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Liberty Power Corp., LLC v. Stuart Katz

January 26, 2011

LIBERTY POWER CORP., LLC, PLAINTIFF,
v.
STUART KATZ, STUART A. KATZ, INC., AND FOUNDATION ENERGY SERVICES, LLC, DEFENDANTS.



The opinion of the court was delivered by: Nicholas G. Garaufis, United States District Judge.

MEMORANDUM & ORDER

Plaintiff Liberty Power Corporation, LLC ("Plaintiff" or "LPC") moves for a preliminary injunction to protect it from the irreparable harm it believes it will suffer if Defendants Stuart Katz ("Katz"), Stuart A. Katz, Inc. ("SAK"), and Foundation Energy Services, LLC ("FES") (collectively, "Defendants"), are allowed to use its proprietary information to solicit its customers. For the following reasons, LPC's motion is denied.

I.BACKGROUND

LPC is a supplier of electricity to businesses in several states with deregulated energy markets, including New York. (Sealed Decl. of David Hernandez of Apr. 29, 2010 ("DH Decl.")¶ 2.) LPC solicits large businesses to become customers using its own in-house sales staff, but depends on independent contractors or brokers, which it calls "sales channels," to solicit small to medium-sized businesses and residential customers. (Id. ¶ 3.) In order to become an LPC sales channel, a broker or contractor enters into a contract with LPC. (Id.) When a sales channel locates a customer interested in obtaining electricity from LPC it refers the customer to LPC, which enters into an electricity supply agreement directly with the customer. (DH Decl. ¶ 4.)

The sales channel receives a commission based on the electricity usage of customers it refers to LPC, and is responsible for renewing the customer's contract with LPC upon expiration. (Id.)

Defendants SAK and FES, both apparently owned by Defendant Katz,*fn1 were each sales channels of LPC from 2006 through April 2010, and 2008 through April 2010, respectively. (See Katz Aff. of Sept. 29, 2010 ("Katz Aff.") (Docket Entry # 32-2) ¶¶ 1, 5-8.) The relationship between SAK and LPC was not exclusive-LPC was free to contract with other sales channels to solicit the same customers in the same geographic regions, and SAK was free to solicit customers for other suppliers. (See DH Decl. Ex. A (the "SAK Contract") § 2.07.) However, the relationship between FES and LPC was more restrictive. LPC was free to contract with other sales channels (DH Decl. Ex. B (the "FES Contract") § 3.03), but FES promised not to compete with LPC "in any manner whatsoever" (id. § 7.04), and promised LPC "a right of first refusal and a last look" with respect to sales to particular customers (id. App'x A ¶ 3).

LPC's contracts with SAK and FES protected the confidentiality of LPC's customer information, though they did so in different ways. (Compare SAK Contract § 4 with FES Contract §§ 7.01-7.03.) Katz also signed a "Code of Ethics for Channel Partners," and a "Code of Conduct for Energy Sales Representatives" in which he promised to "not knowingly divulge any information about LPC's products, leads, or any other business practices . . . ." (DH Decl. Ex. C.) In addition to the contract terms between LPC and its sales channels, LPC asserts that it enforced a "data classification policy" which restricted its own employees' access to customer information on a "need-to-know" basis. (DH Decl. ¶ 7.)

II.DISCUSSION

A.Legal Standard

"A party seeking a preliminary injunction must demonstrate: (1) either (a) a likelihood of success on the merits or (b) sufficiently serious questions going to the merits to make them a fair ground for litigation and a balance of hardships tipping decidedly in the movant's favor, and (2) irreparable harm in the absence of the injunction." Faiveley Transport Malmo AB v. Wabtec Corp., 559 F.3d 110, 116 (2d Cir. 2009) (internal quotation marks omitted). In performing this analysis courts must be mindful that "[a] preliminary injunction is an extraordinary remedy never awarded as of right." Winter v. Natural Res. Def. Council, Inc., 129 S. Ct. 365, 377 (2008).

B.Probability of Success on the Merits

Plaintiff's Complaint alleges theories of both misappropriation of trade secrets and unfair competition (Compl. ¶¶ 46-56); however, it is clear that Plaintiff bases its claim to preliminary injunctive relief on the risk that Defendants will further misappropriate its trade secrets (Pl.'s Sealed Mem. of May 7, 2010 ("Pl.'s Mem.") at 14). Accordingly, LPC is not entitled to preliminary relief prohibiting the misappropriation of trade secrets unless it demonstrates that Defendants likely misappropriated a trade secret. Faiveley, 559 F.3d at 116-17. "To succeed on a claim for the misappropriation of trade secrets under New York law, a party must demonstrate:

(1) that it possessed a trade secret, and (2) that the defendants used that trade secret in breach of an agreement, confidential relationship or duty, or as ...


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