Nonetheless, the two constitute separate grounds for enforcement
of the restrictive covenant, and they must, therefore be treated
"[A] trade secret is `any formula, pattern, device or
compilation of information which is used in one's business, and
which gives [the owner] an opportunity to obtain an advantage
over competitors who do not know or use it.'" Softel, Inc. v.
Dragon Med. & Scientific Communications, Inc., 118 F.3d 955,
968 (2d Cir. 1997) (applying New York law and quoting
Restatement of Torts § 757 cmt. b (1939)), cert. denied,
523 U.S. 1020, 118 S.Ct. 1300, 140 L.Ed.2d 466 (1998). New York
courts consider several factors in determining whether
information constitutes a trade secret, including: (1) the
extent to which the information is known outside of the
business; (2) the extent to which it is known by employees and
others involved in the business; (3) the extent of measures
taken by the business to guard the secrecy of information; (4)
the value of the information to the business and its
competitors; (5) the amount of effort or money expended by the
business in developing the information; and (6) the ease or
difficulty with which the information could be properly acquired
or duplicated by others. See North Atlantic Instruments, Inc.
v. Haber, 188 F.3d 38, 44 (2d Cir. 1999).
Here, Unisource argues that its customer lists, pricing, and
volume information are trade secrets. See Plaintiffs
Post-Hearing Mem. at 20-25. "A customer list developed by a
business through substantial effort and kept in confidence may
be treated and protected at the owner's instance against
disclosure to a competitor, provided the information it contains
is not otherwise readily ascertainable." Defiance Button Mach.
Co. v. C & C Metal Prods. Corp., 759 F.2d 1053, 1063 (2d Cir.),
cert. denied, 474 U.S. 844, 106 S.Ct. 131, 88 L.Ed.2d 108
(1985). In addition, knowledge of a customer's needs and
specifications and the prices charged to that customer are
considered confidential. Giffords Oil Co., Inc. v. Wild,
106 A.D.2d 610, 611, 483 N.Y.S.2d 104 (N.Y.A.D.2d Dep't 1984).
The Valenti defendants argue that trade secret protection is
not warranted here because there are no customer lists in a
physical sense; Unisource takes no steps to guard the
information; and Unisource's customer information is readily
ascertainable. Valenti Defendants' Post Hearing Mem. at 3-10.
Each of the defendants' assertions will be addressed in turn.
Unisource established at the hearing that it maintained
customer names, items sold to that customer, and pricing
information in its computer system. Tr. 11/9 at 102; 11/13 at
75. In fact, a customer history spreadsheet containing this
information was prepared for the defendants, Anthony Valenti and
Renee Marquart, at their request, two weeks before Matrix was
incorporated. Tr. 11/9 at 104, 106. Unisource also established
that access to the system requires a user identification number
and a password. Id. Thus, the defendants' first two arguments
regarding trade secret protection are without merit.
The Valenti defendants' argument that trade secret protection
does not attach because Unisource's customers are readily
ascertainable must also be rejected. The Valenti defendants
appear to be relying on the "readily ascertainable" standard set
forth in Leo Silfen, Inc. v. Cream, 29 N.Y.2d 387, 392,
328 N.Y.S.2d 423, 278 N.E.2d 636 (1972), that is, "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."
Leo Silfen, 29 N.Y.2d at 392, 328 N.Y.S.2d 423,
278 N.E.2d 636. Although Leo Silfen does apply the
standard set forth by the Valenti defendants, they have failed
to note a significant exception to this rule. The "readily
ascertainable" standard does not apply in cases where, as here,
an agreement expressly prohibits disclosure of customer lists.
See, e.g., North Atlantic Instruments, Inc. v. Haber,
188 F.3d 38, 47 (2d Cir. 1999) ("Leo Silfen implies that its holding is
limited to cases lacking an express agreement protecting
customer lists"). Thus, with respect to Anthony Valenti, the
plaintiffs have established that the restrictive covenant should
be enforced to prevent disclosure of a trade secret.
The covenant should also be enforced on the second ground,
that is, to prevent the release of confidential information. As
stated above, the Confidentiality Agreement defines confidential
information to include "customer lists, price lists, and
customer service requirements." Vita Aff. at Ex. G. While the
precise way in which Matrix obtained the information remains
murky, it is clear to the court that every customer serviced by
Matrix is a former customer of Unisource and that all of
Matrix's pricing is the same as or better than Unisource's. Tr.
11/9 at 75-82 and 11/13 at 145-46. Indeed, knowing which
businesses to solicit and what price to offer them was a key to
the success of Matrix. Common sense dictates the conclusion that
Matrix could not have established itself so quickly and
efficiently without the benefit of Unisource's customer
information. Accordingly, the court finds that the restrictive
covenant should be enforced to prevent disclosure of Unisource's
trade secrets and the release of confidential information
regarding its customers.
Having found the restrictive covenant and the Confidentiality
Agreement to be enforceable, the court must now address the
question of whether Anthony Valenti by his actions violated
their terms. As previously stated, the Employment Agreement
provides that, "[Anthony Valenti] shall not, . . . (A) engage in
or carry on the business of selling or distributing [paper and
packaging products], . . . (B) solicit the business of any of
. . . Unisource's customers, . . . or (C) induce or encourage
any employee in the above described business to leave . . .
Unisource." The Confidentiality Agreement prohibits the
disclosure of any confidential information belonging to
Unisource. Anthony Valenti denies that he has engaged in any of
the prohibited conduct and argues that Matrix is wholly owned
and operated by his wife, Kathleen Valenti, and that she is not
prohibited from such conduct. Although it is true that Kathleen
Valenti owes no independent duty to Unisource, nor is she
contractually bound, the court finds the argument to be without
The details of Anthony Valenti's involvement remain buried in
the lies told by the defendants who testified at the hearing. It
may well be that without the benefit of a tape recorder in the
Valenti home, hard proof may never be revealed, but based on all
of the evidence before the court, as well as the demeanor of the
witnesses, this court finds that the plaintiff is likely to
establish that Anthony Valenti is doing business through Matrix,
in breach of his Employment Agreement, despite the fact that his
wife, Kathleen Valenti, is the record owner and claims to be
involved in its day to day operations.*fn3
B. The Employee Defendants
In addition to the argument that Anthony Valenti breached his
Employment Agreement, the plaintiff also argues that the
defendants have used Unisource's confidential information and
have breached their fiduciary duties to Unisource. Employees owe
a duty to their employers not to divulge confidential
information. See DoubleClick, Inc. v. Henderson, 1997 WL
731413, at *4 (N.Y.Sup., Nov. 7, 1997). "Even in the absence of
a contract restriction, a former employee is not entitled to
solicit customers by fraudulent means, the use of trade secrets
or confidential information." Id. at *4, n. 2. Nor can
employees conspire to set up a competing businesses while they
are still employed. See Arnold's Ice Cream Co. v. Carlson,
330 F. Supp. 1185 (E.D.N.Y. 1971).
While the record establishes that Anthony Valenti both used
confidential information and breached his fiduciary duties to
Unisource, the court must find that based on the disputed facts
and legal argument before it, the plaintiff falls short of
establishing a likelihood of success as against the employee
defendants as to those claims. And, while the plaintiff has
raised serious questions going to the merits regarding the
employee defendants, it has not shown that the balance of
hardships tips in its favor as against these defendants. The
plaintiff may well establish these claims against the employee
defendants after discovery is conducted, but there is not enough
in the record now to support injunctive relief against the
former employees directly.
Although the court does not recommend the imposition of
injunctive relief against these defendants individually, the
impact of the injunction against Anthony Valenti, Kathleen
Valenti and Matrix will have the effect of preventing the former
employees from using Unisource's confidential information to
divert sales away from Unisource to Matrix in derogation of the
duty they owed to Unisource. This is, the court believes, a just
result. Each of Unisource's former employees knew that they were
taking a chance in going to work for Matrix, and must have been
aware of Anthony Valenti's role in the formation of the company.
When they left Unisource, they allied themselves with the
fortunes of Matrix, and now they must live with that decision.
3. Irreparable Harm.
Unisource has shown that it will suffer irreparable harm
without injunctive relief. The "use and disclosure of an
employer's confidential information and the possibility of loss
of customers through such usage" can constitute irreparable harm
(Ecolab v. Paolo, 753 F. Supp. 1100, 1110 (S.D.N.Y. 1991)), and
the loss of goodwill can constitute irreparable harm which
cannot be compensated by money damages. Id. at 1109. The
plaintiff has met its burden of establishing that it possesses
trade secrets or confidential information, and thus, the
undersigned recommends that the application for preliminary
injunctive relief be granted.
Based on the foregoing, the undersigned recommends that the
plaintiffs motion for a preliminary injunction be granted as
against the defendants Anthony Valenti, Kathleen Valenti and
Matrix Group, Ltd. and denied as against Jay Greengrass, Linda
Remenschneider, Renee Marquart, and John Barrotta.
Any objections to this Report and Recommendation must be filed
with the Clerk of the Court with a courtesy copy to the
undersigned within 10 days of the date of this Report. Failure
to file objections within this period waives the right to appeal
the District Court's order. See
28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 72; Beverly v. Walker,
118 F.3d 900, 902 (2d Cir. 1997); Savoie v. Merchants Bank,
84 F.3d 52, 60 (2d Cir. 1996).