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Estee Lauder Companies Inc. v. Batra

May 4, 2006

THE ESTEE LAUDER COMPANIES INC., PLAINTIFF,
v.
SHASHI BATRA, DEFENDANT.



The opinion of the court was delivered by: Sweet, D.J.

OPINION

Plaintiff Estee Lauder Companies, Inc. ("Estee Lauder") has moved by order to show cause for a temporary restraining order and preliminary injunction pursuant to Rule 65, Fed. R. Civ. P., to restrain defendant Shashi Batra ("Batra") from breaching the terms of his Confidentiality, Non-solicitation, and Non-competition Agreement with Estee Lauder (the "Non-compete Agreement") and from engaging in employment with N.V. Perricone M.D. Ltd ("Perricone").

Batra has cross-moved seeking this Court to abstain or alternatively for a stay, citing Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 813, 96 S. Ct. 1236, 1244, 47 L. Ed. 2d 483 (1976). For the reasons set forth below, a preliminary injunction will issue and the motion to abstain is denied.

Prior Proceedings

On March 13, 2006, Batra filed a complaint in California State Court seeking a declaratory judgment that the Non-compete Agreement was void under California Law. On March 15, 2006, Estee Lauder filed its complaint against Batra alleging: (1) breach of Batra's Non-compete agreement and (2) theft of trade secrets. On March 20, 2006, Batra cross-moved this Court by order to show cause for abstention and a stay.

Discovery was expedited. Hearings were conducted by way of deposition on March 22, March 23, and April 4, 2006. The motions of Estee Lauder and Batra were marked fully submitted on April 4, 2006.

Facts

For the purposes of this motion, the Court makes the following preliminary findings of fact, pursuant to Fed. R. Civ. P. 52(a) and 65, which are based on the affidavits submitted by the parties and the depositions conducted at the hearing.

I. The Parties

Plaintiff Estee Lauder is a corporation organized under the laws of the State of Delaware with its principal place of business located in New York, New York. (Compl. ¶ 6.) Estee Lauder is engaged in the business of manufacturing and marketing skin care, makeup, fragrance, and hair care products. (BousquetChavanne Declaration ("B-C Decl.") ¶ 2.)

Defendant Batra is an individual who resides in San Francisco, California, (Compl. ¶ 7.), and did from 2004 until March 10, 2006, when he was employed as a senior executive for two of Estee Lauder's brands, Rodan and Fields ("R") and Darphin. On or about March 13, 2006, Batra began employment as the Worldwide General Manager of Perricone.

II. Estee Lauder's Business

Estee Lauder employs approximately 6,700 employees in New York and approximately 1,800 employees in California. (Hearing Trans. 03/23/06 at 24). Senior Management of Estee Lauder is located in New York, including the chief executive officer, chief operating officer, chief financial officer, head of operations, manufacturing, head of information systems, senior counsel, head of worldwide Human Resources, and group presidents. (Id.at 25). Of the 14 General Brand Managers, 11 are located in New York. (Id.). The Darphin general manager is located in Paris, the R General Brand Manager (Batra) is located in San Francisco, and the Aveda General Brand Manager is located in Minneapolis. (Id. at 25).

In 2003, Estee Lauder acquired R, a dermatologist-founded skin care brand, and Darphin, a Paris-based pharmacy skin care and make-up company. (B-C Decl. at 2). Both the R and Darphin brands market and sell their products in the cosmetic dermatology market. (Id.)

R was founded by Stanford-trained dermatologists Katie Rodan, M.D. and Kathy Fields, M.D. (Id. at 3). R develops skin care products marketed to consumers seeking products and regimens created by expert dermatologists. (Id. at 3). The R skin care line offers products for specific skin problems, such as severe acne conditions and sensitive skin. (Id.).

Darphin is a Paris-based brand, originally sold in European pharmacy channels, that offers prestige skin care, make-up and personal care products created from plant extracts and botanical aromas. (Id. at 3-4). Darphin products are sold in more than 55 countries and territories. (Id.) In North America, Darphin is primarily distributed through high-end retail establishments and specialty stores. (Id.)

The R and Darphin brands report directly to Senior Management in New York. (Hearing Trans. 03/23/06 at 26).

III. Batra's Employment with Estee Lauder

Batra was hired as Global General Brand Manager of R as of January 5, 2004. (B-C Decl. at 4). Effective July 1, 2005, Batra also assumed the role as General Manager for Darphin, North America. (Id.) In his role for R, Batra was the senior executive in charge of the brand and was responsible for overseeing all aspects of R's business, including, research and development, marketing and distribution, pricing, packaging development, corporate finance, regulatory affairs, internet development, and public relations. (Id.) In his role for Darphin, Batra was responsible for marketing and distribution, pricing and overall accounts management strategies for the Darphin brands in North America. (Id.)

Batra had worldwide responsibility for R. (Id.) Similarly, he is assuming worldwide responsibility for Perricone. As brand manager of R, Batra was responsible for product development and for guiding new product entries into different market segments. (Hearing Trans. 03/23/06 at 36). This required him to participate in new product development meetings and to keep abreast of the technologies and key ingredients for the products developers were asked to create for R. (Id. at 36). In this capacity, Batra was responsible for preparing and implementing brand strategies for the R brand for fiscal years 2007 and 2008. (Id.)

At the commencement of his employment, Batra signed an employment agreement with Estee Lauder, which contained confidentiality, non-solicitation, non-competition provisions. (See Exhibit B to B-C Decl.). In return for signing the agreement (which all Estee Lauder executive employees are required to sign) Batra received a $100,000 signing bonus. (B-C Decl. at 5). In addition, Batra was provided with a compensation package of $300,000 per year, benefits, an automobile allowance, stock options, and bonus eligibility. (Id.) On July 1, 2004, Batra's base salary was increased to $325,000. (Id.) In July, 2005, in conjunction with his new responsibilities for Darphin, Estee Lauder increased Batra's base salary to $375,000. (Id.)

The non-competition clause, contained in Paragraph 4 of the employment agreement that Batra signed in January 2004, provides as follows:

You recognize that the Company's business is very competitive and that to protect its Confidential Information the Company expects you not to compete with it for a period of time. You therefore agree that during your employment with the Company, and for a period of twelve (12) months after termination of you employment with the Company, regardless of the reason for the termination, you will not work for or otherwise actively participate in any business on behalf of any Competitor in which you could benefit the Competitor's business or harm the Company's business by using or disclosing Confidential Information. This restriction shall apply only in the geographic areas for which you had work-related responsibility during the last twelve (12) months of your employment by the Company and in any other geographic area in which you could benefit the Competitor's business through the use or disclosure of Confidential Information.

(Exhibit B to B-C Decl. ¶ 4).

In addition, the agreement contained a non-solicitation provision, contained in Paragraph 5, pursuant to which Batra agreed that he would:

not, directly or indirectly, solicit, induce, recruit, or encourage any of the Company's employees to terminate their employment with the Company or to perform services for any other business. (Id. at ¶ 5).

Paragraph 7 of the agreement provides that:

During the period in which you are subject to the non-competition restrictions of paragraph 4, the Company will continue to pay you your last regular salary at the Company. If at any time during this period the Company gives you a written release from the restriction, the Company will no long be obligated to make the payments provided for in this Paragraph.

(Id. at ¶ 7).

Batra's employment agreement with Estee Lauder also contains a confidentiality provision, which states:

You recognize that the Company's Confidential Information is extremely valuable to it and that disclosure or use of Confidential information outside the Company could irreparably damage the Company. You therefore agree that you will not use any Confidential Information for any purpose other than to benefit the Company. In furtherance of that commitment you will disclose Confidential Information to other persons within the Company only if they have a need to know the information in order to perform their job responsibilities for the Company and will not disclose Confidential Information to any person outside the Company . . . . You understand and agree that your confidentiality obligations under this paragraph will continue after termination of your employment with the Company, regardless of the reason for the termination, as long as the information is not generally known to the public.

(Id. at ¶ 3).

Pursuant to the terms of the agreement, "Company" is defined as:

The Estee Lauder Companies Inc. or any entity in which 50 percent or more of the outstanding voting shares are owned directly or indirectly by The Estee Lauder Companies Inc.

(Id. at ¶ 1(a)).

The term "Competitor" is defined as:

[A]ny business that is engaged in, or is preparing to become engaged in, the cosmetics, skin care, hair care, toiletries or fragrance business or other business in which the Company is engaged or preparing to become engaged, or that otherwise competes with, or is preparing to compete with, the Company.

(Id. at ¶ 1(b)).

Pursuant to the agreement, "Confidential Information":

Means information concerning the Company that is disclosed to you or otherwise learned by your as a result of your employment by the Company that is not generally known by Competitors, including, but not limited to, such information concerning: research and development, trade secrets, sales, products, services, accounts, customers, purchasers of the Company's products, marketing, packaging, merchandising, distribution, manufacturing, finance, technology, intellectual property (patents, design patents, trademarks, trade dress, copyrights), strategies, business structures, operations or ventures or other business affairs or plans.

(Id. at ¶ 1(c)).

Finally, the Non-compete Agreement contained a choice of law provision, which states:

This agreement shall be governed by, and construed and interpreted in accordance with, the laws of the State of New York without regard to the conflict of law rules thereof.

(Id. at ¶ 15).

IV. Batra's Possession of Trade Secrets

Batra admits that among his responsibilities as brand manager of R and as General Manager for Darphin, North America, he was in charge of developing strategies for the brands of these companies. (Hearing Trans. 03/22/06 at 24). He further admits that with respect to R products, he has a general idea of the plans for launch of new products, including the marketing and geographic plans and the channels of distribution for these products, over the next six to nine months. (Id.)

On January 18, 2006, a yearly brand strategy meeting was held in New York for the R brand. Present at the meeting was William Lauder, the chief executive officer of Estee Lauder; Dan Brestle, the chief operating officer of Estee Lauder; Rick Kunes; and Patrick Bousquet-Chavanne ("Bousquet-Chavanne"), Group President of Estee Lauder Companies, Inc. (Hearing Trans. 03/23/06 at 20). Via videolink, from San Francisco were also, Batra, Annie Jackson, and Suzie Henricks. (Hearing Trans. 03/23/06 at 20-21).

For this meeting, Batra prepared a yearly brand strategy exercise (Exhibit 20) which set forth a review of the future of the business and forward-looking plans concerning business development, investment, geographic expansion, and new product development. (Hearing Trans. 03/23/06 at 21). In addition, the brand strategy exercise presented confidential information regarding product launches for fiscal years 2006, 2007, 2008. (Hearing Trans. 03/23/06 at 21).

Documents introduced at the R brand strategy meeting, which were prepared by Batra during his employment with Estee Lauder, were submitted for consideration on this motion. (Exhibit 20). Contained in these documents is confidential information regarding twelve new products that are presently in the pipeline. (Id.) In addition the documents contained the confidential geographic plans for R over the next two to three years.

On January 18, 2006, a yearly brand strategy meeting was also held for the Darphin brand. (Hearing Trans. 03/23/06 at 23). Batra did not attend the meeting. (Id.) However, he was given direct access to the plan following the meeting, which also contained confidential information regarding new marketing activities and new product development planned for the next three years. (Id.)

Additionally, Batra was privy to all of the information surrounding Darphin's upcoming marketing and product development strategies for Darphin. (Exhibit 24). According to BousquetChavanne, Batra has "the road map in terms of expenses and investments that [Estee Lauder is] planning to put behind [its] development for the Darphin brand . . . and the expected revenues from those investments." (Hearing Trans. 03/23/06 at 31). Batra was also responsible for preparing a plan of potential accounts the Darphin brand would seek to enter over the next twelve months. (Exhibit 35; Hearing Trans. 03/23/06 at 32).

V. Batra's Departure

In fall of 2006, Batra began discussing an opportunity at Perricone with Nick Perricone. (Hearing Trans. 03/22/06). Throughout the fall, Batra met with Perricone and individuals from an investment company called, TSG Consumer Products ("TSG"). (Id.) At that time, TSG was interested in purchasing Perricone, and Batra was asked to give his opinion on how good the Perricone brand was, so that TSG could determine whether or not it would be a profitable investment. (Id.)

While Batra initially intended to leave Estee Lauder in November 2005, his discussions with TSG and Perricone continued into the winter of 2005 and 2006. Throughout this time, Batra routinely worked on Perricone matters during his day at Estee Lauder in breach of his duty of loyalty to Estee Lauder, preparing for upcoming meetings with TSG and Perricone and even drafting the press release for his new position with Perricone on an Estee Lauder computer (Exhibit 13). (Id.)

Additionally, during this time, Batra solicited advice and assistance on his work with Perricone from another R senior executive, the executive director of marketing, Annie Jackson ("Jackson"). (Id. at 21-25). There were several emails exchanged establishing that throughout this time, Batra regularly solicited Jackson to breach her duty of loyalty to Estee Lauder by assisting him on preparing for meetings with TSG and Perricone. (Id.) Both Jackson and Batra completed at least some of this work for Perricone during time that should have been devoted to Estee Lauder projects, using their Estee Lauder computers and email. On one occasion, Batra admits that he invited and brought Jackson to such a meeting. At this meeting on February 7, 2006, Batra and Jackson worked to persuade TSG that Perricone was a good brand and a good acquisition. (Id.)

The evidence in these emails also establishes that even though he never made an explicit offer of employment, Batra was actively soliciting Jackson to leave her position with R to come to Perricone with him. (See Exhibit 11, containing an email from Batra to Jackson dated February 6, 2006 stating "I would drag you with me kicking and screaming even if you didn't want to come").

Following the February 7, 2006 meeting, Batra began creating a strategy for Perricone to begin to grow its business, which he drafted on his Estee Lauder computer. (See Exhibit 12).

On or about March 7, 2006, Batra telephoned BousquetChavanne and informed him that he was resigning from Estee Lauder to become the Worldwide General Manager of Perricone. (B-C Decl. at 6). During this telephone call, Bousquet-Chavanne reminded Batra of his obligations under the Non-compete Agreement. (Id.) Batra acknowledged these obligations and responded that he did not believe that Estee Lauder would be able to enforce the Non-compete Agreement because he understood that California law does not recognize such agreements. (Id.)

During this telephone call, Bousquet-Chavanne encouraged Batra to provide a period of notice and to assist in a transition before leaving the company. (Id. at 7). Following further discussions, Batra agreed on March 10, 2006 to consider the Company's requests that he provide assistance for a transitional period and delay his departure date. (Id.) He indicated that he would come to the office on ...


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