Bindagraphics, Inc. v. Fox Grp., Inc.
Bindagraphics, Inc. v. Fox Grp., Inc.
Opinion of the Court
In Medispec, Ltd. v. Chouinard , the covenant in question prevented the employee from working "in an [sic ] capacity whatsoever, directly or indirectly" with a competitor.
The Fourth Circuit has ratified this logic. In DPGM II , it deemed facially overbroad a restrictive employment covenant prohibiting "any activity which may affect adversely the interests of" the employer, because, in part, the restrictive covenant was "in no way ... specifically targeted at preventing [the defendants] from trading on the goodwill they created while serving [the plaintiff s] customers." 116 Fed. App'x. at 438. In RLM Communications, Inc. v. Tuschen , a North Carolina case, the Fourth Circuit similarly distinguished between covenants "focus[ed] on employment that raises the risk that [the defendant] will use knowledge obtained" from the plaintiff to its detriment and those that focus on the similarity between the new and former employer.
In light of this precedent, the fact that the plain language of the contract prevents Mr. Rodgers from taking any position with a competitor renders this agreement facially overbroad. Mr. Rodgers's additional arguments pertaining to geographic breadth and breach need not be reached.
In Maryland, a finding of overbreadth-facial or as-applied-does not end the inquiry. "If a restrictive covenant is unnecessarily broad, a court may blue pencil or excise language to reduce the covenant's reach to reasonable limits." DPGM II , 116 Fed App'x. at 439 (citing Tawney v. Mut System of Maryland ,
The noncompete covenant in this case cannot be salvaged by the blue-pencil doctrine. There is no way to curtail the covenant's scope to specific positions within a competitor organization that raise the risk that Mr. Rodgers will capitalize on the goodwill he generated while at Bindagraphics. DPGM II , 116 Fed App'x. at 439. While the prohibition on direct and indirect competition and the application of the provision to prospective customers, arguably independent grounds to find the contract facially overbroad,
B. Nonsolicitation Covenant
The same rules apply to the nonsolicitation covenant Bindagraphics seeks to enforce. By its terms, the nonsolicitation covenant declares that, for one year following his termination, Mr. Rodgers will not directly or indirectly solicit any customer or prospective customer for products or services the same as, or similar to, those sold by Bindagraphics's trade binding division. The covenant additionally forbids Mr. Rodgers from selling, or being otherwise involved in the sale of, any such product or service to customers or prospective customers during that year. As in the noncompete covenant, customers are limited to those within Mr. Rodgers's sales territory who were either served by Bindagraphics in the year preceding Mr. Rodgers's departure or with whom Mr. Rodgers spoke within one year of them being a Bindagraphics customer. Prospective customers are those solicited by Mr. Rodgers or Bindagraphics in the year preceding Mr. Rodgers's termination. Here too, the question is whether the scope and duration of the prohibition is reasonably necessary to prevent Mr. Rodgers from trading on customer goodwill.
The nonsolicitation clause at issue here is broader in scope than reasonably necessary because it applies to prospective customers and the passive sale or provision of services to a customer that Mr. Rodgers did not solicit. First, the covenant's restriction on solicitation of prospective customers, those within the sales territory solicited by Bindagraphics in the year preceding Mr. Rodgers's departure, is not narrowly drawn to cover only those with whom Mr. Rodgers had contact. Instead, while Mr. Rodgers may have contacted some prospective customers in his capacity with Bindagraphics, the prohibition includes all potential customers solicited by *575the Bindagraphics trade binding division, drawing a wide prohibition well beyond Mr. Rodgers's personal connections. Courts in this district have found restrictive covenants that attempt to reach prospective customers to be overbroad. See Paul ,
Next, the covenant here purports to limit Mr. Rodgers's ability to sell "or otherwise service" any Bindagraphics trade binding division customer. This provision reaches far beyond customers solicited by Mr. Rodgers. It extends to unsolicited bids from customers who initiate contact with Mr. Rodgers, his work on projects solicited or arranged by other employees, and work on behalf of customers who patronize both competitors. As with a restriction barring solicitation of potential customers, the risk this provision seeks to forestall is a risk of greater competition. This is not a protected interest. See DPGM II , 116 Fed App'x. at 438. Instead, as the Maryland Court of Appeals explained in Holloway v. Faw, Casson & Co. , "[p]ersons in business have a protectable interest in preventing an employee from using the contacts established during employment to pirate the employer's customers."
In contrast to the noncompete provision, it is possible that the facially overbroad components of the nonsolicitation covenant are sufficiently separate (and severable) as to be blue-penciled. But while Bindagraphics asserts that the nonsolicitation clause can be narrowed to conform to Maryland law, see Resp. Defs.' Mots. Dismiss at pp. 10-11, ECF No. 15, it does not put forth a particular proposal for how the provision might be blue-penciled to pertain only to customers with whom Mr. Rodgers interacted. With what is before it, the court prefers not to decide whether the nonsolicitation promise can be narrowed, and if so, whether it is reasonably necessary both facially and as-applied to Bindagraphics's protected interest.
ii. Count II: Tortious Interference with A Contract
Under Maryland law, tortious interference with a contract occurs when a third party intentionally interferes with another in his or her business or occupation and induces a breach of an existing contract, of which the defendant was aware, causing damages to the plaintiff. Fowler ,
While an enforceable contract between Mr. Rodgers and Bindagraphics is necessary for the tort claim to survive, it is not sufficient; Bindagraphics must provide a detailed account of the damages it incurred. It is well established law that "expectancy damages for breach of a covenant not to compete [which here includes the nonsolicitation clause] generally are the profits that would have been realized had no breach occurred." Fowler ,
Further, to be viable, a tortious interference with contract cause of action requires Fox Group, Inc. to have known of the nonsolicitation clause at the time of the breach. "[T]he central question is whether, upon learning of the restrictive covenant that binds its new employee, the new employer nevertheless engages the employee to work for him in an activity that would mean violation of the contract not to compete." Fowler ,
iii. Count III: MUTSA claim
A trade secret under the Maryland Uniform Trade Secrets Act ("MUTSA") is "[I]nformation, including a formula, pattern, compilation, program, device, method, technique, or process, that: (1) Derives independent economic value, actual or potential, from not being generally known to; and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and (2) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy." Md. Code Com. Law § 11-1201(e). The plaintiff bears the burden of "producing some evidence" that the information taken meets the definition of a trade secret. Trandes Corp. v. Guy F. Atkinson Co. ,
In this case, the defendants do not dispute that customer databases may constitute a trade secret under the MUTSA. See also Padco Advisors, Inc. v. Omdahl ,
As it stands, the complaint is not clear enough as to what Bindagraphics trade secret Mr. Rodgers is alleged to have taken with him upon his departure. A plaintiff is not permitted to amend its complaint by supplying new factual allegations in a brief in opposition to a defendant's motion to dismiss. See Adams v. Am. Fed'n of State ,
CONCLUSION
For the reasons stated above, Mr. Rodgers's and Fox Group, Inc.'s motions to dismiss will be granted. Bindagraphics's noncompete clause contract claim will be dismissed with prejudice. Its nonsolicitation clause contract claim, confidentiality clause contract claim, tort claim, and MUTSA claim will be dismissed without prejudice.
A separate order follows.
Bindagraphics cites four cases upholding restrictive covenants purportedly prohibiting an employee from working for a competitor in any capacity. They are all readily distinguishable. Intelus Corp. v. Barton ,
See Seneca One Finance, Inc. ,
The defendants also contend that the contract is unenforceable because it contains an illusory geographic restriction. See, e.g. , Rodgers, P & A Mot. Dismiss at p. 13, ECF 13-1. The contract notes: "A general description of Employee's Sales Territory is set forth on Addendum A to this Agreement [Compl. Ex. 4], which Sales Territory shall be subject to amendment and revision by Employer, in its sole discretion, at any time and from time to time (as so amended and revised, the 'Sales Territory')." Compl. Ex. 4, ECF No. 1-4 at p. 17. While the Bindagraphics customer Mr. Rodgers is alleged to have contacted after his departure was located geographically within the sales territory, and indeed was listed by name on the original "Eric's territory" list, this is ostensibly a facial challenge to the contract's enforceability. A promise is illusory if "the promisor retains an unlimited right to decide later the nature or extent of his performance." Cheek v. United Healthcare of the Mid-Atlantic, Inc. ,
To the extent that there is a separate confidentiality covenant in the employment contract in question, the court does not assess its enforceability because the plaintiff has failed to sufficiently allege a breach. See Section 6 of the employment contract set forth above. There are no facts pleaded pertaining to specific confidential information Mr. Rodgers is alleged to have used.
Reference
- Full Case Name
- BINDAGRAPHICS, INC. v. FOX GROUP, INC., and Eric Rodgers
- Status
- 678
- Syllabus
- 474 (4th Cir. 1997). \"Even though the requirements for pleading a proper complaint are substantially aimed at assuring that the defendant be given adequate notice of the nature of a claim being made against him