Walter Karl, Inc. v. Wood

• Decision Date: 09 May 1988
• Citation: Walter Karl, Inc. v. Wood, 528 N.Y.S.2d 94, 137 A.D.2d 22 (N.Y. App. Div. 1988)
• Parties: WALTER KARL, INC., Respondent, v. Robert WOOD, Appellant.
• Court: New York Supreme Court — Appellate Division

Page 94

528 N.Y.S.2d 94

137 A.D.2d 22

WALTER KARL, INC., Respondent, v. Robert WOOD, Appellant.

Supreme Court, Appellate Division Second Department.

May 9, 1988.

Stephens, Buderwitz & Baroni, White Plains (Joseph J. Buderwitz, Jr., and Joseph M. Buderwitz, on the brief), for appellant.

Smith, Ranscht, Pollock, Manos & Connors, P.C., White Plains (George A. Sirignano, Jr., of counsel), for respondent.

Before BROWN, J.P., and WEINSTEIN, KOOPER and SULLIVAN, JJ.

WEINSTEIN, Justice.

Our focus on the instant appeal is directed to the propriety of granting a preliminary injunction against a former employee barring the employee from soliciting, servicing or doing business with customers of his former employer in violation of the terms of an alleged employment agreement. We find that the employer in the instant case was not entitled to injunctive relief with the result that the plaintiff's motion for a preliminary injunction should have been denied.

The plaintiff Walter Karl, Inc., is a New York corporation engaged in the business of mailing-list brokerage, package and mail insert brokerage and list management services. The plaintiff's services are national in scope and are provided for the benefit of direct marketers who utilize the lists to ascertain the most likely customers for their goods and/or services. The list-brokerage and management services aspect of the company assists customers in determining which lists are most appropriate for their use and arranges for the use of such lists, many of which are the property of other customers of the plaintiff. The package and mail-insert brokerage division of the company exercises a similar function in arranging for the insertion of advertisements and solicitations in packages mailed and distributed by such entities as mail order houses.

In order to effectively manage its business and determine the best lists and advertising media for all of its clients, the plaintiff, at the time of the defendant's employment, maintained computer lists along with historical and customer data. Its customers numbered approximately 2,000. The plaintiff alleges that the needs of each of its customers are confidential, as are the names, addresses and other information maintained by the company with respect to those customers.

The defendant's employment with Walter Karl, Inc., commenced on or about November 4, 1974. He started as a mail room clerk and was employed in various capacities continuously through April 24, 1987, when he voluntarily resigned. At the time of his departure, the defendant was employed at will in the capacity of Executive Vice-President, Package Insert Sales, at the annual salary of $350,000, plus benefits and bonuses.

During his tenure with the plaintiff, the defendant executed an employment agreement on or about December 2, 1982, which contained, inter alia, a provision prohibiting him from using, except in the course of his employment for the plaintiff, any information, documents or materials containing or relating to customer data or any materials, financial or otherwise, of the company which were of a confidential nature. The agreement further provided that upon leaving the plaintiff's employment, the defendant would not take with him, without the prior written consent of an officer specifically authorized to act in that matter by the Board of Directors, any company information. The aforesaid agreement, referred to as a "Golden Parachute" inasmuch as it provided for continued executive compensation in the event of a change of ownership of the plaintiff corporation, was not to become operative unless and until there was a change in control of the company.

On or about September 22, 1986, the plaintiff sought to terminate all of the "Golden Parachute" agreements with its executives. The defendant claims to have met with Walter Karl, the company's founder, majority shareholder, President and Chief Operating Officer, and to have executed a termination and release of all rights and obligations contained in the employment agreement dated December 2, 1982. ^* At the same time, the defendant negotiated a new salary arrangement for the calendar year 1987, since he was no longer under contract to the company. The defendant offered to purchase the Package Insert Division of the plaintiff company from Walter Karl. His attempt, while unsuccessful, prompted a promotion for him to President of the subject division and a proposed five-year employment agreement. The defendant maintains that the fact that Walter Karl proposed the five-year employment agreement is evidence that he was cognizant, at that time, that the parties were no longer bound by the December 2, 1982, agreement.

In 1986, five executives of the plaintiff company, including the defendant, sought to acquire the company from its founder. The defendant thereafter withdrew from the acquisition. The company was ultimately acquired by the remaining four executives in December 1986. The defendant's attempt to acquire the package and mail insert operations from the new owners was unsuccessful.

The defendant resigned from the plaintiff's employment on or about April 24 1987, to engage in a business substantially similar to that of Walter Karl, Inc. According to the plaintiff, the defendant took several company employees with him to his newly formed company, Specialized Marketing, Inc. (hereinafter SMI), and he also took lists of customers from the plaintiff's records which he used in announcing the formation of his new business and to solicit customers therefor. The plaintiff further contends that some of the recipients of the defendant's business announcement were customers of the plaintiff with whom the defendant had had little or no contact and whose names and addresses must have been garnered from computer lists which the plaintiff had developed over many years. Additionally, the defendant took with him some 16 to 20 confidential customer index cards maintained by the plaintiff pertaining to customers with whom the defendant had had regular contact. According to the plaintiff, three of its customers had canceled their previously placed orders with Walter Karl, Inc. in favor of doing business with the defendant's new enterprise.

In addition to improperly using confidential information to solicit company customers and diverting pre-existing orders to his own business, the defendant is charged with disloyalty to the plaintiff from the time he withdrew from the acquisition venture. Specifically, it is charged that the defendant's new business was formed on or about February 2, 1987, at which time the defendant was still in the plaintiff's employ and that the defendant's productivity significantly decreased in the early months of 1987 as compared to his past performance.

Subsequent to the defendant's April 24, 1987, resignation from Walter Karl, Inc., the plaintiff commenced the instant action seeking, inter alia, to enjoin the defendant from doing business with its customers.

Although one of the theories asserted by the plaintiff was that the defendant had breached a written employment agreement entered into by the parties in 1982, we note preliminarily that the validity of that agreement constitutes a highly disputed issue of fact and, as such, cannot be the basis for injunctive relief ( see, Newco Waste Sys. v. Swartzenberg, 125 A.D.2d 1004, 1005, 510 N.Y.S.2d 399; Family Affair Haircutters v. Detling, 110 A.D.2d 745, 747, 488 N.Y.S.2d 204). Moreover, it is clear from the record that the Supreme Court did not grant the plaintiff's motion on this basis. Rather, the court's granting of the preliminary injunction was based upon (1) the alleged breach by the defendant of his fiduciary duty to the plaintiff in the sense that the defendant, while he was still in the plaintiff's employ, purportedly established and engaged in a business which was in direct competition with the plaintiff, and (2) the defendant's use of the plaintiff's allegedly confidential customer list.

It is a well settled tenet that in order to prevail on a motion for a preliminary injunction, the movant has the burden of demonstrating (1) a likelihood of ultimate success on the merits, (2) irreparable injury absent the granting of the preliminary injunction, and (3) that a balancing of equities favors the movant's position (see, W.T. Grant Co. v. Srogi, 52 N.Y.2d 496, 517, 438 N.Y.S.2d 761, 420 N.E.2d 953; Family Affair Haircutters v. Detling, supra, 110 A.D.2d at 747, 488 N.Y.S.2d 204; Gambar Enterprises v. Kelly Servs., 69 A.D.2d 297, 306, 418 N.Y.S.2d 818). Viewed within this framework, we find that it was an abuse of discretion to grant the...