 

Things happened elsewhere in the broader world of disputes between executives, other employees and employers, too, including:

• The news anchor is still mad-as-h-e-double-hockey-sticks, and he’s not going to take it anymore:  We’ve covered the public and somewhat bitter dispute between TV newsman Larry Connors and his former employer KMOV-TV in St. Louis; now, Connors has sued the station for defamation.
• J. Edgar Hoover, please call your office: An FBI special agent alleges the bureau retaliated against him after he reported that two colleagues had “allegedly engaged in sexual misconduct in addition to a ‘clear pattern of fraud, waste and abuse over a period of years.’” 
• And another involving the FBI: Media giant Thomson Reuters is stridently rejecting a former employee’s argument that he was fired after he leaked information about alleged insider trading violations to the FBI.  The company’s motion to dismiss the suit also says the former employee doesn’t qualify as a whistleblower under Dodd-Frank.  Interesting fact about our modern trading exchanges: the case involves the disclosure of some economic data Thomson Reuters compiles to certain customers two seconds before others get it. 
• Maybe he tried to steal that nasty Mucinex guy: A cough syrup manufacturer lost its bid to reinstate claims for breach of contract and unfair competition against a former employee when a New Jersey appellate court affirmed the lower court’s dismissal of them.  The court ruled that the confidentiality provision in the manufacturer’s employment agreement was too broad to be enforceable under New York’s law, which applied to the dispute: “In sum, the confidentiality provision is unenforceable under New York law because it is overly restrictive in time and scope, does not further a legitimate business interest, is contrary to established public policy, and is unduly burdensome” to the employee.  No word on any other side effects.     
• Smashing a printer with a baseball bat may no longer be the real problem departing employees pose: “Half of all departing employees retain confidential company files following their termination,” concludes a study by Symantec reported here.  
• “No severance pay but still crazy rich”: That’s the headline on this CNNMoney article about retiring Microsoft executive Steve Ballmer, and it says it all.  The article explains that Microsoft doesn’t have retirement or severance for its executives, but Ballmer won’t be complaining too loudly: as the 22nd richest person in America, his Microsoft shares alone are worth over $11 billion.  

• Breach of Contract
• The Inbox
• Whistleblowers

The ongoing court drama between Marsh Supermarkets and Don Marsh, its former CEO, has taken another twist.  As we previously covered here, in February of this year, a jury in the U.S. District Court for the Southern District of Indiana found that Marsh, the son of the company's founder, defrauded the supermarket chain and breached his employment agreement by misusing company assets to pay for personal expenses.  It awarded Marsh Supermarkets $2,200,000 in damages.

Now, however, that damages award has effectively been zeroed out by the district court judge, who has found that Don Marsh is entitled to $2.1 million plus attorneys’ fees from the company based on a separate provision in his employment contract.  Order, Marsh Supermarkets, Inc. v. Marsh, No. 09-cv-00458 (S.D. Ind. Jul. 29, 2013).  The court accepted Marsh’s argument that the provision entitled him to payment come “hell or high water” – or fraud.

• Breach of Contract
• Executive Compensation
• Severance Agreements
• Termination With or Without Cause

Part fashion model, part beverage server, part charming host and hostess.  All impossibly lovely.  The sensational Borgata Babes are the new ambassadors of hospitality…On a scale of 1 to 10, elevens all.

Eyes, hair, smile, costumes so close to absolute perfection as perfection gets, Borgata Babes do look fabulous, no question.  But once you can breathe again, prepare to be taken to another level by the Borgata Babe attitude. The memory of their warm, inviting, upbeat personalities will remain with you long after the vision has faded from your dreams. 

-  Excerpt from a brochure recruiting candidates to work as “Borgata Babes,” serving drinks in the Borgata casino in Atlantic City, New Jersey.   

In our first post in this series, we looked at the facts of the case that 22 “Borgata Babes” brought against that Atlantic City, New Jersey casino.  In their suit, these woman alleged the casino’s enforcement of a weight requirement – no Borgata Babe (the vast majority of whom were women) could gain more than 7% of their weight while employed as “Costumed Beverage Servers” to ferry drinks to high-rollers – was applied in a way that violated New Jersey’s law barring gender discrimination, because female Babes who gained this amount of weight were disciplined or terminated while male Babes who gained weight allegedly were not.  

• Breach of Contract
• Discrimination