Federal Court Grants Two-Year Preliminary Injunction Against Former Executive of KM&M Client
On December 17, 2007, the United States District Court for the Southern District of New York granted KM&M’s motion to enforce a restrictive covenant and to enjoin our client’s former executive from working for a direct competitior for two years.
The defendant had been our client’s Director of Operations, and he had recently overseen the development of a new software system that is expected to give our client a significant competitive advantage. Less than two months before the new system was set to launch, however, the defendant resigned his employment to join a direct competitor. To protect our client’s interest in shielding this confidential and proprietary information from a direct competitor (along with other trade secrets the defendant obtained during his employment), KM&M immediately sought and was granted an ex parte temporary restraining order pending the Court’s decision on our application for a preliminary injunction.
The Court subsequently granted the preliminary injunction on two key grounds. First, KM&M successfully argued that our client would suffer irreparable harm in the absence of the injunction because the defendant would inevitably disclose confidential and proprietary information related to, inter alia, the new system. The Court rejected the defendant’s argument that he is unable to disclose confidential and proprietary information concerning the new system to the direct competitor because he is not a sophisticated computer programmer. Instead, the Court held that the defendant’s direct supervision of the system’s architect, along with his participation in discussions and meetings related to the initiation and use of the new system, established knowledge of the new system sufficient to constitute irreparable harm.
Second, KM&M persuaded the Court that our client was likely to succeed on the merits of the case because the restrictive covenant at issue was ancillary to our client’s acquisition of the defendant’s former employer. The Court was swayed by the undisputed fact that the defendant’s acceptance of his employment agreement with our client was a condition precedent to the sale. Finally, the Court rejected the defendant’s argument that our client was required to compensate him during the non-compete period, concluding instead that the defendant’s signing bonus constituted adequate consideration for the covenant not to compete.
In sum, the Court granted KM&M’s motion and enjoined the defendant from working for a direct competitor for the full two years set forth in his employment contract.