ADP, LLC v. LYNCH

Filing 173

OPINION. Signed by Judge William J. Martini on 4/2/19. (gh, )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY

Civ. No. 2:16-01053

ADP, LLC,
Plaintiff,
v.
JORDAN LYNCH,
Defendant.

Civ. No. 2:16-01111

ADP, LLC,
Plaintiff,

OPINION

v.
JOHN HALPIN,
Defendant.

THIS MATTER comes before the Court upon an order requiring Plaintiff ADP,
LLC (“ADP”) to show cause why the Court should not lift a preliminary injunction
enjoining former ADP salesmen, Defendants Jordan Lynch and John Halpin
(“Defendants”), from engaging in certain conduct pursuant to several restrictive covenants
found in their employment agreements with ADP. The Court entered the preliminary
injunction on June 30, 2016, ECF No. [31], and previously denied requests by Defendants
to lift the injunction over its nearly three-year tenure. See ECF No. [166], [122], [106].
[85], [52]. Now, with the cases stayed pending direction in related matters currently before
the Third Circuit, the Court revisits the preliminary injunction. See ECF No. [165].

Also before the Court is ADP’s motion for sanctions, ECF No. [171], filed on March
25, 2019, alleging violations of the preliminary injunction by Defendant Halpin. For the
reasons set forth below, the Court LIFTS the preliminary injunction as to both Defendant
Lynch and Defendant Halpin and DENIES the motion for sanctions.
I.

PROCEDURAL HISTORY

The Court assumes the parties’ familiarity with this case and writes only for their
benefit. On March 13, 2019, this Court entered an order staying four motions for summary
judgment, ECF Nos. [148], [149], [150], & [151], pending decision in two related cases
which are fully briefed and argued before the Third Circuit, ADP, LLC v. Rafferty (Case
No. 18-1796) and ADP, LLC v. Mork (Case No. 18-2603). In that Order, the Court also
requested briefing on two specific issues in these consolidated cases related to the ongoing
preliminary injunction:
1. Whether the tolling provision as applied in this case
continues to comply New Jersey law; and
2. Whether the one-year restrictive covenant has expired as to
either Defendant.
ADP submitted a brief in support of continuing the preliminary injunction, ECF No.
[168], and Defendants submitted briefs in opposition, ECF Nos. [169] and [170]. On
March 25, 2019, ADP moved for sanctions against Defendant Halpin based on an alleged
violation of the preliminary injunction on October 18, 2018. ECF No. [171]. The Court
heard oral argument on the order to show cause on March 28, 2019 and stayed briefing on
the sanctions motion pending this opinion and its accompanying order.
II.

ARGUMENTS OF THE PARTIES

ADP concedes that the preliminary injunction should be lifted against Defendant
Lynch. ECF No. [168] at 1. As to Defendant Halpin, ADP argues that the preliminary
injunction should continue because ADP has not received the “full benefit of the terms
Halpin agreed to when he accepted awards of restricted stock” and that it has not yet
received “full 12-month compliance by Halpin.” Id. at 1-2.
In addressing the first question posed by the Court, ADP argues both in its brief and
at oral argument that tolling provisions are enforceable under New Jersey state law during
that time which Defendants are in violation of the restrictive covenants. ADP points the
Court to two cases where courts ordered a one- or two-year restrictive covenant period to
begin running after summary judgment where the defendant had continuously violated
those covenants during the pendency of the litigation. See ECF No. [168] at 3-5 (citing
ADP, LLC v. Manchir, No. M201602541COAR3CV, 2017 WL 5185458, at *8 (Tenn. Ct.
App. Nov. 8, 2017) (where defendant had never complied with the restrictive covenants
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for the one-year period and no order enjoining violation was ever sought, finding that
“requiring Manchir to adhere to the [a]greement for its prescribed duration . . . is a
reasonable remedy”); Jackson Hewitt Inc. v. Childress, No. CIVA 06-CV-0909 DMC,
2008 WL 834386, at *10 (D.N.J. Mar. 27, 2008) (finding plaintiff “is entitled to injunctive
relief for a period of twenty-four months beginning from the date of [d]efendant’s
compliance with the covenant not to compete”).
As to the second question, ADP makes two arguments—without citing to any
authority—that the one-year restrictive covenant has not expired as to Halpin. First, it
argues that “Halpin has continued his employment with ADP competitor [Ultimate], in a
territory that includes his former ADP territory . . . .”, which ADP argues violates the
preliminary injunction and/or the restrictive covenants.
Second, ADP argues that Halpin has continued to violate the injunction by soliciting
ADP clients. In support, ADP points to a communication between Halpin and an ADP
client on October 18, 2018. ADP concedes that it has no evidence of any violations
between June 2017 and October 2018, but argues that there could have been violations
during that time which would preclude expiration of the one-year restrictive covenant.
Halpin and Lynch filed individual briefs in response. ECF Nos. [169], [170].
Defendants argue that enforcing the one-year restrictive covenants more than three years
since Defendants left ADP in December 2015 has given ADP “more than it bargained for”
under the restrictive covenants. See ECF No. [170] at 2. Although not responsive to the
precise questions posed by the Court, Defendants also argue that the preliminary injunction
generally does not comport with New Jersey law and note the split of authority in this
District and in New Jersey state courts related to the enforceability of the restrictive
covenants. Finally, Defendants argue that law in this district does not generally support
equitable tolling of the restrictive covenants given their disfavor, and that courts toll such
provisions only where the violation was continuous during the pendency of the litigation.
See The Cmty. Hosp. Grp., Inc. v. More, 183 N.J. 36, 41 (2005) (finding, under the
plaintiff’s interpretation of the non-compete period, the period had run and no extension
was appropriate); Vanguard Dealer Servs., LLC v. Scarano, No. A-2306-08T1, 2010 WL
3419256, at *7 (N.J. Super. Ct. App. Div. Aug. 24, 2010) (finding trial court’s refusal to
extend a restrictive covenant appropriate).
III.

ANALYSIS

Although the parties argue for somewhat nuanced interpretation of restrictive
covenant and the applicability of equitable tolling to such covenants, at this juncture the
Court, even assuming the covenants and tolling provisions are enforceable, need only look
to the contractual language and timeline of alleged violations to find that ADP’s
enforceable interest has expired.

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First, and as noted above, ADP concedes in its brief that the preliminary injunction
should no longer continue against Defendant Lynch because over a year has passed since
Lynch left ADP and Lynch never violated the preliminary injunction. The Court agrees
and LIFTS the preliminary injunction AS TO DEFENDANT LYNCH.
Second, the parties disagree whether the preliminary injunction should be lifted as
to Defendant Halpin. As the parties are aware, this case alleges that Defendants breached
certain restrictive covenants contained in several employment agreements. Halpin left
ADP on December 23, 2015, and began work at ADP’s competitor, Ultimate, a few days
thereafter. Based on the record before the Court, from January 2016 to June 2017,
Defendant Halpin solicited several ADP clients.
On June 30, 2016, the Court entered a preliminary injunction enforcing in part the
restrictive covenants found in the employment agreements. The restrictive covenants are
contractually limited to one year, subject to tolling. Specifically, the Court enjoined
Defendants from (1) using or disclosing any of ADP’s proprietary information; (2)
soliciting ADP’s current clients, vendors, employees, or partners; (3) soliciting ADP’s
prospective clients but only to the extent that Defendants gained knowledge of those
prospective clients through their employment with ADP. ECF No. [31]. The Court
specifically declined to enjoin Defendant’s employment at Ultimate. Id. Upon ADP’s
motion, the Court found in April 2018 that some of Halpin’s contacts with ADP clients
from July 2016 to June 2017 violated the preliminary injunction. ECF No. [133].
ADP argues that the injunction should continue and that the Court should sanction
Halpin for his contact with an ADP client in October 2018. The Court addresses each
argument in turn.
The agreements in question contain a tolling provision which states:
12. Tolling. The restricted time periods in paragraphs three (3)
through six (6) above shall be tolled during any time period
that I am in violation of such covenants, as determined by a
court of competition jurisdiction, so that ADP may realize the
full benefit of its bargain. This tolling shall include any time
period during which litigation is pending, but during which I
have continued to violate such protective covenants and a
court has declined to enjoin such conduct or I have failed to
comply with any such injunction.
See ECF No. [168] at 3-4 (emphasis added).
First, ADP argues that Halpin has continued to violate the preliminary injunction
and/or the restrictive covenants by working at Ultimate, thereby tolling any one-year

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period. The Court finds this argument unavailing. Both Defendants Lynch and Halpin
have worked at Ultimate since 2016, and ADP states that “ADP is not aware of any conduct
[by Lynch] that violates the Preliminary Injunction since it was issued on June 30, 2016.”
ECF No. [168] at 1. ADP concedes that the one-year restrictive covenant is not tolled as
to Lynch based on solely his work for Ultimate, and the Court finds that the same reasoning
applies to Defendant Halpin. Moreover, the Court never enjoined either Defendant from
working at Ultimate, and Halpin’s continued employment there—without more—does not
violate the preliminary injunction nor trigger the tolling provision.
As to Halpin’s solicitation of ADP clients from January 2016 to June 2017, even if
the Court were to ultimately find that the covenants and their tolling provisions are
enforceable, the Court reads the tolling provision to not toll indefinitely the one year period
during all litigation, but rather, to toll the one year period “during any time period that
[Halpin] is in violation of such covenants as determined by a court of competent
jurisdiction” and the “court of competent jurisdiction” makes a finding that he is in
violation but declines to enjoin such conduct or does in fact enjoin such conduct. While
the Court did sanction Halpin for conduct which occurred, at the latest, in June 2017, there
is no evidence in the record that Halpin solicited any ADP clients between July 1, 2017
and October 17, 2018, a period of more than one year. Accordingly, ADP has received the
benefit of its bargain as to the one-year restrictive covenants and there is nothing left for
the Court to enforce or enjoin. The Court therefore LIFTS the preliminary injunction AS
TO DEFENDANT HALPIN.
Finally, Plaintiff’s motion for sanctions must be DENIED. Even with the benefit
of tolling, the conduct complained of by ADP occurred after the one-year period expired.
ADP has no enforceable right under the restrictive covenants for conduct occurring after
its expiration, and the Court declines to impose sanctions for an alleged violation after such
expiration.
IV.

CONCLUSION

For the reasons set forth above, the preliminary injunction is LIFTED and
Plaintiff’s motion for sanctions is DENIED. An appropriate order follows.

Dated: April 2, 2019
/s/ William J. Martini
WILLIAM J. MARTINI, U.S.D.J.

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