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Sika Corporation v. Hostler

A-2159-09T3 (N.J. Super. App. Div. 2011) (Unpublished)

NON-COMPETITION; ATTORNEYS FEES — Even though a breach of a non-competition claim only reaches the preliminary injunction stage, it may be proper to award attorney fees to an ex-employer despite the former employee having voluntarily abided by the terms of his or her non-competition agreement.

A corporation hired a national sales manager, and the parties executed a confidentiality, non-compete, and assignment agreement. In the agreement, the manager agreed keep confidential and not publish, disclose or otherwise disseminate to any third party or make any use of the confidential information of the corporation without its approval. Further, he agreed not to solicit, on behalf of a new employer, any of the corporation’s customers or employees for one year following termination. Also, he agreed that, for a period of one year following his termination, he would not, without the prior consent of the corporation, directly or indirectly work for one of the corporation’s competitors or prospective competitors in any state or country in which the corporation did business. Finally, in the event of a breach, the manager was to be liable for reasonable attorneys’ fees and costs.

The manager notified the corporation that he was leaving to work for another employer in the same field. The competitor notified the manager that his new employment would not conflict with the agreement because it permitted the manager to continue business with clients with whom the manager had a prior relationship. The corporation immediately began suit, alleging that the manager had breached his contractual duties by emailing confidential information, including a customer contact list, to his private email address prior to leaving and by keeping a list of top accounts which he emailed to himself before leaving; solicited the corporation’s customers on behalf of the competitor while employed by the corporation; and solicited several of the corporation’s employees to work with him at the competitor.

The lower court temporarily restrained the manager from beginning employment with the competitor. After oral argument, the lower court entered a preliminary injunction restraining the manager from attempting to induce the corporation’s employees to accept employment with the competitor or any entity with which he was affiliated and preliminarily restrained the competitor from hiring any of the corporation’s sales representatives who reported to the manager. With the exception of the approved client list, the order preliminarily restrained the manager from competing with the corporation in the same industry and from soliciting or inducing the corporation’s customers who purchased products from the corporation over a two-year period. The order also recognized that the manager had returned certain of the corporation’s documents and property and that he represented he had not given the same to the competitor or anyone else, but compelled him to return any additional documents or property that might remain in his possession and restrained him, or anyone acting in concert with him, from using or disclosing the corporation’s confidential information and proprietary documents.

Following these restraints, the parties were able to amicably resolve the litigation with a final consent order. The corporation then moved for an award of counsel fees, which was denied. At a hearing, the corporation argued that it was entitled to fees notwithstanding the fact that the lower court did not make a final ruling on the merits of the complaint beyond granting a preliminary injunction. The corporation noted that there had been certain breaches of the confidentiality agreement that caused it to file suit to enforce the agreement. Finally, the corporation argued that the manager had violated his duty of good faith and loyalty, which had caused the corporation to incur costs to enforce the agreement. The manager argued that the corporation was not entitled to attorneys’ fees because he abided by the terms of the agreement. The lower court agreed, explaining that it was not in a position to find a violation because the case proceeded only to the preliminary injunction stage. On reconsideration, the lower court reinstated that there had never been a finding that there was a breach of the agreement and that the record did not establish the extent to which the final consent order reflected a success by the corporation.

On appeal, the Appellate Division observed that an award of attorneys’ fees is proper where the lawsuit is causally related to securing the relief obtained and the relief granted had some basis in law. Put another way, a party is deemed to be prevailing when actual relief on the merits of the claim materially alters the relationship between the parties by modifying the other party’s behavior in a way that directly benefits the party. The Court found that the lower court erred in looking to whether the corporation would have prevailed had the matter been tried to a conclusion. Instead, the lower court should have focused on whether the lawsuit acted as a catalyst that prompted the manager to take action and correct an unlawful practice. Here, the Court found that it did; for example, the lower court restrained the manager from violating the bar on solicitation of co-workers for the benefit of the competitor, which the manager admitted to doing before the restraints were imposed. In finding that the corporation was a prevailing party, the Court remanded for an award of reasonable counsel fees and costs.

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