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LEGAL SEA FOODS v. STEPHEN CAUSE AND B R GUEST

United States District Court, Southern District of New York


August 19, 2003

LEGAL SEA FOODS, INC., PLAINTIFF,
v.
STEPHEN CAUSE AND B R GUEST, INC., DEFENDANTS

The opinion of the court was delivered by: Harold Baer, Jr., District Judge

OPINION & ORDER

Plaintiff Legal Sea Foods, Inc. ("LSF") moves by order to show cause for a preliminary injunction to enforce a non-compete agreement which defendant Stephen Calise ("Calise") signed and to enjoin him from working at one of defendant B R Guest's restaurant. LSF's lawsuit raises four causes of action: 1) breach of contract against Cause, 2) misappropriation of trade secrets against Calise and B R Guest, 3) unfair competition against Calise and B R Guest, and 4) tortious or intentional interference with contractual relations by B R Guest. Plaintiffs misappropriation-of-trade-secrets claim seeks preliminary and permanent injunctive relief; the other three claims seek preliminary and permanent injunctive relief or, alternatively, damages to be determined at trial. The parties submitted pre — and post-trial hearing briefs and the matter is ripe for resolution on the merits and if appropriate the issuance of a permanent injunction. For the following reasons, Legal Sea Foods motion is denied and judgment is entered in favor of the defendants.

I. BACKGROUND

LSF is a family-owned corporation that operates twenty-eight restaurants, including four restaurants within fifty miles of New York City. See Cartwright Aff. ¶ 4. On April 15, 1998, LSF offered the defendant Calise a position as kitchen-manager-in-training in its restaurant in Burlington, Massachusetts.*fn1 See Cartwright Aff. ¶¶ 19. At the end of his training which lasted [ Page 2]

several weeks, Calise was promoted to kitchen manager. See Cartwright Aff. ¶¶ 23-24; Calise Dep. 79-85. Calise eventually was promoted to chef and in October 2000 was transferred to the LSF restaurant in Paramus, New Jersey, where he remained until May 31, 2003. LSF's restaurant in Paramus is LSF's closest to New York City and is approximately seventeen miles from Blue Water Grill, the B R Guest restaurant at the center of this dispute.*fn2 See Cartwright Aff. ¶ 37. In addition to his responsibilities as the chef at Paramus, Calise frequently did demonstrations at stores such as Bloomingdale's and Chef Central and also appeared on several television programs. See Calise Dep. 191. Cause's base salary at LSF was $63,200 and in 2002 he earned bonuses of approximately $12,000. See Calise Dep. 193, 195.

LSF contends that its success in the highly competitive seafood-restaurant business is a result of the quality and consistency of its seafood, which in turn depends in its carefully developed recipes and techniques for safe-food handling. See Cartwright Aff. ¶¶ 5-13; Martinello Aff. ¶ 6; Tr. 136. LSF notes that its restaurants are frequently honored; for example, several of its restaurants, including the one in Paramus, have received Wine Spectator magazine's Award of Excellence. See Tr. 50-52; PI. Ex. 1. LSF operates a commissary where its seafood is sent to be "butchered" before it is transported by truck or by airplane to its restaurants. See Tr. 161-62. Because the interval between when LSF acquires its seafood to when it is consumed by its customers is approximately four to six days, LSF developed and maintains something called "Hazard Analysis and Critical Control Point" ("HACCP"), which is a plan for food services and seafood-processing, to safeguard the quality of its product. See Tr. 131; Martinello Aff. ¶ 6. This HAACP plan features "proprietary food processing and operations systems; advanced safety and quality control techniques; processes for handling and preparing seafood `from boat to plate;' state-of-the-art safety and sanitation processes, techniques and equipment developed by LSF at great effort and expense; and specialized machinery to prevent contamination of seafood and ensure the safety and consistency of food." See Martinello Aff. ¶ 6. LSF claims that its HACCP goes beyond what is required by the U.S. Food and Drug Administration and the U.S. Division of Marine Fisheries or the New York City health code.*fn3 See Martinello Aff. ¶ 7; Tr. 139-40. [ Page 3]

Because LSF considers certain recipes and some of the specific techniques and processes of its HACCP plan to be proprietary and confidential, it requires certain managerial employees to sign a document entitled "Information and Non-Competition Agreement Confidential/Proprietary" ("the Non-Compete Agreement"). See Cartwright Aff. ¶¶ 17, 22. On May 4, 1998, the day Calise started his training program with LSF, he signed the Non-Compete Agreement. Article IV of the Non-Compete Agreement provided that Calise agreed, inter alia, not to work in a restaurant in which seafood comprises at least fifty percent of the entrees or* main menu within a fifty-mile radius of any existing or planned LSF restaurant for one year after the termination of his employment with LSF. (Although a letter to Calise dated April 15, 1998 which confirmed LSF's offer of employment indicated that the Non-Compete Agreement was enclosed and advised him to review it, Calise testified that it was not and that he was not provided a copy in advance and was given only a brief opportunity to review the document. See Calise Dep. 110.) In April 2003, LSF circulated to its key managerial employees a new non-disclosure and non-compete agreement to replace the earlier version — i.e., the one that Calise signed in 1998. Calise did not sign the new agreement.

In February or March 2003, B R Guest, which owns and operates several well-known and highly-regarded restaurants in New York City, ran a classified ad in the New York Times for a chef position at a three-star Italian restaurant.*fn4 Calise responded to this ad. See Calise Dep. 103-105. Bret Reichler, B R Guest's executive corporate chef and its 30(b)(6) witness, stated that B R Guest probably would not have hired Calise if it had known he had signed the Non-Compete Agreement with LSF. See Reichler Dep. 61. On May 27, 2003, B R Guest formally offered Calise a position as a sous chef at a salary of $65,000 per year.*fn5 See Reichler Dep. 90.

Calise had on May 8, 2003 submitted his resignation to LSF. See Cartwright Aff. ¶ 32. LSF became aware of Calise's intent to leave when B R Guest sought a reference from LSF's human resources department, which in turn informed Cartwright. See Tr. 53. 87. Richard [ Page 4]

Vellante, LSF's executive chef, spoke with him about his obligations under the Non-Compete Agreement and that LSF intended to enforce its terms. See Tr. 54. According to Reichler, the decision to place Calise at Blue Water Grill was made in late June, because a sous chef at Blue Water Grill was needed to replace the executive chef at another restaurant who had given his notice. See Reichler Dep. 72-73. Calise's responsibilities as sous chef at Blue Water Grill include preparation of the menu items and sauces, management of the cooks and runners, and closing procedures. See Calise Dep. 212, 214, 239, 246.

On June 3, 2003, LSF's counsel wrote Calise a letter and sent a copy to B R Guest about Calise's obligations under the Non-Compete Agreement. Reichler and B R Guest's other executive corporate chef discussed among themselves and with counsel the possibility of moving Calise to a restaurant that did not predominantly serve seafood, but concluded that the restaurants were so different and the need so immediate that they went ahead with placement at the Blue Water Grill. On July 2, 2003, LSF commenced the instant action, which included a request for a temporary restraining order. On that same day, I denied LSF's TRO but authorized expedited discovery and set a date for a hearing on LSF's motion for a preliminary injunction. Defendant submitted its answering papers on July 11 and plaintiff its reply on July 17. In addition to the exchange of documents between the parties, LSF took the deposition of Calise and of Bret Reichler, one of B R Guest's corporate executive chefs. An evidentiary hearing was held on July 17 and continued on July 22. LSF called three witnesses. The parties then submitted post-hearing briefs. Based on the fullness of the record presented, it is appropriate that this matter, which started as an effort for preliminary relief be decided on the merits — i.e., whether a permanent injunction is merited. See Ticor Title Insurance Co. v. Cohen, 173 F.3d 63, 67-68 (2d Cir. 1999) (affirming district court's grant of a permanent injunction after it had granted expedited discovery and held an evidentiary hearing).

II. DISCUSSION

LSF seeks an injunction to prevent Calise from working in the Blue Water Grill or any other of B R Guest's seafood restaurants for one year, per the terms of the Non-Compete Agreement he signed on May 4, 1998. The Non-Competition Agreement provides that Massachusetts law applies, and the enforceability of this Non-Compete Agreement is determined accordingly. See Hartford Fire Ins. Co. v. Orient Overseas Containers Lines (UK) Ltd., 230 F.3d 549, 556 (2d Cir. 2000) ("New York law is clear in cases involving a contract with an express choice-of-law provision: Absent fraud or violation of public policy, a court is to apply the law [ Page 5]

selected in the contract as long as the state selected has sufficient contacts with the transaction.").*fn6

A. Standard for a preliminary injunction

To obtain a preliminary injunction, LSF must show that 1) a likelihood that it will suffer irreparable harm and 2) either a) likelihood of success on the merits or b) sufficient serious questions going to the merits to make them a fair ground for litigation and a balance of hardships tipping decidedly in its favor. See, e.g., North Atlantic Instruments, Inc. v. Haber, 188 F.3d 38, 43 (2d Cir. 1999).

To enjoin defendants, LSF must demonstrate that irreparable harm is likely — the possibility of harm is not sufficient. See Lumex, Inc. v. Highsmith, 919 F. Supp. 624, 62 (E.D.N.Y. 1996) (citing JSG Trading, 917 F.2d at 79); Inflight Newspapers, Inc. v. Magazines In-Flight, LLC, 990 F. Supp. 119, 125 (E.D.N.Y. 1997). Because there is no evidence that Calise has actually disclosed LSF's confidential information to B R Guest, LSF instead relies principally on the "inevitable disclose doctrine" to support its claim of irreparable injury. Defendants contend that LSF has failed to show imminent and probable harm and that the "inevitable disclosure doctrine" does not apply here because Calise did not misappropriate any proprietary information and B R Guest and LSF are not direct competitors. Defendants also contend that no protectable interest of LSF is at risk because 1) the core recipes are not treated as confidential, 2) LSF's HACCP plan is nothing more than a package of procedures generally [ Page 6]

known to and followed by other restaurants, and 3) Calise will not divulge the information anyway.

The question of whether an injunction is appropriate here turns in large measure on whether LSF's HACCP plan or its recipes are trade secrets. If LSF's recipes and its HACCP are common knowledge, then LSF is hard-pressed to show that it will suffer irreparable harm. I conclude that LSF has failed to demonstrate that its HACCP plan or its recipes are entitled to protection as trade secrets.*fn7

Both New York and Massachusetts courts look to the Restatement of Torts for a definition of trade secrets and there are six factors to be considered in deciding a trade-secret claim. See Jet Spray Cooler, Inc. v. Crampton, 361 Mass. 835, 840 (1972); Ashland Management Inc. v. Janien, 82 N.Y.2d 395, 407 (1993). The Restatement defines a trade secret as "any formula, pattern, device or compilation of information which is used in one's business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it." Ashland Management, 82 N.Y.2d at 407. The six factors are:

(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 employer to guard the secrecy of the information; (4) the value of the information to the employer and to his competitors; (5) the amount of effort or money expended by the employer in developing the information; and (6) the ease or difficulty with which the information could be properly acquired or duplicated by others.
Jet Spray Cooler, 361 Mass. at 840. Although I agreed to conduct these proceedings in confidence and to seal the records in order to enable the plaintiff to come forward with evidence to support its claim that there were protectable trade secrets here, LSF provided little more than sound and fury signifying nothing.*fn8 See William Shakespeare, MacBeth act 5. sc. 5. With [ Page 7]

respect to the first and sixth considerations, the evidence showed that significant portions of LSF's HACCP was incorporated into similar plans which LSF helped develop for the FDA and the U.S. Division of Marine Fisheries and thus these portions are in the public domain and easily acquired by others. Although the evidence showed that LSF's HACCP plan goes beyond the federal and local standards for food safety, the evidence also indicates that most restaurants — and certainly ones of the caliber of B R Guest's — similarly have procedures and standards to ensure the safe handling of the product that goes beyond what is required by regulations. See Tr. 142-44; Reichler Dep. 78. I cannot tell what aspects in particular LSF relies on as proprietary and how they differ from general and commonly known food-safety techniques and procedures. With respect to the second and third considerations, LSF's efforts to guard the secrecy of this information is by limiting the dissemination of certain information and by requiring management personnel to sign the Non-Compete Agreement; however, Martinello also testified that much of the information that was purportedly confidential was made available to employees not covered by the Non-Compete Agreement. For example, he prepared a flow chart of the HACCP plan and posted it in the kitchens where it was accessible to all employees. See Tr. 157. In addition, after he conducted monthly inspections of each of the restaurants, Martinello prepared a ten-page "public health inspection and sanitation audit," which listed those elements of the HACCP that required attention and which were also posted for all personnel to see. See Tr. 155. With respect to the fourth consideration, other than conclusory statements by its witnesses, LSF has not provided any evidence about the value of its HACCP to B R Guest and how B R Guest stands to benefit from this plan. This is especially important here because LSF concedes that a significant portion its HACCP relates to the safekeeping and handling of seafood over a period of four to six days while it is transported significant distances sometime before and shortly after it is butchered — and these heightened food-safety procedures are inapplicable to the defendant. B R Guest has no central commissary where its seafood is processed and butchered before being shipped to its restaurants. See Cullen Aff. ¶ 4. Instead, B R Guest purchases directly from seafood purveyors who bring the seafood directly to each restaurant. See Cullen Aff. ¶ 4. Thus, LSF has not demonstrated that its HACCP plan contains proprietary information.

LSF's recipes are also not trade secrets. Given that many of LSF's "core recipes" are contained in slightly modified form in its own published Legal Sea Foods Cookbook, see Tr. 47-48, the information is widely known outside the business and is easily acquired or duplicated by [ Page 8]

others through proper means. Indeed, notwithstanding the fact that the recipes contained in the cook book may differ from the one used in the restaurant by an ingredient or two, see Tr. 58-61, rather than attempting to guard this information, LSF has encouraged its widespread dissemination.*fn9 Vellante also testified that some items he considers "core," and thus alleged to be trade secrets, are prepared from a "prep book" that he acknowledged is accessible to and utilized by kitchen personnel, including waiters and waitresses, who are not subject to non-compete and confidentiality agreements. See Tr. 67-68. Finally, an ingredient list of dishes is* also kept where personnel who are not bound by LSF's Non-Compete Agreement have access to its contents. See Tr. 67. Thus, LSF's recipes are not trade secrets.

Because LSF's HACCP and its recipes are not trade secrets, LSF has failed to demonstrate a likelihood of irreparable harm and a preliminary injunction is therefore inappropriate.

B. Likelihood of success on the merits

Covenants not to compete while disfavored are enforced under Massachusetts law to the extent they are reasonable in time and geographical scope and necessary to protect the legitimate business interests of the employer, such as trade secrets, confidential information, or goodwill, and not against the public interest. See Marine Contractors Co. v. Hurley, 310 Mass. 915, 920 (1974); All Stainless, Inc. v. Colby, 364 Mass. 773, 778 (1974). Policy considerations dictate that any analysis of the viability of restrictive covenants include a concern for the employee's ability to earn a living. See Wells v. Wells, 400 N.E.2d 1317,1319 (Mass. Ct. App. 1980). "[A]n employer cannot by contract prevent his employee from using the skill and intelligence acquired or increased and improved through experience or through instruction received in the course of the employment. The employee may achieve superiority in his particular department by every lawful means at hand, and then, upon the rightful termination of his contract for service, use that superiority for the benefit of rivals in trade of his former employer." Richmond Brothers, Inc. v. Westinghouse Broadcasting, Co., 357 Mass. 106, 111 (1970) (quoting Club Aluminum Co. v. Young, 263 Mass. 223, 226-27). "[W]hat is reasonable depends on the facts of [ Page 9]

each case." Marine Contractors, 310 Mass. at 920; see also All Stainless, 364 Mass. at 781 n2. "Protection of the employer from ordinary competition, however, is not a legitimate business interest, and a covenant not to compete designed solely for that purpose will not be enforced." Marine Contractors, 310 Mass. at 920.

The conclusion above that neither LSF's HACCP plan nor its recipes are trade secrets is also highly significant to the issue of whether LSF is likely to succeed on the merits. That is, if LSF's HACCP plan and recipes are not trade secrets but rather easily attained knowledge. LSF is hard-pressed to show that its legitimate business interest is reasonably protected if B R Guest is forced to terminate Cause or move him to one of its restaurants that does not predominantly serve seafood. A second important consideration that weights against the need to enforce this restrictive covenant here is that there is no evidence that Cause has actually disclosed LSF's confidential information to B R Guest. For example, when Laurel Cudden, B R Guest's Director of Food Safety and Risk Assessment, met with Cause in June 2003 and mentioned to him that she was open to suggestions about improving B R Guest's food-safety program, he responded that he did not have any LSF paperwork and could not be of any assistance. See Cullen Aff. ¶ 3. Moreover, defendants note that Martinello testified that he had no personal knowledge that Calise had ever actually seen the written HACCP plan. See Tr. 157. Finally, LSF does not dispute that Calise could work for another of B R Guest's restaurants that does not predominantly serve seafood — indeed that is what LSF seeks. And at one of these other restaurants, he would be able to utilize general knowledge about seafood and about food safety. (Of course, Calise is still obligated to not disclose LSF's proprietary information, if any there be, as this opinion in no way alters his obligations under the non-disclosure component of the Non-Compete Agreement that he signed in 1998 for LSF.) However, if the legitimate business purpose of LSF's Non-Compete Agreement is to prevent inadvertent disclosure of trade secrets, then that is not accomplished by forcing B R Guest to move Calise to another restaurant until one year from the end of his employment at LSF. I conclude that the enforcement of LSF's Non-Compete Agreement does not "reasonably protect the legitimate business interests of the employer." Shipley Co. v. Clark, 728 F. Supp. 818, 826 (D. Mass. 1990).

C. Permanent relief

"[P]permanent relief might be granted after a hearing upon a temporary injunction if no genuine issues of fact are found to be present; or if the court had ordered consolidation of the [ Page 10]

hearing for temporary relief with the trial on the merits [pursuant to Rule 62(a)]."*fn10 Capital City Gas Co. v. Phillips Petroleum Co., 373 F.2d 128, 131 (2d Cir. 1967) (citations omitted). The plaintiff here had and fully availed itself of "a fair opportunity to present evidence" but failed to demonstrate either the presence of irreparable harm or the likelihood of success on the merits that this Non-Compete Agreement was reasonable necessary to protect its interests in this situation. Cf. Woe, 801 F.2d at 629 (remanding the case to afford the defendants a fair opportunity to present evidence, where the defendant had not done because it believed that the* motion was only on temporary relief because the court did not give clear and unambiguous notice of its intent to decide the matter on the merits).*fn11 LSF's failure to raise a genuine issue of fact about whether its allegedly proprietary information is protectable as trade secrets or to demonstrate a likelihood of success in showing that enforcement of this restrictive covenant legitimately protects its interests here makes this case ripe for a decision on the merits with respect to all four of its claims. Finally, where as here any danger that LSF faced in the * disclosure of its allegedly confidential information existed most acutely in the first months of Calise's employment at B R Guest, it is appropriate that this matter be resolved for the parties with finality at this stage; moreover, even if LSF were to muster additional evidence sufficient to prevail on the merits of its claim or on appeal, any such decision is still several more months away, and the issue will become entirely moot in nine months. Accordingly, based on the parties' pre — and post-hearing briefs and the affidavits deposition testimony, and testimony at the hearing, LSF's motion for a preliminary injunction is denied and judgment is entered in favor of the defendants. [ Page 11]

III. Conclusion

For the foregoing reasons, plaintiff's motion for a preliminary injunction is denied and judgment is entered in favor of the defendants.

SO ORDERED


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