Not Just Academic

I have a sneaking suspicion that most of those who read my posting on January 2, concerning the standards applied by the Fourth Circuit with respect to a request for a preliminary injunction, thought that I was discussing some technical issue with only limited relevancy to real world affairs. An unpublished opinion handed down the next day by that court, Ancora Capital & Management Group, LLC v. Gray, makes it clear that the standards are of great practical significance.

The case involved a request for an injunction to enforce a restrictive covenant entered into by an ex-employee. The plaintiff requested that both the former employee and his new employer be bound by the injunction. The lower court found that the ex-employer faced irreparable harm due to the potential loss of goodwill due to its former employee’s competition in violation of the covenant. On the other hand, if the injunction issued, the ex-employee faced only the possibility of a loss of income, which could be remedied by an award of damages. The ex-employee’s ability to satisfy any damage claim could be insured through a bond posted by the plaintiff.

However, the court also found that the new employer “would suffer irreparable harm if [the injunction issued and the new employer was] precluded from bidding on major contracts.” Thus, the court concluded that the balance of the harms did not tip decidedly in the plaintiff’s favor. In such a case, before the injunction would issue, the plaintiff had to make a “showing of a strong and substantial likelihood of success--one that is clear and convincing.” The lower court concluded that the plaintiff’s evidence had failed to satisfy this standard.

The Fourth Circuit reversed, holding that the district court should not have looked at the defendants jointly when weighing the balance of the relative harms, since the plaintiff actually sought two separate injunctions. Because an injunction against the ex-employee would not have inflicted irreparable injury, the balance of harms “tip[ped] decidedly in favor of the plaintiff.” As a result, the proper standard to be applied was whether “the plaintiff had raised questions going to the merits so serious, substantial, difficult and doubtful, as to make them fair ground for litigation.” The appellate court found that this standard was met and that the requested preliminary injunction should have issued. It therefore reversed the district court and directed that it enter a preliminary injunction against the ex-employee, preventing him from working for the new employer.

The opinion in Ancora Capital was unpublished and is not binding precedent. However, one must assume that the rationale articulated by the court reflects its general approach in these matters. The upshot of the case is that, in restrictive covenant cases (a regular source of supply for the business litigation sausage mill) a preliminary injunction enforcing the covenant will almost always issue, unless the covenant is somehow manifestly unreasonable. And, because preliminary injunctions in such cases often cause the restrained party to raise the white flag, the liberal standard for granting a preliminary injunction will, in many cases, govern the outcome of the entire case.