A federal judge has put on hold the usual motion to dismiss in a noncompete and trade secrets case to let the parties explore whether the alleged noncompete agreements were actually signed by the departed employees.
Those employees – sales representatives now working for a new company – contend they never signed the proffered employment agreements. They contend the purported contracts are forgeries.
“The court finds that these allegations are so serious that they must take precedence over the resolution of the pending motion to dismiss,” wrote U.S. District Judge Thomas T. Cullen in a Dec. 16 opinion.
The plaintiff company says it anticipates disproving any allegations of fraud or forgery.
Cullen’s opinion is Power Home Solar LLC v. Sigora Solar LLC (VLW 020-3-616).
The case involves a dispute in the renewable-energy business, Cullen said. PHS sells solar-energy systems to homeowners and commercial businesses. Sigora is a competitor. PHS contends Sigora induced two sales reps to abscond to Sigora with trade secrets. The PHS complaint contains 12 counts, starting with breach of contract.
Sigora and the sales reps removed the case from Charlottesville Circuit Court, filed a motion to dismiss and brought counterclaims including common-law forgery and common-law fraud.
Cullen spotted an issue the parties overlooked in briefing the motion to dismiss. The proffered employment agreements contained a forum-selection clause for “Michigan courts” and a choice of law provision for Michigan law.
On Nov. 24, Cullen decided PHS had waived that forum-selection clause. But the choice-of-law provision rested on whether the contract was “fraudulently procured,” Cullen said. He ordered additional briefs.
Both of the sales reps sued by PHS in Virginia denied they ever saw or signed a copy of the purported employment agreement. PHS did not produce a copy of one of the sales reps’ contracts.
PHS filed a “practically identical” lawsuit in North Carolina against Sigora and four other former employees, Cullen said. Two of those employees allegedly signed the same employment agreements as those at issue in the Virginia action.
“In short, all four former employees against whom PHS now brings breach of contract claims assert that PHS has forged their signatures on the employment agreements that form the basis for those claims,” Cullen wrote.
PHS asked Cullen to set aside the “serious allegations of fraud” to first consider the motion to dismiss. “The court declines to do so,” Cullen said. The court “finds that an evidentiary hearing is essential to determine if PHS has perpetrated fraud on the court by initiating a lawsuit based on forged documents,” Cullen continued.
“Despite the importance of the motion to dismiss, the issue of whether the underlying basis of this lawsuit is fraudulent is more important and must be resolved with haste,” Cullen wrote. If the employment agreements were determined to be forgeries, the prospect of sanctions would arise, he said.
Cullen ordered “limited and targeted discovery” and an evidentiary hearing on the issue of whether the employment agreements are forgeries.
The case warrants an exception to the current ban of in-person hearings and jury trials through March 1, Cullen said.
“The court finds that the exigencies of this case and the interests of justice require a hearing before March 1, 2021. Not only is the potential of fraud on the court unquestionably important in and of itself, but it is also a threshold question that must be resolved to decide the motion to dismiss and move forward in this lawsuit,” Cullen said.
Cullen said he expected the hearing to take place no later than Feb. 18.
PHS is represented by Mark J. Peake of Lynchburg along with New York counsel. Peake said his client stated: “Power Home Solar does not comment on ongoing litigation, however, they look forward to proving that any allegations of fraud or forgery are false.”
The defendants are represented by Ryan J. Strasser of Richmond who was not available for comment.