Court Declines to Enforce Settlement Agreement in Fraud/Conspiracy Case
In a case arising out of a stock purchase and employment agreement gone wrong, a district court judge has declined to enforce a settlement “Term Sheet”, stating that the document did not rise to the level an enforceable settlement agreement between the parties.
The case, Intersections, Inc., et al. v. Loomis & Loomis, , involved a stock sale of $14 million dollars from defendant Joseph Loomis (“Loomis”) and his company, Net Enforcers, Inc. (“NEI”) to plaintiff Intersections, Inc. (“Intersections”). Loomis remained an employee of NEI after he sold it, and entered into an employment agreement which contained a non-compete and other restrictive covenants. Within a year after the stock purchase and Loomis entering into the employment agreement, NEI suspended Loomis from his position and ultimately terminated his employment. Litigation followed in which plaintiffs alleged that Loomis and his sister, co-defendant Jenni Loomis, engaged in fraud by misrepresenting the financial condition of NEI. Plaintiffs also alleged that Loomis engaged in conversion of NEI assets and breach of his fiduciary duties to NEI.
In an attempt to settle the case, the parties engaged in extensive settlement discussions with a magistrate judge and reached an agreement, in principle, to settle the case. In exchange for receiving a monetary payment from the defendants, inter alia, the parties agreed that Loomis’ employment agreement containing the non-compete provisions would be void. A handwritten term sheet was prepared by the magistrate judge reflecting the agreement reached by the parties. However, when plaintiffs prepared draft settlement agreements for signature by the parties, they were rejected by the defendants. Thus, the parties never signed a final settlement agreement.
In rejecting both the plaintiff’s attempt to enforce the settlement agreement and the magistrate judge’s report and recommendation to enforce the agreement, the Court held that the parties had not entered into a legally enforceable agreement because there was no meeting of the minds as to the final terms of the settlement. In particular, the Court found that plaintiffs added terms to the agreement beyond what was agreed to at the settlement conference; contingencies in the proposed agreement were not satisfied; and there was apparently not a meeting of the minds as to whether all of the restrictive covenants in Loomis’ employment agreement would be void as part of the settlement of the case. As such, the Court concluded that under Virginia law, it could not save an agreement that had never ultimately been reached by the parties.
© Copyright, PCT Law Group 2010, all rights reserved.
Plaintiff Denied Relief After Court Applies New Preliminary Injunction Standard
An associate professor at the University of Virginia College at Wise was informed that his employment as a faculty member was going to be terminated. Professor James Holbrook had served as an assistant professor for three years at the time he was told his employment was being terminated. Feeling that his imminent job termination was unjust, Professor Holbrook filed suit against the College alleging statutory and constitutional violations and seeking a preliminary injunction barring his termination during the pendency of the lawsuit.Holbrook v. the University of Virginia.
However, Chief Judge James P. Jones of the Western District of Virginia denied the injunction citing the relatively new injunction standard set forth by the Supreme Court in 2008. The Court cited Winter v. Natural Resources Defense Council, Inc., and stated that the Supreme Court had “narrowed the grounds” upon which a party may obtain a preliminary injunction. In Winter, the Supreme Court held that in order to obtain a preliminary injunction, a plaintiff had to establish,
- that he is likely to succeed on the merits,
- that he is likely to suffer irreparable harm in the absence of preliminary relief,
- that the balance of equities tips in his favor, and
- that an injunction is in the public interest.
Chief Judge Jones noted that in light of this new standard, the Fourth Circuit in The Real Truth About Obama, Inc. v. FEC, had essentially “repudiated” the traditional balancing of the hardships test found in Blackwelder Furniture Co. of Statesville v. Seilig Manufacturing Co., 550 F.2d 189 (4th Cir. 1977), and required courts in this Circuit to now apply all four prongs of the preliminary injunction standard as set forth in Winter. Finding that the new standard was more rigid and lacked the flexibility of the prior Blackwelder standard, the Court held that it could only find in favor of the plaintiff if he clearly met all four prongs of the Winter test. As such, the Court held that Professor Holbrook did not make an adequate showing of irreparable harm since he could obtain monetary damages as a form of relief during the underlying case without the necessity of imposing an injunction at the outset of the litigation. Therefore, Professor Holbrook’s Motion for a Preliminary Injunction was denied.
© Copyright, PCT Law Group 2010, all rights reserved.
Employee and New Company Found Not Liable in Trade Secrets Case
A Fairfax County Circuit Court has found in favor of an employee and his new employer who were sued for misappropriation of trade secrets, among other claims, when the employee went to work for a direct competitor and took a customer list and vendor contact sheet with him. In the case of Tryco Inc. v. U.S. Medical Source, et al., Brian Thomas (“Thomas”) worked for the Plaintiff (“Tryco”), which was in a niche government contracting industry selling dental and medical supplies to the U.S. government under a Decentralized Blanket Purchase Agreement (“DBPA”). Thomas’s sister-in-law decided to get a DBPA and she started a company which sold dental and medical supplies to the government. Thomas left Tryco and went directly to work for his sister-in-law’s new company, U.S. Medical Source (“USMS”).
Upon leaving to work for the new company, Thomas did not tell Tryco that he was going to work for a direct competitor, and when he downloaded a number of personal items from his work computer onto a flash drive, he copied a contact list and vendor list along with his personal files. Tryco sued everyone involved, including Thomas, USMS, Thomas’s sister-in-law and Thomas’s brother who helped out at USMS from time to time.
After a four day bench trial, the Court found in favor of all the Defendants. Specifically, the Court found that neither of the lists taken by Thomas had independent economic value because:
- The customer list was mostly outdated, and the information on the list (names and telephone numbers of government contracting officers) could be readily obtained through legitimate means – such as using the list of contacts provided to the Defendants by the government; and
- The names and contact information for the companies on the vendor list could be readily obtained simply by looking up the companies on the internet. Therefore, the Court found that Plaintiff could not meet its burden under the Virginia Uniform Trade Secrets Act (“VUTSA”).
In addition, the Court found Thomas’s testimony to be credible that he inadvertently took the two files at issue, rather than misappropriating them for some improper means. This finding was bolstered by the fact that Thomas returned the entire flash drive as soon as he was notified of the issue by Tryco’s counsel, and just days after leaving Tryco’s employ; that he did not disclose any of the information to his new employer; and that, as a factual matter, Thomas knew all of the information on the two documents given that he had interfaced with the government contracting officers and the various vendors routinely as part of his work for Tryco.
At this point (if it had not occurred to you sooner), you may be asking why the employer just did not sue Thomas for breach of his non-competition agreement since he went directly from his employment with Tryco to work for a competitor. The answer is that Thomas was never required to sign a non-compete agreement; so he was free to compete and did so accordingly.
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