Florida Court Reverses Preliminary Injunction On Restrictive Covenant

by Burr & Forman
Contact

If you have followed this blog, then you likely already know that restrictive covenants are legal and enforceable in Florida.  You should also know that – although enforceable – restrictive covenants are strictly construed both with regard to their specific wording and with regard to the restraints set forth in Florida Statutes § 542.335.  Because of this, parties often initiate litigation to enforce restrictive covenants.  In many instances, heated proceedings lead courts to issue preliminary injunctions enforcing parties’ agreements to either keep a former employee from competing against a former employer for a limited period of time, or to keep a former employee from using the former employers’ trade secrets.

As usual with these restrictive covenants, the devil is in the details.  Which leads us to the recent decision of Zodiac Records Inc., et al. v. Choice Environmental Services (Fla. 4th DCA 2013).  The facts in Zodiac, although perhaps not unique, offer some insight into the often complicated analysis a restrictive covenant matter requires.  In a nutshell, Zodiac Records entered into a one-year consulting agreement with Choice Environmental in April 2008.  As part of the agreement, Zodiac agreed that for 36 months after the agreement terminated, Zodiac “would not compete with Choice by soliciting or influencing any of Choice’s customers to discontinue or reduce the extent of their relationships with Choice.” (See Zodiac.)  Zodiac also agreed to a 36 month confidentiality period to protect Choice Environmental’s trade secrets after the agreement terminated.

Zodiac’s principal consulted for Choice Environmental until he resigned in June 2011, at which point he formed a competing company and solicited Choice Environmental’s customers, among others.

Choice Environmental sued, claiming:

  • That Zodiac and its principal agreed to a 36-month restrictive covenant after termination;
  • That at the latest the one-year agreement terminated on its own terms (April 2009); and
  • That as a result Zodiac and its principal was subject to the terms of the agreement until April 2012.

Here’s the twist:  at the hearing on the motion for preliminary injunction, Choice Environmental stipulated that it would not rely on a misappropriation of trade secrets to support its motion for preliminary injunction.  The trial court enjoined Zodiac, its principal, and the competing company that the principal formed.  In April 2013, Florida’s Fourth District Court of Appeal reversed.  Among its analysis, the appellate court reasoned:

Generally, where “a restrictive covenant [is] sought to be enforced against a former employee” or independent contractor, “a court shall presume reasonable in time any restraint 6 months or less in duration and shall presume unreasonable in time any restraint more than 2 years in duration.” § 542.335(1)(d)1., Fla. Stat. (2011). However, “[i]n determining the reasonableness in time of a postterm restrictive covenant predicated upon the protection of trade secrets, a court shall presume reasonable in time any restraint of 5 years or less.” § 542.335(1)(e), Fla. Stat. (2011). In the present case, the consulting agreement expired on April 7, 2009. Therefore, unless the restrictive covenant was “predicated upon the protection of trade secrets,” the restrictive covenant was not enforceable beyond April 7, 2011—a date prior to [Zodiac’s principal’s] alleged violations of the non-solicitation provision. By contrast, if the restrictive covenant was “predicated upon the protection of trade secrets,” the postterm duration of thirty-six months was enforceable, which would allow Choice to enjoin appellants pursuant to the non-solicitation provision through April 7, 2012.

At the preliminary injunction hearing Zodiac argued that if Choice Environmental abandoned (or otherwise failed to prove) its claim that the customer list – and, therefore, the solicitation of customers – was a protected trade secret, then Choice was limited to a two-year enforceability period for the non-compete provisions of the parties’ agreement.  If the two-year period applied, Zodiac argued, then the non-compete provisions expired before Zodiac and its principal formed the new, competing company.  Choice Environmental argued that because the written agreement contemplated both 1) the enforcement of the restrictive covenant and; 2) the protection of trade secrets, the contractual three-year limit was statutorily reasonable, rendering the restrictive covenant was enforceable.  Based on the parties’ stipulation, the trial court received no evidence on the issue of whether Zodiac violated Choice Environmental’s trade secrets.

The appellate court’s reversal notes some interesting points for our clients to keep in mind:

  • A trial court may not grant a former employer’s motion for a temporary injunction against a former employee without first permitting the former employee “to put on its evidentiary case.” JonJuan Salon, Inc. v. Acosta, 922 So. 2d 1081, 1085 (Fla. 4th DCA 2006).
  • [T]he trial court could have determined that the customer relationships Choice sought to protect under its non-solicitation agreement were not trade secrets, and that the restrictive covenant was therefore unenforceable past April 7, 2011.1 See Estetique Inc. USA v. Xpamed LLC, 2011 WL 4102340, at *10 (S.D. Fla. Sept. 15, 2011) (rejecting movant’s argument that the five-year postterm restriction of section 542.335(1)(e) applied because movant “failed to show a substantial likelihood of success that its confidential customer information rises to the level of a trade secret”); Zupnik v. All Fla. Paper, Inc., 997 So. 2d 1234, 1238-39 (Fla. 3d DCA 2008).
  • The trial court also noted that “a former employer’s customer relationships do not automatically qualify as trade secrets, even if a party’s restrictive covenant attempts to characterize them as such. East v. Aqua Gaming, 805 So. 2d 932, 934 (Fla. 2d DCA 2001). To qualify as a trade secret, there must be evidence that a customer list “was the product of great expense and effort, that it included information that was confidential and not available from public sources, and that it was distilled from larger lists of potential customers into a list of viable customers for [a] unique business.” Id.

This case illustrates several important facets of the complexity of litigating restrictive covenants and violation of trade secrets cases in Florida.  First, as always, the parties’ written agreement will define whether and under what circumstances the restrictive covenant or agreed protection of trade secrets is enforceable.  Second, when litigating these cases, the nuances of the Florida statutes present complex issues that can result in a reversal of an injunction, even after a successful and lengthy evidentiary hearing at the trial court.  This is the point in the blog when I suggest that you contact me or any of the other qualified Burr & Forman LLP attorneys to assist you in drafting, reviewing or otherwise to discuss a restrictive covenant or agreement to protect a trade secrets and your business.

If you would like additional information on non-compete agreements and trade secrets law, please contact one of the Burr & Forman Non-Compete & Trade Secrets team members.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Burr & Forman | Attorney Advertising

Written by:

Burr & Forman
Contact
more
less

Burr & Forman on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.
Feedback? Tell us what you think of the new jdsupra.com!