L-3 Communications Corp. v Kelly

[*1] L-3 Communications Corp. v Kelly 2005 NY Slip Op 51972(U) [10 Misc 3d 1055(A)] Decided on August 18, 2005 Supreme Court, Suffolk County Emerson, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 August 18, 2005
Supreme Court, Suffolk County

L-3 Communications Corporation, Plaintiff,

against

Alexander Kelly, MARK D-SQUARED, MARK-DSQUARED, INC. and JOHN DOES 1-10, (said names being false and fictitious, as the names of these other, Defendants are unknown at this time), Defendants.



14971-05



Steven L. Levitt & Associates, P.C.

Attorneys for Plaintiff

Two Hillside Avenue, Building F

Williston Park, New York 11596

Sean J. Conway, Esq.

Attorney for Defendants

One Suffolk Square, Suite 500

1601 Veterans Memorial Highway

Islandia, New York 11749

Elizabeth Hazlitt Emerson, J.

This decision is rendered with respect to plaintiff L-3 Communications Corporation's [*2](hereinafter referred to as"L-3" or "Plaintiff") Order to Show Cause for a Temporary Restraining Order and Preliminary Injunction dated July 14, 2005 ("Order to Show Cause"), in which plaintiff requests that Alexander Kelly, Mark D-Squared, Mark Dsquared, Inc. (collectively, the "Defendants" ) be restrained and enjoined from: a. Providing any information received from Plaintiff, or arising out of Defendants' services to Plaintiff, in whole or in part, to any other individual or entity;b. Disclosing and/or utilizing Plaintiff's trade secrets and proprietary information, including but not limited, to customer preferences, vendor lists, pricing information, design techniques and strategies, and configuration techniques and strategies; and

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Page 2 c. Providing services of any nature, directly or indirectly, to Datapath, Inc., or to any other individual or entity, only with respect to the GMT Satellite Project.

After conducting several conferences attended by representives of the Plaintiff, the Defendants and their respective attorneys, the Court directed that an immediate hearing be held. Such hearing was conducted over a period of four days: July 27, 2005, August 1, 2005, August 4, 2005 and August 9, 2005. The Court also addressed Plaintiff's request for discovery contained in the Order to Show Cause by directing that the Defendants produce copies of all documents in Defendants' possession containing information belonging to Plaintiff. The Defendant complied with the Court's direction and produced such documents, together with an affidavit of Defendant Alexander Kelly dated July 21, 2005, describing the production. In addition, given the serious nature of the allegations, the Court directed that limited depositions be conducted. A deposition of Defendant Alexander Kelly was conducted on July 22, 2005, and a deposition of Robert A. Koelzer, Vice President of Engineering at L-3 Narda Satellite Networks, was also conducted on July 22, 2005.

As previously stated, the Court took testimony over a period of four full days. As such, the Court had an opportunity to consider and evaluate the testimony of a variety of witnesses including, without limitation, Julius Asmus, Director of Government Sales for L-3; Robert Koelzer, Vice President of Engineering at L-3 Narda Satellite Networks; and the Defendant Alexander Kelly. In addition, the Court carefully reviewed numerous documents included in the record and legal memoranda submitted to the Court in connection with this application for [*3]emergency relief.[FN1]

Facts

Briefly, this matter arises in connection with a request by a branch of the U.S. military (the "Customer") for proposals for the manufacture of a satellite system (the "Project") that meets certain objectives and specifications set forth by such Customer. L-3, or more specifically its Narda Satellite Division, is in the process of developing a system that responds to the Customer's request and is preparing its bid for the Project.[FN2] As is clear from the record, the Project will be

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awarded pursuant to a competitive bid process and is an extremely important contract for L-3. In fact, L-3 began to prepare for its bid many months before any formal request was received from the Customer. The record also demonstrates that the process for obtaining such contract is extremely competitive and that the contents of each potential bidder's proposal remains at all times confidential and contains proprietary information. In fact, many aspects of a bidder's proposal will remain confidential and will not be disclosed to other competitors even after the contract has been awarded and a system is in production. As of the date of this decision, each potential bidder is preparing to participate in the demonstration phase of the process.

Plaintiff's request for a Preliminary Injunction arises from its assertion that "a very real possibility exists that defendants are in fact using information that they received in [*4]confidence from plaintiff to further the commercial interests of other competing aerospace contractors." (See Levitt Affidavit paragraph 9). As previously noted, Plaintiff seeks to prevent not only the disclosure of confidential or proprietary information, but to prevent the Defendants from providing services of any nature to Datapath or any other entity with respect to the Project.[FN3] As the record demonstrates, from the period of 1999 until June 2005, the Defendant performed services for Plaintiff as an independent contractor.[FN4] During this period, the relationship between Plaintiff and Defendants was set forth in a Professional Services Agreement (the "Agreement") dated December 10, 2001 (See Plaintiff's Exhibit 1). Paragraph 6(c) of the Agreement clearly provides that "information made available to independent contractor or produced by or for him pursuant to this agreement not clearly within the public domain shall be considered proprietary and shall not be disclosed to others or used for manufacture without prior written permission by L-3." The Agreement, however, also clearly provides in paragraph 4 thereof that "independent contractor may be employed by other persons, firms or corporations engaged in the same or similar business as that of L-3 Satellite Networks, provided however, that the provisions of section 6 hereof shall be strictly observed by the independent contractor with respect to such other persons, firms or corporations." The Agreement does not contain a restrictive covenant or other similar provision that limits the ability of the Defendants to work for competitors or on competing projects.

The record demonstrates that, during the period from 1999 to 2005, Defendant Alexander Kelly was given a variety of projects, assignments, or significant responsibility for systems that were produced by L-3. In fact, many of these projects led to the development or formed the basis for the development of the system that may be proposed to the Customer in connection with its request for bids for the Project. The record also shows that Defendant Kelly had access to a great deal of proprietary, confidential, or sensitive information during the time he worked at L-3. It is also apparent that, as late as June 2005, he e-mailed such material to his home

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computer. Although Plaintiff's witnesses testified that it was not the practice of the engineering department to send material home, such witnesses could not point to a policy that would prohibit [*5]the practice. Finally, notwithstanding Defendant Kelly's work on confidential or sensitive systems for L-3, the witnesses acknowledged that, while working for L-3, he also rendered services to competitors of L-3, including Datapath. However, such services did not relate to projects for which these companies might be competitively bidding.

Turning to the Project in question, when L-3 began work on its proposal, it conducted three "Roadmap" meetings. These meetings were attended by a group of L-3 employees including Mr. Koelzer and Mr. Asmus. Mr. Kelly also attended these three meetings at the request of Mr. Asmus. Minutes prepared by Mr. Asmus reflect that certain aspects of the Project were discussed, but the witnesses differ sharply as to the level of detail and significance of this discussion.[FN5] (See Plaintiff's Exhibit 6).

As L-3 began to prepare its response to the proposal, Mr. Kelly was asked by Mr. Jeff Okwit to work on L-3's proposal. Before Defendant Kelly could begin work in response to Mr. Okwit's request, he was informed that he would not be working for L-3 on the Project. Thereafter, Defendant Kelly went to Mr. Asmus to request additional assignments, and the record indicates that Mr. Asmus responded that he would see what he could do. It appears, however, that no significant assignments were given to Defendant Kelly after this time and that his work for L-3 continued to decline.

Defendant Kelly testified that, in late March, he was asked by Datapath, an important competitor of L-3 and potential bidder on the Project, to work on a matter unrelated to the Project. Mr. Kelly further testified that, in late May, he was asked by Datapath to work on the Project for Datapath. Sometime thereafter, Mr. Kelly was asked by Mr. Asmus to work on a back-up proposal for L-3's main proposal for the Project, but the record indicates that Defendant Kelly declined to do so.

In June of 2005, L-3 witnesses testified that they were made aware by a supplier that Defendant Kelly was working for Datapath on the Project. Although Defendant Kelly did not advise L-3 prior to taking on his assignment for Datapath, he did confirm his work when confronted by employees of L-3. However, citing confidentiality, Defendant Kelly declined to describe in detail the nature of his responsibilities or his assignment for Datapath. In connection with the hearing, Defendant Kelly was questioned extensively about his assignment for Datapath. Although he declined to give specific details, again citing the confidential nature of the process, [*6]

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Kelly stated that he was involved in writing Datapath's proposal for the Project. He also acknowledged during his testimony that, although he was not involved in developing Datapath's design for the Project, he was called upon from time to time to offer technical advice.

Discussion of the Law

Preliminary injunctive relief is a drastic remedy which is not routinely granted (Marietta Corp. v Fairhurst, 301 AD2d 734, 736). In order to demonstrate that the moving party is entitled to a preliminary injunction, it must show a probability of success on the merits, danger of irreparable injury in the absence of a preliminary injunction, and a balance of the equities in its favor (Atena Insurance Co. v Capasso, 75 NY2d 860). The burden of proof rests with the moving party, who must establish a clear and undisputed right to the relief sought (Park Terrace Caterers v McDonough, 9 AD2d 113, 114; Deane v City of New York Dept. of Buildings, 177 Misc 2d 687, 694).

Irreparable Harm

A showing of irreparable harm is considered by some Courts to be the single most important requirement with regard to the granting of a preliminary injunction (see, Reuters Ltd. v United Press Intl, Inc. 903 F2d 904, 907; Bell & Howell v Masel Supply Co., 719 F2d 42, 45; Northbrook Laboratories v G.C. Hanford Mfg. Co., 297 F Supp 2d 463, 492, affd 126 Fed Appx 507). Essential to a showing of irreparable harm is a showing that the moving party could not be adequately compensated by money damages (Coinmatch Corp. v Fordham Hill Owners Corp., 3 AD3d 312; Mr. Dees Stores, Inc. v A.J. Parker, Inc., 159 AD2d 389). Furthermore, the moving party must show that the irreparable injury is imminent and not remote or speculative (Golden v Steam Heat, Inc., 216 AD2d 440, 442; Cipriani Fifth Avenue, LLC v RCPI Landmark Properties, 4 Misc 3d 850, 853).

New York law recognizes that irreparable harm is presumed when trade secrets have been misappropriated (Sylmark Holdings Ltd. v Silicone Zone Intl. Ltd., 5 Misc 3d 285, 299; Lumex, Inc. v Highsmith 919 F Supp 624, 628; Northbrook Laboratories v G.C. Hanford Mfg. Co., supra at 492). At least one New York court has expanded upon this principal and found irreparable harm likely to occur when evidence of actual misappropriation was bolstered by a high probability of inevitable disclosure of trade secrets (Doubleclick, Inc. v Henderson 1997 WL 731413 [NY Sup 1997)]. In that case, the Supreme Court, New York County, enjoined defendants from launching their own company or accepting employment with a competitor company for a period of six months based on defendant's overt theft of trade secrets and breaches of fiduciary duties (see, Doubleclick, Inc. v Henderson, supra; see also, Earthweb, Inc. v Schlack 71 F Supp 2d 299 [SDNY 1999]). The Doubleclick decision appears [*7]to be the greatest expansion of the inevitable-disclosure doctrine. As pointed out in a subsequent opinion, absent an actual theft, misappropriation, or disclosure, a court granting injunctive relief based solely on the doctrine of inevitable disclosure would be creating an implied restrictive covenant (Earthweb, Inc. v Schlack, supra at 310), which is contrary to the limited application and strict scrutiny often afforded restricted covenants by New York Courts (Id.). In fact, the Third Department, in the case of

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Marietta Corporation v Fairhurst (supra at 737), clearly stated that well-entrenched state public policy considerations disfavor implied restrictive agreements . The Court in the Marietta Corporation case went on to state that the doctrine of inevitable disclosure is disfavored ( Id. at 737).

In the Marietta case, the Third Department reversed the lower court's decision finding that the plaintiff had failed to demonstrate irreparable harm. It went on to find that plaintiff's claims were self-serving, entirely conjectural, and insufficient to support the theory that the defendants had used or threatened to use a trade secret. In fact, the Court stated that, absent any wrongdoing which would constitute a breach under the confidentially agreement, mere knowledge of the intricacies of a business is simply not enough to support a finding of irreparable harm (see also, Catalogue Service of Westchester, Inc. v Maude Henry, 107 AD2d 783 [2d Dept. 1985]).

A similar decision was reached by the Second Department in the case of Catalogue Service of Westchester Inc. v Maude Henry (supra). There, the court found plaintiff's evidentiary showing fell far short of establishing that defendant obtained or improperly utilized any confidential information. Consequently, preliminary injunctive relief was unwarranted.

Finally, Reed, Roberts Assoc. v Strauman (40 NY2d 303, 309), the Court of Appeals expressly stated that a former employee's knowledge of the intricacies of a former employer's business operation is not a protectable interest sufficient to justify enjoining an employee from utilizing his knowledge and talents in an area. The Court went on to say that, where the knowledge does not quality for protection as a trade secret and there has been no conspiracy or breach of trust resulting in commercial piracy, there is no reason to inhibit the employee's ability to realize his potential, both professionally and financially, by availing himself of an opportunity.[FN6] [*8]

Turning to the case at bar, the Court finds that Plaintiff has failed to make the evidentiary showing necessary to support its request for injunctive relief precluding the Defendant's from providing services of any nature to Datapath or any other entity with respect to the Project. Notwithstanding the foregoing, the Court notes that Plaintiff has demonstrated that Defendants have retained proprietary information obtained by Defendants while performing services for L-3. The Court notes that, although Plaintiff did not make a specific demand for such information, Plaintiff has the right to expect that such information will not be retained by Defendants. Accordingly, Defendants are directed to return all information made available to or produced by them pursuant to the Agreement and shall be enjoined from retaining any such information.

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Turning next to Plaintiff's request regarding Defendants ability to work for Datapath, it is clear that Plaintiff's witnesses expressed a sincere concern that Defendants' work might lead to disclosure of L-3's proprietary information. However, the record is devoid of any specific facts that would support this concern. Plaintiff, though sincere in its belief, relies upon possibility, conjecture, and speculation to make its argument. Instead of supporting Plaintiff's argument, the facts argue against such a broad and powerful injunction. The Defendants are and have been for some time operating as independent contractors, not as employees. Their arrangements are governed by the Agreement, which does not contain restrictive covenant and, in fact, expressly permits Defendants to work for competitors. The record shows that, from time to time, Defendant performed services for competitors of Plaintiff with Plaintiff's knowledge. In fact, it is clear that Defendant Kelly has worked in the industry for many different companies and has successfully handled the confidentiality concerns of many competing clients. The only restriction on Defendants is with respect to the use and/or disclosure by them of Plaintiff's proprietary information and there was no evidence presented that Defendants actually disclosed, or even threatened to disclose, such information. The Court has considered carefully the various arguments offered by Plaintiff that, because Defendants had knowledge of Plaintiff's business, it would be impossible for Defendants to perform work on the Project for Datapath without disclosing its proprietary information. However, for the foregoing reasons, the Court finds that Plaintiff has failed to meet its burden of proof. [*9]

DATED: August 18, 2005

J. S.C. Footnotes

Footnote 1: The Court reserved decision on two documents offered by Plaintiff. For purposes of this decision such documents are deemed admitted and were considered by the Court. Plaintiff also called for the production of all bills submitted by Defendant Kelly to Datapath. Defendant Kelly argued that such bills contained proprietary information. The Court directed that Defendant Kelly submit for in camera review copies of all bills submitted by Defendant Kelly to Datapath. The Court determined that an in camera review was necessary as these bills contained proprietary information belonging to Datapath. Defendant Kelly delivered such bills on notice to Plaintiff and the Court conducted such in camera review and considered the information set forth therein in its decision.

Footnote 2: As described by several of the witnesses, the bid is extremely detailed and very competitive. It requires the production and successful demonstration of a completed system, referred to within the industry as a "Fly Off."

Footnote 3: Plaintiff's requests that defendants be enjoined from "Providing services of any nature, directly or indirectly, to Datapath, Inc., or to any other individual or entity, only with respect to the [Project]." See Order to Show Cause at p. 2.

Footnote 4: Before becoming an independent contractor, Defendant Kelly was an employee of a predecessor company to L-3. At or about the time of the acquisition of this predecessor Company by L-3, Defendant Kelly became an independent contractor.

Footnote 5: The Court notes that although Plaintiff's Exhibit 6 refers to the Project the only entry that relates to the Project is "RFI received response due March 18, 2005". The remaining items on the agenda appear to relate to other projects, general staffing concerns, marketing initiatives and product demonstrations.

Footnote 6: In fact, when considering the employer/employee relationship the Court of Appeals later cautioned: "After a personal service contract terminates, the availability of equitable relief against the former employee diminishes appreciably. Only if the employee has expressly agreed not to compete with the employer following the term of the contract, or is threatening to disclose trade secrets or commit another tortious act, is injunctive relief generally available at the behest of the employer" (American Broadcasting Cos. v Wolf, 52 NY2d 394, 403 [citations omitted]).