T. S. Ellis, III, United States District Judge.
In this action for breach of contract, plaintiff, Update, Inc., alleges that its former employee, defendant Lawrence Samilow, breached the non-compete and non-solicitation clauses in his employment agreement. Plaintiff seeks a preliminary injunction pursuant to the non-solicitation and non-compete clauses of its contract with defendant, enjoining defendant from continuing to solicit its customers and to enforce the terms of the non-compete clause.
Plaintiff, a Delaware corporation with its principal place of business in New York, provides eDiscovery and legal staffing services throughout the United States.
Defendant, a New Jersey citizen, began working at plaintiff in 1995, and eventually, in 2016, was promoted to Chief Customer Officer, the company's top sales executive position. In that role, defendant was responsible for developing new sales opportunities and managing client relationships. Defendant was directly responsible for customer service for a number of New York and New Jersey clients. Defendant was also responsible for supervision of national sales, and therefore had access to client information across the country.
Approximately a year after defendant was promoted to Chief Customer Officer, plaintiff offered defendant a new compensation plan. In connection with the plan, defendant entered into an "Employee Nondisclosure and Assignment Agreement" (the Agreement) dated July 12, 2017. The Agreement contains a non-solicitation clause, which provides:
Agreement at § 12(a).
In addition to the non-solicitation clause, the Agreement also contains a non-compete clause which states:
Agreement at § 13.
On January 10, 2018, defendant resigned his employment at plaintiff.
Currently, defendant is providing services similar to those provided at plaintiff to two of plaintiff's clients: (i) Porzio, Bromberg & Newman, P.C. (Porzio), and (ii) Teligent, Inc. (Teligent). With respect to Porzio, defendant is providing legal staffing services similar to those provided by plaintiff in the past. And with respect to Teligent, defendant is alleged to have diverted a large project from plaintiff, and Teligent has informed plaintiff that it transferred its engagement to another vendor.
On April 20, 2018 plaintiff filed its verified complaint alleging that defendant was in breach of his Agreement (i) by soliciting plaintiff's customers Porzio, Teligent, and Lowenstein Sandler, and (ii) by engaging in similar services he provided to plaintiff within a 50-mile radius of plaintiff's New York headquarters. Plaintiff moved for a preliminary injunction the same day. An initial hearing on the motion for a preliminary injunction was held on Friday, May 11, 2018. Defendant filed a response brief before that hearing, making a number of arguments in opposition to the motion for a preliminary injunction, but at the May 11 hearing, his newly retained counsel made a number of new arguments. Following an additional round of briefing and argument, the matter is now ripe for disposition.
The standard for the issuance of a preliminary injunction is too well-settled to require extended discussion. A party seeking a preliminary injunction must demonstrate "that [it] is likely to succeed on the merits, that [it] is likely to suffer irreparable harm in the absence of preliminary relief, that the balance of equities tips in [its] favor, and that an injunction is in the public interest." Di Biase v. SPX Corp., 872 F.3d 224, 230 (4th Cir. 2017) (quoting Winter v. Natural Resources Defense Council, Inc., 555 U.S. 7, 20, 129 S.Ct. 365, 172 L.Ed.2d 249 (2008)).
With respect to likelihood of success on the merits, the Fourth Circuit has made clear that although the movant need not show a certainty of success, the movant must make a "clear showing" of likelihood of success on the merits. Pashby v. Delia, 709 F.3d 307, 320 (4th Cir. 2013). Analysis of each of these factors discloses that plaintiff has made the required showing for a preliminary injunction.
To begin with, plaintiff has made the requisite clear showing of likely success on the merits. The central issue with respect to likelihood of success on the merits is whether the non-solicitation and non-compete clauses of the Agreement are enforceable or unenforceable under Virginia Law.
Consistent with these principles, the Supreme Court of Virginia has established a three-part test for determining the enforceability of non-solicitation and non-compete clauses. This test "requires that the employer show that the clause (i) is narrowly drawn to protect the employer's legitimate business interest; (ii) is not unduly burdensome on the employee's ability to earn a living; and (iii) is not against sound public policy." Lanmark Technology, Inc. v. Canales, 454 F.Supp.2d 524, 528 (E.D. Va. 2006) (citing Richardson v. Paxton Co., 203 Va. 790,127 S.E.2d 113, 117 (1962)).
Importantly, courts employing this three-part test must take the non-compete as written; courts have no authority under Virginia law to "`blue pencil' or otherwise rewrite the contract" to eliminate illegal overbreadth. Pais v. Automation Products, 36 Va. Cir. 230, 239, 1995 WL 17049090 (1995). Thus, where a non-compete clause is ambiguous, susceptible to two or more differing interpretations, one of which is overbroad and unenforceable, the entire clause fails even though it may be reasonable as applied to the specific circumstances. Id. at 57-58. Still, the Supreme Court of Virginia has made clear that "restraints on competition are neither enforceable nor unenforceable in a factual vacuum" and as such "[a]n employer may prove a seemingly overbroad restraint to be reasonable under the particular circumstances of the case." Assurance Data, Inc. v. Malyevac, 286 Va. 137, 747 S.E.2d 804, 808 (2013). Accordingly, in interpreting a non-compete clause, courts are required to take into account the factual context surrounding the agreement.
The first step in the analysis is to assess whether the clause is narrowly drawn to protect plaintiff's legitimate business interest. See Richardson, 127 S.E.2d at 117. Plaintiff has a legitimate business interest in imposing a reasonable non-compete clause "to protect itself from losing potential work to competitors through employees who leave the company and then compete against [plaintiff] using the business sensitive knowledge and contacts they acquired" as an employee. See Power Distrib. v. Emergency Power Engineering, Inc., 569 F.Supp. 54, 57 (E.D. Va. 1983) (finding that employer had a legitimate business interest in protecting itself from competition by former employees who had gained sensitive information).
The legitimacy of the business interest does not end the analysis, because the non-solicitation and non-compete clauses must also be "reasonable in the sense that it is no greater than is necessary to protect" an employer's legitimate business interest. Richardson, 127 S.E.2d at 117. In determining whether the clauses are reasonable, courts must consider "the restriction in terms of function, geographic scope, and duration." Simmons, 544 S.E.2d at 678. The non-solicitation and non-compete clauses at issue here pass this test. There is no dispute that the one-year duration of the non-solicitation and non-compete clauses
The geographic scope of the non-solicitation and non-compete clauses is also reasonable. The Agreement bars solicitation of customers "located within fifty (50) miles of any office, branch office, or production facility" of plaintiff, and similarly bars competition "within fifty (50) miles of any office, branch office, or production facility[.]" Agreement at ¶¶ 12(a), 13. The Supreme Court of Virginia has upheld similar "fifty-mile from office" clauses as reasonable. See Advanced Marine Enterprises, Inc. v. PRC Inc., 256 Va. 106,501 S.E.2d 148, 155 (1998) (upholding a restriction limited to a fifty-mile radius around former employer's 300 offices).
Finally, the functional scope of the non-solicitation and non-compete clauses is reasonable in light of defendant's former role at plaintiff. The non-solicitation clause provides that defendant
Agreement at § 12(a). The Agreement's non-solicitation clause is limited to the two categories of solicitation which plaintiff might reasonably expect from defendant, namely solicitation of clients in geographic areas that would compete with plaintiff and solicitation of former clients with whom defendant worked. Furthermore, the non-solicitation clause is limited because it only bars defendant's solicitation "for the purpose of diverting or taking away business from [plaintiff]." Id. Thus, defendant's mere contact with former clients or possible customers of plaintiff's does not violate the non-solicitation clause. The Supreme Court of Virginia has upheld similar non-solicitation clauses as reasonable because the scope of the clause is limited only to solicitation that takes business away from the former employer. See Advanced Marine Enterprises, Inc., 501 S.E.2d at 155 (upholding as valid a non-solicitation clause that barred solicitation of customers with whom employee worked and customers within a fifty-mile radius of former employer). Accordingly, the non-solicitation clause is narrowly limited in scope to protect plaintiff's legitimate business
Similarly, the Agreement's non-compete clause has a functional scope entirely reasonable under the circumstances. This clause states in pertinent part "[defendant] will not ... compete with [plaintiff] by providing to another person or entity in competition with [plaintiff] ... the same or similar services as those that I provided to [plaintiff] during the term of my employment." Agreement at § 13. The non-compete clause goes on to define a person or entity in competition as a person or entity that "provides legal staffing, managed review, legal consulting, information governance, electronic data discovery and litigation support services" within fifty miles of plaintiff's offices. Id. Finally, the scope of the non-compete clause is further limited "to the types of activities and services included within [defendant's] Job Description described in [his] offer letter." Id. Thus, the non-compete clause does not prevent defendant from providing services to competitor companies provided those services fall outside the scope of defendant's former role at plaintiff.
Seeking to avoid this conclusion, defendant argues that the Agreement's non-solicitation and non-compete clauses are not narrowly tailored because the Agreement fails to define a number of terms in both clauses. Specifically, with respect to the non-solicitation clause defendant argues that the failure to define (i) "solicit," (ii) "customers," (iii) "office, branch office, or production facility," and (iv) "located" makes the clause functionally and geographically overbroad. With respect to the latter three terms — customers, office et al, and located — defendant cites no case or authority for the proposition that these terms must be defined in the Agreement for the Agreement to be enforceable or understandable. Under ordinary circumstances, Virginia law requires giving contract terms their "ordinary meaning," and doing so here suffices to make the non-solicitation clause not only easily understandable but also far from fatally ambiguous or vague. See TravCo Ins. Co. v. Ward, 284 Va. 547, 736 S.E.2d 321, 325 (2012) ("Words that the parties used are normally given their usual, ordinary, and popular meaning.") (quoting City of Chesapeake v. States Self-Insurers Risk Retention Group, Inc., 271 Va. 574, 628 S.E.2d 539, 541 (2006)). Indeed, as noted supra, the Supreme Court of Virginia has routinely upheld non-solicitation and non-competition agreements that do not define similar words. See, e.g., Advanced Marine Enterprises, Inc., 501 S.E.2d at 155. Accordingly, the failure of the Agreement to define every term in the non-solicitation clause does not render the clause ambiguous, and defendant's argument therefore fails.
With respect to the term "solicit," defendant cites only one case for the proposition that failure to define the term "solicit" might render a non-solicitation clause fatally ambiguous, namely Prudential Secs., Inc. v. Plunkett, 8 F.Supp.2d 514 (E.D. Va. 1998).
With respect to the non-compete clause, defendant makes the same argument, namely that failure to define a number of terms in the Agreement renders the non-compete overbroad and unenforceable. This time defendant's laundry list of undefined terms grows to include eleven supposedly undefined terms.
Defendant also argues that both the non-solicitation and non-compete clauses are fatally ambiguous due to misplaced modifiers. Specifically, the non-solicitation clause provides that defendant
Agreement at § 12(a) (emphasis added). According to defendant, it is unclear whether the modifier "for the purpose of diverting or taking away business from [plaintiff]" modifies only clause , contact during defendant's employment, or modifies both clause  — solicitation of customer and customer prospects within fifty-miles of plaintiff's offices — and clause  — plaintiff's solicitation of customers with whom defendant had contact while employed by plaintiff. According to defendant, this ambiguity is fatal to the Agreement because if the modifier applies only to clause , then clause  is overbroad because it would bar any solicitation of business by defendant, including solicitation of non-competing business. This argument is entirely unpersuasive.
Although the placement of the modifier at the end of the solicitation clause may be inartful, it is not ambiguous because
Moreover, a reading that applies the modifier to both clauses is the only reasonable interpretation given the context of the Agreement and defendant's employment. See Assurance Data, Inc. v. Malyevax, 286 Va. 137, 747 S.E.2d 804, 808 (2013) (noting that context is essential to the interpretation of non-compete clauses because "restraints on competition are neither enforceable nor unenforceable in a factual vacuum."). Defendant worked as the Chief Customer Officer at plaintiff. In this role, defendant personally provided services to a number of customers in New Jersey and New York. Defendant also supervised plaintiff's sales nationally, and as such he had access to information relating to plaintiff's customers throughout the country. Given the information defendant had access to, and the possible clients he might attempt to solicit, the interpretation of the non-solicitation clause that covers both groups of customers is the most reasonable. Clause  protects plaintiff from defendant's solicitation of customers with whom defendant did not work, and clause  protects plaintiff from defendant's solicitation of customers outside the fifty-mile geographic scope, but who defendant had worked with personally. In sum, the Agreement's non-solicitation clause, contrary to defendant's argument, is not reasonably susceptible to two readings,
Defendant next argues that the entire Agreement is invalid because of blue pencil clauses contained in § 13a of the Agreement. The clause provides that:
Agreement at § 13a. Although the Supreme Court of Virginia has not weighed in on the issue, multiple Virginia circuit courts have held that blue pencil clauses are invalid under Virginia law. Defendant attempts to take this argument a step further, citing language in BB & T Insurance Servs., Inc. v. Rutherfoord, 80 Va. Cir. 174, 2010 WL 7373709 (2010) and Pace v. Retirement Plan Administrative Serv., Inc., 74 Va. Cir. 201, 2007 WL 5971432 (2007) for the proposition that the addition of a blue pencil clause in a contract with a non-compete renders the entire contract invalid. This argument is ultimately unpersuasive. To begin with, it is not clear that the Virginia circuit court cases defendant cites stand for the proposition that the insertion of a blue pencil clause invalidates the entire agreement. In each case, the circuit courts first found that the non-compete itself was invalid, and then discussed the impact of the blue pencil clause. See Rutherfoord, 80 Va. Cir. at 5 ("[blue pencil] clauses have been deemed invalid and render the agreement unenforceable"); Pace, 74 Va. Cir. at 4 ("[blue pencil] clauses have been deemed invalid and render
Even if that were not the case, these statements amount merely to dicta. Indeed, the cases cited by those courts stand only for the proposition that blue pencil clauses are invalid under Virginia law. Better Living Components, Inc. v. Willard Coleman & Blue Ridge Truss & Supply, 67 Va. Cir. 221, 226, 2005 WL 771592 (Albemarle County Cir. Ct. 2005) ("Although the Supreme Court of Virginia has not expressly ruled on the existence of a "blue pencil" power, it is clear that that Court does not consider the possibility of reforming unreasonable restraints on trade in any way."); Cliff Simmons Roofing, Inc. v. Cash, 49 Va. Cir. 156, 158, 1999 WL 370247 (Rockingham County Cir. Ct. 1999) ("[T]his court has not been granted the authority to `blue pencil' or otherwise rewrite the contract, the covenants therefore fail.").
Finally, a rule of law that would strike an entire non-compete agreement because of the inclusion of an invalid blue pencil clause does not comport with common sense or sound public policy. Where, as here, there is no need to blue pencil the non-compete or non-solicitation clauses, it makes little sense to frustrate the parties' intentions to be bound by those clauses because a separate, inert blue pencil clause exists in the contract. Accordingly, defendant's argument that the blue pencil clause in § 13a of the Agreement invalidates the non-compete and non-solicitation clauses fails.
Lastly, defendant argues he was "forced" to sign the Agreement because defendant's increased salary was contingent on his accepting the non-compete and non-solicitation clauses. Samilow Decl. at ¶ 15. But the fact that a salary increase was contingent on acceptance of non-compete and non-solicitation clauses does not, on this record, support a claim of duress. See Goode v. Burke Town Plaza, Inc., 246 Va. 407, 436 S.E.2d 450, 452-53 (1993) ("the application of economic pressure by threatening to enforce a legal right is not a wrongful act [and] cannot constitute duress.") (citing Bond v. Crawford, 193 Va. 437, 69 S.E.2d 470, 475 (1952)). Rather, the increased compensation constituted consideration for the agreement not to compete, and Virginia courts have routinely upheld such arrangements. See, e.g., Paramount Terminate Control Co. v. Rector, 238 Va. 171, 380 S.E.2d 922, 926 (1989).
In sum, a review of the non-compete and non-solicitation clauses suggests that they are narrowly tailored to protect plaintiff's legitimate business interests, that the clauses are not unduly burdensome to defendant's ability to earn a living, and that the clauses do not violate public policy. Given the record in this case, it also appears that defendant is violating the non-solicitation clause by soliciting plaintiff's clients, Lowenstein Sandler, Porzio, and Teligent, and is violating the non-compete by diverting Porzio's and Teligent's business from plaintiff. Accordingly, at this stage plaintiff has made a clear showing of success on the merits.
With respect to irreparable harm, plaintiff contends that the loss of future business from customers diverted by defendant constitutes irreparable harm. Generally, irreparable harm "is suffered when monetary damages are difficult to ascertain or are inadequate." Multi-Channel TV Cable Co. v. Charlottesville Quality Cable Operating Co., 22 F.3d 546, 551 (4th Cir. 1994) (quoting Danielson v. Local 275, 479 F.2d 1033, 1037 (2d Cir. 1973)). Irreparable harm must be "neither remote nor speculative, but actual and imminent." Direx
In this case, the harm plaintiff faces is neither remote nor speculative. Plaintiff has presented evidence that defendant has already diverted customers from plaintiff and appears intent on continuing to do so through his Samilow Harvest Group business. Specifically, defendant has solicited and diverted business from plaintiff's clients that defendant serviced during his employment including Lowenstein, Porzio, and Teligent. See Pish Decl. ¶¶ 24-29, 30-31, 33-35. The harm plaintiff is suffering is therefore actual, particularly with respect to its project with Teligent which was diverted by defendant. Thus, plaintiff is suffering present harm from defendant's breach of the non-solicitation and non-compete.
Defendant argues that this kind of harm — the loss of customers — is not irreparable because money damages are reasonably easy to measure. According to defendant, damages can be measured by calculating the money earned from the diverted clients and deals, and simply awarding that amount as damages. Although it may be easy to calculate the amount of harm caused with respect to a single transaction between defendant and a client, the Fourth Circuit has repeatedly recognized that "[t]he threat of a permanent loss of customers and the potential loss of goodwill also support a finding of irreparable harm." Multi-Channel TV Cable Co., 22 F.3d at 552.
In the alternative, defendant argues that there is no harm to plaintiff because plaintiff abandoned the New Jersey and Philadelphia markets in which defendant is working and soliciting clients. Simply put, that does not appear to be true on this record. See Supp. Pish Decl at ¶¶ 8, 18, 19; Supp. Williams Decl. ¶¶ 4, 5, 12. Thus, defendant's argument that plaintiff is suffering no harm because plaintiff abandoned the market is without merit, and plaintiff has shown a risk of irreparable harm.
Finally, the balance of hardships and the public interest both weigh in favor of issuing an injunction on this record. Although it is undoubtedly true that subjecting defendant to the restrictive covenant may impair his ability to earn a living, plaintiff has an interest in protecting its customers from diversion pending resolution of the case. See Power Distrib., 569 F.Supp. at 57 (finding that an employer has a legitimate business interest in protecting itself from competition by former employees who possess sensitive information). And the public has an interest in protecting the legitimate expectations of parties to a contract, including non-compete agreements. To be sure, contracts in restraint of trade are generally disfavored under Virginia law as a matter of public policy. See Simmons, 544 S.E.2d at 678. But, Virginia law does encourage the enforcement of valid non-compete agreements, such as the one at issue here.
In sum, plaintiff in this case has made a clear showing that it is likely to succeed on the merits of its claim, and that the balance of hardships and public interest favor the issuance of an injunction. For these reasons, the motion for a preliminary injunction must be granted. To be clear, however, this injunction is only preliminary, it is not a final judgment on the merits of the case. The case will now proceed to discovery, and if warranted, trial. If during the course of discovery the parties discover additional facts demonstrating that the preliminary injunction is not necessary or must be altered, they are urged to file an appropriate motion.
An appropriate Order shall issue.