Opinion
2011-0373.
Decided June 30, 2011.
HERRICK, FEINSTEIN, LLP, By: Carol M. Goodman, Esq., Ross L. Hirsch, Esq., Jonathan Adler, Esq., Attorneys for Plaintiff, New York, New York.
MILLER MAYER, By: Adam Schaye, Esq., Attorneys for Plaintiff, Ithaca, New York.
COSTELLO COONEY FEARON, PLLC, By: Edward G. Melvin, II, Esq., Attorneys for John Berry and John Hall-Thurnheer, Syracuse, New York.
BOND SCHOENECK KING, By: Jonathan B. Fellows, Esq., Attorneys for Ciro Javier Garcia Medrano, Roman Cervantes, JRS Turbine Blading Parts, LLC, Turbinas y Servicios Industriales, S.A. de C.V., and International Turbine Services, Inc., Syracuse, New York.
HANCOCK ESTABROOK, LLP, By: John G. Powers, Esq., Attorneys for Daniel Grinolds, Timothy Parker, Eric Bunnell, Syracuse, New York.
Plaintiff employs a total of approximately 170 people at two facilities — one located in Ithaca and another located in Owego — where it manufactures rotating and stationary blades used in steam and gas turbines, axial compressors and hot gas expanders. In this action, it alleges that certain of its former employees — defendants Berry, Hall, Grinolds, Parker and Bunnell (the employee defendants) — engaged in a scheme in concert with defendants Garcia and Cervantes, and various entities owned or controlled by them also named as defendants (collectively, the Garcia defendants), to compete unfairly with plaintiff by, among other things, appropriating plaintiff's confidential information and recruiting its employees to work at a manufacturing facility to be established in the Town of Dryden, Tompkins County. At commencement, plaintiffs sought an ex parte temporary restraining order and moved for a preliminary injunction. A temporary restraint containing a portion of the relief sought by plaintiff (TRO) was granted by order to show cause signed on April 15, 2011, conditioned upon plaintiff filing an undertaking for $750,000 on or before April 26, 2011. The undertaking was timely filed and the court heard oral argument on the preliminary injunction motion on May 11, 2010.
Plaintiff does not allege that Bunnell actively participated with the other employee defendants in the initial plan to form a competing business; rather, its claims against Bunnell are limited to the causes of action related to his alleged breach of the duty of loyalty, misappropriation of confidential information and fraud (the third, sixth, tenth and eleventh causes of action). The entities named as defendants that are allegedly controlled by Garcia and/or Cervantes are JRS Turbine Blading Parts, LLC (JRS), a Nevada limited liability company; Turbinas y Servicios Industriales S.A. de C.V. (Turbinas), a Mexican corporation; and International Turbine Services, Inc. (ITS), a Texas corporation. Defendant ETC Consulting, LLC (ETC) is a New York limited liability company which plaintiff alleges was formed in connection with defendants' plan to open and operate a competing blade manufacturing facility in Tompkins County. No injunctive relief has been sought against defendants Scolaro, Shulman, Cohen, Fetter Burstein, P.C. (the Scolaro firm) or Jeffrey Scheer, and neither they nor ETC appeared in opposition to plaintiff's preliminary injunction motion.
It appears that plaintiff's primary aim in seeking a preliminary injunction is to prevent the employee defendants and any of its current employees from providing services to any competing enterprise operated by the Garcia defendants, particularly a new manufacturing facility proposed to be established in the Town of Dryden. In that regard, it seeks to enforce covenants not to compete against Berry and Hall to preclude them from providing services to the Garcia defendants, or from working to establish a competing enterprise; prohibit the Garcia defendants from employing, or accepting any services from, any of the employee defendants or any current employees of plaintiff; and to prohibit all defendants (except the Scolaro firm and Scheer) from establishing any facility which competes with plaintiff's business within 200 miles of Ithaca or Owego. Plaintiff also seeks the protection and return of certain information alleged to be confidential and proprietary.
To show its entitlement to the requested preliminary injunction — which is a drastic remedy that is not routinely granted — plaintiff must demonstrate: "(1) the likelihood of success on the merits; (2) irreparable injury absent granting the preliminary injunction; and (3) a balancing of the equities in [its] favor" ( H. Meer Dental Supply Co. v Commisso, 269 AD2d 662, 663 [quotation and citations omitted]; see also Marietta Corp. v Fairhurst, 301 AD2d 734, 736). Whether to grant or deny a preliminary injunction is a decision that rests in the trial court's sound discretion ( see Cooperstown Capital, LLC v Patton , 60 AD3d 1251 ). Here, plaintiff has failed to carry the heavy burden necessary to justify exercise of the court's discretion to grant the extraordinarily broad scope of preliminary injunctive relief requested.
Berry — plaintiff's former Chief Executive Officer (CEO) — and Hall — its former Chief Financial Officer (CFO) — is each subject to a written employment agreement that contains a restrictive covenant, which plaintiff now seeks to enforce. Notably, plaintiff does not seek an order that would specifically preclude them from providing services to the Garcia defendants. Rather, plaintiff seeks an order that would only effectively restate the language of the covenant, by prohibiting Berry and Hall from affiliating in any manner with a business that directly competes with plaintiff. Absent a determination as to whether any of the Garcia defendants directly compete with plaintiff's business, such an order would merely engender additional litigation. However, plaintiff also seeks an order prohibiting the Garcia defendants from directly or indirectly hiring, or accepting services from, any of the employee defendants, including Berry and Hall, which would preclude Berry and Hall from providing services to the Garcia defendants.
Assuming, without deciding, that it is valid and enforceable, plaintiff has not shown that Berry's or Hall's present conduct violates the restrictive covenant. Notably, the covenant specifically precludes affiliation only with a direct competitor of plaintiff in the business of manufacturing turbine blades. Plaintiff has not contradicted Berry's testimony that the company to which he is now providing personal services — Turbopartes Y Servicios Especializados, S.A. DE C.V. (Turbopartes), a Mexican corporation which is owned, at least in part, by Garcia — does not directly compete with plaintiff because it neither manufactures nor sells turbine blades ( see Berry Affidavit, ¶¶ 26 — 27). In that regard, Berry explains that Turbopartes purchases — but does not manufacture — turbine blades for use in its business of servicing, maintaining and overhauling gas and steam turbines ( id.). While plaintiff does not contend that it directly competes with Turbopartes, it argues that Berry's association with any of the Garcia defendants violates the restrictive covenant simply because one of them — JRS — manufactures turbine blades. This argument is unavailing on the present record. Plaintiff has not rebutted defendants' proof that JRS is no longer in business; that its former operations are now conducted in Minden, Nevada by Turbine Blading Parts, LLC (TBP), which is not a party to this action; and that such operations provide turbine blades primarily for use by the Garcia defendants and their affiliates, with only minor sales to third parties ( see Affidavit of Ciro Javier Garcia Medrano, sworn to May 4, 2011 [Garcia Affidavit], ¶¶ 6, 9, 24; Berry Affidavit, ¶¶ 29 — 31). Accordingly, plaintiff has failed to establish that Berry is affiliated with one of its direct competitors merely by reason of his providing services to Turbopartes.
Covenants not to compete will be enforced if they are reasonably limited in time and scope, are necessary to protect the employer's interests, are not harmful to the public, and are not unduly burdensome ( see Battenkill Veterinary Equine v Cangelosi , 1 AD3d 856 [2003]; Albany Med. Coll. v Lobel, 296 AD2d 701 [2002]). Here, the restrictive covenants are reasonably limited in time — nine months for Berry and eighteen months for Hall — and also in scope, inasmuch as they are limited to circumstances in which the employee terminates the employment relationship and, in that event, only bar the employee from affiliating with a direct competitor of plaintiff in the business of manufacturing rotating and stationary blades for axial compressors, steam and gas turbines and hot air expanders. The covenants are not unduly burdensome, inasmuch as they provide for continued payment of the employee's salary during the restricted period. Having concluded that the present conduct of Berry and Hall does not violate the restrictive covenant, the court has not considered whether it may be enforceable under other circumstances as necessary to protect plaintiff's legitimate interests. It bears noting that, inasmuch as payment of a former employee's salary during the restricted period is but an additional factor which may be considered in determining whether a covenant is reasonable ( see Maltby v Harlow Meyer Savage, 166 Misc 2d 481, 486 [1995], affd 223 AD2d 516 [1996], lv dismissed 88 NY2d 874 [1996]; Estee Lauder Cos., Inc. v Batra, 430 F Supp 2d 158, 180 — 181 [SDNY 2006]), the fact that the covenant at issue provides for continued salary payments to Berry and Hall does not require that it be enforced ( see Quandt's Wholesale Distribs. v Giardano, 87 AD2d 684 [1982], lv dismissed 56 NY2d 805 [1982] [a covenant that is reasonable in scope and not unduly burdensome may be enforced only upon a showing that it is necessary to protect the employer's legitimate interests]).
While Turbinas is named as a defendant, it presently appears that Turbopartes is a separate corporate entity which is not a party to this action.
Plaintiff concedes that defendant Turbinas operates a similar business as that of Turbopartes — noting that it is a "large overhaul shop' in Monterrey, Mexico" ( see Affidavit of John Slocum, sworn to April 8, 2011, ¶ 39) — and that the Garcia defendants became customers of plaintiff, purchasing approximately $3 million worth of turbine blades in 2010 and 2011 ( see id., ¶ 41; see also complaint, ¶¶ 189 — 199).
Plaintiff's request for an order directing that it pay any compensation that may yet be due Berry into a designated account during the pendency of the action must be denied because it has not demonstrated that a money judgment on its breach of contract claim against Berry would be inadequate ( see CPLR 6301; see generally Credit Agricole Indosuez v Rossiyskiy Kredit Bank, 94 NY2d 541 [2000]; Destiny USA Holdings, LLC v Citigroup Global Mkts. Realty Corp. , 69 AD3d 212 [2009]).
Similarly, plaintiff has not shown that Hall's current efforts to establish a facility in the Town of Dryden to compete with plaintiff violates the terms of the restrictive covenant. An active employee may prepare to compete — even in secret — prior to his departure, provided that he does not use his employer's time, facilities or proprietary secrets to do so ( see Walter Karl, Inc. v Wood, 137 AD2d 22, 28 [preparing to compete not improper where there was no evidence that the new business incorporated by defendant conducted any business prior to the date his employment terminated]; see also Rochester Linoleum Carpet Ctr., Inc. v Cassin , 61 AD3d 1201 [incorporate]; Chemfab Corp., 263 AD2d 788 [incorporate]; Schneider Leasing Plus v Stallone, 172 AD2d 739 [create]; Mayo, Lynch Assoc. v Fine, 148 AD2d 425 [form]; cf. Maritime Fish Prods. v World-Wide Fish Prods., 100 AD2d 81, 87 — 89 [1984], lv dismissed 63 NY2d 675 [employee violated the duty of loyalty by engaging in five secret sales that appropriated opportunities properly belonging to the employer while still employed]). A former employee is permitted to prepare to compete during the term of a restrictive covenant — as an active employee would be permitted to do without violating the duty of loyalty — in order to begin competing upon expiration of the covenant. Restraining defendants from preparing to compete by prohibiting them from working to establish the proposed facility during the restricted period would have the effect of extending the term of the covenant for an additional year — the length of time which defendants indicate will be required to make the proposed competing facility operational.
Plaintiff has not shown that Hall is impermissibly preparing to compete through the use of trade secrets or confidential information. Plaintiff contends that the information it uses in the process of manufacturing turbine blades — which is contained in various engineering files, drawings, "op sheets" and forgings allegedly misappropriated by defendants — is confidential and proprietary. However, it did not contradict defendants' explanation that plaintiff's business — like that of its competitors — consists of reverse engineering blades that it did not design and that it did not originally manufacture by using commercially available software in a process that takes approximately one to three engineer workdays per blade ( see Affidavit of John Berry, sworn to April 29, 2011 [Berry Affidavit], ¶¶ 37 — 40; Affidavit of Daniel Grinolds [Grinolds Affidavit], acknowledged May 4, 2011, ¶¶ 47 — 63; Affidavit of Timothy Parker, acknowledged May 3, 2011 [Parker Affidavit], ¶¶ 44 — 52). Accordingly, inasmuch as such information is capable of being easily acquired or duplicated by proper means, it does not constitute a trade secret ( see Marietta Corp., 301 AD2d at 738 — 739; Delta Filter Corp. v Morin, 108 AD2d 991; Ferranti Elec. v Harwood, 43 Misc 2d 533).
The documents entitled "Affidavit" signed by Grinolds, Parker, Bunnell and non-party witness Keith Card are not executed in the manner required of an affidavit because they contain acknowledgments rather than the required jurats. The document signed by John Powers entitled "Affirmation" does not comply with CPLR 2106, as required of an attorney affirmation, because it does not contain a statement by Powers affirming its truth under the penalties of perjury. Such errors in preparation and execution of the referenced documents have been disregarded on this motion because they do not affect a substantial right of a party ( see CPLR 2001; Krug v Offerman, Fallon, Mahoney Cassano, 245 AD2d 603 [1997]; Matter of Smith v Board of Stds. Appeals of City of NY, 2 AD2d 67 [1956]; Federal Natl. Mtge. Assoc. v Graham, 67 Misc 2d 735 [1971]; see also Sam v Town of Rotterdam, 248 AD2d 850 [1998], lv denied 92 NY2d 804 [1998] [objection to the technical form of documentary evidence submitted in support of summary judgment motion was waived by the failure to object]).
Nor has plaintiff alleged that Hall is using a confidential customer list in preparing to compete. It has not alleged that its customers are not known in the trade, or that they may be identified only through extraordinary efforts ( see H. Meer Dental Supply Co., 269 AD2d at 664; Riedman Corp. v Gallager , 48 AD3d 1188 ; Savannah Bank v Savings Bank of Fingerlakes, 261 AD2d 917; Empire Farm Credit v Bailey, 239 AD2d 855; see also Marietta Corp., 301 AD2d at 738 — 739 [pricing data and marketing strategies are not trade secrets]; Chemfab Corp. v Integrated Liner Tech., 263 AD2d 788 [knowledge of identity of a customer is not a trade secret]). Plaintiff has not shown that defendants misappropriated any specific information about its own customers, nor has it contradicted Hall's explanation that the sales information which he sent to his personal email address on January 5, 2011 related only to operations of plaintiff's Dutch affiliate — Stork Turbo Blading — which is not useful in the United States market ( see Affidavit of John Hall-Thurnheer, sworn to May 6, 2011 [Hall Affidavit], ¶¶ 24 — 27).
That plaintiff has not alleged the existence of a confidential customer list or a single instance where any of its customers have been contacted by a defendant requires denial of its request for an order prohibiting defendants from soliciting its customers.
Plaintiff's request for an order prohibiting the Garcia defendants from employing Parker, Grinolds and Bunnell (herein the at-will employees) must also be denied. None of them had a written employment contract with plaintiff and none were bound by an express covenant not to compete. Each now works for TBP. It is well-established that employees who have not executed a valid restrictive covenant are free to compete with their former employer, provided they do not use fraudulent methods, trade secrets or confidential information ( see Pearlgreen Corp. v Yau Chi Chu , 8 AD3d 460; Chemfab Corp., 263 AD2d 788; Mayo, Lynch Assoc., 148 AD2d 425; Walter Karl, Inc., 137 AD2d 22). Plaintiff has not shown that the at-will employees are using trade secrets or confidential information in performing their duties for TBP and, accordingly, the court will not restrain the Garcia defendants from accepting services from them.
Plaintiff also seeks injunctive relief aimed at preventing the loss of its employees to defendant. To that end, it requests an order prohibiting all defendants (except the Scolaro firm and Scheer) from hiring or accepting services from any of its remaining employees and, also, an order prohibiting defendants from establishing or operating any business or enterprise within 200 miles of plaintiff's Ithaca and Owego facilities, located in adjacent New York counties, that would compete with its business. Retention of its workforce appears to be plaintiff's primary objective for seeking preliminary injunctive relief; indeed, the only irreparable harm effectively identified by plaintiff on this motion is the potential loss of employees whom it alleges possess irreplaceable technical, engineering and operations experience necessary to the continued success of its operations. However, even if the loss of employees to a competitor would irreparably harm plaintiff, it has not made the necessary showing of likelihood of success on the merits required to justify preliminary injunctive relief.
Notably, plaintiff has not alleged that any of its former or current employees are bound by written employment agreements or restrictive covenants — except for Berry and Hall. Accordingly, to prevail on its tortious interference claim with respect to its remaining employees, "plaintiff has the high burden of asserting that defendant employed wrongful means, such as fraud, misrepresentation or threats to effect the termination of employment[;] [a]n allegation of persuasion is not sufficient to meet that standard" ( Lockheed Martin Corp. v Aatlas Commerce, Inc., 283 AD2d 801, 803 [quotation and citations omitted]; accord Murray v SYSCO Corp., 273 AD2d 760, 761; Headquarters Buick-Nissan v Michael Oldsmobile, 149 AD2d 302). Plaintiff has not met that burden.
In that regard, plaintiff accuses Berry — with Hall's assistance — of "poisoning the water" and creating dissension among plaintiff's employees by misrepresenting to them that the parent company was planning to take a number of steps that would negatively affect the employees, including reduction of salaries; elimination of overtime pay and cash bonuses; installation of a Dutch management team to replace American executives; and replacement of the local sales team ( see complaint, ¶¶ 94 — 99). In light of the evidence submitted by defendants, there is a sharply-disputed issue of fact with respect to the truth of Berry's alleged statements to plaintiff's employees which preclude the granting of preliminary injunctive relief ( see Eklund v Pinkey , 31 AD3d 908 , 909, citing Marietta Corp., 301 AD2d at 736; Pearlgreen Corp., 8 AD3d at 461; Walter Karl, Inc., 137 AD2d at 26). Specifically, defendants aver that management policies imposed by the parent company changed dramatically in 2009 and 2010 — after the parent company was acquired by a British private equity firm — by, among other things, implementation of new sales system; a plan to replace Berry with a Dutch executive; a plan to reduce employee compensation; and a plan to have plaintiff enter the turbine servicing market, where it would compete directly with its own existing customers ( see Berry Affidavit, ¶¶ 12, 15, 17 — 23; Hall Affidavit, ¶¶ 12, 13, 19; Grinolds Affidavit, ¶¶ 25 — 28; Parker Affidavit, ¶¶ 23 — 25). Notably, Grinolds and Parker aver that they learned of the proposed management changes directly from the parent company — not from Berry. Moreover, it bears noting that plaintiff has not cited any law that would support its extraordinary request for an order that would limit defendants from opening a manufacturing facility within 200 miles of plaintiff's two existing plants — an order that would potentially be most detrimental to innocent third parties, i.e., plaintiff's remaining employees, by depriving them of additional employment opportunities and the potential that they may benefit from competition for their services.
In short, plaintiff has failed to connect its accusations that defendants have engaged in a pervasive conspiracy to unlawfully steal its business with each of the elements necessary to establish entitlement to the requested preliminary injunctive relief. Accordingly, while plaintiff may ultimately establish that it is entitled to damages, it has not shown a reason for the court to depart from "the general public policy favoring robust and uninhibited competition . . . merely because [it] wishes to insulate [itself] from competition" ( American Broadcasting Cos. v Wolf, 52 NY2d 394, 404; accord Walter Karl, Inc. v Wood, 137 AD2d at 29).
Plaintiff also seeks orders barring defendants from using its allegedly confidential and proprietary information and ordering the return of any such information which defendants may have in their possession. Inasmuch as plaintiff failed to establish the existence of confidential information entitled to protection as a trade secret, it is entitled to an order prohibiting defendants' use of its information only to the extent that it has in fact been wrongfully taken by defendants ( see Continental Dynamics Corp. v Kanter, 64 AD2d 975). In that regard, plaintiff has alleged three specific instances of misappropriation: (1) of engineering files copied by Bunnell prior to his departure from plaintiff; (2) of customer information which Hall sent to his personal email address on January 5, 2011, while he was still employed by plaintiff; and (3) of forgings obtained by Turbinas in an alleged sham purchase transaction, which also included delivery of the engineering drawings ("op sheets") for the corresponding blades to JRS. Bunnell, Hall and Turbinas have admitted possession of such information, have denied using it in any fashion, and have volunteered to return it ( see Affidavit of Eric Bunnell, acknowledged May 4, 2011 [Bunnell Affidavit], ¶¶ 72 — 79; Hall Affidavit, ¶¶ 40 — 42; Garcia Affidavit, ¶¶ 15 — 18). In addition, Bunnell and Hall both deny having provided such information to any third party ( see Bunnell Affidavit, ¶ 79; Hall Affidavit, ¶ 42). Accordingly, plaintiff is entitled to an order barring defendants' use of such information and providing for its return.
Based on the foregoing, it is
ORDERED that plaintiff's motion for a preliminary injunction is granted, to the extent hereafter set forth, and is otherwise denied; and it is further
ORDERED that the amount of the undertaking required to be filed by plaintiff, pursuant to CPLR 6312(b), is set in the nominal amount of $10,000; and it is further
Notwithstanding the court's directive, no party addressed the amount of the required undertaking should the preliminary injunction be granted ( see order to show cause dated April 15, 2011 [order to show cause], p. 3 [subparagraph j]). Inasmuch as the preliminary injunctive relief hereby granted — barring use of information taken from plaintiff by former employees and ordering its return — is based on consent, the undertaking is fixed in a nominal amount ( see Ithilien Realty Corp. v 180 Ludlow Dev. LLC , 80 AD3d 455 [2011] [nominal undertaking fixed in the amount of $10,000]).
ORDERED that plaintiff shall file an undertaking in the specified amount on or before July 22, 2011 ; and it is further
ORDERED that if the required undertaking is not timely filed, the preliminary injunction hereby granted shall be deemed vacated; and it is further
ORDERED that, on or before July 29, 2011 :
(1) Bunnell shall cause to be delivered to plaintiff's counsel the originals and all copies, in any form, of the information he copied from plaintiff's computer system in January 2011, including the actual passport drive referenced in paragraph 72 of his affidavit. His counsel may retain one copy of the material delivered for use in defending this action only.
(2) Hall shall cause to be delivered to plaintiff's counsel all copies, in any form, of any information he possesses regarding the customers of plaintiff, its parent, or any subsidiary or affiliate of its parent corporation, including the information that he sent to his personal email address on January 5, 2011. His counsel may retain one copy of the material delivered for use in defending this action only.
(3) Garcia, Turbinas, and JRS shall cause the forgings referenced in paragraph 18 of the Garcia Affidavit to be shipped, at their sole cost and expense, to plaintiff's Ithaca location and shall cause the original and all copies, in any form, of the operations sheets described in paragraph 18 of the Garcia Affidavit to be delivered to plaintiff's counsel. Their counsel may retain one copy of the operations sheets for use in defending this action only.
(4) Any defendant (except the Scolaro Firm and Scheer) that has obtained a copy or copies of any of the above-described information — notwithstanding Bunnell's and Hall's representations that it has not been disclosed and the provision of the TRO prohibiting disclosure — shall cause such copy or copies to be delivered to plaintiff's counsel, provided that counsel for any such defendant may retain, for use in defending this action only, one copy of all information provided to plaintiff.
(5) If any of the above information is stored in electronic form on a portable storage device, such as a CD, USB flash drive, or external hard drive, the actual storage device shall be delivered to plaintiff's counsel.
(6) Any copies stored in electronic form — including all duplicate or back-up copies — on a device not practicably capable of delivery to plaintiff's counsel, such as a computer's internal hard drive or a network server, shall be identified on a list to be provided to plaintiff's counsel which describes any location where such copies were stored; such copies shall be deleted. And, it is further
ORDERED that following service of a copy of this decision and order, with notice of entry, upon their respective counsel, no defendant shall use or disclose, in any fashion, any of the above-described items or information; their counsel may disclose any information retained in accordance with the provisions of this decision and order only to counsel for the other parties to this action in response to a proper discovery demand, or upon further order of the court; and it is further
ORDERED that subsection (c) of the TRO (set forth on page three of the order to show cause, which bars use of allegedly confidential information) is terminated as to each defendant named therein upon the first of the following to occur (1) service of a copy of this decision and order, with notice of entry, upon his or its counsel, or (2) July 22, 2011 ; and it is further
ORDERED that all remaining provisions of the TRO are hereby terminated.
This decision constitutes the order of the court. The transmittal of copies of this decision and order by the court shall not constitute notice of entry.