RESTRICTIVE COVENANT TRIAL UPDATE

UPDATE: NEW JERSEY RESTRICTIVE COVENANT & NON-COMPETE CLAUSES.

On June 6, 2019 the Hackensack, New Jersey, jury returned a favorable verdict for Mr. Baxter’s clients and against Cole Schotz’s clients. In the 7-0 verdict the entire jury agreed with Mr. Baxter and rejected Cole Scholtz’s arguement. The honorable Robert C. Wilson, J.S.C. presided over the trial. The Cole Schotz legal team for the plaintiffs was Edward S. Kiel, Esq., Joseph Barbiere, Esq., and Eric S. Latzer, Esq. 

Mr. Baxter’s successful defense of his clients, Performance Health, a medical group that specializes in sports medicine, ended almost two years for litigation.

The question: What is the difference between an employment contract with a personal non-compete clause and a LLC’s operating agreement non-compete clause that is ancillary to the buyout of the company? Everything.

George T. Baxter, Esq., successfully argued to the Bergen Country jury in the case Camali v. Paladino & Performance Health, Docket No. BER-L- 3678-17, which returned a 7-0 verdict on June 6, 2019 in his clients’ favor, that there is all the difference in the world between a restrictive covenant intended to limited the scope and geographical area of a terminated employee and ex-partner from a non-compete clause contained in the plaintiff’s LLC operating agreement.

Cole Schotz P.C. represented the plaintiffs, Gene Camali and Nada Camali, individually and derivatively for Core Fusion, LLC. Camali terminated their partner Dave Paladino for allegedly competing against Core Fusion, LLC, a fitness business. Cole Schotz, P.C. filed an amended complaint also alleging that Mr. Baxter’s clients, Impact Zone Fitness & Sports Performance, a competing fitness business located a few miles from Core Fusion, LLC, “aided and abetted” Paladino in the breach of the non-compete clause by hiring him after his termination.

The Cole Schotz firm filed a third amended complaint in the case also alleging that Mr. Baxter’s client, Performance Health, a medical group that focuses on sports medicine, also “aided & abetted” Paladino with the breach of fiduciary duties.
Cole Schotz argued that Core Fusion’s operating agreement ¶16.4 First Right of Refusal, restriction that prohibited a member of the LLC from competing against Core Fusion for five years within 15 miles was applicable against their former partner.

Mr. Baxter, an exoerienced trial lawyer, argued to the jury that Core Fusion’s restrictive covenant that prohibited an ex-partner from competing against it was ancillary to a buyout of a members ownership interest in the LLC. Since there was no buyout the restrictive covenant was not triggered.

In his summation to the jury, George Baxter argued to the jury that the non-compete clause was un-enforceable because it had to be triggered by a buyout of the defendants’s, Paladino, membership interest in the LLC. Since Gene Camali and Nada Camali had terminated their ex-partner, Paladino, without buying his memberships ownership, the necessary “consideration” contemplated by them, i.e. the payment of money, was not exchanged and the non-complete clause not triggered.

Cole Schotz tired to convince the jury that their client’s investment into the start-up costs of the Core Fusion LLC was the consideration to bind their ex-partner to their operating agreement non-compete clause.

However, Mr. Baxter explained the “failure of the consideration” principle to the jurors as follows: ” Lets say I ask you to go to the store to get me a loaf of bread. And, you say, “I don’t want to go to the store.” Then, I further entice you by offering to give you fifty dollars to go the the store and get me that loaf of bread. You go to the store get the loaf of bread and return with it. But now I say I will pay you something else rather than the fifty dollars originally offered to you before you agreed to go to the store. I changed the consideration just like the plaintiff is trying to do in this case.”

Mr. Baxter argued that without the payment of money to the plaintiffs’ ex-partner the non-compete clause dose not trigger. He also argued there was no breach of fiduciary duties to the LLC since they were derived from the parties’ business relationship and plaintiffs had locked out their ex-partner from the business.

George T. Baxter, Esq., was nominated as Trial Lawyer of the Year, named among the top ten-percent of plaintiff lawyers and a member of the multi-million dollar trial lawyers advocate Forum.

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