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Court Establishes the Limitations of the ’Inevitable Disclosure’ of Trade Secrets Doctrine in Employment Cases in New York

Thursday, September 05, 2013

Court Establishes the Limitations of the "Inevitable Disclosure" of Trade Secrets Doctrine in Employment Cases in New York

The U.S. District Court for the Southern District of New York has ruled that an employer cannot validly assert a claim seeking to enjoin its employee from moving to a competitor solely based upon the hypothesis that there would be "inevitable disclosure" of the former's trade secrets, without any proof of wrongdoing by the employee or a breach of a or a valid non- compete agreement. Janus et Cie v. Andrew Kahnke, Civil Action No. R-CIV-7201-WHP (S.D.N.Y., U.S.D.J. William H. Pauley, III, 8/29/13).

In so ruling, Judge J. William H. Pauley III limited the parameters of the so-called "inevitable disclosure" of trade secrets doctrine under New York law. This doctrine often crops up in employment cases in which an employer seeks to block an employee’s move to a competitor. The doctrine is commonly used by plaintiffs seeking injunctions preventing the employee from moving on grounds that there will be irreparable injury because the move will result in the "inevitable disclosure" of the plaintiff’s trade secrets.

In Janus et Cie v. Andrew Kahnke, a California corporation sued to prevent the defendant from working with what they claimed was a direct competitor in New York, Dedon, Inc. As the "inevitable disclosure" doctrine has been rejected in California, the plaintiff sought application of New York law.

In its complaint, Janus pushed the envelope by pleading "inevitable disclosure" as a stand-alone cause of action – without proof of any wrongdoing--rather than just as an element of proof for an injunction (once proof of wrongdoing had been established). As Judge Pauley noted:

Janus now brings this action for inevitable disclosure of trade secrets, seeking a permanent injunction barring [the employee] from disclosing any of Janus’ trade secrets or confidential information and from working for [the alleged competitor] in any area where Janus and [the alleged competitor] are direct competitors. Janus does not allege that [the employee] breached the non-disclosure agreement. Nor does Janus assert any facts indicating that [the employee] actually misappropriated or disclosed any of Janus’ trade secrets. Rather, Janus seeks an injunction based on the theory that [the employee’s] position with [the alleged competitor] is so similar…that he cannot possibly perform the functions of his position…without using and/or disclosing confidential information and trade secrets belonging to Janus. Decision at 2.

In sum, the Janus complaint sought relief without any allegation or proof that there was any (1) actual misappropriation of trade secrets, or (2) breach of a non-compete agreement.

Defense counsel highlighted the fact that Janus’ argument has never before been attempted under New York law and that it violates the public policy of this State. In essence, Janus sought to file a claim without any allegation whatsoever that the employee ever committed any wrong.

Janus further argued that even though it failed to allege any wrongdoing, even despite the fact that it did not negotiate for a non-compete contract, it "should be permitted to obtain [its alleged competitor’s] confidential information in order to determine whether it can make a case to protect its own." Decision at 7.

The Court decisively rejected Janus’ position, dismissed the complaint in its entirety and held that application of the "inevitable disclosure" doctrine under New York law is limited to "instances where there is evidence of actual misappropriation of trade secrets, or where plaintiff asserts a claim for breach of a non-compete agreement." Decision at 4. "Discovery here," Judge Pauley found, "would be a fishing expedition through a competitor’s files…. This Court refuses to countenance the imposition of an unlimited, unbargained-for restrictive covenant on Mr. Kahnke based on threadbare allegations." Decision at 7.

The defendant was represented by R. Mark Keenan, Dennis J. Artese and Kathleen Donovan of Anderson Kill P.C.

Mr. Keenan and Mr. Artese noted: "Permitting an action such as Janus’s would enable employers to harass former employees by litigating pointless claims without alleging any wrongdoing or breach of agreement. The Court rightly rejected such fishing expeditions in the hopes of conjuring up a claim that does not exist."

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