/>iA few weeks ago I wrote this post about a dispute between two language learning companies over two relatively short term employees. The dispute illustrates some common strategic lessons of which employers must take account in planning, administering and enforcing noncompete agreements.
Perhaps most significant, the dispute is a classic example of the gamesmanship over forum states (and the various laws that may favor or disfavor one of the other party) that characterizes many noncompete cases. Because this is an interesting dispute for employers who have noncompete agreements or hire people who do, I checked the dockets a few days ago. All three cases (two in California, one in Florida) continue.
A dispute now in its 10th month and pending in three courts involving language learning companies and two employees highlights the critical role forum plays in noncompete disputes, the legal costs parties are willing to incur to fight over it and, for those of us with the luxury of viewing the dispute from afar, a refresher on some key points in a company’s noncompete drafting and enforcement strategies.
An introduction to the parties is in order. Open English and Rosetta Stone are both in the language education business. One of the many judges who has been involved in this dispute has stated in an order that the companies are not direct competitors; there is overlap between their respective businesses but it is only partial. Specifically, Open English combines live and prerecorded online instruction, and focuses on teaching English to native Spanish speakers. Rosetta Stone offers only instructional software, and covers 30 different languages.
The employees at issue each were employed by Open English for less than a year. Nicole Wilson obtained her Ph.D. in cognitive psychology in 2005. Her LinkedIn profile indicates that she taught in her field at the university level through May 2012, while also working from 2008 through May 2012 as a senior test development consultant for Pearson Knowledge Technologies, where she developed language tests. From May 2012 through February 2013, she was the Academic Director for Open English where, her profile says, she had high level responsibilities in building staff and developing tests. In February 2013, she left Open English to become the Vice President of Language Learning Products for Rosetta Stone.
Stephanie Allen received her bachelor’s degree in archaeology in 2003 and through 2005 was doing graduate work in the field of maritime studies and underwater archaeology, at the same time doing test prep instruction for Kaplan. In 2006, her profile indicates, she began in earnest a career in training, working with a variety of companies. She worked as a Senior Product Manager for Open English for approximately 6 months, from October 2012 through March 1, 2013, when she too left Open English for Rosetta Stone, becoming the latter’s Director of Instructional Technology. One court decisions notes that Allen is earning $160,000 per year in her current position.
Wilson and Allen both signed agreements with Open English including an agreement not to compete for 6 months after employment with Open English and not to disclose Open English’s confidential information. The agreements specified that any disputes over the agreement be litigated in Florida.
After Wilson went to work for Rosetta Stone in California, the lawsuits began in February 2013 when Open English sued Wilson and Rosetta Stone in Miami, asking the court to stop Wilson from competing and from disclosing Open English’s confidential information. Allen was not a party to that case originally (she had not resigned from Open English at that time), though she has since been added as a co-defendant.
Wilson and Rosetta Stone subsequently sued Open English in state court in California, seeking a declaration that the agreement was not enforceable under California’s virtual prohibition on noncompetes, and asserting other claims including that Open English had made misrepresentations to Wilson. The case was removed to federal court, then remanded for lack of federal jurisdiction. Open English’s attempt to have the case dismissed by the state court was not successful, therefore Open English recently filed its answer.
On April 10, 2013, Allen – not yet a party in the Florida case – filed a case in state court in San Francisco in Open English, seeking a declaration that her agreement with Open English was unenforceable. That case was also removed to federal court. On October 10, the federal judge handling her case declined a motion to remand her case to state court. That decision also in effect noted, in effect, that there is no law against forum shopping. To the extent that the Rosetta Stone parties timed Allen’s departure from Open English so she would not be a party to the initial Florida action, they had the right to do so, the court said.
Also in October, the Florida court declined to dismiss the first case on the grounds that it should be litigated in California because of the almost certain unenforceability of the noncompete provisions in California, stating that the crux of the case is the misappropriation of confidential information, which is prohibited in both states.
So there are now related proceedings apparently moving forward in all three courts. How these matters resolves, both at an individual matter level and as an overall global (almost literally) dispute, remains to be seen. Much of this saga will sound familiar to practitioners who have been part of one of these two-state battles, but the amount of litigation here is remarkable.
There are several points any company that takes its noncompetes seriously should note in reflecting on what we have seen to date in this dispute. First, a strong choice of forum clause is critical. The Florida court’s decision gives great weight to the parties’ prior agreement to litigating disputes in Florida, citing Florida case law dictating that it do so. Such deference to choice of a forum is not absolute but it is common, and deference to those provisions is generally greater than it is to choice of law (i.e. which state’s law applies, regardless of where the matter is litigated) clauses. It will not prevent two-state battles, but it is a critical weapon.
Second, in concluding that there was no compelling reason the dispute should be heard in California, the Florida court wrote, “In any event, agreements not to use or disclose a company’s trade secrets while employed and after employment, which is at the crux of this case, are enforceable in both Florida and California.” It is true that trade secret misappropriation is, with some state-by- state variation of course, almost universally prohibited– in contrast to noncompete law, where state laws vary on several key points. Strong trade secret language in Wilson’s agreement and in the complaint filed with the court allowed the Florida court to make this seemingly pivotal statement in its conclusion, rather than focusing solely on the almost certain different treatment the two states’ courts would give the plaintiff’s attempt in the complaint to stop Wilson from competing.
Finally, the decision underscores the fact that there is usually a benefit to getting to the courthouse first in multi-state noncompete disputes. The Florida court noted that the California case, on which the defendants relied in part as a reason the Florida case should defer, was filed after the Florida case. One of the California courts noted that Allen was not a party to the Florida case when her case was filed in California. Experience tells us the “race to the courthouse” is often critical. Whether the fact that the system seems to encourage this is good public policy is debatable, but it is clearly the case and companies need to consider this in their decision-making.
There are undoubtedly many additional nuances to this litigation that only the parties can fully appreciate, but even at the observer level, the cases present a textbook example of some common issues in multi-state noncompete litigation.
