Friday, September 12, 2014

Check Your Privilege – Does Judicial Privilege Apply to Cease & Desist Letters?

Your client signs a non-compete agreement and later leaves to go work for another employer.  Your client’s former employer sends a “cease and desist” letter to the new employer, resulting in your client being terminated or suffering other damages.  Does your client have a claim?  This basic, and increasingly common, scenario, has played out in numerous courts across the country to widely disparate outcomes.

In Murphy v. LivingSocial, Inc., 931 F. Supp. 2d 21 (D.D.C. 2013), Judge Sullivan held that the defendant’s letter to plaintiff and plaintiff’s new employer, which asserted that plaintiff had violated her non-compete agreement with defendant, was insulated from plaintiff’s libel claim on the ground that the letter was protected by the judicial proceedings privilege because it was clear that defendant was seriously considering litigation.  The court stated that “the Travelzoo [the new employer] Letter was written by LivingSocial’s attorney, to advise Travelzoo of plaintiff’s contractual obligations, explained that plaintiff’s actions appeared to have been taken in violation of the contract, stated that LivingSocial reserved its rights to take all legal and equitable action to protect its business interests, and demanded that Travelzoo immediately cease and desist from any further solicitation of LivingSocial employees, customers, or prospective customers.” In dismissing the case, the Court noted that the non-compete agreement provided that LivingSocial was permitted to communicate the terms of the non-compete agreement to a perspective or current employer of plaintiff. 

By contrast, in SCI Funeral Servs. of Fla., Inc. v. Henry, the District Court of Appeal for the Third District of Florida found that the “litigation privilege” did not extend to a cease and desist letter seeking to enforce a non-compete agreement.  839 So. 2d 702 (Fla. App. 2002).  In SCI Funeral, defendant moved to dismiss plaintiff’s claims, arguing that its demand letter was absolutely privileged under the “litigation privilege”.  This privilege “bars causes of action in tort for statements made in connection with a judicial proceeding.”  The court, however, found that defendant’s conduct was not protected by the litigation privilege, reasoning that “an employer cannot threaten an employee with litigation over a non-compete agreement which has expired.  If the employer wrongly does so, thus causing the employee to lose his or her job, there must necessarily be a judicial remedy for such conduct.”

This position finds indirect support in the treatment of such claims by other courts.  For example, in Hidy Motors, Inc. v. Sheaffer, the Court of Appeals of Ohio focused on the enforceability of the non-compete agreement in addressing plaintiff’s claims based on the transmission of a Cease & Desist letter to plaintiff’s new employer. 916 N.E.2d 1122 (Ohio App. 2009).  Although it does not appear that the employer raised a “litigation privilege” defense, the employer did contend that it was “privileged to protect [its] legitimate business interest[s]”.  Id. at 1131.  The Court, however, noted because “[t]he trial court did not address whether the covenant not to compete…was enforceable” that “[it] erred in assuming that the covenant not to compete could be relied on as the basis for [defendant’s] privilege defense[.]”  Id. at 1132.  Other courts have also endorsed such analysis on similar facts.  See Gentile v. Olan, No. 12-cv-3664, 2013 U.S. Dist. LEXIS 64472, 2013 WL 1880771 (S.D.N.Y. 2013) (finding that cease and desist letter may constitute actionable tortious interference when defendant’s letter was “unwarranted” by plaintiff’s conduct and when “a material question of fact exists as to whether Plaintiff ever signed [the] agreement”);Voorhees v. Guyan Machinery Co., 446 S.E.2d 672 (W. Va. 1994) (no privilege where the plaintiff’s alleged “competition” was “so insignificant as to render [defendant’s] claim that it was protecting its business interests by enforcing the noncompetition agreement [with plaintiff] absurd.”); Carter v. Aramark Sports & Entm’t Servs, Inc., 835 A.2d 262 (Md. Ct. Spec. App. 2003) (tortious interference claim can be based on at-will relationship); but see Bonds v. Philips Electronic N.A., No. 2:12-cv-10371, 2014 U.S. Dist. LEXIS 6845, 2014 WL 222730 (E.D. Mich. Jan. 21, 2014) (“Defendant’s actions cannot be improper because they were motivated by legitimate business reasons”).  

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