Systems Mgt. Planning, Inc. v Gordon

[*1] Systems Mgt. Planning, Inc. v Gordon 2009 NY Slip Op 50575(U) [23 Misc 3d 1104(A)] Decided on April 3, 2009 Supreme Court, Monroe County Fisher, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on April 3, 2009
Supreme Court, Monroe County

Systems Management Planning, Inc., Plaintiff,

against

Kevin Gordon and MICHAEL J. NERI, Defendants.



2009/02730

Kenneth R. Fisher, J.

The record is in dispute on the issue of misappropriation and the trade secret status of the customer information allegedly misappropriated. While this conflict "will not preclude a preliminary injunction (see CPLR §6312[c]), [whether the record here presents] sharp factual disputes obscuring the likelihood of success [such that the conflict] will bar the remedy," KK Lund v. Pinkey, 31 AD3d 908, 909 (3d Dept. 2006), need not be reached on this record.

I will assume for purposes of this motion that the trade secret status of the information and the fact of its misappropriation has indeed occurred and turn my attention to the issue of irreparable harm. On this issue, plaintiff's factual showing is meager, pointing to the misappropriation of two customer lists. There is no description of how and why damages cannot be calculated by reason of any diversion proved to be the result of misappropriated trade secret data instead of legitimate competition. Plaintiff's memorandum of law fully presupposes that, in all cases, irreparable harm is presumed when trade secrets have been misappropriated. Id. at p.9 (citing Doublecheck Inc. v. Henderson, 1997 WL 73 1413 (Sup. Ct. NY Co. 1997)). Several trial level decisions have contained statements to that effect. E.g., L-3 Communications Corp. v. Kelly, 10 Misc 3d 1055(A), 2005 WL 3304130 (Sup. Ct. Sulfolk Co. 2005), app. dismissed, and otherwise aff'd on other gr. 36 AD3d 762 (2d Dept. 2007); Sylmark Holdings Ltd. v. Silicone Zone Intl. Ltd., 5 Misc 3d 285, 299; 2 Robert L. Haig (ed.), New York Practice Series - Commerical Litigation in the New York Courts §15:7 ("Irreparable injury is presumed in a limited number of cases, i.e., where . . . trade secrets [are] misappropriated"). But no appellate case in New York has laid down such a hard and fast rule. Recently, in dicta, the First Department observed that, even had plaintiff proved a breach of the confidentiality agreement and what must have been a concomitant misappropriation of trade secret data, an action for money damages would have sufficed. U.S. Re Companies, Inc. v. Scheerer, 41 AD3d 152, 155 (1st Dept. 2007).

Moreover, in Faiveley Transport Malmo AB v. Wabtec Corp., __ F.3d at __, 2009 WL 636020 (2d Cir. March 9, 2009), the Second Circuit disapproved of the holding in Ivy MAR Co. v. C.R. Seasons, Ltd., 907 F. Supp. 547, 567 (E.D.NY 1995) "that a presumption of irreparable harm automatically arises upon the determination that a trade secret has been misappropriated." [*2]Faiveley Transport Malmo AB, __ F.3d __ ("that reading is not correct"). Such a presumption "might be warranted in cases where there is a danger that, unless enjoined, a misappropriator of trade secrets will disseminate those secrets to a wider audience or otherwise irreparably impair the value of those secrets." Id. __ F.3d at __.

Where a misappropriator seeks only to use those secrets - without further dissemination or irreparable impairment of value - in pursuit of profit, no such presumption is warranted because an award of damages will often provide a complete remedy for such an injury. Indeed, once a trade secret is misappropriated, the misappropriator will often have the same incentive as the originator to maintain the confidentiality of the secret in order to profit from the proprietary knowledge. As Judge Connor has observed, where there is no danger that a misappropriator will disseminate proprietary information, "the only possible injury that [the] plaintiff may suffer is loss of sales to a competing product . . . [which] should be fully compensable by money damages." Geritrex Corp. v. Dermarite Indus., LLC, 910 F. Supp. 955, 966 (S.D.NY 1996)(Conner, J.).

Id. __ F.3d at __. I believe that New York courts will apply this formulation, and am fortified in this conclusion by the very tentative acceptance of the related inevitable discovery doctrine evidenced by such decisions as Marietta Corp. v. Fairhurst, 301 AD2d 734 (3d Dept. 2003). The inevitable discovery doctrine, as the presumption of irreparable harm formulation relied on by plaintiff in this case, had its source in FMC Corp. v. Taiwan Taiwan Giant Indus. Co. Ltd., 730 F.2d 61, 63 (2d Cir. 1984)("[a] trade secret once lost is, of course, lost forever"), and it is that case that the Second Circuit's recent decision in Faiveley Transport Malmo AB v. Wabtec Corp., supra was designed to circumscribe. Applying the principles of that case, quoted at length above, compels the conclusion that plaintiff has not adduced clear evidence of irreparable harm. The only affidavit addressing the issue is the paragraph affidavit submitted with plaintiff's original moving papers, which devotes a mere four paragraphs as follows:

141.As noted above, the defendants have and continue to use the confidential and proprietary information that they stole to unfairly divert business away SMP.

142.More particularly, the defendants have and continue to use the confidential and proprietary information that they misappropriated to solicit SMP's customers.

143.Moreover, using the confidential and proprietary information that they wrongfully took, the defendants have and continue to unfairly divert business away from SMP.

144.By way of example, using the confidential and proprietary information that they took, the defendants have to date diverted all or a significant portion of business that SMP did with the following customers: Applied Computers Technology, Inc.; Benzler SE; Blue Tie, Inc.; Compu-Gen Technologies, Inc.; First Community Services, Inc.; GNI Brokers; Management Science Associates, Inc.; Sistemas; SAMY International.

Paragraph Affidavit, sworn to March 2, 2009, at ¶¶141-44. Nothing on the issue of irreparable harm was submitted by plaintiff in reply. These conclusory assertions wholly fail to show how this worldwide $20 million business cannot readily ascertain its damages if successful in proving that the claimed diversion of six customers resulted from defendant's misuse of wrongfully [*3]appropriated trade secret information, instead of what defendants insist was legitimate competition occurring in the absence of a confidentiality agreement or restrictive covenant.

Finally, inasmuch as there is no restrictive covenant to apply, relief of the kind plaintiff requests is not "narrowly tailored to fit specific legal violations and to avoid unnecessary burdens on lawful commercial activity.'" Id. __ F.3d at __ (quoting Waldman Pup. Corp. v. Landoll, Inc., 43 F.3d 775, 785 (2d Cir. 1994)). See also, Price Piper and Twine Co. v. Miller, 182 AD2d 748, 749 (2d Dept. 1992)(damage to legitimate competitive activity on the part of defendants must be avoided).

The motion is denied. Submit proposed scheduling by the end of next week.

SO ORDERED.

______________________

Kenneth R. Fisher

JUSTICE SUPREME COURT

DATED:April 3, 2009

Rochester, New York