IP Law Daily Preliminary injunction granted salon to protect confidential trade secret information
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Thursday, November 16, 2017

Preliminary injunction granted salon to protect confidential trade secret information

By Joseph Arshawsky, J.D.

Osborne Associates, Inc., d/b/a Generations Salon Services ("Generations Salon") was entitled to a preliminary injunction against Silver Salons & Spas, LLC ("Silver Salons"), and its owners who were former employees of Generations Salon that formed Silver Salons while still employed, in violation of the restrictive covenant in their employment agreements and trade secret misappropriation law in Florida and Pennsylvania, the federal district court in Jacksonville, Florida, ruled. Generations Salon was also ordered to post a $200,000 bond, and the injunction carved out an exception allowing Silver Salon’s owners to generate some income in order to survive financially (Osborne Associates, Inc. v. Cangemi, November 14, 2017, Howard, M.).

For over 25 years, Generations Salon provided salon and spa services to residents in a variety of types of senior living facilities. Two of their employees, who were former salon workers, presented no evidence that either had experience in marketing or negotiating contracts for the operation of on-site salons, or that they managed such salons. As a condition of employment, both employees signed non-compete agreements with Generations Salon, containing a one year restrictive covenant. Prior to leaving Generations Salon, and unbeknownst to their employer, the employees formed Silver Salons in November 2016, before they left their employment with Generations Salon. Silver Salons has since signed contracts with and was serving two former customers of Generations Salon, one in Florida, and one in Pennsylvania. Generations Salon filed suit against Silver Salons and the two employees for breach of the non-compete agreements, breach of fiduciary duty, and violating the Federal Defend Trade Secrets Act and Florida’s Uniform Trade Secrets Act.

Likelihood of success. While the employees denied having access to Generations Salon’s database, Generations Salon presented undisputed evidence that both employees received reports generated by that database, including sales amounts for each community served and commissions claimed by stylists at each community. The employees asserted that the information they had concerning customers was from general knowledge in the industry and from previous employers.

Non-compete agreements. Under Florida law, a restrictive covenant in the employment setting is valid if the employer can prove: "(1) the existence of one or more legitimate business interests justifying the restrictive covenant; and (2) that the contractually specified restraint is reasonably necessary to protect the established interests of the employer." The phrase "legitimate business interests" includes trade secrets, substantial relationships with existing customers, and goodwill. "Pennsylvania law does not differ significantly from that of Florida in how it evaluates the validity and enforceability of a restrictive covenant." Both states include trade secrets, confidential information, goodwill, customer lists, and relationships with clients as legitimate interests which can be protected by covenants not to compete.

The court focused on the relationships with current and past customers, confidential client lists and other confidential information, and goodwill. "Here, it is undisputed that Generations Salon enters into exclusive contractual relationships with its customers…. It is also undisputed that Generations Salon has active ongoing relationships with its customers. Thus, Generations Salon has established a legitimate business interest in its substantial customer relationships with its customers." Although Silver Salons and its owners argued that Generation Salon’s alleged confidential information was generally available, only the identities of senior communities and their corporate owners is available, while the identity of specific decision makers and their contact information does not appear to be publicly available. "Moreover, the evidence does not suggest that the information Generations Salon claims to have compiled about customers, their preferences, its contracts with them, and their resident populations, would be readily available." Nor are Generations Salon’s marketing strategies readily available. Silver Salons was not engaged in "mere competition." Generations Salon had confidential business information protected by Florida statute and Pennsylvania law. Generations Salon therefore established a likelihood of success on the merits of its breach of contract claims against Silver Salons’ founders.

Irreparable harm. Generations Salon lost its clients to Silver Salons. The former employees "appear to have done precisely what their restrictive covenants prohibited." The former employees, who immediately before working at Generations Salon were employed as stylists, were not in the business of marketing senior salon services to communities in competition with Generations Salon. "After working at Generations Salon for almost a year, and armed with information regarding its successful business model," they formed a "competing company." Permitting them to operate their business in direct competition with Generations Salon, and in direct violation of the covenants not to compete that they signed, "presents a harm that is irreparable." In conclusion, "Generations Salon has shown that it will suffer irreparable harm if the non-compete agreements are not enforced by way of a preliminary injunction."

Balance of harms. Generation Salon is suffering from the on-going loss of its confidential business information which it has developed and collected over 25 years, as its former employees established a competing business "patterned closely after Generation Salon’s own business model." The former employees argued that if they are enjoined from continuing to run and promote their business, they will "lose everything." However, their injury was "self-inflicted," and therefore Generation Salon’s harm outweighs the former employees’ harms. Still, the court was concerned about their ability to support their families. The court therefore agreed with Generations Salon’s suggestion that the injunction would still permit the former employees to continue to operate salon services and serve any customers obtained to date, but be enjoined from any further competition for the term of their non-compete agreements. Given that modification, the court found the balance of harms favored Generations Salon.

Public interest and bond. The court found the public interest in the enforcement of restrictive covenants. The court ordered Generations Salon to post a $200,000 bond, and granted the preliminary injunction.

The case is No. 3:17-cv-01135-MMH-MCR.

Attorneys: Julian Antony Jackson-Fannin (Duane Morris LLP) for Osborne & Associates, Inc. d/b/a Generations Salon Services. Blake J. Fredrickson (The Solomon Law Group, P.A.) for Sheryl Cangemi.

Companies: Osborne Associates, Inc. d/b/a Generations Salon Services

MainStory: TopStory TradeSecrets FloridaNews

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