United States District Court, S.D. New York
June 8, 2005.
RCG INFORMATION TECHNOLOGY, INC., Plaintiff,
STEVEN WIGGINTON and VINCENT RUSSO, Defendants.
The opinion of the court was delivered by: NAOMI BUCHWALD, District Judge
MEMORANDUM AND ORDER
Plaintiff has moved for temporary and preliminary relief in an
effort to enforce the terms of a contractual non-competition
clause. An oral argument was held this morning on plaintiff's
request for a temporary restraining order. Because plaintiff had
not served the complaint until June 6 and June 7 on its former
employees and because defendants' counsel did not get a copy of
the motion papers until he arrived in court, it was not possible
to engage in a full exploration of the legal issues raised.
Nonetheless, several agreements were arrived at in the course
of the oral argument. Specifically, pending expedited discovery
and a determination on the application for a preliminary
injunction, defendants and their new employer, NetPixel Inc.
("NetPixel"), voluntarily agreed: (1) that NetPixel will not
contact any of plaintiff's employees; (2) that the defendants
will not utilize the Citigroup rate calculator or other
"confidential" information; and (3) that defendants will not contact any non-current client of NetPixel who is currently a
client of plaintiff and whom defendants personally serviced.
Three issues remained at the conclusion of the conference.
First, whether the defendants would be permitted to have contact
with pre-existing clients of NetPixel whom they had serviced
while employed by RCG Information Technology, Inc. ("RCG").
Second, whether the defendants would be permitted to have contact
with clients who they had previously serviced at RCG and who had
become clients of NetPixel after defendants became employed by
NetPixel. Third, whether defendants could have contact with a
prospective client of RCG, who had never actually become an RCG
client and who was now a client of NetPixel.
We address the third open issue first. No restraint will be
issued with respect to such activity as the law is clear that a
non-competition clause cannot be enforced with respect to a
prospective client. See Johnson Controls, Inc. v. A.P.T.
Critical Systems, Inc., 323 F. Supp. 525 (S.D.N.Y. 2004).
Turning to the other issues, we begin with the recognition that
"[t]he employer has a legitimate interest in preventing former
employees from exploiting or appropriating the goodwill of a
client or customer, which has been created and maintained at the
employer's expense, to the employer's competitive advantage."
BDO Siedman v. Hirshberg, 93 N.Y.2d 382, 391-92,
712 N.E.2d 1220, 1224-25, 690 N.Y.S.2d 854, 859 (1999). We also acknowledge
that the resolution of the application for temporary relief is
significant given the limited duration of the non-compete
clauses. Similarly, there is a close relationship between the
ultimate merits and the temporary relief sought, thus making the
merits of particular importance in the weighing process.
Our initial research gives us pause on at least two issues.
First, we are concerned about plaintiff's delay in waiting two
months to commence this action when plaintiff was aware from the
outset that defendants were going to work for a competitor. The
law is well-settled that a delay in seeking temporary relief
raises questions about whether there is a need for drastic
action. See Ivy Mar Co., Inc. v. C.R. Seasons Ltd.,
907 F. Supp. 547, 563-64 (E.D.N.Y. 1995) (citing cases). Moreover, the
record is not yet developed on whether the plaintiff's delay
caused a change in defendants' circumstances or a justifiable
reliance on that delay. Second, the plaintiff's papers and the
hearing established that at least one of the defendants was
terminated outright and that the facts concerning the other's
separation might well be considered a termination. This is of
significance because when a termination is involuntary a
non-compete clause may no longer be enforceable. See, e.g.
Post v. Morrill, Lynch, Pierce, Fenner & Smith, 48 N.Y. 2d 84,
397 N.E. 2d 358, 421 N.Y.S. 2d 847 (1979); Markovits v. Venture
Info Capital, Inc., 129 F.Supp. 647 (S.D.N.Y. 2001). Under all the circumstances, we will issue a temporary
restraining order for ten days covering the agreed upon subjects
and the first two of the remaining issues. The parties should
submit an order embodying this decision. Moreover, given the
limited record presented to date and the issues we have flagged,
we invite the defendants to move to dissolve or modify the
temporary restraining order embodied in this opinion.
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