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ADP, LLC v. Lynch

United States District Court, D. New Jersey

April 2, 2019

ADP, LLC, Plaintiff,
v.
JORDAN LYNCH, Defendant. ADP, LLC, Plaintiff,
v.
JOHN HALPIN, Defendant.

          OPINION

          WILLIAM J. MARTINI, U.S.D.J.

         THIS MATTER comes before the Court upon an order requiring Plaintiff ADP, LLC (“ADP”) to show cause why the Court should not lift a preliminary injunction enjoining former ADP salesmen, Defendants Jordan Lynch and John Halpin (“Defendants”), from engaging in certain conduct pursuant to several restrictive covenants found in their employment agreements with ADP. The Court entered the preliminary injunction on June 30, 2016, ECF No. [31], and previously denied requests by Defendants to lift the injunction over its nearly three-year tenure. See ECF No. [166], [122], [106]. [85], [52]. Now, with the cases stayed pending direction in related matters currently before the Third Circuit, the Court revisits the preliminary injunction. See ECF No. [165].

         Also before the Court is ADP's motion for sanctions, ECF No. [171], filed on March 25, 2019, alleging violations of the preliminary injunction by Defendant Halpin. For the reasons set forth below, the Court LIFTS the preliminary injunction as to both Defendant Lynch and Defendant Halpin and DENIES the motion for sanctions.

         I. PROCEDURAL HISTORY

         The Court assumes the parties' familiarity with this case and writes only for their benefit. On March 13, 2019, this Court entered an order staying four motions for summary judgment, ECF Nos. [148], [149], [150], & [151], pending decision in two related cases which are fully briefed and argued before the Third Circuit, ADP, LLC v. Rafferty (No. 18-1796) and ADP, LLC v. Mork (No. 18-2603). In that Order, the Court also requested briefing on two specific issues in these consolidated cases related to the ongoing preliminary injunction:

1. Whether the tolling provision as applied in this case continues to comply New Jersey law; and
2. Whether the one-year restrictive covenant has expired as to either Defendant.

         ADP submitted a brief in support of continuing the preliminary injunction, ECF No. [168], and Defendants submitted briefs in opposition, ECF Nos. [169] and [170]. On March 25, 2019, ADP moved for sanctions against Defendant Halpin based on an alleged violation of the preliminary injunction on October 18, 2018. ECF No. [171]. The Court heard oral argument on the order to show cause on March 28, 2019 and stayed briefing on the sanctions motion pending this opinion and its accompanying order.

         II. ARGUMENTS OF THE PARTIES

         ADP concedes that the preliminary injunction should be lifted against Defendant Lynch. ECF No. [168] at 1. As to Defendant Halpin, ADP argues that the preliminary injunction should continue because ADP has not received the “full benefit of the terms Halpin agreed to when he accepted awards of restricted stock” and that it has not yet received “full 12-month compliance by Halpin.” Id. at 1-2.

         In addressing the first question posed by the Court, ADP argues both in its brief and at oral argument that tolling provisions are enforceable under New Jersey state law during that time which Defendants are in violation of the restrictive covenants. ADP points the Court to two cases where courts ordered a one- or two-year restrictive covenant period to begin running after summary judgment where the defendant had continuously violated those covenants during the pendency of the litigation. See ECF No. [168] at 3-5 (citing ADP, LLC v. Manchir, No. M201602541COAR3CV, 2017 WL 5185458, at *8 (Tenn. Ct. App. Nov. 8, 2017) (where defendant had never complied with the restrictive covenants for the one-year period and no order enjoining violation was ever sought, finding that “requiring Manchir to adhere to the [a]greement for its prescribed duration . . . is a reasonable remedy”); Jackson Hewitt Inc. v. Childress, No. CIVA 06-CV-0909 DMC, 2008 WL 834386, at *10 (D.N.J. Mar. 27, 2008) (finding plaintiff “is entitled to injunctive relief for a period of twenty-four months beginning from the date of [d]efendant's compliance with the covenant not to compete”).

         As to the second question, ADP makes two arguments-without citing to any authority-that the one-year restrictive covenant has not expired as to Halpin. First, it argues that “Halpin has continued his employment with ADP competitor [Ultimate], in a territory that includes his former ADP territory . . . .”, which ADP argues violates the preliminary injunction and/or the restrictive covenants.

         Second, ADP argues that Halpin has continued to violate the injunction by soliciting ADP clients. In support, ADP points to a communication between Halpin and an ADP client on October 18, 2018. ADP concedes that it has no evidence of any violations between June 2017 and October 2018, but argues that there could have been violations during that time which would preclude expiration of the one-year restrictive covenant.

         Halpin and Lynch filed individual briefs in response. ECF Nos. [169], [170]. Defendants argue that enforcing the one-year restrictive covenants more than three years since Defendants left ADP in December 2015 has given ADP “more than it bargained for” under the restrictive covenants. See ECF No. [170] at 2. Although not responsive to the precise questions posed by the Court, Defendants also argue that the preliminary injunction generally does not comport with New Jersey law and note the split of authority in this District and in New Jersey state courts related to the enforceability of the restrictive covenants. Finally, Defendants argue that law in this district does not generally support equitable tolling of the restrictive covenants given their disfavor, and that courts toll such provisions only where the violation was continuous during the pendency of the litigation. See The Cmty. Hosp. Grp., Inc. v. More, 183 N.J. 36, 41 (2005) (finding, under the plaintiff's interpretation of the ...


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