Company Awarded Damages in Noncompete Case in Fairfax County
Published by Eric A. Welter on March 26, 2010
A Fairfax Circuit Court held that a former shareholder and director of a car dealership was liable to the company for violating his non-compete agreement and starting a similar business, as well as for soliciting another company employee to work for him. More after the break. In 2003, James Redden became a salesman for Springfield […]
A Fairfax Circuit Court held that a former shareholder and director of a car dealership was liable to the company for violating his non-compete agreement and starting a similar business, as well as for soliciting another company employee to work for him. More after the break.
In 2003, James Redden became a salesman for Springfield Motors, Inc. (“SMI”), a car dealership. After about a year, Redden was given the option to purchase shares in the company. In May 2004, Redden executed the stock purchase and signed a shareholder agreement. Shortly after, Redden entered into an employment agreement whereby he became sales manager, business manager, a director, and Treasurer of the company. The employment agreement contained a non-compete provision which prohibited Redden from engaging in any similar business while he was employed by SMI, as well as prohibited him from soliciting or hiring SMI employees for any outside business.
While he was still employed by SMI, Redden started an auto body repair shop and solicited an SMI employee to work for him. Redden turned in his resignation in August 2005, and proceeded to sue the other shareholders to enforce the shareholder agreement, which would required them to repurchase Redden’s shares. SMI then sued Redden for breach of contract, breach of fiduciary duties, and conversion. The suits were consolidated and a bench trial was held.
In its opinion letter, the court began by stating that non-compete agreements are enforceable in Virginia when they meet the following criteria: (1) they are narrowly drawn to protect a legitimate business interest; (2) they are not unduly burdensome on the employee’s ability to earn a living; and (3) they are not against public policy. The court found that the non-compete at issue met all three of these requirements. The provision prohibiting Redden from engaging in a similar business was narrowly drafted because it only applied during the term of his employment with SMI. Likewise, the court found that that the anti-solicitation provision was enforceable. The court held that since the repair shop was a business similar to SMI, and Redden had solicited an SMI employee, he was in breach of the non-compete agreement.
The court ordered Redden to pay $16,691.61 for breach of the non-compete as liquidated damages. The court also found Redden liable for conversion in the amount of $1,885.42, because Redden had inflated his commissions on car sales on multiple occasions. The court found that Redden had breached his fiduciary duties to SMI when he solicited an SMI employee and also because of the misconduct related to his commissions. The court refused to enforce the shareholder agreement, citing the doctrine of unclean hands. Finally, the court awarded SMI punitive damages in the amount of $5,000, finding that Redden had acted with actual malice.
A copy of the opinion can be found here.Topics: Noncompete Agreements, Virginia