IDG USA, LLC v. Schupp
Filing
78
DECISION AND ORDER. Defendant's motion to seeking enforce the injunction bond by ordering payment of Defendant's costs, including attorney's fees incurred in connection with an interlocutory appeal to the Second Circuit (Doc. No. 59), is DENIED. Signed by Hon. Leslie G. Foschio on 9/26/2011. (SDW)
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF NEW YORK
IDG USA, LLC,
Plaintiff,
v.
KEVIN J. SCHUPP, and
ABRASIVE-TOOL, CORP.,
DECISION
and
ORDER
10-CV-00076S(F)
Defendants.
KEVIN J. SCHUPP,
Counter Claimant,
v.
IDG USA, LLC,
Counter-Defendant.
APPEARANCES:
PHILLIPS LYTLE LLP
Attorneys for Plaintiff and Counter-Defendant
CHRISTOPHER HAYES, and
KEVIN J. ENGLISH, of Counsel
3400 HSBC Center
Buffalo, New York 14203
SCHRÖDER, JOSEPH & ASSOCIATES, LLP
Attorneys for Defendant and Counter-Claimant Schupp
LINDA H. JOSPEPH, of Counsel
766 Ellicott Street
Buffalo, New York 14203
BURNS & SCHULTZ LLP
Attorneys for Defendant Abrasive-Tool Corp.
ANDREW M. BURNS, of Counsel
28 East Main Street
Suite 900
Rochester, New York 14614
JURISDICTION
This action was referred to the undersigned by Honorable William M. Skretny on
November 22, 2010, for nondispositive pretrial matters. The case is presently before
the court on Defendant Schupp’s motion filed April 15, 2011 (Doc. No. 59), seeking a
court order directing enforcement of an injunction bond posted in this action by
awarding Defendant attorney’s fees incurred in connection an interlocutory appeal to
the Second Circuit challenging this court’s order granting Plaintiff a preliminary
injunction.
BACKGROUND and FACTS1
Plaintiff IDG USA, LLC (“Plaintiff”), commenced this contract action on January
29, 2010, alleging Defendant Kevin J. Schupp (“Defendant”), Plaintiff’s former sales
associate, breached a non-compete agreement (“the Agreement”) executed by
Defendant and Plaintiff on May 27, 2008, precluding Defendant, following the
termination of his employment with Plaintiff, from soliciting business from any of
Plaintiff’s customers for one year, and from using or revealing any of Plaintiff’s trade
secrets or confidential information for two years. Plaintiff paid $ 3,000 to Defendant for
executing the Agreement. On January 14, 2010, Defendant, without any advanced
notice, voluntarily terminated his employment with Plaintiff, who allegedly reminded
Defendant of his non-compete obligations imposed by the Agreement. Plaintiff alleges
that within days of his voluntary resignation from Plaintiff, Defendant commenced
1
The Facts are taken from the pleadings and m otion papers filed in this action.
2
employment as a sales associate with Plaintiff’s direct competitor, Defendant AbrasiveTool Corp. (“Abrasive-Tool”), for whom Defendant, in violation of the Agreement, began
soliciting business from Plaintiff’s former customers. According to Plaintiff, Defendant
used his knowledge of Plaintiff’s business and pricing practices and customers’
requirements to undercut Plaintiff’s offers for goods and services, thereby placing
Plaintiff’s customer relationships in jeopardy and damaging Plaintiff’s goodwill.
Plaintiff brings claims against Defendants for (1) breach of covenant not to
compete; (2) breach of covenant not to solicit; (3) breach of covenant not to disclose
confidential information and confidentiality agreement; (4) unfair competition; and (5)
theft of trade secrets. Plaintiff’s stated requested relief includes a temporary restraining
order, a preliminary injunction, and a permanent injunction enjoining Defendant from
further conduct in violation of the Agreement. On February 2, 2010, Plaintiff moved for
a temporary restraining order and preliminary injunction. On February 23, 2010,
Defendant filed an Answer and Counterclaim (Doc. No. 16).
On August 15, 2010, Chief District Judge William M. Skretny granted Plaintiff’s
motion for a preliminary injunction (Doc. No. 31) (“PI”). The PI, however, did not
provide for an end date or specify the geographic area for the prohibited activities, nor
require Plaintiff to post security in an amount sufficient to reimburse Defendant for any
costs and damages incurred as a result of the PI should it later be determined that
Defendant was wrongfully enjoined. On August 23, 2010, Defendant filed a notice of
interlocutory appeal indicating Defendant was appealing the PI to the Second Circuit
Court of Appeals (Doc. No. 35) (“First Interlocutory Appeal”). Defendant also filed on
August 23, 2010, in this court, a motion seeking a stay of the PI pending resolution of
3
the First Interlocutory Appeal (Doc. No. 33) (“Motion to Stay”). In papers filed in support
of the Motion to Stay, Defendant argued the PI was defective on its face for failing to
require Plaintiff to post security in an amount sufficient to reimburse Defendant for any
costs and damages incurred as a result of the PI should it later be determined that
Defendant was wrongfully enjoined, and because the PI failed to specifically state its
terms and provides for relief that is unlawful under established New York law applicable
to non-compete claims, including that the PI did not sufficiently specify the geographic
limits of the area in which the Agreement forbade Defendant from working for any of
Plaintiff’s business competitors.
On September 2, 2010, Defendant moved pursuant to Fed.R.Civ.P. 65(c) (Doc.
No. 41) (“Bond motion”), for an order directing Plaintiff to post an injunction bond in the
amount of at least $ 200,000 for Defendant’s benefit to pay the costs and damages
sustained by Defendant should Defendant ultimately be found to have been wrongfully
enjoined or restrained. In a Decision and Order filed September 20, 2010 (Doc. No.
49) (“September 20, 2010 D&O), Judge Skretny, inter alia, granted the Bond motion,
directing Plaintiff to post as security an injunction bond in the amount of $ 125,000, an
amount calculated based on Plaintiff’s last known annual salary and the estimated
costs of this litigation to Defendant, amended the PI to enjoin Defendant “from
engaging in work on behalf of any business which is competitive with [Plaintiff], within
fifty miles of [Plaintiff’s] Amherst office.” September 20, 2010 D&O at 5-6. On
September 28, 2010, Plaintiff filed the Preliminary Injunction Bond (Doc. No. 50) (“the
injunction bond”), in the amount of $ 125,000 in accordance with the September 20,
2010 D&0. On September 29, 2010, Defendant filed a notice of interlocutory appeal
4
indicating Defendant was appealing the September 20, 2010 D&O to the Second Circuit
Court of Appeals (Doc. No. 51) (“Second Interlocutory Appeal”).
By mandate filed April 15, 2011 (Doc. No. 57) (“Second Circuit Mandate”), the
Second Circuit Court of Appeals addressed both the First and Second Interlocutory
Appeals, affirming the grant of the PI, but vacating the PI insofar as it failed to specify
the duration of the PI’s prohibitions, and remanding the matter to the District Court to
consider whether the non-compete and non-solicit clauses remained in effect. The
Second Circuit further rejected Defendant’s
argument that the district court’s preliminary injunction is somehow invalid
because the court failed to require [Plaintiff] to post a bond until after the
preliminary injunction first issued. While the bond should have been required
sua sponte at the time the injunction first issued (or the district court should have
explained when issuing the injunction why no bond was being imposed), such
error is harmless because the district has now required such a bond.
Second Circuit Mandate at 5.
On April 15, 2011, Plaintiff filed a motion for leave to file an amended complaint
(Doc. No. 58) (“Plaintiff’s motion to amend”). Also on April 15, 2011, Defendant filed
the instant motion (Doc. No. 59) (“Defendant’s motion”), seeking leave to filed an
amended answer and a court order directing enforcement of the injunction bond posted
in this action by awarding Defendant attorney’s fees incurred in connection with
Plaintiff’s interlocutory appeal to the Second Circuit challenging this court’s order
granting Plaintiff a preliminary injunction. Defendant’s motion is supported by the
attached Attorney Affirmation of Linda H. Joseph, Esq. (Doc. No. 59-1) (“Joseph
Affirmation”), and Defendant’s Memorandum of Law (Doc. No. 59-2) (“Defendant’s
Memorandum”).
5
In an Order entered April 26, 2011 (Doc. No. 60) (April 26, 2011 Order), the
undersigned noted that neither party was in opposition to the other party’s motion to
amend, granted the Plaintiff’s motion to amend, and deemed as withdrawn Defendant’s
motion insofar as Defendant sought leave to file an amended answer. By text order
entered May 2, 2011, the undersigned ordered Plaintiff to file by May 12, 2011, any
response to Defendant’s motion, insofar as Defendant sought to enforce the injunction
bond, and set May 17, 2011, as the deadline for Defendant’s reply. Accordingly, on
May 12, 2011, Plaintiff filed Plaintiff’s Memorandum of Law in Opposition to
Defendant’s Motion for Attorney’s Fees and Expenses Under the Preliminary Injunction
Bond (Doc. No. 66) (“Plaintiff’s Memorandum”). Defendant did not file any papers in
further support of Defendant’s motion. Oral argument was deemed unnecessary.
DISCUSSION
Defendant’s motion is based on the fact that as originally issued on August 15,
2010, the PI did not require Plaintiff to post an injunction bond as required under Rule
65(c), and also lacked the requisite specificity including specifying the geographical
boundaries of the area in which Defendant was, pursuant to the Agreement, prohibited
from engaging in employment activities in competition with Plaintiff, as well as the
duration of the PI’s prohibitions.
As relevant to the instant motion, every preliminary injunction or temporary
restraining order must “state its terms specifically,” and “describe in reasonable detail –
and not by referring to the complaint or other document – the act or acts restrained or
required.” Fed.R.Civ.P. 65(d)(1)(B) and (C). Further,
6
The court may issue a preliminary injunction or temporary restraining order only if
the movant gives security in an amount that the court considers proper to pay the
costs and damages sustained by any party found to have been wrongfully
enjoined or restrained. . . .
Fed.R.Civ.P. 65(c).
Defendant’s motion particularly seeks to recover under the injunction bond
Defendant’s costs and expenses, including attorney’s fees, Defendant recovered in
connection with the interlocutory appeal on the basis that the Second Circuit found the
PI to be in violation of the specificity requirements of Fed.R.Civ.P. 65. Defendant seeks
to recover for 111.30 attorney hours, totaling $ 31,898.70, and $ 6,592.70 in expenses
incurred since August 15, 2010, when the PI first issued. Defendant’s Memorandum at
4. In opposition to Defendant’s motion, Plaintiff asserts that Defendant is unable to
recover any damages under Rule 65(c) because, although the Second Circuit did
vacate and remand a portion of the PI, there has been no finding that Defendant was
“wrongfully enjoined.” Plaintiff’s Memorandum at 1-3. Plaintiff further maintains that
even if Defendant could show he had been wrongfully enjoined, Rule 65 does not
permit recovery of attorney’s fees. Id. at 3-4.
“[U]nder the ‘American Rule’ a prevailing party is generally not entitled to collect
attorney’s fees from the losing party.” Nokia Corporation v. Interdigital, Inc., 645 F.3d
553, 560 (2d Cir. 2011). The principle also is well “established that a prevailing party
may not generally collect as damages against an injunction bond attorneys’ fees
expended in litigating the injunction.” Id. Nevertheless, where an enjoined party seeks
to recover fees and expenses incurred in complying with a wrongfully issued injunction,
recover of costs, including attorney’s fees, “does not contravene the American Rule or
7
its Rule 65(c) analogue.” Id. “Nor would permitting recovery under these
circumstances risk ‘unfairly saddling’ losing parties with the prevailing parties’ attorneys’
fees. Instead, permitting recovery is consistent with the purpose of an injunction bond –
to cover the costs and damages incurred as a result of complying with a wrongful
injunction.” Id. Before recovering costs from an injunction bond, “the wrongfully
enjoined party must first demonstrate that the damages sought were proximately
caused by the wrongful injunction.” Id. (citing Blumenthal v. Merrill Lynch, Pierce,
Fenner & Smith, Inc., 910 F.2d 1049, 1056 (2d Cir. 1999)).
Significantly, according to the Second Circuit, a party has been “wrongfully
enjoined” under Fed.R.Civ.P. 65(c) “‘if it has been ordered to do something it has a right
to refrain from doing or to cease doing something it had a right to continue doing.’”
Nokia Corp., 645 F.3d at 559 (quoting Guzman v. Local 32B-32-J, Service Employees
International Union, 72 F.3d 260, 263 (2d Cir. 1995)). “‘The focus of the ‘wrongfulness’
inquiry is whether, in hindsight in light of the ultimate decision on the merits after a full
hearing, the injunction should not have issued in the first instance.’” Id. (quoting
Blumenthal, 910 F.2d at 1054). In the instant case, the Second Circuit Mandate is
devoid of any indication that Defendant was, based on the largely inconsequential
shortcomings of the PI as originally issued, “wrongfully enjoined” as required for a
payment of costs and damages under Rule 65(c).
Moreover, Defendant has failed to identify any harm suffered as a result of the
clerical errors in the PI as originally issued. Although Plaintiff did not post the requisite
injunction bond until September 28, 2010, eight days after being ordered by the
September 20, 2010 D&O to do so, and more than one month after the PI issued, the
8
Second Circuit characterized the posting of the security after the PI issued as “harmless
error.” Second Circuit Mandate at 5.
Simply put, that the PI, or originally issued, contained what amounted to nothing
more than mere clerical errors or oversight by failing to provide for an end date and
geographic boundaries for the prohibited activities, and an injunction bond, which the
Second Circuit specifically held to be “harmless error,” did not cause Defendant to be
“wrongfully enjoined” as required to recover costs incurred in connection with the PI. As
such, Defendant’s motion is DENIED.
CONCLUSION
Based on the foregoing, Defendant’s motion to seeking enforce the injunction
bond by ordering payment of Defendant’s costs, including attorney’s fees incurred in
connection with an interlocutory appeal to the Second Circuit (Doc. No. 59), is DENIED.
SO ORDERED.
/s/ Leslie G. Foschio
LESLIE G. FOSCHIO
UNITED STATES MAGISTRATE JUDGE
DATED:
September 26, 2011
Buffalo, New York
9
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?