Corporate Technologies, Inc. v. Harnett , 731 F.3d 6 ( 2013 )

United States Court of Appeals
For the First Circuit
No. 13-1706
CORPORATE TECHNOLOGIES, INC.,
Plaintiff, Appellee,
v.
BRIAN HARNETT; ONX USA LLC, d/b/a ONX ENTERPRISE SOLUTIONS,
Defendants, Appellants.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Douglas P. Woodlock, U.S. District Judge]
Before
Howard, Selya and Lipez,
Circuit Judges.
Michele A. Whitham, with whom Christopher Hart, Elizabeth M.
Holland, and Foley Hoag LLP were on brief, for appellants.
Kevin J. O'Connor, with whom Kelley A. Jordan-Price, Mark A.
Bross, and Hinckley, Allen & Snyder, LLP were on brief, for
appellee.
August 23, 2013
SELYA, Circuit Judge. Businesses commonly try to protect
their good will by asking key employees to sign agreements that
prohibit them from soliciting existing customers for a reasonable
period of time after joining a rival firm. When a valid non-
solicitation covenant is in place and an employee departs for
greener pastures, the employer ordinarily has the right to enforce
the covenant according to its tenor. That right cannot be thwarted
by easy evasions, such as piquing customers' curiosity and inciting
them to make the initial contact with the employee's new firm. As
we shall explain, this is such a case.
I. BACKGROUND
This is an interlocutory appeal growing out of a business
dispute. Below, the district court granted a preliminary
injunction that restrained defendant-appellant Brian Harnett, a
former employee of plaintiff-appellee Corporate Technologies, Inc.
(CTI), from doing business with certain customers to whom he had
sold products and services while in CTI's employ. The preliminary
injunction extended to other matters as well; for example, it
included an order that defendant-appellant OnX USA LLC (OnX), a
competitor of CTI and Harnett's current employer, withdraw certain
bids on which Harnett had toiled.
The defendants appeal from the issuance of the
preliminary injunction. After careful consideration, we affirm.
The pertinent facts are catalogued in the district
court's rescript, see CTI v. Harnett (CTI I), No. 12-12385, 2013 WL
1891308, at *1-2 (D. Mass. May 3, 2013), and we assume the reader's
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familiarity with that account. For present purposes, a sketch of
the origin and travel of the case will suffice.
For nearly a decade, Harnett worked as an account
executive/salesman at CTI, a provider of customized information
technology solutions to sophisticated customers. Because CTI
regards many of the details of its business operations as
proprietary, it insisted that Harnett sign an agreement (the
Agreement) that contained non-solicitation and non-disclosure
provisions when he came on board. Harnett obliged.
In October of 2012, Harnett jumped ship to work for OnX.
The record makes manifest that, following his departure from CTI,
Harnett participated in sales-related communications and activities
with certain of his former CTI customers on behalf of OnX.
CTI was not pleased. It lost little time in repairing to
a Massachusetts state court, where it alleged that Harnett's
actions transgressed the Agreement and that OnX's encouragement of
those actions constituted tortious interference with CTI's
contractual rights and advantageous relationships. CTI's suit
sought both money damages and injunctive relief.
The defendants removed the case to the United States
District Court for the District of Massachusetts based on diversity
of citizenship and the existence of a controversy in the requisite
amount. See 28 U.S.C. §§ 1332(a), 1441(a). When they answered the
complaint, the defendants denied that they had committed either a
breach of contract or a tort. Harnett also interposed a
counterclaim (immaterial to the issues on appeal).
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CTI sought a preliminary injunction based on affidavits,
deposition testimony, and documentary proffers. The defendants
opposed the motion, submitting evidence of their own. In due
course, the district court granted a preliminary injunction. See
CTI v. Harnett (CTI II), No. 12-12385, 2013 WL 3334979, at *1-2 (D.
Mass. May 3, 2013). Its decree restrained Harnett from engaging
"in any marketing or sales efforts . . . for a period of twelve
months" with respect to several CTI customers whom he formerly had
serviced. Id. at *1. With regard to those customers, it also
compelled the defendants to withdraw any bids that Harnett had
helped to develop. See id.
This timely appeal followed. Notwithstanding its
interlocutory character, we have jurisdiction under 28 U.S.C.
§ 1292(a)(1). Because the issues are time-sensitive, we expedited
briefing and oral argument.
II. ANALYSIS
In determining whether to grant a preliminary injunction,
the district court must consider: (i) the movant's likelihood of
success on the merits of its claims; (ii) whether and to what
extent the movant will suffer irreparable harm if the injunction is
withheld; (iii) the balance of hardships as between the parties;
and (iv) the effect, if any, that an injunction (or the withholding
of one) may have on the public interest. See Ross-Simons of
Warwick, Inc. v. Baccarat, Inc., 102 F.3d 12, 15 (1st Cir. 1996).
In this diversity case, the law of Massachusetts supplies
the substantive rules of decision. See Erie R.R. Co. v. Tompkins,
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304 U.S. 64, 78 (1938); Crellin Techs., Inc. v. Equipmentlease
Corp., 18 F.3d 1, 4 (1st Cir. 1994). The district court found that
factors two through four of the preliminary injunction paradigm
counseled in favor of, or at least were consistent with, the grant
of injunctive relief. See CTI I, 2013 WL 18913078, at *7-10. The
defendants, by their silence, have acquiesced in these findings.1
See, e.g., Ross-Simons, 102 F.3d at 16 (addressing only those
prongs of the preliminary injunction paradigm challenged by the
appellant).
But the four factors are not entitled to equal weight in
the decisional calculus; rather, "[l]ikelihood of success is the
main bearing wall of the four-factor framework." Id. The
defendants have staked their appeal entirely on the perceived
fragility of this main bearing wall, decrying the district court's
determination that CTI was likely to succeed on the merits of its
claims.
Our standard of review is familiar. When assaying a
trial court's ruling on a motion for a preliminary injunction, "we
scrutinize abstract legal matters de novo, findings of fact for
clear error, and judgment calls with considerable deference to the
1
There is a potential question about the fourth element of
the preliminary injunction paradigm. Under Massachusetts law, a
court need not consider the effect of an injunction on the public
interest. See Hull Mun. Lighting Plant v. Mass. Mun. Wholesale
Elec. Co., 506 N.E.2d 140, 144 (Mass. 1987). It might be argued in
a diversity case that state law supplants federal law in this
regard. Here, however, neither side raises any issue about the
fourth element. Consequently, we need not probe this point more
deeply. See Ocean Spray Cran., Inc. v. PepsiCo, Inc., 160 F.3d 58,
61 (1st Cir. 1998).
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trier." New Comm Wireless Servs., Inc. v. SprintCom, Inc., 287
F.3d 1, 9 (1st Cir. 2002). We will disturb the ruling below only
if the court abused its discretion. See id.Abuse-of-discretion review is respectful but appellate
deference is not unbridled. For one thing, a material error of law
invariably constitutes an abuse of discretion. See Rosario-Urdaz
v. Rivera-Hernandez, 350 F.3d 219, 221 (1st Cir. 2003). For
another thing, an abuse of discretion "occurs when a material
factor deserving significant weight is ignored, when an improper
factor is relied upon, or when . . . the court makes a serious
mistake in weighing [the relevant factors]." Indep. Oil and Chem.
Workers of Quincy, Inc. v. Procter & Gamble Mfg. Co., 864 F.2d 927,
929 (1st Cir. 1988).
A. Breach of the Non-Solicitation Agreement.
The non-solicitation provision contained in the Agreement
prohibits Harnett from "solicit[ing], divert[ing] or entic[ing]
away existing [CTI] customers or business" for a period of twelve
months following the cessation of his employment. The dispute
between the parties turns on the distinction between actively
soliciting and merely accepting business — a distinction that the
Massachusetts Appeals Court aptly termed "metaphysical." Alexander
& Alexander, Inc. v. Danahy, 488 N.E.2d 22, 30 (Mass. App. Ct.
1986).
The defendants argue that because the customers in
question initiated contact with Harnett, he was thereafter free to
deal with them without being guilty of solicitation. CTI demurs.
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It points out that the customers only contacted Harnett following
their receipt of a blast email announcing his hiring by OnX. This
email was sent to a targeted list of prospects, approximately forty
percent of whom were (or at least, had been) CTI customers. The
record shows numerous interactions between Harnett and the
customers after initial contact — and CTI touts these interactions
as compelling evidence that Harnett engaged in solicitation.
The line between solicitation and acceptance of business
is a hazy one, and the inquiry into where this line should be drawn
in a particular case is best executed by the district court. See
Reliance Steel Prods. Co. v. Nat'l Fire Ins. Co., 880 F.2d 575, 576
(1st Cir. 1989) (observing that fact-intensive inquiries are "the
staples of a trial court's diet, and comprise an unappetizing
. . . bill of fare for appellate digestion"). This is especially
true at the preliminary injunction stage — a stage at which the
district court is required only to make an estimation of likelihood
of success and "need not predict the eventual outcome on the merits
with absolute assurance." Ross-Simons, 102 F.3d at 16. Consistent
with this structure, our task is merely to determine whether the
district court's conclusion falls within a range of reasonably
probable outcomes. See id.
The defendants seek to change the trajectory of the
debate by insisting that, once a customer initiates contact with an
employee who has switched his affiliation, all bets are off and
subsequent business activity cannot as a matter of law constitute
solicitation. This argument is simply a linguistic trick: creative
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relabeling, without more, is insufficient to transform what is
manifestly a question of fact into a question of law. See Fed.
Refin. Co. v. Klock, 352 F.3d 16, 27 (1st Cir. 2003).
To be sure, Massachusetts trial courts have accorded
varying degrees of significance to initial contact depending on the
facts at hand, compare Oceanair, Inc. v. Katzman, No. 00-3343, 2002
WL 532475, at *6 (Mass. Super. Ct. Jan. 22, 2002) (treating initial
contact as crucial), with McFarland v. Schneider, No. 96-7097, 1998
WL 136133, at *37-38, *44 (Mass. Super. Ct. Feb. 17, 1998)
(treating initial contact as non-dispositive), and the parties each
point to language that seems to speak in their favor. But these
trial court decisions have no precedential force, see Dayton v.
Peck, Stow and Wilcox Co. (Pexto), 739 F.2d 690, 694 n.5 (1st Cir.
1984), and in any event, no consensus emerges from them. Where, as
here, the highest court of a state has not spoken to a question of
state law, our precedents teach that we should look, among other
things, to "persuasive adjudications by courts of sister states"
and "public policy considerations." Blinzler v. Marriott Int'l,
Inc., 81 F.3d 1148, 1151 (1st Cir. 1996).
After careful consideration, we conclude that the
Massachusetts Supreme Judicial Court, if confronted with the
question, would hold that a per se rule vis-à-vis initial contact
has no place in this equation. In reaching this conclusion, policy
considerations loom large.
In the employment context, restrictive covenants are
meant to afford the original employer bargained-for protection of
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its accrued good will. See generally Marine Contractors Co. v.
Hurley, 310 N.E.2d 915, 920 (Mass. 1974). According decretory
significance to who makes the first contact would undermine this
protection because that factor, standing alone, will rarely tell
the whole tale. And because initial contact can easily be
manipulated — say, by a targeted announcement that piques
customers' curiosity2 — a per se rule would deprive the employer of
its bargained-for protection.
There is a related consideration. The defendants argue
as if "initial contact" is a term of art, capable of conveying a
fixed meaning. But that is not the case. Initial contact can
entail anything from a call to ascertain the circumstances of a
defendant's new employment, see, e.g., Getman v. USI Holdings
Corp., No. 05-3286, 2005 WL 2183159, at *4 (Mass. Super. Ct. Sept.
1, 2005), to the placement of an order, see, e.g., Liberty Mut.
Ins. Co. v. Batchelor, No. 09-4170, 2009 WL 5910242, at *1 (Mass.
Super. Ct. Nov. 23, 2009). At many points along this continuum,
the initial contact will be preliminary and, thus, unlikely to bear
fruit in the absence of subsequent solicitation. The amorphous
nature of the term counsels persuasively against a per se rule.
This lack of precise meaning is reinforced by yet another
factor: the weight that initial contact should be given depends to
some extent on the setting in which a particular case arises. In
an industry in which a defendant subject to a non-solicitation
2
The announcement that OnX made in this instance, discussed
infra, illustrates this point.
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agreement is peddling fungible, off-the-shelf goods, initial
contact might weigh heavily. In contrast, where the sales process
is complex and the products are customized, initial contact is
usually at a considerable remove from a closed sale. In such a
situation, initial contact is likely to weigh far less heavily.
This variable militates strongly against a bright-line rule.
In the last analysis, we believe that the better view
holds that the identity of the party making initial contact is just
one factor among many that the trial court should consider in
drawing the line between solicitation and acceptance in a given
case. This flexible formulation not only reflects sound policy but
also comports with well-reasoned case law from other jurisdictions.
See, e.g., Bessemer Trust Co. v. Branin, 949 N.E.2d 462, 469 (N.Y.
2011) (declining to create a "hard and fast rule"). Thus, we
decline the defendants' invitation to assign talismanic importance
to initial contact.
Discerning no error of law, we need not tarry over the
district court's weighing of the facts. This is a situation in
which the initial contacts by customers are necessarily
preliminary, the sales process is sophisticated, and the products
are custom-tailored. Viewed against this backdrop, the evidence of
record is adequate to underpin the lower court's binary
determination that Harnett violated the non-solicitation covenant
and that the plaintiff is therefore likely to succeed on the
merits.
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There is no need for us to wax longiloquent.
Solicitation can take many forms, and common usage suggests that
the word has a protean quality. See, e.g., The Compact Edition of
the Oxford English Dictionary 2911 (1971) ("To entreat or petition
(a person) for, or to do, something; to urge, importune; to ask
earnestly or persistently."). Here, moreover, the non-solicitation
provision specifically forbids Harnett from "entic[ing] away"
customers of CTI.
Harnett's own words and actions with respect to customers
covered by the non-solicitation provision lend considerable
credence to the district court's tentative conclusion that he
violated that provision. His calendar, email, and testimony show
significant business communications with at least four of his
former CTI customers on behalf of OnX. This persistent pattern of
pursuing patronage permits a plausible inference that he was urging
those customers to do business with OnX rather than CTI (in other
words, an inference that he was trying to entice them away).
What is more, Harnett organized several meetings with CTI
customers designed to facilitate future sales and admitted in his
deposition that he had transmitted product pricing information to
them. Additionally, he submitted no fewer than ten requests for
registered opportunities (ROs) to third-party information
technology vendors, in which he sought exclusive discounts for
future sales proposals to CTI customers. These submissions are
telling because ROs are a prerequisite to obtaining orders from
customers in this specialized field.
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We add one last point. Even though we have entertained
the parties' supposition that it was the customers who made the
initial contacts, the record shows that those customers reached out
to Harnett only in response to a blast email from OnX. While we do
not question the rights of parties to make public announcements of
changes in employment, "targeted mailings" to former customers may
cross the line into impermissible solicitation. Bessemer, 949
N.E.2d at 469. Given how many of Harnett's clients were on the
relatively short email list, it was plausible to infer here (as the
district court apparently did) that the email was part and parcel
of a pattern of solicitation.
Harnett's overall course of conduct is most vividly
exemplified by what happened with a particular customer.3 On
November 8, 2012 — shortly after Harnett switched sides and in
direct response to OnX's blast email — a high-ranking Company X
executive contacted OnX in order to set up a meeting with Harnett.
Harnett arranged the meeting and brought along OnX's chief
technology officer. Harnett's calendar over the next several weeks
reflects periodic contacts (and reminders to schedule calls) with
Company X, as well as an internal OnX call to discuss the customer.
Furthermore, Harnett admitted in his deposition that there were
other calls not shown in his calendar.
On December 3, Harnett submitted a request for an RO
anent Company X to a third-party vendor. Eleven days later, he
3
The particular customer is well-known to the parties but,
due to confidentiality concerns, we refer to it only as "Company
X."
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reviewed with Company X's management a sales proposal that had been
submitted by OnX to Company X. This process culminated in a
completed sale. One could more readily believe in the Tooth Fairy
than believe that this course of conduct was insufficient to ground
a finding of probable solicitation.
In an endeavor to denigrate the force of the district
court's reasoning, the defendants say that the court confused the
non-solicitation provision — which did not bar Harnett from all
competition but, rather, barred him from soliciting CTI's customers
— with a non-competition provision. We have scoured the record and
find no indication that the district court labored under any such
misapprehension. To the contrary, the record shows that the court
understood the parameters of the non-solicitation provision and
appropriately applied those parameters.
Given the court's supportable findings of fact, its
conclusion that Harnett likely engaged in solicitation was
reasonable. In turn, that reasonable conclusion suffices to
warrant its grant of injunctive relief.
B. Other Issues.
There are a few loose ends. We proceed to tie up each of
them.
In their opening brief, the defendants challenged the
district court's finding that OnX tortiously interfered with CTI's
rights under the Agreement. This challenge was premised on the
solitary ground that Harnett's activities did not support a finding
that he had likely engaged in impermissible solicitation.
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Accordingly, the challenge is undercut by our conclusion that the
district court neither erred nor abused its discretion in finding
a likelihood that Harnett engaged in impermissible solicitation.
In their reply brief, the defendants sought to shift
gears and make a different argument. There, they asserted that the
evidence did not permit the district court to find the improper
motive or means required to sustain a cause of action for tortious
interference. See Blackstone v. Cashman, 860 N.E.2d 7, 12-13
(Mass. 2007) (explaining that the plaintiff must prove that the
defendant's interference, "in addition to being intentional, was
improper in motive or means"). It is settled law that, in the
absence of exceptional circumstances, an appellant cannot raise new
arguments for the first time in a reply brief. See Cahoon v.
Shelton, 647 F.3d 18, 29 n.8 (1st Cir. 2011); Sandstrom v. ChemLawn
Corp., 904 F.2d 83, 86 (1st Cir. 1990). The instant case presents
no exceptional circumstances sufficient to relieve the defendants
from the operation of this preclusory rule.
This brings us to the defendants' final broadside: their
contention that the district court misapplied the "inevitable
disclosure" doctrine. This doctrine, sparingly used in
Massachusetts, allows an employer to prove trade secret
misappropriation by demonstrating that its former employee's new
employment will inevitably lead him to rely on his knowledge of the
plaintiff's trade secrets. See PepsiCo, Inc. v. Redmond, 54 F.3d
1262, 1269 (7th Cir. 1995). In the defendants' view, the district
court should not have incorporated the doctrine into its likelihood
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of success analysis on the claimed violation of the non-disclosure
agreement. This is so, the defendants say, because the doctrine
bears only on the presence of irreparable harm. See U.S. Elec.
Servs., Inc. v. Schmidt, No. 12-10845, 2012 WL 2317358, at *9 (D.
Mass. June 19, 2012) (discussing cases).
We need not plunge into this thicket. Here, there was
sufficient record evidence for the district court to infer that it
was likely that Harnett actually used CTI's confidential
information in order to secure business for OnX. See CTI I, 2013
WL 1891308, at *6. No more was exigible to support the preliminary
injunction that the court issued with respect to the non-disclosure
agreement.4 We explain briefly.
When Harnett left CTI's employ, he took with him about
twenty-five pages of notes that contained confidential information,
much of it related to potential sales. The court narrowly tailored
the preliminary injunction with respect to non-disclosure,
enjoining only the use of information contained in Harnett's notes.
The court's comments about inevitable disclosure, whether or not
correct, were therefore harmless.
III. CONCLUSION
We need go no further. For the reasons elucidated above,
we uphold the district court's entry of the preliminary injunction.
Affirmed.
4
We note that the defendants' briefs do not contend that the
lower court's use of the "inevitable disclosure" doctrine
contaminated its findings on the claimed breach of the non-
solicitation agreement.
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