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The disfavored and in some circles discredited doctrine of inevitable disclosure — which says that a person holding trade secrets or other confidential information cannot help but disclose it to a new employer — must rest on considerably more than mere conjecture if it is to survive at all, an upstate New York appellate panel has found. In a ruling last week, the justices of the New York Appellate Division, 3rd Department, said that just because Thomas Fairhurst possessed knowledge, a court cannot infer that he exploited his advantage. In a unanimous decision, the panel reversed a trial judge who had awarded summary judgment to Fairhurst’s former employer. Marietta Corp. v. Fairhurst, 92371, arises out of Cortland County, N.Y., and involves competing companies that supply toiletries to hotels. Fairhurst was a senior vice president at Marietta Corp. and in that capacity was intimately familiar with the firm’s marketing plans. His initial employment contract contained a confidentiality provision and a non-compete clause that barred him from either a breach or threatened breach. When that contract expired, Fairhurst signed a non-durational confidentiality agreement that did not restrict competitive employment or include a provision covering a threatened breach of the contract. Fairhurst was fired in May 2002 and shortly thereafter accepted a top management position with Pacific Direct Inc., which competes with Marietta as a supplier of hotel amenities. Within a month, Marietta commenced an action to enjoin Fairhurst from working for Pacific Direct. Supreme Court Justice Phillip R. Rumsey of Cortland County granted a motion for a preliminary injunction and barred Fairhurst from working for Pacific Direct for 11 months. Rumsey relied on the doctrine of inevitable disclosure, which, as the 3rd Department recognized, has not yet been adopted by the New York courts. Several courts across the country have embraced some form of the inevitable disclosure doctrine, while others have categorically rejected and harshly criticized a principle they say rewrites employment agreements and retroactively alters the terms of the employer-employee relationship. Here, even lacking any evidence that Fairhurst disclosed proprietary information, Rumsey said it was so likely that the defendant would, either consciously or subconsciously, use his inside knowledge in his new job that Marietta had met the irreparable harm prong required for a preliminary injunction. He held for Marietta on the basis of the inevitable disclosure doctrine. LOWER COURT REVERSED Last week, the 3rd Department reversed in an opinion by Justice Karen K. Peters, who observed that irreparable harm can be established where a trade secret is misappropriated and when an employee is bound by an implied restrictive covenant not to compete. “As no restrictive covenant was in existence here and our well entrenched state public policy considerations disfavor such agreements, the doctrine of inevitable disclosure is disfavored as well,” Peters wrote. She added that “in those rare instances where such doctrine is applied,” it must not be misused as a tool to broaden a confidentiality agreement. In this case, there was no actual misappropriation alleged, only a presumption by Marietta that Fairhurst would inevitably use the secrets he holds. “We find plaintiff’s claims to be self-serving, entirely conjectural and insufficient to support the theory that Fairhurst had used or threatened to use a ‘trade secret,’” Peters wrote. “Absent any wrongdoing which would constitute a breach under the confidentiality agreement, mere knowledge of the intricacies of a business is simply not enough.” Joining the opinion were Presiding Justice Anthony V. Cardona and Justices D. Bruce Crew III, Carl J. Mugglin and John A. Lahtinen. Ross P. Andrews of Satter & Andrews in Syracuse, N.Y., appeared for Fairhurst. Jonathan A. Willens of Manhattan represented Pacific Direct Inc. Robert Kirchner of Bond, Schoeneck & King in Syracuse appeared for Marietta Corp.

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