During their first year of law school, future lawyers learn the related concepts of jurisdiction and venue, governing where suits between residents of different states may be brought. In short, a person or company cannot drag a foreign resident into court who lacks the requisite minimum contacts with the “forum” state. These issues sometimes arise in non-compete litigation, as exemplified by the recently decided H2I Grp. v. Miller (D. Minn. Feb. 10, 2020). The case provides a cautionary note to would-be non-compete enforcers who fail to adequately investigate the bases for personal jurisdiction. It also provides guidance on how courts applying Minnesota law evaluate requests for injunctive relief, critical to weighing the costs and benefits of suing versus seeking peace through a negotiated settlement.
The suit in question was brought by a national company based in Minnesota that builds and renovates gymnasiums against a former employee who worked and lived in Texas and was responsible for a territory that included the states of Texas, Oklahoma and Arkansas. Defendant Miller’s job consisted of managing projects in that region, not so much selling or marketing to prospective customers. At the time he was hired in 2014, Miller signed a broad one year non-compete that included non-competition and non-solicitation clauses barring him from working in the field of gymnasium construction or renovation within 150 miles of his regional office. In 2018, Miller’s ex-wife’s new husband, Defendant Durant, decided to expand his home-remodeling company to gymnasiums, in the course of which he recruited Miller to work on projects (without compensation) that Plaintiff had rejected. Over time, Miller became disenchanted with Plaintiff owing to consistent 80-hour workweeks, and resigned his position with Plaintiff to join Durant’s company as a full-time, fully compensated employee. He signed a separation agreement with Plaintiff waiving all legal claims he might have against Plaintiff in exchange for a modest payment. That agreement contained a choice of law clause stipulating Minnesota law, but lacking a choice of forum clause designating the location in which a suit by Plaintiff may be brought in the event of an alleged breach by Miller.
Soon after Plaintiff learned of Miller’s actions, it brought suit against Miller, Durant and Durant’s company in federal court in Minnesota, alleging among other things breach of contract against Miller and tortious interference with contract against the other two defendants. Plaintiff also sought a preliminary injunction barring Miller from continuing to work for the new employer during the pendency of the lawsuit. Defendants immediately moved to dismiss on the basis of a lack of personal jurisdiction. In his ruling, long-time Federal District Court Judge John Tunheim denied the motion to dismiss as to Miller but granted it as to Durant and his company. Miller’s contacts with the forum state (Minnesota) were deemed by the Court sufficient to confer jurisdiction over him under Minnesota’s “long arm” statute, which extends its courts’ reach to non-state residents up to the Constitutional maximum. As a consequence, Miller will be forced to incur the expense and bother of traveling to Minnesota and hiring a Minnesota lawyer to defend against the lawsuit, should he decide to fight it. His in-person presence will be required for trial only, assuming the case doesn’t first settle or get resolved by dispositive motion. (Typically, a plaintiff must take a defendant’s deposition – sworn testimony before a court reporter during the discovery phase of litigation – in the defendant’s home state). The Court began its analysis by stating that the signing of a contract with a resident of another state, standing alone, is insufficient to confer jurisdiction. More of a connection with that state is needed, which may include travel to the state or signing a contract in which the party agrees in advance to have any case between the parties heard in that state’s courts. As to Miller, however, the standard was met, despite never having stepped foot in Minnesota. The minimum contacts included working for a Minnesota-based company, reporting to supervisor based in Minnesota, signing a separation agreement designating Minnesota law, and the purpose of the non-compete, whose signing was required as a condition of employment: to protect a Minnesota company against unfair competition from its current and former employees.
The Court viewed the claims against Durant, which sounded in tort and not contract, differently. Significantly to the Court, Durant and Miller testified that they did not discuss Miller’s contract with Plaintiff, dismissing the argument that Durant knew the “brunt of the injury” would be felt in Minnesota on the thin reed that non-competes are common in the construction industry. Paradoxically, Durant was saved by engaging in a terrible practice: not asking a prospective employee if he/she is bound by a non-competition or non-solicitation agreement.
Moving to the merits, the Court denied Plaintiff’s request for injunctive relief, ruling that Plaintiff failed to demonstrate irreparable harm because money damages in the event a breach were proven would adequately compensate Plaintiff, based on the nature of the claims. Although the Court didn’t lay out the basis for this conclusion, one might suspect that towns and school districts build gyms very infrequently, as opposed to (say) businesses who buy consumables such as copy paper. More importantly to the Court, Plaintiff also failed to show a likelihood of success on the merits. On the disputed factual record, it was not clear that Plaintiff was likely to win. Among other things,Plaintiff’s business consists primarily of new-builds, whereas Defendants’ involves renovations (although Defendants’ website markets new-builds, too). In the Court’s words, “it remains to be seen whether renovation work represents competition against [Plaintiff].” Plaintiff also had no evidence that Miller used its confidential information in trying to sign up business with his new company, in violation of the separation agreement.
The takeaways here for employers are pretty clear. First, if you want to make sure of the ability to sue a disloyal former in employer in Minnesota, say so in your non-compete. Choice of forum clauses in non-competes are very common, and are virtually always enforced. As it happened, failure to do so here had no adverse consequences. But why take the chance? Second, evaluate the economics of litigation with a broad view, not only of the location of would be-Defendants but also by taking a very careful examination of the merits. The cost of bringing a second suit in Texas for the Plaintiff in the Miller case will likely not be worth the expense, unless Plaintiff can show both that it lost actual business within the 150 mile radius and that it would be able to collect a judgment in that amount against Defendants, in excess of the many tens of thousands of dollars in anticipated litigation expenses. Losing the injunction fight often, but not always, ends the lawsuit as a practical matter. Again, the benefits of continuing to trial, in terms of deterrence effect and collectible damages that can be ascertained with reasonable certainly, often are not worth the expense.