Court Grants Motion for Transfer to California District Court in Non-Compete Agreement Dispute
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United Rentals, Inc. was a Delaware corporation with headquarters in Connecticut that employed Mr. Lawrence Pruett from May 2001 until August 2003 in its San Juan Capistrano, CA office. He first worked as a salesperson and then the company promoted him to branch manager. Mr. Pruett signed an Employment Agreement after verbally accepting the branch manager position wherein he agreed to restrictive covenants preventing employment with a competitor, soliciting the company’s customers, or from disclosing trade secrets. The agreement contained a choice of law provision that stated Connecticut law would govern legal disputes arising from the agreement and that courts (federal or state) in Fairfield County had exclusive jurisdiction.
Mr. Pruett abruptly resigned in August 2003, began to work for one of United’s competitors, Brookstone Equipment Services, and allegedly solicited United’s customers. United Rentals sued Mr. Pruett in federal court for violation of the non-compete agreement and requested that the United States District Court of Connecticut enforce the provisions of the agreement. Mr. Pruett however submitted motions to dismiss and to transfer the case to a court in California, where he lived and worked.
Motion to Dismiss
The court denied Mr. Pruett’s motion to dismiss but granted his motion for transfer, handing the case over to the Central District of California. The central issues of the case were the enforceability of the forum selection clause and the court’s ability to transfer the case to another district court. Mr. Pruett argued that it was unenforceable because he “lacked notice of its existence, because the clause is unreasonable, and because it was the product of United’s overreaching”.
The court mentioned two United States Supreme Court cases, M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972), and Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585 (1991) to establish the federal judicial system’s attitude toward forum selection clauses and their enforceability. In Bremen, the court held that the clauses are valid and enforceable so long as there is no showing that it would be unreasonable or unjust. This case reversed American courts’ “long-standing hostility to forum selection clauses”. In Carnival, the court held that a forum selection clause was enforceable only if both parties were aware of its existence.
In the current case, the court denied the motion to dismiss and found that the clause was reasonable and that the written contract had indeed provided Mr. Pruett with adequate notice of its existence.
Motion for Transfer
The court did however grant Mr. Pruett’s motion for transfer under 28 U.S.C. 1404(a) which authorizes district courts to transfer civil action to other districts “for the convenience of parties and witness, [and] in the interest of justice”. In reaching this decision, the court analyzed the convenience of the parties, the existence of the forum selection clause, and factors of systemic integrity and fairness.
Mr. Pruett bore the burden of proof to show that the transfer was in the best interest of justice and the court concluded that he meant his burden. All the witnesses for the case lived in California, the actions that led to the suit took place in California, and the vast majority of documentary evidence (sales records, advertising information, customer lists, etc.) was in California. With regard to justice, United Rentals asserted that a transfer to a district court in California would deprive it of uniform treatment of its employment contracts.
The court recognized that Connecticut and California law greatly differ on their treatment of non-compete agreements but concluded that California had a materially greater interest in the case “because the impact of this litigation will be felt entirely in California”. Furthermore, the court noted that California had a right to apply its own laws in order to protect its residents from anti-competitive measures by out-of-state employers that are contrary to California’s established public policy.
This case demonstrates that the convenience of the parties and the interests of justice can at times outweigh a contractual forum selection clause. The court analyzed these factors and concluded that the facts surrounding the case favored a transfer of venues to a district court in California.
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