ANSYS, Inc. v. Computational Dynamics North America, Ltd. , 595 F.3d 75 ( 2010 )

United States Court of Appeals
For the First Circuit
No. 09-2634
ANSYS, INC.,
Plaintiff, Appellant,
v.
COMPUTATIONAL DYNAMICS NORTH AMERICA, LTD.;
DORU A. CARAENI, PH.D.,
Defendants, Appellees.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW HAMPSHIRE
[Hon. Steven J. McAuliffe, District Judge]
Before
Lynch, Chief Judge,
Howard, Circuit Judge, and Woodlock,* District Judge.
Wilbur A. Glahn, III with whom Cameron G. Shilling, Cathryn E.
Vaughn, and McLane, Graf, Raulerson & Middleton, Professional
Association were on brief for appellant.
Geoffrey J. Vitt with whom Elizabeth K. Rattigan, Vitt &
Ratigan, PLC, Michael A. Schlanger, Shelli L. Calland, and
Covington & Burling LLP were on brief for appellees.
February 12, 2010
*
Of the District of Massachusetts, sitting by designation.
LYNCH, Chief Judge. ANSYS, Inc. ("ANSYS") is a company
that produces propriety software in the field of computational
fluid dynamics ("CFD"). In August 2009, ANSYS sued its former
employee, Dr. Doru Caraeni, and his new employer, Computational
Dynamics North America, Ltd. ("CDNA"), in the federal district
court for the district of New Hampshire, alleging breach by Dr.
Caraeni of the noncompetition and confidentiality clauses in his
ANSYS employment contract, interference with contractual relations,
misappropriation of trade secrets, and unfair trade practices.
CDNA and ANSYS are competitors; together they occupy approximately
80 percent of the market for CFD software, which is used for
modeling and simulating fluid and gas flows. ANSYS had employed
Dr. Caraeni from January 2002 to May 2009 to develop code for CFD
simulation software.
ANSYS sought a preliminary injunction to enforce the
provisions of a one-year noncompetition clause in Dr. Caraeni's
employment agreement. The district court denied the request,
finding that ANSYS had not met the requirements for injunctive
relief. See ANSYS, Inc. v. Computational Dynamics N. Am., Ltd.,
Civ. No. 09-cv-284-SM, 2009 WL 4403745 (D.N.H. Nov. 25, 2009). We
expedited the appeal. After oral argument this court issued an
order affirming the denial of preliminary injunctive relief. We
also said we would later issue our opinion in this case, as we do
now, and judgment would not enter until we had done so.
-2-
I.
Our standard of review for denials of injunctive relief
is strict: "we will reverse such a denial only if the district
court mistook the law, clearly erred in its factual assessments, or
otherwise abused its discretion in granting the preliminary
injunction." McClure v. Galvin, 386 F.3d 36, 41 (1st Cir. 2004)
(internal quotation marks omitted). While we think this case is
close, we cannot say the court abused its discretion.
When deciding whether to grant ANSYS preliminary
injunctive relief, the district court was required to weigh four
factors: (1) whether ANSYS had shown a likelihood of success on the
merits, (2) whether ANSYS had shown that it would suffer
irreparable harm if the injunction was denied, (3) the balance of
the relevant hardships, and (4) any impact that the court's ruling
may have on the public interest. See Wine & Spirits Retailers,
Inc. v. Rhode Island, 418 F.3d 36, 46 (1st Cir. 2005). The first
factor, likelihood of success, is usually given particularly heavy
weight. Waldron v. George Weston Bakeries Inc., 570 F.3d 5, 8 (1st
Cir. 2009). The district court denied ANSYS's motion on the
grounds that the company had failed to demonstrate likely success
on the merits and also failed to show that it would suffer
irreparable harm absent injunctive relief. ANSYS, Inc., 2009 WL
4403745, at *5-7.
-3-
We begin our review of the district court's decision with
the contract clause in question, which Dr. Caraeni had signed in
September 2001. It reads, in relevant part, "I agree that for a
period of one (1) year following termination of my employment with
[ANSYS], I will not become an employee . . . or in any way engage
in or contribute my knowledge to a competitor of [ANSYS]."
Perhaps recognizing how poorly drafted this clause is,
ANSYS offers two pertinent narrowing constructions: (1) the clause
only applies to those employees who have access to confidential
information or trade secrets--thus, the clause would not apply to,
for instance, a maintenance worker; and (2) the clause only applies
to employees who are in a position to use that information at their
new employer. This interpretation, of course, requires judicial
reconstruction of the broadly drafted contract language.
Against the backdrop of these constructions, ANSYS argues
it has to show two things, and no more, to establish breach of
contract: that Dr. Caraeni had access to confidential information
while at ANSYS and that he is in a position to use this knowledge
at CDNA. ANSYS asserts it met this burden on the evidence produced
at the one-day evidentiary hearing before the district court.
As a result, ANSYS argues, it has shown Dr. Caraeni was
in breach of his contract and that it will succeed on the merits of
its claims. Since likelihood of success on the merits normally
weighs heavily in the preliminary injunction calculus, ANSYS urges
-4-
this showing is sufficient to merit preliminary injunctive relief.
ANSYS also argues that proving breach, and no more, was sufficient
to demonstrate irreparable harm and further support its request for
the preliminary injunction.
ANSYS asserts that holding it to any greater showing on
the likelihood of success or irreparable harm would effectively
eliminate the noncompete clause from the contract. ANSYS says that
for the noncompete clause to have any meaning, the clause must be
read to give ANSYS some greater benefit than the protection it
enjoys under common law for its trade secrets and confidential
information. ANSYS urges that the district court erred by
analyzing this case as though it was simply a trade secrets case.
After all, ANSYS notes, it did not seek a preliminary injunction on
its trade secrets claim.
ANSYS's argument about the import of its contract clause
is not irrational and one might well be sympathetic to it. See
Cont'l Group, Inc. v. Kinsley, 422 F. Supp. 838, 843 (D. Conn.
1976) (finding a covenant not to compete for eighteen months
reasonable under New York law to the extent that it barred similar
employment at a direct competitor working to develop an identical
product). As Judge Newman observed in that case, it is unclear
that the test for enforcing a noncompetition covenant should be the
same as would be used in obtaining an injunction to bar disclosure
of trade secrets or an injunction to enforce a covenant not to
-5-
disclose trade secrets. The court explained, "[t]he
non-competition covenant adds something to the protection available
to the employer beyond what he would expect from the normal
incidents of the employer-employee relationship or from a secrecy
agreement." Id. at 844. Here, the contract clause could be
justified as a prophylaxis, protecting ANSYS in a situation that
created a high risk of disclosure of its confidential information
to a competitor. See id. at 845.
Whether New Hampshire law would enforce an agreement so
construed is quite a different matter. ANSYS's arguments presume
its noncompetition clause is enforceable. However, New Hampshire's
public policy discourages covenants not to compete, allowing them
only "if the restraint is reasonable, given the particular
circumstances of the case." Merrimack Valley Wood Prods., Inc. v.
Near, 876 A.2d 757, 762 (N.H. 2005). No New Hampshire cases are
directly on point, as the vast majority of noncompetition agreement
cases considered by the state's supreme court have turned on other
issues, such as the protection of employers' interest in customer
good will. See, e.g., Concord Orthopaedics Prof'l Ass'n v. Forbes,
702 A.2d 1273, 1276 (N.H. 1997); Technical Aid Corp. v. Allen, 591
A.2d 262, 266-67 (N.H. 1991).1
1
Both parties note a single case in which the New
Hampshire Supreme Court addressed a superficially similar attempt
by an employer to enforce a covenant not to compete to prevent an
employee from working for a competitor in a narrow field, upholding
a district court's determination that the noncompetition agreement
-6-
New Hampshire courts have, however, articulated general
criteria by which we may assess ANSYS's claims:
To determine whether a restrictive covenant
ancillary to an employment contract is reasonable,
we engage in a three-part inquiry: first, whether
the restriction is greater than necessary to
protect the legitimate interests of the employer;
second, whether the restriction imposes an undue
hardship upon the employee; and third, whether the
restriction is injurious to the public interest.
ACAS Acquisitions (Precitech) Inc. v. Hobert, 923 A.2d 1076, 1084
(N.H. 2007). A covenant that fails any one of these criteria "is
unreasonable and unenforceable." Merrimack Valley Wood Prods.,
Inc., 876 A.2d at 762; see also id. at 763-64 (affirming that an
agreement that broadly barred an employee from working with any
client who had transacted business with his employer in the past
year was unenforceable, reasoning that it went "far beyond the
defendant's sphere of customer goodwill, and was more restrictive
than necessary to protect the plaintiffs' legitimate interests").
New Hampshire courts have further clarified that employers'
at issue was enforceable. See ACAS Acquisitions (Precitech) Inc.
v. Hobert, 923 A.2d 1076, 1089 (N.H. 2007). However, ACAS relied
on a variety of facts not presented by this case. Id. at 1087-89.
Moreover, to the limited extent that ANSYS relies on ACAS, it
mischaracterizes the court's holding. The court did not, as ANSYS
suggests, "presume[] irreparable harm from the presumed use of . .
. information." Instead, it cited specific evidence "that the
defendant intended to use his knowledge learned at [plaintiff's
company] to help" his new employer, id. at 1083, 1085 (internal
quotation marks omitted), and affirmed the district court's holding
that the defendant's "use and disclosure of . . . information to or
for the benefit of [his new employer] has caused, and will continue
to cause," the plaintiff harm, id. 1087.
-7-
"legitimate interests" include "trade secrets that have been
communicated to the employee during the course of employment" and
"confidential information communicated by the employer to the
employee, but not involving trade secrets." Syncom Indus., Inc. v.
Wood, 920 A.2d 1178, 1185 (N.H. 2007).
Whether ANSYS's construction of the noncompete clause was
reasonable–-that is, whether it went no further than was necessary
to protect its legitimate interests, imposed no undue hardship on
Dr. Caraeni, and was not inconsistent with the public interest--all
involve policy choices that have not been explicitly decided in
this context by the New Hampshire courts or legislature. Absent
such guidance, we cannot say ANSYS has clearly demonstrated its
likelihood of success on the breach of contract claim, nor can we
conclude that the district court abused its discretion by finding
that ANSYS had failed to make this showing.
We also cannot say that the district court abused its
discretion when it found ANSYS had not shown the likelihood of
irreparable injury. ANSYS's claim that its showing of breach was
sufficient to show irreparable harm again assumes that the covenant
not to compete is enforceable. In any event, we reject ANSYS's
suggestion at oral argument that because of the difficulty of
proving damages from breach of the covenant, as opposed to damages
from the actual use of confidential material, we should deem its
remedy at law inadequate. We further reject its related claim that
-8-
this alleged inadequacy would justify equitable relief for breach
of the covenant without any showing of injury. New Hampshire law
has not adopted that approach.
As to the district court's analysis of ANSYS's injury, we
will accept arguendo that Dr. Caraeni had access to confidential
proprietary information. The district court concluded that even
were that so, "Ansys has failed to demonstrate that [Dr. Caraeni]
is likely to use that [confidential] information during the course
of his employment at CDNA." This conclusion was based on factual
findings, which we cannot set aside unless they constituted clear
error. E.g., McClure, 386 F.3d at 41.
The district court explained that it found credible the
testimony of Dr. Wayne Smith, who is the general manager of CDNA.
In particular, the court accepted three aspects of Dr. Smith's
testimony: (1) "that CDNA maintains and enforces a strict policy
preventing its employees from using confidential and trade secret
information they may have acquired from prior employers;" (2) that
Dr. Caraeni had not been assigned and, in the near term (that is,
to the May 2010 date for expiration of the one-year period since
his departure from ANSYS), will not be assigned "to perform any
work at CDNA that might allow him to use any of ANSYS's
confidential or trade secret information;" and (3) that any trade
secret or confidential information Dr. Caraeni had acquired at
ANSYS would not be useful to work on CDNA's CFD software because of
-9-
the different architecture of the two companies' respective
software codes. ANSYS, Inc., 2009 WL 4403745, at *6.
ANSYS emphatically attacks the third of these findings in
particular and urges that it constitutes clear error.2 Even if
there were reason to be skeptical of the third finding--after all,
CDNA chose to hire Dr. Caraeni for reasons that may have included
what he learned in his prior employment--that would not make the
finding clear error. More pertinently, the district court reasoned
Dr. Caraeni would not perform any tasks that might require
confidential information he had obtained at ANSYS. The court's
first two factual findings support its conclusion, and we cannot
say that they were clearly erroneous.
There is no need to discuss the myriad other arguments
the parties have pressed.
II.
The district court's denial of the preliminary injunction
is affirmed. So ordered.
2
ANSYS also argues that the district court erred in
crediting Dr. Smith's testimony, urging that his statements were
self-serving and speculative. Given our traditional deference to
district court credibility determinations, e.g., Jennings v. Jones,
587 F.3d 430, 444 (1st Cir. 2009), we cannot say the court's
decision was an abuse of discretion.
-10-