Friday, March 15, 2013

Virginia Federal District Court Approves a Choice of Law Clause That Provides for Blue-Penciling

Virginia does not permit blue-penciling in non-compete agreements governed by Virginia law.  Lanmark Tech., Inc. v. Canales, 454 F. Supp. 2d 524 (E.D. Va. 2006); Strategic Enter. Solutions, Inc. v. Ikuma, 77 Va. Cir. 179 (Va. Cir. Ct. 2008); Better Living Components, Inc. v. Coleman, 67 Va. Cir. 221 (Va. Cir. Ct. 2005).

In Edwards Moving & Rigging, Inc. v. W.O. Grubb Steel Erection, Inc., 2012 U.S. Dist. LEXIS 56818 (E.D. Va. April 23, 2012), plaintiff, a Kentucky-based company, entered into a non-compete with its then-employee, defendant White, who then resided in Kentucky.  The non-compete prohibited defendant White from working for, either directly or indirectly, any of plaintiff’s competitors within the company’s “market area” for a period of two years after the termination of his employment.  Plaintiff alleged that the “market area” included Virginia. 

The non-compete agreement also contained a “reasonableness” provision, prohibiting defendant White from raising any issue regarding the reasonableness of the agreement’s scope or duration.  Most importantly, for the purposes of this case, the non-compete agreement contained a choice of law clause which provided that the agreement was to be construed under and governed by the law of Kentucky without reference to Kentucky’s conflicts of law rules. 

After defendant White’s employment ended, and within the two-year period following termination, defendant White accepted employment with defendant W.O. Steel Erection, Inc. (“Grubb”).  When plaintiff discovered that defendant had accepted employment with a competitor in Virginia, it advised Grubb of the non-compete agreement.  Defendant Grubb declined to sever its employment relationship with defendant White, and litigation ensued.  When plaintiff filed a two-count complaint in federal district court in Virginia, the defendants moved to dismiss the action, arguing that the choice of law clause ought not be enforced, as they contended it contravened Virginia public policy.  Defendants argued that the Court would be required to re-write, or “blue-pencil” the non-compete, as it was overbroad and that to do so would contravene Virginia public policy. 

Judge Hudson ruled that the fact that Virginia does not allow “blue penciling”, whereas Kentucky does, was immaterial.  The Court, citing Jones v. Dent Wizard Int’l, Corp., No. CL02-386, 2002 WL 32254731, 2002 Va. Cir. LEXIS 463 (Va. Cir. Ct. June 14, 2002) held that to permit “blue-penciling” is not so repugnant to Virginia public policy as to overcome Virginia’s preference for enforcing choice-of-law clauses. 

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