Total Articles: 22
Chancery Court Decision Provides Insight Into Drafting Enforceable Forum Selection Clauses
The Delaware Court of Chancery is nationally respected for its consistent and conscientious decisions in cases involving complex business issues. As a result, many legal practitioners recommend that contracting parties include a forum selection clause requiring that any disputes arising from a given contract be heard by a court of competent jurisdiction in the State of Delaware, including the Court of Chancery. A recent case in the Delaware Court of Chancery provides insight into the effective enforcement of a forum-selection clause.
Court Denies Preliminary Injunction Based on Insufficient Record
While the Court of Chancery will frequently enjoin parties from engaging in unfair competitive activities, the standard for obtaining preliminary injunctive relief remains high. It is important for parties seeking injunctive relief to be able to provide the court with specific, admissible evidence of unfair competitive activities. Generalized allegations normally will be insufficient to allow the court to grant relief. Take for example a recent case involving the purchaser of a company’s assets who sought to enforce a noncompete against one of the company’s former employees.
Using Survival Clauses in Employment Contracts to Shorten Employer Liability
A recent Court of Chancery opinion, addressing survival clauses in transactional contracts, provides guidance on the use of contractual statutes of limitations in employment contracts. In the case of GRT, Inc. v. Marathon GTF Technology, Ltd., the Court ruled on a contract governing a joint venture between two businesses in the natural gas industry. The Plaintiff, an investor, contracted with the Defendant to build a testing facility to allow the Plaintiff to conduct research related to new technologies. Because the testing facility involved the Defendant’s proprietary technology, the Plaintiff was not permitted to inspect the facility until the contract establishing the joint venture had been executed. In order to protect the Plaintiff’s investment, the parties’ contract included a Survival Clause.
Misclassification of Employee May Impact Employer’s Ability to Enforce Non-Compete Agreement
In order to enforce a noncompete agreement, the party seeking to enforce the agreement must first show that a valid contract exists. Usually this requirement is easily satisfied, but employers not take it lightly. For instance, some employees have successfully argued that their former employer’s failure to fully compensate them prevented the employer from enforcing the non-competition agreement. This outcome is premised on the principle of contract law that ‘a material breach by one party to a contract entitles the non-breaching party to suspend performance. A recent Third Circuit opinion indicates that in some cases, an employer’s misclassification of an employee as an independent contractor may result in a breach of contract, which can similarly prevent enforcement of a non-competition agreement.
Chancellor Chandler to Leave Bench in June 2011
The head of Delaware’s Court of Chancery announced today that he will be stepping down from the bench effective June 17, 2011. William B. Chandler, III has served as Chancellor since 1997. He joined the Court of Chancery in 1989, and prior to that served as a judge in Delaware’s Superior Court.
Court of Chancery Indicates It May Strike -- Not Reform -- Overly Broad Non-Compete Clause
When enforcing covenants not to compete, Delaware has long been viewed as a “reformation” state – meaning that when faced with an overbroad covenant, Delaware law allows the court to reduce the scope of the covenant and enforce it to the extent that the court deems reasonable. This view has developed among the lower courts in a number of decisions, but has never been fully addressed by the Delaware Supreme Court.
Injunction Carve-Out Provision Preserves Status Quo Pending Arbitration
While we are all familiar with the use of preliminary injunctions in aid of litigation, they also have a place in alternative dispute resolution. In Chartis Warranty Guard, Inc. v. National Electronics Warranty, LLC, the Delaware Court of Chancery issued a preliminary injunction pending the outcome of contractually mandated arbitration. The inclusion of a clause allowing issuance of a preliminary injunction prior to binding arbitration is a wise move if a contract includes non-competition or confidentiality provisions, the violation of which would lead to irreparable harm.
Delaware Court of Chancery Issues Guidelines for Preservation of Electronically Stored Information
Disputes involving non-compete agreements more often than not become dependent upon information that is or was stored electronically. It is not, therefore, surprising that Delawares Court of Chancery, the trial court where most disputes involving non-compete agreements are filed, posted important Guidelines for Preservation of Electronically Stored Information on its website yesterday. (See www.courts.delaware.gov/Chancery.) Anyone involved in a matter before Delawares Court of Chancery must pay particular attention to the Courts guidelines.
Chancery Court Extends Injunction Against CVS, Former Walmart Exec.
Wal-Mart Stores Inc. scored a second victory in its case against a former executive by convincing the Delaware Court of Chancery to extend the injunction preventing him from joining CVS Caremark Corporation. The worlds largest retailer had sued to prevent Hank Mullany, a former executive vice president, from joining CVS based on the restrictions in his noncompete agreement and the possibility that confidential information involving sales and growth initiatives would be disclosed to its rival.
Walmart Obtains Delaware Injunction Barring Former Exec From Working For CVS.
Wal-Mart Stores obtained a temporary restraining order on December 3, 2010 from the Court of Chancery in Delaware enjoining a former executive vice president from commencing employment with CVS Caremark Corporation. The former executive, Harry S. Mullany, had been president of Walmart North and was scheduled to start work at CVS on December 6, 2010.
Work Made For Hire Agreements Under Delaware Law
With the increasingly rapid changes in todays technological business world, companies are faced with many new challenges to protect their intellectual property from competitors.
Chancery Court Stays Effort Of Company to Haul Ex-Employee Into Delaware
Vice Chancellor Chandler recently stayed, sua sponte, an action commenced in Delaware's Court of Chancery by a company seeking a declaratory judgment against a former employee. The decision reiterates the importance of bargaining for consent to the jurisdiction of Delaware's Court of Chancery in any contract.
Would Hewlett Packard Have A Better Trade Secret Disclosure Case Against Its Former CEO Mark Hurd In Delaware?
Recent headlines have flooded the media regarding the lawsuit Hewlett Packard (H-P) filed against its former CEO Mark Hurd seeking to prevent him from working for Oracle. Hurd, who was forced out of H-P after an investigation into a sexual harassment claim revealed questionable business expenses, received severance in the millions as part of his separation from employment.
Blog Posts Used As Evidence in Deceptive Trade Practices Case
In a recent decision by the U.S. District Court for the District of Delaware, the Court used an innovative technique to analyze the plaintiffs claims of deceptive trade practices. The Court looked to consumer comments in response to the defendants blog posts to determine whether potentially misleading posts caused consumer confusion. The Courts decision is a reminder of the growing trend to rely on social media as evidence during litigation.
Agreements To Prevent Disintermediation May Protect Companys Role As Middleman
Disintermediation is the removal of intermediaries in a supply chain or cutting out the middleman. Companies are most likely to engage in this practice in markets of high transparency where they are aware of supply prices direct from the intermediary supplier or provider. In these instances, the intermediary or middleman will often try to protect its business by requiring the end user to execute a non-solicitation clause to prevent disintermediation. Not all courts, however, will enforce such a clause.
Civil Conspiracy May Open the Door For Jurisdiction Over Non-Resident Defendants.
Much of the non-compete litigation occurs in Delaware because the parties (usually the former employee and his/her former employer) have consented to the jurisdiction of Delaware courts in the underlying contract. But in many of these cases, obtaining personal jurisdiction over third parties such as the former employees new employer may pose difficulties. If theres evidence of a conspiracy between the defendants, however, one consideration is using the Conspiracy Theory to establish personal jurisdiction over the non-resident defendant.
The Inevitable Disclosure Doctrine in Delaware.
The doctrine of inevitable disclosure protects confidential information and trade secrets in situations where a former employee will inevitably disclose or use the information in his or her new employment, even absent bad faith. The principle behind this doctrine is that an employee who has knowledge of his former employer's trade secrets will inevitably disclose this information to his new employer resulting in an unfair business advantage. In asserting a claim under this doctrine, companies may seek to enjoin a former employee from working for a competitor, even if the employee had no existing covenant not to compete.
Court of Chancery Explains E-Discovery Obligations of Litigants.
Electronic discovery plays a central role in litigation where parties claim violations of trade secrets and breaches of noncompete agreements. Electronic discovery and forensic investigations often reveals extremely damaging evidence against the former employee, including acts such as downloading or e-mailing valuable company information.
Withholding Wages From Departing Employees May Render Non-Competes Unenforceable.
Former employees seeking to get out of their noncompete agreements often throw up a flurry of defenses. Most of these defenses usually pertain to the scope of the restrictions, whether the covenant is designed to protect legitimate business interests, or the balance of hardships. Occasionally, however, employees are able to successfully argue that the non-compete is not an enforceable contract.
Covenant Not to Compete: Restrictive Covenants - an Employer's Best Friend (pdf).
Restrictive covenants include agreements by employees not to compete,
disclose confidential information, or solicit an employer's clients. Based on
a recent decision from Delaware's Court of Chancery, these agreements
are more valuable than ever. Deciding a novel issue in Delaware, the court
held that absent a provision to the contrary, restrictive covenants are
assignable from one employer to another so long as both employers are
engaged in the same business. That means when businesses merge,
employees who are already subject to restrictive covenants with the
acquired business don't have to execute new agreements with the acquiring
business. In addition, the court reminds us that contracts defining the
employer-employee relationship are the only way to prevent a competitor
from poaching employees in an at-will- employment state such as
Delaware.
Delaware Court Rules that Covenants Not to Compete May Be Assigned.
Restrictive covenants include agreements by an employee not to compete, not to disclose confidential information, and not to solicit an employers clients. Based on a recent decision from Delawares Court of Chancery, these agreements are more valuable than ever. Deciding a novel issue in Delaware, the Court held that, absent a provision to the contrary, restrictive are assignable from one employer to another, so long as both employers are engaged in the same business. This means that when businesses merge, employees who are already subject to restrictive covenants with the acquired business do not have to execute new agreements with the acquiring business. In addition, the Court reminds us that contracts defining the employer-employee relationship, are the only way to prevent a competitor from poaching employees in an at-will employment state, like Delaware.
Why Restrictive Covenants Should Include Delaware Choice-of-Law and Forum-Selection Clauses.
Many companies require high-level managers, salespeople, researchers and other key employees to sign confidentiality, non-solicitation and/or non-compete agreements, also known as restrictive covenants. These agreements are intended to prevent key employees from capitalizing on proprietary knowledge they learned or developed and relationships with customers and employees that they formed in the course of their employment for their own benefit or the benefit of competitors and against the interest of their former employers.
