Higgins Benjamin PLLC is extremely pleased to announce that Fred Berry has joined as a partner of the Firm. Fred was previously with Barron & Berry. Fred represents plaintiffs and defendants in the areas of consumer fraud, business disputes, class actions, wrongful death, serious injury and will disputes. Fred’s experience includes serving as lead counsel in a number of consumer class actions. Fred’s approach to legal problems has resulted in significant court decisions that have changed and developed North Carolina law, particularly in the area of consumer protection.
Higgins Benjamin is pleased to announce that four (4) of its attorneys have been selected to the 2017 North Carolina Super Lawyers® List. Every year, Super Lawyers® recognizes attorneys who have distinguished themselves in their legal practice areas. Only five percent of all attorneys in a state are recognized as Super Lawyers®.
The four selected to the 2017 North Carolina Super Lawyers® list include:
- Gilbert (Bert) Andia, Jr. — Civil Litigation
- Kenneth J. Gumbiner — Business Litigation
- Jennifer Adams Ledford — Bankruptcy
- Jonathan Wall — Employment Litigation
The selections for this list are made by Super Lawyers, a Thomson Reuters owned rating service for lawyers from more than 70 practice areas. The annual selections are made using a rigorous multi‐phased process that includes a statewide survey of lawyers, an independent research evaluation of candidates, and peer reviews by practice area.
The Super Lawyers lists are published nationwide in Super Lawyers magazines and in leading city and regional magazines across the country. For more information about Super Lawyers, go to superlawyers.com.
Fourth Circuit’s RLM Communications, LLC v. Tuschen Tackles Noncompetition and Trade Secret Misappropriation Issues.
Noncompetition agreements (“non-competes”) present thorny issues. In most cases, you have a former employee who has signed a black-and-white contract prohibiting him or her from engaging in certain employment, and the employee goes and does the one thing that the contract specifically prohibits. Not that long ago, most judges would view the matter purely as a contract issue, and once an employee’s attorney admitted that yes, that was the client’s signature on the agreement, they did not want to hear much else, with visible disinterest giving way to agitation the longer the argument proceeded.
On rare occasions, if the employee could present special circumstances, the trial courts would do more than pay lip service to the maxims like “noncompetes are strongly disfavored in North Carolina.” Was the territory much more expansive than where the employee actually operated? Was this really a lower-level employee, with the noncompete designed to keep the employee hostage rather than protecting legitimate employer interests?
For the most part, however, it seemed that trial courts would not scrutinize too closely the many hurdles that can arise in noncompete cases. The North Carolina Business Court played a significant in role in changing the noncompete litigation landscape. In balanced, thoughtful opinions, the Business Court developed the law of noncompetes in an evenhanded fashion in several areas; for example, it issued opinions addressing the implications of mergers and acquisitions on the enforcement of noncompetes. See, e.g., Covenant Equip. Corp. v. Forklift Pro, Inc., 2008 NCBC 10, 2008 NCBC LEXIS 12 (Mecklenburg County Super. Ct. May 1, 2008) (asset-purchaser could enforce non-compete upon date of sale but not upon employee’s subsequent termination); Artistic S., Inc. v. Lund, 2015 NCBC 109, 2015 NCBC LEXIS 113 (Wake County Super. Ct. Dec. 9, 2015) (noncompetition obligation began to run on date of asset sale, not employee’s subsequent termination).
Fourth Circuit Enters Noncompetition Fray
Although federal courts are often utilized to enforce noncompetition agreements, they are hesitant to expound or expand the law in this area because it is grounded in state law. In RLM Communications, Inc. v. Tuschen, ___ F.3d ___, 2016 U.S. App LEXIS 13726 (4th Cir. July 28, 2016), however, the Fourth Circuit Court of Appeals significantly elaborated on North Carolina noncompetition and trade secrets law.
RLM Communications was in the cyber security/information technology business. In 2007, it hired Amy Tuschen. On her first day of work, Tuschen signed a noncompetition agreement stating that for one year after her employment she would not “directly or indirectly participate in a business that is similar to a business now or later operated by Employer in the same geographical area.” Id. at *8.
Tuschen rose in the ranks to Director of Information Assurance, with responsibilities that included oversight of large government contracts. In 2013, she quit and began working for eScience, a nearby competing federal contractor. Although initially it appeared the two would part amicably – with RLM providing gift cards and a “giant bouquet of roses” as parting gifts – RLM soon changed its tune.
It learned that Tuschen and eScience were attempting to land a large government contract serviced by RLM that was up for re-bidding. Not only that, Tuschen was contacting RLM employees to line them up in the event eScience successfully won the contract bid. RLM filed suit and quickly secured an injunction. The district court later, however, granted summary judgment in Tuschen’s favor, finding the agreement lacked adequate consideration. RLM Communications, Inc. v. Tuschen, 66 F. Supp.3d 681 (E.D.N.C. 2014).
On appeal, the Fourth Circuit focused on the overbroad nature of the restrictions. The court cited North Carolina cases holding that restrictions “must be no wider in scope than is necessary to protect the business of the employer.” Id. (citing Manpower, Inc. v. Hedgecock, 42 N.C. App. 515, 257 S.E.2d 109, 114 (1979). That means covenants cannot restrict employees from working in capacities unrelated to their previous jobs. Here, the restrictions were too broad:
Even ignoring for a moment the bar on indirect participation in similar businesses, the noncompete is overly broad by preventing direct participation in similar businesses. Tuschen is not merely prohibited from working for RLM competitors in a position like the one she held at RLM. She may also not mow their lawns, cater their lunch businesses, and serve as their realtor.
Id. at *9 (emphasis in original). The court goes on to outline various arrangements that would be prohibited by the noncompete, such as selling computer software for a business or investing her retirement accounts in mutual funds that owned a competing company.
The court also concluded that any attempt to “blue-pencil” the covenant would be futile. Citing the N.C. Supreme Court’s recent decision, Beverage Sys., LLC v. Associated Beverage Repair, LLC, 784 S.E.2d 457, 461 (N.C. 2016), the court noted that North Carolina adheres to the “strict blue pencil doctrine,” which while allowing the striking of distinct overly broad terms, prohibits re-writing covenants to make them enforceable.
Thus, the court found the noncompete overly broad and therefore unenforceable, affirming the district court’s grant of summary judgment in Tuschen’s favor.
Trade Secrets: Access and Suspicion Not Enough to Force Trial
The RLM decision is also remarkable for its holding on trade secret misappropriation. RLM alleged – and Tuschen admitted – that she had access to trade secrets while she was employed by RLM. Tuschen denied, however, that she used any of the information in her subsequent employment.
The court noted misappropriation requires that the user “[h]as a specific opportunity to acquire it for disclosure or use or has acquired, disclosed or used it without the express or implied consent or authority of the owner.” Id. at *15 (citing N.C. Gen. Stat. § 66-155). The court reasoned that the language was open to alternative interpretations. Applying one interpretation in a summary judgment context would allow an Employer to survive summary judgment just by showing it had given the employee access to trade secrets during the regular course of employment.
The court reasoned that such a literal interpretation would lead to absurd results. It also cited North Carolina cases indicating that something more is required before an employer can require an employee to stand trial for misappropriation. After analyzing various interpretations, it crafted a rule sufficient for the case before it: “When an employer brings a misappropriation claim against an employee, admitting that the employee had authorized access to its trade secrets at all relevant times, the employer must raise an inference of actual acquisition or use of trade secrets to survive summary judgment.” Id. at *23 (emphasis added).
Wholesale copying of files shortly before exiting the company or evidence of use of the trade secrets by a competing company might suffice to avoid summary judgment. But here, RLM had presented no “fishy circumstances” surrounding Tuschen’s departure, and no evidence of the trade secrets’ use in her new employer’s work. Thus, the court concluded, summary judgment had been properly granted to the former employee.
Jonathan Wall is a partner with Higgins Benjamin, PLLC,and a former Chair of the NCBA Labor & Employment Law Section. This item originally appeared in L3: Long Leaf Pine, the blog of the North Carolina Bar Association, at http://ncbarblog.com/2016/09/fourth-circuits-rlm-communications-llc-v-tuschen-tackles-noncompetition-and-trade-secret-misappropriation-issues/.
Our office has moved!
Our new street address is: 301 N. Elm Street, Suite 800, Greensboro, NC 27401
Phone number remains the same (336-273-1600), and website remains the same (www.greensborolaw.com)
We are on the 8th floor of the former US Trust Building. We are across N. Elm Street from the site of the Tanger Performing Arts Center.
Stop by and see our new digs!
N.C. Supreme Court Adheres to Strict Blue-Pencil Rule, Rejecting Role for Courts in Rewriting Clauses
The North Carolina Supreme Court rejected the notion that private parties can enlist the courts to re-write overly broad noncompetition provisions so that they can be enforced. Rejecting the lower court’s straying from the strict blue-pencil rule, Justice Edmunds reasoned that “[a]llowing litigants to assign to the court their drafting duties as parties to a contract would put the court in the role of a scrivener, making judges postulate new terms that the court hopes the parties would have agreed to be reasonable at the time the contract was executed or would find reasonable after the court rewrote the limitation. We see nothing but mischief in allowing such a procedure.” Beverage Systems, LLC v. Associated Beverage Repair, LLC, ___ N.C. ___, ___ S.E.2d ___, No. 2016 N.C. LEXIS 177 (March 18, 2016) (emphasis added).
Beverage Systems involved a non-compete provision in a sale-of-a-business context. In partial consideration to the sale of a business, the seller covenanted not to operate a competing business in the states of North and South Carolina. Evidence indicated that the seller and buyer, however, conducted operations in only a few counties in South Carolina and less than half of the counties in North Carolina. The agreement also provided that if the noncompetition territory were found to be overbroad, the court could re-write the agreement to make it enforceable. The trial court found the territory overbroad and refused to enforce it.
The Court of Appeals reversed and held that North Carolina’s “strict blue pencil rule” did not apply because the contract provision imbued the court with authority to re-write the territory. The strict blue pencil rule allows a court to strike through overbroad restrictions and enforce the remaining reasonable provisions, but it does not permit the court to rewrite provisions. The appellate court reversed and remanded to the trial court with instructions to “to revise the territorial area of the noncompete to [make it enforceable].”
As noted, the Supreme Court rejected that approach. It cited long-standing case law holding that courts are without power to vary or reform private parties’ agreements. “Parties cannot contract to give the court power that it does not have,” the Court observed, before concluding that the contract was unenforceable and could not be saved by the Court.
Now that the N.C. Supreme Court has acted to reign in the proliferation of noncompetition agreements, perhaps it is time for the legislature to act as well.
There is a misperception that noncompetition agreements are “good for business.” Most executives actually hiring talent, however, believe the opposite, as noncompetes serve to strangle the labor market and squelch innovation and entrepreneurship. Thus, much of Silicon Valley’s success is attributed to California’s ban on noncompetition agreements altogether. Other tech-savvy regions, like Boston, Washington State, and Utah have been attempting to reign in noncompetition restrictions, hoping to spur more entrepreneurial growth.
Our legislature could boost Research Triangle industries and the Triad’s nanotechnology and bio-sciences sectors in attracting new businesses with some simple restrictions on noncompetition provisions, like limiting their duration and providing an “earnings floor” below which they would not be enforced. See On Amir & Orly Lobel, Driving Performance: A Growth Theory of Noncompete Law, 16 Stanford Tech. L. Rev. No. 3, p. 833 at 846, 857-62, 865-66 (2013) (reviewing research outlining negative effects of noncompetition agreements on labor market, job creation, and the economy).
If you would like to discuss an issue involving Noncompetition Agreements or Trade Secrets, contact Jon Wall at (336) 273-1600, ext. 134, or firstname.lastname@example.org.
Stephen E. Robertson, partner with Higgins Benjamin, has been elected by the members of the 18th Judicial District to serve as one of the 18th Judicial District Bar Councilors serving Greensboro and High Point lawyers.
Two lawyers from Higgins Benjamin were named by Business North Carolina magazine as the Legal Elite in their individual field of legal practice. Jonathan Wall was selected as Legal Elite in Employment Law; Bert Andia was selected as Legal Elite in Intellectual Property Law.
Business North Carolina magazine asks lawyers to nominate their peers that they think are the state’s best practitioners in their field. Ballots were made available to more than 20,000 North Carolina lawyers. The lawyers receiving the most votes, approximately 3% of the lawyers, were selected as Legal Elite for 2016.
Business North Carolina magazine asks lawyers to nominate their peers that they think are the state’s best practitioners in their field. Ballots were made available to more than 20,000 North Carolina lawyers. Those receiving the most votes make up the legal elite. Approximately 3% were selected as Elite for 2015.
Bert Andia represented Caveators in a proceeding designed to find a codicil to a will as being invalid due to lack of the testator’s mental capacity. The evidence established that the testator was hospitalized in a mental in-patient facility undergoing electro-convulsive therapy for a serious mental illness. The testator was removed from the in-patient facility by her attorney-in-fact, and taken to a lawyer’s office to sign a codicil. The lawyer was not informed of the testator’s medical situation or diagnosis. The Caveators presented an expert witness who testified to the testator’s lack of testamentary capacity. The jury’s verdict for the Caveators meant that the Caveators were forgiven of a debt of over $500,000 by the time of trial.
As a landlord, taking a tenant to court can be a confusing and daunting process. A common reason landlords take tenants to court is when tenants default on leases by not paying rent. North Carolina law, specifically N.C. General Statute Chapter 42, provides a detailed, multi-step process for these types of cases in North Carolina. The law spells out what must be done to legally remove residential tenants in North Carolina and prohibits landlords from using self-help.
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