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Vanguard Dealer Services, LLC v. Scarano

August 24, 2010


On appeal from the Superior Court of New Jersey, Chancery Division, Passaic County, Docket No. C-33-05.

Per curiam.


Submitted May 4, 2010

Before Judges Wefing, Messano and LeWinn.

Plaintiff, Vanguard Dealer Services, LLC (Vanguard), is an automotive services company engaged in the "sale of products such as extended warranties, gap insurance [and] window etching...." Vanguard does not market these products to the general public; rather it trains sales people at car dealerships to sell Vanguard's products at the time of sale of the automobiles.

James Polley, one of Vanguard's principals, described the company's operation as follows:

Ultimately, the dealership, [the] F&I (Financial & Insurance) Department, would sell [our products] to the customer. It's our responsibility to train their people at the dealerships to sell these products properly and to be able to sell them at a high level and make the proper presentation, disclose the coverages properly and the end result, being able to sell more products to more customers.


Typically we train them on the products themselves, then we train them how to sell those products to the customers.


The primary basis of training is our people in the dealerships, working with those people directly.

Vanguard was formed in 1999, when it purchased another company, Transcapital Partners.

Defendant was hired by Transcapital in June 1999 and became Vanguard's national sales manager, a position he held until he was terminated in January 2005. Defendant was in charge of training the F&I sales people at the dealerships.

Vanguard and defendant entered into a "Confidentiality and Non-Compete Agreement" on August 12, 2004. Section two of that agreement provided:

During his... employment by the Company and thereafter, Employee will not disclose to anyone, either directly or indirectly, any Confidential Business Information of the Company, or use any such Confidential Business Information of the Company, either directly or indirectly, other than in the course of Employee's employment by the Company. All files, records, documents, equipment, computer programs and data relating to the business of the Company, whether prepared by Employee or otherwise coming into Employee's possession in the course of his... employment, are and shall remain the exclusive property of the Company and shall not be removed from the Company's premises without the prior written consent of the Company's President. Employee further agrees that, upon the cessation of his... employment by the Company for any reason whatsoever, Employee will not take with him... or retain, without prior written authorization of the Company, any documents, data, lists, books, files, devices, or copies of such items or information of any kind belonging to or licensed to the Company, including, but not limited to, Confidential Business Information of the Company.

Section three of the agreement required defendant to "exercise extreme care in protecting the confidentiality of any Confidential Business Information"; section five prohibited defendant from "participat[ing] in any employment or activity competitive with Vanguard" during his employment and for two years following termination of employment for any reason. The agreement further provided that, in the event of any breach by defendant, Vanguard would have the right "to obtain an immediate injunction enjoining any breach of this agreement, as well as the right to pursue any and all other rights and remedies available at law or in equity for such a breach."

In January 2005, Vanguard learned that defendant had used money in an account held by one of Vanguard's customers, Oasis Ford, to pay for work that the dealership had performed on defendant's sister's automobile. Vanguard determined that defendant's use of those funds from Oasis was unauthorized, and terminated him.

Shortly after defendant's termination, a situation arose in which two of Vanguard's major customers, Oasis and Global Motors, learned that Vanguard included in its pricing a $50 commission on each sale made to the dealerships. Vanguard considered this commission as confidential and proprietary information, and concluded that defendant had disclosed this information to the two dealerships. As a result of the disclosure, Vanguard was compelled to renegotiate its pricing structure with Oasis and Global.

On February 28, 2005, Vanguard filed a complaint and order to show cause against defendant in the Chancery Division, seeking temporary and permanent injunctive relief, restraining defendant from: (1) "disclosing or attempting to disclose to any person or entity, any Confidential Business Information belonging to Vanguard for any purpose whatsoever"; (2) "contacting customers of Vanguard for any reason"; (3) "making defamatory statements regarding Vanguard, its owners, employees or agents"; (4) "interfering with Vanguard's relationships with its customers and/or vendors"; and (5) "directly or indirectly, contacting any owner, employee and/or their family members[.]" ...

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