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AV Solutions, LLC v. Keystone Enterprise Services, LLC

2011 WL 2971222 (U.S. Dist. Ct. D. N.J. 2011) (Unpublished)

NON-COMPETITION —A contractual provision in a non-competition agreement that expressly states the breach of the agreement would be deemed to have caused irreparable harm is not substitute for a finding by a court to determine if a preliminary injunction is proper.

A video production company served the financial, pharmaceutical, and insurance industries. It entered into an agreement with a medical education company to provide satellite services for the education company’s live meetings. The production company then entered into a Master Services Agreement with a subcontractor for work on the proposals. The agreement also included a non-competition agreement. The production company became aware that its subcontractor had contracted directly with the medical education company for a satellite broadcast and had violated the non-competition agreement. The subcontractor explained that the education company it had contracted with was an affiliate of the medical education company and that it did not learn this until a later point during the relationship. The video production company sought a preliminary injunction to prevent the subcontractor from soliciting or conducting business with any of the education company’s customers.

The Court applied the federal standard for examining request for preliminary injunctions. The applicable factors that need to be considered are: (1) whether the movant has shown a reasonable probability of success on the merits; (2) whether the movant will be irreparably harmed by the denial of relief; (3) whether granting the preliminary relief will result in even greater harm to the nonmoving party; and (4) whether the granting the preliminary relief will be in the public interest. In this case, the Court only needed to address the second factor, asking whether the production company had suffered an irreparable harm as a result of its subcontractor’s breach of its non-competition agreement.

The company argued that it suffered irreparable harm because the non-competition agreement clearly and expressly stated that a breach would deemed to have caused irreparable harm. The Court held that such a contractual provision is not a substitute for a finding by the Court to determine if a preliminary injunction is proper. Even though the Court could take the language of the contract into consideration, the language alone is not enough or a substitute for the its determination.

The production company also argued that its subcontractor’s breach of agreement had destroyed its customer base. It alleged it lost business because of the subcontractor’s interference with its contracts. The Court held that value of the business lost is ascertainable based on previous work with those same customers and could be compensated with monetary damages. The company contended that even if the actual lost work was compensable, the lost value of repeat business from those same customers cannot be compensable. However, the Court found that the alleged harm had already occurred and any loss of future contracts with customers was too speculative. Therefore, it found that the production company failed to make a clear showing, based on evidence in the record, that such a breach would cause it to suffer immediate irreparable injury. Thus, the remedy of preliminary injunctive relief was inappropriate because the damages could be compensated with money.

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