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HANCOCK v. ESSENTIAL RESOURCES

April 28, 1992

WILLIAM HANCOCK, Plaintiff, against ESSENTIAL RESOURCES, INC. MARTIN W. DAVIS and JILL DAVIS, Defendants. ESSENTIAL RESOURCES, INC. and MARTIN W. DAVIS, Third-Party Plaintiffs, -against- NETWORK 1, INC. a Delaware Corporation doing business in the State of New York and ROBERT M. RUSSO, Third-Party Defendants.


The opinion of the court was delivered by: KEVIN THOMAS DUFFY

 KEVIN THOMAS DUFFY, D.J.:

 Plaintiff William Hancock commenced this diversity action to recover damages against defendants Essential Resources, Inc. (the "Company"), Martin W. Davis, and Jill Davis for breach of contract and a related fraud. *fn1" Defendants counterclaimed for injunctive relief based on unfair competition and for damages based on: (1) breach of employee fiduciary obligations; (2) fraud; (3) interference with prospective economic gain; and, (4) interference with contractual relations. The Company and Martin Davis also filed a third-party complaint against Network-1, Inc. ("Network") and Robert M. Russo, *fn2" seeking injunctive relief on the grounds of misappropriation of proprietary and confidential information, specific performance of Russo's employment agreement with the Company, and damages for: (1) breach of fiduciary obligations; (2) fraud; (3) interference with prospective economic gain; and, (4) interference with contractual relations. Third-party defendants counterclaimed for damages based on breach of contract and a related fraud. Defendants/third-party plaintiffs (collectively, "ERI") now seek a preliminary injunction *fn3" enforcing the restrictive and confidentiality covenants of Russo's employment agreement with the Company and enjoining Hancock, Russo and Network from: (1) using the Company's customer lists, customer data, customer mailing lists, and other proprietary and/or confidential information (collectively, "Customer Materials"); and, (2) soliciting the Company's customers.

 A preliminary injunction is a drastic remedy. Borey v. National Union Fire Ins., 934 F.2d 30, 33 (2d Cir. 1991). Such relief is warranted only where the movant demonstrates: (1) irreparable harm or injury and (2) either (a) likelihood of success on the merits or (b) sufficiently serious questions going to the merits to make them a fair ground for litigation and a balance of hardships tipping decidedly in favor of the movant. See Jackson Dairy, Inc. v. H.P. Hood & Sons, Inc., 596 F.2d 70, 72 (2d Cir. 1979). Applying this standard to the instant action, it is clear that ERI has no right to the injunctive relief requested.

 Specifically, ERI alleges that, when Martin Davis asked him what he planned to do after leaving the Company, Russo stated that he was going to stay home, watch the U.S. Open Tennis Tournament, and maybe help his wife with her dessert business. Martin Davis Aff. in Support of Application for Preliminary Injunction at P6. Contrary to his representation, ERI claims, Russo had already taken steps to open a competing business, Network. Id. at PP7-10. Russo admits that he made the statement in question, but maintains that he did so after the parties had executed the Release. Russo Aff. in Opposition at P15. Russo also sets out that, both on the date he signed the Release and in a subsequent telephone conversation, he indicated to Martin Davis that he and Hancock "were discussing the prospect of entering in to a new business which would possibly involve the writing of certain software together with consulting and marketing activities." Id. at P14.

 ERI avers nothing of substance to show that the Release was tainted by fraud. Conclusory allegations simply do not suffice. Therefore, there is no reason to rescind the Release. Given that the Release bars any claims by ERI against Russo, and effectively supersedes the restrictive and confidentiality covenants in Russo's employment agreement, ERI cannot sustain the burden of demonstrating either a likelihood of success on the merits, or a sufficiently serious question going to the merits, as to any claim based on the covenants. Thus, the request to enjoin Russo from violating the covenants must be denied.

 A preliminary injunction barring Hancock, Russo and Network from using ERI's Customer Materials and soliciting ERI's customers is also unwarranted. ERI grounds this request for injunctive relief in claims of misappropriation of proprietary and confidential information and unfair competition. Despite the label given to the asserted misappropriation claim, it is evident that ERI is attempting to make out a claim for misappropriation of trade secrets. The threshold issue on this claim is whether the Customer Materials are entitled to trade secret protection.

 "Generally, where the customers are readily ascertainable outside the employer's business as prospective users or consumers of the employer's services or products, trade secret protection will not attach and courts will not enjoin the [former] employee from soliciting his [former] employer's customers." Leo Silfen, Inc. v. Cream, 29 N.Y.2d 387, 392, 328 N.Y.S.2d 423, 427, 278 N.E.2d 636, 639 (1972) (internal citations omitted); see Churchill Communications Corp. v. Demyanovich, 668 F. Supp. 207, 211 (S.D.N.Y. 1987).

 In deciding whether information constitutes a trade secret, courts consider: (1) the extent to which the information is known outside of the employer's business; (2) the extent to which it is known by employees and others involved in the employer's business; (3) the measures the employer takes to guard the information's secrecy; (4) the value of the information to the employer and his or her competitors; (5) the amount of money or effort the employer expended in developing the information; and, (6) the ease or difficulty with which the information could be properly acquired or duplicated by others. Eagle Comtronics, Inc. v. Pico, Inc., 89 A.D.2d 803, 803-04, 453 N.Y.S.2d 470, 472 (4th Dep't 1982) (quoting Restatement of Torts § 757, comment b (1939)).

 (a) informed all employees routinely of the confidentiality of the information (including customers and customer lists) with which they were working; and

 (b) informed all employees routinely that they could not copy, modify and/or destroy information with which they worked; and

 (c) had certain key employees sign written employment agreements containing confidentiality and ...


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