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Fishkin v. Susquehanna Partners

February 8, 2010

CAL FISHKIN, ET AL.,
v.
SUSQUEHANNA PARTNERS, G.P., ET AL.,
v.
TABFG, LLC, ET AL.,



The opinion of the court was delivered by: McLaughlin, J.

MEMORANDUM

This action arises from a dispute between a securities trading firm, Susquehanna International Group, LLP ("SIG"), and three of its former employees, Cal Fishkin, Igor Chernomzav, and Francis Wisniewski, over the enforcement of restrictive covenants in the employees' contracts with SIG. It also encompasses SIG's counterclaims against Fishkin, Chernomzav, and several third-party defendants for misappropriation and conversion of trade secrets, tortious interference with contract, and conspiracy.

After lengthy pre-trial proceedings and a bench trial, the Court entered a final judgment on June 17, 2008. The United States Court of Appeals for the Third Circuit affirmed in a judgment entered July 27, 2009. SIG has now moved for the release of a $1.5 million bond that it posted as security for a preliminary injunction it obtained against Fishkin, Chernomzav, and Wisniewski. Chernomzav has filed a cross-motion seeking an award of damages under the bond, contending that the Court's findings of fact in its bench verdict, now affirmed on appeal, contradict the factual basis for the preliminary injunction issued against him.

For the reasons that follow, the Court will grant SIG's motion and deny Chernomzav's motion and order the release of the bond.

I. FACTUAL BACKGROUND

This suit began as a declaratory judgment action filed on March 23, 2003, in Pennsylvania state court by Fishkin, Chernomzav, and Wisniewski against SIG. Fishkin, Chernomzav, and Wisniewski had worked for SIG as securities traders before leaving the firm. They sought to invalidate the restrictive covenants in their employment contracts with SIG to allow them to work together in a new trading venture. Fishkin and Chernomzav also brought a claim alleging that SIG had fraudulently induced them into signing their contracts.

In April 25, 2003, after the declaratory judgment action was filed but before any ruling had been made, Fishkin and Chernomzav began trading through an entity called TABFG, LLC ("TABFG"), which was a joint venture between Fishkin, Chernomzav, and a company called NT Prop. Trading, LLC ("NT Prop"). A large part of the trading done by Fishkin and Chernomzav at TABFG was trading in Dow Futures using a trading strategy that has been referred to in this litigation as the "Dow Fair Value strategy." Fishkin and Wisniewski had used the Dow Fair Value strategy while employed at SIG. Wisniewski did not join TABFG or trade using the Dow Fair Value strategy after leaving SIG, although he intended to do so if the restrictive covenants in his contract with SIG were declared invalid.

In June 2003, SIG filed a counterclaim against Fishkin and Chernomzav, but not Wisniewski, for breach of contract, misappropriation of trade secrets, conversion, tortious interference with contract, and civil conspiracy. SIG also impleaded as additional counterclaim defendants TABFG, NT Prop, and Richard Pfeil (one of the principals of NT Prop), bringing the same claims against them. SIG then filed a motion for a preliminary injunction against Fishkin, Chernomzav and Wisniewski seeking to enforce the terms of their restrictive covenants. After the motion was filed, counterclaim defendants NT Prop and Richard Pfeil removed the case to this Court on June 23, 2003.

After removal, the then-presiding judge, the Honorable James McGirr Kelly, held an evidentiary hearing from July 8 to July 15, 2003, on SIG's motion for a preliminary injunction. Judge Kelly issued a Memorandum and Order on September 16, 2003, making findings of fact and granting the motion to enjoin Fishkin, Chernomzav, and Wisniewski.*fn1 On September 25, 2003, Judge Kelly ordered SIG to give security in the amount of $1.5 million "for the payment of costs and damages as may be incurred or suffered by any party who is found to have been wrongfully enjoined or restrained." Fishkin, Chernomzav, and Wisniewski filed an interlocutory appeal of the preliminary injunction order on September 26, 2003, but voluntarily dismissed the appeal on July 8, 2004. On March 16, 2005, the case was transferred to this Judge.

Paragraph one of Judge Kelly's September 16, 2003, preliminary injunction order enforced the non-competition covenants in Fishkin and Chernomzav's employment contracts. Paragraph one enjoined Fishkin and Chernomzav for a period of nine months from the date of their departure from SIG's employ from a) "trading any security, including the [Dow Futures] and Related Products,*fn2 that each traded within the three month period prior to each of their departures from SIG's employment" or b) "associating with each other in a securities trading business."

Paragraph two of the preliminary injunction order prohibited Fishkin and Chernomzav from disclosing or using "SIG Confidential Information," defined to include the Dow Fair Value strategy, to trade the Dow Futures or related products. Paragraph three enjoined Francis Wisniewski from associating with Fishkin or Chernomzav in a trading venture "and/or" trading the Dow Futures and related products for the period of time provided in his employment agreement. Paragraph four reduced the duration of a non-association restriction in SIG's restrictive covenants from five years to three years.

In February 2006, SIG moved to make permanent the injunction embodied in paragraph one of the September 16, 2003, Order, enforcing the terms of Fishkin and Chernomzav's restrictive covenants. SIG also moved for the release of its bond. In a Memorandum and Order issued May 31, 2006, the Court granted the motion to make permanent the injunction embodied in paragraph one of the preliminary injunction order but denied the request to release the bond. The Court reasoned that, because SIG had not moved to make permanent the injunctive relief embodied in paragraphs two and three of the September 16, 2003, Order, there remained the possibility that those two paragraphs of the injunction could be found to have been wrongfully issued, which might allow a recovery against the bond.

In April 2007, the Court held a bench trial on the claims remaining in the case: SIG's claims against Fishkin, Chernomzav, TABFG, and NT Prop for misappropriation of trade secrets, conversion, tortious interference with contract, and civil conspiracy.*fn3 On June 17, 2008, the Court issued a ninety-seven page opinion setting out its findings of fact and conclusions of law and entering the judgment of the Court. The Court entered judgment against SIG and in favor of the counter-claim defendants on all claims except SIG's claim for tortious interference against NT Prop, for which the Court entered judgment for SIG but awarded only nominal damages. In finding against SIG on its claims for misappropriation of trade secrets and conversion, the Court specifically found that SIG's Dow Fair Value strategy, whether expressed as a concept or as an algebraic formula, was too widely known and too easily ascertainable to constitute a protected trade secret under applicable Pennsylvania law.

SIG took a timely appeal of the Court's decision, and on July 27, 2009, the United States Court of Appeals ...


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