Court Opinion

ID: 4
Source: CourtListenerOpinion
Date Created: 2010-03-13 23:41:59+00
Date Added: 2024-06-11T16:41:42.643603
License: Public Domain

United States Court of Appeals
                        For the First Circuit

No. 09-2634

                             ANSYS, INC.,

                        Plaintiff, Appellant,

                                  v.

             COMPUTATIONAL DYNAMICS NORTH AMERICA, LTD.;
                       DORU A. CARAENI, PH.D.,

                        Defendants, Appellees.

             APPEAL FROM THE UNITED STATES DISTRICT COURT
                   FOR THE DISTRICT OF NEW HAMPSHIRE

              [Hon. Steven J. McAuliffe, District Judge]

                                Before

                          Lynch, Chief Judge,
         Howard, Circuit Judge, and Woodlock,* District Judge.

     Wilbur A. Glahn, III with whom Cameron G. Shilling, Cathryn E.
Vaughn, and McLane, Graf, Raulerson & Middleton, Professional
Association were on brief for appellant.
     Geoffrey J. Vitt with whom Elizabeth K. Rattigan, Vitt &
Ratigan, PLC, Michael A. Schlanger, Shelli L. Calland, and
Covington & Burling LLP were on brief for appellees.

                          February 12, 2010

     *
            Of the District of Massachusetts, sitting by designation.
          LYNCH, Chief Judge.   ANSYS, Inc. ("ANSYS") is a company

that produces propriety software in the field of computational

fluid dynamics ("CFD").     In August 2009, ANSYS sued its former

employee, Dr. Doru Caraeni, and his new employer, Computational

Dynamics North America, Ltd. ("CDNA"), in the federal district

court for the district of New Hampshire, alleging breach by Dr.

Caraeni of the noncompetition and confidentiality clauses in his

ANSYS employment contract, interference with contractual relations,

misappropriation of trade secrets, and unfair trade practices.

CDNA and ANSYS are competitors; together they occupy approximately

80 percent of the market for CFD software, which is used for

modeling and simulating fluid and gas flows.    ANSYS had employed

Dr. Caraeni from January 2002 to May 2009 to develop code for CFD

simulation software.

          ANSYS sought a preliminary injunction to enforce the

provisions of a one-year noncompetition clause in Dr. Caraeni's

employment agreement.     The district court denied the request,

finding that ANSYS had not met the requirements for injunctive

relief.   See ANSYS, Inc. v. Computational Dynamics N. Am., Ltd.,

Civ. No. 09-cv-284-SM, 2009 WL 4403745 (D.N.H. Nov. 25, 2009).   We

expedited the appeal.     After oral argument this court issued an

order affirming the denial of preliminary injunctive relief.     We

also said we would later issue our opinion in this case, as we do

now, and judgment would not enter until we had done so.

                                -2-
                                      I.

            Our standard of review for denials of injunctive relief

is strict: "we will reverse such a denial only if the district

court mistook the law, clearly erred in its factual assessments, or

otherwise   abused     its   discretion     in    granting     the     preliminary

injunction."       McClure v. Galvin, 386 F.3d 36, 41 (1st Cir. 2004)

(internal quotation marks omitted).              While we think this case is

close, we cannot say the court abused its discretion.

            When     deciding   whether     to     grant     ANSYS     preliminary

injunctive relief, the district court was required to weigh four

factors: (1) whether ANSYS had shown a likelihood of success on the

merits,   (2)      whether   ANSYS   had    shown    that     it     would   suffer

irreparable harm if the injunction was denied, (3) the balance of

the relevant hardships, and (4) any impact that the court's ruling

may have on the public interest.            See Wine & Spirits Retailers,

Inc. v. Rhode Island, 418 F.3d 36, 46 (1st Cir. 2005).                  The first

factor, likelihood of success, is usually given particularly heavy

weight. Waldron v. George Weston Bakeries Inc., 570 F.3d 5, 8 (1st

Cir. 2009).        The district court denied ANSYS's motion on the

grounds that the company had failed to demonstrate likely success

on the merits and also failed to show that it would                          suffer

irreparable harm absent injunctive relief.                 ANSYS, Inc., 2009 WL

4403745, at *5-7.

                                      -3-
           We begin our review of the district court's decision with

the contract clause in question, which Dr. Caraeni had signed in

September 2001.    It reads, in relevant part, "I agree that for a

period of one (1) year following termination of my employment with

[ANSYS], I will not become an employee . . . or in any way engage

in or contribute my knowledge to a competitor of [ANSYS]."

           Perhaps recognizing how poorly drafted this clause is,

ANSYS offers two pertinent narrowing constructions: (1) the clause

only applies to those employees who have access to confidential

information or trade secrets--thus, the clause would not apply to,

for instance, a maintenance worker; and (2) the clause only applies

to employees who are in a position to use that information at their

new employer.     This interpretation, of course, requires judicial

reconstruction of the broadly drafted contract language.

           Against the backdrop of these constructions, ANSYS argues

it has to show two things, and no more, to establish breach of

contract: that Dr. Caraeni had access to confidential information

while at ANSYS and that he is in a position to use this knowledge

at CDNA.   ANSYS asserts it met this burden on the evidence produced

at the one-day evidentiary hearing before the district court.

           As a result, ANSYS argues, it has shown Dr. Caraeni was

in breach of his contract and that it will succeed on the merits of

its claims.     Since likelihood of success on the merits normally

weighs heavily in the preliminary injunction calculus, ANSYS urges

                                 -4-
this showing is sufficient to merit preliminary injunctive relief.

ANSYS also argues that proving breach, and no more, was sufficient

to demonstrate irreparable harm and further support its request for

the preliminary injunction.

            ANSYS asserts that holding it to any greater showing on

the likelihood of success or irreparable harm would effectively

eliminate the noncompete clause from the contract. ANSYS says that

for the noncompete clause to have any meaning, the clause must be

read to give ANSYS some greater benefit than the protection it

enjoys under common law for its trade secrets and confidential

information.     ANSYS   urges   that   the   district   court   erred   by

analyzing this case as though it was simply a trade secrets case.

After all, ANSYS notes, it did not seek a preliminary injunction on

its trade secrets claim.

            ANSYS's argument about the import of its contract clause

is not irrational and one might well be sympathetic to it.               See

Cont'l Group, Inc. v. Kinsley, 422 F. Supp. 838, 843 (D. Conn.

1976) (finding a covenant not to compete for eighteen months

reasonable under New York law to the extent that it barred similar

employment at a direct competitor working to develop an identical

product).    As Judge Newman observed in that case, it is unclear

that the test for enforcing a noncompetition covenant should be the

same as would be used in obtaining an injunction to bar disclosure

of trade secrets or an injunction to enforce a covenant not to

                                  -5-
disclose         trade     secrets.          The   court   explained,      "[t]he

non-competition covenant adds something to the protection available

to the employer beyond what he would expect from the normal

incidents of the employer-employee relationship or from a secrecy

agreement."            Id. at 844.        Here, the contract clause could be

justified as a prophylaxis, protecting ANSYS in a situation that

created a high risk of disclosure of its confidential information

to a competitor.          See id. at 845.

                 Whether New Hampshire law would enforce an agreement so

construed is quite a different matter.              ANSYS's arguments presume

its noncompetition clause is enforceable. However, New Hampshire's

public policy discourages covenants not to compete, allowing them

only       "if   the    restraint    is    reasonable,   given   the   particular

circumstances of the case."           Merrimack Valley Wood Prods., Inc. v.

Near, 876 A.2d 757, 762 (N.H. 2005).               No New Hampshire cases are

directly on point, as the vast majority of noncompetition agreement

cases considered by the state's supreme court have turned on other

issues, such as the protection of employers' interest in customer

good will. See, e.g., Concord Orthopaedics Prof'l Ass'n v. Forbes,

702 A.2d 1273, 1276 (N.H. 1997); Technical Aid Corp. v. Allen, 591

A.2d 262, 266-67 (N.H. 1991).1

       1
          Both parties note a single case in which the New
Hampshire Supreme Court addressed a superficially similar attempt
by an employer to enforce a covenant not to compete to prevent an
employee from working for a competitor in a narrow field, upholding
a district court's determination that the noncompetition agreement

                                            -6-
           New Hampshire courts have, however, articulated general

criteria by which we may assess ANSYS's claims:

           To determine whether a restrictive covenant
           ancillary to an employment contract is reasonable,
           we engage in a three-part inquiry: first, whether
           the restriction is greater than necessary to
           protect the legitimate interests of the employer;
           second, whether the restriction imposes an undue
           hardship upon the employee; and third, whether the
           restriction is injurious to the public interest.

ACAS Acquisitions (Precitech) Inc. v. Hobert, 923 A.2d 1076, 1084

(N.H. 2007).      A covenant that fails any one of these criteria "is

unreasonable and unenforceable."          Merrimack Valley Wood Prods.,

Inc., 876 A.2d at 762; see also id. at 763-64 (affirming that an

agreement that broadly barred an employee from working with any

client who had transacted business with his employer in the past

year was unenforceable, reasoning that it went "far beyond the

defendant's sphere of customer goodwill, and was more restrictive

than necessary to protect the plaintiffs' legitimate interests").

New   Hampshire    courts   have   further   clarified   that   employers'

at issue was enforceable. See ACAS Acquisitions (Precitech) Inc.
v. Hobert, 923 A.2d 1076, 1089 (N.H. 2007). However, ACAS relied
on a variety of facts not presented by this case. Id. at 1087-89.
     Moreover, to the limited extent that ANSYS relies on ACAS, it
mischaracterizes the court's holding. The court did not, as ANSYS
suggests, "presume[] irreparable harm from the presumed use of . .
. information."    Instead, it cited specific evidence "that the
defendant intended to use his knowledge learned at [plaintiff's
company] to help" his new employer, id. at 1083, 1085 (internal
quotation marks omitted), and affirmed the district court's holding
that the defendant's "use and disclosure of . . . information to or
for the benefit of [his new employer] has caused, and will continue
to cause," the plaintiff harm, id. 1087.

                                    -7-
"legitimate   interests"   include   "trade   secrets   that   have   been

communicated to the employee during the course of employment" and

"confidential information communicated by the employer to the

employee, but not involving trade secrets." Syncom Indus., Inc. v.

Wood, 920 A.2d 1178, 1185 (N.H. 2007).

          Whether ANSYS's construction of the noncompete clause was

reasonable–-that is, whether it went no further than was necessary

to protect its legitimate interests, imposed no undue hardship on

Dr. Caraeni, and was not inconsistent with the public interest--all

involve policy choices that have not been explicitly decided in

this context by the New Hampshire courts or legislature.          Absent

such guidance, we cannot say ANSYS has clearly demonstrated its

likelihood of success on the breach of contract claim, nor can we

conclude that the district court abused its discretion by finding

that ANSYS had failed to make this showing.

          We also cannot say that the district court abused its

discretion when it found ANSYS had not shown the likelihood of

irreparable injury.   ANSYS's claim that its showing of breach was

sufficient to show irreparable harm again assumes that the covenant

not to compete is enforceable.       In any event, we reject ANSYS's

suggestion at oral argument that because of the difficulty of

proving damages from breach of the covenant, as opposed to damages

from the actual use of confidential material, we should deem its

remedy at law inadequate. We further reject its related claim that

                                 -8-
this alleged inadequacy would justify equitable relief for breach

of the covenant without any showing of injury.              New Hampshire law

has not adopted that approach.

              As to the district court's analysis of ANSYS's injury, we

will accept arguendo that Dr. Caraeni had access to confidential

proprietary information.       The district court concluded that even

were that so, "Ansys has failed to demonstrate that [Dr. Caraeni]

is likely to use that [confidential] information during the course

of his employment at CDNA."        This conclusion was based on factual

findings, which we cannot set aside unless they constituted clear

error.      E.g., McClure, 386 F.3d at 41.

              The district court explained that it found credible the

testimony of Dr. Wayne Smith, who is the general manager of CDNA.

In particular, the court accepted three aspects of Dr. Smith's

testimony: (1) "that CDNA maintains and enforces a strict policy

preventing its employees from using confidential and trade secret

information they may have acquired from prior employers;" (2) that

Dr. Caraeni had not been assigned and, in the near term (that is,

to the May 2010 date for expiration of the one-year period since

his departure from ANSYS), will not be assigned "to perform any

work   at    CDNA   that   might   allow   him   to   use    any   of   ANSYS's

confidential or trade secret information;" and (3) that any trade

secret or confidential information Dr. Caraeni had acquired at

ANSYS would not be useful to work on CDNA's CFD software because of

                                     -9-
the   different    architecture     of    the   two   companies'    respective

software codes.      ANSYS, Inc., 2009 WL 4403745, at *6.

           ANSYS emphatically attacks the third of these findings in

particular and urges that it constitutes clear error.2                 Even if

there were reason to be skeptical of the third finding--after all,

CDNA chose to hire Dr. Caraeni for reasons that may have included

what he learned in his prior employment--that would not make the

finding clear error. More pertinently, the district court reasoned

Dr.   Caraeni   would   not     perform   any   tasks   that   might   require

confidential information he had obtained at ANSYS.                 The court's

first two factual findings support its conclusion, and we cannot

say that they were clearly erroneous.

           There is no need to discuss the myriad other arguments

the parties have pressed.

                                     II.

           The district court's denial of the preliminary injunction

is affirmed.      So ordered.

      2
          ANSYS also argues that the district court erred in
crediting Dr. Smith's testimony, urging that his statements were
self-serving and speculative. Given our traditional deference to
district court credibility determinations, e.g., Jennings v. Jones,
587 F.3d 430, 444 (1st Cir. 2009), we cannot say the court's
decision was an abuse of discretion.

                                     -10-