MoFo Fails to Block Hire of Former Reed Elsevier Exec

, The Litigation Daily

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Reed Elsevier Inc. has failed to get a preliminary injunction to stop one of its former top technology executives from working for TransUnion Holding Co. Inc. On Thursday Manhattan U.S. District Judge P. Kevin Castel held that a 31-month noncompete covenant asserted by Reed Elsevier is unreasonable and unenforceable under New York law.

The dispute arose after TransUnion hired former Reed Elsevier executive Armando Escalante last month. Escalante had been a chief technology officer at Reed Elsevier's Lexis Nexis risk solutions division, which he left in April 2012. He joined consumer credit bureau TransUnion when it bought the assets of bankrupt company TLO, where Escalante worked starting in July 2013.

Reed Elsevier, represented by Morrison & Foerster, maintained in its complaint that this hiring violated an agreement it had reached with TransUnion when the CEO of its risk solutions unit, James Peck, wanted to join TransUnion as its CEO. Although Peck's move was barred under a noncompete covenant, Reed Elsevier agreed in December 2012 to let him take the job if TransUnion promised not to hire other top Reed Elsevier officers from the risk solutions division through the end of 2014. This covenant applied to any individual who was a senior officer of this division during 2012.

Although Escalante left Reed Elsevier eight months before the two companies reached this compromise, he was still arguably covered by the covenant because he had been an executive in 2012. He worked at two small companies before ending up at TLO, which was acquired by TransUnion in December. TransUnion is represented by Wilmer Cutler Pickering Hale and Dorr.

Castel noted that under New York law, restrictive covenants must be "rigorously examined" and enforced only to the extent necessary to protect the employer from unfair competition. In this case, the judge found that while one-year noncompete covenants are routinely upheld, the 31-month covenant that applied to Escalante was too long to be reasonable. In addition, Reed Elsevier had failed to show that the restriction was needed to protect its business. Among other things, Castel found that Escalante had limited knowledge of sensitive Reed Elsevier projects, including a proprietary source code used in an important product. Castel also rejected Reed Elsevier's argument that the reuniting of Peck and Escalante would draw customers from Reed Elsevier to TransUnion. Escalante's responsibilities will be mostly managerial and not client-focused, he noted.

Dennis Orr at Morrison & Foerster declined to comment. We reached out to Wilmer, but did not hear back.

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