Preliminary Injunctions: Jurisdictional Issue Undermines Likelihood of Success on the Merits
August 18, 2020
In Setter Capital, Inc. (“Setter”) against Maria Chateauvert (“Chateauvert”), No. 651992/2020, 2020 NY Slip Op 20199 (N.Y. Sup. Ct., New York County July 15, 2020), Setter moved the court for a preliminary injunction “enjoining its former employee [Chateauvert] from directly or indirectly soliciting, inducing or recruiting or attempting to interfere with the relationship between [Setter] and any customer, client supplier, licensee or other business relation of [Setter’s] or otherwise disrupt, damage, impair or interfere in any manner with the business of [Setter] until February 3, 2022.” Id. at *1-2 (internal quotations omitted).
It is well settled that in order to obtain a preliminary injunction pursuant to CPLR 6301, a plaintiff has the burden to establish “(1) a likelihood of success on the merits of the action; (2) the danger of irreparable injury in the absence of preliminary injunctive relief; and (3) a balance of equities in favor of the moving party.” Id. at *2 citing Nobu Next Door, LLC v. Fine Arts Housing, Inc., 4 N.Y.3d 839 (N.Y. Ct. App. 2005).
At the outset, the court addressed the issue of whether the court had jurisdiction over Chateauvert, a Canadian resident. Id. at *2. In September 2013 and two years after graduation from college, Chateauvert signed a Confidentiality and Non-Compete Agreement (“Agreement”) related to Chateauvert’s employment with Setter. Id. The Agreement contains a choice of law and forum selection clause selecting New York law as governing law and New York courts as the exclusive venue and jurisdiction for disputes. Id. at *2.
In its analysis, the court addressed the question of the enforceability of the choice of law and forum selection clause of the Agreement (as an employment agreement) under Sections 5-1401 and 5-1402 of New York’s General Obligation Law (“GOL”). Id. at *2-3. “GOL § 5-1401 provides for the enforcement of choice of law provisions in contracts over $250,000 and GOL § 5-1402 provides for the enforcement of forum selection provisions in contracts over $1,000,000. Id. The court explained that that GOL § 5-1401 is inapplicable to contracts for “labor or personal services,” and although GOL § 5-1402 allows for actions based on contracts against non-residents to be maintained in New York “where: (1) the contract contains a choice of law clause pursuant to GOL § 5-1401,” that neither section was applicable in the case. Id. at 3 (citation omitted). Reading into the legislative intent behind these GOL provisions, the court also questioned whether Chateauvert, just two years out of college, was the “sophisticated business person the legislature envisioned in 1985 when GOL § 5-1401 and § 5-1402 were enacted.” Id. at *3.
The court determined that “if the court cannot exercise jurisdiction pursuant to the Agreement, then plaintiff must establish jurisdiction.” Setter, supra, at *3. The court found that the jurisdictional issue was “an issue of fact that undermines plaintiff’s likelihood of success.” Id.
Recognizing that issues of fact on a motion for preliminary injunction are often not fatal, the court explained:
Where the existence of issues of fact alone will not justify denial of a motion for a preliminary injunction, the motion should not be granted where there are issues that subvert the plaintiff’s likelihood of success on the merits…to such a degree that it cannot be said that the plaintiff establish a clear right to relief.”
Id. (internal quotations and citation omitted).
The court also found Setter insufficiently established a protectable trade secret, which hindered Setter’s ability to establish likelihood of success on the merits. Id.
As for irreparable injury, apparently Setter did not address irreparable harm or damages. Nevertheless the court determined that Setter’s harm of “diversion of future deals” was “hardly irreparable” given the availability of monetary damages. Setter, supra, at *3-4.
As for the last prong of balance of equities, the court determined that Setter sought an “impermissibly broad” injunction as it would seemly cause Chateauvert to “lose her livelihood.” Id.[1] The court explained that “the purpose of a non-compete is to prevent unfair competition; not competition altogether. Id. at *4.
Ultimately, the court denied Setter’s motion for preliminary injunction.
Take away: Jurisdictional issues are issues of fact that undermine plaintiff’s likelihood of success on the merits.
[1] The Court noted that Justice Marcy Friedman rejected as overly broad Settler’s proposed temporary restraining order.