A company accused of poaching employees from a competitor can't be compelled to pay legal fees for those workers, a federal judge has ruled.

U.S. District Judge John Michael Vazquez has denied a motion to compel a company to follow through on its promise to pay defense costs for three workers it lured away from a competitor.

The workers, accused of breaching a restrictive covenant by joining a competitor, claim ATG Electronics is obligated to keep its promise to defend them. They cite a 2009 New Jersey Supreme Court case, In re State Grand Jury Investigation, which they said gives them the right to an order to show cause why ATG should not be ordered to pay legal fees and expenses that it previously agreed to.

But Vazquez said there are issues of material fact as to whether ATG committed to pay their legal fees. He said In re Grand Jury calls for a hearing on the issue, and he asked the parties to brief the question of whether the issue should be addressed by a jury trial or bench trial.

The dispute starts with James Steedy, Sophia Galleher and Matthew Kim,  all employees of Maxlite Inc. of West Caldwell, a maker of LED lighting products. In 2014, the three were lured to join a competitor, ATG Electronics of Rancho Cucamonga, California, which promised to defend them in the event Maxlite sued over their decision to defect.

Maxlite sued ATG and the three defectors, claiming they conspired to solicit its customers in violation of a noncompete agreement they signed for Maxlite. Steedy, Galleher and Kim were initially defended by ATG. But at some point, ATG fired them. ATG says it was for unsatisfactory performance, and the employee defendants say it was because of the costs of the current suit.

Steedy, Galleher and Kim moved for an order compelling ATG to pay their fees. A U.S. magistrate judge issued a report and recommendation in March 2018 denying the application, finding the employees failed to make the requisite showing of irreparable harm. Steedy, Galleher and Kim then sought a declaratory judgment that ATG undertook the responsibility to pay their legal fees in the case and must do so until relieved by the court.

Vazquez said several facts support the employees' argument that ATG committed to pay for their representation. He cited ATG's payment of $57,500 toward their legal fees, without requiring them to make any corresponding payments. In addition, the president and majority shareholder of ATG, Yaxi Ni, sent the employees emails indicating some sort of commitment, Vazquez said.

However, Ni submitted a certification in which he disputes many of the factual assertions made by the employees, and ATG's retainer with the individual employees' defense counsel does not expressly say ATG agreed to pay all legal fees. For those reasons, there are issues of material fact as to whether ATG committed to pay their legal fees.

The case is the first time a federal court has sought to apply In re State Grand Jury Investigation, said Michael Stein of Pashman Stein Walder Hayden in Hackensack, who represents the individual employees along with that firm's J. John Kim.

“These employees were left high and dry by ATG for the simple reason that after luring them away from Maxlite, ATG didn't want to pay the [legal] bills,” Stein said. “I would have been happier had [Vazquez] simply ruled in our favor without the need for a hearing, but the truth is, if you read our brief, you'll understand why we're confident that he's going to find that ATG had committed to funding their defense and they have no right to withdraw their commitment.”

David Jasinski of the Jasinski Law Firm in Newark, who represents ATG, and Peter Perlman of Cohn Lifland Pearlman Herrmann & Knopf in Saddle Brook, who represents Maxlite, did not respond to requests for comment.