U.S. re Companies, Inc. v. Scheerer

• Decision Date: 07 June 2007
• Docket Number: 922N.
• Citation: U.S. re Companies, Inc. v. Scheerer, 41 AD3d 152, 838 N.Y.S.2d 37, 2007 NY Slip Op 4887 (N.Y. App. Div. 2007)
• Parties: U.S. RE COMPANIES, INC., et al., Respondents, v. JOSEPH M. SCHEERER et al., Appellants.
• Court: New York Supreme Court — Appellate Division

41 A.D.3d 152

838 N.Y.S.2d 37

2007 NY Slip Op 04887

U.S. RE COMPANIES, INC., et al., Respondents, v. JOSEPH M. SCHEERER et al., Appellants.

922N.

Appellate Division of the Supreme Court of the State of New York, First Department.

Decided June 7, 2007.

Order, Supreme Court, New York County (Helen E. Freedman, J.), entered October 2, 2006, which granted plaintiffs' motion for a preliminary injunction, unanimously reversed, on the law, the facts and in the exercise of discretion, with costs, the motion denied, the injunction vacated, and the matter remanded for further proceedings.

From February 2003 to August 2006, defendant Joseph Scheerer worked as a vice-president for U.S. Re Securities, LLC, one of the three corporate plaintiffs in this action (collectively referred to as U.S. Re).¹ U.S. Re offers brokerage and investment banking services in the reinsurance market. As a condition of his employment, Sheerer signed a confidentiality agreement with U.S. Re. In that agreement he promised not to disclose any of U.S. Re's confidential or proprietary information to third parties without first obtaining written permission. U.S. Re did not require, and Scheerer did not enter into, any noncompetition or nonsolicitation agreements with U.S. Re.

In September 2006, Scheerer left US Re to work for Benfield Advisory Inc.² U.S. Re and Benfield are direct competitors in the brokerage and investment banking areas of the reinsurance market. On September 22, 2006, U.S. Re commenced this suit pleading six causes of action against Scheerer and Benfield.³ The complaint seeks money damages as well as injunctive relief, to preclude defendants from soliciting its clients or using confidential information in breach of Scheerer's confidentiality agreement. Also, plaintiffs allege that Scheerer made false and disparaging comments about U.S. Re to its clients.

On the date it filed its complaint, U.S. Re also moved for a temporary restraining order (TRO) and the preliminary injunction at issue on this appeal. After holding a hearing, the IAS court granted the TRO, immediately enjoining Scheerer from disclosing confidential information in violation of the confidentiality agreement.

In support of U.S. Re's motion for the preliminary injunction, the senior vice-president and CFO of U.S. Re Companies, Inc. submitted an affidavit. He claimed that Scheerer had improperly contacted customers who had open transactions at U.S. Re, and that he had made false and disparaging comments about his former employer. Annexed to this affidavit were: the confidentiality agreement; correspondence between counsel for U.S. Re and Sheerer regarding his obligations to retain U.S. Re's confidences; and correspondence between counsel for Benfield and counsel for U.S. Re.

In opposition to the motion, defendant Benfield submitted a summary of the facts and a memo of law in support of its position. Counsel argued that U.S. Re's motion was an attempt to prevent open and fair competition. Defendant Scheerer submitted an affidavit in which he denied disclosing any confidential information from U.S. Re, and he denied making any disparaging comments about his former employer. Scheerer stated that he had contacted approximately 100 potential clients while at Benfield, but he had not had contact with most of those companies while at U.S. Re. Further, Scheerer swore that to the extent he contacted clients he had assisted while employed at U.S. Re, he did not disclose confidential information to them, but based his interactions solely upon public information.

A senior vice-president at Benfield also submitted an affidavit in opposition to the motion. He affirmed that there is a small population of companies actively involved in the reinsurance market, and that the clients typically work with different firms on different transactions.

In the order appealed, the IAS court granted plaintiffs their requested injunction. The order begins: "The standards for a preliminary injunction as set forth in CPLR 6301, irreparable harm, likelihood of success on the merits, and inability to be compensated by damages have not been met here" (emphasis added). However, it concludes that:

"Defendant Scheerer is enjoined from pursuing any specific deal where U.S. Re has already negotiated and signed a contract for that deal.

"Defendant Scheerer is enjoined from pursuing any specific deal on which he performed extensive research or investigative work while at U.S. Re unless the client specifically initiates a request that he do so in writing and explains its reasons to U.S. Re.

"Defendant Scheerer [must] refrain or continue to refrain from making any disparaging remarks about U.S. Re." Defendants appeal.

A party seeking a preliminary injunction must clearly demonstrate (1) the likelihood of ultimate success on the merits; (2) the prospect of irreparable injury if the injunction is not issued; and (3) a balance of the equities in the movant's favor (CPLR 6301; Doe v Axelrod, 73 NY2d 748, 750 [1988]). Plaintiffs have not...