U.S. Coachways, Inc. v Silverman

[*1] U.S. Coachways, Inc. v Silverman 2007 NY Slip Op 50127(U) [14 Misc 3d 1222(A)] Decided on January 17, 2007 Supreme Court, Richmond County Aliotta, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 January 17, 2007
Supreme Court, Richmond County

U.S. Coachways, Inc., Plaintiff,

against

Nathaniel K. Silverman, Joseph Watson, National Charter Consultants, LLC, American Coachways, Lori Pollari, Dominic Quattrochi, AA Getaway Coaches & Limos, LLC, Denise Nelson and American Dream Coaches & More, Inc., Defendants.



102317/06

Thomas P. Aliotta, J.

Upon the foregoing papers, plaintiff's motion for a preliminary injunction is denied.

Insofar as it appears on the papers before the Court, plaintiff U.S. Coachways, Inc. ("Coachways") operates a coach and limousine brokerage business. Plaintiff claims that since its inception in January 2004, it has become "an industry leading national transportation charter company," and has accumulated and developed in conjunction therewith the following alleged "proprietary and confidential" materials (1) a computerized list of over seven thousand customers (individuals and companies), along with their contact, billing, credit card and other financial information; (2) a list of approximately one thousand five hundred coach and limousine vendors and affiliates across the United States, along with their contact and pricing information, and (3) a private method or formula for determining the fees, costs and profitability of any prospective transaction.

In support of the within application plaintiff has submitted the affidavit of its senior officer, Ed Telmany, who attests that he has recently learned that defendants jointly and/or severally (1) "stole" certain highly proprietary information from Coachways, including its customer, vendor and affiliate lists and pricing methods, and (2) are using this information in violation of certain non-competition, non-solicitation and confidentiality agreements to compete against it in their newly-formed businesses.

In this regard, plaintiff contends that its customer and vendor lists constitute a "valuable trade secret[s]" which, Telmany attests, were accumulated through the investment of well over $100,000 in time, effort and money. Telmany further attests that these lists, developed through the "harsh experience of trial and error," include the names of vendors that have been tested over a "period of several years and found [*2]to be reliable," and that such information is a key to minimizing the company's losses and fostering "goodwill" among its customers. According to Telmany, this list of select vendors, as well as the company's confidential customer information, cannot be duplicated through the internet or a search of telephone directories.

In support of plaintiff's claims of misappropriation, Telmany states that he was informed of the facts giving rise to this action by Coachways' former sales manager, Joseph Jacovino, who admitted to Telmany that he had worked with several other former Coachways employees, e.g., defendants Nathaniel Silverman, its former technology ("IT") chief, and Joseph Watson, its former web-host provider. As more fully set forth in an annexed affidavit by Jacovino, Telemany asserts, inter alia, that Silverman and Watson have collaborated with other former employees to set up "unlawfully competing businesses", including co-defendants American Coachways and National Charter Consultants, LLC, and that Silverman "was caught red-handed with stolen company information."

For his part, Jacovino attests that he personally witnessed Silverman download plaintiff's confidential and proprietary information onto his computer, to wit: (1) a database which includes the names of the company's 7,000 customers along with their credit card and other financial information; (2) its "Daily Reservations" database, which includes daily intake, invoice and other financials data; and (3) its "Rate Look-up" database, which includes a list of the company's affiliate and pricing information. Jacovino further attests that he also witnessed Silverman obtain remote access to plaintiff's computer and email system, which he used to read plaintiff's internal communications and access data on reservations and invoices. According to Jacovino, plaintiff's confidential and proprietary information remains "on his computer," which is now in the protective custody of plaintiff's attorney.

Finally, Temany maintains that plaintiff's new internet technician discovered hacking programs and manuals, bootleg software, and programs for redirecting the company's emails in the personal file folder formerly maintained by Silverman in plaintiff's computer system, and that said defendant had contrived to leave the company's server vulnerable to access through the worldwide web. As a result, plaintiff claims that its computer network had to be redesigned, new security measures had to be installed, and a new firewall erected to protect its system from remote access.

As for the remaining defendants, plaintiff maintains that Silverman and/or Watson have also downloaded its confidential and proprietary information onto the computers of two other former employees, defendants Lori Pollari and Denise Nelson, each of whom has formed a new competing company, defendants AA Getaway Coaches and American Dream Coaches. It is further alleged that these corporate defendants are competing unlawfully with Coachways through the use of proprietary information obtained in violation of the former employees' non-competition and non-solicitation agreements, to "provid[e] the same services to the same customers, using the same vendors, in the same geographical area." In further reliance upon Jacovino's alleged admissions, plaintiff thus maintains that Silverman was hired by defendants Pollari, Nelson and additional defendant Dominic [*3]Quatrrochi to set up their respective business computers, websites and pricing systems, and that defendant Pollari has been seen in possession of a Coachways' rolodex containing confidential vendor contact information while on the premises of her newly formed company, AA Getaway Coaches ("AA").

Finally, plaintiff claims that the individual defendants "are all connected as friends and disgruntled former employees, and are assisting each other in the operation[] of their businesses and [are] sharing [plaintiff's] proprietary information to directly and unfairly compete with [Coachways] in the bus and limosine brokerage business." Moreover, plaintiff contends that they have attained success only through the illegal use of plaintiff's proprietary information, and by "hacking" into its computer system. As a result, plaintiff is said to have suffered the loss of (1) its valuable customer and vendor lists and other proprietary information, (2) revenues, both past and future, (3) customers and vendors, and (4) goodwill and reputation. Plaintiff further claims that without court intervention, defendants will continue to use Coachways' confidential and proprietary information to solicit more of its customers, exploit their credit card information, and utilize its vendor list and pricing methods to plaintiff's detriment, and in violation of their respective non-competition and non-solicitation agreements and the applicable law.

In opposing the application for a preliminary injunction, defendants Quattrochi, Pollari and AA each deny Telmany and Jacovino's factual allegations of misappropriation, and maintain that plaintiff's request for injunctive relief is merely an attempt to shut down AA and to limit competition. According to Quattrochi, AA is an on-line nationwide transportation charter company which brokers coach and limousine services to customers over the internet. He claims that he and not Pollari, is the sole owner and registrant of the company's internet domain, but admits that defendant Pollari is employed "in the daily operation[s]." Quattrochi maintains that AA's computer systems and website were developed independently by Technical Computing Ltd., and only "went live" on January 7, 2006. In support, Quattrochi has attached the affidavit of the owner of Technical Computing, Michael Geraci. As is relevant, it is alleged that AA advertises almost exclusively on internet search engines such as GOOGLE, YAHOO and MSN, and that its 250 ± customers and clients were not "solicited" at all, but rather contacted AA in response to its advertising. Quattrochi further maintains that all of AA's customer, vendor and pricing information was obtained through an internet website, i.e., www.BusRates.com , which allowed it to (1) identify local charter bus operators, (2) ascertain their rates and qualifications (e.g., insurance coverage, government safety record and vehicle availability) and (3) provide price quotes based on their independent investigation. As for his purported involvement with defendant Silverman, Quattrochi claims that Silverman worked for AA as a part-time sales representative for only three days, and was fired because he "was found [to be] untrustworthy [and] unreliable."

Somewhat similarly, defendant Pollari flatly denies appropriation, possessing or using Coachways' purported proprietary information regarding customers, vendors or pricing in the operation of AA's business. Pollari also contends that her purported [*4]non-competition and non-solicitation agreement with plaintiff is unenforceable. Alternatively, she argues that the information at issue is not entitled to special protection as a "trade secret" since, e.g., the identity and contact information for plaintiffs vendors can be located easily through an internet search. As for plaintiff's alleged "secret" pricing method, Pollari claims that Coachways simply added a 20% mark-up to the prices quoted by its vendors on the internet. Pollari further states that she acquired only a "limited knowledge" of the charter bus and limousine brokerage business during the three months that she was employed as plaintiff's sales representative/booking agent, and that her duties did not require the use of any unique or extraordinary skills. She further alleges that she has had no contact with Telmany's purported informant (Jacovino) since Coachways terminated her employment.

In further opposition to plaintiff's application, Michael Geraci, the owner of Technical Computing and AA's IT technician, attests that he was hired to design AA's network infrastructure and develop its client and vendor database system, and that each of these designs is "original and proprietary", having been designed and implemented uniquely by himself and Quattrochi "without any outside influences." Geraci also states that he never downloaded any "outside" data onto AA's client or vendor database, and that he is unaware of any such activity on the part of Quattrochi or any third party. Finally, he alleges that he is unaware of any third party having access to AA's source code or database.

For their part, defendants Nelson and American Dream Coaches have adopted the factual contentions and legal arguments tendered by the foregoing defendants. In addition, Nelson notes that the non-competition agreement purportedly signed by her was notarized several weeks after her termination.

In his pro se Verified Answer, defendant Silverman vehemently denies the allegations made against him in the complaint, and maintains that he (1) never obtained access to plaintiff's financial and reservation database, and (2) neither designed, implemented nor worked on that system. Rather, he describes his duties at Coachway to include (1) installing new computers onto the existing network, and (2) acting as the "go to guy" for "simple" networking problems. Silverman steadfastly maintains that "[a]ny major problems were handled by an outside contractor [with] which [he had] no affiliation."

Silverman also denies taking possession of plaintiff's financial and/or reservations database, or removing same from the company's premises. According to Silverman, his computer and flash drive were released to him by Coachways "free and clear of any and all company information" when his employment was terminated. He flatly denies signing plaintiff's Exhibit "2", a purported non-competition agreement dated June 2005, arguing that his employment at Coachways did not begin until November 2005, and claims that any other later non-competition agreement that he may have signed with plaintiff was executed under threat of dismissal. Finally, Silverman disputes plaintiff's claim that he was employed by either National Charter Consultants LLC or American Coachways.

It is well established that "[a] party seeking the drastic remedy of a [*5]preliminary injunction must establish a clear right to that relief under the law and the undisputed facts upon the moving papers" (Gagnon Bus Co. Inc. v Vallo Transp. Ltd., 13 AD3d 334, 335). Moreover, on a motion for a preliminary injunction, it is the movant which bears the burden of demonstrating (1) the likelihood of success on the merits in the underlying action, (2) irreparable injury absent the granting of an injunction, and (3) a balancing of the equities in its favor (see Aetna Ins. Co. v Capasso, 75 NY2d 860). Consonant with the foregoing, it is the Court's opinion that plaintiff has failed to make the necessary showing.

Here, plaintiff has not established that it is likely to prevail in the underlying action since, e.g., the law is clear that restrictive covenants in employment agreements are disfavored and will only be enforced by the Courts (1) if reasonably limited both temporally and geographically (see Express Shipping, Ltd. v Gold, 33 AD3d 847), and (2) only to the extent necessary to protect the legitimate interest of the employer without unduly burdening the former employee (see BDO Seidman v Hirschberg, 93 NY2d 382). Failing same, an employee is free to compete with his or her former employer in the absence of fraud or other misconduct such as the utilization of trade secrets (see Pearlgreen Corp. v Yau Chi Chu, 8 AD3d 460; NCN Co. v Cavanagh, 215 AD2d 737; Walter Karl, Inc. v Wood, 137 AD2d 22, 27).

In this case, plaintiff at bar has failed to make the requisite showing that its five-year non-competition agreements covering both New York and New Jersey are necessary to protect its legitimate business interests, or that they impose no undue hardships on its former employees (see BDO Seidman v Hirshberg, 93 NY2d 388 et seq.; Bender Ins. Agency v Treiber Ins. Agency, 283 AD3d 448; Trans-Continental Credit & Collection Corp. v Foti, 270 AD2d 250). As for the like one-year agreement purportedly signed by defendant Silverman, it is worthy of note that he has specifically denied signing it, and that the alleged agreement predates his employment at Coachways by several months. Moreover, there has been no showing that the services rendered for plaintiff by the individual defendants were unique or extraordinary (see Reed, Roberts Assocs. v Strauman, 40 NY2d 303, 309).

Turning to movant's claim that the information in question was misappropriated and constitutes "trade secrets", the Court is constrained to point out that plaintiff's allegations in this regard are wholly conclusory and without factual support (cf. Arc-Com Fabrics v Robinson, 149 AD2d 311, 312). Moreover, notwithstanding the alleged expenditure of time and money to compile its customer and vendor lists, they would not be entitled to any special protection if, as has been alleged, the vendors' identities and contact information are publicly available, e.g., over the internet, and the customers are public companies or members of the public at large (see Leo Silfen, Inc. v Cream, 29 NY2d 387, 392-393; Starlight Limousine Serv. v Cucinella, 275 AD2d 704, 705; NCN Co. v Cavanagh, 215 AD2d at 737; NCN Co. v Cavanagh, 215 AD2d 737). As the Court of Appeals has observed, "a trade secret must first of all be secret" (Ashland Mgt. v Janien, 82 NY2d 395, 407).

In any event, where, as here, plaintiff's evidentiary showing in support of misconduct and the other alleged bases for injunctive relief have been sufficiently refuted by the opposing parties, the sharply disputed issues of material fact that [*6]necessarily emerge render a preliminary injunction inappropriate (see Pearlgreen Corp. v Yau Chi Chu, 8 AD3d at 461).

Plaintiff at bar has also failed to demonstrate convincingly that any injury which it may suffer if the injunction is denied cannot be remedied by an award of monetary damages (see Coinmach Corp. v Fordham Hill Owners Corp., 3 AD3d 312; cf. Ingenuit, Ltd. v Harriff, 33 AD3d 589). In fact, having pleaded an adequate remedy at law based, inter alia, on defendants' alleged (1) "stealing" of confidential and proprietary information, (2) misappropriation of trade secrets, (3) conversion, (4) unlawful competition, and (5) breach of their non-competition agreements, it would appear that preliminary injunctive relief is both unnecessary and unwarranted in this case.

Finally, any balancing of the equities at this early stage of the proceedings must favor the individual and corporate defendants, whose respective livelihoods and operations would be severely impacted by a preliminary injunction, while plaintiff has failed to produce any clear and convincing evidence that such relief is necessary to protect its legitimate interests from the seemingly limited incursion on profits that these much smaller companies are likely to have upon the much larger enterprise (see Leo Silfen, Inc. v Cream, 29 NY2d at 395; Walter Karl, Inc. v Wood, 137 AD2d at 28-29).[FN1]

Accordingly, it is

ORDERED, that plaintiff's application is denied.

E N T E R,

Dated:JAN 17/2007/s/___________________________

THOMAS P. ALIOTTA, J.S.C.

IRA SCOT MEYEROWITZ, ESQ.

232 MADISON AVENUE

NEW YORK, NY 10016

RODNEY STILWELL, ESQ.

1688 VICTORY BOULEVARD

STATEN ISLAND, NY 10314

JAIMIE LATHROP, ESQ.

9412 4TH AVENUE

BROOKLYN, NY 11209 [*7] Footnotes

Footnote 1: In light of this disposition, it is worthy of note that the grant or denial of a preliminary injunction is not an adjudication on the merits, and will not be given res judicata effect (see Coinmach Corp. v Fordham Hill Owners Corp., 3 AD3d 312).