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Grow Company, Inc. v. Chokshi

BER-C-280-05 (N.J. Super. Ch. Div. 2005) (Unpublished)

EMPLOYER-EMPLOYEE; CONFIDENTIALITY; NON-COMPETITION — Where a former employee and her or his new employer present enough evidence to raise doubt about the underlying supporting facts in a claim by an ex-employer that a former employee is misusing confidential or proprietary information or is violating a contractual non-competition restriction, the ex-employer will not get preliminary, injunctive relief.

For many years, a chemist worked for a manufacturer of nutritional supplements. During the course of his employment, he was promoted to the position of director of research, development, and quality control. While serving in this position, he was exposed to the company’s trade secrets and proprietary processes. In order to safeguard this information, the company had the chemist execute an agreement in which he agreed to keep the information private. He later left the company to form a competing company that also manufactured nutritional supplements. The company then sued the chemist and his new company, asserting unfair competition and improper use of its trade secrets. The parties eventually entered into a settlement agreement whereby the old company agreed to not file any future claims against the chemist arising out of any events that took place before the execution of the agreement. A couple of months later, the chemist began providing consulting services to one of the company’s competitors. Five years later, the old company filed an action against the chemist and its competitor, asserting misappropriation of trade secrets, unfair competition, conversion, and civil conspiracy. In addition, the old company filed an order to show cause seeking various forms of interim relief, such as requiring the competitor to stop using its trade secrets and restraining the chemist from directly or indirectly competing with it. In opposition to the application, the chemist and competitor asserted that neither had used any of the old company’s trade secrets. They also asserted that the old company’s alleged trade secrets were not proprietary but, instead, constituted general information regarding a manufacturing technique used by the entire industry. In addition, the chemist contended that the company’s action should be barred because it violated the settlement agreement’s covenant not to sue provision.

The lower court denied the old company’s application for interim relief. In reaching its decision, it discussed the standard by which injunctive relief may be granted. Injunctive relief is an extraordinary remedy that should be entered only upon a showing of entitlement to the relief by clear and convincing evidence. In an application for interim relief, the moving party has the burden of establishing the following factors: 1) immediate and irreparable harm is likely if the relief is not granted; 2) the applicable underlying law is well settled; 3) the material facts are not substantially disputed and there exists a reasonable probability of ultimate success on the merits; and 4) the balance of the hardship to the parties favors the issuance of the requested relief. According to the Court, the old company was able to establish all of the above factors with the exception of factor three. In evaluating this factor, the Court ruled that the old company failed to show a reasonable probability of ultimate success on the merits because the chemist and competitor had presented enough evidence to indicate that there was a genuine issue of material fact, such as that the old company’s trade secret was actually public information. It also held that the old company failed to sufficiently define its alleged trade secrets or to show how the chemist and competitor allegedly used this information.

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