Opinion
No. CV09 402 82 69 S
August 14, 2009
MEMORANDUM OF DECISION ON PLAINTIFF'S APPLICATION FOR TEMPORARY INJUNCTION
In this case, the plaintiff, Integrated Corporate Relations, Inc., has brought an application for temporary injunction against the defendant, Bidz.com, Inc. At a hearing before this court on July 6, 2009, the parties relations and public consulting firm in Westport, entered into a consulting agreement with the defendant, located in California. Under this agreement, the plaintiff contracted to provide various investor relations services to the defendant, including assistance in communications with investors and press releases. The subject agreement contains a non-solicitation clause which provides that the defendant "covenants and agrees not to solicit, hire or otherwise engage or employ, either as an employee, officer, independent contractor, consultant, advisor or in any other capacity or role, any person who as [sic] an employee of [the plaintiff] at any time during this Agreement or any Company that has hired any employee of [the plaintiff] who provided services to [the defendant] under this Agreement." This non-solicitation clause is in effect for one year following the termination of the agreement between the parties, which occurred on March 30, 2009. The plaintiff claims that this clause is necessary because it has invested significant time, money and effort into the development of its business model, technology and employee development. Moreover, the plaintiff contends that it is significantly harmed when its employees leave because it is difficult to replace them and because its contracts with customers include provisions permitting a customer to leave in the event of the departure of an employee with whom they worked.
The non-solicitation clause provides: "This covenant by Company shall survive termination of this Agreement and shall expire no less than 12 months following the termination of this Agreement (the `Non-solicitation Period'), provided, however, that if Company is in default of any of its obligations hereunder at the termination of this Agreement, this covenant shall continue uninterrupted until the anniversary of the date upon which Company cures any and all such default(s) (the `Extended Non-solicitation Period')."
In 2003, the plaintiff hired Andrew Greenebaum, as an at-will employee, to serve as senior managing director of its Los Angeles office. Prior to his hiring, Greenebaum had been a client of the plaintiff, and the plaintiff claims that when the plaintiff hired Greenebaum, he had to be trained to perform its services. Greenebaum used his prior business relationships to increase the plaintiff's client base. At the time that the plaintiff hired Greenebaum, there were many firms in the Los Angeles area working in the field of investor relation services and there was nothing unique or proprietary about the methods that were used in the plaintiff's Los Angeles office. In fact, the plaintiff failed to provide training or a manual of its business plan or method to its Los Angeles office personnel. No proprietary playbook or materials regarding the plaintiff's platform, compensation plan, hiring or training methodology was introduced into evidence.
Greenebaum worked for the plaintiff until his resignation on February 27, 2009. Upon leaving his employment, Greenebaum formed Addo Communications, Inc. (Addo). Patricia Dolmtasky, another employee of the plaintiff, also resigned her position on March 10, 2009, and went to work for Addo. Prior to their departure from the plaintiff, Greenebaum and Dolmtasky had been the plaintiff's primary contact people on the defendant's account. On March 30, 2009, the defendant terminated its agreement with the plaintiff. Under the terms of the subject agreement, the defendant had the right to terminate the agreement upon notice. According to testimony elicited at the hearing before this court, the defendant learned that Greenebaum had left the plaintiff via an e-mail from Greenebaum. The defendant had no advance knowledge. that Greenebaum was going to form his own company and the defendant first discussed hiring Addo approximately one week after the defendant terminated its relationship with the plaintiff. The defendant decided to retain Addo because it was in need of an investor relations firm and it had been satisfied and comfortable with the services provided by Greenebaum.
Further testimony revealed facts about the plaintiff's business practices. Employees of the plaintiff testified that when it recruits new employees, they are not required to sign a confidentiality agreement unless they accept employment. If a potential hire does not take the position, there is no requirement that they refrain from taking, using or sharing any of the information that they learn about the plaintiff's model of operations. Moreover, testimony indicated that some of the plaintiff's clients do not have contracts or sign non-solicitation agreements. In these instance, the plaintiff provides its investor relations services without any prohibition against the client recruiting the plaintiff's at-will employees. Furthermore, some of the plaintiff's clients have clauses in their agreements that allow the client to terminate the plaintiff's services if the client's investor relations contact stops working for the plaintiff.
In the present case, the plaintiff contends that their contract with the defendant prohibited the defendant from hiring Addo. There is no claim by the plaintiff that the defendant induced Greenebaum to leave the plaintiff's employment. Rather, the plaintiff focuses on the language of the agreement that provides that the defendant is not permitted "to engage or hire" the services of one of the plaintiff's former employees. As a result of this conduct, the plaintiff's application requests that the court enjooin the defendant from: (1) "contacting or communicating with employees of the Plaintiff," (2) "soliciting, hiring or otherwise engaging or employing, either as an employee, officer, independent contractor, consultant, advisor or in any other capacity or role, any person who as [sic] an employee of [the plaintiff] at any time during the term of the Defendant's contract with the Plaintiff" . . . [or] "any Company that has hired any employee of [the plaintiff] who provided services to [the defendant] under this Agreement," and (3) "employing or engaging Andrew Greenebaum, Patricia Dolmatsky, Addo Communications, Inc. or any other entity or company for which Andrew Greenebaum or Patricia Dolmatsky are employed or engaged to perform the same services they performed while employed by the Plaintiff."
Following the short calendar hearing, the court ordered both parties to submit memoranda of law supporting their respective positions by July 27, 2009. On August 3, 2009, the defendant also submitted a reply memorandum, to which the plaintiff filed an objection on August 6, 2009. Although the court did not explicitly authorize the filing of a reply memorandum, it appears that the plaintiff has suffered little harm by the defendant filing this document. The crux of the defendant's argument in its reply memorandum is that Judge Tobin's decision on a previous motion to strike has no precedential value, which the court already realizes. As the defendant's reply memorandum adds little in terms of substantive argument, the court will only base its decision on the July 27, 2009 memoranda submitted by both sides.
"The principal purpose of a temporary injunction is to preserve the status quo until the rights of the parties can be finally determined after a hearing on the merits." (Internal quotation marks omitted.) Rustici v. Malloy, 60 Conn.App. 47, 56, 758 A.2d 424, cert. denied, 254 Conn. 952, 762 A.2d 903 (2000). In order to prevail on an application for temporary injunction, the plaintiff must ordinarily demonstrate that: (1) it is likely to succeed on the merits of its case; (2) it will suffer immediate and irreparable harm if the injunction is not granted and (3) the harm the plaintiff faces if the injunction is not granted is greater than the harm suffered by the defendant if the injunction is ordered. Griffin Hospital v. Commission on Hospitals Healthcare, 196 Conn. 451, 457-58, 493 A.2d 229 (1985). "To demonstrate that [it] is likely to prevail on the merits, the plaintiff must present enough evidence to make [its] right clear, but need not put on a full trial on the merits. [A] temporary injunction is an extraordinary remedy . . . It should not be granted where, among other things, the plaintiff's legal rights are not clear. However, a hearing on a preliminary injunction is not a forum for a full investigation into the merits of the plaintiffs' claims . . . A finding that a substantial probability of irreparable harm exists requires a two part analysis: (1) whether there is a substantial probability that the alleged harm will result; and (2) whether the harm, if it occurs, will be irreparable . . . Harm is irreparable when it cannot be adequately compensated in damages or cannot be measured by any pecuniary standard . . . In the . . . situation of a temporary injunction to preserve the status quo until the rights of the parties can be determined after a full hearing on the merits, we have said that the court is called upon to balance the results which may be caused to one party or the other, and if it appears that to deny or dissolve it may result in great harm to the plaintiff and little to the defendant, the court may well exercise its discretion in favor of granting or continuing it, unless indeed it is very clear that the plaintiff is without legal right." (Citations omitted; internal quotation marks omitted.) Trinity United Methodist Church v. Cleaver, Superior Court, judicial district of Tolland at Rockville, Docket No. CV 04 4000933 (August 23, 2005, Scholl, J.).
I LIKELIHOOD OF SUCCESS ON THE MERITS
To obtain a preliminary injunction, the plaintiff must first establish that it is likely to succeed on the merits of its underlying case. In essence, the plaintiff's argument is that the court should construe this matter as an ordinary breach of contract case, in that the defendant engaged in an activity that it had agreed not to do. The plaintiff has presented a contract between itself and the defendant that has a clause where the defendant agreed that it would not "solicit, hire otherwise engage or employ . . . any person who as an employee of [the plaintiff] at any time during this Agreement . . ." At oral argument, the defendant argued that this clause was ambiguous, and, therefore, unenforceable. Although this argument was not referenced in the defendant's memorandum of law, the court will first briefly address the defendant's claim that this clause is so unclear that it cannot be enforced.
As recently stated by our Appellate Court, "[w]hen interpreting a contract, we construe the contract as a whole and all relevant provisions are considered when determining the intent of the parties . . . [A] written contract should be construed according to the obvious intention of the parties, notwithstanding clerical errors or inadvertent omissions therein, which can be corrected by perusing the whole instrument . . . If an improper word has been used or omitted, the court will strike out the improper word or supply the omitted word if from the context it can ascertain what word should have been used." (Citations omitted; internal quotation marks omitted.) Hilb Rogal Hobbs Co. v. Randall, 115 Conn.App. 89, 96 (2009).
The subject clause either suffers from some unartful drafting or, more likely, a typographical error where the word "was" should be substituted for "as." Despite this poor phrasing, the intent of the parties is still clear, this agreement was meant to prohibit the defendant from hiring or engaging the services of any individual who was employed by the plaintiff during the course of the consulting agreement. This conclusion can be reached by reading the contract as a whole, especially since the relevant clause is titled "CONFIDENTIALITY NONSOLICITATION." Accordingly, the court rejects the defendant's argument that the non-solicitation clause cannot be enforced because it is ambiguous.
Nevertheless, even if the language of this contract is clear, it still must seek to regulate a legally protected interest in order to be enforceable. In their respective memoranda of law, the parties have cited cases discussing the enforceability of covenants not to compete. Although they are arguably analogous to the present matter, all of these cases involve an employee signing an agreement not to compete with his employer following the termination of his employment. This case, however, involves a client of a consulting company signing an agreement not to employ the former employees of the consulting company. The plaintiff has provided the court with no cases in the entire country, let alone Connecticut, where a court has determined that this type of arrangement constitutes a legally protected interest. Given this dearth of factually similar case law, it becomes necessary to analyze the issues raised in the present case using the analogous law of covenants not to compete. See, e.g., Webster Financial Corp. v. Levine, Superior Court, complex litigation docket at Waterbury, Docket No. X06 CV 074016194 (March 24, 2009, Stevens, J.) ("Under Connecticut law, anti-solicitation provisions are treated similarly to anti-competition covenants to the extent that they are enforceable if the restrictions are reasonable").
"By definition, covenants by employees not to compete with their employers after termination of their employment restrain trade in a free market . . . Consequently, these covenants may be against public policy, and, thus, are enforceable only if their imposed restraint is reasonable, an assessment that depends upon the competing needs of the parties as well as the needs of the public. These needs include: (1) the employer's need to protect legitimate business interests, such as trade secrets and customer lists; (2) the employee's need to earn a living; and (3) the public's need to secure the employee's presence in the labor pool." (Citation omitted.) Deming v. Nationwide Mutual Ins. Co., 279 Conn. 745, 761, 905 A.2d 623 (2006). "There are five factors by which the reasonableness of a restrictive covenant must be evaluated: (1) the length of time the restriction is to be in effect; (2) the geographical area covered by the restriction; (3) the degree of protection afforded to the party in whose favor the covenant is made; (4) the restrictions on the employee's ability to pursue his occupation; and (5) the extent of interference with the public's interest . . . [This five-prong test] is disjunctive, rather than conjunctive; a finding of unreasonableness in any one of the criteria is enough to render the covenant unenforceable." (Citation omitted.) New Haven Tobacco Co. v. Perrelli, 18 Conn.App. 531, 533-34, 559 A.2d 715 (1989). "In order for [a restrictive covenant] to be reasonable, it first must be determined that the employer is seeking to protect a legally recognized interest, and then, that the means used to achieve this end do not unreasonably deprive the public of essential goods and services." Id., 536.
As this case law involves covenants not to compete that were signed by employees, it is somewhat inapposite to the present matter. Nevertheless, the decisions of the Connecticut appellate courts make clear that in order to enforce a restrictive covenant, the plaintiff must demonstrate that the covenant protects a legally recognized interest and that the restraint is reasonable in scope and has been implemented for valid reasons. As noted previously, the plaintiff has provided no authority for its contention that the subject clause is a legally recognized interest. Moreover, the testimony presented before this court failed to demonstrate any compelling reasons as to why the plaintiff inserted the non-solicitation clause into some but not all contracts with its customers. While the plaintiff claims that it has a unique business model such that it needs to be protected from clients "poaching" its employees, there was no credible evidence of such a model or that the plaintiff provides its employees with trade secrets or other proprietary information. Indeed, the plaintiff's argument is undermined by the fact that it failed to have its employees sign covenants not to compete and that it left this clause out of the consulting agreement with many of its clients. It stands to reason that if the plaintiff had a special business model that needed to be protected, the plaintiff would have made sure that none of its clients could hire former employees. Further, the plaintiff admits that it has no evidence that the defendant purposefully cajoled Greenebaum and Dolmatasky to cease working for the plaintiff, and, therefore, the plaintiff has failed to demonstrate solicitation. As the plaintiff has failed to establish that its non-solicitation clause clearly protects a legally recognized interest, the court finds that it has not met its burden to demonstrate a sufficient likelihood of success on the merits in order to support the issuance of a temporary injunction.
II HARM TO THE PLAINTIFF
In its memorandum of law, the plaintiff argues that Connecticut law does not require the plaintiff to demonstrate irreparable harm in order for the court to issue a temporary injunction. The plaintiff's main authority for this proposition is our Supreme Court's decision in Mattis v. Lally, 138 Conn. 51, 82 A.2d 155 (1951). In Mattis, a case where the defendant violated a covenant not to compete by establishing a new barber shop in the same town where he sold his original business, the Supreme Court determined that "[i]rreparable damage would inevitably result from a violation of the defendant's promises." Id., 56. The plaintiff also cites Manley v. Pfeiffer, 176 Conn. 540, 544, 409 A.2d 1009 (1979), and Hartford Electric Light Co. v. Levitz, 173 Conn. 15, 22, 376 A.2d 381 (1977), for the contention that "[a] restrictive covenant may be enforced by injunction without a showing that violation of the covenant will cause harm to the plaintiff, so long as such relief is not inequitable." A close examination of Manley and Hartford Electric Light Co., however, reveals that both of these cases involve real property covenants, and, therefore, are not on point to the present case. The defendant responds to the plaintiff's argument by urging this court not to presume irreparable harm as a matter of law. Moreover, the defendant argues that the plaintiff has failed to establish that it has suffered any harm, and, as a result, no injunction should be issued.
The opinion of Judge Adams in Pop Radio, LP v. News America Marketing In-Store, Inc., 49 Conn.Sup. 566 (2005), provides a helpful discussion of recent Connecticut law on the issue of whether a party seeking an injunction in a non-competition case needs to demonstrate irreparable harm. Judge Adams writes that "[a] number of Superior Court decisions have held that irreparable harm need not be proved in noncompetition agreement cases . . . After carefully reviewing the many cases cited by the parties and those turned up in its own research, the court concludes that Connecticut law supports a distinctly moderated level of proof required to establish the elements of irreparable harm and lack of an adequate remedy at law necessary for the issuance of a temporary injunction where the circumstances involve an alleged breach of a noncompetition agreement. While this court will not go so far as to say those two elements are automatically established . . . the realities of attempting to prove irreparable harm in circumstances, such as here, where the competition has not yet, or only barely commenced, counsel toward the imposition of a more lenient standard which allows for a certain amount of informed prediction of future results to be weighed by the court as evidence than otherwise might normally be the case." (Citations omitted.) Id., 575-77.
While Judge Adams determined that Connecticut law establishes a moderated level for proof of irreparable harm in the type of case that is currently before the court, he still held that it was necessary for the plaintiff to demonstrate some harm. Although there is some Superior Court authority to the contrary, the court adopts Judge Adams' interpretation of Connecticut law, as it would be counterintitutive to allow a plaintiff to obtain the extraordinary remedy of a preliminary injunction without showing any harm.
In the present case, it is difficult to ascertain any true harm the plaintiff has suffered by the chain of events that led to the commencement of this lawsuit. While it is true that the plaintiff lost two employees as well as a customer, Greenebaum and Dolmatsky were at-will employees and could leave the plaintiff's employment at any time, and the agreement between the plaintiff and the defendant gave the defendant the right to terminate upon notice. Therefore, the plaintiff understood that it could lose the services of Greenebaum and Dolmatsky, as well as its account with the defendant. If it were truly important to the plaintiff that Greenebaum and Dolmatsky cease working in the investor relations field after they were no longer employed by the plaintiff, Greenebaum and Dolmatsky could have been required, as a condition of employment, to sign covenants not to compete, which the plaintiff failed to draft. Since Greenebaum and Dolmatsky had a right to leave at will, the cost of finding a replacement would have been incurred by the plaintiff regardless of the reason for their departures. The fact that Greenebaum and Dolmatsky have left the plaintiff's employment does not threaten the long-term viability of the plaintiff as an investor relations company, nor does it have any noticeable effect on the plaintiff's purported "unique model of attracting talented professionals and delivering high quality services to its clients." Furthermore, there was no evidence presented that the defendant was the cause of the departure of Greenebaum and Dolmatsky; only that the defendant subsequently engaged the services of Addo. In effect, the plaintiff has only demonstrated that two employees, who were free to stop working for the plaintiff whenever they wanted, left the plaintiff's employment and started a new company. Then an old client of the plaintiff, which also had the right to terminate its relationship with the plaintiff upon notice, engaged the services of these former employees. While the plaintiff and the defendant did have an agreement that provided that defendant could not hire former employees of the plaintiff, as noted previously, it is unclear whether this contract clause is a legally protected interest sufficient to warrant the issuance of a temporary injunction. As the plaintiff has not presented any evidence that Greenebaum or Dolmatsky have passed any proprietary information to the defendant, the plaintiff appears not to have suffered any harm at all, other than an ordinary breach of contract. Accordingly, the court finds that the plaintiff has not made a sufficient showing of harm to justify a temporary injunction.
III BALANCING THE EQUITIES
Although the court has already determined that the plaintiff has failed to establish a likelihood of success on the merits and sufficient harm to support its application for a temporary injunction, it will also address the balance of the equities. "These considerations involve essentially the application of familiar equitable principles in the context of adjusting the rights of the parties during the pendency of litigation until a final determination on the merits . . . Among the equities to be placed on the scales, of course, are the general equitable considerations which are involved in the issuance of a temporary injunction to preserve the status quo pendente lite." (Citations omitted; internal quotation marks omitted.) Griffin Hospital v. Commission on Hospitals and Healthcare, supra, 196 Conn. 458-60.
In the present case, any harm allegedly suffered by the plaintiff is slight, and the defendant's actions have had little bearing on the plaintiff's purported difficulties. Although the plaintiff lost two employees, the plaintiff has presented no evidence indicating that the defendant solicited them to leave the plaintiff's employment. While the defendant did end its contractual relationship with the plaintiff, and, therefore, is the cause of the plaintiff losing a client, the contract between the parties allowed the defendant to terminate if it so chose. The plaintiff is forced to hire new personnel, but it would have had to do that even if the defendant did not engage the services of Addo. There is also no evidence that the plaintiff's business model will be hurt by the defendant's employment of Addo. It should also be noted that this agreement is only in effect for one year, so by the time this case comes to trial it will almost be time for the temporary injunction to end. Moreover, it appears that the most appropriate remedy the plaintiff could obtain is a legal one, in that the plaintiff can receive monetary damages for the loss of the defendant's account. Indeed, there was testimony from the plaintiff indicating that its monetary damages could be calculated easily.
On the other hand, there is the potential that the defendant could suffer harm if this injunction is granted. The defendant would lose the services of its investor relations consultant of choice, Addo. Moreover, Greenebaum and Dolmatsky would be prevented from working for the defendant when they never signed a covenant not to compete with the plaintiff. Such a result seems extremely unfair, as they would, in effect, be forced to adhere to an anti-competition agreement to which they were never a party. As such, the balance of equities tips in favor the defendant, and, as a result, a temporary injunction is inappropriate.
For all of the reasons stated above, the plaintiff's application for temporary injunction is denied.