Ancora Capital & Management Group, LLC v. Gray ( 2003 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
ANCORA CAPITAL AND MANAGEMENT 
GROUP, LLC, d/b/a Jetsort,
Plaintiff-Appellant,
v.
PHILIP E. GRAY,
Defendant-Appellee,  No. 02-1245
and
CORPORATE MAILING SERVICES,
INCORPORATED,
Defendant.

Appeal from the United States District Court
for the District of Maryland, at Baltimore.
Catherine C. Blake, District Judge.
(CA-01-2804-CCB)
Argued: October 29, 2002
Decided: January 3, 2003
Before NIEMEYER, WILLIAMS, and GREGORY, Circuit Judges.
Reversed and remanded by unpublished per curiam opinion.
COUNSEL
ARGUED: Kenneth W. Irvin, MORRISON & FOERSTER, L.L.P.,
Washington, D.C., for Appellant. Alonzo D. Washington, NILES,
2 ANCORA CAPITAL AND MANAGEMENT v. GRAY
BARTON & WILMER, L.L.P., Baltimore, Maryland, for Appellee.
ON BRIEF: Bryan A. Schwartz, MORRISON & FOERSTER,
L.L.P., Washington, D.C., for Appellant. Jeffrey A. Wothers, NILES,
BARTON & WILMER, L.L.P., Baltimore, Maryland, for Appellee.
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
OPINION
PER CURIAM:
Ancora Capital and Management Group, LLC, d/b/a Jetsort
("Ancora") filed suit against its former employee, Philip Gray, and
Gray’s current employer, Corporate Mailing Services, Inc. ("CMS"),
seeking to enforce the non-competition covenant it held with Gray.
Ancora also sought damages from Gray and CMS for the misappro-
priation of trade secrets, conspiracy and tortious interference with
contractual relations. Ancora sought preliminary injunctions against
both Gray and CMS, which the district court denied. Ancora now
appeals the district court’s denial of the preliminary injunction against
Gray. For the following reasons, we reverse and remand to the district
court.
I.
Ancora and CMS are direct competitors in the mail pre-sort busi-
ness, where they process customers’ mail using high-speed equipment
to obtain postal discounts for customers. Gray worked for Ancora
from 1992 until his resignation in 2001. Gray was entrusted with
Ancora’s proprietary business information and was intimately famil-
iar with the sorting schemes, customer mail qualification statistics,
contract terms, service structures, and other information essential to
Ancora’s business. In April 1999, Ancora promoted Gray to Vice
President of Operations. At that time, Gray signed an employment
agreement that included a covenant not to compete. The non-
competition clause of the Agreement states:
ANCORA CAPITAL AND MANAGEMENT v. GRAY 3
Non Competition Period: You agree that for a period of two
(2) years after your employment with the Company ends,
you shall not, without first obtaining the prior written
approval of the Company, engage directly or indirectly in
Competition in any Restricted Territory; or directly or indi-
rectly be or become an officer, director, stockholder, owner,
co-owner, affiliate, partner, promoter, employee, agent, rep-
resentative, consultant, advisor, manager, licensor, sub-
licensor, licensee, or sub-licensee of, for or to, or otherwise
be or become associated with or acquire or hold (of record,
beneficially or otherwise) any direct or indirect interest in,
any business that engages in Competition in any Restricted
Territory.
Employment Agreement, ¶ 9(b) (J.A. 20).
In April 2001, Ancora decided to restructure its business, eliminat-
ing Gray’s position as Vice President of Operations. Ancora changed
Gray’s title to Baltimore Plant Manager and reduced his salary from
$100,000 to $85,000. Both parties agree that this was a modification
of the existing employment relationship between Gray and Ancora,
not a new contractual relationship. See Appellant’s Br. at 11; Norman
Decl. at ¶ 14 (J.A. 98); Mazurekiweicz Dep. at 85 (J.A. 367). This
modification was not reduced to writing.
Unbeknownst to Ancora, Gray consulted an attorney at the end of
April 2001 to discuss the enforceability of the non-competition provi-
sion of his employment agreement. He also contacted the president of
CMS about the possibility of working for the company. In the months
that followed, Gray remained involved in the preparation of proposals
for Ancora’s customers and in meetings discussing Ancora’s revenues
and confidential financial information. He never informed Ancora of
his discussions with CMS. In fact, in the days after Gray provided
notice of his resignation to his Ancora supervisor on July 29, 2001,
he was asked if he had secured a new position and he told Ancora that
he had no fixed plans. The record indicates, however, that the day
after Gray informed his supervisor of his resignation, he signed an
employment agreement with CMS to become their Vice-President of
Operations. Gray Dep. at 103:5-104:11; Employment Agreement
4 ANCORA CAPITAL AND MANAGEMENT v. GRAY
between Philip Gray and Corporate Mailing Services, Inc. (J.A. 115-
24).
On September 20, 2001, Ancora filed suit in district court against
Gray and CMS. On January 2, 2002, Ancora sought a preliminary
injunction that would, among other things, prohibit Gray from work-
ing for CMS or any other Ancora competitor. The district court
denied the preliminary injunction, holding that "the balance of harms
does not tip decidedly in Ancora’s favor, [so] it must show a ‘strong,’
and ‘substantial’ likelihood of success, one that is ‘clear and convinc-
ing.’" Ancora Capital & Management Group, LLC d/b/a Jetsort v.
Gray, Civ. No. CCB-01-2804 (D. Md. February 16, 2002) (J.A. 289).
This appeal followed.
II.
We review the denial of a preliminary injunction for abuse of dis-
cretion. See MicroStrategy Inc. v. Motorola, Inc., 245 F.3d 335, 338
(4th Cir. 2001). Where we find a mistake in the application of the law
to the facts, we are permitted to correct such error in the district court.
Rawl v. United States, 778 F.2d 1009, 1014 (4th Cir. 1985); see also
Smith v. United States, 336 F.2d 165, 168 (4th Cir. 1964)
("[E]rroneous conclusions of law may always be set aside. . . .").
III.
This Court implements a four-part balance of hardship test to be
used when reviewing petitions for interlocutory injunctive relief. In
such cases, the Court must consider: (1) probable irreparable injury
to plaintiff without a decree; (2) likely harm to the defendant with a
decree; (3) plaintiff’s likelihood of success; and (4) public interest.
See Blackwelder Furniture Co. of Statesville, Inc. v. Selig Mfg. Co.,
Inc., 550 F.2d 189, 196 (4th Cir. 1977). The two most important fac-
tors are probability of irreparable injury to the plaintiff without a
decree and likelihood of harm to the defendant with a decree. "If that
balance [of the first two factors] is struck in favor of plaintiff, it is
enough that grave or serious questions are presented; and plaintiff
need not show a likelihood of success." Id.ANCORA CAPITAL AND MANAGEMENT v. GRAY 5
In its Memorandum and Order denying the preliminary injunctions,
the district court found that, "[i]f Jetsort [Ancora] prevails on its claim
that Gray has disclosed trade secrets which have enabled CMS to
compete more effectively for customers, there is also some possibility
of long-term loss of goodwill, although the lost value of the contract
itself presumably could be monetarily calculated." Ancora Capital &
Management Group, LLC d/b/a Jetsort v. Gray, Civ. No. CCB-01-
2804 (D. Md. February 16, 2002) (J.A. 288). The district court also
stated that "[l]oss of goodwill qualifies as irreparable harm." Id., cit-
ing Blackwelder at 197. The district court went on to assume that, for
purposes of the motion, Ancora made a showing that Gray disclosed
its trade secrets to CMS, a disclosure that allowed CMS to compete
more effectively for customers. Accordingly, in balancing the harm
to Ancora against the harm to Gray, the district court found that the
harm to Gray—his inability to work in his area of experience—was
not severe, reasoning that "Gray might have the ability to obtain other
employment and could be compensated for his lost wages." Ancora
Capital & Management Group, LLC d/b/a Jetsort v. Gray, Civ. No.
CCB-01-2804 (D. Md. February 16, 2002) (J.A. 289). In contrast, the
district court found that CMS "would suffer severe harm if it were
precluded from bidding on major contracts." Id. This conclusion indi-
cates that the balance of harms between Gray and Ancora tip decid-
edly in Ancora’s favor. However, the district court concluded that
because CMS would suffer harm equivalent to that facing Ancora, the
balance of harms did not tip decidedly in Ancora’s favor, thus requir-
ing a showing of a strong and substantial likelihood of success—one
that is clear and convincing.
This Court has held that when the balance of harms "tips decidedly
in favor of the plaintiff, a preliminary injunction will be granted if the
plaintiff has raised questions going to the merits so serious, substan-
tial, difficult and doubtful, as to make them fair ground for litigation
and thus for more deliberate investigation." Direx Israel, Ltd. v.
Breakthrough Medical Corp., 952 F.2d 802, 813 (4th Cir. 1992). The
district court made its finding by looking at the defendants jointly,
rather than weighing the balance of harms separately. Ancora sought
two separate injunctions: one against Gray and one against CMS.
Accordingly, in determining whether an injunction against Gray was
appropriate, the district court should have only weighed the harms
Ancora would suffer against the harms Gray would suffer. Based on
6 ANCORA CAPITAL AND MANAGEMENT v. GRAY
the district court’s analysis, that balance of harms tips decidedly in
Ancora’s favor because Gray’s potential harms were not as severe as
Ancora’s.
Because the balance of harms tips decidedly in favor of Ancora, its
burden is simply to raise "questions going to the merits so serious,
substantial, difficult and doubtful, as to make them fair ground for lit-
igation and thus for more deliberate investigation." 952 F.2d at 813.
Ancora is not required to demonstrate a strong and substantial likeli-
hood of success, as the district court required. "A district court by def-
inition abuses its discretion when it makes an error of law." Koon v.
United States, 116 S.Ct. 2035, 2047 (1996), citing Cooter & Gell v.
Hartmax Corp., 110 S.Ct. 2447, 2461 (1990)); United States v. Dick-
erson, 166 F.3d 667, 680 (4th Cir. 1999), rev’d, 120 S.Ct. 2326(2000). Because the district court misapplied the law, we hold that
there was an abuse of discretion.
IV.
For the foregoing reasons, we reverse and remand this case to the
district court for entry of an order granting Ancora a preliminary
injunction against Gray.
REVERSED AND REMANDED