Getting A Covenant Not To Compete Case Into The Business Court

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[author: Mack Sperling]

Long time readers of this blog know that you can't designate a case limited to a covenant not to compete to the Business Court. That's the Lifecare case, from 2008, in which Judge Tennille said "every suit based upon a breach of a restrictive covenant . . . [will not] give rise to a mandatory business case based upon 'unfair competition.'"

Judge Tennille intimated in Lifecare that additional allegations surrounding the breach of the covenant might give rise to the Business Court's mandatory jurisdiction. He said:

For example, allegations of the theft of trade secrets which provide a competitive advantage to one party could give rise to a mandatory case. See e.g., Analog Devices v. Michalski, 157 N.C. App. 462, 579 S.E.2d 449 (2003). Also, actions designed to unfairly damage another’s business would give rise to an unfair competition claim. See, e.g., Sunbelt Rentals, Inc. v. Head & Engquist Equip., LLC, 174 N.C. App. 49, 620 S.E.2d 222 (2005).

Late last week, Judge Jolly refined the contours of the Business Court's unfair competition jurisdiction, in an Order on Notice of Designation in New Breed, Inc. v. Golden. The New Breed complaint alleges that the multiple defendants, all former IT professionals with New Breed, were lured away by a competitor in violation of covenants contained in their employment agreements.

So what pushed New Breed over the hurdle and into the jurisdiction of the Court? Judge Jolly said that the Complaint alleged unfair competition, which is a basis for mandatory jurisdiction under G.S.§7A-45.4(a)(4). He said that the styling of that particular cause of action as "unfair and deceptive practices," which are excluded from the Court's unfair competition jurisdiction under Section 7A-45.4(a)(4), made no difference. 

He held:

Under North Carolina's current scheme of notice pleading, in examining a claim alleged in a complaint, neither the court nor party litigants are limited to the technical label given to the claim by the pleader. Rather, the reader appropriately should examine the actual facts alleged.

Op. Par. 13.

Upon examining the "actual facts alleged," Judge Jolly concluded the Complaint stated a claim for common law unfair competition, which he said was "a wrongful act done in the context of competition between business rivals." Order ¶11. He read the Complaint to make allegations that "Defendants were guilty of unfair competition in that they wrongfully intended to (a) raid Plaintiff of its IT employees, (b) harm Plaintiff's business and (c) acquire Plaintiff's trade secrets and confidential and proprietary information." Id.

Also noteworthy in the Order is Judge Jolly's ruling that it isn't necessary to sue the competing business to make out a claim for unfair competition. He held that "[t]he court cannot find a requirement that a competing business be a party litigant as a condition precedent to alleging a common law claim for unfair competition." Order ¶12. New Breed sued only its former employees, not their new employer.