The Virginia Business Litigation Blog
Herndon-based Deltek, Inc., surely thought it would have little trouble enjoining its former employees from forming a competing company in direct violation of their employment contracts. After all, the defendants admitted that they were competing with their former employer in a manner that would fall under the noncompete provisions of their respective employment agreements. However, in a written opinion issued on April 20, 2009, by Judge Trenga of the United States District Court for the Eastern District of Virginia (Alexandria Division), the court denied the requested injunctive relief.
Uncontested evidence demonstrated that three former Deltek employees, a Managing Director, Consulting Manager, and Services Coordinator, all of whom had access to information considered by Deltek to be confidential, proprietary, and trade secret information, left Deltek and joined Iuvo Systems, Inc., in Chantilly, Virginia. Iuvo’s business involves providing consulting and application management services relating to Deltek’s proprietary accounting and financial software. All three employees had signed noncompetition and nondisclosure agreements with Deltek.
The relevant noncompete language provided that the employees could not, for a period of two years after the termination of their employment, “directly or indirectly be engaged as an employee or consultant of any firm or corporation engaged in a business which is in competition with [Deltek].” The agreements also prohibited the use or disclosure of “Confidential Information” or “Confidential or Proprietary Information” both during and after employment.
At least two Deltek customers, Alliant Techsystems, Inc., and TerraHealth, had left Deltek in favor of Iuvo, which Deltek believed was offering to provide consulting services at a lower cost than such services were offered by Deltek. Nevertheless, and despite that the defendants admitted that Iuvo was competing directly with Deltek, the court declined to award injunctive relief. (Note: the court did, however, grant an injunction to enjoin Iuvo from using Deltek’s trademarks on its website and to prohibit other forms of trademark infringement).
The court’s ruling demonstrates the high hurdle plaintiffs must overcome in Virginia should they wish to enforce their rights on an expedited basis, prior to trial. To obtain a preliminary injunction, courts will examine and balance (1) the likelihood of irreparable harm to the plaintiff without the injunction; (2) the likelihood of harm to the defendant with an injunction; (3) the plaintiff’s likelihood of success on the merits; and (4) the public interest.
The court declined to enjoin the disclosure of confidential and proprietary information because Deltek could not point to specific information that the former employees were using in their competitive venture. Speculation, the court found, is insufficient. In addition, much of the information claimed by Deltek to be confidential was found to be available from other sources.
On the issue of the noncompete agreements, the court essentially found that whether the agreements would be deemed enforceable was too close to call at this early stage of the proceedings. In Virginia, noncompetition restrictions must be no greater than necessary to protect the employer’s legitimate business interests, and not unduly harsh and oppressive in curtailing an employee’s right to earn a livelihood. The court found the balance of hardships weighed slightly in Deltek’s favor, but was unable to declare with certainty that the noncompete agreements were not overly broad or restrictive. Therefore, the court denied the injunction.