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Noncompete’s choice-of-law provision not determinative

A nonresident defendant’s contacts with Rhode Island were not robust enough to allow the federal court to exercise jurisdiction in a lawsuit accusing that defendant of breaching a noncompete agreement with his former employer, U.S. District Court Judge William E. Smith has ruled.

Though finding the question a “close call,” Smith concluded that CVS Pharmacy did not meet its burden of showing that its employee, Timothy M. Brown, had “purposefully availed” himself of activities in Rhode Island so as to give the court jurisdiction in the dispute.

smith_william-web-620x330“[The defendant’s] abstract connections to Rhode Island via his former employer, along with his single trip to the Ocean State, are insufficient to nudge CVS’s case over the jurisdictional line.”

— Judge William E. Smith

The fact that Brown had signed a noncompete agreement with CVS stating that Rhode Island law governed any disputes arising from the contract was not enough, by itself, to satisfy the purposeful availment requirement.

Something more was needed, according to Smith.

The judge spelled out numerous holdings from across the country in which in-state companies sued their out-of-state former employees for breach of noncompete agreements to illustrate that purposeful availment generally turns on the “frequency and numerosity of contact … between the out-of-state employee and in-state persons.”

Where the out-of-state employee had regular contact with in-state colleagues, personal jurisdiction exists; on the other hand, he continued, courts have declined to exercise jurisdiction where contacts are “meager.”

The case at hand fell into the latter category, Smith found, since Brown’s Rhode Island contacts were limited to a single visit; his employment by Woonsocket-based CVS; and his ownership of company stock.

“The dust having settled (unlike the parties), little remains to buttress the choice-of-law provision,” Smith wrote. “Brown’s abstract connections to Rhode Island via his former employer, along with his single trip to the Ocean State, are insufficient to nudge CVS’s case over the jurisdictional line… . Thus, this case cannot proceed in this court.”

The 16-page decision is CVS Pharmacy, Inc. v. Brown.

Counsel for plaintiff CVS, Neal J. McNamara of Providence, did not respond to a request for comments. Brian J. Lamoureux of Johnston, Rhode Island, represented defendant Brown and declined to elaborate on the jurisdictional ruling.

Noncompete agreement

Brown began working at Connecticut-based Aetna in 2017, serving first as a Medicare manager and later as a chief Medicare officer covering the northwestern part of the country. The company was acquired by CVS in 2018.

Brown received $97,750 in restricted stock options from CVS at the time, contingent on his acceptance of a noncompete agreement specifying that he would not engage in certain types of work for any competitor for one year after leaving CVS.

The current suit was prompted by Brown’s notice in January 2021 that he would be leaving the company, having accepted a position as a Medicare Advantage officer for Cigna, an Aetna competitor. When negotiations between the parties failed, CVS sued, maintaining that Brown has confidential information regarding Aetna’s business plans in the Medicare Advantage market. The company sought to enjoin him from working for Cigna for 12 months.

Along with its complaint, CVS filed emergency motions for a temporary restraining order and a preliminary injunction. Brown moved to dismiss for want of jurisdiction or to transfer venue.

Limited state connections

In entertaining the motions, Smith delineated the three requirements for a court to exercise personal jurisdiction, as identified by the 1st Circuit.

First is a showing of “relatedness,” that the litigation directly arise out of, or relate to, the defendant’s forum-state activities. Second, the defendant’s in-state contacts must constitute a “purposeful availment” of the privilege of conducting activities in that state. Third, jurisdiction must be reasonable.

Taking center stage was the purposeful availment prong — that is, whether Brown through his actions had invoked the benefits and protections of Rhode Island’s laws, making his potential presence in the state’s courts foreseeable.

Smith was not persuaded by CVS’s argument that Brown satisfied the requirement by signing a noncompete specifying that Rhode Island law governed any disputes arising thereunder.

“The choice-of-law clause in the noncompete agreement supports CVS’s contention that Brown should have expected to have the protection of Rhode Island law,” Smith wrote. “However, a contract between the parties agreeing that the law of the forum state will govern the contract is not on its own sufficient to establish personal jurisdiction… . Thus, the question is whether CVS has established so-called ‘plus’ factors sufficient to bolster the choice-of-law clause.”

Turning to the facts in search of such factors, Smith reviewed CVS’s position in its filings: that Brown worked for the Rhode Island company for two years; attended a single multi-day training in the state; and received CVS stock through his employment.

But the company also acknowledged that Brown’s work was focused in the Northwest and Mountain regions.

“CVS does not make any assertions or provide any evidence regarding whether and with what frequency Brown’s work involved direct interactions with employees in Rhode Island,” Smith wrote. “The only direct connection to Rhode Island (aside from the choice-of-law clause), as opposed to indirect connections via CVS, is Brown’s single trip to the state. This falls below the standard of purposeful availment.”

Furthermore, Smith found the defendant’s ownership of CVS stock was of minimal consideration, with $97,750 in stock — “a minute piece of equity in a multibillion-dollar corporation” — not playing a major role in any jurisdictional analysis.

The judge also noted that Brown did not initiate the relationship with the Rhode Island company, a factor that some courts have found to be persuasive. Rather, Brown accepted a job with Aetna, a Connecticut corporation, which was later acquired by CVS.

“Although he acceded to a relationship with a Rhode Island company by maintaining his employment for two years following the acquisition, he did not initiate or seek out a relationship with a Rhode Island company. Thus, to the extent that his relationship with CVS itself involved a connection with Rhode Island, it was not a connection that he purposefully created,” Smith wrote.

With one of the legs of the jurisdictional stool not supported, the judge saw no need to delve into the other relevant factors of relatedness and reasonableness.

To avoid undue delay in an employment matter of some urgency, he transferred the litigation to the Western District of Washington, where Brown lived and worked throughout his employment with Aetna/CVS.

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