Westerman v. FTI Consulting, Inc.

1

EDWARD WESTERMAN, Plaintiff, v. FTI CONSULTING, INC., et al., Defendants.

No. 24-cv-04118-JCS

United States District Court, N.D. California

September 25, 2024

ORDER RE:

1) MOTION TO DISMISS PLAINTIFF'S COMPLAINT

2) MOTION FOR LIMITED EXPEDITED DISCOVERY

RE: DKT. NOS. 10, 34

JOSEPH C. SPERO UNITED STATES MAGISTRATE JUDGE

I. INTRODUCTION

This case involves a dispute about the enforceability of non-compete provisions in an employment contract between Defendants FTI Consulting, Inc. and FTI Consulting LLC (collectively, “FTI”)^[1] and a former FTI employee, Plaintiff Edward Westerman. Presently before the Court is FTI's Motion to Dismiss Plaintiff's Complaint (dkt. no. 10) (“Motion to Dismiss”), in which FTI asserts that this case should be dismissed for lack of personal jurisdiction and improper venue. Also pending are Plaintiff's Motion for a Preliminary Injunction (dkt. no. 22) (“Preliminary Injunction Motion”) and FTI's Motion for Limited Expedited Discovery (dkt. no. 34) (“Discovery Motion”). A hearing on the Motion to Dismiss and the Discovery Motion was held on September 25, 2024. The Court addresses only those motions in this Order. For the reasons set forth below, the Court DENIES the Motion to Dismiss and GRANTS in part and DENIES in part the Discovery Motion.^[2]

II. BACKGROUND

A. Factual Background

FTI Consulting, Inc., is a global business advisory firm that is incorporated in Maryland. Declaration of Curtis Lu in Support of Defendants FTI Consulting, Inc. and FTI LLC's Motion to Dismiss Plaintiff's Complaint, dkt. no. 10-1 (“Lu Decl.”), ¶ 2. FTI Consulting, Inc. has its principal office in Bowie, Maryland, and headquarters in Washington, D.C. Id. FTI Consulting LLC is a wholly-owned subsidiary of FTI Consulting, Inc., organized under the laws of Maryland and with its headquarters in Washington, D.C. Id. ¶ 3. According to FTI's general counsel, Curtis Lu, FTI's business operations are directed from its principal office in Maryland or its corporate headquarters in Washington, D.C. and its senior executive corporate officers are based in Washington, D.C. Id. ¶ 5. FTI has domestic offices in twenty-one states and the District of Columbia, as well as international offices throughout the world. Id. ¶ 6. It has eight physical offices in California, which is at least twice the number of offices it maintains in any other state. Declaration Of Ashley Kemper Corkery in Support of Plaintiff's Opposition to Defendants' Motion to Dismiss (“Corkery Decl.”) ¶ 2. FTI's website indicates that it employs numerous people in California, including 35 people in its San Francisco office. Id. ¶ 3.

Westerman was employed by FTI as a senior managing director in its San Francisco office from March 2011 to February 29, 2024. Declaration of Edward Westerman in Support of Plaintiff's Opposition to Defendants' Motion to Dismiss, dkt. no. 33-1 (“Westerman Opposition Decl.”) ¶¶ 9, 11, 13. Previously, he had been employed by another consulting firm, LECG, and worked out of LECG's San Francisco office from 2004 to 2011. Id. ¶ 8. Before that, Westerman was a partner at Deloitte from 1999-2004, also working out of Deloitte's San Francisco office. Id. ¶ 7. Westerman became an FTI employee when his practice group at LECG was bought and absorbed by FTI. Id. ¶ 9. According to Westerman, at all times during his employment with FTI, he was affiliated with FTI's San Francisco, California office, where he had a physical office, and that affiliation was reflected on FTI's website, Westerman's business cards, and in his email signature block. Id. ¶¶ 11-13. He also states that when he commenced his employment with FTI in 2011, he signed an employment agreement providing that he would work out of FTI's San Francisco office. Id. ¶ 12. Westerman lived in San Francisco, California from June 1996 to September 2016, when he moved his primary residence to Wyoming. Id. ¶¶ 6, 17. After he moved to Wyoming, Westerman continued to be affiliated with FTI's San Francisco office and regularly travelled to San Francisco to perform work out of that office. Id. ¶ 17.

According to Westerman, FTI hired him “in part due to [his] extensive professional network in California and [his] years of experience working on California-specific matters.” Id. ¶ 10. He estimates that for the duration of his employment with FTI, “approximately 75% of [his] work was with California-based FTI clients[ ]” and states that “the client engagement teams [he] managed were largely based in California and Oregon, although [he] also managed some employees in other locations such as Chicago and Hong Kong.” Id. ¶¶ 14-15.

FTI's general counsel reviewed Westerman's billing records from October 5, 2020 to February 25, 2024, and found that Westerman “logged eighty-one percent of his overall hours for FTI outside of California” and that “the vast majority” of this time was for work performed in Wyoming. Lu Decl. ¶ 11. Westerman also logged the number of days each year that he performed work while physically in California for tax purposes and states that he worked in California 84 days in 2020, 56 days in 2021, 76 days in 2022 and 59 days in 2023. Westerman Opposition Decl. ¶ 27. He further states that he “never performed any work that created any tax obligation in D.C.” and that “[d]uring the last few years of [his] employment with FTI, [he] was in Washington, D.C. for a total of less than five days.” Id. ¶¶ 18, 27.

Westerman signed a new employment agreement with FTI on October 21, 2019. Id. ¶ 19; Lu Decl., Ex. B (“2019 Employment Agreement”). Section 12 of the 2019 Employment Agreement contains a set of non-competitions covenants, including a prohibition on employment in a similar capacity by a competing company for one year after the date of termination (the “restricted period”). Lu Decl., Ex. B (2019 Employment Agreement) §§ 12, 17(a) & (b). Section 13 of the 2019 Employment Agreement prohibits solicitation of business regarding any case the employee worked on while at FTI, including solicitation of FTI clients or employees, during the same restricted period. Id. § 13. The parties also agreed that violations of Sections 12 and 13 would result in the imposition of liquidated damages and established guidelines for determining the amount of liquidated damages, depending on the specific violation. Id. § 19.

In its 2023 annual report filed with the Securities and Exchange Commission, FTI recognized that “[w]hile [its] written employment agreements with [its] Senior Managing Directors and equivalent employees may include non-competition and non-solicitation clauses, such clauses may offer us only limited or no protections and may be unenforceable in one or more jurisdictions.” Corkery Decl., Ex. A (“2023 Annual Report”) at 23. In that report, FTI specifically recognized that “[i]n certain jurisdictions, non-competition clauses have been abolished or banned” and noted that “[s]tarting January 1, 2024, California adopted legislation that expanded that state's existing restrictions on non-competes to agreements created out-of-state and created new enforcement rights for employees to challenge such clauses.” Id.

The 2019 Employment Agreement specifies that Maryland law controls the interpretation and enforcement of that agreement. Id. § 24. And like Westerman's previous employment agreement, the 2019 Employment Agreement lists Westerman's “office location” as “San Francisco, California.” Lu Decl., Ex. B at ECF p. 35. Westerman negotiated the agreement with his supervisor of the time, Paul Ficca, who lived in Washington state and worked out of FTI's Seattle office. Westerman Opposition Decl. ¶¶ 21-22. Westerman traveled from San Francisco to Jackson, Wyoming on the day he signed the agreement and signed it either before he left San Francisco or after he landed in Jackson that day. Id. ¶ 20.

According to Lu, in April 2021, Westerman “requested that his state jurisdiction for income tax reporting purposes be changed retroactively from California to Wyoming, where he had been living and working since 2016.” Id. ¶ 10 & Ex. A. The email exchange between Westerman and FTI indicates that he sought to change his tax jurisdiction retroactive to 2020. Lu Decl., Ex. A at ECF p. 10. FTI's Senior HR Business Partner, Marilyn Israel, responded as follows:

To change your tax jurisdiction, I will need to change your status to work from home. You will continue to be assigned to the SF office for reporting purposes, and this change does mean that you will not have an assigned office in SF. I'm not sure how much you plan to be in SF when we can travel again, but I wanted to make sure that you knew this change would impact that. Changing your status to work from home will tie your tax jurisdiction to your home address.

Lu Decl., Ex. A at ECF p. 11 (March 29, 2021 email from Israel to Westerman). According to Westerman, this request “related to paid time off and/or holiday as being artificially assigned to California in light of [his] more recent personal residence” in Wyoming. Opposition at 4. In November 2021, Westerman “updated his status with FTI to record as a work-from-home employee based in Wyoming.” Lu Decl. ¶ 9. The record is silent, however, as to whether Westerman's tax jurisdiction was actually changed to Wyoming, and apparently Westerman did not lose his physical office in San Francisco. See Westerman Decl. ¶ 13 (“At all times during my employment with FTI, I had a physical office in FTI's San Francisco offices.”).^[3]

On September 20, 2023, Westerman signed an amendment to the employment agreement that “largely concerned incremental compensation issues[.]” Id. ¶ 23; Lu Decl., Ex. C (“2023 Amendment”). The 2023 Amendment listed San Francisco as Westerman's principal office location. Lu Decl., Ex. C...