Golden Rd. Motor Inn v. Islam

132 Nev., Advance Opinion ill
IN THE SUPREME COURT OF THE STATE OF NEVADA
GOLDEN ROAD MOTOR INN, INC., A No. 64349
NEVADA CORPORATION D/B/A
ATLANTIS CASINO RESORT SPA,
Appellant/Cross-Respondent, FILED
vs. JUL 2 1 2016
SUMONA ISLAM, AN INDIVIDUAL,
Respondent/Cross-Appellant,
and
MEI-GSR HOLDINGS, LLC, A NEVADA
LIMITED LIABILITY COMPANY D/B/A
GRAND SIERRA RESORT, WHICH
CLAIMS TO BE THE SUCCESSOR IN
INTEREST TO NAV-RENO-GS, LLC,
Respondent.
SUMONA ISLAM, AN INDIVIDUAL, No. 64452
Appellant,
vs.
GOLDEN ROAD MOTOR INN, INC., A
NEVADA CORPORATION D/B/A
ATLANTIS CASINO RESORT SPA,
Respondent.
MEI-GSR HOLDINGS, LLC, D/B/A No, 65497
GRAND SIERRA RESORT,
Appellant/Cross-Respondent,
vs.
GOLDEN ROAD MOTOR INN, INC., A
NEVADA CORPORATION D/B/A
ATLANTIS CASINO RESORT SPA,
Respondent/Cross-Appellant.
Consolidated appeals and cross-appeals from district court
orders in a contract and tort action (Docket No. 64349) and awarding
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attorney fees (Docket Nos. 64452 and 65497). Second Judicial District
Court, Washoe County; Patrick Flanagan, Judge.
Affirmed in part, reversed in part, and remanded.
Dotson Law and Robert A. Dotson, Reno; Lemons, Grundy & Eisenberg
and Robert L. Eisenberg, Reno,
for Golden Road Motor Inn, Inc., dba Atlantis Casino Resort Spa.
Law Offices of Mark Wray and Mark D. Wray, Reno,
for Sumona Islam.
Cohen-Johnson, LLC, and H. Stan Johnson and Steven B. Cohen, Las
Vegas,
for MEI-GSR Holdings, LLC, dba Grand Sierra Resort.
BEFORE THE COURT EN BANC.
OPINION
By the Court, DOUGLAS, J.:
In this appeal, we are asked to consider (1) whether a
noncompote agreement is reasonable and enforceable, (2) whether an
alteration of electronic information amounts to conversion, and
(3) whether one gaming establishment misappropriated another gaming
establishment's trade secrets.
Casino host Sumona Islam entered into an agreement with
her employer, Atlantis Casino Resort Spa, to refrain from employment,
association, or service with any other gaming establishment within 150
miles of Atlantis for one year following the end of her employment. Islam
eventually grew dissatisfied with her work at Atlantis and, while
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searching for work elsewhere, altered and copied gaming customers'
information from Atlantis' computer management system. Soon after, she
resigned from Atlantis and began working as a casino host at Grand
Sierra Resort (GSR), where she accessed the computer management
system to enter the copied information. Without knowing the information
was wrongfully obtained, GSR used this and other information conveyed
by Islam to market to those customers.
As to the noncompete agreement, we affirm the district court,
concluding that the type of work from which Islam is prohibited is
unreasonable because it extends beyond what is necessary to protect
Atlantis' interests and is an undue hardship on Islam. We further
conclude that because the work exclusion term is unreasonable, the
agreement is wholly unenforceable, as we do not modify or "blue pencil"
contracts. With regard to Atlantis' conversion claim based on Islam's
alteration of electronic customer information, which Atlantis quickly
restored, we affirm the district court's denial. The minimal disruption and
expense incurred were insufficient to require Islam to pay the full value of
the information. Finally, as to the misappropriation of trade secrets claim,
we conclude that Atlantis failed to demonstrate that GSR knew or should
have known the player information was obtained by improper means and
therefore affii in the district court's finding of nonliability. 1-
'We also affirm the parties' appeals from attorney fees awards,
except that we reverse the award to Atlantis against Islam because the
district court erred by prohibiting Islam's review of the itemized attorney
fees.
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BACKGROUND
While working as a casino host at Atlantis, Islam executed
several agreements pertaining to her employment. Pursuant to those
agreements, Atlantis restricted Islam from sharing confidential
information, disseminating intellectual property, and downloading or
uploading information without authorization. Additionally, a noncompete
agreement prohibited Islam from employment, affiliation, or service with
any gaming operation within 150 miles of Atlantis for one year following
the end of her employment. 2
After more than three years at Atlantis, Islam became
dissatisfied with her work environment. As Islam pursued employment
elsewhere, she altered and concealed the contact information for 87
players in Atlantis' electronic database. She also hand-copied players'
names, contact information, level of play, game preferences, credit limits,
and other proprietary information from the database onto notebook paper.
Soon after, she resigned, and when newly assigned casino hosts attempted
to contact players formerly assigned to Islam, they discovered that the
2 In particular, the noncompete agreement provides as follows:
In the event that the employment relationship
between Atlantis and Team Member ends for any
reason, either voluntary or non-voluntary, Team
Member agrees that (s)he will not, without the
prior written consent of Atlantis, be employed by,
in any way affiliated with, or provide any services
to, any gaming business or enterprise located
within 150 miles of Atlantis Casino Resort for a
period of one (1) year after the date that the
employment relationship between Atlantis and
Team Member ends.
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information had been altered. Despite Islam's actions, Atlantis was able
to fully restore the correct contact information for its players, incurring
$2,117 in repair expenses.
Meanwhile, GSR interviewed Islam for a position as a casino
host. During the hiring process, GSR personnel advised Islam not to bring
anything from Atlantis but herself and her established relationships.
Despite GSR's request, when Islam began working at GSR, she entered
certain player information she had copied from Atlantis' database into
GSR's database. Evidence adduced at trial also indicated that Islam
communicated copied information to GSR by email. However, Islam never
presented to GSR personnel the notebooks containing the copied
information and repeatedly insisted that the information she provided was
from her own "book of trade." 3 Thus, GSR used the information it received
from Islam to market to Atlantis players.
Thereafter, Atlantis became aware that GSR hired Islam and
that GSR was marketing to its players. Atlantis sent a letter to GSR,
informing GSR of Islam's noncompete agreement, that Islam may have
confidential information, and that GSR was to refrain from using that
information. In response, GSR sent a letter to Atlantis advising that it
was not in possession of trade secret information and that the information
provided by Islam came from her book of trade. GSR additionally
requested that Atlantis provide more specific information as to what
3 The district court found that a casino host's "book of trade" is a
collection of "names and contact information of guests with whom the host
has developed relationships through [the host's] own efforts."
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Atlantis believed was protectable as a trade secret. Atlantis did not
comply with GSR's request.
Subsequently, Atlantis filed a complaint against both Islam
and GSR, alleging seven causes of action and requesting a restraining
order. The district court issued a restraining order prohibiting Islam from
employment with GSR. The parties later stipulated to a preliminary
injunction pending resolution of the case, and GSR served Atlantis with an
offer of judgment. However, Atlantis rejected the offer and a bench trial
ensued.
As between Atlantis and Islam, the district court found Islam
liable for breach of contract and violation of the Nevada Uniform Trade
Secrets Act and imposed a permanent injunction prohibiting Islam from
further use of Atlantis' trade secrets. The district court awarded Atlantis
compensatory and punitive damages, in addition to attorney fees and
costs. However, the district court also found that Islam was not liable for
tortious interference with contractual relations or conversion and ruled
that the noncompete agreement was unenforceable. As to Atlantis' claims
against GSR, the district court found that GSR was not liable for tortious
interference with contractual relations or misappropriation of trade
secrets and awarded GSR attorney fees and costs based on its offer of
judgment, but denied fees requested under NRS 600A.060.
All three parties appealed. Atlantis challenges the
noncompete and conversion rulings in its claims against Islam, and the
tortious interference and attorney fees rulings in its claims against GSR.
Islam's appeal challenges the award of attorney fees to Atlantis. GSR
challenges the denial of attorney fees under NRS 600A.060.
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DISCUSSION
"We review the district court's legal conclusions de novo."
Buzz Stew, LLC v. City of N. Las Vegas, 124 Nev. 224, 228, 181 P.3d 670,
672 (2008). However, "this court will not disturb a district court's findings
of fact unless they are clearly erroneous and not based on substantial
evidence." Ina Fid. Ins. Co. v. State, 122 Nev. 39, 42, 126 P.3d 1133,
1134-35 (2006).
Atlantis v. Islam
Noncompete agreement
Atlantis argues that the noncompete agreement signed by
Islam was reasonable and enforceable. Even if the noncompete agreement
was unenforceable as written, Atlantis argues that the agreement should
be preserved by judicial modification of provisions that are decidedly too
broad. In contrast, Islam and GSR argue that the court properly found the
noncompete agreement unreasonable and correctly determined that the
proper remedy was to void the contract as a whole. Further, Islam and
GSR contend that courts may not create a contract for the parties that the
parties did not intend.
Reasonableness
Contract interpretation is a legal question we consider under a
de novo standard of review. May v. Anderson, 121 Nev. 668, 672, 119 P.3d
1254, 1257 (2005). Under Nevada law, "[a] restraint of trade is
unreasonable, in the absence of statutory authorization or dominant social
or economic justification, if it is greater than is required for the protection
of the person for whose benefit the restraint is imposed or imposes undue
hardship upon the person restricted." Hansen v. Edwards, 83 Nev. 189,
191-92, 426 P.2d 792, 793 (1967). Time and territory are important
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,
factors to consider when evaluating the reasonableness of a noncompete
agreement. Id. at 192, 426 P.2d at 793. However, "[t]here is no inflexible
formula for deciding the ubiquitous question of reasonableness." Ellis v.
McDaniel, 95 Nev. 455, 458-59, 596 P.2d 222, 224 (1979). Thus, we look to
our caselaw.
In Jones v. Deeter, an employer that performed lighting
services hired an assistant, who agreed in writing not to compete within
100 miles of Reno/Sparks for five years subsequent to the end of his
employment. 112 Nev. 291, 292, 913 P.2d 1272, 1273 (1996). After three
months, the employer fired his assistant and, when the assistant sought
work elsewhere, the employer brought suit against him to enforce the
noncompete agreement. Id. at 293, 913 P.2d at 1273. We concluded that
the five-year restriction imposed too great a hardship for the employee and
was not necessary to protect the employer's interests, even in light of the
employer's argument that developing a customer base in the industry was
difficult. Id. at 296, 913 P.2d at 1275.
Also, in Cameo, Inc. v. Baker, we held that a noncompete
agreement term of two years and "within fifty miles of any area which was
the 'target of a corporate plan for expansion' was unreasonable. 113 Nev.
512, 519-20, 936 P.2d 829, 833-34 (1997). We explained "that the covenant
at issue [was] overly broad as to future territory for possible expansion,"
and thus, operated "as a greater restraint on trade than [was] necessary to
protect [the former employer's] interests." Id.In this case, similar to Jones and Cameo, we conclude that the
term prohibiting Islam from employment, affiliation, or service with any
gaming business or enterprise is overly broad, as it extends beyond what
is necessary to protect Atlantis' interests. According to the term, Islam is
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prohibited from being employed, for instance, as a custodian, at every
casino within a 150-mile radius. Yet, in such a hypothetical, it is unlikely
that Islam would be luring players from Atlantis; thus, Atlantis' interests
would remain protected. Additionally, similar to Jones, the work
exclusion term presents an undue hardship for Islam. The agreement's
prohibition of all types of employment with gaming establishments
severely restricts Islam's ability to be gainfully employed. For these
reasons, we deem the term to be overbroad and unreasonable: 4
Enforceability
Under Nevada law, such an unreasonable provision renders
the noncompete agreement wholly unenforceable. See Jones, 112 Nev. at
296, 913 P.2d at 1275 (holding that the noncompete agreement as a whole
was unenforceable after concluding that a particular provision was
unreasonable). Rightfully, we have long refrained from reforming or "blue
penciling"5 private parties' contracts. See Reno Club, Inc. v. Young Inv.
Co., 64 Nev. 312, 323, 182 P.2d 1011, 1016 (1947) ("This would be virtually
creating a new contract for the parties, which. . . under well-settled rules
4 Inaccord with this conclusion, the Georgia Court of Appeals has
stated that "[al noncompete covenant is too broad and indefinite to be
enforceable where it contains no limit on the work restricted and
effectively prohibits an employee from working for a competitor in any
capacity." Lapolla Indus., Inc. v. Hess, 750 S.E.2d 467, 474 (Ga. Ct. App.
2013).
5 "The blue-pencil test' is ``[a] judicial standard for deciding whether
to invalidate the whole contract or only the offending words." Griffin
Toronjo Pivateau, Putting the Blue Pencil Down: An Argument for
Specificity in Noncompete Agreements, 86 Neb. L. Rev. 672, 681 (2008)
(quoting Blue-pencil test, Black's Law Dictionary (8th ed. 2004)).
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of construction, the court has no power to do."). In All Star Bonding v.
State, we reaffirmed that "[wle are not free to modify or vary the terms of
an unambiguous agreement." 119 Nev. 47, 51, 62 P.3d 1124, 1126 (2003)
(internal quotation omitted); see Kaldi v. Farmers Ins. Exch., 117 Nev.
273, 278, 21 P.3d 16, 20 (2001) ("It has long been the policy in Nevada that
absent some countervailing reason, contracts will be construed from the
written language and enforced as written." (internal quotation omitted)).
Under Nevada law, this rule has no exception for overbroad noncompete
agreements, thus Atlantis' failure to suggest that the noncompete
agreement is ambiguous leaves us only to apply our clear precedent.
However, our precedent appears inconsequential to the dissent's blue-
penciling advocacy, as they, too, fail to charge the contract with ambiguity
before picking up the pencil. But even if an argument as to the contract's
ambiguity were offered, and even if it had merit, reformation may still be
inappropriate, as the dissent points to no Nevada case reforming
ambiguous noncompete agreements. Thus, we act in conformance with
our precedent when we refrain from rewriting the parties'S contract.
Importantly, we have not overturned or abrogated our caselaw
establishing our refusal to reform parties' contracts where they are
unambiguous. Nonetheless, citing to Hansen, 83 Nev. at 192, 426 P.2d at
793-94, and Ellis, 95 Nev. at 458, 596 P.2d at 224, Atlantis contends that
if the noncompete agreement was overly broad and unreasonable, the
district court was required to modify it. In opposition, GSR contends that
Atlantis misconstrues Hansen and Ellis because the cases do not allow for
the court's modification of a noncompete agreement. According to GSR,
the cases provide for modification of a preliminary injunction rather than
the original contract. We agree with GSR.
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The procedural posture of the case at bar distinguishes it from
Hansen and Ellis, and likens it to Jones. Both Hansen, 83 Nev. at 191,
426 P.2d at 793, and Ellis, 95 Nev. at 457, 596 P.2d at 223, were appeals
from district court orders granting preliminary injunctions. The
particular thing modified after finding the terms of the employment
contracts unreasonable were the injunctions, not the employment
contracts. See, e.g., Hansen, 83 Nev. at 193, 426 P.2d at 794 ("We deem
the restriction thus modified to be reasonable ") Thus, the blue pencil was
not taken up. In contrast, in Jones, the appeal followed a final judgment
on the merits of the noncompete agreement's reasonableness and
enforceability. 112 Nev. at 293, 913 P.2d at 1274. We held that the entire
agreement was unenforceable after concluding that the five-year time
restriction provision was unreasonable. Id. at 296, 913 P.2d at 1275.
Thus, here, as in Jones, the unreasonable work exclusion term renders the
contract as a whole unenforceable. See Harlan M. Blake, Employee
Agreements Not to Compete, 73 Han. L. Rev. 625, 681-82 (1960) ("[M]ost
courts either issue an injunction which is regarded as reasonable, even
though narrower than the terms of the restraining covenant, or refuse
enforcement altogether." (footnote omitted)).
The dissent cites to caselaw from other jurisdictions to argue
that Nevada should similarly indulge. Other states are divided on
whether to reform parties' contracts. Compare Federated Mut. Ins. Co. v.
Whitaker, 209 S.E.2d 161, 164 (Ga. 1974) (holding that the entire
"covenant must fall because this court has refused to apply the 'Blue-
pencil theory of severability" (internal quotations omitted)), with Farm
Bureau Serv. Co. of Maynard v. Kohls, 203 N.W.2d 209, 212 (Iowa 1972)
(upholding a lower court's finding that a noncompete agreement was
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unreasonable, but rejecting its conclusion that the contract as a whole was
therefore void). Georgia courts explicitly considered and adamantly
rejected the blue-pencil way:
We have given careful consideration to the
severance theory, and we decline to apply it. . . .
"Courts and writers have engaged in hot debate
over whether severance should ever be applied to
an employee restraint The argument against
doing so is persuasive. For every covenant that
finds its way to court, there are thousands which
exercise an in terrorem effect on employees who
respect their contractual obligations and on
competitors who fear legal complications if they
employ a covenantor, or who are anxious to
maintain gentlemanly relations with their
competitors. Thus, the mobility of untold numbers
of employees is restricted by the intimidation of
restrictions whose severity no court would
sanction. If severance is generally applied,
employers can fashion truly ominous covenants
with confidence that they will be pared down and
enforced when the facts of a particular case are
not unreasonable. . . ."
There are some good reasons in support of
the doctrine of severance. However, we conclude
that those reasons are not of sufficient weight to
offset those reasons for refusing to apply the
doctrine. In short, we have weighed the "blue-
pencil" doctrine in the balance, and found it
wanting.
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iss't
Richard P. Rita Pers. Servs, Ina, Inc. v. Kot, 191 S.E.2d 79, 81 (Ga. 1972)
(quoting Blake, supra, at 682-83). 6 We are persuaded by Georgia's
rationale, but there are additional reasons for abstaining.
Our exercise of judicial restraint when confronted with the
urge to pick up the pencil is sound public policy. Restraint avoids the
possibility of trampling the parties' contractual intent. See Pivateau,
supra, at 674 ("[Ti he blue pencil doctrine. . . creates an agreement that
the parties did not actually agree to."); Reno Club, 64 Nev. at 323, 182
P.2d at 1016 (concluding that creating a contractual term operates beyond
the parties' intent and the court's power). Even assuming only minimal
infringement on the parties' intent, as the dissent suggests, a trespass at
all is indefensible, as our use of the pencil should not lead us to the place
of drafting. Our place is in interpreting. Moreover, although the
transgression may be minimal here, setting a precedent that establishes
6We note that the Georgia Legislature implemented laws attempting
to advance blue penciling in Georgia courts. See Ga. Code Ann. § 13-8-2.1(repealed 2009); Ga. Code Ann. § 13-8-53(d) (2010). However, the
Legislature's first attempt, Ga. Code Ann. § 13-8-2.1 (1990), providing that
courts must reform unlawful contracts, was held unconstitutional by
Jackson 8z Coker, Inc. v. Hart, 405 S.E.2d 253, 255 (Ga. 1991). See Atlanta
Bread Co. Ina, Inc. v. Lupton-Smith, 679 S.E.2d 722, 724-25 (Ga. 2009)
("[T]his Court has rejected a legislative attempt to usurp the application of
standards of reasonableness to noncompetition covenants in employment
agreements."). Another legislative attempt, Ga. Code Ann. § 13-8-53(d)
(2010), providing that courts may blue pencil, did not affect Georgia's
precedent. The Georgia Court of Appeals reiterated that "the rule is that
the court will not sever or 'blue pencil' an unenforceable noncompete
covenant and enforce reasonable restrictions in other noncompete
covenants, but will declare all the noncompete covenants unenforceable."
Lapolla, 750 S.E.2d at 473.
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the judiciary's willingness to partake in drafting would simply be
inappropriate public policy as it conflicts with the impartiality that is
required of the bench, irrespective of some jurisdictions' willingness to
overreach.
Restraint also preserves judicial resources. Pivateau, supra,
at 674 ("Both [types of blue penciling] essentially turn courts into
attorneys after the fact."). And restraint is consistent with basic
principles of contract law that hold the drafter to a higher standard.
Williams v. Waldman, 108 Nev. 466, 473, 836 P.2d 614, 619 (1992) ("Mt is
a well settled rule that ``filn cases of doubt or ambiguity, a contract must
be construed most strongly against the party who prepared it, and
favorably to a party who had no voice in the selection of its language."
(alteration in original) (quoting Jacobson v. Sassower, 489 N.E.2d 1283,
1284 (N.Y. 1985))).
We have been especially cognizant of the care that must be
taken in drafting contracts that are in restraint of trade. Hansen, 83 Nev.
at 191, 426 P.2d at 793 ("An agreement on the part of an employee not to
compete with his employer after termination of the employment is in
restraint of trade and will not be enforced in accordance with its terms
unless the same are reasonable."). A strict test for reasonableness is
applied to restrictive covenants in employment cases because the economic
hardship imposed on employees is given considerable weight. Ferdinand
S. Tinio, Annotation, Enforceability, Insofar as Restrictions Would Be
Reasonable, of Contract Containing Unreasonable Restrictions on
Competition, 61 A.L.R. 3d 397, § 2b (1975). "One who has nothing but his
labor to sell, and is in urgent need of selling that, cannot well afford to
raise any objection to any of the terms in the contract of employment
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. o.e• al■
offered him, so long as the wages are acceptable." Menter Co. v. Brock, 180
N.W. 553, 555 (Minn. 1920). Hence, leniency must favor the employee and
the terms of the contract must be construed in the employee's favor.
Conversely, blue penciling favors the employer by presuming
the employer's good faith. 7 Demonstrating compassion for the employer,
one professor offered that "in most such cases, the employer does not
require the promise because the employer is a hardhearted oppressor of
the poor," instead, "the employer is engaged in the struggle for prosperity
and must utilize all avenues to gain and retain the good will of customers."
15 Grace McLane Giesel, Corbin on Contracts § 80.15, at 120 (rev. ed.
2003). Further, "Mlle function of the law is to maintain a reasonable
balance" because "a former employee may compete unfairly and an
employer may oppress unreasonably." Id This analysis sympathizes with
employers at most and equivocates the employer's and employee's plight
at least. However, it is plain that the scales are most imbalanced when
the party who holds a superior bargaining position, and who is the
contract drafter, drafts a contract that is greater than required for its
protection and is thereafter rewarded with the court's legal drafting aid,
as the other party faces economic impairment, restrained in his trade. In
the context of an agreement that is in restraint of trade, a good-faith
presumption benefiting the employer is unwarranted.
7Although we acknowledge that some courts only allow blue
penciling "if the party who seeks to enforce the term obtained it in good
faith," Ellis v. James V. Hurson Associates, Inc., 565 A.2d 615, 617 (D.C.
1989) (internal quotations omitted), still other courts do not make good
faith a condition of reformation, see, e.g., Farm Bureau, 203 N.W.2d at
212.
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At the outset, the bargaining positions of the employer and
employee are generally unequal. Star Direct, Inc. v. Dal Pra, 767 N.W.2d
898, 924 n.10 (Wis. 2009). When an employment contract is made, the
party seeking employment must consent to almost any restrictive
covenant if he or she desires employment Id. Hence, even an employer-
drafted contract containing unenforceable provisions will likely be signed
by the employee. Under a blue pencil doctrine, "[tithe employer then
receives what amounts to a free ride on" the provision, perhaps knowing
full well that it would never be enforced. Pivateau, supra, at 690.
Consequently, the practice encourages employers with superior bargaining
power "to insist upon unreasonable and excessive restrictions, secure in
the knowledge that the promise will be upheld in part, if not in full."
Streiff v. Am. Family Mitt. Ins. Co., 348 N.W.2d 505, 509 (Wis. 1984). 8 It
thereby forces the employee to bear the burden as employers carelessly, or
8A California court explains:
Many, perhaps most, employees would honor these
clauses without consulting counsel or challenging
the clause in court, thus directly undermining the
statutory policy favoring competition. Employers
would have no disincentive to use the broad,
illegal clauses if permitted to retreat to a narrow,
lawful construction in the event of litigation.
Kolani v. Gluska, 75 Cal. Rptr. 2d 257, 260 (Ct. App. 1998). On the other
hand, the "all or nothing" approach encourages employers to carefully
draft agreements devoid of "overreaching terms for fear that the entire
agreement will be voided." Kenneth R. Swift, Void Agreements, Knocked-
Out Terms, and Blue Pencils: Judicial and Legislative Handling of
Unreasonable Terms in Noncompete Agreements, 24 Hofstra Lab. & Emp.
L.J. 223, 246 (2007).
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intentionally, overreach. Pivateau, supra, at 689. "In the words of one
commentator, '[t]his smacks of haying one's employee's cake, and eating it
too." Id. at 690 (quoting Blake, supra, at 683).
The dissent argues that refusal to blue pencil is antiquated.
However, it has been noted that "eliminating the blue pencil doctrine
comports with recent trends as courts have indicated a greater willingness
to refuse to reform agreements that are not reasonable on their face." Id.
at 674. Some states, such as Wisconsin, have even codified the "no
modification rule." See Wis. Stat. § 103.465 (2012). 9 Based on the
argument of antiquity, and the rule of law in other jurisdictions, the
dissent would force the district court to change the contract to only
prohibit Islam from being employed as a casino host. 11) The dissent's
overreach in such an indulgent application of the doctrine is troubling.
9 Wis. Stat. § 103.465 provides:
A covenant by an assistant, servant or agent
not to compete with his or her employer or
principal during the term of the employment or
agency, or after the termination of that
employment or agency, within a specified territory
and during a specified time is lawful and
enforceable only if the restrictions imposed are
reasonably necessary for the protection of the
employer or principal. Any covenant, described in
this subsection, imposing an unreasonable
restraint is illegal, void and unenforceable even as
to any part of the covenant or performance that
would be a reasonable restraint
ImEven assuming that the blue pencil doctrine is not contrary to
Nevada precedent and stated public policy, reformation is certainly not a
mandate placed on a district court. Laura J. Thalacker & Hartwell
Thalacker, Non-Compete Laws: Nevada, Practical Law State Q&A § 6
continued on next page . .
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Under a strict application of the blue pencil doctrine, "only the
offending words are invalidated if it would be possible to delete them
simply by running a blue pencil through them, as opposed to changing,
adding, or rearranging words." Pivateau, supra, at 681 (internal quotation
omitted). The dissent purports to reword the provision by changing the
work exclusion term to limit it to employment as a casino host. Thus, the
dissent embraces the most liberal form of the blue pencil doctrine, id. at
682, a use of judicial resources that is unwarranted and blurs the line
between the bench and the bar. 11 As explained by the Supreme Court of
Arkansas, "[vv]e are firmly convinced that parties are not entitled to make
an agreement, as these litigants have tried to do, that they will be bound
by whatever contract the courts may make for them at some time in the
future." Rector-Phillips-Morse, Inc. v. Vroman, 489 S.W.2d 1, 4 (Ark.
1973). Courts are not empowered to make private agreements. Id. Such
actions are simply not within the judicial province. Id.. . . continued
(2015) (suggesting that "[c]ourts in Nevada may, but are not required to,
modify or blue pencil the terms in non-compete agreements and may
enforce them as modified"). Under a review for discretion, the district
court certainly did• not abuse its discretion in refusing to redraft a
noncompete agreement that banned the employer from "employment,
affiliation, or service with any gaming operation." See Dowell v. Biosense
Webster, Inc., 102 Cal. Rptr. 3d 1, 11 (Ct. App. 2009) (affirming a lower
court's invalidation of an overbroad noncompete clause prohibiting "an
employee from rendering services, directly or indirectly, to a competitor").
"Redrafting the contract, rather than striking the offending work
exclusion term, is the dissent's only option because striking the term
renders the agreement unintelligible.
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In light of Nevada's caselaw and stated public policy concerns,
we will not reform the contract to change the type of employment from
which Islam is prohibited. As written, the contract is an unenforceable
restraint of trade. See Hansen, 83 Nev. at 191, 426 P.2d at 793(recognizing that contracts in restraint of trade will not be enforced unless
the terms are reasonable). Without a contract, there was no violation. 12
Accordingly, we affirm the district court's ruling as to the noncompete
agreement.
Conversion
Atlantis claims the district court erred by determining that
Islam was not liable for conversion. According to Atlantis, Islam
converted its property when she altered the player contact information for
87 guests, taking control of its data in a form that was inconsistent with
its property rights. Islam and GSR contend that conversion requires a
more serious interference with property rights.
Nevada law defines conversion "as a distinct act of dominion
wrongfully exerted over another's personal property in denial of, or
inconsistent with his title or rights therein or in derogation, exclusion, or
defiance of such title or rights." M. C. Multi-Family Dev., LLC v. Crestdale
Assocs., Ltd., 124 Nev. 901, 910, 193 P.3d 536, 542 (2008) (internal
12 Based on our determination that the noncompete agreement was
unenforceable, we also conclude that Atlantis' cause of action for tortious
interference with a contractual relationship against GSR was properly
dismissed as a matter of law. See J.J. Indus., LLC v. Bennett, 119 Nev.
269, 274, 71 P.3d 1264, 1267 (2003) (requiring a valid and existing
contract to establish an intentional interference with contractual relations
claim).
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quotations omitted). Furthermore, "conversion generally is limited to
those severe, major, and important interferences with the right to control
personal property that justify requiring the actor to pay the property's full
value." Edwards v. Emperor's Garden Rest., 122 Nev. 317, 328-29, 130
P.3d 1280, 1287 (2006).
We conclude that Islam's act of altering the player contact
infoi mation in Atlantis' gaming database did not amount to conversion.
The information was not lost, and with relatively minimal cost, the contact
information was properly restored. To be sure, the interruption in
marketing caused by Islam's conduct was not severe enough to justify
requiring her to pay the full value of the information, which was estimated
to be much more valuable than the cost of repair. 13 Therefore, we also
affirm the district court's finding of no liability as to Atlantis' conversion
claim against Islam.
Attorney fees awarded to Atlantis against Islam
Islam contends that the district court violated her right to due
process by awarding Atlantis $308,711 in attorney fees without allowing
her to view the itemized fees. In response, Atlantis contends that NRCP
54 does not require the detailed documentation that Islam sought.
We conclude that the district court's award of attorney fees to
Atlantis against Islam without permitting Islam to review the
itemizations was improper. See Love v. Love, 114 Nev. 572, 582, 959 P.2d
523, 529 (1998) (concluding that the district court's grant of attorney fees
13 We
note that the district court awarded Atlantis the cost of repair
as compensation in its breach of contract claim.
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based upon sealed billing statements unfairly precluded the opposing
party from disputing the legitimacy of the award). Therefore, as to the
award of attorney fees against Islam, we reverse and remand with
instructions to allow Islam to review the itemized attorney fees.
Atlantis v. GSR
Nevada Uniform Trade Secrets Act
Atlantis contends that the district court's conclusions that
GSR did not misappropriate its trade secrets, but that Islam did, are
irreconcilable with one another. Thus, Atlantis claims that GSR is also
liable for misappropriation. GSR argues that it did not misappropriate
Atlantis' trade secrets because it reasonably relied on Islam's
representation that she had relationships with each of the players she put
in its database, and thus, GSR had no knowledge that the information was
a trade secret.
We conclude that the district court's conclusion was not clearly
erroneous because Atlantis failed to establish the essential elements of its
misappropriation claim against GSR. The following was set forth by the
United States District Court for the Northern District of California in
interpreting California's almost identical Uniform Trade Secrets Act:
The elements of a claim of indirect trade
secret misappropriation . . . are: (1) the plaintiff is
the owner of a valid trade secret; (2) the defendant
acquired the trade secret from someone other than
the plaintiff and (a) knew or had reason to know
before the use or disclosure that the information
was a trade secret and knew or had reason to
know that the disclosing party had acquired it
through improper means or was breaching a duty
of confidentiality by disclosing it; or (b) knew or
had reason to know it was a trade secret and that
the disclosure was a mistake; (3) the defendant
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used or disclosed the trade secret without
plaintiffs authorization; and (4) the plaintiff
suffered harm as a direct and proximate result of
the defendant's use or disclosure of the trade
secret, or the defendant benefitted from such use
or disclosure.
MedioStream, Inc. v. Microsoft Corp., 869 F. Supp. 2d 1095, 1114 (N.D.
Cal. 2012). Compare Cal. Civ. Code § 3426.1 (2012), with NRS
600A.030(2)."
"NRS 600A.030(2) provides that "misappropriation" means as
follows:
(a) Acquisition of the trade secret of another
by a person by improper means;
(b) Acquisition of a trade secret of another
by a person who knows or has reason to know that
the trade secret was acquired by improper means;
or
(c) Disclosure or use of a trade secret of
another without express or implied consent by a
person who:
(1) Used improper means to acquire
knowledge of the trade secret;
(2) At the time of disclosure or use, knew
or had reason to know that his or her knowledge of
the trade secret was:
(I) Derived from or through a person
who had used improper means to acquire it;
(II) Acquired under circumstances
giving rise to a duty to maintain its secrecy or
limit its use; or
(III) Derived from or through a
person who owed a duty to the person seeking
relief to maintain its secrecy or limit its use; or
continued on next page . . .
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Atlantis failed to establish that GSR knew or should have
known that the information Islam provided was a trade secret. GSR took
steps to ensure that it did not receive trade secret information from Islam.
GSR's hiring personnel advised Islam before she began working to bring
only herself and her relationships when she left Atlantis. Additionally,
GSR management sought and gained Islam's reassurance that the player
information she communicated was built on her own relationships. Based
on Islam's representations, there was no reason for GSR to know that it
was using trade secrets that belonged to Atlantis.
Furthermore, Atlantis' letter to GSR did not sufficiently put
GSR on notice that it was using wrongfully obtained player information.
The letter expressed doubt as to whether GSR was in fact in possession of
Atlantis' trade secrets and failed to identify the trade secrets. Atlantis'
letter advised that there were "[p]otential [tirade [s]ecret [tholations" and,
rather elusively, communicated that "Wf GSR has incorporated into its
data base . . . confidential information that is the property of the Atlantis,
we demand that GSR immediately advise us of the same" In addition to
the uncertainty communicated by Atlantis' use of the terms "potential"
and "if," Atlantis placed the onus on GSR to know what trade secrets GSR
had in its possession that belonged to Atlantis. However, without
Atlantis' player list, or Islam's candid insight, it was nearly impossible for
GSR to know whether it was using Atlantis' trade secrets. Moreover,
. . . continued
(3) Before a material change of his or her
position, knew or had reason to know that it was a
trade secret and that knowledge of it had been
acquired by accident or mistake.
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when GSR requested more specific information, Atlantis failed to provide
it. Because GSR received both trade secret and nontrade secret
information from Islam without knowing which, if any, information was
protected, it cannot be said that GSR sufficiently knew or should have
known that the information provided to it was a trade secret. See
MicroStrategy Inc. v. Bus. Objects, S.A., 331 F. Supp. 2d 396, 431 (E.D. Va.
2004) (limiting scope of protected documents to those identified as trade
secrets).
An alternative result, which establishes the sufficiency of
GSR's knowledge based on these facts, would be harmful to the casino host
trade. To protect Atlantis' potential trade secrets, GSR would need to
cease marketing to all players communicated to by Islam. This result
would encourage all casino hosts' former employers to send letters
accusing the host's new employer of trade secret violations, knowing that
with no real claim of misappropriation, they could quash competition. The
consequences would suffocate a casino host's very purpose, whose trade is
built on providing its employer with relationships established with
customers. Hosts provide a unique advantage to casinos by expanding a
casino's client base, Choctaw Resort Development Enterprise v. Apple quist,
161 So. 3d 1134, 1136 (Miss. Ct. App. 2015), and the result the dissent and
Atlantis seek could stifle the trade.
Our holding considers the nature of the casino host's trade.
With more specific information about which players were improperly
solicited, GSR could have ceased its use of information improperly
obtained while continuing its use of information rightfully obtained. We
deem this to be the best outcome.
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7
Therefore, we reject the assertion that GSR knew, or had
reason to know, from Atlantis' vague accusations, that it was using
information improperly obtained. We conclude that, without more, GSR
appropriately relied on Islam's statements that the information she
relayed was based on her own relationships and her book of trade. The
district court properly held Islam responsible for her actions but
distinguished Islam's conduct from that of GSR. Because the district
court's determination that GSR did not misappropriate Atlantis' trade
secrets was not clearly erroneous, we affirm.
Attorney fees awarded to GSR against Atlantis
Atlantis claims the district court's award of attorney fees in
favor of GSR in the amount of $190,124.50, pursuant to GSR's NRCP 68
offer of judgment, is unsupported and should be vacated. GSR contends
that it was entitled to the award of attorney fees based on the offer of
judgment, but that it is additionally entitled to an award of attorney fees
based on Atlantis' bad faith, pursuant to NRS 600A.060. We conclude that
the district court properly awarded attorney fees pursuant to the offer of
judgment. GSR made an offer that Atlantis rejected, and Atlantis failed to
receive a more favorable judgment. 15 Upon a review of the record, we also
conclude that the district court properly refused to award fees under NRS
600A.060 because Atlantis' claim was not brought in bad faith. 16 Thus, as
1 We note that Atlantis' argument that the offer of judgment was
-5
invalid because it was made by a nonparty lacks merit.
In the district court's order dated September 27, 2013, it found
' 6
that Atlantis acted in bad faith in pursuing the misappropriation claim
against GSR. However, the district court later denied the fees under NRS
600A.060 because it had already awarded attorney fees based on the offer
continued on next page.
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to the district court's award of attorney fees between Atlantis and GSR, we
affirm.
Based on the foregoing, we affirm the district court's judgment
and attorney fees orders except as to the order awarding fees against
Islam in favor of Atlantis. With respect to that order, we reverse and
remand to the district court for further proceedings consistent with this
opinion.
We concur:
0-) J.
Che
J.
, J.
Gibbons
. continued
of judgment. We conclude that substantial evidence did not support the
district court's bad-faith finding, but we affirm because the district court
reached the right result.
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HARDESTY, J., with whom PARRAGUIRRE, C.J., and PICKERING, J.,
agree, dissenting in part:
While I agree that the non-compete agreement was written too
broadly, there is no doubt that Islam and Atlantis agreed to restrict
Islam's future employment as a casino host and that such a restriction is
reasonable. Absent some showing of bad faith on Atlantis' part, of which
there was none, I would follow the approach taken by this court and a
majority of other courts and preserve the non-compete agreement by
modifying or severing the overly broad provision and thereby maintain the
restriction on Islam's future employment in a competing casino host
position. Reformation is an equitable remedy, and here, the equities run
in favor of Atlantis and against the employee who admittedly stole trade
secret information from her employer to use in her new casino host job for
a competitor. I therefore dissent from the majority's adoption of a
minority view to invalidate the entire agreement. I also dissent from the
majority's determination that GSR did not violate the Uniform Trade
Secret Act. GSR had knowledge of the Islam/Atlantis non-compete and
trade secret agreements soon after GSR hired Islam. As a result, GSR had
reason to know that its new employee had acquired trade secrets by
"improper means." NRS 600A.030(2)(a)-(c). Invalidating the non-compete
agreement does not provide a defense to the use of trade secret
information appropriated in violation of the enforceable trade secret
agreement.
Non-compete agreement
A majority of courts agree that overly broad non-compete
agreements should be altered, where possible, to recognize the intent of
the parties and bring them within reasonable parameters. See Ferdinand
S. Tinio, Annotation, Enforceability, Insofar as Restrictions Would Be
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Reasonable, of Contract Containing Unreasonable Restrictions on
Competition, 61 A.L.R. 3d 397, §§ 4-5 (1975) (outlining jurisdictions that
allow some form of modification and those that do not). The modification
test has been adopted by "most United States jurisdictions." Data Mgmt.,
Inc. v. Greene, 757 P.2d 62, 64 (Alaska 1988) (adopting the approach that
allows a court to reasonably alter a non-compete agreement so long as the
agreement was drafted in good faith). See, e.g., Hilligoss v. Cargill, Inc.,
649 N.W.2d 142, 147 n.8 (Minn. 2002) (explaining that "a court at its
discretion [can] modify unreasonable restrictions on competition in
employment agreements by enforcing them to the extent reasonable");
Whelan Sec. Co. v. Kennebrew, 379 S.W.3d 835, 844 (Mo. 2012) ("[W]hen
the provisions of a non-compete clause impose a restraint that is
unreasonably broad, appellate courts still can give effect to its purpose by
refusing to give effect to the unreasonable terms or modifying the terms of
the contract to be reasonable."); Merrimack Valley Wood Prods., Inc. v.
Near, 876 A.2d 757, 764 (N.H. 2005) ("Courts have the power to reform
overly broad restrictive covenants if the employer shows that it acted in
good faith in the execution of the employment contract."); Cardiovascular
Surgical Specialists, Corp. v. Mammana, 61 P.3d 210, 213 (Okla. 2002)
("To cure an overly broad and thus unreasonable restraint of trade, an
Oklahoma court may impose reasonable limitations concerning the
activities embraced, time, or geographical limitation but it will refuse to
supply material terms of a contract." (internal quotation marks omitted));
Durapin, Inc. v. Am. Prods., Inc., 559 A.2d 1051, 1058 (R.I. 1989) ("We
believe this is the appropriate time to choose the route that permits
unreasonable restraints to be modified and enforced, whether or not their
terms are divisible, unless the circumstances indicate bad faith or
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2
deliberate overreaching on the part of the promisee."); Simpson v. C Si R
Supply, Inc., 598 N.W.2d 914, 920 (S.D. 1999) (allowing modification of
"noncompetition provisions to conform to the statutory mandate. . . via
partial enforcement"). The policy behind this approach is that "[a]n
otherwise reasonable restrictive covenant should not be held invalid
because it is unreasonable solely as to [breadth] where voiding the
agreement, rather than enforcing it in a reasonable way, would be
contrary to legislative intent, and frustrate the intent of the parties." 17A
C.J.S. Contracts § 381 (2011); see also Kenneth R. Swift, Void Agreements,
Knocked-Out Terms, and Blue Pencils: Judicial and Legislative Handling
of Unreasonable Terms in Noncompete Agreements, 24 Hofstra Lab. &
Emp. L.J. 223, 249-50 (2007) (explaining that this test allows "courts [to]
exercise their inherent equity powers to the extent necessary to protect
the employer's legitimate business interest").
In addition to the modification test, the "blue-pencil test" also
allows modification by permitting a court to delete an overly broad portion
of a non-compete covenant and to enforce the remainder. Id.; see also 17A
Am. Jur. 2d Contracts § 318 (2004) ("While recognizing that illegal
contracts are generally unenforceable or void, a court may, where possible,
sever the illegal portion of the agreement and enforce the remainder."
(footnotes omitted)). Several jurisdictions have embraced this test. See,
e.g., Ellis v. James V. Hurson Assocs., Inc., 565 A.2d 615, 617 (D.C. 1989);
Cent. Ind. Podiatry, P.C. v. Krueger, 882 N.E.2d 723, 730 (Ind. 2008);
Hartman v. W.H. Odell Si Assocs., Inc., 450 S.E.2d 912, 920 (N.C. Ct. App.
1994); Star Direct, Inc. v. Dal Pra, 767 N.W.2d 898, 916 (Wis. 2009).
Contrarily, the draconian all-or-nothing rule invalidates the
entire contract if any part of the non-compete agreement is overly broad.
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17A C.J.S. Contracts § 381 (2011). Only a few jurisdictions still use this
approach. See, e.g., Rector-Phillips-Morse, Inc. v. Vroman, 489 S.W.2d 1, 5
(Ark. 1973); Rollins Protective Servs. Co. v. Palermo, 287 S.E.2d 546, 549
(Ga. 1982).
In this case, Islam signed a non-compete agreement more than
a year after beginning her employment as a casino host with Atlantis.
Pursuant to the non-compete agreement:
In the event that the employment relationship
between Atlantis and [Islam] ends for any reason,
either voluntary or non-voluntary, [Islam] agrees
that (s)he will not, without the prior written
consent of Atlantis, be employed by, in any way
affiliated with, or provide any services to, any
gaming business or enterprise located within 150
miles of Atlantis Casino Resort for a period of one
(1) year after the date that the employment
relationship between Atlantis and [Islam] ends.
(Emphasis added.)
By modifying and narrowing the broad language describing
the scope of Islam's future employment, this court can give effect to the
admitted intent of the parties to restrict her future employment as a
casino host. Therefore, the text "be employed by, in any way affiliated
with, or provide any services to" should be narrowed to "be employed as a
casino host," allowing the non-compete provision to survive.
The majority based its decision to invalidate the entire non-
compete agreement on Reno Club v. Young Investment Co., 64 Nev. 312,
182 P.2d 1011 (1947); All Star Bonding v. State, 119 Nev. 47, 62 P.3d 1124(2003); Kaldi v. Farmers Insurance Exchange, 117 Nev. 273, 21 P.3d 16(2001); and Jones v. Deeter, 112 Nev. 291, 913 P.2d 1272 (1996). The
majority's reliance on Reno Club, All Star Bonding, and Kaldi is
unfounded. Not only do Reno Club, All Star Bonding, and Kaldi fail to
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discuss non-compete agreements, they also focus on ambiguity (not
overbreadth), a factor that does not apply when deciding to alter a non-
compete agreement. See Reno Club, 64 Nev. at 325, 182 P.2d at 1017("[T]here is no ambiguity or uncertainty in the meaning of the language
employed in the option agreement . . . , and hence no room for judicial
construction."); All Star Bonding, 119 Nev. at 51, 62 P.3d at 1126(explaining that this court is "not free to modify or vary the terms of an
unambiguous agreement" (internal quotation marks omitted)); Kaldi, 117
Nev. at 281, 21 P.3d at 21 (same); see also 17A C.J.S. Contracts § 381
(2011) (explaining that the three approaches to altering a non-compete
agreement are used when the agreement is overly broad). Further, in
Jones, this court determined that a five-year restriction was improper and,
thus, concluded that the non-compete "covenant [was] per se unreasonable
and therefore, unenforceable." 112 Nev. at 296, 913 P.2d at 1275. This
conclusory determination should not be construed as establishing a strict
rule against modifying and limiting unreasonable portions of non-compete
agreements. In fact, this court has allowed preliminary injunctions based
on non-compete agreements to be modified in order to make restrictions
reasonable. See, e.g., Ellis v. McDaniel, 95 Nev. 455, 459, 596 P.2d 222,
225 (1979) (declining to enforce a preliminary injunction based on a non-
compete agreement that "purport[ed] to prohibit [appellant] from
practicing orthopedic surgery," but modifying the restriction to prohibit
appellant "from engaging in the general practice of medicine"); Hansen v.
Edwards, 83 Nev. 189, 191, 193, 426 P.2d 792, 793-94 (1967) (modifying
an employment restriction from 100 miles outside of Reno with no time
limitation to Reno's boundary limits for one year because "[a] preliminary
injunction may be modified at any time whenever the ends of justice
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require such action"). The procedural postures of Ellis and Hansen differ
from this case as explained by the majority. While Ellis and Hansen did
not use the expression "blue pencil," they effectively applied the doctrine
by modifying the restrictions placed on the employee. Accordingly, I
conclude that Ellis and Hansen demonstrate this court's willingness to
preserve a non-compete agreement's reasonable terms.
Moreover, the majority's apparent adoption of the wholesale
invalidation rule is a reversion to an antiquated, ill-favored rule. See
Durapin, 559 A.2d at 1058 (explaining that "[in] ore recent court
decisions ... reject this all-or-nothing rule in favor of some form of judicial
modification"); see also Data Mgmt., 757 P.2d at 64 ("There is a need to
strike a balance between protecting the rights of parties to enter into
contracts, and the need to protect parties from illegal contracts.
Obliterating all overbroad covenants not to compete, regardless of their
factual settings, is too mechanistic and may produce unduly harsh
results."). Quoting a law review article, the majority alleges that the
"recent trend[ [" of courts is to reject the blue pencil doctrine. Majority
opinion ante at 17 (quoting Griffin Toronjo Pivateau, Putting the Blue
Pencil Down: An Argument for Specificity in Noncompete Agreements, 86
Neb. L. Rev, 672, 674 (2008)). Interestingly, this recent trend only
includes six United States District Court cases, two of which are
unpublished, issued from 2003 to 2007. See Pivateau, supra, at 694-97.
The majority provides several public policy arguments for
refusing to adopt the blue pencil test: (1) altering the non-compete
agreement may violate the parties' intent, (2) requiring a court to modify
or blue pencil a non-compete agreement wastes judicial resources, and
(3) leniency favors the employee because a non-compete agreement should
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be construed against the employer who drafted it. I address each of these
arguments in turn.
First, the court takes evidence of the parties' intent into
consideration when modifying a non-compete agreement, so any
infringement on the parties' intent should be minimal. And contrary to
the majority's assertion that modification conflicts with the bench's
impartiality, see majority opinion ante at 14, this evidence allows the
modification of a non-compete agreement to be based on objective criteria.
In fact, the court is able to accurately modify the non-compete agreement
in this case because Islam and Atlantis acknowledge their intent to limit
Islam's future employment as a casino host and protect Atlantis' gaming
trade secrets. The trade secret agreement, which the majority does not
invalidate, prohibits Islam from using or disseminating any intellectual
property, including customer lists. The ethics and code of conduct
agreement, which the majority also does not invalidate, prohibits Islam
from disclosing confidential information, including customer lists. The
non-compete agreement is an extension of this intent: it protects customer
lists from being exploited by competing casinos in the event an
employment relationship fails. Because the three agreements relate to
each other, this court need not speculate as to the parties' intent.
Applying the wholesale invalidation rule completely ignores, rather than
violates, the parties' intent in this case.
Second, because the court is already tasked with determining
whether the non-compete agreement is overbroad, deciding how to modify
an agreement is a natural next step, such that only a negligible amount of
extrajudicial resources are being expended. Additionally, the court will
not always be charged with modifying an agreement, as such a decision is
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discretionary See Swift, supra, at 251. For example, "clear overreaching
on the part of the employer may preclude a" court from exercising its
discretion to modify. Id. Use of that discretion rejects the majority's
suggestion that modification allows an employer to receive a "'free ride."
Majority opinion ante at 16 (quoting Pivateau, supra, at 690). Instead of
incentivizing an employer to draft a stricter-than-necessary non-compete
agreement with the knowledge that the court will simply limit it, as the
majority asserts, modification discourages bad faith while also providing a
safety net to protect agreements that were inadvertently drafted too
broadly. And in this case, there is no evidence to suggest Atlantis acted in
bad faith in preparing the agreements or seeks to enforce the non-
complete agreement against Islam in an overly broad way. Atlantis' claim
is directed to Islam's future employment as a casino host and does not
seek to limit her employment in another capacity with another casino.
Finally, while the majority focuses on the unfairness to the
employee, it is important to note that non-compete agreements are
intended to balance the employer's and the employee's interests. See
Employers May Face New Challenges in Drafting Noncompetes, 19 No. 2
Nev. Emp. L. Letter 4 (2013) ("[R]estrictive covenants strike a delicate
balance between employers' interests—protecting confidential information
and institutional knowledge, preserving hard-won customer and client
relationships, and incentivizing key talent to remain loyal—and
employees' interests in maintaining work mobility and the freedom to
command competitive compensation for their skills."). Thus, we must not
forget that non-compete agreements are extraordinarily important to
Nevada businesses, especially in industries that rely on proprietary client
lists, such as Atlantis. See Traffic Control Servs., Inv. v. United Rentals
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Nw., Inc., 120 Nev. 168, 172, 87 P.3d 1054, 1057 (2004) ("Employers
commonly rely upon restrictive covenants ... to safeguard important
business interests."). On this note, the majority also contends that
modification favors the employer. While the all-or-nothing rule ultimately
favors the employee—to the extreme disadvantage of the employer—by
removing any restriction placed on future employment, modification also
favors the employee by appropriately limiting the restriction.
Moreover, it is difficult to reconcile the majority's concern for
Islam in this case when the facts demonstrate that Islam sought to
compete as a casino host using trade secret information she appropriated
from Atlantis. Islam committed theft, and GSR sanctioned Islam's
behavior.
Uniform Trade Secret Act
Atlantis' cease and desist letter informed GSR that Islam was
improperly soliciting guests in violation of its trade secret agreement, a
copy of which was enclosed with the letter. The letter did not "expressI ]
doubt," as the majority depicts. See majority opinion ante at 23. The letter
stated that Atlantis "reasonably believe[d] that [Islam's] contact with
these guests was facilitated by improper use of Atlantis' information." In
response, GSR merely rejected Atlantis' assertions, maintained that there
was no wrongdoing, and wrongly asserted that it did not possess any of
Atlantis' property. Importantly, during her interview process, Islam
provided GSR with a copy of her non-compete agreement with Atlantis.
Because the non-compete agreement sought to restrict Islam from
employment and, as such, using her book of trade in a competing casino,
GSR was on notice that using any information provided by Islam may be
improper.
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The non-compete agreement and the cease and desist letter
play a crucial role in Atlantis' claim against GSR for violation of the
Uniform Trade Secret Act. The majority concluded that GSR did not
know, or have a reason to know, that it had used improperly obtained
information. I disagree.
As defined in NRS 600A.030(2):
"Misappropriation" means:
(c) . . . use of a trade secret of another
without express or implied consent by a person
who:
(2) At the time of disclosure or use, knew
or had reason to know that his or her knowledge of
the trade secret was:
(I) Derived from or through a person
who had used improper means to acquire it;
(II) Acquired under circumstances
giving rise to a duty to maintain its secrecy or
limit its use; or
(III) Derived from or through a
person who owed a duty to the person seeking
relief to maintain its secrecy or limit its use.
As stated previously, the non-compete and trade secret
agreements sought to restrict Islam from employment and using any guest
information in a competing casino for one year. Because GSR had
knowledge of the non-compete and trade secret agreements soon after it
hired Islam, it "had reason to know" that it was potentially using trade
secret information "ldl erived from or through a person who owed a duty
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to . . . maintain its secrecy." NRS 600A.030(2)(c)(2)(III). Accordingly, I
conclude that any use of Atlantis' guest information after it hired Islam
and decidedly after receiving the cease and desist letter constituted
misappropriation in violation of the Uniform Trade Secret Act.
The majority contends that this conclusion incentivizes
employers to accuse their former employees' new employers of violating
trade secrets. See majority opinion ante at 24. This dubious risk of
dishonesty is outweighed by the culture of distrust that the majority is
creating by holding that a casino can ignore another casino's report of
wrongdoing.
Conclusion
Because (1) the non-compete agreement can and should be
narrowed instead of being invalidated and (2) GSR misappropriated
Atlantis' trade secrets, I believe that the district court erred in dismissing
Atlantis' breach of the non-compete agreement claim against Islam,
tortious interference with a contractual relationship claim against GSR,
and violation of the Uniform Trade Secret Act claim against GSR.
'The majority highlights the fact that Atlantis failed to provide GSR
with specific information upon GSR's request. See majority opinion ante
at 24. Misappropriation only requires a "reason to know," NRS
600A.030(2)(c)(2), so Atlantis was under no obligation to provide evidence
to GSR. Atlantis' letter to Islam, which was enclosed with Atlantis' letter
to GSR, explained that it possessed electronic records showing Islam's
sabotage, and its guests who were not a part of Islam's book of trade had
been contacted by GSR. This information sufficiently demonstrates that
GSR "had reason to know" about the trade secret violation. NRS
600A.030(2)(c)(2).
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Therefore, I would reverse the judgment of the district court with regard
to these claims.
J.
Hardesty
We concur:
Parraguirre
J.
Pickering
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