Court Rules Against Dell In Noncompete Case

The judge overseeing the case ruled Dec. 31 that she had erred in her July ruling granting Dell a preliminary injunction against Richard Shea, the former area vice president of sales at Dell EqualLogic.

The ruling comes too late to help Shea, who has been unemployed since last summer, get his job back. However, it does open the possibility of Shea's taking further legal action against Dell, despite ongoing arbitration as specified in a noncompete agreement between the two.

Dell on July 9 filed for an injunction and a temporary restraining order against Shea after Shea accepted a position as the sales and channel manager of LeftHand Networks, a competitor of Dell EqualLogic, to prevent him from using confidential Dell information in his new position.

The injunction was related to the noncompete agreement Shea signed with EqualLogic when he joined that company in 2003.

Judge Diane M. Nicolosi of the Hillsborough County Superior Court South in Nashua, N.H., issued the preliminary injunction on Sept. 9.

Dell acquired EqualLogic, based in Nashua, in January for about $1.4 billion.

LeftHand Networks in late June had appointed Richard Shea as vice president of North American sales, where he also oversaw that company's channel business.

LeftHand was subsequently acquired by Hewlett-Packard in October 2008.

HP/LeftHand and Dell/EqualLogic compete against each other in the fast-growing iSCSI storage market, and both LeftHand and EqualLogic traditionally dealt exclusively through the channel.

In the ruling of Dec. 31, Nicolosi wrote that she erred in granting the injunction, saying that it "did not apply the correct standard in reviewing whether a preliminary injunction should issue."

The judge went on to write that it was too narrowly focused on maintaining the status quo, and did not consider whether Dell "established a likelihood of success on the merits that Mr. Shea breached his contractual duties to EqualLogic, whether EqualLogic was in immediate danger of irreparable harm, and whether EqualLogic had no adequate remedy at law."

Nicolosi went on to write that, "the court now finds that EqualLogic has not demonstrated a likelihood of success on the merits or that EqualLogic is in danger of irreparable harm."

Shea, who as a result of the preliminary injunction, was not only forced to resign from LeftHand but also watched that company be acquired by HP, was angry with Dell for interrupting his employment.

Shea said he tried working with Dell to solve the issue related to the noncompete agreement before the preliminary injunction was granted.

For instance, he said he worked with Dell to determine which Dell/EqualLogic people he was not allowed to talk to, how to handle NDA (nondisclosure agreements), and how to work with former EqualLogic partners and customers.

Shea said Dell's position was that he could not contact any former EqualLogic partners or end-user customers. Shea, on the other hand, said that because EqualLogic was a channel-focused company, he seldom talked to end users, and only worked directly with a handful of solution providers.

"I told them I would not talk to specific customers and resellers," he said. "Any customer that I had more than a passing acquaintance with, I would stay away. But Dell/EqualLogic looked for me to stay away from all customers and resellers."

Noncompete agreements, such as the one Shea signed with EqualLogic, are only enforceable if they protect a company's business, including its goodwill, said David Conforto, an attorney with the Conforto Law Group, P.C., which is representing Shea.

"Goodwill is an important point," Conforto said. "But Rick stayed away from all EqualLogic's customers and resellers. That's over 1,900 customers and 415 resellers. Even former customers. It's hard to figure out where goodwill exists with former customers."

When the court in August agreed to turn the temporary restraining order into an injunction, Shea said he was stunned. "We thought we had gone way beyond the spirit of the noncompete," he said. "So the next stage was to file the appeal."

The judge's ruling about the court's error in granting the preliminary injunction against Shea leaves open the possibility that Shea will pursue possible damages from Dell.

This is despite the fact that arbitration in regard to the noncompete agreement has yet to be resolved, Conforto said. "There is binding arbitration, but there is also a clause for seeking damages," he said. "The question is, do we file for relief now, or after the arbitration is resolved? We're not sure of the right path. Is it through the arbitrator? Or through the court? We're still waiting to hear from Dell/EqualLogic's counsel."

Dell declined to address the concerns raised by the most recent court ruling for the time being. David Frink, a Dell spokesperson, wrote in an e-mailed response to a request for comment that "the 12-month noncompete was set to expire in February and we didn't believe there was any reason to take additional action."