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Sasqua Group, Inc. v. Courtney

August 2, 2010


The opinion of the court was delivered by: A. Kathleen Tomlinson, Magistrate Judge


This action arises out of a dispute between the owner of Plaintiff Sasqua Group, Inc. ("Sasqua"), namely, Plaintiff Christopher G. Tors ("Tors") (collectively with Sasqua, the "Plaintiffs"), and an executive who left the company, Defendant Lori Courtney ("Courtney"). The business relationship between the parties is further impacted by the fact that Sasqua's owner, Tors, is the uncle of the departing executive niece Courtney. This matter was referred to me by Judge Leonard Wexler, who, acting as the miscellaneous district judge on duty on February 9, 2010, heard argument on Plaintiffs' application for a temporary restraining order, seeking to prevent Defendants (1) from using, disclosing, or providing access to any of the Plaintiff company's confidential, propriety and/or trade secret information and (2) contacting or communicating with Plaintiffs' client contacts. Judge Wexler found the trade secrets issue to be a "close question," but denied the application, without prejudice, and with the right to renew. See DE 6.

Having determined that the issue should be decided in the context of a hearing, Judge Wexler referred the case to me (1) for a hearing on the nature of the information sought to be protected and (2) to issue a Report and Recommendation as to the propriety of granting a temporary restraining order. Id. The hearing on the trade secrets issue was conducted on February 11, 2010. Once this matter was officially opened on ECF, the case was assigned to the Hon. Arthur D. Spatt, to whom this Report and Recommendation is now directed.


Plaintiff Christopher Tors is a resident of Vermont and the president and founder of Sasqua, an executive search consulting firm specializing in the recruitment and placement of professionals for the financial services industry. Compl. ¶¶ 5-6. Prior to starting Sasqua, Tors had worked for 15 years at Goldman Sachs as a precious metals and foreign currency trader, six years at AIG heading up currency sales, and two years at UBS where he was in charge of foreign exchange sales to corporations. Id., ¶ 15. Sasqua works with a small group of high-caliber clients, including businesses such as Barclays Capital, The Royal Bank of Scotland, Nomura America Holding, Inc., Standard Chartered Bank, BNP Paribas and others. Lehman Brothers was one of Sasqua's major clients until it closed in 2008. Id., ¶ 9.

Up until mid-January 2010, Sasqua employed five individuals aside from Tors. Sasqua's personnel consisted of Defendant and Managing Director Lori Courtney, Vice-President Bridget Schulten, Senior Associate Debora Doerr Larsen, Research Consultant Kathleen Kelly and a computer technical expert, Douglas Steinschneider. These individuals were hired on an "independent consultancy basis under contracts that were renewable annually." Id.

Courtney is a New York resident who started working at Sasqua in 2000 as a consultant. As Managing Director, Courtney ran the day-to-day business of Sasqua and the other "consultants" served as Sasqua's recruitment staff. Id., ¶ 10. At Tors' direction, Courtney formed Artemis Consulting LLC in New York in or before 2003 to serve as a vehicle to receive compensation from Sasqua. See Declaration of Christopher G. Tors in Support of Plaintiffs' Motion for a Temporary Restraining Order and Preliminary Injunction ("Tors Decl."), ¶ 10. In 2007, Courtney converted the LLC into defendant Artemis Consulting Inc. ("Artemis"), a New York corporation which continued to receive Courtney's compensation from Sasqua. Id.

Plaintiffs assert that Tors hired Courtney in September 2000 as an entry-level research consultant for Sasqua. She was paid an hourly fee with bonus opportunities for successful placement of candidates. According to the Complaint, Courtney had no experience in the recruitment and placement of financial industry professionals prior to joining Sasqua. Id., ¶ 12. Tors claims that he trained Courtney and taught her every aspect of the business, including passing on many of his business contacts and relationships. Id., ¶ 13. Courtney asserts that Tors had only 2 1/2 years of experience in the industry when she started to work for him. See Declaration of Lori Courtney in Opposition to Plaintiffs' Motion for a TRO and Preliminary Injunction ("Courtney Decl."), ¶ 16. Prior to commencing work for Sasqua, Courtney had 11 years of experience in the financial industry and in sales and marketing work for a publishing company. Id., ¶ 17.

In 2008, Tors and Courtney entered into negotiations to form a partnership agreement. For a variety of reasons, these negotiations fell through and Courtney continued to work for Sasqua under consulting agreements negotiated annually. Compl., ¶ 22. Beginning in January 2009, Tors and Courtney started sharing equally in the profits, expenses and losses of the business. Id. Under the terms of the 2009 contract, it was agreed that anyone who originated or executed a placement was able to earn additional bonus amounts. Id., ¶ 24. Sasqua's business was suffering from the decline in the economy at the beginning of 2009, particularly in the financial sector following the Lehman failure and AIG bailout. Id., ¶ 25. In light of these circumstances, Tors and Courtney agreed at the beginning of 2009 that neither of them would take it distribution from the profits until the financial condition of the company improved. Sasqua's financial condition did improve in mid--2009 and during that summer, Sasqua repaid the loans that Tors and Courtney had paid to it and they were both able to start drawing profits again on a monthly basis. Id., ¶ 28.

According to the Complaint, Sasqua maintains on its server a central database of client information that includes client contact information, individual profiles, contact hiring preferences, employment backgrounds, descriptions of previous interactions with clients, resumes and other information. This information was placed in the database over the years by Tors, Courtney, and the recruiters whenever they interacted with a client. Id., ¶ 30. Sasqua employs a computer technician to maintain the database. Id., ¶ 31. Plaintiffs assert that the database and the information it contains are highly confidential to Sasqua and only Sasqua personnel have access to it. Id., ¶ 35.

On January 13, 2010, Tors and Courtney were both in Stamford, Connecticut for client meetings. Courtney requested a meeting with Tors at that time. Id., ¶ 38. During the meeting, Courtney advised Tors that she was terminating her relationship with Sasqua and planned to start her own executive search consulting firm in New York. Id., ¶ 39. According to the Complaint, Tors was taken by surprise and had no prior indication that Courtney contemplated leaving Sasqua or that she was planning to start a competing business. Id., ¶ 40. Concluding that there was little he could do, Tors negotiated the terms of Courtney's departure. Tors and Courtney agreed that the remaining engagements on which Sasqua's recruitment personnel were currently working would continue as usual until the engagements were closed out. At that point, Courtney's association with Sasqua would end and Sasqua would distribute to Courtney the amounts she had earned from those engagements, as provided in the 2009 contract. Id., ¶ 41. The company's computer technician removed Courtney's access to the database and erased the copy of the database from Courtney's computer. Id., ¶ 43.

Within the week following Courtney's resignation, Sasqua's three recruitment consultants approached Tors and advised him that they were terminating their employment with Sasqua. They further stated that they were going to work for Courtney and Artemis. Id., ¶ 44. Tors began immediate negotiations with Schulten, Larsen and Kelly to keep them at Sasqua. He was unsuccessful with Larsen and Kelly but was still negotiating with Schulten. Id., ¶ 46. When Tors began contacting Sasqua clients to inform them that there would be a change in Sasqua's business going forward, one of the clients, Standard Chartered Bank, informed Tors that he already knew about the changes. Tors states that he understood this to mean that Courtney had contacted Standard Chartered Bank and discussed her new business, in competition with Sasqua. Id., ¶ 47. This litigation followed.


In the Complaint, Plaintiffs assert that their trade secrets encompass "the confidential proprietary and competitively sensitive information about Sasqua's client contacts, their individual profiles, their hiring preferences, their employment backgrounds, and descriptions of previous interactions with client contacts." Compl., ¶ 58. Sasqua maintained all of this information in a central database. Tors Decl., ¶ 26. The company had hired a computer technician to maintain the database. Id., ¶ 27.

According to the Plaintiffs,

32. The information in the database is the lifeblood of Sasqua's business. The database records and reflects the company's ten years of contact-and-relationship-building, which relationship-building is how Sasqua generates business.

33. Such information is not available from a public source and it is not information that could be easily duplicated.

Compl., ¶¶ 32, 33; Tors Decl., ¶¶ 28, 29.

Tors states that the amount of time and resources Sasqua has expended in developing the database cannot be calculated and the information contained in it is highly confidential, available only to Sasqua's personnel. Tors Decl., ¶¶ 30, 31. Tors believes that since Courtney's resignation from Sasqua, she has contacted Sasqua clients in order to solicit business. He also asserts that Courtney is "poaching all of Sasqua's recruiters," thereby debilitating Sasqua," and that there is "real and substantial risk that, if no immediate intervention occurs . . . Courtney and Artemis will use Sasqua's own former consultants and its confidential business information to put Sasqua out of business." Id., ¶¶ 57, 58.

In opposition, Defendant Courtney states that she has not misappropriated, nor conspired with anyone to misappropriate, "any trade secret or confidential proprietary information belonging to Sasqua, nor have I used such information since severing my relationship with Plaintiffs." See Courtney Decl., ¶ 2. Courtney adds that she is not subject to any restrictive covenants, but nevertheless has not "solicited any entity or person whose relationship with Plaintiffs was originated by Tors" and has not "solicited any of Sasqua's independent contractors to come work for me." Id., ¶ 3.

Noting that recruitment of professionals for the financial services industry is a highly competitive field, Courtney maintains that "Sasqua and other such companies do not utilize any particular or proprietary methodology to perform a search." Id., ¶ 8. She further states that "virtually all personnel in the capital markets industry that Sasqua serves have their contact information on Bloomberg, LinkedIn, Facebook or other publicly available databases." Id. According to Courtney, the people who make up the financial services industry workforce, "including the Decision-Makers and other high level executives, typically change employers frequently . . ." and so "the contact information that a search firm may assemble in a database is almost immediately obsolete." Id., ¶ 10.

Courtney states that she informed Tors at the meeting on January 13, 2010 that she would no longer serve as a Sasqua consultant. She agreed that every deal initiated prior to that date was attributed to Sasqua and she would close the assignments for Sasqua so that Sasqua could bill them and then pay her compensation for initiating and closing the deal. Id., ¶ 53. During the meeting with Tors that day, Courtney states Tors agreed that her relationships were hers to take with her and he wished her luck. Id., ¶ 56. Although she asserts that Tors invited her to copy her contacts from the Sasqua database, Courtney recalls that she declined the invitation, explaining to Tors that she really "didn't need to do any copying because of the accessibility of information from Bloomberg or other public databases." Id., ¶¶61, 62. According to Courtney, Sasqua's computer technician removed the database from her computer promptly. Moreover, Courtney contends that the database software used by Sasqua was out of date and the program was not geared to the industry. She has purchased new software "designed for recruiters" and she is "building [her] own database from scratch in terms of the methodology and the data." Id., ¶¶ 64, 65. Courtney maintains that she has not appropriated any trade secrets from Sasqua and that the information Tors seeks to protect is of very little value and is in no way proprietary to any search firm. Id., ¶ 67.


"A trade secret is 'any formula, pattern, device or compilation of information which is used in one's business and which gives [the owner an opportunity to obtain an advantage over competitors who do not know or use it.' New York courts consider several factors in determining whether information constitutes a trade secret, including (1) the extent to which the information is known outside of the business; (2) the extent to which it is known by employees and others involved in the business; (3) the extent of measures taken by the business to guard the secrecy of the information; (4) the value of the information to the business and its competitors; (5) the amount of effort or money expended by the business in developing the information; and (6) the ease or difficulty with which the information could be properly acquired or duplicated by others." Unisource Worldwide, Inc. v. Valenti, 196 F.Supp.2d 269, 278 (quoting Softel, Inc. v. Dragon Med. & Scientific Communications, Inc., 118 F.3d 955, 968 (2d Cir. 1997) (applying New York law)). These factors were first enumerated in Ashland Management, Inc. v. Janien, 82 N.Y.2d 395, 407, 604 N.Y.S.2d 912 (1993) (quoting Restatement of Torts § 757, cmt. b). "'A customer list developed by a business through substantial effort and kept in confidence may be treated and protected at the owner's instance against disclosure to a competitor, provided the information it contains is not otherwise readily ascertainable.' In addition, knowledge of a customer's needs and specifications and the prices charged to that customer are considered confidential." Unisource Worldwide, Inc. v. Valenti, 196 F.Supp.2d 269');">196 F. Supp. 2d 269, 278 (quoting Defiance Button Mach. Co. v. C & C Metal Products. Corp., 759 F.2d 1053, 1063 (2d Cir.), cert. denied, 474 U.S. 844 (1985)). Therefore, "[a] plaintiff claiming misappropriation of a trade secret must prove: '(1) it possessed a trade secret, and (2) defendant is using that trade secret in breach of an agreement, confidence, or duty, or as a result of discovery by improper means.'" Computer Associates International, Inc. v. Bryan, 784 F. Supp. 982, 987 (E.D.N.Y. 1992) (citing Integrated Cash Mgt. Servs., Inc. v. Digital Transactions, Inc., 920 F.2d 171, 173 (2d Cir. 1990))

It is clear that irreparable harm is presumed where a trade secret has been misappropriated. In the words of the Second Circuit, "[a] trade secret once lost is, of course, lost forever" and, as a result , and as a result, such a loss "cannot be measured in money damages." FMC Corp. v. Taiwan Tainan Giant Indus. Co., 730 F.2d 61, 63 (2d Cir. 1984) ("the loss of a trade secret is not measurable in terms of money damages"); Computer Assocs. Int'l v. Bryan, 784 F. Supp. 982, 986 (E.D.N.Y. 1992) (for purposes of a motion for a preliminary injunction, loss of trade secrets is not measurable in terms of money damages and is thus considered irreparable harm). Lumex, Inc. v. Highsmith,919 F. Supp. 624, 628 (E.D.N.Y. 1996).


A. Nature of the Information Sought to be Protected

It is worth noting at the outset that there is no restrictive covenant between the parties here which might otherwise govern this dispute.*fn1 Compare, BDO Seidman v. Hirschberg, 93 N.Y.2d 382, 388-89 (N.Y. 1999); Silipos, Inc. v. Bickel, No. 1:06-cv-02205, 2006 WL 2265055, at *3 (S.D.N.Y. Aug. 8, 2006) (if an employer can demonstrate at least one legitimate interest, such as protection of trade secrets, a court has discretion to partially enforce an otherwise overbroad covenant). Plaintiffs maintain that Defendants have misappropriated Sasqua's trade secrets. Pls.' Mem. at 12. To qualify for protection against such alleged misappropriation, Plaintiffs must demonstrate (1) "that [Sasqua] possessed a trade secret and (2) that the Defendants used that trade secret in breach of an agreement, confidential relationship or duty, or as a result of discovery by improper means." North Atlantic Instruments v. Haber, 188 F.3d 38, 43-44 (2d Cir. 1999). Therefore, the threshold question which needs to be determined is whether the client database maintained by Sasqua is entitled to trade secret protection at this stage of the litigation. See Kadant, Inc. v. Seeley Machine, Inc., 244 F. Supp.2d 19, 35 (N.D.N.Y. 2003). "The question of whether a customer list is a trade secret is generally a question of fact." Id. at 36 (citing North Atlantic Instruments, 188 F.3d at 44). To analyze the alleged "trade secret" information presented here in the absence of a restrictive covenant, then, the Court now turns to an assessment of each of the Ashland Management factors as applied to the specific circumstances of this case.

1. Is the Information Known Outside the Business?

As Plaintiffs have noted, under Second Circuit precedent, "[a] customer list 'developed by a business through substantial effort and kept in confidence may be treated as a trade secret and protected at the owner's instance against disclosure to a competitor, provided the information it contains is not otherwise readily ascertainable.'" North Atlantic Instruments, 188 F.3d at 44 (quoting Defiance Button Mach. Co. v. C & C Metal Prods. Corp., 759 F.2d 1053, 1063 (2d Cir.), cert. denied, 474 U.S. 844 (1985)). This is indeed the nub of the arguments presented by both sides in the instant case. Plaintiffs claim that Defendants possess Sasqua's confidential business information, including its client list and contacts, its list of recruitment candidates, its business strategies, its search and placement methods, its fee structures and other information. Tors Decl., ¶ 52; Pls.' Mem. at 9. According to the Plaintiffs, the information contained in the Sasqua database is not available from a public source. Tors Decl., ¶ 29; Pls.' Mem. at 6. Over the past 10 years, Sasqua has compiled "detailed contact information for Sasqua's clients," Tors Decl., ¶ 53, as well as confidential information concerning each client's needs, preferences, hiring practices, strategies for business expansion, and personal knowledge as well as acquaintance with key decision-makers at ...

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