Laboratory Corp. of America Holdings v. Kearns
84 F. Supp. 3d 447
M.D.N.C.2015Background
- Kearns, former director of Pre-Implantation Genetics at LabCorp, had been a Shady Grove Center founder and filed a 2006 provisional patent application for a PGD (microarray/NGS) testing process.
- LabCorp purchased Shady Grove Center in 2007 and employed Kearns under an Employment Agreement containing restrictive covenants (one-year post-termination non-solicit and non-compete) but with a carve-out for “actions, efforts or business pursuits with respect to” the provisional patent identified in the contract.
- LabCorp closed its in-house PGD lab in 2014 and transitioned testing to a contract lab; Kearns formed AdvaGenix (a PGD lab) in April 2014 to continue research and later performed PGD testing for former LabCorp clinics when the contract lab struggled.
- LabCorp investigated, placed Kearns on leave, and terminated him for cause in November 2014 after learning of AdvaGenix; Kearns had run roughly 155–180 PGD cases in mid–late 2014 for former LabCorp clients.
- LabCorp sued for breach of the restrictive covenants and fiduciary duties and moved for a preliminary injunction; the court held a hearing and issued a preliminary injunction in part, enjoining Kearns from contacting LabCorp customers with whom he had contact during employment through Nov. 16, 2015, conditioned on a $775,000 bond.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Applicability of patent carve-out | Carve-out is narrow: it protects only actions regarding the patent application, not general competitive PGD services | Carve-out protects use of the PGD process described in the patent application even if patent not obtained | Court: carve-out applies only to pursuits "with respect to the Patent" (the provisional application). No patent obtained; carve-out does not shield Kearns’ competing services. |
| Enforceability of non‑solicit (¶9(a)(i)) | Covenant protects LabCorp’s customer goodwill and confidential pricing and is limited to customers with whom Kearns had contact | Overbroad / vague ("customer or potential customer") and improperly bars passive acceptance of work | Court: covenant enforceable under NC law because it is limited to customers Kearns actually contacted and protects legitimate interests. |
| Enforceability of non‑compete/investment restriction (¶9(a)(iii)) | Needed to protect competitive interests | Overbroad: bars indirect ownership/investment and reaches suppliers/ancillary businesses; limits passive investment mechanisms | Court: provision is unreasonably broad (sweeps too far re: indirect investment/suppliers); LabCorp failed to show it is enforceable; court will not reform it. |
| Preliminary injunction factors (irreparable harm, balance, public interest, bond) | Irreparable harm from loss of customers and goodwill; balance favors LabCorp; public interest supports enforcement; bond should be reasonable | Kearns: losses due to LabCorp’s transition; public interest in patient care; bond should reflect lost profits and costs | Court: LabCorp showed irreparable harm, balance and public interest favor enforcement of ¶9(a)(i); injunction issued limited to that clause through Nov. 16, 2015; bond set at $775,000 (projected lost gross revenue for ten months). |
Key Cases Cited
- Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7 (2008) (standard for preliminary injunctions requires likelihood of success, irreparable harm, balance of equities, public interest)
- Pashby v. Delia, 709 F.3d 307 (4th Cir. 2013) (articulating Winter factors and requirement to separately consider each)
- United Laboratories, Inc. v. Kuykendall, 322 N.C. 643 (North Carolina Supreme Court) (employer’s protectable interest in customer relationships/goodwill)
- VisionAIR, Inc. v. James, 167 N.C. App. 504 (N.C. Ct. App.) (limits on enforcing overly broad restrictions including indirect ownership)
- Hartman v. W.H. Odell & Associates, Inc., 117 N.C. App. 307 (N.C. Ct. App.) (blue‑pencil rule—courts may not rewrite overbroad covenants except to sever distinct parts)
- Edgar v. MITE Corp., 457 U.S. 624 (1982) (Rule 65(c) bond functions as warranty against wrongful injunction)