-: JC-13697.
Susan Miele versus Foundation Medicine, Inc.
Mertineit: Mertineit.
-: Yes. Thank you.
Good morning.
May it please the court, Dawn Mertineit
of Seyfarth Shaw on behalf
of the appellant, Foundation Medicine.
The Massachusetts Noncompetition Agreement Act
was never intended to, and in fact does not apply
to employee non-solicitation provisions
such as the one at issue in this case.
As the name of the act makes clear,
the statute was intended to regulate noncompetes
and the plain text of the statute provides
that other restrictive covenants,
including employee non-solicits
such as the one at issue in this case,
are not subject to the act's requirements.
Now to be clear, that does not mean that covenants
that are not subject to the act
can simply say whatever an employer wants them to.
It's not the case that anything goes.
The parade of horribles suggested by the appellee
will not come to pass because even restrictive covenants,
whether it's noncompetes that are not subject to the act
or employee non-solicit, such as the case here,
if they are not subject to the act, they are still subject
to Massachusetts common law on restrictive covenants.
That means the covenant needs
to be reasonably limited in scope.
It needs to be no broader than necessary
to protect a legitimate business interest of the employer.
And it must be consonant with the public interest.
Now, as I mentioned earlier-
-: Is that the same thing that gets incorporated into
Section 24L?
I don't know how many different subsections this is,
but I'm gonna say small Roman viii.
Or is there a difference in what the common law prohibits
and that section, subsection?
-: So this, in the act,
the common law requirements are incorporated.
That is correct.
There are additional requirements
that are subject to noncompetes
that are subject to the act.
What I'm saying is this employee non-solicit provision
is outside the scope of the act.
It must still comply with the concept
that it'd be consonant with the public policy
and no greater than necessary.
-: And is that something that would be,
were we to agree with you on the issue
that's been presented here,
is the question of public policy still going
to be a live issue on remand?
-: Absolutely.
Excuse me. On remand.
I thought you meant with respect to covenants generally.
The trial court in his order
actually determined that the employee non-solicit here
did support a legitimate business interest.
I can't recall specifically
whether he discussed public policy,
but he did determine that the covenant
was subject to the act and that is what
we believe should be overturned in this case.
-: So I guess the question I have is,
I take it that the issue of whether
the forfeiture provision is contrary to public policy
or otherwise doesn't meet our common law test.
That has not been litigated
and that would be a live issue later on in the litigation.
-: The issue of whether the forfeiture provision
is contrary to public policy,
there were multiple things briefed below
and one of the issues
was whether the forfeiture was appropriate.
Ultimately, the judge below did not decide that issue
because he determined that he could resolve the issue
by finding the covenant within the scope of the trial.
So I do believe that that might come up when it is remanded,
if it is remanded back to the trial court.
Wendlandt: Just to rightsize the case,
what is the issue before us?
-: Well, there are a couple of issues.
I believe the main issue is
is an employee non-solicitation provision that is coupled
with a forfeiture subject to the requirements
of the Massachusetts Noncompetition Agreement Act.
We submit that it is not,
and there are a number of reasons for this.
Wendlandt: Okay, so that's one issue.
What's the other issue?
-: The other issue is even if you were to find
that an employee non-solicit provision coupled
with a forfeiture is subject to the act,
does that change if that employee non-solicitation provision
is part of a transition agreement
or a separation agreement, which is another exception
to the scope of the act here?
Wendlandt: So long as you give them seven days?
-: Yes.
And then finally the question is,
even if notwithstanding the fact that this was part
of a separation agreement where the appellee was given time
to revoke and did not do so,
would the covenant nonetheless comply with the act?
Now again, we don't believe the covenant
is required to comply with the act,
but we find that if you were to, or we-
Wendlandt: The covenant,
meaning the original covenant pre-act?
-: The employee non-solicitation provision.
Wendlandt: Prior to the enactment of the act.
Is that what that is?
-: Or even after,
I mean, the employee non-solicitation provision
in this case was initially entered into in 2017
before the act was implemented.
Later, the appellee affirmed that covenant,
the employee non-solicit, in her separation agreement
and that separation agreement was signed
after the act's October 1st, 2018 implementation date.
Wendlandt: And therefore...
-: And therefore, I mean, we don't think it's relevant
because again, we think employee non-solicits
are not subject to the act.
-: Right. But that's issue one.
Okay, so I'm on issue three.
I'm just trying to figure out what the issues are.
Issue one is our forfeiture for violation
of a non-solicitation clause
under the act.
If we answer no, end of case?
-: Well, if you answer no, then the decision
below gets overturned and we go back to the Superior.
Wendlandt: End of our case. On appeal.
-: Yes. Yes, correct.
Wendlandt: And then there's a second issue.
But then the third issue was what?
-: The third issue is, if not withstanding the two exceptions
to the act that we believe the non-solicit falls under,
Wendlandt: If we nonetheless
think the act applies.
-: Correct.
Does this employee non-solicit provision
still comply with the act's requirements?
Wolohojian: So it's an it's an alternative argument,
which is- -: Correct.
Wendlandt: They're all alternatives, right?
Wolohojian: Yeah, we comply.
-: So if we decide
that you're correct on the first issue,
that the plain language
removing non-solicitation is different,
what's left in the case?
Sorry, so we decide in your favor on the first issue,
what happens, what's left in the case to decide?
I'm confused a little bit.
Forget about issues two and three.
You say you win on issue one,
we don't need to go to two and three.
I'm just trying to understand what's left
in the case after that.
-: So when the case goes back to the superior court,
we head to trial and we go in front of a jury
to determine whether they believe that the appellee
violated her employee non-solicitation provision,
which we think she did.
Kafker: Right, I gotcha. Okay.
-: So the concern here-
-: Just another question.
We have this unusual sort of walking,
talking guide through the legislative history
and the drafting process.
I've never seen anything quite like that before.
And the trial judge did not have the benefit of that.
Is that right?
-: I believe you are referring largely
to the amicus brief of-
Kafker: Yeah, the back amicus brief.
-: You are correct that the trial judge did not have that.
-: Right, okay, so he doesn't have that.
And again, it's not like this is a legislator describing
what a legislator did.
He's sort of the draft person for the legislature.
I'm trying to figure out how we treat this.
'cause it's incredibly informative,
but it's a little different (chuckles)
than anything I've seen before.
-: I agree, Your Honor.
I agree that it is very informative,
but I don't think you need,
even though I found it very useful,
I don't think you need that amicus brief
to find in FMI's favor.
-: I understand that.
But it helps clarify a lot of the things
that the trial judge didn't...
Trial judge intuited various things
and this explains, well, okay,
these two cases were out there
and this issue about, you know, forfeiture, you know,
forfeiture based on noncompetition
versus forfeiture in general, all of that.
But I'm just trying to figure out
what we do with all of that.
-: Well, I don't think it's necessary to rely on that
because I think the statute, the text is very clear.
The definition of a noncompetition agreement in the statute
says that it includes forfeiture for competition clauses,
but it expressly and explicitly excludes
employee non-solicitation provisions.
And in fact, everyone in this case agrees with that.
The appellate does not deny that.
The question is whether the forfeiture
for competition provision changes that,
and we believe that it does not.
Forfeiture for competition clauses are definitionally
a subset of noncompetition agreements.
The statute says that noncompetition agreements
include forfeiture for competition clauses.
But again, as I mentioned, employee non-solicits
are excluded from the definition of noncompetes.
So it was not necessary for the legislature
to say that a forfeiture for competition clause
does not include a non-solicitation provision
because again, a forfeiture for competition clause
is already a subset.
It's just within the broader scope of noncompetes
and noncompetes definitionally by the statute
exclude employee non-solicitation provisions.
-: Excuse me, can I just interrupt
on that distinction, which is obviously critical here?
It seems a little interesting
that the employee here is literally an HR professional.
So practicing her profession,
which we think of the difference between,
it's like a noncompetition agreement precludes you
from practicing your profession.
And so her profession actually involves hiring people.
So should we think about it at all differently?
I noticed there was one place in your brief
where you said, it would be in the reply, I think,
it would have been permissible for her company
to hire your employees.
It's just that she would have to not participate.
She would have to not do her job.
-: Well, I disagree that that was her job,
or at least the primary function of her job.
And interestingly in the record, some of the solicitation
that we believe violated her agreement
occurred before she even started her first day
at the new employer.
So it wasn't that this was all in the context of her job.
You know, as the chief people person
or the chief HR executive,
not only was she familiar with what these agreements meant
and she voluntarily entered into the transition agreement,
but more importantly,
her job was much more than simply recruiting people.
-: Well, and also she could recruit
from anybody else other than FMI.
I mean, this provision really is just
about not poaching FMI's employees
to go to your new employer or anywhere else.
You know, the rest of the world is available.
-: That's correct, and in addition, as I mentioned,
obviously they had an HR function at the new employer.
They had an HR function that someone solicited her.
It didn't have to be the appellee
who was involved in these third parties hire
by the new employer.
-: I'm just trying to understand.
When I read the language of the non-solicitation,
she said she would not "directly
or indirectly solicit, entice, blankly, blank
or persuade any other employee
or facilitate the hire of any person
who was employed or engaged by FMI."
So she has to stay completely out
of FMI hiring, right?
-: Correct.
-: Even if she's the director- -: For one year, though?
-: One year.
And this was in exchange
for approximately $1.5 million in separation-
-: Well, I get it.
And I get your point that she went out
and actively pulled people right out of there
as opposed to, like, somebody from FMI applied
and went through the personnel process at the new place.
But is Justice Wendlandt's understanding
how it works in your view?
'Cause I had the same question
Justice Dewar had, which is okay,
she's at the head of HR in this specialized industry.
So she now has to state completely away from FMI.
Is Ginkgo and FMI,
are they both Boston-based biotech companies?
I'm just trying to understand
the logistics of this.
-: I don't recall whether Ginkgo is. FMI is.
-: I know where FMI is. I've walked by it.
-: But the other place, is it Boston based too?
-: I think it might be, but I'm not sure about that.
But again, she agreed it was just for one year.
And again, it was just limited to the employees at FMI.
and moreover, Your Honor, the question
of whether that is a permissible
and reasonable covenant,
that is something that can be handled by
and should be handled by the trial court judge.
The issue here is whether it is subject to the act.
-: You know, that that was one
of the questions I still had.
Okay, so we have a statute that says non-solicits
are not noncompetes under this act,
but does that statute preserve the common law?
Does it expressly say nothing here impacts
the common law of non-solicits?
Non-solicitation?
Is there something in that?
'Cause normally the statutes displace common law rights
or often they do.
-: So I am not aware of a clause in the statute
that specifically says, as for any covenant
that's not governed by this statute,
the common law continues to be uninterrupted.
But certainly I believe that that is the effect.
This statute was only intended to regulate
and only does regulate certain specific noncompetes.
Not even all noncompetes.
There are other exceptions as well.
It's only certain noncompetes.
Where there's nothing in the statute that says, oh,
and by the way, the common law for the rest of the covenants
that are not subject to this act, you know,
that's not going to get extinguished by this statute.
-: And the default rule is that the legislature needs
to expressly abrogate the common law when it wants to do so.
So the silence suggests that the law persists.
-: Correct, Your Honor.
You know, I just wanted to mention
that I think the fundamental problem
with the Superior Court's decision is
that it really elevates the remedy
over the conduct being disincentivized.
So again, none of the litigants in this case dispute
that employee non-solicits are not subject to the act.
But what the trial court judge did was essentially say,
when you couple that with a different remedy,
that's now subject to the act.
We disagree with that.
-: And again, the trial judge doesn't have the benefit
of this, again, walking, talking guide,
which says "we were concerned
about forfeiture agreements,
but a forfeiture without a noncompete is enforceable,
but a forfeiture with a noncompete isn't,"
and that's what this was about.
But again, none of that's presented
to the trial judge, right?
-: Correct, but again, as I said earlier,
I don't believe you need that walking, talking guide.
I think the statute is very clear that forfeiture
for competition clauses are a subset
of noncompetition clauses
and noncompetition clauses under the statute
do not include employee non-solicits.
I recognize that I'm over time, so we rest on our briefs.
Thank you very much.
Justice: Very good. Thank you.
-: Morning, Your Honors.
Jeffrey Rosin with Lauren Bressman for Ms. Miele,
may it please the court.
The statute is very clear that covenants
not to solicit are not included.
Ms. Miele is challenging a different covenant.
It is the covenant to forfeit money,
which brings her within
a different part of the statute.
The words of the statute say
in the first two exception
covenant not to solicit is excluded.
The covenant that is the problem here.
-: I'm gonna say, a covenant not to solicit
is not a covenant not to compete.
It expressly excludes it from that.
-: It's not a noncompetition agreement, Your Honor.
And a noncompetition agreement
is a forfeiture for competition agreement.
Now, when FMI put together its 2020 agreement,
it said if you violate the noncompete, the non-solicit,
the confidentiality, anything,
non-disparagement in our new agreement you will forfeit.
Cheney, Pettingell, Kroeger, Danahy.
-: But they're not saying they can enforce.
They're saying we want the money back
because she violated the covenant not to solicit.
-: It's a different covenant, Your Honor.
We would've wanted the money back
had she gone to a competitor.
And to answer Your Honor's question,
Ginkgo and Cambridge-
-: Well, that's now the,
I mean, if they had tried to do that,
that maybe would've been covered by the act
and maybe prohibited if it wasn't reasonable.
That doesn't eliminate the fact
that your client entered into a forfeiture
for solicitation clause. -: Your Honor, she entered-
-: And that's what's being enforced here.
-: That's what's choosing to be enforced.
-: Right, exactly. -: The entire agreement.
-: And so what? -: Had to comply
with the law, Your Honor.
-: Oh, you're saying because one part
of the agreement was void,
that the whole agreement is void?
-: I'm saying it's regulated.
I'm statute is regulated. -: 'Cause one part
of the statute, one part of the agreement was regulated
under the new statute, the whole thing comes within
the new statute?
Even things that the statute says
are not covered by the statute?
Rosin: Your Honor, I disagree
that it's not covered because-
-: No, no, that's my question.
It is like what I don't understand that, but go ahead.
Rosin: That's correct, Your Honor.
-: No, but yeah, can you explain it? (laughs)
-: Yes, so the entire agreement
from 2020 fell within the act
because there is a forfeiture for competition clause in it.
We argue in every way,
but it's undisputed that there was a forfeiture
for competition had Ginkgo been a competitor
and had FMI tried to stop Miele
from working for a competitor.
FMI is choosing to try
to stop her from soliciting.
The solicitation covenant is excluded
from the definition of noncompete.
But there's a separate definition if you're looking
to get back money for engaging in competitive activities.
And one of the key parts of that definition, Your Honor,
is the manner in which you seek enforcement.
That's Kroeger, that's Danahy,
that's even Cheney and Pettingell.
If you read the actual noncompete non-solicit language
in Cheney and Pettingell, this court's own precedent,
it actually says-
-: But doesn't it say that forfeiture
for noncompete is not allowed,
but a forfeiture in general, if you fire your associate
and you tell her "if we fire you,
payment is forfeited," that's okay.
It's if you fire her and say she can't go work
for Seyfarth Shaw, that's not okay.
Isn't that what the conditions
that the statute's talking about are?
-: Yes, Your Honor.
And in this Pierce decision, which was 2008,
it's the "triggered by competing."
How do you compete?
"Triggered by competing,"
the language in Cheney that the legislature
is presumed to understand,
the language in Pettingell,
that the legislature is presumed to understand,
says if, in Cheney, "if this employee joins a competitor
or engages in activities which are harmful
to the corporation," that's the Cheney language
that built this statute.
-: Can I ask one back up question?
You were drawing a distinction
about if they have a noncompetition agreement
that's broader than non-solicitation,
did you argue that to the trial judge?
'Cause that's not what
the motion judge's decision talks about.
That if it's got multiple provisions
and they're only enforcing one provision,
they still lose.
-: We argued that the whole thing was void, Your Honor.
-: But I just wanna make sure,
did you argue the point you're just raising now, which is-
-: We think we did, Your Honor.
We think we did. We argued the whole thing was void.
But actually looking back, what we needed to say
was that the whole thing was regulated.
-: Well, how do you square that argument
with part D of the statute that says "a court may,
in its discretion reform or otherwise revise
a noncompetition agreement so as to render it valid
and enforceable to the extent necessary
to protect the applicable legitimate business interests"?
That sort of sounds like
if there's a non-solicit part, that's okay.
They can enforce that.
-: Correct, Your Honor, and in hearkening
back to your point, here, Miele is not at a competitor.
She's not taking trade secrets.
She's not soliciting customers of FMI
and taking their secret formulas for their medical research.
She is at a company
and I think we are taking a leap of logic
in the facts to think that she was out there
trying to pluck people from her old company to join her.
-: But that's a factual question.
I mean, assuming the facts are
that she poached people from FMI,
this is sort of a basic assumption
for the purposes of this appeal, I think.
The question is, does the forfeiture
for solicitation clause fall within the act?
-: And Your Honor, the reason why it does
is because there's language in that definition
that says "the manner of enforcement."
And that's the Kroeger-
-: Which definition? -: I'm sorry, Your Honor.
Forfeiture for competition agreement.
It says "the manner of enforcement."
This court's decision in Cummings Property, right,
in 2007, right before the Pierce case in 2008,
looked at what was the manner of enforcement here,
what's going on in Cheney
and in Pettingell, those are cases,
how are we enforcing this restriction
on a competitive activity?
-: Isn't the manner of enforcement here
that they say
"she was soliciting our employees,
therefore we are triggering the forfeiture provision."
That's the manner of enforcement.
They're not saying "we're triggering this
because she went to be the director of personnel
at a biotech company up the street."
-: But if the manner of enforcement
is because she's engaging in competitive activities,
which those are,
then it isn't regulated. -: That's a whole
separate question, whether those are.
That's the first thing
-: That is, but that's regulated by the law.
It's regulated.
You need to 10 days before signing.
Tell you that an attorney needs to sign it.
It's just regulated.
And so this agreement here was.
Now, Your Honor,
in both the Kroeger case,
which is from the appeals court,
this court's decision in Cheney,
we look at what are we looking to do
with the manner of enforcement?
Are we looking to claim earned compensation,
past compensation paid for past services?
That's both Pettingell and Cheney. And it's Kroeger.
So here, Miele, one of the things that's going on here
is that she had vested stock options
that were accelerated during the transition period.
That's earned compensation.
That's roughly 90% of what FMI is trying to get back
-: But there's no question
that there is a financial hit to your client.
I'm confused as to why you're focusing
on the manner of enforcement.
Let's just assume that there's a financial hit,
whether it's options or whatever.
The question really is whether non-solicitation
or forfeiture for solicitation,
or I should say,
that solicitation is a competitive activity
within the definition
of the forfeiture for competition clauses.
-: Right, Your Honor, because in the manner,
the manner of enforcement, this court's opinion in Coolidge,
which is cited by Cheney,
this court's opinion in Cheney itself
and in Pettingell is such that if you're trying
-: 11:20 AM. -: to get something out
of your contract that's not reasonable,
and that's what the Cummings Property case was.
If you're trying to get something out
of your restrictive covenant, that's not reasonable,
this court, the courts will step in,
say, "That doesn't work."
And that's that manner
of enforcement concept in the definition of
forfeiture for competition. -: What's your best-case
for the proposition that the legislature
when using the words "competitive activities"
meant to include forfeiture
for solicitation?
-: Two cases, Your Honor, both from this court,
one is Cheney, where on-
Wendlandt: Cheney, as I understand it
was a forfeiture for competition
-: And it actually, the clause that's being enforced
"or engages in activities which are harmful
to the corporation."
And in Pettingell, Your Honor, this court's decision.
It says "withdraws from the firm
and engages in any activities which are in competition
with the then current activities
of the firm he shall forfeit."
Those are the decisions that formed
the basis for this definition
that the legislature specifically put into the law.
Specifically put into the law.
And once again, we don't say that the covenant,
the covenant not to solicit isn't addressed here.
It's the other covenant that's addressed here
and its manner of enforcement that's addressed
-: I have a question as to the relationship between,
well, I'll just say with respect to a couple
of the provisions in the transition agreement
and what effect, if any, they may have on anything.
Subsection H of paragraph 10, other terms,
talks about the entire agreement.
It's the integration clause, essentially.
It says "its supersedes any and all prior discussions,
oral and written negotiations, understandings,
et cetera, et cetera, et cetera, et cetera, includes,"
and it also specifically identifies
these previous agreements.
Are we not supposed to take that at face value?
And if so, what effect does that have?
I may be wrong on this,
but is the non-solicitation clause only in
one of the earlier agreements,
or is it also included somewhere
in the transition agreement?
-: Your Honor, it is only in the 2017 agreement.
The transition agreement references the 2017 agreement
and in our view, and the trial judge below agreed,
added terms to it.
-: So
how do you then reconcile that position with subsection H?
-: In subsection H?
I'm sorry, Your Honor, again,
from the actual agreement or from the-
Wolohojian: From the transition agreement,
which says that it's supersedes
and this is the entire agreement,
-: It incorporates and reaffirms that agreement.
The transition agreement in another section incorporates
and reaffirms that agreement.
-: Right. And then adds and it also reference those.
Okay, so in your view,
the non-solicitation provision survives
despite this subsection H.
-: It survives and it gets added too.
And the added two is this other covenant
that in our view brings it
within the definition of a forfeiture for competition.
-: Okay, so now then look at subsection C,
which is severability.
I mean, there's also modification in there,
but I'm really only interested
in the severability portion of it.
So this is a pretty, you know,
routine severability provision
that says "if one provision is unlawful
or unenforceable, the others still survive."
Given that, I have a hard time, to be frank,
understanding your argument that the whole agreement
has to be seen as a competition agreement
and therefore, a forfeiture for competition agreement,
and therefore a problem under the act
as opposed to looking to the specific provision
that your client is alleged to have violated,
which is the non-solicitation provision.
Because this looks like you agreed to severability?
Can you please talk about that a little bit?
-: Thank you, Your Honor.
That's what I would look to this court's opinion
in Cummings Property that's in our brief on page 22.
If there are breaches of an agreement
and some of them are just simply not material,
then the penalty that's at issue
is scrutinized in light of that.
And that's exactly what this court says
in Cummings Properties.
So to Your Honor's question,
if the non-solicit is all you want to enforce,
but it only has to do with two
or three people reaching out to you,
you responding to them,
one of them coming to your company,
another one going to a related company,
a third one not even coming to your company at all,
Cummings Property, and we think Pierce, Cheney,
and Pettingell all say that's scrutinized here.
And it's not just the alternative question below,
after this court's ruling,
it's this court's ruling under this statute.
-: But why isn't what you're identifying there
the question of whether there was a breach
as opposed to whether this particular non-solicitation
provision falls within the statute?
-: Because, Your Honor, under that logic
that I just presented, I would say that can't be severed.
That is an immaterial breach. It is unreasonable.
It's an unlawful restraint of trade.
It's a forfeiture for a competitive activity
that falls squarely within the definition of the law
and this court should...
-: You get there by coupling the non-solicitation provision
with the forfeiture provision.
-: Two different covenants, Your Honor.
-: Sure, but what if you just looked
at the non-solicitation covenant?
-: If you just looked at the non-solicitation covenant,
Ms. Miele has said below,
"No issue. Prove your consequential damages."
Wolohojian: I think I understand your argument now.
Okay.