| Marcone APW, LLC v Servall Co. |
| 2011 NY Slip Op 05326 [85 AD3d 1693] |
| June 17, 2011 |
| Appellate Division, Fourth Department |
| Marcone APW, LLC, Respondent-Appellant, v Servall Company etal., Appellants-Respondents. |
—[*1] Phillips Lytle LLP, Buffalo (James D. Donathen of counsel), forplaintiff-respondent-appellant.
Appeal and cross appeal from an order of the Supreme Court, Erie County (John A.Michalek, J.), entered February 8, 2011. The order granted in part plaintiff's motion for anexpanded preliminary injunction.
It is hereby ordered that the order so appealed from is unanimously affirmed without costs.
Memorandum: Plaintiff commenced this action against, inter alia, defendant ServallCompany (Servall), its competitor in the wholesale appliance parts distribution business, seekingdamages and a permanent injunction for, inter alia, defendants' alleged misappropriation of itsconfidential and proprietary information. Plaintiff alleges that its former employees, the twoindividual defendants, "copied and/or transferred [plaintiff]'s confidential and proprietaryinformation" while they were still employed by plaintiff, and then used that information to solicitplaintiff's customers on behalf of Servall. Plaintiff moved for a temporary restraining order andpreliminary injunction prohibiting defendants from, among other things, using its confidentialand proprietary information, soliciting its customers, and further misappropriating plaintiff'sinformation. Supreme Court issued an order (hereafter, initial order) that granted plaintiff'smotion in part, enjoining defendants from using any information illegally obtained from plaintiff;enjoining them from further attempts to misappropriate plaintiff's information; directing them toreturn plaintiff's information; directing them to preserve the first set of daily backup tapes fromits computer file servers that were created after this action was commenced; directing theindividual defendants to turn over their personal computers and associated storage devices toplaintiff's agents and to discontinue their use of any of Servall's computers and associated storagedevices, with the option of an in camera review by the court in the event of a dispute concerningprivileged documents; and directing defendants to preserve all documents related to this action.The court, however, denied that part of plaintiff's motion seeking to enjoin solicitation ofcustomers "without prejudice to renew[ ] if and when [plaintiff] obtains direct [*2]evidence that [its] information has been unfairly used."
Thereafter, defendant Karl P. Rosenhahn and another former employee of plaintiff recantedcertain statements contained in their sworn affidavits submitted in opposition to plaintiff'smotion, thereby in effect admitting that Rosenhahn and other former employees of plaintiff usedcustomer information obtained from plaintiff in the course of their employment with Servall. Inaddition, a forensic examination of the individual defendants' computers conducted pursuant tothe initial order revealed that the individual defendants were in possession of, or had possessedand subsequently destroyed, numerous files and documents belonging to plaintiff. The filescontained, inter alia, customer names and contact information, credit terms, sales data andrankings, pricing information, profit margins, accounts receivable information, sales notes, andwarranty records. After that information came to light, plaintiff moved to expand the preliminaryinjunction in the initial order to enjoin defendants from soliciting or selling to any of plaintiff's"active customers," defined as the more than 3,000 customers to whom plaintiff made salesduring the preceding year. By the order on appeal, the court granted plaintiff's motion only inpart, enjoining Servall from soliciting 640 customers identified on a list that Servall had returnedto plaintiff pursuant to the initial order. The court also enjoined Servall from making sales tocustomers it obtained between April 1, 2010 and August 31, 2010 "unless it can prove that itobtained th[ose] accounts without the use of plaintiff's [i]nformation." We affirm.
Addressing first defendants' appeal, we note the well-settled proposition that "[a] motion fora preliminary injunction is addressed to the sound discretion of the trial court[,] and the decisionof the trial court on such a motion will not be disturbed on appeal, unless there is a showing of anabuse of discretion" (Destiny USAHoldings, LLC v Citigroup Global Mkts. Realty Corp., 69 AD3d 212, 216 [2009][internal quotation marks omitted]; see Doe v Axelrod, 73 NY2d 748, 750 [1988]). Theparty seeking the preliminary injunction must establish by clear and convincing evidence "(1) alikelihood of success on the merits, (2) irreparable injury in the absence of injunctive relief, and(3) a balance of equities in its favor" (Eastman Kodak Co. v Carmosino, 77 AD3d 1434, 1435 [2010]; see Nobu Next Door, LLC v Fine ArtsHous., Inc., 4 NY3d 839 [2005]).
Here, we conclude that the court did not abuse its discretion in granting in part plaintiff'smotion for an expanded preliminary injunction (see generally Deloitte & Touche vChiampou, 222 AD2d 1026 [1995]). As the court properly determined, plaintiff established alikelihood of success on the merits of its misappropriation and unfair competition causes ofaction (see generally Eastern Bus. Sys. v Specialty Bus. Solutions, 292 AD2d 336, 338[2002]; Laro Maintenance Corp. v Culkin, 255 AD2d 560 [1998]). Although defendantsare correct that "customer lists" are not entitled to trade secret protection if such lists are "readilyascertainable from sources outside [plaintiff's] business" (Columbia Ribbon & Carbon Mfg.Co. v A-1-A Corp., 42 NY2d 496, 499 [1977]; see Riedman Corp. v Gallager, 48 AD3d 1188, 1189 [2008]), herethe documents allegedly misappropriated by the individual defendants are not simplycompilations of customer names and addresses or phone numbers. Rather, the documents containdetailed information about each customer, including the names of individual contact persons,customer-specific pricing information, credit terms and limits, and the customers' "class"rankings based upon their margin performance. Plaintiff established that such "information wascompiled through considerable effort by [plaintiff] and its employees over several years and wasnot available to the public. The information also created a competitive advantage for [plaintiff] inservicing its current clients and creating new business" (Eastern Bus. Sys., 292 AD2d at337; see Stanley Tulchin Assoc. v Vignola, 186 AD2d 183, 185 [1992]; Giffords OilCo. v Wild, 106 AD2d 610, 611 [1984]).
In any event, even assuming, arguendo, that the misappropriated information is not entitledto trade secret protection, we conclude that the court properly determined that injunctive [*3]relief is warranted on the alternative ground of breach of trust bythe individual defendants in misappropriating plaintiff's proprietary information. As the Court ofAppeals stated in Leo Silfen, Inc. v Cream (29 NY2d 387, 391-392 [1972]), "[i]f therehas been a physical taking or studied copying, the court may in a proper case enjoin solicitation,not necessarily as a violation of a trade secret, but as an egregious breach of trust and confidencewhile in plaintiffs' service" (see generally Eastern Bus. Sys., 292 AD2d at 338;Amana Express Intl. v Pier-Air Intl., 211 AD2d 606, 606-607 [1995]). Here, the record isreplete with evidence that the individual defendants stole and/or improperly retained thousandsof documents belonging to plaintiff and thereafter used that information to compete against theirformer employer.
We further conclude that plaintiff established the requisite irreparable harm in the absence ofthe expanded injunctive relief granted by the court (see generally Ingenuit, Ltd. v Harriff, 33 AD3d 589, 590[2006]; Eastern Bus. Sys., 292 AD2d at 337-338; Stanley Tulchin Assoc., 186AD2d at 186). With respect to irreparable harm, the court determined that defendantsmisappropriated "virtually all of [plaintiff]'s customer information" and utilized that informationto establish a competing business in the northeastern United States. While the loss of sales over afinite period of time can be calculated and adequately remedied by an award of monetarydamages (see Eastman Kodak Co., 77 AD3d at 1436), the court properly determined that,without the expanded preliminary injunction, "plaintiff 'would likely sustain a loss of businessimpossible, or very difficult, to quantify' " (Invesco Inst. [N.A.], Inc. v Deutsche Inv. Mgt. Ams., Inc., 74 AD3d696, 697 [2010]; see generallyGundermann & Gundermann Ins. v Brassill, 46 AD3d 615, 616-617 [2007]; AlsideDiv. of Associated Materials v Leclair, 295 AD2d 873, 874 [2002]). In support of themotion, plaintiff's senior vice-president averred that, other than a few large national customers,the core of plaintiff's business is comprised of sales to small businesses such as applianceinstallers and repair persons, and that "[t]hese loyal customers take a great deal of time todevelop." Indeed, defendants' own expert opined that the "real value" to the business is therelationship of a distributor with its customer, not a list of names. The loss of goodwill anddamage to customer relationships, unlike the loss of specific sales, is not easily quantified orremedied by monetary damages (see Gundermann, 46 AD3d at 617; Alside Div. ofAssociated Materials, 295 AD2d at 874; cf. Eastman Kodak Co., 77 AD3d at 1436).
In addition, we conclude that the balance of the equities favor granting the expandedpreliminary injunction (see generally Destiny USA Holdings, LLC., 69 AD3d at 216).Here, there is no record support for Servall's contention that the expanded preliminary injunctionwill jeopardize its national operations. Notably, Servall's chief operating officer averred that"[o]ver 90% of Servall's business has nothing to do with the northeast region or customers there."With respect to its northeast operations, the expanded injunction only prohibits Servall fromsoliciting 640 customers on a list of prospective clients that defendants developed usingplaintiff's proprietary information. Servall is thus free to solicit the remaining 3,000-pluscustomers served by plaintiff, as well as customers served by other competitors. With respect tothat part of the injunction enjoining sales to accounts obtained during the time period thatdefendants possessed plaintiff's confidential and proprietary information, the order expresslyallows Servall to make sales to those customers that Servall can prove it obtained without the useof plaintiff's information. To the extent that the expanded injunction may negatively impactServall's business in the northeast, we note that defendants assumed such a risk by knowinglytaking or "retain[ing]," a term used by Servall in its brief on appeal, plaintiff's confidential andproprietary information and using that information to its competitive advantage and plaintiff'sdetriment.
Finally, we reject the contention of plaintiff on its cross appeal that the injunction should befurther expanded. In our view, the court struck the appropriate balance between prohibitingdefendants from further exploiting the fruits of the misappropriated information and permittingdefendants to compete fairly for customers in the northeast market. Present—Scudder, P.J.,Peradotto, Lindley, Green and Gorski, JJ.