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What Happened When an Ex-Employee Was Caught Violating TRO


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1/28/2020
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In a decision that was handed down by a New York County trial court on December 16, 2019, an ex-employee was caught red-handed violating a court order barring him from soliciting his former employer's clients.

At the risk of stating the obvious, this did not look like it was going to be a very good day for the defendant.

What Happened in Digital Warehouse USA v. Hassan

At the outset of the case - and typical for one of these kind of non-compete litigation matters - the plaintiff/former employer Digital Warehouse USA sought both a temporary restraining order and preliminary injunction barring the defendant from competing against them during the pendency of the action, in line with the terms of the employment agreement he had signed with them years earlier.

The parties' attorneys worked out an interim deal (in legalese, "stipulation") while the lawsuit continued, with the following terms:

A. Restraining and enjoining Hasan, from either alone or in concert, from continuing to possess, use, disseminate, transmit, or otherwise distribute, for any purpose whatsoever, any materials protected under the Restrictive Covenant and Confidentiality Agreement, dated January 12, 2012 (the "Agreement"), as that term is defined in Plaintiffs' moving papers, which is appended to and is a part of the Employment Agreement of the same date, as that term is defined in Plaintiffs' moving papers, specifically trade secrets, customer lists, pricing models, business methods, technical information related to Plaintiffs, emails and other correspondences, notes, memoranda, or any other person, entity, or otherwise."

The Court signed off on this stipulation, which gave the agreement the force of a court order.

But, during the course of discovery, it came to light that the defendant had, in fact, breached this agreement (and the terms of his underlying employment agreement), and done business with two (2) of plaintiffs' customers during this time.

Naturally, the plaintiffs were furious.

What Happened Next

Predictably, plaintiffs ran to the Court, seeking to hold the defendant in not only civil, but criminal contempt of court for willfully violating the Court's order.

Following a hearing, the Court issued an order finding the defendant liable in civil, but not criminal, contempt, because the defendant's actions were apparently motivated by mitigating factors, i.e., financial hardship, rather than intending to willfully disobey the Court, stating:

"[T]he branch of the motion for criminal contempt is denied. The Plaintiffs have not demonstrated that Mr. Hasan possessed the requisite level of willfulness to warrant the heavy penalty of criminal contempt ... In his affidavit in opposition, Mr. Hasan explains that he made the deposits due to financial hardship and that he has now ceased competition with the Plaintiffs."

While the defendant certainly dodged a bullet in a sense, being held in civil contempt is no picnic either.

Consider: 

The defendant was ordered to tender to plaintiffs the value of the two deposits he had made from those ill-gotten gains, plus the plaintiffs' costs incurred in conducting his deposition.

And in only being penalized this amount - which is likely to exceed $70,000, he should be considered lucky.



Category: Non-Compete & Employment Agreements

Jonathan Cooper
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Non-Compete, Trade Secret and School Negligence Lawyer

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