Transcript of injunction proceeding

September 8, 2003

            1   UNITED STATES DISTRICT COURT

 

            2   NORTHERN DISTRICT OF NEW YORK

 

            3 ---------------------------------------------

 

            4   NXIVM CORPORATION, et al.

 

            5

 

            6

 

            7

 

            8                  Plaintiffs,

 

            9        -versus-                          03-CV-976

 

           10                                         (ORAL ARGUMENT)

 

           11

 

           12   THE ROSS INSTITUTE, et al.

 

           13

 

           14

 

           15                  Defendants.

 

           16 ---------------------------------------------

 

           17

 

           18                  TRANSCRIPT OF PROCEEDINGS held in and for

 

           19   the United States District Court, Northern District of

 

           20   New York, at the James T. Foley United States Courthouse,

 

           21   445 Broadway, Albany, New York  12207, on MONDAY,

 

           22   SEPTEMBER 8, 2003, before the HON. THOMAS J. McAVOY,

 

           23   United States District Court Judge.

 

           24

 

           25

 

 

UNITED STATES DISTRICT COURT REPORTER - NDNY

                               BONNIE J. BUCKLEY, RPR

 

 

 

 

2

 

 

            1   APPEARANCES:

 

            2

 

            3   FOR THE PLAINTIFF:

 

            4

 

            5   TOBIN, DEMPF LAW FIRM

 

            6   BY: KEVIN A. LUIBRAND, ESQ.

 

            7               - and -

 

            8   SCHMEISER, OLSEN LAW FIRM

 

            9   BY: ARLEN L. OLSEN, ESQ.

 

           10

 

           11

 

           12

 

           13   FOR THE DEFENDANT ROSS INSTITUTE:

 

           14

 

           15   GLEASON, DUNN LAW FIRM

 

           16   BY: THOMAS F. GLEASON, ESQ.

 

           17

 

           18

 

           19

 

           20   FOR THE DEFENDANT STEPHANIE FRANCO:

 

           21   RIKER, DANZIG LAW FIRM

 

           22   BY: ANTHONY J. SYLVESTER, ESQ.

 

           23

 

           24

 

           25

 

 

UNITED STATES DISTRICT COURT REPORTER - NDNY

                               BONNIE J. BUCKLEY, RPR

 

 

 

 

NXIVM v THE ROSS INSTITUTE                                  3

 

 

            1                  (Court commenced at 10:30 AM.)

 

            2                  THE CLERK:  NXIVM Corporation, et al. versus

 

            3   the Ross Institute, et al., 03-CV-976.

 

            4                  May I have the appearances for the plaintiff.

 

            5                  MR. LUIBRAND:  For the plaintiffs, Kevin

 

            6   Luibrand from Tobin & Dempf in Albany.

 

            7                  THE COURT:  All right.

 

            8                  MR. OLSEN:  For the plaintiffs, Arlen Olsen

 

            9   from Schmeiser & Olsen.

 

           10                  THE CLERK:  On behalf of the defendant.

 

           11                  MR. SYLVESTER:  Yes, good morning, your Honor.

 

           12   Anthony J. Sylvester from Riker, Danzig, on both matters, for

 

           13   the defendant Stephanie Franco.

 

           14                  MR. GLEASON:  Thomas F. Gleason, in both

 

           15   matters, on behalf of the Ross Institute, Rick Ross and Paul

 

           16   Martin, and Wellspring Retreat, Inc. and I think that's it.

 

           17                  THE COURT:  All right. The plaintiffs' motion

 

           18   is brought by separate order to show cause for preliminary

 

           19   injunction preventing the defendants from disseminating

 

           20   information about the plaintiffs' business.  So Mr. Luibrand

 

           21   why should the Court issue injunctions in this case?

 

           22                  MR. LUIBRAND:  Your Honor, throughout

 

           23 commerce, businesses have forever tried to protect certain

 

           24   materials and ideas that they don't -- and they have the

 

           25   right to protect those under certain circumstances.  And I'm

 

 

UNITED STATES DISTRICT COURT REPORTER - NDNY

                               BONNIE J. BUCKLEY, RPR

 

 

 

 

NXIVM v THE ROSS INSTITUTE                                  4

 

 

            1   going to address one portion of the issues, pertaining to

 

            2   Miss Franco, and Mr. Olsen is going to address the

 

            3   intellectual property issues.

 

            4                  THE COURT:  Okay.

 

            5                  MR. LUIBRAND:  There are numerous ways you can

 

            6   protect your materials and your ideas and your documentation.

 

            7   Prominent, of course, is copyrights and patents and

 

            8   trademarks, and if you are dealing person to person, you can

 

            9   be protected by confidentiality agreements.  This company,

 

           10   this business has all those.  It has utilized every available

 

           11   vehicle to protect the privacy and confidentiality of its

 

           12   documents.

 

           13                  With respect to Miss Franco, she attended a

 

           14   training program of the plaintiffs' business.  At the time

 

           15   she attended it, she wasn't forced to go.  She came a long

 

           16   distance to want to go.  And when she arrived, she was told

 

           17 if you want to participate in the program, you are going to

 

           18   be given access to information and you are going to be given

 

           19   written materials, and you are to keep those confidential.

 

           20   She was interviewed beforehand.  And the business goes at

 

           21   great length to protect the confidentiality of its materials

 

           22   and methodologies.  They interviewed her beforehand.  She

 

           23   agreed to and did sign a written agreement.

 

           24                  THE COURT:  The Court has reviewed it.

 

           25                  MR. LUIBRAND:  Yes. And it's broad and it

 

 

UNITED STATES DISTRICT COURT REPORTER - NDNY

                               BONNIE J. BUCKLEY, RPR

 

 

 

 

 

NXIVM v THE ROSS INSTITUTE                                  5

 

 

            1   captures anything that she derives from the program.  She

 

            2   leaves the program and then, after having signed the

 

            3   agreement and paid her fee, she's given the materials.  And

 

            4   she leaves having signed a confidentiality agreement, she

 

            5   leaves and breaches the confidentiality agreement.  She

 

            6   admits now that she breached it.  She tries to limit, I

 

            7   suppose, the breadth of the breach because she says she gave

 

            8   it to just her brother.  But Mr. -- her other brother has

 

            9   submitted an affidavit saying no, she gave it to Mr. Ross.

 

           10   And Mr. Ross' affidavit says he received it from her.  So

 

           11   either she gave it to Mr. Ross or she gave it to Mr. Ross

 

           12   through her brother.  But, in any event, it reaches the hands

 

           13   of Mr. Ross.  She breached her confidentiality agreement by

 

           14   that act and that constitutes a breach of contract.  And two

 

           15   things occur with respect to that.

 

           16                  One is, she agreed in the original agreement

 

           17   that an injunction would issue or she would agree to

 

           18   injunctive relief in the event she did breach the agreement.

 

           19   That's a clause which she signed as part of her contract.

 

           20                  Secondly, those materials are protected.  And

 

           21   the plaintiffs do not have to tell anyone why they want the

 

           22   materials protected, but they do want them protected.  And I

 

           23   will give you some of the reasons they want them protected.

 

           24   First off, if you read the affidavit -- I know your Honor

 

           25   reads everything thoroughly, but the affidavit of Mr. Raniere

 

 

UNITED STATES DISTRICT COURT REPORTER - NDNY

                               BONNIE J. BUCKLEY, RPR

 

 

 

 

NXIVM v THE ROSS INSTITUTE                                  6

 

 

            1   shows the effort he undertook to review those materials and

 

            2   the kind of skill and aptitude he has in developing those

 

            3   materials. He spends a lot of time and money and effort to

 

            4   develop and protect these materials.  They're now out there

 

            5   and they're out there as easy as some guy sitting in Jersey

 

            6 City in an apartment at a computer has put their materials

 

            7   out for everybody to see.  And Mr. Olsen will address the

 

            8   scope of that, but their materials are now available to

 

            9   anybody who wants them, descriptions of them, substantial

 

           10   wholesale quotes from the materials are out there.

 

           11                  Secondly, and, again, this refers to Miss

 

           12   Franco, because we don't have to -- the plaintiff doesn't

 

           13   have to show the reason they want it confidential, somebody

 

           14   can take snippets of that and mock it and ridicule it and

 

           15   make fun of it, and they have -- part of the process is they

 

           16   have a bowing, that's an exact adaptation of what you do in

 

           17   Martial Arts, and that's where that comes from.  And you hold

 

           18   that out there separately, and, again, that's protected

 

           19   copyrighted confidential material, you get that out on a

 

           20   website or get that out in a complete international domain,

 

           21   that causes harm because somebody could take that information

 

           22   like Mr. Ross did and try to draw all kinds of inferences

 

           23 from it and can add a few other facts, which he does, and,

 

           24   again, which Mr. Olsen will address.

 

           25                  There is a substantial likelihood of success

 

 

UNITED STATES DISTRICT COURT REPORTER - NDNY

                               BONNIE J. BUCKLEY, RPR

 

 

 

 

NXIVM v THE ROSS INSTITUTE                                  7

 

 

            1   on the case against Miss Franco.  The equities balance

 

            2   completely against her.  She indicated at paragraph 10 of her

 

            3   affidavit she doesn't want to have to be constrained from

 

            4   talking about what she's learned in the program.  She has not

 

            5   returned the materials to us or the Court.  The record shows

 

            6   she sent a copy that she redacted; she still has an original

 

            7   set of materials.  She's shown no reluctance, despite a

 

            8   confidentiality agreement, to release it to whoever she

 

            9 chooses she wants to.  That's why the injunction should

 

           10   issue.

 

           11                  The damages that flow, and I have a -- one

 

           12   very specific example, and I will -- I've been trying to come

 

           13   up with some analogies, and I have a perfect analogy.  And

 

           14   that is, if I were -- as a lawyer, if I had a substantial

 

           15   competitor locally, Mr. Smith, and I put out -- if I had a

 

           16   website called pornographers.com and I put on that website

 

           17   Mr. Smith's name and under that I put a description of what

 

           18   he does, if I run Mr. Smith's name, someone else, looking for

 

           19   a lawyer, they find Mr. Smith on pornographers.com, they're

 

           20   not going to go to Mr. Smith, and I'll never know and

 

           21   Mr. Smith will never know how many people did that.

 

           22                  THE COURT:  But the defendants weren't

 

           23   competitors, so that analogy doesn't hold water.

 

           24                  MR. LUIBRAND:  Oh, the defendants --

 

           25                  THE COURT:  Right.

 

 

UNITED STATES DISTRICT COURT REPORTER - NDNY

                               BONNIE J. BUCKLEY, RPR

 

 

 

 

NXIVM v THE ROSS INSTITUTE                                  8

 

 

            1                  MR. LUIBRAND:  I think that does hold water.

 

            2                  THE COURT:  They're not in competition with

 

            3   NXIVM.

 

            4                  MR. LUIBRAND:  Your Honor, they're in

 

            5   different competition.

 

            6                  THE COURT:  Do they offer the same kind of

 

            7   program that develops the skills that NXIVM says they

 

            8   develop?

 

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