The Franchise Memorandum

A federal court in Minnesota recently granted Toro’s motion for a preliminary injunction against two former employees, while dismissing their new employer, a Canadian manufacturer, for lack of personal jurisdiction. The Toro Co. v. Sutterlin, 2024 WL 965238 (D. Minn. Mar. 5, 2024). The defendant employees became Toro sales representatives when Toro purchased their previous employer. As part of the transition, the employees signed a confidentiality agreement prohibiting them from using or disclosing confidential information belonging to Toro, including customer lists and dealer or distributor information. They also signed a one-year noncompete agreement prohibiting them from engaging in similar business in a geographic area in which they did business within their last three years of employment, soliciting customers with whom they had business-related contact, intentionally interfering with Toro’s business relationships, or attempting to employ Toro’s employees. While employed with Toro, one employee sent Toro dealer information to his personal email as part of an alleged scheme to solicit sales from current and prospective Toro dealers on behalf of Yakta Inc., a Canadian-based competitor of Toro. The employees then resigned and joined Yakta as sales representatives. Shortly thereafter, several of Toro’s current and prospective dealers became Yakta distributors.

Toro sued the employees for breach of the noncompete agreement, breach of the duty of loyalty, and unfair competition, and Toro also sued Yakta, alleging tortious interference. The court dismissed the claim against Yakta, who it concluded did not have sufficient minimum contacts with the forum because it was not a party to the non-compete agreements and thus had no legal relationship with Toro. But the court granted Toro’s motion for a preliminary injunction against its former employees, who would be prohibited from working with any dealers that they had allegedly solicited on behalf of Yakta, and who were ordered to certify that they deleted all of Toro’s dealer information that was sent to their personal email. The court was not willing to completely enjoin the employees from working at Yakta, particularly in light of the geographic scope of the noncompete clause, but noted that if evidence of certain allegations of the alleged solicitation-by-proxy scheme is developed in discovery, it would consider expanding the scope of the injunction.