WILMINGTON, Del. — A Delaware judge on Wednesday barred a former top executive for Wal-Mart Stores Inc. from taking a job as CVS Caremark Corp.’s new pharmacy president until a trial is held on Wal-Mart’s claim that the executive signed a noncompete agreement that prevents him from working for CVS.
Vice-chancellor J. Travis Laster granted Wal-Mart’s request for a preliminary injunction following a hearing which the nation’s largest retailer argued that Hank Mullany possessed confidential Wal-Mart information that CVS, a competitor, could use to its advantage.
The judge scheduled a trial for early March.
CVS, based in Woonsocket, R.I., announced earlier this month that it had hired Mullany, who until last month was president of Wal-Mart’s Northern U.S. business.
Wal-Mart, based in Bentonville, Ark., sued CVS and Mullany, saying Mullany had signed a contract with Wal-Mart that forbids him from working for a competing company for at least two years.
Laster said CVS and Mullany took a calculated risk when entering into their employment agreement that Wal-Mart would not seek to enforce the noncompete agreement Mullany signed when he was promoted last January to president of Wal-Mart North, overseeing 1,312 stores in 19 states.
The judge ruled that the scope and duration of the noncompete agreement appeared reasonable, and that Mullany, an experienced executive who consulted an attorney before signing the employment contract with Wal-Mart, should have know what he was doing.
“You read it, you sign it, you mean it,” Laster said, adding that if such noncompete agreements should apply to anyone, it is to “senior big dog” executives making millions of dollars.
Laster rejected CVS’s argument that it should not be considered a competitor of Wal-Mart, and that the noncompete agreement should not be enforced because Mullany did not work directly for Wal-Mart’s pharmacy business.
Laster said it was simply a “common-sense notion” that Wal-Mart and CVS, which is the seventh-largest U.S. retailer and has more than 7,000 stores, compete in the pharmacy sector, particularly when both are trying to expand and Wal-Mart is planning “small format” stores.
Wal-Mart attorney Kathleen Furey McDonough pointed to a 2006 press release in which CVS itself identified Wal-Mart as a competitor. She also presented Laster with a confidential document Mullany had on his home computer that she described as a “road map” for Wal-Mart’s U.S. operations for 2012.
“That’s the kind of information that Mr. Mullany knows, your honor. … He knows our strategies. He knows what could be our counter-strategies,” she said.
But Lawrence Portnoy, an attorney for CVS, scoffed at the notion that Mullany possessed any knowledge that could prove useful in battling Wal-Mart’s small-format initiative, which he said was only a pilot program that may not prove worthwhile.
“Whatever Mr. Mullany knew about small format, it’s old and cold already,” Portnoy said, adding that CVS hired Mullany not for his knowledge about the pharmacy business, but for his general management experience.
But Laster noted that CVS and Wal-Mart were on “a collision course,” and that Mullany was the executive sponsor of Wal-Mart’s small-format initiative.
“This was a top-secret effort within Wal-Mart,” the judge said, adding that confidential information “pervaded” Mullany’s role as one of the company’s top executives.
CVS Caremark shares were down 36 cents at $33.72 in early afternoon trading. Wal-Mart were off 33 cents at $54.12.