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Reed Elsevier, Inc. v. Transunion Holding Co., Inc.

United States District Court, Second Circuit

January 8, 2014

REED ELSEVIER INC., Plaintiff,
v.
TRANSUNION HOLDING COMPANY, INC., Defendant.

MEMORANDUM AND ORDER

P. KEVIN CASTEL, District Judge.

Plaintiff Reed Elsevier Inc. ("REP') has moved for a preliminary injunction enforcing a provision of a December 6, 2012 agreement with defendant TransUnion Holding Company, Inc. ("TransUnion") restricting TransUnion's right to hire members of the senior management team of one of REI's units. Specifically, REI seeks to prevent TransUnion from hiring Armando Escalante, who served as chief technology officer of REI's Lexis Nexis Risk Solutions division ("RE LNRS") from November 2004 to April 2012. Escalante has served as the chief operating officer of TLO, LLC ("TLO"), a competitor of REI, since July 25, 2013. The essence of REI's claim is that Escalante's employment became violative of the restriction when, on December 15, 2013, TransUnion acquired substantially all of the assets of TLO.

After an evidentiary hearing, the Court concludes that REI has failed to establish a probability of success on the merits of its claims. Specifically, it has failed to demonstrate a protectable interest under New York law in enforcement of restriction as to the hiring of Escalante. Accordingly, REI's motion for a preliminary injunction is denied. Set forth below are the Court's findings of fact and conclusions of law.

FACTS

The Parties

REI, a Massachusetts corporation with its principal place of business in New York, is a publisher and information provider operating in the science, medical, legal, risk, and business sectors. RE LNRS, one of REI's largest divisions, is a data service provider in the risk analysis sector, providing technology, data, and analytics to clients in professional industries and government to help them assess, predict, and manage risk.

TransUnion is a Delaware corporation with its principal place of business in Chicago, Illinois. The company is the third-largest consumer credit bureau in the United States, providing credit information and risk management services to businesses and consumers.

The Departure of James Peck and the Restrictive Covenants

Essential to an understanding of the present controversy is the circumstance surrounding the departure of James Peek as CEO of RE LNRS and his hiring by TransUnion. Peck began working for LexisNexis, a subsidiary of REI, in 1999. He was elevated to CEO of the company's risk management division in 2005, and became the CEO of RE LNRS after REI separated its LexisNexis Group into separate divisions. On or around October 31, 2011, Peck entered into an employment agreement in connection with his appointment as CEO of RE LNRS. Peck's employment agreement with RE LNRS contained restrictive covenants, including a noncompetition covenant prohibiting him from accepting a position with a competitor of RE LNRS within twelve months of his termination date. (Decl. of Henry Udow, Ex. 1 at § 11) This section of the agreement also provides a post-employment confidentiality restriction, which states that Peck "will not use, disclose, reveal, publish, or make available to any person or any firm, company, or other entity any Confidential Information." Id . The confidentiality provision has no temporal limitation. Id.

In November 2012, Peck received an employment offer to become CEO of TransUnion. Because the non-competition clause in his employment contract barred him from accepting this position, Peck approached Erik Engstrom, the CEO of REI, to request a waiver of the non-competition covenant. Although REI and TransUnion were competitors, at the time the two companies also had significant bilateral customer and supplier relationships. Accordingly, REI was willing to conditionally accommodate Peck's request, and REI's general counsel entered into negotiations with Peck's independent counsel and TransUnion's general counsel. On December 6, 2012, REI agreed to grant Peck a waiver in exchange for certain contractual safeguards, specifically, a new set of restrictive covenants. These covenants were set forth in two separate agreements: one between REI and Peck (the "Peck Agreement"), and the other between REI and TransUnion (the "TransUnion Agreement).

Both the Peck Agreement and the TransUnion Agreement contained substantially similar restrictive covenants prohibiting Peck and TransUnion, respectively, from hiring certain employees of REI or RE LNRS without the prior written consent from REI. (Udow Decl., Exs. 2 and 3, § 3) The relevant covenant in the TransUnion Agreement places restrictions on TransUnion's right to hire members of senior management until December 31, 2014. Id., Ex. 3. Specifically, it provides:

TransUnion agrees to abide by the non-solicitation restrictions set forth in Section 11(c)(i) of [Peck's] Employment Agreement and in addition further agrees that: (i) through December 31, 2014, TransUnion will not, without the prior written consent of Reed Elsevier's Global Human Resources Director, hire any individual who was on the senior management team of [RE LNRS] at any time during calendar year 2012 (the "senior management team" means those employees who reported directly to Mr. Peck, or reported to any of Mr. Peck's direct reports); and (ii) through December 31, 2013, TransUnion will not without the prior written consent of Reed Elsevier's Global Human Resources Director, hire any other individual who is employed by [REI] (or any subsidiary or affiliate) at any time during calendar year 2012 provided, however, that with respect to this clause (ii) only [REI] agrees not to unreasonably withhold consent and further agrees that in the event TransUnion unknowingly hires such an individual it will have 60 days to cure its breach of this provision by terminating such individual's employment with it or obtaining the required consent.

Id., ex. 3 at 1 It is this covenant between REI and TransUnion that REI seeks to enforce through this motion. There is no dispute that, during calendar year 2012, Escalante was a member of the "senior management team" as the term is defined in the agreement.

Armando Escalante's Employment

Escalante served as chief technology officer of RE LNRS from November 2004 through May 2012. In this position, Escalante was charged with overseeing a wide range of the Risk Solutions division's tasks, including product development, technology systems, research, IT services, quality assurance, and project management. Escalante's employment contract with RE LNRS contained certain post-employment restrictions similar to those of Peck's original RE LNRS employment agreement, including a one year non-competition provision and ongoing confidentiality obligations.

In May 2012, seven months prior to James Peck's departure from RE LNRS, Escalante left RE LNRS to become the chief operating officer of Opera Solutions, where he worked until February 2013. He then left Opera and worked for six months at a small start-up company. REI makes no claims based upon his employment by Opera Solutions or the start-up.

On July 25, 2013, Escalante joined TLO as its president and chief operating officer. TLO was a corporation headquartered in Florida that competed directly with RE LNRS in providing information solutions to the business and government sectors, specifically in the collections, law enforcement, financial services, fraud prevention, private investigations, and government services markets, In his position with TLO, Escalante oversaw the company's operations, including its products and technology. Although TLO was a competitor of RE LNRS, the one-year non-competition restriction in Escalante's employment agreement with REI had expired by the time he accepted the position. As will be seen, REI asserts that his employment by its competitor TLO became unlawful when, on December 15, 2013, its assets were acquired by TransUnion, the party to the December 6, 2012 no-hire covenant.

TLO's Bankruptcy and Asset Sale

On May 9, 2013, TLO filed a petition for reorganization under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Florida. In re TLO, LLC, No. 13-20853 (Bankr. S.D. Fla. 2013) (Dkt. No. 1). The marketing process for a sale of substantially all of TLO's assets began when TLO retained an investment bank on July 24, 2013; ultimately, twelve parties including REI and TransUnion submitted written indications of interest. TransUnion was selected as the "stalking horse" bidder, and on or around October 31, 2013, the company entered into a Stalking Horse Asset Purchase Agreement (the "APA") with TLO, which was submitted to the bankruptcy court for approval on the following day. (Udow Decl. at ¶ 19)

REI and TransUnion each submitted bids for TLO's assets. TransUnion was selected as the winning bidder at the auction on November 20 and 21, 2013. Id. at ¶ 20. The sale was approved over the objection of REI by the bankruptcy court at a November 22, 2013 hearing. (Decl. of Curtis Miller at ¶ 8) The order approving the sale was entered on December 13, 2013. (In re TLO, LLC, No. 13-20853 (Bankr. S.D. Fla. 2013), Dkt. No. 610) Under the terms of the APA, TransUnion will assume Escalante's contract. Id. at Schedule 1.1(a)(ix)(Assigned Contracts). After correspondence by the counsel of REI and TransUnion failed to resolve the dispute, REI filed a complaint and the instant motion seeking injunctive relief.

Procedural History

After filing its complaint on December 9, 2013, REI filed the instant motion and accompanying declarations on December 12, 2013. (Dkt. Nos. 1 and 11) The Court heard extensively from the parties and received declarations from TransUnion at oral argument on December 13, 2013 (the "TRO Hearing"). Also on December 13, 2013, the bankruptcy court entered its order approving the sale of substantially all of TLO's assets, approving the assumption and assignment of certain executory contracts and unexpired leases, and granting related relief. (In re TLO, LLC, No. 13-20853, Dkt. No. 610) The sale closed on December. 15, 2013.

TransUnion made certain representations as to the limited nature of the services Escalante would perform until the preliminary injunction hearing and, on that basis and with the consent of REI, it became unnecessary for the Court to rule on the application for a temporary restraining order.

The Court held an evidentiary hearing on the motion for a preliminary injunction on January 6, 2014. Henry Udow, the chief legal officer of RBI's parent companies, and Mohit Kapoor, the chief information and technology officer of TransUnion, testified. Declarations and exhibits were ...


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