W.R. Huff Asset Management Co. v. Harmonay ( 2007 )

Opinions of the United
2007 Decisions States Court of Appeals
for the Third Circuit
4-19-2007
WR Huff Asset Mgt v. Harmonay
Precedential or Non-Precedential: Non-Precedential
Docket No. 06-5028
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NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
Nos. 06-5028 and 07-1566
W.R. HUFF ASSET MANAGEMENT CO., L.L.C.;
WRH PARTNERS GLOBAL SECURITIES, L.P.;
W.R. HUFF CM, L.L.C.; WRH PARTNERS, II
L.L.C.; ON THE GREEN, L.L.C.,
Appellants
v.
KENNETH J. HARMONAY; WILLIAM J. CONNORS;
MICHAEL EILERT; JANE AND JOHN DOES 1-10
v.
1776 CLO I, LTD.; 1776 INVESTMENT PARTNERSHIP,
LLC; HUFF LONG-SHORT, LLC; MUSASHI, LLC;
OCTAHEDRON, LLC; WRH PARTNERS, LLC
3rd Party Defendants in DC
Appeals from the United States District Court
for the District of New Jersey
(D.C. Civil No. 06-cv-05101)
District Court Judge: Honorable Jose L. Linares
Argued March 30, 2007
Before: RENDELL, BARRY and CHAGARES, Circuit Judges
(Filed: April 19, 2007)
John J. Gibbons [ARGUED]
One Gateway Center
Newark, NJ 07102-5310
Lawrence M. Rolnick
Thomas E. Redburn, Jr. Sheila A. Sadighi
Lowenstein Sandler
65 Livingston Avenue
Roseland, NJ 07068
Counsel for Appellants
John M. Agnello [ARGUED]
Melissa Flax
Carella, Byrne, Bain, Gilfillan,
Cecchi, Stewart & Olstein
5 Becker Farm Road
Roseland, NJ 07068
Counsel for Appellees
Kenneth J. Harmonay, William J. Connors
and Michael Eilert
OPINION OF THE COURT
RENDELL, Circuit Judge.
Before us is an appeal from an order of the United States District Court for the
District of New Jersey granting in part and denying in part Plaintiffs-Appellants’ motion
for a preliminary injunction. On appeal, Appellants ask us to reverse that portion of the
order which denied or limited relief. We will affirm the order of the District Court.1
1
The District Court had jurisdiction over the motion pursuant to 28 U.S.C. § 1331, as
Appellants moved for an injunction by invoking the Computer Fraud and Abuse Act, 18
2
Appellants (collectively “Huff”) consist of one partnership and several
corporations which collectively engage in managing investment portfolios. Defendants-
Appellees include three former Huff employees. Huff specializes in “high yield corporate
bonds, private equity, structured finance, securities in emerging markets and other similar
securities.” W.R. Huff Asset Mgm’t Co., L.L.C. v. Harmonay, No. 06-5101, slip. op. at 2
(D.N.J. Nov. 27, 2006). Appellees Harmonay and Connors were portfolio managers at
Huff. Harmony worked at Huff for 18 years and Connors worked at Huff for 14 years.
Appellee Eilert worked at Huff for roughly three years. Each signed a confidentiality
agreement after he began working at Huff. The agreement stated that the employee
agreed not to “disclose W.R. Huff’s intellectual property to anyone outside the firm,”
W.R. Huff Asset Mgm’t Co., L.L.C. v. Harmonay, No. 06-5101, slip. op. at 3 (D.N.J. Nov.
27, 2006) (quoting policy).2 There was no agreement not to compete with Huff after
employees left the company.
U.S.C. §§ 1030 et seq. The District Court had jurisdiction over the state-law claims
pursuant to 28 U.S.C. § 1367. We exercise jurisdiction pursuant to 28 U.S.C. §
1292(a)(1).
2
The agreement states that the employee “understood intellectual property to include all
written and oral information, analyses and conclusions that may come into my possession.
I understand intellectual property to also include otherwise public information because
the nature of the information W.R. Huff chooses to analyze is a key proprietary
component to the firm’s entire research process.” W.R. Huff Asset Mgm’t Co., L.L.C. v.
Harmonay, No. 06-5101, slip. op. at 3 (D.N.J. Nov. 27, 2006) (quoting policy). The
agreement also stated that the employee’s “obligation to keep confidential the firm’s
intellectual property and client information will continue after I leave W.R. Huff’s
employ.” Id.
3
Appellees eventually decided to leave Huff and set up their own investment
company. Appellees resigned on October 23, 2006, but in the two weeks prior to doing
so, Appellees downloaded thousands of business documents and information stored on
Huff’s computers. When Huff realized what Appellees had done, and what they were
planning to do, it brought suit in federal court, pressing claims of breach of contract,
breach of the duty of loyalty, computer fraud, and misappropriation of trade secrets. On
October 25, 2006, the District Court temporarily enjoined Appellees from contacting or
soliciting any of Huff’s clients, employees, consultants, or investment banks. The District
Court entered a temporary restraining order enjoining Appellees from disclosing or using
any trade secrets or confidential information belonging to Huff. The District Court also
ordered Appellees to return the files Appellees had taken from Huff, and to preserve all
documents and other evidence.
Huff then pursued a preliminary injunction, seeking (in addition to the relief
previously requested) to enjoin the Appellees from “(i) soliciting Huff customers,
employees and entities with which Huff does business, (ii) using or disclosing Huff’s
confidential information, which was allegedly obtained unlawfully, and (iii) working in a
competing business venture pending a trial on the merits and entry of a final judgment.”
W.R. Huff Asset Mgm’t Co., L.L.C. v. Harmonay, No. 06-5101, slip. op. at 5 (D.N.J. Nov.
27, 2006). Huff also sought to have all Huff property and information returned, id., again
based on theories of breach of contract, breach of the duty of loyalty, misappropriation of
a trade secret, and violation of the Computer Fraud and Abuse Act. “In order to obtain a
4
preliminary injunction, the moving party must show 1) irreparable injury, 2) a reasonable
probability of success on the merits, 3) the harm to it outweighs the possible harm to other
interested parties, and 4) harm to the public.” Frank Russell Co. v. Wellington Mgmt.
Co., 154 F.3d 97, 101 (3d Cir. 1998).
After extensive hearings on the motion, consideration of the materials taken, and
careful analysis of Huff’s claims, the District Court concluded that Huff had shown a
reasonable probability of success on only one ground, breach of contract. The Court
noted that it was “undisputed” that Appellees had entered into the confidentiality
agreements and that they had subsequently downloaded materials from Huff’s computers
prior to departing. The District Court concluded that “irreparable harm exists to the
extent that Defendants have retained any Huff Proprietary Information.”3 W.R. Huff Asset
Mgm’t Co., L.L.C. v. Harmonay, No. 06-5101, slip. op. at 14 (D.N.J. Nov. 27, 2006). It
also concluded that “much, if not all, of the immediate irreparable harm caused by
Defendants’ breach of their confidentiality agreements has been cured pursuant to the
Court’s [previous] Orders, requiring Appellees to immediately return all Huff Proprietary
Information to Plaintiffs.” Id. The Court found that there were no trade secrets taken or
3
The Court defined “Huff Proprietary Information” as “all written analyses and written
conclusions that may have come into the Defendants’ possession during their employment
at Huff, including research reports, portfolio statements, Huff’s client database, T-File,
credit research files, analysis files, benchmark return files, monthly reports, note
valuation reports, bond price files, investment models, CLO documents, credit
agreements, and Huff’s contact list.” W.R. Huff Asset Mgm’t Co., L.L.C. v. Harmonay,
No. 06-5101, slip. op. at 14 n.6 (D.N.J. Nov. 27, 2006).
5
that could be used by Appellees.
The Court specifically ordered that Appellees must return all Huff Proprietary
Information and any copies that had been made, and surrender their computers for
verification. The Court also enjoined Appellees from entering Huff’s business premises,
contacting or soliciting any and all current Huff employees, as well as three specific Huff
clients. The Court refused to enjoin Appellees from soliciting Huff customers and other
entities that do business with Huff, and it refused to enjoin Appellees from working in a
competing business venture.
We review preliminary injunctions for abuse of discretion. See Johnson &
Johnson-Merck Consumer Pharm., Inc. v. Rhone-Poulenc Rorer Pharm., Inc., 19 F.3d
125, 127 (3d Cir. 1994) (“We review the district court’s conclusions of law in a plenary
fashion, its findings of fact under a clearly erroneous standard, and its decision to grant or
deny an injunction for abuse of discretion.”). Huff urges that the Court’s relief was too
limited and that Appellees should essentially be prevented from using anything they
learned while at Huff. We conclude that the District Court did not abuse its discretion in
failing to provide relief beyond that which was granted based on the record before it. The
District Court ordered the return of all data that was taken. The record before us reflects
no other specific confidential information that Appellees have taken or are using. We
have considered Huff’s other arguments on appeal, including its assertion that trade
6
secrets exist, and found them unavailing.4
CONCLUSION
For the reasons set forth above, we will affirm the order of the District Court.
4
We consolidated with Huff’s appeal a separate appeal filed which sought to reverse an
order issued by the District Court clarifying its November 2006 decision. We find that
this clarification was not an abuse of the District Court’s discretion, that it was merely an
amendment to the previous order, and that accordingly we will dismiss the appeal,
docketed as No. 07-1566. All other motions relating to that appeal, No. 07-1566, are
denied. The outstanding motion to seal in the original appeal, docketed as No. 06-5028,
is granted. All other motions in 06-5028 are denied.
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