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A noncompete agreement involving stock options for a claims adjuster who changed firms is enforceable, a federal appeals court ruled.
A panel of the 6th U.S. Circuit Court of Appeals in Cincinnati on Friday affirmed a preliminary injunction granted by a lower court in favor of Jersey City, New Jersey-based York Risk Services Group Inc. in the noncompete and nonsolicitation dispute with former employee John Couture.
Mr. Couture joined York in 2005 as a national general adjuster but left in 2018 to join McLarens Global Claims Services, one of York’s direct competitors, according to the ruling in York Risk Services Group Inc. v. John Couture.
After Mr. Couture started at McLarens, seven York employees, all of whom reported to or had contact with him, left to join McLarens, and several of them brought open accounts and business from York, according to the ruling.
On May 1, 2019, York filed suit in U.S. District Court for the Western District of Michigan seeking a preliminary injunction to enforce the restrictive covenants contained in Mr. Couture’s stock-option contract that the parties executed when he first received stock options from York in 2011, according to the ruling.
The stock-option contract was between Mr. Couture and York’s parent company, Delaware-based Onex York Holdings Corp.
The noncompete restriction provided that Mr. Couture would not, for a year after termination of his employment with York, “directly or indirectly … manage, operate, control, participate in, or render services for … any person that is engaged in … any business that offers any product or service that competes with any product or service that is offered by the company,” according to the ruling.
The noncompete restriction also provided that during his employment with York and for two years afterward, Mr. Couture would not solicit any York employees to terminate their employment and become an employee of a competitor or solicit any of York’s customers on behalf of another company, according to the ruling.
The District Court granted York’s motion for a preliminary injunction, enjoining Mr. Couture from any employment that engages in direct or indirect competition with York, from soliciting York’s employees or customers and from diverting or attempting to divert business from York.
In its ruling Friday, the federal appeals court affirmed the District Court’s preliminary injunction granted to York to enforce its agreement with Mr. Couture.
“We agree with the district court that the noncompete covenant is likely valid under Delaware law and that York has a legitimate economic interest in enforcing it,” U.S. Circuit Judge John K. Bush said in the ruling.
The specialized loss adjusting business is “highly personalized,” and Mr. Couture was “a major player in that business,” the judge said in his ruling.
“Under Delaware law, York undoubtedly has a legitimate economic interest in protecting customer goodwill and proprietary information, particularly given the competitive, personalized nature of the insurance adjusting business,” the ruling said.
York was recently acquired by Sedgwick Claims Management Services Inc.
An Illinois appeals court has affirmed a lower court ruling in favor of a benefits broker’s former president who is now a Hub International Ltd. official, who was charged with violating his noncompete agreement.