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Noncompete lawsuit can go forward

An insurance company is the hands-down winner in a preliminary challenge to its noncompete agreement with a regional manager, as a federal judge turned away every defense offered by the former manager.

The Aug. 11 opinion by U.S. District Judge Glen E. Conrad of Roanoke stands in contrast to a spate of recent Virginia state cases and one federal decision rejecting noncompete agreements under Virginia law.

The case is Combined Insurance Company of America v. Wiest, (VLW 008-3-310).

The plaintiff, an Illinois-based insurer, sued former regional manager Bernard P. Wiest Jr., alleging that Wiest raided customers and other employees from Combined as he made the jump to another company.

Wiest responded with a motion to dismiss and the familiar arguments that the restrictive covenants in Wiest’s employment contract were too broad to enforce and that accompanying tort law claims were improperly joined with the contract action.
Similar defenses under Virginia law recently have met with success in two circuit courts and in the U.S. District Court in Alexandria. The Wiest decision brings a different result.

Combined’s contract with Wiest barred competition and solicitation of employees for two years within those geographic area – about 30 counties in Virginia – for which Wiest was responsible in the last two years prior to his termination. That was a reasonable geographic limitation under Virginia law, Conrad concluded.

“The Supreme Court of Virginia has upheld covenants that are virtually indistinguishable from the ones at issue here, where the geographical limitation is defined with reference to the territories in which an employee worked prior to his termination,” Conrad wrote.

Conrad rejected an effort to broadly construe the contract’s nonsolicitation language, finding that it applied only to solicitation of the employer’s staff. Conrad also turned aside the argument that a noncompete requirement was invalid unless it came with a list of customers, so Wiest would know who to avoid in his sales calls.

Wiest then argued that various tort claims under Virginia law were precluded because the only duties he owed were those set forth in his contract. Reviewing Virginia cases, Conrad found that an employee has an independent common law duty of loyalty that exists apart from any contract.

“Virginia law recognizes the tort of breach of fiduciary duties in the employment context, and inasmuch as it is clear that almost all employment relationships are founded on contract, it is abundantly clear that the Supreme Court of Virginia did not intend to render the two causes of action mutually exclusive,” Conrad wrote.

Conrad also allowed claims for conversion and tortious interference with contract. He expressly rejected the contention that the tort claims were preempted by the Virginia Uniform Trade Secrets Act.

“It’s a total victory on all counts,” said Roanoke attorney Bill Poff, local counsel for Combined.

The victory went to the other side in a similar case decided in April by U.S. District Judge Gerald Bruce Lee. That case is Nortec Communications, Inc. v. Lee-Llacer (VLW 008-3-168).

Lee found that a noncompete agreement was overbroad when it barred competition related to products or services offered by the former employer, regardless of whether the products or services related to what the former employee did.
Fairfax Circuit Judge Bruce D. White rejected a noncompete agreement in ManTech International Corp. v. Analex Corp. (VLW 008-8-167), that had no geographic restriction and also barred work at any “predominately similar” business. “The phrase ‘predominately similar’ is ambiguous and vague,” White wrote.

In the case of Knowles v. New Age Digital, Inc. (VLW 008-8-148) Chesterfield Circuit Judge F.G. Rockwell III found that a statewide geographic restriction was overbroad without an allegation that the employer serviced the entire commonwealth.

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