Shred-It, Usa, Inc. v. Mobile Data Shred, Inc.

• Decision Date: 20 May 2002
• Docket Number: No. 01 CV 1967(VM).,01 CV 1967(VM).
• Citation: 202 F.Supp.2d 228
• Parties: SHRED-IT USA, INC. and Shred-It Canada, Inc., Plaintiffs, v. MOBILE DATA SHRED, INC., Michael Bohbot, Nitza I. Cruz, and Executive Mobile Shredding, Defendants.
• Court: U.S. District Court — Southern District of New York

202 F.Supp.2d 228

SHRED-IT USA, INC. and Shred-It Canada, Inc., Plaintiffs, v. MOBILE DATA SHRED, INC., Michael Bohbot, Nitza I. Cruz, and Executive Mobile Shredding, Defendants.

No. 01 CV 1967(VM).

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

May 20, 2002.

COPYRIGHT MATERIAL OMITTED

Gabrielle Lisa Gould, Kramer, Levin, Robert N. Holtzman, Naftalis & Frankel, New York City, for Plaintiff.

Michael Gross, Hackensack, NJ, for Defendant.

DECISION AND ORDER

MARRERO, District Judge.

On March 18, 2002, plaintiffs Shred-It USA, Inc. and Shred-It Canada, Inc. ("Shred-It"), filed a motion for a temporary restraining order and a preliminary injunction, pursuant to Federal Rule of Civil Procedure 65, against all defendants in this action, enjoining them, among other things, from engaging in the mobile shredding business in the United States or Canada. In an Order dated March 19, 2002, the Court issued the temporary restraining requested by Shred-It. On March 22, 2002, the Court held a hearing on this matter with the appearance of counsel for all parties. During the hearing, defendants Michael Bohbot (hereinafter "Bohbot") and Mobile Data Shred, Inc. (hereinafter "MDS") consented to the continuation of the temporary restraining order as to them, subject to the terms of a proposed Order, to be agreed upon by the parties and submitted for the Court's approval. Having concluded that Shred-It had not satisfied the applicable standards to sustain a continuation of the temporary restraining order as against defendants Nitza I. Cruz (hereinafter "Cruz") and Executive Mobile Shredding (hereinafter "EMS"), the Court issued an Order on March 26, 2002, vacating the temporary restraining order as against those defendants. On April 19, 2002, the Court held another hearing on Shred-It's motion for a preliminary injunction against Cruz and EMS. At the hearing, counsel for Shred-It, Bohbot and MDS informed the Court that they had not been able to agree upon a proposed preliminary injunction, as they had agreed to do at the March 26, 2002 Hearing.

On April 18, 2002, Bohbot and MDS moved to dismiss Shred-It's complaint, alleging that it failed to state a claim upon which relief may be granted and that it failed to plead the circumstances of the alleged fraud with particularity. For the reasons set forth below, Shred-It's motion for a preliminary injunction with respect to Bohbot and MDS is granted and Shred-It's motion for a preliminary injunction with respect to Cruz and EMS is denied. In addition, the motion to dismiss submitted by Bohbot and MDS is granted in part and denied in part.

I. SHRED-IT'S MOTION FOR A PRELIMINARY INJUNCTION

A. FACTUAL BACKGROUND

The following facts were adduced in the two hearings that the Court held on March 26 and April 19, 2002, as well as from the documentary exhibits submitted by the parties. Shred-It owns and operates document destruction businesses in a number of cities in the United States and Canada. Bohbot was and is still is the principal owner of MDS, which operated a document destruction business before the instant dispute arose. Before January, 2002, Cruz had been the Vice-President of operations and sales at MDS. Her responsibilities included soliciting customers and negotiating prices with them. (See April 19, 2002 Hearing Tr. (hereinafter "Hearing Tr."), at 31.) In an agreement dated November 20, 2001 (hereinafter the "Agreement"), Shred-It agreed to pay MDS a net sum of $1,325,002 in exchange for the majority of MDS's assets, including its office, equipment, trucks, outstanding business contracts and the "goodwill" of MDS's mobile shredding business in the state of New York. In connection with the sale of its "goodwill," MDS and Bohbot entered into a covenant (hereinafter the "MDS Covenant") in which they agreed, for five years, not to

directly or indirectly, either individually or in partnership or in conjunction with any person or persons as principal, agent, shareholder or in any manner whatsoever:

(i) Carry on or be engaged in or concerned with or interested in or advise, lend money to guarantee the debts or obligations of or permit [its] name or any part thereof to be used or employed by any person or persons engaged in any shredding services similar to the business then being carried on by [Shred-It] and its affiliates and subsidiaries in North America;

(ii) Solicit, interfere with or endeavor to entice away from, any person or persons having dealings with [Shred-It] or its affiliates or subsidiaries or any customer of [Shred-It] or its affiliates or subsidiaries ....

(See Schedule F of Asset Purchase Agreement, dated November 20, 2001, attached as Ex. A to Affidavit of Joseph David in Support of Plaintiff's Motion for a Temporary Restraining Order and Preliminary Injunction, dated March 15, 2002 (hereinafter "David Aff.").)¹ In addition, Bohbot personally signed a similar covenant on January 7, 2002 (hereinafter the "Bohbot Covenant"), in which he promised, among other things, not to: (1) engage in or advise any business similar to the business of Shred-It in the European Union; (2) solicit, interfere with or endeavor to entice away any person or persons having dealings with Shred-It; or (3) divulge to any person or persons information relating to the private, financial and business affairs of Shred-It, See David Aff., Ex. A at 47-48. In exchange, Shred-It promised to pay Bohbot $1.2 million personally, payable in five equal annual installments over five years. (Id.)

At the April 19, 2002 Hearing, Cruz testified that she learned of Shred-It's acquisition of MDS approximately one week before it became effective in a meeting with Bohbot in his office. (Hearing Tr. at 49.) Upon learning of the acquisition, Cruz walked out of his office and when he later called on the phone she told Bohbot, "I didn't know what I was going to do at this point." (Id.) Bohbot later promised to provide Cruz with a severance package, although he did not specify the amount. Shortly thereafter, Cruz left the employment of MDS and some time in February, 2002 she began operating EMS as a shredding business.² At the April 19, 2002 Hearing, Cruz testified that when she left MDS she took her Rolodex that contained information related to the customers of MDS. (Id. at 33.) In addition, she sent MDS's former customers letters informing them that she no longer worked for MDS.

After Cruz left MDS, she made several requests to Bohbot to provide the severance package that he had indicated that he would give her. Bohbot ultimately made four payments to Cruz in February, 2002 totaling approximately $203,000. At Cruz's request, Bohbot wire transferred the largest of these payments, for an amount of $183,000, to a company called Shred Fast. (Hearing Tr. at 50.) Cruz used this money to purchase a shredding truck for EMS.

Shred-It alleges that after the MDS Covenant and Bohbot Covenant became effective on January 7, 2002, Bohbot and MDS violated the MDS and Bohbot Covenants by: (1) engaging in shredding services themselves and in collaboration with Cruz and EMS; and (2) "systematically soliciting and servicing the very customers and usurping the goodwill that Shred-It purchased under the Agreement." (See Plaintiffs' Memorandum of Law in Support of Its Motion for a Temporary Restraining Order and Preliminary Injunction, dated March 18, 2002 (hereinafter "Pls.' Mot."), at 2.)

B. DISCUSSION

It is well settled that a party seeking injunctive relief must establish two elements: (1) irreparable harm to the movant, and (2) either (a) a likelihood of success on the merits of the underlying claim or (b) sufficiently serious questions going to the merits of the claim as to make it a fair ground for litigation and a balance of the hardships tipping decidedly toward the movant. Natsource LLC v. Paribello, 151 F.Supp.2d 465, 468-69 (S.D.N.Y.2001) (citing Sweeney v. Bane, 996 F.2d 1384, 1387 (2d Cir.1993) and Inverness v. Whitehall, 819 F.2d 48, 50 (2d Cir.1987)). These elements must be established by a preponderance of the evidence. See Addington v. Texas, 441 U.S. 418, 423, 99 S.Ct. 1804, 60 L.Ed.2d 323 (1979) ("Since society has a minimal concern with the outcome of ... private suits, plaintiff's burden of proof is a mere preponderance of the evidence. The litigants thus share the risk of error in roughly equal fashion"); see also S.E.C. v. Moran, 922 F.Supp. 867, 889 (S.D.N.Y. 1996).

1. Irreparable Harm

One of the most important prerequisites for the issuance of a preliminary injunction is a "demonstration that if it is not granted the applicant is likely to suffer irreparable harm before a decision on the merits can be rendered." Bell & Howell: Mamiya Co. v. Masel Supply Co. Corp., 719 F.2d 42, 45 (2d Cir.1983) (citing 11 C. Wright & A. Miller, Federal Practice and Procedure § 2948, at 431 (1973)). See also Doran v. Salem Inn, Inc., 422 U.S. 922, 931, 95 S.Ct. 2561, 45 L.Ed.2d 648 (1975) (The "traditional standard for granting a preliminary injunction requires the plaintiff to show that in the absence of its issuance he will suffer irreparable injury."). Irreparable harm is "injury for which a monetary award cannot be adequate compensation." Jayaraj v. Scappini, 66 F.3d 36, 39 (2d Cir.1995) (citing Jackson Dairy, Inc. v. H.P. Hood & Sons, Inc., 596 F.2d 70, 72 (2d Cir.1979)).

Generally, when a party violates a contract that contains a non-compete clause, it is "very difficult to calculate monetary damages that would successfully redress the loss of a relationship with a client that would produce an indeterminate amount of business in years to come." Ticor Title Ins. Co. v. Cohen, 173 F.3d 63, 69 (2d Cir.1999). If the "unique services" of the party are available to a competitor, "the employer obviously suffers irreparable harm." Id. at 70. In the instant case, neither Bohbot nor MDS dispute the enforceability of the MDS Covenant against them, nor does Bohbot contest the enforceability of the Bohbot Covenant...