In the past, I have assiduously avoided discussion of venue and jurisdiction disputes. These arise with alarming frequency in non-compete litigation. By and large, they are dull and uninteresting topics that only lawyers can warm up to.
One issue, though, does warrant some mention on this blog. And (as the title of this post indicates) it has do with the interplay between the type of non-solicitation covenant at issue and the considerations courts give to determining proper venue.
Start with this premise: non-solicitation covenants come in two shapes and sizes. First, some covenants prohibit only true customer "solicitation" by an employee. Second, others prohibit an employee from not only soliciting certain customers but also from working with them. The distinction lies in who initiates the contact - the customer or the employee. In the latter class, a broader range of competition is off-limits.
So let's discuss how this can factor into a venue dispute. Take, for example, a case out of Nebraska - Farm Credit Svcs. of America v. Opp, 2012 U.S. Dist. LEXIS 171818 (D. Neb. Dec. 4, 2012). It yields a common fact pattern:
1. Agreement contains a mandatory choice-of-law and forum selection clause of Nebraska, where the plaintiff maintains its corporate nerve center.
2. Employee works in South Dakota and deals with customers only in South Dakota.
3. Employee contends that customers will say they sought him out - not the other way around.
4. Those witnesses will be inconvenienced by having to travel to Nebraska to testify.
The argument has some appeal. But only if the non-solicitation covenant is of the first kind I described above - one that only limits "solicitation."
Why is that the case? Because customer testimony likely is very relevant to determine how the initial contact with the ex-employee started. Those customers are often decisive in resolving the critical fact question - who solicited whom? Courts will discount the employee's testimony, but they're more likely to credit what a non-party has to say on the stand.
The problem in the Nebraska case is that the agreement was broader - the second kind I described above. The non-solicitation covenant prohibited both active and passive solicitation. Customer testimony was, in the court's mind, irrelevant. If the ex-employee sold to those customers, it matters not at all who initiated the contact.
Back to venue clauses a second. There are two types - consent to jurisdiction and consent to venue. In a consent-to-jurisdiction clause, a selected venue is permissible, but not mandatory. In a true forum selection clause, however, an employee waives any challenge to venue based on his or her incovenience.
But the analysis does not end there. Federal courts have the power to transfer a case out of the mandatory venue if third-party witnesses will be inconvenienced. In non-compete cases, this would include customers who are at the heart of the dispute. And when the clause is drafted in such a way that precludes any work with certain customers, then a federal court is much less likely to view their testimony as relevant in the case. A broader non-solicitation clause, in effect, means that an employee will have a far more difficult time claiming third-parties will be inconvenienced by the agreed-upon forum.
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