Sound Around, Inc. v. Friedman

Background

Sound Around imports products manufactured abroad, principally in China, and sells them through online retail platforms. It hired Moises Friedman in 2013 and moved him into a buyer role in 2017. It hired Shulim Eliezer Ilowitz in 2019, also as a buyer. Friedman and Ilowitz later developed a separate online retail business that operated similarly to Sound Around’s business and used some manufacturers with whom they had relationships through their work for Sound Around.

Friedman signed a Hebrew-language contract with Sound Around in 2018 containing a two-year noncompete provision and a formula for calculating damages if he breached it. The contract also stated that he would not have to follow the noncompete for goods he brought in if Sound Around terminated him for reasons other than misconduct. Sound Around did not sign a similar document with Ilowitz. The defendants submitted evidence that Friedman became an independent contractor in December 2018 and Ilowitz became an independent contractor in January 2022. Sound Around disputed that characterization and maintained that they continued to be employees.

Ilowitz resigned in January 2024, and Sound Around ended its relationship with Friedman in February 2024. Sound Around sued the defendants under federal and New York law, asserting claims involving fiduciary duties, diversion of business opportunities, trade secrets, confidential information, and Friedman’s alleged breach of the noncompete. Sound Around previously sought a preliminary injunction, which the court denied without prejudice to renewal. It then filed the renewed motion addressed in this opinion.

Requested injunction

Sound Around asked the court to temporarily bar Friedman, Ilowitz, and people acting with them from operating in the same business; selling products developed while they worked for Sound Around; using brands created while they worked for Sound Around; and using vendor licenses obtained through Sound Around’s contacts and resources.

A preliminary injunction is temporary relief issued before trial. The party requesting one must show irreparable harm—actual and imminent harm that cannot be adequately repaired by waiting for trial and awarding money damages—as well as either a likelihood of success on the claims or serious questions favoring the requesting party, and consistency with the public interest. The court treated irreparable harm as the most important requirement.

Court’s analysis

The court first stated that Sound Around had not shown that it was likely to prove Friedman and Ilowitz remained employees throughout their relationship with Sound Around. The evidence instead suggested that both became independent contractors for substantial periods. If so, their legal obligations to Sound Around changed, and they were at least entitled to establish their own business. The court nevertheless focused its decision on Sound Around’s failure to show irreparable harm.

Friedman’s noncompete

Sound Around sought to enforce Friedman’s noncompete and to prevent him and people acting with him from working in any competing business pending trial. The court said that even if Sound Around could ultimately prove the noncompete enforceable, the agreement’s damages formula did not suggest that an injunction was appropriate. Sound Around also provided no evidence supporting its assertion that Friedman and Ilowitz were likely to use customer information to interfere with Sound Around’s customer relationships. The court emphasized that a breach of a noncompete does not automatically establish irreparable harm.

The court expressly did not decide the defendants’ argument that the rabbi-drawn contract was a religious contract unenforceable under New York law.

Diversion of business opportunities

Sound Around argued that Friedman and Ilowitz developed brands and products for their own business while working as Sound Around buyers, thereby taking business opportunities that belonged to Sound Around. It sought a constructive trust, a remedy that can require property or benefits obtained improperly to be held for the rightful party, and asked for interim orders barring use of the disputed products, brands, and vendor licenses.

The court found no evidence that the defendants were currently diverting business opportunities. Although Sound Around showed that some defendants’ products were very similar to its products, it did not show that the defendants were still selling directly competing products, in what amounts, or that their listings were linked to Sound Around’s trade secrets or confidential information. The court concluded that money damages could adequately compensate Sound Around for directly competing product listings that it might prove at trial. It also found Sound Around had offered no evidence that the defendants’ use of their vendor licenses was currently harming Sound Around.

Trade secrets and confidential information

Sound Around also sought to prevent Friedman and Ilowitz from operating in the same line of business based on alleged use of trade secrets and confidential information. The court explained that former employees may continue using their ordinary knowledge, training, and experience, and that a former employee’s use of trade secrets does not automatically establish irreparable harm.

The court found that Sound Around did not identify clearly or specifically which trade secrets or confidential information were at issue or how their use was causing continuing irreparable harm. Sound Around described broad categories, including pricing, costs, systems, methods, customer information, business strategies, advertising data, customer preferences, and vendor relationships. But it did not provide evidence that the defendants were currently using specific protected information in a way that devalued it, or that they were likely to disclose specific information to others.

The court also said Sound Around did not distinguish protectable information from ordinary knowledge, training, and experience that Friedman and Ilowitz could continue using after leaving the company. It noted that some of the information might be publicly available or stale. The court further explained that the legal consequences would differ depending on whether Friedman and Ilowitz were employees or independent contractors when Sound Around shared information with them.

Disposition

Judge Denise Cote held that a hearing was unnecessary because Sound Around had not shown the irreparable harm required for preliminary relief. The court denied Sound Around’s June 27 motion for a preliminary injunction. It terminated the Friedman Defendants’ July 21 motion in limine, which sought to exclude Sound Around’s declarations and exhibits, as moot, and cancelled the July 29 preliminary-injunction hearing. The opinion did not resolve the parties’ ultimate claims or the enforceability of Friedman’s noncompete.