*1 in the Guarantee assumed stock
Agreement.
CONCLUSION reasons, vacate the we foregoing
For the general holding that court’s
district was insuffi- in this case of defenses
waiver liability guarantors’ maintain
cient We debtor. principal release of
after did however, court
note, that the district Merrill other of several rule on defenses, many and Calex’s
Lynch’s challenges to direct presented rather enforceability Agreement’s
Letter obligations. guarantee to Weinstock’s
than court’s the district vacate therefore
We proceed- remand for further
judgment opinion. with this
ings consistent INSTRUMENTS, ATLANTIC
NORTH
INC., Plaintiff-Counter-
Defendant-Appellee, Corp., Apex Signal HABER and
Fred
Defendants-Counter-Claimants-
Appellants. No. 98-9423
Docket Appeals, Court of States
United Circuit.
Second
Argued: May 1999. Aug. 1999.
Decided: *2 secrets of North
priation irreparable company cause would pre- entered damage, the District defendants. injunction against liminary *3 wheth- decide us to appeal requires This restrict- permissibly the District er Costa, Thom- of Law Offices L. Thomas soliciting North from ed defendants (Robert Melville, LLP, Costa, N.Y. L. individual through Atlantic’s customers Lester, Bryan Folks, and C. M. Steven L. developed contacts client counsel), Cott, Defendants- for of Van predeces- and its North Atlantic while at Counter-Claimants-Appellants. Dis- that we conclude Because sor. Rivkin, Krem- & Radler its allowable Garay, B. not exceed Erica did trict Court (Evan Uniondale, so, Krinick and er, N.Y. H. affirm. doing we discretion counsel), Versichelli, of for P. Michael BACKGROUND Plaintiff-Counter-Defendant-Appellee. Atlantic en- North August On GRAAFEILAND, Before: VAN Purchase an Asset tered into STRAUB, CALABRESI, Circuit and (“TMI”). North Transmagnetics, Inc. Judges. special- and manufactures designs technical, ized, equip- electronics industrial dissents GRAAFEILAND Judge VAN and development test- utilized in the separate opinion. in a tanks, and ships, on systems used ing of In STRAUB, Judge: military and aircraft. commercial Circuit in a related business engaged was TMI Fred Haber defendants-appellants, The niche mar- particular a targeted towards appeal from an Corp., Apex Signal and manufactured, and sold designed, ket: It District Court States United order to a limited devices electronic customized (Ar- York District of New the Eastern aerospace in the engineers, of also number en- Judge) preliminarily Spatt, D. thur At the time high and tech industries. alia, from, soliciting inter them joining TMI, a Haber was acquired North Atlantic contained a client contacts particular TMI, and president, of its one-third owner from misappropriated allegedly list which allowed position sales—a the head of Instru- North Atlantic plaintiff-appellee, client contacts. develop extensive him to decision, the ments, of support Inc. In its testified chief North executive part on find- large relied District Court nature and specialized that the customized pre- of law conclusions of fact ings and identity of made the of TMI’s business Report in a and Recommendation sented (Michael engineers of who relatively numbers L. Or- small Judge Magistrate by the crucial products especially its enstein, required who had held Judge), Magistrate is, may there That its business success. extensive, evidentiary hear- eight-day an company engineers two Report and Recom- ing. Based on —within 100,000 20,000 engineers and comprised of the rec- own of its review mendation and the technolo- concluded, might need employees ord, inter the District Court —who result, by TMI. con- gy produced As alia, pre- contacts list of client cluded, needs of identity and knowing while Haber by Haber and used pared extremely valuable engineers these was consti- of North Atlantic employee an was and one that TMI’s aspect of business and that trade secret protectable tuted any very difficult for been would have to use the were bound not the defendants In part on its own. company to derive light in the list. contained this, evidently North Atlantic because of and the findings those TMI on purchase Ha- misappro- conditioned any Judge’s determination
Al continuing ber’s to work for North Atlantic ... any tic] and affiliate ... and not to in a similar role to which he had any disclose such confidential matter to occupied at TMI. anyone outside [North any or Atlantic] affiliate.... The Asset Purchase Agreement provid- The terms of provision that TMI apply ed would sell and transfer both “during and after period North Atlantic “all of his properties service with Atlantic],” kind, [North every assets of and the descrip- agreement nature and re- tion, real, quired mixed, over, personal or turn tangible upon or termination, intangible.” all Specifically documents and property itemized within these assets ... Atlantic that were “[a]ll customer contained confi- dential vendor data bases” and information.2 Haber acknowledged goodwill “[a]ll *4 in the intangible assets, owned, Employment Agreement other used or that an injunction permissible held for use would be a by its remedy [TMI]” business. for a material Consistent with breach of language, the confidentiality North At- provision lantic’s owner testified that because such a the list of breach would cause “irreparable injury client contacts presumably to included within Atlan- [North tic] and ... intangible money damages' these very assets was “a impor- [would] not provide an aspect adequate tant purchase.” remedy the [North North At- to At- $99,667 Finally, lantic].” lantic paid assets, for the TMI’s Employment Agree- fixed portion clause, contained a merger which goodwill, included and $851,134 stated that the addition, for contract inventory. represented TMI’s In the “full and clearly complete agreement North Atlantic par- valued the informa- relating tion ties bear, employment brought to of [Ha- as dem- ber].” by onstrated paying its him salary and $300,000 bonuses of approximately in his After acquisition, TMI became a di- year
first with North Atlantic. vision of North Atlantic with Haber as its and, president months, for the first six Shortly after acquisition, on Novem- its engineering manager. he occu- 7,1994, While ber North Atlantic entered into an pied positions, these Haber had (the access to employment agreement “Employment information about North Atlantic’s technol- Agreement”) with Haber. original Its base, ogy and customer including lists of months, term was twenty-one par- and the customers and contacts with their individu- ties later it to July extended continue to product al needs. Specifically, information Employment 1997. The on each of North client Atlantic’s TMI acknowledged that North Atlantic “is en- division was in a centralized customer da- gaged specialized businesses ... and program, tabase accessible to Haber and a information, research marketing and handful of North employees other Atlantic developed by data [North Atlantic] or from both desktop and computers. laptop it, affiliate are confidential.” In Haber The client information contained in the expressly agreed: database names, company included contact keep secret and retain in the strictest names, phone numbers, fax and and more confidence all confidential matters which particularized information relating to the Atlantic], relate to [North including, specific purchases. clients’ needs and limitation, lists, without customer trade secrets, policies pricing and other confi- In July Haber left North Atlantic dential business affairs of join Atlan- Apex [North Signal Corp., a company Employment Agreement below, 1. The explained excluded from 2. As North Atlantic took ad- steps its definition ditional of “Confidential Information” Haber its other em- and ployees protect against public which has disclosure knowledge become in- secrets, including dependently additional confiden- any wrongful by acts Haber. tiality agreements. Finally, evidence Atlantic. left the same North targeting products manufactures that Haber had hearing indicated TMI divi- Atlantic’s market as North niche prod- and his contacts instances used other Ha- that after argues North Atlantic sion. from his time pricing uct and focus Apex changed its Apex, joined ber for customers Atlantic to solicit at North products to purpose general from more Apex. and produced TMI products customized In TMI division. Atlantic’s by North later on complaint No- Atlantic filed North asserts, Apex be- so, North Atlantic doing numerous viola- alleging vember customer target gan to North law, including and federal tions of state developed that it had contends Apex Act,
base.
43(a)
15 U.S.C.
§
of the Lanham
Haber
and hired
technology earlier
1125(a).
Atlantic as-
Specifically,
§
stage when
reached the
alia,
when'it
Apex
and
serted,
inter
In
product.
marketing
begin
misappro-
could
competition,
in unfair
engaged
case,
left North
information,
as Haber
as soon
either
confidential business
priated
he be-
Apex,
began
and
work
proprietary
Atlantic
trade secrets
and misused
he had used
contacts
calling the client
gan
addition,
complaint
information.
developed while at North
employ-
alleged that Haber breached
*5
North
TMI,
asking
they
that
leave
and
not
implied covenant
and
agreement
In so
Apex.
to do business with
Atlantic
Atlantic ac-
North
damage
goodwill
to
prod-
replacement
them
doing, he offered
TMI.
acquisition
quired
while
had sold them
products he
ucts for
At-
North
November
on
Also
Indeed, Apex
or TMI.
North Atlantic
at
restraining
temporary
a
lantic moved for
years
specifically because his
Haber
hired
injunction, seeking
preliminary
order and
he
the contacts that
the business and
Apex
misappro-
from
and
enjoin
to
Haber
would as-
developed
years
those
over
had
any confidential
disclosing
or
priating
product.
marketing its
Apex in
sist
relating
North
proprietary information
addition,
hearing
at the
before
soliciting any cus-
business and
pro-
Judge, North Atlantic
Magistrate
The District
tomers of North Atlantic.
in-
client
printout of confidential
a
temporary restraining
duced
a
granted
Court
Atlantic’s customer
from North
Mag-
a
formation
motion to
and referred the
order
database,
by
September
Haber on
printed
hearings
After
series of
Judge.
a
istrate
he had left
Judge
one month after
1997—over
in December
Apex’s
files.3
preliminary
found
Atlantic—and
granting
North
recommended
why
for how or
explanation
respects
had no
and issued
injunction
Haber
in most
have
to or would
to that ef-
have
access
Report
he would
and Recommendation
at that
parties
that information
Both
print
1998.
been able
fect
March
on
time,
Report
to delete
and
purported
objections
he had
to the
Recom-
because
filed
mendation,
Apex
all of his confi-
and Haber and
filed
North Atlantic
or return to
changing
complaint. The
upon
to dismiss the
client
motion
dential
information
Report
suggested
adopted the
and
Testimony
hearing
at the
District Court
jobs.4
respects
in all material
impossible for
been
Recommendation
it would have
that
to dismiss in an
the motion
and denied
generated
have
this information
Haber
unpublished opinion.
but
him
he
written
files with
extensive
he had taken
when
unless
returning
North Atlantic
it to Haber.
clearly
on the
before
the information
3. Haber
used
however,
time,
day,
a fax
printed
file: That
he
day sent
did not recall
another, slightly
on the form.
to the contact listed
also still owned
out-
Haber
dated,
computer,
he had used
laptop
desktop computer at North
4. Haber left
replaced with a
Atlantic
newer
North
before
version;
Atlantic,
person
North
systems
from
on
did not delete
North Atlantic
files
laptop computer of
cleared
Haber’s
machine.
the earlier
files; indeed,
Atlan-
any
North Atlantic
computer
checked the
chief executive
tic's
opinion
relief,
The District Court’s
“inter-
injunctive
it will
irreparable
suffer
harm,
2)
a)
pret[ed]
Report
and Recommendation
either
that it
likely
merits,
b)
barring
by
as
the use of trade secrets
succeed on the
or
that there are
defendants, including
sufficiently
soliciting
questions
the contact
serious
going to the
customer,
person of a
merits
seeking
even
to make them
ground
when
a fair
projects
bids for new
or in
litigation,
connection
and that
the balance of hard
projects,
ships tips
or
being
new
even after
decidedly
favor of moving
party.”
solicited
customers.” The District
Otokoyama Co. v.
Japan
Wine of
adopted
Inc.,
(2d
Import,
this central
holding
175 F.3d
Cir.
1999);
Report and Recommendation.
In doing
accord Genesee Brewing Co. v.
so,
Co.,
it accepted
concept
(2d
Stroh Brewing
Haber and
124 F.3d
Cir.1997).
Apex may approach and solicit the client
A district court’s issuance of an
companies
customers,
injunction
but
they may
is reviewed for an abuse of dis
not use Haber’s individual
cretion.
Otokoyama,
270;
contacts—which
See
175 F.3d at
are
Shapiro
Towers, Inc.,
trade secrets—-to do so. The
District
Cadman
51 F.3d
Cir.1995).
adopted Magistrate
Court also
Judge’s
“Such an abuse of
Apex
determination that Haber and
discretion
may
typically
ap
consists of either
plying
solicit the individual
if
legal
contacts even
incorrect
standards or relying
Apex
clearly
could
on
acquire the contact
erroneous findings of fact.”
(internal
through independent
Shapiro,
means.
DISCUSSION To on a succeed claim for the mis Applicable I. Standards appropriation of trade secrets under New party “A seeking law, (1) a preliminary York a party must demonstrate: 1) injunction (2) must establish that possessed secret, absent a trade 44 duplicated by oth- acquired or properly trade secret the defendants used confidential agreement, an ers.
in breach of
of dis-
duty,
as a result
relationship or
or
407,
at
N.Y.2d
Management, 82
Ashland
Hudson
improper means. See
covery by
1013,
918
most by [the extensive efforts after cultivated That’s your customers. relationship secret); Oil was a trade plaintiff]” rela- company, collective a the value of Giffords 611-12, 610, Wild, 483 A.D.2d 106 that Co. reputation good will and tionships and 1984) (holding 104, Dep’t 106 Addi- N.Y.S.2d industry.” in the garnered have you substan- required that a customer list that noted Judge tionally, Magistrate assets, money compile time and tial TMI’s paid North Atlantic be could “which information contained goodwill. including intangible was through personal solicitation” achieved concluded Judge Finally, Magistrate secret); Leo also see protectable trade over list assembled contact that the client 387, Cream, N.Y.2d 392- 29 Silfen, Inc. v. TMI and years at Haber’s 423, 93, N.Y.S.2d N.E.2d 328 278 duplicated, probably could TMI division (“[W]here (1972) are not the customers 428 More- difficulty.” great only “with but are discoverable trade or known determined over, Magistrate Judge have extraordinary efforts courts only by Apex could of whether regardless lists and protect customer hesitated to not own, it did not: list on generate the especially so is secrets. This files as trade [Apex’s] Rather, only basis for “[t]he patronage had been where customers’ of the customer knowledge advertising effort and by years of secured the infor- exposure to direct from Haber’s substantial expenditure of by the effected employment re- resulting from his mation very one money.”). At least time and Atlantic].” [North TMI and lationship with appellate concluded New York case recent Court did that the District We hold secret and list was a trade that' a customer adopting clearly err the de- injunction “prohibit[ing] upheld an de factual and detailed Judge’s extensive soliciting contacting or fendants from North At identity that the termination previ- plaintiffs who those customers protectable contacts was lantic’s client ... by the defendants ously were served applying cases Numerous trade secret. plain- employed were they when where, as law have held New York Culkin, Corp. v. Laro tiffs.” Maintenance duplicate a here, be difficult to it would 560 255 A.D.2d N.Y.S.2d individu because it reflected customer list 1998). (2d Dep’t pro trade secret preferences, al customer does See, Silfen, Inc. v. Cream Leo e.g., Corp. FMC apply. tection should analyzing Co., factor suggest that one Giant v. Taiwan Tainan Indus. curiam) (re employee (2d Cir.1984) against claim trade secret (per F.2d employer’s cus a former who has solicited a district clearly erroneous versing as was whether the solicitation tomers is list was not finding that a customer court’s memory.” product of casual merely “the have been where it would a trade secret at 29 N.Y.2d N.E.2d employ find clients without difficult to it is true that Techs., at 427. While v. N.Y.S.2d Inc. help); ee’s Webcraft *9 (S.D.N.Y. his contacts 1039, likely could remember McCaw, F.Supp. 1044 674 At J.) companies 1987) (Leval, at some (protecting as a trade Leo we do not read targets, time lantic great that took list customer Silfen any dictating rule a broad “develop describe including compile, effort to casually is employee remembers thing an knowledge of the specialized ment of Rather, Leo needs”); a trade Nut- not secret.7 operations and customer’s Silfen here, although the is evidence that almost there would We that such rule note where, informa- employee may have committed some in surely prove unworkable situations
47 lists, expressly notes that customer such as Atlantic made clear importance one, in this which customers are not readi- maintaining confidentiality of the client in ly patronage ascertainable and contact employees list both to its generally expen- has been secured through particular. and to Haber in light of the money, diture of considerable time and are care with which North guarded protectable trade secrets. See 29 N.Y.2d plain this information and the terms of the 392-93, 639-40, at at 278 N.E.2d 328 Employment Agreement, it would be diffi- 428; Techs., at N.Y.S.2d accord cult to conclude that Haber was unable to Webcraft 1045; F.Supp. 674 at 4 Roger M. responsibilities discern his respect with cf. Secrets, Milgrim, on Milgrim App. Trade his client contact list. Particularly given (1998) (“[T]he 15A-3 majority rule is ... the deference due a district court in deter- appropriation by will memory be re- mining appropriateness of a prelimi- strained under the same circumstances as nary injunction, that, we cannot hold in list.”). appropriation by case, will -written More- adoption this of the over, implies Leo holding that its Judge’s Report and Recommendation on Silfen express limited to cases lacking point confi- clearly this was erroneous. dentiality agreement protecting customer B. Use of the Client List Breach of a
lists—a clear distinction from the instant
Duty
case.
at
See N.Y.2d
vided Employ the surrounding evidence cause confidentiality to maintain the duty rable that suggests formation Agreement’s trade se North Atlantic’s TMI’s and being contemplated Haber’s parties the crets. leaving upon his clients able to solicit re- Agreement Employment Haber’s what such Regardless of North Atlantic. and retain “keep he secret that quires may not we might suggest, parol evidence confidential all confidence the strictest un agreement the it consider because Atlantic], to [North which relate matters the face and because on its ambiguous limitation, customer including, without merger general a valid agreement contains secrets, policies and lists, pricing trade See, Corp. e.g., Primex Int’l clause. affairs of confidential business other Inc., Stores, 89 N.Y.2d Wal-Mart any affiliate.” ... Atlantic] [North 657 N.Y.S.2d 679 N.E.2d him from prohibits agreement The also (1997) clause merger (noting general that a matter any such confidential “disclosing] evi parol application full the “require[s] Employment Agreement anyone.” The introduction to bar the rule in order dence duration; limitation on its no contains vary or contradict of extrinsic evidence after “during [and] both applies rather Mizuna, Ltd. writing”); terms of the the Atlan- [North of service with period his Bank, F.3d Fed. Sav. v. Crossland explicit an way, it makes tic].” Cir.1996) (applying New York’s New York implied duties under employee’s rule). Likewise, the defen parol evidence informa- respect to confidential law with Purchase the that Asset dants contend tion. duty of provides a more limited Agreement im that record, for Haber than it is non-solicitation facts in upon Based the injunction. We preliminary posed by im- the duties Haber violated clear that hold, however, Employment that Agreement by Employment posed both Ha as to is, is clear on its face Agreement That York’s laws. New respect to secrets trade ber’s duties with “keep [cus- and retain that he requirement Purchase in the nothing Asset in the strict- secrets] tomer lists and point. it on this Agreement contradicts very precludes by its terms est confidence” express terms of argue that Haber’s violated use defendants 8. Even if were surely duty "keep Agreement, we could Employment did not breach Haber strictest confi- Employment secrets] accept [trade and retain merely used rather duty dence” displace because enough to Haber’s explicit was confidential than disclosed to use trade secrets law not at common Atlantic, argu- such an acquired at North employer. against his former if we did not conclude Even ment would fail.
49
Thus,
Employment
Agreement rein- Every
granting
injunction
order
must
duty
forces Haber’s
under New York law
specific
terms,
be
in
65(d).
its
Fed.R.Civ.P.
not to use his
employer’s
former
trade The party enjoined “must be able to ascer
against
employer.
secrets
According-
tain from the four corners of the order
ly, the District
properly
concluded precisely what acts are forbidden.” Sand
Atlantic has demonstrated a
Ass’n, Int’l.,
ers v. Air Line Pilots
473
likelihood of
on the
success
merits of its
244,
(2d Cir.1972).
F.2d
247
“Basic fair
misappropriation of trade secrets claim. ness requires that
enjoined
those
receive
explicit notice
precisely
of
what conduct is
Irreparable
III.
Harm
Lessard,
outlawed.” Schmidt v.
414 U.S.
Finally, we conclude that North
473, 476,
713,
94 S.Ct.
50 assured of Apex and could Haber which
(1)
information
to which the
extent
the
be to
(2)
would
business;
“contacts”
all of these
avoiding
of [the]
outside
is known
building
discontinue
em-
of business—to
by
go out
it is known
to which
the extent
built
being
mousetrap” than was
in
a “better
[the]
involved
others
ployees and
therefore,
the
Obviously,
(3)
plaintiff.
of measures
business;
by
extent
the
only
to
refers
the
contacts”
guard
to
“customer
business]
term
by
taken
[the
(4)
familiar.
information;
was
the value
Haber
with whom
those
secrecy of the
not some-
Moreover,
familiarity
and
business]
was
[the
this
the information
of
(5)
Haber
of ef-
after
the amount
into existence
competitors;
that came
thing
[its]
busi-
Haber had
by
NAI.
money expended
employee
[the
of
or
an
fort
became
information;
relationships
and
developing
personal
and
in
strong
ness]
business
entered
(6)
difficulty
which
he
or
with
before
“contacts”
ease
with these
Indeed,
acquired
for the
it was
properly
employ.
could be
NAI’s
into
these
benefit of
making
others.
duplicated
of
purpose
or
to NAI
relationships available
§ 757
Id.
ToRts
of
Restatement
(quoting
v.
& Co.
employed. See S.W. Scott
was
cmt.b).
527,
518,
F.2d it is a far stretch parties
to believe that intended that carry secretly grave to his the iden-
tity pre-1977 of NATs customer contacts.
My colleagues see no need to discuss the n.7, supra. They See
foregoing issues.
rely upon instead Haber’s November Employment they which
say is so clear unambiguous as to
preclude any oral clarification. In that
contract Haber agreed keep and retain
in strictest confidence all NAI’s confiden-
tial matters not to “disclose” any such anyone
matter the Company. outside
The contract preclude does not
from “using” this Although information.
my colleagues apparently do not agree, the
words “use” and “disclose” are not synony-
mous. A preliminary injunction ig-
nores this distinction should not permit-
ted to stand.
Raymond SNIDER, W. Plaintiff-
Appellant, DYLAG,
D. Attica Correctional c/o
Facility, Defendant-Appellee.
Docket No. 98-2271. Appeals, States Court
United
Second Circuit.
Argued: June 1999.
Decided: Aug. 1999. Cole, Jr., York,
Charles D. New N.Y. (Newman P.C., Fitch Myers, Altheim counsel), Plaintiff-Appellant. WINTER,
Before Judge, Chief OAKES SACK, Judges. Circuit