Ciena Corporation v. Jarrard

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
CIENA CORPORATION,
Plaintiff-Appellee,
v. No. 99-2485
CYNTHIA JARRARD,
Defendant-Appellant.
Appeal from the United States District Court
for the District of Maryland, at Baltimore.
Frederic N. Smalkin, District Judge.
(CA-99-3269)
Argued: January 25, 2000
Decided: February 11, 2000
Before NIEMEYER, Circuit Judge, HAMILTON,
Senior Circuit Judge, and J. Frederick MOTZ,
Chief United States District Judge for the
District of Maryland, sitting by designation.
_________________________________________________________________
Affirmed and remanded by published opinion. Judge Niemeyer wrote
the opinion, in which Senior Judge Hamilton and Chief Judge Motz
joined.
_________________________________________________________________
COUNSEL
ARGUED: Edward W. Warren, KIRKLAND & ELLIS, Washington,
D.C., for Appellant. Stanley J. Brown, HOGAN & HARTSON,
L.L.P., McLean, Virginia, for Appellee. ON BRIEF: Christian B.
Hansen, JACKSON, LEWIS, SCHNITZLER & KRUPMAN, Wash-
ington, D.C.; Conrad S. Kee, JACKSON, LEWIS, SCHNITZLER &
KRUPMAN, Stamford, Connecticut, for Appellant. Michael J.
Lorenger, HOGAN & HARTSON, L.L.P., McLean, Virginia; Cather-
ine E. Stetson, HOGAN & HARTSON, L.L.P., Washington, D.C.;
Ruffin B. Cordell, Brian R. Nester, FISH & RICHARDSON, P.C.,
Washington, D.C., for Appellee.
_________________________________________________________________
OPINION
NIEMEYER, Circuit Judge:
On two days' notice to the defendant of a hearing on an application
for a temporary restraining order, the district court entered a prelimi-
nary injunction against the defendant, enforcing a noncompetition
agreement against her. On appeal, the defendant challenges (1) the
district court's jurisdiction and venue, (2) the adequacy of notice for
entry of a preliminary injunction, and (3) the appropriateness of the
injunction, both on procedural grounds and on the merits. While we
affirm the injunction, we remand to give the defendant an opportunity
to conduct expedited discovery and to file a motion to dissolve the
injunction within 30 days.
I
CIENA Corporation, a Delaware corporation with its principal
place of business in Linthicum, Maryland, is a high-tech business
engaged in designing, manufacturing, and marketing hardware and
software designed to increase the capacity of fiber-optic networks.
CIENA's technology increases the capacity of a single fiber-optic
cable by adding multiple signals on different wavelengths. Within the
period of a few years, it has increased the capacity of cables from 4
wavelengths for a single fiber to 79, with the promise of up to 200
in particular applications. The company markets its products and ser-
vices nationwide.
In September 1997, CIENA hired Cynthia Jarrard as the Western
Regional Director of Sales, with a base of operations in Kansas City,
2
Missouri. Jarrard supervised CIENA's sales force in the western part
of the United States, focusing on St. Louis, Denver, and Kansas City.
She also served as account manager for CIENA's largest client, Sprint
Communications. Jarrard was paid $300,000 per year plus substantial
bonuses. CIENA states that for the last year Jarrard worked, her com-
pensation was in the range of $500,000.
On taking her position with CIENA and as a condition of her
employment, Jarrard executed an agreement to protect CIENA's pro-
prietary information. This agreement provides in part:
Non-Solicitation. During the term of my employment by the
Company, and for a period of twelve months thereafter, I
shall not, directly or indirectly, without the prior written
consent of the Company . . . solicit or accept employment
or be retained by any party who, at any time during the term
of my employment, was a competitor or a client of the Com-
pany; or . . . solicit or accept the business of any party who,
at any time during the term of my employment, was a client
of the Company.
The agreement was, by its terms, effective September 22, 1997,
although Jarrard did not sign it until October 2, 1997.
A little over two years after being hired as a sales director with
CIENA, Jarrard resigned to accept a high-level sales position with a
start-up corporation, Sycamore Networks, Inc., based in Chelmsford,
Massachusetts. Jarrard's purported compensation, including stock
options, was stated by CIENA on belief to be worth in excess of $5
million, an assertion with which Jarrard has not taken issue except to
note that stock options in a start-up company are often difficult to
value. Sycamore Networks' stated mission is to improve the optical
network infrastructure available to the telecommunications industry,
and in its SEC filings, it has disclosed that it competes directly with
CIENA.
Upon learning of Jarrard's new employment with Sycamore Net-
works, CIENA promptly filed this action, alleging in two counts (1)
that Jarrard breached her agreement with CIENA to keep confidential
CIENA's trade secrets and not to compete with CIENA for 12 months
3
after leaving CIENA's employ, and (2) that Jarrard misappropriated
and will continue to misappropriate CIENA's trade secrets in per-
forming her new job with Sycamore Networks. CIENA notified Jar-
rard of this action on the date that the complaint was filed -- Friday,
October 29, 1999 -- and on Saturday, October 30, provided Jarrard
with copies of the suit papers, a motion for a temporary restraining
order (TRO), and notice that the TRO motion would be heard in court
on Monday, November 1, 1999.
At the commencement of the hearing on November 1, the district
court informed the parties, "We are going to handle this as a TRO
with notice, which is the equivalent to a preliminary injunction and
it will be handled as a preliminary injunction." Neither party pre-
sented evidence at the hearing. Rather, the court resolved all the
issues based upon the arguments of counsel, the verified complaint,
and CIENA's motion papers.
During the course of the hearing, Jarrard (1) challenged the district
court's jurisdiction over her, now a California resident, and its venue,
(2) complained of a lack of notice, (3) argued that Delaware law, as
referenced in the noncompetition agreement, did not apply, and (4)
argued that the noncompetition agreement was unreasonable and
therefore unenforceable. Rejecting Jarrard's arguments and balancing
the relevant equities, the district court entered a preliminary injunc-
tion, enjoining Jarrard from "using, disclosing, or otherwise misap-
propriating any of CIENA's trade secrets or confidential
information," and "[u]ntil further order of court" enjoining her from
working for Sycamore Networks, soliciting any of CIENA's existing
customers, soliciting or accepting business "from any customer or
prospective customer of CIENA who Jarrard solicited during the time
that she was employed by CIENA," or having any business contact
with any "CIENA customers or potential customers whom she solic-
ited" while working at the company. The court also required Jarrard
to return to CIENA all trade secrets she still possessed. Finally, the
court instructed CIENA to post a bond of $2.5 million to secure the
injunction. During the course of the hearing, the district court explic-
itly invited Jarrard to file a motion for reconsideration "if [the injunc-
tion] needs to be reconsidered."
Jarrard appealed two days later. Her motions to stay, filed both
with the district court and with this court, were denied, but we entered
4
an order expediting this appeal. We now address in turn each of Jar-
rard's arguments.
II
At the outset, Jarrard contends that the district court did not have
personal jurisdiction over her and that the District of Maryland is not
an appropriate venue for this case. She does not dispute the assertions
made by CIENA relating to her contacts with Maryland or the rela-
tionship to Maryland of the issues in litigation.
Federal Rule of Civil Procedure 4(k)(1)(A) provides that "[s]ervice
of a summons or filing a waiver of service is effective to establish
jurisdiction over the person of a defendant . . . who could be subjected
to the jurisdiction of a court of general jurisdiction in the state in
which the district court is located." We have previously explained that
"[b]ecause Rule 4(k)(1)(A) delimits the scope of effective federal ser-
vice in terms of the limits on state court jurisdiction," our inquiry into
a federal court's jurisdiction pursuant to the Rule looks to the law of
the state in which the federal court sits and the limits on the jurisdic-
tion of that state's courts imposed by the Fourteenth Amendment.
ESAB Group, Inc. v. Centricut, Inc., 126 F.3d 617, 622-23 (4th Cir.
1997), cert. denied, 523 U.S. 1048 (1998).
The relevant provisions of Maryland's long-arm statute confer per-
sonal jurisdiction over a party who
(1) Transacts any business or performs any character of
work or service in the State; . . . [or]
(4) Causes tortious injury in the State or outside of the
State by an act or omission outside the State if he regu-
larly does or solicits business, engages in any other
persistent course of conduct in the State or derives sub-
stantial revenue from goods, food, services, or manu-
factured products used or consumed in the State.
Md. Code Ann. Cts. & Jud. Proc. § 6-103(b)(1) & (4). The Maryland
Court of Appeals has noted that the statute "represents an effort by the
5
Legislature to expand the boundaries of permissible in personam
jurisdiction to the limits permitted by the Federal Constitution."
Geelhoed v. Jensen, 352 A.2d 818, 821 (Md. 1976). As a conse-
quence, "the statutory inquiry necessarily merges with the constitu-
tional inquiry, and the two inquiries essentially become one." Stover
v. O'Connell Assoc., Inc., 84 F.3d 132, 135-36 (4th Cir. 1996). As we
explained in ESAB Group, "because Rule 4(k)(1)(A) delimits the
scope of effective federal service in terms of the limits on state court
jurisdiction, our inquiry into a federal court's jurisdiction pursuant to
Rule 4(k)(1)(A) incorporates the Fourteenth Amendment due process
standard, even though that Amendment applies of its own force only
to states." 126 F.3d at 622-23. We therefore turn to the constitutional
question of whether Jarrard has established "minimum contacts with
[Maryland] such that the maintenance of the suit does not offend ``tra-
ditional notions of fair play and substantial justice.'" International
Shoe Co. v. Washington, 326 U.S. 310, 316 (1945) (quoting Milliken
v. Meyer, 311 U.S. 457, 463 (1940) (internal citation omitted)).
Jarrard was a high-level sales executive who was apparently on the
move, both before and after her employment with CIENA. She was
offered her employment with CIENA while she was traveling in
North Carolina for Cisco Systems, Inc., and she advised CIENA that
she would take the position while she was in Georgia. A few days
later, CIENA faxed a noncompetition agreement form to Jarrard in
San Diego, California, which contained provisions for the protection
of CIENA's proprietary information, and Jarrard returned the signed
agreement to Linthicum, Maryland, where CIENA signed it at its
headquarters. During her employment with CIENA, Jarrard lived in
Kansas City, Missouri, as the company's Western Regional Sales
Director. During her two-year tenure in this position, Jarrard came to
CIENA'S headquarters in Maryland for training and for regular meet-
ings with high-level executives, which CIENA asserts were held at
least once a month. It was in Maryland that Jarrard not only shared
marketing plans and related sales information, but also learned about
product developments, plans, and other product and customer infor-
mation. CIENA maintains that Jarrard also solicited business on its
behalf while in Maryland. Finally, CIENA contends that if Jarrard is
permitted to compete in violation of her agreement with CIENA and
is allowed to disclose CIENA's trade secrets, CIENA's injury will be
felt in Maryland.
6
This case arises out of Jarrard's alleged breach of her noncompeti-
tion agreement, entered into with her Maryland-based employer; her
knowledge of company trade secrets that she allegedly acquired dur-
ing her numerous visits to the company's headquarters in Maryland;
and her abrupt departure from the company to work for a competitor,
an action implicating the training and experience she acquired in
Maryland when she regularly traveled to the company's headquarters
over a period of two years. Under all of these circumstances, we con-
clude that Jarrard's repeated trips to Maryland and the injury that she
threatens in Maryland provided sufficient contacts with Maryland to
enable a federal court in Maryland constitutionally to assert personal
jurisdiction over her.
Jarrard's contacts with Maryland arose out of her activities as a
mobile sales executive, serving a Maryland-based company at its
headquarters. The alleged breach of contract with CIENA and the
alleged torts committed against it purportedly arose in part out of Jar-
rard's many trips to headquarters in Maryland. These travels to Mary-
land were not incidental or infrequent. They were regular and
numerous, and, together with the injury caused in Maryland, they sup-
port the conclusion that maintaining a suit in Maryland against Jarrard
on the basis of these activities does not offend traditional notions of
fair play and substantial justice.
These same contacts with Maryland that support the district court's
exercise of personal jurisdiction over Jarrard also provide a basis for
venue there. Under 28 U.S.C. § 1391(a)(2), a civil action founded on
diversity of citizenship may be brought in "a judicial district in which
a substantial part of the events or omissions giving rise to the claim
occurred."
Many of the events and facts central to this case concerned Jar-
rard's training, her access to and knowledge of trade secrets, and her
job responsibilities, all of which are anchored in Maryland. Moreover,
the alleged injuries that Jarrard has caused or threatens to cause were
or will be sustained in Maryland. We readily conclude that a "sub-
stantial part of the events or omissions giving rise" to CIENA's
claims occurred in the District of Maryland, providing venue there
under § 1391(a)(2).
7
III
Jarrard's principal argument on appeal -- to which she devoted
most of her oral argument -- is that she received insufficient notice
that a preliminary injunction would be considered, in violation of her
due process rights.
Although Jarrard received two days' notice of the TRO hearing,
she did not learn until the hearing that a preliminary injunction would
be considered. At the outset of the hearing on Monday, November 1,
1999, the district court stated, "We are going to handle this as a TRO
with notice, which is the equivalent to a preliminary injunction and
it will be handled as a preliminary injunction." Jarrard's counsel
objected, stating that he had only been given notice of a motion for
a TRO and not a preliminary injunction. He also stated, "we will need
to conduct expedited discovery." The court expressed doubt about the
need for discovery, but told Jarrard, "If [any injunction] needs to be
reconsidered, make a motion for reconsideration." Jarrard's counsel
added later, "If the Court should enter an injunction, again we would
ask . . . for a continuance to be more adequately defended in this
case." Even though the court felt during the hearing that it had before
it the information necessary to rule on the application for an injunc-
tion, it again invited Jarrard to submit a motion for reconsideration:
"I know . . . you are going to be in here with one, if not more, motions
to reconsider very promptly."
Considering the motion for "a TRO with notice[to be] equivalent
to a preliminary injunction," the district court entered a preliminary
injunction, to take effect upon personal service on Jarrard, enforcing
the terms of Jarrard's employment contract "until further order of
court." Instead of filing a motion to dissolve the injunction or to
reconsider it in light of additional facts, Jarrard filed this appeal on
November 3, two days after the hearing before the district court.
Federal Rule of Civil Procedure 65, which governs the issuance of
injunctions, states, "No preliminary injunction shall be issued without
notice to the adverse party." Fed. R. Civ. P. 65(a)(1). Although the
Rule does not specify how much notice must be given to an adverse
party before a court can enter a preliminary injunction, the Supreme
Court has held that same-day notice is not enough. See Granny Goose
8
Foods, Inc. v. Brotherhood of Teamsters & Auto Truck Drivers Local
No. 70, 415 U.S. 423, 433 n.7 (1974). In Granny Goose, the Court
compared the Rule 65(b) informal, same-day notice that suffices for
issuance of a TRO with the "more thorough notice requirements
which must be satisfied to obtain a preliminary injunction." Id. at 434
n.7. The Court emphasized that the notice required by Rule 65(a) for
preliminary injunctions "implies a hearing in which the defendant is
given a fair opportunity to oppose the application and to prepare for
such opposition." Id.; see also Hoechst Diafoil Co. v. Nan Ya Plastics
Corp., 174 F.3d 411, 422 (4th Cir. 1999).
The interplay between Rule 65(a) (governing preliminary injunc-
tions) and Rule 65(b) (governing TROs) is fluid, requiring greater
procedural formality and notice for preliminary injunctions that
remain operative for an unlimited time period. Thus, Rule 65(b),
which authorizes a ten-day TRO without notice to the defendant, nev-
ertheless includes a requirement that whatever notice is practical be
given. And while a TRO of limited duration may be issued upon the
filing of an application without notice to the defendant, the party
served with a TRO may seek dissolution of it upon two days' notice,
or less if so ordered by the court. See Fed. R. Civ. P. 65(b). Because
a preliminary injunction is unlimited in duration, its entry always
requires notice to the opposing party sufficient to give that party an
opportunity to prepare an opposition to entry of an injunction. See
Granny Goose Foods, 415 U.S. at 433 n.7; Fed. R. Civ. P. 65(a). But
broad discretion is given to the district court to manage the timing and
process for entry of all interlocutory injunctions-- both TROs and
preliminary injunctions -- so long as the opposing party is given a
reasonable opportunity, commensurate with the scarcity of time under
the circumstances, to prepare a defense and advance reasons why the
injunction should not issue.
While Federal Rule of Civil Procedure 6(d) indicates that any
motion (except one that may be heard ex parte ) shall be served "not
later than 5 days before the time specified for the hearing," that rule
is one of general applicability, which is subject to any different period
"fixed . . . by order of the court." Fed. R. Civ. P. 6(d); see also
Granny Goose Foods, 415 U.S. at 433 n.7. In the specific and time-
sensitive context of interlocutory injunctions, in virtually every case
the court establishes the timing of hearings based on the immediacy
9
of the factual circumstances and the relevant equities of the parties.
Moreover, whether an interlocutory injunction entered is labeled a
TRO or a preliminary injunction is not of particular moment, so long
as the party opposing the injunction is given notice and an opportu-
nity to oppose that is commensurate with the duration of the injunc-
tion. Thus, an interlocutory injunction entered without notice may
extend only ten days with a possible ten-day extension, see Fed. R.
Civ. P. 65(b), whereas an interlocutory injunction with an unlimited
term may be entered only after giving notice sufficient to enable the
opposing party to prepare an opposition, see Fed. R. Civ. P. 65(a).
In the case before us, Jarrard received two days' written notice of
the hearing on CIENA's application for a TRO. Indicating a need for
immediate action and recognizing Jarrard's opportunity to present a
defense, the district court announced in effect that it would be consid-
ering entry of an injunction with an unlimited term, but invited Jarrard
to file a motion to dissolve any injunction "promptly," if Jarrard
wished to do so. The court was faced with allegations that Jarrard had
just commenced work with a competitor of CIENA and that once she
disclosed trade secrets, the damage would become irreparable. Jarrard
appeared before the court acknowledging that she had signed an
agreement with CIENA which (1) prohibited her employment with a
competitor for a period of 12 months and (2) prohibited her from dis-
closing CIENA's trade secrets. She also acknowledged that she had
accepted employment with a direct competitor of CIENA, even
though she sought to assure the court that she would not disclose any
of CIENA's trade secrets. The court was thus presented with a facial
breach by Jarrard of her noncompetition agreement.
While Jarrard presented formal defenses of jurisdiction and venue
and raised substantial choice-of-law issues, her core defense was that
the restrictive covenant, prohibiting her from working with a competi-
tor of her employer, was unreasonable and therefore should not be
enforced. Without resolving here the issue of reasonableness, we con-
clude that the district court had sufficient evidence to justify entry of
an injunction, which had the effect of shifting to Jarrard the burden
of presenting evidence that her agreement should not be enforced. In
this regard, the court expressly invited Jarrard to file motions for
reconsideration. Jarrard chose not to pursue the matter before the dis-
10
trict court, but to appeal.1 While she thus chose a course clearly
within the range of her available options, she inexplicably neglected
to pursue a course that would have cured the alleged prejudice of
which she now complains -- her inability to conduct some discovery
and develop her case. She did not pursue immediate discovery, nor
did she even file a motion to dissolve the injunction based on facts
available to her.
We are not unsympathetic to the difficult time constraints that con-
fronted Jarrard. But we cannot conclude that she was denied the
opportunity adequately to prepare an opposition to the application for
an injunction. Nevertheless, we are remanding this case to the district
court with instructions to allow Jarrard such expedited discovery on
the injunction application as she may justify to the court, for a period
extending no longer than 30 days, and to permit Jarrard within that
period to file a motion to dissolve the injunction. In the meantime,
however, the injunction entered by the district court may be contin-
ued, subject to further order of court. See Hoechst Diafoil, 174 F.3d
at 424.
IV
Jarrard contends also that the procedural requirements for an inter-
locutory injunction were not met due to (1) "the district court's com-
plete failure to make any factual findings" and (2) the injunction's
failure to be "specific" and to "describe the acts sought to be
restrained in reasonable detail." See Fed. R. Civ. P. 52(a) & 65(d). We
find no merit in either of these contentions.
Before entering the injunction, the district court made factual find-
ings and conclusions of law that cover three to four pages of the joint
appendix. See J.A. 73-76, 82-84. The court found that Jarrard had
served as a key employee, earning $300,000, in a high-tech industry
where "knowledge is indeed power and the key to everything." It
found that the parties had entered into a noncompetition agreement
which was to be construed under Delaware law. As a preliminary
_________________________________________________________________
1 In connection with her appeal, Jarrard did file a motion in district
court to stay the injunction pending appeal, a motion that the district
court denied.
11
matter -- a "prima facie" showing -- the district court concluded that
the covenant not to compete was "geographically and durationally
reasonable" because of the nature of the industry. The court summa-
rized its preliminary findings, concluding that CIENA had a "very
strong" case for the enforcement of the noncompetition agreement.
Based on its factual findings as well as the nature of the industry and
the circumstances of each party, the court also conducted the
balancing-of-equities test required under our decisions in Blackwelder
Furniture Co. v. Seilig Mfg. Co., 550 F.2d 189 (4th Cir. 1977), and
Direx Israel, Ltd. v. Breakthrough Med. Corp., 952 F.2d 802 (4th Cir.
1991), evaluating separately the equities favoring each party. The
court concluded that with CIENA's "very strong" case on the merits,
even if the equities "only slightly favored the plaintiff," an injunction
would be appropriate. The court pointed out, however, that it was pre-
pared to revisit the matter on a motion for reconsideration, which it
anticipated would be filed "very promptly."
Federal Rule of Civil Procedure 52(a) provides:
In all actions tried upon the facts without a jury or with an
advisory jury, the court shall find the facts specially and
state separately its conclusions of law thereon, and judgment
shall be entered pursuant to Rule 58; and in granting or
refusing interlocutory injunctions the court shall similarly
set forth the findings of fact and conclusions of law which
constitute the grounds of its action.
(Emphasis added). We have held that the district court's failure to
make findings of fact in accordance with Rule 52(a) is error and
requires reversal of an order granting an injunction. See First Citi-
zen's Bank & Trust Co. v. Camp, 432 F.2d 481, 483-84 (4th Cir.
1970); see also Mayo v. Lakeland Highlands Canning Co., 309 U.S.
310, 316 (1940) ("It is of the highest importance to a proper review
of the action of a court in granting or refusing a preliminary injunc-
tion that there should be fair compliance with Rule 52(a) of the Rules
of Civil Procedure").
Because the district court did set forth factual findings and conclu-
sions of law in its ruling from the bench, Jarrard must be suggesting
a requirement that these findings and conclusions be included in the
12
injunction order itself. But Rule 52(a) imposes no such requirement.
We believe that the district court's findings of fact and conclusions
of law, made on the record, satisfied the Rule 52(a) requirement that
such factual findings and legal conclusions be "set forth." And while
the facts found by the district court on the record are alone sufficient
to support the court's entry of an injunction, the court went further,
summarizing these findings in the injunction order itself. There, the
court stated its findings "that CIENA will suffer immediate and irrep-
arable injury unless Defendant is temporarily enjoined as set forth in
this Order, and that the balance of hardships favors plaintiff, who is
likely to prevail on the merits."
We also reject Jarrard's argument that the injunction was not suffi-
ciently specific in its directive to meet the requirements of Rule 65(d).
Federal Rule of Civil Procedure 65(d) provides in relevant part:
Every order granting an injunction . . . shall set forth the rea-
sons for its issuance; shall be specific in terms; shall
describe in reasonable detail, and not by reference to the
complaint or other document, the act or acts sought to be
restrained . . . .
(Emphasis added). While these requirements of Rule 65(d) "are man-
datory and must be observed in every instance," Alberti v. Cruise, 383
F.2d 268, 271-72 (4th Cir. 1967), we believe that the district court
fully complied with the Rule. To demonstrate this, we need only
recite the injunctive language itself, which provides as follows:
(1) Jarrard is enjoined from using, disclosing, or otherwise
misappropriating any of CIENA's trade secrets or con-
fidential information;
(2) Until further order of Court, Jarrard is enjoined from
soliciting any of CIENA's existing customers;
(3) Until further order of court, Jarrard is enjoined from
soliciting or accepting business from any customer or
prospective customer of CIENA who Jarrard solicited
during the time that she was employed by CIENA;
13
(4) Until further order of Court, Jarrard is enjoined from
having any business contact with agents or representa-
tive of Sprint Communications or any other CIENA
customers or potential customers whom she solicited
while at CIENA;
(5) Jarrard is required to return to CIENA all trade secret
material she still has in her possession; and
(6) Until further order of Court, Jarrard is enjoined from
continuing in the employ of and/or accepting employ-
ment by Sycamore.
(7) Plaintiff shall post a bond in the amount of
$2,500,000.00, within 72 hours of the date hereof.
We find no merit in Jarrard's contention that "concepts" such as
"trade secrets" and "CIENA's existing customers" are so ambiguous
or unreasonably broad as to violate the Rule.
V
Finally, Jarrard contends that the district court abused its discretion
in evaluating the merits of the injunction, arguing particularly that the
district court erroneously applied the established standards for enter-
ing an injunction and that, in considering the likelihood-of-success
factor, the district court erred in applying Delaware law.
In entering a preliminary injunction, a court must consider the fol-
lowing Blackwelder factors:2 "(1) the likelihood of irreparable harm
to the plaintiff if the preliminary injunction is denied, (2) the likeli-
hood of harm to the defendant if the requested relief is granted; (3)
the likelihood that the plaintiff will succeed on the merits; and (4) the
public interest." Direx Israel, Ltd. v. Breakthrough Med. Corp., 952
F.2d 802, 812 (4th Cir. 1991) (quoting Rum Creek Coal Sales, Inc.
v. Caperton, 926 F.2d 353, 359 (4th Cir. 1991)). Although we review
_________________________________________________________________
2 These factors are taken from Blackwelder Furniture Co. v. Seilig Mfg.
Co., 550 F.2d 189, 193-96 (4th Cir. 1977).
14
a grant of injunctive relief for abuse of discretion, we will overturn
a district court's decision "if made under an improper legal standard"
and will overturn the court's factual findings if, from our review of
the record in its entirety, we are "``left with the definite and firm con-
viction that a mistake has been committed.'" Direx, 952 F.2d at 815
(quoting Rum Creek, 926 F.2d at 358).
Jarrard contends that the district court erred by failing to compart-
mentalize the Blackwelder factors. Specifically, she points to the fol-
lowing statement made by the district court:
In this Circuit, the first step is to balance the harms. Clearly
there will be harm to the Defendant with this decree, there
is no question about it. And that is a substantial economic
harm. But, it is a harm she bargained for. Therefore it
doesn't impress me as a harm that particularly puts her in a
very good equitable position.
Jarrard argues that this discussion reveals that the district court con-
flated the balancing-of-hardships factors and the likelihood-of-success
factor.
We have observed that "the hardship balance and the likelihood of
success determination are separate, sequential steps" and that "the bal-
ancing of hardships should precede any consideration of the likeli-
hood of success." Direx, 952 F.2d at 817. But these separate tests are
related to the overall equitable determination of whether the injunc-
tion should issue. Indeed, we have noted that the factors analyzed sep-
arately nevertheless must work in conjunction: "If the hardship
balance tilts sharply and clearly in the plaintiff's favor, the required
proof of likelihood of success is substantially reduced." Id. Thus, the
balancing of hardships must be analyzed conceptually before and sep-
arately from the likelihood of success on the merits, but once a court
has performed these separate analyses, it must then make the equita-
ble determination whether to grant injunctive relief. In making this
final determination, it is wholly appropriate for the court to discuss
the various Blackwelder factors as they relate to each other.
In this case, the district court balanced separately the likelihood of
irreparable harm to CIENA if an injunction did not issue against the
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likelihood of harm to Jarrard if it did. The court observed that "knowl-
edge is power" in the fast-moving, technologically advanced industry
in which CIENA competes. The court noted that Jarrard had worked
in a "key position" at CIENA and had moved into a "key position"
with a direct competitor. The court concluded that Jarrard could irrep-
arably harm CIENA by working for a direct competitor soon after
resigning from CIENA.
The court also recognized that Jarrard would suffer economic hard-
ship if she were enjoined from continuing her employment with Syca-
more Networks and from working with any other competitors of
CIENA. However, the judge looked at Jarrard's education and
employment background, noting that "[s]he is able to do other things,
certainly in the computer field, that don't directly compete with
[CIENA]." The court concluded that the harm to Jarrard "is amelio-
rated by the fact that she is not a one trick pony. According to her
C-V here, she is a person with estima[ ]ble skills in this whole area.
. . . So, she can get meaningful work and that diminishes the harm to
her . . . ." In view of this record, we are satisfied that the district
court's analysis of the balance of hardships was independent from its
analysis of the likelihood that CIENA would succeed on the merits of
its case.
Jarrard contends that in assessing the likelihood of success, the dis-
trict court erred in concluding, based on explicit contract terms, that
Delaware law would apply when construing a covenant not to com-
pete. We reject this contention.
For its choice-of-law rules, Maryland subscribes to§ 187 of the
Restatement (Second) of Conflict of Laws. See National Glass, Inc.
v. J.C. Penney Properties, Inc., 650 A.2d 246, 248 (Md. 1994);
Kronovet v. Lipchin, 415 A.2d 1096, 1104-05 (Md. 1980). Section
187 of the Restatement provides:
The law of the state chosen by the parties to govern their
contractual rights and duties will be applied, even if the par-
ticular issue is one which the parties could not have resolved
by an explicit provision in their agreement directed to that
issue, unless either
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(a) the chosen state has no substantial relationship to the
parties or the transaction and there is no other reason-
able basis for the parties' choice, or
(b) application of the law of the chosen state would be
contrary to a fundamental policy of a state which has
a materially greater interest than the chosen state in the
determination of the particular issue . . . .
Restatement (Second) of Conflict of Laws § 187(2) (1971).
Because CIENA was incorporated under the laws of Delaware and
maintains its corporate charter under Delaware law, the district court
determined that the parties to the noncompetition agreement had a
reasonable basis for choosing Delaware law to govern their agree-
ment. Just as the place where a limited partnership is organized is a
factor demonstrating a "substantial relationship" for choice-of-law
rules, see Kronovet, 415 A.2d at 1105, we conclude that a party's
state of incorporation provides the necessary "substantial relationship"
for application of its laws. Accordingly, even though CIENA's princi-
pal place of business is in Maryland, we hold that it is not unreason-
able for CIENA to select the law of Delaware to govern its
contractual relationships in view of the fact that it is organized under
the laws of Delaware and continues to maintain its charter under those
laws. See Valley Juice Ltd. v. Evian Waters of France, Inc., 87 F.3d
604, 608 (2d Cir. 1996); Schroeder v. Rynel, Ltd., 720 A.2d 1164,
1166 (Me. 1998).
Under Delaware law, covenants not to compete with reasonable
time and geographical restrictions are enforceable, although not "me-
chanically." See McCann Surveyors, Inc. v. Evans, 611 A.2d 1, 3-4
(Del. Ch. 1987) ("[C]ovenants restricting future employment, in order
to be valid, must be determined . . . to be reasonably limited geo-
graphically and with respect to the restriction on time," and must "fos-
ter a legitimate economic interest of the plaintiff" (citation omitted)).
The district court here did not err in concluding, as a preliminary
matter, that the noncompetition agreement in this case was reasonable
in its geographical and durational limitations, at least until Jarrard
advances facts to show otherwise. The court pointed to the national
competition between CIENA and Sycamore Networks and to the
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nature of the economic interests to be protected by CIENA. While this
issue will ultimately be developed through further proceedings, the
district court did not err in concluding at this stage that CIENA had
the better case on the merits.
VI
For the foregoing reasons, we affirm the district court's preliminary
injunction and remand with instructions to the district court to allow
Jarrard expedited discovery sufficient to enable her to file a motion
to dissolve the injunction within 30 days of this court's judgment.
AFFIRMED AND REMANDED WITH INSTRUCTIONS
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