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JOHNSON CONTROLS, INC. v. A.P.T. CRITICAL SYSTEMS

June 24, 2004.

JOHNSON CONTROLS, INC., Plaintiff,
v.
A.P.T. CRITICAL SYSTEMS, INC., GLEN P. NEVILLE, and NICHOLAS M. MOON, Defendants.



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

OPINION AND ORDER

Plaintiff Johnson Controls, Inc. ("JCI") moves the Court, by way of an Order to Show Cause, for a preliminary injunction prohibiting defendants Glen P. Neville, Nicholas M. Moon and their company, A.P.T. Critical Systems, Inc. ("Critical Systems, Inc."), from engaging in certain business activities in violation of non-competition and confidentiality agreements that Neville and Moon entered into while employed by plaintiff. Plaintiff, a Wisconsin corporation, filed a Summons and Verified Complaint on June 1, 2004, alleging breach of contract, breach of fiduciary duty and breach of duty of loyalty by defendants Neville and Moon; as well as misappropriation of trade secrets and confidential information, tortious interference with business relationships and expectancies, civil conspiracy, trademark infringement and unfair competition by all defendants, who are citizens of New York. This Court's jurisdiction, which defendants have not challenged, is based on both diversity of citizenship and the questions of federal law raised by plaintiff's trademark and unfair competition claims.

  On June 2, 2004, after holding a hearing attended by both parties, the Court issued a temporary restraining order pending resolution of plaintiff's motion for a preliminary injunction and ordered the parties to engage in expedited discovery. The temporary restraining order prohibited defendants from, inter alia, soliciting or servicing JCI's customers, using or disclosing JCI's proprietary or confidential information, interfering with JCI client relationships and using the name A.P.T. or American Power Technologies. On June 14 and 15, the Court held a full-blown evidentiary hearing, at which both sides presented live testimony and documentary evidence. On June 16, the Court extended the temporary restraining order for an additional 10 business days, pending the Court's decision on the preliminary injunction. For the reasons stated below, plaintiff's motion is granted in part and denied in part. The preliminary injunction, as modified by the Court, will issue upon plaintiff's posting a bond in the amount of $350,000.

  BACKGROUND

  Plaintiff JCI is an established company in what it refers to as the "building controls industry." (Aff. of Kostas M. Pervolarakis, sworn to on June 1, 2004 ("Pervolarakis Aff.") ¶ 5.) The company was founded in simpler times, back in 1885, by Professor Warren Johnson, the inventor of the electric thermostat. (Id.) Since then, it has grown into a much larger and complex operation that, among other services, engineers, manufactures and installs building heating, ventilating, air conditioning, lighting and fire safety equipment. It also provides a variety of services related to the on-site maintenance and management of complex electrical systems, which enable large banks, financial institutions, and other clients to maintain an uninterruptible power supply for so-called critical loads — building and system functions for which the momentary loss of power could cause significant financial losses. (Id. ¶¶ 6-7.) These systems are of particular importance in the financial industry, where dependable power is the sine qua non of realtime worldwide capital markets.

  In approximately August of 2000, plaintiff JCI purchased American Power Technologies, Inc. ("APT"), a New York company that had competed with JCI in providing engineering, consulting and maintenance services for complex electrical systems. In particular, APT focused on providing such services for businesses and industries that required uninterruptible power for critical loads, an area loosely referred to by the parties as the "critical systems" industry. (Id. ¶¶ 6-7.) At the time of the purchase, APT was well known in the building controls industry and considered a "premiere provider" of general engineering services for office buildings. (June 14-15, 2004 Hr'g Tr. ("Tr.") at 97.) After the purchase, JCI continued to operate APT's business within its existing critical systems division; it continued to use the name American Power Technologies and the acronym APT with certain clients and it maintained APT's former phone number so that calls to the number would be forwarded to JCI. JCI also hired numerous former APT employees as well as APT's former president and owner, Clifton LaPlatney.

  Prior to the purchase, defendants Neville and Moon were managers with APT involved in the service of critical systems clients. (Tr. at 36, 71, 95-96.) In conjunction with the acquisition of APT, Neville was hired by JCI immediately in August of 2000 and remained employed there through February 27, 2004. While at JCI, Neville's responsibilities included overseeing engineering and technical services for JCI's critical systems clients, as well as, for a time, managing its New York office. (Pervolarakas Aff. ¶ 10; Tr. at 108.) Moon, on the other hand, left APT when it was acquired by JCI and spent two years in Spain, managing the Madrid office of a company called ICW Power. (Tr. at 71.) He later returned to the United States and was hired by JCI in approximately April of 2002, as an engineering manager. (Tr. 72, 237.) In this position, Moon oversaw a number of engineers who performed critical systems services including, but not limited to, the maintenance and testing of uninterruptible power supply ("UPS") systems. (Tr. at 237.) Both Neville and Moon were placed in positions where they were responsible for developing and maintaining relationships with JCI's clients through client contact, submitting proposals for work projects, and supervising engineering work on projects that JCI performed. (Pervolarakas Aff. ¶¶ 17-18; Tr. at 36, 78-79; 108; 237-38, 282-83.) For their services, Neville and Moon received substantial compensation, in the form of salaries, overtime payments, bonuses and stock options. (Pervolarakas Aff. ¶ 13.)

  As a condition of their employment with JCI, defendants Neville and Moon executed employment agreements that included, among other things, confidentiality and non-competition clauses. The confidentiality provisions for both defendants' agreements is as follows:
CONFIDENTIALITY
For a period corresponding to the term of employment and for three years thereafter, as long as the information remains confidential or proprietary, I shall not disclose to others, copy or use, except as authorized by Johnson Controls, any confidential or proprietary information of Johnson Controls comprising any data or information, however embodied, acquired or created, concerning any aspect of the business of Johnson Controls that I may acquire or originate during my employment. This clause is not to be construed as prohibiting the use of my trade and professional skills so long as such use does not inevitably require disclosure or use of confidential or proprietary information of Johnson Controls. Further, this clause does not limit protection of any trade secrets of Johnson Controls that I may acquire or originate during my employment, which trade secrets I shall not disclose to others, copy or use for as long as the information remains entitled to trade secret protection under applicable statutory or common law.
(June 14-15, 2004 Hr'g Pl.'s Ex. ("Pl.'s Hr'g. Ex.") 1, 3-4.)
  The employment agreement that the parties agree applies to defendant Neville for the purposes of the instant motion contains the following non-competition provision:
NON COMPETITION
For one year following the date of termination I will not perform services directly or indirectly in or for a business competitive with Johnson Controls, with respect to 1) existing Johnson Controls customers or potential customers served or solicited by me or someone under my supervision while I was a Johnson Controls employee, and/or 2) potential customers who within my last 9 months of employment received or were about to receive proposals from any employee of Johnson Controls with whom I had contact. This covenant will not apply in the event that any prospective employer whose business is competitive with Johnson Controls has an existing revenue generating relationship with a Johnson Controls customer or potential customer.
(Pl.'s Hr'g Ex. 1.)*fn1 Defendant Moon's non-compete clause reads:
For one year following the date of termination I will not perform services directly or indirectly in or for a business competitive with Johnson Controls with respect to: 1) existing Johnson Controls customers or potential customers served or solicited by me or someone under my supervision while I was a Johnson Controls employee, and/or 2) potential customers who within my last 9 months of employment received or were about to receive proposals from me or any employee of Johnson Controls with whom I had contact. This covenant not to unfairly compete will not apply to contractors or subcontractors with whom Johnson Controls has existing or proposed business.
(Pl.'s Hr'g Ex. 4.)

  At some point in the fall of 2003, however, the relationship between defendants Neville and Moon and their new employer began to sour. Both Moon and Neville tendered their resignations to JCI in late February 2004, and by early March 2003, were doing business under the name A.P.T. Critical Systems, Inc. Plaintiff claims that Neville and Moon have wrongfully held themselves out for business using the names A.P.T. and American Power Technologies; have wrongfully interfered with existing JCI service contracts; have offered and, in fact, provided competing services to JCI clients that the defendants serviced while employed by JCI; and have attempted to undercut JCI's service proposals with competing bids relying on their knowledge of JCI's confidential information. Plaintiff contends that defendants' positions at JCI involved substantial client contact and responsibility for building client relationships as well as access to a wide array of confidential business information and trade secrets including JCI pricing, business proposals, the identities of JCI's customers and information about customer needs. JCI claims that defendants' attempts to siphon off its customers and misappropriate its trade secrets and confidential information will cause it irreparable harm absent injunctive relief and, furthermore, that it is entitled to such relief because Neville and Moon have violated enforceable non-compete and confidentiality agreements and misappropriated protectable information.

  Plaintiff seeks a broad preliminary injunction, enjoining defendants 1) from soliciting or servicing existing or potential JCI clients who were solicited or served by defendants Moon and Neville or their subordinates at JCI; 2) from using or disclosing JCI's confidential information and trade secrets and ordering Moon and Neville to return such information to JCI; 3) from interfering, in any way, with current or prospective client relationships of JCI; and 4) from breaching their fiduciary obligations to JCI. Initially, JCI also sought to enjoin Moon and Neville from using the name American Power Technologies, or the acronyms APT and A.P.T., in their business dealings. In their Opposition to plaintiff's motion and at the June 14-15 hearing, however, defendants indicated that they had changed the name of their company to "Critical Systems, Inc." by filing an amendment with the New York State Department of State, Division of Corporations, and that they would no longer use the name A.P.T. Critical Systems. Based on this representation, JCI has withdrawn its request for an injunctive relief on this issue. Neville and Moon do not deny that they developed and maintained important client relationships while they were employed by JCI. Nor do they deny that since they left JCI, they have been soliciting and servicing these clients to JCI's detriment. Instead, they argue that these relationships were personal client relationships that they developed over many years in the critical systems industry. In addition, they assert that none of the information they obtained while employed by JCI rises to the level of a trade secret or protectable confidential information. Accordingly, they contend that the non-compete clauses in their employment agreements do not protect any legitimate interest of JCI and are unenforceable.

  Even if the clauses are enforceable, defendants argue that Neville's non-compete provision does not preclude Neville from servicing any JCI clients if he accepts employment with an employer, which, at the time of his employment, already has an existing revenue generating relationship with at least one JCI client. Defendants argue that because Moon had already set up Critical Systems, Inc. and serviced its first JCI client prior to Neville's arrival at the new company, Neville is not in violation of his agreement. As for Moon, defendants argue that his non-compete clause is unclear and appears to allow him to service contractors and subcontractors that are clients of JCI. Because most of JCI's clients are third parties contracted by large financial institutions to manage their building facilities, defendants argue that the clause is so limited as to be meaningless. As a result, defendants maintain that preliminary injunctive relief is inappropriate in this case. DISCUSSION

  It is well established that in order to obtain a preliminary injunction, the movant must show: (a) irreparable harm and (b) either (1) likelihood of success on the merits or (2) sufficiently serious questions going to the merits to make them a fair ground for litigation and a balance of hardships tipping decidedly toward the party requesting the preliminary relief. See, e.g., Sweeney v. Bane, 996 F.2d 1384, 1388 (2d Cir. 1993); Jackson Dairy, Inc. v. H.P. Hood & Sons, Inc., 596 F.2d 70, 72 (2d Cir. 1979). Whether injunctive relief should issue or not "`rests in the sound discretion of the district court which, absent abuse of discretion, will not be disturbed on appeal.'" Reuters Ltd. v. United Press Int'l, Inc., 903 F.2d 904, 907 (2d Cir. 1990) (quoting Thornburgh v. American Coll. of Obstetricians and Gynecologists, 476 U.S. 747, 755 (1986)).

  A. Irreparable Harm

  Irreparable harm is "`the single most important prerequisite for the issuance of a preliminary injunction.'" Reuters, 903 F.2d at 907 (quoting Bell & Howell: Mamiya Co. v. Masel Co. Corp., 719 F.2d 42, 45 (2d Cir. 1983)). Irreparable harm is an "injury for which a monetary award cannot be adequate compensation." Javaraj v. Scappini, 66 F.3d 36, 39 (2d Cir. 1995) (citing Jackson Dairy, 596 F.2d at 72). Further, "[i]rreparable harm must be shown by the moving party to be imminent, not remote or speculative." Reuters, 903 F.2d at 907 (citing Tucker Anthony Realty Corp. v. Schlesinger, 888 F.2d 969, 972 (2d Cir. 1989)). The movant is required to establish not a mere possibility of irreparable harm, but that it is "likely to suffer irreparable harm if equitable relief is denied." JSG Trading Corp. v. Tray-Wrap, Inc., 917 F.2d 75, 79 (2d Cir. 1990) (emphasis in original). "Likelihood sets, of course, a higher standard than `possibility.'" Id. Generally, when a party violates a non-compete clause, the resulting loss of client relationships and customer good will built up over the years constitutes irreparable harm. As the Second Circuit recently explained, it is "very difficult to calculate monetary damages that would successfully redress the loss of a relationship with a client that would produce an indeterminate amount of business in years to come." Ticor Title Ins. Co. v. Cohen, 173 F.3d 63, 69-70 (2d Cir. 1999); see also Shred-It USA, Inc. v. Mobile Data Shred, Inc., 202 F. Supp.2d 228, 233 (S.D.N.Y. 2002); Unisource Worldwide, Inc. v. Valenti, 196 F. Supp.2d 269, 280 (S.D.N.Y. 2002); Natsource LLC v. Paribello, 151 F. Supp.2d 465, 469 (S.D.N.Y. 2001); Garber Bros., Inc. v. Evlek, 122 F. Supp.2d 375, 384 n. 6 (E.D.N.Y. 2000); Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Rahn, 73 F. Supp.2d 425, 428 (S.D.N.Y. 1999); Velo-Blind, Inc. v. Schek, 485 F. Supp. 102, 109 (S.D.N.Y. 1979) ("By siphoning off plaintiff's carefully gleaned customers, defendants subject plaintiff to a definite possibility of irreparable harm, which increases as long as it continues unrestrained. What is at stake here is plaintiff's good will built up over the years, which is not, contrary to defendant's assertion, monetarily ascertainable."). Under limited circumstances, such as where the loss to an employer can be quantified in terms of a specific amount of lost sales, no irreparable harm is threatened. See Production Resource Group, LLC, v. Oberman, No. 03 Civ. 5366(JGK), 2003 WL ...


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