It is no secret that modern technology-enabled firms go to great lengths to protect their proprietary information. Nor is it a secret why. The “formula for Coke” is the quintessential trade secret, but these days a proprietary algorithm for targeted advertising or a “black box” trading strategy that provides an actual or perceived edge over the market can be far more valuable—and its secrecy more central to a company’s ultimate survival—than even that venerable recipe.

Not all proprietary information can be protected by traditional intellectual property regimes such as patents or copyrights, at least not in the long term, so companies must be prepared to employ a variety of other mechanisms to keep their confidential materials from becoming publicly available. For example, employees may be required to sign non-compete agreements that restrict their ability to engage in competitive business for some period following the termination of their employment.

Among other purposes, non-compete agreements can be used to keep employees from taking the employer’s confidential information and using it to benefit a competitor—at least until some time has passed and the information has become less valuable.

Recently, however, non-compete agreements have come under increasing fire, both in New York and nationally. The New York State Legislature passed a bill severely restricting the use of non-competes (which was vetoed by the governor), and the Federal Trade Commission passed a rule containing similar restrictions (which is being challenged in court).

In 2010, the former owners of the Peter Cooper Village and Stuyvesant Town (Stuy Town) property defaulted on their mortgage. Five years later, that property was sold at a profit that paid off outstanding principal and interest. Litigation then ensued over the allocation and distribution of certain excess proceeds from the sale.

In In re Trusts Established under Pooling and Servicing Agreements Related to Wachovia Bank Commercial Mortgage Trust Pass-Through Certificates, Appaloosa Investment LP and Palomino Master Ltd. (collectively, Appaloosa), an investor in the Stuy Town property, brought claims against CWCapital Asset Management LLC (CWC), the servicer of the trusts in which Appaloosa had invested. Appaloosa asserted that, under the pooling and servicing agreement (PSA), the excess funds should be provided to investors. CWC asserted that those funds should instead be used to pay “penalty interest” and “yield maintenance”, which CWC was required to pay under the PSA.

After more than six years of hard-fought litigation, Appaloosa and CWC submitted a proposed settlement to the court. In the court’s decision, Judge Failla evaluated the proposed settlement under New York law applicable to the settlement of shareholder derivative actions and class actions. The court held that the proposed settlement was “fair and reasonable” because it arose from extensive negotiations between highly sophisticated parties and counsel and would provide a significant benefit to investors, the remaining issues were complex, and further protracted litigation would likely follow absent approval.