Intellectual Property Law

Judge Gants? Decision in NERA v. Evans

By Lee.Gesmer

One of the great benefits of the Suffolk Business Litigation Session (the BLS) is that the judges tend to write detailed opinions explaining their decisions. This is less true elsewhere in the Superior Court. Recently-retired Superior Court Judge Allen van Gestel created a tradition of written jurisprudence while he headed the BLS, and his successors are keeping up the tradition. While these decisions are not published in an official reporter, and they are not binding precedent in the strict legal sense, they are often made available on the Internet, on legal search engines such as Westlaw and in the unofficial Mass. Law Reporter. Therefore, attorneys and the public are informed on how the BLS judges see issues that come before them. And of course, any given judge is likely to be greatly influenced by a decision he or she has authored on a particular issue; there’s nothing better than citing a judge back to herself.

National Economic Research Associates, Inc. v. Evans, decided by Judge Gants in early September 2008, is illustrative of the work that the BLS judges put into these decisions.

In NERA v. Evans Judge Gants was asked to decide (on summary judgment) a claim that David Evans had violated a covenant not to compete with NERA, his former employer. The noncompete issues were decided under New York law (the choice of law specified in the contract), but a number of other non-contractual claims made by NERA were decided under Massachusetts law.

While Judge Gants’ detailed application of New York state law on the issue of the enforceability of a limited noncompete provision is of limited relevance (except in future cases where the BLS is required to apply New York law in this context), it is interesting to note that Judge Gants (who ruled that the case should proceed to a damages trial on NERA’s claim that Evans violated his noncompete contract) warned the parties that at trial, NERA would have to prove that the clients that followed Evans to his new job would have continued to have been clients of NERA had Evans stayed at NERA.

This is a somewhat difficult burden on NERA, since it requires NERA to prove a hypothetical.  It seems unlikely that former NERA clients will be willing or able to testify at trial to what they would have done had circumstances been different in the past.  Judge Gants’ ruling on this issue illustrates why noncompete cases (regardless of which state law applies) are usually won or lost at the outset of the case, when the former employer seeks a preliminary injunction prohibiting the former employee from working for the new employer. Once that stage of the case is over the plaintiff/former employer will rarely pursue damages (as NERA did here) given the difficulty of proving damages.

Apart from his ruling on the noncompete contract under New York law, Judge Gants entered some interesting rulings “off the contract” under Massachusetts tort law.

Ruling on NERA’s claim of tortious interference with contractual relations against the new employer, Judge Gants held that the alleged interference must be “improper in motive or means.” The injured party must prove “spiteful, malignant purpose unrelated to the corporate interest.” Since the former employer was unable to provide any evidence of this sort against NERA, this claim was dismissed.  While it seems that companies that hire an employee subject to a non-compete agreement are sued as a matter of course under this theory, Judge Gants’ decision shows how difficult it may be to establish liability.  One way in which this can be accomplished is to show that the new employer induced or encouraged the former employee to steal trade secrets or confidential information from the former employer, but conduct of that sort is somewhat rare.

NERA also claimed breach of fiduciary duty against the former employee, who had been an officer of NERA, and therefore owed a fiduciary duty to NERA. However, Evans had gone no farther than to “prepare” for competition before leaving NERA, and under the SJC’s Augat v. Aegis decision this claim also was dismissed. Interestingly, Judge Gants held that the fact that the de minimus use of NERA funds by Evans, and his occasional use of NERA’s phones and computer to negotiate his departure from NERA, “fell far short of a breach of fiduciary duty.”

Judge Gants dismissed the former employer’s rather bizarre claim (Judge Gants politely called it “clever”) that Evans had usurped a corporate opportunity belonging to NERA by negotiating his own departure from NERA. As Judge Gants stated, “If ones own employment were to be considered a corporate opportunity, then no officer of a corporation would be free to leave his employment unless he first offered ‘the opportunity’ of his services to his current employer and his employer rejected the opportunity.”

Lastly, Judge Gants dismissed NERA’s M.G.L. c. 93A claim against Evans’ new employer, holding that the inducement of a breach of an employment agreement alone, without improper motive or means, fell short of the type of “immoral, unethical, opppressive or unscrupulous” conduct necessary for a violation of Chapter 93A.

Full post as published by Mass Law Blog on October 14, 2008 (boomark / email).