Document Technologies, Inc. et al v. West et al

Filing 74

OPINION: The Court held a three-day evidentiary hearing on whether plaintiffs' were entitled to injunctive relief and, on the basis of the Court's assessment of the evidence presented at that hearing (including its assessment of the witness es' demeanor and credibility), denied plaintiffs' motion by bottom-line Order dated June 16, 2017. This Opinion explains the reasons for that ruling. DTI's motion for a preliminary injunction fails as to the facts and the law. On the f acts, DTI mistakenly portrays what are in actuality innocuous or otherwise legitimate acts by LDiscovery and the Individual Defendants as part of a conjectural (but unsupported) scheme to misappropriate DTI's trade secrets and improperly compete for its clients and employees. On the law, DTI's expansive view of its trade secrets and the restrictive covenants in its employment agreements is at odds with New York law and the testimony elicited during Court's three-day evidentiary h earing, and DTI accordingly has failed to show a likelihood of success on the merits or imminent and irreparable harm. For all the foregoing reasons, the Court denied DTI's motion for a preliminary injunction in its Order dated June 16, 2017, and as further set forth herein. (Signed by Judge Jed S. Rakoff on 7/5/2017) (ras)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
-----------------------------------------x

In re DOCUMENT TECHNOLOGIES LITIGATION

17-cv-2405
17-cv-3433
17-cv-3917
OPINION

-----------------------------------------x
JED S. RAKOFF, U.S.D.J.
The painstaking process of gathering and reviewing documents in
connection with litigation discovery used to be a task relegated to
(and dreaded by) young associates and paralegals at our nation's law
firms. With the advent of electronic discovery, however,

firms have

shifted this task to third-party providers, who in turn have
developed clever strategies for cultivating customers, which they
guard jealously. Business apparently is booming - and so too are
providers' efforts to protect what they believe is their proprietary
information regarding customer contracts, strategies, and the like.
Before the Court is the motion by Plaintiffs Document
Technologies,

Inc.

("Document Technologies"), Epiq Systems, Inc.

( "Epiq Systems"), and Epiq eDiscovery Solutions,
Solutions")

(collectively, "DTI")

Inc.

( "Epiq

for a preliminary injunction

against their former employees, Steve West, John Parker, Seth
Kreger, and Mark Hosford (collectively, the "Individual Defendants")
and a competitor of DTI, defendant LDiscovery, LLC

( "LDiscovery") .

In brief, plaintiffs allege that the Individual Defendants conspired

1

with LDiscovery to misappropriate their trade secrets and solicit
their customers in violation of the Individual Defendants'
employment agreements and state and federal law. The Court held a
three-day evidentiary hearing on whether plaintiffs' were entitled
to injunctive relief and,

on the basis of the Court's assessment of

the evidence presented at that hearing
the witnesses'

(including its assessment of

demeanor and credibility), denied plaintiffs' motion

by bottom-line Order dated June 16, 2017. This Opinion explains the
reasons for that ruling.
The pertinent facts,
motion,

as found by the Court for purposes of this

are as follows:

Plaintiff DTI employs nearly 7,000 employees and is a global
provider of electronic discovery

("e-discovery")

services for law

firms and corporate legal departments. See transcript of evidentiary
hearing ("Tr.")
development,

497:3-17.

DTI's formation is a relatively recent

however, and is the result of an acquisition by

Document Technologies of Epiq Systems and its wholly-owned
subsidiary Epiq Solutions

(collectively, "Epiq")

in September 2016.

Id. at 496:4-19.
The Individual Defendants were high level sales personnel at
Epiq at the time of the acquisition and were responsible for
bringing in new clients and maintaining existing client
relationships.

Id. at 497:18-499:10. As a condition of their

employment, the Individual Defendants signed agreements with Epiq
(the "Epiq Employment Agreements")

containing numerous restrictive
2

covenants, including a one-year non-competition agreement, a oneyear prohibition on soliciting the company's clients, a one-year
prohibition on soliciting the company's employees, a broad nondisclosure provision, and a covenant to return the company's
confidential information upon termination of employment. See PX 018;
PX 037; PX 063; PX 064. The agreements further set forth that "all
disputes relating to all aspects of the employer/employee
relationship" shall be settled by arbitration, but establish a
limited exception for the signatories "to obtain an injunction from
a court of competent jurisdiction restraining [a] breach or
threatened breach .

. of any [covenant] of this agreement." Id.

Although these covenants remained in place following DTI's
acquisition, the Individual Defendants have at all times been atwill employees.

Id.; Tr. 153:2-154:4.

The Individual Defendants were dissatisfied with their
employment even prior to DTI's acquisition.

In their view, Epiq had

made several operational and managerial errors that had cost these
salesman both clients and personal revenue,

in particular by

underinvesting in document review centers in Washington,
Canada. Tr.

D.C. and

146:12-149:13. The Individual Defendants accordingly

began looking for new employment in 2014, and jointly attended a
meeting with one potential employer, Consilio, early that same year.
Id. at 146:9-149:23, 151:1-155:25, 195:9-18, 196:18-197:22, 260:2262:14, 262:18-264:3, 265:11-266:8, 290:17-293:1.

3

The Individual Defendants'

concerns grew upon learning of DTI's

proposed acquisition. They viewed DTI as a "low cost" provider that
would harm their reputation and their relationship with their
clients, and accordingly stepped up their efforts in mid-2015 to
find new employment.

Id.

at 151:1-155:25. Then,

in January 2016,

defendant Kreger received a communication from a recruiter about an
employment opportunity at defendant LDiscovery.

Id. at 112:15-117:7.

Defendant Kreger communicated this opportunity to the rest of the
Individual Defendants and,

in May 2016,

the Individual Defendants

met with representatives from LDiscovery in Washington,
discuss a potential transition.

Id.

D.C. to

In preparation for the meeting,

the Individual Defendants informed LDiscovery of the amount of sales
revenue they generated for Epiq from 2011 to 2016,
394: 4;

PX 003,

id. at 393:20-

and notified LDiscovery at the meeting that they

would require document review centers in Canada and Washington,
if they were to join the company.

D.C.

Id. at 114:23-117:19. The

Individual Defendants afterwards retained counsel to represent them
in further negotiations,

and thereby communicated extensively with

LDiscovery about the terms of their potential transition during the
remainder of the year.
On January 4,

Id. at 200:23-202:17.

2017,

the Individual Defendants signed employment

agreements with LDiscovery whereby they agreed to resign from DTI by
no later than January 31,

2017. See, e.g.,

PX 006;

PX 042. The

agreements set forth that the Individual Defendants will then take a
"Sabbatical Year," during which LDiscovery will "not request and the
4

[Individual Defendants] will not provide, any work,

information, or

services purported to be restricted by the Epiq [Employment
Agreements]." Id.

Following the Sabbatical Year, the Individual

Defendants will begin employment at LDiscovery in or around January
2018. Id.

In return, LDiscovery agreed to pay each Individual

Defendant signing bonuses between $1,200,000 and $1,400,000
paid in quarterly installments during the Sabbatical Year)
salaries between $781,096 and $911,278

(to be
and base

(to be paid upon the start of

their employment). Id. LDiscovery further agreed to indemnify the
Individual Defendants for attorneys'
directly to

fees and damages "relating

[their] contemplated transition and eventual transition

from Epiq to employment with [LDiscovery] ," except where a court has
determined that the "[e]mployee engaged in the disputed conduct that
forms the basis of that claim." 1 Id. The agreement lastly provides
that the Individual Defendants may resign from LDiscovery for cause
if it does not establish a document review operation in Canada and
Washington,

D.C. by April 4, 2019. Id.

On January 5, 2017, the Individual Defendants sent identical
letters to DTI

(drafted by counsel)

resigning from the company, but

offering to stay on for two weeks in order to assist with the

The latter provision also requires that "there is substantial
evidence that Epiq did not file the claim solely in retaliation for
Employee's departure from Epiq" and "substantial evidence that
Employee is culpable with respect to the allegations in that claim."
Id. The requirements are redundant, however, because a court's
finding of a defendant's liability necessarily meets these elements.
1

s

transition. Tr. 126:13-127:19; PX 181. The Individual Defendants did
not inform DTI that they had signed employment agreements with
LDiscovery,

and DTI did not accept their offer to assist in the

transition. The next day, on January 6,

2017, a DTI representative

contacted the Individual Defendants and requested that they return
any property containing DTI's confidential information, pursuant to
their Epiq Employment Agreements.

2

See DTX 200-201.

The Individual Defendants partially complied. Although the
Individual Defendants returned their laptops and mobile devices,

3

defendant West failed to return a thumb drive provided to him by
Epiq in August 2016 containing a backup of his company laptop. Tr.
at 52:19-53:12. Defendant Hosford similarly failed to return a thumb
drive inserted into his company computer approximately six weeks
before his resignation.

Id. at 457:2-11; PX 249-003 at

Several weeks later,

around January 31,

~

7.

2017, defendant Kreger

contacted a DTI employee for a list of invoices paid by his clients

2

The return of company documents provision states in relevant part
that upon departure from the company, the Individual Defendants will
"promptly deliver to [Epiq]
. any and all devices, records,
data, notes,
[or] other documents or property .
. developed
. pursuant to [their] employment with [Epiq] that constitute
Confidential Information, or otherwise belonging to Epiq." See,
~, PX 018.
While DTI asserts in its complaint that defendant Kreger failed to
return his DTI-issued phone in order "to deprive DTI of the benefit
of trade secret, confidential, and proprietary information therein,"
see ECF No. 1, ~~ 130-131, defendant Kreger testified that he
inadvertently lost the device prior to his resignation, see Tr.
413:25-414:16, and DTI's post-hearing summation brief does not raise
the issue as a basis for injunctive relief.
3

6

in December 2016. See PX 240,

241; Tr.

397:23-399:19,

437:19-440:2.

This was common practice among DTI's sales personnel because the
company often made mistakes in calculating commissions checks, and
DTI regularly sent invoice lists to its employees so that they could
check the accuracy of their commissions payments. Tr.
Rather than send Kreger only his own invoices,

438:9-439:7.

however,

the DTI

employee forwarded a list of all of the company's invoices for the
entire month. See PX 240. Kreger then forwarded the invoice list to
the other Individual Defendants several hours later, purportedly so
that they could verify their commissions payments as well. Tr.
397:23-399:19,

437:19-440:2.

Three days later, on February 2,

2017, defendant West

circulated an email to the other Individual Defendants titled "Four
Horseman 2018 Game Plan." PX 088. According to the correspondence,
the Individual Defendants planned to meet in April 2017 to discuss
their sales strategy at LDiscovery.

In order to prepare for the

meeting, defendant West circulated a spreadsheet so that each
Individual Defendant could input the names of his clients at Epiq,
the client contact information, and the revenue those clients
generated for 2016.

Id.; Tr. at 380:24-384:16.

The Individual Defendants never met, however,

and the

spreadsheet was never completed. This was because in March 2017,
sent a cease-and-desist letter to the Individual Defendants
demanding,

among other things,

that they cease all communications

with DTI employees and customers "in any manner competitive with
7

DTI

DTI" and immediately return all materials relating to the company.
See PTX 159. After discussing the matter, the Individual Defendants
decided to postpone the meeting indefinitely. Tr. 251:6-24. One
month later,

in April 2017, DTI filed three lawsuits in federal

court: the instant action in the Southern District of New York
against defendants West, Kreger, and Parker (the "SONY Action"), an
action in the Northern District of Illinois against defendant
Hosford (the "Illinois Action"), and an action in the Eastern
District of Virginia against LDiscovery (the "Virginia Action") . See
SONY Compl.

~~

84,

91, 132; Illinois Action Compl.

Virginia Action Compl., 17-cv-3733, No. 1,

~~

46,

~~

95,

61,

78, 114;

98, 187.

The Court held an initial pretrial conference in the SONY
Action on April 12, 2017, during which counsel for all the
defendants agreed to a common discovery plan applicable to all the
actions. Two days later, on April 14, 2017, the Individual
Defendants in the SONY Action moved to transfer the case to the
Eastern District of Virginia, and on April 25, 2017, the Court
issued an Opinion and Order denying the motion. On May 1 and May 10,
2017, the courts presiding over the Virginia and Illinois Actions
issued orders transferring their cases to this District, and the
Court consolidated the actions by Order dated May 19, 2017. As
noted, the Court subsequently held a three-day evidentiary hearing
on DTI's motion for a preliminary injunction from May 30 to June 1,

8

2017, after which counsel submitted written opening and rebuttal
summations.

4

A preliminary injunction is an "extraordinary and drastic
remedy, one that should not be granted unless the movant, by a clear
showing, carries the burden of persuasion." JBR,
Green Mountain,

Inc.,

618 F. App'x 31, 33

Inc. v. Keurig

(2d Cir. 2015)

(quoting

Sussman v. Crawford, 488 F.3d 136, 139 (2d Cir. 2007)) (emphasis in
original). With exceptions not here relevant, the moving party must
show four elements: "(l)

likelihood of success on the merits;

(2)

likelihood that the moving party will suffer irreparable harm if a
preliminary injunction is not granted;

(3)

that the balance of

hardships tips in the moving party's favor;
interest is not disserved by relief." Id.
Colting, 607 F.3d 68, 79-80

and (4)

that the public

(quoting Salinger v.

(2d Cir.2010))

The Court begins with DTI's claims for injunctive relief
against LDiscovery and,

in particular, the claim that LDiscovery

tortiously interfered with DTI's relationships with existing and
prospective customers. Under New York law,

tortious interference

with existing customer relations consists of five elements: "(1) the

4

After the Court consolidated the actions but before the evidentiary
hearing, the Individual Defendants filed a motion to compel
arbitration of all counts not seeking injunctive relief for the
breach or threatened breach of the Epiq Employment Agreements. The
Court issued a bench order during the hearing granting the
Individual Defendants' motion and, accordingly, this Opinion is
limited to DTI's claims against the Individual Defendants for
injunctive relief for breach of contract and DTI's claims for
injunctive relief against LDiscovery.
9

existence of a valid contract between plaintiff and a third party;
(2) defendant's knowledge of the contract;

(3) defendant's

intentional inducement of the thirdparty's breach of contract
without justification;

(4) actual breach of the contract; and (5)

damages to plaintiff." American Bldg. Maintenance Co. of New York v.
Acme Property Servs.,

Inc., 515 F. Supp. 2d 298,

308

(N.D.N.Y.

2007). Likewise, tortious interference with prospective customer
relations requires that the plaintiff show: "(l)
business relationship with a third party;

(2)

[that]

it had a

the defendant knew of

that relationship and intentionally interfered with it;

(3)

the

defendant acted solely out of malice, or used dishonest, unfair, or
improper means; and (4)

the defendant's interference caused injury

to the relationship." Id. at 316.
DTI contends here that LDiscovery intentionally induced the
Individual Defendants to breach the restrictive covenants in their
employment agreements by indemnifying them against claims that would
foreseeably be brought by DTI and by agreeing to pay them a
collective $5.1 million during their Sabbatical Year. The Court,
however,

is unpersuaded that LDiscovery has done anything improper

by entering into these agreements with the Individual Defendants,
let alone that the Individual Defendants have breached the
applicable terms of their agreements with DTI.
As previously noted, the Individual Defendants forfeit their
right to indemnification should a court find that they have "engaged
in the disputed conduct that forms the basis of [DTI's] claim,"
10

~'

PX 006; PX 042, so the Individual Defendants' agreements with

LDiscovery can hardly be read as an inducement to commit such
breaches. Moreover,

it makes perfect sense for LDiscovery to

compensate the Individual Defendants during the Sabbatical Period
,

for their year of lost income as a way of inducing them to join the
company. Tr. 395:8-19. Indeed, LDiscovery set forth a rational
business case for these payments during the evidentiary hearing,

see

Tr. 356:3-12, and there is thus no basis for the Court to infer that
the signing bonuses are in return for any alleged wrongdoing. The
Court accordingly finds that DTI has failed to show a likelihood of
success on the merits for its claims for tortious interference
against LDiscovery.
DTI similarly fails to show a likelihood of success on the
merits for its misappropriation claims. The requirements for showing
a misappropriation of a trade secret are similar under state and
federal law. Under New York law,

a party must demonstrate:

it possessed a trade secret, and (2)

(1)

that

that the defendants used that

trade secret in breach of an agreement, confidential relationship or
duty, or as a result of discovery by improper means. N. Atl.
Instruments,

Inc. v. Haber, 188 F.3d 38,

43-44

(2d Cir. 1999)

Likewise, under the federal Defend Trade Secrets Act

("DTSA"), a

party must show "an unconsented disclosure or use of a trade secret
by one who

(i)

used improper means to acquire the secret, or,

at the time of disclosure,

(ii)

knew or had reason to know that the trade

secret was acquired through improper means, under circumstances
11

giving rise to a duty to maintain the secrecy of the trade secret,
or derived from or through a person who owed such a duty." Syntel
Sterling Best Shores Mauritius Ltd. v. Trizetto Grp.,
15CV211LGSRLE, 2016 WL 5338550, at *6
(quoting 18 U.S.C. § 1839(3)

Inc., No.

(S.D.N.Y. Sept. 23,

2016)

(A)-(B)). Although there is no one-

size-fits all definition to a trade secret, New York courts
generally consider the following factors to determine its contours:
(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 business to guard the secrecy of the information;
(4) the value of the information to the business and its
competitors; (5) the amount of effort or money expended by the
business in developing the information; (6) the ease or
difficulty with which the information could be properly
acquired or duplicated by others.
Bancorp Servs., LLC v. Am. Gen. Life Ins. Co., No. 14-CV-9687
2016 WL 4 916 9 6 9, at * 11

(VEC),

( S. D. N. Y. Feb. 11, 2016) .

Plaintiffs ignore these elements altogether.

Instead, DTI

contends that the Individual Defendants have disclosed "confidential
information" to LDiscovery concerning DTI's "business development
efforts and strategies" by requesting, as part of their employment
negotiations,
Washington,

that LDiscovery open document review centers in

D.C. and Canada. See Plaintiffs'

Post-Hearing Brief in

Support of Their Motion for Preliminary Injunction ("Pls.'
Summation")

at 3, ECF No.

60. Putting aside for a moment that Epiq's

website publicly states that it operates in these regions,

5

or that

s See, e.g., http://www.epiqsystems.com/the-epiq-difference/offices;
http://www.epiqsystems.com/ediscovery-canada.

12

DTI discloses this information in unredacted form in its amended
complaint,

see ECF No.

56 at

~~

60-64, or that DTI has not requested

that the defendants redact this information from their own posthearing summations,

see ECF No.

64 at 2-3, there is nothing

"confidential" about the fact that Canada and Washington,

D.C. have

law firms and corporate legal departments requiring document review
services,

so that they are obvious markets.

DTI does not have a

monopoly on entire geographic regions, and cannot prevent
competition in such areas by twisting the contours of trade secrets
law.
For the foregoing reasons, the Court concluded that plaintiffs
had failed to show a likelihood of success on the merits on any of
their claims against LDiscovery, and accordingly denied their motion
for a preliminary injunction against LDiscovery in its Order dated
June 16, 2017.
The Court next turns to DTI's claims against the Individual
Defendants. DTI's principal contention is that the Individual
Defendants have breached or are threatening to breach their nondisclosure covenants by improperly copying and retaining DTI's
proprietary information. The Epiq Employment Agreements prohibit the
Individual Defendants from disclosing Epiq's "Confidential
Information," which includes "any information of Epiq,

its vendors

or its customers including but not limited to proprietary
information, technical data, trade secrets,

13

. customers lists,

customers,

[and] markets," 6 see, e.g.,

PX 018, and also require the

Individual Defendants to return DTI's Confidential Information upon
the termination of their employment. See id. While there is no
dispute that the Individual Defendants initially retained some of
DTI's proprietary information following their resignations, the
testimony and forensic evidence from the evidentiary hearing
established to the Court's satisfaction that this was inadvertent
rather than the result of a conspiracy.
First, contrary to the allegations in DTI's preliminary
injunction motion, defendant West did not "mass copy" documents from
his company laptop to a thumb drive prior to his resignation. See
ECF No.

7 at 10. Rather,

in September 2016,

DTI sent West a thumb

drive containing information recovered from his broken company
computer. Tr. 165:9-172:16; DX 166, 167, 173, 174. West then
transferred the information to his new company laptop, placed the
thumb drive into a desk drawer in his home office, and forgot it was
there until he read the allegations in DTI's complaint. Tr. 171:8174:2; DX 176. West subsequently contacted counsel and placed the
thumb drive in an envelope, where it sat until the parties' agreedupon third-party forensic consultant retrieved it. Tr. 108:23109:23, 174:6-175:21, 181:3-9; DX 236. The ensuing forensic analysis
confirms West's account and shows that West did not access the thumb

The definition of Confidential Information excludes "information
. that [is] publicly known and generally available through no
wrongful act." See PX 018; PX 037; PX 063; PX064.
6

14

drive between October 3, 2016

(when he initially copied the files

onto his new laptop) and April 5, 2017

(the morning after he was

served with the complaint in this action). See DX 215 at 6-7; DX 216
at 3-6; PX 244 at 2; Tr.

470:1-473:20; Tr.

483:13-485:20.

Second, defendant Hosford testified that although he does not
have a specific recollection of his missing thumb drive, he likely
transferred DTI's materials onto the device in preparation for a
client meeting and left the drive with the client, which was
consistent with his past practice. See Tr. 255:5-9. The forensic
analysis presented at the evidentiary hearing confirms that the
thumb drive was never subsequently inserted into any of the
defendants'

computers, see DX 143-48, DX 196-197; Tr.

470:4-21, and

there is no evidence that Hosford was aware that the defendants'
devices would log the drive's serial number upon use and therefore
kept it hidden.
Third, defendant Kreger did not improperly obtain DTI's invoice
list for December 2016. There is no dispute that DTI voluntarily
forwarded the spreadsheet to Kreger nearly a month after his
resignation,

knowing that he was no longer an employee. There is

also no dispute that DTI regularly sends such lists to its sales
personnel so that they can verify the accuracy of their commissions
checks, and that this was Kreger's stated purpose in requesting the
information. Moreover, the transmittal email from DTI contained no
instructions requiring Kreger to delete the spreadsheet upon the

15

completion of his review, and DTI fails to identify any provision of
Kreger's employment agreement that mandates that he do so.
Kreger's decision to forward the invoice list to the other
Individual Defendants is also not improper based on the testimony
presented at the evidentiary hearing. Kreger testified that he
believed the other Individual Defendants would also want to verify
their commissions, Tr.

439:2-23, and defendant Parker corroborated

that he too "had an ongoing discussion going on with finance
questioning [his]

January commission" and reviewed the spreadsheet

sent by Kreger for that purpose, Tr.

398:3-399:21. The Individual

Defendants further testified that they did not disseminate the
spreadsheet to any third parties, including LDiscovery. Tr. 156:21157:6, 268:6-18,

355:10-23,

382:14-18,

398:4-399:21,

401:6-10,

436:25-437:12, 439:20-23. While DTI dismisses these explanations as
self-serving, there is no evidence to the contrary, and the Court
sees no reason to draw an adverse inference against the Individual
Defendants when it was DTI that decided to disseminate its entire
invoice list to defendant Kreger in the first place.
For the foregoing reasons,

the Court concluded that DTI had

failed to show a likelihood of success on the merits for its
misappropriation claims because it had not shown that the Individual
Defendants intentionally retained DTI's confidential information to
gain an improper advantage in their new employment, and the Court

16

accordingly denied that prong of plaintiffs' motion in its Order of
June 16, 2017.

7

The Court next turns to DTI's contention that the Individual
Defendants have violated the terms of their non-competition
covenants. The provisions set forth in relevant part that the
Individual Defendants for 12 months after termination will not
"compete against

[Epiq]

, or engage in employment with or

provide independent contractor or consulting services for any
entity which .

compete[s] against

PX 063; PX064; Tr.

42:5-45:10. DTI argues that by executing

[Epiq]

" See PX 018; PX 037;

employment agreements with LDiscovery and engaging in several
preparatory activities for their employment in 2018, the Individual
Defendants have breached their non-competition covenants warranting
the issuance of a preliminary injunction. See, e.g.,

PX 042; Tr.

237:21-238:14.
DTI is incorrect as a matter of law. Under applicable New York
law, a former employee may prepare to compete during the term of a
non-competition provision, because restraining such acts "would have
the effect of extending the term of the covenant." Stork H & E Turbo
Blading,

Inc. v. Berry,

932 N.Y.S.2d 763

7

(Sup. Ct. 2011)

(citing

For similar reasons, DTI also failed to show the element of
irreparable harm. Defendant West is no longer in possession of the
disputed thumb drive, and defendants Kreger and Parker have stated
that they are willing to delete the DTI's invoice spreadsheet upon
request. Tr. 439:17-23. As set forth previously, the Court also
finds Hosford's testimony credible that he is no longer in
possession of his disputed thumb drive.
17

Walter Karl,

Inc. v Wood, 137 AD2d 22, 28

have accordingly held as legitimate

(1988)). New York courts

acts ranging from incorporating

a later competing business, see Walter, 137 AD2d at 28, to building
facilities,
trademarks.

Stork,
8

932 N.Y.S.2d at 763, and filing and obtaining

Abraham Zion Corp. v. Lebow,

(S.D.N.Y. 1984), aff'd,

761 F.2d 93

593 F. Supp.

551,

571

(2d Cir. 1985).

To be sure, acts cease to be preparatory where they
detrimentally impact the former employer's economic interests during
the term of a non-competition clause. See, e.g., Am.
v. Rothenberg,

136 F.3d 897,

906

Aktiebolag v. ABA Optical Corp.,
1977)

(2d Cir. 1998)

Fed. Grp., Ltd.

(citing AGA

441 F. Supp. 747,

754

(E.D.N.Y.

(defendant breached his duty of loyalty by soliciting

customers for himself while still employed for the plaintiff)) . But
the Individual Defendants have not crossed that line here.
Specifically, while it is undisputed that defendant West prepared
and circulated a rudimentary spreadsheet containing the names,
locations, contacts, and revenue estimates for some of his DTI
clients and that the Individual Defendants intended to input
additional client information into the spreadsheet,

(but decided not

to do so after DTI filed the instant lawsuit), preparing such a
spreadsheet is no different than building a facility for a later

s Although several of these decisions involved defendants who
prepared to compete while still employed by the former employer,
there is no reason why this reasoning is not equally applicable to
defendants who are former employees but subject to non-competition
covenants. See, e.g., Stork, 932 N.Y.S.2d at 763.

18

competing business,

for the spreadsheet has no effect on DTI's

economic interests until it is actually used. Here,

there is no

evidence that the Individual Defendants inappropriately solicited
any of DTI's clients during the non-competition period, nor is there
evidence that the Individual Defendants turned over this spreadsheet
(or any other document containing DTI's client information)

to

LDiscovery.9
Moreover,
use)

the Individual Defendants did not use

DTI's trade secrets to populate the spreadsheet.

932 N.Y.S.2d at 763

(or intend to
10

See Stork,

("An active employee may prepare to compete-even

in secret-prior to his departure, provided that he does not use his
employer's time,

facilities or proprietary secrets to do so.")

DTI's clients consist of major law firms and corporate legal

9

While DTI also argued that defendant Kreger logged onto DTI's
customer relationship management program (which contained
information about business opportunities and customer preferences)
25 times the day before signing his employment agreement with
LDiscovery, Kreger testified that he had no recollection of having
done so, Tr. at 392:18-25, and DTI introduced no evidence showing
that he actually accessed the system.
10

DTI identifies three other spreadsheets, also prepared by the
Individual Defendants; but none of these includes DTI's confidential
information. The first consists of client business cards collected
by Kreger during his employment at DTI, which DTI returned to him
when they mailed him his personal effects after his resignation. Tr.
73:14-74:24. The second consists of names and email addresses of AIG
employees that West created from memory and primarily using
Linkedin. Id. at 75:19-77:23, 78:19-79:10, 175:22-178:4; DX 151. The
third is comprised of contact information sent to West by his
father, a senior partner at Weil, Gotshal & Manges LLP, who
routinely sent his son information concerning potential clients. Id.
at 80:9-83:18.
19

departments whose names are widely known, and their locations and
contact information are readily ascertainable from corporate
websites, Linkedin, and Google. Tr.

66:18-67:3; DX 243 at 151:2-13,

151:15-23, 166:23-168:12. The Individual Defendants' general
knowledge of the revenue attributable to each client is further not
protectable,

since labeling this kind of knowledge as proprietary

would "prevent former employees from ever pursuing clients or
customers whom they believe generate substantial business for their
former employers." 11 RogersCasey,
(JSR),

2003 WL 1964049, at *5

Inc. v. Nankof, No.

(S.D.N.Y. Apr.

24,

02 CIV. 2599

2003).

In short,

there was nothing improper about the Individual Defendants'
preparing spreadsheets of non-protectable client information and
discussing their future employment at LDiscovery.
For the foregoing reasons, the Court concluded that DTI had
failed to show a likelihood of success on the merits that the
Individual Defendants had violated the terms of their noncompetition agreements, and accordingly denied this prong of
plaintiffs' motion as part of the Order of June 16, 2017.

11

The Individual Defendants' general revenue numbers for 2011 to
2016, which they transmitted to LDiscovery as part of their
employment negotiations, are not trade secrets for similar reasons.
DTI does not dispute that it is industry practice for e-discovery
providers to ask potential sales hires for their past revenue
figures and that it would be extraordinarily difficult (if not
impossible) for the Individual Defendants to get a sales job with
another employer if they were not able to disclose such information.
See Tr. 270: 17-271: 13; PX 310 at 104: 7-11, 104: 13-19, 105: 7-13.
20

The Court next turns to DTI's contention that the Individual
Defendants breached their employee non-solicitation clauses, which
state that during their employment and for a 12-month period after
termination, the Individual Defendants may not "attempt to hire,
solicit, induce,

recruit or encourage any other employees or agents
with Epiq in order to

of Epiq to terminate their employment
work for any

. entity other than Epiq." See PX 018; PX 037; PX

063; PX 064. DTI now asserts that the Individual Defendants breached
this provision by jointly searching for new employment, because, by
doing so, they became "much more attractive than a lone wolf pitch
to employers looking to poach their competitors'

rainmakers."

Plaintiffs' Rebuttal to Defendants' Written Summations
Rebuttal")

at 5, ECF No.

("Pls.'

65.

This restrictive covenant is, however, unenforceable insofar as
it purports to prohibit at-will employees, who have yet to accept an
offer of new employment,

from "inducing" or even "encouraging" their

coworkers to leave their present employer. In that connection, New
York courts apply a three-part reasonableness test to covenants
prohibiting the recruitment of employees. Kelly v. Evolution
Markets,

Inc.,

626 F. Supp. 2d 364, 374

covenant "is reasonable only if it;

(1)

(S.D.N.Y. 2009). Such a
is no greater than is

required for the protection of the legitimate interest of the
employer,
(3)

(2)

does not impose undue hardship on the employee, and

is not injurious to the public." Id.

(quoting BOO Seidman v.

Hirshberg, 93 N.Y.2d 382, 388-389 (N.Y.1999)
21

(citing Restatement

(Second)

of Contracts § 188

(1981)). The employee non-solicitation

provision here fails all three requirements.
First,

although DTI contends that the covenant prevents "the

potential harm to a company's operations arising from the
coordinated en masse resignation of several employees," Pls.'
Rebuttal at 7, this is not a legally cognizable interest for the
purposes of a restrictive covenant.

12

The "legitimate interest of the

employer must protect against unfair competition, not simply to
avoid competition in a general sense." Kelly,

626 F. Supp. 2d at 374

(citing Lazer, 823 N.Y.S.2d at 834). Accordingly,

the New York Court

of Appeals has "limited the cognizable employer interests under the
first prong of the common-law rule to the protection against
misappropriation of the employer's trade secrets or of confidential
customer lists, or protection from competition by a former employee
whose services are unique or extraordinary." BOO Seidman,

12

93 N.Y.2d

Unlike the situation here, however, en masse resignations may
support a claim for breach of fiduciary duty where those
resignations are part of a coordinated effort to "benefit [the
defendants] through destruction of plaintiff's business." Duane
Jones Co. v. Burke, 306 N.Y. 172, 189 (1954). Such coordination
nontheless requires more than shared timing of a few resignations.
See Town & Country House & Home Serv., Inc. v. Newbery, 3 N.Y.2d
554, 557-58 (1958). For example, in Duane Jones, five former
officers and directors and two other key employees of the
plaintiff's advertising agency, constituting 90% of its skilled
employees as well as a majority of the entire working force, agreed
to form a competing business, solicited the plaintiff's customers
prior to their departures, and then resigned en masse, thereby
acquiring overnight upwards of 50% of the business of their previous
employer. 306 N.Y. at 172, 198; Town & Country House, 3 N.Y.2d at
557-58.
22

at 389

(citing Reed,

303, 308

Roberts Assocs.,

Inc. v. Strauman,

40 N.Y.2d

(1976)).

DTI does not contend that the employee non-solicitation
covenant is necessary to protect its trade secrets or confidential
customer lists.

13

And even if the Individual Defendants'

could be described unique or extraordinary,

14

services

their decision to

market themselves as a "package deal" is not a form of competition,
let alone unfair competition. As the non-competition covenants in
the Epiq Employment Agreements themselves recognize,
requires engaging in services for a competitor,

competition

and there is no

evidence that the Individual Defendants intended their resignations
to disrupt DTI's operations for LDiscovery's benefit or that this

13

Indeed, it is hard to imagine how this would be true given that
the Individual Defendants are subject to non-disclosure provisions.
See, e.g., Glob. Telesystems, Inc. v. KPNQwest, N.V., 151 F. Supp.
2d 478, 482 (S.D.N.Y. 2001) (plaintiff had a legitimate interest in
enforcing an employee non-solicitation covenant where the employee
at issue, the plaintiff's chief financial officer, was not subject
to a non-disclosure provision)
14

Although the Court does not reach the issue, there is no evidence
that this is the case. The mere fact that the Individual Defendants
were some of DTI's top-earners is immaterial. DataType Int'l, Inc.
v. Puzia, 797 F. Supp. 274, 283 (S.D.N.Y. 1992) ("Puzia is a
salesman. To be sure, he is a very good salesman; but there is
nothing unique about the nature of his services."). There is no
testimony that DTI was substantially responsible for the Individual
Defendants' success, such as by providing specialized training or
"market intelligence" concerning prospective clients. Natsource LLC
v. Paribello, 151 F. Supp. 2d 465, 473 (S.D.N.Y. 2001); Kanan,
Corbin, Schupak & Aronow, Inc. v. FD Int'l, Ltd., 797 N.Y.S.2d 883,
888 (Sup. Ct. 2005). To contrary, the Individual Defendants
testified that their primary reason for leaving DTI was that it
underinvested in client relationships and review facilities.
23

actually occurred. Indeed, the Individual Defendants lacked an
incentive to do so given that they cannot solicit any customers for
LDiscovery until January 2018, and therefore could not take
immediate advantage of any "disruption" that may or may not have
occurred.
To be sure,

if DTI desires to prevent its employees from

coordinating their resignations,
term employment agreements.

it is free to hire them pursuant to

DTI, however,

cannot use restrictive

covenants to supply itself all the benefits of term agreements while
simultaneously retaining the right to lay off its personnel whenever
it so desires. This is not a proper purpose for such a restraint on
free market competition.
Second, the restrictive covenant imposes an undue hardship on
DTI's employees because it goes far beyond DTI's stated goal of
preventing "en masse" resignations.

15

As DTI readily acknowledges,

the non-solicitation provision prohibits any speech that
"encourages" or "induces" an employee to terminate his or her
employment,

from direct solicitations to such banal statements as an

15

The decision in Estee Lauder Companies Inc. v. Batra, 430 F. Supp.
2d 158, 182 (S.D.N.Y. 2006), which is not binding on this Court, is
not to the contrary. There, Judge Sweet held that the defendant
breached his employee non-solicitation clause by emailing a fellow
employee, while still employed by the plaintiff, that "I would drag
you with me kicking and screaming even if you didn't want to come."
Id. at 165. The defendant in Estee Lauder, however, did not dispute
the validity of his non-solicitation clause, and therefore the court
did not reach whether the provision was enforceable under New York
law.
24

employer is a "mess" and that an employee "would be able to find
other gainful employment without an issue." 16 See Pls.'
26. Given the vagueness of its terms,

Summation at

the covenant is thus nothing

short of a contractual gag rule on employee complaints, which
neither New York law nor common sense could possibly enforce,

let

alone have a lawful basis for doing so. See, e.g., Gold v. Maurer,
No. CV 17-734

(CKK),

2017 WL 1628873,

at *5

(D.D.C. May 1, 2017)

(denying preliminary injunction prohibiting the defendant "on any
occasion in which he chose to discuss the circumstances of his
departure from [his former employer]" because such an order would
amount to an overly broad restraint on speech) .
Third,

the covenant's restrictions are injurious to the public.

There is no dispute here that each of the Individual Defendants had
already resolved to leave DTI-Epiq before they began coordinating
their job search. See Pls.'

Summation at 27.

DTI contends, however,

that the restrictive covenant still applies with full force because
merely discussing other potential employers constitutes
"encouragement" to leave the company.

16

Id.

Although these statements were made by the Individual Defendants
to a DTI employee after they had resigned to the company, the point
is that they are examples of the types of conversations that the
employee non-solicitation provisions makes improper, regardless of
time or circumstance, and that the Individual Defendants no doubt
shared in coming to their conclusion to seek alternative employment.
See Tr. 148:10-149:23 (testimony by defendant West describing his
grievances with Epiq and the fact that he shared his concerns with
the other Individual Defendants prior to their deciding to seek new
employment).
25

This is a bridge too far.

In addressing whether a restrictive

covenant is injurious to the public, the Court must "take account of
any diminution in competition likely to result from slowing down the
dissemination of ideas and of any impairment of the function of the
market in shifting manpower to areas of greatest productivity."
Restatement

(Second) of Contracts

§

solicitation covenant here, in turn,

188

(1981). The employee non-

serves to keep departing

employees in the dark about job opportunities beyond DTI. It is
under these circumstances that the public interest most strongly
supports the free flow of information concerning alternative
employment, however,

since this effectuates the efficient

redistribution of labor and the "harm" to DTI of losing the employee
is a forgone conclusion.
The foregoing analysis applies also to DTI's claims that the
Individual Defendants improperly solicited two other DTI employees,
Gary Suffir and Myriam Schmell. Since DTI does not contend that
either employee possesses any trade secrets or provides "unique" or
"extraordinary" services, the non-solicitation clause fails under
the first element of the reasonableness test. The evidentiary
hearing further unequivocally established that Ms. Schmell was
already intending to leave DTI at the time that the Individual
Defendants spoke to her about alternative employment

(because DTI

had informed her that she would be laid off), Tr. 45:17-25, and the
non-solicitation clause is therefore additionally unenforceable as
to her under the third element of the reasonableness test.
26

Lastly, even if DTI could show that the employee nonsolicitation provisions are enforceable,

it would still not be

entitled to a preliminary injunction because it has failed to
establish irreparable harm. See N.Y. ex rel.
PLC,

787 F.3d 638,

Hous.,

660

(2d Cir.

2015)

Inc. v. Town of N. Hempstead,

Schneiderman v. Actavis

(quoting Forest City Daly
175 F.3d 144, 153

(2d Cir.

1999) (irreparable harm requires an "injury that is neither remote
nor speculative, but actual and imminent")). DTI does not contend
that it has suffered any harm as a result of the Individual
Defendants'

communications with Mr. Suffir and Ms. Schmell, and has

offered only conclusory statements from its Chief Integration
Officer that the company saw "harm to [its]
the Individual Defendants'
12.

good will" because of

"abrupt" departure. Tr.

532:15-22; 537:5-

It is precisely this type of unsubstantiated testimony,

disconnected from proof that any customers have actually ceased
doing business with DTI or testimony from any clients that they
think less of the company, that New York courts have held is
insufficient to show actual or imminent harm to a plaintiff's
"goodwill." John G. Ullman & Assocs.,
139 A.D.3d 1358, 1359

(N.Y. App.

Inc. v. BCK Partners,

Inc.,

Div.).

For the foregoing reasons, the Court concluded that DTI had
failed to show a likelihood of success on the merits or irreparable
harm for the Individual Defendants' purported breach of the Epiq
Employment Agreements'

employee non-solicitation clauses,

27

and

consequently denied these prongs of plaintiffs' motion in its June
16, 2017 Order.
The Court turns finally to DTI's claim that the Individual
Defendants have breached their client non-solicitation covenants.
The Epiq Employment Agreements do not require the Individual
Defendants to cease all contact with their clients following their
departure from DTI. Rather, they prohibit the Individual Defendants
from engaging in activity that would influence Epiq's customers to
transfer their business to a competitor.

17

The Individual Defendants

have abided by this covenant. For example, defendant Hosford
testified that whenever he spoke to a former client, he never
informed them of the name of his future employer and spoke only in
vague terms that he "may be in touch in the future." Tr. at 240:10241:5.

Indeed, after receiving a voicemail from one former client,

Hosford responded by email - copying several DTI employees on the
communication - stating that "because of my employment agreement,
it's best for both of us I do not respond with further detail" and
to "call me if you have additional questions." See DTX 125.

17

The non-solicitation clause states in relevant part that the
Individual Defendants for a period of 12 months following
termination will not: "(a) solicit, serve or cater to any of Epiq's
customers whom [they] solicited, served or catered to on behalf of
Epiq.
(b) divert or attempt to divert any of Epiq's customers
; or (c) call upon, influence, or attempt to influence any of
Epiq's customers to transfer their business or patronage from Epiq
to [them] or to any other .
. business entity engaged in a
business similar to Epiq's business." See PX 018; PX 037; PX 063; PX
064.
28

The remainder of the alleged solicitations, such as a
suggestion by defendant Kreger to grab lunch or for a particular
client to call him,

are innocuous. See PX 118; PX 243. The

Individual Defendants testified that several of their former clients
were also personal friends,

see Tr.

63:4-9; 245:5-6, and DTI has not

introduced any testimony from its clients stating that the
Individual Defendants have solicited them for business. 1 8 See FTI
Consulting,
*10

Inc. v. Graves, No.

(S.D.N.Y. July 31, 2007)

OS CIV 6719 NRB, 2007 WL 2192200, at

(defendant's informing clients that he

intended to leave his employer did not constitute improper
solicitation).

DTI has thus failed to show a likelihood of success

on the merits that the Individual Defendants have breached their
client non-solicitation clauses.
In sum,

DTI's motion for a preliminary injunction fails as to

the facts and the law. On the facts,

DTI mistakenly portrays what

are in actuality innocuous or otherwise legitimate acts by
LDiscovery and the Individual Defendants as part of a conjectural
(but unsupported)

scheme to misappropriate DTI's trade secrets and

improperly compete for its clients and employees. On the law,

DTI's

expansive view of its trade secrets and the restrictive covenants in
its employment agreements is at odds with New York law and the
testimony elicited during Court's three-day evidentiary hearing, and

Indeed, DTI strategically chose to forgo examining Kreger at the
evidentiary hearing about his suggestion to grab lunch and instead
introduced the email into evidence through defendant Parker, who had
no personal knowledge of what later transpired. Tr. 391:2-20.

18

29

DTI accordingly has failed to show a likelihood of success on the
merits or imminent and irreparable harm.
For all the foregoing reasons,

the Court denied DTI's motion

for a preliminary injunction in its Order dated June 16, 2017.
Dated:

~Jl., ~

New York, NY
July S", 2017

~S~RAKOFF, U:s.o.J.

30