Brand Advantage Group, Inc. v. Henshaw

Background

Brand Advantage Group, Inc. sued Dave Henshaw after Henshaw resigned in December 2019 and began working for American Solutions for Business. Brand Advantage alleged that Henshaw solicited its customers and suppliers and used confidential information. Its complaint asserted breach of contract, breach of the duty of loyalty, and tortious interference with business relations.

Henshaw had entered an employment agreement in 1993 with Quality and Safeguard Business Systems, Inc. Brand Advantage later acquired assets from a successor to that business. The agreement included a confidentiality covenant, a noncompete section, and a Minnesota choice-of-law and forum-selection provision. Henshaw argued that the agreement expired in 1994 and that Brand Advantage could not enforce its restrictive covenants.

Henshaw also filed an earlier related declaratory-judgment action in Wisconsin state court. Brand Advantage then filed its Minnesota action. Brand Advantage moved for a preliminary injunction, including an injunction against Henshaw’s participation in the Wisconsin case. Henshaw moved to dismiss the contract claim under Federal Rule of Civil Procedure 12(b)(6), which allows dismissal for failure to state a legally sufficient claim, or alternatively asked the court to stay or dismiss the Minnesota case under the first-filed rule.

First-filed rule and state-court injunction

The court found compelling circumstances allowing the Minnesota case to continue even though Henshaw’s Wisconsin case was filed first. It found that Henshaw knew Brand Advantage was preparing to sue, sought declaratory relief in Wisconsin, misled Brand Advantage about his intentions, and raced to file in Wisconsin. The court therefore denied Henshaw’s request to stay or dismiss the Minnesota proceedings under the first-filed rule.

The court nevertheless denied Brand Advantage’s request to stop Henshaw from litigating the Wisconsin case. Under 28 U.S.C. § 2283, a federal court generally may not enjoin a party from proceeding with a parallel state-court action, and the court found that no applicable exception was present.

Choice of law and contract claims

The court held that Minnesota law governed because the agreement expressly selected Minnesota law and Minnesota had significant contacts with the dispute. Those contacts included Brand Advantage’s status as a Minnesota corporation, the Minnesota connections of its predecessor, Henshaw’s contacts with Brand Advantage’s Minnesota offices, and the parties’ agreement to apply Minnesota law.

The court agreed that the employment agreement itself expired on January 6, 1994. However, it concluded that the confidentiality covenant clearly survived termination. The covenant stated that Henshaw could not use or disclose proprietary information during the agreement or afterward, that it applied despite termination of the contractual relationship, and that the nondisclosure obligation did not end when the relationship ended. The court therefore denied Henshaw’s motion to dismiss Brand Advantage’s breach-of-contract claim based on Section Six.

The court interpreted Section Seven’s non-solicitation provision differently. That provision barred solicitation for one year following termination of the agreement, rather than one year following termination of employment. Because the agreement expired in 1994, the court held that the non-solicitation provision ended on January 6, 1995. The court granted Henshaw’s motion to dismiss that contract claim with prejudice.

The court also dismissed Brand Advantage’s contract claim based on Henshaw’s providing services to a competitor without prejudice. Brand Advantage stated during the hearing that it was not trying to enforce that provision, while its complaint alleged that Henshaw violated it by working for a competitor. The court dismissed the claim without prejudice based on Brand Advantage’s statement at the hearing.

Preliminary injunction

A preliminary injunction is an order entered before final judgment to preserve the situation while a case proceeds. The court applied the four Dataphase factors, including the likelihood of success, possible irreparable harm, the balance of harms, and the public interest. It held that Brand Advantage had not shown a fair chance of succeeding on any claim that could support an injunction.

The court found that Brand Advantage had disclaimed enforcement of the competitor-services provision, that the non-solicitation provision had expired, and that Brand Advantage’s confidentiality allegations were based only on information and belief and showed little evidence that Henshaw still possessed confidential information beyond what he might remember. The court also held that the tortious-interference claim could not support an injunction because Brand Advantage had not alleged an independently wrongful act or statutory violation. The duty of loyalty existed only during employment, so it could not establish prospective harm after Henshaw left Brand Advantage.

Disposition

Judge John R. Tunheim ordered that Henshaw’s motion to dismiss be granted in part and denied in part. It was denied as to the request to stay or dismiss under the first-filed rule and denied as to the Section Six confidentiality claim. It was granted as to the Section Seven contract claims: the non-solicitation claim was dismissed with prejudice, and the competitor-services claim was dismissed without prejudice. Brand Advantage’s motion for a preliminary injunction was denied. The court stated that judgment would be entered only on those specified contract dismissals and on the denial of the preliminary-injunction motion.