Most well-drafted non-compete agreements contain "prevailing party" fee-shifting clauses. In fast-moving emergency litigation, attorneys' fees often become a significant impediment to settling the case and can far exceed damages exposure.
Just because a party does not obtain a large damages verdict for proving breach of a non-compete does not mean attorneys' fees are off the table. When courts examine whether to award fees, it will look to whether the plaintiff obtained significant relief - and the most significant relief a plaintiff can obtain usually is an injunction.
Such was the case in the hotly-contested suit Western Insulation v. Moore, a case arising out of a sale-of-business non-compete violation by Hal and Melanie Moore. The defendants sold their business for $41 million and agreed to a non-competition covenant for a period of seven years. At trial, the plaintiff was largely unsuccessful in proving compensatory damages, but it did obtain injunctive relief. As such, the defendants were liable for attorneys' fees.
The total attorneys' bill from the plaintiff's very competent counsel? $557,555.30. The award ultimately was reduced to $218,705.90, which the Fourth Circuit affirmed on appeal as reasonable considering the success the plaintiff obtained. Though the amount may strike some observers as large, it is not at all out of the realm of reasonableness.
Any non-compete dispute which is defended on the basis that the covenant is simply unenforceable will be expensive to litigate, more so from the plaintiff's side than the defendant's. Extensive third-party discovery involving customers, suppliers, and co-workers will need to be conducted so that the issue of reasonableness and the legitimacy of asserted business interests can be decided. Cases which are defended on the basis of a contract defect, such as consideration or expiration of a term contract, are generally much more streamlined and efficient to defend.
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Court: United States Court of Appeals for the Fourth Circuit
Opinion Date: 1/22/10
Cite: Western Insulation, LP v. Moore, 2010 U.S. App. LEXIS 1445 (4th Cir. Jan. 22, 2010)
Favors: Employer
Law: Virginia
Ken: Interesting blog and an interesting ruling by the Fourth Circuit. I spend most of my time representing employess in non-compete litigation. I respectfully differ with your description of $557,555.30 in attorneys' fees as " not at all out of the realm of reasonableness." To my way of thinking... a large law firm "over-lawyered" the case in an attempt to increase profits and penalize the employee. Just my thoughts, Dan
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