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United States District Court, S.D. New York

June 8, 2005.


The opinion of the court was delivered by: NAOMI BUCHWALD, District Judge


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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