FLORIDA NON-COMPETE AGREEMENTS: UNDEFINED TERMS IN NON-COMPETE AGREEMENTS MAY LIMIT THE PROTECTION AFFORDED BY THE CONTRACT

An undefined term in a non-compete agreement creates an ambiguity in the contract, and therefore uncertainty in a court’s interpretation of the term. When a term is left undefined, Florida law requires courts to give the term its ordinary meaning. Although the terms “compete” and “line of business” may seem self-explanatory, the context in which they are to apply may require further definition. Peter Mavrick is a Miami non-compete attorney and business litigation attorney who has substantial experience with non-compete litigation, including injunction proceedings.

In the case of Circuitronix, LLC v. Kapoor, 748 Fed.Appx. 242 (11th Cir. 2018), Sunny Kapoor (“Kapoor”) was the Assistant CEO of Circuitronix, LLC (“Circuitronix”) from October 2012 until his termination in March 2015. Kapoor’s employment was subject to a series of employment agreements. After his termination, Circuitronix filed a lawsuit against Kapoor and alleged that he violated the terms of the parties’ non-compete agreement. Kapoor counterclaimed against employer and Rishi Kukreja (“Kukreja”), its chief executive officer, and alleged breach of employment contract, unlawful retaliation, civil theft and unpaid wages.

The parties resolved their claims in mediation and on December 1, 2015 signed a mediated settlement agreement (“Settlement Agreement”). The Settlement Agreement incorporated the Mediated Settlement Term Sheet by reference and prohibited Kapoor from competing “with Circuitronix, anywhere in the world, for a period of 3 years starting from September 15, 2015.” The non-compete agreement explicitly applied “to all lines of business in which Circuitronix engaged” during the time of Kapoor’s employment. The Settlement Agreement was formally approved by the district court two days later.

A few months later, Circuitronix filed a Motion to Enforce Settlement and contended that Kapoor breached the Settlement Agreement by directly competing with Circuitronix through companies owned by Kapoor and his family. Circuitronix’s motion was largely based on Kapoor’s company website which prominently displayed metal parts and manufacturing processes that Circuitronix claimed overlapped with its metal business. Kapoor contended that the references about the metal parts, as well as, his company’s capabilities and services were mere “exaggerations” meant to obtain better pricing from suppliers for the products that it made.

The federal district court held an evidentiary hearing. The hearing was focused on how the parties intended the term “line of business” to be interpreted, since it was undefined in the Settlement Agreement. The remainder of the hearing focused on the website, which Circuitronix contended showed that Kapoor had been competing with its line of business. The district court issued an order defining Circuitronix’s “line of business” for purposes of the Settlement Agreement and then allowed Circuitronix limited discovery to determine if Kapoor breached the Settlement Agreement by competing with Circuitronix’s line of business under the district court’s definition. Kapoor contended that the services shown on his company’s website did not fall under the district court’s definition of Circuitronix’s line of business—and that his company did not actually sell or attempt to sell any product in competition with Circuitronix.

After a final evidentiary hearing, the district court found that Circuitronix failed to show that it was more likely than not that Kapoor had violated the non-compete agreements contained in the Settlement Agreement. The district court also found that the “puffery and falsehoods” displayed on the site, without more, were not sufficient to carry Circuitronix’s burden. As for Kapoor’s involvement with the company that produced the metal parts, the court found that Circuitronix had not produced any evidence showing that the metal parts produced were not used for any purpose other than their inclusion in power supplies, the sale of which did not constitute competition with Circuitronix. Further, the district court found that the manufacturing of the metal parts alone was “not enough to establish a breach of the Settlement Agreement.”

Circuitronix appealed the district court’s ruling. Circuitronix contended: (1) that the district court misinterpreted the word “compete,” which Circuitronix argued by its plain meaning should include advertisements of the sort displayed on the website, and (2) that the district court erred in finding that Kapoor’s involvement with the other companies did not violate the Settlement Agreement.

The United States Eleventh Circuit Court of Appeals reviewed the district court’s interpretation of the word “compete”, under a de novo standard of appellate review (as though it was a new proceeding). Because the term was not defined in the Settlement Agreement, Florida law required the court to give the term its ordinary meaning. Circuitronix contended that the word “compete” was best defined as “[t]o strive consciously or unconsciously for an objective (as position, profit, or a prize): be in a state of rivalry.” Circuitronix, LLC v. Kapoor held that a fair reading of the district court’s order demonstrated that the definition used by the district court did not differ in any material way from the one requested by Circuitronix. The appellate court further held that the district court simply found that Circuitronix did not carry its burden to demonstrate that the advertisements on the website constituted “striving” for the sale of competitive products rather than mere puffery calculated to receive better pricing from suppliers of non-competitive products.

Since the district court’s interpretation of the term “compete” was deemed correct, the appellate court reviewed the district court’s factual finding that the websites did not constitute improper competition for clear error. Under this standard of appellate review, the appellate court would reverse the decision only “if, after viewing all of the evidence, we are left with the definite and firm conviction that a mistake has been committed.” Tartell v. S. Fla. Sinus and Allergy Ctr., Inc., 790 F.3d 1253 (11th Cir. 2015).

The federal appellate court found that the district court’s findings were not clearly erroneous. Circuitronix was unable to produce any evidence that Kapoor even attempted to sell any product in competition with Circuitronix’s defined line of business. Based on the evidence presented at the hearing, the district court did not clearly err in finding that Circuitronix failed to show it more likely than not that Kapoor competed with any of Circuitronix’s defined lines of business. The appellate court therefore affirmed the judgment of the district court.

Peter Mavrick is a Miami non-compete lawyer. This article does not serve as a substitute for legal advice tailored to a particular situation.