The opinion of the court was delivered by: Sifton, Senior Judge.
CORRECTED MEMORANDUM OPINION AND ORDER
This is an action commenced by two New York corporations, plaintiffs Global Switching Inc., ("Global") and its subsidiary, Dollar Phone Corp. ("Dollar Phone"), alleging breach of a joint venture agreement, against defendant Hans Kasper a citizen of Georgia and the joint venture, SkyMax Dominicana S.A ("SMD"),*fn1 a Dominican corporation. The relief sought in the complaint is an injunction preserving the status quo pending the completion of arbitration between the parties.
The matter is presently before the Court on plaintiffs' motion for a preliminary injunction barring the defendant Kapser and companies controlled or acting in concert with him from competing with the joint venture in the provision of telecommunications services into or out of the Dominican Republic, hiring away employees of the joint venture, using confidential or proprietary information belonging to the joint venture to compete with it, or terminating or diminishing service to customers of the joint venture or otherwise interfering in the joint venture's customer relations. For the reasons set forth below plaintiffs' motion for a preliminary injunction is granted.
What follows sets forth the findings of fact and conclusions of law on which that decision is based, as required by Rule 65 of the Federal Rules of Civil Procedure.
Plaintiffs, Dollar Phone and Global, are owned by Moses Greenfield and are engaged in the telecommunications business, providing services for prepaid phone card distributors. Tr. 8:10-12. Dollar Phone maintains agreements with local phone companies all over the world to carry calls made with the prepaid phone cards. Tr. 9:18-22.*fn2 Global owns the equipment that allows the calls to go through. Tr. 8:13-15. This includes the various switches which keep track of the minutes and PINS of the phone cards used to place calls. Tr. 10:9-19. Both companies are located in Brooklyn, NY. Tr. 10:6-7, 22-23.
In 2003-2004 Dollar Phone was introduced by its employee, Peter Austin, to Hans Kasper, owner of the Dominican Republic licensed*fn3 phone company SMD. Tr. 14:16-21. Specifically, SMD had licenses, from Indotel, to pass calls into and out of the country and to maintain satellites in the country. Tr. 16:16-25. Thereafter, Dollar Phone began to purchase minutes from SMD for calls terminating in the Dominican Republic. Tr. 15:1-4. Dollar Phone agreed to prepay for minutes in order to obtain a better rate. Tr. 15:12-17. Because SkyMax Dominicana was short on cash, Dollar Phone made prepayments in amounts larger than the actual traffic projected. Tr. 20:23-25. At some point Kasper offered to convert the debt into a 50% investment in SMD. Tr. 21:18-25.
In February 2005 Global entered into a joint venture agreement (referred to by plaintiffs and hereafter as the "Membership Agreement") under which Global purchased a fifty percent stake in SMD. Pursuant to a simultaneously executed employment agreement*fn4 Kasper was hired as CEO and President of SMD. The employment agreement contained a non-compete provision which provided as follows:
Competition Employee will not do, nor intend to do, any of the following, either directly or indirectly, during Employee's employment with the Company and during the period of two (2) years after Employee's cessation of employment with the Company, anywhere in the world. In the event that Employee improperly competes with the Company, the period during which he engages in such competition shall not be counted in determining the duration of the two (2) year non-compete restriction:
a. For purposes of this Agreement, "Competitive Activity" shall mean (except with respect or through the entities described in Section 2 hereof) engaging in the business of a "facility based telecommunications carrier," including, without limitation: (i)wholesale termination services, (ii) pre-paid calling card services, (iii) international termination private line services and (iv) internet services.
b. Employee agrees, except with respect to or through the entities described in Section 2 hereof, that, during the time frames described herein, he shall not, directly or indirectly, own, manage, operate, control, consult for, be an officer or director of, work for, or be employed in any capacity by any company, charitable institutions or any other business, entity, agency or organization (or a discrete business unit within any such entity) whose primary business purpose is to engage in a Competitive Activity.
c. Employee shall not solicit or perform services in connection with any Competitive Activity for any prior or current customers of the Company or any entities with which the Company has undertaken joint venture activities; or
d. Employee shall not knowingly solicit for employment (or, following such solicitation, employ) any then current employees employed by the Company.
Employee shall have the right to manage the affairs and draw compensation from the following entities, each of which are affiliates of Employee: (i) SkyMax Communications, Inc., a Georgia corporation, (ii) SkyMax Communications Group, Inc., a Georgia corporation, (iii) White Communications Dominicana S.A., a Dominican Republic corporation, (iv) SkyNet Dominicana S.A., a Dominican Republic corporation, (v)Solutions Management International, LLC, a Georgia limited liability company, (vi) Solutions Management Dominicana S.A., a Dominican Republic corporation, (vii) Seguridad y Mantenimento Dominicana S.A., a Dominican Republic corporation, (viii) North American Telephone Network Dominicana S.A. and (ix) SkyMax Dominicana LLC, a Georgia limited liability company.
By letter dated January 17, 2006 plaintiffs notified Kasper that they were terminating his employment because of his violation of the agreement with Global.
On January 27, 2006 plaintiffs filed a arbitration demand alleging fraud, breach of contract, and breach of fiduciary duty against Hans Kasper and requesting a determination of their rights under the parties' agreement. More specifically, plaintiffs alleged that Kasper had misrepresented the value of SMD in order to induce Global to purchase a fifty percent share, had failed to comply with the terms of the parties' agreement and business plan, and had used resources of SMD and the money advanced by Global to SMD for his own and ultra vires purposes.
Although the Membership Agreement specifies that disputes are to be resolved by arbitration, it does not provide for injunctive relief pending arbitration, and permits the parties to seek such relief in an appropriate court. Accordingly, pending the arbitration, plaintiffs brought this action seeking preliminary injunctive relief enjoining Kasper from "making any changes to the normal course of business," pending the outcome of the arbitration.
In February 2006*fn5 I granted a preliminary injunction and instructed that Kasper and SMD were:
(1) enjoined from depositing any funds received on account of SkyMax business into any bank account except a bank account mutually agreed upon by the parties or into an escrow account to be established by the plaintiff under terms prohibiting withdrawals except pursuant to the parties' agreement or order of this Court;
(2) enjoined from conducting any business by or on behalf of SkyMax except as mutually agreed upon by Moses Greenfield and Hans Kasper, as directors of SkyMax or upon ten (10) days notice to the plaintiff describing the transaction including quantity, amount and identity of the participants.
On March 6, 2006 the defendants moved for modification of the preliminary injunction via a request for reconsideration. However, the parties became engaged in settlement negotiations and requested and obtained a number of adjournments in the hope that the negotiations would render the application moot.
On May 8, 2006 the parties completed their negotiations and exchanged settlement documents. The Settlement Agreement contained several provisions relevant to the present motion. Those provisions are as follows:
(1) Global agreed to purchase the entirety of Kasper's interests in SMD;
(2) Global agreed to pay a total of $700,000 for SMD, to be paid in an immediate $100,000 payment and 20 monthly payments of $30,000 each.
(3) Kasper agreed to a non-competition provision which prevented him from engaging in any competitive activity for a period of 18 months after the date of the agreement "in or relating to the Dominican Republic." The agreement defined competitive activity as, "engaging in the business of (i) wholesale termination of voice long distance services into the Dominican Republic, (ii) producing, selling, distributing, or marketing pre-paid calling cards or pre-paid calling card services with regard to pre-paid calling cards to be used in the Dominican Republic, (iii) retail prepaid cellular (e.g. rechargeable PINs or similar products) in the Dominican Republic; (iv) using the name "SkyMax" in the Dominican Republic or (v) use of the name "SkyMax Dominicana" anywhere in the world.
(4) Kasper also agreed not to "knowingly solicit for employment (or employ) any then current employees employed by SkyMax.
(5) The parties agreed to file a joint motion to dismiss the federal action in the Eastern District of New York with prejudice.
(5) The parties agreed "for the purposes of making full and final compromise and settlement" to mutually release each other from all claims "of any kind or nature whatsoever, known or unknown." The only claims to survive the agreement "are claims arising under this Agreement or the documents entered into this Agreement."
(6) The parties agreed that, "[a]ny dispute or claim relating to the breach of this Release or of any of its related agreements shall be settled only through the pending AAA arbitration" in Atlanta, Georgia.
Thereafter, Global refused to join in a motion to dismiss the case. Instead, claiming that Kasper had fraudulently induced Global to enter into the Settlement Agreement by representing that he was in compliance with the preliminary injunction when in fact he was violating the terms of this Court's first preliminary injunction and that Kasper was violating the terms of the Settlement Agreement, the plaintiffs made a second motion, requesting a temporary restraining order, a preliminary injunction and an Order of Contempt against Hans Kasper.
In their motion for the temporary restraining order plaintiffs alleged that Kasper had threatened to cut off service to one of the joint venture's customers, Americalll. Because I found that plaintiffs would suffer irreparable harm in the form of lost goodwill which could not be compensated by money damages if Kasper cut off service to Americall, on June 1, 2006 I granted a temporary restraining order preventing Kasper from "severing service to Americalll by causing to be severed, by action or inaction, the International Private Line or Satellite links presently servicing Americall's Dominican Call ...