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ECOLAB INC. v. PAOLO

January 3, 1991

ECOLAB INC., PLAINTIFF,
v.
JOHN PAOLO, IRWIN ELLIOTT, AND SOUTH NASSAU CONTROL CORPORATION, DEFENDANTS.



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:

FINDINGS OF FACT

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 Aff.).

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. 6-8).

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, 68).

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 issued to Paolo and Elliott, as well as all other Chemical Pioneer territory managers, (1) "declining sales reports" showing the decline in purchases in dollars of specific Chemical Pioneer products in each account of the territory manager over a period of time and a comparison with the sales of such products to each account over the same products to each account over the same period in the prior year, and (2) detailed reports, showing for each account of a territory manager the name and address of the account, outstanding invoices, the amount of time the invoices have been unpaid, and the amount of each invoice. (T. 302, 562-3, Pl. Exhibits 27 and 30).

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. Exhibit B).

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 ...


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