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“Inevitable Disclosure Doctrine” Fails to Demonstrate Breach of Non-Disclosure and Non-Compete Agreements

EarthWeb, Inc. v. Schlack, 71 F. Supp. 2d 299
EarthWeb, Inc. v. Schlack, 2000 U.S. App. LEXIS 11446

Mr. Mark Schlack worked for EarthWeb, Inc. from October 19, 1998 to September 22, 1999 as the company’s Vice President of Worldwide Content where he had overall editorial responsibilities for the company’s website.  EarthWeb was started in 2004 and had 230 employees nationwide that provided online products and services to business professionals in the information technology (IT) industry.  The company and Mr. Schlack signed an employment agreement on October 13, 1998 that contained non disclosure and non compete clauses.

The restrictions prohibited Mr. Schlack from being an employee of a business entity that directly competed with EarthWeb for a period of twelve months after his termination.  The agreement provided consideration in the form of Mr. Schlack’s salary, performance-based bonus, and stock options.  Mr. Schlack tendered his resignation in September 1999 and informed his superiors at EarthWeb that he had accepted a position with ITworld.com, a subsidiary of IDG, another business connected to the IT industry.

EarthWeb Takes Action

EarthWeb sued Mr. Schlack in federal court and asked it to grant a preliminary injunction to prevent him from working for ITworld.com.  EarthWeb sued in order to protect its confidential information and trade secrets related to several components of its business operations: 1) strategic content planning, 2) licensing agreements and acquisitions, 3) advertising, and 4) technical knowledge.

The company argued that an injunction and the enforcement of the non-compete agreement were necessary to prevent disclosure of its trade secrets and confidential business information.  The federal court denied EarthWeb’s request and the company appealed to the Second Circuit Court of Appeals (jurisdiction over Connecticut, New York, and Vermont).  At the appellate level, the court affirmed the district court’s decision and held that the denial of the injunction and enforcement was proper given the facts of the case.

How to Prove Irreparable Harm

The Second Circuit had previously held that a demonstration of irreparable harm is the “single most important prerequisite for the issuance of a preliminary injunction”.  Mamiya Co. v. Masel Supply Co., 719 F.2d 42, (1983).  Disclosure of trade secrets and confidential information has traditionally been sufficient to show irreparable harm so long as the harm is imminent.  The mere possibility of harm is insufficient and motions should be denied when the harm described in the complaint is remote and speculative.  This case did not involve actual theft or misappropriation of confidential information, only the possibility of future disclosure.

Mr. Schlack defended himself by asserting that the position awaiting him at ITworld.com was very different from his job at EarthWeb and that he would not have an occasion to divulge any of EarthWeb’s confidential information.  Additionally, he claimed that EarthWeb’s complaint overstated his responsibilities and he was nowhere close to being a senior executive with access to vast amounts of confidential information.

Shortcomings of EarthWeb’s Argument

EarthWeb had the burden to show that Mr. Schlack’s breach of the non-compete agreement would create irreparable harm.  The appellate court held that the company had failed to establish that an injunction was reasonably necessary to protect its business interests.  The company failed to produce any evidence that there was an imminent risk that Mr. Schlack would disclose EarthWeb’s confidential information while being employed at ITworld.com.

The court stated that EarthWeb had relied on the “Inevitable Disclosure Doctrine”; a theory the court rejected and commented should only be applied in the rarest of circumstances.  The doctrine heavily relies on speculation and “what ifs” to advance a request for injunctive relief for breach of a non-compete agreement.  This doctrine employed insufficient concrete evidence that there would be a disclosure of confidential information and both the district and appellate courts denied EarthWeb’s request for injunctive relief in the form of enforcing the restrictive covenant.

The lawyers at Maya Murphy, P.C., are experienced and knowledgeable employment and corporate law practitioners and assist clients in New York, Bridgeport, Darien, Fairfield, Greenwich, New Canaan, Norwalk, Stamford, Westport, and elsewhere in Fairfield County.  If you have any questions relating to your non-compete agreement or would like to discuss any element of your employment agreement, please contact Joseph C. Maya, Esq. by phone at (203) 221-3100 or via e-mail at JMaya@Mayalaw.com.

Wife Found in Contempt of Court’s “Automatic Orders”

In a relatively recent decision rendered in a dissolution of marriage action, a wife was found in contempt for depriving her husband of information regarding the parties’ two minor children in violation of the court’s “automatic orders.”  In this particular case, the parties were married 1991, and were the parents of two children.  At the time of trial the husband was forty-three years old and in generally good health.  He had an associate’s degree and worked for a supply company earning approximately $51,000 annually.  The wife was also forty-three years old and in generally good health.  Although she stayed home to care for the family for a better part of the marriage, in 1999 she began working as an independent contractor selling kitchen products.  Later, she worked for a local board of education, and at the time of trial, was employed with a local newspaper earning roughly $20,000, plus commission, annually.

During the divorce proceedings, the husband filed a motion for contempt claiming the wife violated the court’s automatic orders in that she left the marital residence with the children and refused to disclose their location.  In reviewing the merits of the husband’s motion, the court noted that in a civil contempt proceeding, the movant must show by a preponderance of the evidence the existence of a clear and unambiguous court order, and willful noncompliance with that order.  According to the court’s “automatic orders,” entered upon the commencement of every divorce action, neither party is permitted to remove children from the State of Connecticut without prior written consent of the other parent.  Additionally, a party vacating the marital residence with minor children must notify the other parent of the move, and must provide the other parent of an address where the relocated party can be contacted.  Finally, where parents live separate and apart during a divorce proceeding, pursuant to the “automatic orders,” they must assist their children in having contact with both parents.

In this particular case, the court found that because the wife was served in hand with a notice of automatic orders, she clearly knew she had an obligation to inform the husband in writing of any relocation.  The court found that she also knew she had a duty to assist her children in having contact with their father.  Nevertheless, the wife willfully removed the children from the home, and kept their address from the husband absent a valid reason for doing so.  As a result, the husband did not know where the children were living until the day of trial.  The court further found that the wife willfully kept the children from having contact with their father in violation of the court’s clear and unambiguous automatic orders.

Should you have any questions regarding automatic court orders, or divorce proceedings in general, please feel free to contact Attorney Joseph Maya, Esq.  He can be reached in the firm’s Westport office at (203) 221-3100 or by e-mail at  JMaya@Mayalaw.com.
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Our firm in Westport serves clients with divorce, matrimonial, and family law issues from all over the state including the towns of: Bethel, Bridgeport, Brookfield, Danbury, Darien, Easton, Fairfield, Greenwich, Monroe, New Canaan, New Fairfield, Newton, Norwalk, Redding, Ridgefield, Shelton, Sherman, Stamford, Stratford, Trumbull, Weston, Westport, and Wilton.

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