After working for nearly three decades at CVS Pharmacy, Inc., including in senior-level jobs, John Lavin accepted a new position at a company called PillPack LLC, a direct competitor of CVS. PillPack is an online retail pharmacy founded in 2013 and wholly owned by Amazon.
At four points during his employment as a senior vice president, CVS required Lavin to sign a restrictive covenant agreement (“RCA”). Each RCA contained non-competition, non-solicitation, and nondisclosure covenants. The RCAs defined competitors of CVS but contained no geographic limitations. Each time Lavin signed a RCA, he was awarded CVS stock.
CVS Obtains A Preliminary Injunction Enforcing The Non-Compete
CVS sued Lavin and moved for a preliminary injunction, which was granted.The district court concluded that Lavin’s proposed work for PillPack would violate the terms of the covenant not to compete. Moreover, the court found the covenant reasonable and, therefore, enforceable under Rhode Island law. Lavin was barred from working for PillPak for 18 months. Lavin filed an interlocutory appeal.
The 1St Circuit Rejects Lavin’s Arguments That There Were Less Burdensome Ways To Protect CVS’s Interests
On appeal, Lavin focused his argument on the reasonableness of the 2017 covenant. In Rhode Island, the reasonableness of a covenant depends on factors such as whether it is narrowly tailored; whether its scope is reasonably limited in activity, geography, and time; whether the hardship to the employee outweighs the employer’s need for protection; and whether enforcement of the covenant is likely to harm the public interest.
The district court found that Lavin had extensive knowledge of CVS Caremark’s strategic initiatives and detailed information about its contracts with retail pharmacies and payers. On this basis, the appeals court rejected Lavin’s argument that CVS’s interests were sufficiently protected by the non-solicitation and non-disclosure covenants so as to make enforcement of the non-compete unreasonable. The opinion did not expressly refer to the so-called “inevitable disclosure” doctrine, but the doctrine certainly lurked in the case. According to the appeals court, it “strains credulity to think that a top-echelon executive like Lavin could develop a strategy for PillPack without dipping into this knowledge.”
Lavin also argued that he would agree not to do any work for PillPack that involved CVS or its clients and that it was unnecessary to prohibit him from working for PillPack altogether. The appeals court disagreed, observing that PillPack hired Lavin in part to help develop tactics to disrupt the industry, a role that he was suited to perform chiefly because of his knowledge of strategic initiatives developed by a major industry player.
The Preliminary Injunction Is Affirmed Without Modification
The appeals court affirmed the preliminary injunction. Most states, like Rhode Island, expect a non-competition agreement to contain a reasonable geographic scope. This decision is noteworthy because the injunction against Lavin’s employment by PillPack apparently would apply throughout the entire United States.
CVS Pharmacy, Inc. v. John Lavin (1st Cir. 2020).
by Michael R. Lied