February 25, 2016
The following article was first published in Employment Law 360 on February 24, 2016.
Being both an employment law geek and a "Star Wars" geek, I can’t help but watch the "Star Wars" movies through the troublesome lenses of my employment lawyer glasses, nor can I practice employment law without various “Yodaisms” running through my mind (e.g., “Do or do not. There is no try.”). Having watched all of the "Star Wars" movies, it occurred to me while watching "Star Wars: The Force Awakens," that the most fundamental source of disturbances in the Force are key characters — employees, if you will, for the purposes of this article — joining competitor masters (employers) with catastrophic results. Darth Vader, Count Dooku and Kylo Ren all started their careers with the Jedi before leaving to a competitor.
But what if they couldn’t? How would a New York court view a noncompete agreement in the context of the Jedi Order? Below is my best estimate as to how it would play out, at least in the lower court.
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
LUKE SKYWALKER’S JEDI ACADEMY,
-against- Index No. 2016/R2D2
KYLO REN, THE FIRST ORDER AND SNOKE,
This case comes before the Court on Plaintiff’s motion for a preliminary injunction: (1) enjoining defendant Kylo Ren from working for Defendants Snoke and the First Order; and (2) enjoining the Defendants from using Plaintiff’s trade secrets and usurping its customer relationships. For the reasons stated below, subject to Plaintiff’s posting of a sufficient undertaking, the Court grants the motion for a preliminary injunction.
The Court assumes the parties’ familiarity with the facts and will state them only briefly here. Plaintiff at all times relevant to this proceeding operates a Jedi Training Academy for the purpose of teaching its pupils (Padawans) how to use the “light-side” of the Force. Defendant Kylo Ren is a former employee of the academy who was terminated for various alleged acts of misconduct (discussed, infra). During the course of his employment, Ren signed a noncompete agreement in which he agreed not to compete against the academy for a period of one year following his separation.
Notwithstanding the noncompete agreement, immediately upon his termination, Ren commenced employment with Snoke and the First Order. The parties stipulate that Snoke and the First Order are direct competitors of the academy and the constituency it serves. The present litigation ensued. The parties agreed to venue this matter in New York County, as it is apparently the only venue in which individuals from the “bar scenes” from "Star Wars IV" and "Star Wars VII" can blend in without feeling self-conscious. New York law controls this matter despite the choice of law provision regarding “Intergalactic Law” because that law is too employer-friendly. See Brown & Brown Inc. v. Johnson, 25 N.Y.3d 364 (2015).
Standard for Issuing an Injunction
The standard for obtaining a preliminary injunction is well-known. The moving party must show the following: (1) the likelihood of ultimate success on the merits; (2) threat of irreparable injury absent the granting of the preliminary injunction; and (3) that the equities are balanced in its favor. See McLaughlin, Pivin, Vogel Inc. v. W.J. Nolan & Company Inc., 114 A.D.2d 165, 172 (2d Dep’t 1986).
Enforceability of the Noncompete
The Court of Appeals has espoused a three-pronged test for determining whether a restrictive employment covenant will be enforced. An agreement will be enforced if it: (1) is no greater than is required for the protection of the legitimate interest of the employer, (2) does not impose undue hardship on the employee, and (3) is not injurious to the public. BDO Seidman v. Hirshberg, 92 N.Y.2d 382, 388-89 (1999). Legitimate employer interests include protection of trade secrets and customer relationships.
Ren argues that, as a threshold matter, because he was terminated without cause, the noncompete cannot be enforced against him. Post v. Merrill Lynch, Pierce, Fenner & Smith Inc., 48 N.Y.2d 84, 88 (1979). There is currently a split in the appellate divisions on this issue. The Second Department follows the rule against enforcement where an employee was terminated without cause. Grassi & Co., CPAs PC v. Janover Rubinroit LLC, 82 A.D.3d 700, 702 (2d Dep’t 2011); Borne Chemical Co. Inc. v. Dictrow, 85 A.D.2d 646 (2d Dep’t 1981). Conversely, the First Department is more wary in its application of the rule. Bell & Co. PC v. Rosen, 2012 N.Y. Misc. LEXIS 6230 (N.Y. Cnty. Sup. Ct. Nov. 8, 2012), aff’d, 979 N.Y.S.2d 564 (1st Dep’t 2014).
The Fourth Department has also held on numerous occasions that involuntary termination without cause will not necessarily preclude enforcement of a noncompete. Eastman Kodak Co. v. Carmosino, 77 A.D.3d 1434, 1436 (4th Dep’t 2010); Wise v. Transco Inc., 425 N.Y.S.2d 434 (4th Dep’t 1980).
This Court need not resolve this conflict because the Court finds that Ren has stolen trade secrets. Consequently, the Court can and will issue a preliminary injunction on this issue irrespective of the existence of a valid noncompete. See, e.g., Churchill Communications Corp. v. Demyanovich, 668 F. Supp. 207, 211 (S.D.N.Y. 1987) ("Of course, an employee’s use of an employer’s trade secrets or confidential customer information can be enjoined even in the absence of a restrictive covenant when such conduct violates a fiduciary duty owed by the former employee to his former employer.").
A trade secret is defined as "any formula, pattern, device or compilation of information which is used in one's business, and which gives [the owner] an opportunity to obtain an advantage over competitors who do not know or use it." North Atlantic Instruments Inc. v. Haber, 188 F.3d 38, 49 (2d Cir. 1999); see also Ashland Management Inc. v. Janien, 82 N.Y.2d 395, 407 (1993) (discussing six-factor test). Plaintiff argues that as an employee of the academy, Ren was entrusted with access to all manner of trade secrets, including how to use various mind tricks, construct a lightsaber and turn into a “force ghost.” Further, Ren was provided with lists of individuals sympathetic to the cause of the rebellion (customer lists).
Ren argues that despite the mystique of the Jedi, nothing they do rises to the level of a trade secret. According to Ren, a cursory Google search will reveal how to do mind tricks and any elementary school student with a computer and a basement can construct their own lightsaber (albeit poorly shaped). We disagree with this analysis.
While Ren is correct that an employer has the burden of demonstrating that "it took substantial measures to protect the secret nature of its information," (see Geritrex Corp. v. Dermarite Industries LLC, 910 F. Supp. 955, 961 (S.D.N.Y. 1996)), Plaintiff has met its burden. Only a select few are provided with its secrets, its secrets are only revealed in secure locations, and any computerized lists are password-protected, encrypted and stored in the vaults of droids. Further, the trade secrets cannot, as Ren contends, be so easily learned or reverse engineered. Ren’s own incomplete lightsaber reveals that guarded secrets are still needed to complete it.
In any event, the record is clear that Ren took physical copies of the academy’s confidential information, namely sympathizer lists, a partially working lightsaber, and force ghost manuals.
It is well-settled that "an employee’s illegal physical taking or copying of an employer’s files or confidential information constitutes actionable unfair competition." Advance Magnification Instruments Ltd. v. Minuteman Optical Corp., 135 A.D.2d 889 (3d Dep’t 1987).
Further, "if there has been a physical taking or studied copying of confidential information, the court may in the proper case grant injunctive relief, not necessarily as a violation of a trade secret, but as an egregious breach of trust and confidence while in plaintiff’s service." Garbor GuyButler Corporation v. Cowen & Co., 155 Misc.2d 39 (N.Y. Cnty. Sup. Ct. 1992); see also Ecolab Inc. v. Paolo, 753 F. Supp. 1100, 1112 (E.D.N.Y. 1991) ("Moreover, even if this information did not independently rise to the level of a trade secret, [the former employees’] wrongful retention of the customer information would justify treating it as a trade secret."); Marcone APW LLC v. Servall Co., 85 A.D.3d 1693, 1696 (4th Dep’t 2011) (“In any event, even assuming, arguendo, that the misappropriated information is not entitled to trade secret protection, we conclude that the court properly determined that injunctive relief is warranted on the alternative ground of breach of trust by the individual defendants in misappropriating plaintiff’s proprietary information.”)
"It is clear that irreparable harm is presumed where a trade secret has been misappropriated." Lumex v. Highsmith, 919 F. Supp. 624, 628 (E.D.N.Y. 1996). This is because a trade secret, once lost, is lost forever; its loss cannot be measured in money damages. North Atlantic Instruments Inc. v. Haber, 188 F.3d 38, 49 (2d Cir. 1999) (quoting FMC Corp. v. Taiwan Tainan Giant Industrial Co., 730 F.2d 61, 63 (2d Cir. 1984).
Scope of the Injunction
Ren is directed to return all hard copies of any trade secrets he has taken from the academy and destroy any electronic version of any trade secret in his possession. For a period of one year, Ren may work for Snoke and the First Order, but not in any capacity that requires the use of the Force. Plaintiff argues that under the Inevitable Disclosure Doctrine, Ren should be barred from working for the First Order in any capacity. The Court will address this argument after further briefing in the context of summary judgment on Plaintiff’s request for a permanent injunction. Ren may discuss joining the First Order with individuals and entities who are his own relatives, personal friends and/or “who, without solicitation, approach [him],” (Eastern Business Systems Inc. v. Specialty Business Solutions LLC, 292 A.D.2d 336, 338 (2d Dep’t 2002); see also Frank Crystal & Co. v. Dillmann, 84 A.D.3d 704 (1st Dep’t 2011); Weiser LLP v. Coopersmith, 74 A.D.3d 465 (1st Dep’t 2010)), or who wanted to leave the academy on their own accord. Data Systems Computer Centre Inc. v. Tempesta, 171 A.D.2d 724 (2d Dep't 1991).
The foregoing shall constitute the Order of this Court.