A recent case out of Minnesota raises a number of non-compete and trade secret issues. Let’s take a look:
In 2005, Robert Wilcox was hired as the general manager of ground handling services at Minneapolis St. Paul Airport (“MSP”) for a company called Integrated Airline Services Alliance. In 2006, Menzies Aviation purchased Integrated. Menzies bills itself as a global provider of passenger, ramp and cargo handling services at major airports. From 2006 onward, Wilcox was employed by Menzies. A few days after he began working for Menzies, the company required him to sign a non-compete agreement. As written, the agreement was governed by Florida law.
During the course of his employment with Menzies, Wilcox was issued a corporate laptop, which he was required to leave in the office at the end of each day. At the same time, the Company required Wilxox to work from home as necessary. Because of this, Wilcox frequently emailed documents from his work laptop and corporate email address to his personal email address so he could access those documents while working at home. Menzies apparently recognized this, because they routinely emailed work-related documents to his personal email address. Likewise, the company’s clients sent work-related documents and emails to his personal email address. Beyond this, Menzies maintained no formal corporate policy against this sort of practice. I mention this, of course, because it becomes relevant later on.
Wilcox worked for Menzies for the next several years without incident. During most of that time, Menzies had only one client at MSP: Sun Country Airlines. Eventually, Menzies acquired two other clients at MSP. In 2012 and early 2013, Sun Country – still Menzies’ most important client at MSP – complained to Wilcox about the Company’s performance. There were equipment problems, labor problems and even safety issues. At around this same time, Spirit Airlines also registered complaints with Wilcox about the quality of Menzies’ service. Wilcox repeatedly relayed these complaints to his managers and other higher-ups in the Company. In March 2013, in response to Wilcox providing this feedback, a high-ranking corporate official told Wilcox that if he was unhappy with Menzies, he could go work for Servisair (a competitor) or some other company in the industry.
In April 2013, still unhappy with Menzies service, Sun Country started actively seeking a replacement. Because their contract with Menzies was set to expire in a few months, Sun Country reached out to Servisair and requested a proposal for ground handling operations at MSP. After receiving this request from Sun Country, and anticipating that they would soon be taking over Sun Country’s operations, Servisair contacted Wilcox about a possible position with the company.
In May of 2013, while Menzies still had Sun Country’s business, Menzies provided Sun Country with a proposal for extending their current contract. The proposal included a rate increase. For Sun Country, this was the last straw. Sun Country immediately informed Menzies that they would begin soliciting proposals from other handlers at MSP. At this point in time, Sun Country had not yet hired Wilcox. They had engaged in some preliminary talks about employment, but that was it. Wilcox was still a Menzies employee.
Throughout the summer of 2013, Servisair and Wilcox continued their negotiations. Servisair formally interviewed Wilcox at its Houston, TX offices for a position running fueling operations at MSP, but did not offer Wilxox that position.
On August 5, 2013, Sun Country sends Menzies formal, written notice that their contract will be terminated effective November 5, 2013. Sun Country informs Menzies that Servisair will be taking over their operations at MSP. Sun Country asks Menzies to work with Servisair to help coordinate a smooth transition.
When Menzies gets the news, they tell Wilcox that the Sun Country contract has been terminated, that Menzies would be handing over operations to Servisair, and that Wilcox would be free to go work for the new company . In light of the impending changes, Menzies instructed Wilcox to work with Servisair on the transition.
Over the next few weeks, Servisair and Wilcox continue their negotiations regarding employment. On August 14, Sun Country and Servisair formally enter an agreement for ground handling operations at MSP. Wilcox had no involvement in any aspect of the deal. On August 24, Servisair offered Wilcox a position as manager of the company’s ramp operations. Wilcox accepted and immediately gave Menzies thirty days’ notice of his resignation.
Now for the kicker: Throughout the term of his employment with Menzies, as previously mentioned, Wilcox had routinely emailed documents from his work laptop to his personal email address. He did this up until the very end of his employment with Menzies. In fact, Wilcox emailed himself a significant number of documents during June, July and August of 2013— around the time that all of this action was taking place.
On September 4, 2013, Menzies told Wilcox that it was terminating his employment and relieving him from any further duties.
On September 23, 2013, Menzies sued Wilcox and Servisair for everything imaginable: Breach of a non-compete agreement, violations of the Computer Fraud & Abuse Act, theft of trade secrets, unfair competition, and unjust enrichment, among others. On October 17, the United States District Court for the District of Minnesota denied Menzies’ motion for a preliminary injunction and handed down an opinion that clearly signals the court isn’t buying Menzies’ case. Some of the highlights:
Misappropriation of Trade Secrets
In its complaint, Menzies alleged that both Wilcox and Servisair had stolen its trade secrets. As is often the case in trade secret litigation, Menzies did not allege the specific trade secrets at issue. Instead, the complaint alleged, generally, that the defendants had misappropriated marketing information, internal reports, and corporate information related to employment matters and finances. That’s it. The complaint did not get any more specific. The court held that the plaintiff’s general allegations and cursory descriptions did not come close to establishing that legitimate trade secrets were at stake. The court went on to note that the alleged trade secrets were likely well-known throughout the industry. Next, the court held that Menzies failed to take reasonable measures to protect the supposed trade secrets. The company had no policy in place designing information as confidential. At the same time, the company knew Wilcox used his personal email and personal computer for work. The company even emailed work documents to Wilcox’s personal email address.
But the court did not stop there. In a remarkable display of thoroughly analyzing all of the facts, the court continued: Much of the information Menzies claimed was protected or trade secrets came from the airlines themselves. For example, Sun Country had its own guidelines that Menzies – or any other such company – would have to follow. Here is the bench slap:
“At this point, Menzies has not demonstrated that is likely to be able to show that information that Wilcox shared with Sun Country, such as whether bag carts for Sun Country flights need to be open on both sides or whether Sun Country needs ten or twelve belt loaders, is information that is not generally known or that is subject to reasonable efforts to preserve confidentiality.”
From there, it doesn’t get much better for Menzies.
Non-Compete Agreement
Recall that the non-compete agreement, as written, contained a Florida choice-of-law provision. Well, the court found that provision a bit curious given the complete lack of any connection to Florida. Wilcox lived in Minnesota, worked in Minnesota, and signed the contract in Minnesota. Menzies is incorporated in Delaware with its principal place of business in Texas. There is no Florida tie whatsoever. But, just like with the trade secret claim, where Menzies tried to argue that Sun Country’s baggage cart requirements were a trade secret, Menzies badly overreached here: At oral argument, counsel for Menzies argued that Florida law should apply because an officer for Menzies lives in Florida and signed the verification of the original state court complaint in Florida. (Ladies and gentlemen, Foley & Lardner is one of the firms representing Menzies in this case. Just food for thought.)
And in this situation, choice of law matters because there is a clear conflict between Minnesota law and Florida law: Under Minnesota law, the non-compete agreement is likely unenforceable. In Minnesota, continued employment is not adequate consideration for a non-compete agreement. Under Florida law, it is. Here, recall that Wilcox was forced to sign non-compete agreement after he had already begun working for Menzies.
According to the court, the whole situation was suspect: There was utterly no connection to Florida. One day after beginning work for Menzies, Wilxcox was ordered to immediately sign a stack of documents, including the non-compete agreement, with absolutely no explanation. The contract was an adhesion contract between parties with greatly unequal bargaining power. And the use of Florida law, in particular, under which continued employment alone can support a non-compete agreement—- That was enough. The court applied Minnesota law and found the agreement unenforceable based on lack of consideration. But the court didn’t stop there: The court went on to note that under either Minnesota law or Florida law, the non-compete agreement was unenforceable because Menzies failed to identify a legitimate business interest: Nothing in the record suggested Menzies had actual confidential information or substantial customer relationships.
The Remaining Counts
Things went the same way on the remaining seven or eight counts. The court held that the record contained no evidence of actual trade secrets, no evidence of misappropriation, and no evidence that Servisair obtained any confidential information or trade secrets from Wilcox. The record further established that Sun Country canceled its contract with Menzies because of poor service. As a result, Menzies had no damages. Given all of these factors, Menzies basically had no claim and certainly was not entitled to a preliminary injunction.
The Takeaway:
(1) Choice of law: In non-compete cases, choice of law matters. Perhaps more than in any other area of law, there is tremendous variation in non-compete law from state to state. Some states are more hostile to non-compete agreements, or like California, won’t enforce them at all. Some states refuse to blue pencil. Some states require additional consideration. It is important to know these differences, whether drafting the agreement or litigating a non-compete cases. At the same time, when drafting, it is important not to overreach on choice of law. If you want Florida law to apply, you need a reasonable connection to Florida.
(2) Trade secrets: People frequently use the term “plaintiff’s lawyer” as a derogatory way of referring to lawyers who represent plaintiffs in personal injury and medical malpractice cases. We hear constant complaints about greedy plaintiff’s lawyers, unscrupulous plaintiff’s lawyers, trial lawyers, and frivolous lawsuits. In reality, I see more frivolous trade secret cases than I do medical malpractice or personal injury cases. After all, that makes sense because of the economics. For a traditional plaintiff-side lawyer to pursue a medical malpractice case requires a strong case on the merits and lots of capital. But a plaintiff-side trade secrets case? Plaintiff-side trade secrets work is often done by big firms, who are traditionally defense firms. In this case, the plaintiff was represented by Foley & Lardner. And as the court’s opinion makes clear, plaintiff’s trade secrets case was, essentially, bogus. I’m not singling out this one case, this one plaintiff, or this one firm. This is widespread. The real epidemic of frivolous lawsuits is frivolous trade secrets lawsuits. In my view, California has handled this the right way: A plaintiff in California alleging misappropriation of trade secrets must plead the alleged trade secrets with specificity. In most other states, that is not the case. As a result, you have plaintiffs – like Menzies – who file trade secrets cases where they allege, basically, that the defendant misappropriated general corporate stuff. In many cases, the plaintiff does not plead the actual, specific trade secret. Instead, they allege that the defendant stole business information, marketing plans, financial information, etc. Hats off to Judge Michael Davis of the D. Minn. for calling the plaintiff out on this nonsense.
(3) Overreaching: At several points throughout the record, it was clear that plaintiff – and their counsel – badly overreached. At one point, plaintiff’s counsel argued that Florida law should apply because an officer of the corporation signed the complaint’s verification in Florida. At another point, Menzies argued that information regarding Sun Country’s operation requirements (e.g. how many baggage carts they needed) was confidential and constituted a trade secret. The opinion is comprehensive, lengthy and surgical in the way it picks apart Menzies’ case. I think the court could have disposed of this in shorter fashion, but I think they wanted to make a point.
(4) Federal court vs. state court: The record indicates that the plaintiff originally filed this case in Minnesota state court and that the defendant then removed it to federal court. Let’s be blunt: If I am involved in a complicated case, on either side, I want to be in federal court. Yes, there are some very good state court judges. That said, on the whole, the federal bench is just higher quality, there’s less risk of bias and there’s less politics. Especially when defending a non-compete and trade secrets case, it is imperative to get it removed to federal court if at all possible. In my experience, if a case like this proceeds in state court, there is a much higher risk of ex-parte communications with the judge, a TRO or injunction issued without notice, a TRO or injunction issued where the law does not justify it, and decisions that are simply wrong on the law.
The case is Menzies Aviation (USA), Inc. v. Wilcox, 2013 WL 5663187 (D. Minn. Oct. 17, 2013)
Jonathan Pollard is a trial lawyer and litigator based in Fort Lauderdale, Florida. He focuses his practice on competition, particularly cases involving non-compete, trade secret and antitrust disputes and represents clients in Florida and throughout the country. He is licensed in all Florida federal and state courts and routinely represents clients in Fort Lauderdale, Miami, West Palm Beach, Boca Raton, Fort Myers, Tampa, Orlando, Jacksonville, and Sarasota. His office can be reached at 954-332-2380
954-332-2380.
