Opinion
No. CV04-0084446S
August 9, 2004
MEMORANDUM OF DECISION
This matter came before this court on the plaintiff's application for a temporary injunction to enjoin defendant Reid Millar from soliciting and servicing clients of the plaintiff; and from disclosing to co-defendant Shoff Darby Co., information or facts about any customer who was a client or customer of the plaintiff within two years of defendant Millar's termination. The application also requests an order enjoining defendant Shoff Darby Companies from using allegedly misappropriated trade secrets. For reasons more fully set forth, herein, the court denies the application.
FACTUAL BACKGROUND
The plaintiff, J.M. Layton Co., Inc., (Layton), is a Connecticut company engaged in the business of commercial insurance brokerage. The defendant, Reid Millar, was employed by the plaintiff. After he left the plaintiff in 2003, to join the co-defendant Shoff Darby Co., a competing firm, the plaintiff informed both defendants of its intention to enforce a "non-solicit" or "non-compete" clause contained in an employment contract defendant Millar had signed years earlier. The defendants both maintain that the clause, which they designate a "non-compete clause," was unenforceable. The plaintiff claims that the clause which it calls a "non-solicit provision" is enforceable and filed the instant action, seeking to temporarily and permanently enjoin the defendants from soliciting and/or servicing entities or individuals who had been clients of J.M. Layton within the last two years of defendant Millar's employment.
The provision incorporated in the signed Employment Agreement is variously referred to by the parties as either a "non-compete" or a "non-solicit" provision. The standard of review for each is different. Ultimately, though, the designation or distinction is irrelevant to the resolution of the issues presented by this application because the court determines that the facts fail to establish that there was consideration for it, whatever the provision, whether proscribing competition or solicitation. Therefore, the provision, whether a "non-compete" or a "non-solicit" would be unenforceable. For purposes of this Decision, the designation used will be "non-compete" because the provision more closely resembles a non-compete agreement than a non-solicit one.
The court finds the following facts have been established. The plaintiff is and was an insurance brokerage firm. For almost twenty years, defendant Reid Millar was an agent at J.M. Layton. During his time with J.M. Layton he functioned as an agent for the company, providing services to various properties and clients. He developed client contact and became such a valued employee that, the company sent him to Florida CT Page 11232-gn to attend a seminar on how to engender customer loyalty.
In January 1994, the ownership of the company, J.M. Layton, was transferred to an "employee stock option plan" (ESOP). In August 1994, defendant Millar, then a stockholder/employee of the plaintiff, executed a written employment agreement with the plaintiff. Prior to signing the agreement in a July 29, 1994 memo to "All Employees/Stockholders," then president, David Woodward, explained that, the value of the stock in the company would increase when all employee/stockholders signed employment agreements.
David Woodward wrote:
Now that we are owners of stock in the corporation, management requires that all stockholders/employees sign an Employment Agreement with the Corporation.
The purposes are important to the well-being of the Corporation and the value of our investment . . .
2. The value of any stock ownership is enhanced by requiring all employees/stockholders, regardless of function or job description, to sign the Agreement . . .
The specific employee agreement signed by defendant Millar contains a clause prohibiting the employee, for a period of two years, from soliciting business from or performing any services provided by the plaintiff to any person who, within the two years prior to the termination of the employee's employment, was a client or customer of the plaintiff corporation. The agreement, itself, lists "employment or continued employment" as the consideration.
Specifically, the pertinent provision in the Employment Contract provides: CT Page 11232-gu
The undersigned, an employee of J.M. Layton Company, Inc., hereinafter referred to as the "Corporation," in consideration of my employment or continued employment, does hereby agree with the Company that:
1. Covenant Not to Solicit. Each Employee agrees that, for as long as he or she is either a stockholder, director, officer or employee of the Corporation, and for a period of (2) two years thereafter, he or she will not, directly or indirectly, in any capacity whatsoever, whether as a proprietor, partner, consultant, independent contractor, co-venturer, financier, agent, representative or otherwise (b) solicit business from or divert from the Corporation the business of, or perform any services provided by the Corporation for, any person or entity who is (or within the two (2) year period prior to the termination of such Employee's relationship with the Corporation was) a client or customer of the Corporation or of any person or entity affiliated with the Corporation . . .
In 1998, the plaintiff was sold by the employee-owners to the current owner, a company formerly known as SIG Acquisition Co. The purchase price was $5,590,000.00. A condition of the sale imposed by SIG Acquisition Co. was that the corporation have in its files valid employment contracts for each employee. Included among the assets listed in the Asset Purchase Agreement was a provision for the employee contracts. Millar realized a profit from the sale proportionate to his percentage of ownership: an amount in excess of $100,000.00. Millar remained employed by J.M. Layton after the sale until 2003.
Paragraph 5.01(1) of the Asset Purchase Agreement states:
(1) Employment Contracts, Etc. Schedule 5.01(1) sets forth and describes all employment contracts with Seller's employees together with all covenants not to compete, confidentiality, non-solicitation and non-tampering agreements. True, complete and correct copies of all such contracts have been delivered to Buyer. All such contracts are valid and enforceable with respect to each respective employee. No employee has breached or is currently in default under any such contract.
On December 3, 2003, defendant Millar terminated his employment with the plaintiff to begin working for Shoff Darby Companies. After commencing employment with Shoff Darby, several clients who were previously clients of the plaintiff, serviced by defendant Millar, became clients of Shoff Darby. Those clients include: Colonial Manor Condo; Greentree Condo Association; Crestwood Association; Knollbrook Condo Association; Georgetown Business Center; Copper Development; Zakhar Roofing; Town of Wilton; Norwalk Hospital; and N.E. Limited Partnership.
POSITION OF THE PARTIES
The plaintiff claims that it has an enforceable employment agreement with defendant Reid Millar, prohibiting him from soliciting and/or servicing clients of the plaintiff for two years from the date he left the employment of the plaintiff. The plaintiff seeks to enforce that agreement by obtaining a temporary injunction prohibiting Reid Millar CT Page 11232-go from soliciting and/or servicing clients of the plaintiff. Additionally, the plaintiff claims that defendant Shoff Darby Co. misappropriated trade secrets, namely the customer list of the plaintiff. The plaintiff seeks to temporarily enjoin defendant Shoff Darby Companies from using trade secrets of the plaintiff.
The defendants argue that the non-compete clause in the employment agreement between Mr. Millar and the plaintiff is unenforceable. Though the defendants presented evidence countering the plaintiff's claim, they never directly articulated opposition to the allegation of misappropriation. Nor did they address the issue in any response to the Application for the Temporary Injunction, or in their post-hearing brief. On May 18, 2004, following the hearing, they filed an answer to the Complaint in which they denied the allegation.
In their brief, the defendants posit a number of arguments: that Reid Millar received insufficient consideration for signing the Agreement; that there was no modification of the Agreement when the ESOP was approved; the Agreement is not assignable from the J.M. Layton to the new and current owners; and the restrictions in the Agreement are not reasonable. The CT Page 11232-gv court address only the first argument, that there was insufficient consideration. The court does not address the subsequent ones because the first argument resolves the matter and is meritorious.
ISSUE IN DISPUTE
Determining whether to grant the plaintiff's application for Temporary Injunction requires this court to address the following issues. Whether the non-compete provision in the employment agreement between J.M. Layton and Reid Millar is enforceable? And, whether or not the defendant, Shoff Darby, misappropriated trade secrets of the plaintiff? For reasons more fully set forth below, this court answers both questions in the negative. The non-compete clause contained in the employment agreement between the plaintiff and defendant, Reid Millar, is unenforceable due to the lack of consideration. There was insufficient evidence to establish that the defendant, Shoff Darby, misappropriated trade secrets of the plaintiff.
LEGAL DISCUSSION
"The principle 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.) Clinton v. Middlesex Mutual Assurance Co., 37 Conn.App. 269, 270, 655 A.2d 814 (1995). Connecticut courts have set forth a four-part test for the issuance of a temporary injunction. In order to prevail on an application for temporary injunction a plaintiff must prove, by a preponderance of the evidence, that: "(1) the plaintiff ha[s] no adequate legal remedy; (2) the plaintiff would suffer irreparable injury absent [the injunction]; (3) the plaintiff [is] likely to prevail . . .; and (4) the balance of the equities favor[s the issuance of the injunction]." Waterbury Teachers Association v. Freedom of Information Commission, 230 Conn. 441, 446, 645 A.2d 978 (1994). "In general, a court may, in its discretion, exercise its equitable power to order a temporary injunction CT Page 11232-gp pending final determination of the order, upon a proper showing by the movant that if the injunction is not granted he or she will suffer irreparable harm for which there is no adequate remedy at law . . . In exercising its discretion, the court, in a proper case, may consider and balance the injury complained of with that which will result from interference by injunction." (Citations omitted; internal quotation marks omitted.) Moore v. Ganim, 233 Conn. 557, 569, n. 25, 660 A.2d 742 (1995).
Applying the legal standard to the facts in this case, the court finds that the application for temporary injunction should be denied because the plaintiff has failed to establish a likelihood of success on the merits.
LIKELIHOOD OF SUCCESS Plaintiff's Claim Against Defendant Reid Millar
The plaintiff has failed to prove probable success on the merits because it fails to establish that it had an enforceable agreement with defendant Reid Millar.
The facts adduced during the hearing establish that on August 1994, the defendant, Reid Millar, signed an Employment Agreement, pursuant to which he agreed to, inter alia, refrain from soliciting or servicing clients of the plaintiff for two years, after he left employment with the plaintiff. The Agreement said that the consideration for the promise was Mr. Millar's employment and continued employment. The signing of the agreement followed the issuance of a letter from the President, in which the President said that if each employee signed an employment agreement the value of his/her stock in the company would increase. Months prior to the signing of the agreement, Mr. Millar, along with all the other employees, had become a stockholder/owner of the plaintiff company, when the company converted to an ESOP.
The plaintiff argues that defendant Reid Millar's continued employment with the plaintiff, after he signed the employment agreement, was sufficient consideration; and even if it wasn't, that the increase in the value of the stock was sufficient consideration for the promises made in the employment agreement. The defendant argues that continued employment is insufficient consideration for signing the employment agreement, and that the increase in the value of the stock is too imprecise, indefinite and self-serving, to be adequate consideration. The court agrees with the defendants.
"The doctrine of consideration is fundamental to the law of contracts, CT Page 11232-gq the general rule being that in the absence of consideration an executory promise is unenforceable . . . Consideration consists of a benefit to the party promising, or a loss or detriment to the party to whom the promise is made." (Citations omitted; internal quotation marks omitted.) Gianetti v. Norwalk Hospital, 211 Conn. 51, 61, 557 A.2d 1249 (1989). Furthermore, "[i]t is an accepted principle of law in this state that when a party agrees to perform an obligation for another to whom that obligation is already owed . . . the second agreement does not constitute a valid binding contract . . . The basis of the rule is generally made to rest upon the proposition that in such a situation he who promises the additional [work] receives nothing more than that to which he is already entitled and he to whom the promise is made gives nothing that he was not already under legal obligation to give." (Citations omitted; internal quotation marks omitted; brackets in original.) Thermoglaze, Inc. v. Morningside Gardens Co., 23 Conn.App. 741, 745-46, 583 A.2d 1331, cert. denied, 217 Conn. 811, 587 A.2d 153 (1991).
Continued service by an employee may constitute sufficient consideration for certain contractual agreements. See, Dolak v. Sullivan, 145 Conn. 497, 503-04, 144 A.2d 312 (1958) (an employer's retirement plan was held to constitute a contract with an employee, supported by consideration of the employee's continued employment.); and Ellis v. Emhart Mfg. Co., 150 Conn. 501, 505, 191 A.2d 546 (1963) (the issuance of a stock option to an employee has been held to constitute a contract, supported by consideration of the employee's continued employment). "It is well settled law in Connecticut [however] that continued employment is not consideration for a covenant not to compete entered into after the beginning of the employment." (Internal quotation marks omitted.) Cost Management Incentives, Inc. v. Osborne, Superior Court, judicial district of New Haven, Docket No. CV 020463081 (December 5, 2002, Munro, J.). In the context of either non-compete or non-solicit agreements, continued employment is an inadequate consideration to support such contracts.
Even the cases relied upon by the plaintiff do not support its contention that continued employment, alone, provides adequate consideration for executing a non-compete agreement. In both cases, the employee either received increased compensation; or knew at the time of hiring that the formal agreement would have to be signed. See, e.g. Russo Associates, Inc. v. Cachina, et al., Superior Court, judicial district of Fairfield, Docket No. 276910 (March 1, 1995, Levin, J.) (the fact that the defendant knew when he was hired that the employer would require that he execute a written employment agreement and the temporal proximity between the defendant's hiring and his signing of the non-compete agreement, support the conclusion that there was adequate CT Page 11232-gr consideration); and Keane Agency, Inc. v. Butterwort, Superior Court, judicial district of Fairfield, Docket No 313181 (February 22, 1995, Levin, J.) (under the agreement containing the restrictive covenant the defendant received larger compensation and was eligible to earn larger bonuses).
The plaintiff posits a second, alternative, argument to its contention that continued employment is sufficient consideration: that the increased value of the stock issued to defendant Millar constitutes sufficient consideration to support the agreement not to compete. The defendants argue that this court is restricted to reviewing the literal terms of the contract, which lists "employment or continued employment" as consideration, when determining the nature of the consideration. Even if this court rejects the defendants' position, though, the total record still reflects that the only possible consideration for entering the non-compete agreement was continued employment.
The plaintiff's assertion that "a further source of consideration is the benefit received by the defendant in connection with the sale of the assets of J.M. Layton Co." is unsupported. There is no evidence that the defendant received any stock in July 1994, when the President of the Company requested that all employees sign an agreement including a "non-compete" provision. Nor is there evidence that the defendant received any stock when he actually signed the agreement in August 1994. The evidence established that the only stock issued to the defendant was received months earlier in January, before contemplation of the non-compete agreement was even considered. And, the sale of the company to SIG Acquisition, Inc. did not occur until 1998. So, the financial wind-fall to the plaintiff cannot be consideration for signing the agreement.
Plaintiff's Brief, p. 13.
If the defendant had signed the agreement at the time of the sale to SIG Acquisitions, then the assertion that there was adequate consideration would be meritorious. If the defendant had signed the agreement in close proximity to the time the company issued him shares of stock, when the company converted to an ESOP, then his argument would probably be meritorious. But, the facts establish that the defendant signed the agreement containing the non-compete provision in August 1994, seven months after he obtained shares of stock in the company; and four years before the company was sold.
Further, there was no evidence establishing that the value of the defendant's stock increased, quantitatively. Therefore, the claim that the consideration was an increase in the value of the stock is too speculative. The plaintiff did not present evidence that the value of the CT Page 11232-gs defendant's stock actually did increase after he signed the employment agreement. Therefore, it would be guess work, conjecture and speculation to determine the value of the stock pre-Employment Agreement compared to the value of the stock post-Employment Agreement was signed.
The only consideration for signing the agreement, established by the evidence, was the defendant's continued employment. This, in Connecticut, is insufficient.
The new owner of the plaintiff company, formerly SIG Acquisitions, clearly believed that it was purchasing a company which had enforceable employment contracts in its files. The new owner relied upon this fact to its detriment when it bought the company for several millions of dollars. The new owner believed, when it purchased the company, that employees like the defendant would be prohibited from soliciting customers or competing with the plaintiff. And, it paid the employee/owners handsomely, in part, as a result of this belief. The defendant, as an owner/employee, benefited financially from this unfounded belief. He benefited and was greatly enriched.
Whether and to what extent, as a stockholder and owner, the defendant Reid Millar, owed the plaintiff a specific duty of fair dealing (as opposed to a contractual one) which he violated, is an issue that was not raised by the plaintiff and is therefore, outside the scope of this court's inquiry. But, this court observes that the defendants' "gotcha" reaction to the plaintiff's claims does not seem to coincide with rules of fair play. From this, though, this court can draw no further conclusions because the cause of action at issue asserts a breach of an enforceable agreement; such breach the plaintiff is not likely to be able to prove.
Plaintiff's Claims Against Defendant Shoff Darby
The plaintiff also seeks a temporary injunction against defendant Shoff Darby arguing that it has misappropriated trade secrets in the form of the customer list. The court denies the application because the plaintiff has not proven that it is likely to be able to establish this at trial. There was insufficient evidence to establish that defendant Shoff Darby has the customer list of the plaintiff. While it is true that Shoff Darby is benefitting from fees generated by certain former customers of the plaintiff, the evidence did not establish that this was as a result of the misappropriation of the customer list.
The plaintiff argues that "it is clear that at least in the case of the Village Walk Condominium that the defendant Millar used records removed CT Page 11232-gt from the plaintiff's place of business to prepare the change of agent of record notice to be signed by Thomas Rich of D.A. Rich and Associates." Plaintiff's Brief, p. 18. This is true. The most damaging piece of circumstantial evidence presented relative to this issue was the copying of the mistake. But, this fact relates only to actions of defendant Millar. And, this fact, standing alone, is not sufficient to meet the plaintiff's burden of proof in establishing misappropriation of trade secrets. Accordingly, the application for a temporary injunction against Shoff Darby is denied.
CONCLUSION
The overall flavor of the evidence presented by the plaintiff leaves a bad taste. But, the plaintiff has failed to establish that it is entitled to a temporary injunction against either defendant. And, for the reasons set forth in this decision, the court denies the application.