Minnesota Federal Court Applies Texas Law, Proceeds to Blue Pencil Restriction re: Non-compete Agreement
The District of Minnesota issued an interesting decision on June 9, 2015 in the case of BMC Software, Inc. v. Mahoney, No. 15-CV-2583 (PAM/TNL). Mahoney was a Sales Manager for BMC and responsible for the Midwest Region. Around the time he was promoted into that role, he signed a non-compete agreement governed by Texas law, with a one-year restriction covering the United States. He subsequently left BMC to join a direct competitor to lead its global information technology operations management business. The new role would be national (or even global) with a sales component. BMC sought a Temporary Restraining Order which, after extensive briefing, the Court treated as a motion for a Preliminary Injunction.
The Minnesota Court applied Texas law to its analysis of the contract, noting that, “Minnesota Courts traditionally honor choice-of-law provisions.” Under Texas law, it held, the contract was likely to be enforceable. Because Mahoney signed the agreement after he received his offer, applying Minnesota law might have resulted in a different outcome.
Because Mahoney’s previous duties only involved customers in the Midwest, however, the Court declined to impose a national injunction, noting that, under Texas law, “a reasonable area for purposes of a covenant not to compete is considered to be the territory in which the employee worked[.]” At BMC, the court explained, “Mahoney was in charge of accounts in four to six Midwestern states.” At his new employer, he was “poised to lead the company’s business efforts globally.” The Court therefore got out its blue pencil and held that it would “modify the non-compete covenant to reach only his former accounts.” The final order stated that, “Mahoney is enjoined from working at [the new company] in any sales or marketing capacity related to BMC’s Midwestern customer accounts for which he was responsible until May 15, 2016.”
The situation of a company seeking to hire a sales employee from a competitor to move him or her from a regional job to a national position comes up surprisingly often. In this case, and other similar situations, the question that results from the Court’s order is whether the defendant will be able to assume the national position while carving out or removing himself from any sales activities in the Midwest, or for sales to customers based in Midwest. Constructing such an arrangement certainly would certainly appear to be challenging.