Virginia Business Litigation Lawyer Blog

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.

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.