Summary
upholding two-year national and international noncompetition provision extending anywhere the employer had sold its product
Summary of this case from Entegee, Inc. v. KorwekOpinion
No. CV 06-4019412S
File Date: December 28, 2006
MEMORANDUM OF DECISION
This is an action to enforce restrictive covenants in an employment agreement between Plaintiff TyMetrix, Inc and its former employee, Defendant Peter T. Szymonik ("Employment Agreement"), and for violation of the Connecticut Trade Secrets Act, General Statutes § 35-51, et seq. Before the court is TyMetrix`s application for temporary injunctive relief as to Szymonik and the co-defendant, SpectoWise, Inc. In reaching its decision, the court has reviewed and considered the volumes of documents, the testimony and credibility of the parties and their numerous witnesses presented during several hearing days, as well as counsels` helpful post-trial briefs.
TyMetrix, Inc. provides web-based systems for electronic invoicing, performance management metrics, matter and document management, budgeting, forecasting and reporting on spending related to legal services. TyMetrix`s clients are primarily law departments of Fortune 2000 corporations, law firms and claim organizations such as insurance companies. Its customers are located throughout the United States and its potential customers include companies in the United Kingdom and Australia.
TyMetrix and Szymonik entered into an Employment Agreement in July 2002 in connection with the hiring of Szymonik as Director of Client Services. In that position, Szymonik was responsible for managing a number of TyMetrix`s largest accounts. He had regular contact with customers and had access to confidential information concerning marketing plans, pricing, revenues, budgets, forecasts, and customer contact information. In January of 2004, Szymonik was promoted to the office of Vice President, Technical Operations, the company`s chief technology and security officer. During his employment he had access to TyMetrix`s confidential information and trade secrets concerning its products and product development, its customers, marketing plans and strategies. The Employment Agreement signed by Szymonik contains post-employment restrictive covenants that prohibit 1) the retention, use, or disclosure of confidential information and require the return of company documents and data; and that prohibit for a period of two years following termination of employment; 2) the production, development, sale, solicitations, or promotion of products or services that are similar to or in competition with those offered by TyMetrix; 3) the solicitation of or calling on of TyMetrix clients or prospective clients and 4) the solicitation or hiring of company employees.
On March 10, 2005, TyMetrix terminated Szymonik`s employment. Around July 2005, Szymonik formed the co-defendant, SpectoWise, Inc. Szymonik is the President and one of the founders of SpectoWise. TyMetrix claims that Szymonik has retained confidential information and data, has solicited its clients or prospective clients, has solicited or hired its employees and has developed, sold, promoted products and services similar to or competitive with those offered by TyMetrix. In effect, TyMetrix claims that Szymonik has violated all aforesaid restrictions in the Employment Agreement, and it seeks to enjoin those violations.
TEMPORARY INJUNCTIVE RELIEF
"The principal purpose for 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). There is normally a four-part test for the issuance of a temporary injunction: "(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 Ass`n. v. Freedom of Information Commission, 230 Conn. 441, 446, 645 A.2d 978 (1994).
"The standard for granting a temporary injunction to enforce a covenant not to compete, however, is somewhat different in that the plaintiff does not need to prove irreparable harm. While ordinarily proof of imminent harm is essential, in this type of case there is no such requirement. It has long been recognized in this state that a restrictive covenant is a valuable business asset which is entitled to protection . . . Irreparable harm would invariably result from a violation of the defendant`s promises . . . The reason for this is that such a plaintiff`s actual injury is not susceptible of determination to its entire extent but is estimable largely by conjecture and prediction. The standard is also different in that the plaintiff does not have to demonstrate that there is no adequate remedy at law. While the plaintiff could maintain a claim for damages as to each violation that causes injury the difficulty of proof and the inefficiency of repetitive suits render inadequate the use of successive remedies at law, and injunctive relief is therefore warranted to protect the plaintiff from harm which the restrictive covenant was intended to prevent." (Citations omitted; internal quotation marks omitted.) Access America v. Mazzotta, Superior Court, judicial district of Middlesex at Middletown, Docket No. CV 05-40033 89 (September 14, 2005, Silbert, J.).
The court concludes that an Employment Agreement with post-termination restrictive covenants exists between the parties and that the plaintiff is likely to prevail on the merits for the reasons set forth below.
1. The Employment Agreement provides in Paragraph VIII as follows: "You shall, without demand, therefore, deliver over to the Corporation all documents and data of every nature pertaining to Your work with the Corporation, including, without limitation, marketing surveys, product specifications, operating manuals, price lists, memoranda, resumes, client lists, correspondence with Clients or Prospective Clients, computer programs, software applications, systems and other written or electronically-stored matter emanating from the Corporation or any of its suppliers to You, or vice versa, and You agree that You will not take with you or reproduce by any means any of the above-mentioned material."
It is undisputed that when he was terminated, Szymonik had DVDs (the equivalent of 24 boxes of documents) in his possession containing TyMetrix materials, many of which contained non-public information, customer contacts and financial information, and information considered confidential by TyMetrix such as product source codes, competitive analyses, responses to RFPs, and revenue projections and budgets. Szymonik has not returned the DVDs. He maintains he has not utilized the information contained on the DVDs but has kept them to assist him in litigation with TyMetrix.
TyMetrix expends significant sums and employee time on product development and on identifying and establishing relationships with individuals in positions with potential clients to influence the decision to contract with TyMetrix. It maintains databases of confidential customer requirements and preferences in secure files. TyMetrix takes measures to ensure the confidentiality of its information. It requires all employees and customers to sign confidentiality/non-disclosure agreements and utilizes passwords and source codes to limit access to confidential information concerning its customers and its product development. Whether Szymonik has used the information on the DVDs is not, at this point in the proceedings, the relevant consideration. His possession and retention of the DVDs is in violation of the terms of the employment agreement.
2. Section VI(1) of the Employment Agreement provides as follows:
(1) You covenant and agree that you will not, directly or indirectly, for Your own account or as agent, officer, director, consultant, servant or employee, or as shareholder of any corporation or member of any firm, engage or attempt to engage in the production, development, sale, distribution, solicitation or promotion of the sale or distribution of the Products or Services (as hereinafter defined) . . . for a period of two (2) years following the termination of Your employment hereunder (hereinafter referred to as "the Restriction Period,") anywhere in the continental United States or in any foreign country in which the Corporation shall have sold its Products or Services during the one year period immediately preceding the termination of Your employment hereunder (the "Restricted Area").
The Employment Agreement defines "Products or Services" as the "products and services of [TyMetrix] or any of its affiliates (or product or services similar thereto or competitive therewith) which were sold, distributed, or rendered by [TyMetrix] or any of its affiliates at the time [Szymonik`s] employment ceased or during the period one year prior thereto."
The defendants claim that this restriction should not apply because the SpectoWise "product and services" are not the same as those offered by TyMetrix. As of March 2005, TyMetrix was providing and servicing what it refers to as legacy e-billing, matter management, and reporting applications to the majority of existing customers. TyMetrix utilizes e-billing and matter management applications as a means for gathering data from disparate sources such as law firms and non-law firm vendors that can be translated into reports, metrics, analytics, and business intelligence, which is the most valuable part of TyMetrix`s business. The generated reports allow customers to make risk management decisions, manage finances, assess and manage the performance of outside counsel and view trends in legal expenditures. TyMetrix also creates customized reports for clients and offers advisory and consultative services.
There is substantial evidence in the record upon which this court concludes that the products and services offered or to be offered by the defendants are substantially similar to those offered by the plaintiff and are, or would be, in direct competition to those offered by the plaintiff as they are specifically targeted for the very clients serviced by the plaintiff and specifically offered to fill the same functional needs of the client. One need only review the defendants` marketing materials to so conclude. Additionally, the defendants` solicitation of and attempts to join league with known competitors of TyMetrix in an effort to take over its clients is a further violation of this restriction and is well supported in the documentary evidence.
3. The Employment Agreement in Paragraph VI(1) also provides that "You covenant and agree that you will not, directly or indirectly, for Your own account or as agent, officer, director, consultant, servant or employee, or as shareholder of any corporation or member of any firm, solicit or call on any Client or Prospective Client (in each case as hereinafter defined) with respect to the Products or Services for a period of two (2) years following the termination of Your employment hereunder (hereinafter referred to as "the Restriction Period,") anywhere in the continental United States or in any foreign country in which the Corporation shall have sold its Products or Services during the one year period immediately preceding the termination of Your employment hereunder (the "Restricted Area").
Paragraph VI(2) provides: "You further covenant and agree that You will not, directly or indirectly, for Your own account or as agent, director, officer, consultant, servant or employee, or as a shareholder of any corporation, or member of any firm, engage, hire, employ or solicit the employment of any employee or former employee of the Corporation or any of its affiliates during the Restricted Period."
The defendants have violated these covenants. Szymonik and SpectoWise have solicited employees of TyMetrix, have already hired John Fabi a former TyMetrix employee, and have represented to potential clients that they plan to have valuable TyMetrix employees on board. Szymonik and SpectoWise have also solicited TyMetrix customers.
4. In a special defense, the defendants contend that the covenants in the employment agreement are unenforceable because TyMetrix breached its covenant of good faith and fair dealing because its termination of Szymonik was wrongful and violated an important public policy. Over plaintiff`s objection that an "at will" employee such as Szymonik cannot raise such a defense, the court has allowed Szymonik to proceed on this special defense.
TyMetrix, Inc. v. Peter T. Szymonik et al, Superior Court, judicial district of Hartford at Hartford, Docket No. CV 06-4019412S (February 9, 2006, Tanzer, J.).
"A cognizable claim for wrongful discharge requires the plaintiff to establish that the employer`s conduct surrounding the termination of the plaintiff`s employment violated an important public policy." CT Page 23552 Carnemolla v. Walsh, 75 Conn.App. 319, 323 n. 5, 815 A.2d 1251, cert. denied, 263 Conn. 913, 821 A.2d 768 (2003). "The public policy exception to the at-will employment doctrine, however, is to be construed narrowly. Under that narrow exception, the employee has the burden of pleading and proving that his dismissal occurred for a reason violating public policy. In evaluating such claims, our Supreme Court has looked to see whether the plaintiff has alleged that his discharge violated any explicit statutory or constitutional provision or whether he alleged that his dismissal contravened any judicially conceived notion of public policy." (Citations omitted; internal quotation marks omitted.) Gambardella v. Apple Health Care, Inc., 86 Conn.App. 842, 852-53, 863 A.2d 735 (2005).
Szymonik contends that he was terminated because he voiced concerns about deficiencies in the security of clients` data and about misrepresentations to clients regarding data security. The credible evidence, adduced at this temporary injunction stage, does not support Szymonik`s contention. In his supervisory role as Vice President of Technology Operations, Szymonik did encounter incidents of deficiency in the security of client data, some of a substantial nature. His complaints, however, were responded to and acted upon by management. Both the timing and the nature of the claims of misrepresentations delivered by Szymonik to Diane Brown around the time of his termination and the nature of "marketing" materials and public statements generated by Szymonik about the competence of data security at TyMetrix during his tenure as Vice President of Technology Operations undermine the credibility of this claim. Rather, the evidence supports the plaintiff`s position that Szymonik was terminated because of his disagreements with and inability to work with management, particularly with John Weber, General Manager of TyMetrix, and because of management`s dissatisfaction with Szymonik`s behavior. The defendants are not likely to prevail on this special defense having failed to present credible evidence that the plaintiff violated any explicit statutory or constitutional provision or contravened any judicially conceived notion of public policy.
The court must now also consider the reasonableness of the restrictive covenants in the Employment Agreement. "A covenant that restricts the activities of an employee following the termination of his employment is valid and enforceable if the restraint is reasonable." New Haven Tobacco Co. v. Perrelli, 18 Conn.App. 531, 533, 559 A.2d 715 cert. denied, 212 Conn. 809, 564 A.2d 1071 (1989). In determining whether a covenant is reasonable, "[t]he five factors to be considered . . . are: (1) the length of time the restriction operates; (2) the geographical area covered; (3) the fairness of the protection accorded to the employer; (4) the extent of the restraint on the employee`s opportunity to pursue his occupation; and (5) the extent of interference with the public`s interests." Robert S. Weiss Associates, Inc. v. Wiederlight, 208 Conn. 525, 529 n. 2, 546 A.2d 216 (1988). A party challenging the validity of a covenant not to compete bears the burden of proof on this issue. Scott v. General Iron Welding Co., 171 Conn. 132, 139, 368 A.2d 111 (1976); Milaneseo v. Calvanese, 171 Conn. 132, 137, 103 A. 841 (1918).
Under the Employment Agreement, a period of two (2) years following the termination of employment is the "the Restriction Period." The duration or time limitation of two years from the date of termination is not unreasonable given the expense and time that it takes to develop the products and services offered by TyMetrix, the expense and time that it takes to develop client contacts and that it takes to recoup those expenses. The average sales cycle for TyMetrix to obtain new customers is one and a half years. TyMetrix does not typically recover its investment in obtaining a customer until a year after the sale. Under the circumstances of this case, I do not find a two-year limitation unreasonable.
The geographical limitation, referred to in the Employment Agreement as the "Restricted Area" is defined as "anywhere in the continental United States or in any foreign country in which the Corporation shall have sold its Products or Services during the one year period immediately preceding the termination of Your employment hereunder." There is no dispute that the plaintiff, its clients and prospective clients are large web-based entities and that the business of TyMetrix is national and international. This restriction is not unreasonable, especially in light of the distinction it draws between the continental United States and "any foreign country."
As to the fairness to the plaintiff, the public and the defendants, Szymonik began his employment with TyMetrix in August of 2002 and was terminated in March of 2005. Prior to his employment with TyMetrix, he had many years of experience in technology fields unrelated to TyMetrix`s business, including having worked for a law firm and a consulting firm that provided technology advisory services to law firms. Szymonik had not worked in TyMetrix`s industry before joining TyMetrix, and he did not bring customers or clients with him. The evidence presented by Szymonik as to his attempts to find other employment or his ability to do so during the period before he formed SpectoWise is dirth, except that he turned down a job offer. The defendant has the burden to prove that imposing the restrictions and obligations to which he agreed under the Employment Agreement would be unfairly burdensome as to him.
The court also finds that the plaintiff invested time, effort and money in developing its products and services and in tailoring those services to the needs of its clients. Szymonik had access to the plaintiff`s client base, its product development and strategies, its sales and marketing methods and other confidential information which created an interest which the plaintiff could legitimately seek to protect through restrictive covenants.
Under the totality of the circumstances, I find that the equities lie with the plaintiff, that the public will not be unduly burdened by the restrictions sought, that the defendant will not be unduly burdened by the restrictions and that it is fair to the plaintiff to grant the application for temporary injunctive relief and enter the following orders:
(1) Szymonik and SpectoWise shall immediately return to TyMetrix all TyMetrix documents, in whatever form or media maintained or stored, without retaining any copies of such materials;
(2) Szymonik and SpectoWise, and all parties acting in concert with or as agents of either Szymonik or SpectoWise, are enjoined, from using or disclosing any of TyMetrix`s trade secrets or confidential information, including customer lists, strategy plans, contractual and financial arrangements between TyMetrix and its customers, information about the requirements of, needs of, or solutions developed for TyMetrix customers, implementation guides, product specifications;
(3) Szymonik and SpectoWise, and all parties acting in concert with or as agents of either Szymonik or SpectoWise, are enjoined from engaging, hiring, employing, or soliciting for employment any TyMetrix employees until at least March 14, 2007;
(4) Szymonik and SpectoWise, and all parties acting in concert with or as agents of either Szymonik or SpectoWise, are enjoined from soliciting or calling on any client or prospective client as those terms are defined in the Employment Agreement until at least March 14, 2007;
(5). Szymonik and SpectoWise, and all parties acting in concert with or as agents of either Szymonik or SpectoWise, are enjoined from engaging or attempting to engage in the production, development, sale, distribution, solicitation or promotion of the sale or distribution of the products and services defined in the Employment Agreement until at least March 14, 2007.
TyMetrix has requested that this court`s orders include an order "extending the restrictive periods stated above . . . in [orders] 3-5, pursuant to Article VI(8) of the Employment Agreement, beyond March 14, 2007, for a period of time equal to the period of time during which Szymonik has been in breach of the restrictive covenants contained in the Employment Agreement" pursuant to Section (8) which provides, "In the event that You shall be in violation of the aforementioned restrictive covenants, then the time limitation thereof with respect to You shall be extended for a period of time equal to the period of time during which such breach or breaches did occur; and, in the event [TyMetrix] should be required to seek relief from such breach in any court . . . Then the covenant shall be extended for a period of time equal to the pendency of such proceedings, including all appeals."
In recognition of the fact that a legitimate question remains as to the appropriate duration of the restrictive covenants, these restriction shall be in effect until further order of the court but not for any longer than two years from the date of termination, that is until March 14, 2007 unless, upon motion by the plaintiff, or after a full hearing on the merits, it is extended by further court order.