[*1] Marsh USA, Inc. v Alliant Ins. Servs., Inc. 2015 NY Slip Op 51555(U) Decided on October 19, 2015 Supreme Court, New York County Ramos, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law 431. This opinion is uncorrected and will not be published in the printed Official Reports. Decided on October 19, 2015 Supreme Court, New York County Marsh USA, Inc., Plaintiff, against Alliant Insurance Services, Inc., JAMES BLY, DAVID MOYLAN, AND DAVID SAUL., Defendants. 651994/15 Charles E. Ramos, J. http://www.courts.state.ny.us/reporter/3dseries/2015/2015_51555.htm 1/14
Plaintiff Marsh USA, Inc. ("Marsh") seeks a preliminary injunction pursuant to CPLR 6301, enforcing noncompetition and non solicitation covenants against defendants David Moylan, James Bly, and David Saul (the "Individual Defendants") and Alliant Insurance Services ("Alliant"). Marsh seeks to enjoin the defendants from (1) soliciting business from or doing business with any client of Marsh with whom they did business on or after June 1, 2013; (2) soliciting or inducing any employee of Marsh to terminate his/her employment with Marsh; and (3) using, disclosing, or making available to any person or entity any confidential business information or trade secrets of Marsh. Background Marsh is a corporation that provides surety related services. Alliant is a direct competitor of Marsh. The Individual Defendants are three former high level Marsh employees who resigned from Marsh to join Alliant in May 2015. The Individual Defendants each entered into employment agreements (the "Non Solicitation Agreements") containing non solicitation clauses that restrict the solicitation of Marsh employees or clients for a period of 12 months after the end of employment. Additionally, Moylan's and Bly's Non Solicitation Agreements contain confidentiality clauses that prohibit the dissemination or disclosure of confidential information or trade secrets. In addition to his Non Solicitation Agreement, Saul also signed a confidentiality agreement that contains the same language as the confidentiality clauses in Bly's and Moylan's agreements (the "Confidentiality Agreement"). On December 15, 2014, Moylan was demoted and advised that he would be terminated, effective December 31, 2014. Marsh later agreed to extend the termination date to no later than December 31, 2015. Moylan forwarded a http://www.courts.state.ny.us/reporter/3dseries/2015/2015_51555.htm 2/14
number of documents to his and his wife's personal e mail addresses both before and after December 15, 2014, including: (1) two Excel spreadsheets identifying revenue and client names; (2) a 2015 business plan, which included revenue and client information; (3) his Marsh Outlook contacts, including client contacts; and (4) a 2014 [*2]Service Level Agreement ("SLA") between Marsh and a client.the Individual Defendants left Marsh for Alliant in May 2015. On May 13, 2015, Saul resigned from Marsh and began working for Alliant. On May 28, 2015, Moylan resigned from Marsh and began working for Alliant on the same day. On May 29, 2015, Bly resigned and began work for Alliant. Moylan corresponded with Marsh clients on May 29, 2015 to announce his employment with Alliant as Managing Director of International Surety and relay his new contact information. Subsequently, several clients followed Moylan from Marsh to Alliant. Other Marsh clients followed Bly to Alliant. Discussion A party seeking preliminary injunctive relief pursuant to CPLR 6301 must show: "(1) a likelihood of success on the merits, (2) irreparable injury if provisional relief is not granted, and (3) that the equities are in his favor" (J.A. Preston Corp. v Fabrication Enterprises Inc., 68 NY2d 397, 406 [1986]). Because the purpose of a preliminary injunction is to prevent litigants from taking actions that they are otherwise legally entitled to take in advance of adjudication on the merits, they should be issued cautiously and in accordance with appropriate procedural safeguards (Uniformed Firefighters Assoc. v New York, 79 NY2d 236 [1992]). I. Likelihood of Success on the Merits http://www.courts.state.ny.us/reporter/3dseries/2015/2015_51555.htm 3/14
Marsh brings causes of action against the defendants for breach of contract, breach of duty of loyalty, unfair competition, tortious interference with contractual relations and prospective economic advantage, and conversion and misappropriation of confidential information and trade secrets. For the reasons set forth below, Marsh has failed to demonstrate a likelihood of success on the merits of its claims. 1. Breach of Contract A claim for breach of contract requires the formation of a valid contract. Since the restrictive covenant must be enforceable for the contract to be valid, Marsh is only likely to win on the merits of the breach of contract claim if it can rebut the presumption by New York courts that restrictive covenants contained in employment agreements are unenforceable (see Purchasing Associates, Inc. v Weitz, 13 NY2d 267, 271 [1963] [public policy considerations militate against sanctioning the loss of a person's livelihood through the enforcement of restrictive covenants]). In Reed, Roberts Associates, Inc. v Strauman (40 NY2d 307 [1976]), the court stated that a restrictive covenant would only be specifically enforced in such context if it was necessary to protect the employer's legitimate interests. The Reed court set forth a two part test for determining whether a restrictive covenant serves the employer's legitimate interest (see Reed, 40 NY2d at 386; Restatement [Second] of Contracts 188). Under the legitimate interest inquiry, the Reed court held that restrictive covenants will be enforceable only (1) "to the extent necessary to prevent the disclosure or use of trade secrets or confidential information," or (2) "where an employee's services are unique or extraordinary" (Reed, 40 NY2d at 386). Marsh's factual assertions namely, that the Individual Defendants e mailed rolodexes to themselves are insufficient to show that the Non Solicitation Agreements (and for Saul, the accompanying Confidentiality http://www.courts.state.ny.us/reporter/3dseries/2015/2015_51555.htm 4/14
Agreement) pass the first prong of the legitimate interest test. Under the first prong of its test, the Reed court determined that the vice president's alleged use of the consultancy's "customer list" was not actionable because the names and contact information [*3]of current and potential customers were easily ascertainable from public sources (Reed, 40 NY2d at 386). Likewise, the confidentiality clause in the Non Solicitation Agreement includes all "client information" and "personnel information," categories that are much broader than is necessary to prevent the disclosure of trade secrets or confidential information. The Individual Defendants' rolodexes contained publicly available information on current and potential clients that could be found in a phone book or on the Internet, and Marsh has not sufficiently alleged that the internal memos and newsletters forwarded by the Individual Defendants to personal e mail addresses contained confidential information or trade secrets. Marsh has also failed to adequately show that the Non Solicitation Agreements pass the second prong of the legitimate interest test. Insurance brokers are generally not considered to be unique or extraordinary employees (see, e.g., Willis of New York, Inc. v DeFelice, 299 AD2d 240, 241 [1st Dept 2002] [insurance brokerage firm was not entitled to enforce restrictive covenants against its former high level employee to prevent him from soliciting firm's clients after the employee joined firm's competitor, where the services of the employee were not unique]). While Marsh undoubtedly relied on the Individual Defendants to maintain the relationships with their respective clients, this reliance does not rise to the level of "unique or extraordinary" (see Purchasing Assocs., Inc. v Weitz, 13 NY2d 267, 274 [1963] ["It must also appear that his services are of such character to make his replacement impossible or that the loss of such services would cause the employer irreparable injury"]). Marsh has not otherwise demonstrated that the Individual Defendants were irreplaceable, or that losing the Individual Defendants would cause irreparable injury to Marsh. In fact, Marsh had already set a termination date for Moylan, showing that he was not irreplaceable or essential to Marsh's day to day operations. Where a restrictive covenant exceeds the scope necessary to protect the Marsh's legitimate interests under the Reed test, a court may still enforce a restrictive covenant to the extent necessary to protect an employer's relationships and goodwill (BDO Seidman v Hirshberg, 93 NY2d 382, 392 [1999]). However, the facts of this case are distinct from those in BDO Seidman (id.). In BDO Seidman, the court partially enforced a restrictive covenant where the covenant http://www.courts.state.ny.us/reporter/3dseries/2015/2015_51555.htm 5/14
was not imposed "as a condition of defendant's initial employment, or even his continued employment, but in connection with promotion to a position of responsibility and trust just one step below admittance to the partnership" (id. at 395). Here, beyond an unsubstantiated claim at the motion hearing that an employee continued to work for Marsh after refusing to sign the Non Solicitation Agreement, Marsh has failed to show in its moving papers that it did not require the Individual Defendants to sign the Non Solicitation Agreements as a condition of their initial or continued employment. Additionally, New York courts refuse to enforce a non competition provision in an employment agreement, even partially, where the former employee was involuntarily terminated (Arakelian v Omnicare, Inc., 735 FSupp2d 22, 41 [SDNY 2010]; see also Post v Merrill Lynch, Pierce, Fenner & Smith, Inc., 48 NY2d 84, 89 [1979] ["An essential aspect [of enforceable restraints on employee mobility] is the employer's continued willingness to employ the party covenanting not to compete]"). Moylan was awaiting termination at the time he "resigned" from his position at Marsh. For these reasons, Marsh has failed to demonstrate a likelihood of success on the merits [*4]of its claim for breach of contract. 2. Breach of the Duty of Loyalty Under New York law, "an employee is prohibited from acting in any manner inconsistent with his agency or trust and is at all times bound to exercise the utmost good faith and loyalty in the performance of his duties" (Maritime Fish Prods., Inc. v World Wide Fish Prods., Inc., 100 AD2d 81, 88 [1st Dept 1984]). However, where the names and contact information of current and potential customers are easily ascertainable from public sources, the use of lists containing customer contact information is not misappropriation of confidential information or trade secrets (Reed, 40 NY2d at 386). Where confidential information is not used to solicit clients, a former employee may http://www.courts.state.ny.us/reporter/3dseries/2015/2015_51555.htm 6/14
solicit those clients after the employment relationship has been terminated (see Leo Silfen, Inc. v Cream, 29 NY2d 387, 392 [1972]). According to Marsh, the Individual Defendants obtained the contact information and knowledge of the solicited clients via their rolodexes and by casual memory, neither of which New York law protects as confidential information or trade secrets. Additionally, Marsh has not adequately shown that the Individual Defendants conspired to misappropriate documents or solicit clients for Alliant while employed by Marsh, thereby failing to show a breach of the duty of loyalty while the Individual Defendants were still employed by Marsh. Therefore, Marsh has failed to demonstrate a likelihood of success on the merits of its claim for breach of the duty of loyalty. 3. Conversion A conversion takes place when someone, intentionally and without authority, assumes or exercises control over personal property belonging to someone else, interfering with that person's right of possession (State of New York v Seventh Regiment Fund, 98 NY2d 249 [2002]). Two key elements of conversion are (1) plaintiff's possessory right or interest in the property and (2) defendant's dominion over the property or interference with it, in derogation of plaintiff's rights (id. at 259). Marsh has a possessory right in the documents that it alleges Defendants have unlawfully taken. However, Marsh has http://www.courts.state.ny.us/reporter/3dseries/2015/2015_51555.htm 7/14
not shown that the defendants took or interfered with the property in derogation of its rights. Marsh has only shown that the Individual Defendants sent e mails containing documents to personal e mail accounts belonging to the Individual Defendants or their spouses. There are no indications in the moving papers that the defendants used this information to derogate Marsh's rights, since the lists were merely copied rather than destroyed or taken. Therefore, Marsh has not shown that it is likely to succeed on the merits of its claim for conversion. 4. Misappropriation of Trade Secrets To establish a claim for misappropriation of trade secrets, the plaintiff must show (1) that it possesses a trade secret, and (2) that defendant is using that trade secret in breach of an agreement, confidence, or duty, or as a result of discovery by improper means (Restatement of Torts 757). A trade secret is "any formula, pattern, device or compilation of information which is used in one's business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it" (Ashland Mgmt. Inc. v Janien, 82 NY2d 395, 407 [1993]). Factors considered in evaluating claims of trade secrecy include: (1) the extent to which [*5]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 (id.). Here, Marsh has not adequately shown that the defendants misappropriated trade secrets, or that trade secrets were even taken. The customer lists appear to consist entirely of publicly available information, and publicly available information cannot be a trade secret (see Leo Silfen, Inc., 29 NY2d at 392). Marsh is unlikely to succeed in showing http://www.courts.state.ny.us/reporter/3dseries/2015/2015_51555.htm 8/14
that the Excel spreadsheets, the business plan, or the SLA were trade secrets, since it has not made any showings that these documents were valuable to the business and its competitors, took much effort or money to develop, or were even secret. Furthermore, even if the documents were trade secrets, Marsh has not made any showing that the defendants used the documents for any improper means. The Individual Defendants purportedly committed the identities of the solicited Marsh clients to memory, and would not have required any secret business plans or contact information to solicit them (see, e.g., Kanan, Corbin, Schupak & Aronow, Inc. v FD Int'l, Ltd., 8 Misc 3d 412, 413 14 [Sup Ct NY County 2005] [Ramos, J.] [Defendants' recollection of the identity of their clients and of the details of their accounts does not amount to misappropriation of a trade secret or confidential information]). Thus, Marsh has not shown that it is likely to succeed on the merits of its misappropriation of trade secrets claim. 5. Misappropriation of Confidential Information A cause of action for misappropriation of confidential information requires a showing that plaintiff took steps to protect the secrecy of the information allegedly being misappropriated (2470 Cadillac Res., Inc. v DHL Exp. (USA), Inc., 84 AD3d 697, 698 [1st Dept 2011]). Here, Marsh has not shown that it protected the secrecy of the information allegedly being misappropriated. The client lists contained publicly available information and therefore cannot be secret. Marsh has also failed to demonstrate how it protected the secrecy of the Excel spreadsheets, business plan, or SLA beyond the allegation that these documents were confidential. http://www.courts.state.ny.us/reporter/3dseries/2015/2015_51555.htm 9/14
Thus, Marsh has failed to show its likelihood of success on the merits of its claim for misappropriation of confidential information. 6. Unfair Competition "One who causes harm to the commercial relations of another by engaging in a business or trade is not subject to liability to the other for such harm unless... the harm results from acts or practices of the actor actionable by the other... relating to: (1) deceptive marketing...; (2) infringement of trademarks and other indicia of identification...; [or] (3) appropriation of intangible trade values including trade secrets and the right of publicity" (Restatement [Third] of Unfair Competition 1). "[T]he primary concern in unfair competition is the protection of a business from another's misappropriation of the business' organization or its expenditure of labor, skill, and money" (Macy's Inc. v Martha Stewart Living Omnimedia, Inc., 127 AD3d 48, 56 [1st [*6]Dept 2015]). Here, Marsh does not allege that the defendants engaged in deceptive marketing or trademark infringement, but only that they misappropriated Marsh's confidential information and trade secrets. Since Marsh failed to demonstrate a likelihood of success on the merits of the claims for misappropriation, Marsh has also failed to show a likelihood of success on the merits of the claim for unfair competition. 7. Tortious Interference With Contractual Relations(Alliant) To state a cause of action for tortious interference with contractual relations, a plaintiff must allege (1) the existence of a valid contract between the plaintiff and a third party; (2) the defendant's knowledge of the contract; (3) http://www.courts.state.ny.us/reporter/3dseries/2015/2015_51555.htm 10/14
defendant's intentional procurement of the third party's breach of the contract without justification; (4) an actual breach; and (5) damages resulting therein (Lama Holding Co. v Smith Barney, Inc., 88 NY2d 413 [1996]). As per the discussion regarding Marsh's breach of contract claim, Marsh has not adequately shown the existence of valid contracts between itself and the Individual Defendants, since the restrictive covenants are likely unenforceable. Furthermore, Marsh has not sufficiently demonstrated that Alliant had any actual knowledge of the Individual Defendants' restrictive covenants before hiring them, let alone that Alliant indemnified the Individual Defendants from liability for breaching the covenants. Therefore, Marsh has not shown a likelihood of success on the merits of its claim for tortious interference with contractual relations. 8. Tortious Interference With Prospective EconomicAdvantage (All Defendants) To prevail on a claim for tortious interference with prospective economic advantage, a plaintiff must show that (1) he had a reasonable expectation of entering into a valid business relationship; (2) the defendant's knowledge of the expectation; (3) purposeful interference by the defendant that prevents the plaintiff's legitimate expectancy from ripening into a valid business relationship; and (4) damage to the plaintiff resulting from the defendant's interference (Rad Adver. v United Footwear Org., 154 AD2d 309 [1st Dept 1989]). The essential element of this claim is that the complaining party would have obtained the economic advantage but for the defendant's interference (id.). Marsh has failed to show that it would have obtained the economic advantage of the departed clients but for the defendants' interference. Although the pleadings indicate that the Individual Defendants solicited clients that http://www.courts.state.ny.us/reporter/3dseries/2015/2015_51555.htm 11/14
subsequently departed for Alliant, it appears that these clients' relationships with Marsh were entirely dependent on the Individual Defendants remaining with the company. The Individual Defendants were responsible for these clients availing themselves of Alliant's services, but the clients may have very well ended their relationships with Marsh after the Individual Defendants' departures, regardless of the Individual Defendants' solicitations. Therefore, Plaintiff has not convinced this Court of its likelihood of success on the merits on the claim for tortious interference of prospective economic advantage. II. Irreparable Harm In order to grant injunctive relief, the party seeking relief must demonstrate "danger of irreparable injury in the absence of an injunction" (Nobu Next Door, LLC v Fine Arts Hous., Inc., 4 NY3d 839, 840 [2005]). Injuries that are compensable by monetary relief, even if monetary damages are difficult to calculate, are not irreparable for the purposes of a preliminary injunction (SportsChannel Am. Associates v Nat'l Hockey League, 186 AD2d 417, 418, [1st Dept 1992]). Marsh has failed to show that the contemplated harm is not compensable with monetary relief. Marsh cites to Aon Risk Servs. v Cusack (102 AD3d 461 [1st Dept 2013]), in which Aon was granted a preliminary injunction enjoining Alliant from soliciting Aon clients. In Aon Risk Services, the record "amply demonstrate[d] that [Defendant], when not subject to formal judicial restraint, has been inclined to solicit [Plaintiff]'s employees and customers, in addition to making apparent use of its proprietary and confidential information (id. at 463). http://www.courts.state.ny.us/reporter/3dseries/2015/2015_51555.htm 12/14
In the present case, however, Marsh alleges merely that the Individual Defendants solicited Marsh clients immediately after Alliant hired them, and the clients terminated their relationships with Marsh shortly thereafter. Marsh does not provide any factual allegations that demonstrate a continued effort by the defendants to solicit Marsh's employees or clients. Since the defendants' alleged tortious behavior is not ongoing, and the Non Solicitation Agreements only purported to bind the Individual Defendants for two years, the damages that Marsh incurred by losing clients to Alliant can be quantified as lost profits through May 2017 (see, e.g., U.S. Re Companies, Inc. v Scheerer, 41 AD3d 152, 155 [1st Dept 2007] [where a former employer could have brought an action for money damages equal to the value of the transactions lost as a result of the alleged breach, the court found that a finding of irreparable harm was precluded]). Furthermore, the Non Solicitation Agreements that Marsh seeks to enforce include liquidated damages provisions that provide for specific monetary relief. Therefore, Marsh has failed to show that it will suffer irreparable harm absent an injunction. III. Balance of Equities A balancing of the equities does not favor issuing an injunction. Marsh has not demonstrated a continuing pattern of behavior by the defendants to misappropriate Marsh's confidential information or trade secrets or to solicit Marsh's clients. Instead, Marsh has only shown that several Marsh clients departed for Alliant soon after the Individual Defendants were terminated. The defendants, meanwhile, would incur sizable losses from an order enjoining the defendants from doing business with clients who have done business with Marsh on or after June 1, 2013. The former Marsh clients would incur additional expenses while scrambling to find a new provider of surety related services, despite not being parties to this action. Also, enjoining the defendants from soliciting any of Marsh's 57,000 employees is needlessly punitive http://www.courts.state.ny.us/reporter/3dseries/2015/2015_51555.htm 13/14
and anti competitive. Accordingly, it is hereby ORDERED that the motion of plaintiff, Marsh USA, Inc., for a preliminary injunction against defendants Alliant Insurance Services, Inc., James Bly, David Moylan, and David Saul is denied. This constitutes the decision and order of the Court. DATED: October 19, 2015 ENTER: J.S.C. Return to Decision List http://www.courts.state.ny.us/reporter/3dseries/2015/2015_51555.htm 14/14