SCHERER DESIGN GROUP, LLC v. AHEAD ENGINEERING LLC et al
Filing
48
OPINION filed. Signed by Judge Anne E. Thompson on 7/26/2018. (mmh)
RECEIVED
JUL 26 2018
NOT FOR PUBLICATION
UNITED STATES DISTRICT COUR'lT s:ao
DISTRICT OF NEW JERSEY
WILLl~~JR~ALSH
M
SCHERER DESIGN GROUP, LLC,
Plaintiff,
v.
Civ. No. 18-3540
CHAD SCHWART~; AHEAD
ENGINEERING LLC; FAR FIELD
TELECOM LLC; KYLE MCGINLEY;
DANIEL HERNANDEZ; and RYAN
WALDRON,
OPINION
Defendants.
THOMPSON, U.S.D.J.
INTRODUCTION
This matter comes before the Court on a motion for a preliminary injunction by Plaintiff
Scherer Design Group, LLC ("Plaintiff' or "SDG"). (ECF No. 1.) Defendants Chad Schwartz,
Ahead Engineering LLC, Far Field Telecom LLC, Kyle McGinley, Daniel Hernandez, and Ryan
Wal~on
(collectively, "Defendants") oppose. (ECF No. 37.) The Court has decided this Motion
based on the written submissions of the parties and oral argument held on July 11, 2018. For the
reasons stated herein, Plaintiff's Motion is granted.
BACKGROUND
Plaintiff is a consulting engineering firm in the telecommunications industry, specializing
in the ''design and engineering of antennas and antenna systems for wireless carriers and
associated providers of wireless connectivity," founded by Colleen Connolly and Glenn Scherer.
1
(Compl. ifif 11-12, ECF No. 1.) Its clients are wireless carriers and third-party vendors who
contract with carriers for antenna installation. (Id.
if 18.)
Plaintiff claims that Defendants Chad
Schwartz, Daniel Hernandez, Kyle McGinley, and Ryan Waldron-four of its former
employees-coordinated the appropriation of Plaintiffs trade secrets prior to their mass
resignation to use for competition. (See, e.g., id.
if 65.)
Schwartz worked with Plaintiffs predecessor engineering firm since 2000 and served as
a senior engineer and Director of Engineering at SDG. (Id.
if 48.)
On November 27, 2017, after
.months of disagreement with Plaintiff regarding his future role and potential partnership,
Schwartz resigned, effective December 8, 2017. (Id.
ifif 53-55.)
Schwartz subsequently formed
two of his own consulting engineering firms, Defendants Ahead Engineering LLC and Far Field
Telecom LLC. (Id.
if 56.)
Defendant Ahead Engineering is a self-described "full-service
telecom engineering firm," and Defendant Far Field is a company that offers "innovative costeffective solutions of oDAS and small cell site concealment." (Id.
ifif 57, 59 (quoting each
company's Linkedln profile).) "On January 16, 2018, [Defendants] Hernandez, McGinley[,] and
Waldron resigned from their positions at SDG and officially became, respectively, Principal of
[D]efendant Far Field, Director of Engineering for [D]efendant Ahead Engineering, and Director
of Business Processes for [D]efendant Far Field."
entities/corporate Defendants. (Id.
(Id.~
98.) Schwartz is president ofboth
if 97.)
Plaintiff claims that leading up to their January 2018 resignations, Hernandez, McGinley,
and Waldron downloaded files from Plaintiffs "proprietary relational database." (See, e.g., id.
ifif 13-14.)
According to Plaintiff, this database is an "invaluable" bank of information,
including "original survey data, published specifications[,] and dozens of other critical data
points relating to each of the 10,000 antenna projects its predecessors and staff have designed"
2
over the past 20 years. (Id. , 14; see also id. ,, 25-28 (describing nature of data in greater
detail).) Plaintiff's database also included a specially-developed "ExteNet Automation System"
for a client ExteNet that "dominates the market for building out wireless broadband data in and
around New York City." (Id.,, 33, 35-36.) This system analyzes, integrates, and converts data
into the documentation ExteNet needs to seek approval with the government and wireless
providers, improving Plaintiff's turnaround with ExteNet work, creating a competitive
advantage, and dramatically increasing billing for ExteNet. (Id.,, 37, 39, 41.) Plaintiff
expected its billings and revenue from ExteNet to triple in 2018. (Id., 42.)
Plaintiff alleges that "Hernandez, McGinley[,] and Waldron were directed by Schwartz
and other employees of Ahead Engineering and [Far] Field to systematically copy SDG
computer files they anticipated using at their new firms," in order to "compete with SDG on the
strength of SDG's technology, data, clients." (Id., 47.) After Hernandez resigned, Plaintiff
accessed a Facebook conversation between Defendants through Hernandez's Facebook account
.Messenger application on his SDG computer. (Id. , 74.) The extensive Messenger conversation
discusses the download of files from Plaintiff's database while Hernandez, McGinley, and ·
Waldron were still employed by Plaintiff (see Compl. ,, 77-87 (exhibits of screenshots of a
conversation between Defendants and associates at Ahead Engineering and Far Field)), which
Plaintiff asserts is corroborated by the use and removal of USB drives on SDG computers and
the files that were contemporaneously accessed, shown on the computer's recent places location
finder (id.,, 75, 89-93). The communications also discuss emptying their offices prior to
officially resigning (id., 80) and Defendants' plans for the formal formation of the companies,
such as non-solicitation and non-compete agreements and meetings with the accountant (id.
,, 82-83).
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..
On February 18, 2018, Plaintiffs counsel sent Defendants cease and desist letters, asking
for the return of proprietary information taken from Plaintiff and for the preservation of data.
(Id., 99.) On March 12, 2018, Plaintiff filed this lawsuit in the New Jersey Superior Court, Law
Division, Hunterdon County, against the four past employees and two new engineering firms,
pleading seven Counts: (I) Misappropriation of Trade Secrets and Violation of the New Jersey
Trade Secrets Act ("NJTSA"), N.J.S.A. 56:15-1, et seq.; (II) Violations of the Federal Defend
Trade Secrets Act ("DTSA"), 18 U.S.C. § 1839, et seq.; (III) Breach of Duty of Loyalty;
(IV) Tortious Interference with Prospective Business Relationships; (V) Conversion; and
(VI) Conspiracy. (See generally Compl.; see also Notice of Removal, 1, ECF No. 1.) 1 Plaintiff
filed an order to show cause for temporary restraints and application for preliminary injunction
with its Complaint. Defendants removed to this Court. (ECF No. 1.)
The Court held two hearings on Plaintiff's temporary restraining order ("TRO") on
March 16, 2018 (ECF No. 7) and April 3, 2018 (ECF No. 13) and issued a TRO on April 4, 2018
(ECF No. 14). The TRO generally preserved electronically-stored information, avoided the loss
or alteration of said data and the devices on which it is stored, and enjoined Defendants from
soliciting any of Plaintiff's present clients (who were clients between December 2017 and
January 17, 2018). (See ECF No. 14.) The parties agreed to and subsequently engaged in
expedited discov~ry. A preliminary injunction hearing was scheduled for April 23, 2018 (id.),
then rescheduled at the parties' request for June 6, 2018 (ECF Nos. 18, 20), and in late May, they
sought a two-week extension (ECF Nos. 27, 29). After a status call on May 30, 2018, the parties
1 Defendants
have since filed an Answer and Counterclaim, as well as an Amended Answer and
Counterclaim, both pleading: (I) Invasion of Privacy by Intrusion Upon Seclusion, (II) Invasion
of Privacy by Public Disclosure of Private Acts, (Ill) False Light Invasion of Privacy, and
(IV) Tortious Interference with Contractual and Business Relations. (See generally ECF Nos.
21, 28.) The Court granted Plaintiffs motion to dismiss Defendants' Counts II and III. (ECF
Nos. 23, 45, 46.)
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agreed to handle the preliminary injunction without an evidentiary hearing. (ECF Nos. 30, 33.)
The Preliminary Injunction Motion was fully briefed (ECF Nos. 37-41), and oral argument was
heard on July 11, 2018 (ECF No. 45). At oral argument, the Court indicated that the protections
of the TRO would continue pending an opinion on the preliminary injunction. The Court now
considers Plaintiffs application.
LEGAL STANDARD
Federal Rule of Civil Procedure 65 establishes the guidelines and requirements for
injunctions. Chaves v. lnt'l Boxing Fed'n, 2016 WL 1118246, at *1 (D.N.J. Mar. 22, 2016).
The grant or denial of a preliminary injunction is within the discretion of the court. See Am.
Express Travel Related Servs., Inc. v. Sidamon-Eristojf, 669 F.3d 359, 366 (3d Cir. 2012). The
primary purpose of preliminary injunctive relief is "maintenance of the status quo until a
decision on the merits of a case is rendered." Acierno v. New Castle Cty., 40 F.3d 645, 647 (3d
Cir. 1994). The decision to issue a preliminary injunction is governed by a four-factor test,
wherein the plaintiff must demonstrate:
(1) that they are reasonably likely to prevail eventually in the litigation and (2)
that they are likely to suffer irreparable injury without relief. If these two
threshold showings are made the District Court then considers, to the extent
relevant, (3) whether an injunction would harm the [defendants] more than
denying relief would harm the plaintiffs and (4) whether granting relief would
serve the public interest.
K.A. ex rel. Ayers v. Pocono Mountain Sch. Dist., 710 F.3d 99, 105 (3d Cir. 2013) (quoting
Tenafly Eruv Ass 'n v. Borough of Tenafly, 309 F.3d 144, 157 (3d Cir. 2002)).
A preliminary injunction is an "extraordinary remedy, which should be granted only in
limited circumstances," Instant Air Freight Co. v. C.F. Air Freight, Inc., 882 F.2d 797, 800 (3d
Cir. 1989), and is "never awarded as of right," Groupe SEB USA, Inc. v. Euro-Pro Operating,
5
LLC, 774 F.3d 192, 197 (3d Cir. 2014) (quoting Winter v. Nat. Res. Def. Council, Inc., 555 U.S.
7, 24 (2008)).
DISCUSSION
I.
Threshold Argument: Unclean Hands
In opposition to Plaintiff's application, Defendants raise a threshold argument of unclean
hands that the Court will address first. Defendants argue that Plaintiff's unconscionable conduct
and unclean hands in this case foreclose it from seeking equitable relief or being entitled to a
preliminary injunction. (Defs.' Opp'n at 4, 12, ECF No 37.)
According to Defendants, Plaintiff-by and through IT specialist Jason Gerstenfeldviolated their privacy rights when it utilized a password recovery tool to access Hernandez's
Facebook account daily for six weeks to collect information for this lawsuit, downloaded a
special application to prevent Hernandez from knowing it viewed the Facebook account, and
accessed Hernandez's other personal accounts, including his bank account. (See id. at 1, 6-7, 9;
See Computer Forensics Report for Digital4nx Group, Defs.' Ex. D, ECF No. 37-l.) In
response, Plaintiff submitted a declaration by Gerstenfeld asserting that Hernandez had not fully
logged out and denying that he took such surreptitious actions. (Gerstenfeld Deel.~~ 5-6, 19,
ECF No. 38-6.) Plaintiff also asserts that it was entitled to access these accounts because they
were left open on a company laptop. (Scherer Dep. 145: 8-17; 150: 12-151 :2, Defs.' Ex. A, ECF
No. 37-1.) At oral argument, Plaintiff represented that even if its conduct were improper, it does
not warrant a finding of unclean hands or inoculate the value of its litigation and the relief
sought.
At oral argument for both the TRO and preliminary injunction, the Court emphasized that
it would not entertain Defendants' claims of privacy violations in their originally-presented form:
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quasi-Fourth Amendment, fruit of the poisonous tree claims. Defendants now couch this
argument as one for unclean hands. "To prevail on an unclean hands defense, the defendant
must show fraud, unconscionability, or bad faith on the part of the plaintiff." Malibu Media,
LLC v. Lee, 2013 WL 2252650, at *8 (D.N.J. May 22, 2013) (internal citations omitted). The
conduct must: (1) bear direct relation to the matter in litigation/before the Court, (2) injure the
other party, and (3) affect the balance of equities. Id. The relatedness factor is strictly construed.
See Ace Am. Ins. Co. v. Wachovia Ins. Agency, 2008 WL 4630486, at *11 (D.N.J. Oct. 17, 2008).
The parties hotly dispute the factual foundation of this argument: whether Hernandez
truly logged out of his Facebook account such that it should have been inaccessible to
Gerstenfeld. (See, e.g., Defs.' Sur-reply at 2, ECF No. 41.) As the Court addressed at oral
argument on April 3, 2018, it may be reasonable and does not necessarily amount to an intrusion
upon seclusion for an employer to have access to and view password-protected content on a
company laptop. See Stengart v. Loving Care Agency, Inc., 990 A.2d 650, 661, 662-63 (N .J.
2010) (noting case-by-case analysis required for such claims; finding the employee had an
expectation of privacy when attorney-client communications involved). Moreover, this conduct
is arguably not related to the litigation to find unclean hands. While it goes to Plaintiff's full
knowledge of the underlying facts, it does not affect the potential breaches of loyalty, tortious
interference, and/or trade secret violations that are the subject of the litigation and which
occurred prior to Plaintiff's alleged hacking of Hernandez's account. On balance, the Court is
not persuaded that Plaintiff's ''unclean hands" should bar its right to pursue injunctive relief.
Therefore, the Court turns next to the four-factor preliminary injunction analysis.
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II.
Preliminary Injunction Factors
Plaintiff largely rests on its success on the TRO, asserting that there has been no change
in the law or new evidence; therefore, it has already demonstrated it is entitled to a preliminary
injunction. (Pl.'s Suppl. Mem. at 4-6, ECF No. 38 (invoking the law of the case doctrine).) The
Court is not persuaded by this rationale. Noting the fulsome briefs Defendants have supplied in
opposition and the extent of discovery that has occurred since the TRO was issued (see Defs.'
Sur-reply at 3 n.4), the Court will conduct a full analysis of the claims on which it appears
Plaintiff seeks injunctive relief and the remaining equitable factors.
A. Likelihood of Success on the Merits
1. Misappropriation o/Trade Secrets: Counts I and II
Violations ofNJTSA and DTSA both require: "(1) the existence of a trade secret and
(2) the misappropriation of that secret." Par Pharm., Inc. v. QuVa Pharma, Inc., 2018 WL
1374023, at *6 (D.N.J. Mar. 16, 2018) (citing 18 U.S.C. § 1839(3), (5); N.J.S.A. 56:15-2). For
courts in this District, the analysis urider DTSA folds into that ofNJTSA. The essential inquiry
for a trade secret is whether the information derives economic value, the information is not
readily ascertainable by other means, and the holder endeavors for it to remain confidential.
Baxter Healthcare Corp. v. HQ Specialty Pharma Corp., 157 F. Supp. 3d 407, 423 (D.N.J. 2016)
(quoting N.J.S.A. 56:15-2); see also Samsung Am. Inc. v. Park, 2006 WL 3627072, at *16 (N.J.
Super. Ct. Ch. Div. Dec. 11, 2006) (citing Restatement (First) of Torts§ 757 cmt. b (Am. Law
Inst. 1939)) (listing six factors, including the extent known inside and outside business, measures
taken to guard secrecy, value of information to business and competitors, money and effort
expended in developing information, ease with which acquired or duplicated). A plaintiff must
8
have taken "precautions to maintain the secrecy of the trade secret." Mu Sigma, Inc. v. Affine,
Inc., 2013 WL 3772724, at* 8 (D.N.J. July 17, 2013).
According to Plaintiff, Defendants took 77,732 files from its database: (1) 8,307 SDG
client documents, (2) 68 Tilson client drawings, and (3) entire SDG email accounts of
Defendants Hernandez and McGinley. (Pl.'s Reply at 3, ECF No. 40.) Plaintiff describes the
proprietary nature of the files in detail: construction plans (drawings, building, safety, and code
specifications); calculation spreadsheets and internal analysis tools for expedited schedules and
quality deliverables; computer-aided design files and macros; the ExteNet Automation System;
and files related to general project deliverables. (See Connolly Deel.~~ 43-44, 48-49, 51-53;
67-68, ECF No. 38-1). Even where this information might be publicly available, Plaintiff asserts
that its effort in collecting, collating, organizing, and arranging the contents of the database
makes it of great value to another business and gave Plaintiff a competitive edge. (Pl. 's Suppl.
Mem. at 5; Connolly Deel. W41, 46.)
Defendants argue that because Plaintiff failed to take any measures to protect this
information, it does not rise to the level of a trade secret, and Plaintiff thus cannot demonstrate a
likelihood of success on the claim. (Defs.' Opp'n at 14-15.) At oral argument, Defendants
emphasized that Plaintiff had no password protection, policies or labels, nor agreements-non-
compete, non-solicitation, confidentiality, etc.-in place to protect this information. Plaintiff did
not rebut this point, and there is deposition testimony from Scherer during defense examination
about measures Plaintiff did not take to truly protect this information. (See Scherer Dep. 38:1939:5, 88:2-9, 89:2-8, Defs.' Ex. A, ECF No. 37-1.) While it is true that the absence of a nondisclosure or non-compete agreement is not dispositive to this analysis, see Comprehensive Med.
Commc'ns, Inc. v. Pinnacle Commc'ns Grp., Inc., 2005 WL 280452, at *15 (N.J. Super. Ct. App.
9
Div. Jan. 31, 2005) (noting NJ courts have previously found information a protectable trade
secret absent such agreements), Plaintiff has not described any measures taken to ensure
confidentiality, other than the assertion that the database is "only accessible to authorized staff at
SDG[] and could only be accessed through SDG's secure Windows-based domain network and
SDG-supplied and -configured computers" (Compl., 44). The Court cannot conclude that
Plaintiff has met its burden on this essential element of both trade secret claims. Accordingly, it
is not likely that Plaintiff will succeed on the merits on Counts I and IL
2. Breach of the Duty ofLoyalty: Count III
New Jersey common law ascribes "a duty of loyalty that dictates that while [employees]
are employed, they refrain from acting contrary to the employer's interests." Comprehensive
Med. Commc'ns., Inc., 2005 WL 280452, at *17. The duty is comprised of"certain very basic
and common sense obligations," derived from principles of agency. Lamorte Burns & Co. v.
Walters, 770 A.2d 1158, 1168 (N.J. 2001) (citing Restatement (Second) of Agency§ 393 (Am.
Law Inst. 1958)). Courts look to four factors to determine breach:
1) the "existence of contractual provisions" relevant to the employee's
actions; 2) the employer's knowledge of, or agreement to, the employee's
actions; 3) the "status of the employee and his or her relationship to the
employer," e.g., corporate officer or director versus production line
worker; and 4) the "nature of the employee's [conduct] and its effect on
the employer."
Kaye v. Rosefielde, 121 A.3d 862, 870 (N.J. 2015) (alterations in original) (quoting Cameco, Inc.
v. Gedicke, 724 A.2d 783, 791(N.J.1999)). More specifically, an employee must not engage in
"secret acts of competition while still employed," Comprehensive Med. Commc 'ns., Inc., 2005
WL 280452, at *17 (citingAuxton Comput. Enters., Inc. v. Parker, 416 A.2d 952, 955 (N.J.
Super. Ct. App. Div. 1980)), nor take "affirmative steps to injure the employer's business,"
Lamorte, 770 A.3d at 1170. "Assisting an employer's competitor can constitute a breach of the
10
employee's duty of loyalty." Cameco, Inc., 724 A.2d at 786 (citing Restatement (Second) of
Agency§ 394 crnt. a).
First, Defendants examine each individual and corporate Defendant and detail why
Plaintiff cannot succeed: Schwartz ended his employ with Plaintiff long before the alleged
conduct, and the corporate Defendants are entities that cannot owe said duty. (Defs.' Opp'n at
22-24.) Plaintiff responds that Schwartz worked as a sub-consultant and thus owed a duty under
a principal-agent theory and that he cannot induce, aid, abet, direct, or benefit from the disloyalty
of others. (Pl.'s Reply at 4--5 (citing VFB LLC v. Campbell Soup Co., 482 F.3d 624, 634 (3d Cir.
2007)).) Upon Defendants' challenge at oral argument, Plaintiff referred to its Complaint and
clarified that this "aiding and abetting" argument is one of inducement. (See Compl. mf 112,
135.)
The case on which Plaintiff relies for its inducement theory discusses aiding and abetting
the breach of a corporate fiduciary duty. See VFB LLC, 482 F.3d at 634. But the Third Circuit
in VFB cited Franklin Medical Associates v. Newark Public Schools, 828 A.2d 966 (N.J. Super.
Ct. App. Div. 2003), for the general principle that "[a] person who ... intentionally causes or
assists an agent to violate a duty to his principal is subject to liability to the principal." 828 A.2d
I
at 975 (citing Restatement (Second) of Agency§ 312); see also Twp. of Wayne v. Messercola,
789 F. Supp. 1305, 1311 (D.N.J. 1992) (discussing a third party's liability for inducing breach of
a duty by 'an agent through bribery). Plaintiff pleads that "Defendant[] Schwartz ... willfully
and maliciously induced Hernandez, McGinley, and Waldron to induce their loyalties." (Compl.
~
135.) For example, in the Facebook Messenger conversation on January 9, 2018, after
Defendant Schwartz announced new work orders he received, he then urged Defendant Waldron
to prepare for his departure from SDG to work with Defendant Far Field:
11
I'd slowly start removing your property. As soon as I get the$ from SDG, you
are free to go .
. . . and let me verify tomorrow that we'll be able to get you paid too.
(Id.~
81.)
Moreover, an agent-principal relationship is the basis for New Jersey's common law duty
ofloyalty in the employment context. See Restatement (Second) of Agency § 397; id. cmt. a.
The exact nature of the "consultant" relationship between Plaintiff and Schwartz is unclear and
disputed. (See Am.
Answer~
62, ECF No. 28.) Yet Plaintiff has pied facts that imply some
form of agency relationship persisted following Schwartz's formal resignation (see Compl.
~~
62-63; Pl.'s Reply at 4), and Defendants recognize that Schwartz and Plaintiff attempted to
negotiate an agreement to memorialize said relationship (see Defs.' Opp'n at 22 n. 13; Connolly
Dep. 16:21-17:11, Defs.' Ex. E, ECF No. 37-1 (discussing potential contract to memorialize
sub-consultant relationship)). During that time, Schwartz alluded to his own dubious conduct
while discussing the implementation of formal agreements between himself and the other
Defendants for the new firms:
Also, I'd be wise to have non-competes and non-solicits for
partners/employees for all members in both companies. Does anybody
have an issue with that? That'd mean you can't go off on your own, steal
clients, employees and compete with the other partners. These are things
SDG is wishing they had about now .... What if I take all AE' s clients
and start my own company doing the exact same thing? Would you want
me to do that to do you? Well guess what. I wouldn't want you to do it to
me, either. And SDG is pretty sorry they didn't lock me down too.
(Compl., 82.) Conversely, the corporate Defendants/entities were never engaged in any agency
relationship with Plaintiff, and therefore, owed Plaintiff no duty. And unlike with respect to
Schwartz, the Court cannot conclude that these entities induced or incited the other individuals to
breach their duties of loyalty.
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Next, Defendants argue that the remaining three individual Defendants-Hernandez,
McGinley, and Waldron-engaged in reasonable preparation for future employment. (See Defs.'
Opp'n at 23-24.) Plaintiff, however, points to the fact that Hernandez changed client log-in
credentials, allegedly so that he could access the client's site for future work (Hernandez Dep.
30:2-11, Connolly Deel., Ex. B, ECF No. 38-3); Waldron did outside work for ExteNet and
Schwartz (Waldron Dep. 25:7-22, Ex. H, ECF No. 37-1); McGinley allegedly failed to bill and
invoice certain work prior to his departure (Scherer Dep. 76:7-77:20); and Hernandez allegedly
ignored work orders (Pl. 's Reply at 4; Connolly Deel.,, 34-38). This conduct may be found to
be against Plaintiff's interests and for competitive use, evidencing disloyalty beyond planning
and preparation. See Forman Indus. Inc. v. Blake-Ward, 2008 WL 4191155, at *7 (N.J. Super.
Ct. App. Div. Sept. 15, 2008).
Most salient is their download of large amounts of company data in anticipation of
resignation, arguably to use in competition with Plaintiff and thus against its interests. See
Comprehensive Med. Commc 'ns, Inc., 2005 WL 280452, at * 17. The duty of loyalty prohibits
taking protected information from an employer for competition or in anticipation thereof.
Lamorte, 770 A.2d at 1169 (collecting cases from various jurisdictions) (finding defendants
breached duty when they "intentionally began a process of subverting their employer's business
while still employed," such as gathering protected information); Platinum Mgm 't, Inc. v. Dahms,
666 A.2d 1028, 1043 (N.J. Super. Ct. App. Div. 1995) (finding defendant's telecopying of
customers the day after resignation to make appointments on behalf of competitor breached
duty). Such information need not rise to the level of a trade secret to constitute a violation of the
duty of loyalty. See Samsung Am. Inc., 2006 WL 3627072, at * 15 (noting information need not
be a trade secret to be protected, must look to relationship of parties and intended use).
13
Hernandez, McGinley, and Waldron downloaded and transmitted/emailed specific site
examples and data spreadsheets to the other associates with Ahead Engineering and Far Field.
(See Connolly Deel. Exs. C, D, ECF Nos. 38-4, 38-5; Compl. ifif 85-86, 94.) They did so in
response to specific requests for client information and examples, presumably for future
competitive use. (See, e.g., Compl. ir. 94 ("[D]efendant McGinley says, 'let me know if you need
me to access the server to send an example. I'll also look for NJ, NYC, NYS and PA nonExteNet sites for reference."'); id. ("[D]efendant Waldron asks, "Sure. Do you guys want the
CAD too or just the PDF?"'); see also id.
if 85 (conversation demonstrating Hernandez sent a
spread sheet to a partner of Schwartz's when prompted by the question "Any chance I could get
that snow load calculation spread sheet from SDG?").) Defendants' conduct here went beyond
the mere preparation to go into competing business and is more akin to amassing information
and targeting clients like the Lamorte defendants. Samsung Am. Inc., 2006 WL 3627072, at *17.
Therefore, it is likely that the individual Defendants breached their duty of loyalty in
downloading files from Plaintiff's servers and database.
3. Tortious Interference with Prospective Economic Relations: Count IV
"Under New Jersey law, a claim for tortious interference with prospective economic
relations requires that the plaintiff establish: (1) a reasonable expectation of economic advantage;
(2) that economic advantage was lost as a direct result of defendant's malicious interference; and
(3) plaintiff suffered damages." Beverly Hills Motoring, Inc. v. Morici, 2015 WL 248352, at *4
(D .N .J. Jan. 20, 2015) (citing Lamorte, 770 A.2d at 11 70). Some courts have further delineated
these factors, requiring that the plaintiff prove "in the absence of interference, the reasonable
probability that [the plaintiff] would have received the anticipated economic benefit." NY Mach.
14
,•
Inc. v. Korean Cleaners Monthly, 2018 WL 2455926, at *4 (D.N.J. May 31, 2018) (alteration in
original) (internal citations omitted).
Plaintiff alleges that Defendants had a deliberate plan to divert SDG clients to Ahead
Engineering and Far Field. (Pl. 's Suppl. Mem. at 5.) With Sam Compton from ExteNet,
Defendants ''were engaged in a conspiracy to fraudulently paint SDG's work in a negative light."
(Connolly Deel. mf 12-14 (claiming Compton and Defendants found reasons to justify pulling
work from SDG); see also Compl. if 43.) Plaintiff notes that it subpoenaed Defendants and
ExteNet for communications between Compton and Schwartz, but neither has complied. (Pl.'s
Reply at 4 n.2.) Defendants respond that there was no deliberate plan-ExteNet stopped using
Plaintiff because it turned down ExteNet work in late December, and its work quality and
timeliness was sub-par. (Defs.' Opp'n at 17-19; Compton Dep. 40:3-41 :16, Def.'s Ex. F, ECF
No. 37-1.) The legitimacy of this explanation is heavily disputed. Outside of speculative
declarations and deposition testimony, Plaintiff has little evidence that there was any tortious
interference with ExteNet directly or that Defendants' conduct with ExteNet was malicious, or
"wrongful, intentional interference." NY Mach. Inc., 2018 WL 2455926 (internal citations
omitted).
Moreover, Plaintiff again emphasizes Hernandez's change of the Tilson log-in credentials
so that SDG could not access it in the future and his purposefully avoiding Tilson work orders,
thus interfering with and hindering prospective economic relations and potential future contracts.
Hernandez Dep. 30:2-11; Connolly Deel. ifif 16-17, 24-25.) But Plaintiffhas not presented
adequate evidence for the Court to conclude that Defendants' conduct had a causal relationship
with the loss of any client work or relationships and that it would have received certain contracts
15
but-for Defendants' conduct. Accordingly, Plaintiff cannot demonstrate a strong likelihood of
success on this claim.
On balance, Plaintiff has demonstrated a strong likelihood of success on the merits of its
breach of the duty of loyalty claim as to Defendants Schwartz, Hernandez, McGinley, and
Waldron (Count III), but not as to its trade secrets or tortious interference claims.
B. Irreparable Harm
Plaintiff asserts that it has experienced, and will continue to face, sabotage to its business
absent an injunction. It highlights that it has already lost its largest client, ExteNet, and it lost
multiple critical staff in a short period of time, forcing other staff to work overtime. (Connolly
. Deel. mf 72, 75; Scherer Dep. 26:9-16.) At oral argument, counsel represented a loss of
approximately $1.5 million to date. Plaintiff also highlights that in this small industry,
relationships and reputations are extremely important, and Defendants have evidenced a
vindictiveness and maliciousness towards Plaintiffs business. (Connolly Deel. W71, 74.)
Defendants argue, however, that irreparable harm is defeated because financial statements
produced during discovery prove that Plaintiffs "claims of going out of business and imminent
business destruction were greatly exaggerated and overblown." (Defs.' Opp'n at 4 n.2, 25-26.)
Economic harm alone, compensable through monetary damages after judgment on the
merits, is insufficient for a showing of irreparable harm in this context. See Acierno, 40 F 3d at
655. Nonetheless, "the diversion of a company's customers may also constitute irreparable
harm." Samsung Am. Inc., 2006 WL 3627072, at *15. It is evident that Plaintiff has lost one of
its most significant clients, although whether this is a result of Defendants' conduct or Plaintiffs
own transgressions is unclear at this stage. Additionally, the oft-malicious and aggressive nature
of Defendants' communications via Facebook Messenger evince an ill will towards Plaintiff and
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Plaintiff's business. (See Compl. ,, 77, 81-82, 84.) Defendants occupy the same niche
professional sphere as Plaintiff and undoubtedly will pose a threat to Plaintiff's businesspossibly intentionally and likely de facto. Thus, Plaintiff has demonstrated a likelihood of
irreparable harm.
Defendants also argue that the significant delay in seeking injunctive relief cuts against
future irreparable harm. (Defs.' Opp'n at 26.) The case law on which Defendants rely is
distinguishable to the instant case. Plaintiff did take some time to prepare its Complaint during
which it could have more quickly sought relief, and this preliminary injunction process has been
drawn out. Nevertheless, Plairttiff promptly sought aTRO upon filing its Complaint, which has
now been in place since early April. Cf Smart Vent Prods. v. Crawl Space Door Sys., 2016 WL
4408818, at *12 (D.N.J. Aug. 16, 2016) (sought an injunction April 28, 2016 for events that
occurred in Fall 2015); Pharmacia Corp. v. Alcon Labs., Inc., 201 F. Supp. 2d 335, 382 (D.N.J.
May 14, 2002) (knew of potential for trademark infringement long before filing civil action and
seeking injunctive relief).
C. Potential Harm to Defendants and the Public Interest
Defendants generally argue the injunction sought is over broad, open-ended, and will
harm their ability to do business in and "enhance" the telecommunications engineering industry.
(Defs.' Opp'n at 27, 29.) They also argue that it will harm those individuals who have stakes in
the Defendant companies but are not directly involved in this litigation. (Id. at 28.) The Court
notes that the TRO limitations are identical to those sought by Plaintiff with this application, and
Defendants have raised no argument that these limitations have been detrimental to them or their
businesses. Notably, the briefing focuses on the merits and unclean hands arguments, with little
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attention given to these factors. Without a greater showing by the parties, neither factor
undermines the foregoing analysis.
CONCLUSION
Plaintiff seeks to continue the restraints imposed by the TRO in the form of a preliminary
injunction until a resolution on the merits is reached in this case. With serious consideration of
the detailed briefs, exhibits, and deposition testimony put forth, as well as the parties'
representations at oral argument, the Court finds that such a preliminary injunction is warranted.
The Court notes, however, that many of Plaintiffs arguments have tenuous footing under the
law. Plaintiff has only successfully met its burden for a strong likelihood of success on the
merits with respect to the duty of loyalty claims for the individual Defendants. The Court was
most persuaded that Plaintiff faces potential continued harm during the pendency of this
litigation. For the foregoing reasons, Plaintiffs Motion is granted. An appropriate Order will
follow.
Date:
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