Preview
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SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
-------------------------------------
In the Matter of the Application of
CAPCHASE INC.,
x
:
Petitioner,
:
: Index No.
For a temporary restraining order and preliminary
:
injunction in aid of arbitration pursuant to CPLR
:
7502(c)
:
: Motion Sequence No. __
- against -
:
:
:
DAVID SUKHRAJ,
x
Respondent.
-------------------------------------
PETITIONER’S MEMORANDUM OF LAW IN SUPPORT OF AN ORDER TO SHOW
CAUSE SEEKING A TEMPORARY RESTRAINING ORDER AND PRELIMINARY
INJUNCTION IN AID OF ARBITRATION AND EXPEDITED DISCOVERY
GIBSON, DUNN & CRUTCHER LLP
200 Park Avenue
New York, NY 10166-0193
Telephone: 212.351.4000
Attorneys for Capchase Inc.
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TABLE OF CONTENTS
Page
PRELIMINARY STATEMENT ................................................................................................... 1
LEGAL STANDARDS ................................................................................................................. 6
A. Capchase Is Likely To Prevail On Its Breach Of Contract Claim. ........................ 7
1. Sukhraj’s Non-Compete Is Enforceable. ................................................... 8
2. Sukhraj Has Breached And Will Continue To Breach His Non-
Compete. .................................................................................................. 12
3. Sukhraj Has Breached And Will Continue To Breach Other
Agreement Provisions. ............................................................................. 13
B. Without Immediate Relief, Capchase Will Suffer Imminent, Irreparable
Injury. ................................................................................................................... 13
C. The Balance Of The Equities Heavily Favors A TRO And Preliminary
Injunction. ............................................................................................................ 15
D. The Public Interest Is Best Served By Granting Injunctive Relief. ..................... 16
E. Capchase Should Be Granted Expedited Discovery. ........................................... 17
CONCLUSION ............................................................................................................................ 18
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TABLE OF AUTHORITIES
Page
Cases
All Pro Maids, Inc. v. Layton,
2004 WL 1878784 (Del. Ch. Aug. 9, 2004) ..............................................................................8
Am. Homepatient, Inc. v. Collier,
2006 WL 1134170 (Del. Ch. Apr. 19, 2006) .........................................................................8, 9
Avaya, Inc. v. Ali,
2012 WL 2888474 (D. Mass. July 13, 2012).............................................................................9
Ayco Co. v. Feldman,
2010 WL 4286154 (N.D.N.Y. Oct. 22, 2010) .........................................................................16
Barbes Rest. v. SRR Suzer 218, LLC,
140 A.D.3d 430 (1st Dep’t 2016) ..............................................................................................7
Bel Geddes v Zeiderman,
228 A.D.2d 393 (1st Dep’t 1996) ............................................................................................17
Can-West Glob. Commc’ns v. Mirkaei Tikshoret Ltd.,
9 Misc. 3d 845 (Sup. Ct. N.Y. Cnty. 2005) .............................................................................11
Capstone Logistics Holdings, Inc. v. Navarrete,
No. 17-CV-4819 (GBD), 2018 WL 6786338 (S.D.N.Y. Oct. 25, 2018) ...................................8
CIENA Corp. v. Jarrard,
203 F.3d 312 (4th Cir. 2000) .....................................................................................................9
De Pina v. Educ. Testing Serv.,
31 A.D.2d 744 (2d Dep’t 1969) .................................................................................................7
DoubleClick v. Henderson,
1997 WL 731413 (Sup. Ct. N.Y. Cnty. Nov. 7, 1997) ............................................................15
Four Times v. Cigna Invs., Inc.,
306 A.D.2d 4 (1st Dep’t 2003) ..................................................................................................6
Gottwald v. Sebert,
79 N.Y.S.3d 7 (1st Dep’t 2018) .................................................................................................8
Gramcery v. Benenson,
223 A.D.2d 497 (1st Dep’t 1996) ............................................................................................16
Hammermill Paper Co. v. Palese,
1983 WL 19786 (Del. Ch. June 14, 1983) .................................................................................9
ii
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TABLE OF AUTHORITIES
(continued)
Page
Iannucci v. Segal Co., Inc.,
2006 WL 8407380 (S.D.N.Y. June 27, 2006) .........................................................................14
IBM v. Papermaster,
2008 WL 4974508 (S.D.N.Y. Nov. 21, 2008) ...................................................................14, 16
J.A. Preston v. Fabrication Enters.,
68 N.Y.2d 397 (1986) ................................................................................................................7
Johnson Controls, Inc. v. A.P.T. Critical Sys., Inc.,
323 F.Supp.2d 525 (S.D.N.Y. 2004)........................................................................................15
Jones v. State Farm Fire & Cas. Co,
189 A.D.3d 1565 (2d Dep’t 2020) .............................................................................................7
Klein, Wagner & Morris v. Lawrence A. Klein, P.C.,
186 A.D.2d 631 (2d Dep’t 1992) .............................................................................................14
Lumex, Inc. v Highsmith,
919 F.Supp. 624 (E.D.N.Y. 1996) ...........................................................................................15
Masjid Usman v. Beech 140, LLC,
68 A.D.3d 942 (2d Dep’t 2009) .................................................................................................7
McCann Surveyors, Inc. v. Evans,
611 A.2d 1 (Del. Ch. 1987)......................................................................................................12
McLaughlin, Piven, Vogel v. Nolan & Co.,
114 A.D.2d 165 (2d Dep’t 1986) .............................................................................................15
Pamela Equities v. 270 Park Ave. Cafe Corp.,
62 A.D.3d 620 (1st Dep’t 2009) ................................................................................................7
Rational Strategies Fund v. Hill,
40 Misc. 3d 1214(A) (Sup. Ct. N.Y. Cnty. 2013) ....................................................................17
Research & Trading Corp. v. Pfuhl,
1992 WL 345465 (Del. Ch. Nov. 18, 1992) ..................................................................9, 10, 11
Reuschenberg v. Town of Huntington,
16 A.D.3d 568 (2d Dep’t 2005) ...............................................................................................14
Sentient Jet, LLC v. Early,
2013 WL 6210643 (D. Mass. Sept. 11, 2013) ...........................................................................9
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TABLE OF AUTHORITIES
(continued)
Page
Sylmark Holdings Ltd. v Silicone Zone Intern. Ltd.,
5 Misc. 3d 285 (Sup. Ct. N.Y. Cnty. 2004) .............................................................................17
TBA Global LLC v. Proscenium Events LLC,
980 N.Y.S.2d 459 (1st Dep’t 2014) ...........................................................................................8
Ticor Title Ins. Co. v. Cohen,
173 F.3d 63 (2d Cir. 1999).......................................................................................................14
TP Group–CI, Inc. v. Vetecnik,
2016 WL 5864030 (D. Del. Oct. 6, 2016) .........................................................................10, 11
Uni-World Capital L.P. v Preferred Fragrance, Inc.,
73 F.Supp.3d 209 (S.D.N.Y. 2014)..........................................................................................17
W.W.W. Assoc. v. Giancontieri,
77 N.Y.2d 157, 162 (1990) ......................................................................................................17
WebMD Health Corp. v Martin,
12 Misc.3d 1180(A) (Sup. Ct. N.Y. Cnty. 2006) .......................................................................7
Weichert Co. of Pennsylvania v. Young,
2007 WL 4372823 (Del. Ch. Dec. 7, 2007) ...............................................................................8
Willis v. DeFelice,
299 A.D.2d 240 (1st Dep’t 2002) ............................................................................................16
Matter of Yung Bros. Real Estate Co. v. Limandri,
2009 WL 5174193 (Sup. Ct. N.Y. Cnty. Dec. 29, 2009).........................................................15
Rules
C.P.L.R. § 6301................................................................................................................................6
C.P.L.R. § 6313................................................................................................................................6
Treatises
4B N.Y. Prac., Com. Litig. New York State Courts § 80:49 (4th ed.) ..........................................18
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Petitioner Capchase Inc. (“Capchase”) respectfully submits this memorandum of law in
support of itsapplication for a temporary restraining order and preliminary injunction in aid of
arbitration pursuant to CPLR 7502(c), enjoining Respondent David Sukhraj (“Sukhraj”) from
working for Capchase’s direct competitors, including Arc Technologies, Inc. (“Arc”), and from
otherwise violating his employment agreement pending the conclusion of Capchase’s imminent
arbitration against Sukhraj.
PRELIMINARY STATEMENT1
This Court’s immediate intervention is necessary to prevent irreparable harm to Capchase
resulting from former employee Sukhraj’s willful misconduct and blatant disregard for his
contractual obligations. Moments after Capchase informed Sukhraj that it was terminating his
employment, Sukhraj downloaded a master spreadsheet containing Capchase’s sensitive and
proprietary information: a compilation of Capchase’s prospective and recently acquired customers,
the underwriting status for each of those customers, and deal terms reached in contracts with
customers that Capchase and its customers are obligated to keep confidential. Sukhraj later
informed Capchase that he was commencing employment with Capchase’s direct competitor, Arc,
in flagrant disregard of the restrictive covenants he agreed to in exchange for his employment and
access to Capchase’s confidential and trade secret information in the first place. Capchase’s efforts
to bring Sukhraj in compliance and avoid judicial intervention have fallen on deaf ears—
necessitating emergency relief.
* * *
The highly competitive market for Capchase’s products and services: Founded in 2020,
Capchase is a company that provides alternative financing to emerging companies in the Software
1
Unless otherwise defined herein, capitalized terms shall have the same meaning as ascribed to them in the
Petition.
1
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as a Service (“SaaS”) industry. Affidavit of Keryn Koch (“Koch Aff.”) ¶¶ 4–6. The SaaS industry
includes businesses that license software services to their customers directly through the Internet
with monthly or annual subscriptions, which generate recurring revenues. Id. ¶ 4. Capchase’s
innovative products enable startup SaaS companies to access upfront capital in exchange for
portions of SaaS companies’ future recurring revenues. Id. ¶¶ 5–6. This allows SaaS startups to
seamlessly obtain financing globally, without the hassle of fundraising from institutional investors
and dilution of their stock. See id.
The market for the products and services that Capchase offers is fiercely competitive. See
id. ¶ 10; Pet. ¶ 20. Capchase’s business model competes with and disrupts the traditional financing
models of large financial institutions that seek to provide capital in exchange for significant equity.
Koch Aff. ¶ 10. At the same time, Capchase competes for market share against other emerging
alternative-financing entities in the SaaS economy—including Arc. Id. Founded just one year
after Capchase, Arc offers copycat services it advertises on its website in substantially similar
language to Capchase. Id. ¶ 11.
To compete for market share, Capchase must constantly work to differentiate itself, find
new customers globally, and obtain more business from existing customers. See id. ¶ 10; Pet. ¶
20. Doing so has taken Capchase significant skill, time, and investment. See Koch Aff. ¶¶ 6–10.
That investment has generated numerous trade secrets and proprietary information pivotal to
Capchase’s business, including compilations of customer lists and analyses about their financial
performance, underwriting criteria used to vet financing transactions, and deal terms between
customers and Capchase. See id. ¶¶ 6–9, 14–16. Capchase relies on this proprietary information
to develop and foster close relationships with its customers. See id. ¶ 13. And because Capchase’s
customer contracts are often multimillion dollar deals that can take up to a year to compete for and
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negotiate, developing and fostering these relationships is critical to Capchase’s success. See id. ¶
10.
Sukhraj’s willful violation of his reasonable contractual obligations: Capchase hired
Sukhraj as an Account Executive in 2021 to help perform this critical mission. Id. ¶ 12. In
exchange for his employment and granting him access to Capchase’s proprietary information and
carefully cultivated customer base needed for his role, Sukhraj agreed to narrowly tailored
restrictive covenants that prevent him from—for one year following his separation from
Capchase—working for Capchase’s direct competitors and soliciting Capchase’s employees and
customers. See Koch Aff. Ex. 3 ¶¶ 6(b) and (d) (Employment Terms and Non-Disclosure, Non-
Competition, Non-Solicitation Assignment of Intellectual Property Agreement; together, the
“Agreement”). Sukhraj further agreed to return and not use Capchase’s confidential information
and trade secrets following his departure. Id. ¶ 2. Specifically, the operative provisions of
Sukhraj’s Agreement provide:
During the Relationship and thereafter, I will not, directly or indirectly, use any
Confidential Information (as hereinafter defined) other than pursuant to the
Relationship or disclose to anyone outside of the Company any such Confidential
Information whether by private communication, public address, publication or
otherwise or to anyone within the Company who has not been authorized to receive
such information, except as directed in writing by an authorized representative of
the Company or as otherwise provided below. The term “Confidential Information”
as used throughout this Agreement means all trade secrets, proprietary information,
know-how, data, designs, specifications, processes, customer lists, client lists and
other technical or business information (and any tangible evidence, record or
representation thereof), disclosed to or made known to me at any time, whether
prepared, conceived or developed by me or by an officer, director, consultant or
employee of the Company, or received by the Company from an outside source,
which is in the possession of the Company (whether or not the property of the
Company), which in any way relates to the present or future business of the
Company, which is maintained in confidence by the Company, or which might
permit the Company or its clients or customers to obtain a competitive advantage
over competitors who do not have access to such trade secrets, proprietary
information, or other data or information.
Id. ¶ 2.
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During the Relationship and for a period of one year after the termination of the
Relationship for any reason (the “Restricted Period”), I shall not, on my own behalf,
or as owner, manager, stockholder, consultant, director, officer, or employee of any
business entity (except as a holder of not more than one (1%) percent of the stock
of a publicly held company) participate, directly or indirectly, in any capacity, in
any business activity that is in direct competition with the Company.
Id. ¶ 6(b)
I agree that, during the Restricted Period, I shall not, on my own behalf, or as owner,
manager, stockholder, member, consultant, director, officer, or employee of any
business entity other than the Company, directly or indirectly, solicit, call upon,
induce, divert or take away any current or former customer or client of the
Company, or any person or entity reasonably understood to be a prospective
customer or client of the Company (each of the foregoing a “Company Client”), or
accept an offer from any Company Client to provide services similar to the
Services, or market the Services or any services similar to the Services to any
Company Client.
Id. ¶ 6(d).
Sukhraj further agreed and acknowledged that the restrictive covenants in the Agreement
were “necessary in order to protect the Company’s Confidential Information and good will.” Id.
¶ 10(a). And he acknowledged that if he were to violate the Agreement, Capchase would suffer
“harm . . . not adequately compensable by money damages alone” and that Capchase would be
“entitled to injunctive relief to prevent an actual or threatened violation of this Agreement and to
enforce the provisions hereof.” Id. ¶ 10(d). The Agreement is governed by Delaware law. Id. ¶
10(g). It provides that all disputes related to Sukhraj’s employment shall be resolved pursuant to
the Federal Arbitration Act—except as to “injunctive relief in court to prevent irreparable harm
pending the conclusion of any such arbitration.” Id. at 2–3.
Sukhraj has now violated and is poised to further violate these contractual obligations.
Within three minutes of being informed of his termination in early June 2022, Sukhraj downloaded
Capchase’s highly sensitive “Sales Core Underwriting Ledger” (the “Ledger”) after he duped
Capchase into permitting him continued access to its systems so that he could draft a farewell
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email to his colleagues. See Koch Aff. ¶¶ 22, 25; Affirmation of Ezequiel Cura (“Cura Aff.”) ¶¶
4–7. Less than one month later Sukhraj accepted a position at Capchase’s rival firm, Arc, which
employment Capchase understands will commence imminently—if it has not already. See Koch
Aff. ¶ 26. To Arc, the information in the Ledger is a blueprint for scooping up Capchase’s
customer pipeline and undercutting Capchase at every turn. See id. ¶¶ 15, 27. And if Sukhraj
works as an Account Executive or in a similar role at Arc, he will inevitably disclose to Arc
Capchase’s confidential information and trade secrets, including the Ledger and the other highly
proprietary information Sukhraj accessed during his employment, and use that information against
Capchase on behalf of its direct competitor. Id. ¶ 27.
Capchase’s urgent need for appropriate injunctive relief: Sukhraj’s unlawful actions have
regrettably forced Capchase to bring this action for breach of contract and to seek emergency relief
pursuant to CPLR 7502(c), which authorizes this Court to issue an injunction in aid of an imminent
arbitration. Such relief is warranted for four reasons. First, Capchase is likely to succeed on the
merits of its claims that Sukhraj has breached his employment agreement by violating its
enforceable non-competition covenant, “Confidential Information,” and “Return of Property”
provisions. Second, Sukhraj’s breach of his employment agreement will irreparably harm
Capchase by enabling Arc to rely on Capchase’s confidential customer information and trade
secrets to undercut Capchase in the market. Third, the balance of equities weighs in Capchase’s
favor. Sukhraj’s experience and background enables him to get a job this year at any number of
other companies that do not directly compete with Capchase. There is no legitimate reason why
Sukhraj has to target his old employer by defecting to its direct competitor. Fourth, the public
interest favors injunctive relief to protect fair competition in the market and the enforcement of
freely made contracts.
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Allowing Sukhraj to join Arc on the heels of his departure from Capchase in utter disregard
of his legal obligations provides Arc with an unfair competitive advantage over Capchase—
precisely what the parties intended Sukhraj’s employment agreement to prevent. Capchase
therefore moves this Court for a temporary restraining order and preliminary injunction enjoining
Sukhraj from further breaching his employment agreement pending the conclusion of arbitration.
FACTUAL BACKGROUND
For a complete recitation of the facts, Petitioner respectfully refers the Court to the
accompanying Verified Petition (the “Petition”), the Affidavit of Keryn Koch, sworn to on July
11, 2022, and the Affirmation of Ezequiel Cura, sworn to on July 12, 2022.
LEGAL STANDARDS
Capchase brings this motion pursuant to CPLR 7502(c) seeking an injunction in aid of an
imminent arbitration against Sukhraj. The Agreement provides that disputes arising from the
Agreement must be resolved in arbitration, but expressly authorizes the parties to obtain
“injunctive relief in court to prevent irreparable harm pending the conclusion of any such
arbitration.” Koch Aff. Ex. 3 at 3. CPLR 7502(c) permits this Court to grant “a preliminary
injunction in connection with an arbitration that . . . is to be commenced inside or outside this state
. . . upon the ground that the award to which the applicant may be entitled may be rendered
ineffectual without such provisional relief.” Capchase intends to initiate an arbitration action
against Sukhraj as soon as possible. But, as discussed infra at 14–15, any eventual arbitration
award in Capchase’s favor will be ineffectual due to the irreparable harm Capchase faces if Sukhraj
is permitted to work at Arc.
Such temporary restraining order is appropriate here where “immediate and irreparable
injury, loss or damages will result unless [Sukhraj] is restrained before a hearing can be had,”
C.P.L.R. §§ 6301, 6313; see Four Times v. Cigna Invs., Inc., 306 A.D.2d 4, 5 (1st Dep’t 2003), as
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preliminary relief is designed “to maintain the status quo until there can be a full hearing on the
merits.” Pamela Equities v. 270 Park Ave. Cafe Corp., 62 A.D.3d 620, 621 (1st Dep’t 2009)
(citations omitted).2 A court may issue a preliminary injunction where the plaintiff demonstrates:
“(1) a likelihood of success on the merits, (2) irreparable injury if provisional relief is not granted
and (3) that the equities are in his favor.” J.A. Preston v. Fabrication Enters., 68 N.Y.2d 397, 406
(1986) (citation omitted); see also Jones v. State Farm Fire & Cas. Co, 189 A.D.3d 1565, 1566
(2d Dep’t 2020). “In ruling on a motion for a preliminary injunction, the courts [also] must weigh
the interest of the general public as well as the interest of the parties to the litigation.” De Pina v.
Educ. Testing Serv., 31 A.D.2d 744, 745 (2d Dep’t 1969). As demonstrated below, Capchase
easily satisfies its burden for emergency relief.
ARGUMENT
A. Capchase Is Likely To Prevail On Its Breach Of Contract Claim.
As the party seeking to preserve the status quo, Capchase has a “reduced degree of proof”
in demonstrating its likelihood of success on the merits. Masjid Usman v. Beech 140, LLC, 68
A.D.3d 942, 943 (2d Dep’t 2009). Indeed, a likelihood of success on the merits may be
“sufficiently established even where the facts are in dispute,” and “the evidence need not be
conclusive.” Barbes Rest. v. SRR Suzer 218, LLC, 140 A.D.3d 430, 431 (1st Dep’t 2016). Under
Delaware law, which applies to Capchase’s breach of contract claim per the choice-of-law
provision in the Agreement, see Koch Aff. Ex. 3 ¶ 10(g), Capchase is likely to prevail on its
contract claim here because (1) the Agreement is valid and enforceable, and (2) Sukhraj breached
the Agreement by accepting a job at Arc, Capchase’s direct competitor, and downloading
2
New York law governs the evidentiary standard for Capchase’s application for a preliminary injunction, even
though Delaware law governs the interpretation and enforceability of the Agreement containing the restrictive
covenants at issue. See WebMD Health Corp. v Martin, 12 Misc.3d 1180(A) (Sup. Ct. N.Y. Cnty. 2006); Koch
Aff. Ex. 3 ¶ 10(g).
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Capchase’s proprietary and confidential information without authorization, (3) harming Capchase.
See Weichert Co. of Pennsylvania v. Young, 2007 WL 4372823, at *3 n.12 (Del. Ch. Dec. 7, 2007)
(breach of contract elements).3
1. Sukhraj’s Non-Compete Is Enforceable.
Restrictive covenants are enforceable provided they are “reasonable in scope and duration,
both geographically and temporally,” “advance a legitimate economic interest of the party
enforcing the covenant,” and “survive a balance of the equities.” All Pro Maids, Inc. v. Layton,
2004 WL 1878784, at *5 (Del. Ch. Aug. 9, 2004). Sukhraj’s non-compete is reasonable in both
scope and duration.
Reasonable Duration. A one-year non-compete is eminently reasonable in these
circumstances. See Am. Homepatient, Inc. v. Collier, 2006 WL 1134170, at *2 (Del. Ch. Apr. 19,
2006) (considering facts of case and economic interest of employer to enforce restrictive
covenant). Capchase maintains its market share by pouring significant time and investment into
cultivating its customer relationships and bringing new customers to its platform. Koch Aff. ¶¶ 6–
10, 13. And it can take Capchase up to a year to negotiate and close new customer contracts. Id.
¶ 10. As an Account Executive, Sukhraj was directly involved in building and cultivating
Capchase’s pipeline of current and future institutional clients and customers profile knowledge.
Id. ¶¶ 13–15. If permitted to work for Arc within one year of his separation, Sukhraj will
inevitably rely upon that knowledge of Capchase’s business and customer relationships to attract
3
New York courts apply Delaware law in assessing the enforceability of a covenant in a contract with a Delaware
choice-of-law provision. See, e.g., Gottwald v. Sebert, 79 N.Y.S.3d 7 (1st Dep’t 2018).But applying New York
law would not change this result. See Capstone Logistics Holdings, Inc. v. Navarrete, 2018 WL 6786338, at *22
(S.D.N.Y. Oct. 25, 2018) (“no conflict between Delaware and New York law
regarding enforceability of restrictive covenants”)(citing TBA Global LLC v.Proscenium Events LLC, 980
N.Y.S.2d 459 (1st Dep’t 2014)). And no other law is relevant beyond Delaware because New York courts
“refuse[] to consider the public policy of foreign states . . . to overturn an otherwise valid contractual choice of
law provision.” See id. (citing Gottwald, 79 N.Y.S.3d at 7).
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new customers away from Capchase and to Arc. Id. ¶ 27. In fact, in similar situations involving
account and sales executives, courts applying Delaware law routinely conclude that one-year
restrictive covenants like Sukhraj’s are reasonable and enforceable. See Am. Homepatient, 2006
WL 1134170, at *2 (one-year restrictive covenant enforceable against “account executive” who
“develop[ed] relationships with referral sources that are invaluable to the success of the
company”); CIENA Corp. v. Jarrard, 203 F.3d 312, 324 (4th Cir. 2000) (enforcing under Delaware
law one-year non-competition covenant against sales director); Research & Trading Corp. v.
Pfuhl, 1992 WL 345465, at *12 (Del. Ch. Nov. 18, 1992) (one-year non-compete “plainly
reasonable” in duration when enforced against a former sales and marketing executive);
Hammermill Paper Co. v. Palese, 1983 WL 19786, at *1, *6 (Del. Ch. June 14, 1983) (one-year
non-compete reasonable when enforced against sales representative in light of the “natural result
of customers following a trusted sales representative to his new company”). And Sukhraj
expressly agreed that a one-year non-competition provision was “necessary in order to protect
[Capchase’s] Confidential Information and good will.” Koch Aff. Ex. 3 ¶ 6(a).
Reasonable Geography. “Delaware law also . . . condones broad geographic restrictions,
up to and including non-competes with a global scope . . . when the relevant competitive market
is equally broad or global.” Avaya, Inc. v. Ali, 2012 WL 2888474, at *7 (D. Mass. July 13, 2012)
(applying Delaware law to enforce global non-competition provision); see also, e.g., Sentient Jet,
LLC v. Early, 2013 WL 6210643, at *3 (D. Mass. Sept. 11, 2013) (same); Research & Trading
Corp., 1992 WL 345465, at *12 (sales and marketing executive’s non-competition covenant was
enforceable despite lack of any geographic limitation when former employer’s customer base
“extend[ed] . . . internationally”). Such is the case here, where Capchase’s unique financing model
means Sukhraj could compete with Capchase living and working from anywhere with an Internet
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connection. Koch. Aff. ¶ 9. Capchase has, in fact, made financing available to companies in the
United States, United Kingdom, Canada, Spain, Sweden, Finland, Denmark, the Netherlands, and
Belgium, and its global footprint continues to grow. Id. It is more than “appropriate that .. .
[Sukhraj] be prohibited from soliciting those customers on behalf of a competitor regardless of
their geographic location.” Research & Trading Corp., 1992 WL 345465, at *12 (enforcing global
non-compete against sales and marketing executive “given the broad distribution of [former
employer’s] customers geographically”).
Protection of Capchase’s Legitimate Interests. Capchase’s interests here “include
protection of employer goodwill and protection of employer confidential information from
misuse”—both of which courts have found legitimate to enforce a non-compete. Research &
Trading Corp., 1992 WL 345465, at *12 (Del. Ch. Nov. 18, 1992); see also TP Group–CI, Inc. v.
Vetecnik, 2016 WL 5864030, at *2 (D. Del. Oct. 6, 2016) (“Protecting a company’s goodwill and
confidential information are recognized as legitimate economic interests advanced by
the restrictive covenants.”).
While employed at Capchase, Sukhraj used its resources to develop substantial goodwill
and created personal relationships with over 400 of Capchase’s customers, calling upon
Capchase’s institutional knowledge and strategies to develop and foster r
Preview
FILED: NEW YORK COUNTY CLERK 07/13/2022 05:55 PM INDEX NO. 652427/2022 NYSCEF DOC. NO. 3 RECEIVED NYSCEF: 07/13/2022 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK ------------------------------------- In the Matter of the Application of CAPCHASE INC., x : Petitioner, : : Index No. For a temporary restraining order and preliminary : injunction in aid of arbitration pursuant to CPLR : 7502(c) : : Motion Sequence No. __ - against - : : : DAVID SUKHRAJ, x Respondent. ------------------------------------- PETITIONER’S MEMORANDUM OF LAW IN SUPPORT OF AN ORDER TO SHOW CAUSE SEEKING A TEMPORARY RESTRAINING ORDER AND PRELIMINARY INJUNCTION IN AID OF ARBITRATION AND EXPEDITED DISCOVERY GIBSON, DUNN & CRUTCHER LLP 200 Park Avenue New York, NY 10166-0193 Telephone: 212.351.4000 Attorneys for Capchase Inc. 1 of 25 FILED: NEW YORK COUNTY CLERK 07/13/2022 05:55 PM INDEX NO. 652427/2022 NYSCEF DOC. NO. 3 RECEIVED NYSCEF: 07/13/2022 TABLE OF CONTENTS Page PRELIMINARY STATEMENT ................................................................................................... 1 LEGAL STANDARDS ................................................................................................................. 6 A. Capchase Is Likely To Prevail On Its Breach Of Contract Claim. ........................ 7 1. Sukhraj’s Non-Compete Is Enforceable. ................................................... 8 2. Sukhraj Has Breached And Will Continue To Breach His Non- Compete. .................................................................................................. 12 3. Sukhraj Has Breached And Will Continue To Breach Other Agreement Provisions. ............................................................................. 13 B. Without Immediate Relief, Capchase Will Suffer Imminent, Irreparable Injury. ................................................................................................................... 13 C. The Balance Of The Equities Heavily Favors A TRO And Preliminary Injunction. ............................................................................................................ 15 D. The Public Interest Is Best Served By Granting Injunctive Relief. ..................... 16 E. Capchase Should Be Granted Expedited Discovery. ........................................... 17 CONCLUSION ............................................................................................................................ 18 i 2 of 25 FILED: NEW YORK COUNTY CLERK 07/13/2022 05:55 PM INDEX NO. 652427/2022 NYSCEF DOC. NO. 3 RECEIVED NYSCEF: 07/13/2022 TABLE OF AUTHORITIES Page Cases All Pro Maids, Inc. v. Layton, 2004 WL 1878784 (Del. Ch. Aug. 9, 2004) ..............................................................................8 Am. Homepatient, Inc. v. Collier, 2006 WL 1134170 (Del. Ch. Apr. 19, 2006) .........................................................................8, 9 Avaya, Inc. v. Ali, 2012 WL 2888474 (D. Mass. July 13, 2012).............................................................................9 Ayco Co. v. Feldman, 2010 WL 4286154 (N.D.N.Y. Oct. 22, 2010) .........................................................................16 Barbes Rest. v. SRR Suzer 218, LLC, 140 A.D.3d 430 (1st Dep’t 2016) ..............................................................................................7 Bel Geddes v Zeiderman, 228 A.D.2d 393 (1st Dep’t 1996) ............................................................................................17 Can-West Glob. Commc’ns v. Mirkaei Tikshoret Ltd., 9 Misc. 3d 845 (Sup. Ct. N.Y. Cnty. 2005) .............................................................................11 Capstone Logistics Holdings, Inc. v. Navarrete, No. 17-CV-4819 (GBD), 2018 WL 6786338 (S.D.N.Y. Oct. 25, 2018) ...................................8 CIENA Corp. v. Jarrard, 203 F.3d 312 (4th Cir. 2000) .....................................................................................................9 De Pina v. Educ. Testing Serv., 31 A.D.2d 744 (2d Dep’t 1969) .................................................................................................7 DoubleClick v. Henderson, 1997 WL 731413 (Sup. Ct. N.Y. Cnty. Nov. 7, 1997) ............................................................15 Four Times v. Cigna Invs., Inc., 306 A.D.2d 4 (1st Dep’t 2003) ..................................................................................................6 Gottwald v. Sebert, 79 N.Y.S.3d 7 (1st Dep’t 2018) .................................................................................................8 Gramcery v. Benenson, 223 A.D.2d 497 (1st Dep’t 1996) ............................................................................................16 Hammermill Paper Co. v. Palese, 1983 WL 19786 (Del. Ch. June 14, 1983) .................................................................................9 ii 3 of 25 FILED: NEW YORK COUNTY CLERK 07/13/2022 05:55 PM INDEX NO. 652427/2022 NYSCEF DOC. NO. 3 RECEIVED NYSCEF: 07/13/2022 TABLE OF AUTHORITIES (continued) Page Iannucci v. Segal Co., Inc., 2006 WL 8407380 (S.D.N.Y. June 27, 2006) .........................................................................14 IBM v. Papermaster, 2008 WL 4974508 (S.D.N.Y. Nov. 21, 2008) ...................................................................14, 16 J.A. Preston v. Fabrication Enters., 68 N.Y.2d 397 (1986) ................................................................................................................7 Johnson Controls, Inc. v. A.P.T. Critical Sys., Inc., 323 F.Supp.2d 525 (S.D.N.Y. 2004)........................................................................................15 Jones v. State Farm Fire & Cas. Co, 189 A.D.3d 1565 (2d Dep’t 2020) .............................................................................................7 Klein, Wagner & Morris v. Lawrence A. Klein, P.C., 186 A.D.2d 631 (2d Dep’t 1992) .............................................................................................14 Lumex, Inc. v Highsmith, 919 F.Supp. 624 (E.D.N.Y. 1996) ...........................................................................................15 Masjid Usman v. Beech 140, LLC, 68 A.D.3d 942 (2d Dep’t 2009) .................................................................................................7 McCann Surveyors, Inc. v. Evans, 611 A.2d 1 (Del. Ch. 1987)......................................................................................................12 McLaughlin, Piven, Vogel v. Nolan & Co., 114 A.D.2d 165 (2d Dep’t 1986) .............................................................................................15 Pamela Equities v. 270 Park Ave. Cafe Corp., 62 A.D.3d 620 (1st Dep’t 2009) ................................................................................................7 Rational Strategies Fund v. Hill, 40 Misc. 3d 1214(A) (Sup. Ct. N.Y. Cnty. 2013) ....................................................................17 Research & Trading Corp. v. Pfuhl, 1992 WL 345465 (Del. Ch. Nov. 18, 1992) ..................................................................9, 10, 11 Reuschenberg v. Town of Huntington, 16 A.D.3d 568 (2d Dep’t 2005) ...............................................................................................14 Sentient Jet, LLC v. Early, 2013 WL 6210643 (D. Mass. Sept. 11, 2013) ...........................................................................9 iii 4 of 25 FILED: NEW YORK COUNTY CLERK 07/13/2022 05:55 PM INDEX NO. 652427/2022 NYSCEF DOC. NO. 3 RECEIVED NYSCEF: 07/13/2022 TABLE OF AUTHORITIES (continued) Page Sylmark Holdings Ltd. v Silicone Zone Intern. Ltd., 5 Misc. 3d 285 (Sup. Ct. N.Y. Cnty. 2004) .............................................................................17 TBA Global LLC v. Proscenium Events LLC, 980 N.Y.S.2d 459 (1st Dep’t 2014) ...........................................................................................8 Ticor Title Ins. Co. v. Cohen, 173 F.3d 63 (2d Cir. 1999).......................................................................................................14 TP Group–CI, Inc. v. Vetecnik, 2016 WL 5864030 (D. Del. Oct. 6, 2016) .........................................................................10, 11 Uni-World Capital L.P. v Preferred Fragrance, Inc., 73 F.Supp.3d 209 (S.D.N.Y. 2014)..........................................................................................17 W.W.W. Assoc. v. Giancontieri, 77 N.Y.2d 157, 162 (1990) ......................................................................................................17 WebMD Health Corp. v Martin, 12 Misc.3d 1180(A) (Sup. Ct. N.Y. Cnty. 2006) .......................................................................7 Weichert Co. of Pennsylvania v. Young, 2007 WL 4372823 (Del. Ch. Dec. 7, 2007) ...............................................................................8 Willis v. DeFelice, 299 A.D.2d 240 (1st Dep’t 2002) ............................................................................................16 Matter of Yung Bros. Real Estate Co. v. Limandri, 2009 WL 5174193 (Sup. Ct. N.Y. Cnty. Dec. 29, 2009).........................................................15 Rules C.P.L.R. § 6301................................................................................................................................6 C.P.L.R. § 6313................................................................................................................................6 Treatises 4B N.Y. Prac., Com. Litig. New York State Courts § 80:49 (4th ed.) ..........................................18 iv 5 of 25 FILED: NEW YORK COUNTY CLERK 07/13/2022 05:55 PM INDEX NO. 652427/2022 NYSCEF DOC. NO. 3 RECEIVED NYSCEF: 07/13/2022 Petitioner Capchase Inc. (“Capchase”) respectfully submits this memorandum of law in support of itsapplication for a temporary restraining order and preliminary injunction in aid of arbitration pursuant to CPLR 7502(c), enjoining Respondent David Sukhraj (“Sukhraj”) from working for Capchase’s direct competitors, including Arc Technologies, Inc. (“Arc”), and from otherwise violating his employment agreement pending the conclusion of Capchase’s imminent arbitration against Sukhraj. PRELIMINARY STATEMENT1 This Court’s immediate intervention is necessary to prevent irreparable harm to Capchase resulting from former employee Sukhraj’s willful misconduct and blatant disregard for his contractual obligations. Moments after Capchase informed Sukhraj that it was terminating his employment, Sukhraj downloaded a master spreadsheet containing Capchase’s sensitive and proprietary information: a compilation of Capchase’s prospective and recently acquired customers, the underwriting status for each of those customers, and deal terms reached in contracts with customers that Capchase and its customers are obligated to keep confidential. Sukhraj later informed Capchase that he was commencing employment with Capchase’s direct competitor, Arc, in flagrant disregard of the restrictive covenants he agreed to in exchange for his employment and access to Capchase’s confidential and trade secret information in the first place. Capchase’s efforts to bring Sukhraj in compliance and avoid judicial intervention have fallen on deaf ears— necessitating emergency relief. * * * The highly competitive market for Capchase’s products and services: Founded in 2020, Capchase is a company that provides alternative financing to emerging companies in the Software 1 Unless otherwise defined herein, capitalized terms shall have the same meaning as ascribed to them in the Petition. 1 6 of 25 FILED: NEW YORK COUNTY CLERK 07/13/2022 05:55 PM INDEX NO. 652427/2022 NYSCEF DOC. NO. 3 RECEIVED NYSCEF: 07/13/2022 as a Service (“SaaS”) industry. Affidavit of Keryn Koch (“Koch Aff.”) ¶¶ 4–6. The SaaS industry includes businesses that license software services to their customers directly through the Internet with monthly or annual subscriptions, which generate recurring revenues. Id. ¶ 4. Capchase’s innovative products enable startup SaaS companies to access upfront capital in exchange for portions of SaaS companies’ future recurring revenues. Id. ¶¶ 5–6. This allows SaaS startups to seamlessly obtain financing globally, without the hassle of fundraising from institutional investors and dilution of their stock. See id. The market for the products and services that Capchase offers is fiercely competitive. See id. ¶ 10; Pet. ¶ 20. Capchase’s business model competes with and disrupts the traditional financing models of large financial institutions that seek to provide capital in exchange for significant equity. Koch Aff. ¶ 10. At the same time, Capchase competes for market share against other emerging alternative-financing entities in the SaaS economy—including Arc. Id. Founded just one year after Capchase, Arc offers copycat services it advertises on its website in substantially similar language to Capchase. Id. ¶ 11. To compete for market share, Capchase must constantly work to differentiate itself, find new customers globally, and obtain more business from existing customers. See id. ¶ 10; Pet. ¶ 20. Doing so has taken Capchase significant skill, time, and investment. See Koch Aff. ¶¶ 6–10. That investment has generated numerous trade secrets and proprietary information pivotal to Capchase’s business, including compilations of customer lists and analyses about their financial performance, underwriting criteria used to vet financing transactions, and deal terms between customers and Capchase. See id. ¶¶ 6–9, 14–16. Capchase relies on this proprietary information to develop and foster close relationships with its customers. See id. ¶ 13. And because Capchase’s customer contracts are often multimillion dollar deals that can take up to a year to compete for and 2 7 of 25 FILED: NEW YORK COUNTY CLERK 07/13/2022 05:55 PM INDEX NO. 652427/2022 NYSCEF DOC. NO. 3 RECEIVED NYSCEF: 07/13/2022 negotiate, developing and fostering these relationships is critical to Capchase’s success. See id. ¶ 10. Sukhraj’s willful violation of his reasonable contractual obligations: Capchase hired Sukhraj as an Account Executive in 2021 to help perform this critical mission. Id. ¶ 12. In exchange for his employment and granting him access to Capchase’s proprietary information and carefully cultivated customer base needed for his role, Sukhraj agreed to narrowly tailored restrictive covenants that prevent him from—for one year following his separation from Capchase—working for Capchase’s direct competitors and soliciting Capchase’s employees and customers. See Koch Aff. Ex. 3 ¶¶ 6(b) and (d) (Employment Terms and Non-Disclosure, Non- Competition, Non-Solicitation Assignment of Intellectual Property Agreement; together, the “Agreement”). Sukhraj further agreed to return and not use Capchase’s confidential information and trade secrets following his departure. Id. ¶ 2. Specifically, the operative provisions of Sukhraj’s Agreement provide: During the Relationship and thereafter, I will not, directly or indirectly, use any Confidential Information (as hereinafter defined) other than pursuant to the Relationship or disclose to anyone outside of the Company any such Confidential Information whether by private communication, public address, publication or otherwise or to anyone within the Company who has not been authorized to receive such information, except as directed in writing by an authorized representative of the Company or as otherwise provided below. The term “Confidential Information” as used throughout this Agreement means all trade secrets, proprietary information, know-how, data, designs, specifications, processes, customer lists, client lists and other technical or business information (and any tangible evidence, record or representation thereof), disclosed to or made known to me at any time, whether prepared, conceived or developed by me or by an officer, director, consultant or employee of the Company, or received by the Company from an outside source, which is in the possession of the Company (whether or not the property of the Company), which in any way relates to the present or future business of the Company, which is maintained in confidence by the Company, or which might permit the Company or its clients or customers to obtain a competitive advantage over competitors who do not have access to such trade secrets, proprietary information, or other data or information. Id. ¶ 2. 3 8 of 25 FILED: NEW YORK COUNTY CLERK 07/13/2022 05:55 PM INDEX NO. 652427/2022 NYSCEF DOC. NO. 3 RECEIVED NYSCEF: 07/13/2022 During the Relationship and for a period of one year after the termination of the Relationship for any reason (the “Restricted Period”), I shall not, on my own behalf, or as owner, manager, stockholder, consultant, director, officer, or employee of any business entity (except as a holder of not more than one (1%) percent of the stock of a publicly held company) participate, directly or indirectly, in any capacity, in any business activity that is in direct competition with the Company. Id. ¶ 6(b) I agree that, during the Restricted Period, I shall not, on my own behalf, or as owner, manager, stockholder, member, consultant, director, officer, or employee of any business entity other than the Company, directly or indirectly, solicit, call upon, induce, divert or take away any current or former customer or client of the Company, or any person or entity reasonably understood to be a prospective customer or client of the Company (each of the foregoing a “Company Client”), or accept an offer from any Company Client to provide services similar to the Services, or market the Services or any services similar to the Services to any Company Client. Id. ¶ 6(d). Sukhraj further agreed and acknowledged that the restrictive covenants in the Agreement were “necessary in order to protect the Company’s Confidential Information and good will.” Id. ¶ 10(a). And he acknowledged that if he were to violate the Agreement, Capchase would suffer “harm . . . not adequately compensable by money damages alone” and that Capchase would be “entitled to injunctive relief to prevent an actual or threatened violation of this Agreement and to enforce the provisions hereof.” Id. ¶ 10(d). The Agreement is governed by Delaware law. Id. ¶ 10(g). It provides that all disputes related to Sukhraj’s employment shall be resolved pursuant to the Federal Arbitration Act—except as to “injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration.” Id. at 2–3. Sukhraj has now violated and is poised to further violate these contractual obligations. Within three minutes of being informed of his termination in early June 2022, Sukhraj downloaded Capchase’s highly sensitive “Sales Core Underwriting Ledger” (the “Ledger”) after he duped Capchase into permitting him continued access to its systems so that he could draft a farewell 4 9 of 25 FILED: NEW YORK COUNTY CLERK 07/13/2022 05:55 PM INDEX NO. 652427/2022 NYSCEF DOC. NO. 3 RECEIVED NYSCEF: 07/13/2022 email to his colleagues. See Koch Aff. ¶¶ 22, 25; Affirmation of Ezequiel Cura (“Cura Aff.”) ¶¶ 4–7. Less than one month later Sukhraj accepted a position at Capchase’s rival firm, Arc, which employment Capchase understands will commence imminently—if it has not already. See Koch Aff. ¶ 26. To Arc, the information in the Ledger is a blueprint for scooping up Capchase’s customer pipeline and undercutting Capchase at every turn. See id. ¶¶ 15, 27. And if Sukhraj works as an Account Executive or in a similar role at Arc, he will inevitably disclose to Arc Capchase’s confidential information and trade secrets, including the Ledger and the other highly proprietary information Sukhraj accessed during his employment, and use that information against Capchase on behalf of its direct competitor. Id. ¶ 27. Capchase’s urgent need for appropriate injunctive relief: Sukhraj’s unlawful actions have regrettably forced Capchase to bring this action for breach of contract and to seek emergency relief pursuant to CPLR 7502(c), which authorizes this Court to issue an injunction in aid of an imminent arbitration. Such relief is warranted for four reasons. First, Capchase is likely to succeed on the merits of its claims that Sukhraj has breached his employment agreement by violating its enforceable non-competition covenant, “Confidential Information,” and “Return of Property” provisions. Second, Sukhraj’s breach of his employment agreement will irreparably harm Capchase by enabling Arc to rely on Capchase’s confidential customer information and trade secrets to undercut Capchase in the market. Third, the balance of equities weighs in Capchase’s favor. Sukhraj’s experience and background enables him to get a job this year at any number of other companies that do not directly compete with Capchase. There is no legitimate reason why Sukhraj has to target his old employer by defecting to its direct competitor. Fourth, the public interest favors injunctive relief to protect fair competition in the market and the enforcement of freely made contracts. 5 10 of 25 FILED: NEW YORK COUNTY CLERK 07/13/2022 05:55 PM INDEX NO. 652427/2022 NYSCEF DOC. NO. 3 RECEIVED NYSCEF: 07/13/2022 Allowing Sukhraj to join Arc on the heels of his departure from Capchase in utter disregard of his legal obligations provides Arc with an unfair competitive advantage over Capchase— precisely what the parties intended Sukhraj’s employment agreement to prevent. Capchase therefore moves this Court for a temporary restraining order and preliminary injunction enjoining Sukhraj from further breaching his employment agreement pending the conclusion of arbitration. FACTUAL BACKGROUND For a complete recitation of the facts, Petitioner respectfully refers the Court to the accompanying Verified Petition (the “Petition”), the Affidavit of Keryn Koch, sworn to on July 11, 2022, and the Affirmation of Ezequiel Cura, sworn to on July 12, 2022. LEGAL STANDARDS Capchase brings this motion pursuant to CPLR 7502(c) seeking an injunction in aid of an imminent arbitration against Sukhraj. The Agreement provides that disputes arising from the Agreement must be resolved in arbitration, but expressly authorizes the parties to obtain “injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration.” Koch Aff. Ex. 3 at 3. CPLR 7502(c) permits this Court to grant “a preliminary injunction in connection with an arbitration that . . . is to be commenced inside or outside this state . . . upon the ground that the award to which the applicant may be entitled may be rendered ineffectual without such provisional relief.” Capchase intends to initiate an arbitration action against Sukhraj as soon as possible. But, as discussed infra at 14–15, any eventual arbitration award in Capchase’s favor will be ineffectual due to the irreparable harm Capchase faces if Sukhraj is permitted to work at Arc. Such temporary restraining order is appropriate here where “immediate and irreparable injury, loss or damages will result unless [Sukhraj] is restrained before a hearing can be had,” C.P.L.R. §§ 6301, 6313; see Four Times v. Cigna Invs., Inc., 306 A.D.2d 4, 5 (1st Dep’t 2003), as 6 11 of 25 FILED: NEW YORK COUNTY CLERK 07/13/2022 05:55 PM INDEX NO. 652427/2022 NYSCEF DOC. NO. 3 RECEIVED NYSCEF: 07/13/2022 preliminary relief is designed “to maintain the status quo until there can be a full hearing on the merits.” Pamela Equities v. 270 Park Ave. Cafe Corp., 62 A.D.3d 620, 621 (1st Dep’t 2009) (citations omitted).2 A court may issue a preliminary injunction where the plaintiff demonstrates: “(1) a likelihood of success on the merits, (2) irreparable injury if provisional relief is not granted and (3) that the equities are in his favor.” J.A. Preston v. Fabrication Enters., 68 N.Y.2d 397, 406 (1986) (citation omitted); see also Jones v. State Farm Fire & Cas. Co, 189 A.D.3d 1565, 1566 (2d Dep’t 2020). “In ruling on a motion for a preliminary injunction, the courts [also] must weigh the interest of the general public as well as the interest of the parties to the litigation.” De Pina v. Educ. Testing Serv., 31 A.D.2d 744, 745 (2d Dep’t 1969). As demonstrated below, Capchase easily satisfies its burden for emergency relief. ARGUMENT A. Capchase Is Likely To Prevail On Its Breach Of Contract Claim. As the party seeking to preserve the status quo, Capchase has a “reduced degree of proof” in demonstrating its likelihood of success on the merits. Masjid Usman v. Beech 140, LLC, 68 A.D.3d 942, 943 (2d Dep’t 2009). Indeed, a likelihood of success on the merits may be “sufficiently established even where the facts are in dispute,” and “the evidence need not be conclusive.” Barbes Rest. v. SRR Suzer 218, LLC, 140 A.D.3d 430, 431 (1st Dep’t 2016). Under Delaware law, which applies to Capchase’s breach of contract claim per the choice-of-law provision in the Agreement, see Koch Aff. Ex. 3 ¶ 10(g), Capchase is likely to prevail on its contract claim here because (1) the Agreement is valid and enforceable, and (2) Sukhraj breached the Agreement by accepting a job at Arc, Capchase’s direct competitor, and downloading 2 New York law governs the evidentiary standard for Capchase’s application for a preliminary injunction, even though Delaware law governs the interpretation and enforceability of the Agreement containing the restrictive covenants at issue. See WebMD Health Corp. v Martin, 12 Misc.3d 1180(A) (Sup. Ct. N.Y. Cnty. 2006); Koch Aff. Ex. 3 ¶ 10(g). 7 12 of 25 FILED: NEW YORK COUNTY CLERK 07/13/2022 05:55 PM INDEX NO. 652427/2022 NYSCEF DOC. NO. 3 RECEIVED NYSCEF: 07/13/2022 Capchase’s proprietary and confidential information without authorization, (3) harming Capchase. See Weichert Co. of Pennsylvania v. Young, 2007 WL 4372823, at *3 n.12 (Del. Ch. Dec. 7, 2007) (breach of contract elements).3 1. Sukhraj’s Non-Compete Is Enforceable. Restrictive covenants are enforceable provided they are “reasonable in scope and duration, both geographically and temporally,” “advance a legitimate economic interest of the party enforcing the covenant,” and “survive a balance of the equities.” All Pro Maids, Inc. v. Layton, 2004 WL 1878784, at *5 (Del. Ch. Aug. 9, 2004). Sukhraj’s non-compete is reasonable in both scope and duration. Reasonable Duration. A one-year non-compete is eminently reasonable in these circumstances. See Am. Homepatient, Inc. v. Collier, 2006 WL 1134170, at *2 (Del. Ch. Apr. 19, 2006) (considering facts of case and economic interest of employer to enforce restrictive covenant). Capchase maintains its market share by pouring significant time and investment into cultivating its customer relationships and bringing new customers to its platform. Koch Aff. ¶¶ 6– 10, 13. And it can take Capchase up to a year to negotiate and close new customer contracts. Id. ¶ 10. As an Account Executive, Sukhraj was directly involved in building and cultivating Capchase’s pipeline of current and future institutional clients and customers profile knowledge. Id. ¶¶ 13–15. If permitted to work for Arc within one year of his separation, Sukhraj will inevitably rely upon that knowledge of Capchase’s business and customer relationships to attract 3 New York courts apply Delaware law in assessing the enforceability of a covenant in a contract with a Delaware choice-of-law provision. See, e.g., Gottwald v. Sebert, 79 N.Y.S.3d 7 (1st Dep’t 2018).But applying New York law would not change this result. See Capstone Logistics Holdings, Inc. v. Navarrete, 2018 WL 6786338, at *22 (S.D.N.Y. Oct. 25, 2018) (“no conflict between Delaware and New York law regarding enforceability of restrictive covenants”)(citing TBA Global LLC v.Proscenium Events LLC, 980 N.Y.S.2d 459 (1st Dep’t 2014)). And no other law is relevant beyond Delaware because New York courts “refuse[] to consider the public policy of foreign states . . . to overturn an otherwise valid contractual choice of law provision.” See id. (citing Gottwald, 79 N.Y.S.3d at 7). 8 13 of 25 FILED: NEW YORK COUNTY CLERK 07/13/2022 05:55 PM INDEX NO. 652427/2022 NYSCEF DOC. NO. 3 RECEIVED NYSCEF: 07/13/2022 new customers away from Capchase and to Arc. Id. ¶ 27. In fact, in similar situations involving account and sales executives, courts applying Delaware law routinely conclude that one-year restrictive covenants like Sukhraj’s are reasonable and enforceable. See Am. Homepatient, 2006 WL 1134170, at *2 (one-year restrictive covenant enforceable against “account executive” who “develop[ed] relationships with referral sources that are invaluable to the success of the company”); CIENA Corp. v. Jarrard, 203 F.3d 312, 324 (4th Cir. 2000) (enforcing under Delaware law one-year non-competition covenant against sales director); Research & Trading Corp. v. Pfuhl, 1992 WL 345465, at *12 (Del. Ch. Nov. 18, 1992) (one-year non-compete “plainly reasonable” in duration when enforced against a former sales and marketing executive); Hammermill Paper Co. v. Palese, 1983 WL 19786, at *1, *6 (Del. Ch. June 14, 1983) (one-year non-compete reasonable when enforced against sales representative in light of the “natural result of customers following a trusted sales representative to his new company”). And Sukhraj expressly agreed that a one-year non-competition provision was “necessary in order to protect [Capchase’s] Confidential Information and good will.” Koch Aff. Ex. 3 ¶ 6(a). Reasonable Geography. “Delaware law also . . . condones broad geographic restrictions, up to and including non-competes with a global scope . . . when the relevant competitive market is equally broad or global.” Avaya, Inc. v. Ali, 2012 WL 2888474, at *7 (D. Mass. July 13, 2012) (applying Delaware law to enforce global non-competition provision); see also, e.g., Sentient Jet, LLC v. Early, 2013 WL 6210643, at *3 (D. Mass. Sept. 11, 2013) (same); Research & Trading Corp., 1992 WL 345465, at *12 (sales and marketing executive’s non-competition covenant was enforceable despite lack of any geographic limitation when former employer’s customer base “extend[ed] . . . internationally”). Such is the case here, where Capchase’s unique financing model means Sukhraj could compete with Capchase living and working from anywhere with an Internet 9 14 of 25 FILED: NEW YORK COUNTY CLERK 07/13/2022 05:55 PM INDEX NO. 652427/2022 NYSCEF DOC. NO. 3 RECEIVED NYSCEF: 07/13/2022 connection. Koch. Aff. ¶ 9. Capchase has, in fact, made financing available to companies in the United States, United Kingdom, Canada, Spain, Sweden, Finland, Denmark, the Netherlands, and Belgium, and its global footprint continues to grow. Id. It is more than “appropriate that .. . [Sukhraj] be prohibited from soliciting those customers on behalf of a competitor regardless of their geographic location.” Research & Trading Corp., 1992 WL 345465, at *12 (enforcing global non-compete against sales and marketing executive “given the broad distribution of [former employer’s] customers geographically”). Protection of Capchase’s Legitimate Interests. Capchase’s interests here “include protection of employer goodwill and protection of employer confidential information from misuse”—both of which courts have found legitimate to enforce a non-compete. Research & Trading Corp., 1992 WL 345465, at *12 (Del. Ch. Nov. 18, 1992); see also TP Group–CI, Inc. v. Vetecnik, 2016 WL 5864030, at *2 (D. Del. Oct. 6, 2016) (“Protecting a company’s goodwill and confidential information are recognized as legitimate economic interests advanced by the restrictive covenants.”). While employed at Capchase, Sukhraj used its resources to develop substantial goodwill and created personal relationships with over 400 of Capchase’s customers, calling upon Capchase’s institutional knowledge and strategies to develop and foster r