A recent decision illustrates the risks for defendants in non-compete cases who go on the offensive by asserting counterclaims against former employers. In a 2006 opinion, the Massachusetts Business Litigation Session awarded a defendant in a non-compete case significant damages after the defendant proved that the plaintiff had filed the lawsuit for improper competitive purposes. Yet, in a recent decision, the same court dismissed a defendant’s counterclaim, ruling that the counterclaim was based solely on the plaintiff’s filing of the lawsuit and that the plaintiff’s claims were reasonably based in the facts and the law.
In Brooks Automation v. Blueshift Technologies, Inc., Justice Ralph Gants of the Massachusetts Business Litigation Session refused to enforce the plaintiff company’s non-competition agreement with a former employee, but awarded the defendant six-figure damages on its counterclaim.
Brooks had filed a lawsuit against its former employee (van der Meulen) and Blueshift Technologies, the company he founded, alleging that van der Meulen had breached non-competition and non-disclosure provisions in his separation agreement and further alleged that defendants had unlawfully interfered with Brooks’ contractual relations with a potential customer, Applied. In response, Blueshift asserted a counterclaim alleging that Brooks had violated chapter 93A of the Massachusetts General Laws, which prohibits unfair methods of competition, and had unlawfully interfered with Blueshift’s relationship with Applied. Blueshift’s 93A counterclaim was based on assertions that Brooks had no reasonable basis to believe that its suit would succeed and that it had filed the action for reasons other than adjudicating its claims – namely, to prevent Blueshift from contracting with Applied.
At trial, the jury found against Brooks on all of its claims, and in favor of Blueshift on its counterclaim, finding that Brooks had intentionally interfered with Blueshift’s contractual relationship with Applied, and had caused Blueshift actual damages of nearly $210,000. The court later ruled that Brooks had willfully violated chapter 93A and therefore trebled the damages award and ordered Brooks to pay Blueshift’s attorneys’ fees.
The Brooks case was notable because a Massachusetts court found that a former employer went too far in seeking to assert its rights against a former employee and his new employer, recognizing that a former employee and the new employer have a judicially sanctioned ability to defend themselves against the misuse of the judicial process.
Yet, a recent decision from Justice Fabricant of the Massachusetts Business Litigation Session, reveals that there is a limit to the extent to which defendants can assert counterclaims against the plaintiffs in non-compete cases. In Carl Zeiss Meditec, Inc. v. William Shields, the court dismissed the individual defendant’s counterclaim against his former employer pursuant to the Massachusetts anti-SLAPP statute. (“SLAPP” is an acronym for Strategic Lawsuit Against Public Participation).
William Shields had been employed by Carl Zeiss Meditech, Inc. (“CZMI”) as a sales director and he had signed an agreement obligating him to preserve CZMI’s confidential information and barring him from interfering with CZMI’s business for two years after leaving. Notably, the agreement stated that it did not restrict Shields from being employed or engaged in any competitive business after his employment with CZMI ended.
In April, 2007, Shields resigned from CZMI and began working for a competitor, Optovue, as its Vice President of International Sales.
CZMI filed a complaint against Shields alleging breach of contract, breach of fiduciary duty and unfair competition, and seeking a declaratory judgment that Shields’ employment by Optovue violated his agreement and his fiduciary duty. Although the court initially granted CZMI’s request for a temporary restraining order preventing Shields from working for Optovue and from disclosing CZMI’s confidential information, it later issued a preliminary injunction barring shields from using any confidential information, but did not enjoin Shields from working for Optovue.
In its answer, Shields asserted two counterclaims against CZMI. The first sought a declaratory judgment that the non-interference provision of the employment agreement was void under a California business law statute. (CZMI is a New York Corporation with its principal place of business in California). The second alleged that CZMI engaged in unfair competition in violation of California law by seeking to enforce the unlawful provision of the agreement,
In response, CZMI moved to dismiss the unfair competition counterclaim under the anti-SLAPP statute. While recognizing that CZMI’s motion fell outside the apparent purposes of the statute — which was to remedy lawsuits directed at individual citizens speaking publicly against development projects — the court acknowledged that the language was broad and had been applied to purely private disputes involving no issue of public concern.
In order to succeed on its motion, CZMI had to convince the court that Shields’ counterclaim was based solely on its petitioning activity, which it did. Under the anti-SLAPP statute, petitioning activity includes statements made before a legislative, executive or judicial body. Although Shields argued that his counterclaim was based not only on the lawsuit, but also on statements by CZMI representatives, the court ruled that all of the communications were petitioning activity because they reminded Shields of his commitments in the agreement and warned that a breach would result in litigation, and reminded Shields that his claims were based on the lawsuit, and not any statements made about it.
Because Shields’ claim was based solely on petitioning activity, he had to establish that CZMI’s lawsuit (its “petitioning activity”) was devoid of any reasonable basis in fact and law in order to defeat CZMI’s motion to dismiss his counterclaim, but he could not do so. Judge Fabricant found that CZMI’s claims had both reasonable factual and legal support, relying in part on the court’s issuance of the preliminary injunction. The court also expressed doubt that the California business statute on which Shields relied in his counterclaims had any application to the agreement because Shields had lived and worked in Massachusetts. In addition to granting CZMI’s motion to dismiss, the court granted CZMI its attorneys’ fees and costs.
Notably, in Brooks, Brooks had also filed a motion to dismiss Blueshift’s counterclaims under the anti-SLAPP statute. Although the court found that Blueshift’s counterclaims were based on petitioning activity alone, it ruled, based on the jury’s factual findings, that Brooks had neither factual nor legal support for its claims against Blueshift and therefore denied the motion to dismiss the counterclaims. This ruling was recently upheld on appeal.
These cases highlight the fact that defendants should be cautious about bringing counterclaims accusing enforcing employers of engaging in unfair competition.