Forum Shopper Must Still Apply Calif. Law, A N.Y. Court Rules
By Mitchell S. Ostwald
A New York state court dealt a serious blow to a forum shopping broker-dealer seeking to silence one of its California employees.
SG Cowen Securities Corporation ("Cowen") is a New York corporation with its principal place of business in New York City. Cowen provides investment banking services to clients in the technology industry through offices located in New York, Boston, San Francisco, and Chicago. Cowen hired respondent, Robert Messih ("Messih"), a California resident, to serve as the managing director of technology in the corporate finance division of plaintiff's San Francisco office. Messih signed an 18-month employment agreement that provided remuneration approximately $5 million dollars, including bonuses. The agreement contained a non-compete provision and a clause that called for any disputes to be resolved by the New York Stock Exchange arbitration panel in San Francisco. The agreement calls for the application of New York law.
Messih worked as an investment banker with Cowen until April 11, 2000, at which time he resigned to work as an investor banker with Bank of America Securities, LLC. Thereafter, on April 14, 2000, Cowen initiated a special proceeding in the Supreme Court of the State of New York seeking temporary injunctive relief in advance of arbitration. The court issued an ex parte temporary restraining order against Messih enjoining him from working for Bank of America or any Cowen competitor anywhere in the world. Subsequently, Messih filed a motion to dissolve in part, the temporary restraining order. The court granted Messih's motion to dissolve the temporary restraining order.
Cowen sought to apply New York law, not only for the injunctive relief sought, but for the entire arbitration proceeding. The court held, however, that the California law governs this contract and therefore, the pertinent section for the review would be Business and Professions Code Section 16600. The court went on to state that California courts broadly construe the language of 16600 and "generally do not enforce covenants not to compete. " The court noted that California courts have routinely observed that "section 16600 has specifically been held to invalidate employment contracts which prohibit an employee from working for a competitor when employment is terminated, unless necessary to protect the employer's trade secrets. " Thus, the court concluded that if the arbitration panel were to apply California law to this dispute, it would not enforce the agreements non-compete provisions against Messih.
What is interesting about this recent decision is that the courts are again confronted with "forum shopping" by a large multi-national company when the issue of proper forum has long since been settled through court decisions and by statutes. In fact, most public investor attorneys felt this was a non-issue for the large broker dealers; perhaps it's not. Fortunately, the age old rule of law has once again prevailed, even in New York: one who seeks the benefits of doing business in California must also be held accountable by its courts.
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