As I have written previously on this blog, I believe declaratory judgments are an underutilized tool, particularly in non-compete cases. In short, when a party seeks a declaratory judgment, they are generally asking the court to declare the rights and obligations of certain parties under a particular contract. As such, a declaratory judgment from the court – or just the filing of a declaratory judgment action – can be extremely useful in the non-compete context. The following is the first installment of a series of posts on specific non-compete scenarios where a declaratory judgment action may be helpful:
John sells medical equipment for ABC Corporation. John is based in Florida, but has a territory that includes the entire Southeast: Florida, Georgia, Alabama, Mississippi, South Carolina, North Carolina, Virginia, Tennessee. John signs a non-compete agreement. Under the terms of that non-compete agreement, the non-compete provision is limited to a certain territory. The terms of the agreement indicate that John cannot compete in a 400 mile radius of any office to which he was assigned while with ABC Corporation. Originally, John was supposed to be assigned to the Jacksonville, Florida office. But for some reason, he never actually worked there. Plans changed and John worked in the Miami office the entire time he was employed by ABC.
John leaves ABC and goes to work for a direct competitor, Rival Medical. Rival sits down, looks at the map and plots of 400 mile radius around Miami. Too bad for ABC. Although that radius knocks out nearly all of Florida and a tiny part of southern Georgia, the rest of the area included in that radius is just the Atlantic Ocean, Gulf of Mexico and Cuba. They draw up plans to assign John the rest of the Southeast: Nearly all of Georgia and all of the remaining states outside of the restricted area.
ABC gets wind of these developments and sends a cease and desist letter to both John and Rival. ABC takes the position that John cannot compete with ABC anywhere he formerly sold medical equipment, or, at the very least, anywhere within a 400 mile radius of any assigned office, which they argue includes both Jacksonville (his initial, assigned office where he never worked) and Miami (his real assigned office). Well, if you look at a map, you can see that this complicates things. A 400 mile radius around Jacksonville knocks out not only all of Florida, but also all of Georgia and South Carolina, most of Alabama and a large swath of North Carolina. This is particularly problematic because Rival desperately wants to enter the Atlanta and Charlotte markets, which are booming. John has the connections in those markets. If his non-compete agreement only keeps him out of Florida, that’s not a huge problem. But if it keeps him out of most of his old territory, that just won’t work. The disputed issue, then, is the geographic scope of the non-compete agreement.
Rival can sue ABC Company for a declaratory judgment holding that the non-compete agreement only prevents John from competing in the restricted territory and that that territory is limited to nearly all of Florida and a small part of Georgia. Further, because ABC pushed the issue by sending out that cease and desist letter and putting the matter in dispute, if Rival prevails, they should be able to hold ABC liable for their attorney’s fees.
The takeaway: If there is a dispute over the geographic scope of a non-compete agreement, a declaratory judgment action can help the parties (and particularly the potential non-compete defendant) obtain a certain, clear understanding of contractual obligations.
Jonathan Pollard is a trial lawyer and litigator based in Fort Lauderdale, Florida. He focuses his practice on competition, particularly cases involving non-compete, trade secret and antitrust disputes and represents clients in Florida and throughout the country. He is licensed in all Florida federal and state courts and routinely represents clients in Fort Lauderdale, Miami, West Palm Beach, Boca Raton, Fort Myers, Tampa, Orlando, Jacksonville, and Sarasota. His office can be reached at 954-332-2380.