ENFORCEMENT OF NON-COMPETITION AGREEMENTS

It is all too common these days to hear of cases where a key man or woman in a Minnesota business, who has had access to the company’s confidential information, marketing strategy, product specifications, customer lists, and trade secrets, leaves the company either to join a competitor or to form a competing business, relying upon the knowledge, expertise, and exposure gained while employed. This is especially true in new high-tech companies, which have developed new and unique technology, giving them a special advantage or niche in a particular product market.

A company could, therefore, face devastating losses in the market if the key person, who does not have a non-compete agreement in his or her contract, leaves the company, forms a competing business, and takes with them the trade secrets, customer lists, and market strategy.

Non Compete Agreement Enforcement Minneapolis Minnesota

To protect the company under these circumstances, it is highly recommended that every business, which enters into an employment agreement with a key person, require as a condition of employment the execution of a non-compete agreement.  These agreements are enforceable under Minnesota law as long as the restrictions they impose, prohibiting the right to compete within a specific time frame and geographic area, are reasonable.

The Minnesota Courts have consistently struck a balance between two competing policies: one of which favors the right of individuals under our system to freedom in earning a livelihood; the other which recognizes the right of a business to protect itself from unfair competition, particularly where an employee has access to highly sensitive confidential or secret data.

Even though non-compete agreements represent a restraint of trade and therefore are cautiously considered and carefully scrutinized, they are nevertheless enforced by the Courts if the restraint is necessary for the protection of the business or goodwill of the employer, and if the agreement imposes no greater restraint on the employee than is reasonably necessary to protect the employer’s business.  Thus, for example, a non-compete agreement that restricts the employee from working for a competitor, or from starting a competing business, for a one-year period within a particular geographic area, i.e. the State of Minnesota, will be deemed a reasonable restriction and will be enforced.  However, a five-year restriction within all of North America might not be.

Generally, however, these restrictions will not apply to an unskilled laborer, who would not normally have access to trade secrets or be in a position to exploit those secrets, and who has a greater need to earn a living without restrictions.  Rather, non-compete agreements apply to professional or skilled employees with special high-tech skills, who understand the business’ trade secrets and technology, and who could use those to the detriment of the employer in a competing business.

Moreover, for a non-compete to be enforceable, the Courts require that the employee receive adequate consideration, or something of value, in exchange for giving up the right to compete. In this regard, an employee’s agreement to continue employment can be sufficient consideration if his contract is bargained for, and provides the employee with advantages, such as gaining knowledge of product development and marketing as a result of the employment, or being given access to trade secrets and confidential information about the company’s products and clients.

In order to enforce these non-compete agreements, the employer must file a Complaint with the District Court, and request a remedy called a temporary restraining order or a temporary injunction, prohibiting the former employee from competing in the geographic area and for the length of time stipulated in the non-compete agreement.  The decision whether to grant an injunction or restraining order always involves a balance of harm, and the Court must find that the employer will suffer “irreparable harm” if the agreement is violated. Such harm can be inferred if the employer will lose the goodwill of a limited customer base where the employee developed a relationship with the clients in a way which created a personal hold on the goodwill of the company.

It is important when drafting a non-compete agreement to specify that the employee’s job position allows the employee access to product development, technological secrets, marketing strategy, and confidential client information, which could serve as consideration for the non-compete agreement.  The more explicit the non-compete agreement is in this regard, the easier it will be to enforce.

Not only does Minnesota law allow the employer to enjoin the employee from violating the non-compete agreement, but under an important Minnesota case, Kallok v. Medtronic, Inc., 573 N.W. 2d 356 (Minn. 1998), the Minnesota Supreme Court held that the original employer can obtain damages if it shows that the new employer who hired away the key person knew of his or her non-compete agreement, but hired the employee anyway.  Indeed, if the original employer is forced to sue the new employer to enforce the non-compete agreement, it can obtain as damages the attorneys’ fees it incurs in prosecuting the lawsuit.

In technical legal terms, the Supreme Court held that interference with a non-compete agreement by a third-party is a tort (called tortious interference with contract) for which damages, including attorneys’ fees, are recoverable.  Therefore, any business contemplating the hiring of a key employee from another company must first carefully investigate and exercise due diligence to determine whether that employee has signed a non-compete agreement which prevents that person from being employed by the competing business.

All businesses dealing with key employees should, therefore, review their contracts and, if they do not currently have a non-compete agreement, should consult with their attorneys to make sure that such a carefully drafted provision is included in all employment contracts. In these highly competitive times, failure to do so could have devastating consequences on the future of the company.

For questions pertaining to litigation involving non-competition agreements, please call Boris Parker at (612) 355-2201 for a free telephone consultation.

Collection Of Loans And Debt In The New World.

Minnesota Debt Collection

As uncertainty continues to permeate our economy more and more debtors have difficulty paying their bills.  A creditor or borrower is in constant competition with those similarly situated and must fight for position and priority in the collection of the debts owed to them from various borrowers and debtors.  Often times a creditor or lender makes life difficult or easy for itself based on how the underlying transactional documents were prepared by the creditors/lender’s attorneys and the forth sight that was used in the initial stages of the contractual negotiations for purposes of providing the creditor/lender with remedies and easy access to the debtors/borrowers assets and sources of income for security collateral as each particular situation may provide.

It is very important for a lender/creditor in the early application process to obtain the necessary information on a particular borrower or debtor which could be used in the collection process to help the creditor or lender collect the monies due it.  Financial statements information with respect to places of residence, social security numbers, driver licenses, spouses and relatives, bank account numbers and bank locations along with the employment information are all crucial to the collection process, and can save lots of time and money in pursuing the particular debtor or borrower.  Such information is also in most cases easily obtained from a particular debtor or borrower at the time that they are applying for a loan or lease or any type of credit.  In addition to the background information which is critical to the collection of unpaid loans or debts perhaps the most significant aspect of debt collection is lenders or creditors ability to obtain personal guarantees and not only from the debtor but also the debtors spouse in any arms length transaction.  If lender or creditor has in its possession the personal guarantee of a debtor’s spouse the likelihood of success on collection for that particular account arises exponentially.

Other significant language which needs to be in every contract between a lender and a borrower or a creditor and a debtor deals with the default provision of a particular agreement and the language contained therein with respect to their responsibility of the debtor or creditor for all costs, disbursements and reasonable attorney’s fees plus interest in any collection process that has to be initiated by a lender or creditor.  Similar importance are acceleration clauses where the lender/creditor can make the entire debt come due and owing upon a default by a debtor or creditor.  Jurisdictional provisions along with choices of law are also of equal importance.  One is dealing with an out-of-state or foreign debtor or creditor and if one or more debtors or creditors are involved they joint in several liability provision is necessary.  These provisions only highlight the importance of having the proper language in any agreement and are only a few of many such provisions that must be included in any lending situation in which optimize a lenders/creditors ability to put a squeeze on a defunct debtor and to optimize the chance and potential for maximum and complete recovery of all amounts due and owing pursuant to any particular agreement.

Debt collection practices in general are regulated by the Fair Debt Collection Practices Act and the act was enacted to eliminate abusive debt collection practices by debt collectors including those practices that are false, deceptive, unfair or harassing.  Any creditor or lender that does more than a handful of debt collection activities a year must comply with the FDCPA.  The FDCPA limits debtor collector’s ability in terms of ways he or she can communicate with the consumer/debtor directly.  The debt collector cannot communicate with the debtor at an unusual time or place, communicate with the debtor directly if the debtor has an attorney to represent him or her regarding the manner of debt or communicate with the debtor’s place of employment.  Although the FDCPA applies to business debts in very few incidences it is still in all cases very important to use a formal process in collecting on any type of debt.  Any letters sent to debtors should be identified as attempts to collect debts and that any information obtained through that process will be used for those purposes.  Where collateral is involved a self-help process or repossession should be used with extreme caution with recourse to court of law always being the best and the safest alternative.

The collection of a loan or debt should begin with the review of the initial financial and personal information provided by the debtor followed up with a notice letter to the debtor and any guarantors or cosigners both certified and regular mail indicating that such and such amounts are due and owing and if not paid within a specified period of time legal action will be initiated.  If a positive response is not thus obtained by way of notice letter, a credit search or an asset search should be done on the debtors and any guarantors who determine their ability to pay for the outstanding debt and thereby assess the chances of collection of all of the amounts due and owing to the lender/creditor.  The asset search also will help the lender/creditor to determine whether the initial disclosures made by debtor or borrower during the application process was accurate or misleading and will assist the lender/creditor in any negotiation process which normally takes place in the debt collection process.

If the response to the notice letters has been negative and after a preliminary review of the file along with an asset search of a particular debtor has been conducted, the next step is to serve the debtor and any cosigners or guarantors with a formal legal complaint which incorporates causes of action for breach of the underlying agreement whether they be lending documents, leases, promissory notes or any other type of agreements, accounts for conversion or misappropriation of property if collateral is being retained by a debtor has an obligation to transfer such to the lender/creditor pursuant to the parties agreement or were in cases of leases property is leased and not returned by the lessee, and accounts for misrepresentation or fraud based on false financial statements and information provided to the lender/creditor during the application process by a particular debtor.

The accounts for conversion, misrepresentation and fraud dealing with financial statements are very important with the respect to debt collection process involving a bankruptcy were accounts for judgments for conversion, misrepresentation and fraud are very difficult to discharge in a bankruptcy process.  If a settlement is not reached after the service of a Summons and Complaint on a debtor and a judgment entered in the lenders/creditors favor which includes attorney’s fees and costs involved in the collection of the particular debt plus interest, judgment is registered in the county where the debtor resides or may have other property and such judgment severely hampers the ability of a particular debtor or creditor to obtain any type of financing without first paying off the judgment of a particular lender/creditor.  In addition, the lender/creditor may levy upon the bank accounts and assets of a particular debtor/borrower and may also garnish wages from the employer or the particular debtor/borrower for purposes of satisfying the judgment rendered in its favor by the court.

Parker & Wenner has been helping lenders/lessors and general creditors of all nature and size to successfully collect debts owed to them by both businesses and the public at large.  Parker & Wenner has a very high success rate in collection debts for its clients and has pursued successfully pursued debtors/bars in virtually every state in this country.

For questions about your debt collection, please call Boris Parker at (612) 355-2201 for a free telephone consultation.

RIGHT TO APPEAL

Under our adversarial system, whenever the court rules, there must be a winner and a loser.  No attorney worth his salt will ever guarantee a victory.  Therefore, in any case, you (the client) may end up on the losing side.  In the unfortunate event of a loss, you will typically have a right to file an appeal.

Of course, just because you have the right to appeal does not mean that you should appeal.  While there are many factors to consider when deciding to appeal, such as cost and time, probably the most important question is whether the appeal will be successful or fail.

While it is impossible to predict in any case if one will win or lose, there are some things that one should think about, such as cost and the emotional toll of the appeal.  However, whenever one is thinking of appealing, one must consider the odds of success.  Certainly, each case is unique and will succeed or fail on its own merits, but there are some general considerations to keep in mind.

In most cases, the party that lost in the trial court (the appellant) also loses on appeal.  By way of example, 30 cases were released on September 18, 2007, from the Minnesota Court of Appeals.

Of those 30 cases, 14 were criminal or quasi-criminal cases; however, only one of those criminal cases was a partial victory for the appellant and none were a total victory for the appellant.  However, of 16 civil cases, five were a victory or a partial victory for the appellant, which means that 31% of the civil cases were total or partial victories for the appellant.  Those numbers are more encouraging for a party looking to appeal in a civil case, and there are certainly cases where the issues and amounts involved justify taking an appeal.  Attorneys at Parker & Wenner have many years of confirmed experience in defending and arguing appeals to the state and federal Courts.

But what makes a case a winner or loser on appeal?  Of course, it is impossible to say that an appellant will always or never win, a major key to the likelihood of success in a case is what is known as the standard of review.

In general, an appellate court will apply one of two standards of review.  The first standard is a de novo standard.  This means that the appellate court is taking a fresh look at the issue and, at least in theory, is not deferring to the trial court’s decision at all.  In other words, this means that the appellant merely needs to show that the trial court ruled incorrectly in order to make the appeal successful.  This is typically the standard of review when the only issue is the interpretation of a statute or legal rule.  Therefore, this standard is comparatively easy for appellants and means that a successful appeal is more likely than a higher standard.

The other common standard of review is the abuse of discretion standard.  This standard is much more difficult than the de novo standard and means that it is much more likely that the appeal will be unsuccessful.  Under the abuse of discretion standard, the appellant must go beyond merely showing that the trial court was wrong and instead show that the trial court could not reasonably reach the conclusion that it did.

For example, the credibility of a witness is reviewed only for an abuse of discretion because the trial court can take note of the witness’s mannerisms, see the witness’s eyes, listen to the witness’s tone of voice, and observe other indicia of a witness’s truthfulness and ability to recall.  By contrast, a jurist on an appellate court cannot make those observations but must, instead, rely upon the words of a transcript.

As a result, the appellate court is extremely reluctant to reverse the trial court when the issue is a credibility finding because the trial court is, generally, in a better position to observe credibility.  Consequently, the appellant must produce overwhelming, objective evidence to show that the credibility finding was incorrect.  Therefore, this standard of review is very difficult to meet and results in comparatively few successful appeals.

So, what is the bottom line?  The bottom line is that your attorney is the best person to tell you what your chances are on an appeal.  Our attorneys have appeared at levels of the Judiciary in the State of Minnesota and beyond.

For questions pertaining to the litigation appeal process, please call Boris Parker at (612) 355-2201 for a free telephone consultation.

FRAUD NEGATES
WARRANTY DISCLAIMERS

Back in February 17, 2004, the Minnesota Court of Appeals handed down a decision bringing together several important theories of law as to disclaimers of warranties of products.  In Lester Building Systems vs. Louisiana-Pacific Corporation the Court of Appeals applies rules of law providing that disclaimers of warranties do not preclude an action for fraud (although they are effective to disclaim contractual actions for breach of warranties), and then pointed out that attempts to exclude consequential damages by a seller of goods are ineffective as to the seller’s own fraud. In addition to that, the court holds that the seller of goods cannot contractually disclaim liability for consequential damages resulting from its own fraudulent conduct.

The court then moved on to a very difficult area of the law involving what is known as the “economic loss doctrine”. In its broadest form that doctrine holds that in the case of a purchase of goods which are defective resulting in damage to the goods themselves (and perhaps other goods) the purchaser could recover only for the damage to the defective goods themselves. By 1992 the Minnesota Legislature recognized that, at least as to private individuals (that is to say, not merchants in the type of goods involved), Plaintiff should be able to recover for damage to property other than the goods which were warranted but, as to merchants, continued the prior law by providing that “economic loss that arises from a sale of goods between parties who are each merchants in goods of the kind is not recoverable in tort.”  As between merchants, that left merely a claim based on the warranty on the goods themselves.
Think of a fraud claim by a dealer against the manufacturer of a twin engined aircraft falsely warranted to be flyable on one engine which claim arises from a defective engine causing a total loss of the quarter million dollar aircraft and $13,000,000 of contents. The dealer could not recover for the valuable contents even though the manufacturer had intentionally misrepresented that the aircraft could continue flight on a single engine with that load.

But then in 1998 the Minnesota Legislature added subdivision “(e)” to Minn. Stat. 604.10 and provided that the law “shall not be interpreted to bar tort causes of action based upon fraud or fraudulent or intentional misrepresentations or limit remedies for those actions.” Thus the law no longer discriminates against merchant Plaintiffs in fraud cases. It is that provision which the Minnesota Court of Appeals in the Lester Building Systems case has so clearly applied allowing Lester to recover from Louisiana Pacific more than $13,000,000.00 for very broad losses arising from Lester’s use of Defendant’s defective siding for Lester’s pig shelter products.  Humans, on the other hand, with homes damaged by the same defective siding, have been relegated to a class action lawsuit against Louisiana Pacific.

For questions pertaining to litigation for Misrepresentation or Fraud, please call Boris Parker at (612) 355-2201 for a free telephone consultation.