Court Denied Preliminary Injunction To Breach-Of-Fiduciary-Duty Plaintiff Due To Delay In Seeking Relief

by Winstead PC
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In Embarcadero Techs., Inc. v. Redgate Software, Inc., a former employer sued four former employees and their new employer for a number of claims, including breach of fiduciary duty and aiding and abetting breach of fiduciary duty arising out of alleged inappropriate competition and the use of trade secrets. No. 1:17-cv-444-RP, 2017 U.S. Dist. LEXIS 191317 (W.D. Tex. November 20, 2017). The plaintiff sought a preliminary injunction prohibiting the defendants from competing and contacting former customers. The district court denied the motion.

The court noted that a plaintiff seeking a preliminary injunction must establish that (1) it is likely to succeed on the merits, (2) it is likely to suffer irreparable harm in the absence of preliminary relief, (3) the balance of equities tips in its favor, and (4) an injunction is in the public interest. The court held that the plaintiff failed  to make a sufficient showing of irreparable harm “with respect to all of their claims primarily because of the extensive delay they have exhibited in seeking a preliminary injunction.” The court held:

A long delay by plaintiff after learning of the threatened harm also may be taken as an indication that the harm would not be serious enough to justify a preliminary injunction. Undue delay in seeking a preliminary injunction tends to negate the contention that the feared harm will truly be irreparable. There was a significant delay between the time that Plaintiffs discovered that Frignoca was employed by Redgate—the genesis of this lawsuit—and when they sought an injunction. Plaintiffs were aware that Frignoca was working at Redgate as early as November 11, 2016, when Michael Shea told Embarcadero and Idera CEO Randy Jacops that Frignoca was now working at Redgate. Although Jacops suggested at the hearing that he was not completely certain that this information was correct until a few months later, when he saw Frignoca’s name on a United Kingdom document listing members of boards of directors, Jacops testified that Shea had not given him inaccurate information in the past. Additionally, shortly thereafter, on November 17, 2016, Embarcadero acted upon this information by having an attorney send Frignoca a cease-and-desist letter reminding him of the agreement he signed while employed with Embarcadero. This action was filed on May 11, 2017, about six months later. Plaintiffs did not request a hearing on or file a brief in support of their application for a preliminary injunction until June 13. When the Court set a hearing for July 25, Plaintiffs sought a delay of the hearing to a date in early September, nearly five months after they became aware of all of the facts underlying their claims in this lawsuit.

If the harm Plaintiffs feared were indeed irreparable, it is unclear why they, knowing all of the primary facts forming the basis for their claims by April at the latest, filed the complaint on May 11, did not request a hearing or file a brief supporting their application for a preliminary injunction until June 12, and, once the Court set a hearing for July 25, requested that the hearing be moved to early September.

Id. Finding that there was no evidence if irreparable harm, the court denied the motion.

Interesting Note: Parties who want to seek equitable relief from a federal court should not slumber on their rights. They have a duty to seek equitable relief in a timely fashion. In the context of preliminary injunction applications, delay in seeking the extraordinary remedy of a preliminary injunction is an important factor bearing on the actual need for injunctive relief. Wireless Agents, LLC v. T-Mobile USA, Inc., Civ. No. 3:05-cv-0094, 2006 U.S. Dist. LEXIS 36590, 2006 WL 1540687, at *13 (N.D. Tex. June 6, 2006) (citing High Tech Med. Instrumentation v. New Image Indus., Inc., 49 F.3d 1551, 1557 (Fed. Cir. 1995)); Rimkus Consulting Grp., Inc. v. Cammarata, 255 F.R.D. 417, 438 (S.D. Tex. 2008) (denying injunctive relief after an alleged breach of a non-compete where movant unreasonably delayed to file suit, then requested multiple continuances to the injunction hearing). With respect to delay, the relevant period of delay begins when the plaintiff learned of the alleged violation. Fashion Week, Inc. v. Council of Fashion Designers of Am., Inc., No. 16-CV-5079 (JGK), 2016 U.S. Dist. LEXIS 107358, 2016 WL 4367990, at *3 (S.D.N.Y. Aug. 12, 2016). If a party unduly delays seeking injunctive relief, then logically, that party “demonstrates that there is no apparent urgency to the request for injunctive relief.” Wireless Agents at *15; High Tech Med. Instrumentation, 49 F.3d at 1557. Such delay is inapposite of immediate and irreparable harm. Polymer Techs., Inc. v. Bridwell, 103 F.3d 970, 974 (Fed. Cir. 1996). Delay, or too much of it, indicates that a suit or request for injunctive relief is more about gaining an advantage (either a commercial or litigation advantage) than protecting a party from irreparable harm. Pippin et al. v. Playboy Entm’t Group, Inc. et al., 2003 U.S. Dist. LEXIS 25415, *6 (M.D. Fla. 2003). Delay alone has been held to be evidence of a lack of the irreparable harm needed to obtain a preliminary injunction. Thus even if laches is not held to bar preliminary relief, the fact of delay may serve to bar relief on the ground that such delay indicates the absence of irreparable harm. Chase Manhattan Corp. v. N.W. Mut. Life, 1993 U.S. Dist. LEXIS 2271 (S.D.N.Y. 1993) (denying injunctive relief where movant waited six months to file suit and one year to seek injunctive relief after discovering alleged misappropriation). The use of delay in this context is a direct denial of a plaintiff’s claim for injunctive relief in that it confronts an element of the plaintiff’s claim.

Federal courts across the country have denied preliminary injunctions where the movants waited just a few months to seek such relief. Norman Bridge Drug Co. v. Banner, 529 F.2d 822, 826 (5th Cir. 1976) (Drug Enforcement Agency’s seven-month delay in seizing controlled substances from pharmacy was inconsistent with its assertion that imminent danger to the public health and safety required seizure without notice, so that the public interest element of preliminary injunction analysis did not favor such seizure); Badillo, et al. v. Playboy Entm’t Group, Inc., et al., 2004 U.S. Dist. LEXIS 8236, *7 (M.D. Fla. 2004) (denying motion for preliminary injunction in that irreparable harm not established where movant waited over nine months before moving to enjoin); Chase Manhattan Corp. v. N.W. Mut. Life, 1993 U.S. Dist. LEXIS 2271 (S.D.N.Y. 1993) (citing Lanvin Inc. v. Colonia, Inc., 739 F.Supp. 182, 192 (S.D.N.Y. 1990)) (“Thus, a delay in seeking preliminary injunctive relief, even if not amounting to laches barring such relief, demonstrates that speedy action to protect the erosion of movant’s rights is not needed and thus that movant is not entitled to a preliminary injunction in the first place. Parties cannot seek relief for the erosion of their rights if such erosion arose because they sat on those rights”) (citations omitted); Citibank, N.A. v. Citytrust, 756 F.2d 273, 276 (2nd Cir. 1985); Le Sportsac, Inc. v. Dockside Research, Inc., 478 F. Supp. 602, 609, 205 U.S.P.Q. (BNA) 1055, 1062 (S.D.N.Y. 1979) (one-year delay “undercuts the sense of urgency that ordinarily accompanies a motion for preliminary relief and suggests that there is, in fact, no irreparable injury”); High Tech Med. Instrumentation, Inc. v. New Image Indus., Inc., 49 F.3d 1551, 1557 (2nd Cir. 1995) (17 month delay meant no irreparable harm); Fisher Price, Inc. v. Well Made Toy Mfg., 25 F.3d 119, 124, 125 n.1 (2nd Cir. 1994) (indicating that three-month delay is unreasonable in seeking injunctive relief).

The impact of delay on a finding of irreparable harm is a different issue from the impact of delay for the equitable defense of laches. Laches would be an affirmative defense to a claim for injunctive relief. The defense of laches is an equitable doctrine that prevents a plaintiff from postponing the assertion of his or her rights. National Ass’n of Gov’t Employees v. City Pub. Serv. Bd., 40 F.3d 698, 708 (5th Cir. 1994). Laches is an inexcusable delay in taking legal action that prejudices the defendant. Westchester Media v. PRL USA Holdings, Inc., 214 F.3d 658, 668 (5th Cir. 2000). To succeed on a defense of laches, a defendant must show that plaintiff “delayed in asserting the rights at issue; that the delay is inexcusable; and that [the opposing parties] have suffered undue prejudice as a result of the delay.” Uptown Grill, L.L.C. v. Shwartz, 817 F.3d 251, 256 (5th Cir. 2016). “The period for laches begins when the plaintiff knew or should have known of the infringement.” Elvis Presley Enters. v. Capece, 141 F.3d 188, 205 (5th Cir. 1998). Laches specifically applies when a defendant incurs significant expenses and will suffer losses that could have been avoided if the plaintiff did not delay in the assertion of a claim. See Abraham v. Alpha Chi Omega, 708 F.3d 614, 625 (5th Cir. 2013) (finding significant investments in equipment, advertising, and employee salaries provided evidence of prejudice to support laches in a trademark infringement case); Compaq Comput. Corp. v. Ergonome, Inc., 210 F. Supp. 2d 845, 848 (S.D. Tex. 2002) (holding prejudice may be “economic, that is, loss of monetary investments, incurring damages that might otherwise have been avoided by an earlier suit”). For example, one court held that the failure to enforce rights after sending a cease-and-desist letter prejudices an opposing party as it implicitly indicates that the holder will not further attempt to enforce its asserted rights. H.G. Shopping Centeres L.P. v. Birney, 2000 U.S. Dist. LEXIS 21062, at *35–36 (S.D. Tex. Nov. 27, 2000) (mem. op.) (holding laches applies upon finding that the failure to pursue a legal claim after sending a cease and desist letter misled an IP infringer to believe further use would not be challenged); accord Conan Props. v. Conans Pizza, Inc., 752 F.2d 145, 152-53 (5th Cir. 1985).

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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