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finding likelihood of success on merits as to violation of non-solicitation agreement were defendant sent e-mail to former clients announcing his new firm and his expertise
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16 Civ. 2998
05-02-2016
Marsh USA Inc. and Marsh & Mclennan Companies, Inc., Plaintiffs, v. Robert Schuhriemen, Defendant.
A. Michael Weber, Littler Mendelson, P.C., New York, NY, for Plaintiffs.
A. Michael Weber, Littler Mendelson, P.C., New York, NY, for Plaintiffs.
MEMORANDUM ORDER
JED S. RAKOFF, United States District Judge.
On April 22, 2016, plaintiffs Marsh USA Inc. and Marsh & McLennan Companies, Inc., collectively, "Marsh," filed suit in this Court against defendant Robert Schuhriemen, who was employed at Marsh for nearly 24 years, most recently as a Producer and Senior Vice President.See Complaint, Dkt. 1, ¶ 2. On March 31, 2016, Mr. Schuhriemen resigned from Marsh and began working for its competitor in the insurance brokerage and risk management industry, Alliant Insurance Services ("Alliant"). See id. at ¶ 4. Marsh alleged in its suit that Mr. Schuhriemen had breached the terms of non-solicitation agreements that he signed with Marsh by soliciting former clients at Marsh to transfer their business to Alliant. See id. at ¶ 6. Also on April 22, 2016, Marsh sought a temporary restraining order and a preliminary injunction enjoining Mr. Schuhriemen from violating the non-solicitation agreements. Marsh also sought expedited discovery. The language of Marsh's proposed preliminary injunction is as follows:
Defendant Schuhriemen argues that the term "non-solicitation" agreements is a misnomer, since the relevant agreements "purport[ ] to cover not only solicitation of clients, but also the servicing of clients who voluntarily decide to transfer their business without solicitation." See Defendant's Memorandum of Law in Opposition to Plaintiffs' Motion for a Preliminary Injunction ("Def.Opp.Br."), Dkt. 7, at 6. The Court will refer to these agreements as "non-solicitation agreements" in accordance with plaintiffs' usage, but the label does not materially affect the outcome of the instant motion.
Marsh also alleged in its Complaint that Mr. Schuhriemen breached the non-solicitation agreements by soliciting, or threatening to solicit, other Marsh employees; by disclosing, or threatening to disclose, Marsh confidential information; and by refusing to cooperate with Marsh's reasonable requests for information. See Complaint ¶¶ 64, 72, 79. In addition, Marsh claimed that Mr. Schuriemen breached his fiduciary duties to Marsh. See id. ¶¶ 85–86. While the bulk of Marsh's motion for a preliminary injunction focuses on breach of contract through solicitation, Marsh's proposed injunction also seems to cover breach of fiduciary duty. For the reasons stated infra, the Court declines to grant Marsh a preliminary injunction with respect to the fiduciary duty claim.
i. enjoining Schuhriemen and any person or entity acting in concert with him or under his supervision, through March 31, 2017, from soliciting or servicing, or inducing not to place business with Marsh, any clients of Marsh with whom he had contact, or about whom he obtained confidential information, or for whom he was responsible for making (or assisting or supervising the making of) sales to, or performing or providing (or assisting or supervising the performance or provision of) services or products on behalf of, Marsh, during the last two (2) years of his employment;
ii. enjoining Schuhriemen, and any person or entity acting in concert with him or under his supervision, through March 31, 2017, from soliciting, or inducing to not place business with Marsh, any prospective clients of Marsh with whom Schuhriemen had contact or from whom Schuhriemen solicited business on behalf of Marsh during the last two years of his employment;
iii. enjoining Schuhriemen, and any person or entity acting in concert with him or under his supervision, from any other actions in violation of his contractual obligations or duty of loyalty to Marsh.
See Order to Show Cause for a Preliminary Injunction and Temporary Restraining Order, Dkt. 3. On April 22, 2016, the Court entered a temporary restraining order and directed the parties to appear in court on April 28, 2016 for oral argument on Marsh's motion for a preliminary injunction and expedited discovery. See id. The Court also directed the parties to submit further briefing on the merits of this motion. See id.
Having considered the parties' submissions and arguments, the Court hereby grants in part and denies in part Marsh's motion for a preliminary injunction. In particular, the Court alters the wording of Marsh's proposed preliminary injunction to exempt Mr. Schuhriemen's "personal" clients, in accordance with the New York Court of Appeals' decision in BDO Seidman v. Hirshberg, 93 N.Y.2d 382, 690 N.Y.S.2d 854, 712 N.E.2d 1220, 1223–25 (1999) ; to exclude references to solicitation of Marsh's prospective clients (i.e., point (ii) of Marsh's proposed preliminary injunction); and to remove the overbroad and vague requirement that Mr. Schuhriemen not engage in further breaches of his contractual obligations or duty of loyalty (i.e., point (iii) of Marsh's proposed preliminary injunction). In granting the revised preliminary injunction, moreover, the Court directs Marsh to post a bond of $100,000.
The Court, adopting the language of BDO Seidman v. Hirshber g , 93 N.Y.2d 382, 690 N.Y.S.2d 854, 712 N.E.2d 1220, 1223–25 (1999), will use the phrase "personal clients" to refer to any clients who were attracted to Marsh solely by the opportunity to be serviced by Mr. Schuhriemen, who were recruited to Marsh solely by Mr. Schuhriemen, and whose development as clients was not subsidized by Marsh. See BDO Seidman, 690 N.Y.S.2d 854, 712 N.E.2d at 1225.
"A party seeking a preliminary injunction must generally show a likelihood of success on the merits, a likelihood of irreparable harm in the absence of preliminary relief, that the balance of equities tips in the party's favor, and that an injunction is in the public interest." Am. Civil Liberties Union v. Clapper, 804 F.3d 617, 622 (2d Cir.2015). Regarding likelihood of success, at issue is plaintiffs' claim that Mr. Schuhriemen is in breach of his non-solicitation agreements with Marsh. See Pl. Br. at 15. These non-solicitation agreements read, as here relevant:
Consequently, Employee covenants and agrees that in the event of separation from employment with the Company, whether such separation is voluntary or involuntary, Employee will not, for a period of twelve (12) months following such separation, directly or indirectly: (i) solicit clients of Employer for the purpose of selling or providing products or services of the type sold or provided by Employee while employed by Employer; or (ii) induce clients of Employer to terminate, cancel, not renew, or not place business with Employer; or (iii) perform or supervise the provision or performance of products or services of the type sold or provided by Employee while he or she was employed by Employer on behalf of any clients of Employer; or (iv) solicit prospective clients of Employer or induce prospective clients of Employer to not place business with Employer. This restriction shall apply only to those clients of Employer with whom Employee had contact to further the business relationship, or about whom Employee obtained Confidential Information or Trade Secrets, or for whom Employee was responsible for making (or assisting or supervising the making of) sales or performing or providing (or assisting or supervising the performance or provisions of) services or products on behalf of the Company, during the last two (2) years of his or her employment with the Company. This restriction shall apply only to those prospective clients of Employer with or from whom Employee had contact to obtain the business of the potential client on behalf of the Company or solicited business on behalf of the Company during the last two (2) years of his or her employment with the Company.
Seeberg Declaration, Exhibit A, at ¶ 2(b).
This language comes from the non-solicitation agreement that Mr. Schuhriemen signed on June 19, 2007. See Seeberg Declaration ¶ 14. Mr. Schuhriemen also signed two other agreements with essentially similar language, on June 30, 2008 and March 3, 2009, respectively. See id. ¶¶ 15–16; Exhibit B, ¶ 2(b); Exhibit C, ¶ 2(b).
Marsh now alleges that Mr. Schuhriemen has breached this non-solicitation provision by soliciting Marsh clients with whom he worked in his last two years at Marsh to do business at his new employer, Alliant. See Plaintiffs' Memorandum of Law in Support of Its Motion for a Temporary Restraining Order, Preliminary Injunction and Expedited Discovery ("Pl. Br.") at 7–9, 19–20. Marsh notes, in particular, that on March 31, 2016, the day that Mr. Schuhriemen resigned from Marsh, Mr. Schuhriemen sent an email to Marsh clients and others announcing that he had joined Alliant and indicating his expertise servicing clients in the healthcare industry. See Pl. Br. at 7–9; Schuhriemen Declaration, Dkt. 7–2, Exhibit 2. Marsh also notes that Clinical Radiologists, a Marsh client, moved its business to Alliant on April 18, 2016 after not only receiving Mr. Schuhriemen's announcement, but also speaking with Mr. Schuhriemen on the phone and attending a meeting with Alliant officials and Mr. Schuhriemen. See Pl. Br. at 10; Plaintiffs' Reply Memorandum of Law in Further Support of Their Motion for a Preliminary Injunction ("Pl. Reply Br."), Dkt. 10, at 6; Schuhriemen Declaration, ¶ 12; Schuhriemen Supplemental Declaration, Dkt. 7–3, ¶¶ 11–13.
Mr. Schuhriemen indicates that he sent this announcement to "clients, carriers, consultants, vendors, underwriters and others in the industry." Schuhriemen Declaration, Dkt. 7–2, ¶ 10.
Mr. Schuhriemen argues, however, that the non-solicitation agreements he signed with Marsh are unenforceable under New York law. See Defendant's Memorandum of Law in Opposition to Plaintiffs' Motion for a Preliminary Injunction ("Def. Opp. Br."), Dkt. 7, at 6. Specifically, Mr. Schuhriemen contends that these agreements are overbroad because they do not include a carve-out for "personal clients of [Mr. Schuhriemen] who came to [Marsh] solely to avail themselves of his services and only as a result of his own independent recruitment efforts, which [Marsh] neither subsidized nor otherwise financially supported as part of a program of client development." BDO Seidman v. Hirshberg, 93 N.Y.2d 382, 690 N.Y.S.2d 854, 712 N.E.2d 1220, 1225 (1999) ; see Def. Opp. Br. at 8–11.
Further, Mr. Schuhriemen claims, the Court should not seek to redact (or "blue pencil") any unenforceable terms of the non-solicitation agreements. See Def. Opp. Br. at 11–14. This is because, according to Mr. Schuhriemen, Marsh cannot show, in the words of BDO Seidman, that "the unenforceable portion is not an essential part of the agreed language." BDO Seidman, 690 N.Y.S.2d 854, 712 N.E.2d at 1226. Moreover, Mr. Schuhriemen contends, Marsh has not "demonstrate[d] an absence of overreaching, coercive use of dominant bargaining power, or other anti-competitive misconduct," or shown that it "has in good faith sought to protect a legitimate business interest, consistent with reasonable standards of fair dealing." BDO Seidman, 690 N.Y.S.2d 854, 712 N.E.2d at 1226 ; see Def. Opp. Br. at 12. Mr. Schuhriemen notes, in particular, that the New York Court of Appeals in BDO Seidman, in finding a restrictive employment covenant to be partially enforceable, stated that "[t]he covenant 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." BDO Seidman, 690 N.Y.S.2d 854, 712 N.E.2d at 1226. Mr. Schuhriemen argues that he, by contrast, entered into a non-solicitation agreement with Marsh simply in consideration of continued employment. See Def. Opp. Br. at 13. Because Marsh has not demonstrated the absence of overreaching or other anticompetitive misconduct, Mr. Schuhriemen alleges, the Court should not partially enforce the non-solicitation agreements. See id.
In the Court's view, Mr. Schuhriemen's argument that the non-solicitation agreements are unenforceable does not materially reduce Marsh's likelihood of succeeding on the merits. It is true that Mr. Schuhriemen has a plausible argument that the non-solicitation agreements, in order not to sweep too broadly, should have exempted clients who came to Marsh "solely to avail themselves of [Mr. Schuhriemen's services] and only as a result of his own independent recruitment efforts, which [Marsh] neither subsidized nor otherwise financially supported as part of a program of client development." BDO Seidman, 690 N.Y.S.2d 854, 712 N.E.2d at 1225. It is also true that Mr. Schuhriemen has a plausible argument, at least at the stage of determining whether to issue a preliminary injunction, that the non-solicitation agreement's inclusion of Marsh's prospective clients is not a reasonable limitation on Mr. Schuhriehmen's activities. See Tr. 13:25–14:1; Marsh USA Inc. v. Karasaki, No. 08–cv–4195, 2008 WL 4778239, at *17 (S.D.N.Y. Oct. 31, 2008) ; Johnson Controls, Inc. v . A.P.T. Critical Sys., Inc., 323 F.Supp.2d 525, 540 (S.D.N.Y.2004).
Marsh expresses doubt as to whether Mr. Schuhriemen had any such "personal" clients. See Pl. Reply Br. at 2–3. While this argument is by no means implausible, the record before the Court does not warrant the Court in finding, at this stage in the proceedings, that Mr. Schuhriemen had no "personal" clients.
Nevertheless, the Court sees no indication that the non-solicitation agreements' failure to exempt Mr. Schuhriemen's personal clients, or the agreements' inclusion of Marsh's prospective clients, form such "an essential part of the agreed language," BDO Seidman, 690 N.Y.S.2d 854, 712 N.E.2d at 1220, that they cannot be excised without changing the agreement in its essence. Further, the Court finds that Marsh will likely be able to demonstrate "an absence of overreaching ... or other anti-competitive misconduct." Id. Although the 2007 non-solicitation agreement states that it "is entered into in consideration of the Employee's (a) continued employment by the Employer," the agreement immediately thereafter invokes the "(b) eligibility to participate in certain bonus compensation plan(s) of Employer" and "(c) access to Confidential Information and Trade Secrets belonging to Employer." See Seeberg Declaration, Exhibit A, at Recitals. The other non-solicitation agreements do not contain the same language. See Seeberg Declaration, Exhibits B and C.
More broadly, the Court does not read BDO Seidman to stand for the proposition that any restrictive employment covenant entered into partly in consideration of continued employment is wholly unenforceable. The more fundamental issue, in the framework set out by BDO Seidman, is whether the employer has made "overreaching, coercive use of dominant bargaining power, or other anti-competitive conduct," or whether it "has in good faith sought to protect a legitimate business interest, consistent with reasonable standards of fair dealing." BDO Seidman, 690 N.Y.S.2d 854, 712 N.E.2d at 1226. Here, the Court finds that Marsh is likely to be able to show that its non-solicitation agreements fall into the latter category.
Indeed, Marsh's non-solicitation agreements, revised to exempt Mr. Schuhriemen's personal clients and Marsh's prospective clients, are likely a "reasonable restraint" that is "no greater than is required for the protection of the legitimate interest of the employer"; "does not impose undue hardship on the employee"; and "is not injurious to the public." Id. , 690 N.Y.S.2d 854, 712 N.E.2d at 1223. Particularly relevant is the fact that the ban on solicitation lasts for just one year. "New York courts have routinely found one-year restrictions to be reasonable," and "New York state courts have upheld non-solicitation agreements imposing client-based restrictions without geographic limitation as reasonable in scope." Karasaki, 2008 WL 4778239, at *16. Therefore, the Court declines to accept, at least at this stage in the proceedings, Mr. Schuhriemen's argument that the non-solicitation agreements are wholly unenforceable.
The Court now turns to the issue of whether Marsh is likely to succeed on its claim that Mr. Schuhriemen is in breach of the non-solicitation agreements. Although at one point Mr. Schuhriemen did not appear to explicitly dispute that he had violated the non-solicitation agreements as written, see Rosier Declaration, Exhibit C, Mr. Schuhriemen now disputes that he has solicited clients in contravention of the non-solicitation agreements, even as written (i.e., without an exemption for Mr. Schuhriemen's personal clients and Marsh's prospective clients). See Def. Opp. Br. at 16–18. In particular, Mr. Schuhriemen denies that the announcement he sent on March 31, 2016 constituted a solicitation of client business. See id. at 16–17. Mr. Schuhriemen also states that he told Clinical Radiologists he could not solicit their business on behalf of Alliant and attended the meeting with Alliant employees and Clinical Radiologists only as a "passive participant." See id. ; Schuhriemen Supplemental Declaration, ¶ 13.
The Court, however, does not find Mr. Schuhriemen's alternative explanations of his apparent involvement in solicitation to be convincing. Mr. Schuhriemen's notice announcing his employment at Alliant was not a general announcement, but was communicated, as Mr. Schuhriemen's counsel put it, to "the contacts that Bob Schuhriemen could remember, including his clients." Transcript of Oral Argument dated April 28, 2016 ("Tr."), 10:14–16. Notably, Mr. Schuhriemen's counsel conceded that these clients would have included some who might not have been Mr. Schuhriemen's "personal clients" within the meaning of BDO Seidman. See Tr. 10:18–21. Under these circumstances, the Court finds that Marsh is likely to be able to show that Mr. Schuhriemen solicited former Marsh clients who were not his "personal clients." Therefore, the Court holds that Marsh has shown a likelihood of success on its claim that Mr. Schuhriemen breached the non-solicitation agreements by soliciting former Marsh clients, even under the non-solicitation agreements revised as previously indicated.
The Court further holds that the "likelihood of irreparable harm," "balance of equities," and "public interest" factors tip in Marsh's favor. Regarding irreparable harm, "[i]t is well established in this Circuit that the loss of client relationships and customer goodwill that results from the breach of a non-compete clause generally constitutes irreparable harm." Karasaki, 2008 WL 4778239, at *14 ; see also Johnson Controls, 323 F.Supp.2d at 540. While defendant Schuhriemen argues that it would be possible to track how much revenue is gained from any clients solicited in breach of the non-solicitation agreements, see Def. Opp. Br. at 21, the Second Circuit has stated that "it would be very difficult to calculate monetary damages that would successfully redress the loss of a relationship with a client that would produce an indeterminate amount of business in years to come." Ticor Title Ins. Co. v. Cohen , 173 F.3d 63, 69 (2d Cir.1999). The Court finds that the Second Circuit's statement applies to the facts here at issue and, accordingly, determines that Marsh has demonstrated a likelihood of irreparable injury.
Marsh also notes that the non-solicitation agreements specified that their violation would constitute irreparable harm and entitle Marsh to injunctive relief. See Pl. Br. at 14, citing, e.g., Seeberg Declaration, Exhibit A, ¶ 5 Though the Court does not view this contractual language as dispositive, see Baker's Aid, a Div . of M. Raubvogel Co. v. Hussman Foodservice Co., 830 F.2d 13, 16 (2d Cir.1987), the contractual language may be an additional factor militating in favor of a finding that Marsh has shown a likelihood of irreparable injury. See Ticor, 173 F.3d at 69.
As to the balance of equities, the Court does not anticipate great hardship for Mr. Schuhriemen if he is prevented from soliciting non-personal Marsh clients for one year. Mr. Schuhriemen may still work for Alliant and service numerous clients in that capacity. He may also service non-personal Marsh clients after a year has elapsed. On the other side, Marsh faces the prospect of losing business to a major competitor, transported by a high-level company official. While there seems to be little possibility that Marsh would face debilitating financial damage, the Court finds that overall, the balance of equities favors Marsh. Furthermore, an injunction would not contravene the public interest. In particular, the subset of the public consisting of former Marsh clients who worked with Mr. Schuhriemen during the last two years could continue to be serviced by Marsh (or another insurance broker) and, if they wish, move to Alliant to work with Mr. Schuhriemen after a year.
A former Marsh client that has already moved to Alliant, Clinical Radiologists, faces a more difficult scenario.See infra for a discussion of this client. However, the situation of this client does not warrant a broader ruling that a preliminary injunction against Mr. Schuhriemen would not be in the public interest.
Consequently, the Court determines that a preliminary injunction against Mr. Schuhriemen is warranted. But the scope of the injunction must be narrowed beyond that suggested by Marsh. First, the injunction must be made compatible with BDO Seidman by exempting any personal clients of Mr. Schuhriemen. Second, the proposed injunction's references to prospective Marsh clients are overbroad. See Karasaki, 2008 WL 4778239, at *17. Third, the Court agrees with Mr. Schuhriemen that the part of Marsh's proposed injunction "enjoining Schuhriemen, and any person or entity acting in concert with him or under his supervision, from any other actions in violation of his contractual obligations or duty of loyalty to Marsh" is overly broad and vague. See Order to Show Cause at 2; Def. Opp. Br. at 23. Therefore, the Court hereby enters the following preliminary injunction:
enjoining Mr. Schuhriemen and any person or entity acting in concert with him or under his supervision, through March 31, 2017, from soliciting or servicing, or inducing not to place business with Marsh, any clients of Marsh with whom he had contact, or about whom he obtained confidential information, or for whom he was responsible for making (or assisting or supervising the making of) sales to, or performing or providing (or assisting or supervising the performance or provision of) services or products on behalf of, Marsh, during the last two (2) years of his employment.
Certain additional matters remain for the Court to address. First, Marsh requests expedited discovery. Specifically, Marsh seeks "the prompt deposition of Schuhriemen and production of limited documents, including all communications between Schuhriemen and anyone acting in concert with him or on his behalf and any Marsh client with whom Schuhriemen worked or about whom Schuhriemen obtained confidential information during the last two years of his employment." See Pl. Br. at 21. In the Court's view, however, discovery ought simply to proceed at the brisk pace prescribed by this Court's general scheduling practices. No expedited discovery is needed to avoid prejudicing Marsh, especially given that a preliminary injunction will be entered. The Court therefore denies plaintiffs' motion for expedited discovery.
Second, during oral argument, defense counsel requested guidance on Clinical Radiologists, a former Marsh client that switched to Alliant after Mr. Schuhriemen's move. See Tr. 13:2–12. As an initial matter, Mr. Schuhriemen, Alliant, and Clinical Radiologists themselves have created this situation by facilitating the transfer of Clinical Radiologists from Marsh to Alliant in the shadow of entirely foreseeable legal challenges. But now that this situation has come to pass, the Court cannot, without further factual development, provide a definitive ruling on whether Clinical Radiologists falls within the scope of the "personal clients" exemption, as Mr. Schuhriemen claims. See Schuhriemen Declaration, ¶ 12. Nevertheless, Mr. Schuhriemen acts at his own peril if he services Clinical Radiologists or if his co-workers at Alliant service this client.
According to defense counsel, Mr. Schuhriemen has not been servicing Clinical Radiologists. See Schuhriemen Supplemental Declaration, ¶ 14; Tr. 14:5–12.
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Finally, as to the bond requirement, "[t]he language of [Fed. R. Civ. P.] Rule 65(c) confers broad discretion on the trial judge to set the amount of the bond, even to dispense with the bond requirement altogether." DeWitt Stern Grp., Inc. v. Eisenberg, No. 13–cv–3060, 2013 WL 2420835, at *6 (S.D.N.Y. June 4, 2013) ; see also Doctor's Associates, Inc. v. Stuart, 85 F.3d 975, 985 (2d Cir.1996). However, in this case Mr. Schuhriemen will likely be harmed if a bond is not posted, since if he wins on the merits, he will have been prevented from soliciting or servicing clients that he is entitled to service and therefore from garnering further business and goodwill. Though the non-solicitation agreements contain a reference to Marsh's entitlement "to temporary and permanent injunctive relief (without the necessity of posting a bond)," see Seeberg Declaration, Exhibit A, at ¶ 5, this language is not binding as to the Court's authority to impose a bond requirement. Therefore, the Court imposes a bond of $100,000 on Marsh.
For all the reasons stated above, the Court hereby grants in part and denies in part Marsh's motion for a preliminary injunction. Counsel are directed to submit, within three business days, a civil Case Management Plan in the Court's Form D that will have this case ready for trial by no later than October 1, 2016.
SO ORDERED.