Update, Inc. v. Samilow
Filing
23
MEMORANDUM OPINION. Signed by District Judge T. S. Ellis, III on 05/17/2018. (dvanm, )
IN THE UNITED STATES DISTRICT COURT FOR THE
EASTERN DISTRICT OF VIRGINIA
Alexandria Division
UPDATE, INC.,
Plaintiff,
)
)
)
)
)
)
)
v.
LAWRENCE SAMILOW
Defendant.
,
Civil Action No. 1:18cv462
MEMORANDUM OPINION
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 nonsolicitation 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.
I.
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
1
an “Employee Nondisclosure and Assignment Agreement” (the Agreement) dated July 12, 2017.
The Agreement contains a non-solicitation clause, which provides:
I acknowledge that information about [plaintiff’s] customers and customer
prospects is confidential competitive information and constitutes a valuable trade
secret. Accordingly, I agree that during the term of this agreement and for a
period of one (1) year after my employment ends, I will not, either directly or
indirectly, separately or in association with others, solicit or encourage others to
solicit any of [plaintiff’s] customers or customer prospects located within fifty
(50) miles of any office, branch office, or production facility of the [plaintiff] or
with whom I had any contact during the term of my employment for the purpose
of diverting or taking away business from [plaintiff].
Agreement at § 12(a).
In addition to the non-solicitation clause, the Agreement also contains a non-compete
clause which states:
I agree that during the term of my employment with Company, and for one (1)
year after my employment ends for any reason, I will not directly or indirectly
compete with Company by providing to another person or entity in competition
with Company (defined below) the same or similar services as those that I
provided to the Company during the term of my employment with Company. For
purposes of this agreement, a person or entity is in competition with the Company
if it provides legal staffing, managed review, legal consulting, information
governance, electronic data discovery and litigation support services within fifty
(50) miles of any office, branch office, or production facility of the Company,
with the exception of any person or entity listed below as a “Prior Relationship”.
This covenant not to compete is limited to the types of activities and services
included within my Job Description described in my offer letter.
Agreement at § 13.
On January 10, 2018, defendant resigned his employment at plaintiff. 1 At approximately
the same time as his resignation, Driven, Inc. had acquired Update, Inc., and defendant proposed
to Driven moving all legal staffing and eDiscovery clients defendant had been servicing to
defendant’s soon to be formed consulting practice. That proposal was rejected.
1
Defendant’s pleading states that defendant was terminated. Whether defendant resigned or was terminated is not
material to the preliminary injunction analysis, as the validity of the Agreement’s non-solicitation and non-compete
clauses is not affected by whether he was discharged or resigned.
2
On January 11, 2018 defendant contacted a law firm, Lowenstein Sandler LLP, a client
with which defendant had worked during his employment, to solicit business. In January,
defendant also formed Samilow Harvest Group LLC, a new company headquartered in Roseland,
New Jersey, within 50 miles of plaintiff’s New York headquarters. Samilow Harvest Group’s
website states that it provides eDiscovery services similar to those provided by 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. 2
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.
II.
The standard for the issuance of a preliminary injunction is too well-settled to require
2
Plaintiff has also presented evidence that defendant intends to act as the “presenting sponsor” at the upcoming New
Jersey General Counsel of the Year Award event to be held on Friday, May 18, 2018. According to plaintiff,
defendant’s role in that event will allow him to present his competing services to other possible clients.
3
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 Resource Defense Council, Inc., 555 U.S. 7, 20 (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.
A.
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 nonsolicitation and non-compete clauses of the Agreement are enforceable or unenforceable under
Virginia Law. 3
In Virginia, non-compete clauses are disfavored restraints on trade.
See
Simmons v. Miller, 544 S.E.2d 666, 678 (Va. 2001). Given this disfavored status, non-compete
clauses “have been upheld only when employees are prohibited from competing directly with the
former employer or through employment with a direct competitor.” Omniplex World Servs.
Corp. v. U.S. Investigations Servs. Inc., 618 S.E.2d 340, 342 (Va .2005).
Consistent with these principles, the Supreme Court of Virginia has established a threepart test for determining the enforceability of non-solicitation and non-compete clauses. This
3
Despite the fact that plaintiff and defendant are both out-of-state residents and the events leading to this dispute
occurred outside Virginia, Virginia law nevertheless governs pursuant to § 19 of the parties’ Agreement. The
Agreement also designates Virginia’s state and federal courts as the exclusive fora for deciding any disputes under
the Agreement. Id.
4
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., 127 S.E.2d
113, 117 (Va. 1962)). 4 Analysis of these factors requires courts to consider “the restriction in
terms of function, geographic scope, and duration.” Simmons, 544 S.E.2d at 678.
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).
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, 747 S.E.2d 804, 808 (Va. 2013). Accordingly, in interpreting a noncompete 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
4
See also Assurance Data, Inc. v. Malyevac, 286 Va. 13 7, 144 (2013) (holding that enforceability of a non-compete
agreement depends on “whether a restraint is [1] narrowly tailored drawn to protect the employer's legitimate
business interest, [2] is not unduly burdensome on the employee’s ability to earn a living, and [3] is not against
public policy.”) (citations omitted).
5
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). 5 The Agreement’s
non-solicitation clause serves the same purpose, namely, preventing a former employee from
using contacts acquired as an employee to compete with a former employer.
The legitimacy of the business interest does not end the analysis, because the nonsolicitation 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 nonsolicitation and non-compete clauses at issue here pass this test. There is no dispute that the oneyear duration of the non-solicitation and non-compete clauses 6 is reasonable.
Indeed, the
Supreme Court of Virginia has deemed reasonable even longer non-compete agreements. See
Blue Ridge Anesthesia, 389 S.E.2d at 470 (upholding a three year non-compete). 7 In this
context, a one-year duration for the non-solicitation and non-compete agreement is reasonable
because plaintiff invests significant resources in its legal services clients and built relationships
5
See also Worrie v. Boze, 62 S.E.2d 876, 882 (Va. 1951) (“Freedom to contract must not be unreasonably abridged,
but neither must the right to protect by reasonable restrictions that which a man by industry, skill, and good
judgment has built up, be denied.”); Blue Ridge Anesthesia & Critical Care, Inc. v. Gidick, 389 S.E.2d 467, 469 (Va.
1990) (holding that a company has a legitimate business interest in barring employee-competitor’s use of customer
contacts); Roanoake Eng’g Sales Co. v. Rosenbaum, 290 S.E.2d 882, 885 (Va. 1982) (holding that a company has a
legitimate business interest in preventing the use of “lists of customers, lists of suppliers, detailed knowledge of
overhead factors, pricing policies, and bidding techniques” by employee-competitor).
6
See Agreement at ¶¶ 12(a), 13.
7
See also Roanoke Eng’g, 290 S.E.2d at 885 (three years); Hair Club for Men, LLC v. Ehson, 2016 WL 4577019, at
*5-6 (E.D. Va. Aug. 31 2016) (two years).
6
with many of them through defendant’s work on behalf of plaintiff. Pish Decl. at ¶¶ 7-8, 16.
Therefore, the one-year limitation allows plaintiff a reasonable time to convince customers to
remain with plaintiff without interference from defendant.
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., 501 S.E.2d 148, 155 (Va. 1998) (upholding a
restriction limited to a fifty-mile radius around former employer’s 300 offices). 8 Indeed, where,
as here, the employee has company-wide knowledge about customers and sales practices, the
Supreme Court of Virginia has upheld even less definite geographic restrictions. In Roanoke
Eng’g, the Supreme Court of Virginia held that a non-compete geographic clause that referred to
all “territory covered by” the former employee was reasonable because the employee had
company-wide knowledge that would allow him to compete with his former employer nationally.
See Roanoke Eng’g, 290 S.E.2d at 884-85. 9 Here, defendant was employed as Chief Customer
Officer, and in that role provided personal customer service to New York and New Jersey
customers, and was informed about customer information spanning the entire reach of plaintiff’s
business locations. Pish Decl. ¶¶ 12, 14-15, 17. 10 Additionally, defendant admits that at his
8
See also New River Media Group, Inc. v. Knighton, 429 S.E.2d 25, 26 (Va. 1993) (holding that a “60-mile, 12month limit is not unduly harsh and oppressive in diminishing [the employee’s] legitimate efforts to earn a living.”).
9
See also Blue Ridge Anesthesia, 389 S.E.2d at 884-85 (upholding a similar covenant limited to territories serviced
by former employee).
10
Defendant argues that plaintiff abandoned the markets in which defendant is now working, and that the
geographic scope of the non-compete is therefore not narrowly tailored. The record evidence, at this stage,
demonstrates that plaintiff has not abandoned the New Jersey and Philadelphia markets. Declarations from plaintiff
7
recently established competing company, Samilow Harvest Group, he “has a national practice[.]”
Compl. Ex. B.
Accordingly, the Agreement’s non-solicitation and non-compete clauses’
geographic scope is reasonable because it covers only the territories in which plaintiff conducts
business and in which defendant conducted business. 11
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
will not . . . solicit any of [plaintiff’s] customers or customer prospects within
fifty (50) miles of any office, branch office, or production facility of [plaintiff] or
with whom I had any contact during the term of my employment for the purpose
of diverting or taking away business from [plaintiff]
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
suggest that plaintiff continues to do a significant amount of business in New Jersey and Philadelphia, amounting to
millions in revenue. See Supp. Pish Decl. at ¶¶ 8-10, 12-13, 15; Supp. Williams Decl. at ¶¶ 3-9; Grant Decl. at ¶ 9.
Defendant points out that plaintiff closed its office space in Newark, New Jersey, but as plaintiff explains this did
not mean that plaintiff stopped working with customers in New Jersey. Supp. Pish Decl. at ¶¶ 10, 12. Defendant
also argues that plaintiff does not provide office space for clients in New Jersey, a service defendant provides, but
plaintiff still provides this service in its New York office to its New Jersey customers. Thus, the evidence
demonstrates that plaintiff still does substantial business in New Jersey and Philadelphia, and the geographic scope
of the non-compete does not appear to be unreasonable.
11
The non-solicitation clause also covers customers with whom defendant worked directly. See Agreement at
¶ 12(a) (“I will not solicit . . . or encourage others to solicit any of [plaintiff’s] customers . . . with whom I had any
contact during the term of my employment . . .”). As explained supra, the Supreme Court of Virginia has routinely
upheld non-competition and non-solicitation provisions that cover past clients with whom the employee had direct
contact. See supra n. 9. See also Preferred Systems Solutions, Inc. v. GP Consulting, LLC, 284 Va. 382, 394 (Va.
2012) (“The lack of a specific geographic limitation is not fatal to the covenant because the noncompete clause is so
narrowly drawn to this particular project and the handful of companies in direct competition . . .”)
8
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 interests, and is not unduly burdensome on the defendant’s
ability to earn a living.
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
9
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, 736 S.E.2d 321, 325 (Va. 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., 628 S.E.2d 539,
541 (Va. 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). 12 This case is
ultimately neither controlling nor persuasive. The court in Plunkett addressed the validity of a
non-solicitation clause governed by New York law, not Virginia law. Id. at 516. And although
there is some authority in New York law for the proposition that failure to define “solicit” in a
12
Defendant also cites Summer Wealth Mgmt., LLC v. Investment Placement Group, 2016 WL 150387 at *2-3 (E.D.
Va. 2016), but that case simply noted that although the agreement at issue did not define the term solicit, the
meaning was readily discernible by looking to the ordinary meaning of the word as required by Virginia law. Id. at
*2 (“The parties have merely obligated themselves to refrain from ‘solicit[ing]’ . . . anyone presently employed by
the other party. . . . ‘The plain meaning of the word ‘solicit’ requires the initiation of contact.’”) (quoting Mona Elec.
Group, Inc. v. Truland Serv. Corp., 56 Fed. Appx. 108, 110 (4th Cir. 2003)). Although the district court denied
plaintiff’s motion for a temporary restraining order, it did so on the ground that plaintiff had failed to present
evidence showing that defendant had taken affirmative steps to solicit employees. Id. at *2-3. Unlike the plaintiff in
Summer Wealth Mgmt., LLC, plaintiff here has provided substantial evidence that defendant has made efforts to
solicit clients and divert customer work from plaintiff.
10
non-solicitation agreement might render the clause unenforceable, there is no Virginia authority
supporting such a contention. Indeed, the Supreme Court of Virginia has repeatedly upheld nonsolicitation agreements which do not define “solicit.” See, e.g., Advanced Marine Enterprises,
Inc., 501 S.E.2d at 155. Thus, the Plunkett case is inapposite, and relevant Virginia precedents
make clear that the failure to define the term “solicit” in a non-solicitation clause does not render
the clause vague and unenforceable.
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. 13 As with the non-solicitation clause, these terms are not
ambiguous and no ambiguity is created by the failure of the Agreement to provide a glossary or
serve as a dictionary; Virginia law makes clear that where terms are undefined they are to be
given their ordinary meaning. See Ward, 736 S.E.2d at 325. To hold otherwise would require
every contract to include a contract-specific glossary or dictionary. Rather, Virginia law requires
that terms be given their ordinary meaning which in this case eliminates any ambiguity or lack of
clarity.
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
will not . . . solicit any of [plaintiff’s] customers or customer prospects [Clause
1] within fifty (50) miles of any office, branch office, or production facility of
[plaintiff] or [Clause 2] with whom I had any contact during the term of my
13
According to defendant, the following terms in the Agreement are undefined: (i) compete, (ii) providing, (iii)
similar services, (iv) similar, (v) services, (vi) provides, (vii) legal consulting, (viii) information governance, (ix)
services within, (x) office, branch office, production facility, and (xi) types of activities or services. Defendant’s
double-counting of terms such as “providing” and “provides,” however, makes the list appear more dramatic than it
is on closer inspection. In any event, defendant’s attempt to invent ambiguity where none exists fails.
11
employment [modifier] for the purpose of diverting or taking away business
from [plaintiff]
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 [2], contact during defendant’s employment, or modifies both clause [1] – solicitation of
customer and customer prospects within fifty-miles of plaintiff’s offices – and clause [2] –
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 [2], then clause [1] 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 defendant’s interpretation of the clause is not reasonable. If
defendant’s interpretation is accepted, clause [2] bars defendant’s solicitation of customers
defendant had already solicited during his employment for the purpose of taking away business
from his employer. Thus, under defendant’s interpretation, clause [2] is exceedingly narrow,
barring only defendant’s efforts to re-solicit clients he already solicited during his employment.
It is also unclear why the non-solicitation clause would even bother to cover this scenario, since
defendant presumably would not be contacting clients for the purpose of diverting or taking
business from plaintiff while defendant was employed by plaintiff. Defendant’s reading makes
little sense, as it would cover a scenario unlikely to arise, and Virginia law requires that “an
unreasonable construction is always to be avoided.” Hairston v. Hill, 87 S.E. 573, 575 (1916). 14
14
See also Gov’t Employees Ins. Co. v. Moore, 580 S.E.2d 823, 829 (Va. 2003) (“the construction adopted should be
reasonable, and absurd results are to be avoided.”); Allemong v. Augusta Nat. Bank, 48 S.E. 897, 899 (Va. 1904)
(“The words of a contract will be given a reasonable construction, where it is possible, rather than an unreasonable
12
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, 747 S.E.2d 804, 808 (Va. 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 [1] protects plaintiff from defendant’s solicitation of customers with whom
defendant did not work, and clause [2] 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, 15 and thus defendant’s argument that the clause is
fatally ambiguous fails. 16
one”); Baistar Mechanical Inc. v. Billy Casper Golf, LLC, 2015 WL 10990120 (Va. Oct. 22, 2015) (unpublished)
([w]here there is ambiguity, [courts] will not apply such an unreasonable construction.”).
15
Defendant cites Power Distribution, Inc. v. Emergency Power Engineering, Inc., 569 F. Supp. 54 (E.D. Va. 1983),
for the proposition that any ambiguity in a non-compete or non-solicitation provision compels the conclusion that
the provision is fatally overbroad. This decision is neither binding nor is it persuasive given defendant’s reading of
it. Defendant over-reads the case. Unlike the case here, the provision in Power Distribution was, in fact,
susceptible to multiple reasonable interpretations one of which would have barred the employee from performing
duties for a competitor that were unrelated to the employee’s past work. Id. at 58. By contrast, this provision is
unambiguous and not reasonably susceptible to multiple interpretations, so there is no risk of barring the employee
from performing non-competing tasks with competitor companies.
16
Even if the Agreement’s non-solicitation clause was, as defendant argues, ambiguous on its face, Virginia law
bars facial attacks on the validity of non-compete agreements, instead requiring courts to look at the facts of the
particular case. Assurance Data, Inc., 747 S.E.2d at 808. Indeed, the Supreme Court of Virginia has stated that
“[a]n employer may prove a seemingly overbroad restraint to be reasonable under the particular circumstances of the
case.” Id. at 808 (citing Simmons, 544 S.E.2d at 678)). Given the circumstances of this case, the non-solicitation
13
With respect to the non-compete clause, defendant argues that its language is also fatally
ambiguous. The non-compete clause includes language limiting its scope “to the types of
activities and services included within [defendant’s] Job Description described in [defendant’s]
offer letter.” Agreement at ¶ 13 (emphasis added). Defendant argues this phrase is susceptible
to multiple meanings, but that is incorrect; the clause clearly sets the scope of competitive
activities to include only the activities and services described in plaintiff’s offer letter. To be
sure, the offer letter does include a number of items that are not part of the “Job Description,”
including compensation terms. And, the offer letter does not have a section specifically entitled
“Job Description.” But neither of those facts renders the Agreement’s non-compete clause
ambiguous. Indeed the offer letter and the attached job description make clear that defendant is
simply barred from performing for a competitor the same job duties he performed for plaintiff.17
Defendant points to only one clause that he believes to be vague: “creating interest, developing
opportunities, managing client relationships . . . and driving revenue by closing business with
decision makers at corporations and law firms.” See Offer Letter. This language is not vague.
Defendant was expected to work in sales and client management with respect to the law firms
and companies for which plaintiff provided legal staffing and eDiscovery services. Nothing
about defendant’s job description is unclear, and the non-compete clause simply bars defendant
from engaging in the same work he engaged in at plaintiff.
Defendant next argues that the entire Agreement is invalid because of blue pencil clauses
contained in § 13a of the Agreement. The clause provides that:
Paragraph 13 shall be severable, and if any of them is held invalid because of its
duration, scope of area or activity, or any other reason, the parties agree that such
provision at issue is not functionally overbroad in its application to defendant.
17
Defendant argues that items such as being “a team player” are also included in the job description and would be
barred, but that example is not persuasive because being a team player is an employer expectation, clearly not a
“service or activity” as defined in the non-compete clause.
14
clause shall be adjusted or modified by the court to the extent necessary to cure
that invalidity, and the modified clause shall be enforceable as if originally made
in this agreement.
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. Rutherford, 80 Va. Cir. 174 (2010) and Pace v. Retirement Plan Administrative
Serv., Inc., 74 Va. Cir. 201 (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 Rutherford, 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 the agreement
unenforceable”). It appears that the courts may have simply been stating that the non-compete
agreements were invalid because the blue pencil clauses could not be used to salvage them.
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 (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 (Rockingham County Cir. Ct.
1999) (“[T]his court has not been granted the authority to ‘blue pencil’ or otherwise rewrite the
15
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 noncompete and non-solicitation clauses does not, on this record, support a claim of duress. See
Goode v. Burke Town Plaza, Inc., 436 S.E.2d 450, 452-53 (Va. 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, 69 S.E.2d 470, 475 (Va. 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, 380 S.E.2d 922, 926 (Va. 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 nonsolicitation 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.
16
Accordingly, at this stage plaintiff has made a clear showing of success on the merits.
B.
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 Israel, Ltd. v. Breakthrough
Med. Corp., 952 F.2d 802, 812 (4th Cir. 1991) (quotation and citation omitted).
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, 3031, 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
17
552. 18 In this case, plaintiff is harmed not only by the loss of particular deals or particular work
from clients, but plaintiff also risks losing future business opportunities with the clients
defendant has diverted. Thus, plaintiff has sufficiently shown a risk of irreparable harm.
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.
C.
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. 19
18
See also Merrill Lynch, Pierce, Fennder & Smith, Inc. v. Bradley, 756 F.2d 1048, 1055 (4th Cir. 1985) (finding
preliminary injunction appropriate where plaintiff “faced irreparable, noncompensable harm in the loss of its
customers.”).
19
Defendant urges a different conclusion on the ground that legal services contracts are different. In essence,
defendant seeks a rule of law stating that non-compete and non-solicitation agreements are always invalid if the
18
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