## Facts

- A.N. Deringer, Inc. operated a customs brokerage with numerous offices, many near the U.S.–Canada border.
- John M. Strough worked for Deringer from 1984 until February 1995 and moved into a sales role in October 1994.
- In November 1994, in exchange for $1,000, Strough signed a confidentiality/trade secret agreement containing:
  - a 90-day post-employment noncompetition covenant barring competition within a 100-mile radius of any Deringer office;
  - a clause directing a court to amend any unreasonable restriction and enforce it as amended (a reformation/“blue-pencil” clause); and
  - an attorneys’ fees provision requiring Strough to pay enforcement costs and reasonable fees.
- Before signing, Strough had applied to Fritz Companies, Inc., a competitor; in February 1995 Fritz offered him a branch manager position.
- Strough told Fritz he had signed a noncompete, but was allegedly told it was unenforceable.
- Strough resigned on February 22, 1995 and began work the next day for Fritz in Plattsburgh, New York, near a Deringer office where he had worked.
- Deringer sued to enforce the covenant and to recover damages and attorneys’ fees; the case was removed to federal court in Vermont.
- The district court entered a preliminary injunction enforcing the noncompete through the remainder of the 90-day period; Fritz reassigned Strough to a location outside the 100-mile radius.
- After the 90-day term ended, the district court granted summary judgment for defendants, ruling the geographic scope was unreasonable and concluding it lacked authority to reform the covenant after expiration.

## Issues

1. Whether, under Vermont law, an overbroad geographic noncompetition covenant may be judicially reformed and partially enforced when the contract expressly authorizes reformation.
2. Whether expiration of the covenant’s time period prevents a court from reforming the covenant for purposes of awarding retrospective damages and contractual attorneys’ fees for an alleged breach during the restricted period.

## Decision

- The Second Circuit reversed the grant of summary judgment for defendants.
- The court held that Vermont law permits reformation and partial enforcement of an overbroad noncompete, particularly where the agreement contains an express reformation clause and there is no showing of employer bad faith.
- The court held that expiration of the 90-day restriction did not bar reformation because the remaining dispute concerned damages for conduct during the restricted period, not prospective injunctive relief.
- The case was remanded for determination of a reasonable geographic scope and for calculation of any damages and attorneys’ fees attributable to breach of the covenant as reformed.

## Legal Principles

- Under Vermont law, a noncompetition covenant is enforceable to the extent it is reasonable and protects legitimate employer interests without imposing undue hardship or harming the public.
- Courts may reform an unreasonable restraint and enforce it as modified, especially when the parties’ contract expressly provides for judicial amendment of overbroad terms.
- A court may award damages (and enforce an attorneys’ fees clause) based on breach of a reasonably reformed covenant, even if the covenant’s stated duration has expired, so long as the alleged breach occurred during the restricted period.
- Reformation is generally inappropriate where the employer acted in bad faith by drafting an excessively broad restriction to intimidate employees.

## Conclusion

The Second Circuit ruled that an overbroad noncompete with an express reformation clause could be narrowed and enforced under Vermont law and that the covenant’s expiration did not eliminate potential liability for damages and attorneys’ fees for any breach occurring within the restricted period; the case was remanded to define a reasonable scope and determine the resulting monetary relief.


A.N. Deringer, Inc. v. Strough, 103 F.3d 243 (2d Cir. 1996)