New England Biz Law Update
A company can be hit with treble damages for filing a frivolous complaint against a former employee based on a noncompete agreement – even where the ex-employee was preparing to form a competing business and was negotiating with a former customer, a Massachusetts Superior Court judge recently ruled.
The company argued that it should not be subject to multiple damages under Chapter 93A of the Massachusetts general laws – which relates to commercial activities – since its claim was based on a ruling of the 2nd Circuit.
But Judge Ralph D. Gants disagreed, stating “no reasonable person could conclude that there was a basis in law for [the company’s] claim that mere preparation to compete constitutes prohibited competition under the non-compete provision of [the former employee’s] separation agreement.”
The 23-page decision is Brooks Automation, Inc. v. Blueshift Technologies, Inc., et al. (Docket No. 05-3973).
While Gants agreed that filing a frivolous complaint is not, by itself, an act of trade or commerce for purposes of Chapter 93A, “it [nonetheless] becomes an act done in the conduct of trade or commerce when, as here, it is motivated by an intent to interfere with a competitor’s contractual relationship with a key and much coveted customer.”
In September 2005, the plaintiff company, Brooks Automation, Inc., filed a lawsuit alleging that Peter van der Meulen – a former employee and one of the defendants – violated the noncompete provision of his employment contract when he left Brooks to form a competing company.
van der Meulen had agreed not to compete with Brooks for one year following his termination, and he also agreed not to disclose any trade secrets.
Brooks took issue with how the defendants – van der Meulen and his new company, Blueshift Technologies, Inc. – contacted a large computer chip manufacturing company, Applied Material, which Brooks Automation had been pursuing as a potential buyer for its semiconductor wafer manufacturing technology.
Brooks Automation claimed that van der Meulen was using its trade secrets to develop and sell his own semiconductor wafer manufacturing technology.
The defendants filed a counterclaim, alleging that Brooks Automation had violated Chapter 93A and interfered with Blueshift’s contractual relations with Applied Materials by filing the lawsuit. The counterclaim also noted that Brooks Automation had informed Applied Materials of the lawsuit via e-mail before the defendants had received notice of the suit.
The jury ultimately ruled in favor of the defendants, finding that Brooks Automation’s interference caused Applied Materials not to pay a $209,300 purchase order to the defendants.
Arguable Basis in Law?
Blueshift then asked Gants for a finding that Brooks Automation violated Chapter 93A.
Gants noted that each of Brooks Automation’s allegations from its initial complaint had to be evaluated to see if there was an arguable basis in law.
Regarding its claim that van der Meulen violated the noncompete agreement by “beginning to market or sell” his chip technology within the one-year period, Brooks argued that it had an arguable basis in law because of the 2nd Circuit’s decision in DeLong Corp. v. Lucas.
In that decision, Gants noted that the 2nd Circuit found “a former employee breached his non-compete agreement by performing engineering work for a competitor of his former employer on a new product that was not yet ready to be marketed.”
But Gants distinguished the DeLong Corp. decision case, noting that the former employee in DeLong Corp. left to join an existing competitor, while here, van der Meulen “had started his own company and was preparing to compete with Brooks once the one-year prohibition ended.”
As a practical matter, Gants said, “If a former employee with a routine one-year non-compete agreement cannot even prepare to compete with his former employer during the one year, the effective length of the non-competition period, for all practical purposes, would be significantly longer than one year.”
He added that “[a]n employee certainly may agree to a longer non-compete period but he cannot be tricked into a longer effective period of non-competition by signing a routine non-compete provision.”
‘Reckless’ Lawsuit
Regarding the plaintiff’s other allegations, Gants said they lacked factual support and that Brooks Automation was “reckless” in filing its lawsuit.
“Brooks filed suit when it sensed the possibility of a trade secret theft without having reasonably investigated whether what it sensed indeed constituted the theft of a trade secret,” the judge wrote.
This misuse of the court system, combined with a motivation to interfere with a competitor’s contractual relationship with a coveted customer was a deceptive trade practice justifying treble damages, the judge found.
Brooks Automation’s attorney, Wayne F. Dennison, declined to comment citing the ongoing nature of the litigation. The defendants’ attorneys, Mark E. Tully and Neil T. Smith, both of Boston, similarly declined to comment.
