The opinion of the court was delivered by: Platt, Chief Judge.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
The motion of plaintiff Ecolab Inc. for a preliminary
injunction came before this Court for hearing on October 11,
1990. Evidence was introduced on behalf of all parties and the
cause was argued and submitted for decision. The Court, having
considered the evidence heard and received on October 11, 12,
15, 17, and 18, 1990, and having considered the arguments of
counsel and being fully advised, makes the following Findings
of Fact and Conclusions of Law:
I. Jurisdiction and Parties
Plaintiff Ecolab Inc. ("Ecolab") is a corporation organized
and existing under the laws of the State of Delaware, with its
principal place of business in St. Paul, Minnesota. (Donnelly
aff. at ¶ 2).
Defendant John Paolo ("Paolo") is a citizen of the State of
New York, residing in Patchogue, New York.
Defendant Irwin Elliott ("Elliott") is a citizen of the State
of New York, residing in Hauppauge, New York. (T. 502).
Defendant South Nassau Control Corporation ("South Nassau")
is a corporation organized and existing under the laws of the
State of New York, with its principal place of business located
in Oceanside, New York. (T. 402, p. 1 of Exhibit to Klipper
II. Ecolab, Chemical Pioneer and the Industry
Ecolab and its Chemical Pioneer division ("Chemical Pioneer")
are both in the business of selling detergents and other
cleaning products for dishwashing and laundry machines, and
furnishing dispensing systems for commercial dishwashers and
laundry machines, to customers in the hospitality industry
(e.g. restaurants, caterers and hotels), and institutions such
as hospitals and nursing homes. Chemical Pioneer is engaged
also in the business of repairing and servicing dishwashing and
laundry machines, and detergent dispensing systems. Ecolab
conducts its business nationwide. Chemical Pioneer, which
maintains its offices in Holbrook, New York, sells its products
and services primarily in Nassau and Suffolk Counties. (T.
On August 4, 1987, substantially all of the assets of
Chemical Pioneer, Inc. (an
independent company and the predecessor of Ecolab's Chemical
Pioneer division) were sold to Ecolab. Included among the
assets sold were its customer list, which included the accounts
Elliott had sold to Chemical Pioneer, Inc. and the good will of
Chemical Pioneer, Inc. Five Hundred Thousand Dollars of the
$1,500,000.00 purchase price for the assets was attributed to
the customer list, and another $250,000.00 was designated for
the purchase of the trade name and good will of Chemical
Pioneer, Inc. (T. 206-9, 215-9).
Defendant South Nassau is engaged in the same business as,
and is a competitor of, Ecolab and Ecolab's Chemical Pioneer
division. (T. 75-7, 411).
III. The Employment of Defendants Paolo and Elliott
From 1985 to August 4, 1987, defendants Paolo and Elliott
were employed by Chemical Pioneer, Inc. Prior to August 4,
1987, Chemical Pioneer, Inc. engaged in the same business as
that in which Ecolab, the Chemical Pioneer division, and South
Nassau are presently engaged. (T. 206-9).
When Elliott first became employed by Chemical Pioneer in
1985, he sold fourteen customer accounts and the associated
good will to Chemical Pioneer, Inc. for approximately seventeen
thousand dollars. Included among these customer accounts were
the New Yorker Restaurant, TT's Landing (which has reopened
under the name the Harbor Club), John Anthony's Restaurant,
CoCo's, Huntington Hospital, and Baldwin Schools. (T. 208-9,
217-9, 512-3, 559, 580).
In 1988, Ecolab paid Paolo and Elliott total compensation of
approximately $45,000.00 and $50,000.00, respectively. In 1989,
Ecolab paid Paolo and Elliott total compensation of
approximately $44,000.00 and $43,000.00, respectively. In
addition to compensation, Paolo and Elliott received from
Ecolab $51.00 per week for expenses; health benefits, including
major medical, hospital and dental coverage; and long and short
term disability insurance. Ecolab also furnished each with the
use of a company automobile and provided each with a
non-contributory pension plan. (T. 42-45).
During Paolo's and Elliott's last year of employment with
Ecolab, annual sales to the accounts assigned to Paolo were
approximately $400,000.00, and annual sales to the accounts
assigned to Elliott were approximately $500,000.00. (T. 59,
IV. The Employment Agreements
On or about August 4, 1987, Paolo and Elliott each signed an
employment agreement with Ecolab, as well as a document stating
that each had received and read copies of Ecolab's Code of
Conduct. Entering into the employment agreement was a condition
of employment with Ecolab. However, Paolo and Elliott, as well
as all others presented with the agreement, were permitted the
opportunity to have an attorney review the agreement before
signing. In their employment applications, both agreed to
conform to Ecolab's rules and regulations. (T. 14-18, 26-27,
518-9, Pl. Exhibits 1-7).
The employment agreements signed by Paolo and Elliott each
provided, at paragraph 5, that following termination of the
employee's employment with Ecolab, the employee would not
service, sell, solicit the sale of, or accept orders for
products or services competitive with those of Ecolab to or
from customers of Ecolab with whom the employee did business,
whose accounts were assigned to the employee, or with regard to
which the employee received commissions during the last twelve
(12) months of the employee's employment with Ecolab, and would
not assist others in such activities. (Pl. Exhibits 1-2).
Each of the employment agreements also provided:
"2. . . . The Company will provide the Employee
with special techniques and information,
including CONFIDENTIAL INFORMATION, which the
Company believes will be helpful and necessary
to the performance of the Employee's duties.
CONFIDENTIAL INFORMATION means information and
trade secrets not generally known about the
Company's business such as,
but not limited to, credit information on the
Company's customers, customer route books, cards,
or lists containing the names, addresses, buying
habits and business locations of past, present and
prospective customers, sales reports, service
reports, price lists, product formulae and methods
and procedures relating to services.
3. The Employee will not at any time, both during
and after his employment by the Company,
communicate or disclose to any person, firm or
corporation, or use for his benefit or for the
benefit of any other person, firm or
corporation, directly or indirectly, any of the
Company's CONFIDENTIAL INFORMATION acquired by
the Employee while employed by the Company.
6. Upon termination of his employment, the
Employee will return in good order all customer
information including route books, sales and
service reports and recaps, sales and service
manuals and literature, price books, samples,
Company-issued tools, equipment and parts and
any other written information in the Employee's
possession, custody or control concerning
customers, products or services of the Company.
. . ."
Upon signing of their employment agreements with Ecolab,
Paolo and Elliott became territory managers of Ecolab's
Chemical Pioneer division. This division was formed from the
assets acquired by Ecolab from Chemical Pioneer, Inc.
V. Information Received By Paolo and Elliott
In the course of their employment with Ecolab, Paolo and
Elliott were assigned various accounts. Upon being assigned new
accounts, both were given records and other documents
concerning the customers, including names and addresses of the
accounts, the identity of the decision makers, and the dilution
ratios for Chemical Pioneer products for the particular
customers. Territory managers at Chemical Pioneer were and are
responsible for servicing existing customer accounts, selling
products to them, and soliciting new accounts. (T. 8-9, 28-30).
During the course of their employment, Ecolab issued to Paolo
and Elliott and the other territory managers of Chemical
Pioneer, five key sales reports on a monthly basis. The
Chemical Pioneer district manager, Thomas Donnelly, discussed
these reports with each territory manager each month. The
reports given to each territory manager were: (1) the "new
account productivity report," identifying the new accounts sold
by the territory manager over a period of time and the monthly
purchases in dollars of those accounts, (2) a "declining
business report," identifying those accounts of the territory
manager for which there had been a decline in business during
the same period and showing monthly sales figures and a
comparison of sales to the same account for the same period in
the prior calendar year, (3) an "increasing business report"
showing those accounts in which sales had increased over the
same period, monthly sales figures, and a comparison to the
same period during the prior calendar year, (4) the "no
purchase report" identifying each account of the territory
manager, which has made no purchases during the prior ninety
days and comparing the purchases made by each such account over
a period of the time with the purchases made by the same
account during the same period in the prior calendar year, and
(5) "sales summaries" showing the total sales in each account
by name and month over the last twelve months and comparing
sales to each account during a period of time with the sales to
that account for the same period of time in the prior calendar
year. (T. 299-302, Pl. Exhibits 17, 21, 26).
Ecolab also furnished Paolo, Elliott, and the other territory
managers at the Chemical Pioneer division with "account product
detail reports" for each of their accounts. These reports
related only to the customers of the manager receiving the
report and detailed the particular products sold to the
particular customer, the unit volume of each product sold to
the customer, and the dollar volume of each product sold to the
account over the last twelve months. (T. 296-7, 312-3, Defs.
During their employment with the Chemical Pioneer division,
Paolo and Elliott were also given, through their mail boxes at
the offices of Chemical Pioneer on a regular basis, as
territory managers a copy of each invoice sent to a customer
which they were servicing. The territory managers were asked to
pick up these invoices to keep track of their daily, weekly,
and monthly sales. The invoices were to be returned to Ecolab
upon termination of employment. (T. 88, 299).
Certain of this information was highly sensitive. If
disclosed, Ecolab's price and individual customer discount
information would allow competitors to undercut Ecolab.
Furthermore, there was uncontroverted testimony that many
buyers of institutional cleaning products are unsophisticated,
knowing only that the service they receive is sufficient and
the total amount they pay for cleaning products. This lack of
sophistication increases the competitive significance of the
information relating the exact amount and type of products
purchased by each customer. Possession of such information
would enable competitors to present Ecolab's customers with the
sort of package bids, covering an entire year's requirements,
to which customers in this industry are apparently most
receptive. (T. 124-26).
VI. Treatment of the Customer Information
As a condition of their employment with the Chemical Pioneer
division of Ecolab, each employee must sign an employment
agreement which prohibits the disclosure of confidential
customer information. As outlined above, confidential customer
information is defined to include customer lists, sales
reports, and price lists. (T. 41-2, Pl. Exhibit 5 at p. 6).
Moreover, upon departure from employment, Ecolab requires its
employees to return all confidential customer information which
they have received. This policy is embodied in a procedure,
followed in this case, during which employees return the
information to their supervisor. The supervisor checks off the
various types of information returned and then the employee
signs the checklist. (T. 159-78, 567-71).
This information was not made publicly available. It was
distributed only to the sales force. The information was
transmitted to them either through personal delivery, direct
mail to their homes, or via intraoffice direct distributions.
Salespeople received only information relevant to the customers
they were servicing. Moreover, Ecolab also has a company policy
against leaving price lists with customers, showing the prices
for each of its products. (T. 36, 122, 295, 299, 302, 312-13).
Despite these precautions, however, three days after Paolo's
discharge, Ecolab mailed to Paolo's home copies of invoices
reflecting sales which he had made while ...