Clear Showing Of Actual & Immediate Irreparable Harm Must Be Proven For Injunctive Relief
Published by Eric A. Welter on November 2, 2009
In FBR Capital Markets & Co. v. Karen Short, the United States District Court for the Eastern District of Virginia found that FBR failed to present sufficient evidence to warrant the granting of a temporary restraining order in connection with a covenant not to compete because it did not make an adequate showing of a […]
In FBR Capital Markets & Co. v. Karen Short, the United States District Court for the Eastern District of Virginia found that FBR failed to present sufficient evidence to warrant the granting of a temporary restraining order in connection with a covenant not to compete because it did not make an adequate showing of a likelihood of irreparable harm. More after the break.
FBR is an investment bank that provides its clients with training and brokerage services, including market research and analysis designed to assist client in making investment decision. Defendant Karen Short was an equity research analyst who was employed by FBR from May 2006 to July 20, 2009. Early in Short’s employment with FBR, she signed a covenant not to compete and non-solicitation agreement. The Agreement required Short to provide 90 days written notice of her intended resignation. The Agreement also including a covenant not to compete which stated that during the ninety day notice period or for ninety days from Short’s termination, she was not to be employed by or engage in “any business that competes with FBR in the capital markets, financial advisory and/or institutional sales and trading business [ ] in the same or similar capacity” as her employment with FBR.
On or about July 20, 2009, Short informed her supervisor that she was leaving FBR to begin work at Bank of Montreal (“BMO”) – undisputedly an FBR competitor. Short began employment with BMO as an Equity Research Analyst on July 21, 2009. On September 9, 2009, FBR filed a complaint against Short alleging breach of contract and violation of the Virginia Uniform Trade Secrets Act, claiming that Short breached her covenant not to compete, non-solicitation agreement, and FBR’s confidential and proprietary information policy by going to work with BMO. FBR also filed a motion for a temporary restraining order requesting that the Court bar Ms. Short from working for BMO or any other FBR competitor for a period of ninety days from entry of the order, which the Court addresses in this decision.
The granting of a preliminary injunction is an “extraordinary remedy … which is to be applied only in [the] limited circumstances which clearly demand it.” Direx Israel, Ltd. v. Breakthrough Med. Corp. 952 F.2d 802, 811 (4th Cir. 1991). In order for a preliminary injunction to be awarded by the court, the plaintiff must show that it is likely to suffer irreparable harm in the absence of preliminary relief, and has the burden of proving a clear showing of irreparable harm. Id. Additionally, the “clear showing of irreparable harm to be suffered by the plaintiff from a denial of relief must be actual and immediate.” Id at 812. The Court relied on this “actual and immediate” standard in finding that FBR did not meet its burden of proof.
The Court was not satisfied with FBR’s proffered evidence of immediate irreparable injury and denied its request for injunctive relief. The Court pointed to three reasons why FBR failed to make a clear showing of actual and immediate irreparable harm. First, FBR failed to demonstrate that it suffered any harm as a result of Short’s departure. The pleading, affidavits and hearing testimony provided by FBR alleged only that there was a risk that they might lose customers and income. FBR provided no actual showing that it did suffer losses or that there was even a significant chance that it would lose customers or income. For instance, FBR’s CEO implied that clients would leave the company to follow Short, however, he did not provide evidence that customers had or were going to leave.
Secondly, the Court found that even if FBR had suffered harm from Short’s departure, it could be adequately compensated through damages. The Court was not persuaded by FBR’s assertion that its business model made it very difficult to quantify the effect of one analyst, such as Short, and thus damages would be too difficult to ascertain. The Court dismissed this argument citing a similar case from the District Court of Vermont that found a reasonable estimate of damage can be made based on records of the assets and commission related to the accounts and similar records created by Defendant’s new employer for transferred accounts. See Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Callahan, 265 F. Supp.2d 440 (D. Vt. 2003). Therefore, if Short is found to have breached the contract and FBR suffered damages, the appropriate remedy is to seek damages through the breach of contract claim – not through the extraordinary remedy of a grant of preliminary injunction.
Lastly, the Court found that FBR’s “lack of urgency” in replacing Short weighed against a finding of irreparable harm. FBR claimed that it needed ninety days to hire someone to replace Short and give that person time to “ramp-up” before beginning to cover the specific stocks. Yet, at the time of the decision it had been two months and FBR still had not replaced her. Further, in the hearing, FBR stated that it was not sure it was even going to hire anyone to cover Short’s stocks. The Court found that FBR cannot state it will be irreparably harmed if she is not enjoined from working for ninety days when the company will be in the same position after the ninety days whether the injunction is granted or not.
The Court denied Plaintiff’s Motion for a Temporary Restraining Order.Topics: Noncompete Agreements