Last month, the Lucas County Court of Appeals affirmed the dismissal of claims (for breach of noncompetition agreements and common law unlawful competition) brought by a special event photography franchisor against several former employees who formed a competing business. The trial court found that the party actually harmed by the breach of the non-competition agreement was the franchisee in exclusive territory, not the franchisor, and dismissed the lawsuit. IPI, Inc. v. Monaghan, 2008-Ohio-975 (3/7/08). However, the Court of Appeals found that the franchisor adequately pled a claim for theft of trade secrets and that it had an adequate interest in bringing that claim in its own name. Therefore, the appellate court reinstated the trade secrets claim.
By way of background, the plaintiff, “IPI, is a company that developed a plan for ‘event’ photography, e.g., Santa Claus programs, golfing events and youth sporting events, which involves not only the taking of the photographs at a special event, but also the production and sale of the photographs on site.” IPI entered into a franchise agreement with Visual Marketing giving it the exclusive right to the Ohio territory. In exchange, Visual Marketing paid IPI a $20,000 fee and a percentage of its profits. IPI employed the three defendants, until one of them (Aaron) went to work directly for Visual Marketing. While working with IPI, all three defendants allegedly signed non-compete agreements. When Aaron became employed by Visual Marketing, he likewise signed a non-compete agreement with Visual Marketing.
The three defendants allegedly formed a competing special event photography business in Ohio and Visual Marketing brought suit (which was mediated to a settlement). IPI then filed suit. However, the trial court found that IPI could not prove that it had a non-compete agreement with the second defendant and could not prove the third defendant had breached her agreement with IPI or was involved with the competing business. As a result, the trial court dismissed all claims against the second two defendants.
As for the first defendant (Aaron), the court found that, notwithstanding the franchise agreement and profit-sharing, the party actually harmed by the alleged breach of the non-competition agreement and theft of trade secrets was Visual Marketing, not IPI. As a result, it found that the lawsuit was not being prosecuted in the name of the real party in interest as required by Ohio Rule of Civil Procedure 17(A) and dismissed the lawsuit.
“The purpose of Civ.R. 17(A) is to allow a defendant to avail himself of evidence and defenses that he has against the real party in interest, and to secure the finality of the judgment so that he is protected against a second suit brought by the real party in interest on the same matter.” While an intended third-party beneficiary of a contract may be a real-party-in interest, “[i]t was Visual Marketing, not IPI, that directly benefited from this agreement; there is no evidence in the record of this cause to establish that the parties to that agreement entered into that contract with any intent to benefit IPI. Therefore, IPI is not a third-party beneficiary/real party in interest and lacks the right to bring suit against on the same matter, that is a non-compete agreement, that was the subject of the contract between and Visual Marketing.”
However, the appellate court agreed that IPI could be the real-party-in-interest for its trade secret claim. “In the present case, IPI alleged that it developed, inter alia, "confidential and specialized techniques for event photography, a business marketing plan for its franchisees, a training program, and proprietary and confidential software that it makes available to its franchise systems." IPI alleged that appellees/cross-appellants misappropriated these systems, techniques, etc., that is, its alleged trade secrets. If it is shown that these are truly trade secrets and that appellees/cross-appellants misappropriated the same, IPI would be directly injured by that misappropriation. Therefore, IPI is the real party in interest on this claim.”
Insomniacs may read the full decision at http://www.sconet.state.oh.us/rod/docs/pdf/6/2008/2008-ohio-975.pdf.
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 change or be 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.
