United States District Court, Southern District of New York
July 13, 2001
GLOBAL TELESYSTEMS, INC., PLAINTIFF,
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
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
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
transition issues or plans as you think appropriate.
I would therefore resign from all of my positions as
an officer and/or director of any and all GTS and
subsidiary companies with effect on June 1, 2001.
I want to thank you personally for all you have done
for me. I have greatly enjoyed our working
relationship and I have learned a great deal about
Europe and have further advanced my career.
Jack McMaster, referenced in the above letter, was at the time (and
remains) the Chief Executive Officer of KPNQ.
The circumstances leading up to the submission of Von Deylen's letter
merit some discussion. In late November 2000, Von Deylen, for whatever
reason, became dissatisfied with his employment at GTS and submitted his
resume to several executive recruiting companies (colloquially known as
"headhunters"). Von Deylen states in an affidavit that he had formal
interviews with other telecommunications companies, but nothing ever came
to fruition. In May 2001, KPNQ engaged the services of Judi Chadaway, a
London-based executive recruiter, to assist in the search for a new CFO.
Chadaway told McMaster that she was aware from her contacts in the
industry that Von Deylen was looking to leave GTS. McMaster stated that
he knew Von Deylen from his tenure at Qwest. Chadaway suggested to
McMaster that she should be "authorized to contact" Von Deylen in order
to determine his interest in the position. McMaster granted such
authorization and Chadaway in fact called Von Deylen, informing him that
she was aware of his intention to leave GTS for a CFO position in the
telecommunications industry. At a subsequent meeting between the two, she
informed Von Deylen that KPNQ was seeking a new CFO. Von Deylen stated he
was interested in pursuing the position and, subsequently, Chadaway set
up meetings regarding the position between Von Deylen and McMaster. Von
Deylen and McMaster reached an agreement which obviously resulted in Von
Deylen's resignation from GTS.
GTS initiated this action on June 28, 2001 seeking, among other
things, specific performance of the June 18, 2001 Confidentiality
Agreement. On June 29, 2001, I granted plaintiff's application for a
temporary restraining order to maintain the status quo pending a hearing
on GTS's motion for preliminary injunction. As observed, I held a hearing
on July 6, 2001 with both parties agreeing to proceed on the papers.
A party seeking preliminary injunctive relief must demonstrate (1) that
it will be irreparably harmed in the absence of an injunction, and (2)
either (a) a likelihood of success on the merits or (b) sufficiently
serious questions going to the merits of the case to make them a fair
ground for litigation, and a balance of hardships tipping decidedly in
its favor. See Brewer v. W. Irondequoit Cent. Sch. Dist., 212 F.3d 738,
743-744 (2d Cir. 2000); Quantum Corp. Funding. Ltd. v. Assist You Home
Health Care Services of VA, ___ F. Supp.2d ___, 2001 WL 527472 (S.D.N Y
May 15, 2001).
GTS will be irreparably harmed if KPNQ is permitted to employ Von
Deylen's professional services. I base this conclusion both on the
explicit provision of the agreement in which KPNQ specifically
acknowledged that GTS could not be adequately compensated by money
damages for breach and also on common sense. Von Deylen carries in his
head important corporate and proprietary information that he acquired as
a fiduciary of GTS. Although he was not bound by any restrictive covenant
as an at-will employee, GTS bargained explicitly to protect itself from
the loss of its top level employees to KPNQ, and New York recognizes the
enforceability of covenants not to solicit employees. See Veraldi v.
America Analytical Labs, Inc., 271 A.D.2d 599, 600 (2d Dep't 2000).
Despite protestations by defendant and by Von Deylen, it is unclear to me
how disclosures, even inadvertent, can be prevented. Although I do not
question his integrity, I believe there is a continuing danger that Von
Deylen may unintentionally transmit information he gained through his
association with GTS during his day-to-day contact with KPNQ. See Cheng
v. GAF Corp., 631 F.2d 1052, 1058 (2d Cir. 1980); see also North Atlantic
Instruments v. Haber, 188 F.3d 38, 49 (2d Cir. 1999); FMC Corp. v. Taiwan
Tainan Giant Indus. Co., 730 F.2d 61, 63 (2d Cir. 1984) (per curiam). I
am not satisfied on this record that Von Deylen will be able to
effectively screen that part of his brain containing information which he
acquired as an officer of GTS. See Cheng, 631 F.2d at 1058.
I also conclude that GTS's submissions demonstrate a likelihood of
success on the merits of its contract claim. Under New York law, "[T]he
initial interpretation of a contract is a matter of law for the court to
decide." K. Bell & Assocs., Inc. v. Lloyd's Underwriters, 97 F.3d 632,
637 (2d Cir. 1996) (internal marks and cites omitted). "Included in this
initial interpretation is the threshold question of whether the terms of
the contract are ambiguous." Alexander & Alexander Servs. v. These
Certain Underwriters at Lloyd's, London, 136 F.3d 82, 86 (2d Cir. 1998).
A contract is unambiguous if it "has a definite and precise meaning,
unattended by danger of misconception in the purport of the [agreement]
itself, and concerning which there is no reasonable basis for a
difference of opinion." Sayers v. Rochester Tel. Corp. Supplemental
Management Plan, 7 F.3d 1091, 1095 (2d Cir. 1993). If a contract is
unambiguous, I am "required to give effect to the contract as written and
may not consider extrinsic evidence to alter or interpret its meaning."
Consarc Corp. v. Marine Midland Bank. N.A., 996 F.2d 568, 573 (2d Cir.
1993). Contractual language whose meaning is otherwise plain is not
ambiguous merely because the parties urge different interpretations in
the litigation. See United States Trust Co. of New York v. Jenner,
168 F.3d 630, 632 (2d Cir. 1999).
The plain language of the no-solicit and no-hire clause admits of only
one interpretation: KPNQ agreed not to solicit or hire any GTS employees
unless said employees responded to a general advertisement." Conceding,
as it must, that defendant offered to employ and employed Von Deylen,
KPNQ urges that Von Deylen's departure from GTS on McMaster's invitation
within the "general advertisement" exception. I disagree.
The term "general" is defined as "[t]he most usual, basic,
comprehensive, or undifferentiated form or application of something, as
distinguished from specialized forms . . . James E. Clapp, Dictionary of
the Law 199 (2000); see also Webster's New Collegiate Dictionary 473
(1979) ("[N]ot confined by specialization or careful limitation"). The
word "advertisement" is defined as, "[T]he act or process of
advertising," or, "[A] public notice . . . [especially] one published in
the press or broadcast over the air." Id. at 17. Given the foregoing
definitions, I conclude that the plain language of the "general
advertisement" exception does not apply to the facts surrounding Von
Deylen's departure from GTS. The use of headhunters, no matter how
widespread or acceptable in the industry, simply does not constitute a
"general advertisement." Executive recruiters are special, distinct and
targeted professionals, pursuing particular individuals with certain
skills and not members of the general public. On this record, no
headhunter was publicly disseminating information about the CFO vacancy
at KPNQ. Joe Citizen was not free to open up Forbes magazine or the local
newspaper, see that KPNQ was seeking a new CFO and send in his resume.
That would be a general advertisement. If the parties had wished to
preserve the use of headhunters, they could have contracted to do so.
However, they did not and I decline to go beyond the plain language of
the Confidentiality Agreement. See Crane Co. v. Colec Indus., 1999 WL
38251, at * 6-7 (S.D.N.Y. Jan. 28) (Jones, J.), aff'd, 171 F.3d 733 (2d
Cir. 1999); see also Rocchigiani v. World Boxing Council, Inc.,
131 F. Supp.2d 527, 530-531 (S.D.N.Y. 2001) (declining to read additional
terms into unambiguous agreement). Thus, I conclude that GTS has
demonstrated a prima facie case of breach of contract.
Finally, the balance of hardships tips decidedly in favor of GTS. The
company's former Senior Vice President has gone to its main competitor
and, as observed, carries with him intimate knowledge regarding GTS's
business. Even KPNQ acknowledges that it will irreparably harmed, though
for a slightly different reason, by his departure upon entry of this
injunction. This, if anything, (only leads me to the ineluctable
conclusion that what is sauce for the goose is sauce for the gander.*fn1
In addition, KPNQ derived substantial benefit from this Confidentiality
Agreement and cannot now stand before this Court and argue that portions
of it are either unenforceable or non-binding. Although no strategic
transaction ever transpired, KPNQ was able to canvass GTS's financials
and other information. KPNQ also expressly agreed that money damages
would be inadequate. Further, I observe that KPNQ appears before me
with, to put it mildly, unclean hands. McMaster was clearly aware of the
no-solicit and no-hire provisions of the Confidentiality Agreement.
Nevertheless he authorized Chadaway to pursue the one telecommunications
financial official in the world KPNQ had contracted not to approach.
Troublesome is what is absent from McMaster's affidavit. He is
significantly silent on his awareness or recollection
of his company's
agreement not to offer employment to any GTS officer for eighteen months
after June 18, 2000. He also apparently acted without consulting counsel
or anyone about the obvious potential applicability of the
Confidentiality Agreement and now asks this Court to relieve KPNQ from
its clear agreement on all sorts of Post hoc legal grounds. The ethics of
this, needless to say, are not addressed. Against this background, I
conclude that the balance of the equities tip decidedly in GTS's favor.
The foregoing constitute the Court's findings of fact and conclusions
Accordingly, plaintiff's motion for a preliminary injunction is