THIS ISSUE'S HEADLINES

Are Non-Competition Agreements Enforceable in Rhode Island?

FDA Considers Rescheduling Marijuana: A Milestone in Drug Policy Reform

Rhode Island Supreme Court Rules That a Property’s Foreclosure Was Valid Despite Plaintiff’s Claims That Mortgage Documents Were “Ambiguous”


ARE NON-COMPETITION AGREEMENTS ENFORCEABLE IN RHODE ISLAND?
COURTS RULE IN FAVOR OF THE EMPLOYER’S AGREEMENT IN RECENT CASE

The Rhode Island Supreme Court recently addressed the enforceability of a non-competition provision. In Walls v. Griggs & Browne Pest Control, Inc., the Court reviewed an agreement between Brian Walls and his employer in 2020, which the parties agreed upon nine years after Mr. Walls began his employment and which amended a prior non-competition agreement. The 2020 agreement prohibited Mr. Walls from soliciting business and performing services for the employer’s former or current clients for a period of 24 months.

In September of 2021, the employer issued a policy that required its employees to receive a COVID-19 vaccination or terminate their employment. Mr. Walls loudly expressed his opposition to the vaccination policy at a meeting with his supervisors, which caused his employment to terminate him. The parties disputed whether Mr. Walls resigned or if the employer fired him.

One month later, Mr. Walls began his own business and solicited his prior employer’s clients. The employer sued to enforce the non-competition agreement and a Superior Court Judge found that the agreement was enforceable. The Court found that Mr. Walls continued employment had constituted adequate consideration for the 2020 non-competition agreement and that Mr. Walls violated the agreement by soliciting his former employer’s clients. Mr. Walls then appealed to the Rhode Island Supreme Court.

In affirming, the Rhode Island Supreme Court stated that it disfavors the enforcement of non-competition agreements. However, the Court found that the employer’s agreement withstood scrutiny because it did not extend beyond what was necessary to protect the employer’s interests. Mr. Walls argued that the agreement should be unenforceable because he had been terminated but the Court found that the agreement applied even if Mr. Walls’ separation was involuntary. The Court also noted that it had previously upheld agreements with stronger limitations.

Key Takeaway

Non-competition agreements have recently come under scrutiny. Massachusetts significantly limited the application of non-competition agreements by legislation and there has been similar legislation proposed in Rhode Island and by Congress. Employers should anticipate that Rhode Island – by legislation or through case law – could limit the applicability of non-competition agreements. But for now, because of the Walls decision, employers received clear guidance: a 24-month non-solicitation provision is enforceable under Rhode Island law.

If you have a question about your company’s use of a non-competition agreement, contact Attorney Matthew C. Reeber, who leads PLDO’s Employment Law practice, at 401-824-5105 or mreeber@pldolaw.com.

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FDA CONSIDERS RESCHEDULING MARIJUANA: A MILESTONE IN DRUG POLICY REFORM

The landscape of drug policy in the United States is poised for a significant shift as the Food and Drug Administration (FDA) undertakes a reassessment of marijuana’s drug scheduling classification. The FDA is conducting a comprehensive review of marijuana’s current classification based on its potential medical benefits.

Marijuana is currently classified as a Schedule I controlled substance, placing it in the same category as drugs like heroin and LSD. As advocates argue that this scheduling hinders research into the medicinal properties of marijuana, the FDA is considering reclassifying it as a Schedule III substance. A recent study released by the FDA indicates that the regulatory body may do just that.

The FDA's decision to reassess marijuana's scheduling is a promising development for proponents of drug policy reform. The move could open doors for expanded research into the therapeutic applications of marijuana and relieve firms from the restrictions of a 40-year-old tax code that prohibits credits and deductions for income derived from sales of Schedule I and II substances. Furthermore, rescheduling could lead to more consistent and standardized regulations at both the state and federal levels.

As the FDA delves into this review, it marks a crucial moment in the ongoing conversation about marijuana's place in American society and could trigger further liberalization of the nation’s marijuana laws. Whether this leads to a revision of marijuana's scheduling or not, the FDA's initiative emphasizes the evolving perspectives on cannabis and its potential to positively impact public health.

If you have questions pertaining to cannabis business and legal matters, please contact PLDO Partner Benjamin L. Rackliffe, who leads the firm’s highly experienced Cannabis Law Practice Group, at 401-824-5183 or email brackliffe@pldolaw.com.

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Background

A recent case arose out of foreclosure proceedings that were instituted by Wells Fargo Bank (“Wells Fargo” or “defendant”) with respect to property located at 18 High Street in Bristol, Rhode Island. The property’s owner (“plaintiff”) secured the mortgage by executing a $636,000 promissory note on March 1, 2007. Several years later, on June 15, 2018, Wells Fargo sent the plaintiff a notice of default. On August 8, 2019 – more than a year after the notice of default was sent – Wells Fargo and HSBC conducted a foreclosure auction on the property.

Fast forward almost two years later, on May 5, 2021, the plaintiff filed a complaint in Providence County Superior Court against Wells Fargo, Property Wire, and HSBC, seeking (1) a declaration that no valid foreclosure sale of plaintiff's property had occurred; (2) an injunction restraining and enjoining Wells Fargo from conveying the property to any other entity; and (3) compensatory and punitive damages. The plaintiff argued that the mortgage document contained what he characterized as "a glaring ambiguity.” On July 12, 2021, a justice of the Superior Court denied plaintiff's request for injunctive relief.

On February 15, 2022, there was a hearing on defendants' motions to dismiss, with the justice concluding that the notice of default which had been sent to plaintiff "strictly complied" with the terms of the mortgage. The plaintiff then appealed the hearing justice's grant of defendants' motions to dismiss.

Recent Ruling

In Serenska v. Wells Fargo Bank, N.A., 2024 WL 481997 (R.I., 2024), issued February 8, 2024, the Rhode Island Supreme Court, in an action seeking a declaration that no valid foreclosure sale of property had occurred, held that a mortgagee’s (a loan servicer’s) notice of default had strictly complied with the requirements of the mortgage. In so determining, the Rhode Island Supreme Court reaffirmed its earlier pronouncements in Woel v. Christiana Tr. as Tr. for Stanwich Mortg. Loan Tr. Series 2017-17, 228 A.3d 339 (R.I. 2020), that, because a contract term "is ambiguous when it is reasonably and clearly susceptible to more than one rational interpretation[,]" a notice of default that fails to inform the borrower of its right to reinstate the mortgage after acceleration is defective. The Court went on, however, to explain that the notice of default before it in this case, which informed of default, explained how to cure such default, and indicated the date by which the default must be cured in order to avoid the acceleration of the mortgage, ensured that the borrowers were fully informed of their rights and were not misled by the default notice provided by the mortgagee.

Therefore, the Court stated, the mortgagee was in strict compliance with the relevant terms of the mortgage provisions. “We discern absolutely no basis for plaintiff's claim that there is an ambiguity in the mortgage.” The Court then explicated that even though such notice did not inform the mortgagor of the deadline -- five days prior to the foreclosure date -- to reinstate the mortgage after the acceleration of the mortgage, the relevant mortgage provision concerning default did not so require. The court further explained that the relevant mortgage clause was absolutely silent as to any requirement that the borrower be advised of the right to reinstate the mortgage up to five days before the sale of the property, such that there was nothing in the mortgage that required the borrower to be re-advised of such right in the notice of default.

Significantly, however, the opinion of the Court did note that while it had “no reason to doubt the correctness of [its legal] conclusion[,]” it was “dismayed by foreclosure counsel's refusal to consider and seek immediate verification of plaintiff's statement that he actually had the funds necessary to cure the default on the morning of the foreclosure . . . [since it] . . . does not seem to us that it would have been unduly burdensome for counsel (although not legally required to do so) to seek verification of plaintiff's assertion (even though made after the deadline []) that he actually had the necessary funds.” “Taking that step[,]” opined the Court, “would have been a laudable professional courtesy.”

Key Takeaway

The key takeaway in this case is that while mortgagors must be “fully informed of their rights and [may] not be misled by a default notice provided by a mortgagee,” where a notice of default is in strict compliance with the relevant terms of the contract, a borrower will be held bound by the terms of such contractual provisions. If you have questions about this case or other litigation matters, please contact PLDO Partner Aaron L. Weisman at 401-824-5100 or email aweisman@pldolaw.com.

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