New England Biz Law Update
A U.S. District Court judge has found that a mortgage lender could not enforce a contractual non-solicitation clause barring its former employees from doing business with any broker with whom the lender did business during their time of employment.
Plaintiff Carrington Mortgage Services sued former employees Kevin DeLory, Kenneth Phillips, Keith Russell and Everett Jackson alleging that they solicited employees and mortgage brokers after they left the company in 2021 with the help of Equity Prime Mortgage, gutting the plaintiff’s Wholesale Mortgage Division and costing it up to $10 million in lost profits. Each of the defendant employees signed an agreement containing a provision prohibiting both employee and broker solicitation, directly or indirectly, for one year.
“Equity Prime’s issue is whether the provision is ‘reasonable.’ It claims the provision is unreasonable because it prohibits the Individual Defendants from doing business ‘with any broker with whom Carrington did business’ during their time of employment, regardless of whether they had personally worked with that customer. … It argues that this renders the provision overbroad and damaging to the public interest,” Chief Judge John J. McConnell Jr. wrote.
“Carrington asks the Court to partially enforce the non-solicitation clause as it governs solicitation of brokers with whom the former employee had a working relationship because it has a legitimate interest in maintaining those valuable contacts. It essentially asks the Court to rewrite the provision to make it more narrowly restricted to those contacts. The Court finds that the language is unreasonable because it is more than necessary to protect Carrington’s interest in … holding on to its brokers after the Carrington employee leaves its employment,” McConnell stated.
“The Court also finds that the non-solicitation provision deliberately overreaches in an effort to control its former employees from working in the mortgage business elsewhere. It imposes hardship on the exiting employee by preventing them from competing in the mortgage broker market. The overbreadth … of this agreement is amplified when one considers the hundreds of brokers a Carrington employee would have encountered during their eight years of employment. Therefore, this non-solicitation provision is unenforceable and there can have been no breach of that provision,” the judge concluded.
