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Western District of Virginia Denies Motion To Dismiss Noncompete-Related Claims

Published by on August 15, 2008

In a memorandum opinion issued on August 12, 2008, the U.S. District Court for the Western District of Virginia denied an individual’s motion to dismiss a case filed against him involving his resignation and acceptance of a position with a competitor.  A copy of the opinion is here. Plaintiff, Combined Insurance Company of America (“Combined”), filed […]

In a memorandum opinion issued on August 12, 2008, the U.S. District Court for the Western District of Virginia denied an individual’s motion to dismiss a case filed against him involving his resignation and acceptance of a position with a competitor.  A copy of the opinion is here.

Plaintiff, Combined Insurance Company of America (“Combined”), filed suit against a former employee alleging breach of contract, tortious interference with contractual and/or prospective business relations, breach of fiduciary duties, misappropriation of trade secrets, and conversion.  Defendant’s employment with Combined began in 1986 and in 2005 he was promoted to regional manager.  Defendant’s employment was subject to an employment contract which prohibits the defendant, for a period of two years following the termination of his employment, from soliciting plaintiff’s clients and employees.  Combined alleged that before defendant terminated his employment with plaintiff, defendant started working for a competitor, Family Heritage.  Additionally, Combined alleged that defendant used the company’s confidential and proprietary information to solicit plaintiff’s clients, current employees, and former employees.  The court discussed defendant’s motion to dismiss and ultimately denied said motion. 

Defendant’s first contention was that the non-competition clause and the prohibition on solicitation were unenforceable because they were vague and geographically overbroad.  Specifically, defendant argued that these covenants were overbroad and vague because they were limited to “any geographic areas for which the Executive has been responsible during the two year period before the date the Executive’s employment terminates.”  The court found this language to be permissible as the Supreme Court of Virginia upheld covenants that were “virtually indistinguishable from the ones at issue here, where the geographical limitation is defined with reference to the territories in which an employee worked prior to termination.”  Additionally the court noted that Virginia courts have upheld non-competition clauses that are limited to a former employer’s actual customers.  The court stated that Combined had clearly presented evidence that would rise to a claim for breach of contract. Accordingly, the court denied defendant’s motion with respect to count I.

Defendant’s second contention was that Counts Two, Three, and Five were precluded under Virginia law, because the only duties allegedly breached exist solely by virtue of the Contract.  The court stated that the Supreme Court of Virginia has “long recognized that under the common law an employee, including an employee-at-will, owes a fiduciary duty of loyalty to his employer during his employment,” and that this duty encompassed “the more specific duty that the employee not compete with his employer during his employment.”  The court found that the Contract was not the sole source of any fiduciary duties allegedly owed to Combined by the defendant.  Additionally the court stated that “a tort action exists against one who intentionally interferes with another’s contractual rights.”  Thus, the court held that Combined was not limited to pursuing contractual theories of relief and denied the defendant’s motion to dismiss with respect to that issue.

Defendant also argued that Combined’s claims for tortious interference, breach of fiduciary duties, and conversion are preempted by the Virginia Uniform Trade Secrets Act.  The court cited the United States District Court for the Eastern District of Virginia and concluded that the preemption provision is intended to preclude only those common law claims that are premised entirely on a claim for the misappropriation of a trade secret.  The court stated that to survive summary judgment a plaintiff must be able to show that the distinct theories of relief sought are supported by facts unrelated to the misappropriation of the trade secret. The court concluded that Combined’s claims for tortious interference and breach of fiduciary duties were not preemped because the claims were not entirely dependent upon the defendant’s alleged misappropriation of trade secrets. 

Finally defendant challenged the merits of Combined’s conversion claim. Combined alleged that the defendant forwarded a confidential and proprietary list of persons targeted for recruitment by Combined to his personal email account, and that he then used this information to solicit people on behalf of Family Heritage.  Defendant argued that the claim was without merit because the property allegedly converted, a list to the defendant’s email account, is intangible.  The court held that the claim does not fail merely because the property at issue was an electronic version of the list rather than a hard copy.  Accordingly, the court denied defendant’s motion to dismiss with regards to the conversion claim.

Contributed by Alexis J. Alber

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