Hyde v. KLS Professional Advisors Group, LLC

12-1484-cv
Hyde v. KLS Professional Advisors Group, LLC
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A
SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED
BY THIS COURT’S LOCAL RULE 32.1.1 AND FEDERAL RULE OF APPELLATE PROCEDURE 32.1.
WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY
MUST CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE
NOTATION “SUMMARY ORDER”). A PARTY CITING A SUMMARY ORDER MUST SERVE A COPY
OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.
At a stated Term of the United States Court of Appeals for the Second Circuit, held
at the Daniel Patrick Moynihan United States Courthouse, 500 Pearl Street, in the
City of New York, on the 12th day of October, two thousand twelve.
Present: GUIDO CALABRESI,
SUSAN L. CARNEY,
Circuit Judges.*
_____________________________________________________
BRUCE A. HYDE,
Plaintiff–Counter-Defendant–Appellee,
v. No. 12-1484-cv
KLS PROFESSIONAL ADVISORS GROUP, LLC,
Defendant–Counter-Claimant–Appellant.
______________________________________________________
Appearing for Appellant: JOHN F. CAMBRIA (Christina Spiller, on the brief),
Alston & Bird LLP, New York, NY.
Appearing for Appellee: ADAM J. SAFER (Joel M. Miller, Claire L. Huene, on
the brief), Miller & Wrubel PC, New York, NY.
*
The third judge originally assigned to the panel was unable to hear the case because of a
health issue. In accordance with our local rules, the two remaining members of the panel, who are in
agreement, have decided the case. See 28 U.S.C. § 46(d); 2d Cir. IOP E(b); United States v.
Desimone, 140 F.3d 457, 458–59 (2d Cir. 1998).
Appeal from the United States District Court for the Southern District of
New York (Thomas P. Griesa, Judge).
UPON DUE CONSIDERATION, it is hereby ORDERED, ADJUDGED, and
DECREED that the order of the district court issuing a preliminary injunction is
VACATED.
The district court preliminarily enjoined KLS Professional Advisors Group
(“KLS”) from enforcing a restrictive covenant against one of its former senior
employees, Bruce Hyde. This covenant prohibited Hyde from contacting any of the
firm’s “past,” “present,” or “potential” clients for three years following his
termination, regardless of the reason for his departure from the firm. J.A. 36. The
covenant also forbade him indefinitely from disclosing the firm’s client list. We
assume the parties’ familiarity with the facts and record of prior proceedings, which
we reference only as necessary to explain our decision to vacate and remand.
We review the grant of a preliminary injunction for abuse of discretion.
Latino Officers Ass’n v. Safir, 170 F.3d 167, 171 (2d Cir. 1999). To obtain a
preliminary injunction, a plaintiff must show that he will suffer irreparable harm in
the absence of the requested relief, id., and either that he is likely to prevail on the
merits, or that there are serious questions going to the merits and that the balance
of the equities tips decidedly in his favor, id. Here, we need address only the first
element: irreparable harm.
We consider a showing of irreparable harm to be the “single most important
prerequisite for the issuance of a preliminary injunction.” Faiveley Transp. Malmo
AB v. Wabtec Corp., 559 F.3d 110, 118 (2d Cir. 2009) (internal quotation marks
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omitted). To determine whether a plaintiff has shown irreparable harm, “the court
must actually consider the injury the plaintiff will suffer if he or she loses on the
preliminary injunction but ultimately prevails on the merits, paying particular
attention to whether the remedies available at law, such as monetary damages, are
inadequate to compensate for that injury.” Salinger v. Colting, 607 F.3d 68, 80 (2d
Cir. 2010) (internal quotation marks omitted).
Our Court has not directly addressed when enforcement of a covenant
restricting competition may irreparably injure a former employee. The Supreme
Court’s decision in Sampson v. Murray, 415 U.S. 61 (1974), however, provides
important guidance. In Sampson, the Court vacated a preliminary injunction that
precluded a government agency from terminating an employee. Concluding that
the employee had failed to establish that she would sustain irreparable injury upon
termination, the majority held that showing a “loss of income . . . falls far short of
the type of irreparable harm which is a necessary predicate to the issuance of a
temporary injunction in this type of case.” Id. at 91–92. The Court explained
further that “insufficiency of savings” and “difficulties in immediately obtaining
other employment” were “external factors common to most discharged employees.”
Id. at 92 n.68. Absent a “genuinely extraordinary situation,” the Court reasoned,
such harms “will not support a finding of irreparable injury, however severely they
may affect a particular individual.” Id.In Savage v. Gorski, 850 F.2d 64 (2d Cir. 1988), our Court relied in part on
Sampson when we vacated a preliminary injunction prohibiting a county executive
from terminating several government employees. Observing that “[l]oss of
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employment does not in and of itself constitute irreparable injury,” id. at 67, we
concluded that “reinstatement and money damages could make appellees whole for
any loss suffered,” id. at 68. Sampson and Savage thus apply, in the employment
context, the long-established principle that financial loss is not “irreparable” for
determining whether a preliminary injunction is warranted.
Here, the district court determined that Hyde had demonstrated that the
company’s restrictions inhibited his ability to find a new job and had therefore
satisfied the irreparable harm requirement. This was error. Difficulty in obtaining
a job is undoubtedly an injury, but it is not an irreparable one — at least not in the
circumstances of this case. See Sampson, 415 U.S. at 91–92 & n.68. If Hyde
prevails at trial, monetary damages will compensate him adequately — under
Sampson and Savage — for his financial harms.**
Hyde also asserts irreparable injury in that the restrictive covenants
purportedly caused him to lose client relationships. In support of this argument,
Hyde references his conversations with twenty or twenty-five of his former clients,
who, according to Hyde, expressed a desire that he continue to manage their assets
even after he left KLS. But these clients did not belong to Hyde. During his
employment by KLS, he signed multiple agreements in which he acknowledged that
KLS’s client base was proprietary and belonged to the firm. We observe that, in
**
With regard to Hyde’s claims of irreparable harm, KLS asks our Court on appeal to take
judicial notice of documents related to Hyde’s employment status at the time of oral argument. We
decline the invitation. The preliminary injunction’s legality must be adjudged on the evidence
presented to the district court, not in light of any possible subsequent developments. See, e.g.,
Diversified Mortg. Investors v. U.S. Life Ins. Co., 544 F.2d 571, 576–77 (2d Cir. 1976). Moreover, the
“facts” KLS offers are not the appropriate subject of judicial notice. See Fed. R. Evid. 201(b) (judicial
notice appropriately taken when facts are “generally known” or “can be accurately and readily
determined from sources whose accuracy cannot reasonably be questioned”).
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line with these agreements, Hyde’s responsibilities at KLS did not include
developing new clients. And Hyde did not begin his employment at KLS bringing
these clients with him. But even assuming that Hyde had a legally protected
interest in continuing to serve these clients, Hyde presented no evidence that this
loss, too, could not be remedied adequately by monetary damages.
Having concluded that Hyde failed to establish irreparable injury, we need go
no further. In the interest of judicial economy, however, we note our reservation
about the district court’s preliminary interpretation of New York law. Relying on
Post v. Merrill Lynch, Pierce, Fenner & Smith, 42 N.Y.2d 84, 421 N.Y.S.2d 847(1979), the district court concluded that restrictive covenants are per se
unenforceable in New York against an employee who has been terminated without
cause. But in Post, the New York Court of Appeals held only that when an
employee was terminated without cause, the employer could not condition the
employee’s receipt of previously earned pension funds on compliance with a
restrictive covenant. Id. at 89, 421 N.Y.S.2d at 849. We caution the district court
against extending Post beyond its holding, when a traditional overbreadth analysis
might be more appropriate. See BDO Seidman v. Hirshberg, 93 N.Y.2d 382,
392–93, 690 N.Y.S.2d 854, 858–59 (1999).
Accordingly, we VACATE the district court’s entry of a preliminary
injunction and REMAND the case for proceedings consistent with this opinion.
FOR THE COURT:
Catherine O’Hagan Wolfe, Clerk
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