Ipsos-Insight, LLC v. Gessel

Background

Ipsos-Insight, LLC, a survey-based market research company, employed Jacob Gessel in its legal department and later promoted him to Assistant General Counsel for Ipsos North America. As a condition of employment, Gessel signed a Fair Competition Agreement containing a paid twelve-month non-compete clause. The clause barred him, during the restricted period, from working for or providing services to an entity competing with Ipsos in the products or services it offered to clients. If Ipsos exercised the clause after Gessel’s resignation or termination without cause, it was required to pay his base salary for up to twelve months.

Gessel resigned, disclosed that he had accepted a position with Medallia, which Ipsos described as a direct competitor, and began working there as Corporate Counsel. Ipsos exercised the non-compete clause. It then sued Gessel for breach of the Fair Competition Agreement, alleging that he violated the agreement by joining Medallia, failing to provide two weeks’ advance written notice of his intention to work for a competitor, and deleting information from an Ipsos-provided cellphone before returning it.

Gessel moved to dismiss under Rule 12(b)(6), which permits dismissal when a complaint does not allege enough facts to state a legally plausible claim. He argued that the non-compete clause was categorically unenforceable under New York Rule of Professional Conduct 5.6(a), which prohibits a lawyer from participating in an agreement restricting the lawyer’s right to practice after the professional relationship ends.

Court’s Analysis

The court held that the non-compete clause plainly violated Rule 5.6(a). It explained that the New York Court of Appeals had held in Cohen v. Lord, Day & Lord and Denburg v. Parker Chapin Flattau & Klimpl that agreements restricting lawyers’ practice, including financial penalties for competing, are unenforceable as a matter of public policy. Those decisions focused on protecting client choice and attorney mobility, and on the effect of the restriction rather than the clause’s stated purpose.

Although Cohen and Denburg concerned lawyers connected with law firms rather than in-house counsel, Judge Furman concluded that their reasoning compelled the same result here. The clause restricted Gessel’s ability to practice law for an Ipsos competitor, including Medallia. The court rejected Ipsos’s argument that Rule 5.6(a) did not matter because Ipsos was not a law firm, noting that lawyers who participated in offering or drafting the agreement could also have violated the rule. The court also acknowledged that it might otherwise have favored enforcing the agreement under New York’s usual reasonableness test for non-compete clauses, but stated that it was bound by the New York Court of Appeals’ decisions.

Ruling

Judge Furman granted Gessel’s motion to dismiss with respect to Ipsos’s claim that he breached the non-compete clause. The court declined to grant Ipsos leave to amend that claim because the defect was substantive and additional facts about Gessel’s non-legal work would not change the conclusion that the clause violated Rule 5.6(a).

The court did not rule on Ipsos’s separate allegations that Gessel failed to provide two weeks’ advance notice or deleted the cellphone’s contents. It directed Ipsos to file a letter stating whether it intended to pursue those theories and, if so, to address whether they had been abandoned and whether the notice provision was also unenforceable. Gessel was not required to answer while the court considered whether either theory would proceed. The court canceled the scheduled pretrial conference and terminated Gessel’s motion from the docket.