Battles that Decide Wars

It is often said that noncompete cases differ from other types of civil litigation in that the initial battle in the case often decides the war. If you slip and fall while buying groceries and decide to sue the supermarket, your case will follow the typical path of civil litigation: a complaint will be filed, commencing a lawsuit; the defendant will answer; the parties will spend months or even years gathering information in the discovery phase; and the case will be resolved through the summary judgment process or at trial. All of this will take at least a couple of years. Most noncompete cases, on the other hand, have an intense but brief lifespan. The plaintiff in these cases — the former employer — typically will say that there is an emergency and that it will suffer “irreparable harm” if the former employee is permitted to compete in violation of his agreement. The plaintiff therefore will seek an immediate remedy from a judge: a temporary restraining order and/or preliminary injunction. The judge’s decision truly often does decide the war. A party’s ability to challenge the initial injunction decision is quite limited. And, while that decision really is only “preliminary,” as a practical matter, by the time the case winds it way through the litigation process, it will be too late: if the request was denied, the employee will have been working at the competitor for months or even years; and if the request was granted, the employee will be put on the “beach” for so long that the company will hire someone else.

A recent decision by the federal appellate court in Boston — Ansys, Inc. v. Computational Dynamics North America, Ltd. — illustrates this phenomenon and underscores the limited recourse a party has after losing at the injunction stage. Ansys sued its former employee (Dr. Caraeni) and his new employer (CDNA) in federal court in New Hampshire. (For purposes of this discussion, New Hampshire and Massachusetts law are not meaningfully different.) Ansys alleged (among other things) that Dr. Caraeni breached his noncompete and that CDNA intentionally interfered with the contract by hiring him. There was no question that the two companies are direct competitors and that Dr. Caraeni, a seemingly highly-skilled software engineer, had access to confidential information about Ansys based on his seven-year tenure.

As is typical in these cases, Ansys quickly sought a preliminary injunction to enforce the one-year noncompetition clause. After a one-day evidentiary hearing and submission of briefs by both parties, the federal district judge denied the request. It found that Ansys had not shown a likelihood that it would suffer irreparable injury if Caraeni were permitted to work at its competitor. In particular, the judge accepted as credible CDNA’s testimony that Caraeni had not been and would not be (at least for the noncompete’s duration) assigned to perform any work at CDNA that might allow him to use any of Ansys’s information, and that Caraeni’s knowledge was not useful to CDNA because of the different software architecture used by the two companies.

Ansys immediately appealed the injunction denial to the First Circuit Court of Appeals, which heard the appeal on an expedited basis. But in the end, the First Circuit refused to the disturb the lower court’s decision, emphasizing that it could do so only if the judge “mistook the law, clearly erred in its factual assessments, or otherwise abused its discretion . . .” The appellate court’s decision is replete with statements recognizing that Ansys’s arguments may well have been valid but that it could not say that the district judge’s conclusions were “clearly erroneous.” What the First Circuit really signaled is that another judge may have made a different decision based on the same facts, but that the appellate court would not (and could not) question that judgment.

At this stage in the case, with its injunction request denied and its emergency appeal of that denial unsuccessful, Ansys’s options are to pursue what may be a nonexistent damages case to trial, or to find a way to end the case quickly and quietly.

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