Unenforceable restraint a plea of general issue

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An unenforceable restraint plea in bar against a misappropriation of trade secrets lawsuit was a “forbidden plea of the general issue” because it attacked a fact the plaintiff would be required to prove at trial, rather than a special plea, a Fairfax County Circuit Court judge has held.

Having sued a technology provider and its employee for breach of contractual non-disclosure provisions, the plaintiff moved to strike the defendants’ plea in bar that challenged those provisions as unenforceable restraints of trade.

Judge Penney S. Azcarate wasn’t persuaded by the defendants’ contentions that their plea was comparable to special pleas sustained by the Supreme Court of Virginia.

“For an unenforceable restraint allegation to be litigated as a plea in bar, the primary evidentiary burden would be forced on to the Plaintiff, which is not appropriate nor supported by precedent,” she wrote.

The opinion is Association Resource Group, Inc. v. Lava Technology Services, LLC, et al. (VLW 023-8-071).

The litigation

Association Resource Group, or ARG, is a technology consulting and brokerage firm that contracted with Lava Technology Services, an information technology provider. The contract included a non-disclosure clause restricting Lava’s use of ARG information.

John Cooper was an ARG employee who allegedly worked for Lava as an independent contractor at the same time. According to ARG, Cooper stole trade secrets and proprietary information for Lava’s benefit, in breach of his own non-disclosure contract.

AGR sued Lava and Cooper for, among other things, breach of contract and misappropriation of trade secrets.

Lava and Cooper responded with pleas in bar that asserted the contract wasn’t breached; the non-disclosure provisions were an unenforceable restraint of trade.

Arguing that unenforceable restraint was a plea of the general issue, ARG moved to strike the pleas in bar.

Special and general issue pleas

“A plea in bar asserts a special plea, i.e. a distinct issue which, if proven, bars plaintiff’s recovery,” Azcarate explained. “‘As distinguished from an answer or grounds of defense, it does not address the merits of the issues raised by the bill of complaint or the motion for judgment.’”

While a special plea alleges a single state of facts or circumstances which, if proven, constitutes an absolute defense, a plea of the general issue is a general denial of the plaintiff’s whole declaration or an attack upon some fact the plaintiff would be required to prove.

“It has the effect of challenging the plaintiff to go to trial and prove his case,” Azcarate wrote. “Pleas of the general issue have been abolished in Virginia.”

The movant of a plea in bar bears the burden of proof, both production and persuasion.

“Typically, a special plea is an affirmative defense, although pleas in bar have been sustained on non-affirmative defenses where the plea was not challenged as a plea of the general issue,” she pointed out.

Unenforceable restraint

When the enforceability of a covenant in restraint of trade is challenged, the employer bears the burden to prove that it’s narrowly drawn to protect their legitimate business interest, isn’t unduly burdensome on the employee’s ability to earn and isn’t against public policy.

Defined literally, Azcarate said a special plea in bar could be used to attack a single element of any offense.

“For example, if a defendant could prove a plaintiff in a negligence case suffered no damages, this would be a ‘single set of facts or circumstances’ totally barring recovery on the negligence claim; but it is equally clear from Virginia precedent this would be an unacceptable plea of the general issue: ‘an attack upon some fact the plaintiff would be required to prove in order to prevail on the merits,’” she wrote.

The Supreme Court of Virginia addressed what constituted a special plea versus a plea of the general issue in 2005’s Stockbridge v. Gemini Air Cargo, Inc. In that case, the trial court overruled a plea in bar, finding the matter needed to be settled by a jury, as it was a plea of the general issue.

Saying that misunderstood the nature of the special plea and plea of the general issue, Senior Justice Charles S. Russell noted that factual findings can be made by the court at a plea in bar proceeding with or without the help of a jury.

“The distinction between special pleas and pleas of the general issue is really, Stockbridge tells us, that special pleas assert a separate factual matter that totally bars the claim, while a plea of the general issue seeks to deny the entire case, or to attack some fact the plaintiff would be required to prove at trial,” Azcarate reasoned.

Although the defendants were correct that their special plea of unenforceable restraint resembled other sustained pleas, some by Virginia’s high court, the judge said their plea didn’t “sit comfortably among its brethren.”

“Unenforceable restraint is not, after all, an affirmative defense, in contrast to most special pleas,” Azcarate wrote. “Framed differently, the plea of ‘restrictive covenant’ is simply an attack on one of the elements the plaintiff would be required to prove at trial: the existence of an enforceable contract.”

She said an important question remained whether the contract was enforceable, and ARG had the burden to show the restraint was reasonable and valid.

‘Sub silentio’

The defendants cited cases that “sub silentio” endorsed their unenforceable restraint as a special plea.

Azcarate said their reliance was misplaced.

“The similar pleas in bar sustained by the Virginia Supreme Court, cited by the Defendants, suffer the same fatal flaw: in each, the defense went unchallenged as a special plea,” she wrote, adding that a common through-line in the cases were affirmative defenses that completely barred recovery.

“Binding caselaw also confirms the matter to be proven under a plea in bar is one for which, had the matter gone to trial, the defendant would have primarily borne the burden of proof,” Azcarate said.

Rather than focus on procedural burden-shifting, the judge said that rule defined “special pleas are only those for which the movant would have borne the burden of proof at trial.”

Here, ARG sought to enforce a covenant in restraint of trade and bore the burden of proof to show the restraint was reasonable.

“Because the Plaintiff will be required to prove reasonability in order to prevail on the merits, unenforceable restraint is a plea of the general issue, not a special plea,” Azcarate concluded, granting ARG’s motion to strike the defendants plea in bar.

Practical impact

“I think the real significance of the decision is the practical impact for Virginia employment lawyers,” said Lava’s attorney, Declan Leonard of Berenzweig Leonard.

Being unable to challenge a restrictive covenant in a dispositive pleading means an employee would need to go through costly discovery and potentially a trial before moving to dismiss.

“That could really belabor some of the more dubious restrictive covenant cases that get filed,” Leonard told Virginia Lawyers Weekly.

He lamented the lack of consistency among circuit courts on the issue and believes the Supreme Court of Virginia needs to clarify it for lower courts.

But no appeals will be filed in this case. Leonard reported that the parties have settled.