EqualLogic, Inc. v. Shea, (N.H. Superior Court, Hillsborough County).

In an unusual reversal, a Nashua, New Hampshire judge admitted recently that she had erred in granting a preliminary injunction barring a former executive for computer data storage company EqualLogic from working for a competitor.

EqualLogic was acquired by computer giant Dell for approximately $1.4 billion shortly before area vice president of sales Richard Shea left EqualLogic to take an identical position with LeftHand Networks, a direct competitor in the data storage industry. Dell subsequently sought to enforce the non-compete provision of Shea’s employment contract, which prohibited him from rendering any services to a competitor within twelve months of his departure from EqualLogic. According to Shea, Dell took the overly broad position that the non-compete prevented him from talking to any EqualLogic customers or former customers, although the law allows a company to protect only its actual business interests and goodwill.

In July 2008, Judge Diane Nicolosi granted Dell’s motion for a temporary restraining order, and in September 2008, she converted the TRO to a preliminary injunction barring Shea from working for LeftHand entirely. But Shea challenged the injunction, arguing that it was improperly granted because Judge Nicolosi had failed to apply the three-part test for injunctive relief, considering the likelihood of success on the merits, the risk of irreparable harm, and the absence of an adequate remedy at law. Specifically, Shea’s attorney asserted, Dell’s position on the non-compete went above and beyond protecting its legitimate business interests and goodwill since Shea had agreed not to contact any EqualLogic customers or former customers, and Dell was now seeking to prevent Shea from contacting even potential customers who had no association with EqualLogic. The court admitted its error and lifted the injunction, concluding that EqualLogic was neither likely to succeed on the merits nor in danger of suffering irreparable harm.

While the injunction was in effect, however, Shea was forced to resign from LeftHand, forsaking both his wages and stock options that later increased in value due to LeftHand’s subsequent sale to Hewlett Packard. Arbitration between Shea and Dell over the employment agreement has not yet been resolved, and the agreement leaves open the option for Shea to seek damages. Although the ultimate outcome is uncertain, the case serves as a reminder of the potential risks to employers who seek to broadly enforce non-compete provisions.