Lumex, Inc. v. Highsmith

• Citation: 919 F. Supp. 624
• Decision Date: 19 March 1996
• Docket Number: CV 96-0855 (ADS).
• Parties: LUMEX, INC., Plaintiff, v. Greg HIGHSMITH and Life Fitness, Defendants.
• Court: U.S. District Court — Eastern District of New York

919 F. Supp. 624

LUMEX, INC., Plaintiff, v. Greg HIGHSMITH and Life Fitness, Defendants.

CV 96-0855 (ADS).

United States District Court, E.D. New York.

March 19, 1996.

Rains & Pogrebin, P.C., Mineola, New York (Frederick D. Braid, Mark N. Reinharz, of counsel), for plaintiff.

Freeborn & Peters, Chicago, Illinois (Steven M. Hartmann, of counsel), for defendants.

MEMORANDUM AND ORDER

SPATT, District Judge.

This is a lawsuit by a former employer to enforce the terms of a non-competition agreement, sometimes referred to as a restrictive covenant. The two companies involved, the former employer and the prospective new employer, are in the business of manufacturing and selling machines and equipment used in the health fitness industry. Before the Court is a motion for a preliminary injunction by the former employer, seeking to enjoin and restrain the former employee from working with the new employer for a period of six months; to enjoin and restrain the former employee from disclosing any trade secrets and confidential information; and to enjoin and restrain the former employee from soliciting or attempting to solicit its customers.

BACKGROUND AND INITIAL FINDINGS

Cybex is a division of Lumex, Inc. ("Lumex" or "plaintiff"). Cybex is the manufacturer of weight lifting, strength training and fitness equipment. This type of equipment is used for exercising, body building and for health purposes. There are two general categories of such equipment: (1) the strength training or body building equipment, and (2) cardiovascular equipment such as bicycles and treadmills. There is evidence that Cybex is the largest manufacturer of strength training equipment in the United States. The defendant Life Fitness ("Life Fitness" or the "defendant") also manufactures this kind of equipment. The customers of both companies include gyms, health fitness centers, physical therapy centers, hospitals, Ys, athletic teams, among other institutional and commercial customers.

The defendant Gregory R. Highsmith ("Highsmith") was first employed by Lumex on December 9, 1985 as an Assistant Product Manager, and then was promoted to Product Manager. In 1994, he was named to the position of Cybex Worldwide Marketing Manager. His office was in the plaintiff's Owatonna, Minnesota place of business. While not an officer or director, Highsmith had wide ranging duties within Lumex, was involved in top level meetings and decisions on all matters within the company, and was highly regarded by his employer.

On December 12, 1994, Highsmith signed a "Technical Information and Non-Competition Agreement," ("The Agreement"), for Lumex, which included the following terms:

2. OBLIGATIONS OF EMPLOYEE. Employee will be employed by Employer in a capacity such that he has access to or expects to become informed of Confidential or disclose to in (sic) others any Confidential Information without Employer's prior written consent. Upon termination of his employment with Employer, Employee shall promptly deliver to Employer all copies of documents containing Confidential Information in his possession or control and all memoranda, notes, records, reports, photographs, drawings, plans, papers and all other inventions based upon or derived from confidential Information to which Employee has access while employed with Lumex, within one (1) year after termination of such employment.

(i) Employee shall properly and fully inform Employer in writing; and

(ii) Employee shall cooperate fully with Employer and execute and deliver such documents and do such other acts and things as Employer may reasonably request, at Employer's expense to effectuate Employer's right to utilize such inventions.

(b) Confidential Information. Employee shall not at any time, during or after termination of his employment with Employer, directly or indirectly, use documents made or compiled by the Employee or made available to him during the course of his employment, or copies, reproductions or abstracts thereof, whether or not such documents contain Confidential Information.

(c) Post-Employment Competition. For a period of six months after termination of his employment with Employer, Employee shall not, directly or indirectly, render services to, act as an officer, director, partner, consultant or employee of, or otherwise assist any competitor. Employee, however, may accept employment with a competitor the business of which is diversified and which is not a Competitor as to part of such business; provided that Employer shall receive, prior to Employee's rendering services to or assisting such Competitor, written assurances deemed satisfactory by the Employer from the Employee and the Competitor that Employee will not, directly or indirectly, render services to or assist any part of the business which is a Competitor.

There are also the following definitions in the non-competition agreement:

(c) "Confidential Information" means inventions and also information not generally known or readily obtainable relating to Employer's business, including, but not limited to, such information regarding products, manufacturing procedures, methods, equipment, compositions, technology, formulas, trade secrets, know-how, research and development programs, sales methods, cost of production and overhead, customer lists, customer usages and requirements and other confidential technical or business information and dates.

(d) "Competitor" means any person, firm, or organization (or parent, subsidiary or affiliate thereof) engaged in or about to become engaged in research on, or the production and/or sale of any Competitive Product, regarding which the employee has obtained Confidential information by virtue of his employment with Employer or with respect to which employee can exert a competitive influence by virtue of the special and unique services he has provided to Employer.

(e) "Competitive Product" means a product which is similar to or competitive with a product manufactured and/or sold by the Employer, or with respect to which the Employer has conducted research, during the three (3) years immediately preceding termination of the Employee's employment by the Employer.

The agreement further provides that if Highsmith is unable to obtain employment because of the provisions of paragraph 2(c), "such provisions shall be binding upon employee for only so long as the employer (Lumex) shall make payments to Employee equal to his monthly base pay at termination," together with his premiums for health and life insurance. In other words, for such time as Highsmith is unable to find work because of the six-month restrictive covenant, Lumex will pay his salary and other benefits for a period of six months.

On February 9, 1996, Highsmith resigned from his position with Lumex. He has accepted a position with Life Fitness, in which he will work with the defendant's Life Circuit equipment. On February 20, 1996, Augie Nieto, the President and CEO of Life Fitness, sent a letter to counsel for Lumex, stating in part that: "I can assure you that Life Fitness has not and does not intend to induce Mr. Highsmith to breach any contractual obligations he may have had with Cybex, nor do we wish to obtain confidential or trade secret information belonging to your client." (Defendants' Exh. 7).

After being advised of the lawsuit commenced by the plaintiff in the State Supreme Court, Suffolk County, Nieto wrote to J. Raymond Elliott, President and CEO of Lumex, again assuring him "that Life Fitness has not and does not intend to induce Greg to breach any contractual obligations he may have with Cybex, nor do we wish to obtain confidential or trade secret information belonging to Cybex." (Defendants' Exh. 9).

Unconvinced by the written assurances by Life Fitness, and still concerned about the potential disclosure of their trade secrets, confidential information, financial position and prototype future equipment, the plaintiff proceeded forward with this lawsuit.

In the Supreme Court Suffolk County, an ex parte temporary restraining order was granted to the plaintiff by the Hon. Elizabeth H. Emerson on February 21, 1996, which provides as follows:

It is ORDERED that, pursuant to CPLR § 6313, pending the return date of this motion, Defendant Highsmith is enjoined and restrained from taking any action or actions prohibited by section 2(c) of Technical Information and Non-Competition Agreement between Greg Highsmith and Lumex, Inc. ("the Agreement"); soliciting or attempting to solicit customers of Lumex; and using in any way any confidential information or property of Lumex.

The Court notes that Justice Emerson deleted the provision expressly restraining Highsmith from working for Life Fitness. However, because the Court enjoined Highsmith from "taking any action ... prohibited by Section 2(c)," this could be construed as a prohibition from working for Life Fitness. As of this time, Highsmith has not yet started to work for Life Fitness.

By notice of removal filed with this court on February 27, 1996, this case was removed to this court. The Court held a hearing on the plaintiff's motion for a preliminary injunction on March 5, 1996, March 6, 1996 and March 12, 1996.

DISCUSSION

I. The Standard for the Issuance of a Preliminary Injunction

In the seminal case of Jackson Dairy Inc. v. H.P. Hood & Sons, Inc., 596 F.2d 70, 72 (2d Cir.1979), the Second Circuit set forth the applicable standard in this Circuit for obtaining preliminary injunctive relief. According to Jackson Dairy, the movant must clearly establish the following:

(a) irreparable harm and (b) either (1) likelihood of success on the merits or (2) sufficiently serious questions going to the merits to make them a fair ground for litigation and a balance of hardships tipping decidedly toward the party requesting the preliminary relief.

Jackson Dairy, supra, 596 F.2d at 72; see also Alan Skop, Inc. v. Benjamin Moore, Inc., 909 F.2d 59, 60 (2d Cir.1990); Tucker Anthony...