Marietta Corporation v. Fairhurst
| Decision Date | 02 January 2003 |
| Citation | 754 N.Y.S.2d 62,301 A.D.2d 734 |
| Parties | MARIETTA CORPORATION, Respondent,<BR>v.<BR>THOMAS FAIRHURST et al., Appellants. |
| Court | New York Supreme Court — Appellate Division |
Plaintiff is a New York corporation with its principal place of business in the City of Cortland, Cortland County, where it employs approximately 450 people; another 300 are employed worldwide. Defendant Pacific Direct, Inc. is also a New York corporation that has its principal domestic office in West Newton, Massachusetts. Pacific Direct, Inc. is a wholly-owned subsidiary of Pacific Direct, Ltd. (hereinafter collectively referred to as Pacific Direct), which has a substantial presence in England, employing approximately 140 employees between England, the United States, the Czech Republic and China. Both companies are suppliers of hotel amenities. Plaintiff supplies basic standard toiletry items in bulk to large hotel chains whereas Pacific Direct focuses primarily on four and five star hotels to provide innovative high-end packaging with branded products.[1]
Defendant Thomas Fairhurst began working for plaintiff in March 1994 as its vice-president in charge of sales. In 1996, he was promoted to senior vice-president for sales and marketing. As a member of the senior management team, he reviewed and strategized sales marketing worldwide and engaged in high-level planning where finance, product development and marketing information was reviewed. His responsibilities further included, inter alia, setting of pricing policies, developing strategic marketing and sales planning on both the national and international level. He monitored competitors, developed contracts with suppliers and had personal knowledge of plaintiff's business plans and costs.
Fairhurst had an employment contract with plaintiff, which expired in October 1999. That contract included a confidentiality provision and an express covenant not to compete, effective for the duration of the time that Fairhurst received payments from plaintiff. Included in such agreement was a recognition that any breach or "threatened breach" of either the confidentiality provision or the restrictive covenant would warrant injunctive relief. Following the expiration of such employment contract, plaintiff presented Fairhurst with a new contract, dated October 11, 1999, which also included a covenant not to compete. Although Fairhurst signed the agreement, he changed the severance payments provision from one to two years to track the duration of the covenant. Plaintiff did not agree with Fairhurst's change in terms and their efforts at negotiation failed. Fairhurst did, however, sign a separate, nondurational confidentiality agreement, which did not contain a restriction on competitive employment or a provision mirroring the prior employment contract concerning plaintiff's entitlement to injunctive relief upon a "threatened breach" of the confidentiality provision. He was terminated from his employment with plaintiff in May 2002.
Fairhurst accepted employment with Pacific Direct on June 19, 2002 as the president of its operations in the United States. His responsibilities included that of a senior salesperson seeking to promote and introduce Pacific Direct's products to the domestic market. Thirty days thereafter, plaintiff commenced this action and also moved for a preliminary injunction to enjoin Fairhurst from working for Pacific Direct and indirectly or directly disclosing plaintiff's trade secrets. Upon the issuance of a temporary restraining order, and following oral argument, Supreme Court granted plaintiff's request, preventing Fairhurst from working for Pacific Direct for 11 months. Both Fairhurst and Pacific Direct appeal.[2]
Preliminary injunctive relief is a drastic remedy which is not routinely granted (see Peterson v Corbin, 275 AD2d 35, 37, lv dismissed 95 NY2d 919; Cool Insuring Agency v Rogers, 125 AD2d 758, 760, appeal dismissed 69 NY2d 1037). As a discretionary determination, the court must assess whether the moving party has demonstrated that irreparable harm will occur if the injunction is not granted, that such party has a likelihood of success on the merits, and that the balance of the equities tip in its favor (see Aetna Ins. Co. v Capasso, 75 NY2d 860, 862). Upon our review of this record, we conclude that Supreme Court abused its discretion when it granted the preliminary injunction.
Plaintiff contended that Fairhurst had, or would inevitably, use confidential information and trade secrets from plaintiff in carrying out the duties of his new position and that such conduct constituted a misappropriation of trade secrets and breach of the confidentiality agreement. Absolutely no evidence was proffered to support the assertion that Fairhurst had already intentionally disclosed any proprietary information, nor was an anticompetitive employment agreement in effect. Building from the concept of a threatened disclosure of trade secrets, Supreme Court utilized a doctrine, not yet adopted by the state courts, of inevitable disclosure (see EarthWeb, Inc. v Schlack, 71 F Supp 2d 299, 309-310; PSC, Inc. v Reiss, 111 F Supp 2d 252, 258-259; International Paper Co. v Suwyn, 966 F Supp 246, 258-259). It concluded, after finding "no persuasive evidence that Fairhurst has intentionally disclosed any proprietary information he obtained from plaintiff to Pacific Direct, or any of its employees," that plaintiff met the irreparable harm prong necessary for the issuance of a preliminary injunction. Despite the lack of evidence that Fairhurst had actually misappropriated any alleged trade secrets, the court reasoned that since it was extremely likely that he would "use those secrets—if only unconsciously—in carrying out his duties with Pacific Direct, to [plaintiff's] unfair advantage," that plaintiff had established a likelihood of success on its claims of misappropriation and breach of the confidentiality agreement. We find insufficient record evidence to support these findings.
Acknowledging that irreparable harm can be established if a trade secret has been misappropriated, where there is no actual theft of a trade secret, the court, in applying the doctrine of inevitable disclosure, is "asked to bind the employee to an implied-in-fact restrictive covenant" not to compete (EarthWeb, Inc. v Schlack, supra at 310). As no restrictive covenant was in existence here and our well entrenched state public policy considerations disfavor such agreements,[3] the doctrine of inevitable disclosure is disfavored as well, "[a]bsent evidence of actual misappropriation by an employee" (id. at 310). In those rare instances where such doctrine is applied, it is further cautioned that the proponent should not be permitted to "make an end-run around the [confidentiality] agreement by asserting the doctrine of inevitable disclosure as an independent basis for relief" (id. at 311). In assessing whether such injunctive relief is appropriate, the court should consider whether: "(1) the...
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