Articles Discussing Restrictive Covenants In Minnesota.

The Minnesota federal district court recently refused to enforce a non-compete agreement, in part, because the employer failed to establish that the agreement was supported by valuable consideration.

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In Patterson Dental Supply, Inc. v. Vlamis (Sept. 6, 2016), the Minnesota Court of Appeals reminded that employees who reside and work outside of Minnesota may still be hailed into Minnesota courts to defend their actions.

The District of Minnesota issued an interesting decision on June 9, 2015 in the case of BMC Software, Inc. v. Mahoney, No. 15-CV-2583 (PAM/TNL). Mahoney was a Sales Manager for BMC and responsible for the Midwest Region. Around the time he was promoted into that role, he signed a non-compete agreement governed by Texas law, with a one-year restriction covering the United States. He subsequently left BMC to join a direct competitor to lead its global information technology operations management business. The new role would be national (or even global) with a sales component. BMC sought a Temporary Restraining Order which, after extensive briefing, the Court treated as a motion for a Preliminary Injunction.

The Minnesota Supreme Court has affirmed lower court findings dismissing a claim of tortious interference with contract by a staff augmentation company that successfully sued a former employee and his new employer for breach of a non-compete agreement. Sysdyne Corp. v. Rousslang, et al, No. A13-0898 (Minn. March 4, 2015). Sysdyne, the plaintiff at the trial court level, based its tortious interference claim against Xigent Solutions, LLC, the new employer, on an earlier Minnesota Supreme Court decision, Kallok v. Medtronic, 573 N.W.2d 356 (Minn. 1998) in which the Court affirmed judgment against the hiring company in a non-compete dispute for tortious interference, with damages measured by the attorneys’ fees expended in the successful prosecution of the lawsuit. Since Kallok, companies looking at the possible hiring of a candidate with a non-compete have had to consider the potential impact of this court-created exception to the “American Rule” which could result in the award of attorneys’ fees to the prevailing plaintiff in a non-compete lawsuit.

A federal court in Minnesota has rebuffed a plea by the founders of medical device company Rochester Medical to invalidate five year non-competes they signed in connection with the sale of their business to C.R. Bard, Inc. Conway v. C.R. Bard, Inc. (D. Minn. Feb. 12, 2015). Plaintiffs argued that the non-competes were invalid for lack of consideration because the per-share price they received for their stock, $20, was the same as the per-share stock received by other shareholders who did not have non-competes. A U.S. District Judge in the District of Minnesota dismissed the lawsuit. It noted that C.R. Bard was not wiling to purchase the company at the agreed upon price without the non-competes and therefore at least a portion of the price per share reflected consideration for the restrictions. That Plaintiffs received only “part” of this consideration, it held, was immaterial. (The Court noted that Plaintiffs were possibly paid as much as $40 million in the transaction, and certainly over $10 million.)

The Minnesota Supreme Court has affirmed an arbitrator’s eye-popping award of $525 million plus prejudgment interest totaling $96 million and post-award interest in a trade secrets dust up between Seagate Technology, LLC and Western Digital Corporation, et al. Seagate Technology, LLC v. Western Digital Corporation, et al and Sining Mao, No. A12-1994 (Minn. October 8, 2014). The Court’s decision is replete with lessons about the legal boundaries, risks, and protections for litigants in arbitration. It is notable also for the magnitude of the award which was, in part, the consequence of falsified evidence.

We have previously written about tolling provisions on this blog. In a decision from the U.S. District Court for the District of Minnesota, Judge Patrick J. Schiltz held that, under Minnesota law, non-compete terms do not automatically reset upon violation. The decision in U.S. Water v. Watertech of America, No. 13-CV-1258 (PJS/JSM), concerned a motion for a preliminary injunction to enforce an 18 month non-compete signed by a former employee of U.S. Water, Sveinn Storm.