Tagged: Contracts

Litigation Update: Northern District of Texas Judge Blocks FTC’s Non-Compete Ban

As we recently reported, on July 3, 2024, the Northern District of Texas issued a preliminary injunction in Ryan LLC v. Federal Trade Commission, staying the effective date of the Federal Trade Commission’s (FTC) rule banning non-competes (the “Rule”) and enjoining the FTC from enforcing the Rule. That injunction, however, was only applicable to the plaintiffs and intervenors in the case and did not address the FTC’s broader enforcement of the Rule.

Recent Construction Law Decision Holds That Contract Payment Terms Control Over New Jersey’s Prompt Payment Act

In JJD Electric, LLC v. SunPower Corporation, Systems, et al., the District Court of New Jersey dismissed multiple counts of plaintiff JJD Electric’s amended complaint, holding that the terms of the plaintiff’s subcontract control over its ancillary theories of liability. However, the court allowed the plaintiff’s fraudulent misrepresentation and unjust enrichment claims to proceed insofar as they challenged the very validity of the subcontract, as the Magistrate Judge held previously in granting the plaintiff leave to file the amended complaint. Defendant SunPower subcontracted JJD Electric to provide electrical contracting services in connection with the installation of power equipment at various project locations. JJD Electric asserted claims against SunPower for breach of contract, fraudulent misrepresentation, and unjust enrichment, as well as a claim under New Jersey’s Prompt Payment Act (PPA), seeking approximately $2 million for the alleged unpaid balance of work performed and another approximately $4 million for alleged delay damages. Importantly, as to the PPA claim, the court recognized the scarcity of case law addressing the elements of an action under subsection (b) of the PPA dealing with timing of payments between prime contractors and subcontractors. Based on the plain language of the PPA and guidance from other courts, the court adopted the following elements: The subcontractor has performed contractual work for the prime contractor....

Litigation Update: The Latest on Efforts to Block FTC’s Non-Compete Ban

As we recently reported on April 23, 2024, the Federal Trade Commission (FTC) issued a final rule banning virtually all future and most existing non-compete clauses. The rule was immediately challenged by a global tax services firm and the United States Chamber of Commerce in the Northern District of Texas, and, soon thereafter, others within the business community took action by filing suit in additional federal courts. This post provides an update on the various ongoing legal challenges unfolding across the country. Ryan LLC v. Federal Trade Commission (N.D. Tex. 2024) On April 24, 2024, Ryan LLC, along with a group of intervenors led by the Chamber of Commerce, challenged the non-compete rule arguing that the rule exceeds the FTC’s statutory authority under the Administrative Procedures Act. On May 10, 2024, the Chamber of Commerce filed a motion to stay the September 4, 2024, effective date of the rule and for a preliminary injunction preventing enforcement of the rule, which would have the effect of halting the rule from going into effect until the underlying lawsuit is resolved. The Northern District of Texas court granted the motion, finding that the plaintiffs were likely to prevail on the merits. But the court’s decision came with an important caveat: The court’s order granting the preliminary injunction and halting...

That’s a Wrap! United States Supreme Court Closes 2023 Term

With the close of the U.S. Supreme Court’s October 2023 term, we offer this round-up, focusing on decisions of special interest from the business and commercial perspective. Administrative In a pair of cases, Relentless v. Department of Commerce and Loper Bright Enterprises v. Raimondo, the Supreme Court overruled the deference doctrine first articulated in Chevron v. Natural Resources Defense Council. That doctrine permitted federal courts to adopt an agency’s reasonable interpretation of its originating statute. Now, federal courts must interpret statutes anew and are free to adopt their own interpretations. Though the Supreme Court did not overrule any cases that relied on Chevron’s deference framework, it invited the bar to challenge those decisions in the future. The impact of this case will be dramatic, as courts across the country will be reinterpreting (what used to be) settled understandings of countless statutes, including the Clean Air Act, the Clean Water Act, the Civil Rights Act, the Securities Exchange Act, and many more. In another administrative case, the Court in Corner Post, Inc. v. Board of Governors of the Federal Reserve System held that the six-year statute of limitations for challenges under the Administrative Procedure Act accrues when a plaintiff suffers an injury from final agency action. That holding supplants the prior rule, which ended the statute of limitations six years after the...

Federal Trade Commission Issues Final Rule Banning Non-Compete Agreements, Prompting Immediate Litigation Blocking Enforcement. What Does It Mean For Your Business?

On April 23, 2024, the Federal Trade Commission (FTC) issued a final rule banning all future and most existing non-compete clauses, with few narrow exceptions for senior executives.  The rule, however, was immediately met with legal challenges, casting doubt on its future. The FTC has taken the position that entering into a non-compete agreement is an “unfair method of competition” within the meaning of the Federal Trade Commission Act, therefore rendering non-competes unlawful as a general matter. The FTC reasons that a non-compete ban was necessary to address conduct harming fair competition in the labor market, reducing wages, stifling innovation, and hindering business formation and entrepreneurship. Further, the FTC argues that the current state law approach, which assesses the enforceability of non-competes on a case-by-case basis, has not sufficiently addressed the competition concerns cited by the FTC. On the other hand, opponents of the FTC’s non-compete ban argue that the rule exceeds the commission’s statutory and constitutional authority and that non-competes are crucial in guarding an employer’s trade secrets, intellectual property, and significant investments in employee training and development. Key components of the final rule are: It is an “unfair method of competition” for any worker and an employer to enter into, or attempt to enter into, a non-compete clause, to enforce a non-compete clause,...

NJ Supreme Court Holds That Hospital’s Medical Staff Bylaws Do Not Create Implied Duties of Good Faith

Pursuant to New Jersey Department of Health regulations, New Jersey hospitals must implement bylaws to govern the hospital’s medical staff. Those bylaws typically address the qualifications and procedures for being admitted to the hospital’s medical staff and often include a right to a hearing and other procedural protections for a physician who has been denied privileges to the hospital. Though it has long been resolved that a physician may compel a hospital to comply with the procedures set forth in its bylaws, it was less clear whether a hospital’s bylaws created a contract between the hospital and its medical staff, which in turn would give rise to an implied duty of good faith and fair dealing, as well as a right to monetary damages for breach of contract. In Comprehensive Neurosurgical, P.C. v. Valley Hospital, the New Jersey Supreme Court resolved this open issue, holding that a hospital’s bylaws do not amount to a contract and thus do not, without more, give rise to implied duties or monetary damages. The Supreme Court, however, also recognized that an implied contract, which itself would include an implied duty of good faith, can arise from the course of dealings between a hospital and a physician group. In Comprehensive Neurosurgical, a group of neurosurgeons that held longstanding privileges at Valley...

NJ Appellate Division Holds That Residency of Party Making First Contact in Long-Term Business Relationship Is Not “Jurisdictionally Dispositive”

Personal jurisdiction over an out-of-state defendant cannot be based on the unilateral acts of an in-state plaintiff. Instead, a New Jersey court may assert jurisdiction over a defendant only if that defendant “reached out” to New Jersey in some meaningful way. Consequently, when an out-of-state defendant is sued by an in-state plaintiff alleging a breach of contract, the court will often look to see which party initiated the contractual relationship when deciding whether it has jurisdiction over the defendant. In a recent published opinion, however, the New Jersey Appellate Division clarified that, depending on the particular facts of a matter, jurisdiction may be asserted over an out-of-state defendant even when an in-state plaintiff initiated the relationship. In Allure Pet Products, LLC v. Donnelly Marketing & Development LLC , the plaintiff, a New Jersey-based supplier of pet products, telephoned the defendant, a Utah-based organizer of trade shows, in 2011 to request booth space for a biennial trade show planned for 2012. The agreement was consummated, and the plaintiff exhibited at the 2012 trade show. In 2013, the defendant mailed to the plaintiff a “special offer” to renew its booth space for the 2014 show. The plaintiff accepted the offer and exhibited at the 2014 show. The same pattern held for the 2016 and 2018 shows: The...

The NLRB’s Ongoing Shift Toward Employee-Friendly Standards

The labor law landscape is constantly in flux as changes in presidential administrations continue to play a significant role in the development of rulemaking and decisional law at the National Labor Relations Board (NLRB or the “Board”). Over the past several months, various NLRB decisions and guidance memorandums have tipped the scales further in the employee’s favor, requiring employers to re-think their current policies and agreements to avoid the pitfalls created by these recent decisions. Employee Handbook Policies The NLRB’s August 2nd opinion in Stericycle, Inc., 372 NLRB No. 113 (2023), found an employee policy unlawful because, from the employee’s perspective, it had a “reasonable tendency” to discourage employees from exercising their rights under the National Labor Relations Act (NLRA). This decision is a departure from the previous standard where the Board examined, “the nature and extent of the potential impact on NLRA rights, and [] legitimate justifications associated with the rule.” Now a policy is unenforceable if an employee could reasonably interpret it to restrict conduct protected under the NLRA, i.e., if the policy was enacted in response to such protected conduct, or if the policy, in practice, limits rights under the NLRA. In other words, the Board’s primary concern is whether an employee believes they cannot avail themselves of the concerted activities protected...

Appellate Division Affirms: Binding Dispute Resolution Provisions in Standard AIA Construction Contracts Are Enforceable

In a recent unpublished opinion, the New Jersey Appellate Division held that an agreement to arbitrate set forth in the binding dispute resolution provision in a standard form American Institute of Architects (AIA) construction contract between a condominium association and contractor was enforceable. The binding dispute resolution provision appears in the AIA standard form as a series of checkboxes in which the parties may select arbitration, litigation, or another dispute mechanism by placing an “X” in one of the boxes. The AIA standard form also contains language that applies if the parties have selected arbitration as the method of binding dispute resolution, including the rules for conducting that arbitration and finalizing an award. Arbor Green Condo. Ass’n, Inc. v. Start 2 Finish Restoration & Bldg. Servs., LLC et al. arose out of Start 2’s alleged deficient workmanship under a construction contract to restore two buildings damaged by a storm, which resulted in Arbor Green terminating the contract. Start 2 subsequently filed two construction liens and two demands for arbitration (one for each building) in accordance with the selected dispute resolution method in the parties’ AIA form agreement. Arbor Green failed to answer the demands for arbitration, resulting in awards in Start 2’s favor. Start 2 then filed two orders to show cause and verified complaints that...

Delaware’s “Freedom of Contract” Approach to Non-Compete Agreements – Even Between Sophisticated Parties in the Sale-of-Business Context – Has Its Limits

Non-compete agreements have recently gained a new round of attention with the Federal Trade Commission’s (FTC) proposed rule that would effectively ban employers from imposing non-competes (albeit not in certain sale-of-business scenarios). While lawyers and businesses wait to see whether the FTC rule materializes, the nation’s most prominent business court – the Delaware Court of Chancery – recently issued two decisions demonstrating limits to its contractarian approach to restrictive covenants. Interestingly, both cases arose in the sale-of-business context, in which the court has traditionally enforced relatively broad restrictive covenants negotiated by sophisticated parties. In HighTower Holding, LLC v. Gibson (Vice Chancellor Will, Feb. 9, 2023), the court refused to enforce the parties’ Delaware governing-law provision and, instead, after performing a choice-of-law analysis, applied Alabama law to invalidate the non-compete. In Intertek Testing Services NA, Inc. v. Eastman (Vice Chancellor Will, Mar. 16, 2023), the court found a non-compete provision that prohibited the defendant from competing “anywhere in the world” to be unreasonably broad and, therefore, unenforceable. Delaware governing law provision rejected HighTower Holding, LLC v. Gibson. HighTower, a Delaware limited liability company, purchased a majority interest in an Alabama-based wealth advisory firm owned by Gibson, a licensed financial advisor, and other individuals. As part of the sale, Gibson and his former partners signed a protective agreement...