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Hyperactive, Inc. v. Young

Superior Court of Massachusetts, Suffolk, Business Litigation Session

July 20, 2018

D. Douglas YOUNG


          Brian A. Davis, Associate Justice of the Superior Court

          Plaintiff Hyperactive, Inc. ("Plaintiff" or "Hyperactive") is a business that creates multimedia presentations for various commercial clients. In this recently-commenced action, Hyperactive claims that defendant D. Douglas Young ("Mr. Young"), a former company executive and one of two Hyperactive shareholders, conspired with an aspiring competitor, defendant AVFX, LLC ("AVFX"), to steal Hyperactive’s confidential and proprietary trade secrets, customer relationships, and key employees for the joint benefit of Mr. Young and AVFX. Hyperactive further claims that another former employee, defendant Joseph Pannoni ("Mr. Pannoni"), wrongfully copied and has retained the source code to Hyperactive’s proprietary "HyperFrame" software, and wrongfully copied and has retained certain confidential digital project files associated with Hyperactive’s clients, possibly at the request or direction of Mr. Young and/or AVFX. Hyperactive seeks a preliminary injunction that would require Mr. Young to immediately return any confidential and proprietary trade secrets or information that he obtained from Hyperactive and bar him from competing with Hyperactive for a period of two years pursuant to the terms of a written shareholder agreement that Mr. Young signed in December 2004 (the "Shareholder Agreement"). Hyperactive also seeks a preliminary injunction requiring Mr. Pannoni to return any source code, project files, or other confidential and proprietary trade secrets or information that he took from Hyperactive, and further requiring him to turn over his computers and other electronic storage devices for forensic examination by Hyperactive’s computer expert. Lastly, Hyperactive seeks expedited discovery of Mr. Young, Mr. Pannoni, and certain third parties concerning Mr. Young and Mr. Pannoni’s allegedly unlawful activities.

         The parties appeared before the Court on July 19, 2018, for a hearing on Hyperactive’s motions. Plaintiff and Mr. Young appeared and argued through legal counsel. Mr. Pannoni appeared pro se and argued on his own behalf. Counsel for AVFX appeared, but did not argue.[1]

         Having considered the motion papers, affidavits, and other written submissions of the parties, as well as the oral arguments and other information provided at the motion hearing, the Court ALLOWS Hyperactive’s revised motion for preliminary injunctive relief and ALLOWS, IN PART, Hyperactive’s revised motion for expedited discovery to the extent, and for the reasons, discussed below.

         1. Hyperactive’s Claims Against Mr. Young

         Given his prior history with Hyperactive, Mr. Young has a variety of legal obligations that are implicated by Hyperactive’s claims in this action. First, Mr. Young was an employee of Hyperactive for at least thirteen years prior to his resignation on June 29, 2018. As an employee of Hyperactive, Mr. Young owed the company a duty of loyalty. This duty, as spelled out by the Massachusetts Supreme Judicial Court ("SJC") in Augat, Inc. v. Aegis, Inc., 409 Mass. 165 (1991) ("Augat "), permits an employee to "go into competition with his employer and ... take active steps to do so while still employed," provided, however, that the employee "may not appropriate his employer’s trade secrets," or "solicit his employer’s customers while still working for his employer ..." Id. at 172-73.

          As a significant shareholder in Hyperactive, which is a closely-held corporation, Mr. Young also owed (and continues to owe) his fellow shareholders the same fiduciary duty as a partner in a partnership, that is a duty of "utmost good faith and loyalty." Merriam v. Demoulas Super Mkts., Inc., 464 Mass. 721, 726 (2013).

         Lastly, Mr. Young has contractual obligations to Hyperactive created by the Shareholder Agreement that he signed in December 2004. That Shareholder Agreement provides, in relevant part, that

[i]n the event of termination of Young’s employment by the corporation through voluntary resignation or through discharged for cause, Young further covenants and agrees that he will not during a period of 2 years thereafter nor within a radius of 100 miles from the present principal office of the Corporation in Braintree, MA engage, either individually as a sole proprietor, as a partner, as a co-venturer, or as an officer, a director, or a major stockholder of a corporation or controlling fiduciary or beneficiary or operator of a business trust or other non-corporate business entity, directly or indirectly in a business that directly competes for the business of any existing clients of the Corporation, or work for any such business as a key employee.

         Shareholder Agreement, § 2(ix).[2]

         The Court has reviewed the evidence concerning Mr. Young’s recent activities at Hyperactive, including his interactions with AVFX and others about potentially entering into competition with Hyperactive either in combination with AVFX or on his own. It finds that there is a high likelihood that Hyperactive will be able to demonstrate that, in planning and acting on his plans to compete, Mr. Young breached his fiduciary duty of loyalty to the company and to his fellow shareholders by, at the very least, encouraging and assisting other key employees of Hyperactive (including Aaron Root and Jonathan Ugol) to jump ship to AVFX, and by attempting to woo away current Hyperactive customers (including Philips Healthcare). See Augat, 409 Mass. at 172-73.

         The foregoing activities by Mr. Young also constitute a breach of the non-competition provision of his Shareholder Agreement which, reasonably construed, bars him from competing, directly or indirectly, with Hyperactive for a period of two years within a 100-mile radius of Hyperactive’s former offices in Braintree, Massachusetts. See USM Corp. v. Arthur D. Little Systems, Inc., 28 Mass.App.Ct. 108, 116 (1989) ("The object of the court is to construe [a] contract as a whole, in a reasonable and practical way, consistent with its language, background, and purpose"). Covenants not-to-compete generally are enforceable in Massachusetts "to the extent that they are necessary to protect the legitimate business interests of the employer," Marine Contractors Co., Inc. v. Hurley, 365 Mass. 280, 287 (1974), and to the further extent that they are reasonable "in time, in space or in any other respect," All Stainless, Inc. v. Colby, 364 Mass. 773, 778 (1974). A court is empowered, for enforcement purposes, to adjust the terms of an unreasonable non-compete provision so as to render them reasonable. Cheney v. Automatic Sprinkler Corp. of America, 377 Mass. 141, 147 (1979) (Rather than declining entirely to give effect to an unreasonable non-competition clause, a court may modify its terms so as to make it reasonable; i.e., "overbroad" terms may be "cut back").

          The Court further finds that Mr. Young’s improper competitive activities pose a serious threat of irreparable harm to Hyperactive, that the balance of the harms that the parties may suffer through the issuance of preliminary injunctive relief cuts in favor of Hyperactive, and that the public interest is best served by granting such relief in these circumstances. See Packaging Indus. Group, Inc. v. Cheney,380 Mass. 609, 616-17 (1980). ...

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