May 17, 2011, 4:36 PM

Sears sues former leader of Lands’ End

Sears says Nick Coe violated his non-compete agreement.

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Sears Holdings Corp. has asked an Illinois court to stop former Lands’ End president Nicholas Coe from joining Limited Brands Inc. as CEO of its Bath & Body Works division. Sears says in court documents that Coe violated his non-compete agreement with the company and is asking for an immediate injunction and damages. Sears also names Limited Brands Inc. and its Bath & Body Works business entities in the suit and asserts the companies were aware of Coe’s severance agreement with Sears, which says Coe cannot work for a Sears competitor for one year after leaving the retailer. Lands’ End is a division of Sears Holdings Corp.

In the court filing submitted yesterday to the Circuit Court of Cook County, IL, Sears says Coe submitted his resignation May 11 with the intention of joining Limited Brands May 16. Sears Holding Corp. is No. 7 in Internet Retailer’s Top 500 Guide. Limited Brands is the parent company of Victoria’s Secret Direct and Bath & Body Works, No. 18 in the Guide. Coe joined Sears in December 2008 after serving as a senior vice president at apparel retailer Banana Republic, part of Gap Direct Inc., No. 24.

Sears says in the complaint that as president of Lands’ End and senior vice president for Sears Holdings Corp., Coe had access to Sears’ confidential information and was “intimately involved in the internal planning and development of strategic initiatives throughout the entire Sears organization.” The suit says this includes Sears product lines that are in direct competition with Limited Brands, such as intimate apparel, personal care products, home décor and accessories. Coe’s responsibilities also included oversight of Lands’ End e-commerce operation.

The filing states that Coe signed an executive severance agreement when he joined Sears in 2008 and subsequently signed an updated agreement in 2009, both of which detailed that he could not work for a Sears competitor for one year after leaving the company or disclose confidential company information.

Charles H. Kaplan, a partner at law firm Sedgwick LLP who specializes in labor and employment law, says non-compete agreements are common at the executive level. “In large corporations with senior executives who earn a great deal of money and are privy to trade secrets, these kinds of agreements are very common,” he says, noting that courts usually find a 1-year term for a non-compete agreement reasonable. Kaplan reviewed the Sears filing but is not affiliated with the case.

Sears says in the filing that the severance agreement specifically names Limited Brands as a Sears competitor. Sears Holdings declined to comment on the suit. Coe could not be reached. Limited Brands did not respond to a request for comment, but did acknowledge it hired Coe as CEO of Bath & Body Works. The company issued a press release Tuesday that welcomed Coe to the company but also says Bath & Body Works' current CEO, Diane Neal, will remain in that role through this summer.

In the complaint Sears says it will suffer irreparable harm if the court does not grant an injunction stopping Coe from joining Limited Brands because Sears derives “immeasurable value from the secrecy of its confidential information” and that Coe has caused, and will continue to cause “substantial and irreparable harm.” Sears asked the court to issue temporary, preliminary and permanent injunctions stopping Coe from using or disclosing Sears’ confidential information, from violating his severance agreement obligations and from commencing his employment with Limited Brands until the matter is settled by the court. It also asks the court to require Coe to return all Sears trade secrets and property in his possession and for the return of all money Sears paid to Coe for any time he violated his duties to Sears.

A second count asks the court to grant similar injunctions against Limited Brands, and for monetary damages. Sears says Limited brands was a aware of Coe’s agreement with Sears and that by soliciting and hiring him it “knowingly, intentionally and purposefully participated in conduct that interfered with and caused breaches” of the severance agreement.

Kaplan says that it would be surprising if a company the size of Limited Brands did not perform its due diligence to find out whether Coe had a non-compete agreement with Sears. “It is very likely that Limited Brands and Bath & Body Works both were aware of whatever agreements that Coe had,” he says. “It’s reasonable for them to expect to be aware, but if Coe misled them or told them he didn’t, that may change whether they acted improperly.”

Kaplan says he’d expect the court to rule quickly on a temporary injunction blocking Coe from joining Limited Brands because of the time-sensitive nature of the suit. He says he’d expect the defendants to first consider moving the case from Cook County Circuit Court to federal court because it involves companies and people residing in multiple states and to remove any perceived home-court advantage Sears Holdings may have in Cook County, although Kaplan says the court is unlikely to grant such a request because the corporations involved are both incorporated in Delaware. Sears Holdings Corp. is based in the Chicago suburb of Hoffman Estates, IL, which straddles county lines but is largely in Cook County. 

Coe and Limited Brands have not responded to the suit publicly or in court, and Kaplan says the court’s direction will depend on the actions of all parties to the suit. “With this filing, we only have Sears’ side of the story,” he says. “Each of these situations is fact-driven, fact-based, and whatever actions Mr. Coe took before and since he parted are going to matter a lot, and what Sears did before he left matters a lot. If Sears did something in bad faith, if their hands are unclean in all this, it could be hard to get an injunction.”

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