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Do Not Defend Complex Non-Compete and Trade Secret Cases in State Court

Do not defend complex non-compete and trade secret cases in state court.  I have said it before about 27 times.  I’ll keep saying it.  Because lots of people just haven’t listened.

I’m not going to mince words or pull punches.  If you are getting sued or about to get sued in state court for non-compete, trade secret or unfair competition claims, you need an exit plan.

Florida Non-Compete Cases

Particularly in the non-compete arena: State courts treat non-compete cases as breach of contract cases.  They routinely ignore the antitrust angle.  Let’s be clear:  In any non-compete case, there are two lenses.  The first lens is the restraint of trade lens.  Is the restriction necessary to protect a legitimate business interest?  If not, then it’s an illegal restraint of trade.  Only after clearing that first hurdle do you get to the second lens, which is the contract lens.  For whatever reason, federal trial courts grasp that concept more readily than state trial courts.  That’s just the truth.  Deal with it.

Beyond that, there are very important distinctions in federal vs. state law (procedural differences that have substantive, real world impacts).  Beyond that, there are huge differences between the Florida DCAs.  Litigating in state court in Miami?  You’re in the 3rd DCA.  The law is not good for you.  And even if you take an appeal, they’ll probably just affirm the trial court without a written decision.  But if you get the case into federal court?  Boom.  You can apply Florida state appellate authority from all of the DCAs (not just the 3rd).  You can apply 4th and 5th DCA authority which, in my view, tends to be far more faithful to the text of the non-compete statute (542.335).

A further word on that:  I refuse to take any new non-compete cases that fall within the jurisdiction of Florida’s 3rd DCA.  I’m not joking.  I’m dead serious.  I view the 3rd DCA’s habit of issuing “per curium affirmed” decisions without a written order to be a complete miscarriage of justice.  I’m not the only one who feels that way: Many prominent law professors agree.  So, unfortunately, until the Florida Supreme Court clears all of this up, I’m just not doing it.  But if I can get that same case removed to federal court?  I’m on the job. 

Florida Trade Secret Cases

The same goes for trade secret cases.  Do you really want to defend a trade secret claim in Florida state court?  I’ve seen it before.  In state court, there’s almost this presumption that if a plaintiff says you stole their trade secrets, then (1) you stole something and (2) whatever you stole was a trade secret.  If you don’t believe me, just wait.  Wait until the court orders you to turn over all your phones, laptops, iPads, everything.  Wait until the trial court orders you to give the other side every single document in the history of the company.  Have fun with those emergency appeals, trying to prevent the other side from using state court litigation tactics to steal YOUR trade secrets.  What about a reasonable process?  Agreed search terms? Reasonable limitations on discovery? In your dreams.  You want to strike the other side’s bogus expert?  Haha.  Good luck!  In federal court, that con artist who claims to be a trade secret expert?  That guy is gone. In state court?  That expert gets in and testifies in front of the jury.  And even if that was wrong, you’ve got to post a bond to stay the judgment, take an appeal and spend another year and another $100k+ trying to set the record straight.  Do I exaggerate?  No.  Not even slightly.

That’s the landscape.  That’s what you’re up against.  Don’t fool yourself.  So what do you do?  Get out of dodge by any means necessary.

Litigate in Federal Court

  • Sue First:  Call a creative lawyer who has extensive experience in the unfair competition space a broad litigation background.   Find a way to sue the other side first and do so in federal court.  Always ad a declaratory judgment action for whatever is relevant. There’s a good chance they’ll just counterclaim against you and you’ll be able to litigate everything in a federal forum.  If they run into state court and file a separate lawsuit against you, move to stay because you filed first.
  • Remove:  Remove the case to federal court.  If they sue you first, look for a way to remove the case to federal court.  There are tons of terrible lawyers throughout the state of Florida who are afraid of federal court.  When their client gets hit with a case like this, they don’t even consider removal.  They probably don’t even understand what removal is.  And if they did, they’d never suggest it because they’d get eviscerated in federal court.  So if there’s diversity, remove.  If not?  Start digging.  Maybe there’s preemption.  You think that’s a joke?  You think, “Removal based on complete preemption never really happens, only in ERISA cases.”  You’re dead wrong.  Some clever lawyers in Texas removed what was primarily a trade secret case to Texas federal court based on copyright preemption.  It worked.  The United States Court of Appeals for the Fifth Circuit affirmed the whole thing.
  • File Chapter 11:  Drastic move but if you’ve got a serious business and you have the right facts for it, file chapter 11 reorganization.  Any litigation against you is automatically stayed.  Then remove the state court litigation into the bankruptcy court (or the federal court if the bankruptcy is filed in another jurisdiction).  Some lawyers say wait for the judgment.  Don’t.  Just file chapter 11 and force the plaintiff to litigate with you in federal court, in the bankruptcy court where that claim is going to get severely scrutinized and liquidated.

 

Jonathan Pollard is a competition lawyer based in Fort Lauderdale, Florida.  He has extensive experience litigating non-compete, trade secret and unfair competition cases.  He has been quoted on related issues in the Wall Street Journal, Bloomberg, FundFire and many others. His office can be reached at 954-332-2380.  

 

 

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