Misys Intl. Banking Sys., Inc. v TwoFour Sys., LLC

[*1] Misys Intl. Banking Sys., Inc. v TwoFour Sys., LLC 2004 NY Slip Op 51721(U) Decided on November 23, 2004 Supreme Court, New York County Fried, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 November 23, 2004
Supreme Court, New York County

Misys International Banking Systems, Inc., Plaintiff,

against

TwoFour Systems, LLC, F-O-R SOFTWARE, LLC, DAVID ACCOLLA, STEVEN DAVIS, DAVID KAMP, CINDY REMIN, ANGELO RICCIO and MICHAEL SMITH, , Defendants.



650101/2004

Bernard J. Fried, J.

By way of an Order to Show Cause, Plaintiff, Misys International Banking Systems, Inc. ("Misys"), seeks a Preliminary Injunction against defendants TwoFour Systems, LLC ("TwoFour") the developer of a software product, and its consulting affiliate F-O-R Software ("F-O-R"), together with individual defendants, Steven Davis and David Kamp ("seller defendants), and David Accolla, Cindy Remin, Angelo Riccio, and Michael Smith ("employee defendants"). An evidentiary hearing was held on this application in September at which it was agreed that the various documents submitted were to be received into evidence. Post-hearing briefs have been filed, and oral argument was held in October.

Misys is a division of Misys Plc, which markets and services a proprietary international banking software product known as "OPICS", currently used by approximately 130 banking institutions world-wide. In approximately 1993, OPICS was created by The Frustum Group ("Frustum"). By means of a 1996 Stock Purchase Agreement, Charlotte, Inc., a subsidiary of Misys Plc, acquired the shares and assets of Frustum, which included an express transfer of "goodwill"[FN1]. An attachment to the Agreement (Schedule 2.22[a]) explicitly listed the ten largest Frustum customers. Steven Davis and Kamp, at the time of the sale were among the stockholders in Frustum, and their interests combined, totaled less than 5% (3.7% & 0.9% respectively); from the sale Steven Davis received $1,706,422 and Kamp received $426, 605. Together with Christopher Davis (Steven Davis' brother), they had been involved in the actual development of OPICS. [*2]Frustum remained a wholly owned subsidiary of Misys Plc until 2000, when it was consolidated under a new Misys Plc entity, plaintiff Misys International Banking Systems, Inc.

As an "inducement" to this sale, Steven Davis and Kamp entered into "Employment and Non-Competition Agreements" (dated November 11, 1996) with Frustum, which contained restrictive covenants prohibiting competition [FN2] and solicitation of customers [FN3] and of employees [FN4], effective for two years after termination of employment with Frustum. These Agreements were amended on November 26, 1996 and further amended on December 13, 1996. Each of the agreements and amendments were guaranteed by Misys Plc. Following the sale, both Steven Davis and Kamp, the "seller defendants", became Misys employees. As Steven Davis testified, he considered himself bound by the restrictive covenants for a period of two years after he left Misys, even though he believed them to be "unenforceable". Although Kamp did not testify, it was conceded that he was under similar restrictions and that he, too, "honored the terms of the restrictive covenants, despite believing them to be unenforceable."

In September 2000, F-O-R was established as a financial services company, to provide consulting services, including servicing the OPICS system and other software products, to banks [*3]and financial institutions. By September 2004, OPICS-related work, the subject of this lawsuit, amounted to approximately 5% of F-O-R's business. In June 2002, TwoFour was formed by its then three owners, Christopher Davis, John Feeny and F-O-R, to develop a software product for the international banking industry. Thereafter, in December 2002, the ownership of TwoFour expanded to include Steven Davis and David Kamp. In July 2004, TwoFour Holdings, LLC was formed as a holding company for TwoFour and F-O-R. Its owners included Christopher Davis, Steven Davis, Christopher Kamp, and four other individuals. Christopher Davis also remained as a Director of the Service Business at F-O-R.

Steven Davis remained at Misys until November 2, 2001, at which point he was in charge of a development team for E OPICS; Kamp remained at Misys until June 2002. Christopher Davis, who had been "one of the leading salespeople" at Misys, also resigned in June 2002. In December 2002, Steven Davis became CEO and one of the owners of TwoFour, which was then developing the new software product.

This product, introduced to the marketplace in June 2002, initially able to support foreign exchange and money market elements, had been "designed as a cross product solution where trading for operations can continue 24 by 7." Its purpose was to replace OPICS, which was considered obsolete by Christopher Davis, who compared the new product to OPICS, as a Ferrari would be compared to a Pinto, while Steven Davis used the analogy of a Ferrari to an "older Cadillac of 1990". However, Edward Ho, Chief Executive Officer since January 2004 of two divisions within Misys, one of which is OPICS, testified that although the TwoFour product was a different software system from OPICS, each had the same ultimate application. I am satisfied that the two products, while based upon different software, and having certain functional differences, are essentially competitive.

Of the remaining defendants: (1) Accolla was employed by Misys for approximately six years, resigning as a Development Manager on June 24, 2004, to join TwoFour ; (2) Remin was hired by Frustum as a business analyst in April 1995, and when she resigned on July 2, 2004, to join F-O-R as a sales executive, she had been employed by Misys as an Engagement Manager, responsible for clients in North and South America; (3) Riccio started at Frustum in January 1997 as a business analyst working on OPICS, leaving OPICS-related work in 2003 to join a group concerned with corporate solutions, where he was when he resigned on July 12, 2004 [FN5] to work for TwoFour; and (4) Smith began at Frustum in December 1995, resigning as Project Manager of the OPICS front office risk development team on June 24, 2004 to join TwoFour. All four of these individuals had executed a three page "Employee Confidentiality and Restrictive Covenant Agreement" with Frustum (Accolla on March 27,1995; Remin on April 24, 1995; Riccio on January 29, 1997, and Smith on December 4), which prohibited the disclosure of confidential [*4]information [FN6] acquired during their employment and contained non-compete and non-solicit prohibitions [FN7]. At the time of their respective resignations, each of these four defendants executed [*5]an "Employee Exit Acknowledgment"[FN8] which reminded them of their "continuing obligation" concerning confidential information.

Following their resignations, and subsequent employment by either TwoFour (Accolla, Riccio and Smith) or F-O-R (Remin) this lawsuit ensued, seeking the following relief: The First Cause of Action alleges that the seller defendants, Davis and Kamp breached their implied covenant not to solicit Misys clients, and seeks injunctive relief; the Second Cause of Action alleges that the employee defendants, Accolla, Remin, Riccio and Smith, together with TwoFour and F-O-R acting in concert, had breached their restrictive covenants, and an injunction is sought; the Third Cause of Action alleges that TwoFour and the seller defendants tortiously interfered with the plaintiff's contracts with Misys employees by causing the employee defendants to violate their restrictive covenants with Misys, and again injunctive relief is sought; the Fourth Cause of Action alleges that the defendants have tortiously interfered with Misys business relationships with its clients, and an injunction is sought; the Fifth Cause of Action seeks to enjoin the alleged misappropriation of trade secrets by the employee defendants (and the seller defendants) ; the Sixth Cause of Action alleges a breach of fiduciary duty by the employee defendants (and the seller defendants) and seeks to enjoin further breaches; and the Seventh Cause of Action alleges that all the defendants have [*6]engaged in unfair competition and an injunction is sought.

It is undisputed that Misys acquired the OPICS software business from the seller defendants, who were stockholders in Frustum, in a sale which also included the explicit transfer of all the "goodwill" and existing clients. After the sale was consummated, Steven Davis and Kamp (and Christopher Davis) went to work at Misys, and continued there for a number of years. Following employment with Misys, they became owners of TwoFour, which was formed to create a new software product which was being designed to be able to ultimately manage all the needs of an international wholesale banking client. While the current product is, as Christopher Davis testified, "ready to go"; it is ready only for limited applications and is yet not a fully rounded product. In other words, it cannot support all the applications which it is ultimately expected to do.

Thus, although launched into the marketplace in July 2004, the existing TwoFour software is not presently capable of managing all aspects of a clients' international banking business. Further development is necessary, is on-going and is being planned. This required the recruitment by TwoFour of additional employees as "developers, testers, business analysts". It also required the recruitment by F-O-R of additional employees as "business analysts, sales people, administrative [personnel]". An available pool of persons with such skills existed at Misys, persons known to have expertise in all aspects of OPICS. Christopher Davis acknowledged that he recruited Misys employees and that he was aware that each of the four employee defendants, who had been hired, had "signed the three page restrictive covenant".

After these employees were hired, Christopher Davis sought to determine if Misys was intending to enforce these covenants, because, as he testified "it had never happened before". It was his testimony, that when he left Misys in June 2002, he had been advised by an attorney that the covenants were unenforceable, that he told this to the employee defendants, and said that he would pay their legal fees, and make sure that they did not suffer any loss. Steven Davis also understood that the three former Misys employees hired by TwoFour were subject to the restrictive covenants, although he, too, testified that in 2002 he had been advised that these covenants were unenforceable, however he considered his own Agreement to be enforceable.

While it was claimed by Christopher Davis that Cindy Remin was not hired to "get Misys clients", it is undisputed that OPICS -related consulting work is one of the services offered, and indeed it is one of the services explicitly referred to in the F-O-R website. When Remin joined F-O-R she almost immediately contacted approximately 20 of her former Misys clients, one of which, Wells Fargo Bank, had been a client of Frustum, and listed in the 1996 Stock Purchase Agreement, "to advise them of her new contact information, to advise them what her new job entailed, and /or to describe the services F-O-R offered". It was her testimony that she "was not supposed to solicit OPICS work exclusively", however, she stated that it would be "rude not to let them know where I was". During these contacts she did not explain that she was prohibited from soliciting former OPICS clients or competing with Misys concerning these clients, although she certainly understood that F-O-R services included OPICS consulting services and expected that she would be selling services for OPICS to them, as one of the many systems on which F-O-R consulted. [*7]

Several emails, which were received into evidence, demonstrate that, contrary to her denial, Remin's contacting former Misys clients certainly was, in part, to solicit OPICS business: In a July 13th email to Bank Hapolin, a Misys client, she wrote, in part, that F-O-R supported existing applications, one of which she acknowledged was OPICS and that the purpose of the email was "potentially" to obtain its OPICS business. In an August 20th email to Bank Hapolin, after speaking to Christopher Davis, she offered to set up a meeting "to demo the TwoFour product"; and she had earlier written to Bank Hapolin that she was offering to sell services for "all products"- which she agreed included OPICS - including the TwoFour system when it came online. An August 6th email to Wells Fargo Bank, stated that associated with F-O-R were "senior people with years of OPICS knowledge", although she then wrote "please keep in mind that what F-O-R specializes in (besides OPICS) is system evaluations." The only reasonable reading of this email, is that she was seeking OPICS business, and indeed, as she testified in connection with this particular email, "[i]f it comes across my plate, I do not turn it away". Additionally, although Remin was an employee of F-O-R, and claimed that her contacts were done on behalf of F-O-R and not on behalf of TwoFour, allegedly a separate and distinct company, the evidence shows that she solicited business for both, i.e., in an email to Bank Hapoalim Remin wrote " I am interested not only in introducing Bank Hapoalim to TwoFour's product..." Moreover, both F-O-R and TwoFour have common ownership, common offices, and according to Christopher Davis, some of the owners work at both entities. There is no other conclusion to be drawn from these emails but that Remin, after her departure from Misys solicited OPICS business from Misys' existing clients, and directly engaged in competing with Misys.

Once employed at F-O-R, Remin acknowledged that she made a telephone call to recruit a Misys employee. She also prepared, at the request of Christopher Davis, a list of current and former Misys employees. Although she denied that one purpose of this list was to solicit current Misys employees, this is unconvincing in light of the testimony that three days after she submitted this list to both Christopher Davis and Stephen Fry (a former Misys employee employed at F-O-R since 2002) , she received an email from Fry asking her to call Matt Rosenfeld, a current employee named on the list, to "see if he would be interested in a BA [business analyst] position". This demonstrates that her conduct concerning employees of Misys violated the restrictive covenant.

As set forth in Remin's Professional Services Profile, during her employment at Misys she "worked closely with clients as an analyst, implementer, trainer, project manager, service delivery manager, and engagement manager". In these various capacities she came into possession of client information specifically provided to Misys. She also had Misys information relating to pricing strategies based upon a proprietary table "containing different prices for different functions", and while not obtained at the end of her tenure, she also had information concerning the functional design of OPICS. Although Remin testified that all of the information which Misys claimed to be confidential was "freely" shared on job sites with non-Misys employees, she later conceded that "some of the information [Misys claimed to be] particularly confidential" was indeed confidential. To me, there is no doubt that Remin, as a Misys employee, through her employment, properly and necessarily, obtained confidential and proprietary information of Misys. [*8]

In addition to F-O-R hiring Remin in July 2004, TwoFour hired Accolla and Smith in June 2004 and Riccio in July 2004. While at Misys, Accolla was responsible for managing programmers and business analysts. His primary responsibility as development manager at Misys, was to "develop new software, maintain existing code, [and] support [Misys'] clients." Accolla acknowledged that he knew that when he left Misys to join TwoFour, it was "marketing a competing software product", although he believed that his restrictive covenant was unenforceable. At Two Four his new duties included managing the automated testing team and testing the stability of TwoFour's software product. While he denied using any Misys "confidential information" at TwoFour, Christopher Davis agreed that TwoFour had hired "three people", i.e., Accolla, Riccio and Smith, as "functional people who know most of the people from Misys who know OPICS design information to help in the designing of TwoFour System". Clearly, it was Accolla's expertise in OPICS, and his possession of confidential and proprietary information, that caused his recruitment and employment by TwoFour. And it is evident that it was for similar reasons that TwoFour employed Riccio and Smith as technical employees: Smith, who had over 9 years of technical experience with OPICS at Misys, culminating in his heading up the OPICS front office risk development team, was hired by TwoFour to help design testing scenarios concerning the new software product, dealing with functional requirements. Riccio had been a senior business analyst at Misys, with over 7 years technical experience with OPICS. At TwoFour he assumed duties similar to those of Smith. Both Smith and Riccio acknowledged that they had signed the restrictive covenant agreement; however, each believed it was unenforceable.

In addition to the hiring of Remin, Accolla, Riccio and Smith, F-O-R has also been seeking to recruit additional Misys employees. As Christopher Davis testified, "Misys people were definitely part of a resource people", and as a part of this recruitment effort, he was concerned whether Misys would seek to enforce the restrictive covenants, which all Misys employees had signed. As earlier discussed, Remin was asked by a F-O-R employee to contact a current Misys employee, Matt Rosenfeld, in a recruitment effort. Additionally, a current F-O-R employee spends up to one hour daily searching the Internet for, among others, resumes of Misys employees, which are then put on F-O-R letterhead and sent on to clients who are looking for such persons, or as Christopher Davis put it: "resources". Two examples of F-O-R sending out such resumes, of current Misys employees, under F-O-R letterhead were received into evidence. These resumes, however, did indicate that the persons were currently employed at Misys, and did not represent them as F-O-R employees.

According to Shayze Moses, Misys' Manager of Professional Services for the Americas, Banco Santander, a longtime client of Misys, has terminated a consulting assignment, resulting in the loss of approximately $1,000 per day in revenue. Banco Santander was originally a client of Frustum, and expressly listed in the Agreement. Shayze also referred to additional solicitations of current Misys clients, requiring the reduction of consulting rates, and the loss of other consulting contracts.

Having made the above findings of fact, I turn to the applicable principles of law, in order to determine whether the relief sought by the plaintiff is warranted, and if so, the scope of such relief. Preliminarily, I note that to be entitled to a preliminary injunction, the moving party has the burden [*9]to demonstrate: "(1) likelihood of success on the merits; (2) irreparable injury if provisional relief is not granted; and (3) that the equities are in [its] favor" (e.g., Preston Corp v. Fabrication Enter., 68 NY2d 397, 406 [1986]). Also, of course, there must not be an adequate remedy at law (see Siegel, New York Practice, Practitioner Treatise Series [3rd ed.], p. 500). I am satisfied that the plaintiff has met its burden of establishing that it is likely to succeed on the merits with its claims that the seller defendants have violated the implied covenant prohibiting them from soliciting their former customers, that the employee defendants are breaching their restrictive covenants, and that TwoFour and F-O-R has tortiously interfered with the Misys' contracts with the employee defendants. Therefore, at this juncture, it is unnecessary to consider the plaintiffs remaining claims, which will be determined at trial of this action. Since I also conclude that there will be irreparable injury if the complained-of-conduct is not preliminarily enjoined, that the equities are in its favor, and that there is no adequate remedy at law, a preliminary injunction will issue, in accordance with this decision.

Seller Defendants (Steven Davis and David Kamp)

Turning first to the claim that the Steven Davis and Davis Kamp, the seller defendants, have violated the implied covenant of a seller to refrain from impairing the "good will" which was transferred to the purchaser, a principle articulated in New York in Mohawk Maint. Co. v. Kessler, 52 NY2d 276 (1981) and restated in Hyde Park Products Corporation v. Maximilian Lerner Corp., 65 NY2d 316 (1985), which requires the seller of a business, who has also transferred the good will, "to refrain from soliciting former customers, irrespective of whether there is a contractual restrictive covenant". "This duty is not subject to a test of reasonableness and is indefinite in duration" (Aloni v. Unigital Inc., N.Y.L.J., 2/24/ 2000, p. 30, col. 3 (Sup. Ct., NY Cty. [Cahn, J.]). Notably, the sale by Frustum expressly included the "good will", unlike Mohawk where it was implied.

The defendants do not dispute that the Stock Purchase Agreement expressly included such "good will", but argue that because at the time of the sale, contemporaneous employment agreements were negotiated, which contained a two year non-competition covenant (¶ 6[a]), and a two year non-solicitation covenant (¶ 6 [f]), that these narrower restrictions, in effect trump the implied covenant, citing MGM Court Reporting Serv., Inc., v. Greenberg, 74 NY2d 691 (1989) and Titus & Donnelly, Inc. v. Poto, 205 AD2d 475 (1st Dept., 1994). In response, quoting from MGM, that the implied restriction against impairing good will is only "inapplicable where the parties specifically negotiate and expressly agree to impose a less onerous restriction", plaintiff argues that since Steven Davis (and presumably David Kamp, who did not testify) admitted that he was unaware of the common law obligation when he signed the employment agreement containing the limited restrictions, the MGM requirements have not been met, and therefore the broader common law prohibition remains enforceable. Moreover, neither in MGM, which involved a corporate dissolution, nor in Titus was there an express transfer of "good will". Emphasizing the point, in Titus, the Appellate Division stated that the trial justice, the Hon. Herman Cahn, "properly observed that the sale of plaintiff's business, did not as Mohawk ...include any customer good will". It then affirmed a denial of a request to enforce the implied covenant, due to the "specifically negotiated" lesser restriction. While the subsequent decision in the First Department case of Mitel [*10]Telecommunications Systems v. Napolitano, 226 AD2d 165 (1st Dept. 1996), where a limited non-solicitation covenant was held to bar a preliminary injunction, does not mention whether there was an express transfer of good will, examination of the Plaintiff- Appellant's Brief in the Appellate Division makes clear that the sale did not include an express transfer of good will. Significantly, then these cases did not involve the express sale of the company's good will, and since there were negotiated narrower restrictions, as MGM put it, "a more general limitation may not be implied". To the contrary, because the sale by Frustum expressly included the transfer of good will, I do not believe that the "mere existence of a restrictive covenant, executed in connection with the sale of a business, eviscerates the implied duty of non-solicitation" absent the showing required by the MGM decision (contra Paton, "Express Non-Solicitation Agreements May Limit Common Law Restrictions, N.Y.L.J., 6/19/2003, p. 4, col. 4).

Therefore the common law protection afforded to plaintiff, the successor to the purchaser of OPICS and OPICS customers is not lost, there is no adequate remedy at law, and as a result, pending the trial on this complaint, it is entitled to be assured that the seller defendants do not continue to actively solicit the clients it purchased from Frustum.

It is also evident that TwoFour, owned by the seller-defendants Steven Davis and David Kamp, through its consulting affiliate F-O-R, is directly soliciting clients purchased from Frustum by offering a functionally similar product, designed for the same purpose, which is to support the variety of transactions performed by international banks and banking institutions, and to provide consulting services for OPICS. Indeed to paraphrase the metaphors used by Christopher and Steven Davis, in trying to distinguish the two products, whether a Pinto, Cadillac or Ferrari, each is an automobile. However, it is not the competition that is proscribed under the Mohawk case, but the solicitation of former customers, since the implied duty is as to non-solicitation and not non-competition. The former prevents "the covert recapture by the seller of that which he has already sold" (Hyde Park Corp. supra at 320), while the latter, absent an express restrictive covenant, is "one of the risks the purchaser must assume when he acquires an established business" (Mohawk supra at 285).

Employee Defendants (David Accolla, Cindy Remin, Angelo Riccio and Michael Smith)

Misys contends that the evidence amply shows that after joining F-O-R, Remin actively solicited "OPICS consulting services" from Misys clients, and that she used confidential information. Regarding Accolla, plaintiff argues that the evidence proved that he possesses confidential business and technical information which is subject to the protection of the covenants, and that in working on the TwoFour software product, he is working for a direct competitor of Misys. Similarly, as to Riccio and Smith, the argument is that the proof demonstrated that, as former "highly skilled development experts who were instrumental in building Misys' OPICS software, they are presently utilizing confidential information in working at TwoFour, a competitor, in assisting in the developing its competitive software product. [*11]

The employee defendants respond that the restrictive covenants, i.e., restricting them from soliciting Misys clients, from working in a business competitive with Misys, from affecting to Misys' detriment its relations with current employees, and from disclosing confidential and trade secret information, are unenforceable for several reasons: they are unreasonable as to time and area; and they are more restrictive than needed to protect plaintiff's legitimate interests because Misys may not prevent fair competition, which is what the employee defendants argue is all that was established, and because there has been no showing that they had trade secrets or confidential information. Finally, they claim since there has been no showing that there have been trade secrets or confidential information involved, there must be a showing that the employees services are unique or extraordinary, which they contend has not been shown.[FN9]

With regard to the issue of time, the covenants provide for an 18 month period, which is urged to be excessively long "in a fast moving computer industry" citing Earthweb, Inc., v. Schlack, 71 F. Supp. 2d 299 (S.D.NY, 1999), affd. 2000WL 1093320 (2d Cir., 2000) and Doubleclick, Inc. v. Henderson, 1997 WL 731413 (Sup. Ct., NY Cty., 1997), cases which held that rapid changes in the internet advertising industry (Doubleclick- one year restriction) and in the provision of online products and services to professionals in the information technology industry (Earthweb - one year restriction). Certainly as a matter of law, an 18 month restrictive covenant cannot be said to be unreasonable in light of BDO Seidman v. Hirshberg, 93 NY2d 382 (1999), which sustained the enforcement of a provision of similar duration. Rather, the time restriction must be looked at in the context of the peculiar factual setting in which it is sought to be enforced. Here, the evidence established that OPICS is still in widespread usage. Indeed, 5% of F-O-R's present consulting business concerns the servicing of OPICS, and as Remin acknowledged, she is "more than willing to provide F-O-R system service for Opics applications". While it is the defense claim that OPICS is obsolete, this software is an application which is currently in use in the international banking industry, and the on-going solicitation of OPICS business belies the defense claim of present obsolescence, or that OPICS will soon be obsolete. This, however, does not end the analysis as to the reasonableness of the 18 month period. At the hearing Edward Ho, CEO of the OPICS Division, within Misys, testified that his employment agreement contained a 12 month restrictive covenant. Upon further examination, he could not provide any explanation for a greater restriction with regard to the employee defendants. Thus, while an 18 month restriction would not be per se unreasonable, as claimed by the defendants, under the circumstances here, where Misys saw fit to limit the CEO's covenant to 12 months, and there has been no explanation for a longer period regarding the [*12]employees, there is no principled basis to enforce the longer period. Rather, the time restriction will be blue penciled from 18 to 12 months.

With regard to the geographical scope of the covenants, it is claimed that since the covenants "would restrict competition anywhere in the world", it is does not protect the legitimate interests of Misys. Unquestionably, a restrictive covenant must be geographically reasonable, otherwise it is unenforceable. However, under circumstances involving a worldwide business, "a covenant with no geographical limitation" may be enforceable (e.g., Business Intelligence Services, Inc., v. Hudson, 580 F. Supp. 1068, 1073 (S.D.NY, 1984). The determination of reasonableness requires that the geographic scope be analyzed in light of the evidence adduced during the preliminary injunction hearing, which here established the international nature of the Misys' business, involving clients in the United States, England, South America and Israel. In light of this evidence, while the restrictive covenant ultimately may properly reach a world-wide prohibition, a decision that will await further discovery and trial, at this point it is not inappropriate for me to "cure" this overbreath (see BDO Seidman, supra at 394), by blue penciling the covenant for the purposes of the preliminary injunction and reducing the geographic scope to the United States, South America, England and Israel.

Regarding the solicitation of current Misys employees, the evidence demonstrated that Remin has assisted F-O-R in seeking to recruit Misys employees, conduct that not only appears to have violated her own restrictive covenant, but was a part of the broader effort by TwoFour and F-O-R to tortiously interfere with the contractual relationships between Misys and its employees. This is further discussed below.

Misys also claims that the employee defendants have misappropriated confidential information and trade secrets. As indicated above, there is no doubt that the employee defendants are in possession of confidential Misys information. Remin had access to information concerning Misys' proprietary OPICS product, which included market information, pricing or consulting rates, and other confidential information and trade secrets. While some information may have also been, to a limited extend, available to clients and outside consultants, there were mutual confidentiality agreements to preserve the confidentiality. Indeed, as Remin testified, Misys did not share "all" its confidential information. Thus there is no doubt that she had access to highly sensitive information not known to persons outside Misys, which would be of significant value to a competitor. This leads to the ineluctable conclusion, that in her new responsibilities at F-O-R, in soliciting OPICS business, notwithstanding her good intentions, she will inevitably use such information, since as Lumex Inc. v. Highsmith, 919 F.Supp 624,631 (E.D.NY 1996), aptly put it, she "cannot eradicate these secrets from [her] mind".

Similarly, Accolla, Riccio and Smith, were clearly hired by TwoFour because of their intimate familiarity with OPICS, its development, functionality, and application, all of which involved confidential information. Indeed, after his resignation, Smith was discovered to have several Misys documents at his home, one labeled "confidential" concerning Business Functional Requirements Specifications. Whether or not this was inadvertent, and he may have had the documents for some time, is besides the point. These documents as described by Michael Saich, [*13]Misys' Operations Director, included a design document for "a new development we are about to embark on", containing confidential information which could provide a "template" to a competitor; and a document containing functional specifications and a business functional plan.[FN10] These materials certainly buttresses the plaintiff's claim that Smith possesses confidential OPICS information. The absence of proof that these employees, in their work assisting in the development of TwoFour's product that there has been actual disclosure, is not sufficient to deny injunctive relief under circumstances where it is obvious, as here, that the "second employer's work is sufficiently similar to that of the first employer to make likely the risk of disclosure by the employment in the course of his subsequent employment" (Continental Group, Inc. V. Kinsley, 422F.Supp 838 [D.Conn., 1976]; see also, Minnesota Mining & Mfg.. Co. v. Francavilla, 191 F.Supp2d 270 [D. Conn., 2002]).

TwoFour and F-O-R

Based on the clear and convincing evidence, it is apparent that TwoFour and F-O-R, individually, and acting together through common ownership, have sought to tortiously interfere with the contracts entered into between Misys and its employees. Christopher Davis, an owner of TwoFour Holdings, LLC., of which TwoFour and F-O-R are subsidiaries, and also an owner of TwoFour and an employee of F-O-R, has intentionally recruited Misys employees in knowing violation of their restrictive covenants. As to this the evidence is overwhelming. Moreover, F-O-R has intentionally interfered with Misys' business relations with its clients, at the very least, by permitting Remin, in violation of her restrictive covenant, to solicit former Misys clients.

Conclusion

Will this conduct, if not enjoined, result in irreparable injury?

(a) With regard to the breach of the implied covenant of good will, injury is presumed without the necessity of proof of specific loss (e.g. Lund v. Agmata Washington Enterprises, Inc., 190 AD2d 577 [1st Dept., 1993]) or more specifically, the actual loss of customers (Hay Group, Inc. v. Nadel, 170 AD2d 398, 399 [1st Dept., 1991]). Since this injury is impossible to quantify, the necessary showing of irreparable damage to the plaintiffs has been made out.

(b) With regard to the conduct of the employee defendants, Remin has been actively soliciting former Misys clients, participating in the solicitation of Misys employees, and absent a restraint upon this activity, plaintiff "would likely to sustain a loss of business impossible, or very difficult to quantify" (Willis of New York, Inc. v. DeFelice, 299 AD2d 240 [1st Dept., 2002]). And [*14]regarding employee defendants Accolla, Riccio and Smith, they are actively engaged in assisting in the development of the TwoFour product, a product which is designed to directly compete with OPICS, and they are using, or will inadvertently use confidential information obtained during their employment with the plaintiff. The injury here too, is impossible to quantify, and thus irreparable. Moreover, for these reasons, there is also no adequate remedy at law.

In whose favor do the equities weigh?

(a) The seller defendants appear to be actively soliciting former clients or customers of Frustum. It is argued that because Misys is a "nationwide" business to allow TwoFour and F-O-R to continue to do business would have little effect on plaintiff, while it "would effectively put defendants out of business." This argument is unpersuasive to me, since it was established that only 5% of F-O-R's business involves OPICS, and TwoFour can continue to develop its new product and market it. It just may not market it to the customers sold to Frustum.

(b) As to the employee defendants, Christopher Davis has testified that he would make sure that they did not suffer any loss. Thus, their economic interests will be protected during the pendency of the preliminary injunction, pending the outcome of the trial.

Finally, CPLR 6312(b) requires that "prior to the granting of a preliminary injunction, the plaintiff shall give an undertaking in amount to be fixed by the court." While there was no discussion as to the appropriate amount of a bond, in the event that the requested preliminary injunction was granted, I believe that an undertaking in the amount of Seven Hundred and Fifty Thousand ($750,000) Dollars is appropriate. Therefore, prior to my signing the Preliminary Injunction, Misys will be required to submit a bond in that amount, on the condition that "if it is finally determined that [Misys] was not entitled to an injunction, [it] will pay to the defendant[s] all damages and costs which may be sustained by reason of the injunction."

Accordingly, the Preliminary Injunction will issue in a separate Order, upon the submission of the specified undertaking with the Clerk of the Court and pending final disposition of this action, as follows: 1. Defendants, Accolla, Remin, Riccio and Smith are enjoined from using or disclosing for any purpose any Misys trade secret or confidential information, including (a) information about Misys' pricing, consulting rates, and business plans or strategies; (b) confidential information about Misys clients which Accolla, Remin, Riccio and Smith acquired during the course of his or her employment with Misys, such as information about OPICS consulting services provided to, OPICS modules utilized by, or OPICS product enhancements made for such clients; (c) information about how OPICS is designed, how it functions, and how it is enhanced to meet clients' individual needs. This prohibition will not exceed 12 months from the date of their respective resignations from Misys.[*15]2. Defendants TwoFour and F-O-R are enjoined from hiring or entering into any other business affiliation with any person who is bound by an Employee Confidentiality and Restrictive Covenant Agreement with Misys.3. Defendant Remin is enjoined from soliciting to provide or providing OPICS consulting services to any Misys client with whom she dealt on behalf of Misys prior to her departure from Misys. This prohibition will not exceed 12 months from the date of her resignation from Misys.4. Defendants Accolla, Riccio and Smith are enjoined from working on the development of the TwoFour software product. This prohibition will not exceed 12 months from the date of their resignations from Misys5. Defendants Davis and Kamp, including TwoFour and F-O-R, are enjoined from soliciting to provide or providing OPICS consulting services or the TwoFour software product to any Misys client which was an OPICS client when Misys acquired the OPICS business in November 1996.

IT IS FURTHER ORDERED that Defendants are required to file with the Court and serve upon Misys' counsel, on or before December 23, 2004, a report, in writing under oath, setting forth in detail the manner and form in which Defendants have complied with the requirements of this Preliminary Injunction Order.

_______________________

Justice Bernard J. Fried

Dated: New York, New York

November 23, 2004 Footnotes

Footnote 1:Paragraph 4.1 required that Frustum's "goodwill and ongoing business shall be in all material aspects unimpaired at the Closing."

Footnote 2:A. Noncompetition. During the Employment Period and the two year period following any termination of Executive's employment with the Company (such periods of collectively, the "Restriction Period"), Executive shall not become associated with any entity, whether as a principal, partner, employee, consultant or shareholder (other than as a holder of not in excess of 1% of the outstanding voting shares of any publicly traded company), that is actively engaged in any geographic area in which the Company or any of its subsidiaries conducts or plans to conduct business in any business which is in competition with the business of the Company.

Footnote 3: F. Non-Solicitation of Customers. During the Restriction Period, Executive shall not, directly or indirectly, solicit or otherwise attempt to establish for himself or any other person, firm or entity any business relationship of a nature that is competitive with the business or relationship of the Company or any of its subsidiaries with any person, firm or corporation which during the twelve-month period preceding the date his employment with the Company and its subsidiaries terminates was a customer, client or distributor of the Company or its subsidiaries, other than any such solicitation on behalf of the Company during Executive's employment hereunder during the Employment Period.

Footnote 4:E. Non-Solicitation of Employees. During the Restriction Period, except in connection with the performance of Executive's duties hereunder during the Employment Period, Executive shall not directly or indirectly induce any employee of the Company or any of its subsidiaries to terminate employment with such entity, and shall not directly or indirectly, either individually or as owner, agent, employee, consultant or otherwise, employ or offer employment to any person who is or was employed by the Company or a subsidiary thereof unless such person shall have ceased to be employed by such entity for a period of at least 6 months

Footnote 5:The complaint alleges that Riccio left on June 25th, although he dated his Misys exit interview form, July 12th.

Footnote 6:Paragraph 1 ("Confidential Information") provides: A. Employee acknowledges that the Corporation owns, possesses or controls trade secrets, proprietary information, computer programs, codes, systems, ideas, methods of operation, formulae, products, processes, data, customer lists, sources of supply, patents, trademarks, copyrights, and other information pertaining to the business of the Corporation (singularly and collectively, the "Confidential Information"). B. Employee acknowledges that he or she may from time to time work with, develop or improve upon such Confidential Information, or acquire additional Confidential Information, sometimes from third parties upon the express condition that such Confidential Information will not be disclosed, that all such Confidential Information constitutes a unique and valuable asset of the Corporation, and that disclosure of any such Confidential Information to or use by anyone other than in the ordinary course of the Corporation's business and for its benefit would result in irreparable and continuing damage to the Corporation. C. The Employee shall keep all such Confidential Information which is not generally available to the public in strict secrecy and confidence and shall not at anytime during the term of his or her employment hereunder, or thereafter for so long as access thereto is not generally available to the public, directly or indirectly, make use of, disclose or furnish to any person, firm or corporation or other third party any such Confidential Information, nor participate in the use, disclosure or publication of any elements thereof, either alone or in conjunction with others, except as may be required in the ordinary course of the Corporation's business, or as may be mandated under applicable law by competent authority.

Footnote 7:Paragraph 3 ("Restrictive Covenants") provides: The service of Employee are unique, extraordinary and essential to the business of the Corporation, particularly in view of Employee's access to Confidential Information. Accordingly, if the Employee ceases employment with the Corporation at any time for any reason whatsoever, then for a period of eighteen (18) months commencing with the date of such termination, the Employee shall not, without the Corporation's prior written approval, actively or inactively, directly or indirectly, for himself, herself or for others (I) employ, become employed by, or associate in any business relationship with any person who was an employee of the Corporation, or any business, partnership, association, corporation or other entity which was affiliated with, or was a customer, supplier, or subcontractor of, or consultant to, the Corporation, during the twelve (12) month period preceding such termination, where such employment, association or relationship would result in the Employee's being engaged in a commercial enterprise which competes with or contemplates competing with the Corporation; nor (ii) engage in any business which competes or then contemplates competing with the Corporation; nor (iii) solicit for competitive purposes employment or for providing consulting services any prospective or existing account of the Corporation which at the time of such cessation was then actively being solicited by or doing business with the Corporation; nor (iv) purposefully affect to the Corporation's detriment any relationship of the Corporation with any customer, supplier, subcontractor, consultant or employee of the Corporation or cause any customer or supplier to refrain from entrusting additional business to the Corporation. In the event that any of the provisions of this section shall be adjudicated to exceed the time, geographic or other limitations permitted by applicable law in any jurisdiction, then such provision shall be deemed reformed in such jurisdiction to the maximum time, geographic or other limitations permitted by applicable law.

Footnote 8:The Acknowledgments provided as follows: I acknowledge that I have been reminded to my continuing obligation to Misys International Banking Systems to safeguard the confidentiality of all Corporate proprietary information, which I understand includes, but is not limited, to proprietary information concerning any proprietary matters possessed, owned, or used by Misys International Banking Systems including proprietary information of a third party which the Company is bound to protect. I further acknowledged that I have returned or provided the corporation with all proprietary materials and that I have not retained any copies of any such proprietary materials

Footnote 9:It is also argued that there is a "serious question" whether the restrictive covenants, between Frustum and the four employee defendants, even if valid, can be enforced by the plaintiff, since there is no evidence that these agreements have been assigned to Misy International Banking Systems by Charlotte, the subsidiary of Misys plc, which acquired Frustum. This overlooks the testimony of Ho and the testimony of the employees, themselves, who acknowledged they were employed by the plaintiff, subject to the restrictive covenants, although it was their belief that because the agreements had not been enforced as to other employees, it was unenforceable as to them. Further discussion of this argument is unwarranted.

Footnote 10:Since I am satisfied that plaintiff has established that confidential information has been, and will inevitably be used, the question of uniqueness is rendered moot and I do not address it. Although I note that the First Department has recently recognized that a computer consultant's services may be "unique or extraordinary" in the context of a noncompete agreement (Crown IT Services v. Koval-Olsen, -AD3d-, 782 NYS2d 708 (2004)