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