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GERITREX CORP. v. DERMARITE INDUS.

January 10, 1996

GERITREX CORPORATION, Plaintiff, against DERMARITE INDUSTRIES, LLC, NORMAN BRAUNSTEIN and JOHN ZIMMERMAN, Defendants.


The opinion of the court was delivered by: CONNER

 CONNER, Senior D.J.:

 Plaintiff Geritrex Corporation ("Geritrex") is a manufacturer of skin-care, personal hygiene and cleaning products marketed primarily to hospitals, nursing homes and other health care providers. Defendant DermaRite Industries, L.L.C. ("DermaRite") manufactures competing products. Defendants Norman Braunstein and John Zimmerman are former employees of Geritrex and current employees of DermaRite.

 Geritrex filed this action on November 3, 1995. Geritrex alleges, essentially, that DermaRite, Braunstein and Zimmerman copied its product formulations, packaging and promotional information in order to produce a competing product line cheaply and quickly. Geritrex also alleges that DermaRite and Braunstein used its customer list and price information to lure away Geritrex customers. Geritrex has asserted causes of action for misappropriation of trade secrets, breach of noncompetition and confidentiality agreements allegedly signed by Braunstein and Zimmerman, unfair competition and trade dress infringement under § 43(a) of the Lanham Act, 25 U.S.C. § 1125(a), copyright infringement, dilution of the distinctive quality of its products under N.Y. Gen. Busi. Law § 368-d, and deceptive business practices under N.Y. Gen. Busi. Law § 173.

 Shortly after filing suit, Geritrex applied for a temporary restraining order and a preliminary injunction. At a telephone conference with counsel held on November 7, 1995, we orally denied plaintiff's application for temporary restraints because we did not have enough information to assess plaintiff's likelihood of success on the merits of its claims. We scheduled a preliminary injunction hearing for November 22, 1995, and instructed the parties to brief the issues before the hearing. Defendants cross-moved to dismiss plaintiff's cause of action for copyright infringement. *fn1" On November 22 and November 24, we held an evidentiary hearing at which we heard the testimony of several witnesses, including Braunstein, Zimmerman and Anthony Madaio, the president of Geritrex. Following the hearing, we permitted the parties to submit additional memoranda of law. We base this decision on the complaint, the memoranda and affidavits filed in this action and the testimony and documentary evidence presented at the preliminary injunction hearing. For the reasons set forth below, plaintiff's motion for a preliminary injunction is denied, and defendants' motion to dismiss is granted.

 BACKGROUND

 Geritrex was founded approximately eighteen years ago by Madaio (Tr. 23). *fn2" Its manufacturing and sales operations are based at one site in Mount Vernon, New York. Geritrex currently has approximately 250 customers (Tr. 43). Total sales for 1994 were $ 2.2 million (Tr. 86), and Madaio projected that sales for 1995 would total $ 1.8 million (Tr. 87).

 In August 1994, John Zimmerman joined Geritrex, where he served as production manager (Tr. 337). He left Geritrex in late May 1995 (Tr. 337). While Zimmerman was employed by Geritrex, he was involved in all facets of production and had access to product formulations and to information about prices and suppliers of ingredients and packaging (Tr. 65-66, 337-38). Zimmerman began working for DermaRite in early June 1995 (Tr. 230). In addition to setting up DermaRite's manufacturing facility, his duties include formulating products, managing production and obtaining ingredients and packaging (Tr. 219, 230-36).

 DermaRite was formed in May 1995 by Braunstein and Israel Minzer, a businessman with contacts in the nursing home industry (Tr. 292-96). Zimmerman testified that he completed the development of at least one DermaRite product by the end of August 1995 and finished work on the remainder of the twenty products in DermaRite's product line by the end of September 1995 (Tr. 232). According to Braunstein, DermaRite currently has about 35 customers, 12 of which were formerly Geritrex customers (Tr. 203). Total sales as of the date of the preliminary injunction hearing were approximately $ 100,000 (Tr. 203-04, 312). Braunstein offered testimony, as yet uncontroverted, that approximately $ 30,000 in sales is attributable to former Geritrex customers (Tr. 202, 303).

 DISCUSSION

 I. Plaintiff's Motion for Preliminary Injunction

 Plaintiff requests a preliminary injunction prohibiting defendants from competing with plaintiff for six months on the ground that Zimmerman and Braunstein signed confidentiality and noncompetition agreements during their employment with Geritrex. Plaintiff also asks us preliminarily to enjoin defendants from continuing to use its product formulations, manufacturing processes, supplier information, customer list and price information on the ground that defendants have misappropriated plaintiff's trade secrets. Finally, plaintiff seeks a preliminary injunction prohibiting defendants from using DermaRite's current packaging or any other packaging that infringes Geritrex's trade dress. To prevail on its motion for a preliminary injunction, plaintiff "must demonstrate both (1) irreparable harm in the absence of the requested relief, and (2) either (a) a likelihood that it will succeed on the merits of the action, or (b) a sufficiently serious question going to the merits combined with a balance of hardships tipping decidedly in favor of the moving party." Bristol-Myers Squibb Co. v. McNeil-P.P.C., Inc., 973 F.2d 1033, 1038 (2d Cir. 1992).

 A. Merits and Balance of Hardships

 1. Breach of Contract

 Plaintiff has requested a preliminary injunction prohibiting defendants from competing with plaintiff for six months. Plaintiff contends that Zimmerman and Braunstein have breached confidentiality and noncompetition agreements that they signed during their employment with Geritrex. Under New York law, such agreements are disfavored but will be enforced by the courts where the restrictions are reasonably limited geographically and temporally and the enforcement is necessary, inter alia, to protect trade secrets or confidential customer lists. See Innovative Networks, Inc. v. Satellite Airlines Ticketing Centers, Inc., 871 F. Supp. 709, 728 (S.D.N.Y. 1995); Columbia Ribbon & Carbon Mfg. Co. v. A-1-A Corp., 398 N.Y.S.2d 1004, 1006 (N.Y. 1977); Briskin v. All Seasons Servs., Inc., 206 A.D.2d 906, 615 N.Y.S.2d 166, 167 (App. Div. 1994).

 With respect to Zimmerman, the evidence currently before us indicates that he did not sign the agreement. Zimmerman has emphatically denied even being asked to sign (Tr. 344). By contrast, Madaio testified that shortly after Zimmerman began working at Geritrex, he gave Zimmerman a blank agreement and asked him to sign it. Madaio admits that Zimmerman never returned a signed agreement to him personally, but asserts that he assumed that Zimmerman had done as he requested (Tr. 64-65). The evidence indicates, however, that Madaio did not begin asking Geritrex employees involved in production to sign agreements until September 1995. *fn3" See Exhibit W; Affidavit of David Ralphs, dated November 14, 1995, at P 5, attached as Exhibit 3 to Defendants' Post-Hearing Memorandum; Tr. 65, 104, 119, 123, 245, 279-86, 349. Therefore, we find that plaintiff has not demonstrated a likelihood of success, or even a serious question for litigation, on the merits of its breach of contract claim against Zimmerman because it has not adduced any convincing evidence that Zimmerman signed an agreement.

 With regard to defendant Braunstein, however, this issue is not so easily resolved. Braunstein also contends that he never signed an agreement. He admits that Madaio asked him to sign one shortly after he joined Geritrex, but he asserts that, on the advice of his lawyer, he refused. He claims that Madaio nevertheless permitted him to continue to work for Geritrex. He maintains that he did not hear any more about an agreement until he was asked to sign one on the day that he quit (Tr. 273-74, 287-89). He introduced into evidence, as support for his version of the facts, the affidavit of his attorney and an unsigned copy of the agreement that he states was found in ...


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