Case Report: Fruit of the Loom Inc. et al. v. Bishop
On January 21, 2011, Judge Myron Thompson of the District Court for the Middle District of Alabama, Northern Division denied Fruit of Loom, Inc. (Fruit of the Loom) and Russell Brands LLC’s (Russell) motion for a preliminary injunction. Fruit of the Loom, Inc. v. Bishop, 10-cv-1058, 2011 U.S. Dist. LEXIS 5963 (Jan. 21, 2011) ( ). Although a denial of a preliminary injunction is typically considered outcome determinative, often resulting either in settlement or withdrawal of the complaint, the plaintiffs in this case persisted.
Fruit of the Loom and Russell sued to enforce a Trade Secrets and Non-Competition Agreement (Agreement) executed by the defendant, Lonnie Bishop. Fruit of the Loom and Russell identified a variety of technologies and information that they allege is protected by the Agreement: 1) a proprietary method of sorting product to be shipped to Walmart; 2) knowledge of how Russell conducts business with Walmart and Target; 3) long range planning strategies to improve customer service to retailers; 4) proprietary preappointments process; 5) a sorting system developed to ship products to Target; 6) a “print and apply” system; 7) technology that allows storing of product without placement on wooden pallets; 8) a process to ship product to JoAnn’s that minimize the opportunity for shipping errors; and 9) confidential business strategies, plans, initiatives and non-public financial statements.
The Agreement contained a choice of law provision designating that the Agreement would be construed under Kentucky law. However, as discussed below, the validity and enforcement of the Agreement has been raised by the defendant. Consequently, the trade secrets identified in the Agreement may be analyzed under Alabama law if the Agreement were to be found invalid per se or invalid as applied to Bishop.. However, as both states have adopted the Uniform Trade Secret Act similar findings as to whether items are trade secrets would be expected.
An employee of Russell since 1993, Bishop was promoted to manager of a distribution center in Montgomery, Alabama in January 2007. Since his promotion, Bishop partook in the Management Incentive Plan (MIP). MIP is a bonus program through which participating employees receive a portion of the company’s profit, payable as a percentage of the employee’s salary, as long as the employee is still employed on December 31 of that year. Memorandum Brief in Opposition to Plaintiff’s Motion for Preliminary Injunction at 3, Fruit of the Loom, Inc. v. Bishop, 10-cv-1058, 2011 U.S. Dist. LEXIS 5963 (Jan. 21, 2011). Bishop received payments through the MIP program in 2007 and 2009, not in 2008. In 2010, in response to losing key employees in recent years, Russell and Fruit of the Loom required the execution of the Trade Secrets and Non-Competition Agreement to participate in MIP. Bishop was presented with the Agreement on May 28, 2010 and executed the Agreement on July 12, 2010. Bishop alleges that he spoke with his supervisors prior to executing the Agreement and that one of his supervisors represented to him that the Agreement would not be enforced by a court and did not apply to employees in Bishop’s position. In November 2010, Bishop left Russell and was hired as a manager of a distribution center for Gildan Activeware, Inc. Fruit of Loom and Russell believe that Bishop’s employment at Gildan is in violation of the Agreement and in particular, the non-compete clause.
The Enforceability of the Agreement
While Judge Thompson presumed the enforceability of the Agreement when considering the request for the preliminary injunction, Bishop defended that the Agreement was unenforceable because the restrictions contained in the Agreement are “unreasonable, impose greater restraints and restrictions than are necessary, are not appropriately limited in scope, time, and/or place, and impose an undue hardship and burden on [the defendant.]” Bishop additionally claimed that the Agreement is void or unenforceable due to 1) lack of consideration; 2) fraudulent misrepresentation concerning the subject matter and scope of the Agreement; or 3) that Bishop executed the Agreement under duress.
To determine whether a non-compete agreement is reasonable, courts generally consider the scope of time, activity and space relative to the protectable interests of the employer and sometimes the effect or fairness on the employee. Fruit of the Loom and Russell, while briefing the District Court in support of their motion for preliminary injunction, argued that the Agreement would be valid under Kentucky law. Kentucky courts have reliably held one-year restrictive covenant reasonable; allowed nationwide restrictions when an employer’s business was national; found continued employment to be sufficient consideration; and generally understood that such covenants are a valuable business tool.
Bishop disputed, however, that Kentucky law routinely held non-compete agreements valid. He contended that Kentucky and Alabama law on restrictive covenants were ‘analogous’ and, under Alabama law, most restrictive covenants were void. However, Bishop’s analysis of restrictive covenants was considered in relation to what law should govern the Agreement and not solely the specific enforceability of the Agreement. The detail and focus employed by the plaintiff may well explain Judge Thompson’s apparent presumption of enforceability, as Bishop had initially raised the issue of enforceability but ultimately failed to thoroughly analyze the case law when briefing the Court.
When contemplating the request for a preliminary injunction, Judge Thompson had to consider the language of the Agreement. The non-compete clause provided that for twelve months after termination of employment with Russell, Bishop would not work or provide services for a “[c]ompetitor in an area, position or capacity in which [he] gained particular knowledge or experience during [his employment], involving the sale, design, or manufacture of [c]ompetitive [p]roducts...” The question before Judge Thompson was limited to whether Bishop’s role at each employer involved the sale of “competitive products.” The Court concluded that a reasonable juror would find that Bishop’s role at the rival companies did not involve “sales” as Bishop worked only in the distribution area. Judge Thompson also failed to find actual and imminent irreparable injury to Fruit of the Loom and Russell that could not be remedied by monetary damages. Additionally, he found that a balance of equities favored Bishop, noting a concern that a preliminary injunction would place significant hardship on Bishop and that there was no evidence that the lack of a preliminary injunction would harm the public interest. Fruit of the Loom, Inc. v. Bishop, 10-cv-1058, 2011 U.S. Dist. LEXIS 5963 (Jan. 21, 2011).
As noted above, the denial of a preliminary injunction would typically be a death blow and the case came to a close on May 12, 2011 when the parties stipulated to dismiss the case with prejudice.