Denied!  Judge Davis rejects a “half-hearted” approach to obtaining a preliminary injunction

Jeff MacHarg and Alexandra Hirsch

To secure a preliminary injunction, a party must present evidence of two things, and fast: (1) likelihood of success on the merits; and (2) irreparable harm.  In this recent Order of Significance (denying a preliminary injunction), Judge Davis was able to skip over ‘success on the merits’ because he found Plaintiff’s evidence was lacking.  He also found Plaintiff moved too slowly to justify a finding of irreparable harm.  This Order is a good reminder to practitioners seeking a preliminary injunction: marshal your (admissible) evidence and file your motion without delay.

Here’s a brief timeline and summary of the allegations: On May 21, 2024, Swim Club Management Group of Raleigh, LLC (“Swim Club”) sued two former employees and their two competing businesses in (regular) Superior Court in Wake County.  This was after sending the former employees cease and desist letters in January and April 2024.  In a nutshell, Swim Club claims the former-employee defendants breached the non-compete and non-solicit provisions in their employment agreements by forming and/or working for competing businesses (also defendants).  Swim Club also alleged these defendants took and used its confidential information and trade secrets (although there is no trade secret claim).  Swim Club asserted counts for breach of the employment agreements and tortious interference.  Swim Club’s Third Cause of Action seeks a TRO, Preliminary Injunction, and Permanent injunction against two former employees enforcing their employment agreements.

Plaintiff’s complaint was not verified, and Plaintiff did not seek a TRO out of the gate.  On June 18, 2024, the defendants timely designated the case as a Mandatory Complex Business Case (trade secrets).  One of the defendants moved to dismiss.  Another defendant asserted counterclaims against Swim Club for wage and hour violations and defamation. There was even an opposition to a motion for extension of time.  If the initial pleadings and motions practice is any indication, this caseis shaping up to be a contentious one. 

Shortly after being assigned the case, Judge Davis convened a status conference on June 27, 2024.  During the conference, the Court expressly inquired whether Plaintiff intended to pursue preliminary injunctive relief.  Plaintiff’s counsel stated it was no longer seeking a TRO, but did intend to seek a preliminary injunction (“PI Motion”) against two former employees.  On July 5, the parties jointly submitted a proposed briefing schedule for the PI Motion.  The Court accepted the schedule as proposed, setting July 22, 2024 as the deadline for Plaintiff to file its PI Motion (and brief).  Full briefing (i.e., responses and replies) would be complete by August 19, 2024, and a hearing was set for September 10, 2024.  Notably, Plaintiff didn’t seek expedited briefing or an expedited hearing date and actually requested and received a short extension to file its PI Motion. 

Plaintiff’s principal brief centered on enforceability of the employment agreement and likelihood of success on the merits, but Judge Davis found it “devoid of any actual substantive argument as to the irreparable harm prong of the preliminary injunction standard.” (Order ¶ 31.)  It wasn’t until the Reply that Plaintiff overtly addressed the issue of irreparable harm.  Judge Davis commented that failure to address an argument in its principal brief “would normally result in the court’s refusal to consider it.”  (Id.)  The Court nevertheless considered the arguments in the Reply and at the hearing but found them to be “legally insufficient.”  (Id.)

Among other issues, Plaintiff’s affidavit contentions about lost customers were made “upon information and belief.”  Such assertions were essentially “speculation.”  (Order ¶ 33.)  Judge Davis also found that portions of the affidavits were based on hearsay and unauthenticated private websites and were not admissible.  (Order ¶ 34.)  Lastly, Judge Davis found that several of Plaintiff’s key allegations were directly rebutted by the Defendants’ counter-evidence.  In particular, the Defendants credibly testified (by affidavit) that they did not communicate or contact any of Plaintiff’s clients or encourage them to transfer their business.  (Order ¶ 36.)  In the end, Judge Davis also found that Plaintiff failed to make a persuasive showing that it lost any clients due to the Defendants’ alleged breach of their employment agreements.  (Order ¶ 40.)  For these and other reasons, Judge Davis found that “Plaintiff will suffer no irreparable harm by the denial of its PI Motion.”  (Order ¶ 44.)

Judge Davis also devoted several paragraphs at the end of Order to explain how the Plaintiff’s “lack of urgency” in pursuing the injunction was “at odds with its assertion that the extraordinary remedy of a preliminary injunction is warranted on these facts.”  (Order ¶¶ 45-53.)  As the above timeline demonstrates, months passed after Plaintiff became aware of the alleged breaches of the employment agreements, yet Plaintiff did not file a verified complaint, pursue a TRO, or ask for expedited briefing or hearing.  Judge Davis further noted that as consequence of “Plaintiff’s half-hearted approach to seeking a preliminary injunction,” a significant portion of the restrictive periods in the employment agreements have expired.  This delay also weighed against injunctive relief.  For all of these reasons, the PI Motion was denied.

Takeaways:

If you want a TRO or injunction, file a verified complaint.  A verified complaint will simplify and streamline the presentation of evidence.  And the pre-filing verification process will acclimate clients to the need to later marshal and present admissible evidence.

Don’t Delay.  If your client wants an injunction, move fast.  Waiting weeks, or months may ruin any chance of obtaining this extraordinary relief.

Submit admissible evidence.  Allegations upon information and belief and hearsay are not evidence.  Know this when drafting a verified pleading and affidavits. 

Don’t save arguments for the Reply.  The principal motion should include all arguments.  Saving arguments for a reply risks losing them.