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Ashland Management Inc. v. Altair Investments NA

December 23, 2008


Cross appeals from order of the Supreme Court, New York County (Shirley Werner Kornreich, J.), entered October 4, 2006, which granted defendants' motion for summary judgment solely to the extent of dismissing the fifth and sixth causes of action and denied plaintiff's cross motion to reinstate a previously issued preliminary injunction.

The opinion of the court was delivered by: Acosta, J.P.

Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.

This opinion is uncorrected and subject to revision before publication in the Official Reports.

Richard T. Andrias, J.P., Eugene Nardelli, Milton L. Williams, James M. McGuire, Rolando T. Acosta, JJ.


The primary issues in this case involve the denial of defendants' motion for summary judgment dismissing the complaint, which alleges, among other things, defendants' blatant theft of confidential information in violation of confidentiality agreements as well as breach of fiduciary duties. Thus, contrary to the dissent, which focuses primarily on defendants' version of events, this Court is constrained to view the evidence in the light most favorable to the party opposing summary judgment (Toure v Avis Rent A Car Sys., Inc., 98 NY2d 345, 353 [2002]). It is in this context that we highlight plaintiff's claims, which have been established with evidence in admissible form, and which the motion court found sufficient to defeat defendants' motion (Zuckerman v City of New York, 49 NY2d 557, 562 [1980]).

Plaintiff is in the business of providing investment advice and management to high net worth individuals and entities. Defendant Jones, the son of one of plaintiff's co-founders, worked for plaintiff for 17 years until he resigned in August 2003 to form Altair with defendant Obuchowski. At the time of his resignation, Jones was a managing director, portfolio manager and member of plaintiff's Investment Committee. Obuchowski was hired by plaintiff in January 2002 on Jones's recommendation as vice-president for Quantitative Research.

In December 2000, Jones entered into an employee confidentiality agreement with plaintiff, which provided in relevant part that the employee:

"will not, at any time during or after the termination of his or her employment by the Company for any reason whatsoever, use for any purpose other than the performance of his or her duties with the Company, reveal, divulge or make known to any person (other than the Company) any records, data, trade secrets, know-how, methods of operations, strategies, processes, computer programs, personnel information... or any other confidential or proprietary information of the Company or any Client whatever (the "Confidential Information") used by the Company and made known (whether or not with the knowledge or permission of the Company, and whether or not developed, devised or otherwise created in whole or in part by the efforts of the Employee) to the Employee by reason of his or her employment by the company. The Employee further covenants and agrees that he or she shall retain all such knowledge and information which he or she shall acquire or develop respecting such Confidential Information in trust for the sole benefit of the Company and its successors and assigns. Upon termination of his or her employment with the Company, the Employee will deliver to the Company any and all copies of any Confidential Information which is in the possession or under control of the Employee and shall not, directly or indirectly, copy, take, or remove from the premises of the Company, any of the books or records, client lists or client information or any other documents of the Company including, without limitation, those which incorporate any Confidential Information" (emphasis added).

Obuchowski entered into a substantially similar confidentiality agreement.

Prior to January 2003, and while still employed by plaintiff, Jones and Obuchowski started planning Altair, and on January 15, 2003, the domain name was registered to Obuchowski. Then, in the summer of 2003, while still in plaintiff's employ, Jones and Obuchowski prepared and distributed to plaintiff's clients a commentary on investment performance for the second quarter of 2003 and their forecast for the third quarter. This was done on plaintiff's letterhead without its Investment Advisory Committee's approval and in breach of company policies. Obuchowski misstated his title on the commentary as "Director of Research," rather than vice-president of Quantitative Research. According to plaintiff, these actions were in violation of defendants' fiduciary duty and confidentiality agreements, and designed to increase their visibility to plaintiff's clients immediately prior to their resignation so that they would be more likely to attract those clients.

Plaintiff also asserts that in a further effort to cause it damage and take its clients, defendants contacted plaintiff's clients to advise them that defendants would be leaving plaintiff's employ even though it was plaintiff's contractual obligation to notify its clients of changes to its Investment Advisory Committee. Plaintiff was not only blind-sided by angry clients who were upset that plaintiff had failed to notify them of Jones's departure, but defendants' actions also damaged its relationship with at least three clients.

Less than a week after defendants resigned from plaintiff, Altair was officially formed on August 21, 2003. Then, on at least 40 occasions, Altair, without plaintiff's knowledge, used plaintiff's Federal Express account to send packages of information to plaintiff's clients, which plaintiff asserts was for the purpose of soliciting business from plaintiff's clients on behalf of Altair. In addition, Jones called plaintiff clients to solicit their business.

According to plaintiff, defendants contacted plaintiff's clients using improperly obtained confidential information that could not have been readily ascertained from publicly available sources (such as the Internet as defendants had alleged), and that considerable money and effort had been expended in obtaining that information. Over the years, plaintiff had identified and developed relationships with certain individuals who were brokers, custodians, or consultants for specific types of investment accounts that comprised its clients. Indeed, as plaintiff notes, some Internet sites do not have addresses, some individuals are not listed on the sites, and, in some cases, defendants even stole the wrong address right out of plaintiff's files. Defendants also stole plaintiff's performance data, which they used in their solicitation materials sent to a client of plaintiff.

In January 2004, when plaintiff discovered that defendants had apparently hacked into plaintiff's computer and sent promotional materials to plaintiff's clients via Federal Express, it commenced an action against defendants (Ashland I) seeking damages and injunctive relief. Finding that plaintiff had demonstrated likelihood of success on the merits with respect to its claims for breach of fiduciary duty and breach of the Confidentiality Agreements, Supreme Court issued a preliminary injunction enjoining and restraining defendants from "(1) using, disseminating or exploiting information derived or copied from any of plaintiff's records, data, trade secrets, know-how, methods of operation, strategies, processes, computer programs, personnel information, client lists or client information and any other confidential or proprietary information" and "(2) soliciting any of the individual brokers, custodians or consultants of plaintiff's institutional clients that Jones and Obuchowski were either introduced to through their employee relationship with plaintiff or learned of from any of the Confidential Information."

The action was thereafter discontinued without prejudice while the parties attempted to resolve the dispute. The settlement discussions were unsuccessful, however, and the action was then recommenced in October 2005. In the current action, which demands compensatory and punitive damages as well as injunctive relief, plaintiff accuses Jones and Obuchowski of having, among other things, "combined and conspired to form a new investment advisory company... and to divert business away from plaintiff and misappropriate such business to Altair by stealing plaintiff's confidential information." The complaint asserts, in that regard, seven claims for, respectively, (1) a preliminary and permanent injunction that would direct defendants to "immediately cease and desist from any use, dissemination or exploitation of information derived or copied from any of plaintiff's records, data, trade secrets, know-how, methods of operation, strategies, processes, computer programs, personal information, client lists or client information and any other confidential or proprietary information," (2) and (3) both breach of fiduciary duty, (4) breach of contract [confidentiality agreements], (5) conversion, (6) tortious interference with contract, and (7) unfair competition as against Altair.

Defendants responded by moving for summary judgment dismissing the complaint, and plaintiff cross-moved for an order reinstating the preliminary injunction that it had been previously granted in Ashland I. By order dated September 26, 2006, Supreme Court granted defendants' motion only to the extent of dismissing plaintiff's fifth and sixth causes of action for conversion and tortious interference with contract, pointing out that plaintiff "did not oppose that part of defendants' motion," and denied the broad injunctive relief sought by plaintiff in its cross motion. The court found that there "are issues of fact such that summary judgment is not appropriate at this time," and, concerning plaintiff's request for a preliminary injunction, stated that the "preliminary injunction from Ashland I dissolved automatically on June 9, 2005 when Ashland I was voluntarily discontinued by written stipulation. The discontinuance contained an agreement that plaintiff could recommence an action through an identical complaint if the parties did not resolve the matter," and under such stipulation, the preliminary injunction previously issued in Ashland I "was replaced with a narrower and more precisely defined agreement, which was limited in scope to certain individuals set forth in an annexed list."

The motion court properly declined to dismiss the complaint in its entirety. Restrictive covenants, such as the confidentiality agreements herein, are subject to specific enforcement to the extent that they are " reasonable in time and area, necessary to protect the employer's legitimate interests, not harmful to the general public and not unreasonably burdensome to the employee'" (BDO Seidman v Hirshberg, 93 NY2d 382, 388-389 [1999], quoting Reed, Roberts Assoc. v Strauman, 40 NY2d 303, 307 [1976]). With respect to covenants aimed at protecting against misappropriation of an employer's trade secrets or confidential customer lists, "courts... recognize the legitimate interest an employer has in safeguarding that which has made his business successful and to protect himself against deliberate surreptitious commercial piracy. Thus, restrictive covenants will be enforceable to the extent necessary to prevent the disclosure or use of trade secrets or confidential customer information" (Reed, Roberts Assoc., 40 NY2d at 308). Whether a plaintiff's customer list and/or other proprietary information constitutes a trade secret or is readily ascertainable from public sources is ordinarily a triable issue of fact (see Suburban Graphics Supply Corp. v Nagle, 5 AD3d 663, 666 [2004]; Bender Ins. Agency v Treiber Ins. Agency, 283 AD2d 448, 450 [2001]; Spectron Glass & Elecs. v Marianovsky, 273 AD2d 374 [2000]).

Further, if the parties entered into a confidentiality agreement and the proprietary information at issue constitutes a trade secret, whether defendants' use of that information was a result of casual memory is irrelevant (see North Atl. Instruments, Inc. v Haber, 188 F3d 38, 47 [2d Cir 1997], explaining Leo Silfen, Inc. v Cream, 29 NY2d 387 [1972], and quoting 4 Roger F Milgrim on Trade Secrets, APP 15A-3 [1998] ["The majority rule is... that appropriation by memory will be restrained under the same circumstances as will appropriation by written list"]).*fn1

Here, the record establishes that the individual defendants took plaintiff's proprietary material and made use of it to further their own business interests in their new endeavor. Although defendants argue that their conduct did not violate the confidentiality agreements because the subject material was publicly available, plaintiff has presented evidence in admissible form showing that defendants targeted Altair's promotional materials to specific brokers, consultants and custodians, all of whom were plaintiff's clients, and that defendants only learned the identities of these individuals through their employment with plaintiff. Viewing the evidence in the light most favorable to the party opposing summary judgment (People v Grasso, 50 AD3d 535, 544 [2008]), it is for a jury to decide whether the targeted information was confidential or ascertainable through public records. Accordingly, defendants cannot demonstrate that they are entitled to dismissal of the ...

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