Bernstein Shur Business and Commercial Litigation Newsletter #32

September 2013 | Issue 32

By Paul McDonald and Dan Murphy

We are pleased to present the 32nd edition of the Bernstein Shur Business and Commercial Litigation Newsletter. This month, we highlight cases addressing the scope of non-solicitation agreements, a challenge to Google’s practice of email scanning and other news that will have an impact on business and litigation. We hope you enjoy the newsletter.

In the News:

The First Circuit Court of Appeals construes an employee non-solicitation agreement in favor of employer, rejecting technical arguments asserted by employee. In Corporate Technologies, Inc. v. Harnett, the First Circuit was asked to determine the reasonable scope of a non-solicitation agreement under Massachusetts law. Businesses commonly seek to protect their goodwill by requiring key employees to sign agreements barring them from soliciting existing customers for a reasonable period of time. The defendant in the case was former account executive who had previously entered into a non-solicitation agreement with CTI, but continued to conduct business with the company’s customers, arguing that the customer’s initiation of contact shielded him from liability. At the trial court level, the court rejected the former employee’s argument, granting a preliminary injunction prohibiting any contact with CTI’s customers. On appeal, the First Circuit affirmed the grant of the preliminary injunction, noting that the defendant’s former customers only reached out to him after he sent a group email announcing that he was hired by a competitor. The First Circuit stated that non-solicitation rights “cannot be thwarted by easy evasion, such as piquing customers’ curiosity and inciting them to make the initial contact with the employee’s new firm.” Read the court’s opinion here.

A federal judge denies Google, Inc.’s request to dismiss a class action in its entirety based on its practice of scanning the personal e-mails of users of its Gmail service for purposes of sending targeted advertisements. Google’s Gmail service employs an automatic scanner and delivery process that reviews incoming emails for spam, viruses and keywords that are used to direct targeted advertisements to its users. Plaintiffs in the class action argued that Google’s automated scanning of e-mails invades privacy interests and violates the Federal Wiretap Act and California Invasion of Privacy Act. In response, Google asserted that the practice is consistent with its privacy policies and user agreements. Judge Lucy H. Koh of the U.S. District Court for the Northern District of California dismissed all state claims against Google, but refused to dismiss federal claims, rejecting the argument that Gmail users expressly consented to Google’s reading of emails to provide targeted advertising. As of June 2012, Google’s Gmail service had more than 400 million users. Stay tuned for further developments in this case, which will impact the rapidly-evolving law of e-privacy. Read more about the case here and here.

JP Morgan Chase is in settlement negotiations with federal and state regulators to resolve liability related to mortgage securities irregularities in exchange for payments totaling $11 billion. The proposed settlement calls for $7 billion in payments to regulators and $4 billion in relief for consumers. JP Morgan Chase and other banks enjoyed brisk business packaging hundreds of mortgages into securities that would pay investors based on the payment streams from those mortgages. These securities typically were billed as safe, high-quality investments, but financial institutions have come under fire for misleading investors regarding the quality of those underlying mortgages. When the housing market collapsed and payment defaults skyrocketed, investors were saddled with huge losses. If the proposed settlement between JP Morgan Chase and regulators is concluded, it would be the largest ever for a single company. Read more about this development here.