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Start-up can enforce exec’s non-compete

A start-up company could enforce a non-compete agreement against a former vice president who went to work for a competitor developing products in the same industry, a Massachusetts Superior Court judge has ruled.

The defendant vice president argued that he could avoid the potential disclosure of confidential information by focusing his efforts at his new job in areas that would not compete with his former employer.

But Judge Frances A. McIntyre disagreed and granted a preliminary injunction, finding that the vice president had improperly accessed proprietary information and destroyed evidence after she had granted a temporary restraining order.

“To allow [the vice president] to bring [the start-up company’s] insider marketing information to [his new employer] … is an unfair advantage,” McIntyre wrote. “The timing is key. [The start-up] is ‘in the position of a coach, one of whose players has left, playbook in hand, to join the opposing team before the big game.’”

The 10-page decision is Life Image, Inc. v. Brown, et al., Lawyers Weekly No. 12-299-11.

Uphill battle?

Jordan D. Hershman of Bingham McCutchen in Boston, who represented the start-up, could not be reached for comment prior to deadline. Neither the vice president’s lawyer, James B. Conroy of Boston, nor the attorney for the co-defendant company, Michael L. Chinitz, also of Boston, would comment.

Meanwhile, Dustin F. Hecker of Posternak, Blankstein & Lund said a lawyer defending a client accused of destroying evidence faces an uphill battle in any non-compete dispute.

The law generally prevents courts from enforcing non-competes simply to chill competition or block an employee from working, noted the Boston attorney, who was not involved in Life Image. However, accusations of misconduct on the part of the departing employee can completely change the analysis, particularly when it can be shown that the previous employer’s good will is likely to be harmed in a substantial way if the non-compete provision is not enforced, he said.

“When you’re talking about a preliminary injunction hearing, judges have a lot of discretion and power to do whatever they want without a great deal of fear of an appellate court reversing them,” Hecker said. “If a judge is convinced that someone can’t be trusted, and there is information out there which could be useful to the new employer and harm the old employer, they are not going to be bashful about enforcing a non-compete, even if it means the employee may not be able to work for that competitor.”

If Life Image proceeds to trial, the vice president’s credibility will be in serious question given his conduct following the issuance of the temporary restraining order, said Andrew Botti of McLane, Graf, Raulerson & Middleton in Woburn, Mass.

It also would likely result in the start-up receiving favorable jury instructions and other remedies from the judge, Botti said.

“You’re probably entitled to a presumption that the materials being sought were taken and destroyed. If you’re defending a client under those circumstances, it would be time to throw in the towel because you’re not going to be able to explain it away,” he added.

Stephen M. Perry of Boston’s Casner & Edwards noted that the lack of recent non-compete precedent from the Supreme Judicial Court makes Superior Court decisions like the one issued by McIntyre all the more important.

“There is a lot of appellate caselaw out there that lays out the general principles, but those cases are several years old at this point,” he said. “When you get into this level of detail, lawyers really do turn to the Superior Court decisions for guidance, particularly ones like this coming out of the Business Litigation Session.”

‘Apparently in a panic’

Plaintiff Life Image is a Massachusetts company that developed a cutting-edge system involving cloud-based medical imaging sharing. The system, used in radiologic applications, allows a properly licensed medical provider or expert radiologist to access the stored images for immediate diagnostic purposes.

When Life Image hired the defendant, Michael Brown, in 2009, he signed standard confidentiality and non-compete provisions that barred him from engaging in a similar business for 12 months.

A year later, Brown informed Life Image’s CEO that he would be leaving the company at a future date.

In July 2011, co-defendant Merge Healthcare, a larger and more established company, prepared a market analysis of Life Image’s products. Merge Healthcare compared itself to Life Image and noted in a 58-page slide presentation that Merge Healthcare had no cloud-based mobile-sharing capabilities.

That same month, Merge Healthcare’s chairman instructed a company executive to contact Brown about possible employment.

After Brown met with the executive, he sent an email to Life Image executives that quoted Merge Healthcare’s chairman as saying it had an application that was the “Life Image Killer.” Brown, who said he sent the email out of loyalty to Life Image, added that “Merge is shaping up to be one of our biggest competitors.”

In September 2011, he notified Life Image he was leaving the company. A few weeks later, he met with Merge Healthcare personnel to acquaint himself with a soon-to-be-available product that was a direct competitor with Life Image’s cloud-sharing system.

Brown, who was still employed at Life Image at the time of the meeting, told Merge Healthcare its system needed a method of importing a patient’s radiological compact discs, which it was not equipped to do.

During his last days at Life Image, Brown exported large volumes of information onto an external hard drive. On Sept. 15, he copied his Life Image laptop onto his personal computer. He also deleted Merge Healthcare emails from his “sent” folder.

On Oct. 2, he told Life Image he had accepted a position at Merge Healthcare. Two weeks later, Life Image filed suit to enforce the non-compete and was granted a TRO.

Judge McIntyre found that Brown, even after being served with a court order to preserve all data, “apparently in a panic” deleted Life Image materials from his laptop.

Judgment call

In granting the preliminary injunction, McIntyre wrote that Brown’s switch to Merge Healthcare did not classify as “ordinary competition.”

Life Image’s cloud-based product was a dramatic innovation, of which executives at the highest levels of Merge Healthcare were keenly aware. Brown’s knowledge of the product, the judge wrote, would “inevitably or inadvertently” surface during his employment with Merge Healthcare.

As part of his new job, Brown would have to make decisions using information he held about Life Image, the judge said, noting that such duties would damage Life Image in a way that cannot be monetized.

McIntyre said she was not inclined to allow Brown to work for Merge Healthcare under a court order not to disclose protected information.

“His lack of judgment in deleting files upon receipt of the preservation order in the TRO and his solicited advice to Merge about the patient CD’s while he was still in the employ of Life Image causes this court to doubt that he is possessed of the ability to wall off in his mind secret strategic marketing information about Life Image while he sells for Merge,” she said.

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