February 27, 2014

Can A Social Media Post Constitute Solicitation in Violation of a Non-Compete Agreement?

Last fall, the business litigation session of the Massachusetts Superior Court considered whether former employee's LinkedIn profile change constituted a violation of the employee's non-competition agreement. In KNF&T Staffing Inc. v. Muller, KNF&T, a staffing agency in the Boston area, had hired the defendant, Charlotte Muller, in 2005. When Muller was hired, she signed an Employee Confidentiality and Non-Competition Agreement that prohibited her from recruiting or referring potential employees for placement in the "Company's Field of Placement" for one year within 50 miles of any of KNF&T's offices. Muller worked at KNF&T for eight years, and was eventually promoted to Vice President and manager of the plaintiff's Boston office. Muller resigned from KNF&T, and three months later joined Panther Global Group, a staffing firm in Boston and direct competitor of KNF&T in certain areas. Muller posted on her LinkedIn account that she had changed jobs, notifying her 500+ contacts of the change. KNF&T filed a lawsuit to enforce the non-compete agreement Muller had signed in 2005.

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February 20, 2014

The End of Forum Shopping?

The Supreme Court's January decision in Daimler Chrysler v. Bauman has clarified the standard that must be met to establish general personal jurisdiction over corporations that seemingly have a presence in a particular state. The effect of the decision is to limit, to some degree, a plaintiff's ability to "forum shop" - or, to strategically select a certain court in a certain state in which to file a lawsuit in order to gain an advantage over the rival corporation.

Daimler is a German corporation that was sued by Argentinian plaintiffs in California. The plaintiffs brought suit for human rights violations that occurred in Argentina. At issue was whether a defendant parent corporation may be called to a certain court under the pretense of general jurisdiction when a subsidiary of the corporation does business in that state. The Court found that California did not have general jurisdiction over Daimler, and so Daimler could not be sued in California for injuries caused by the conduct of its Argentinian subsidiary when that conduct took place entirely in Argentina.

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February 13, 2014

No Claim for Misappropriation of Trade Secrets That Are Inadequately Protected

Generally, a company can protect its trade secrets from misappropriation by taking steps to ensure that such information is not easily accessible or otherwise easily disseminated. Requiring employees and others who are exposed to customer lists, business processes, and the like to sign confidentiality agreements is just one way to be vigilant in trade secret protection. However, as highlighted in a recent superior court decision, in the absence of a signed confidentiality agreement, businesses must take other reasonable steps to keep confidential information confidential, or risk that their trade secrets will be stolen - with no legal recourse against the trade secret thief.

In CRTR, Inc. v. Lao, CRTR hired an independent contractor without requiring him to sign a confidentiality agreement. The contractor was the nephew of a CRTR customer who had commenced negotiations with CRTR to purchase the business. When the negotiations failed, the contractor stole a number of trade secrets from the CRTR, and CRTR sued both the contractor and his uncle for misappropriation. When the contractor moved for summary judgment, the court found that CRTR had properly identified the stolen material and had demonstrated that the material would cause damage to the company's interest if the information was shared. Despite that finding, the court granted the contractor's summary judgment motion.

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February 6, 2014

Email Communications May Create Enforceable Agreements

Email has become the preferred method of communication amongst many businesses and professionals. As shown by a handful of recent Massachusetts cases, it is imperative to review and revise e-mail correspondence, being mindful of the commitment-value of the written words. A recent article from Massachusetts Lawyers Weekly discussed this topic.

In 2004, Massachusetts adopted the Uniform Electronic Transactions Act, and both Massachusetts state and federal courts have since held that electronic correspondence may create a binding contract and satisfy the statute of frauds, which requires certain types of contracts to be in writing. Additionally, email conversations may be able to substitute as valid signatures, or may fulfill notice provisions of contracts, even when the contract is silent with respect to electronic communications.

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January 30, 2014

Non-Compete Case: No Competition, No Preliminary Injunction

A federal district court in Massachusetts recently denied a corporation's motion to preliminarily enjoin its former employee from working at an alleged competitor corporation, as was prohibited in the employee's non-competition agreement. The court's decision turned on the fact that the plaintiff never proved that the defendant corporation was in fact a competitor in the marketplace, and thus did not satisfy the requirements that would warrant a preliminary injunction.

In Upromise, Inc. v. Peter Angus and Intuition Systems, Inc., Upromise, Inc. ("Upromise") specialized in servicing college savings plans, and was the former employer of Peter Angus ("Angus"). Angus left Upromise, and found a position with Intuition Systems, Inc. ("Intuition"), a company that focused on providing prepaid service of college savings plans. Upromise filed a lawsuit and a motion for preliminary injunction against Angus and Intuition, seeking (1) to enjoin Angus from accepting employment with Intuition, an alleged competitor of Upromise, for a period of one year pursuant to Angus' non-competition agreement with Upromise, or (2) specific performance of a negotiated settlement agreement to prevent Intuition from hiring Angus.

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January 23, 2014

Life After Death for Delaware Corporations

The law has frequently regarded corporations as akin to persons, treating them as entities separate from their owners and granting rights to and imposing obligations upon them quite similar to those imposed on individuals. However, a recent Delaware Supreme Court decision demonstrates how the Delaware statutes have granted Delaware corporations a type of corporate immortality - but only when it comes to their potential liability to third parties.

In the case, In the Matter of Krafft-Murphy Company, Inc., the Delaware Supreme Court considered third parties' right to pursue claims against a dissolved corporation, and any time limitations placed upon that right by Delaware's statutory corporate dissolution scheme. Beginning in 1989, the defendant corporation was named as a defendant in hundreds of asbestos personal injury lawsuits in multiple jurisdictions, all of which the corporation's insurance companies have been defending on its behalf. In 1999, the corporation formally dissolved, and its only presently remaining assets are their unexhausted insurance policies. The plaintiffs instituted the Delaware case seeking the appointment of a receiver for the dissolved corporation, to enable them to lawfully pursue their claims against the dissolved entity.

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January 17, 2014

A Corporate President's Power May Be Inherently Limited

In a recent decision, the Worcester Superior Court ruled that the president of a corporation has limited power with respect to the firing of corporate officers. The court explored the powers of a corporate president and his ability to hire and fire at-will employees under the guise of his general authority. In that case, the court held that the president's firing of the vice president without support from the board of directors was ineffective.

In Arklow, Inc. et al. v. Weadock, the court addressed the issue of whether a president's unilateral termination of the vice president was effective. Arklow, Inc. and Arlow, LP sought injunctive relief against Daniel Weadock to remove him from his position as the manager at the International, a local golf course owed by the partnership. This court proceeding shortly followed the decision of Bryan Weadock, the president of Arklow, Inc., to fire Daniel Weadock, the vice president at Arklow, Inc. and manager of the International. The court's opinion involved a discussion of the principals of corporate law, as it analyzed the difference between Daniel's managerial role and his role as vice president.

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January 9, 2014

When a Signed Agreement Isn't Enough -- Protecting the Confidentiality of Confidential Information

Maintaining the confidentiality of trade secrets is crucial for business owners who hope to remain competitive and continue earning cash from their investments and novel ideas. Many business owners require that non-disclosure agreements be signed by any persons with whom they deal, in order to limit the proliferation of trade secrets. Recently, two federal courts decisions have made it even more imperative to ensure adherence to such non-disclosure agreements.

The U.S. Court of Federal Claims recently dismissed an inventor's claims against the United States for patent infringement and misappropriation of trade secrets. In Gal-Or v. United States, the federal court heard evidence regarding Mr. Gal-Or's dealings with the federal government. Gal-Or, an Israeli scientist and inventor, created a number of novel devices used by the military's aerospace programs. Gal-Or had an agreement with the federal government that whatever trade secrets of his were disclosed from the parties' dealing would be confidential. While Gal-Or had the agreement with the government, he did not mark all of the documents that he shared as confidential, nor did he always proactively insist on adherence with the non-disclosure agreement. The evidence demonstrating Gal-Or's incomplete protection of his intellectual property persuaded the court to grant the government's motion to dismiss.

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January 2, 2014

Be Careful What You Contract For... You Just Might Get It

Nationally, there has long been a circuit split regarding the federal courts' analysis of forum selection clauses. As previously discussed, the federal courts in Massachusetts have generally been unwilling to enforce a forum selection clause appearing in a contract if enforcement of the clause would be unreasonable, unjust, or contrary to the public policy of the forum in which the lawsuit is brought. If a court strikes down a forum selection clause as unenforceable, the plaintiff is free to litigate its case in any proper court having jurisdiction over the parties and the subject matter of the case. Now, based upon a decision from the United States Supreme Court, the circumstances that will justify a federal court's refusal to enforce a forum selection clause will be few and far between, so long as the parties have previously agreed to litigate their disputes in a specific court pursuant to a valid contract.

In Atlantic Marine Construction Company, Inc. v. U.S. District Court for the Western District of Texas, the Supreme Court examined a forum selection clause contained in a construction contract between a contractor and its subcontractor. The parties' contract contained a forum selection clause in which the parties agreed that all disputes between them would be resolved in the state or federal court in Norfolk, Virginia, where the contractor firm was based. However, when the contractor failed to pay the subcontractor for work performed, it sued the contractor for breach of contract in a federal court in Texas, where the construction work occurred. The contractor asked the Texas federal district court to enforce the parties' forum selection clause and either dismiss the case or transfer it to the district court in Virginia. The Texas district court refused to do so, and that decision was upheld on appeal to the Fifth Circuit.

Generally, when a defendant seeks to transfer a case from one federal court to another for forum reasons, the governing statute is 28 U.S.C. 1404(a), which permits a court to transfer the action to another federal forum for the convenience of the parties. In determining whether a transfer should occur, the district court considered both the private interests of the parties as well as public interest considerations relative to the location of the litigation. For example, because the dispute arose from work completed in Texas, and many witnesses and most evidence would be located in Texas, Texas may be a more desirable forum for convenience purposes.

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December 26, 2013

New Optional Appellate Rules In Effect From AAA

Traditionally, arbitration has been an attractive option for the resolution of business and contract-related disputes. It is often less costly and provides speedier resolution than court litigation, and the proceedings are generally confidential rather than public. Complimenting these benefits is the concept that an arbitrator's award is final, binding, and can rarely be appealed. In some cases, however, parties may seek to avail themselves of these arbitration advantages, but preserve their right to appeal any decision in extreme or unforeseen circumstances. Until recently, right or wrong, the parties were bound to the arbitrator's decision as a final determination.

Effective November 1, 2013, the American Arbitration Association ("AAA") - a widely used and well-respected organization of arbitrators - has provided an optional appellate process for parties who arbitrate disputes through the AAA or its International Centre for Dispute Resolution. The text of the rules is available here: http://go.adr.org/AppellateRules. Under these new rules, a party may appeal an arbitration award on one of two specific grounds: (1) that the award was based upon a material and prejudicial error of law, or (2) that the award was based on clearly erroneous factual findings. However, because the parties' submission to arbitration is predicated upon their contractual agreement to arbitrate disputes, this optional appellate process is available only to parties who have agreed to the availability of an appeal of an arbitration award in their underlying contract, or by stipulation. Absent such an agreement, one party may not avail itself of the AAA's appeals process over the objection of the other party.

Importantly, the optional appeals process is not a new opportunity for a party to present its case. In fact, the rules specifically provide that the tribunal will typically render a decision based only upon the written submissions and the compiled arbitration record, and it is without power to order a new arbitration hearing or remand the case back to the original arbitrator for corrections or further review.

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August 26, 2013

SJC decides on Wage Act preemption concerns

The Supreme Judicial Court has shed some light on preemption issues concerning the Wage Act, G.L.c. 149, §§148, 150. The Court reversed a recent ruling in an employment contract case in which the lower court ruled that the Wage Act preempted common-law claims for employment-related compensation in Massachusetts. The SJC held that the Wage Act is not the exclusive remedy for recovery of unpaid wages, which opened the door for the employee to pursue his claim under established common-law principles
In the case, (Lipsitt v. Plaud), the employee brought claims for nonpayment of wages arising out of his employment relationship with his employer. The employer first hired the employee in 2004, after which the employer's business immediately began experiencing financial difficulties. As a result the employer failed to t pay the the employee ampunts alleged to be due under the parties' agreement. The employee's "Wage Act:" claims were barred by the applicable three-year statute of limitations, and ththe employer sought dismissal of the common law claims, (including contract, quantum meruit and promissory estoppel) based upon the employer's position that the Wage Act was the sole and exclusive remedy for wage violations.

The Superior Court dismissed the common law claims, having found "scant authority" on which to rely to suggest that common law claims could survive if based upon failure to pay wages.

On appeal however, the SJC held that that the common-law claims were viable and should not have been dismissed. In so holding, the Court stated"it is well established that 'an existing common law remedy is not to be taken away by statute unless by direct enactment or necessary implication'. The Court found neither to exist in review of the Wage Act history. The court reasoned that where the legislature did not explicitly limit common-law claims when enacting the Wage Act, the purpose of the Wage Act is not undermined by common-law claims and it is not inconsistent with public policy to allow common law claims. The court added, "[p]articularly where an employee's Wage Act claims are time barred, we see no good reason why, given the strong presumption against implied abrogation of the common law, that employee cannot seek to recover those unpaid wages by bringing a contract or quasi-contract claim."

If it was not clear from prior cases, the Lipsett case undoubtedly provides Massachusetts employees with another remedial tool for claims arising from non-payment of wages.


August 21, 2013

New DE Public Benefit Corporation Legislation May Entice Social Entrepreneurs

Recent legislation passed in Delaware furthers a growing movement for the formation of public benefit corporations. This trend continues to gain support throughout the country, as Delaware becomes the nineteenth state to pass public benefit legislation. Massachusetts passed similar legislation under M.G.L Ch. 156E in 2012. However, Delaware's new public benefit statute may make it the prime choice of entity for public benefit corporations and social entrepreneurs.

By definition, public benefit corporations are created to promote a "material positive impact on society and the environment." These beneficial impacts must be stated by the corporation and reported to shareholders regularly. Public benefit statutes typically require directors of public benefit corporations to manage the corporation in a manner that balances (1) the stockholders' pecuniary interests, (2) the interests of those materially affected by the corporation's conduct, and (3) the public benefit identified in the corporation's certificate of incorporation. The goal of public benefit corporations is to allow companies to establish and manage a benefit to society in a sustainable manner. Some examples of local public benefit corporations are the Massachusetts Bay Transportation Authority (MBTA), Massachusetts Port Authority, and Massachusetts Turnpike Authority (MTA).

Public benefit corporations represent a relatively new corporate structure that supports the social entrepreneur; that new breed of entrepreneur who seeks to . resolve societal issues in innovative and effective ways while maintaining a company in which profitability is still part of the landscape. , The public benefit corporate structure allows for particular advantages and protections to social entrepreneurs including liability limitations and more expansive control over the company objectives. Public benefit corporations may pursue objectives other than financial gains, e.g., cultural and environmental.

Along with the many business benefits of incorporating in Delaware, the Delaware statute offers flexibility in terms of both operations and reporting. A result Delaware is likely to become the jurisdiction of choice for many social entrepreneurs. Unlike other statutes, the Delaware law does not require the appointment of a benefit director and/or a benefit officer charged with overseeing and assessing the corporation's efforts to promote its stated public benefit(s); public disclosure of the benefit report and/or the submission of the benefit report to the secretary of state; or annual publication of a benefit report. While some might decry a lack of oversight, the structure allows the Delaware public benefit corporation the ability to spend its resources on its mission rather than on compliance with overly rigorous reporting requirements.

Whether or not this legislative "social experiment" is successful, remains to be seen. What is certain, is that Delaware once again has taken the lead in creating an attractive corporate environment for yet another group of entrepreneurs.

August 8, 2013

SJC Recognizes Associational Discrimination Claim

In a recent employment discrimination case, the Supreme Judicial Court recognized the plaintiff's claim of "associational discrimination" against an employer. Justice Margot Botsford wrote the opinion of the court, stating "a plaintiff, although not a member of a protected class himself or herself, is the victim of discriminatory animus directed toward a third person who is a member of the protected class and with whom the plaintiff associates."

The case, Flagg v. AliMed, Inc., involved a plaintiff bringing suit against his former employer, claiming he was terminated based on his spouse's handicap condition and the corresponding medical costs. The plaintiff's wife suffered from a serious medical condition and was covered under the employer's family health benefits. But, the defense argued that the handicap discrimination statute, G.L.c. 151B §4(16), "precludes the plaintiff from raising a claim of associational handicap discrimination because the handicapped person at issue is not the plaintiff--its employee--but the plaintiff's wife." Judge Botsford found this interpretation to be too narrow.

Judge Botsford asserted that the employer "terminated [the plaintiff's] employment premised on discriminatory animus directed toward his handicapped wife, that is, its desire to be free from its obligation to pay for the wife's costly medical treatment." Therefore, the court reasoned that the "hostility toward the handicapped condition of the employee's spouse, ... is treating the employee as if he were handicapped himself."

Consequently, the court found that these facts supported a valid discrimination claim based on the language of G.L.c. 151B §4(16), the handicap discrimination statute. The court stated that, the "plaintiff's complaint alleges that he was a qualified, adequately performing employee who was terminated... because his wife's total disability resulted in substantial medical expenses." Accordingly, the SJC overturned the dismissal of the case that occurred in the lower court and stated that associational discrimination is a valid claim for which relief can be granted in Massachusetts. The court did not limit the statute to only protect employees but, rather, extended the handicap discrimination claim to a family member - the plaintiff's spouse.

Finally, the court's ruling broadens an employee's protection against handicap discrimination as it considered the legislative intent of Massachusetts employment discrimination statutes and various other federal acts and interpretations. The court reasoned that protection from this type of discrimination is engrained in in the language and purpose of the statute.

Although, here, the court was careful to limit the decision to the facts of this case and the finding by the court that the "[plaintiff] was fired because of his association with his handicapped wife." This causal relationship will be an important consideration in future litigation involving associational discrimination.

July 31, 2013

Informal Email Exchange Leads to Binding Settlement Agreement

In a recent case decided in U.S. District Court, Judge Nathaniel M. Gorton ruled, under Massachusetts law, that settlement terms agreed upon in an informal email exchange were binding.

In Hansen v. Rhode Island's Only 24 Truck & Auto Plaza, Inc., et al., the parties were found to have assented to all material terms in an email exchange between opposing counsel. The settlement agreement involved the purchase of a truck stop in Rhode Island. Per the purchase and sale agreement, which included a financing contingency, a $250,000 refundable deposit was made by the plaintiff to the defendants. When the plaintiff failed to obtain financing, the defendants refused to return the deposit to the plaintiff, claiming that the plaintiff broke the purchase and sale agreement in bad faith.


After commencing litigation in the federal district court, the parties began settlement discussions though counsel via email. The plaintiff's counsel sent an email to the defendant's lawyer stating that the plaintiff would accept the settlement offer of $235,000, to be disbursed to the plaintiff from escrow, with the remaining $15,000 to be disbursed to the defendants. The email included some specific settlement terms, and stated, "To move this along, I will send you a draft settlement agreement (and other documentation) tomorrow." The defendant's counsel responded to the email, "Glad we were able to get it done. Thanks." But, before the parties could sign a final settlement agreement, a Rhode Island Superior Court judge placed the defendants into receivership. When the receiver rejected the settlement agreement, the plaintiff filed a motion with the federal district court to enforce the settlement agreement.

First, Judge Gorton found that Massachusetts law, rather than Rhode Island law, applied in determining the validity of the settlement agreement. The court noted that, under Rhode Island law, a settlement agreement must be in writing or presented to the court on record, whereas in Massachusetts, an enforceable settlement agreement arises when all of the parties mutually assent to all material terms, even if those terms are not memorialized in a final writing. Here, Judge Gorton applied Massachusetts law based on the choice-of-law provision in both the purchase and sale agreement and proposed settlement agreement. Additionally, Judge Gorton stated that Massachusetts has a "strong interest" in the dispute, as the case was pending in Massachusetts and the money was held in escrow in Massachusetts.

Applying Massachusetts law, Judge Gorton granted the plaintiff's motion, finding that "it is manifest from the email exchange that the parties entered into a valid settlement agreement." Further, Judge Gorton explained, "Although the parties continued to attempt to formalize the agreement through a signed settlement document, 'the parties were proceeding to "memorialize" ... the settlement terms, not to create them.'" Therefore, the lack of a signed final settlement agreement did not preclude the plaintiff from recovering funds in accordance with the terms of the email exchange agreement. This ruling gives more significance to email exchanges between parties (or their counsel), given the possibility that those informal exchanges could result in an enforceable contract.

June 11, 2013

Non-Solicitation Agreement Enforceable, Even If Clients Make First Contact

Non-solicitation agreements generally prevent employees from soliciting business from the employer's customers after the employee's employment has ended. In a recent decision from the Massachusetts federal district court, an ex-employee argued that he was not in violation of his non-solicitation agreement with his former employer if the former employer's clients were the parties to initiate the first contact with the ex-employee at his competing employer's company. Judge Woodlock rejected that argument.

In Corporate Technologies, Inc. v. Harnett, Harnett had worked as a salesman for Corporate Technologies, Inc. (CTI), an information technology solutions company, before leaving CTI to work for CTI's competitor, OnX USA, LLC (OnX). When Harnett first joined CTI, he signed a Non-Disclosure and Non-Solicitation Agreement in which he agreed to not divulge confidential information he learned while employed at CTI and to not solicit business from CTI's customers for one year following the termination of his employment with CTI. Specifically, Harnett was precluded from "directly or indirectly, alone or as a partner, officer, director, employee, independent contractor, [etc.] ..., solicit, divert or entice away existing customers or business of [CTI]."

On Harnett's first day at OnX, OnX sent an announcement about Harnett's new position to more than one hundred potential clients, which included Harnett's eight most active clients at CTI during the previous year. Four of those CTI clients responded to the announcement, and Harnett met with those clients to discuss and encourage their business with OnX. At least one of those four clients entered into an agreement with OnX for its services. Additionally, Harnett made efforts to secure a pricing discount arrangement with vendors in an effort to acquire the business of two more of those four clients.

CTI brought a lawsuit against Harnett and OnX, claiming that these actions were violations of Harnett's Non-Disclosure and Non-Solicitation Agreement, and sought a preliminary injunction to prevent Harnett from doing business with clients he had worked with at CTI. Harnett and OnX argued that, although Harnett had open business dealings with his former CTI clients, his interactions with those clients were not a violation of the agreement. They argued that, as long as the clients were the first to contact Harnett, the resulting business discussions could not constitute solicitation.

Judge Woodlock disagreed, labeling this argument as "an arbitrary distinction," and noting that Harnett's actions fell squarely within the agreement's description of prohibited activity. Judge Woodlock explained: "Since leaving CTI and joining OnX, [Harnett] has actively pursued business from these companies, seeking to convince them to do business with OnX. This necessarily involves solicitation - by encouraging the companies to purchase products and services through OnX - as well as enticement - by offering incentives to do so, such as better pricing, purportedly better products and services, and whatever other comparative advantage Harnett, as a salesman, would customarily use to attract clients to his new company. Neither the plain meaning of the word solicit, nor the plain meaning of the word entice requires some kind of first contact."

The court also pointed out that "Massachusetts courts do not draw a bright-line distinction between those actions following first contact by the client and those following first contact by the employee." It is true that a non-solicitation agreement will not prevent a company from receiving business initiated by the client, if there has been no direct or indirect participation in encouraging that business by the individual employee bound by the agreement. "However, this narrow carve-out from a non-solicitation agreement for receiving business does not allow a salesman to take active steps to persuade the client and actually solicit its business."

Here, as Judge Woodlock observed, Harnett and OnX together actively pursued Harnett's former clients at CSI, soliciting, encouraging, and attempting to persuade them to bring their business to OnX. This violated Harnett's agreement with CSI. Finding that CSI was likely to succeed on the merits of its claims against Harnett and OnX, and that CSI would suffer irreparable harm in the absence of injunctive relief, Judge Woodlock granted the injunction, enjoining Harnett from doing business with his former CSI clients for a period of one year, in accordance with the terms of his Non-Solicitation Agreement.