DS Parent, Inc. v. Teich et al
MEMORANDUM-DECISION AND ORDER denying 12 Motion for Permanent Injunction: ORDERED, that the TRO (Dkt. No. 18) is, to the extent it remains in effect, DISSOLVED; and it is further ORDERED, that the Motion (Dkt. No. 12) for preliminary injunctive relief is DENIED; and it is further ORDERED, that the Clerk of the Court serve a copy of this Memorandum-Decision and Order on all parties in accordance with the Local Rules. Signed by Senior Judge Lawrence E. Kahn on 2/10/14. (ban)
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF NEW YORK
DS PARENT, INC.; and
DONALD TEICH; and SAM NORTH
MEMORANDUM-DECISION and ORDER
Plaintiffs DS Parent, Inc. (“DS”) and Davis-Standard, LLC (“Davis”) (collectively,
“Plaintiffs” or “Davis”) have moved for a preliminary injunction enjoining Defendant Donald Teich
(“Teich”), a former Davis employee, from, inter alia, working for his current employer, Defendant
SAM North America, LLC (“SAM”). Dkt. No. 12 (“Motion”); see also Dkt. No. 14
(“Memorandum”). Because Plaintiffs have failed to demonstrate that noncompete agreements
bound Teich or that Plaintiffs have protectable interests, the Motion is denied and the January 13,
2014 Temporary Restraining Order is, to the extent it remains in effect, dissolved. See Dkt. No. 18
Davis builds and sells converting and extrusion machines, including “liquid coating”
equipment,1 based on its customers’ specifications. Dkt. No. 7 (“Amended Complaint”) ¶¶ 17-18.
In liquid coating, a “substrate (which may be paper, film, fabrics, etc.) is unrolled,
treated/coated with certain liquids, then dried and rolled up again. Its applications are found
everywhere: for example, in tapes or labels, in silicone coating for adhesive packaging, in specialty
Teich began working for a Davis predecessor in 1987 and served as a salesman and an executive.
Id. ¶¶ 19-20. From 2002 until 2013, Teich worked in Davis’s (and it predecessor’s) liquid coating
division, first as a district sales manager and subsequently as Vice President for Liquid Coating,
although he returned to a sales position at his request in April 2013. Id. ¶¶ 22-23, 44.
In January 2012, incident to DS’s acquisition of Davis, Teich entered into an employment
agreement containing: (1) a noncompete provision prohibiting Teich, were he to resign from Davis
or be terminated with cause, from working for a domestic competitor for two years; (2) a
nonsolicitation provision prohibiting Teich from soliciting Davis’s customers for the same two-year
period; and (3) a nondisclosure provision indefinitely prohibiting Teich from disclosing Davis’s
trade secrets or confidential information. Id. ¶¶ 24-26; Dkt. No. 7-1 (“Employment Agreement”) ¶¶
Teich was also given the option to purchase DS stock pursuant to a securities purchase plan
(“Plan”). Am. Compl. ¶ 51. He did so by signing a joinder agreement and participation election
form pursuant to which he became a party to, and bound by, a Stockholder Agreement. Am.
Compl. ¶¶ 51, 54-55; Dkt. Nos. 7-5 (“Participation Form”); 7-2 at 2-903 (“Stock Agreement”); id. at
90-92 (“Joinder Agreement”). The Stock Agreement contained restrictive covenants prohibiting
Teich, upon termination of employment, from working for any competitor or soliciting Davis’s
coating for traffic signs and water-resistant fabrics, or in tinted acrylic plastic used to darken car
and building windows.” Dkt. No. 7 (“Amended Complaint”) ¶ 18.
The Employment Agreement is governed by Connecticut law. Employment Agreement
The pagination corresponds to the page numbers assigned by ECF.
customers or employees for a one-year period.4 Stock Agreement at 27-29; Am. Compl. ¶¶ 3, 52.5
Teich resigned from Davis on November 14, 2013. Am. Compl. ¶ 62. A week later, he
informed Plaintiffs that he had accepted an offer of employment with SAM. Id. ¶ 63. SAM and its
affiliate also produce machines, including liquid coating machines, pursuant to customer
specifications. Dkt. No. 26-1 (“Christie Declaration”) ¶¶ 9-10. Teich was hired as a Vice President
of Sales responsible for SAM’s North American liquid coating business and its South and North
American gravure printing business. Dkt. No. 21 (“Teich Declaration”) ¶ 81; Dkt. No. 26-1 at 51.6
On November 22, 2013, Teich filed a complaint in New York Supreme Court seeking a
declaration that the restrictive covenants in the Employment and Stock Agreements were
unenforceable. Am. Compl. ¶ 64; Teich Decl. ¶ 81; Dkt. No. 13-1. Davis then removed that action.
See Dkt. No. 13 ¶ 11; Teich v. Davis-Standard, LLC, No. 13-CV-1533, Dkt. No. 1 (N.D.N.Y. Dec.
12, 2013).7 Davis also filed this action seeking to enforce the Stock Agreement and a separate
action in the District of Connecticut seeking to enforce the Employment Agreement. See Dkt. Nos.
1 (“Complaint”); 13-2. The parties entered into a stipulation dismissing the Connecticut action and
agreeing to adjudicate the Employment Agreement in this action. Dkt. No. 13 ¶ 13; 13-6
(“Stipulation”). Plaintiffs then filed the Amended Complaint, which seeks to enforce both
The Stock Agreement is governed by New York Law. See Stock Agreement ¶ 13; Mem. at
Plaintiffs do not argue that Teich is bound by any nondisclosure provision in the Stock
Agreement. Compare Am. Compl. ¶ 2 (noting nondisclosure provision of the Employment
Agreement), with id. ¶ 3 (mentioning only noncompete and nonsoliciation provisions in the Stock
Agreement); see also id. ¶¶ 57-59 (describing relevant provisions of the Stock Agreement).
The pagination corresponds to the page numbers assigned by ECF.
That action was subsequently dismissed by stipulation of the parties. Teich v.
Davis-Standard, LLC, No. 13-CV-1533, Dkt. No. 6.
Agreements. See generally Am. Compl. Plaintiffs subsequently filed the Motion, which sought
both a temporary restraining order and a preliminary injunction. Mot. The Court issued the TRO,
which enjoined Teich, pending “further notice of th[e] Court,” from working for SAM or another
Davis competitor, soliciting Davis customers or clients, or using any trade secrets or confidential
information. See Dkt. No. 18 (“TRO”).8 Plaintiffs were subsequently ordered to post bond and did
so. Dkt. Nos. 28-29. Defendants responded to the Motion and Plaintiffs replied. See Dkt. Nos. 211 (“Teich Response”); 26 (“SAM Response”); 30 (“Reply”). Oral argument was held on January
22, 2014. Dkt. Nos. 36; 43 (“Transcript”).
A preliminary injunction is an “extraordinary remedy that should not be granted as a routine
matter.” Patton v. Dole, 806 F.2d 24, 28 (2d Cir. 1986). “The purpose of issuing a preliminary
injunction is to ‘preserve the status quo and prevent irreparable harm until the court has an
opportunity to rule on the . . . merits.’” Candelaria v. Baker, No. 00-CV-0912, 2006 WL 618576, at
*3 (W.D.N.Y. Mar. 10, 2006) (quoting Devose v. Herrington, 42 F.3d 470, 471 (8th Cir. 1994)).
To prevail on a motion for preliminary injunctive relief, a movant must show: (1) irreparable harm;
and (2) either (a) a likelihood of success on the merits of the claim, or (b) sufficiently serious
questions going to the merits of the case to make it a fair ground for litigation, and a balance of
hardships tipping decidedly in favor of the moving party. D.D. ex rel. V.D. v. N.Y.C. Bd. of Educ.,
465 F.3d 503, 510 (2d Cir. 2006). A preliminary injunction “should not be granted unless the
The parties dispute whether the TRO remains in effect or automatically expired after
fourteen days. Dkt. Nos. 37-39. Because the Court determines that a preliminary injunction is not
warranted, the TRO is, to the extent it remains in effect, dissolved. See Javino v. Pergament, No.
13-CV-1951, 2013 WL 1952639, at *1 (E.D.N.Y. May 10, 2013) (noting that the standard for
granting a preliminary injunction and a TRO is the same).
movant, by a clear showing, carries the burden of persuasion.” Moore v. Consol. Edison Co., 409
F.3d 506, 510 (2d Cir. 2005).
A. Likelihood of Success on the Merits.
Plaintiffs bring a number of claims: (1) breach of contract against Teich for breach of the
Employment and Stock Agreements; (2) misappropriation of trade secrets against Teich; (3) tortious
interference with the Employment and Stock Agreements against SAM; (4) unfair competition
against SAM and Teich; and (5) breach of the implied covenant of good faith and fair dealing
against Teich. Am. Compl. at 23-29. Because a determination of the likelihood of success of the
breach of contract claims largely determines the likelihood of success on Plaintiffs’ other claims,
the Court turns to those claims first. As discussed below, Plaintiffs have failed to make the
requisite showing because it is likely that: (1) Teich was released from the Employment
Agreement’s noncompete and became subject to the Stock Agreement’s noncompete by a unilateral
mistake caused by Plaintiffs’ misrepresentations; and (2) the Agreements’ restrictive covenants,
even if they otherwise applied, are unenforceable in light of Plaintiffs’ failure to identify any
1. Breach of Contract
a. Contractual Effectiveness of the Restrictive Covenants
i. Employment Agreement
The Employment Agreement releases Teich from its noncompete9 provision if Davis
Davis notes that the release does not apply to the nonsolicitation and nondisclosure
provisions. See Employment Agreement ¶¶ 5-7; Reply at 13 n.10.
“reduce[d] its efforts in the liquid coating markets” by, inter alia, “1) Ending or severely reducing
its participation in trade shows, conferences, trade print advertising, website, etc.; or 2) Permanently
allocating existing liquid coating resources to other product areas.” Employment Agreement ¶ 5.10
Teich has asserted that Davis reduced its liquid-coating efforts by “severely reduc[ing] its
participation on trade print advertising for liquid coating.” Dkt. No. 13-5, Ex. 8 (“Resignation
Letter”); see also Dkt. No. 26-1 at 38-39 (noting that, as of June 2013, there had been a decrease in
advertising). Davis responded to Teich’s claims by asserting that Davis “does very little print
advertising.” Dkt. No. 26-1, Ex. 9. But the inclusion of the print-advertising release indicates that
Davis engaged in print advertising substantial enough to allow for the possibility of a “severe
reduction”—otherwise, the release provision would be a nullity. Plaintiffs have not provided
evidence or argued that they did not severely reduce their trade advertising. Thus, the record
indicates that print advertising was severely reduced. Moreover, while Davis also asserted that it
did support “several major trade show events” during 2013, it does not indicate that this support
represented an increase over prior years and therefore that the advertising reduction had been offset.
Dkt. No. 26-1, Ex. 9. Thus, Davis has not demonstrated a likelihood that it did not reduce its liquid
The Employment Agreement contains another release provision premised on Davis’s
failure to accept Teich’s recommendations and its concomitant loss of market share. Employment
Agreement ¶ 4. For this release provision to apply, Teich had to submit a notice of termination and
provide Davis with a thirty-day period in which to develop and begin implementing a plan to cure
its putative failure. Id. Davis suggests, without discussion, that the market-share-loss, notice, and
cure-period requirements also applied to the release provisions involving reduced marketing and
permanent reallocation of resources. Am. Compl. ¶ 33. But the plain text of the Employment
Agreement indicates otherwise. The Employment Agreement states that Teich “will be released”
from his noncompete obligations if liquid coating participation is reduced through, inter alia,
severely reduced marketing or permanent re-allocation of resources. Employment Agreement ¶ 4.
A new paragraph then begins with the phrase “In addition to the foregoing” and proceeds to
introduce the additional possibility of release by submitting a notice of termination regarding the
non-acceptance of recommendations. Id.
coating market participation by severely reducing advertising, and therefore has not demonstrated a
likelihood that Teich was not released from the Employment Agreement’s noncompete.
Teich also alleges that he was released from the noncompete because Davis permanently
allocated liquid coating resources to other product areas. See Resignation Letter. He provides
unrebutted evidence that Davis terminated a liquid coating product manager (one of three members
of the liquid coating group) and a salesperson who sold liquid coating along with Davis’s other
products (one of five who did so). Id.; Teich Decl. ¶¶ 33, 41; Dkt. No. 26-1 at 39. Teich has not
presented any specific evidence that these positions or their salaries were permanently allocated to
other product areas. However, he does note that a Davis executive stated around the time of these
layoffs that the liquid coating division had “the lowest ability to win and the lowest market
attractiveness” of all of Davis’s product lines, Teich Decl. ¶ 49, thereby implying that available
resources would be allocated to other product lines. Moreover, Davis has not presented any
evidence that it has replaced either of these terminated employees. See generally Mem.; Reply.
Although it does allege that it made some efforts at hiring, these efforts had either not come to
fruition (or even begun) at the time of Teich’s departure or involved non-liquid-coating-dedicated
personnel. See Teich Decl. ¶ 51; Dkt. No. 26-2 ¶¶ 1-4.11 Thus, Davis has not demonstrated a
likelihood that it had not, at the time Teich resigned, allocated resources away from the liquid
coating division. Davis has therefore failed to demonstrate a likelihood that this release provision
was not triggered.
Plaintiffs argue that Teich’s Declaration admits that he opposed the hiring of a Chinabased liquid-coating-dedicated salesperson. See Reply at 11 (citing Teich Decl. ¶ 46). But
according to Teich, he told Davis executives that, if the company were to hire only one liquid
coating employee, its first priority should be to hire an engineer for its liquid coating plant in
Fulton. Teich Decl. ¶ 46. Rather than outright opposing the hiring of an employee in China, Teich
states that he interviewed a candidate and recommended that he be hired. Id. ¶ 51.
ii. Stock Agreement
Under New York law, a contract may be reformed or rescinded if it is the product of a
mutual mistake.12 See John Hancock Mut. Life Ins. Co. v. Carolina Power & Light Co., 717 F.2d
664, 671 (2d Cir. 1983). However, “a contract may [also] be reformed if there is . . . a mistake by
one party coupled with fraud or inequitable conduct of the other party.” Id. Inequitable conduct
includes deception or even mere awareness of the other party’s mistake combined with superior
knowledge of the subject of that mistake. See id.; Koam Produce, Inc. v. DiMare Homestead, Inc.,
329 F.3d 123, 127 n.3 (2d Cir. 2003) (“Under New York law, in order for a court to allow rescission
of a contract on the basis of a unilateral mistake, a party must establish that . . . the other contracting
party either knew or should have known that such mistake was being made.”); Middle E. Banking
Co. v. State Street Bank Intern., 821 F.2d 897, 906 (2d Cir. 1987) (“New York courts will . . .
rescind contracts . . . even in the absence of fraud where unilateral mistake is established[;] the
mistake must be one which is known or ought to have been known to the other party.” (citation and
internal quotation marks omitted)); Frontier-Kemper Constructors, Inc. v. Am. Rock Salt Co., LLC,
No. 01-CV-6217, 2005 WL 3018720, at *13-14 (W.D.N.Y. Oct. 18, 2005) (“At the very least, the
opposing party must have withheld information which the party seeking rescission or reformation
did not have at the time of making the contract.”); cf. Flower City Painting Contractors, Inc. v.
Gumina Const. Co., 591 F.2d 162, 168 (2d. Cir. 1979) (Oaks, J. dissenting) (“[Where] one party,
the one in the more favorable bargaining position and the one which had drawn the contract, had
made a unilateral mistake [regarding] the terms of a contract . . . , this kind of mistake does not
permit repudiation, rescission, or modification of the contract.”).
As noted supra, New York law governs the Stock Agreement.
Teich argues that Davis’s internal communications to potential Plan-participating employees
indicated that there would be no noncompete provisions in the Stock Agreement.13 On January 27,
2013, prior to signing Teich’s signing of the Joinder Agreement and Participation Form, he and
other Davis employees received an “Anticipated Questions and Answers” (“Q&A”) and a summary
(“Summary”) from Davis regarding the Plan and the Stock Agreement. Teich Decl. ¶¶ 25-26, Dkt.
No. 7-4 . The accompanying cover letter from Davis’s CEO stated that the Stock Agreement was
“difficult to understand” and therefore the Q&A was “designed to address some of the more typical
questions about the [Stock Agreement].” Dkt. No. 7-4 at 2.14 One of the questions and responsive
answers was as follows:
QUESTION: DO I HAVE TO SIGN A NON-COMPETE TO BE ELIGIBLE TO
BUY SECURITIES IN THE COMPANY
Answer: Yes. In Order to be eligible to participate in the Plan, you will be required
to execute the Company’s standard form employment agreement (included in
Exhibit H) that contains a 2 year non-compete clause. Note, some of you may have
already executed this agreement. Please contact Michael Bontempo . . if you have
any questions or are uncertain whether you have already signed the correct
Dkt No. 7-4 at 5-7. No employment agreement was attached as Exhibit H. See Dkt. No. 7-4 at 27.
The Summary also included the following language in two separate places, prominently set
off from the rest of the text in dedicated sections:
Pursuant to the standard form employment agreement which Participants will be
required to execute in order to be eligible to participate in the Plan, during a
Participant’s period of employment with the Company and during the 24-month
period after the termination of such employment relationship, the Participant is
prohibited from competing with the company . . . in certain designated markets.
Teich was never provided with a copy of the Stock Agreement. Teich Decl. ¶ 30.
The pagination corresponds to the page numbers assigned by ECF.
Dkt. No. 7-4 at 9, 15. The Summary does indicate elsewhere that the Stock Agreement itself
contains a noncompete provision and does describe that noncompete and its one-year duration. Id.
at 12-13. However, it does so only once and in an easily overlooked location: the final paragraph of
an eight-paragraph section labeled “Joinder to Stock Agreement” that focuses on the transfer and
sale of stock. Id. at 13.
Teich alleges that the Q&A and the Summary indicated that he would be subject only to the
standard, two-year noncompete in the Employment Agreement that he had signed a few weeks
earlier. Id. ¶ 28. His interpretation is eminently reasonable. The documents Teich received
repeatedly stated that the required noncompete was part of an “employment agreement.” The
Employment Agreement clearly constituted an employment agreement and was labeled as such; the
Stock Agreement was neither labeled as, nor otherwise constituted, an “employment agreement.”
Moreover, the Q&A indicates that the noncompete was part of an agreement that some employees
“may have already executed.” Teich had “already executed” the Employment Agreement. In
contrast, the Q&A and Summary were issued as a precursor to the signing of the Joinder Agreement
and Participation Form, and thus neither Teich nor any other employee had “already executed” the
Stock Agreement and its noncompete provisions. Moreover the Q&A and Summary reference a
two-year noncompete—the same term as the Employment Agreement’s noncompete—whereas the
Stock Agreement’s noncompete provides that Teich would be covered for a one-year term.15 See
Mem. at 1-2.
The single, easily overlooked mention of the Stock Agreement’s noncompete does not
alter this analysis, particularly in light of the principle that “ambiguities in contracts must be
construed against the drafter.” McGowan v. Great N. Ins. Co., 962 N.Y.S.2d 638, 715 (App. Div.
2013). This principle logically extends to documents describing a contract where the same party
has drafted both the documents and the contract.
Teich argues that these documents render the Stock Agreement’s noncompete the product of
mutual mistake: each party believed that the only noncompete that would bind Teich was the one
contained in the Employment Agreement. See Teich Resp. at 7-11. Plaintiffs conclusorily respond
that they were not mistaken. See Reply at 6 n.5. The Plan documents indicate otherwise.
However, Teich need not show that Plaintiffs were mistaken, because he has demonstrated
unilateral mistake. Teich has provided unrebutted evidence that, at the time he signed the Joinder
Agreement and Participation Form, he believed he was not agreeing to an additional noncompete
because of misrepresentations by Davis. Moreover, he has also provided evidence that Davis was
aware of his mistake: given Teich’s recent refusal to sign the Employment Agreement without the
addition of the release provisions, see Teich Decl. ¶¶ 19-21, Davis had reason to know that Teich
was unaware that he was agreeing to be bound by the Stock Agreement’s noncompete, which
contained no release. And Davis certainly possessed superior knowledge of the subject of Teich’s
mistake: it drafted the Stock Agreement and its noncompete provisions, whereas Teich did not even
receive a copy of the Stock Agreement.
Davis responds that Teich should have requested a copy of and read the Stock Agreement.
Reply at 6 n.5. But Davis’s misrepresentations and assurances induced Teich not to do so—in light
of Teich’s fierce negotiation of the releases in his Employment Agreement, it seems probable that,
had he known that the Stock Agreement might contain a noncompete, he would have, at the very
least, insisted on receiving a copy.16 See Rush v. Oppenheimer & Co., Inc., 669 F. Supp. 652, 653
(S.D.N.Y. 1987) (refusing to enforce contract where evidence that defendant induced plaintiff to
sign by materially misrepresenting contract as “a formality . . . [that] need not be read”).
This is particularly so in light of the cover letter’s description of the Stock Agreement as
“difficult to understand.”
Finally, Davis implies that its informing Teich of the Stock Agreement’s noncompete
provisions prior to his departure somehow negates any claim of mistake. See Reply at 6 n.5. But
Teich’s subsequent knowledge has no bearing on his mistakenness at the time he agreed to be
bound by the Stock Agreement. Mistake is a contract-formation defense; a party cannot induce
another to mistakenly agree to a contractual provision and then bind the mistaken party by shouting
“gotcha!” and disclosing the mistake.17 Thus, the Court finds it likely that Teich will be able to
rescind the Stock Agreement or reform it so as to remove its noncompete.
b. Enforceability of the Agreements
Teich has shown that it is unlikely that Plaintiffs can prevail on their breach of contract
claims, because neither of the noncompete provisions he allegedly has breached, or will inevitably
breach, apply to him. But even if both of the Agreements’ noncompetes bound Teich, Plaintiffs
have failed to demonstrate a protectable interest and therefore have not demonstrated a likelihood
that the noncompete, the nonsolicitation provisions, or the Employment Agreement’s nondiclosure
provision are enforceable. “[C]onsiderations of public policy militate against the enforcement of
restrictive covenants of future employment.” Sprinzen v. Nomberg, 389 N.E.2d 456, 460 (N.Y.
1979). Therefore, under New York law, “enforcement [of noncompete covenants] will be granted
to the extent necessary (1) to prevent the employee’s solicitation or disclosure of trade secrets, (2)
to prevent the employee’s release of confidential information regarding the employer’s customers,
or (3) in those cases where the employee’s services to the employer are deemed special or unique.”
Davis’s disclosure regarding the existence of the Stock Agreement’s noncompete would
be relevant if Teich ratified that provision by continuing to accept the benefits of the Stock
Agreement after disclosure. See 737 Park Ave. Acquisition LLC v. Shalov, 964 N.Y.S.2d 533, 534
(App. Div. 2013). Davis has not argued or offered evidence that Teich did so. See generally Mem.;
Ticor Title Ins. Co. v. Cohen, 173 F.3d 63, 70 (2d Cir. 1999); see also BDO Seidman v. Hirshberg,
712 N.E.2d 1220, 1223 (N.Y. 1999). Similarly, under Connecticut law, noncompetes will not be
enforced where doing so does not serve “the employer’s need to protect legitimate business
interests, such as trade secrets and customer lists.” Deming v. Nationwide Mut. Ins. Co., 279 Conn.
745, 761 (2006) (citation omitted and emphasis added); see also New Haven Tobacco Co. v.
Perrelli, 18 Conn. App. 531, 536 (1989) (“In order for [a restrictive covenant] to be reasonable, it
first must be determined that the employer is seeking to protect a legally recognized interest.”).
Thus, unless Plaintiffs can demonstrate the existence of a protectable interest, their Motion must be
A party seeking a preliminary injunction must identify with specificity the protectable
interests at issue. See Vbrick Sys., Inc. v. Stephens, No. 08-cv-1979, 2009 WL 1491489, at *9 (D.
Conn. May 27, 2009) (refusing to issue preliminary injunction where employer failed to offer
proper “evidentiary basis” for its assertion of protectable information); H. Meer Dental Supply Co.
v. Commisso, 702 N.Y.S.2d 463, 465 (App. Div. 2000) (denying preliminary injunction where
plaintiff failed to identify the “specific data” constituting a protectable interest); WebMD Health
This is true not only with respect to the Agreement’s noncompete provisions, but also with
respect to their nonsolicitation provisions and the Employment Agreement’s nondiclosure
provision. See Arakelian v. Omnicare, Inc., 735 F. Supp. 2d 22, 41 (S.D.N.Y. 2010) (noting that
the requirements for enforcing noncompetes “appl[y] with equal force to covenants not to solicit a
former employee’s clients and employees; solicitation is simply a form of competition”); Vbrick
Sys., Inc. v. Stephens, No. 08-cv-1979, 2009 WL 1491489, at *1-2, *8-10 (D. Conn. May 27, 2009)
(denying motion to enforce noncompete and nondisclosure provision where employer failed to
demonstrate protectable interest); Estee Lauder Cos. v. Batra, 430 F. Supp.2d 158 (S.D.N.Y. 2006);
Scott v. General Iron & Welding Co., Inc, 171 Conn. 137, 137 (1976) (“In order to be valid and
binding, a covenant which restricts the activities of an employee following the termination of his
employment . . . should afford only a fair protection to the interest of the party in whose favor it is
made.” (emphasis added)).
Corp. v. Martin, No. 601654-06, 2006 WL 1892261, at *9 (N.Y. Sup. Ct. July 11, 2006) (denying
injunction where plaintiffs provided “conclusory statements and heavily redacted emails” regarding
putatively protected information); see also MSCI Inc. v. Jacob,, 945 N.Y.S.2d 863, 865 (Sup. Ct.
2012) (“[T]he law requires that a trade secret plaintiff identify trade secrets with reasonable
particularity early in the case.”).
i. Trade Secrets
“Under New York law, a trade secret is defined as any formula, pattern, device or
compilation of information which is used in one’s business, and which gives [the owner] an
opportunity to obtain an advantage over competitors who do not know or use it.” EarthWeb, Inc. v.
Schlack, 71 F. Supp. 2d 299, 314 (S.D.N.Y. 1999) (internal quotation marks and citation omitted).
In determining whether a trade secret exists, New York courts consider the following factors: (1)
the extent to which the information is known outside of the former employer’s business; (2) the
extent to which it is known by the former employer’s employees and others involved in the
employer’s business; (3) the extent of measures taken by the former employer to guard the secrecy
of the information; (4) the value of the information to the former employer and its competitors; (5)
the amount of effort or money expended by the employer developing the information; and (6) the
ease or difficulty with which the information could be properly acquired or duplicated by others.
Integrated Cash Mgmt. Servs., Inc. v. Digital Transactions, Inc., 920 F.2d 171, 173 (2d Cir. 1990).
“The most important factor is whether the information is secret.” Thin Film Lab, Inc., v. Comito,
218 F. Supp. 2d 513, 520 (S.D.N.Y. 2002).
Trade secrets are similarly defined under Connecticut law pursuant to the Connecticut
Uniform Trade Secrets Act (“CUTSA”), Conn. Gen. Stat. § 35–50 et seq., which “codifies the basic
principles of common law trade secret protection.” Complete Energy, Inc. v. Fox, No.
116004252S, 2013 WL 812483, at *2 (Conn. Super. Ct. Jan. 25, 2013) (alterations omitted). A
trade secret is “information, including a formula, pattern, compilation, program, device, method,
technique, process, drawing, cost data or customer list that: (1) Derives independent economic
value, actual or potential, from not being generally known to, and not being readily ascertainable by
proper means by, other persons who can obtain economic value from its disclosure or use, and (2) is
the subject of efforts that are reasonable under the circumstances to maintain its secrecy.” Conn.
Gen. Stat. § 35–51(d).
Plaintiffs argue that Teich’s knowledge of the technical processes involved in the production
of Davis’s machines constitutes a trade secret. See Reply at 8 (citing Dkt. No. 13-3 (“Stevenson
Declaration”) ¶¶ 7-12); Stevenson Decl. ¶¶ 7-12. They conclusorily allege that Teich has “intimate
knowledge of the science and engineering of the liquid coating systems built and sold by DavisStandard, including the empirical testing and trial-and-error that Davis-Standard has performed over
the years.” Stevenson Decl. ¶ 8; Am. Compl. ¶ 36 . But Plaintiffs point to no specific technology.
See generally Mem.; Reply. Instead, they analogize the unspecified technological trade secrets to
Coke’s “secret formula.” Stevenson Decl. ¶ 19. This does not suffice.
In response, Defendants present expert evidence that “[i]n terms of machine technology,
there are no secrets with respect to liquid coating machinery. The machinery and the hardware are
mature and all suppliers of liquid coating machinery essentially construct the machinery in the same
manner.” Christie Decl. ¶ 27. Indeed, according to Defendants, the standard technology involved
in liquid coating machines is widely shared and discussed in technical papers and industry
publications. Id. ¶¶ 29-31; see also Dkt. No. 26-1 at 13-35. Defendants further assert that, to the
extent a customer requires machinery that employs non-standard technology, the customer’s
engineers design the machinery, and machine suppliers like Davis merely carry out those
specifications—specifications that the customer protects with nondisclosure agreements that ensure
Davis cannot subsequently use those specifications or technology with any other customer. Id. ¶¶
35-36; Teich Decl. ¶ 68. Plaintiffs have offered no evidence refuting these assertions. See
generally Mem.; Reply. Thus, the Court cannot conclude that Teich has acquired any technological
knowledge belonging to Davis or having any utility to Davis or its competitors.
Davis also references Teich’s “strategic knowledge” of Davis’s liquid coating business.
Mem. at 8. See also Am. Compl ¶ 35 (alleging that Teich knows Davis’s “capabilities and
strategies”). But Davis points to only two specific instances of this strategic information. First, it
references the Teich-authored 2012 and 2013 strategic plans for the liquid coating division.
Stevenson Decl. ¶ 7. The only evidence Plaintiffs offer as to the content of these plans is the
declaration of a Davis employee who states that he is “personally . . . not familiar with the details
set forth [in the plans]” and outlines their content in broad strokes: “The strategic focus for the
company, identifying world-wide opportunities for growth, and assessing the strength and
limitations of Davis-Standard’s liquid coating line of business.” Id. Davis also points to email
communications between Teich and supervisors regarding the liquid coating division. See Reply at
1, 13 (referencing Dkt. No. 26-1 at 37-50). These emails contain Teich’s relatively non-specific
assessments of the quality and need for overhaul of Davis’s equipment and labs; the need for
qualified, liquid-coating-dedicated salespeople, engineers, and product managers; the fact that cost
had led to order losses; the role of the weak dollar in making Davis’s machines more affordable
than those of its European competitors; the willingness of younger engineers and managers at
customers to “gamble” on SAM even though it was a South Korean company; the need to create
“awareness” of Davis’s coating equipment; the need for liquid-coating-dedicated employees in
Asia; general industry and manufacturing areas of profitability; potential new types of coating
businesses; Davis’s high installation costs; the good performance of Davis’s price-quotations
personnel; the need to partner with suppliers of certain parts; and targets for new liquid-coating
expenditures. Dkt. No. 26-1 at 36-50. The type of information contained in the strategic plans and
communications has generally been held not to be a trade secret. See Silipos, Inc. v. Bickel, No.
06-cv-02205, 2006 WL 2265055, at *4 (S.D.N.Y. Aug. 8, 2006) (“[T]trade-secret protection does
not extend to information regarding ‘market strategies.’”); LinkCo, Inc. v. Fujitsu Ltd., 230 F.
Supp. 2d 492, 499-500 (S.D.N.Y. 2002) (noting that “information consisting simply of business
possibilities or goals is not a trade secret” and finding it highly unlike that an “amalgamation of
business concepts, strategies, and ideas to be used in the eventual construction of a marketable
computer software program” constituted a trade secret); EarthWeb, Inc. v. Schlack, 71 F. Supp. 2d
299, 315 (S.D.N.Y. 1999) (“[K]nowledge of . . . future acquisition plans . . . is generally not
considered a trade secret.”); Marietta Corp. v. Fairhurst, 754 N.Y.S.2d 62, 67 (App. Div. 2003)
(finding that “pricing data and market strategies” do not constitute trade secrets). Moreover, Teich
alleges Davis all but ignored the recommendations he had made 2012 and 2013 strategic plans. See
Teich Decl. ¶¶ 31-52. Davis’s failure to follow Teich’s strategic advice weighs heavily against
finding that advice to be a trade secret: there is little value to Davis or a competitor in plans that
Davis does not carry out. Moreover, to the extent the strategic plans and communications laid out
Davis’s inadequate investment in its liquid coating division, SAM asserts that this information was
widely known throughout the industry. Christie Decl. ¶¶ 22-23, 39.
Although Davis does point to cases where strategic information has been found to constitute
a trade secret, see Mem. at 19-20, such information either accompanied technological trade secrets,
see Int’l Bus. Machines Corp. v. Papermaster, No. 08-CV-9078, 2008 WL 4974508 (S.D.N.Y. Nov.
21, 2008); Misys Intern. Banking Sys., Inc. v. TwoFour Sys., LLC, No. 650101, 2004 WL 3058144
(N.Y. Sup. Ct. Nov. 23, 2004) (finding trade secrets where employee had knowledge of pricing and
the “functional design” of the employer’s proprietary software product), or involved detailed
information about new products, see Estee Lauder, 430 F. Supp. 2d at 176 (finding trade secrets
where employee was knowledgeable about marketing plans and “confidential products currently
under development and product innovations scheduled for the coming years” and possessed
“confidential information about the stage of development of products in the pipeline”); Lumex, Inc.
v. Highsmith, 919 F. Supp. 624, 629-30 (E.D.N.Y. Mar. 19, 1996) (finding information regarding
“objectives” and “profit margins” confidential where they related to specific “new and future
equipment” developed by employer). Plaintiffs have not shown that Teich’s strategic knowledge
accompanied technological trade secrets or involved specific aspects of new products. See
generally Mem.; Reply.
Plaintiffs also argue that Teich knows how much Plaintiffs have bid for machines for which
a customer has not yet selected a builder, and can thereby have SAM lower or raise its bid to
achieve maximum profitability while still under-bidding Davis. See Tr. at 4, 10-11. But Plaintiffs
offer no evidence regarding any specific bid and only referred to this protectable interest at oral
argument and in passing in their Reply. See id.; Reply at 10; Lipton v. Nature Co., 71 F.3d 464,
469 (2d Cir. 1995) (“[M]ere conclusory allegations or denials in legal memoranda or oral argument
are not evidence and cannot by themselves create a genuine issue of material fact where none would
otherwise exist.” (citation and internal quotation marks omitted)). Moreover, while knowledge of
pricing may constitute a trade secret, Teich argues that Davis’s bids were not treated as
confidential: they were not password protected and were available to all Davis employees with
computer access, including non-sales personnel in the engineering and laboratory departments.
Teich Decl. ¶ 71. Similarly, the reports salespeople prepared regarding their calls with
clients—calls that presumably touched on bid amounts—were distributed to “a long list of people”
and were not password protected. Id. ¶ 75. Moreover, Teich argues that customers share
manufacturers’ quotes with other manufactures. Id. ¶ 70. The overall lack of bids secrecy weighs
against a finding that bids were trade secrets. Cf. Charter Oak Lending Group, LLC v. August, 127
Conn. App. 428 (App. Ct. 2011) (finding a trade secret where each employee had access only to
information regarding her own customers, information was encrypted, and servers carrying
information were locked).
Teich also alleges that customers “almost always” seek quotations from “several
manufacturers.” Teich ¶ 69. Davis’s bids are thus of limited utility: SAM, were it to raise or lower
its bids so as to achieve maximum profitability while still under-bidding Davis, would risk over- or
under-bidding other manufacturers. Thus, on the present record, Davis has not demonstrated that
Teich possess bid information constituting a trade secret.
ii) Protectable Customer-Related Interests
1) Customer Relationships
“Protection of customer relationships the employee acquired in the course of employment
may indeed be a legitimate interest.” BDO Seidman, 712 N.E.2d at 1224. However, for customer
relationships to be protectable, the employee must have long-standing client relationships and her
services must be “a significant part of the total transaction.” Id. Plaintiffs point to Teich’s “special
and unique relationships” with Davis’s existing and potential clients acquired by trading on Davis’s
“good will.” Reply at 9. But Plaintiffs do not specify what made these relationships unique or
valuable. While Teich may have worked with customers over a long period of time and engaged in
“focused and intelligent discussions . . . regarding the customization of liquid coating equipment,”
his relationships appear to have been devoid of any “personal” aspect. See Stevenson Decl. ¶¶ 913; cf. Sanford Hall Agency, Inc. v. Dezanni, No. CV044000576, 2004 WL 3090673, at *3 (Conn.
Super. Ct. Dec. 2, 2004), at *3 (refusing to enforce restrictive covenant where employee’s
transactions with clients were “conducted largely over the phone and entertaining or socializing
with the clients was extremely rare”). Moreover, most of Davis’s customers are one-time
purchasers, see Teich Decl. ¶ 85, and thus the customer relationships he developed are of limited
value. See Vbrick, 2009 WL 1491489, at *9 (refusing to issue injunction where “most, if not all, of
the customer relationships in question were not long-term relationships”); Sanford Hall, 2004 WL
3090673, at *3 (refusing to enforce restrictive covenant where employee’s sales were a “one-time
deal”); cf. Johnson Controls, Inc. v. A.P.T. Critical Sys., Inc., 323 F. Supp. 2d 525, 532 (S.D.N.Y.
Jun. 24, 2004) (enforcing noncompete where majority of employer’s customers were “repeat users”
because of, inter alia, employee’s “client relationships”); Greystone Staffing, Inc. v. Goehringer,
No. 13906-06, 2006 WL 3802202, at *3 (N.Y. Sup. Ct. Nov. 27, 2006) (finding protectable interest
where employee’s “significant” relationships had allowed employer to “compete for and obtain the
patronage and repeat business of its customers.”(emphasis added)). Plaintiffs have not shown that
Teich’s customer relationships constitute a protectable interest.
2) Customer Information
Lastly, Plaintiffs conclusorily point to Teich’s knowledge of “customer specifications and
needs” and “customer information.” Mem. at 12. But, as discussed supra, to the extent Plaintiffs
are referring to customer specifications for machinery, the record indicates that those specifications
are the proprietary information of the customer, not Davis, and have no utility beyond the specific
project for which they are prepared. See Christie Decl. ¶¶ 33-36; Teich Decl. ¶ 67. Moreover,
there is no evidence that Davis has expended significant resources in identifying customers and
learning their needs and predilections. See generally Mem.; Reply; cf. Giffords Oil Co. v Wild, 483
N.Y.S.2d 104, 106 (App. Div. 1984) (finding protectable interest where plaintiff oil company
expended “substantial time and money” to acquire list of customer information such as the “fuel oil
capacity of customers’ tanks, and the amount certain customers are willing to pay”). Rather,
Defendants have offered unrebutted evidence that customers solicit bids from machining companies
like Davis and SAM. Christie Decl. ¶¶ 33-36; Teich Decl. ¶ 67. Plaintiffs have not shown that they
have a protectable interest in Teich’s customer information.
iii. Unique Employee
Even where there are no protectable trade secrets or customer information, a noncompete
may be enforced under New York law where the employee is “special, unique or extraordinary “
Ticor, 173 F.3d at 65. Connecticut courts also recognize this principle. See Samuel Stores, Inc. v.
Abrams, 94 Conn. 248, 255 (1919); Conn. Bathworks Corp. v. Palmer, No. CV030081927S, 2003
WL 22006402, at * 3 (Conn. Super. Ct. Aug. 1, 2003). An employee’s uniqueness turns on her
“relationship to the employer’s business” and must be analyzed on a “case-by-case” basis. Ticor,
173 F.3d at 65. It is not enough that an employee be “of value.” Id. at 70. Plaintiffs argue, in
passing, that Teich was such an employee because of his “unique set of skills.” See Reply at 10.
Unique employees have generally been found to include “musicians, professional athletes,
actors and the like”—individual performers who have “such ability and reputation that [their]
place[s] may not easily be filled.” Ticor, 173 F.3d at 70. Plaintiffs wisely do not contend that
Teich constituted such a virtuoso. See generally Mem.; Reply. While they do note his impressive
knowledge and abilities, see Stevenson Decl. ¶ 13-14, they point to no authority suggesting that
these skills are sufficient to render an employee sufficiently unique. See generally Mem.; Reply.
Uniqueness may also be premised on an employee’s relationships with clients. See Ticor,
173 F.3d at 71. However, such relationships qualify only when they are a primary component of
obtaining and retaining the client’s services. See id. (finding uniqueness where salesman
maintained client relationships “by the use of the substantial entertainment expense account”
provided by his employer and where those relationships were particularly vital in light of the costs
and terms of the employer’s product being set by law). For the reasons discussed supra, Plaintiffs
have not demonstrated that Teich possessed such relationships.19
The Court finds that Plaintiffs have not demonstrated a likelihood of success on the merits
of their breach of contract claims because they have failed to demonstrate a likelihood that: (1)
Teich was not released from the Employment Agreement’s noncompete or that Teich’s signing of
the Stock Agreement was not the product of a unilateral mistake; and (2) there is any protectable
interest requiring enforcement of the Agreements.
2. Other Claims
Plaintiffs’ failure to demonstrate a likelihood of success on their breach of contract claims
renders their other claims unlikely to succeed. As to Plaintiffs’ tortious interference claims, “if the
restrictive covenant is unenforceable, then there can be no cause of action for tortious interference
Indeed, some courts, in light of the New York Court of Appeals’ analysis in BDO
Seidman of customer relationships as a protectable interests, have declined to consider whether an
employee’s customer relationships render her a unique employee and have instead focused
exclusively on whether those relationships constitute protectable interest. See Silipos, 2006 WL
2265055, at *3 n.5.
with contract.” Savannah Bank v Sav. Bank of Fingerlakes, 261 A.D.2d 917, 918 (N.Y. App. Div.
1999). As discussed supra, Plaintiffs have not demonstrated a likelihood that the Employment or
Stock Agreements’ restrictive covenants are enforceable. Regarding the claim for misappropriation
of trade secrets, such a claim requires that there be a trade secret to misappropriate. See Conn. Gen.
Stat. § 35-51(b); Integrated Cash Mgmt., 920 F.2d at 173; McIntire Co. v. Trent, Co., No.
CV116010259, 2013 WL 6671213, at *5-6 (Conn. Super. Ct. Nov. 20, 2013). As discussed supra,
Plaintiffs have not demonstrated a likelihood that there is such a trade secret. Likewise, Plaintiffs’
claims alleging unfair competition and breach of the implied covenant of good faith and fair dealing
are premised on the appropriation of trade secrets and other protectable information and the
enforceability of the Agreements. Am Compl. ¶¶ 111-127. Thus, Plaintiffs have not demonstrated
a likelihood of success on any of their claims.
B. Serious Merits Question and Balance of the Equities
Even where a movant has not shown a likelihood of success, she may demonstrate
sufficiently serious questions going to the merits of the case to make it a fair ground for litigation,
and a balance of hardships tipping decidedly in favor of the moving party. D.D., 465 F.3d at 510.
For the reasons discussed supra, the Court finds that Plaintiffs have not presented evidence
demonstrating a sufficiently serious question going to the merits. Nor have they demonstrated that
the balance of the equities tips decidedly in their favor. Plaintiffs argue that it does because: (1)
Teich agreed to be bound by the restrictive covenants; (2) Plaintiffs have protectable information
and will suffer harm if it is disclosed to SAM; (3) Teich can find noncompeting work elsewhere;
and (4) Teich provided strategy emails to SAM’s managing director. See Resp. at 23-24; Reply at
12. But the Court has already found: (1) a likelihood that Teich did not agree to the Stock
Agreement’s noncompete and is released from the Employment Agreement’s noncompete; and (2)
an absence of protectable interests. As to Plaintiffs’ third argument, they offer a conclusory
affidavit from Davis’s Vice President of Human Resources, who states that Teich told him, during a
“meeting” shortly prior to Teich’s departure, “that he had opportunities for employment with
companies that did not compete with Davis.” Dkt. No. 32 ¶ 2. This affidavit, which provides no
specifics and does not specify how “compet[ing]” was defined by the conversation’s participants, is
of little probative value. The Court finds it unlikely that Teich, who has spent the last eleven years
of his career working exclusively in the liquid coating industry, see Am. Compl. ¶¶ 22-23, could
find employment, or at the very least employment comparable in salary to his Davis and SAM
positions, that did not involve any liquid coating work. Moreover, Teich has offered evidence of
his significant financial commitments to his family and his very limited retirement income. Teich
Decl. ¶¶ 87-88; see also Sylvan R. Shemitz Designs, Inc. v. Brown, No. CV136013145S, 2013 WL
6038263, at *11 (Conn. Super. Ct. Oct. 23, 2013) (finding the equities favored employee where he
was the principal income earner for his family and former employer failed to point to any specific
harm that would result from not granting a preliminary injunction); cf. Lumex, 919 F. Supp. at 629
(enforcing restrictive covenant where former employer compensated employee during period he
was subject to the restriction). Finally, as to Teich’s disclosure of emails to Christie, the
nonprotectable nature of the information disclosed and the avowed legitimate purpose of the
disclosure—ensuring, with SAM, that Teich’s potential SAM employment would not violate the
Agreements—renders the disclosure, while inadvisable, largely irrelevant to the balancing of the
equities. See Dkt. No. 26-1 at 37-50; Christie Decl. ¶¶ 38, 42. The Court therefore finds that the
balance of equities, if they tip, do so in Teich’s direction. Thus, because Defendants have shown
neither a likelihood of success on the merits or a sufficiently serious question going to the merits
and the balance of hardships tipping decidedly in their favor, the Motion is denied.
C. Irreparable Harm
Moreover, Plaintiffs have not demonstrated irreparable harm. “In non-compete cases . . . the
irreparable harm analysis and the likelihood of success on the merits analysis are closely related and
often conflated.” Int’l Bus. Machines Corp. v. Visentin, No. 11 Civ. 399, 2011 WL 672025, at *7
(S.D.N.Y. Feb. 16, 2011). For the same reasons discussed supra —the inapplicability of the
Agreements’ noncompetes and the lack of protectable interests—the Court finds that Plaintiffs have
not demonstrated irreparable harm.20
Even if the Court were to conclude that the Agreements’ noncompete applied to Teich and
that Plaintiffs had protectable interests, irreparable harm is shown only where there will be an injury
that “cannot be remedied by an award of monetary damages.” Shapiro v. Cadman Towers, Inc., 51
F.3d 328, 332 (2d Cir. 1995); accord Moore v. Consol. Edison Co. of N. Y., Inc., 409 F.3d 506, 510
(2d Cir. 2005) (“Where there is an adequate remedy at law, such as an award of money damages,
injunctions are unavailable except in extraordinary circumstances.”). As Plaintiffs note, it is often
true that it is “very difficult to calculate monetary damages that would successfully redress the loss
of a relationship with a client that would produce an indeterminate amount of business in years to
come,” Register.com, Inc. v. Verio, Inc., 356 F.3d 393, 404 9 (2d Cir. 2004), and that the “loss of
A provision in the Stock Agreement stating that Plaintiffs would suffer irreparable harm
and Teich could be enjoined from working for a competitor, see Stock Agreement § 10(b); Mem. at
5-6; does not change this analysis. While the Second Circuit has held that such a provision can be
deemed an “admission,” Ticor, 173 F.3d at 69, it is not dispositive. See Baker’s Aid v. Hussmann
Foodservice Co., 830 F.2d 13,16 (2d Cir. 1987) (“[C]ontractual language declaring money damages
inadequate in the event of a breach does not control the question whether preliminary injunctive
relief is appropriate.”); Firemen's Ins. Co. of Newark v. Keating, 753 F. Supp. 1146, 1154
(S.D.N.Y. 1990) ([I]t is clear that the parties to a contract cannot, by including certain language in
that contract, create a right to injunctive relief where it would otherwise be inappropriate.”). This is
particularly so here because, as discussed supra, Teich agreed to the Stock Agreement’s
noncompete and related provisions pursuant to a unilateral mistake.
trade secrets cannot be measured in money damages” because a “trade secret once lost is, of course,
lost forever.” N. Atlantic Instruments, Inc. v. Haber, 188 F.3d 38, 49 (2d Cir. 1999). But the nature
of Davis and SAM’s business largely excepts this case from these general principles. Both parties’
submissions indicate that their industry involves obtaining a few financially significant orders. See
Am. Compl. ¶¶ 38; SAM Resp. at 8. If Davis subsequently loses any order to SAM, money
damages would therefore be relatively easy to prove and would likely adequately compensate Davis
for its loss.
Accordingly, it is hereby:
ORDERED, that the TRO (Dkt. No. 18) is, to the extent it remains in effect, DISSOLVED;
and it is further
ORDERED, that the Motion (Dkt. No. 12) for preliminary injunctive relief is DENIED;
and it is further
ORDERED, that the Clerk of the Court serve a copy of this Memorandum-Decision and
Order on all parties in accordance with the Local Rules.
IT IS SO ORDERED.
February 10, 2014
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