FORT LAUDERDALE NON-COMPETE AGREEMENTS: DECLARATORY JUDGMENT CLAIMS MUST INCLUDE ALL AFFECTED PARTIES

A party to a non-compete agreement that was breached by the employer, may preempt its enforcement by seeking a declaratory judgment. To be effective, the declaratory action must include all parties who have a right to enforce the non-compete agreement. “[B]efore any proceeding for declaratory relief is entertained all persons who have an ‘actual, present, adverse, and antagonistic interest in the subject matter’ should be before the court.” Fla. Dep’t of Educ. v. Glasser, 622 So.2d 944 (Fla.1993). Section 86.091, Florida Statutes states “[n]o declaration shall prejudice the rights of persons not parties to the proceedings.” Peter Mavrick is a Fort Lauderdale non-compete lawyer and business litigation attorney who has substantial experience with non-compete litigation, including injunction proceedings. The Mavrick Law Firm also represents clients in non-compete litigation and business litigation in Miami, Boca Raton, and Palm Beach.

An example of this occurred in the case of Reinstein v. Pediatric Gastroenterology, Hepatology & Nutrition of Florida, P.A., 25 So.3d 54 (Fla. 2d DCA 2009). L. Julio Reinstein, M.D. (Reinstein), purchased an interest in a medical practice (hereinafter the “P.A.”). Dr. McClenathan (McClenathan), the founder of the P.A., retained a majority interest. Reinstein, McClenathan, and the P.A. executed various contracts to memorialize the new practice. The pertinent contracts included: (1) an Operating Agreement; (2) a Stock Transfer Restrictions and Buy–Out Agreement (the Buy–Out Agreement); and (3) a Professional Services Employment Agreement (the Employment Agreement). The Buy-Out Agreement and the Employment Agreement contained non-compete agreements.

Reinstein filed a lawsuit seeking a declaratory judgment that the two noncompete agreements were not enforceable because the P.A. and McClenathan breached the agreements. Reinstein’s employment with the P.A. was subsequently terminated, and he opened a medical practice in the restricted area. The P.A. filed a separate lawsuit seeking injunctive relief and damages against Reinstein and his new medical practice for their alleged violations of the non-compete agreement. The P.A. and McClenathan also moved to enforce the arbitration provisions contained in the agreements. The trial court referred Reinstein’s claims for damages to arbitration and retained the claims relating to the enforceability of the non-compete agreements. The parties went to arbitration, where all of Reinstein’s claims for damages against McClenathan and the P.A. were resolved. The issues relating to the non-compete agreements were the only issues remaining for the trial court to resolve. The trial court consolidated Reinstein’s lawsuit and the P.A.’s lawsuit to decide in one case. McClenathan moved for partial summary judgment, seeking to be dismissed from the litigation. McClenathan contended that he was not the party seeking enforcement of the non-compete agreement, so he should not be named individually in Reinstein’s claims. The non-compete clause in the Buy-Out Agreement contained a provision that provided, “the [P.A.] or any Shareholder … the right to seek monetary damages … and equitable relief” in the event of a breach of the non-compete agreement. However, the non-compete in the Employment Agreement only gave the P.A. the right to seek damages and equitable relief in the event of a breach.

After a hearing, the trial court dismissed McClenathan for the following three reasons: (1) McClenathan did not seek to enforce the Buy-Out Agreement, (2) Reinstein did not seek a money judgment against McClenathan, and (3) the P.A. was the only party seeking enforcement of the non-compete agreement. Reinstein immediately appealed.

Reinstein argued that he was entitled to obtain a declaratory judgment regarding the enforceability of the non-compete clause in the Buy-Out Agreement that would be binding on both the P.A. and McClenathan. Otherwise, McClenathan would still have had the right to seek enforcement of the non-compete agreement. McClenathan contended that the plain wording of the two agreements precluded him from enforcing the non-compete agreements because the P.A. already exercised its enforcement rights. His argument focused on the use of the conjunction “or” in the section of the Buy–Out Agreement allowing “the [P.A.] or any Shareholder” to seek damages and equitable relief for breach of the non-compete clause. McClenathan contended that the word “or” in the quoted phrase must be read in the disjunctive. In other words, if the P.A. sought to enforce the non-compete agreement, then the shareholder may not. The appellate court disagreed.

The appellate court found that the use of the word “or” did not describe an action, instead it joined together two parties—a Shareholder and the P.A. The use of the word “or” granted each of these parties the right to seek an injunction or other relief against contractually proscribed competition by another Shareholder. Reinstein concluded that the right of one of these parties to act did not preclude the other party simply because the other party has acted first. Reinstein also found that the remedies section of the Buy-Out Agreement supported this conclusion, because it granted the right to seek relief for a breach of the agreement to “the party or parties who are aggrieved thereby.” This reference was inconsistent with the idea that the filing of an enforcement action by one party precluded the other from doing so.

The appellate court also held that if McClenathan’s interpretation of the agreement were correct, further complications would have been created. For example, the P.A. could have dismissed its lawsuit at any time before the final decision of the trial court. Reinstein and his practice would still have been at risk of the filing of a new enforcement lawsuit by McClenathan. The appellate court concluded that Reinstein and his practice had the right to obtain a declaration of the enforceability of the non-compete clause that would be binding on McClenathan as well as on the P.A. McClenathan could not prevent Reinstein and his practice from obtaining a declaratory judgment that would be binding on him by arranging for only the P.A. to seek enforcement of the non-compete clause. The appellate court reversed the order dismissing McClenathan.

Peter Mavrick is a Fort Lauderdale non-compete attorney who also practices non-compete litigation in Palm Beach, Boca Raton, and Miami. This article does not serve as a substitute for legal advice tailored to a particular situation.