Deli Meats and Non-Competes: National Deli Sues former Officers Over Competing Venture

Florida continues to be a hotbed for non-compete litigation (possibly in light of the fact that Florida non-compete laws are among the most pro-employer in the country).  A recent case out of the United States District Court for the Southern District of Florida in Miami pits National Deli, one of America’s largest manufacturers of deli meats, against some of the company’s former owners and officers. According to the complaint:

Background: The Non-Compete Agreements

George Bell served as President of National Deli until 2010. During much of that same time, his son Gary Bell served as a vice president of the company. Both of the Bells held ownership interests in the Company. In November 2010, National Deli’s parent company, National Deli Acquisition, purchased all outstanding shares of the company, including those owned by the Bells. The sale agreements contained non-compete, non-solicitation and non-disclosure restrictions. Following the sale, Gary Bell remained employed by National Deli. In connection with his continued employment, he signed an employment agreement that contained similar provisions. Gary also signed a stock agreement that governed his ownership interest of shares of the parent company. That agreement also contained similar restrictions. In September 2012, Gary Bell separated from the Company and redeemed his shares in National Deli Acquisition. He signed yet another agreement reaffirming all of the restrictive covenants at issue.
The New Competing Venture

At this point, George Bell is only restricted from interfering with National’s employee relationships. Gary Bell is still subject to a variety of restrictive covenants. Sometime between September and December 2012, the Bells allegedly begin laying the groundwork to launch a competing venture. They start by reaching to a long-time National employee and then gradually begin discussions with other National employees about possible future employment with the new venture.

Fast forward to October 2013. The Bells have put their plan into full gear and aggressively are moving to acquire all of the equipment and inventory necessary to launch their venture. This includes enlisting the help of National employees to acquire goods and services from National’s suppliers. At the same time, the Bells allegedly used National employees to acquire various information about inventory, packaging, customer needs, etc. Then, in January 2014, George Bell (the one who does not have a non-compete) formed Traditions Company, LLC and registered the entity with the Florida Department of State. Between January and February 2014, things get even uglier: A certain National employee begins emailing confidential corporate materials to his home email address. This includes customer purchase orders, information on National’s raw material needs for the next few months, customer lists, purchase histories and other operational information. Eventually, in March 2014, National sues.

Some Observations

Most of my practice involves defending non-compete and trade secret cases. So when I see a case like this, that’s my perspective.

(1) Evaluating the Complaint: When you’ve done enough non-compete and trade secrets cases, you can read a complaint and get a good idea of the direction things are headed. You can never predict anything with 100% accuracy, and there are often surprises, but you can get a good idea of the general landscape of the case. And the SDFL, from my experience, is an excellent court with a roster of great judges. That makes things more predictable. So, with that background, I gauge the strength of the complaint. I have seen lots of non-compete and trade secret complaints that are vague, general, and lack specific detail. I even had one out in the MDFL dismissed under Twombly (with leave to amend, of course).

This is a strong complaint. It’s full of specific details and strong allegations. The Defendants might take a shot at getting some of the claims dismissed. There’s a Florida Uniform Trade Secrets Act (“FUTSA”) claim here. That means UTSA preemption is at play. It’s possible that the FDUTPA claim could be dismissed if it derives entirely from the theft of trade secrets. But that seems doubtful. The Defendants best play is to answer the complaint and prepare for the fight over a preliminary injunction. There’s enough here that I anticipate National seeking a preliminary injunction in fairly short order.

(2) Putting the Company in Someone Else’s Name: I hear this one all the time. Every week, I get numerous calls from people who are subject to a non-compete agreement but contemplating launching a competing venture. And every week, at least one person suggests that they could start the venture but put it in their wife’s name, or brother’s name, or uncle’s name….. That’s not a good idea.

(3) Supplier Relationships: A number of the plaintiffs’ allegations relate to the Bells’ interference with their supplier relationships. In this case, it’s suppliers that provide product and equipment. I’m always curious about when plaintiffs in non-compete and trade secrets cases will realize that supplier relationships are not protectable under Florida law. There is a growing body of Florida case law holding that supplier relationships cannot be protected through use of a non-compete or non-solicitation agreement. And this makes sense. The best explanation of why supplier relationships are distinct from customer relationships and are not protectable comes out of an MDFL case called Concrete Surface Innovations.

As always, it will be interesting to see where this one goes.  The case is National Deli v Bell et al, 2014 WL 1187748 (S.D.Fla., March 17, 2014).

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, Fort Myers, Tampa, Orlando, Jacksonville, and beyond.  His office can be reached at 954-332-2380.  For more information, visit http://www.pollardllc.com.