178 Lowell Street Operating Company, LLC v. Nichols et al
Filing
95
Judge Nathaniel M. Gorton: ORDER entered. MEMORANDUM AND ORDER, granting in part and denying in part 71 MOTION for Temporary Restraining Order filed by 178 Lowell Street Operating Company, LLC. (Attachments: # 1 Exhibit A)(Lima, Christine)
United States District Court
District of Massachusetts
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)
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Plaintiff,
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v.
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DANA NICHOLS, DENISE BELLIVEAU, )
INTEGRATED HEALTH SERVICES, INC. )
d/b/a MEDFORD REHABILITATION AND )
NURSING CENTER and MRNC
)
OPERATING, LLC d/b/a MEDFORD
)
REHABILITATION AND NURSING
)
CENTER,
)
)
Defendants.
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)
178 LOWELL STREET OPERATING
COMPANY, LLC,
Civil Action No.
15-13547-NMG
MEMORANDUM & ORDER
GORTON, J.
This case arises out of allegations by an employer that its
former director solicited its employees to work at her new
company and used or disclosed the employer’s confidential
information or trade secrets without authorization.
Pending before the Court is plaintiff’s renewed motion for
a temporary restraining order (“TRO”).
For the reasons that
follow, plaintiff’s motion for injunctive relief will be
allowed, in part, and denied, in part.
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I.
Background
A.
The parties
Plaintiff 178 Lowell Street Operating Company, LLC d/b/a
Lexington Health Care Center (“Lexington”) is a Delaware limited
liability company that provides rehabilitation and medical
services at a facility in Lexington, Massachusetts.
None of the
members of Lexington is a citizen of Massachusetts.
Defendant Integrated Health Services, Inc. d/b/a Medford
Rehabilitation & Nursing Center (“Medford”) is a Massachusetts
corporation with a principal place of business in Massachusetts.
Medford provides rehabilitation and medical services at a
facility in Medford, Massachusetts.
Defendant MRNC Operating, LLC (“MRNC”) d/b/a Medford is a
limited liability company and, although it is the residency of
such an entity’s members and not its place of business that
controls personal jurisdiction, plaintiff simply reports that
its principal place of business is in Massachusetts.
Defendant Dana Nichols (“Nichols”) is the Administrator at
Medford. She resides in New Hampshire.
Prior to her employment
at Medford, she was the Director of Nursing at Lexington.
Defendants suggest that she was also promoted to Lead Director
of Nursing and, most recently, to Administrator in Training.
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In 2002, Nichols signed a Non-Solicitation and
Confidentiality Agreement (“the Agreement”) that prohibited her
from 1) directly or indirectly employing or soliciting
Lexington’s employees within 90 days preceding her departure
from Lexington and for one year thereafter and 2) disclosing
Lexington’s confidential information and trade secrets.
On
August 17, 2015, Nichols allegedly informed Lexington that she
intended to resign in order to pursue a better opportunity
elsewhere.
Nichols resigned on September 11, 2015.
Defendant Denise Belliveau (“Belliveau”) is the Director of
Nursing at Medford.
She resides in Massachusetts.
Prior to her
employment at Medford, she was the Assistant Director of Nursing
at Lexington and reported directly to Nichols.
On August 28,
2015, Belliveau purportedly informed Lexington that she intended
to resign in order to spend more time with her family at home.
Belliveau resigned on September 25, 2015.
Non-party Jennifer Gorell is the Director of Admissions at
Medford.
Before her employment at Medford, she was the Director
of Admissions at Lexington.
On September 18, 2015, Gorell
allegedly informed Lexington that she intended to resign because
of health issues and because she had “too much” work at
Lexington.
Gorell resigned on that same day.
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B.
The alleged conduct
Lexington asserts that Nichols violated her contractual
obligations when she 1) participated in soliciting and hiring
Belliveau, Gorell and other former Lexington employees to work
at Medford and 2) misappropriated Lexington’s trade secret and
confidential information.
Lexington contends that Nichols did
so despite its letter to her dated September 23, 2015 reminding
her of, and demanding compliance with, her post-employment
obligations under the Agreement.
Lexington avers that it sent
Medford a copy of that correspondence and that Medford knew, or
should have known, about Nichols’s non-solicitation and
confidentiality obligations.
Lexington alleges that Medford, through its Chief Executive
Officer Bruce Bedard (“Bedard”), 1) “knowingly colluded” with
Nichols to solicit Belliveau, Gorell and other Lexington
employees to become employed at Medford and 2) willfully and
knowingly participated in the breach by Nichols of her
contractual obligations to Lexington.
Lexington declares that Belliveau, before her resignation,
e-mailed several of Lexington’s forms and polices containing
confidential and trade secret information from her Lexington email address to her personal e-mail address and to Nichols’s
Medford e-mail address.
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Lexington further submits that Belliveau and Gorell
“concocted” false explanations for their resignations in order
to “hide Nichols’s and Medford’s improper solicitation.”
C.
Procedural history
In early October, 2015, Lexington filed this lawsuit
asserting that defendants unlawfully solicited its employees and
misappropriated its confidential and trade secret information.
Lexington claims that those actions constituted 1) a breach of
contract by Nichols, 2) breaches of the fiduciary duty of
loyalty by Nichols and Belliveau, 3) aiding and abetting the
breaches of such duties by Medford, 4) intentional interference
by Medford with the contractual relationship between Lexington
and Nichols, 5) misappropriation of confidential and trade
secret information by all defendants and 6) unfair and deceptive
trade practices by Medford in violation of M.G.L. c. 93A, §§ 2
and 11 (“Chapter 93A”).
Lexington amended the complaint shortly
thereafter to name MRNC d/b/a Medford as an additional
defendant.
In mid-October, 2015, Lexington moved for a temporary
restraining order 1) to enjoin defendants from soliciting
Lexington employees, performing services for Medford and using
or disclosing Lexington’s confidential or trade secret
information, 2) to require the immediate return of all copies of
such information and 3) to direct defendants to provide an
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accounting of any materials that incorporate, involve or rely on
such information.
Lexington also moved for limited, expedited
discovery of materials demonstrating that defendants solicited
its employees and misappropriated its confidential and trade
secret information.
The Court convened a motion hearing in late October, 2015
and authorized the parties to conduct limited discovery on the
narrow issue of whether defendants solicited Lexington employees
to work at Medford.
It directed the parties to submit
supplementary memoranda after the conclusion of limited
discovery.
It also ordered Belliveau to return to plaintiff any
Lexington materials that she had e-mailed to herself.
The Court
then held under advisement the motion for injunctive relief.
In November, 2015, the parties stipulated to, and the Court
entered, 1) a protective order with respect to confidential
documents produced or obtained during the action and 2) a
“temporary order” a) prohibiting Nichols from violating her
contractual duties to Lexington, b) prohibiting Belliveau,
Gorell and any other former Lexington employees from performing
services for Medford, c) requiring Medford to prevent Nichols
and Gorell from violating their contractual duties to Lexington
on Medford’s behalf and d) ensuring that the parties continue
their “good faith, collaborative efforts” to return hardcopies
of Lexington documents to Lexington and to erase any electronic
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copies of Lexington documents located on defendants’ computers.
The stipulated “temporary order” was to remain in effect until
when and if one party moved for a hearing on the pending motion
for injunctive relief.
In December, 2015, defendants, having retained new counsel,
moved for a hearing on injunctive relief.
Lexington refiled its
motion for a temporary restraining order that incorporated some
of the information obtained from the limited discovery.
The
Court held a motion hearing on January 14, 2016 and took the
matter under advisement.
II.
Plaintiff’s motion for a TRO
A.
Legal standard
In order to obtain a preliminary injunction or temporary
restraining order, the moving party must establish 1) a
reasonable likelihood of success on the merits, 2) the potential
for irreparable harm if the injunction is withheld, 3) a
favorable balance of hardships and 4) the effect on the public
interest. Jean v. Mass. State Police, 492 F.3d 24, 26-27 (1st
Cir. 2007); Largess v. Supreme Judicial Ct., 317 F. Supp. 2d 77,
81 (D. Mass. 2004); Quincy Cablesys., Inc. v. Sully’s Bar, Inc.,
640 F. Supp. 1159, 1160 (D. Mass. 1986).
Of these factors, the
likelihood of success on the merits “normally weighs heaviest on
the decisional scales.” Coquico, Inc. v. Rodriguez-Miranda, 562
F.3d 62, 66 (1st Cir. 2009).
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The Court may accept as true “well-pleaded allegations [in
the complaint] and uncontroverted affidavits.” Rohm & Haas Elec.
Materials, LLC v. Elec. Circuits, 759 F. Supp. 2d 110, 114, n.2
(D. Mass. 2010) (quoting Elrod v. Burns, 427 U.S. 347, 350, n.1
(1976).
The Court may also rely on otherwise inadmissible
evidence, including hearsay. See Asseo v. Pan American Grain
Co., Inc., 805 F.2d 23, 26 (1st Cir. 1986).
Ultimately, the
issuance of preliminary injunctive relief is “an extraordinary
and drastic remedy that is never awarded as of right.” Peoples
Fed. Sav. Bank v. People’s United Bank, 672 F.3d 1, 8-9 (1st
Cir. 2012) (quoting Voice of the Arab World, Inc. v. MDTV
Medical News Now, Inc., 645 F.3d 26, 32 (1st Cir. 2011)).
B.
Application
1.
Likelihood of success
a.
Count 1: Breach of contract claim against
Nichols
A plaintiff alleging a breach of contract must demonstrate
1) the existence of a contract, 2) its performance or
willingness to perform under the contract, 3) breach by the
defendant and 4) if it seeks damages, causation and the amount
of damages. Amicas, Inc. v. GMG Health Sys., Ltd., 676 F.3d 227,
231 (1st Cir. 2012).
Lexington characterizes its Agreement with Nichols as a
valid contract with enforceable non-solicitation and
confidentiality provisions.
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i.
Enforceability of the non-solicitation
provision
An employer can enforce a covenant not to compete if it is
1) necessary to protect a legitimate business interest,
2) reasonably limited in time and space and 3) consistent with
the public interest. RE/MAX of New England, Inc. v. Prestige
Real Estate, Inc., 2014 WL 3058295, at *2 (D. Mass. July 7,
2014)(citing Boulanger v. Dunkin’ Donuts Inc., 442 Mass. 635,
639 (2004)).
Lexington alleges that the non-solicitation provision is an
enforceable covenant not to compete because Nichols agreed,
pursuant to another provision in the Agreement, that the
covenant was reasonable and legally enforceable and that she
would not challenge the validity of the provision in any court
proceeding.
Lexington further argues that, even if Nichols had
not so agreed, the non-solicitation provision is enforceable on
its merits because 1) Lexington has a legitimate interest in
retaining its high-ranking administrators and employees, 2) the
one-year prohibition on solicitation is reasonable and is less
onerous than other non-solicitation provisions which have been
upheld and 3) the enforcement of employment contracts and
protection of an employer’s interest in retaining its employees
are in the public interest.
Defendants respond that the non-solicitation provision is
unenforceable because M.G.L. c. 112, § 74D prohibits employers
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from imposing contractual covenants that restrict the right of a
nurse, such as Nichols, to practice as a nurse in any
geographical area for any period of time after termination of
the employment relationship.
Section 74D does not, however, apply to this case because
it prohibits an employer from contracting with a nurse to
restrain the post-employment right of that particular nurse, as
opposed to another nurse, to practice nursing after termination.
Here, the covenant at issue is the non-solicitation provision in
the Agreement between Lexington and Nichols.
Section 74D would
prohibit Lexington from restricting Nichols’s right to practice
nursing after she ended her employment at Lexington but has
nothing to do with her obligations under the Agreement.
Defendants’ reliance on § 74D is misplaced.
Nor does M.G.L. c.
112, § 12X apply here because that statute specifically applies
to physicians.
Lexington has met its burden of demonstrating that it will
be able to show that the contested, non-solicitation provision
is reasonable and supported by both a legitimate business
interest and the public interest.
Accordingly, Lexington is
likely to succeed in establishing the enforceability of the nonsolicitation provision.
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ii.
Enforceability of the Agreement as a
whole
More broadly, defendants aver that the Agreement as a whole
is unenforceable under the “material change doctrine” which
provides that:
Each time an employee’s employment relationship with the
employer changes materially such that they have entered
into a new employment relationship[,] a new restrictive
covenant must be signed.
Lycos v. Jackson, 2004 WL 2341335, at *3 (Mass. Super. Ct. Aug.
25, 2004); Rent-A-PC v. March, 2013 WL 2394982, at *2 (D. Mass.
May 28, 2013)(citing Lycos)).
Changes such as a promotion to a
new position, an increase in salary or a conferral of additional
responsibilities can be evidence of a material change in the
employment relationship. Lycos, 2004 WL 2341335, at *3.
Here, defendants assert that Nichols experienced two
material changes in her employment relationship with Lexington
given that she 1) started at Lexington as a Director of Nursing,
2) was promoted in 2011 or 2012 to Lead Director of Nursing,
received a raise and assumed new responsibilities such as
training other Directors of Nursing and 3) was promoted in 2013
to Administrator in Training.
As such, Nichols was required to
work in various Lexington departments, gradually assume the
duties of a nursing home administrator and pass a licensing
examination.
Defendants conclude that those material changes
occurred seven years after the execution of the Agreement and,
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when combined with the parties’ failure to renew the contract,
rendered the Agreement invalid and unenforceable.
Lexington denies that Nichols underwent any material change
in her employment status or that the Agreement was invalidated.
It avers that 1) Nichols worked as a Director of Nursing during
the entire period of her employment, 2) it did not promote her
to Lead Director of Nursing, a position which does not exist at
Lexington, 3) it permitted, but did not require, her to complete
an administrator-in-training licensure program, 4) it did not
promote her to Administrator in Training and 5) she experienced
only minor changes in responsibilities during her employment.
Lexington asserts that the cases cited by defendants are
distinguishable because they involved more significant changes
in the employment relationship and an intent to abandon the
initial restrictive covenant.
The Court agrees with Lexington and concludes that it is
likely to succeed in establishing that it had a valid Agreement
with Nichols containing enforceable non-solicitation and
confidentiality provisions.
iii. Lexington’s performance under the
contract
The parties do not dispute that Lexington satisfied its
obligations under the Agreement by hiring and continuing to
employ Nichols until the date of her voluntary resignation.
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Lexington is thus likely to satisfy the second requirement of a
breach of contract claim.
iv.
Breach of the contract by Nichols
Lexington contends that Nichols breached the nonsolicitation and confidentiality provisions of the Agreement
when she solicited Belliveau and Gorell to leave Lexington for
Medford shortly after her own departure and received at least
one Lexington document, titled “Daily Morning Meeting Report,”
directly from Belliveau’s Lexington e-mail address.
Lexington proffers various electronic and telephone
communications to and/or from Nichols, Belliveau and Gorell as
evidence that 1) Nichols and Belliveau coordinated their
applications to Medford for employment and their resignations
from Lexington and 2) Nichols encouraged Gorell’s decision to
secure employment with Medford before she resigned from
Lexington.
Defendants deny that the subject communications
constitute solicitation and declare that Nichols could not have
solicited Belliveau or Gorell because they had already
independently decided to resign from Lexington due to personal
dissatisfaction with their employment.
The Court again agrees with Lexington and finds that it is
likely to succeed in its claim that Nichols solicited Belliveau
and Gorell in breach of the non-solicitation provision.
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With respect to the claim that Nichols breached the
confidentiality provision, Lexington contends that Nichols
unquestionably received a Lexington document directly
from Belliveau’s Lexington [e-mail] address . . . The
obvious inferences [are] that Nichols used the Lexington
documents to revise similar documents at Medford and
likely disclosed them to other Medford agents and
employees, all in violation of her Agreement.
Neither bare assertions nor “obvious inferences” that Nichols
used and “likely” disclosed confidential documents are, however,
sufficient to establish a breach of the confidentiality
provision in the absence of factual allegations or supporting
evidence.
The fact that Nichols may have received such
information does not by itself indicate that she used or
disclosed it.
Accordingly, the Court finds that, at this preliminary
stage, Lexington will likely succeed in its breach of contract
claim with respect to the non-solicitation provision but not
with respect to the confidentiality clause.
b.
Count 6: Intentional interference with
contractual relations claim against Medford
A claim of intentional interference with contractual
relations requires a plaintiff to demonstrate that 1) it had a
contract with a third party, 2) the defendant knowingly induced
that third party to violate the contract, 3) the interference
was intentional and improper in motive or means and 4) the
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plaintiff was harmed by the defendant’s actions. G.S. Enters.,
Inc. v. Falmouth Marine, Inc., 410 Mass. 262, 272 (1991).
Here, Lexington submits that Medford intentionally
interfered with Lexington’s contractual relations with Nichols
because 1) the Agreement between Lexington and Nichols was an
enforceable contract, 2) Medford was sent a copy of the
Agreement by Lexington and thus had actual knowledge, or at
least notice, of Nichols’s contractual obligations yet permitted
Nichols to hire and to employ Belliveau and Gorell, 3) Medford’s
conduct was thus intentional and improper and 4) the
interference caused Lexington to lose employees.
Medford’s
actions also allegedly allowed it to avail itself favorably of
Lexington’s confidential and trade secret information.
Defendants respond by denying that Nichols hired or
employed Belliveau or Gorell in violation of the nonsolicitation provision.
As discussed above, however, the Court
has already found that Lexington will likely succeed in
establishing that Nichols solicited Belliveau and Gorell in
breach of that provision.
Accordingly, Lexington will likely succeed in its claim of
intentional interference by Medford with its contractual
relationship with Nichols.
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c.
Count 7: Misappropriation of trade secrets
claim against Nichols, Belliveau and Medford
A trade secret is
any formula, pattern, device or compilation of
information which is used in one's business, and which
gives him an opportunity to obtain an advantage over
competitors who do not know or use it.
J.T. Healy & Son, Inc. v. James A. Murphy & Son, Inc., 357 Mass.
728, 729 (1970).
A “[m]atter of public knowledge or of general
knowledge in an industry” is not a trade secret. Id.
The
factors that determine whether information qualifies as a trade
secret include:
1) the extent to which the information is known outside
of the business;
2) the extent to which it is known by employees and
others involved in the business;
3) the extent of measures taken by the employer to guard
the secrecy of the information;
4) the value of the information to the employer and to
his competitors;
5) the amount of effort or money expended by the employer
in developing the information; and
6) the ease or difficulty with which the information
could be properly acquired or duplicated by others.
Jet Spray Cooler, Inc. v. Crampton, 361 Mass. 835, 840 (1972).
In order to sustain a claim for misappropriation of trade
secrets, a plaintiff must establish that 1) the information is a
trade secret, 2) it took reasonable steps to preserve the
secrecy of that information and 3) the defendant used improper
means, in breach of a confidential relationship, to acquire and
use that information. Data Gen. Corp. v. Grumman Sys. Support
Corp., 36 F.3d 1147, 1165 (1st Cir. 1994), abrogated on other
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grounds by Reed Elsevier, Inc. v. Muchnick, 559 U.S. 154, 159-60
& n.2 (2010).
Here, Lexington alleges that Belliveau improperly sent
numerous Lexington forms and policies, including calendars with
patient discharge dates and “Lexington’s explanation of noncoverage for Medicare patients,” to herself and to Nichols
without authorization.
Those materials purportedly contain
confidential information such as patient records and trade
secrets such as operational procedures that 1) Lexington
developed after it invested time and money, 2) are not known
outside of the company and 3) would provide value to its
competitors.
Lexington claims that it reasonably safeguarded
the information by imposing confidentiality requirements,
securing computer files and access with password protection,
complying with the Health Insurance Portability and
Accountability Act of 1996 (“HIPAA”) and providing HIPAA
training.
Defendants concede that patient information protected under
HIPAA qualifies as confidential information but deny that the
Lexington documents sent by Belliveau contain trade secret
information.
Defendants explain that the documents consist of
forms and non-proprietary information which do not contain
technical descriptions, client lists or any other information
that could provide the recipient with a competitive advantage.
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At least at this stage of the litigation, Lexington’s
misappropriation claim is lacking because it has not plausibly
identified a trade secret in the documents at issue.
Lexington
does not specifically point to documents that purportedly
contain trade secrets or describe how the information in those
documents would provide a competitive advantage to its rivals.
Blanket assertions that particular information constitutes a
trade secret, in the absence of supporting factual allegations,
do not suffice to show a likelihood of success on a
misappropriation claim.
The fact that the documents at issue
contain HIPAA-protected patient information does not, by itself,
establish the likely existence of a trade secret.
Accordingly, Lexington is, as yet, unlikely to prevail on
its misappropriation claims.
d.
Count 8: M.G.L. c. 93A claim against Medford
Chapter 93A provides a cause of action for any person
1) engaged in trade or commerce who 2) suffers a loss of money
or property 3) as a result of 4) the use or employment of an
unfair method of competition or unfair or deceptive act or
practice by another person engaged in trade or commerce. M.G.L.
c. 93A, § 11.
A plaintiff with a Chapter 93A claim must
demonstrate an unfair or deceptive practice that falls
within at least the penumbra of some common-law,
statutory, or other established concept of unfairness.
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Am. Paper Recycling Corp. v. IHC Corp., 775 F. Supp. 2d 322, 332
(D. Mass. 2011)(internal quotation marks omitted).
A corporate
plaintiff faces “a stricter standard than consumers in terms of
what constitutes unfair or deceptive conduct.” Id.
Lexington argues that its Chapter 93A claim is likely to
succeed because 1) it is engaged in the nursing care industry,
2) Medford’s actions caused Lexington to lose employees and made
Lexington’s confidential and trade secret information available
to Medford to Lexington’s competitive disadvantage and
3) Medford’s conduct amounted to the unfair or deceptive
practice of intentional interference with the contractual
relations between Nichols and Lexington.
Defendants apparently
do not oppose Lexington’s assertions.
The Court agrees with Lexington and finds that it will
likely prevail in its Chapter 93A claim against Medford.
2.
Other factors
Because Lexington is likely to succeed on some but not all
of its claims, i.e. the non-solicitation portion of the breach
of contract claim against Nichols and the intentional
interference and Chapter 93A claims against Medford, the Court
will consider the remaining factors for injunctive relief in the
context of those claims only.
Lexington declares that it will suffer irreparable harm
without injunctive relief because of the threat that defendants
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will solicit its employees in the future and that it will lose
employees to Medford, particularly in light of defendants’
alleged successes with respect to Belliveau and Gorell.
See
Advanced Micro Devices, Inc. v. Feldstein, 2013 WL 10944934, at
*12 (D. Mass. May 15, 2013)(“Courts have routinely accepted the
threat of future solicitation as a qualifying irreparable
harm . . . [Plaintiff] must show a likelihood that Defendants
will engage in future solicitation given their alleged past
solicitation.”).
Defendants respond that there is no threat of future
solicitation because they did not solicit Belliveau or Gorell in
the first place.
They maintain that Belliveau and Gorell
resigned from Lexington based upon their own employment issues
and dissatisfaction with their work at Lexington.
The Court is persuaded by plaintiff and finds that it has
presented a likely threat of future solicitation by defendants
and the irreparable harm factor thus favors the imposition of
injunctive relief.
That threat does not, however, warrant
requiring Medford to terminate Belliveau’s employment or
enjoining her from performing services for Medford.
That is
because Belliveau’s short exile this past Fall is deemed to have
sent a sufficient message to potential employees and Medford
alike to avoid such conduct.
Furthermore Belliveau’s continued
employment at Medford will not subject Lexington to additional
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harm, given that 1) she was not and is not a high-level employee
and 2) it is unlikely that Lexington will be able to demonstrate
that she misappropriated trade secrets in the past or is likely
to do so in the future.
In conclusion, the irreparable harm, balance of hardships
and public interest factors favor the imposition of an
injunction only with respect to protecting Lexington from the
threat of future solicitation.
ORDER
For the foregoing reasons, plaintiff’s motion for a
temporary restraining order (Docket No. 71) is, with respect to
the request to enjoin defendants from soliciting certain
Lexington employees in the future, ALLOWED, but is otherwise
DENIED.
A preliminary injunction in the form attached hereto as
Exhibit A will be entered.
So ordered.
/s/ Nathaniel M. Gorton_______
Nathaniel M. Gorton
United States District Judge
Dated January 22, 2016
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