BFV Perspectives, Noncompete & Trade Secrets, | Dec 23, 2013

What Happens When an Injunction Being Challenged Expires During the Appeal?

Leedom Management Group, Inc. v. Perlmutter, 2013 WL 5340781 (11th Cir. Sept. 25, 2013), involved the appeal of the scope of a preliminary injunction enjoining competition. 

Leedom Management Group provides automated clearing house and credit card processing services to automobile dealerships.  Susan Perlmutter is Leedom’s former employee.  Perlmutter’s employment agreement with Leedom provided that she was restricted for a period of one year after her termination from engaging in the same line of business, disclosing any information relating to Leedom, or soliciting any entity with which Leedom had established a substantive business relationship.  The contract stated that the geographic scope of these restrictions was within a fifty mile radius of any location in which Leedom is conducting business.

After Perlmutter was terminated, she formed a similar business in Tennessee.  Leedom filed suit in Florida in September 2011, asserting that her activities violated the non-competition, non-solicitation, and non-disclosure covenants in her employment agreement. 

Leedom sought a preliminary injunction to preclude her from operating her business and from soliciting Leedom’s clients. The district court entered a preliminary injunction which was to be in effect until December 21, 2012.  The injunction prohibited Perlmutter from competing with Leedom; however, it did not specify the geographic scope of the injunction.  Instead, the order directed the parties to negotiate an appropriate geographic scope.  If they were unable to, the matter would be referred to a magistrate judge to define the scope. 

Not unsurprisingly, the parties could not agree on the geographic scope.  In a May 2012 order, the magistrate judge defined the geographic scope to cover all zip codes in which Leedom had a client.  Perlmutter filed objections to this ruling.  The district court sustained her objections and modified the scope.  The modified injunction prohibited her from doing business or soliciting clients within fifty miles of Leedom’s Sarasota, Florida’s office.  The district court found that this location was Leedom’s sole place of business.  The modified injunction had the same termination date. 

Leedom, dissatisfied with the injunction as modified, appealed the modification order.  While its appeal was pending, the injunction expired.  Perlmutter then moved to dismiss the appeal as moot.  The Eleventh Circuit agreed, finding that because the order had expired, there was no live case or controversy with respect to the injunction.  The Eleventh Circuit therefore found that to opine on the merits of the district court’s injunction would be an improper advisory opinion.  The Eleventh Circuit therefore dismissed the appeal as moot. 

The Supreme Court of Georgia made a similar ruling this year.  Holton v. Physician Oncology Services, LP, 292 Ga. 846, 866 (Ga. 2013), involved, in part, the appeal of an injunction enforcing an executive’s non-competition covenant.  That portion of the trial court’s injunction expired during the appeal.  The Supreme Court therefore dismissed that portion of the appeal.  (The Supreme Court’s analysis of the remainder of the injunction which was premised on the inevitable disclosure doctrine is discussed here/subscription may be required). 

Holton and Leedom serve as reminders that litigants challenging an injunction with an expiration date run the risk of having their appeals rendered moot if the injunction expires during the appeal.  A request to the trial court and/or appellate court to stay the injunction pending the appeal is frequently the appealing litigant’s best way to try to avoid this possibility. 

BFV Perspectives, Noncompete & Trade Secrets, | Dec 23, 2013
Neal F. Weinrich
Neal F. Weinrich

Neal Weinrich knows noncompetes and trade secrets inside and out. A shareholder at Berman Fink Van Horn, Neal counsels clients in all industries on matters involving restrictive covenants, trade secrets and other competition-related issues.