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Remedies for Breach of Non-Competition Agreements

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James Irving
BKK Business Law Newsletter
November 2009

In the case of FBR Capital Markets & Co. v. Karen Short, the plaintiff investment bank brought an action in the U.S. District Court for the Eastern District of Virginia against its former employee to enforce anti-competition protections contained in her employment agreement and established by law. 

FBR, an Arlington-based entity, had employed Short as a Senior Analyst and Senior Vice President. Short signed an employment contract that included a covenant not to compete and a non-solicitation provision (the “agreement”). The agreement required Short to provide ninety days notice before resigning and stated that during that Notice Period, defendant would not be employed “in any business that competes with FBR in the capital markets, financial advisory and/or institutional sales and trading business.” The agreement provided parallel restrictions if she was terminated.

In July 2009, Short advised her supervisor that she was taking a job with Bank of Montreal (“BOM”), a competitor of FBR. Accordingly, Short was terminated. The next day, she began her new job with BOM, in apparent violation of the 90-day limit on competition contained in the agreement.

FBR sued Short for breaching the non-competition and non-solicitation provisions of the Agreement, violating FBR’s confidential and proprietary information policy, and for misappropriating trade secrets in violation of the Uniform Trade Secret Act. On September 9, the date the suit was filed, FBR also applied for a temporary restraining order prohibiting Short from working at BOM. A month later, The Honorable Liam O’Grady denied the injunction.

In light of the alleged conduct, it might be assumed that Judge O’Grady would readily issue the injunction. It may be that FBR thought the same thing. Judge O’Grady did not deny the injunction because he found Short’s conduct acceptable, but because FBR had failed to establish one of the prerequisites to injunctive relief under federal law. They had failed to “make a clear showing of immediate irreparable injury.” In fact, according to Judge O’Grady, they had failed to show any harm at all. FBR’s proof of damages was limited to allegations that Short’s departure “might” result in lost customers and income; not that they would or had.

Additionally, Judge O’Grady found a second reason to deny the injunction - that any damages suffered, or to be suffered, by FBR could be adequately compensated by money.

Judge O’Grady’s second conclusion is an eye-opener. It would seem that the loss of customers and the stream of revenue that they represent (if proven) is not subject to ready or accurate calculation. However, his first conclusion is solidly based in the law, reminding us that favorable facts don’t assure a favorable result unless the elements of the tort are proven.