Yesterday, the Sixth Circuit Court of Appeals affirmed an
award of $72, 183 in attorney’s fees to an employer which successfully obtained
a preliminary injunction against former employees who had begun working for a
competitor in violation of their non-competition agreements. Kelly
Services, Inc. v. De Steno, No. 18-1118
(6th Cir. 1-10-19). The
Court rejected the employees' arguments that they should not be liable for the
fees without a judgment on whether their agreements were enforceable and
without a jury trial on the amount of fees.
Their agreements awarded the employer fees incurred in enforcing the
agreement and did NOT require the employer to actually prevail before obtaining
a fee award. In other words, the employer was entitled to
attorney’s fees regardless of whether the non-compete clauses were actually enforceable
and regardless of whether it ultimately prevailed on the merits. The Court affirmed, but noted that the reasonableness
of the fees might depend on the
reasonableness of the enforcement efforts.
In any event, it would be “highly impractical” to ask a jury to rule on
attorney’s fees earned in a pending action, so a jury trial was not required
under the Seventh Amendment.
According to the Court’s opinion, the defendant employees
each signed a non-competition agreement which precluded them from working for a
competitor for one year after leaving employment with the plaintiff employer.
Their contracts also contained a provision which provided in relevant part
that:
I further agree to pay any and all legal fees, including
without limitation, all attorneys’ fees, court costs, and any other related
fees and/or costs incurred by the Company in enforcing this Agreement.
When the employer learned that they were working for a
competitor in violation of their non-competition agreements, it filed suit for
breach of contract and breach of the duty of loyalty and sought damages,
including attorney’s fees. A preliminary
injunction hearing was held and the employees preliminarily enjoined from
working for competitor in violation of their non-compete agreements. The Court did not lift the preliminary injunction
until approximately four months after the one-year period in the non-compete
had passed. The parties subsequently
both moved for summary judgment. The
employees argued, among other things, that the non-compete agreements were not
enforceable and they were entitled to a jury trial under the Seventh Amendment
to determine their financial liability for, and the reasonability of, the
attorney’s fees. The employer argued
that it had already obtained all of the relief that it sought (i.e., to keep
the employees from working for the first year after their employment for a
competitor) and were, thus,
automatically entitled to an award of attorneys’ fees for obtaining enforcement
of the agreement. Indeed, the employer
asserted that the contracts did not require the employer to prevail on the
merits in order to be entitled to attorneys’ fees when seeking to enforce the
agreement. The trial court ruled in
favor of the employer and rejected the request for a jury trial on the amount
of fees.
The contracts by their terms do not require a final
determination of liability in favor of [the employer] as a condition for the
award of fees. Unlike numerous similar
agreements, these contracts do not employ the words “prevailing party,” nor by
their literal language do they require a final determination of liability. In fact, as the district court correctly
noted, defendants argued below that these provisions were not prevailing party
provisions. . . .
In reasoning that a final determination of contract breach
was not required, the district court may have stated too freely that the
contract required former employees to pay attorneys’ fees “if [the employer]
merely sought to enforce the contracts.”
De Steno, 2017 WL 4786105, at
*2. One can imagine cases where efforts
to “seek enforcement” could for instance be unreasonable, made with little or
no basis, or made for purposes of oppression or harassment, or could be simply unsuccessful. A court might read the words “reasonable . .
. fees . . . involved in enforcing” and “fees . . . incurred . . . in enforcing
this Agreement” not to extend to such situations. We do not address the possibility of such a
limited interpretation, however, because the record is clear that none of these
situations is present in this case. The
district court entered a preliminary injunction that resulted in substantial
relief, based on a determination that [the employer] had shown a strong
likelihood of success on the merits.
Indeed, defendants withdrew their appeal from the grant of that relief.
. . .
The Court rejected the Seventh Amendment argument on the
grounds that calculating attorney’s fees for
the pending case is an equitable power better left to a judge, as
previously explained by the Second Circuit:
Accordingly, although plaintiff had the right to a jury
decision on whether defendants should recover attorneys’ fees, plaintiff did
not have the right to a jury decision on a reasonable amount of attorneys’
fees. Unlike the client in Simler v.
Conner, [372 U.S. 221 (1963),] no party here claimed that the contract
directed the amount of attorneys’ fees to be awarded by specifying a percentage
of an ascertainable sum. Therefore, the district court, in its equitable role,
should have determined a reasonable fee.
The Court found it would be “highly impractical” to require
a jury to determine a reasonable amount of attorney’s fees. The trial would become a trial about the cost
of the trial itself. It would also be
impractical to require a jury to “look behind the curtain” and determine the
proper cost of pretrial motions, etc. before
the trial was even complete. Therfore, it distinguished prior cases where
juries ruled on the amount of attorneys’ fees to be awarded concerning disputes
which had already been concluded (as in indemnification cases). In this case, the Court also found that
summary judgment was properly granted to the employer on the liability
question, so it did not need to be submitted to a jury.
NOTICE: This summary is designed merely to inform and alert you of
recent legal developments. It does not constitute legal advice and does not
apply to any particular situation because different facts could lead to
different results. Information here can be changed or amended without
notice. Readers should not act upon this information without legal advice. If
you have any questions about anything you have read, you should consult with or
retain an employment attorney.
