United States: The Latest East Coast/West Coast Conflict: Massachusetts Courts Consider The Application Of California Law In Non-Compete Litigation

Last Updated: June 29 2017
Article by Erik W. Weibust and Dallin R. Wilson

Hearkening back to the rivalry between the Boston Celtics and Los Angeles Lakers in the 1980s, Massachusetts courts (as well as others around the country) have increasingly been asked to analyze the application of California law in litigation related to non-competition agreements. As many readers of this blog know, non-competition agreements are generally not enforceable under California law. Thus, even where the subject agreement contains a forum selection clause outside of California, or where the employee may have worked in another state, former employees are increasingly racing to file first in California courts or arguing that California law should be applied, thereby hoping to avoid any restrictions on mobility.

The Business Litigation Session of the Suffolk Superior Court in Massachusetts recently analyzed these issues in a pair of cases involving the application of California law to cases and agreements outside of the state. In FTI, LLC, et al. v. Duffy, et al., three of the plaintiffs' former employees resigned and shortly thereafter filed suit in California seeking a declaration that the former employees' non-competition agreements were unenforceable. Five months later, the plaintiffs filed a lawsuit in Massachusetts, alleging breach of the non-competition agreements, trade secret misappropriation, breach of fiduciary duty, unfair competition, and other business torts. The defendants moved to stay the case pending final resolution of the California case. One of the former employees also moved to dismiss the claims against him for lack of personal jurisdiction.

The Massachusetts court refused to stay the case, holding that although when duplicative lawsuits are filed in different jurisdictions, the later-filed action is typically stayed, courts have discretion to give preference to the later-filed action when that action will better serve the interests involved. Specifically, the court held that there was minimal overlap between the cases because the California case only sought to void the non-competition agreement, whereas the Massachusetts case involved other claims. Moreover, the agreement was governed by Maryland law and a California court has no greater expertise in applying Maryland law than a Massachusetts court. Finally, the court held that Massachusetts had an equally strong interest in the case because the plaintiffs alleged that the defendants committed various business torts while working at the plaintiffs' office in Massachusetts.

The court also rejected the employee's argument that it lacked personal jurisdiction over him. The court found that the employee had sufficient minimal contacts with Massachusetts where he supervised six employees, regularly traveled to Massachusetts to supervise those employees, and billed a total of 132.3 hours for plaintiff while he was in Boston in 2014 alone. The court also determined that the employee would not be unfairly burdened by having to defend himself in Massachusetts because he lived in New York and having filed a suit in California, he revealed that he was willing to travel across the country to litigate the case.

One month later, the same court was asked to dismiss a breach of contract claim where the agreement contained a Massachusetts forum selection and choice of law provision and the former employee lived and worked in California. In Oxford Global Resources, LLC v. Hernandez, the defendant argued that the forum selection and choice of law clauses were unenforceable and that the doctrine of forum non conveniens required the case to be heard in California.

Illustrating what some believe has been a shift by the Massachusetts Business Litigation Session recently toward less stringent enforcement of restrictive covenant agreements, the court agreed with the defendant, finding that the subject agreement was a contract of adhesion, noting that the defendant was an entry-level employee who had no meaningful opportunity to negotiate the choice of law provision. The court rejected the plaintiff's argument that the contract contained a section where the defendant acknowledged that he had read the agreement and had the opportunity to have an attorney review it. The court held that the boilerplate language contained in that section did not change the fact that the defendant had no bargaining power with respect to the choice of law and forum selection clause.

The court further determined that the choice of law provision was an attempt to circumvent California's strong public policy against the enforcement of non-competition agreements. If the agreement had not contained the choice of law provision, the court held that California law would govern because the defendant was a California resident who was hired in California to service California clients, notwithstanding that the plaintiff's principal place of business was in Massachusetts. The court also rejected the plaintiff's argument that the agreement did not violate California law because it only barred the defendant from using the plaintiff's confidential information. The court noted that the agreement's definition of confidential information was overly broad and went far beyond what was permitted under California and Massachusetts law.

Lastly, the court found that it would be unfair to compel the defendant to defend himself in Massachusetts. In weighing the relevant private and public interests, the court found that all of the relevant events occurred in California and all of the plaintiff's alleged harm was incurred there. The court also took into consideration that the defendant interviewed for the job in California, was trained in California, did all his work in California, and reported to supervisors in California. Moreover, all of the relevant witnesses were located in California and could not be compelled to testify in Massachusetts. Thus, California was the appropriate forum in which to litigate the claims.

These two cases highlight important issues for employers seeking to enforce non-competition agreements that may implicate California law. First, even where an agreement contains a non-California forum selection clause, courts may not enforce the agreement where the employee had no meaningful opportunity to negotiate the provisions and it appears to be an effort to circumvent California law. Second, courts may refuse to apply a non-California choice of law provision where the employee lives and works exclusively in California. Third, just because an employee was first to file a lawsuit in California, courts will not automatically stay a later filed action in another state, particularly where additional claims are asserted. And finally, while we have blogged on this topic many times before, primarily in conjunction with legislative efforts to curb enforcement of non-compete agreements, it may ultimately be the Massachusetts courts that bring the Commonwealth closer in line with California when it comes to the enforceability of post-employment restrictive covenants.

Who said there's no East Coast-West Coast rivalry anymore?

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