Evolution Mkts., Inc. v Penny
Annotate this CaseDecided on May 20, 2009
Supreme Court, Westchester County
Evolution Markets, Inc., Plaintiff,
against
Alexandra Penny and ICAP CAPITAL MARKETS, LLC, Defendants.
7823/09
APPEARANCES:
Wechsler & Cohen LLP
By: David B. Wechsler, Esq.
Attorneys for Plaintiff Evolution Markets Inc.
17 State Street - 15th Floor
New York, New York 10004
Kudman Trachten Aloe LLP
By: Gary Trachten, Esq.
Attorneys for Defendant Alexandra Penny
350 Fifth Avenue, Suite 4400
New York, New York 10118
Alan D. Scheinkman, J.
Plaintiff Evolution Markets, Inc. ("Plaintiff" or "EvoMarkets") moves for a
preliminary injunction directed against its former employee, Defendant Alexandra Penny
("Defendant" or "Penny"). Penny agreed to certain restrictions on subsequent employment
activities in an Employment Agreement she made with EvoMarkets dated May 8, 2008 (the
"Employment Agreement") (Affidavit of Andrew O. Ertel, sworn to April 15, 2009 ["Ertel
Aff."], Ex. A). Penny has unilaterally declared that she was constructively discharged by
EvoMarkets and that she is free of the restrictive covenants to which she had agreed.
EvoMarkets seeks preliminary injunctive relief which would give effect to those restrictive
covenants: specifically, EvoMarkets seeks to prevent Penny: (a) from working for Plaintiff's
competitor in the uranium brokerage market, Defendant ICAP Capital Markets, LLC ("ICAP")
until August 25, 2009; (b) from disclosing any confidential information; (c) from soliciting
business from, or having [*2]business communications, with
Plaintiff's clients or potential clients until November 25, 2009; and (d) from hiring, or inducing
the resignation of, EvoMarkets employees until May 25, 2010. Penny opposes the
motion.[FN1]
FACTUAL AND PROCEDURAL HISTORY
EvoMarkets was founded in 2000, has its headquarters in White Plains, New York and offices in London and San Francisco, and White Plains, New York. EvoMarkets is in the business of brokering and structuring transactions involving energy and environmental commodities such as natural gas, coal, renewable energy credits, emission allowances (both state and federal), carbon (also known as green house gases) emission reduction credits and/or allowances, uranium and ethanol. It also develops energy and environmental risk management strategies for Fortune 500 corporations. Plaintiff employs approximately 80 professionals worldwide, 60 of whom are brokers and merchant banking professionals (Ertel Aff. at ¶¶ 14-16).
In June 2008, Plaintiff hired Penny to staff its Nuclear Fuel Desk as trade assistant to Joseph Kelly, its then Vice President, Institutional Sales. Kelly and Penny were the only two employees on the Nuclear Fuel Desk (Ertel Aff. at ¶¶ 5,25, 30; Affidavit of Michael Goldenberg, sworn to April 15, 2009 ["Goldenberg Aff."] at ¶¶ 2-4). Penny and EvoMarkets entered into the Employment Agreement, which is dated May 8, 2008 (Ertel Aff., Ex. A).
The present dispute has its genesis in EvoMarket's termination of Kelly's employment, allegedly for cause, in November 2008 (Goldenberg Aff. at ¶ 2; Ertel Aff. at ¶¶ 39-40), the cause alleged being Kelly's efforts to pursue employment with ICAP, his directing a confidential EvoMarkets' document to his personal e-mail for no reason germane to EvoMarkets' business, and his soliciting an EvoMarkets' employee to join him in leaving EvoMarkets (Ertel Aff. at ¶ 40). Kelly, being subject to the same sort of restrictive covenants in his employment agreement as Penny is in hers, sued in federal district court to invalidate the covenants. He lost. EvoMarkets obtained a preliminary injunction against Kelly (Ertel Aff., Ex. B). While, under the terms of his agreement, Kelly could not work for ICAP until February 5, 2009 (see Ertel Aff., Ex. B at 4), the magic date had already come and gone by the time the federal court issued its decision (id. at 19).
In the meantime, with Kelly's departure for ICAP, EvoMarkets designated Michael Goldenberg to succeed him as the head of the Nuclear Fuel Desk. Goldenberg, though an experienced broker, was, he says, a neophyte in the Nuclear Fuel Area and needed to rely on Penny, the remaining person on the Desk (Goldenberg Aff. at ¶ 6; Ertel Aff. at ¶¶ 43-45). EvoMarkets alleges that Penny was promoted to broker (Goldenberg Aff. at ¶7; Ertel Aff. at ¶ 44). Penny denies this (Affidavit of Alexandra Penny, sworn to April [*3]30, 2009 ["Penny Aff."] at ¶ 8). It appears that both EvoMarkets and Penny acknowledge that EvoMarkets proposed increasing her compensation, giving her bonus, and having her enter into a new employment agreement (Goldenberg Aff. at ¶ 8; Ertel Aff. at ¶ 45; Penny Aff. at ¶ 8 and Ex. A). Instead, on January 26, 2009, Penny declared a constructive termination of her employment and the unenforceability of her restrictive covenants (Penny Aff. at ¶18) — such proclamations coming from her attorney, who also was the attorney for Kelly in the then sub judice federal court matter (see Affirmation of Gary Trachten, Esq. dated April 30, 2009 at ¶ 2 and Ex. A and Ertel Aff., Ex. B at 15 n.10). By early March 2009, Penny was at work at ICAP, as a broker (Penny Aff. at ¶29), presumably along side Kelly.[FN2]
On April 15, 2009, this Court heard oral argument in connection with Plaintiff's application for an Order to Show Cause with a Temporary Restraining Order. After hearing counsel for both EvoMarkets and Penny, the Court issued the Order to Show Cause and granted a Temporary Restraining Order, though adjusting the language in certain respects. The Temporary Restraining Order prevents Penny, during the pendency of the motion, from working for ICAP, from disclosing confidential information, from soliciting business and communicating with EvoMarket's clients. During the oral argument, the Court made clear that it expected that EvoMarkets would be paying Penny her base salary while the motion was pending.
On the May 1, 2009 return date, the Court received assurances that EvoMarkets was
continuing to pay Penny her base salary and the Court continued the Temporary Restraining
Order, pending determination of the motion. In addition, the Court stated that it would expedite
the determination of the motion (see CPLR 2219[a]). Further, on May 15, 2009, the
Court conducted a Preliminary Conference with counsel for EvoMarkets, Penny and ICAP,
pursuant to which all discovery is to be completed by August 27, 2009.[FN3]
PLAINTIFF'S APPLICATION
As noted previously, Kelly brought a declaratory judgment action seeking to have his restrictive covenants, which are identical to Penny's, declared invalid by the United States District Court, Southern District of New York. Kelly thereafter moved for summary judgment and EvoMarkets cross-moved for, inter alia, a preliminary injunction enjoining Kelly from violating the restrictive covenants. Plaintiff has supplied a copy of the order issued by United States District Judge Stephen C. Robinson, on March 4, 2009, of which the Court hereby takes judicial notice. Judge Robinson denied Kelly's motion for summary judgment and granted EvoMarket's motion for a preliminary injunction to the extent that Kelly was enjoined by the non-solicitation clause from soliciting Plaintiff's customers until the earlier of a final disposition in that case or May 5, 2009 (see Ertel Aff., Ex. B).
In support of its motion for a preliminary injunction, Plaintiff submits an affidavit from
Michael Goldenberg ("Goldenberg"), who has headed EvoMarket's Nuclear Fuel Desk since
Kelly left in November 2008. According to Goldenberg, when he took over Kelly's
responsibilities, Penny was assigned to be his trade assistant. Goldenberg avers that
[b]ecause Penny and Kelly were the only two employees on the Nuclear Fuel desk,
Kelly's departure left a significant void for EvoMarkets. Thus, Penny became the only other
EvoMarkets employee personally familiar with its Nuclear Fuel business and its confidential
Nuclear Fuel Contact List, consisting of approximately five hundred (500) individual contacts
and important proprietary information given to EvoMarkets by, and about, its clients. (This list,
which was created by Kelly's predecessor, Kevin Smith, and augmented by Kelly, memorializes
the trading and/or market activities of EvoMarkets' contacts) .... More importantly, Penny was
the only face recognizable to EvoMarkets' Nuclear Fuel clients. Penny had, among other things:
(a) built a rapport with EvoMarkets' clients over time; (b) come to understand their confidential
trading strategies, practices, and tendencies based on confidential information received from the
clients, including without limitation their inventories, market views, and their need for uranium;
(c ) learned their [*4]preferences regarding, for example,
communication and distribution of trading confirmations; and (d) gained their trust and respect
(Goldenberg Aff. at ¶¶ 4-5 [emphasis in
original]).
Goldenberg states that because he was a neophyte in the
brokering of nuclear fuel transactions, he relied heavily on Penny during the transition from
Kelly and "[t]o further assure that the business transition was seamless (i.e., that the
clients would be in contact with a familiar individual who understood their business and the
nuclear fuel business in general), EvoMarkets and [he] elevated Penny's responsibilities and
promoted her from trade assistant to broker" (id. at ¶ 7). In this new role, she
became lead broker for eight clients which represented 23% of Plaintiff's active uranium
contacts. Plaintiff also began negotiating a new Employment Agreement that would provide her
with enhanced compensation but the same restrictive covenants (id. at ¶ 8).
In apparent anticipation of Penny's claims of constructive discharge, Goldenberg explains that unlike the equities market, "there is no assurance to anyone that the bids or the asks communicated by EvoMarkets (or other market intermediaries), or posted in a daily market update, is a firm number (i.e., a willingness of a counterparty to be bound to the price of the bid to buy or the ask to sell), as Penny wanted to believe. In fact, even when a trade is confirmed, it is nearly always still subject to credit, management and/or board approval and contract" (id. at ¶ 11). He further avers that, contrary to Penny's stated concern that the daily market updates were not based solely on "firm" prices, Plaintiff's "Nuclear Fuel daily market updates were created in the same way after Kelly's tenure as head of the Nuclear Fuel desk as they were under Kelly's direction" and that he tried to allay her concerns by educating her on "the subtleties and complexities of uranium transactions"(id. at ¶13). He claims she responded by refusing to accept and or feigning "a lack of understanding in an attempt to create a false record' of intolerable working conditions" (id.)
With regard to Penny's removal of confidential business information from Plaintiff,
Goldenberg avers that Penny left work on Friday, January 23, 2009 stating that she was assisting
in her mother's move to Charlotte N.C. and that
[u]pon information and belief, Penny took with her that Friday a large volume of
EvoMarkets' highly confidential information (including EvoMarkets' Nuclear Fuel Contact List
and two trading diaries kept in the office during the regular course of business that are updated
by Penny throughout each trading day and that contain confidential and/or proprietary client
information, including without limitation client trading strategies and tendencies, client
inventories, and client offers to buy and sell uranium) (Goldenberg Aff. at ¶
14).[*5]
The next time Goldenberg
heard from Penny was on Monday January 26, 2009 when she did not show up for work and
e-mailed Goldenberg stating that she would not be coming to work based on her problem with
Goldenberg's price sheet practices and that she was seeking advice from counsel. That same day,
Plaintiff received a letter from Penny's counsel (who was also the same counsel who was
representing Kelly in the pending federal action) wherein Penny advised that she was resigning
due to intolerable working conditions and that she did not view herself bound by the restrictive
covenants. Penny thereafter failed to attend a conference that had been planned by Plaintiff (with
integral involvement from Penny) which was held on January 27, 2009. It is Plaintiff's position
that Penny never intended to attend the conference (i.e., that she knew she was going to
leave Plaintiff's employ) because she never made travel arrangements. On January 30, 2009,
Penny sent a letter to Plaintiff which enclosed what Penny described as "all Company property
that was issued to" Penny as well as "client lists, conference participation lists, and notebooks,
which contain information that could be considered confidential or proprietary information
concerning Evolution Markets or its customers or operations" (id. at ¶ 19).
According to Goldenberg, her taking this information home over a weekend was not standard
practice (especially since it was clear that she knew she was leaving and that her last day of work
at Plaintiff was Friday, January 23rd) the only "logical conclusion" is that she took this
information with her "with the intention to use and/or duplicate it prior to resigning"
(id.).
EvoMarkets also submits an affidavit from its President and CEO, Andrew Ertel. In his affidavit, Ertel states that Kelly was terminated last November based on: (1) his improper taking and using of Plaintiff's Nuclear Fuel Contact List of 500 clients and proprietary information concerning these clients; (2) his improper sending of his employment agreement to the CEO of ICAP; and (3) his improper solicitation of at least one broker to join him at ICAP (Ertel Aff. at ¶ 5). Ertel avers that ICAP is a direct competitor of Plaintiff that is "significantly larger than EvoMarkets in virtually all aspects" and that "[u]pon information and belief, Kelly has been and is planning to join ICAP after his non-compete restriction (and/or this litigation) ends" (id. at ¶ 11).[FN4] Further, Ertel claims that in response to EvoMarket's letter to ICAP notifying it of Penny's violation of the restrictive covenant, ICAP stated that it believed the covenants to be unenforceable (Ertel Aff., ¶10).
Ertel describes Plaintiff "as the world's largest environmental brokerage company" and that "there are only approximately three firms worldwide besides EvoMarkets focusing on uranium brokerage, with approximately nine brokers experienced in this commodity at these firms" (id. at ¶ 19). He claims "that it typically takes six months, and sometimes more, for a diligent and capable broker to adequately learn the nuances of his/her client base, and to gain the trust and respect of those clients" (id. at ¶ 22). He states that the uranium brokerage business is "unusually small [*6]and highly competitive" and that "[t]here are only about thirty to forty major customers for whom brokers compete to gain this limited business"(id. at ¶ 22). According to Ertel, "ICAP is planning to and/or has recently begun competing with EvoMarkets in the nuclear fuel a/k/a uranium business, and hired Penny (and possibly Kelly) to assist it in that business" (id. at ¶ 58).
With regard to the confidentiality of the Nuclear Fuel Contact list, Ertel describes it as
containing the names and contact information (including personal phone numbers) of traders,
producers, buyers, sellers, converters, enrichers, fabricators, agents, investors, price reporters,
advisors, and juniors and information that EvoMarkets gathered over time including its "clients'
and contacts' historical buying and selling techniques, their desires, and their activity and
positions in the marketplace, all of which is not publicly available" (id. at ¶ 24).
According to Ertel, when Kelly took control of the Nuclear Fuel Desk in 2007, the
Nuclear Fuel Contact List contained 250 names, but by the time Kelly left in November 2008,
because of the significant time and capital (e.g., $200,000 in 2008) that Plaintiff invested
in Kelly's development of the List, it grew to over 500 contacts (id. at ¶ 29).
With regard to Penny's employment contract, Ertel avers that Penny executed it on May 8, 2008, acknowledging that she had an opportunity to have it reviewed by an attorney and that she understood its terms. Ertel states that pursuant to the Agreement's restrictive covenants, Penny agreed for a period of six months following the termination of her employment she would not work for " any business which provides the same or similar services as any of those services offered by [EvoMarkets] ....'" (id. at ¶ 32, quoting Agreement ¶ 6.1[a] ["the Non-Compete period"]). EvoMarkets agreed to pay Penny her salary during the Non-Compete period unless she resigned or was terminated for cause. Penny also agreed to a non-solicitation clause, which precluded Penny, during the Non-Compete period and for three months thereafter from soliciting business or communicating "with any Client with whom ... [she] had any contact or whose existence [she] became aware during the 180 days immediately preceding [her] Last Day" (id. at ¶ 33, quoting Agreement ¶ 6.3). Finally, Penny agreed to a no-hire clause which provided that during the Non-Compete period and for nine months thereafter, she would not directly or indirectly recruit or hire an EvoMarket's employee until such person had not been an EvoMarket's employee for 12 months (id. at ¶ 36). Ertel avers that EvoMarkets paid Penny her salary through February 2009 (id. at ¶ 54).
Ertel claims that EvoMarkets first learned that Penny was violating her Employment Agreement on or about Friday, March 20, 2009 and on Monday, March 23, 2009, EvoMarkets sent Penny a cease and desist letter demanding that she discontinue her employment with ICAP and that unless she verified that she was not working for ICAP, EvoMArkets would cease paying her salary. Plaintiff sent a copy of the March 23 letter to ICAP and notified it that " to the extent ICAP knowingly allows [Penny] to violate and/or continue to violate the Employment Agreement that its conduct [*7]constitutes tortious interference with the [EvoMarkets'] contractual rights and relations'" (id. at ¶ 60). ICAP responded by letter dated March 27, 2009 that it intended to continue to employ Penny (Ertel Aff., Ex. J).
Finally, Ertel avers that it will sustain irreparable damage if the restrictive covenants are not enforced. By contrast, Ertel argues that "[t]he relationships and expertise Penny built will not suddenly disappear, now or before her restrictive covenants end. The clients will not forget Penny, and her previously forged industry relationships ... can be renewed after the covenants have expired .... But this limited time .... will at least give EvoMarkets a chance to even the playing field and avoid incalculable and irreparable client loss and business to a competitor" (id. at ¶ 63).
In its Memorandum of Law, Plaintiff argues that Penny's claim of constructive discharge is a red herring that was manufactured in an effort to escape her post-employment restriction. Thus, while she expressed her concern to Goldenberg 3 or 4 times over the fact that his pricing technique for the daily pricing sheets did not involve firm numbers, EvoMarkets "addressed Penny's concerns and attempted to educate her in the subtleties and complexities of uranium transactions ... but [Penny] failed to comprehend and/or refused to accept this industry practice, or more likely feigned a lack of understanding in an attempt to create a false record' of intolerable working conditions" (Pltf. Mem. of Law at 18).
Plaintiff asserts that the loss of Penny's services and the potential loss of its customer base are causing Plaintiff irreparable injury and, indeed, in the Employment Agreement, Penny recognized that a breach of it would subject EvoMarkets to irreparable injury (Pltf. Mem. of Law at 23). Plaintiff argues that the restrictive covenants are designed to protect EvoMarket's legitimate business interest and are narrowly tailored in time and geographic area. In this regard, Plaintiff heavily on Judge Robinson's decision which found "indicia that EvoMarkets' customer list is confidential and protectable by a reasonable non-solicitation clause ...." (Ertel Aff., Ex. B) and that the restriction was reasonable in scope and duration and prima facie enforceable. Plaintiff also cites to a number of cases wherein the Courts upheld restrictive covenants for six month periods both for non-competes and non-solicitation clauses (Pltf. Mem. of Law at 19-20). Plaintiff argues that the restrictive covenant is also enforceable given Penny's unique relationship with a small number of clients (i.e., that Plaintiff is not only seeking to protect its confidential client information but also its special client relationships) and the substantial investment Plaintiff made in Penny in forging such relationships. In this regard, Plaintiff relies upon Judge Robinson's holding that the balance of equities tipped in EvoMarket's favor since "[i]f Kelly was permitted to begin soliciting EvoMarket's clients ... EvoMarkets risks losing this business forever" (id. [*8]at 21).[FN5] Thus, Plaintiff contends that it needs at least six months to get Penny's successor up to speed such that he/she may build the same relationships Penny maintained with EvoMarket's clients (id. at 22). And if the Court were to find the provision overly broad, "the Employment Agreement permits this Court to fix the minimum non-compete period. Specifically, ¶6.8 of the Employment Agreement allows the Non-Compete restriction to be narrowed" (id. at 23).
Finally, Plaintiff argues that a balancing of the equities tips in Plaintiff's favor and would
"weigh[ ] heavily against a declaration that essentially would dissolve the contract and reward
Penny's repudiation of her obligations in the Employment agreement" (id. at 25).
DEFENDANT'S OPPOSITION
In opposition to Plaintiff's motion and in support of her request that the existing Temporary Restraining Order be vacated, Penny submits an affidavit wherein she avers that she began working straight out of college for EvoMarkets on June 16, 2008 as a trade assistant at an annual salary of $35,000 and that in August 2008, her salary increased to $45,000. She claims that while working for Kelly, her tasks were largely administrative and did not include communicating with active clients except insofar as she answered the phone for Kelly and engaged in small talk with the clients until Kelly was free to answer their call. Penny avers that she "never brokered a uranium deal while employed at EvoMarkets ..." nor has she brokered any deals since she left Plaintiff's employ (Affidavit of Alexandra Penny, sworn to April 30, 2009 ["Penny Aff."] at ¶ 4). She claims that 75% of her time was spent selling subscriptions to a website on behalf of Plaintiff's unit known as Evo I.D. (this website gives non EvoMarket customers access to EvoMarket's market information) (id. at ¶ 5). Penny denies having been promoted to the position of broker and annexes an unexecuted Employment Agreement that she claims was presented to her by Plaintiff in December 2008, but which she never signed. This document lists Penny's new job position as "Associate" on the Nuclear Fuel Desk — not broker — and increases her salary by $5,000, with a one-time $5,000 bonus. Penny, however, concedes that upon Kelly's departure, she became a broker in training and that "eight of EvoMarkets biggest customers were assigned to [her] ..." (id. at ¶ 17), but that she was uncomfortable, without a mentor, to guide her to discuss market conditions with them (id.).
With regard to her claim of constructive discharge, Penny avers that she was not comfortable working with Goldenberg because she was "repeatedly asked to mislead and sometimes outright lie to clients concerning price information in order to [*9]create the illusion that EvoMarkets was more on top' of the market than it actually come to be after Mr. Kelly's termination" and that he disseminated price sheets containing fabricated prices that were not executable (id. at ¶¶ 9, 16). According to Penny, Goldenberg and the managing director of EvoMarket's nuclear fuel desk, Steven Nesis, assured her that this practice was not unethical or manipulative of the market because "the price sheets were intended to just show some indications of where buyers would buy and these type of projections were routinely done in other markets" (id. at ¶ 15). In contrast, Penny asserts that under Kelly's tutelage, she was taught that the price sheet should contain "executable prices" (id. at ¶16). Penny provides the following example: in December 2008, Mr. Goldenberg disseminated a price sheet stating that a buyer was interested in buying nuclear fuel for delivery in June 2009 for 50 (referring to dollars to pound). In response, Chad Simon, a client at Energy USA and an experienced trader called me to confirm that there was a buyer at 50 because he was interested in selling at that price. Knowing that Mr. Goldenberg took this bid (offer to buy) from one of Mr. Kelly's old sheets and that he not only really did not know who the buyer that was interested was but that 50 was a manufactured number, I told Mr. Sigmon that I would get back to him and went to Mr. Goldenberg for guidance. Mr. Goldenberg directed me to tell Mr. Sigmon that the buyer checked with management and was no longer interested in buying at this price. Although I questioned Mr. Goldenberg concerning the ethical propriety of this, I did what he instructed me to do. Also, after the first day Mr. Sigmon asked about the price, Mr. Goldenberg moved the price down to 48 before sending out the daily price sheet. This only further hurt my credibility with Mr. Sigmon, as he saw the bid move down from 50 to 48 shortly after speaking to me about the price, but before I got back to him with the final answer Goldenberg told me to tell him ... I had another similar experience with Mr. Sigmon in approximately late November 2008 when he outright asked me if the buyers on a price sheet for January, February and March were real. I was instructed by Mr. Goldenberg that if pressed I should tell him at that time that they were no longer the prices because the market had moved .... I had similar experiences with two other customers, Paul Goranson and Markus Kemmerer" (id. at ¶¶ 10-12).
***
[*10]
Sometimes Mr. Goldenberg would ask me to e-mail the daily price sheets to the
customers. I was extremely uncomfortable doing this from my computer because I did not want
my name attached to this information. On some occasions, I sent out the information per Mr.
Goldenberg's directive, but I sent it from his computer and did not sign my name to it ... Mr.
Goldenberg's behavior was condoned by the managing director of EvoMarkets' nuclear fuel
desk, Steven Nesis, Based upon my prior experience with Mr. Kelly and the reactions I was
getting from customers, I was not comfortable participating in this behavior and risking my
credibility and reputation with customers, particularly as I try to build the trust and confidence of
these customers early on in my career (id. at ¶¶
14-15).
Penny concludes that the above conditions are sufficient to
support a finding of constructive termination. Penny also contends that Plaintiff violated New
York State Labor Law § 191(1)(d) by only paying her once a month.[FN6]
With regard to Plaintiff's allegations that she stole and copied confidential information, Penny asserts that she returned to Plaintiff all of its materials that were in her possession keeping only copies of "publicly available conference participant lists and industry publications" (id. at ¶ 20). She disputes that she took confidential information home over the weekend of January 23, 2009 and states that she often took her notebook home at night to review it and make phone calls given the international market. She further attests that she took the notebook at issue home when it was full in or about November 2008 and left it there without looking at it.[FN7] She avers that she believes it contains mostly notes relating to Evo I.D. business, which Plaintiff has not alleged are confidential (Penny Aff. at ¶ 21).
On the issue of the Nuclear Fuel List (or "the Kelly notebook"), Penny [*11]avers that she began using it after Kelly left to keep notes and as a folder to hold her industry publications. She claims that she periodically took the Kelly notebook home with her to make business calls given the international market and that the only reason why she took it home during the weekend of January 23, 2009 was because she put two trade publications in it (Us and Trade Tech) which she thought would be useful to read before the Nuclear Fuel Supply Forum Conference scheduled for Tuesday January 27, 2009. She explains that while she was considering declaring a constructive discharge on January 23, she had not finally determined to do so and that it was only when she determined for certain that she would be declaring a constructive discharge that she regarded it as inappropriate to go to the conference. She does not directly address EvoMarkets' claim that she never made travel arrangements to go in the first place. She does avers that when she returned the Kelly notebook on January 27, 2009, she had "not disclosed any information contained therein to any third parties (and have not done so since [she] left EvoMarket's employ)" (id. at ¶ 22).[FN8]
Addressing the confidentiality of the Nucelar Fuel List, Plaintiff claims that only 30-40 of the 500 names on the list are actually clients (buyers and/or sellers) and that "[t]he identities of traders of uranium are not confidential. Rather, they are readily available to interested parties without a great deal of work or investment" since most attend one of several conferences and registered attendants of these conferences are provided with the list of registrants and their contact information (Penny Aff. at ¶¶ 23-24). Plaintiff further avers that the attendee list of one conference is available on the conference's website and Plaintiff annexes the participant lists from two conferences she attended in 2008 and 2009 (Penny Aff. at ¶ 25 and Exs. C and D). In further support of the non-confidentiality of the Nuclear Fuel List, Plaintiff's counsel annexes an affidavit from Ertel from October 2000 that was submitted in a separate action in which Ertel and EvoMarkets were sued when Ertel left his prior employer, Natsource, Inc., to join EvoMarkets. Penny's counsel contends that although Natsource's business involved emissions brokerage rather than uranium brokerage, "Ertel testified that the information was not confidential, in part, because the information was readily obtainable from public sources, such as by attending industry-related conferences and the internet" (Affirmation of Gary Trachten dated April 30, 2009 ["Trachten Aff."] at ¶ 17 and Ex. M). Further, Ertel averred that he did not take his field notes but even if he had, the information was four months old, outdated and, therefore, useless (id.).
Penny contends that Plaintiff should also be barred by laches from obtaining injunctive relief given its delay in seeking a restraining order (i.e., that Penny had been working at ICAP for 6 weeks before Plaintiff initiated this action). Penny contends that the equities weigh in her favor as she is being damaged with the current TRO since even though EvoMarkets is currently paying her $45,000 a year in base salary, she is making 1/3 less than she was making at ICAP (i.e., $75,000 base salary [*12]plus a discretionary bonus) (id. at ¶ 29). She is also being damaged as her medical benefits ceased as of the end of April 2009 (id. at ¶ 30). Most important, however, is the damage she claims she is suffering with her former clients as she has had to "suddenly stop communicating with clients and prospective clients ..." and drop the ball on work that she was doing for them which could negatively impact her relationship with these clients in the future (id.).
In further opposition, Penny's counsel, Gary Trachten, Esq., annexes correspondence between himself and Plaintiff's counsel to his affirmation. These letters basically outline each side's litigation posture (e.g., Penny's claims of constructive discharge and violations of the New York Labor Law and Plaintiff's denial of the constructive discharge, its claim of irreparable injury resulting from Penny's breach of the restrictive covenants, etc.). Trachten further explains that when Penny accepted her February salary, she expressly reserved her rights and stated that she would decline acceptance of the payment if Plaintiff intended to use it against her in any subsequent litigation.
Penny's legal arguments consist of her claims that an injunction should not issue as it is unlikely that Plaintiff will prevail on the merits, that the harm for which Plaintiff seeks judicial protection against is merely the harm of fair competition for which no judicial remedy lies and that the balance of the equities tips against the grant of a preliminary injunction. In support of her claim that Plaintiff will not succeed on the merits, Penny argues first that the restrictive covenants do not apply because she was constructively terminated due to the intolerable working conditions. Alternatively, she argues that the restrictive covenants are unenforceable as violative of public policy since she was merely an administrative assistant and, for a short while, a broker in training, and Plaintiff has not shown a legitimate business interest (as opposed to merely an anti-competitive monopolistic interest) in the restrictive covenants since Plaintiff has not shown that Penny will unfairly compete with Plaintiff by using confidential information or that Penny provides unique services such that her competition with Plaintiff would be unfair and damaging (e.g., it is impossible to replace Penny such that her loss would cause EvoMarkets' irreparable injury). As to the latter point, Penny points out that she has only worked for Plaintiff for seven months, her experience is "thin", she never brokered a uranium deal herself, her highest salary was $45,000 a year, and Plaintiff itself calls her expertise into question in its papers.[FN9]
It is Penny's position that the Nuclear Fuel Contact List does not contain confidential information because (1) the identities of the vast majority of traders in [*13]uranium are available through public sources such as trade shows, conferences and even the Internet, (2) any customer preference information does not cause the List to be confidential since it may be "readily duplicated by contacting the customers directly" (Penny's Mem. of Law at 15); and (3) Plaintiff has failed to show how such stale historical information concerning a customer's past transactions is valuable. Penny further contends that "[w]ith a universe of about 30-40 traders, the effort to catalogue their plans and preferences need not be extraordinary (id. at 16). Moreover, since the existing compilation is, by reason of the unusually small size of the market, readily subject to recompilation, any competitive edge it gives to EvoMarkets is very limited, making it worthy of very little (if any) protection. EvoMarkets has not made a showing that the customer information data on the Nuclear Fuel Contact List qualifies as confidential'" (id. at 15). Finally, that Plaintiff's conclusory assertion that the information concerning the contacts other than the traders is likewise confidential is completely without basis since no factual support is made as to "how (and at what effort and cost) or why such information was gathered or how, if at all, such information constitutes continuing secrets that currently give it a distinct advantage in the marketplace" (id. at 16).
Penny argues that even if it Plaintiff could show a legitimate business interest, Plaintiff has
not and cannot show that the restraints are necessary to protect its interest and no greater in
scope than necessary because it cannot show "that the burden on and harm to EvoMarkets of
non-enforcement outweigh the burden on and harm to Penny of enforcement" (Penny's Mem. of
Law in Opp. at 12). Moreover, it would injure the public to enforce this restrictive covenant
given how small the uranium market is and given the limited number of brokers servicing it
(id.).[FN10]
Finally, Penny argues that Plaintiff should be denied the equitable relief of a preliminary
injunction based on its own inequitable conduct in: 1) coming to court with unclean hands
— i.e., its requiring Penny to disseminate misleading information in the daily
price sheets and its violation of the New York State Labor Laws by paying Penny on a monthly
rather than bi-weekly basis; and (2) waiting for over seven weeks to initiate this action and move
for a preliminary injunction such that the doctrine of laches should bar Plaintiff from obtaining
injunctive relief.[FN11]
THE GOVERNING LEGAL STANDARD FOR A PRELIMINARY INJUNCTION
The standard for preliminary injunctive relief is well settled. Thus, the movant must establish (1) a likelihood of success on the merits, (2) irreparable injury absent the granting of the injunction, and (3) a balance of equities in the movant's favor (Nobu Next Door, LLC v Fine Arts Hous., Inc., 4 NY3d 839 [2005]; Apa Sec., Inc. v Apa, 37 AD3d 502 [2d Dept 2007]). "Courts will not impede an employee's ability to compete with a former employer unless the evidence is clear and convincing that it is necessary to protect the trade secrets of the employer or that fraudulent methods were used by the employee to disparage the employer's business" (Price, Paper and Twine Co. v Miller, 182 AD2d 748, 749 [2d Dept 1992]). Where there are key facts in dispute, the motion for a preliminary injunction should be denied (id. at 750).
While the standards are strict, they do not require that all preliminary injunctive relief be
denied in all cases in which an employer seeks to enforce a restrictive covenant in an
employment agreement against an employee. On the papers presented here, as will be detailed
below, Plaintiff has established that it will likely succeed on the merits, that it will be irreparably
injured without the grant of an injunction, and that the balance of equities tips in its favor.
Accordingly, the Court will grant Plaintiff's application for preliminary injunctive relief pending
the ultimate determination in this action. However, the Court adjust the language of the
injunction to assure its reasonableness and will also provide for a prompt trial of this action so
that the preliminary injunctive relief will not be extant any longer than absolutely necessary.
A.Likelihood of Success on the Merits
Under the Employment Agreement, Penny was an employee at will
who could resign or could be terminated at any time upon 30 days advance written notice. The
restrictive covenants provide that Penny cannot:
directly or indirectly be a principal, partner, officer, owner, stockholder, employee, consultant, advisor, guarantor or lender to any business which provides the same of similar services as any of those services offered by EvoMarkets until 6 months after her last day of employment — i.e., August 25, 2009 (Employment Agreement, § 6.1[a] [the "Non-Compete"]);
solicit business or have any direct or indirect business dealings or communications with any client with whom Penny had any contact or whose existence she became aware during the 180 days immediately preceding her last day until 9 months after her last day of employment — i.e., November 25, 2009 (Employment Agreement, § 6.3 [the "non-solicitation"]); or [*14]
hire any of EvoMarkets' employees or candidate employees, encourage any employee to resign, or make any negative statements about EvoMarkets to any employee or candidate employees (and/or to any other persons) until 15 months after her last day — i.e., May 25, 2010 (Employment Agreement, § 6.5. [the "non-hire"]).
Pursuant to the Agreement terms, Penny would be paid her base salary during the Non-Compete six month period so long as she was not working for a competitor, she signed a release and was terminated without cause (Employment Agreement, § 6.1 [b]). If Penny resigned or was terminated for cause, she would still have to comply with the restrictive covenants, but she would not receive her base salary during the non-compete period (Employment Agreement, § 6.1 [f]).
Penny and EvoMarkets agreed that the identities and contact information of EvoMarkets' clients was a valuable asset and important trade secret and that she would not "during or after the Term [of employment] use, copy and/or disclose all or any part of our Client List ... to any person, firm or corporate entity" (Employment Agreement at § 6.2).
As pronounced by the New York Court of Appeals, "[i]n order to be enforceable, an anticompetitive covenant ancillary to an employment agreement must be reasonable in time and area, necessary to protect the employer's legitimate interests, not harmful to the public, and not unreasonably burdensome to the employee" (BDO Seidman v Hirshberg, 93 NY2d 382, 389 [1999]). The legitimate interests of an employer can be demonstrated where it is claimed that the employee is misappropriating employer trade secrets, making use of confidential information, or where the employee's services are unique or extraordinary (id.; see also Ticor Title Ins. Co. v Cohen, 173 F3d 63, 70 [2d Cir 1999]; Purchasing Assoc. v Weitz, 13 NY2d 267, 272-273 [1963]). Another legitimate interest of the employer is " to prevent competitive use, for a time, of information or relationships which pertain peculiarly to the employer and which the employee acquired in the course of the employment" (BDO Seidman, 93 NY2d at 391, quoting Blake, Employee Agreements Not to Compete, 73 Harv Law Rev 625, 647 [1960]). In such a case, "the employee has been enabled to share in the good will of a client or customer which the employer's over-all efforts and expenditures created. The employer has a legitimate interest in preventing former employees from exploiting or appropriating the goodwill of a client or customer, which had been created and maintained at the employer's expense, to the employer's competitive detriment" (BDO Seidman, 93 NY2d at 392).
"[I]n determining uniqueness the inquiry now focuses more on the employee's relationship to the employer's business than on the individual person of the employee" (Ticor Title Ins. Co., 173 F3d at 71 [Second Circuit upholds lower court's [*15]grant of a permanent injunction prohibiting title insurance salesman from working for competitor for a period of six months following his resignation since salesman's personal relationship with limited number of title insurance clients entailed unique services to plaintiff]; see also Maltby v Harlow Meyer Savage, Inc., 166 Misc 2d 481 [1995], affd 223 AD2d 516 [1st Dept 1996], lv dismissed 88 NY2d 874 [1996] [Appellate Division, First Department, affirmed lower court's grant of injunction against trade brokers' employment with competitor for period of six months because of trade brokers' unique services and fact that trade brokers would be paid compensation during the six month period]). Thus, the fact that Penny may be a recent college graduate who is relatively new to the EvoMarkets' business and less important in the overall scheme of things than Kelly is less important that the relationship that Penny had to EvoMarkets' business — being the most senior and experienced person on the Nuclear Fuel Desk and having access to important, sensitive business information, which would be valuable to a competitor.
Once there is a finding of a protection of a legitimate business interest, reasonableness must be determined in accordance with the Court of Appeals' three-part test, which is "[a] restraint is reasonable if it: (1) is no greater than is required for the protection of the legitimate interest of the employer, (2) does not impose undue hardship on the employee, and (3) is not injurious to the public" (BDO Seidman, 93 NY2d at 388-389).
While this Court is not bound by the doctrine of stare decisis [FN12]to follow Judge Robinson's order, given that it involved the exact same restrictive covenants at issue in this case as well as the same Nuclear Fuel Client List, the Court views the decision as persuasive authority and, indeed, agrees with Judge Robinson that injunctive relief is warranted in this action.
In particular, the Court notes that, while Penny was not a party to the federal case, she is represented by the same counsel as was Kelly; indeed, counsel conveyed assurances from both Kelly and Penny as to the circumstances of Penny's hiring to EvoMarkets (see Trachten Aff., Ex. A). Further, Penny departed for ICAP roughly contemporaneously with Kelly's similar departure and the Court cannot ignore the prospect that, as a practical matter, Kelly may be attempting to use Penny to do what he is barred by a federal injunction from doing. Indeed, it would appear to greatly circumvent the federal injunction if Penny, Kelly's subordinate, was unrestrained in her [*16]ability to use any confidential information from EvoMarkets in her possession, to contact EvoMarkets' clients, and to try to solicit EvoMarkets' personnel.
This Court is not blind to the fact that Penny left EvoMarket at a time (January 26) roughly contemporaneous with the time that Kelly was freed up to work for ICAP (February 5, 2009) (see Judge Robinson's Order at 4). Further, she left without regard to her responsibilities for the important client conference that she had been involved with organizing. And she has not refuted Plaintiff's showing that she never intended to go as she never made travel arrangements. Additionally, it just so happened that she had EvoMarkets' business materials at home, though it seems apparent, from the fact that she was consulting counsel, that she did not intend to return to the office.
Plaintiff claims that its Nuclear Fuel Contact list constitutes a protectable trade secret such that the restrictive covenants at issue furthered a legitimate business interest. By contrast, Penny argues that since most of the information contained on the list may be obtained from public sources, the list is not a trade secret. In support of her argument, Penny cites to cases standing for the proposition that customer identities that are readily ascertainable from nonconfidential sources are not trade secrets as long as there is no evidence that the employee copied or memorized customer information from confidential sources (Apa Sec., Inc. v Apa, 37 AD3d 502, 502 [2d Dept 2007] [Appellate Division reversed lower court's grant of injunction against employees of alarm company that left to form competing alarm company because customer identities were not confidential];Starlight Limousine Service, Inc. v Cucinella, 275 AD2d 704 [2d Dept 2000]).
Kelly made the exact same argument as Penny makes here which was dismissed by Judge Robinson when he found that EvoMarkets had established indicia that the list was confidential and protectable by a reasonable non-solicitation clause as the Nuclear Fuel Contact List contained not only the clients' names and contact information, but also their "particular characteristics, including their historical buying and selling techniques, their desires, and their activity and positions in the marketplace, all of which are not publically available'" (Robinson Order at 12, quoting Ertel Affidavit, ¶ 46). Plaintiff has made the exact same showing here and the Court is convinced that given the highly competitive nature of the uranium brokerage market (with only 30-40 customers) and the nature of the information contained on the Nuclear Fuel Contact List, some of which Penny does not dispute, is not obtainable from public sources such as client preferences and the like, the Court agrees that the Nuclear Fuel Contact List is properly protectable as a trade secret and Penny may be enjoined from soliciting those clients during the nine month non-solicitation period.
With regard to the reasonableness of the restrictive covenants, while the covenants contain explicit temporal restrictions (e.g., six months for the non-compete, nine months for the no-solicitation, and 15 months for the no-hire), they do not contain a geographic restriction. The Court agrees with Judge Robinson that the time [*17]restrictions are reasonable and no greater than required to protect EvoMarkets' legitimate business interest. Further, as noted by Judge Robinson, the lack of a geographic restriction is necessary given that Plaintiff's customers are from all over the world and the brokerage business is largely conducted over the telephone. Indeed, Penny admits that she frequently brought her client information home with her to make calls given the international aspect of EvoMarkets' market. As such, "any geographic limitation on the covenant's scope would obviate its usefulness to EvoMarkets. If [Penny] could simply travel to Wyoming, pick up a phone, and begin to solicit clients away from EvoMarkets immediately, the restrictive covenant would be meaningless" (Ex. B at 13). Accordingly, the Court finds that the restrictive covenants are not violative of public policy as they are reasonable in scope and no broader than necessary to protect Plaintiff's legitimate business interest.
Based on the foregoing, Plaintiff has established a likelihood of success on the merits and
the Court will turn to whether Plaintiff has established irreparable injury.
B.Irreparable Injury
Plaintiff asserts that it will suffer irreparable injury unless it is given several months' time to replace Penny and get a new employee up to speed and forming bonds with Plaintiff's existing clients. Because of Kelly's departure, Penny was the face of the nuclear fuel desk and Goldenberg only took over Kelly's responsibilities in November 2008. Further, Plaintiff had entrusted 8 of its largest nuclear fuel clients to Penny from November 2008 until her departure at the end of January 2009.
Finding that EvoMarkets would suffer irreparable injury if Kelly were permitted to solicit
EvoMarkets clients before the expiration of the non-solicitation clause, Judge Robinson relied on
the sound reasoning of Judge Leisure in a "strikingly similar case" — Natsource LLC
v Paribello (151 F Supp 2d 465 [SD NY 2001]), wherein Judge Leisure found:
The customers have developed a strong relationship with Paribello [the defendant]
over the years and ten months he spent at Natsource. If Paribello is allowed to immediately work
for a competitor, or otherwise solicit these customers, these customers are likely to follow him
because of their unique relationship ... According to [a Natsource manager], it takes three to six
months for brokers to develop strong relationships with traders. Natsource would be irreparably
harmed if it did not receive the benefit of its bargain and customers left Natsource to follow
Paribello within the initial 120 days following Paribello's termination (id. at
469).
Judge Leisure further found that
[*18]
Natsource would ... be irreparably harmed if Paribello were allowed to encourage
other Natsource employees to leave Natsource to work for Natsource competitors within the next
year. Natsource expends substantial resources to help its brokers develop customer relations, and
the brokers are introduced to established customers. The brokers are encouraged to strengthen
these relationships and Natsource supports the brokers by providing market intelligence and
through relationships maintained on their desks. The loss of training and interference with
already established relationships that would occur should Paribello recruit other employees
within the year are unquantifiable assets (id.).
As noted by the Second Circuit, irreparable injury is often found in violation of non-compete cases since "it would be very difficult to calculate monetary damages that would successfully redress the loss of a relationship with a client that would produce an indeterminate amount of business in the years to come" (Ticor Title Ins. Co., 173 F2d at 70; see also Alside Div. of Assoc. Materials, Inc. v Leclair, 295 AD2d 873 [3d Dept 2002]; Maltby v Harlow Meyer Savage, Inc., 166 Misc 2d 481 [1995], affd 223 AD2d 516 [1st Dept 1996], lv dismissed 88 NY2d 874 [1996]; Doubleclick, Inc. v Henderson, 1997 WL 731413 at * 7 [Sup Ct NY County 1997] [proprietary information concerning pricing, margins and customers held to be trade secrets; irreparable harm is presumed where trade secrets have been misappropriated]).
Accordingly, the Court finds that unless the restrictive covenants are enforced, Plaintiff will
suffer irreparable injury since it will likely sustain a loss of business that is not readily
quantifiable.
C.The Balancing of Equities
Once again, the Court agrees with Judge Robinson's conclusion that the balance of equities tips in Plaintiff's favor since "[i]f Penny is immediately allowed to begin soliciting EvoMarkets' clients ... EvoMarkets risks losing this business forever" (Ex. B at 17). By contrast, Penny is currently receiving the salary she would have garnered if she had continued her employment with EvoMarkets [FN13] and will be free to start working with ICAP (or any other EvoMarkets' competitor) starting August 25, 2009 (or sooner should a final resolution of this action occur in Penny's favor). Further, beginning on November 25, 2009 (or sooner should a final resolution of this action [*19]occur in Penny's favor), Penny will be free to re-establish her relationships with her clients and solicit their business for her new employer (see Ticor Title Ins. Co. v Cohen, 1998 WL 355420 at *3 [SD NY1998], affd 173 F2d 63 [2d Cir 1999] ["it defies common sense that clients ... would forget [defendant] in six months"]).
It is also significant that, under the Employment Agreement, Penny will be free to resume working for ICAP on August 25, 2009, slightly more than 3 months from now. On the other hand, if a preliminary injunction is denied but EvoMarkets prevails at trial, EvoMarkets will have been effectively denied, by the passage of those three months, the benefit of enforcement of the non-compete provision of the parties' Agreement. Additionally, the Court will require EvoMarkets, as a condition of the relief granted, to continue payment of Penny's base salary, thus substantially mitigating any hardship to her. Further, EvoMarkets will be required to provide an undertaking that will assure payment to Penny, if she ultimately prevails in this action, of the difference between what she receives from EvoMarkets and what she would have received from ICAP during the non-compete period. Thus, if Penny prevails, she will be made whole but, in contrast, if EvoMarkets prevails, it cannot be made whole, as Penny would have been working all the while for ICAP.
It is also relevant that Penny's departure was undertaken in disregard of EvoMarkets' legitimate interests. She did not come to work on January 26, the very day before the conference that she had been responsible for organizing, thus destroying the business utility of that effort. While she claims that she was in doubt of her intentions to leave as of Friday, January 23, she announced those intentions on Monday, January 26, through a two page letter from her attorney. Counsel does not disclose when he was retained by Penny and the circumstances suggest that it was prior to January 26. Since Penny does not describe any particular event that occurred on January 23 or in that time frame that disturbed her, it seems apparent that she could have just as easily left on January 28 (the day after the conference). Her decision not to follow through on the conference appears timed to sabotage the interests of EvoMarkets, perhaps for the advantage of a competitor.
In accordance with the Court of Appeals' decision in BDO Seidman, supra , 93 NY2d at 388-389, the preliminary injunction to be entered herein will be no greater than is required for the protection of the legitimate interest of the employer, will not impose undue hardship on the employee and is not injurious to the public.
The Court finds that the balance of equities weighs in Plaintiff's favor.
D.Penny Has Not Established a Likelihood of Success in Prevailing on Her
Defenses
In her opposition, Penny asserts that even if the Court determines that Plaintiff has a legitimate protectable interest and that the covenants are reasonable, an injunction should not issue because (1) Plaintiff is guilty of laches, (2) Penny was [*20]constructively discharged and, as such, the covenants may not be enforced, and (3) Penny, being right out of college and having not reviewed the Employment Agreement with a lawyer had an unequal bargaining position to Plaintiff such that the provisions should not be enforced.
To begin with, the Court does not believe that the few week delay in initiating this action and motion warrants a finding that Plaintiff is barred from seeking this relief due to laches (Tactica Intl., Inc. v Atlantic Horizon Intl., Inc., 154 F Supp 2d 586 [SD NY 2001] [one month delay in seeking injunctive relief did not render application for preliminary injunction untimely]). Plaintiff contends that it first learned that Penny was working with ICAP on March 20, 2009 when it found Penny's name on ICAP's roster of employees. Plaintiff initiated this action with the filing of the summons and complaint on April 15, 2009. Penny avers that she began working for ICAP on March 9, 2009. While Plaintiff may have had its suspicions as early as the end of February that Penny was planning on joining Kelly and working for ICAP, it was not until approximately March 13, 2009 that Plaintiff's counsel actually advised Penny's counsel that EvoMarkets had reason to believe that Penny was working for ICAP. This action was initiated within a month of that admission and that delay, if such there be, is not disqualifying.
More importantly, Penny's counsel was fully aware that EvoMarkets was pursuing its rights as against Kelly and had exchanged correspondence with Plaintiffs' counsel in which Plaintiffs' counsel made it clear that Plaintiff intended to seek to enforce the restrictive covenants (see Trachten Aff., Ex. B). Laches involves more that just delay. The four basic elements of laches are: (1) conduct by an offending party giving rise to the situation complained of; (2) delay by the complainant asserting his or her claim for relief despite the opportunity to do so; (3) lack of knowledge or notice on the part of the offending party that the complainant would assert his or her claim for relief; and (4) injury or prejudice to the offending party in the event that relief is accorded the complainant (Dwyer by Dwyer v Mazzola, 171 AD2d 726, 727 [2d Dept 1991]; see Cohen v Krantz, 227 AD2d 581 [2d Dept 1996]). Here, EvoMarkets put Penny on prompt notice (the very day after its receipt of the letter from Penny's counsel) and there is no showing that Penny was prejudiced.
When, on April 15, 2009, the Court inquired of Plaintiff's counsel why EvoMarkets had not brought proceedings against Penny sooner, counsel responded that EvoMarkets was awaiting the outcome of the federal litigation. This was sensible; if Kelly had prevailed in that case, such as by obtaining a determination that the restrictive covenants were unenforceable, Penny may well have been able to assert a defense based on collateral estoppel. Given that counsel for Penny is also counsel for Kelly, the knowledge (chargeable to Kelly of EvoMarkets' prosecution of its rights under the restrictive covenants) is also chargeable to Penny.
Thus, the laches defense fails. [*21]
As to the unequal bargaining power as between Plaintiff and Penny, while Penny portrays herself as a college graduate working as an administrative assistant, the Court does not believe that Penny will likely succeed on a defense that the clauses are unenforceable based on her failure to read and understand the force of those provisions. Penny is a graduate of Brown University. While this was Penny's first position out of college, and while she started at a relatively low salary, it appears that Penny was on the fast track and was rapidly moving up the corporate ladder as EvoMarkets raised her salary by $10,000 shortly after she began her employment and within approximately six months (June 2008 to November 2008), EvoMarkets had promoted her to either broker or broker in training and had entrusted her with eight of its largest uranium trading clients.
Further, while Penny asserts that she did not have legal counsel when she signed the Employment Agreement, the Agreement specifically provides that Penny acknowledges that she had an opportunity to read the contract before signing it and to have an attorney review it before signing it (see Agreement at 9).
As to the Plaintiff's alleged violation of New York's Labor Law, while a court may deny equitable relief to a party who comes to court with unclean hands, given how close Penny's salary is to the salary that would exempt Penny from the Labor Law's coverage, and given that Penny is not alleging that EvoMarkets' failed to pay her her full salary, the Court is not prepared to deny EvoMarkets' injunctive relief based on Penny's claim of unclean hands.
With regard to Penny's defense of constructive discharge, the Court agrees that if Penny had been terminated without cause, the restrictive covenants would be unenforceable. However, the Court further finds that Penny has not established a likelihood of success on her defense of constructive discharge.
"New York courts will not enforce a non-competition provision in an employment agreement where the former employee was involuntarily terminated" (SIFCO Indus., Inc. v Advanced Plating Tech., Inc., 867 F Supp 155, 157-158 [SD NY 1994]). This is because " [a]n essential aspect of enforceable restraints on employee mobility] is the employer's continued willingness to employ the party covenanting not to compete'" (id. at 158, quoting Post v Merrill Lynch, Pierce, Fenner & Smith, Inc., 48 NY2d 84, 89 [1979]) and " where the employer terminates the employment relationship without cause, however, his action necessarily destroys the mutuality of obligation on which the covenant rests ...." (id.). Plaintiff tries to paint her separation from EvoMarkets as involuntary through a constructive discharge argument. This argument is unavailing.
A constructive discharge only occurs "when an employer "deliberately makes an employee's working conditions so intolerable that the employee is forced into an involuntary resignation'" (Chernoff Diamond & Co. v Fitzmaurice, Inc., 234 AD2d 200 [1st Dept 1996], quoting Fischer v KPMG Peat Marwick, 195 AD2d 222 [1st Dept [*22]1994 ], quoting Pena v Brattleboro Retreat., 702 F2d 322 [2d Cir 1983]). Here, the Court can hardly view it as merely coincidental that Penny's decision to leave was announced, by her attorney (shared with Kelly) roughly contemporaneously with the time that Kelly was free to begin working for ICAP without violating the non-compete clause of his Employment Agreement with Plaintiff (see Judge Robinson's Order at 4 providing that Kelly was free to begin working for an entity in competition with EvoMarkets on February 5, 2009). Further evidence of the deliberate nature of Penny's departure is the fact that on her last day with EvoMarkets — January 23, 2009 — Penny took home with her the Nuclear Fuel Contact List and her notebook containing information deemed by Plaintiff to be of a highly confidential and competitive nature. Her justification — that perhaps she might attend the January 27 conference — does not inspire confidence, given that, assuming she is truthful, her decision was made over the intervening weekend and she did not tender the materials on January 26. Moreover, confidence in her assertion is lacking because her departure was announced on January 26 by counsel, who was also Kelly's counsel, and it seems unlikely that she had retained that counsel only on the 26th itself.
While Penny professes her discomfort with the manner in which Goldenberg prepared the daily price sheets, Penny has not rebutted Plaintiff's contention that the manner in which they were prepared was identical to the manner in which they were prepared under Kelly. Further, Penny was sufficiently industrious, as she admits in her own papers, to disassociate herself with those daily price sheets by sending them from Goldenberg's e-mail address and not from her own address.
Given the foregoing, the Court does not believe that Penny is likely to succeed on her defense of constructive discharge and, as such, the exception to enforcement of restrictive covenants based on termination without cause will likely not prevail.
As Plaintiff has established a likelihood of success on the merits, a danger
of irreparable injury and a balance of the equities tipping in its favor, and as Penny has failed to
establish that any of her defenses are likely succeed, the Court shall grant Plaintiff's request for
injunctive relief, subject to continued payment to Penny of her base salary by EvoMarkets
through August 24, 2009, the posting of an undertaking, and a prompt trial.
E.Scope of The Preliminary Injunction
The Court believes it appropriate to narrow the scope of the preliminary injunction from the request made by Plaintiff. The Court is concerned that the provision respecting solicitation of clients and EvoMarkets' employees are overbroad. While Penny has not raised these concerns, the Court finds that justice and fairness require some limitations, which are predicated upon the assumption that Kelly is working for [*23]ICAP and that Penny will work for ICAP as soon as she is free of restraint against working for EvoMarkets' competitors.[FN14]
While EvoMarkets is entitled to protection against Penny's solicitation of any client of
EvoMarkets', it is not entitled to protection against her solicitation of persons or entities who
were not actually doing any business with EvoMarkets and were merely potential sources of
business. Since Penny will not be able to work for ICAP for 3 more months, and has already
been prevented from working for ICAP for about 1 month, by the time that Penny returns to
work, a sufficient amount of time will have passed to dilute any potential unfair competitive
advantage from any effort by Penny to compete with EvoMarkets for potential customers.
Further, Kelly's own non-solicitation agreement expired on May 5, 2009 and no useful purpose
would be served if Penny cannot solicit from the same pool of potential customers as
EvoMarkets, though Kelly could do so.[FN15]
Similarly, while the Employment Agreement provides that Penny cannot
hire away EvoMarkets' employees until May 25, 2010, Kelly may do so as of November 5, 2009.
It makes little sense to restrict Penny, who will work for Kelly, from soliciting EvoMarkets'
employees after November 5, 2009, when Kelly, her supervisor, may do, on ICAP's behalf. The
realities of the situation are that Kelly, as the supervisor, will control the hiring process and the
Court sees no valid reason why Penny should be restricted from doing what her supervisor could
do; in particular, there is no reason to protect EvoMarkets from Penny for any period when
EvoMarkets has no such protection from Kelly. Further, the Court believes that EvoMarkets is
entitled to protection only as to its present employees — the request that Penny be
prohibited from soliciting (or making negative statements to) persons who have already left
EvoMarkets or persons who have not yet been hired by EvoMarkets makes little sense and does
not protect any legitimate interest of EvoMarkets.
F.Undertaking
CPLR 6312 requires that, prior to the granting of a preliminary injunction, the plaintiff shall be required to give an undertaking, in an amount to be fixed by the Court, for all damages and costs that may be sustained by reason of the injunction. The only exception to the requirement that an undertaking be posted is found in CPLR [*24]2512 which exempts the state, municipal corporations or public officers on behalf of such governmental entities from the requirement that an undertaking be posted. The Appellate Division, Second Department has consistently held that, given the clear and unequivocal mandate of CPLR 6312, there is no authority which permits the court to grant an injunction to a private party without requiring the giving of an undertaking (see, e.g., Ying Fung Moy v Hohi Umeki, 10 AD3d 604 [2d Dept 2004]; Livas v Mitzner, 303 AD2d 381 [2d Dept 2003]; Schwartz v Gruber, 261 AD2d 526 [2d Dept 1999]; Carter v Konstantatos, 156 AD2d 632 [2d Dept 1989]; Litwa v Litwa, 89 AD2d 581 [2d Dept 1982]; Smith v Boxer, 45 AD2d 1054 [2d Dept 1974]).
The purpose of an undertaking is to provide a "ready source from which the defendant may recover for damages" sustained by reason of a preliminary injunction that is later found to have been improperly granted (Margolies v Encounter, Inc., 42 NY2d 475, 479 [1977]). The amount of an undertaking must be rationally related to the amount of potential damages that Penny might sustain (see, e.g., Ujueta v. Euro-Quest Corp., 29 AD3d 895 [2d Dept 2006]); Blueberries Gourmet, Inc. v Aris Realty Corp., 255 AD2d 348 [2d Dept 1998]).
Penny's potential damages, from being prevented from working for ICAP, would be
measured by the difference between what she is being paid by EvoMarkets and what she would
have been paid by ICAP, the extent to which Penny has paid for benefits (such as health
insurance) measured against the extent to which such benefits would have been paid by ICAP,
and any related out-of-pocket items (such as health care deductibles that would have been paid
under ICAP's health plan but were paid in full by Penny or only partly covered by a substitute
plan secured by Penny). The differential in base salary over a six month period would be
$15,000. Because she also potentially may be damaged by loss of a discretionary bonus, and may
sustain other damages by reason of the non-solicitation aspects of the preliminary injunction, the
Court will require EvoMarkets to give an undertaking in the total sum of $100,000.
G.Prompt Trial
The Court has provided for discovery to be completed by August 27, 2009 and for a
Pre-Trial Conference on August 28, 2009 at which time a trial date will be established. Given the
other cases on the Court's calendar, the Court is concerned that, by August 28, 2009, it may not
be able to reach this case for trial until October, at the soonest. The Court, while mindful of the
parties' rights to pursue legitimate discovery, is willing to explore with counsel the prospect of
expediting the existing schedule such that the case can be tried in July or August, i.e.,
before the expiration of Penny's obligation not to work for ICAP. Toward that end, the Court
herewith schedules a status conference for June 5, 2009 at 9:30 a.m.
[*25]CONCLUSION
The Court has considered the following papers: (1) Order to Show Cause dated April 15, 2009; Emergency Affirmation of David B. Wechsler, Esq. in Support of Plaintiff's Application for Injunctive Relief dated April 15, 2009; Affidavit of Michael Goldenberg, sworn to April 15, 2009; Affidavit of Andrew O. Ertel, sworn to April 15, 2009, and the exhibits annexed thereto, submitted with proof of due service;(2) Plaintiff's Memorandum of Law in Support of Plaintiff's Application for a Temporary Restraining Order and Preliminary Injunction, submitted with proof of due service;(3) Affirmation in Opposition of Gary Trachten, Esq. dated April 30, 2009 and the exhibits annexed thereto; Affidavit of Alexandra Penny, sworn to April 30, 2009, and the exhibits annexed thereto, submitted with proof of due service;(4) Defendants' Memorandum of Law in Opposition dated April 30, 2009, submitted with proof of due service;
Based upon the foregoing papers, and for the reasons stated, it is hereby
ORDERED that the motion for preliminary injunctive relief by Plaintiff Evolution Markets Inc. is granted as against Defendant Alexandra Penny to the extent hereinafter indicated and is otherwise denied; and it is further
ORDERED that Defendant Alexandra Penny is enjoined and restrained, pending the entry of a final judgment in this action or until August 25, 2009, whichever shall first occur, from serving as a principal, partner, officer, owner, stockholder, employee, consultant, advisor, guarantor or lender to Defendant ICAP Capital Markets, LLC. or any other business that provides the same or similar services as any services provided by Plaintiff Evolution Markets, Inc, provided that, as condition of the foregoing, Plaintiff Evolution Markets, Inc. shall pay to Defendant Alexandra Penny the base pay fixed under the Employment Agreement dated May 8, 2008 until the entry of a final judgment in this action or until August 25, 2009, whichever shall first occur; and it is further
ORDERED that Defendant Alexandra Penny is enjoined and restrained, pending the entry of a final judgment in this action, from using, or disclosing to any other person (except her own attorneys of record herein), any confidential information of Plaintiff Evolution Markets, Inc.; and it is further [*26]
ORDERED that Defendant Alexandra Penny is enjoined and restrained, pending the entry of a final judgment in this action or until November 25, 2009, whichever shall first occur, from soliciting business or having any direct or indirect business dealings or communications with any client of Plaintiff Evolution Markets, Inc.; and it is further
ORDERED that Defendant Alexandra Penny is enjoined and restrained, pending the entry of a final judgment in this action or until November 5, 2009, whichever shall first occur, from hiring any person who is an employee of Plaintiff Evolution Markets, Inc., from encouraging any person who is an employee of Plaintiff Evolution Markets, Inc. to resign such employment (irrespective of the reason for such resignation); and from making any negative statements regarding Plaintiff Evolution Markets, Inc. to any of its employees; and it is further
ORDERED that Plaintiff Evolution Markets, Inc. shall give an undertaking in the sum of $100,000 conditioned that Plaintiff, if it is finally determined that it was not entitled to an injunction, will pay to Defendant Alexandra Penny all damages and costs which may be sustained by reason of this injunction; and it is further
ORDERED that if the undertaking provided for in the preceding decretal paragraph is not filed with the Clerk of the Court (courtesy copy to Chambers ) by May 29, 2009, then Defendant Alexandra Penny may submit to this Court, on (1) day's notice to counsel for Plaintiff, an order vacating forthwith all injunctive relief hereinbefore or hereinabove granted; and it is further
ORDERED that counsel for all parties shall appear before this Court for a status conference on June 5, 2009, which date may not be adjourned without the advance written approval of this Court.
The foregoing constitutes the Decision and Order of this Court.
Dated: White Plains, New York
May __, 2009
E N T E R :
________________________________
Alan D. Scheinkman
Justice of the Supreme Court
APPEARANCES:
Wechsler & Cohen LLP
By: David B. Wechsler, Esq.
Attorneys for Plaintiff Evolution Markets Inc.
17 State Street - 15th Floor
New York, New York 10004
Kudman Trachten Aloe LLP
By: Gary Trachten, Esq.
Attorneys for Defendant Alexandra Penny
350 Fifth Avenue, Suite 4400
New York, New York 10118
Footnotes
Footnote 1:EvoMarkets does not seek relief
as against ICAP, Penny's new employer, and ICAP has not submitted any opposition to the
motion.
Footnote 2:Kelly, perhaps after the federal
court heard oral argument, had his attorney, by letter dated February 20, 2009, deny any effort to
solicit any EvoMarkets employees for ICAP employment, though acknowledging that Kelly was
"interested in working with a former employee of EvoMarkets" (Ertel Aff., Ex. B at 15 n.10). In
the January 29, 2009 constructive termination letter, the same attorney wrote EvoMarkets and its
counsel that Kelly did not "encourage" Penny to leave EvoMarkets (Trachten Aff., Ex. A).
However, it seems apparent that the "former" EvoMarkets employee Kelly was interested in
working with Penny.
Footnote 3:Counsel for EvoMarkets and
ICAP readily agreed to expedition. Counsel for Penny, however, refused to state a postion,
asserting that his view was that the amount of time needed to complete discovery would depend
upon the outcome of the motion. The Court viewed, and still views, this position as indicating
that, in the event the motion were to be denied, counsel for Penny would look to prolong
discovery. Clearly, as will be discussed further infra, a prolonged delay would prejudice
EvoMarkets significantly as, if no preliminary injunctive relief is granted, the last of the
restrictive covenants would expire by its own terms in May 2010 and another covenant would
expire in November 2009, and, thus, if the case is not tried and decided by then, any ultimate
victory by EvoMarkets would be entirely pyrrhic.
Footnote 4:This statement appears to be
erroneous in that it seems that Kelly had joined ICAP already.
Footnote 5:Plaintiff also relies on
Maltby v Harlow Meyer Savage, Inc. 166 Misc 2d 481, affd 223 AD2d 525 [1st
Dept 1996], lv dismissed 88 NY2d 874 [1996]).
Footnote 6:The statute does not apply to any
bona fide executive, administrative or professional workers who earn more than $900 per week
(Labor Law, §190 [subd. 7]). That weekly rate translates to $46,800 per annum or $1,800
more than Penny's stated $45,000 annual compensation. Failure to comply with the statutory
provisions regarding rate of pay renders an employer liable to a $500 per violation civil penalty
to be imposed by the Commission of Labor (Labor Law, §197). In addition, an aggrieved
worker may recover judgment for any unpaid wages, attorneys' fees, and, if the violation was
wilful, liquidated damages of 25% of the amount found to be due (Labor Law, §198).
Footnote 7:The Court notes that this
happens to be in the same time-frame that Kelly was discharged.
Footnote 8:It is unclear whether Penny's
reference to "third parties" was intended to include Kelly or exclude Kelly.
Footnote 9:While it is true that Plaintiff
questions Penny's expertise in its papers, that is because Plaintiff asserts that Penny's assertions
as to her concerns regarding pricing policies are not well founded and, in reality, what Plaintiff is
really saying is that Penny's concerns were concocted in order to create a pretext for her
departure and her evasion of the restrictive covenants.
Footnote 10:In this regard, Penny posits
the following question: "Will the restraints be helpful or damaging to the public, i.e., the
buyers and sellers of uranium and the consumers who buy products and services the prices of
which are informed by the price of uranium" (Penny Mem. of Law in Opp. at 10).
Footnote 11:It is Penny's position that
Plaintiff delayed bringing this application for nearly seven weeks since it clearly knew as early
as February 25, 2009 that Penny was going to be joining ICAP since Plaintiff's lawyer said as
much in a letter to Judge Robinson on that date where he states that " all reasonable inferences
are that [Penny] intends to join Mr. Kelly as his new employer ...'" (Penny Mem. of Law at 25,
quoting Trachten Aff., Ex. H).
Footnote 12:This Court is bound to
follow the decisions of the United States Supreme Court, the New York Court of Appeals, and
Appellate Division, Second Department, and, to the extent there is no binding precedent from
those Courts, the decisions of the Appellate Divisions of other departments (Mountain View
Coach Lines, Inc. v Storms, 102 AD2d 663, 664 [2d Dept 1984]). A federal decision on a
matter of state law is not binding on the state court in the absence of a federal constitutional
question (Harnett v New York City Tr. Auth., 200 AD2d 27 [2d Dept 1994] [Rosenblatt,
J.]), affd 86 NY2d 438 [1995]).
Footnote 13:While Penny contends that
she is currently being injured by Plaintiff's not providing her with medical coverage, she fails to
explain why she is unable to provide such medical insurance on her own through COBRA or a
like program, particularly since the gap in coverage would be for only a short time.
Footnote 14:In the event that either of
these assumptions proves to be incorrect, EvoMarkets may apply for modification of the terms of
the preliminary injunction granted herein.
Footnote 15:On the other hand, because
Penny cannot solicit any actual EvoMarket clients until November 25, 2009, there will be a few
months when Penny cannot solicit EvoMarket clients but Kelly can. This situation is not unfair,
and serves a useful purpose, because Penny stayed at EvoMarkets for a longer period and
therefore had client exposure for a longer period of time.
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