TransUnion Risk and Alternative Data Solutions, Inc. v. Daniel McLachlan

• Court: Court of Appeals for the Eleventh Circuit
• Decided: August 27, 2015
• Docket: 15-10985
• Status: Unpublished

Opinion

Case: 15-10985 Date Filed: 08/27/2015 Page: 1 of 11

[DO NOT PUBLISH]

IN THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT ________________________

No. 15-10985 Non-Argument Calendar ________________________

D.C. Docket No. 9:14-cv-81485-KAM

TRANSUNION RISK AND ALTERNATIVE DATA SOLUTIONS, INC.,

Plaintiff - Appellee,

versus

DANIEL MACLACHLAN,

Defendant - Appellant.

________________________

Appeal from the United States District Court for the Southern District of Florida ________________________

(August 27, 2015)

Before MARCUS, WILSON, and WILLIAM PRYOR, Circuit Judges.

PER CURIAM: Case: 15-10985 Date Filed: 08/27/2015 Page: 2 of 11

In this diversity case, respondent Daniel MacLachlan (MacLachlan) appeals

the district court’s ruling granting petitioner TransUnion Risk and Alternative Data

Solutions, Inc. (TRADS) a preliminary injunction, enforcing a noncompetition

agreement between the parties and temporarily enjoining MacLachlan from

working for The Best One, Inc. (TBO) or engaging in any business similar to that

conducted by TRADS. On appeal, MacLachlan argues that the district court erred

when it applied Florida Statutes sections 542.335(1)(g)1 and 542.335(1)(j) to two

of the four elements necessary for a preliminary injunction under Federal Rule of

Civil Procedure 65. MacLachlan contends that these sections are in conflict with

federal procedure codified in Rule 65 and therefore do not govern the instant case.

After review of the parties’ briefs and the record on appeal, we conclude that

Rule 65 and section 542.335(1)(j) can be applied harmoniously; therefore, the

district court properly applied section 542.335(1)(j), which grants TRADS a

presumption of irreparable harm, in conjunction with its Rule 65 analysis.

However, because we conclude that section 542.335(1)(g)1 does not apply to the

issuance of a preliminary injunction to enforce a valid restrictive covenant, we find

that the district court improperly applied it to preclude consideration of the

hardship to MacLachlan when balancing the harms under Rule 65. We therefore

vacate the district court’s order and remand this case for the limited purpose of

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determining whether the threatened injury to TRADS outweighs the damage a

preliminary injunction may cause MacLachlan.

I.

MacLachlan served as CFO of TLO, LLC (TLO), a company in the data

services industry, from March 2009 to December 2013. In December 2013, TLO

went into bankruptcy and was acquired by TRADS, a company that is also in the

data services industry. TRADS hired MacLachlan as CFO during the acquisition.

MacLachlan signed a one year “Noncompetition and Nonsolicitation Agreement”

with TRADS on March 13, 2014 (the Agreement), which, if he was terminated,

prohibited MacLachlan from “directly or indirectly”:

(a) engag[ing] in a business . . . that is the same as or similar to any Business conducted by [TRADS] during [MacLachlan’s] employment . . . [or];

(b) enter[ing] into any employment or business relationship with any person or entity that engages in a Business that is the same as or similar to any Business conducted by [TRADS] during [MacLachlan’s] employment by [TRADS], including, without limitation, . . . Interactive Data LLC . . . .

On October 2, 2014, TRADS’s competitor in the data services industry,

Interactive Data, LLC (Interactive), was acquired by TBO, an investment

company. MacLachlan resigned from TRADS on October 3, 2014, and signed an

employment agreement on October 6, 2014, to become CFO of TBO. He did not

inform TRADS of his new relationship with TBO.

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On the belief that MacLachlan had gone to work for a competitor, TRADS

initiated an action to enforce the Agreement and moved for a preliminary

injunction. Contesting the preliminary injunction, MacLachlan argued, among

other things, that TRADS had not demonstrated a substantial likelihood of success

on the merits; that TRADS failed to establish irreparable harm; that the harm of the

preliminary injunction to MacLachlan would outweigh any damage to TRADS;

and that sections 542.335(1)(g)1, (j) of the Florida Statutes did not govern the case.

After an evidentiary hearing on TRADS’s motion, the district court granted the

preliminary injunction, prohibiting MacLachlan for one year or until the final

resolution of the case, whichever is sooner, from “[c]ontinuing further employment

or association with [Interactive] or any affiliate or investor thereof” and from

“[e]ngaging in a business or activity that is the same as or similar to any business

conducted by TRADS.”

II.

We review a district court’s granting of a preliminary injunction for abuse of

discretion, its findings of fact for clear error, and its legal conclusions de novo.

Pine v. City of W. Palm Beach, FL, 762 F.3d 1262, 1268 (11th Cir. 2014). A

court’s conclusion of which law to apply is a legal one; thus, we review it de novo.

Esfeld v. Costa Crociere, S.P.A., 289 F.3d 1300, 1306 (11th Cir. 2002).

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III.

“Under the doctrine enunciated in [Erie R. Co. v. Tompkins, 304 U.S. 64, 58

S. Ct. 817 (1938)] and its progeny, federal courts sitting in diversity apply state

substantive law and federal procedural law.” Esfeld, 289 F.3d at 1306 (internal

quotation marks omitted). “We apply federal procedure to determine whether the

preliminary injunction was properly issued.” See Ferrero v. Associated Materials,

Inc., 923 F.2d 1441, 1448 (11th Cir. 1991). Under federal procedure codified in

Rule 65, a moving party must establish four elements to obtain a preliminary

injunction: “(1) it has a substantial likelihood of success on the merits; (2)

irreparable injury will be suffered unless the injunction issues; (3) the threatened

injury to the movant outweighs whatever damage the proposed injunction may

cause the opposing party; and (4) if issued, the injunction would not be adverse to

the public interest.” Siegel v. LePore, 234 F.3d 1163, 1176 (11th Cir. 2000) (en

banc) (per curiam). We consider preliminary injunctions “extraordinary” and

“drastic” remedies that should not be issued unless the moving party clearly

establishes each of the four prerequisites. Id. Indeed, “[a] showing of irreparable

injury is the sine qua non of injunctive relief.” Id. (internal quotation marks

omitted).

“In 1996, Florida adopted Fla. Stat. § 542.335, which contains” the

substantive state law to which courts look in “analyzing, evaluating and enforcing

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restrictive covenants contained in employment contracts.” See Proudfoot

Consulting Co. v. Gordon, 576 F.3d 1223, 1230–31 (11th Cir. 2009) (internal

quotation marks omitted). The statute prescribes the elements necessary to state a

prima facie claim to enforce a restrictive covenant and issues instructions to the

courts when ruling on such claims. Section 542.335(1)(g)1 governs the

enforceability of a restrictive covenant and mandates:

(g) In determining the enforceability of a restrictive covenant, a court:

1. Shall not consider any individualized economic or other hardship that might be caused to the person against whom enforcement is sought.

Fla. Stat. § 542.335(1)(g)1. Once a restrictive covenant is deemed enforceable, the

statute prescribes certain rules for enforcement:

(j) A court shall enforce a restrictive covenant by any appropriate and effective remedy, including, but not limited to, temporary and permanent injunctions. The violation of an enforceable restrictive covenant creates a presumption of irreparable injury to the person seeking enforcement of a restrictive covenant.

Fla. Stat. § 542.335(1)(j); see also Proudfoot, 576 F.3d at 1231 (holding that this

presumption is rebuttable by the defendant).

We apply Rule 65 to the exclusion of any contrary state procedure. See

Ferrero, 923 F.2d at 1448. MacLachlan contends that Rule 65 should have been

applied to the exclusion of sections 542.335(1)(g)1 and (j), while TRADS argues

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that the district court appropriately applied those subsections in determining

whether Rule 65 had been satisfied. We resolve these issues below.

A.

Under the Erie doctrine, “[t]he first step of the analysis is to determine

whether [Rule 65 and section 542.335(1)(j) are in] conflict . . . . If no conflict

exists, then the analysis need proceed no further, for the court can apply state and

federal law harmoniously to the issue at hand.” See Esfeld, 289 F.3d at 1306–07.

Thus, our first determination is whether Rule 65 and section 542.335(1)(j) can be

applied harmoniously when enforcing a valid restrictive covenant by preliminary

injunction.

Florida courts have seamlessly applied section 542.335(1)(j) alongside

Florida’s state procedure for preliminary injunctions, which mirrors Rule 65

federal procedure almost exactly. See, e.g., Supinski v. Omni Healthcare, P.A.,

853 So. 2d 526, 530 (Fla. Dist. Ct. App. 2003) (“It is well-settled that a party

seeking a temporary injunction must demonstrate that: (1) there is a likelihood of

irreparable harm . . . .”); see also Envtl. Servs., Inc. v. Carter, 9 So. 3d 1258, 1261,

1266 (Fla. Dist. Ct. App. 2009). Federal courts sitting in diversity in Florida can

and should apply Rule 65 and section 542.335 in a similarly harmonious fashion.

See Esfeld, 289 F.3d at 1306–07. We acknowledge that “[t]he line between

procedural and substantive law is hazy,” but we find it clear that between Rule 65

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and section 542.335 there is no procedural “clash.” Erie, 304 U.S. at 92, 58 S. Ct.

at 828 (1938) (Reed, J., concurring in part).

Indeed, the presumption of irreparable harm found in section

542.335(1)(j)—and its broader statutory context—works in tandem with Rule 65.

A presumption of irreparable harm is not arbitrarily granted by Florida’s statute,

but is the logical consequence of the movant’s prima facie showing, including its

establishment of the covenant’s reasonableness in protecting legitimate business

interests at stake. See, e.g., DePuy Orthopaedics, Inc. v. Waxman, 95 So. 3d 928,

939 (Fla. Dist. Ct. App. 2012) (“[Petitioner] presented a prima facie case . . .

[s]imply stated, [petitioner] established the presumption . . . of irreparable injury

created by section 542.335(1)(j).”) (emphasis added). Put another way, section

542.335(1)(j) does not relieve TRADS of its procedural burden of establishing that

“irreparable injury will be suffered unless the injunction issues,” Siegel v. LePore,

234 F.3d at 1176; rather, it prescribes how irreparable injury is established in the

restrictive covenant context. We do not interpret the Florida statute to be

“contrary” to Rule 65, and, accordingly, there need be no “exclusion” in its

governance of this issue. Ferrero, 923 F.2d at 1448.

The district court’s application of the law evinces the consistency between

section 542.335(1)(j) and Rule 65. The district court found that TRADS had

demonstrated a substantial likelihood of success on its claim to enforce the

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Agreement, and therefore, TRADS established a rebuttable presumption of

irreparable harm pursuant to section 542.335(1)(j). The district court then

conducted a thorough review of the evidence, which contained numerous indicia of

irreparable harm occurring to TRADS, and decided that MacLachlan had not

provided sufficient evidence to rebut that conclusion. Accordingly, the district

court found that TRADS had satisfied the third element of Rule 65 procedure.

Because Rule 65 and section 542.335(1)(j) apply harmoniously to TRADS’s

motion for preliminary injunction, the district court did not err in their application.

B.

Secondly, MacLachlan appeals the lower court’s application of section

542.335(1)(g)1 to the preliminary injunction analysis, which precluded any

consideration of the potential hardship to MacLachlan when the court balanced the

harms under Rule 65.

Section 542.335(1)(g) governs the enforceability of restrictive covenants,

not the enforcement of an already enforceable restrictive covenant. See Fla. Stat. §

542.335(1)(g). This is evident from the framing, content, and position of the

section in the overall structure of the statute. The section begins: “In determining

the enforceability of a restrictive covenant, a court . . . .” It then goes on to list

four considerations that a court “shall” or “shall not” contemplate when

determining whether a restrictive covenant is enforceable. § 542.335(1)(g)1–4.

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One of these—applied by the district court to the motion for preliminary

injunction—is that the court “[s]hall not consider any individualized economic or

other hardship that might be caused to the person against whom enforcement is

sought.” § 542.335(1)(g)1. Section 542.335(1)(g)3 adds that the court “[s]hall

consider all other pertinent legal and equitable defenses.” What is clear from the

framing and content of sections 542.335(1)(g)1–4 is that the mandated

considerations therein are directed towards the determination of whether a

restrictive covenant is enforceable. Accordingly, these sections should not be

applied when determining the appropriate remedy. 1

Here, the district court erred when it applied section 542.335(1)(g) in

determining whether a preliminary injunction was an appropriate and effective

remedy for the enforceable restrictive covenant. See § 542.335(1)(j). Having

erroneously applied section 542.335(1)(g), the district court failed to consider any

harm that MacLachlan would suffer if the injunction issued. Therefore, we must

vacate the district court’s order granting the injunction and remand this matter for

the district court to balance the harms in accordance with Rule 65.

1 The statute concludes with instructions for enforcement: first, it addresses public policy considerations, § 542.335 (1)(i), then, specific remedies, § 542.335(1)(j), and finally, attorney’s fees and costs, § 542.335(1)(k). These sections are clearly demarcated from the determination of whether a covenant is enforceable. See, e.g., § 542.335(1)(j) (“The violation of an enforceable restrictive covenant creates . . . .”) (emphasis added).

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IV.

We find that section 542.335(1)(j) of the Florida Statutes does not conflict

with federal procedure codified in Rule 65; however, because we find that section

542.335(1)(g)1 is not applicable to the enforcement of the Agreement by

preliminary injunction, we vacate and remand to the district court for the limited

purpose of determining whether the threatened injury to TRADS outweighs the

damage the injunction may cause MacLachlan, giving full consideration to the

hardship MacLachlan would suffer should the injunction issue.

VACATED AND REMANDED.