Virginia Business Litigation Lawyer Blog

After a federal court enters a judgment, a litigant has 28 days to file a motion to amend the judgment pursuant to Federal Rule of Civil Procedure 59(e). This rule allows a district court to correct its own errors and spare the parties and appellate courts the burden of unnecessary appeal. A Rule 59(e) motion is an extraordinary remedy to be used sparingly, and a court can grant such a motion only in narrow circumstances: (1) to accommodate an intervening change in controlling law; (2) to account for new evidence not available at trial; or (3) to correct a clear error of law or prevent manifest injustice. A party's mere disagreement with a ruling does not warrant a Rule 59(e) motion, and parties may not use it to raise arguments or legal theories that could have been pursued before judgment. The United States District Court for the Eastern District of Virginia (Alexandria division) recently addressed this rule in Western Industries-North, LLC v. Blaine Lessard.

Lessard was an employee of Western, a pest control company. When Western terminated Lessard's employment, Lessard had possession of a bedbug scent dog named Dixie, and a dispute arose over which party owned the dog. The court granted Western's Emergency Motion for a Temporary Restraining Order and directed Lessard to return Dixie to Western. After an evidentiary hearing on Western's Emergency Motion for a Preliminary Injunction, the court found that Western failed to satisfy the heightened showing required for a mandatory preliminary injunction and ordered Western to return Dixie to Lessard. Western then filed a Motion for Reconsideration pursuant to Rule 59(e) and attached the Declaration of William Whitstine, the owner of the canine academy that trained Dixie and Lessard.

Western argued that the court should have treated its request for injunctive relief as a request for a prohibitive injunction rather than a mandatory injunction. A prohibitive injunction maintains the status quo, whereas a mandatory injunction alters the status quo and therefore requires a heightened standard of review. The court noted that the status quo is the last uncontested status between the parties which preceded the controversy. Lessard had possession of Dixie when Western terminated him and the controversy arose; therefore, the status quo is Lessard's possession of Dixie, and an order requiring Lessard to return Dixie to Western would have altered the status quo. Accordingly, the court's characterization of the injunctive relief as mandatory and subject to heightened scrutiny was proper.

The court also rejected Western's contention that it made a clear and convincing showing that it was likely to succeed on the merits. This argument amounted to mere disagreement with the court's ruling which does not support a Rule 59(e) motion. Although Western did object to several pieces of evidence the court mentioned in its opinion, it failed to raise its objections at the hearing, and a Rule 59(e) motion cannot be used to raise new arguments that could have been raised previously.

Finally, the court dismissed Western's argument that the Whitstine Declaration establishes that Western is Dixie's owner making Lessard's possession of the dog unjust. For new evidence to be presented in a Rule 59(e) motion, the movant must show not only that the evidence was unknown to it until after the hearing but also that it could not have been discovered with reasonable diligence prior to the hearing. Since Western made no showing that the evidence was newly discovered or that Whitstine was unable to provide a declaration prior to the evidentiary hearing, the court found that it did not provide a basis for the motion. Accordingly, the court denied Western's Rule 59(e) motion.

Chanel, Inc., which like many other luxury-goods companies has been constantly plagued by counterfeiters, has taken its legal fight against unauthorized knock-offs to a whole new level. On November 14, 2011, acting at Chanel's request, U.S. District Judge Kent Dawson of the District of Nevada signed an order that not only prohibits hundreds of alleged trademark infringers from manufacturing or selling fake Chanel handbags, wallets, shoes, and the like - but also orders the defendants' domain names seized and transferred to the Web hosting company GoDaddy, which would direct them to a page describing the seizure. The temporary restraining order also orders that the counterfeiters' domain names be "de-indexed" by Google, Bing, Yahoo, and all social media websites, specifically mentioning Facebook, Twitter, and Google+.

Chanel, Inc. had filed suit against several websites for selling counterfeit versions of its merchandise. Chanel hired an investigative firm to purchase several items from three of the websites named as defendants in the lawsuit. The investigators then sent those items to a Chanel consultant who determined that the merchandise was not genuine Chanel. The consultant also examined other merchandise offered for sale on these websites and determined that none of the items offered were authentic Chanel products. The defendant websites were not authorized dealers of Chanel products and therefore were in direct violation of Chanel's trademark rights.

Chanel's trademark lawyers obtained this injunctive relief by, among other things, pointing out that counterfeiters use search engine optimization (SEO) just as legitimate companies do, and that it was necessary for the court to shut down their ability to use the Web to compete unfairly with Chanel. "Chanel does contend that it has the right to fairly compete for such search engine results space unfettered by unfair competition stemming from an illegal use of Chanel's trademarks," Chanel's lawyers wrote in the underlying motion.

But did the court even have the authority to cast such a wide net with its ruling? Facebook and Twitter, for example, have been ordered to de-index the infringing sites, but they were not even parties to the lawsuit. As the Ars Technica tech blog argues: "Missing from the ruling is any discussion of the Internet's global nature; the judge shows no awareness that the domains in question might not even be registered in this country, for instance, and his ban on search engine and social media indexing apparently extends to the entire world."

The court came down hard on the copycats and resorted to the extreme measure of attempting to have their existence scrubbed from the World Wide Web. The question now becomes whether it is the responsibility of the search engines and the social media sites to ensure that the offending websites do not show up as search results.

Timelines, Inc., a small Chicago-based Internet company, has lost the first round of its legal efforts to obtain a court finding that Facebook infringed on its "Timelines" trademark when it announced its much-ballyhooed new feature, "Timeline."

On Sept. 22, 2011, Facebook announced the "Timeline" feature, which will allow users to store and share their life events in chronological order on the site. Timelines, Inc., quickly filed a trademark infringement suit against Facebook, noting that it already has a registered trademark for the term "Timelines." This mark refers, among other things, to a website that allows users to record and share events and contribute descriptions, photos, videos, geographic locations, and links related to events and people.

Arguing that there was a significant likelihood of confusion between its existing online product and the one just announced by Facebook, Timelines filed its lawsuit in order to avoid, in the words of the complaint, "being rolled over and quite possibly eliminated by the unlawful action of the world's largest and most powerful social media company."

Timelines sought a temporary restraining order against Facebook's use of the term "Timelines," but on September 30, 2011, U.S. District Judge Edmond E. Chang denied the request. "Even assuming that Timelines has some likelihood of success, based on the present state of the record,...that likelihood is modest, and the other factors warrant denying the motion," Judge Chang wrote. "One question on the likelihood of success is the strength of the Timelines mark."

The judge ruled that even though Timelines had indeed been granted a federal trademark, that trademark is likely a "descriptive" one, since it simply "describes the service provided by Timelines' website, that is the creation on a website of a timeline for an event." Such "descriptive" trademarks are generally considered weak and do not enjoy the same protection as arbitrary or "fanciful" trademarks. The judge noted that if Timelines were to succeed in the litigation, it "would have to show that the term 'Timelines' has acquired a secondary meaning to customers such that they uniquely associate the term with the Plaintiff. On the current record, it is not at all clear that Timelines can make that showing."

Timelines may still be able to prove infringement, however, by focusing on the similarity between Timelines' website and Facebook's Timeline service. Consumers may be confused if the two services have the same name and do essentially the same thing.

A Pennsylvania school district violated two female middle school students' First Amendment rights when it punished them for attending school while wearing breast cancer awareness bracelets that bore the slogan "I (heart) Boobies! KEEP A BREAST." That was the ruling of U.S. District Judge Mary McLaughlin of the Eastern District of Pennsylvania on April 12, 2011, in a high-profile case that pitted free-speech rights and public-health efforts against the need to enforce discipline and promote order in public schools. Judge McLaughlin granted a temporary injunction enjoining the school from enforcing its "no bracelet" policy.

The United States Supreme Court had previously held that students don't shed their First Amendment protections at the schoolhouse door, but it had also ruled that educators have the right to ban lewdness and to preserve a learning environment. The school district's lawyers argued that the "boobies" bracelets were lewd and vulgar, and that even if they weren't, they should be banned because they substantially disrupted the work and discipline of the school. At the injunction hearing, school principals testified that they viewed the term "boobies" as "an impermissible double entendre about sexual attraction to breasts." The court disagreed, reasoning that the statements needed to be examined in context.

The bracelets are distributed nationwide by the Keep A Breast Foundation, a nonprofit that promotes awareness of breast cancer by women under 30. The girls, Brianna Hawk and Kayla Martinez, testified that they did not intend to express a sexual message by wearing the bracelets to school. Both of their mothers gave them permission to wear the bracelets, and they did so on the school's designated breast cancer awareness day.

"If the phrase 'I (heart) Boobies!' appeared in isolation and not within the context of a legitimate, national breast cancer awareness campaign, the school district would have a much stronger argument," Judge McLaughlin wrote. All the bracelets contained the web address of the foundation, which provides information on breast cancer detection and prevention, the judge noted.

As far as the use of the term "boobies," Judge McLaughlin concluded that rather than being a "lewd and vulgar" term, it simply matched its intended audience's vocabulary. The bracelets were directed to a target audience of teenage girls, and the students testified that "boobies" is the word that they generally use to refer to their breasts. Thus, the phrase is a shorthand way of expressing the importance of breast cancer awareness and of breast health, the judge concluded.

In Virginia, employers who wish to restrict their employees from competing with them in a new job need to write restrictive covenants tightly and narrowly and should define all the key terms in their noncompete and nonsolicitation agreements carefully - or the courts will not enforce the covenants and former employees will be free to disregard the restrictions. That's one of the messages of a ruling handed down recently by Judge Frederick B. Lowe of the Virginia Beach Circuit Court in a case involving a nurse practitioner who left a medical group to set up her own competing practice.

Ameanthea Blanco was a family nurse practitioner employed by Patient First Richmond Medical Group, LLC, which provided primary and urgent care to patients. She signed an employment agreement in January 2010 that contained non-competition and non-solicitation provisions. In August 2010, she resigned from Patient First, and a little over a month later, she opened her own practice nearby. Patient First sued Blanco for an injunction to enforce the non-competition and non-solicitation provisions, but the circuit judge declined to issue an injunction, finding the relevant portions of the agreement to be unenforceable.

The noncompete agreement barred Blanco, for two years after she left the company, from performing medical services of the type that she performed at Patient First in the previous 12 months, anywhere within a seven-mile radius of any Patient First center at which she "regularly provided medical services." She was restricted from doing so as an "agent, officer, director, member, partner, shareholder, independent contractor, owner or employee," and the prohibition applied if she did so "directly or indirectly."

In his ruling, Judge Lowe summarized Virginia case law on covenants not to compete and concluded that they must be reasonable from the standpoint of the employer, the employee, and sound public policy, and that the employer bears the burden of proof and that any ambiguities are to be construed against the employer. The judge noted that the "critical issue" in examining cases of this type is "whether the functional reach of the covenant is overbroad." In this case, he found that it was overbroad for several reasons. First, it was not limited to businesses that actually compete against Patient First, because it bars even "indirect" involvement and even involvement as a shareholder. That would mean that Blanco could not even own shares in a public company if the company provided the same services as Patient First at any location within seven miles of where Blanco "regularly provided medical services." Many such public companies, the judge noted, do not compete with Patient First.

Furthermore, the agreement did not define the "medical services" that are barred, nor did it define the term "indirectly." Accordingly, the judge ruled that the covenant not to compete "is overbroad and uncertain in its functional reach, and is unenforceable." He reached the same conclusion, for the same reasons, regarding the covenant prohibiting the solicitation of staff.

It's clear, therefore, that in Virginia, a non-compete clause must be fairly precisely tailored to the employer's needs and must act only against activities or businesses that compete directly with the employer. Does your noncompete prohibit the former employee from owning stock in a publicly-traded competing company? If it does, regardless of whatever other terms it contains, most Virginia courts would likely strike it as unenforceable.

Lawyers around the country have come to learn of the Eastern District of Virginia's legendary "rocket docket." With divisions located in Alexandria, Norfolk, Richmond, and Newport News, Virginia's federal court is known as the most efficient in the country for handling intellectual property cases and complex business litigation. Also known for being friendly to business, trademark owners around the country often look for ways to establish venue in Virginia instead of a location closer to home where cases move at a slower pace. In the context of protecting trademark rights, one such opportunity can be found in the Anticybersquatting Consumer Protection Act.

The ACPA provides for a cause of action against those who register or use a domain name confusingly similar to, or dilutive of, the trademark of another. Enacted in 1999, the ACPA was designed to address the practice of "cybersquatting," which generally involves the practice of registering a domain name containing somebody else's name or trademark with the intention of either profiting from the resulting confusion or of selling the domain name to the less-Internet-savvy trademark owner. You could sue the individual in the jurisdiction of his residence, but what if that person lives in the District of Minnesota, one of the slowest federal courts in the country? Or what if the registrant took steps to shield his identity when registering the domain name and you can't determine whom to sue?

One option available to you is to sue the domain name itself. And because VeriSign--the world's largest registry and operator of the .com and .net top-level domains--is located in Dulles, Virginia, which falls within the jurisdiction of the Eastern District of Virginia, there is a good chance you can bring that action in the Rocket Docket, regardless of where the actual registrant resides.

MetroPark, a fashion clothing store incorporated in Delaware and based in Los Angeles, successfully utilized this procedure in recent weeks and obtained a judgment against metropark.net in Virginia's highly efficient federal court. MetroPark's online store is located at metroparkusa.com. On October 2, 2009, a registrant registered metropark.net and, shortly thereafter, put up a website at that domain advertising clothing and accessories substantially identical to and in direct competition with the goods and services offered by MetroPark.

MetroPark identified the individual as someone with a history of cybersquatting, and who is the current registrant of multiple domain names that mimic famous trademarks of third-parties, such as bankofamericaa.com, dicksportinggood.com, abcnewschicago.com, and officedeppotcom.com. Rather than sue the individual directly, MetroPark sued the domain name itself. The court recognized the validity of this procedure, writing "Pursuant to the Lanham Act, '[t]he owner of a mark may file an in rem civil action against a domain name in the judicial district in which the domain name registrar, domain name registry, or other domain name authority that registered or assigned the domain name is located'" provided that the domain name is violative of the trademark provisions of the Lanham Act.

The Court found that metropark.net was being used in a way likely to cause confusion or mistake, as Internet users looking for MetroPark's site might come across metropark.net and, if they did, would likely to be deceived into believing that the site is affiliated with MetroPark. The ACPA is designed to remedy this very situation. Therefore, the magistrate judge recommended (and the district judge ordered) that VeriSign, the operator of the registry of the metropark.net domain name, transfer the domain name from the current registrar, Moniker Online Services, to a domain registrar of MetroPark's choosing, and that such registrar thereafter register the domain name in MetroPark's name.

Those considering retaining a Virginia law firm to help stave off a wrongful foreclosure should keep this useful fact in mind: your lawyer's job will be a lot easier if you take legal action before the bank forecloses on your property. Seek legal advice when you begin to fall behind on your mortgage or when workout negotiations seem to be faltering. Don't wait until the trustee enforces the deed of trust and kicks you out of the house before going to an attorney, on the assumption that your smart lawyer will be able to "undo" an unfair foreclosure. In the vast majority of cases, Virginia courts will not set the foreclosure aside.

This reality is aptly illustrated by a recent case out of the United States District Court for the Eastern District of Virginia, Horvath v. Bank of New York, (E.D. Va. Jan. 29, 2010). The plaintiff, John Horvath, found himself unable to keep up with his mortgage payments--an unfortunate predicament all too common these days--and the defendants foreclosed on his house. Mr. Horvath admitted he had fallen behind on his mortgage, but asserted a number of different legal theories revolving around the argument that Bank of New York and other companies with an interest in his mortgage acted improperly and did not adhere to the law when servicing his mortgage, foreclosing on his house, and eventually evicting him. The court shot each argument down, one by one, and dismissed the case for failure to state a legally cognizable claim.

The first count was for a declaratory judgment declaring the foreclosure "void." The court ruled that declaratory relief would serve "no useful purpose" since the foreclosure sale had already taken place. The court noted that declaratory judgments are reserved for "forward looking actions."

Next, Mr. Horvath argued that the trustee committed a breach of fiduciary duty when he foreclosed on the property without conducting "reasonable due diligence." The court was not persuaded by that angle either, pointing out that Virginia law does not recognize a duty of due diligence by a trustee on a deed of trust. The duties of the trustee are limited to those specified in the deed of trust.

The next count was one to "quiet title" on the ground that the defendants had no valid interest in the property. The basis for the allegation was that Mr. Horvath's original lenders had sold and assigned the promissory notes to other parties, resulting in splitting the deed of trust from the note and rendering the deed of trust unenforceable. The court flatly rejected this argument as wrong under Virginia law. The deed of trust was not affected by the assignment of the note.

Mr. Horvath also argued that the foreclosure violated the Fair Debt Collection Practices Act and that certain defendants committed fraud by misrepresenting their authority to conduct a foreclosure. These theories were also summarily dismissed because the Complaint failed to allege sufficient facts to make the claims plausible under Virginia law.

When wrongful foreclosure is being threatened (such as when, for example, the bank miscalculates the interest due or acts in violation of a forbearance agreement), the time to talk to an attorney is as soon as the threat is made apparent, not after the foreclosure sale has taken place.

In the consolidated cases of Bank of America Investment Services, Inc. v. Michael A. Byrd and Gregory F. Harris, Judge Davis of the Eastern District of Virginia (Norfolk division) denied Bank of America's motion for a preliminary injunction or temporary restraining order seeking to enjoin its former brokers from contacting clients with whom they had established personal relationships.

Both defendants were financial advisors in Norfolk who left Bank of America in March to join Wells Fargo Advisors. After switching employers, both defendants placed telephone calls to their former Bank of America clients and informed them of their departure and provided new contact information. Bank of America contended that this conduct violated their respective non-solicitation agreements, which provided that the employee:

"will not directly or indirectly solicit, invite, encourage or request any client or customer of the Company...for the purpose of: obtaining that client or customers' business for himself or herself or any other person or entity, causing such client or customer to discontinue doing business with the Company or otherwise interfering with the relationship between such clients or customers and the Company."

The Defendants insisted they did not "solicit" clients but merely provided them with updated contact information. Bank of America attempted to prove solicitation by introducing affidavits of two individuals which relied primarily on the hearsay statements of others. The court discounted the weight of the plaintiff's evidence because neither witness bothered to testify in person at the injunction hearing, and both affidavits consisted of "double hearsay."

Judge Davis noted that the issuance of a preliminary injunction is "an extraordinary remedy" which should only be granted where the moving party "clearly establishes entitlement to the relief sought." Applying the familiar Blackwelder test from the 4th Circuit, the court found that Bank of America failed to make a sufficiently strong showing of irreparable harm. While several judicial decisions have established that injunctive relief may be available where the loss of future customers or harm to goodwill makes it difficult to calculate money damages, the court wrote, injunctive relief is neither automatic nor required in such cases. The court proceeded to deny Bank of America's motion.

The lesson to Virginia businesses? If former employees are improperly soliciting customers, first consider whether an award of money damages would address the situation sufficiently. It will always be easier to sue the former employees for money than to obtain an injunction or TRO. Next, if you have actual evidence that customers are taking their business elsewhere as a result of improper solicitation, demonstrate to the court that the issue is important to your business. Don't rely on affidavits or declarations. Send a senior executive to the hearing to testify in person. If the matter is not important enough to miss a day of work for this purpose, the judge will be difficult to convince that irreparable harm is at stake. Finally, if you must rely on affidavits, at least get them from the people with personal, first-hand knowledge of the relevant events. Affidavits that rely on hearsay do not carry the same weight as affiant statements.

The Equal Employment Opportunity Commission (EEOC) claims a Kmart Super Center in Norfolk, Virginia, fired a store greeter because he used a cane, in violation of the Americans with Disabilities Act (ADA). In a lawsuit filed in the United States District Court for the Eastern District of Virginia, the EEOC alleges that the employee used a cane to walk and stand due to his spinal stenosis, a physical impairment of his back. His back problems did not prevent him from performing his duties as a greeter. Nevertheless, the suit claims, when he was observed using the cane, Kmart terminated his employment.

Prior to terminating the employee, Kmart allegedly refused to allow him to use the cane, even though his condition made it difficult to stand or walk without one, and his job required both. The EEOC filed the lawsuit only after Kmart refused to settle.

The EEOC is seeking most of the remedies permitted under the ADA, including reinstatement of the employee's job (or placement into a substantially equivalent position), back pay, compensatory damages, and punitive damages for intentional discrimination. The EEOC is also seeking an injunction (as it usually does in the ADA cases it brings) prohibiting discriminatory practices and compelling Kmart to adopt and execute a variety of policies, practices, and training programs to clarify to their employees and the general public that Kmart will takes steps to ensure it does not discriminate against persons with disabilities.

Title I of the ADA requires employers with 15 or more employees to provide qualified individuals with disabilities the same employment benefits and opportunities as everyone else, provided the employers can make any necessary accommodations without experiencing undue hardship. The employment privileges to which the ADA applies include recruitment, hiring, training, compensation, promotions, and even social activities. For more information, see Your Rights as a Disabled Employee.

TiVo won its patent infringement case against EchoStar, DISH, and affiliated companies back in 2006, obtaining a ruling that EchoStar's digital video recorder ("DVR") violated certain claims of U.S. Patent No. 6,233,389, owned by TiVo, and obtaining an injunction against future patent violations.  In response to the ruling, EchoStar developed a supposed "workaround."  On June 2nd, 2009, the court held that the workaround did not cure the infringement.  The court held them in contempt of court for violating the injunction and again ordered them to stop using TiVo's technology.

Filing a lawsuit against another company or individual in Virginia is not always about money. Sometimes, it is necessary to get a court order compelling the defendant to take some desired action (like perform a contractual obligation to purchase real estate) or restraining the defendant from acting in a manner that would harm your business (like sharing trade secrets with a competitor).  The injunction remedy does not award money damages to the injured party, but protects property and other rights from irreparable injury by prohibiting or commanding acts that would (or are likely to) result in such injuries.

When time is of the essence, Virginia courts will allow a plaintiff to move for a temporary, preliminary injunction to restrain or compel the conduct at issue at the outset of a case, pending further investigation and trial. The purpose of a preliminary injunction is to preserve the relative positions of the parties (i.e., the "status quo") either while the suit is pending or for some shorter period of time determined by the court.  In certain emergency situations, it may be possible to obtain an injunction at a hearing of which the defendant is not notified.  This is sometimes necessary when there is a legitimate fear that the defendant would take the feared action (or inaction) upon learning of the lawsuit or motion.

An injunction is considered an "extraordinary" remedy and is generally more difficult to obtain than an award of money damages.  Of the different types of injunctions available, the form that compels another party to perform an act (as opposed to merely preserving the status quo and prohibiting certain actions) is considered the most extraordinary and is the most difficult to obtain in court.

Whether you are in United States District Court (i.e., "federal court") or Virginia Circuit Court (i.e., "state court"), the requirements for obtaining injunctive relief are generally the same.  The touchstone for obtaining an injunction, a form of equitable relief, is the existence of an imminent threat of "irreparable harm," that is, harm that is of such a nature that it cannot adequately be compensated with money damages.  

To obtain a preliminary injunction, it will also be necessary to convince the court that the "balance of hardships" should be decided in your favor.  This generally means a showing that the irreparable harm to be suffered by the plaintiff if an injunction is not granted outweighs the harm that the defendant would suffer if the injunction is granted.  Courts generally examine the following factors when balancing the hardships: (i) the likelihood of irreparable harm to the plaintiff if the preliminary injunction is not granted; (ii) the likelihood of harm to the defendant if the preliminary injunction is granted; (iii) the likelihood that the plaintiff will succeed on the merits when the case goes to trial; and (iv) whether the public interest would be served by granting the preliminary injunction.

Regardless of whether you succeed in obtaining a preliminary injunction on an expedited basis, you can ask for a permanent injunction at trial.  Permanent injunctions are available on the same proof required to obtain preliminary injunctions, but the test is applied more strictly due to the permanency of the remedy and the fact that usually more evidence is available.  

In some cases, your job is made easier by the Virginia Code.  When a specific statute provides for the availability of injunctive relief, the standards are relaxed significantly.  Most importantly, a showing of irreparable harm is unnecessary when such a statute applies.  

An injunction can be a powerful remedy, but difficult to secure in court.  Businesses would be well advised to include clauses in their contracts containing express agreements to allow future breaches or threatened breaches to be enjoined by injunctive relief.

Herndon-based Deltek, Inc., surely thought it would have little trouble enjoining its former employees from forming a competing company in direct violation of their employment contracts.  After all, the defendants admitted that they were competing with their former employer in a manner that would fall under the noncompete provisions of their respective employment agreements.  However, in a written opinion issued on April 20, 2009, by Judge Trenga of the United States District Court for the Eastern District of Virginia (Alexandria Division), the court denied the requested injunctive relief.

Uncontested evidence demonstrated that three former Deltek employees, a Managing Director, Consulting Manager, and Services Coordinator, all of whom had access to information considered by Deltek to be confidential, proprietary, and trade secret information, left Deltek and joined Iuvo Systems, Inc., in Chantilly, Virginia.  Iuvo's business involves providing consulting and application management services relating to Deltek's proprietary accounting and financial software.  All three employees had signed noncompetition and nondisclosure agreements with Deltek.

The relevant noncompete language provided that the employees could not, for a period of two years after the termination of their employment, "directly or indirectly be engaged as an employee or consultant of any firm or corporation engaged in a business which is in competition with [Deltek]."  The agreements also prohibited the use or disclosure of "Confidential Information" or "Confidential or Proprietary Information" both during and after employment.

At least two Deltek customers, Alliant Techsystems, Inc., and TerraHealth, had left Deltek in favor of Iuvo, which Deltek believed was offering to provide consulting services at a lower cost than such services were offered by Deltek. Nevertheless, and despite that the defendants admitted that Iuvo was competing directly with Deltek, the court declined to award injunctive relief.  (Note: the court did, however, grant an injunction to enjoin Iuvo from using Deltek's trademarks on its website and to prohibit other forms of trademark infringement).

The court's ruling demonstrates the high hurdle plaintiffs must overcome in Virginia should they wish to enforce their rights on an expedited basis, prior to trial.  To obtain a preliminary injunction, courts will examine and balance (1) the likelihood of irreparable harm to the plaintiff without the injunction; (2) the likelihood of harm to the defendant with an injunction; (3) the plaintiff's likelihood of success on the merits; and (4) the public interest.

The court declined to enjoin the disclosure of confidential and proprietary information because Deltek could not point to specific information that the former employees were using in their competitive venture.  Speculation, the court found, is insufficient.  In addition, much of the information claimed by Deltek to be confidential was found to be available from other sources.

On the issue of the noncompete agreements, the court essentially found that whether the agreements would be deemed enforceable was too close to call at this early stage of the proceedings.  In Virginia, noncompetition restrictions must be no greater than necessary to protect the employer's legitimate business interests, and not unduly harsh and oppressive in curtailing an employee's right to earn a livelihood.  The court found the balance of hardships weighed slightly in Deltek's favor, but was unable to declare with certainty that the noncompete agreements were not overly broad or restrictive.  Therefore, the court denied the injunction.