RERMAG

Noncompete Agreements Draw Lawsuits For NationsRent

FORT LAUDERDALE, Fla. — NationsRent filed a lawsuit against one of its former managers for opening a rental business that competes directly against the company, allegedly violating the manager's employment contract.

Clifton Sheffield, who sold his Sheffield Equipment Co. business to the Fort Lauderdale, Fla.-based consolidator in September 1998 for a cash payment and $1.5 million in promissory notes, then joined NationsRent's management team as area manager for its North Florida operations. NationsRent contends that when Sheffield left the company in March 2000, he remained subject to a 5-year non-competition provision in his employment contract.

The lawsuit accuses Sheffield of soliciting John Sheffield and three other NationsRent employees to leave the company and join him at his new enterprise, Florida Contractor Rentals, a Volvo franchise.

The lawsuit contends that Sheffield, instead of pursuing his claims under the notes through the bankruptcy process, is trying to circumvent the process by opening a rental business that competes directly with NationsRent, in violation of his employment contract and asset-purchase agreement. The company also accuses Sheffield of interfering with the bankruptcy process and violating the automatic stay provisions of the bankruptcy code by directly soliciting NationsRent employees and customers on behalf of his new business. The lawsuit also says that Sheffield is violating the rights of other NationsRent creditors by attempting to unwind the asset purchase agreement and recapture the business he sold to NationsRent, thus pressuring the company to pay him ahead of other creditors.

Sheffield, however, disputes that notion. “The only reason I went back into business is because NationsRent defaulted on its payments since September 2001 and owes me $1.7 million,” Sheffield told RER. “If I was wealthy, or if I got all the money I was owed, I would have honored my noncompete agreement. But I have a family and this is the only business I've ever been in, going back to 1975, so I had to return to work. I'm not trying to compete against or hurt NationsRent, or get ahead of other competitors. I just need to make a living.”

NationsRent also filed a lawsuit against John Sheffield. Clifton Sheffield, however, disputes NationsRent's claim that he recruited his brother. “NationsRent fired him simply because he is my brother and they claimed he might go back to work for me someday,” Sheffield said. “They claim it was a conflict of interests.”

The first hearing was scheduled for April 26 in the U.S. Bankruptcy Court in Wilmington, Del.

In another case, four former independent rental business owners last month filed a lawsuit against NationsRent in a Delaware Bankruptcy Court, seeking to have their non-compete covenants declared void and unenforceable.

The former owners — Jim Ziegler of Colorado, John Greene and Steven Koehler of California and Rafael Garzarelli of Utah — sold their businesses to NationsRent for cash, unsecured promissory notes and NationsRent stock. After NationsRent filed for Chapter 11 reorganization in December 2001, the stock was rendered essentially worthless and the former owners have not received payments owed them for the sale of their businesses. The former owners signed restrictive covenants preventing them from working in the rental equipment industry for periods ranging from two to five years.

“Our position is simple,” Ziegler said. “NationsRent has breached its obligation to us. We should be able to move on and operate businesses. We need to feed our families. Some of us have been in this industry most of our careers. It's what we know.”

“NationsRent has defaulted under these sales agreements and sought protection from the bankruptcy court, yet they continue to maintain that these restrictive covenants — prohibiting the families that started these businesses from earning a living — are valid and enforceable,” added Boulder, Colo.-based attorney Giovanni Ruscitti, who is representing these and several other former owners. “Our immediate goal is to get these guys back working.”

NationsRent officials declined to comment on the cases.

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