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GLOBAL TELESYSTEMS, INC. v. KPNQWEST

July 13, 2001

GLOBAL TELESYSTEMS, INC., PLAINTIFF,
v.
KPNQWEST, N.V., DEFENDANT.



The opinion of the court was delivered by: Owen, District Judge:

OPINION & ORDER

OPINION & ORDER

Plaintiff Global Telesystems (hereafter "GTS") moves for a preliminary injunction pursuant to Rule 65 of the Federal Rules of Civil Procedure prohibiting defendant KPNQwest from employing, directly or indirectly, the professional services of Jeffrey H. Von Deylan as Chief Financial Officer or otherwise. I granted plaintiffs application for a temporary restraining order on June 29, 2001 based on my finding that KPNQ had prima facie violated "no-solicitation" and "no-hire" provisions in an agreement between the parties arguably resulting in imminent and irreparable harm to GTS, and held a preliminary injunction hearing on July 6, 2001 where both sides agreed to proceed based solely on the affidavits provided to the Court.

GTS, a telecommunications company, is a Delaware corporation headquartered in Virginia. KPNQ is a Dutch corporation headquartered in the Netherlands and, by all accounts, a direct competitor to GTS. KPNQ is joint venture that was formed in April 1999 by KPN Telecom B.V. and Qwest Communications Corporation. GTS and KPNQ compete in both quality of services and products, specifically, a "[m]anaged I[P] network with a bandwidth that links approximately 50 European cities" and North America known as "Ebone." KPNQ is also a customer of GTS's "Ebone" fiber network, purchasing services to supply areas where the KPNQ network does not reach.

In connection with a possible strategic transaction between GTS and KPNQ, presumably an acquisition or merger, the parties entered into a letter "Confidentiality Agreement" dated June 18, 2000. The four page Agreement details the obligations of the parties to protect the fruits of due diligence from disclosure and also contains a "no-solicitation/no-hire" provision which states:

You undertake that for a period of eighteen months from the date of this Agreement, neither you nor any of your subsidiaries nor your or their Representatives shall, actively solicit, interfere with, or endeavor to entice away, any person who is at the date of this Agreement, or who is during discussions between GTS and you, a director, employee, consultant or individual employed by or seconded to work for GTS or its affiliates, or offer to employ, or assist in, or procure the employment for, any such person, provided that this restriction shall not prevent you from employing such person who responds to a general advertisement for recruitment without any other direct or indirect solicitation or encouragement by you.

The Agreement also contemplates remedies in the event of breach:

No failure or delay by GTS in exercising any right, power or privilege hereunder shall operate as a waiver hereof nor shall any single or partial exercise thereof preclude any other or further exercise of any right, power or privilege hereunder. You further understand, acknowledge and agree that money damages would not be a sufficient remedy for any breach of this Confidentiality Agreement by you or by any of your Representatives and that GTS will be entitled to specific performance and injunctive relief as remedies for any such breach. Such remedies shall not be deemed exclusive remedies for a breach of this Confidentiality Agreement but shall be in addition to all other remedies available at law or equity.

Finally, the Agreement is governed by New York law and contains a New York forum selection clause.

The central facts in this matter are undisputed. Jeffrey Von Deylen began working for GTS in October 1999. Previously, from June 1998 until October 1999, Von Deylen was an employee of Qwest, based in the United States, where he was responsible for the financial operations of Qwest's European subsidiaries. Mr. Von Deylen held at least two positions during his tenure at GTS, Senior Vice President — Finance and Chief Financial Officer of Ebone, GTS's most significant operating subsidiary. Von Deylen, an at-will employee, played an important f role in GTS's business planning and forecasting, financial and management reporting, SEC reporting and other financial matters.

On May 31, 2001, Von Deylen submitted the following letter to GTS's Chairman and CEO, Robert Amman, terminating his employment:

After great deliberation, I have decided to submit my resignation. As we have discussed previously, the past few months have been very difficult and trying for me. The restructuring process and the new management changes have caused me to reflect on the longer term opportunity at GTS.
I was very recently approached by Jack McMaster to join him as CFO of KNPQwest. This opportunity is very unique and satisfies a personal objective of being CFO of an outstanding company in this industry. This opportunity also gets me back to what I do best, and this is to help a management team run a business.
Given the nature of this departure, I expect that a very accelerated leaving would be preferable. I would be available to work with [others] to work through any ...

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