HMS Holding Corp. v. Arendt, Index Number A754/2014, 07/14/15 (Platkin, J.)

Contract; Trade Secrets

By Brian White | Staff Writer

Public Consulting group, Inc. (“PCG”) was Plaintiff’s competitor. In 2006, Plaintiff purchased PCG’s entire third party liability business (“TPL”). Plaintiff hired Curtin to be COO.

Curtin signed a one-year post-termination noncompetition agreement. (“Noncompetition Agreement”), and ended his employment with Plaintiff on February 28, 2013.

In July 2013 Curtin contacted PCG and raised the idea of starting a competitor TPL business. Curtin then helped PCG win a TPL proposal in Louisiana. Plaintiff protested the award because they maintained that in undertaking these efforts that Curtin relied upon confidential information that was learned when employed by the Plaintiff. .

Plaintiff commenced an action ordering to show cause, which sought to preliminary to enforce a contractual provision to safeguard Plaintiffs confidential and proprietary information, as well as its trade secrets. The order to show cause requested an expedited pre-hearing discovery, including the discovery of electronically stored information. . Plaintiff simultaneously commenced an action in Dallas County district court in Texas against PCG, former employees James Gambino, and Jason Ramos. The Court issued a protocol establishing the removal of Plaintiffs information from the possession of PCG and Gambino and Ramos.

To grant a preliminary injunction, the moving party has the burden of showing (1) a likelihood of ultimate success on the merits; (2) the prospect of irreparable harm in the absence of the requested injunctive relief; and (3) a balance of the equities tipping for the movant.

The court held that Plaintiff is likely to succeed in establishing that Curtin violated the Noncompetition Agreement because Curtin reached out to PCG about competing for the Plaintiffs’ TPL customers and shared information he obtained from plaintiff with PCG.

Arendt was intimately involved in the development and the enhancement of the cost avoidance and verification tools and web portal screen-scraping applications. Arendt was said to possess detailed and confidential knowledge of the Plaintiffs process for developing relationships with the third-party commercial carrier. Arendt agreed to a three-year covenant against the disclosure of Plaintiffs confidential information and a one year covenant against the solicitation of Plaintiffs employees and clients. Plaintiff stated that Arendt violated the no-solicitation covenants by allowing PCG to identify him as key personnel. The court found that it is likely that plaintiff will be able to prove that Arendt violated the covenant against solicitation.

The no-solicitation covenant expired on May 22, 2015, and there is no extension of the clause. Here the court is not persuaded that an equitable extension of the no-solicitation clause is warranted and, therefore, injunctive relief is not available against Arendt.

“To succeed on a claim for misappropriation of trade secrets under New York law, a party must demonstrate (1) that it possessed a trade secret, and (2) 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.”

Under New York’s Restatement of a Torts, a trade secret is any formula, pattern, device or compilation of information which is used in one’s business, and which gives the business an opportunity to obtain an advantage over competitors who do not know or use it. The courts consider the following factors (1) the extent to which the information is known outside 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 secret (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. Plaintiff is likely to succeed in showing that much of the information that it wants to protect qualifies for trade secret protection.

Defendants argued that this inadvertent public disclosure terminated the trade secret status. The court found the parties consented to the electronic filing and service of more than 1500 pages of exhibits including many of the alleged trade secrets. Where trade secrets status have been lost through inadvertent electronic dissemination, the court must consider the six factors of the restatement. The court determined that it is insufficient to find that the information annexed to the price affidavit became known or readily ascertainable

It is likely that the Plaintiff will be able to demonstrate that Curtin misappropriated its trade secrets. Curtin engaged in a massive downloading of Plaintiff’s confidential information to his personal external hard drive the day before he left the company. There is evidence that Curtin accessed this information when leading PCG’s TPL bid.

The third element needed to obtain a preliminary injunction is proof of irreparable harm. Irreparable harm means “any injury for which a monetary award alone cannot be adequate compensation.” Plaintiff faces not only the loss of existing TPL customers but the loss of good will as well.

The court held that because of the Texas injunction action, it no longer appeared likely that Plaintiff would sustain irreparable harm in the absence of this preliminary injunction. The Texas injunction was to remain in effect through the trial. If the Texas injunction is lifted or the Plaintiff can demonstrate the prospect of irreparable harm in ways that fall outside the scope of the Texas injunction, the court permitted Plaintiff the opportunity to renew its motion for a preliminary injunction.

HMS Holding Corp. v. Arendt, Index Number A754/2014, 07/14/15 (Platkin, J.).

 

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