Non-Compete Claims Survive Motions to Dismiss in Two Maryland Federal Cases

A set of recent decisions by the Maryland Federal Court show when a non-compete lawsuit can be pursued past an initial motion to dismiss.  In Telogis, Inc. v. InSight Mobile Data, Inc., et al. (D. Md. Dec. 19, 2014), the plaintiff Telogis alleged that a former employee competed and solicited clients in violation of his non-compete, and hired other former employees in violation of their non-competes.  Prior to their departure, Telogis was purchasing the company that the employees worked for, and allegedly assumed their non-competes with the company.  The former employees claimed that their non-compete clauses ended based on statements by Telogis at the time of the acquisition.  Telogis, in response, claimed that offer letters at the time of the acquisition made clear that the non-competes continued.

The Court found that questions existed regarding the effect of the purchase on the non-competes, including whether the non-solicitation portion of the non-competes continued, and let the claim proceed on that basis.

In contrast, another judge of the Maryland Federal Court recently dismissed part of a non-compete lawsuit because the plaintiff could not provide signed copies of the non-competes it claimed the ex-employees breached.

In EndoSurg Medical, Inc. v. EndoMaster Medical, Inc., et al. (D. Md. Dec. 19, 2014), the plaintiff former employer and affiliates sued several departing employees and the company they formed for allegedly breaching their non-competes, tortiously interfering with employment and business relationships, breaching the duty of loyalty, and competing unfairly under trademark law, among other claims.  The plaintiffs sought a preliminary injunction to immediately stop further competition, and the defendants brought a motion to dismiss the lawsuit.

The Court denied the plaintiffs’ preliminary injunction motion and granted the defendants’ motion to dismiss in part.  The Court first determined that the breach of contract claim failed because the plaintiffs could not produce signed copies of the alleged non-competes of the employees, or show that the employees used confidential information to compete against the plaintiffs.  Then the Court found several claims were not plausibly stated under the applicable federal court pleading standard.  These included claims for tortious interference with employment relationships (based on the absent non-competes), employee piracy, and fraud.  On the other hand, the Court let the plaintiffs continue to pursue claims alleging tortious interference with business relationships, unfair competition under trademark law, misappropriation of trade secrets, and breach of the duty of loyalty.

As these decisions show, generally non-compete claims will be allowed to proceed past a motion to dismiss if a signed non-compete exists.  While arguments can be made as to the continued validity, enforceability, and scope of the non-compete, they generally cannot stop the lawsuit at the outset.  Rather, these defenses can only be presented during the litigation, and in some instances only when the case goes to trial.