Louisiana Record

Friday, December 13, 2019

Fifth Circuit upholds ruling sending non-compete agreement case to arbitration

By Carrie Salls | Apr 21, 2018

Contract 05

NEW ORLEANS – The U.S. Court of Appeals for the Fifth Circuit upheld a lower court's ruling sending a non-compete and non-solicitation violation dispute between The Shaw Group/Aptim Corp. and a former Shaw Group employee to arbitration.

Shaw filed a lawsuit against former employee Dorsey McCall, but asked a state court to throw out the case to allow Aptim, which had acquired the Shaw Group, to ask the U.S. District Court for the Eastern District of Louisiana to order arbitration in accordance with McCall’s contract.

“The federal district court declined to abstain, it compelled arbitration, and it stayed the state-court proceeding,” the Fifth Circuit opinion said. “We find no error and affirm.”

U.S. Circuit Judge Jerry E. Smith | The Federalist Society

McCall’s alleged non-compete and non-solicitation agreement violations came after he left Shaw in January 2016 and took positions first for an affiliate of Bernhard Capital Partners Management LP and later as the chief executive officer of Allied Power Management, LLC.

The opinion issued on April 17 said Allied Power is “a direct competitor of Shaw’s.”

Under the agreements in question, the Fifth Circuit said the parties were required to arbitrate the dispute in New Orleans, although the agreements specified that “the employer may file for injunctive relief from a judicial authority without waiving the right to arbitrate the underlying dispute.”

In a lawsuit filed on June 15, 2017, Shaw sought an injunction and sued McCall for damages related to his alleged violations of the non-compete and non-solicitation agreements.

However, Aptim bought Shaw’s capital services branch two weeks later, on June 30. As part of the acquisition, McCall’s employment agreement was transferred to Aptim.

The opinion said Aptim and Shaw withdrew a substitution request following an objection filed by McCallum. Aptim then asked the American Arbitration Association to handle the dispute.

Among other pleadings, McCall filed a “motion for constructive contempt against Aptim for demanding arbitration in violation of the protective order, though Aptim was not then a party to the case,” the Fifth Circuit opinion said.

Aptim’s standalone federal case seeking arbitration was filed on Aug. 21, 2017. It mirrored the arguments that Shaw had previously made in the state court case “that McCall had breached his non-compete agreement by working for Allied and his non-solicitation agreement by poaching 15 of Shaw’s senior employees.”

However, the Fifth Circuit said the state court stepped in with a ruling ahead of the district court.

“Before the federal court ruled, the state court on Sept. 1 issued an order joining Aptim in the state-court action effective June 30 (the day the motion for substitution had been originally filed); finding that Aptim and Shaw had waived their arbitration rights by initiating the state-court action; and granting McCall’s motion to stay arbitration,” the Fifth Circuit opinion said.

Despite that order, the district court ordered the dispute to be settled via arbitration on Sept. 19 and put the state-court case on hold.

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U.S. Court of Appeals for the Fifth CircuitU.S. District Court for the Eastern District of Louisiana