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Business Law Today

March 2022

Recent Developments in Employee Mobility, Restrictive Covenants and Trade Secrets 2022

Jessica Mendelson and Emily Stover

Recent Developments in Employee Mobility, Restrictive Covenants and Trade Secrets 2022
iStock.com/Nikolay Pandev

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§ 1.1 Introduction

Non-compete laws and trade secret litigation continue to proliferate. Multiple states have enacted or amended statutes limiting use and enforcement of non-compete agreements. Over the past year, over sixty bills have been introduced that would affect non-compete laws. Limiting or banning the use of restrictive covenants is also a federal priority. In 2021, the Biden Administration issued an executive order directing multiple federal departments and agencies to take action against the unfair use of non-compete agreements and revise guidance on no-poach agreements. In addition to legislation, courts have continued to call into question the viability of non-compete and non-solicit agreements given the legislative policy disfavoring employee mobility restrictions, and have readily held unenforceable such agreements as overbroad, vague, or otherwise invalid. Although non-competes are increasingly disfavored, trade secrets may be seen as a countervailing protectable interest.

This continued focus on non-compete laws and trade secrets occurs as the COVID-19 pandemic enters its third year and employees continue to work from home or return to offices in a hybrid work model. This sustained shift to remote work compounds the legal obstacles employers face when trying to protect trade secrets. This “new normal” will continue to evolve the legal standards for the protection of work secrets.

The use of choice-of-law provisions, which allow a party to select a particular state’s law to apply to a contract, has similarly come under attack. In recent years, several states have enacted statutes prohibiting the enforcement of forum-selection and choice-of-law clauses that designate another state’s forum or law against their citizens. Even in the absence of such statutes, courts have continued to find such provisions unenforceable where they might conflict with state public policy considerations.

Courts around the country have continued to see a sustained pace of new filings of employee mobility and trade secret cases over the past few years. This Chapter provides an overview of recent developments in case law, and will serve as a practical guide for business law practitioners navigating new changes in employee mobility issues and the protection of trade secrets.

§ 1.2 Employee Mobility: Breach of Duty of Loyalty; Breach of Fiduciary Duties

§ 1.2.2 First Circuit

Sebren v. Harrison, No. 1:18-cv-00667-MSM-PAS, 2021 U.S. Dist. LEXIS 146756 (D.R.I. 2021) (unpublished). The Rhode Island District Court granted in part and denied in part an employer’s motion for summary judgment against an employee for employer’s claims of breach of contract, usurpation of opportunity and breach of loyalty, tortious interference, theft, and extortion and abuse of process because there were no triable issues of fact. There, the employee worked for the employer as an attorney. Upon leaving employment, one of employee’s previous clients sought her representation. The employer filed the above-mentioned claims against the employee. As for the breach of contract claim, the employer alleged he and employee agreed to a 50/50 contingency fee split for the client’s case. The employee denied any fee agreement. Based on this evidence, the court held that whether any such agreement existed between the parties was an issue for the jury. As to the usurpation of opportunity and breach of loyalty claim, former employees are entitled, absent noncompete contracts to do business with clients of the former employer so long as the conduct occurs post departure. There, the court reasoned that because there was not a noncompete agreement between the parties and the employee’s independent representation of the client occurred after her departure from employment with the employer, the employee had no fiduciary obligation to the employer. As to the tortious interference claim, absent a noncompete agreement, a departing employee may continue to do business with a client who follows the employee so long as the employee did not actively abuse the trust of his employer in dealing with customers while employed. There, the court reasoned that because there was not a noncompete agreement between the parties, and no evidence to establish the employee acted wrongfully, the claim was unsupported. As to the theft claim, the court reasoned that because the employer offered no evidence to suggest the employee did not have permission to possess the file during her employment with the employer, and as soon as the employee was retained by the client, she was entitled to the file independently, there was no basis for his claim. As to the extortion and abuse of process claims, the court reasoned that the employee’s advice to the employer to speak with family and friends and consider all possible consequences in a communication to settle the case was insufficient to suggest extortion and abuse of process. Based on these findings, the court denied summary judgment as to employer’s breach of contract claim but granted summary judgment as to all other claims.

§ 1.2.4 Third Circuit

Sunbelt Rentals, Inc. v. Love, 2021 U.S. Dist. LEXIS 4587 (D. N.J 2021) (unpublished). Former high-level sales employee Love assumed a national role with Sunbelt after they acquired his former employer, Interstate in 2018. The ‘national’ nature of Love’s role at Sunbelt was the product of initial negotiations between Love’s counsel and Sunbelt, which culminated in the signing of an employment agreement permitting Love to earn healthy compensation in consideration for a broad restrictive covenant. Later, after receiving approximately $300,000 in retention bonuses, Love emailed a host of proprietary Sunbelt customer, pricing, and project information to himself and his brother (a Sunbelt customer at the time) just weeks before resigning to join competitor EquipmentShare, where he planned to compete with Sunbelt nationally. Emphasizing Love’s lack of credibility when he testified that he did not know what was contained in the information he emailed himself and his brother, and when he averred that such information was deleted and never used, the court granted Sunbelt’s motion for an injunction on its breach of contract and trade secrets claims. Critically, without an injunction, “Sunbelt would have to trust the testimony of a disgruntled former employee who has demonstrated his animus towards his former employer,” which made the court uncomfortable. The court was much more comfortable holding Love to his bargain, given his voluntarily resignation and handsome compensation for the restrictive covenant. A large portion of the opinion contained interpretation about the geographic scope of the non-competition provision; the court ultimately found a national scope reasonable in light of Love’s national role and the handsome compensation that accompanied such a position. Because Love’s act of emailing information about Sunbelt’s unique nationwide strategies which he acknowledged was confidential to himself and his brother was such a clear breach of Love’s employment contract and misappropriation of Sunbelt’s trade secrets, the former employer had demonstrated success on the merits of both of its claims and that it would suffer “likely and imminent” harm absent the injunction.

Additional Cases of Note

Peoplestrategy, Inc. v. Hearthstone Advisors LLC, 2021 U.S. Dist. LEXIS 73529 (E.D.Pa 2021) (unpublished) (granting former CEO in purchase of consulting business scenario’s motion for summary judgment that he did not violate non-competition or customer non-solicitation provisions of poorly-written business purchase agreement (“BPA”); granting summary judgment to the purchasing entity on their claim that former CEO breached non-solicitation portion of BPA; and sending to jury the questions of whether the confidentiality portion of BPA was breached and whether the former CEO was acting as the alter-ego of the LLC in whose name he signed the BPA); EMC Outdoor, LLC v. Stuart, 2021 U.S. Dist. LEXIS 63438 (E.D.Pa 2021) (unpublished) (granting summary judgment to employee and new employer on breach of contract and fiduciary duty and misappropriation of trade secrets claims where all of the conduct occurred after former employer terminated employee because employment agreement’s restrictive covenants did not apply to a firing according to court’s interpretation of the contract; defendants prevailed on trade secrets claims because plaintiff could not show misappropriation where the employee acquired the customer information directly in the normal course of work for former employer).

§ 1.2.5 Fourth Circuit

Anderson v. Fluor Intercontinental, Inc., 2021 U.S. Dist. LEXIS 45526 (E.D. Va. 2021) (unpublished). Retired United States Army Brigadier General, Steve Anderson, participated in numerous business ventures after retiring, and prior to being hired by Fluor Intercontinental as its Country Manager in Afghanistan, including having served as Chief Marketing Officer of Relyant Global and owning a stake in Relyant’s holding company, as well as owner and CEO of consulting company Energistics Technologies through which he performed consulting working for several companies, including LEEP Expeditionary Buildings. As a result, during the hiring process, Fluor informed Anderson that they would need to address his potential conflicts of interests, specifically the risk that Relyant might improperly benefit from Anderson’s inside influence at Fluor. After he was hired by Fluor, Anderson entering into a consulting agreement with Relyant and a marketing agreement with LEEP, with whom he communicated his intent to use his position at Fluor for their benefit. Anderson did not report these business arrangements to Fluor when he completed its Code of Business Conduct and Ethics Certification. After Anderson’s interactions with subcontractors raised red flags and after Fluor awarded a contract to Relyant, Fluor investigated and terminated Anderson, in addition to recompeting the contract previously awarded to Relyant, who had been provided competitor pricing information that Anderson had obtained as a Fluor employee. Anderson filed this action against Fluor related to his termination and Fluor’s disclosure of his suspected conflict of interest violations; Fluor counterclaimed, resulting in the parties’ cross motions for summary judgment. Specifically, the court found Fluor’s claim for breach of duty of loyalty preempted by the Virginia Uniform Trade Secrets Act (VUTSA) to the extent it asserts a claim based on Anderson’s alleged misappropriation of the competitor pricing information in Fluor’s possession because VUTSA displaces conflicting Virginia laws providing civil remedies for misappropriation if a defendant misappropriates a trade secret under VUTSA. As such, the court held that, to recover for Anderson’s alleged breach of loyalty, Fluor must demonstrate that its theories of relief for this claim are supported by facts unrelated to Anderson’s alleged misappropriation of its trade secrets. Accordingly, the court denied Anderson’s motion for summary judgment as to this claim to the extent Fluor premises the claim on Anderson’s consulting arrangement with Relyant, which Anderson concealed from Fluor and which is unrelated to the misappropriation of trade secrets.

Additional Cases of Note

ComRent Int’l, LLC v. Smidlein, 2021 U.S. Dist. LEXIS 13715 (D. Md. 2021) (applying Maryland law) (unpublished) (denying defendants’ motion to dismiss for failure to state claim and finding that plaintiff’s claims for breach of fiduciary duty and abetting a breach of fiduciary duty state plausible claims for relief for valid causes of action because, contrary to defendants’ argument, Maryland law recognized an independent action for breach of fiduciary duty); ComRent Int’l, LLC v. Thomson, 2021 U.S. Dist. LEXIS 84320 (D. Md. 2021) (unpublished) (denying defendants’ motions to dismiss for failure to state a claim and finding that plaintiff’s claim for breach of duty of loyalty, among other claims, are not preempted by the Maryland Uniform Trade Secrets Act, because they are based on the alleged wrongful acquisition and use of its confidential and proprietary non-trade secret information, and that plaintiff sufficiently pled a claim for breach of duty of loyalty through its allegations that Thomson accessed and used confidential information during and after his employment to the benefit of himself and/or his new employer); Gordon v. Blue Mountain Therapy, LLC, 2021 U.S. Dist. LEXIS 105432 (W.D. Va. 2021) (unpublished) (denying plaintiff’s motion to dismiss defendant’s counterclaim alleging that plaintiff violated his common law duty of loyalty to defendant when he secretly entered into contracts for his own benefit that should have gone to his employer and rejecting plaintiff’s argument that claims for breach of contract and breach of the duty of loyalty are mutually exclusive).

§ 1.2.6 Fifth Circuit

Additional Cases of Note

Cyberx Grp., LLC v. Pearson, U.S. Lexis 92999, at *30 (N.D. Tex. May 17, 2021) (granting plaintiff’s request for a preliminary injunction against defendants due to breach of contract and breach of fiduciary duties, because “the evidence demonstrates that [defendants’] departure was not the result of unforeseen circumstances, but was rather a step in their plan to form a competing business, which they at least knew, if not intended, would leave [Cyberx] at a competitive disadvantage.”).

Mills v. Trustmark Nat'l Bank, No. 3:19-CV-941-CWR-FKB, 2021 U.S. Dist. LEXIS 37481, at *17 (S.D. Miss. Mar. 1, 2021) (recognizing an aiding and abetting breach of fiduciary duty claim under Mississippi Law even though the state courts had not ruled on the claim’s existence, reasoning that the Fifth Circuit requires its federal courts make an Erie guess as to how the Mississippi Supreme Court would decide a question in the absence of on-point caselaw and there is no evidence that Mississippi would not adopt the claim).

Mims v. Matrix Tr. Co. (In re Vantage Benefits Adm'rs), Nos. 18-31351-SGJ-7, 20-03055, 2021 Bankr. LEXIS 1195, at *59 (Bankr. N.D. Tex. May 5, 2021) (denying a motion to dismiss breach of fiduciary duty and aiding and abetting claims, reasoning that, given that the Texas Supreme Court had yet to decide whether aiding and abetting is a recognized cause of action, the court was unable to conclude as a matter of law that the Plaintiff was unable to bring a cause of action under Texas law).

People Source Staffing Prof'ls LLC v. Robertson, 2021 U.S. Dist. LEXIS 95665, at *24 (W.D. La. May 19, 2021) (granting defendant’s motion for summary judgment regarding plaintiff’s claim for breach of fiduciary duty because defendant “did not have a special duty as an agent or mandatory for [plaintiff]” in the role of account manager).

People Source Staffing Prof'ls LLC v. Robertson, 2021 U.S. Dist. LEXIS 105712, at *20 (W.D. La. June 3, 2021) (granting defendant’s motion for summary judgment regarding the breach of fiduciary duty claim because plaintiff failed to meet its burden to demonstrate defendant was an agent or mandatory of plaintiff, as she was “not an officer, director, or owner of [plaintiff]”).

Whitlock v. CSI Risk Mgmt., LLC, 2021 Tex. App. LEXIS 3345, at *13 (Tex. Ct. App., 5th Dist. Apr. 30, 2021) (determining a verdict in favor of a former employer in its suit against competitors, a former employee, and two others, was proper because “more than a scintilla of evidence supported the jury’s determination that Whitlock breached the confidentiality provision of the Temporary Agreement, and further conclude the jury’s verdict was not contrary to the overwhelming weight of the evidence”).

§ 1.2.7 Sixth Circuit

Ingram v. Regano, 2021 U.S. Dist. LEXIS 61856 (N.D. Ohio 2021) (applying Ohio law) (unpublished). Plaintiff Meribethe R. Ingram sued defendants Joseph V. Regano and Fred E. Bolden, II for violations of her Procedural Due process and Equal Protection rights guaranteed by the United States Constitution, for sexual discrimination in violation of Title VII of the United States Code and Ohio law, and for breach of fiduciary duty in violation of Ohio law. Ingram was employed in various capacities at Lewis Elementary School, and alleged she was harassed by another teacher. She claimed she reported the behavior to the school’s administration, including Bolden and Regano, but that they did not act in response. Rather than investigating her complaint, the administration informed her she was no longer welcome on the Lewis Elementary premises. Ingram then filed a complaint for unlawful retaliation with the school district, who allowed Bolden and Regano to oversee the investigation even though both were the subject of such investigation. Her retaliation complaint was denied. One of Ingram’s claims was that both Bolden and Regano owed her a fiduciary duty to conduct the investigation into her complaint in a fair and unbiased manner. The Sixth Circuit found that Ingram failed to properly state a claim that a fiduciary relationship existed because the plain language of the District’s anti-harassment policy explained that the defendant’s obligations run to the “accused, the accuser, but primarily to the Board,” thus it was not clear that the defendants promised to act primarily for Ingram’s benefit. Thus, the defendants were entitled to judgment in their favor on the breach of fiduciary duty claim.

Ohio Nurses Ass’n v. Ashtabula Cty. Med. Ctr., 2020 U.S. Dist. LEXIS 136336 (N.D. Ohio 2020) (unpublished). The Defendant, Ashtabula County Medical Center (ACMC) is a non-profit hospital in Ohio and is governed by a Board of Trustees. It is the only hospital in Ashtabula County that provides labor and delivery services. The Board decided to close the Maternity Ward and Skilled Nursing Unit. The Plaintiffs, brought this case seeking a preliminary injunction to enjoin the Defendants from closing the Maternity Ward alleging among other things a breach of fiduciary duty of the Trustees of the ACMC Board of Trustees. The Plaintiffs allege that the Trustees, by acting against their organizational purpose to benefit members of the community, have breach their fiduciary duty. The Northern District of Ohio denied the Plaintiffs’ motion and stated that Plaintiffs failed to prove the Trustees did not act in good faith. Additionally, Plaintiffs failed to prove that they had standing to assert a breach of fiduciary claim because Ohio law only expressly allows for claims by members of the corporation not by intended beneficiaries, which Plaintiffs claimed to be.

United States ex rel. Felten v. William Beaumont Hosp., 933 F.3d 428 (6th Cir. (Mich.) 2021). Petitioner David Felten appealed the district court’s partial dismissal of his first amended complaint alleging William Beaumont Hospital (Beaumont) violated the anti-retaliation provision of the federal False Claims Act (FCA) (31 U.S.C. § 3730(h)). He alleged he was terminated after Beaumont falsely represented to him that an internal memorandum suggested he be replaced and that his position was subject to mandatory retirement. He also claimed Beaumont “intentionally maligned” him in retaliation for his reports of Beaumont’s unlawful conduct, which prevented him from getting a job anywhere else in academic medicine. His complaint was dismissed by the district court, after the court found the FCA’s anti-retaliation provision only applies to conduct occurring during a plaintiff’s employment. This was an issue of first impression for the Sixth Circuit, with the court holding that the provision does apply to actions taken after a plaintiff’s employment ends. Beaumont argued that the phrase “terms and conditions of employment” used in the FCA precludes the Act’s application to actions taken after a plaintiff’s employment ends. The court rejected that argument, finding that the phrase does not restrict misconduct to occurrences that take place only while the plaintiff is employed, and adding that “terms and conditions of employment” can continue long after a plaintiff leaves a job, such as non-compete and non-solicitation agreements. The court noted that the FCA does not define “employee” and instead relied on the dictionary definition’s requirement that there be the formation of an employment relationship, regardless of whether or not such a relationship still exists, in order for the Act to apply. Last, the court noted a considerable policy concern, that if the statute did not apply to actions taken after a plaintiff’s employment ends, there would be a perverse incentive for employers to fire employees who might bring FCA claims, and the anti-retaliation provision is meant to encourage the reporting of fraud, not stymie it.

Additional Cases of Note

Cheryl & Co. v. Krueger, 2021 U.S. Dist. LEXIS 80868 at *66 (S.D. Ohio 2021) (applying Ohio law) (unpublished) (explaining the “faithless servant doctrine” and granting summary judgment in favor of one defendant-employee on plaintiff-employer’s breach of duty of loyalty claim because the evidence was insufficient to show that disloyalty permeated the employee’s service under the standard); Henderson v. Skyview Satellite Networks, 474 F. Supp. 3d 893, at *902-908 (W.D. Ky. 2020) (finding that by being in negotiations for employment with a new employer, even though she had not accepted employment, the plaintiff was “engaging” and “entertaining” employment offers in violation of the terms of her employment agreement); Novolex Holdings v. Wurzburger, 2020 U.S. LEXIS 147891, at *23-28 (E.D. Ky. 2020) (holding that the defendant-employee breached his fiduciary duty by withholding information from plaintiff-employer in order to earn a bonus); PSC Indus. v. Johnson, 2021 U.S. Dist. LEXIS 81350, at *41-44 (M.D. Tenn. 2021) (applying Tennessee law) (unpublished) (explaining that plaintiff’s breach of fiduciary duty claim is to be construed by the court as a claim for a breach of the duty of loyalty, emphasizing that the two claims are “undeniably . . . different”); Radiant Global Logistics, Inc. v. BTX Air Express of Detroit LLC, 2021 U.S. Dist. LEXIS 68319, at *17-30 (E.D. Mich. 2021) (applying Michigan law) (unpublished) (explaining of the elements of fiduciary duty claims and breaches thereof in detail); Vanderbilt Univ. v. Scholastic, Inc., 2021 U.S. Dist. LEXIS 99656 (M.D. Tenn. 2021) (applying Tennessee law) (unpublished) (finding a reasonable juror could conclude that defendant-employee acted adverse to plaintiff-employer’s interest by agreeing to several non-compete provisions and failing to inform plaintiff-employer about such agreements);

§ 1.2.8 Seventh Circuit

Hensiek v. Bd. of Dirs. of Casino Queen Holding Co., 514 F. Supp. 3d 1045 (S.D. Ill. 2021). Plaintiffs are former employees of the Casino Queen and participants in the Casino Queen ESOP that was created for the sole purpose of purchasing 100% of the outstanding common stock of CQ because the shareholders were unable to sell that asset elsewhere. To effectuate the sale of stock, the Board of Directors (Bidwell, Rand, Koman, Watson and Barrows) selected two of its members (Watson and Barrows) to be Co-Trustees of the ESOP and vested them with the authority to purchase from the selling shareholders (Bidwell, Rand, and Koman) all of the outstanding stock for the sum of $170 million. The Board retained the power to dismiss the Co-Trustees, which Plaintiffs asserted was functionally equivalent to having power and control over their decision making, thereby creating a fiduciary relationship between members of the Board and Plaintiffs. Plaintiffs went on to allege that two transactions served to benefit the selling shareholders who orchestrated the transactions and violated Defendants’s fiduciary duties to participants of the ESOP under the Employment Retirement Income Security Act (“ERISA”). Plaintiff contended that they were unaware of the events for several years until the shares of stock were reported to have suffered a significant loss in value and that defendants undertook acts to conceal and misrepresent their misconduct. Defendants moved to compel arbitration. The court noted that the Seventh Circuit has not directly addressed the issue of whether statutory ERISA claims are arbitrable but assumed that the “Circuit will at the appropriate time determine that statutory ERISA claims are arbitrable” based on rising trends in other circuits. Ultimately, however, the court held that arbitration was unenforceable in this case due to lack of consideration.

Additional Cases of Note

Hartford Steam Boiler Inspection & Ins. Co. v. Campbell, 2021 U.S. Dist. LEXIS 62332 (S.D. Ind. 2021) (unpublished) (applying Indiana law) (granting defendants’s motion to dismiss for failure to state a claim as to plaintiff’s allegation that defendants breached fiduciary duty of care by misappropriating trade secrets where Indiana trade secret law pre-empts any common law claim for misappropriation of trade secrets).

NPF Racing Stables, LLC v. Aguirre, 2021 U.S. Dist. LEXIS 69912 (N.D. Ill. Apr. 12, 2021) (unpublished) (granting plaintiff’s motion for summary judgment as to defendants’s counterclaims and third-party claims, explaining that fiduciary duty is not breached when the record indisputably shows that the alleged breacher’s actions were in the company’s best interest).

Switchboard Apparatus, Inc. v. Wolfram, 2021 U.S. Dist. LEXIS 105827, at *16 (N.D. Ill. June 7, 2021) (denying plaintiff’s motion to dismiss the claim as preempted by the Illinois Trade Secrets Act (ITSA) because even if the information plaintiff shared with his new employer was not a trade secret, plaintiff “breached his duty of loyalty by sharing the relevant information with E&I while employed by SAI.”).

Teague v. Healthcare Dev. Partners, LLC, 2021 U.S. Dist. LEXIS 37108, at *26 (N.D. Ill. Mar. 1, 2021) (denying defendant’s summary judgment motion because triable issues of material fact existed with respect to plaintiff’s potential breach of his duty of loyalty when he offered competing services to another company while still employed by his prior employer).

Walgreens Co. v. Peters, 2021 U.S. Dist. LEXIS 140740, at *14 (N.D. Ill. July 28, 2021) (granting Walgreens’s motion for a preliminary injunction with respect to enjoining Peters’s use of the stolen Walgreens’s information and trade secrets because Peters “owed a fiduciary duty of loyalty to Walgreens, [] he breached that duty when he took Walgreens’s data, and [] Peters’s actions proximately caused injury to Walgreens” given that Peters “and his new employer used this information to target high performing Walgreens’s stores and purchased nearly $80,000,000 worth of Walgreens’s leased property” after Peters joined his new employer).

§ 1.2.9 Eighth Circuit

ATD Tools v. Fisher, 2021 U.S. Dist. LEXIS 27315 (E.D. Mo. 2021) (unpublished). ATD sells and distributes automotive tools for its own brand and other sellers. Fisher was employed by ATD as its category manager in charge of ATD’s branded products. As a condition of his employment, Fisher entered into ATD’s standard confidentiality and nonsolicit agreement. Fisher resigned, refused to identify his new employer, and claimed that he would live off his investments while contemplating his future. Fisher actually went to work for a direct competitor. Shortly after Fisher’s last day, ATD provided a written reminder of his confidentiality obligations. ATD investigated Fisher’s computer activity and found that he deleted almost all of the emails in his account for two years prior to his departure; accessed, copied, and utilized extensive data on ATD’s computer system; and transferred ATD personnel information, internal financial information, sales and products analytics, strategic marketing plans, and operational information to his own storage devices or accounts. Some of this information was outside of the scope of Fisher’s ATD job duties. ATD moved for a TRO on several claims against Fisher including breach of his duty of loyalty. The court found that ATD was likely to succeed on its claims because Fisher deleted data from ATD’s computer systems and took ATD’s confidential information with him when he left to go work for a competitor. The court also found that ATD was likely to succeed on its trade secret misappropriation and Missouri Computer Tampering Action claims, and entered an injunction prohibiting Fisher from using or disclosing ATD’s trade secrets. See Section 1.5.9 for a summary of the court’s analysis of the trade secret misappropriation claim.

Jim Hawk Truck-Trailers of Sioux Falls v. Crossroads Trailer Sales & Serv., 2021 U.S. Dist. LEXIS 50711 (D. S.D. 2021) (unpublished). Between December 2019 and March 2020, Crossroads Trailer hired nine employee mechanics from Jim Hawk, a direct competitor trucking company. Jim Hawk claimed that the mechanics breached their duty of loyalty by preparing to compete with Jim Hawk’s business while still employed, taking information belonging to Jim Hawk, diverting business from Jim Hawk, and attempting to determine if the customers with whom they worked at Jim Hawk would do business with them at Crossroads. Jim Hawk also alleged that three of the mechanics’ resignations with a period of six days without notice harmed Jim Hawk’s ability to serve its customers. The mechanics moved to dismiss for failure to state a claim. The court noted that the line between preparing to compete and actively competing or not preferring one’s employer is difficult to discern, but found that Jim Hawk alleged facts sufficient to state a claim for breach of duty of loyalty.

§ 1.2.10 Ninth Circuit

Bafford v. Northrop Grumman Corp., 994 F.3d 1020 (9th Cir. (Cal.) 2021). Northrop Grummon sponsored an employee pension plan (Plan) subject to the requirements of the Employee Retirement Income Security Act (ERISA). Northrop delegated administration of the Plan to a Committee which then delegated administration to an outside committee called Hewitt. One of Hewitt’s responsibilities was to generate monthly statements for Plan participants outlining what their monthly pension benefits would be when they retired. Plaintiffs Stephen Bafford and Evelyn Wilson requested these statements, but the statements they received grossly overestimated the benefits to which they were entitled. After plaintiffs retired, they began collecting benefits in the amounts predicted by the statements. Upon realizing the error, Northrop notified plaintiffs, informing them of the reduced amounts they were owed. Plaintiffs then sued, alleging, among other things, that Northrop, the Committee, and Hewitt violated their fiduciary duties to provide accurate benefit information. The district court dismissed plaintiffs’ claims for breach of fiduciary duty against Northrop and the Committee, and the appellate court agreed. The appellate court distinguished between a “named fiduciary,” a fiduciary designated in the plan instrument, and a “functional fiduciary,” a party that exercises discretionary control over management or administration of a plan. For a functional fiduciary, such as Hewitt, to be liable for breach of fiduciary duty, it must be performing a “fiduciary function” at the time of the purported violation. Here, the court found that Hewitt’s calculations of plaintiffs’ pension benefit estimates were not the type of communications with beneficiaries that were fiduciary in nature. Because a breach of fiduciary duty can only occur in connection with the performance of a fiduciary function, Northrop and the Committee could not be held liable for breach of fiduciary duty for delegating a task that did not serve a fiduciary function to Hewitt.

Richter v. Ausmus, No. 19-cv-08300-WHO, 2021 U.S. Dist. LEXIS 28673 (N.D. Cal. 2021) (unpublished). Plaintiff Julia Richter is a former employee of the Oakland Police Department, who alleged, among other things, that she was subjected to a wrongful investigation to prevent her from obtaining disability retirement benefits, which ultimately resulted in her termination. Plaintiff alleged that several parties breached their fiduciary duty to her related to their assessment of her disability benefits. While California courts have held that pension associations, their board members, and some other high-level administrators of pension funds owe a fiduciary duty to beneficiaries and employees applying for benefits, mere employees of the association or bureaucratic employees do not have a fiduciary relationship with the beneficiaries. Here, plaintiff alleged that the City of Oakland Retirement Commission was charged with the administration and management of the City of Oakland’s police retirement system. However, the evidence indicates that CalPERS is in fact the relevant pension association which accepted and rejected her application for disability benefits. Therefore, CalPERS and its board members are the relevant potential fiduciaries in this case. As a result, plaintiff’s claims against the City of Oakland, an Interim City Administrator for the City of Oakland, an attorney for the city of Oakland, a Finance Director assigned to Retirement Unit for the City of Oakland all fail, as none of these parties owe a fiduciary duty to plaintiff. In addition, plaintiff’s claims against an Associate Governmental Program Analyst at Disability Retirement, CalPERS; a member of Local Safety program at Disability Retirement, CalPERS; and an employee in the Special Programs Unit at Disability Retirement, CalPERS cannot stand, as the evidence suggests that these individuals are mere bureaucratic employees of CalPERS and do not owe a fiduciary duty to plaintiff.

Additional Cases of Note

Andreoli v. Youngevity Int'l, No. 3:16-cv-2922-BTM-JLB, 2021 U.S. Dist. LEXIS 207259 (S.D. Cal. 2021) (unpublished) (suggesting that all employees, regardless of whether they are managerial or lower-level, owe a duty of loyalty to their employers); Nat'l Union Fire Ins. Co. v. Lutge, No. 1:20-cv-01809 DAD JLT, 2021 U.S. Dist. LEXIS 99066 (E.D. Cal. 2021) (unpublished) (noting that an employer-employee relationship alone is not sufficient to create a fiduciary relationship between the parties); Tuomela v. Waldorf-Astoria Grand Wailea Hotel, No. 20-00117 JMS-RT, 2021 U.S. Dist. LEXIS 14862 (D. Haw. 2021) (unpublished) (acknowledging that there is no “general fiduciary relationship” between employers and their employees); Valmet Eng'g v. Subramanian, No. CV-19-00457-TUC-RCC (BGM), 2021 U.S. Dist. LEXIS 124760 (D. Ariz. 2021) (unpublished) (stating that an individual’s vague “association” with an entity that owes a fiduciary duty to a third party is not enough to create a fiduciary duty between the individual and that third party); Youngevity Int'l, Corp. v. Smith, No. 3:16-cv-704-BTM-JLB, 2021 U.S. Dist. LEXIS 53456 (S.D. Cal. 2021) (unpublished) (noting that the duty of loyalty that underlies California Business and Professions Code section 16600 applies to independent contractors and employees alike).

§ 1.2.11 Tenth Circuit

There were no qualifying decisions within the Tenth Circuit.

Additional Cases of Note

LS3 Inc. v. Cherokee Fed. Sols., L.L.C., 2021 U.S. Dist. LEXIS 186460 (D. Colo. 2021) (unpublished) (holding that there was no breach of the duty of loyalty since the duty only applied to active business opportunities, and the purported breach occurred after the business opportunity had ended); Smart Surgical, Inc. v. Utah Cord Bank, Inc., 2021 U.S. Dist. LEXIS 36563 (D. Utah 2021) (unpublished) (finding that a claim for aiding and abetting the breach of fiduciary duty cannot depend solely on the use of confidential customer information or it will be preempted by the UTSA);

§ 1.2.12 Eleventh Circuit

777 Partners LLC v. Pagnanelli, 2021 U.S. Dist. LEXIS 43976, at *7-9 (S.D. Fla. 2021): 777 Partners LLC sued its former CEO Pagnanelli for both breach of his employment contract and breach of fiduciary duty. The contract defined Pagnanelli’s fiduciary duties, and contained other restrictive covenants. Pagnanelli allegedly breached both the agreement and his fiduciary duties by engaging in self-dealing (through the solicitation of potential investors for a new startup) and sharing confidential information with individuals outside the company. Regarding the breach of fiduciary duty claim, the court found that 777 Partners LLC failed to state a claim because of the independent tort doctrine. The court relied on the fact that 777 Partners LLC’s complaint “incorporate[d] by reference the very same facts alleged in [the] breach of contract claim” to find that there was no independent conduct to support the breach of fiduciary duty claim. The court acknowledged that “there could be circumstances where the conduct forming a plaintiff’s breach of contract claim is different than the conduct that underlies a breach of fiduciary duty claim in the same complaint.” 777 Partners LLC’s claim, however, failed to show independent conduct demonstrating a breach of fiduciary duty. Consequently, it was barred by the independent tort doctrine.

§ 1.3 Restrictive Covenants: Covenants Not To Compete

§ 1.3.2 First Circuit

CVS Pharm. v. Brown, No. 21-070 WES, 2021 U.S. Dist. LEXIS 39688 (D.R.I. 2021) (unpublished). the Rhode Island District Court granted employee's motion to transfer venue based on a lack of personal jurisdiction because employer failed to establish adequate “plus factors” to bolster a noncompete agreement’s choice of law provision.

Iorio v. Waste Connections of R.I., Inc., No. PC-2021-01558, 2021 R.I. Super. LEXIS 50 (Super. Ct. June 16, 2021) (unpublished). The Rhode Island Superior Court denied an employee's application for a preliminary injunction to prohibit an employer from enforcing a noncompete agreement because the employee failed to establish that enforcement of the agreement would result in irreparable harm. There, the noncompete agreement required that, at the time of termination, the employee would be prohibited from working for a competing business within the geographical areas the employee had worked in the prior two years of employment for 18 months. In her application for injunctive relief, the employee argued that she had suffered irreparable harm through mental anguish she suffered during employment and her prolonged period of unemployment during the underlying action would also equate to irreparable harm. The court held that while evidence of mental anguish could be sufficient for a finding of harm, the mental anguish caused during her employment, which was not due to the enforcement of the noncompete, was not applicable for the purposes of injunctive relief. The court also held that the employee’s prolonged period of unemployment was not sufficient for a finding of irreparable harm when the purpose of a noncompete agreement is to restrict a former employee's ability to work. Moreover, any loss of income would be a quantifiable claim for money damages, not injunctive relief.

Woodlands Senior Living LLC v. MAS Med. Staffing Corp., No. 1:19-cv-00230-JDL, 2021 U.S. Dist. LEXIS 96366 (D. Me. 2021) (unpublished) – the Maine District Court granted an employer’s motion for reconsideration and vacated a staffing corporation’s judgment on the pleadings because the order failed to address whether 1 M.R.S.A. § 302’s “non-application to pending proceedings” provision applied to the corporation’s underlying claim. There, the corporation sought relief under 26 M.R.S.A. § 599-B to bar the employer from enforcing a restrictive employment agreement. The question before the court was whether §599-B applied where an employer was attempting to enforce a restrictive employment agreement, but the enforcement action began prior to the statute’s enactment. 1 M.R.S.A. § 302 provides that actions and proceedings pending at the time of the passage of an Act are not affected thereby. Maine law has held that this rule is controlling absent clear and unequivocal language to the contrary. The court reasoned that because 26 M.R.S.A. § 599-B contained no explicit reference to section 302, or to “pending proceedings,” 1 M.R.S.A. § 302’s presumptive application was not overcome in this instance. Therefore, because there was no clear and unequivocal language indicating the Legislature sought to overcome §302, § 599-B did not bar the employer’s pending action to enforce the restrictive employment agreement against the staffing corporation.

Additional Cases of Note

§ 1.3.3 Second Circuit

IBM v. de Freitas Lima, 833 Fed. Appx. 911 (9th Cir. 2021). Rodrigo Kede de Freitas Lima signed a noncompete with IBM in December 2019. The noncompete, which was limited to a 12-month period, prohibited Lima from working for a competitor. In May 2020, Lima resigned from IBM and accepted an executive position at Microsoft. The district court enjoined Lima from taking the position at Microsoft, reasoning that the noncompete was reasonable under the circumstances. The court found that IBM successfully demonstrated that Lima would inevitably rely on IBM trade secrets when working in his new role at Microsoft. The Second Circuit affirmed this ruling. Because the Second Circuit has rarely reviewed injunctions enforcing such noncompetes under New York law, the case is of high precedential value. It is especially relevant for employers seeking to enjoin high-level executives from working for competitors, when the individual has been exposed to trade secrets.

§ 1.3.4 Third Circuit

Chromalox, Inc. v. Crombie, 2021 U.S. Dist. LEXIS 120745 (W.D.Pa 2021) (unpublished). Crombie was Chromalox’s former Vice President of heat trace for over two decades, which encompassed the “highest level of responsibility in the company for the entire heat trace segment on a global scale,” with heat trace comprising 25% of Chromalox’s sales and 35% of its profits. In 2017, upon Chromolox’s acquisition by new parent company Spirax, Crombie was induced by higher base pay and a new stock option program to sign Spirax’s employment agreement featuring confidentiality, non-competition, and non-solicitation provisions. In 2019 after indicating a pursuit of a career in music, Crombie resigned from Chromolox. The court found by a preponderance of the evidence that Crombie then first attempted to secure employment with Chromolox competitor Bartec, who did not advance an offer due to concerns about the restrictive covenants. Thereafter, Crombie successfully attained employment with Chromolox competitor Indeedco, and he was the architect of their new Heat Trace division, where 75% of new sales opportunities targeted were former Chromolox customers; proprietary technology that had not yet gone to market was stolen; and strategy and training presentations were plagiarized word for word from confidential Chromolox templates. The court granted an eight month preliminary injunction upholding the Spirax employment agreement’s restrictive covenants, which applied globally, as reasonable based on Crombie’s knowing breach thereof given the global nature of his role and of Chromolox and Indeedco’s business. Thus, in enjoining Crombie’s further employment at Indeedco, the court noted that the harm to Crombie was minimal, as he knew or should have known that he was violating the covenants based on the concerns expressed by Bartec.

Ethicon, Inc. v. Randall, 2021 U.S. Dist. LEXIS 102119 (D. N.J 2021) (unpublished). Randall worked for two entities wholly-owned by Johnson and Johnson’s medical device division - first DePuy Synthes, and then Ethicon - before resigning to join competitor Smith and Nephew. As part of assuming a senior leadership role at DePuy, Randall signed an employment agreement containing restrictive covenants preventing Randall from joining a competitor for 18 months. Critically, the agreement carved out the type of work that Randall could do, the terms by which Randall could work for a ‘competitor’ in a non-competitive position or other roles, and a requirement that Randall give 14 written days notice before undertaking such employment. In granting the preliminary injunction preventing Randall from working at Smith and Nephew for 18 months (on a global scale), the court held that Ethicon was properly viewed as a third party beneficiary to the employment agreement between Randall and DePuy based on the agreement’s express language; therefore, Ethicon could enforce the agreement against Randall. Moreover, the scope of the injunction was reasonable given the global nature of both Ethicon and Smith and Nephew’s business, the fact that not all employment was foreclosed to Randall, and the fact that Randall clearly acquired Ethicon’s confidential information as he admitted to forwarding certain information to his personal email before resigning. The court took stock further in Smith and Nephew’s offer to pay Randall’s base salary during the pendency of the injunction, which made the 18 month scope even less of a hardship on Randall. Lastly, although Randall technically failed to comply with the notice provision, the court gave weight to Ethicon’s attempts to place Randall in another position after he gave the deficient ‘notice’ (verbally and in an email noting he was joining the competitor); thus, the injunction would not impose undue harm upon Randall, especially given his voluntary resignation.

Additional Cases of Note

Jackson Hewitt Inc. v. Njoku, 2021 U.S. Dist. LEXIS 87407 (D.N.J 2021) (unpublished) (individual tax preparation franchising agreement gone sour where after franchising agreement was terminated, franchisee utilized his wife, who was really a nurse, to surreptitiously create a new ‘e-filing number’ whereby franchisee operated competitive tax business within 10-mile radius of former Queens, NY franchise location; questioning franchisee’s unauthorized retention of franchisor’s customer records and suspiciously-high, unexplained 60% customer retention rate; and concluding that high retention rate, along with alternative income sources, indicated that franchisee and relatives would not be harmed by enforcement of equitably-adjusted 18-month covenants not to compete and/or solicit franchisor’s customers).

§ 1.3.5 Fourth Circuit

Ihs Global Ltd. v. Trade Data Monitor, LLC, 2021 U.S. Dist. LEXIS 101952 (D.S.C. 2021) (applying New York law) (unpublished). IHS Global owns and operates Global Trade Atlas (GTA), a database providing comprehensive merchandise trade statistics. GTA was created by defendant Brasher and his brother through Global Trade Information Services (GTIS), which they sold, along with GTA, to IHS through a stock purchase agreement (SPA) that prohibited Brasher and his affiliates from using any confidential information or proprietary information related to GTIS, including GTA, for three years. Brasher also entered into a noncompetition agreement (NCA) with IHS in which he agreed that he and his affiliates would not “carry on a business that is competition to the Business” for the same three-year period. After the sale of GTIS, Brasher worked as a consultant with IHS and entered into a consulting agreement that prohibited the use of IHS’s confidential and proprietary information. Defendants Stein and Stringfield also worked for GTIS, and then IHS after the acquisition, at which time they executed employment agreements with IHS that prohibited the use and disclosure of any of IHS’s proprietary information. Approximately 15 months after the acquisition of GTIS, Brasher began developing the Trade Data Monitor Production (TDM Product), which plaintiff alleges is a copycat version of the GTA, and then formed defendant Trade Data Monitor (TDM). Shortly thereafter, Stein and Stringfield terminated their employment with IHS and began working for Brasher. Also, still within the three-year noncompete period, Brasher’s friend purchased a subscription to GTA through which Brasher and TDM frequently accessed GTA. During this time, Brasher also had access to his work laptop with GTIS’s customer relationship database, while Stein and Stringfield had access to a large volume of emails from their time at GTIS, although the parties dispute whether defendants actually relied upon any of this information in building and marketing the TMD Product, which they launched the day after the three-year noncompete period ended. IHS alleges that defendants used IHS’s product, supplier, customer trade secrets and proprietary information to create the TDM Product and that they have been using IHS’s confidential customer information to create business for TDM. The parties filed competing motions for partial summary judgment. The court denied both motions as to IHS’s claim that Brasher breached the NCA because determination of whether Brasher’s conduct, which he describes as merely preparations to compete, is prohibited by the NCA requires interpretation of the NCA and the phrase “carry on a business that is a competitive to the Business” is ambiguous as to what it prohibits. The court also found that the raw trade data and customer contacts are protected under the relevant agreements and found that Brasher, Stein, and Stringfield breached the SPA and employment agreements because it was undisputed that Brasher and TDM employees used the confidential trade data output from the GTA in developing the TDM Product. The court disagreed with defendants’ argument that, although the evidence demonstrated that they obtained access to certain confidential and proprietary information, the evidence does not demonstrate that they ever used the information to build and market the TDM Product. The court noted that obtaining, accessing, utilizing and sending confidential and proprietary information are, in themselves, prohibited “uses” and “disclosures” of that information, which is sufficient for purposes of determining whether the relevant contracts were breached.

Additional Cases of Note

ADESA, Inc. v. Lewis, 2021 U.S. Dist. LEXIS 10422 (W.D. Va. 2021) (applying Tennessee law) (unpublished) (denying request for a preliminary injunction due to a lack of clear showing that the action seeking to enforce a noncompete agreement against a former employee and his new employer is likely to succeed on the merits given questions of enforceability of the agreement under Tennessee law because the agreement was imposed after six years of employment and with only a few months of remaining employment leading to a level of financial uncertainty that likely outweighed plaintiff’s need for protection, among questions regarding the sufficiency the evidence presented regarding the training received by the employee and the justification for the restrictions); Chmura Econs. & Analytics, LLC v. Lombardo, 2021 U.S. Dist. LEXIS 143009 (E.D. Va. 2021) (unpublished) (finding, in response to cross motions for summary judgment, that the noncompetition and nonsolicitation provisions in defendant’s employment agreement with plaintiff are invalid, but severable, because the companies for whom he is restricted from working and the scope of prohibited activities are so broad that “Lombardo would seem to be forced to switch fields entirely,” which was compounded by a lack of meaningful geographic limitation); ComRent Int’l, LLC v. Smidlein, 2021 U.S. Dist. LEXIS 13715 (D. Md. 2021) (applying Maryland law) (unpublished) (denying defendants’ motion to dismiss for failure to state a claim and finding that plaintiff asserted a plausible claim that the restrictive covenants in its agreement with defendant were reasonably related to its legitimate interest given that it alleged that defendant was a highly compensated senior sales executive responsible for overseeing development of customer relationship and who was provided with confidential business records and noting that although the provisions were in some ways broad, such as a broad geographic scope, it was not obviously unreasonable);. Gordon v. Blue Mountain Therapy, LLC, 2021 U.S. Dist. LEXIS 105432 (W.D. Va. 2021) (unpublished) (denying as premature plaintiff’s motion to dismiss defendant’s counterclaim alleging that plaintiff violated the restrictive covenant in his employment agreement because determining enforceability of the restrictive covenant may not be determined in a “factual vacuum” and discovery had not yet occurred); Richards Bldg. Servs., LLC v. Hegarty, 2021 U.S. Dist. LEXIS 143660 (E.D.N.C. 2021) (unpublished) (granting plaintiff’s unopposed motion for preliminary injunction and finding that plaintiff has a strong likelihood of success on the merits based on the court’s findings that the restrictive covenants in defendant’s employment agreement were in writing and based on valuable consideration in the amount of $2,000, apart from his wages, for signing the agreement, and that the restrictive covenants were designed to protect plaintiff’s legitimate business interests and the restrictions are reasonable as to time and territory because a two years and radius of 30 miles is reasonable based on North Carolina law, and plaintiff has made a showing that defendant breached the restrictive covenants, in addition to finding that plaintiff will suffer irreparable injury if defendant is not enjoined).

§ 1.3.6 Fifth Circuit

Additional Cases of Note

Chags Health Info. Tech. v. Rr Info. Techs., 2021 U.S. Dist. LEXIS 126855, at *9 (E.D. La. May 7, 2021) (denying plaintiff’s motion for entry of temporary restraining order against defendant due to breach of the noncompete agreement, because “the triple-layered hearsay offered” by plaintiff was inadequate, in light of defendant’s adamant denial, to establish that plaintiff was likely to prove that defendant was working with a competitor to compete with plaintiff).

Champion Nat’l Sec., Inc. v. A&A Sec. Grp., LLC, U.S. Lexis 70918, at *18 (N.D. Tex. Apr. 13, 2021) (entering a limited temporary restraining order against defendants due to working for a competitor and breaching the restrictive covenants in their employment agreement, because the covenants were reasonable in time and scope and were reformed by the court so that the agreement was “limited to the geographic territory in which the employee worked and where the new company ha[d] an office”).

Delta Fuel Co. v. Abbott, 515 F. Supp. 3d 564, 571 (W.D. La. 2021) (granting plaintiff’s motion to dismiss or for summary judgment regarding the noncompetition agreement because its restrictive covenant impermissibly extended the agreement beyond the two-year period from termination stipulated by La. Rev. Stat. § 23:921).

EHO360, LLC v. Opalich, U.S. Lexis 137338, at *18 (N.D. Tex. July 23, 2021) (denying defendant’s motion to dismiss plaintiff's claims for breach of contract on the ground they hinged on events that occurred after termination of the noncompete and nonsolicitation covenants, because “the court lack[ed] the evidence and briefing necessary to determine whether the covenants were tolled”).

JTH Tax, LLC v. Johnson, No. 21-747, 2021 U.S. Dist. LEXIS 108769, at *10 (E.D. La. June 10, 2021) (applying Virginia law) (granting a preliminary injunction to enforce a non-competition covenant for a franchise agreement prospectively from the date of the injunction rather than the date the franchise agreement was terminated).

Morris-Shea Bridge Co. v. Cajun Indus., No. 3:20-cv-00342, 2021 U.S. Dist. LEXIS 173783, at *15 (S.D. Tex. Feb. 22, 2021) (denying plaintiff’s preliminary injunction to enforce non-compete agreement, finding that the agreement’s geographic restraint was too broad given that the multi-state restriction effectively prevented defendants from earning a living wage in their profession).

People Source Staffing Prof'ls LLC v. Robertson, 2021 U.S. Dist. LEXIS 95665, at *11-12 (W.D. La. May 19, 2021) (granting defendant's motion for summary judgment regarding the noncompetition agreement because "(1) it extends the provision to 'employees' of competing businesses, and (2) it extends its provisions to [plaintiff]'s business on the date the agreement is signed, and to other businesses that [plaintiff] 'from time to time' enters into during the time [defendant] is an employee," rendering the provision null and void and severed from the agreement).

Providence Title Co. v. Truly Title, Inc., 2021 U.S. Dist. LEXIS 123502, at *22, 31 (E.D. Tex. July 1, 2021) (granting Providence’s request for a preliminary injunction against Defendant Tracie Fleming due to working for a competitor, breaching the noncompete provision in her shareholders’ agreement, because (1) as a departing shareholder, the process of repurchasing her shares has begun and (2) the noncompete is enforceable because “Providence is likely to establish that the activity, time, and geographical limitations of the noncompete are reasonable”).

Southeastrans, Inc. v. Landry, 2021 U.S. Dist. LEXIS 48318, at *16 (W.D. La. Mar. 15, 2021) (granting defendant’s motion for summary judgment regarding the nonspecific noncompetition agreement claim because La. Rev. Stat. § 23:921 “requires a specific listing of every parish in which an employer intends to restrict competition and in which that employer carries on a business for an agreement not to compete or to solicit customers to be valid and enforceable”).

Volt Power, LLC v. Deville, 2021 U.S. Dist. LEXIS 76354, at *11-12 (W.D. La. Apr. 20, 2021) (denying defendant’s motion to dismiss plaintiff's claims on the ground they hinge on invalid noncompetition and nonsolicitation agreements because (1) the “provisions do not, from the face of the pleadings, fail the ‘mechanical adherence’ standard required by § 23:921(C), notwithstanding their placement in an informed consent letter” and (2) plaintiff's attorney complied with her obligations under Louisiana Rule of Professional Conduct 1.7 “by explaining the fundamentals of informed consent [letters], including the risks and consequences of waiving attorney-client privilege, and by obtaining [defendant’s] written consent to joint representation,” evidencing public policy supported the use of informed consent letters).

§ 1.3.7 Sixth Circuit

Additional Cases of Note

Abington Emerson Cap. v. Adkins, 2021 U.S. Dist. LEXIS 53083 (S.D. Ohio 2021) (rejecting defendants' summary judgment motion which contended that only the subsidiary company could be vicariously liable for an employee's negligence because the non-compete the employee signed with the parent company helped create a genuine dispute about how had the right to control the employee); Advance Wire Forming, Inc. v. Stein, 2020 US. Dist. LEXIS 153940 (N.D. Ohio 2020) (ruling that the defendant did violate the non-compete provision he had with the plaintiff by gaining proprietary information from plaintiff and sharing it with others.); AmeriSpec, L.L.C. v. Sutko Real Estate Servs., 2020 U.S. Dist. LEXIS 121040 (W.D. Tenn. 2020) (granting a motion for a preliminary injunction seeking to enforce a non-compete after determining the plaintiff would suffer irreparable harm to its reputation and customer goodwill if the defendants were allowed to continue competing in plaintiff’s market and using its name and clients to do business); Auto Konnect v. BMW of North America, 2021 U.S. Dist. LEXIS 105812 (E.D. Mich. 2021) (granting summary judgment to a plaintiff over the breach of a non-compete and holding that the defendant was required to obtain written consent to hire plaintiff's employees); Cocentrix CVG Customer Mgmt. Grp. Inc. v. Daoust, 2021 U.S. Dist. LEXIS 83830, at *25 (applying Ohio law) (explaining the nine factors courts consider to determine the reasonableness of non-compete agreements); ComForCare Franchise Sys. v. ComForCare Hillsboro McMinnville Corp., 815 F. App’x 80 (6th Cir. (Mich.) 2020) (affirming a lower court decision to grant only partial injunctive relief to a plaintiff based on the defendant’s violation of a non-compete clause and holding that a court’s decision to grant injunctive relief is discretionary and bound by case law, no the parties’ contract); D.M. Rottermond, Inc. v. Shiklanian, 2021 U.S. Dist. LEXIS 53570 (E.D. Mich. 2021) (granting a temporary restraining order to a plaintiff in a non-compete case because the defendant was in direct competition with the plaintiff's jewelry business and the geographic scope and the length of the restriction were reasonable); Dawson v. Assured Partners, NL, 2021 U.S. Dist. LEXIS 88555 (S.D. Ohio 2021) (holding that violation of an employment contract and non-compete clause is not per se severe enough behavior to establish the after-acquired evidence defense in a discrimination suit); I Love Juice Bar Franchising, LLC v. ILJB Charlotte Juice, LLC, 2020 U.S. Dist. LEXIS 146295 (M.D. Tenn. 2020) (granting a preliminary injunction after it found that the defendants violated these non-compete provisions by running a competing business with the plaintiff and using similar trademarks and trade names as plaintiff); Jannx Med. Sys. v. Agiliti, Inc., 2020 U.S. Dist. LEXIS 237184, 2020 U.S.P.Q.2D (BNA) 11506, 2020 WL 7398795 (explaining a restrictive covenant provision indefinitely prohibiting a former employee from contacting the former employer's clients "is categorically unreasonable"); JTH Tax, Inc. v. Magnotte, 2020 U.S. Dist. LEXIS 131921 (E.D. Mich. 2020) (holding that the defendants had violated the non-compete provisions of the Franchise Agreement after terminating their franchise with the plaintiff by operating a tax business within 25 miles of plaintiff’s business and continuing to use the plaintiff’s confidential information to their business.); Konica Minolta Bus. Sols. U.S.A., Inc. v. Lowery Corp., 2020 U.S. Dist. LEXIS 120082 (E.D. Mich. 2020) (holding that a non-compete provision was valid because it was reasonable in time and geographic scope); LinTech Global, Inc. v. Can Softtech, Inc., 2021 U.S. Dist. LEXIS 49958 (E.D. Mich. 2021) (holding that a defendant's motion to dismiss plaintiff's tortious interference claim was not barred because, even if the underlying facts were indistinguishable from a breach of contract claim, the legal duties owed under each claim were different); Prudential Def. Solutions v. Graham, 2020 U.S. Dist. LEXIS 253437 (E.D. Mich. 2020) (denying injunctive relief because the plaintiff did not show sufficient factual support that it would suffer irreparable harm as the plaintiff only pled “information and belief” and not personal knowledge of the facts); RECO Equip., Inc. v. Wilson, 2020 U.S. Dist. LEXIS 218410, 2020 U.S.P.Q.2D (BNA) 11391, 2020 WL 6823119 (explaining a restrictive covenant provision prohibiting competition for 36 months is not per se unreasonable); Seaman Corp. v. Flaherty, 2020 U.S. Dist. LEXIS 161635 (N.D. Ohio 2020) (holding a 24-month, national non-compete provision as reasonable and finding that the defendant had violated the non-compete provision); Union Home Mortg. Corp. v. Jenkins, 2021 U.S. Dist. LEXIS 93872 (N.D. Ohio 2021) (unpublished) (emphasizing that even if a non-compete agreement is overbroad, the court will still enforce the agreement to the extent necessary to protect the employer’s interests).

§ 1.3.8 Seventh Circuit

HCC Cas. Ins. Servs. v. Day, 2021 U.S. Dist. LEXIS 57433 (N.D. Ill. 2021) (unpublished) (applying Illinois law). Plaintiff HCC Casualty Insurance Services, Inc. brought a breach of contract suit against Day, its former president, claiming that Day violated certain restrictive covenants in his employment agreement. Plaintiff sought monetary and injunctive relief. The dispute arose out of Day’s employment agreement with plaintiff, which was originally effective through April 30, 2019, but which was amended and extended through April 30, 2020. The agreement contained three restrictive covenants around confidentiality, noncompetition, and nonsolicitation. The confidentiality restrictive covenant included plaintiff’s “trade secrets” within the information that Day was supposed to keep confidential. On May 2, 2020, two days following the expiration of his employment agreement with plaintiff, Day resigned from his position as plaintiff’s president. Shortly thereafter, Day then joined another insurance underwriter as its president. Plaintiff claimed that Day violated his previous employment agreement by hiring nine employees from plaintiff, disclosing plaintiff’s trade secrets to his new company, and directly competing with plaintiff. Day filed a motion to dismiss plaintiff’s claims for failure to state a claim. As to the noncompete and nonsolicitation provisions, Day argued that he was not obligated to adhere to those provisions because the employment agreement expired on April 30, 2020, and therefore, when he resigned on May 2, 2020, he was an at-will employee not covered under the agreement. The court rejected this argument, holding that the covenants began to run upon the expiration of the agreement on April 30, 2020. The court said that although Day was not terminated during the “term of employment,” the agreement did not contemplate any employment past the employment agreement’s term. Therefore, Day’s employment was terminated upon the expiration of the employment agreement, and he was bound by the noncompete and nonsolicitation provisions.

Day also argued that the restrictive covenants were overbroad and unenforceable. As to the noncompete provision, Day argued that, if enforced, it would prevent him from working in any capacity at a competing business. The noncompete provision prohibited Day from “engag[ing] in or contribut[ing] [his] knowledge or Confidential Information to any work which is competitive with or similar to a product, process, apparatus, service, or development on which you worked or with respect to which you had reviewed Confidential Information.” The court disagreed that the clause was overbroad in scope, and using Day’s example, said that Day would not be prohibited from taking a job as a janitor at a competitor because that “work” is not “competitive with or similar to” the work he conducted with plaintiff. As to the geographic scope of the noncompete clause, the court held that although the scope was broad in that plaintiff did business in 180 countries, it would give plaintiff time to develop the record and establish why such breadth was needed.

Additional Cases of Note

Conrad v. Jimmy John’s Franchise, LLC, 2021 U.S. Dist. LEXIS 142272 (S.D. Ill. July 23, 2021) (unpublished) (denying certification whereby class members claimed that a “No-Poach Provision” in Jimmy John’s Franchise Agreement that effectively prohibited employees from switching between rival locations stifled competition for labor in violation of the Sherman Act, finding that individualized inquiries regarding whether a given employee could have been injured by the Provision given the varied and dynamic labor markets across the country precluded satisfaction of the predominance requirement).

Fountain v. Zimmer Inc., 2021 U.S. Dist. LEXIS 96340 (N.D. Ind. 2021) (unpublished) (applying Indiana law) (granting defendants’ motion for summary judgement as to plaintiff’s allegation that defendants breached a confidentiality, noncompetition, and nonsolicitation agreement by failing to pay plaintiff his noncompetition period payments where court found that plaintiff did not meet the contractual requirements for those payments); Hartford Steam Boiler Inspection & Ins. Co. v. Campbell, 2021 U.S. Dist. LEXIS 62332 (S.D. Ind. 2021) (unpublished) (applying Connecticut law) (granting defendants’s motion to dismiss for failure to state a claim as to plaintiff’s allegation of breach of noncompete agreement where agreement imposed nationwide ban on defendants and where complaint did not provide sufficient facts to justify the breadth of that geographic scope).

Shaw v. First Communs., LLC, 2021 U.S. Dist LEXIS 7451, at *19, 22-23, 44-45 (N.D. Ill. Jan. 14, 2021) (holding that (1) plaintiff’s claim for a declaratory judgment clearly fell within the noncompetition and confidentiality provisions in the Employment Agreement’s arbitration provision signed by plaintiff and was therefore subject to arbitration; (2) plaintiff’s claim for breach of contract under the Separation Agreement was subject to arbitration because the agreement effectively incorporated relevant portions of the Employment Agreement’s arbitration provisions; and (3) the arbitration provision was enforceable because it was not procedurally or substantively unconscionable due to the employer’s inability to bypass arbitration and seek judicial remedies in court).

§ 1.3.9 Eighth Circuit

CRST Expedited, Inc. v. Swift Transp. Co. of Ariz., LLC, 8 F.4th 690 (8th Cir. (Iowa) 2021). CRST and Swift are competing long-haul trucking companies. To help combat a shortage of drivers, CRST offers to pay the cost of a driver training program in exchange for the drivers entering into a driver employment contract, which includes a noncompete clause prohibiting the driver from providing trucking services to a competitor for a certain restrictive term depending on their length of employment. This provision would immediately lapse upon payment of a termination fee. Swift recruited drivers through generalized advertisements that required the potential divers to initiate contact with Swift. When Swift verified prior employment of a CRST driver who had not completed the restrictive term, CRST would notify Swift that the driver was under contract with CRST and was not released from those contractual obligations. In 2016, Swift began hiring even if it received such a contract notice. The issue was whether Swift’s hiring of CRST drivers during the restrictive term could serve as the basis of an interference with the driver employment contract under Iowa law. The court held that it could not, reasoning that inducing a diver to work for Swift was not incompatible with the noncompete clause because the driver could pay CRST the termination fee before driving for Swift. To prevail on its interference claim, CRST must prove that Swift caused drivers not to pay the termination fee.

Perficient, Inc. v. Munley, 2021 U.S. Dist. LEXIS 72506 (E.D. Mo. 2021) (unpublished). Perficient provides consulting and business implementation services for software offered by companies such as Salesforce. Munley was a vice president of field operations at Perficient, overseeing multiple groups including the Salesforce practice. In that role, he had substantial access to confidential information regarding strategy and key customers, including Salesforce. He also spearheaded an effort to prioritize development of a Salesforce Configure, Price, Quote (CPQ) product line. This effort included potential acquisitions of CPQ businesses, re-assignment of key personnel to focus on CPQ, and a presentation of senior Perficient leadership identifying CPQ as an area of development. After being terminated by Perficient, Munley joined Spaulding Ridge as a partner and Salesforce group leader, where he would focus on obtaining referrals from Salesforce, primarily for CPQ. Salesforce is Spaulding’s second largest practice, and CPQ accounts for 95% of that business. The parties moved for summary judgment. At issue was the competitive duties provision of Munley’s noncompetition agreement with Perficient that prohibited him from engaging in any work on behalf of a competing business relating to a competitive product or service. The court found that the provision was enforceable in light of Munley’s role at Perficient because it was limited to duties that are substantially similar to Munley’s responsibilities at Perficient, or involve strategic leadership of a competing company. The 24 month duration of the provision was longer than necessary, and limited to 12 months by the court. The court found that the unlimited geographic scope of the provision was appropriate given the global nature of the software industry and Perficient’s customer relationships around the world. The court ultimately concluded that Munley’s work at Spaulding beached the competitive duties provision. The court further explained that Munley has established relationships with individuals inside Salesforce – with whom he discussed CPQ – and those relationships could be leveraged to Perficient’s detriment while at Spaulding. The court stated that this is the harm the competitive duties provision sought to prevent. See Section 18.6.9 for a summary of the court ruling on the issue of damages.

Perficient Inc. v. Gupta, 2021 U.S. Dist. LEXIS 124893 (E.D. Mo. 2021) (unpublished). Gupta was a principal for Perficient’s order management systems (OMS) practice and left to join a competitor, Blue Yonder, as a vice president also working in OMS solutions. Gupta then contacted one or more of Perficient’s clients with whom he previously dealt while a Perficient employee, including Sally Beauty. Gupta offered competing products and services to Sally Beauty on behalf of Blue Yonder. Perficient moved for, and the court granted a comprehensive TRO enforcing restrictive covenants in its agreements with Gupta, including two year employee and customer non-solicit covenants; a NDA for confidential, proprietary and trade secret information; and a noncompete prohibiting Gupta from performing competitive duties for a business offering similar products or services for two years following his separation from the metropolitan areas in which Perficient offers its products or services. The court found that Perficient demonstrated a likelihood of success on the merits because the restrictive covenants were each were narrowly tailored to keep Perficient’s information secret and retain a competitive advantage, were reasonable in scope because Gupta was a high level and highly compensated executive, the noncompete covenants were for a reasonable time period, and the geographic scope was readily enforceable under Missouri law. The court also found that Gupta would inevitably disclose Perficient’s trade secrets if he was permitted to continue to perform competitive work at Blue Yonder because the nature of his responsibilities at Blue Yonder are akin to those he held for Perficient, and his work requires his consideration of Perficient’s trade secrets and confidential information in the faithful performance of his duties. The court found that Perficient would be subject to immediate and irreparable harm if Gupta was permitted to continue to solicit Perficient’s clients and offer competitive services on behalf of Blue Yonder. Significant to the court’s finding was the statement in the noncompete agreement that a breach would result in irreparable injury and damage to Perficient. The balance of harms favored Perficient because Gupta was only prohibited from duties that are in direct competition with Perficient. The balance of equities favored Perficient because Blue Yonder’s products and services would still be publicly available, and Perficient would suffer irreparable harm without an injunction.

Pitts v. Fire Extinguisher Sales & Servs. of Ark. LLC, 2021 U.S. Dist. LEXIS 117528 (E.D. Ark. 2021) (unpublished). Fire suppression technician Pitts worked for FESSAR, which is in the business of servicing and installation of fire suppression systems. Pitts entered into a noncompetition agreement during his employment at FESSAR where he agreed not to work for or have any ownership interest in an entity that engages in the sale and service of fire extinguishers for two years after the date of his termination within a 150-mile radius of Pine Bluff, Arkansas. Pitts left FESSAR, started his own company, Rapid Action Protection, within the prohibited territory, and began servicing two of FESSAR’s customers. FESSAR sought a TRO enforcing the noncompete. Applying Arkansas common law, the court found that the noncompete was likely enforceable because (1) FESSAR had a valid protectable interest in its customer lists, customer prices, and quotes, (2) Pitts did not challenge the two year time limit, and (3) even though portions of the non-compete were overly broad, the contract contained a severability clause and a reformation clause permitting the court to modify the noncompete if any provisions were found invalid or unenforceable because the scope, duration, or area were too broad or excessive. The court entered a TRO enjoining Pitts from operating Rapid Action Protection within the 150-mile radius. However, because FESSAR did not do business in Louisiana or Tennessee, Pitts was permitted to operate in those states (including within the 150 mile radius) as long as such business did not operate in Arkansas or Mississippi with the 150 mile radius. See 1.5.9 for a summary of the court’s ruling on the issue of trade secret misappropriation.

Powerlift Door Consultants, Inc. v. Shepard, 2021 U.S. Dist. LEXIS 129189 (D Minn. 2021) (unpublished). Powerlift, a hydraulic-lift-door company, entered into a distribution agreement with Rearden Steel, a Powerlift licensee owned by Lynn Shepard. In April 2021, Shepard sent an email to at least 12 Powerlift licensees seeking support to fix what Shepard considered corporate and product-related issues with Powerlift, including a change from a licensee-based system to a franchise-based system. Powerlift terminated the agreement because of statements made in the email. Defendants continued to use Powerlift’s trademarks, and sell products represented to be affiliated with Powerlift. Powerlift moved for a TRO and preliminary injunction enforcing, inter alia, a three-year noncompete clause in the distribution agreement. Powerlift argued that the duration of the noncompete was reasonable because Shepard operated as a Powerlift licensee since 2014, built a customer base using Powerlift’s trademarks and confidential information, time is needed to separate customers’ association of Shepard with the Powerlift brand, and the email demonstrated an intent to compete with Powerlift. Shepard argued that the duration should be three months because it was “too restrictive”, but provided no further explanation. The court declined to modify the three year duration, and found that defendants breached the noncompete clause. Based primarily on defendants’ use of Powerlift’s trademarks, the court found that irreparable harm, balance of harms, and the public interest factors weighted in favor Powerlift, and granted the preliminary injunction.

Right at Home, LLC v. Gaudet, 2021 U.S. Dist. LEXIS 16832 (D. Neb. 2021) (unpublished, applying Alabama law). Right at Home, LLC, a franchise business for in-home care for elderly or infirm individuals, entered into franchise agreements with defendants to operate Right at Home franchises in two Alabama territories. The agreements contained noncompete provisions prohibiting defendants from being employed by any business that engaged in the services and business of Right at Home for one and a half years within a ten mile radius of the franchise territory. In November 2020, Right at Home terminated the agreements because defendants were operating off the books. Defendants then took steps to start a new home-care business independent from the Right at Home brand. Defendants closed one of their offices, but continued to operate a home-care business at its other office under the name Gulf Coast Care, serving the same clients, with the same referrals, and the same phone number as their former Right at Home franchised business. Right at Home sued, and sought a preliminary injunction enforcing the noncompete. Although enforceability of the noncompete was not challenged by defendants, the court found that it was the sort of partial restraint permitted under Alabama law, and was reasonable as to time and geographical range. The court also found that the balance of harms weighs in favor of Right at Home because it will be difficult to find a new franchisee with the defendants operating in the territory, and Right at Home’s reputation and goodwill has been damaged by defendants’ breach. The court found that public interest in protecting the right to contract would be served by issuing an injunction, and granted the preliminary injunction.

Ronnoco Coffee, LLC v. Castagna, 2021 U.S. Dist. LEXIS 41707 (E.D. Mo. 2021) (unpublished). Ronnoco, a seller and distributor of coffee, employed Castagna as a territory manager in Texas, and Torres as a territory manager in California. As a condition of their employment, defendants signed a fair competition agreement prohibiting them from working with a Ronnoco competitor for two years after the termination of their employment within 200 miles of any of their work locations. The defendants left Ronnoco and started working for Smart Beverage, a seller of frozen fruit juice beverages. Ronnoco sued and sought a TRO. With respect to choice of law, the court applied the agreement’s Missouri choice of law provision, and rejected application of California and Texas law. The court found that the noncompete provision was enforceable because it protects Ronnoco’s confidential information, customer contacts, goodwill, and its interest in preventing defendants from unfairly competing, and it was adequately restricted in time and geographic reach. Defendants argued that Smart Beverage did not compete with Ronnoco because it did not sell juice beverages. The court rejected this argument because Ronnoco had an 80% ownership interest in Trident Holdings, a seller of juice beverages. The court concluded that Ronnoco was engaged in the business of selling juice beverages, and defendants breached the non-compete by working for Smart Beverage. In granting the TRO, the court found that because defendants were exposed to Ronnoco/Trident’s customer list, customer contracts, and confidential information such as pricing an bid strategy, their use and disclosure of such information appeared inevitable because their responsibilities at Smart Beverage are similar to those they held for Ronnoco/Trident, and they are likely to be in situations where their knowledge of Ronnoco/Trident’s confidential information would help Smart Beverage in competing against Ronnoco/Trident.

United Healthcare Servs. v. Louro, 2021 U.S. Dist. LEXIS 32385 (D. Minn. 2021) (unpublished). Louro was United Healthcare’s vice president of underwriting in its nation accounts segment, which gave him responsibility over pricing for United’s national accounts, overseeing the Aon/Hewitt health exchange, and specialty businesses. Louro’s stock options and restricted stock units contract included a noncompete clause that prohibited Louro from “[e]ngag[ing] in or participat[ing] in any activity that competes, directly or indirectly, with any Company activity, product, or service that [Louro] engaged in, participated in, or had Confidential Information about during [Louro’s] last 36 months of employment with the Company” for one year after his termination. Louro resigned and joined Anthem as a vice president of local accounts underwriting, which is a corollary to United’s key accounts segments. Louro disclosed the noncompete to Anthem, and his position was specifically structured not to overlap with business segments Louro work with at United. United sued and sough a preliminary injunction enforcing the noncompete. United argued that Louro could only work in healthcare or underwriting without violating the restriction if he works on Medicare and Medicaid products, and is insulated from all other business segments. The court found that United’s interpretation of the noncompete was broader than reasonably necessary to protect its business, and is not supported by the balance of the equities. In denying United’s request for an injunction, the court also relied on Anthem’s representation that Louro’s new position would not provide any services for or use any confidential information related to Anthem’s nation accounts segment, and that Louro will not work on the Aon/Hewitt exchange, or in the specialty and public sector segments. See §8.5.9 for a summary of the court’s ruling on the issue of trade secret misappropriation.

§ 1.3.10 Ninth Circuit

Houserman v. Comtech Telcoms. Corp., No. 2:19-CV-00336-RAJ, 2021 U.S. Dist. LEXIS 20885 (W.D. Wash. 2021) (applying Maryland law). Plaintiff Lynne Houserman served as the Senior Vice President and General Manager of the Safety and Security Technologies Group (SST Group) at TCS, a provider of advanced communication solutions for governmental and commercial customers. When TCS was acquired by Comtech, she was promoted to President of the SST Group, where she was responsible for emergency call routing and handling services. While her employment agreement with Comtech did not include a noncompete provision, her agreement with TCS did. Plaintiff was eventually terminated for cause, and several months later, she was hired by Motorola to serve as a Vice President overseeing Motorola’s emergency call handling business. TCS then filed suit against plaintiff, alleging, among other things, that she breached the noncompete provision in her employment agreement. The noncompete provision stated that for a period of one-year, plaintiff shall not “own, manage, operate, join, control or participate in the ownership, management, operation or control of a Competitor" nor "become a director, officer, employee, consultant or lender of, or be compensated by, a Competitor." The term “Competitor” was defined as "any Person [individual or entity] which sells goods or provides services which are directly competitive with those sold or provided by a business that . . . is being conducted by [TCS, its affiliates, and subsidiaries] at the relevant time and [] was being conducted by Company at any time during the term."

In deciding whether the noncompete provision was enforceable, the court noted that while the lack of geographic scope and one-year duration are reasonable under Maryland law, the unrestricted scope of prohibited activity rendered the provision overly broad and therefore unenforceable on its face. While the court recognized that the term competitor was limited to entities that were “directly competitive” with TCS, ultimately, this limiting language was not enough to save a provision which otherwise would preclude plaintiff from competing, not only directly against TCS, but from working for any company that sold goods or services that were directly competitive with any good or service sold by TCS, its subsidiaries, and its affiliates. Because the noncompete clause was overbroad on its face, the court was not required to consider the particular facts of the case. However, even if the court were to consider the facts, the outcome would be unchanged. Although plaintiff worked as a senior executive in the specialized field of 9-1-1 call handling, the noncompete would have prevented her from working in any field or for any company that sells goods or offers services that compete with TCS, regardless of whether the employment related to handling emergency calls or not. Under Maryland law, such a restriction is broader than necessary to protect TCS’s legally protected interest. Finally, the court is unable to “blue pencil” the noncompete to render it enforceable, because the provision is not “neatly severable” and the court cannot rearrange the language in or supplement the provision.

SinglePoint Direct Solar LLC v. Curiel, No. CV-21-01076-PHX-JAT, 2021 U.S. Dist. LEXIS 148240 (D. Ariz. 2021) (unpublished). This case concerns the business relationship between SinglePoint, Inc. and defendants Pablo Diaz Curiel, Kjelsea Johnson, and Brian Odle regarding a solar energy brokerage company, SinglePoint Direct Solar, LLC (SDS), which was formed following an Asset Purchase Agreement. Aside from the Asset Purchase Agreement, Diaz was also subject to an Employment Agreement, serving as CEO of SDS. Both the Asset Purchase Agreement and Employment Agreement contained several restrictive covenants, including a noncompete clause. After Diaz and Johnson left SDS, they planned to start a rival solar energy company, and according to plaintiffs, wanted to misappropriate SDS’s confidential data in the process. As such, plaintiffs SDS and SinglePoint sought to enjoin Diaz and Johnson from competing nationally in the solar energy industry and from using any of the assets that were the subject of the Asset Purchase Agreement. However, the court found that neither of the noncompetes were enforceable and refused to grant the injunction.

In Arizona, restrictive covenants cannot be greater than necessary to protect an employer’s legitimate interests, and the scope must be limited in duration and geographic area. The noncompete in the Asset Purchase Agreement provides that, for a period of eight years, the parties may “not, directly or indirectly, render services or assistance to, own, manage, operate, control, invest or acquire an interest in . . . any Person that engages in a Competing Business . . . or otherwise engage in or conduct . . . in a Competing Business.” As this clause is completing lacking in geographic scope, it cannot be enforceable. Plaintiffs attempted to argue that the clause was national in scope by way of its reference to a “Business” and “Competing Business,” but the court was unpersuaded, finding that it could not “extrapolate” a national scope from this language. Moreover, even assuming the agreement did contain a national scope, the scope was broader than necessary to protect the plaintiffs’ legitimate business interests as neither SDS nor SinglePoint operated in all 50 states. Finally, the court was unable to “blue pencil” the noncompete clause to add a geographic scope, as courts are only able to strike provisions, and cannot add language to modify the clause. For similar reasons, the court refused to find the noncompete in Diaz’s Employment Agreement enforceable. This noncompete provided that Diaz “shall not in any manner, directly or indirectly . . . enter into or engage in any business which is engaged in any business directly competitive with the business of the Company . . . within the geographic area of the Company's business, which is deemed by the parties hereto to be nationwide." While this language did contain a geographical restriction, for the same reasons as with the Asset Purchase Agreement, the court did not find the geographical scope reasonable and declined to enforce the covenant.

Thomassen v. Gebruder Weiss, Inc., No. CV 20-08308-AB (Ex), 2021 U.S. Dist. LEXIS 144484 (C.D. Cal. 2021) (unpublished). This decision stems from plaintiff Brian Thomasson’s allegation that he was wrongfully terminated by defendant Gebruder Weiss, Inc. in violation of California Business and Professions Code section 16600. While still employed by defendant, plaintiff visit one of defendant’s clients, who expressed an interest in hiring one of plaintiff’s coworkers. Plaintiff replied that his coworker was a great employee. Later on, the coworker’s manager called plaintiff and accused him of helping the client poach the coworker, thereby betraying defendant. Defendant then terminated plaintiff, citing “ongoing concerns regarding his professional performance and judgment.” Plaintiff believes the termination was a direct result of defendant’s mistaken belief that he somehow aided his coworker in receiving a competitive job offer. He then sued, and defendant moved for a partial judgment on the pleadings as to his fifth cause of action for wrongful termination. To establish a case for wrongful termination, a party must prove that the termination was motivated by a violation of public policy. Here, plaintiff alleged that the violated public policy was section 16600, which states that “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business, of any kind, is to that extent void.” Plaintiff’s argument that section 16600 was violated as a matter of public policy fails for four reasons. First, section 16600 only applies to contracts that restrain persons from engaging in their profession, and plaintiff did not allege that he was subject to any contract. Second, while section 16600 can invalidate covenants not to compete, plaintiff does not allege that he was subject to any noncompete agreement. Third, plaintiff does not point to any statement in section 16600 which prohibits an employer from terminating an employee who assists a third party in hiring away a fellow employee. Fourth, plaintiff does not articulate any way in which he, his coworker, or anyone else was restricted from their ability to engage in a profession, trade, or business. Therefore, nothing in section 16600 could shield plaintiff from termination after he assisted his coworker in securing alternate employment. Accordingly, the court dismissed plaintiff’s claim for wrongful termination.

Additional Cases of Note

GlobalTranz Enters. Inc. v. Murphy, No. CV-18-04819-PHX-ROS, 2021 U.S. Dist. LEXIS 58689 (D. Ariz. 2021) (unpublished) (holding that overbroad confidentiality or nondisclosure covenants, even if they are not titled “noncompete agreements,” amount to covenants not to compete and are thus unreasonable and unenforceable).

§ 1.3.11 Tenth Circuit

There were no qualifying decisions within the Tenth Circuit.

Additional Cases of Note

Core Progression Franchise LLC v. O’Hare, 2021 U.S. Dist. LEXIS 63471 (D. Colo. 2021) (unpublished) (granting a preliminary injunction preventing defendants from opening a competing business after finding that a noncompete provision covering a 25 mile radius for one year was likely reasonable and enforceable); Nav Techs., Inc. v. Fugate, 2021 U.S. Dist. LEXIS 132773 (D. Utah 2021) (unpublished) (denying plaintiff’s request for a preliminary injunction in a case where the defendant had done consulting work for other companies in alleged violation of a noncompete agreement, after determining that the companies were not competitors of plaintiff’s company); Lawson v. Spirit Aerosystems, Inc., 2021 U.S. Dist. LEXIS 202278 (D. Kan. 2021) (unpublished) (finding that a supplier that could theoretically in the future become a competitor does not meet the criteria for a competitor under a noncompete provision); McConnell v. Ima Fin. Grp., 2021 U.S. Dist. LEXIS 43581 (D. Kan. 2021) (unpublished) (finding that a noncompete that does not restrict the employee from competing with the type of business conducted by the employer or geographic area of the employer, but instead only restricts competing by utilizing current, former or prospective customers, is not overly burdensome); TruGreen Ltd. P’ship v. Okla. Landscape, Inc., 2021 U.S. Dist. LEXIS 50135 (N.D. Okla. 2021) (unpublished) (granting a motion to dismiss plaintiff’s claim for breach of a noncompetition agreement since the individual defendants had not consented to the assignment of the agreement, making it unenforceable).

§ 1.3.12 Eleventh Circuit

Boyd v. Mills, 2021 Ala. LEXIS 34 (Ala. 2021): Thomas Batey sold all his stock in Batey & Sanders, Inc., and, as part of the transaction, signed a non-compete agreement in favor of the buyers. The buyers agreed to pay Batey over 2 million dollars for the non-compete over the course of ten years. However, Batey died seven years later. After Batey’s death, the buyers ceased making monthly payments, and the personal representative of Batey’s estate sued to enforce the agreement. The buyers argued that the contract was a personal service contract and, thus, the buyer’s obligations under the agreement terminated upon Batey’s death. The estate, however, argued that the contract was not a personal service contract because Batey gave no affirmative promises. Acknowledging that this was an issue of first impression, the Supreme Court of Alabama found that the agreement was not a service contract because it was ancillary to the sale of the business. In other words, the buyers entered the agreement to obtain the business and its good will, not Batey’s expertise. Therefore, the buyers’ obligation survived Batey’s death.

Davenport v. AWP, Inc., 2021 U.S. Dist. LEXIS 78302 (M.D. Fla. 2021): AWP and Davenport had an employment agreement containing restrictive covenants preventing Davenport from working for a direct competitor within 120 miles of AWP for twelve months. When Davenport left AWP, however, he began working for a direct competitor, Guardian, in Fort Myers. Davenport and Guardian sought a declaratory judgment finding the geographic scope of the restrictive covenant unreasonable. The parties settled the case and stipulated to a permanent injunction. For purposes of negotiating the stipulation, Davenport and Guardian shared counsel. The stipulation included a provision stating that, for approximately six months, Davenport would not “perform work for any client outside the Fort Myers Territory, or apply for or accept business from any clients outside the Fort Myers Territory.” However, within six months Davenport began working for a third competitor in Fort Pierce. AWP filed a show cause motion for contempt for violation of the injunction, and Davenport challenged the validity of the injunction on the basis that its geographic scope was impermissibly broad. In defense of the injunction, AWP argued that Davenport freely consented to the injunction and that his consent makes the injunction enforceable despite its sweeping geographic scope. The court soundly rejected this argument, finding that Davenport did not have full knowledge and understanding of the stipulation and, thus, he did not knowingly consent to the injunction’s harsh consequences. The court supported this finding with the fact that Davenport’s participation in the negotiation of the stipulation was limited, and that the effectiveness of Davenport’s representation was undermined by Davenport and Guardian sharing counsel because their interests were not aligned. .

Gallagher Benefit Servs. v. Campbell, 2021 U.S. Dist. LEXIS 56771 (N.D. Ga. 2021): Campbell, Storck, and Taylor were the employees of a benefits and insurance consulting firm. Argus acquired the firm and hired Campbell, Storck, and Taylor. Each of the three employees signed employment agreements with non-competition and non-solicitation restrictive covenants. Taylor left Argus and started a competing company, A2. Storck and Campbell followed Taylor shortly thereafter. Argus alleged that Storck violated her non-compete clause. Storck moved for summary judgment on the grounds that (1) Storck’s job did make her the type of employee that may be subject to non-compete clauses under Georgia’s Restrictive Covenant Act (GRCA) and (2) even if Storck was a covered employee, the non-compete clause was unenforceable. On the issue of whether Storck was subject to the non-compete covenant under Georgia law, the court found triable issues of fact regarding whether Storck’s day-to-day responsibilities (which included directly supervising at least five employees and giving hiring recommendations) made Storck a manager or key employee for purposes of O.C.G.A. § 13-8-53(a)(3) and (4). On the issue of unenforceability, Storck argued that the non-compete covenant was unenforceable because (1) the GRCA expressly permits only client-based solicitation—not competition— clauses, and (2) a restrictive covenant that prohibits an employee from accepting unsolicited business from former customers is unreasonable. First, the court found that the GRCA applies to employment related restrictive covenants, including non-compete clauses. Second, the court explicitly disagreeing with two state court decisions and found that, in light of the GRCA, common law no longer controls the enforceability of non-compete clauses. Therefore, as a matter of law, non-compete clauses are not unreasonable if they meet the GRCA’s requirements.

Healthplan Servs. v. Dixit, 2021 U.S. Dist. LEXIS 204958 (M.D. Fla. 2021): HealthPlan contracted with Media Shark to develop a software system. The parties entered into an agreement prohibiting Media Shark from disclosing confidential information and performing services for others that would involve a conflict of interest. However, Media Shark began working for a third party and using information developed for HealthPlan in violation of the agreement. HealthPlan sued Media Shark for breach of contract. It sought over $700,000 in damages, the amount that HealthPlan paid Media Shark for its work. Although the court acknowledged that injunctive relief is the typical remedy for violation of a restrictive covenant, it observed that monetary damages are awarded for breach of restrictive covenants on the theory of lost profits. However, the court found that HealthPlan’s measure of damages was inappropriate because it would put HealthPlan “in the same position had it not received the benefit of the bargain” when “HealthPlan did receive the benefit.” Nevertheless, the court found that the approximately $700,000 award was justified on the theory of unjust enrichment because “Media Shark [was] paid to develop demonstration packages for HealthPlan and [used] those same demonstration packages for its own benefit without incurring those costs.”

Ivc Us v. Huali Group United States, 2021 U.S. Dist. LEXIS 119098, *9-10 (N.D. Ga. 2021): IVC sued four former employees for breach of the employees’ non-compete agreements. The employees, who performed management services at IVC’s Georgia location, left IVC to join a competitor. IVC sought a preliminary injunction to enforce the non-compete agreement, and the court evaluated whether the non-compete covenants were reasonable regarding (1) time, (2) scope of activity, and (3) geographic scope under Georgia’s Restrictive Covenant Act. The court found that the one-year time provision was a reasonable time. It then found that the scope of activity was also reasonable because it was limited to the type of services the employees “conducted, authorized, offered, or provided” while working for IVC. Lastly, the court evaluated whether the geographic scope was reasonable. The agreement provided that the geographic scope was the “‘territory where [the employees were] working at the time of termination,” and the covenant stated that it was anticipated that the territory would consist of the United States and Canada. However, the court interpreted the provision narrowly, stating that the encompassed territory was “limited to the State of Georgia.” Having significantly narrowed the geographic scope, the court found that the covenant was reasonable and, therefore, enforceable. IVC was entitled to the preliminary injunction.

Signature Util. Servs. v. Jernigan, 2021 U.S. Dist. LEXIS 70366 (N.D. Ala. 2021): Signature, a startup business that uses helicopters for aerial vegetation services, sued two of its former helicopter pilots alleging that they breached the restrictive covenants in their employment agreements and misappropriated trade secrets and property for their new employer. The pilots has left signature to work for a direct competitor, Rotor Blade. Signature requested a preliminary injunction enforcing the employment agreements, and the court found that a preliminary injunction was appropriate. In opposition, the helicopter pilots first argued that Signature could not enforce the agreement because Signature did not uphold its own obligations under the agreement and Signature had unclean hands. But the court did not even evaluate the factual basis for these arguments because the “Defendants ha[d] not identified any binding precedent in which a court applying Alabama law refused to enforce an otherwise valid restrictive covenant on the grounds that improper, sloppy, or even shoddy business management practices by the plaintiff.” The helicopter pilots then argued that their specialized training made them professionals under Alabama law, making the non-compete and non-solicitation agreements unenforceable. Acknowledging that there was no authority in the subject, the court analyzed the question and determined that “it is unlikely that helicopter pilots qualify as professionals” for the purpose of making restrictive covenants unenforceable.

Snider Tire v. Chapman, 2021 U.S. Dist. LEXIS 115273 (N.D. Ala. 2021): Snider Tire, Inc. sought a preliminary injunction against a former employee, Chapman, to enforce a non-compete clause in Chapman’s employment agreement. The clause prohibited Chapman from working for a competitor of Snider Tire for twelve months, and Chapman had breached the covenant by taking a job with a direct competitor. In evaluating whether the preliminary injunction was appropriate, the court focused on whether Snider Tire demonstrated a likelihood of irreparable harm. The court noted that Snider Tire took over a month after Chapman began working for the competitor to bring the lawsuit, then took another month to serve Chapman and a third month to file the motion for preliminary injunction. In other words, Snider Tire allowed Chapman to work with its competitor for nearly four months before the court could have imposed the preliminary injunction. The court noted that four months was a significant amount of time in relation to nine-month period of the requested relief, nine months. Because of Snider Tire’s delay in bringing the suite undermined its assertion of imminent irreparable harm, the court denied the preliminary injunction.

Tarpon Transp. Servs. v. Total Quality Logistics, LLC, 2021 U.S. Dist. LEXIS 136574 (M.D. Fla. 2021): Total, a freight brokerage firm, employed Minnis pursuant to an employment agreement with a non-compete clause prohibiting Minnis from competing with Total for a year following termination of his employment. Minnis ended his employment with total and, less than a year later, began working for Tarpon as an independent contractor. Total sued both Minnis and Tarpon in Ohio to enforce the non-compete clause. Subsequently, Tarpon initiated a suit against Total in Florida for (1) declaratory relief finding Minnis’ non-compete agreement was unreasonable and (2) tortious interference. The court found that Tarpon lacked standing to challenge the non-compete clause because Tarpon was not a party to the agreement between Minnis and Total. Regarding the tortious interference claim, however, the court found that Tarpon did have standing to proceed. Total had argued that Tarpon’s lack of standing should preclude the tortious interference claim because it would require a determination of whether the non-compete clause was enforceable. The court rejected this argument and found that Tarpon’s lack of standing to directly attack the clause did not prevent Tarpon from seeking injunctive relief against enforcement of the clause through its tortious interference claim. The court explained that allowing the tortious interference claim to go forward was appropriate because it was directly based on Tarpon’s relationship with Minnis, not Total’s contract with Minnis

Additional Cases of Note

§ 1.3.13 D.C. Circuit

M3 USA Corp. v. Haunert, No. 20-cv-3784 (DLF), 2021 U.S. Dist. LEXIS 89418 (D.D.C. 2021) (unpublished) – in a breach of a noncompete agreement case, the D.C. District court denied an employer’s motion for remand because the employee sufficiently pled an amount-in-controversy. In assessing whether the amount-in-controversy requirement was shown by a preponderance of the evidence, the court considered compensatory damages awarded in related suit against another former employee, the employee’s current salary and value of expertise in field, and Laffey matrices to determine attorney’s fees when compared to expertise of defense counsel. The court reasoned that, in the aggregate, the sum of damages exceeded the required $75,000 threshold and denied the motion for remand.

M3 USA Corp. v. Qamoum, Civil Action No. 20-2903 (RDM), 2021 U.S. Dist. LEXIS 105923 (D.D.C. 2021) (unpublished) – in a breach of a noncompete agreement case, the D.C. District court granted a company’s motion to dismiss because there was no evidence to support a finding of personal jurisdiction alleged by a competing corporation under theories of agency, alter-ego, or close relation. There, in an action alleging violation of noncompete and nonsolicitation agreements signed by the corporation’s former employees who now work the company, evidence established that the employees could not act as agents of company at the time of signing the agreements because the company did not yet exist; alter ego liability could not be imposed because neither employee in violation of the agreements funded, controlled, or owned the company; and the company was not closely related to the agreements because there was no evidence shown that involvement in the current action was foreseeable. In determining foreseeability, the court reasoned that undisputed witness testimony supported the claim that the owner of the company was unaware of the agreements and there was no evidence to suggest the competitor benefitted from the agreements or that the competitor company was made for the purpose of avoiding such agreements. Based on this evidence, the court granted the company’s motion to dismiss without prejudice.

M3 USA Corp. v. Qamoum, Civil Action No. 20-2903 (RDM), 2021 U.S. Dist. LEXIS 105923 (D.D.C. 2021) (unpublished) – the D.C. District court denied an employer’s motion for preliminary injunction to enjoin employees from continuing to violate their noncompete and nonsolicitation agreements because no evidence supported a finding of irreparable harm, despite sufficiently showing a likelihood of success on the merits. There, while evidence showed that the noncompete and nonsolicitation agreements explicitly included language that violation of the agreements would result in irreparable harm, the court reasoned that this alone was insufficient to establish harm. The employer failed to show evidence that the employees were a “fundamental threat” to business, caused reputational damage, or misappropriated information containing the employer’s customer or panelist lists. Based on this lack of evidence, the court denied the employer’s motion for preliminary injunction without prejudice.

§ 1.3.14 State Cases

Additional Cases of Note

PetroChoice Holdings, LLC v. Pearce, 2021 Tex. App. LEXIS 272, at *27 (Tex. Ct. App., 12th Dist. Jan. 13, 2021) (reversing and remanding the trial court's decision because defendant “failed to establish that the [noncompetition] agreement was unenforceable as a matter of law. Moreover, [plaintiffs] neither conclusively negated an element of [defendant’s] claim nor established in its competing motion that the covenant was enforceable as a matter of law.”).

Webster v. Arthur J. Gallagher & Co., 2021 Tex. App. LEXIS 5393, at *10-13 (Tex. Ct. App. July 7, 2021) (holding the trial court did not abuse its discretion when it issued a temporary injunction against a former employee in the former employer's suit alleging violation of a confidentiality provision and restrictive covenants because the trial court was called upon only to address whether the status quo should be maintained by issuing a temporary injunction).

§ 1.4 Customer and Employee Non-Solicitation Agreements

§ 1.4.2 First Circuit

Baystate Fin. Servs., LLC v. Pinto, No. 2084CV02507, 2021 Mass. Super. LEXIS 29 (Feb. 18, 2021) (unpublished). The Massachusetts Superior Court affirmed employees’ motion to dismiss general agency’s claims for breach of contract and tortious interference with contractual and advantageous relations stemming from an alleged violation of a nonsolicitation agreement between employees and their employer because agency failed to establish that it was an intended beneficiary of the agreement.

Page v. Boothbay Region Water Dist., 2021 Me. Super. LEXIS 1 (Mar. 8, 2021) (unpublished) – the Maine Superior Court granted client’s motion for judgment on the pleadings against a staffing agency because 26 M.R.S § 599-B applies to restrictive employment agreements regardless of when they were formed and prohibits the enforcement of a nonsolicitation agreement between the parties for the hiring of one of the agency's employees. There, the client entered into an agreement with the staffing agency for accounting related services that contained a nonsolicitation provision. The provision prohibited the solicitation of the agency’s employees and imposed a $50,000 fine on the client if they were to hire or retain any of the agency's employees during the term of the agreement and for 180 days after its termination. The court held that a plain reading of the statute showed its purpose was to prohibit the enforcement of restrictive employment agreements, which would occur in a separate legal action filed after the statute's enactment. Thus, when the contract was formed was not relevant. The court also reasoned that the $50,000 fee combined with the provision's explicit language forbidding the client from hiring the agency’s employees made the provision a restrictive employment agreement for the purposes of § 599-B. As to the third issue, the court reasoned that § 599-B was rationally related to the legitimate state interests to keep employment inside the state and increase competition in the labor market by allowing workers the opportunity to seek other in-state opportunities that may provide higher pay, better benefits, any other potential advantages. Based on these findings, the court held that the nonsolicitation provision at issue was unenforceable under § 599-B and granted client’s motion for judgment on the pleadings.

Phillips v. Willis Re Inc., No. 20-1635 (FAB), __ F. Supp. 3d ___, 2021 U.S. Dist. LEXIS 75100 (D.P.R. 2021) – the Puerto Rico District Court denied an employee's motion for preliminary injunction to preclude the employer from enforcing a nonsolicitation clause within an employment agreement because the choice of law provision required Florida law to apply. There, the agreement prohibited the employee from soliciting, accepting, or performing services to employer’s clients, unless for the benefit of employer, for a period of two years after termination. Per the agreement, the state in which the employee was assigned an office would govern the agreement. The issue before the court was based on whether the agreement was governed by Puerto Rico law, which subjected restrictive covenants to a stricter scrutiny, or Florida law. The employee claimed the nonsolicitation provision was subject to the laws of Puerto Rico, and in the alternative, the choice of law provision of irrelevant because Florida law was inconsistent with Puerto Rico public policy. As to the first issue, evidence established that the employer had assigned the employee to a Miami, Florida office, his signature block corresponded to the Miami office, and his LinkedIn profile stated he resided and worked in Miami. In opposition, the employee presented evidence that he had purchased property in Puerto Rico, stayed in hotels in Puerto Rico, and paid taxes in Puerto Rico. Based on this evidence, the court reasoned that the employee merely provided evidence of residency, which was not relevant to the determination of where his assigned office was, which was in Miami, Florida. As to the second issue, evidence established that Florida law favored enforcement of reasonable covenants to compete and conveys a fundamental interest "in the protection and enforcement of contractual rights." In opposition, the employee cited to a Puerto Rico decision that ultimately deemed a two-year restrictive covenant excessive under the circumstances of that case. The court reasoned that while Puerto Rico judiciary identified an interest against "excessive" restrictive covenants in that decision, that policy is not a “materially greater interest” than the policies provided by the Florida legislature. Based on this evidence, the court held that choice of law provision in the parties’ employment agreement was legally sound and applicable. Therefore, the court denied the employee’s motion for preliminary injunction in favor of the employer.

§ 1.4.3 Second Circuit

Huseby, LLC v. Bailey, 2021 U.S. Dist. LEXIS 141504 (D. Conn. 2021). Huseby LLC, a court reporting firm headquartered in North Carolina, alleged that its former employee, Lee Bailey, violated non-solicitation agreement and non-competition agreements when disclosing confidential information to his new employer. In responding to discovery requests, Huseby objected that the court’s standard protective order was insufficient to protect its confidential information. Huseby then withheld documents several months after discovery responses were due, claiming that said documents required “attorneys’ eyes only” protection. The defendants then moved to compel. Because Huseby did not timely move to modify the court’s protective order, the court ordered production of the confidential documents without the “attorneys’ eyes only designations.” Furthermore, the court partially granted the defendants’ request for attorney’s fees stemming from production of the documents in question.

Additional Cases of Note

§ 1.4.4 Third Circuit

Ecosave Automation, Inc. v. Del. Valley Automation, LLC, _ F. Supp. 3d __ ; 2021 U.S. Dist. LEXIS 94856 (E.D.Pa 2021). After a mass resignation at Ecosave that led to the genesis of rival construction automation firm DVA, Ecosave sued DVA and the departing employees, including its CEO, President and 13 others. In fully denying Ecosave’s preliminary injunction bid on its trade secrets, breach of contract, breach of fiduciary duty, tortious interference, and unfair competition claims, the court deemed Ecosave unable to succeed on the merits of its trade secrets claim because there was conflicting evidence about whether certain customer information actually belonged to Ecosave’s customers; thus, such information was neither a trade secret nor misappropriated. Some of the breach of contract claims were dismissed because there was no evidence that former employees actually subject to a non-solicitation covenant performed any DVA solicitations of former Ecosave customers. Meanwhile, of particular note, the court deemed that the founder and CEO of DVA, who was subject to a non-solicitation restriction, did not engage in ‘indirect solicitation’ because he did not provide any personal assistance to others at DVA who solicited Ecosave customers. Noting it was in accord with certain state courts, the court seemed to break new ground when it held, as a matter of law, that “[t]o find a former employee engaged in indirect solicitation of his former employer’s customers, that employee must make specific acts of personal involvement in the solicitation.” Lastly, the court declined to provide injunctive relief on the tortious interference or unfair competition claims, as the mass resignation and certain misleading statements by DVA employees about whether Ecosave was still in the automation business and whether DVA was affiliated therewith were each discrete past injuries that did not pose immediate, irreparable harm and could thus be compensated with monetary damages.

Matthews Int’l Corp. v. Lombardi, 2021 U.S. Dist. LEXIS 35616 (W.D.Pa 2021) (unpublished). After numerous employees defected from cremation services company Matthews to newly-form0ed competitor Impact & its subsidiary IR, Matthews sought injunctive relief pursuant to non-compete, non-solicitation, and confidential information restrictive covenants it had with certain defectors. Before the court ruled on the injunction, Defendants entered into a ‘standstill’ agreement where they promised toreturn any of Matthews’ confidential information taken, to not use such information going forward, to perform an agreed-upon remediation protocol on their computer systems, and to not steal any Matthews customer who uses one of their cremators. In light of this offer by defendants, the court significantly narrowed the dispute, as the standstill agreement disposed of all of Matthews’ concerns about its confidential information. As to the non-compete and non-solicitation provisions, the court refused injunctive enforcement as to all of Matthews’ former employees except one, Esposito. For the other employees, the court found that Matthews had not shown the need for injunctive enforcement of the covenants for a variety of reasons, depending on the individual. For instance, where the breach alleged was of a stock options agreement that prescribed forfeiture of the equity compensation as the penalty for ‘competition’, the court noted that the contract’s plain terms provided only for legal, not injunctive relief. Another employee never signed the contract, instead tendering his resignation rather than signing the document; two others never engaged in competitive work at Impact/IR such that they could have breached the covenants. Another employee never acquired any confidential knowledge while employed at Matthews. Lastly, the court held the covenants unenforceable against an employee who Matthews had fired for performance issues as “[c]learly, then, Matthews determined [the employee] as worthless to its legitimate business interests.” Separately, the court enforced the non-competition and non-solicitation provisions against Esposito because he not only took confidential information with him when he left Matthews, uploaded it to Impact’s computer systems, and actually used said information to compete with Matthews, but also admitted to successfully inducing a fellow Matthews employee to defect to Impact. Given these clear breaches of each restrictive covenant, the court did not think that the standstill agreement provided enough of a guarantee to Matthews that no further breaches would occur and thus ordered the requested injunctive relief against Esposito only.

§ 1.4.5 Fourth Circuit

Superior Performers, Inc. v. Thorton, 2021 U.S. Dist. LEXIS 100403 (M.D.N.C. 2021) (unpublished). Superior Performers is an independent marketing organization (IMO) that recruits and trains sales agents for various insurance companies. Defendants, as a result of their business relationship with Superior, are each party to an agent agreement, which prohibits defendants from soliciting current or recent Superior agents for a period of two years (or one year, if engaged for less than one year), in addition to prohibiting the disclosure of confidential information to third parties or the use of such information for the agent’s own benefit. Superior alleges that defendants Lamb and Ferguson resigned after being recruited to an IMO affiliated with defendant Thornton, and that, at about the same time, Lamb invited Fergus and certain other Superior agents to attend a recruitment meeting on behalf of Thornton’s insurance agency. In response to Superior’s motion for default judgment against defendants, the court found that the nonsolicitation provision in the agent agreements meets the requirements for enforceability because the agreements were in writing, based on valuable consideration in the form of mutual promises to engage in a professional relationship, and the restriction period of one to two years and employee-based territorial restrictions, rather than geographic, have been to be found reasonable by North Carolina courts. The court also found that plaintiff sufficiently alleged that Lamb breached the contract by attempting to recruit multiple agents from defendant during the final month of his relationship with plaintiff and granted default judgment on that claim against Lamb. The court also found that plaintiff failed to allege sufficient facts regarding the additional breaches underlying its claims for breach of contract, including finding that defendants’ alleged relationships with Thorton are insufficient to state a breach of contract claim because he was not an agent of Superior and was not considered a protected person under the agreements when their business relationships allegedly began, and, as such, denied plaintiff’s request for default judgment as to these claims.

Additional Cases of Note

Governmentcio, LLC v. Landry, 2021 U.S. Dist. LEXIS 53905 (D. Md. 2021) (applying District of Columbia law) (unpublished) (denying defendant’s motion to dismiss plaintiff’s breach of contract claims and finding the nonsolicitation provisions plaintiff’s agreement with defendant are not overly broad or unreasonable because, under District of Columbia law, nonsolicitation provisions prohibiting solicitation of employees with whom the defendant worked do not need territorial restrictions and nothing suggests that the nonsolicitation provisions at issue implicated employees with whom defendant never worked, among other reasons); TitleMax of S.C., Inc. v. Crowley, 2021 U.S. Dist. LEXIS 81388 (D.S.C. 2021) (unpublished) (granting plaintiff’s motion for preliminary injunction related to plaintiff’s claims for breach of the confidentiality and nonsolicitation agreement and breach of the covenants agreement that limited defendant’s ability to use plaintiff’s confidential and trade secret information after the termination of her employment, and finding that plaintiff is likely to succeed on the merits of these claims based on a declaration affirming defendant’s alleged phone calls and conduct towards its customers, which defendant failed to refute, that plaintiff is likely to suffer irreparable harm based plaintiff’s evidence of the possibility of a permanent loss of goodwill, and that plaintiff has shown the balance of equities tip its favor).

§ 1.4.6 Fifth Circuit

Additional Cases of Note

Bureau Veritas Commodities & Trade, Inc. v. Nanoo, 2021 U.S. Dist. LEXIS 99497, at *24-28 (E.D. La. May, 26, 2021) (denying defendant’s motion to dismiss plaintiff’s claims for breach of the nonsolicitation clause, opting instead to exercise the agreement’s severability provision to reform the parts that exceed La. Rev. Stat. § 23:921’s geographic limitation requirement, and requirement that “allows an employee to agree only to refrain from soliciting customers of the employer”).

Neill Corp. v. Shutt, 2020-0269 (La. App. 1 Cir 01/25/21), 319 So. 3d 872, 880 (finding that the lower court erred by enforcing a non-solicitation restrictive period from the date that the preliminary injunction was signed rather than the date of termination, thereby extending the non-solicitation clause in violation of La. R.S. 23:921).

People Source Staffing Prof'ls LLC v. Robertson, 2021 U.S. Dist. LEXIS 95665, at *11-12 (W.D. La. May 19, 2021) (granting defendant's motion for summary judgment regarding the nonsolicitation of employees agreement because it did "not list the parishes or municipalities to which [the agreement] applie[d]," thus failing "to contain the geographical limits" necessary for a valid nonsolicitation agreement under La. Rev. Stat. 66 23:921, rendering the provision unenforceable against the defendant).

Southeastrans, Inc. v. Landry, 2021 U.S. Dist. LEXIS 48318, at *10-11 (W.D. La. Mar. 15, 2021) (denying defendant’s motion for summary judgment regarding the nonsolicitation agreement claim because the agreement did not prohibit him from engaging in a profession, trade or business, but “only bar[red] him from soliciting a ‘small class’ of employees” of the plaintiff's and defendant did not contend the ability to solicit plaintiff's employees was central to his ability to engage in his business or profession, evidencing La. Rev. Stat. § 23:921 did not apply).

Traffic Jam Events, LLC v. Lilley, 2021 U.S. Dist. LEXIS 63893, at *11 (E.D. La. Apr. 1, 2021) (granting defendants’ motion to dismiss plaintiff's claims for the breach of the nonsolicitation clause, adopting the reasoning in Total Safety U.S., Inc. v. Code Red Safety & Rental, LLC, 423 F. Supp. 3d 309 (E.D. La. 2019), because the nonsolicitation clause at issue “is limited to ‘territories’ where [d]efendants provided services to [p]laintiff’s current and potential customers,” meaning the failure to specify the applicable parishes or municipalities is fatal to its enforceability).

§ 1.4.7 Sixth Circuit

Additional Cases of Note

Abington Emerson Cap. v. Adkins, 2021 U.S. Dist. LEXIS 53083 (S.D. Ohio Mar. 2021) (rejecting defendants' summary judgment motion which contended that only the subsidiary company could be vicariously liable for an employee's negligence because the non-solicit the employee signed with the parent company helped create a genuine dispute about how had the right to control the employee); Argi Fin. Grp. v. Hardigg, 2020 U.S. Dist. LEXIS 172932 (W.D. Ky. 2020) (granting the plaintiff’s motion for a temporary restraining order after finding that there was evidence of the defendant soliciting the plaintiff’s clients to follow him to a new employer.); Campfield v. Safelite Grp., Inc., 2021 U.S. Dist. LEXIS 62070 (S.D. Ohio 2021) (holding that defendant's counterclaims of tortious interference, conversion, and conspiracy were preempted by the Ohio Uniform Trade Secret Act (OUTSA) because the underlying factual basis for those counterclaims was the same as their OUTSA counterclaim); Care Servs. Mgmt. v. Premier Mobile Dentistry of Va., 2020 U.S. Dist. LEXIS 178529 (M.D. Tenn. 2020) (holding that documents are not trade secrets under TUTSA or DTSA merely because they are the result of integrating information needed for payment or because the holder took efforts to keep those documents on a secure server); Henderson v. Skyview Satellite Networks, 474 F. Supp. 3d 893 (W.D. Ky. 2020) (finding that the plaintiff violated the non-solicitation and confidentiality agreements of her employment contract by disparaging her supervisors to clients); JTH Tax, Inc. v. Magnotte, 2020 U.S. Dist. LEXIS 131921 (E.D. Mich. 2020) (finding that defendants had violated the non-solicitation provisions of their franchise agreement with the plaintiff by retaining customer lists and contacting plaintiff’s customers after terminating the franchise agreement.); Konica Minolta Bus. Sols. U.S.A., Inc. v. Lowery Corp., 2020 U.S. Dist. LEXIS 120082 (E.D. Mich. 2020) (holding as overly broad a non-solicit agreement which prohibited defendants from soliciting “prospective or potential customers” of the plaintiff, but enforcing the agreement as to any customers defendants had built a relationship with while working for the plaintiff); Slinger v. PendaForm Co., 494 F. Supp. 3d 477 (M.D. Tenn. 2020) (holding that a non-solicit agreement was unenforceable because it had no geographical limits and its time period was for two years); Slinger v. PendaForm Co., 2021 U.S. Dist. LEXIS 3815 (M.D. Tenn. 2021) (ruling that, because the non-solicit clause was unenforceable, it did not provide a defense for the defendant when he failed to pay the plaintiffs their severance, and so the court declined to reopen a bench trial for additional testimony); United Healthcare Servs. v. Corzine, 2021 U.S. Dist. LEXIS 47420 (S.D. Ohio 2021) (holding that plaintiffs showed a strong likelihood that the defendant breached his non-solicitation covenant because he solicited business from a health service provider within a year of his employment termination and with whom he had contact regarding the company's business); Wild Goose Enters. v. Iron Flame Techs., Inc., 2021 U.S. Dist. LEXIS 79040 (S.D. Ohio 2021) (unpublished) (denying defendant’s motion to dismiss and finding plaintiff-employer properly stated a claim for violations of a non-solicitation agreement against defendant-employee).

§ 1.4.8 Seventh Circuit

HCC Cas. Ins. Servs. v. Day, 2021 U.S. Dist. LEXIS 57433 (N.D. Ill. 2021) (unpublished) (applying Illinois law). Plaintiff HCC Casualty Insurance Services, Inc. brought a breach of contract suit against Day, its former president, claiming that Day violated certain restrictive covenants in his employment agreement. Plaintiff sought monetary and injunctive relief. The dispute arose out of Day’s employment agreement with plaintiff, which was originally effective through April 30, 2019, but which was amended and extended through April 30, 2020. The agreement contained three restrictive covenants around confidentiality, noncompetition, and nonsolicitation. The confidentiality restrictive covenant included plaintiff’s “trade secrets” within the information that Day was supposed to keep confidential. On May 2, 2020, two days following the expiration of his employment agreement with plaintiff, Day resigned from his position as plaintiff’s president. Shortly thereafter, Day then joined another insurance underwriter as its president. Plaintiff claimed that Day violated his previous employment agreement by hiring nine employees from plaintiff, disclosing plaintiff’s trade secrets to his new company, and directly competing with plaintiff. Day filed a motion to dismiss plaintiff’s claims for failure to state a claim. As to the noncompete and nonsolicitation provisions, Day argued that he was not obligated to adhere to those provisions because the employment agreement expired on April 30, 2020, and therefore, when he resigned on May 2, 2020, he was an at-will employee not covered under the agreement. The court rejected this argument, holding that the covenants began to run upon the expiration of the agreement on April 30, 2020. The court said that although Day was not terminated during the “term of employment,” the agreement did not contemplate any employment past the employment agreement’s term. Therefore, Day’s employment was terminated upon the expiration of the employment agreement, and he was bound by the noncompete and nonsolicitation provisions.

Day also argued that the restrictive covenants were overbroad and unenforceable. As to the nonsolicitation provision, Day argued that the provision was overly broad because it prohibited him from “solicit[ing], [recruit]ing, or hir[ing]” any of plaintiff’s employees, presumably janitorial staff. The court, however, noted that it was not prepared to rule on the over breadth challenge to the nonsolicitation provision because the record was not fully developed. The court said that if plaintiff does not hire janitors and only employs underwriters, then the nonsolicitation provision preventing Day from hiring any employee is more reasonable than it would be otherwise.

Additional Cases of Note

Fountain v. Zimmer Inc., 2021 U.S. Dist. LEXIS 96340 (N.D. Ind. 2021) (unpublished) (applying Indiana law) (granting defendants’s motion for summary judgement as to Plaintiff’s allegation that defendants’s breached a confidentiality, noncompetition, and nonsolicitation agreement by failing to pay plaintiff his noncompetition period payments where court found that plaintiff did not meet the contractual requirements for those payments); Freedman v. Am. Guardian Holdings, Inc., 2021 U.S. Dist. LEXIS 149266 (N.D. Ill. 2021) (unpublished) (finding that plaintiff breached nonsolicitation clause where he solicited employment of a former co-worker in violation of a settlement agreement which contained a nonsolicitation clause).

Savis, Inc. v Cardenas, 528 F. Supp. 3d 868 (N.D. III. 2021) (applying Florida law) (granting summary judgment on employee liability for breach of noncompetition clause because evidence of different methods and tools were not material differences in services offered by the employer and those provided by the former employee).

Teague v. Healthcare Dev. Partners, LLC, 2021 U.S. Dist. LEXIS 37108, at *25 (N.D. Ill. Mar. 1, 2021) (denying summary judgment for defendant because “there is a triable issue of fact as to whether plaintiff was terminated ‘for cause’ and Vizion Health was a ‘Restricted Customer’” under the definition in his employment agreement).

§ 1.4.9 Eighth Circuit

Ikpe v. Aramark, 2021 U.S. Dist. LEXIS 85655 (W.D. Mo. 2021) (unpublished).Ikpe is a dietician who works in the food industry. While employed by Morrison Healthcare, Ikpe was recruited and hired by Aramark for a position as its patient services director at the Adele Hall Campus (CMH). The position fell under a ten-year contract between Aramark and CMH that included a no hire provision preventing salaried employees from working at any CHM facility either directly or indirectly for one year post-employment. Ikpe was unaware of this provision when she was hired. Approximately two months after Ikpe started her job at CMH, she learned that CMH was replacing Aramark at its food services vendor, and the new vendor would be Morrison. Ikpe reached out to her former manager at Morrison, seeking to be rehired and continue on as director at CMH. Morrison declined to hire Ikpe because of the no hire agreement. Ikpe sued Aramark for tortious interference with a business expectancy. In denying Aramark’s motion to dismiss, the court found that Ikpe made a plausible claim that Aramark’s enforcement of the no hire provision constituted an improper restraint of trade because (1) the no hire limited Ikpe’s employment opportunities, (2) Morrison told Ikpe she would not be considered because of the no hire provision, (3) Ikpe was not aware of and did not agree to the no hire, and (4) Ikpe claimed she was not employed long enough to learn any confidential or proprietary information.

Perficient Inc. v. Gupta, 2021 U.S. Dist. LEXIS 124893 (E.D. Mo. 2021) (unpublished). See Section 1.3.9 for a summary of the court’s ruling on enforcement of customer and employee nonsolicit agreements.

§ 1.4.10 Ninth Circuit

Houserman v. Comtech Telcoms. Corp., No. 2:19-CV-00336-RAJ, 2021 U.S. Dist. LEXIS 20885 (W.D. Wash. 2021) (applying Maryland law). Plaintiff Lynne Houserman served as the Senior Vice President and General Manager of the Safety and Security Technologies Group (SST Group) at TCS, a provider of advanced communication solutions for governmental and commercial customers. When TCS was acquired by Comtech, she was promoted to President of the SST Group, where she was responsible for emergency call routing and handling services. While her employment agreement with Comtech did not include a nonsolicitation provision, her agreement with TCS did. Plaintiff was eventually terminated for cause, and several months later, she was hired by Motorola to serve as a Vice President overseeing Motorola’s emergency call handling business. TCS then filed suit against plaintiff, alleging, among other things, that she breached the nonsolicitation provision in her employment agreement.

The nonsolicitation provision in question prevented plaintiff from "solicit[ing] any client of Company on behalf of or for the benefit of a Competitor." While there is precedent in which Maryland courts have enforced customer nonsolicitation agreements that bar solicitation of all the employer’s clients, the law has since shifted, with courts becoming increasingly reluctant to enforce such blanket restrictions on client solicitation. Here, the nonsolicitation agreement imposes this sort of blanket restriction on all of TCS’s clients --not just clients with whom plaintiff has worked, nor just clients in the 9-1-1 call routing and handling business. Acknowledging this, the court found that the restrictive covenant imposed an unnecessarily broad restraint on trade and was therefore wider than necessary to protected TCS’s legitimate business interests. While TCS sought to have the court “blue pencil” the provision, the court found it impossible to narrow the clause, without supplementing or rearranging the language, so as to render it reasonable. Therefore, the court found the nonsolicitation provision facially overbroad and therefore unenforceable.

Precision Indus. Contractors Inc. v. Jack R. Gage Refrigeration Inc., No. C19-5810 TSZ, 2021 U.S. Dist. LEXIS 148078 (W.D. Wash. 2021) (unpublished). Defendant Daniel Jason Hoyt was an employee of Precision Industrial Contractors Inc. (PIC), which provides project management services and products to industrial clients. Hoyt was eventually promoted to general superintendent, where he was granted access to PIC’s confidential information, including PIC’s strategies on how to secure winning bids and information about PIC’s existing and potential clients. Accordingly, he signed an employment agreement which contained customer and employee nonsolicitation agreements. The first clause read: “[D]uring the one (1) year period immediately following the termination of his/her employment . . . Employee will not either directly [or] indirectly induce or attempt to induce any employee of [PIC] to terminate his or her employment or go to work for any other employer. . .” The second clause read: “[D]uring the term of his/her employment hereunder and for a period of one (1) year thereafter[], Employee[] shall not[] directly or indirectly, solicit or contact any customer or client of [PIC] with a view to inducing or encouraging such client or customer to discontinue or curtail any business relationship with [PIC] within territories in which [PIC] conducts business. Employee further agrees that during his/her employment hereunder, and for a period of one (1) year thereafter, he/she will not, directly or indirectly, request or advise any customer or client of [PIC] to withdraw, curtail, or cancel its business with [PIC].” In the past, PIC had won about 75 percent of the bids it submitted for the entity Port Townsend Paper. While Hoyt was employed with PIC, Port Towsend Paper planned a multimillion-dollar expansion project (the OCC project). Shortly after the OCC project was announced, Hoyt abruptly quit PIC. Following this, PIC was only awarded one project for the OCC project even though it submitted five or six bids. Though there were other factors in play, PIC believed that some of the reason it lost its bids is because Hoyt used PIC’s confidential information to submit bids to Port Townsend Paper.

In deciding whether to grant PIC’s motion for summary judgment on its breach of contract claim, the court had two issues to consider. The first was whether Hoyt, in responding to Port Townsend Paper’s invitation to submit bids in a competitive bidding environment, violated the customer nonsolicitation provision of his employment agreement. Specifically, the issue was whether submitting a bid amounted to soliciting or contacting Port Townsend Paper with the intention of encouraging it to curtail its business relationship with PIC. The court decided that there was a “strong likelihood” that responding to a public bid would not constitute a violation of his employment agreement. The second issue was whether Hoyt violated the employee nonsolicitation provision of his contract when he unsuccessfully attempted to recruit two PIC employees. Because PIC presented no evidence that it suffered damages as a result of Hoyt’s potential breach, the court decided that a triable issue of fact remained as to this issue. Therefore, the court denied summary judgment as to PIC’s breach of contract claims.

Additional Cases of Note

Markson v. CRST Int'l, Inc., No. 5:17-cv-01261-SB-SP, 2021 U.S. Dist. LEXIS 60368 (C.D. Cal. 2021) (unpublished) (reinforcing the principle that no-poach agreements among competitors are per se violations of the Sherman Act in antitrust cases).

§ 1.4.11 Tenth Circuit

There were no qualifying decisions within the Tenth Circuit.

Additional Cases of Note

Premier Sleep Sols., LLC v. Sound Sleep Med., LLC, 2021 U.S. Dist. LEXIS 63002 (D. Utah 2021) (unpublished) (finding that a nonsolicitation clause restricting the solicitation of employment opportunities from patients does not imply a restriction on soliciting business from patients); TruGreen Ltd. P’ship v. Okla. Landscape, Inc., 2021 U.S. Dist. LEXIS 50135 (N.D. Okla. 2021) (unpublished) (granting a motion to dismiss plaintiff’s breach of a nonsolicitation agreement claim since the agreement was void and against public policy because it banned direct and indirect solicitation of plaintiff’s former customers and would prohibit defendants from contacting individuals who may not be plaintiff’s established customers);

§ 1.4.13 D.C. Circuit

See Section 1.3.13 for a summary of the court’s ruling on the issue of nonsolicitation agreements in M3 USA Corp. v. Qamoum, Civil Action No. 20-2903 (RDM), 2021 U.S. Dist. LEXIS 105923 (D.D.C. 2021) (unpublished).

§ 1.5 Misappropriation of Trade Secrets

§ 1.5.2 First Circuit

Governo Law Firm LLC v. Bergeron, 166 N.E.3d 416 (2021) – the Massachusetts Supreme Judicial Court vacated a trial court judgment because the trial judge erroneously instructed the jury that the employees’ conduct while employed with employer was not relevant to the employer’s claims of unfair and deceptive trade practices. There, while employed with employer, the employees downloaded the employer’s specialized research library and database as well as administrative files including manuals on office procedures, employee handbooks, marketing materials, and client lists. Prior to resigning, employees offered to purchase the employer’s firm. After employer rejected the offer, employees established their own firm and used the misappropriated files in their practice. Employer subsequently filed the underlying action. At trial, the judge instructed the jury that the relevant state statute did not apply to anything the employees did while they were employed by the employer and that copying employer’s materials prior to their last day as employer’s employees was irrelevant. On review, the court held that the employer’s claim required the jury to determine whether the subsequent use of the employer’s materials was based on unfair or deceptive trade practices and the trial court’s instruction instructed the jury to ignore the evidence on how the employees obtained the misappropriated materials. Therefore, based on these facts, the court held that the instruction was unfairly prejudicial to the employer and warranted a new trial on this claim.

Governo Law Firm LLC v. Bergeron, 166 N.E.3d 416 (2021)– the Massachusetts Supreme Judicial Court remanded a permanent injunction in favor of the employer to be modified in accordance with its opinion to include administrative files that had been stolen. There, while employed with employer, employees downloaded the employer’s specialized research library and database as well as administrative files including manuals on office procedures, employee handbooks, marketing materials, and client lists to thumb drives for their personal use. Prior to resigning, employees offered to purchase the employer’s firm. After employer rejected the offer, employees established their own firm and used the stolen employer’s files in their practice. At trial, the judge ordered a permanent injunction prohibiting the employee’s use of the employer’s research library and databases but notably excluded the use of the employer’s administrative files from the injunction. On review, the court reasoned that while the trial court has broad discretion to determine the scope of injunctive relief, in this case, without explanation and with no evidentiary basis in the record to support the employee’s continued use of the employer’s stolen administrative files, the exclusion of said files constituted an abuse of discretion.

KPM Analytics N. Am. v. Blue Sun Sci., LLC, No. 21-10572-TSH, __ F. Supp. 3d ___, 2021 U.S. Dist. LEXIS 95927 (D. Mass. 2021) – in a trade-secret theft case, the Massachusetts District Court granted corporation’s motion for expedited discovery prior to the corporation's hearing for preliminary injunction because corporation sufficiently plead a likelihood of success on the merits of its injunctive relief action. The court held that corporation sufficiently demonstrated a likelihood of success on the merits and expedited discovery would allow for a more fulsome record to consider at the preliminary injunction hearing.

Little Bay Lobster, LLC v. Rhys, No. 1:20-cv-00246-DBH, 2021 U.S. Dist. LEXIS 35791 (D. Me. 2021) (unpublished) - the Maine District Court granted a nonparty competitor’s motion to quash a subpoena because the subpoena required disclosing confidential information and the interest of the nonparty in protecting that information was not outweighed by competitor’s need for the information. There, the competitor executed a contract with a supplier to exclusively purchase the supplier’s lobsters for two years in exchange of the purchase of a boat owned by the supplier’s affiliate. Competitor then discovered that the supplier was not exclusively selling to the competitor and continued to fish for one of its direct competitors, the subpoenaed non-party. Competitor filed the underlying suit against the supplier. Competitor then served a subpoena on the nonparty competitor seeking information as to its relationship with the supplier, all records of payment by the nonparty to the supplier in the relevant period, all documents related to the quantity of lobster purchased by the nonparty, and all documents related to the purchase and sales of lobsters during the relevant period. In determining that the nonparty met its burden, the court first held that the nonparty need not allege the information constituted a "trade secret," because the relevant statute specifically contemplated the protection of "other confidential, commercial information." Second, the court held that it was well established that sales data has generally been viewed as trade secrets or confidential information. Third, the nonparty sufficiently showed that it safeguarded its pricing and sales data by limiting access to such information within the company, including password-protecting computerized data and that there was a risk that if that data was made available to the competitor, it could use the information to the nonparty's detriment by undercutting its prices or offering more favorable terms from whom it sources its products. The court also found that the competitor failed to explain why it would need to know the nonparty's pricing with the supplier, how that information would assist in the competitor’s calculation of damages and failed to state whether it tried to seek the same information from the supplier prior to subpoenaing the nonparty.

Needham Bank v. Guaranteed Rate, Inc., Nos. 146143, 2184CV0661-BLS1, 2021 Mass. Super. LEXIS 51 (Apr. 17, 2021) (unpublished) - the Massachusetts Superior Court granted in part employer’s motion for a preliminary injunction because it sufficiently alleged a likelihood of success on its breach of confidentiality and nondisclosure agreements with an employee. At time of hire, the employee signed an agreement with the employer that prohibited disclosure of any confidential information during his employment or thereafter. The agreement defined confidential information to include customer lists, pricing, identity of and information related to employer’s customers, and documents provided by the employer’s actual and potential customers. During employment, the employee referred customers to a competitor of his employer and would also receive referrals from them. After accepting employment with the competitor, the employee sent at least 6 emails to his personal email account containing customer lists that included confidential information of more than 1,000 unique customers of the employer and provided a contact list of customers the employee had personally serviced.

Philips Med. Sys. P.R., Inc. v. Alpha Biomedical & Diagnostic Corp., No. 19-1488 (BJM), 2021 U.S. Dist. LEXIS 8739 (D.P.R. 2021) (unpublished) - the Puerto Rico District Court granted a medical imaging system manufacturer's motion for protective order against a medical system servicer because the manufacturer’s harm outweighed any risk of disclosure of servicer’s trade secrets. There, the manufacturer alleged that the Puerto Rico based servicer gained access to its proprietary computer software by bypassing its security measures using credentials of former manufacturer employees who now work for the servicer. During discovery, the servicer argued the manufacturer’s interrogatories and requests for production were based on confidential trade secrets. The manufacturer sent the proposed protective order at issue. The servicer alleged that the manufacturer’s in-house counsel should be denied access to all confidential materials because counsel advises the manufacturer on matters related to product security and unauthorized access to products which would create a grave risk of inadvertent disclosure of the servicer’s trade secrets. To make this determination, the court weighed the risk of the inadvertent or accidental disclosure against the burden of the protective order. Evidence established that the manufacturer’s counsel was employed by the manufacturer’s North American division, he resided in Ohio, he did not report to anyone in the manufacturer’s Puerto Rico division, his counsel focused on intellectual property not employment or contract litigation, he would be the only in-house counsel to review the materials, and did not advise the manufacturer on pricing, marketing, design, or business decisions in Puerto Rico. Based on these facts, the court reasoned that the risk of inadvertent disclosure was relatively low. As to the manufacturer’s harm, evidence established that the underlying dispute between the parties involved the manufacturer’s intellectual property, manufacturer’s in-house counsel was responsible for the protection of the very information at issue, counsel had a longstanding familiarity with the case, and counsel had technical knowledge that would assist in facilitating discovery and improving efficiency for all litigants. Based on this evidence, the court held that the harm that would flow from denying the manufacturer’s motion outweighed any risk of disclosure of the servicer’s trade secrets, which was minimal. Therefore, the court granted the manufacturer’s motion for protective order.

§ 1.5.4 Third Circuit

Volpe v. Abacus Software Sys. Corp., 2021 U.S. Dist. LEXIS 112641 (D. N.J. 2021) (unpublished). Volpe was an IT salesperson for Abacus from 2011 until 2019, when his employment was terminated. After the employer notified Volpe of the separation, someone at Abacus allegedly hacked into the ‘find my iPhone’ feature and remotely deleted all of the data on Volpe’s smart-phone. The lost data included personal contact, photo, video, and purchased application data that forensic methods could not restore. Asserting a number of New Jersey state law claims as well as one under the CFAA, Volpe filed suit against Abacus in federal court. Abacus moved to dismiss Volpe’s CFAA claim, partially on jurisdictional grounds, and the court denied their motion. Determining that all of the elements of a civil CFAA claim were met, the court noted that Volpe’s iPhone was a ‘protected computer’ which Abacus was not authorized to access because doing so required the Abacus ‘hacker’ to request a new Apple ID password, which was then sent to Volpe’s old Abacus email address. In concluding that such behavior was ‘knowing’, demonstrated an ‘intent to defraud’, and reflected Abacus’ procurement of something of value – the ability to remotely delete data – from its deceptive acts, the court adopted a few notable points in its motion to dismiss analysis. First, it decided that “‘defraud,’ as used in CFAA § 1030(a)(4) means “wronging one in his property rights by dishonest methods or schemes” and thus does not require proof of the common law elements of fraud. Next, the court held that a Plaintiff asserting a civil CFAA claim need not be the ‘victim’ of the fraud; thus, here it sufficed, at least for pleading purposes, that Abacus deceived Apple, Inc. and that such deception caused Volpe’s data to be permanently erased. Finally, the court adopted the First and Tenth’s Circuit’s definition of ‘anything of value’ under the CFAA as “relative to one’s needs and objectives[;]” therefore, it was of no consequence that Abacus argued Volpe’s permanently destroyed data was not as valuable as Volpe claimed in his Complaint.

Oakwood Labs. LLC v. Thanoo, 999 F.3d 892 (3d. Cir. 2021). After the fourth dismissal of its Complaint alleging trade secret misappropriation – under the DTSA and New Jersey law - of its complex pharmaceutical ‘microsphere’ technology for a lack of specificity, Oakwood successfully appealed to the Third Circuit. The case concerns Oakwood’s two-plus decade journey researching and developing the ‘microsphere’ drugs, which cost $130 Million; a project primarily spearheaded by its former head of Product Development, Thanoo. Just months after confidential discussions to supply the raw materials for the drugs developed using Oakwood’s trade secrets fell apart with fellow pharmaceutical company Aurobindo, Thanoo left Oakwood’s employ to go to Aurobindo. Thanoo’s new employer then announced to investors that it would only cost Aurobindo $6M and would only take one to four years for them to ostensibly catch up to Oakwood in creating their own ‘microsphere’ drugs and bringing them to market. In vacating the district court’s dismissal and allowing discovery, The Third Circuit noted that there was ample circumstantial evidence of trade secret misappropriation based on Aurobindo’s hiring of Thanoo, the timing thereof, and the similarity of Thanoo’s work at both companies. Thus, the appellate court chastised the lower court for “erroneously equat[ing] the concept of “use” with replication” and for emphasizing Aurobindo’s technical to-date failure to develop its own FDA-approved drug. Because “the implication of use, especially at the pleading stage, can flow from circumstantial evidence alone” it was improper for the “district court [to] ask[] for direct proof of misappropriation without permitting . . . discovery.” The circuit also made clear that a trade secret plaintiff need not “allege that its trade secret information was the only source by which a defendant might develop its product[;]” thus, the allegations that Aurobindo’s access to Oakwood’s trade secrets via the talks and hiring of Thanoo had expedited and cheapened the cost of its entry into a specific pharmaceutical marketplace which it knew Oakwood was targeting with those secrets were sufficient to survive dismissal. Finally, since Oakwood’s trade secrets were plausibly misappropriated, by statutory definition, Oakwood suffered ‘harm’, because it “lost the exclusive use of trade secret information” whether Aurobindo was actually selling a competitive drug to-date or not.

Additional Cases of Note

Intech Powercore Corp. v. Albert Handtmann Elteka GmbH & Co., KG, 2021 U.S. Dist. LEXIS 57522 (D. N.J 2021) (unpublished) (granting supplier’s motion for summary judgment on state trade secrets claim because the customer and pricing information was “readily ascertain[able] . . . through proper business channels” since the supplier cold simply ask this customer, with whom they had independent contacts, for the pricing information, and because they could reverse engineer plaintiff’s margins by virtue of their position as the wholesale supplier of the customer’s ultimate product; denying summary judgment on all other claims); Marina Dist. Dev. Co. LLC v. AC Ocean Walk LLC, 2021 U.S. Dist. LEXIS 74571 (D. N.J. 2021) (unpublished) (granting plaintiff’s motion for leave to amend its complaint asserting trade secrets, RICO, tortious interference, and unfair competition claims in this Atlantic City, NJ boardwalk casino row because there was no dispute that certain former employees at the Borgata defected to the Ocean, bringing with them trade secrets about ‘high rollers’; therefore, amendment of the complaint was not futile because evidence showed that Ocean took affirmative steps to circumvent the restrictive covenants to which those former Borgata employees were subjected); KBS Pharm., Inc. v. Patel, 2021 U.S. Dist. LEXIS 107779 (E.D.Pa 2021) (unpublished) (in row between former pharmacist who started nearby competing pharmacy and his former employer where 70% of customers were poached, dismissing CFAA counts against two former employees who were authorized to access the customer information they used to start the competitor; dismissing CFAA claim against the new entity, as it only passively received the customer data; and not dismissing CFAA claim as to the wife of one of the former employees under a co-conspirator theory of liability because she was a partner in the competitor and thus indirectly involved in the scheme to access plaintiff’s data); Etimine USA Inc. v. Yazici, 2021 U.S. Dist. LEXIS 55652 (W.D.Pa 2021) (unpublished) (denying motion to dismiss trade secret, contract, and conversion claims where former top executive of plaintiff divulged plaintiff’s trade secrets, including customer, pricing, logistical, and sourcing information while consulting for plaintiff’s direct competitor, because plaintiff adequately guarded its proprietary logistical and pricing information which qualified as a non-technical trade secret that need not be pleaded with specificity).

§ 1.5.5 Fourth Circuit

Anderson v. Fluor Intercontinental, Inc., 2021 U.S. Dist. LEXIS 45526 (E.D. Va. 2021) (unpublished). Retired United States Army Brigadier General, Steve Anderson, participated in numerous business ventures after retiring, and prior to being hired by Fluor as its Country Manager in Afghanistan, including having served as Chief Marketing Officer of Relyant Global and owning a stake in Relyant’s holding company, as well as owner and CEO of consulting company Energistics Technologies and performed consulting working for several companies, including LEEP Expeditionary Buildings. As a result, during the hiring process, Fluor informed Anderson that they would need to address his potential conflicts of interests, specifically the risk that Relyant might improperly benefit from Anderson’s inside influence at Fluor. After being hired by Fluor, Anderson entering into a consulting agreement with Relyant and a marketing agreement with LEEP, with whom he communicated his intent to use his position at Fluor for their benefit. After Anderson’s interactions with subcontractors in raised red flags and after Fluor awarded a contract to Relyant, Fluor investigated and terminated Anderson, in addition to recompeting the contract previously awarded to Relyant, who had been provided competitor pricing information that Anderson had obtained as a Fluor employee. Anderson filed this action against Fluor arising out his termination and the disclosure of his suspected conflict of interest violations; Fluor counterclaimed, resulting in the parties’ cross motions for summary judgment. Specifically, as to Fluor’s claim for violation of Virginia Uniform Trade Secrets Act (VUTSA), and after determining that the pricing information at issue qualifies as a trade secret under the VUTSA, the court found that the viability of this claim turns on whether Fluor can “own” a trade secret by merely possessing it, and whether the collateral source rule applies to VUTSA damages. After looking to how other federal courts examined this issue under the Uniform Trade Secret Act, the court found that a plaintiff can “own” a trade secret under VUTSA by lawfully possessing it. The court also found that, although Fluor’s lawful possession of the pricing information at issue can give rise to a VUTSA claim, Fluor failed to identify authority supporting its damages theory, i.e., that the collateral source rule should apply, and, as such, the court granted summary judgment to Anderson on this claim.

Dmarcian, Inc. v. Dmarcian Eur. BV, 2021 U.S. Dist. LEXIS 99380 (W.D.N.C. 2021) (unpublished). Plaintiff is a Delaware corporation providing email protection products and services. Plaintiff owns several types of protected intellectual property, and, as alleged by plaintiff, it also owns trade secrets, including source code, historical customer data, client contacts, business and market intelligence, and sales leads. Plaintiff entered into a business arrangement with defendant, a Dutch corporation, giving defendant a license to use and sell plaintiff’s intellectual property to customers in Europe, Africa, and Russia, in exchange for an option to purchase a majority interest in defendant. The agreement was never reduced to writing. Plaintiff also provided defendant with access to its computer systems and proprietary code for use in continued product and software development efforts by a group of Bulgarian developers working for defendant. Sometime after, defendant asserted an ownership interest in the code developed by the Bulgarian developers, which led to a dispute regarding the terms of the licensing agreement and plaintiff briefly suspending defendant’s access to its computer systems. Defendant’s minority shareholder filed an action in the applicable Dutch court and the parties continued to try to resolve the dispute for several months, but ultimately plaintiff notified defendant that it would not continue to provide its technology, services, customers, and use of its trademarks unless defendant agreed to pay 80 percent of its income as a licensing fee. The parties were unable to agree and plaintiff terminated the intellectual property licensing agreement and access to its computer systems, and alleges in the instant action that defendant continued using plaintiff’s copyrighted software code and trademark to service customers. Plaintiff also alleges that defendant deceived customers into doing business with defendant, rather than plaintiff, such as by setting up confusingly similar websites to misdirect plaintiff’s potential and current customers, and that although defendant claims to only service customers outside of the United States, defendant’s websites, when accessed from within the United States, direct them to defendant’s platform. Plaintiff requested a preliminary injunction as to its claims against defendant, including its claims for misappropriation of trade secrets under the North Carolina Trade Secrets Protection Act (NCTSA) and Defend Trade Secrets Act (DTSA). Defendant did not dispute that it used plaintiff’s trade secrets without authorization, only that it has never done so in the United States. Accordingly, at issue was defendant’s argument that an extraterritorial claim cannot be brought under DTSA unless an act in furtherance of the offense was committed in the United States. The court found that courts interpreting DTSA have established a relatively low bar for acts that are considered “in furtherance of the offense” and the cases it analyzed demonstrate that courts place less import on the scope of the actions committed within the United States than the tie between those actions and the misappropriation. As such, the court concluded that, because defendant originally gained access to plaintiff’s trade secrets within the United States, and the evidence suggests that defendant’s actions led to the use or disclosure of plaintiff’s trade secrets within the United States, the DTSA can be applied to defendant’s conduct. The court ultimately granted defendant’s request for injunctive relief on basis of this claim, among other claims, because plaintiff demonstrated a likelihood of success on the merits and that it would suffer irreparable harm in the absence of an injunction.

Ihs Global Ltd. v. Trade Data Monitor, LLC, 2021 U.S. Dist. LEXIS 101952 (D.S.C. 2021) (unpublished). IHS Global owns and operates Global Trade Atlas (GTA), a database providing comprehensive merchandise trade statistics. GTA was created by defendant Brasher and his brother through Global Trade Information Services (GTIS), which they sold, along with GTA, to IHS through a stock purchase agreement (SPA) that prohibited Brasher and his affiliates from using any confidential information or proprietary information related to GTIS, including GTA, for three years. After the sale of GTIS, Brasher worked as a consultant with IHS and entered into a consulting agreement, which prohibited the use of IHS’s confidential and proprietary information. Defendants Stein and Stringfield also worked for GTIS, and then IHS after the acquisition, at which time they executed employment agreements with IHS the prohibited the use and disclosure of any of IHS’s proprietary information. Approximately 15 months the acquisition of GTIS, Brasher began developing the Trade Data Monitor Production (TDM Product), which plaintiff alleges is a copycat version of the GTA, and then formed defendant Trade Data Monitor (TDM). Shortly thereafter, Stein and Stringfield terminated their employment with IHS and began working for Brasher. Also, still within the three year noncompete period, Brasher’s friend purchased a subscription to GTA through which Brasher and TDM frequently accessed GTA. During this time, Brasher also had access to his work laptop with GTIS’s customer relationship database and Stein and Stringfield had access to a large volume of emails from their time at GTIS, although the parties dispute whether defendants actually relied upon any of this information in building and marketing the TMD Product, which they launched the day after the three year noncompete period ended. IHS alleges that defendants used IHS’s product, supplier, customer trade secrets and proprietary information to create the TDM Product and that they have been using IHS’s confidential customer information to create business. The parties filed competing motions for partial summary judgment. At issue, with regard to IHS’s trade secret claims, is defendants’ request for the court to declare that certain pieces of publicly available information, like IHS’s customer and supplier contacts and raw trade data, cannot constitute “trade secrets” under the South Carolina Uniform Trade Secrets Act and the Defend Trade Secrets Act. The court disagreed, noting that IHS seeks protection for compiled lists and databases, and not the individual pieces of information contained therein and refusing to aid defendants in attempting to nullify well-settled trade secret protections for compilations by arguing the each component part is publicly available and therefore not subject to protection.

Steves & Sons, Inc. v. Jeld-Wen, Inc., 988 F.3d 960 (4th Cir. 2021). Jeld-Wen acquired competitor CMI and four years later one of Jeld-Wen’s customers, Steves and Sons, filed a lawsuit challenging the merger, which led to a jury trial and finding that the merger violated antitrust law and the district court granting Steve’s request to unwind the merger. The district court also held a trial before a different jury regarding Jeld-Wen’s countersuit against Steves for trade misappropriation and, after the jury ruled for Steves on most of Jeld-Wen’s claim, the district court entered judgment for the intervernors, Steve’s two owners and one of its employees, although Jeld-Wen had not brought claims against them. Jeld-Wen appealed various aspects of the district court’s rulings, the majority of which the Fourth Circuit affirmed. As to the trade secrets trial, the Fourth Circuit held that Jeld-Wen failed to demonstrate that the court’s jury instructions were improper, but the court did vacate the entry of judgment for the intervernors. Specifically, the court upheld the district court’s jury instruction regarding the combination trade secret in the case because Jeld-Wen’s argument conflates the concepts of combination trade secrets and the level of secrecy required of trade secrets generally, and the court disagreed with Jeld-Wen’s position that a non-combination trade secret need not be secret. The court also upheld the jury instruction that malicious trade secret appropriation requires an “intent to cause injury or harm” to the plaintiff because Jeld-Wen failed to adequately brief its argument under the Uniform Trade Secrets Act and because, before the September 2017 amendment of the Texas Uniform Trade Secrets Act, which is the version that governs Jeld-Wen’s claims, courts defined “malice” in misappropriation cases as “a specific intent by the defendant to cause substantial injury or harm to the claimant,” which matches the jury instructions provided. The Fourth Circuit vacated the entry of judgment as to the intervenors because an intervenor’s right to participate does not give them a right to judgment on claims that do not exist and none of the cases cited by Steves or the district court suggest that a party can be awarded judgment on a claim or defense that was never raised.

Additional Cases of Note

Brightview Grp., LP v. Teeters, 2021 U.S. Dist. LEXIS 64487 (D. Md. 2021) (unpublished) (finding that Brightview is entitled to summary judgment against all defendants for trade secret claims under the Defend Trade Secrets Act and the Maryland Uniform Trade Secrets Act because there is no material factual dispute that three of the documents at issue contain trade secret information and were misappropriated by defendants because, although former employees Dingman and Teeters were not named in the initial formation documents of defendant Monarch while they were employed by Brightview, they had been working on behalf of the entity at the time of its formation, but also finding insufficient evidence to support an award of monetary and exemplary damages for Brightview’s trade secret claims and a material factual dispute regarding whether Brightview is entitled to recover attorneys’ fees); ComRent Int’l, LLC v. Thomson, 2021 U.S. Dist. LEXIS 84320 (D. Md. 2021) (unpublished) (denying defendants’ motions to dismiss for failure to state a claim and finding that plaintiff sufficiently pled a claim for misappropriation of trade secrets under the Defend Trade Secrets Act (DTSA) and the Maryland Uniform Trade Secrets Act (MUTSA) through its allegations that the documents at issue are trade secrets within the meaning of DTSA and MUTSA and specifically detailing the alleged misappropriation, in addition to disagreeing with defendants’ argument that plaintiff cannot identify any piece of confidential information given that plaintiff had not yet had the opportunity to examine Thomson’s computer); Governmentcio, LLC v. Landry, 2021 U.S. Dist. LEXIS 53905 (D. Md. 2021) (unpublished) (denying defendant’s motion to dismiss plaintiff’s trade secret claims for violation of Defend Trade Secrets Act (DTSA) and Texas Uniform Trade Secrets Act (TUTSA) because plaintiff plausibly alleged the existence of a trade secret and misappropriation when it pled that it kept its personnel information private, required employees to sign nondisclosure agreements, defendant had acknowledged the confidentiality of such information, the information was not readily ascertainable, and a company with access to such information would save significant time and money, in addition to allegations that Landry disclosed the information to FavorTech, based on “information and belief,” which is permissible at this stage given that Landry and FavorTech alone know whether such allegations are true); GSP Fin. Servs., LLC v. Harrison, 2021 U.S. Dist. LEXIS 16341 (D. Md. 2021) (unpublished) (granting plaintiff’s motion for default judgment and finding that plaintiff sufficiently alleged that defendant accessed its computers without authorization after she was terminated, even though her access to plaintiff’s systems and information was not immediately cutoff, and that such actions by defendant caused loss to plaintiff in the form of substantial business interruption, lost revenues and legal fees); Ilshin Chem., Inc. v. New Co. Strategy, LLC, 2021 U.S. Dist. LEXIS 55314 (E.D.N.C. 2021) (unpublished) (denying motion to dismiss defendant’s counterclaims in part, including dismissing defendant’s counterclaims for misappropriation of trade secrets because defendant had not sufficiently alleged that plaintiff acquired, disclosed, or used a trade secret and defendant’s argument that plaintiff never would have been able to take over its largest customer without obtaining and using defendant’s pricing information was not supported by the allegations); Performance Auto. Grp., Inc. v. Fernandez, 2021 U.S. Dist. LEXIS 55313 (E.D.N.C. 2021) (unpublished) (denying, in part, defendant’s motion to dismiss for failure to state a claim, and finding that plaintiff sufficiently alleged that defendant’s access to plaintiff’s lending software application following his termination was not authorized when it deactivated defendant’s business email upon termination without being aware that plaintiff had enabled his personal email in order to access such files, and, as such, plaintiff plausibly alleged its claims for violation of the federal Computer Fraud and Abuses Act, federal Stored Communication Act, federal Defend Trade Secrets Act, the North Carolina Computer-Related Crime Act, the North Carolina Uniform Trade Secrets Act, and the North Carolina Unfair and Deceptive Trade Practices Act); Philips N. Am. LLC v. Little, 2021 U.S. Dist. LEXIS 120615 (E.D.N.C. 2021) (unpublished) (finding that plaintiff stated facially plausible claims for relief, including with regards to its claims under the Defendant Trade Secrets Act and the North Carolina Trade Secrets Protection Act, when it alleged that, while employed by plaintiff, defendant acted as a consultant for a competitor without disclosing the conflict of interest to plaintiff and defendant used his personal email account to disclose plaintiff’s internal and proprietary documents to third parties without authorization); TECH USA, Inc. v. Milligan, 2021 U.S. Dist. LEXIS 37961 (D. Md. 2021) (unpublished) (granting defendants’ motion to dismiss for failure to state a claim and finding that plaintiff failed to present a plausible claim as to misappropriation of trade secrets under the Defend Trade Secrets Act (DTSA) because plaintiff’s “bare allegation that Milligan met in some capacity with an unknown number of representatives of the ZP Defendants and provided ‘other information’ is insufficient” under the DTSA, in addition to dismissing the remaining state law claims for lack of subject matter jurisdiction); Variable Annuity Life Ins. Co. v. Coreth, 2021 U.S. Dist. LEXIS 77329 (E.D. Va. 2021) (unpublished) (granting, in part, plaintiffs’ motion for a temporary restraining order and preliminary injunction against defendants based on plaintiffs’ breach of contract claim, to which Texas law applies, and plaintiffs’ claims for violations of the Virginia Uniform Trade Secrets Act and Defend Trade Secrets Act, and finding that plaintiffs made a clear showing of likely success on the merits on these claims, which defendants failed to sufficiently challenge, and plaintiffs provided uncontroverted evidence of the actual harm suffered in the form of lost goodwill, lost customer trust, and damage to reputation, and the balance of equities tip in favor of granting plaintiffs’ request).

§ 1.5.6 Fifth Circuit

Additional Cases of Note

Bureau Veritas Commodities & Trade, Inc. v. Nanoo, 2021 U.S. Dist. LEXIS 99497, at *6-17 (E.D. La. May 26, 2021) (granting in part defendants’ motion to dismiss plaintiff’s claims for trade secret misappropriation with respect to plaintiff’s employee lists, and organizational structure, contractor, and laboratory information, because the claims were listed in a “conclusory fashion” and did not explain how the information was “distinct from generally available knowledge”).

Centurum Info. Tech. Inc. v. Geocent, LLC, 2021 U.S. Dist. LEXIS 27661, at *15 (E.D. La. Feb 12, 2021) (granting in part defendants’ application for injunctive relief to prevent defendant from accessing or disclosing plaintiff’s trade secrets because plaintiff demonstrated the information (1) “allows Centurum to achieve unique efficiencies and provides a competitive advantage over other providers,” and (2) “Centurum safeguards its proprietary information generally through company policies, password protection and multi-factor authentication, restricted access, and other means” ).

Chags Health Info. Tech. v. Rr Info. Techs., 2021 U.S. Dist. LEXIS 126855, at *7-8 (E.D. La. May 7, 2021) (denying plaintiff’s motion for entry of temporary restraining order against defendant due to trade secret misappropriation, because the only evidence offered by plaintiff in support of the restraining order was testimony conceding that the data taken “would not necessarily have been confidential information or trade secrets and that it could have been something as innocuous as accessing a work email”).

Hunton Energy Holdings v. Hl Seawater Holdings, No. 4:20-CV-01415, 2021 U.S. Dist. LEXIS 194749, at *12-13 (S.D. Tex. Mar. 4, 2021) (denying Defendant’s motion to dismiss the Texas Uniform Trade Secrets Act claim because, although the TUTSA "only applies to the misappropriation of a trade secret made on or after September 1, 2013” and Defendant alleges that claim arose when Defendant resigned as Plaintiff's CTO in July 2009, Plaintiff alleged that misappropriated technology was used by Defendant to develop a commercial water production and mineral manufacturing facility and a April 2019 presentation by Defendant regarding that project was attached to the complaint).

SMH Enters., LLC v. Krispy Krunchy Foods, LLC, 2021 U.S. Dist. LEXIS 249570, at *61-62 (E.D. La. May, 28, 2021) (holding that (1) partial summary judgment be granted for defendant regarding identified “features” in trade secrets Nos. 1-12 and 14 because even though “these features [were] identified with sufficient particularity, the evidence reflect[ed] that these outward facing features . . . fall within the common knowledge of those skilled in the industry. Even if they were not, they would not qualify as trade secrets because [plaintiff] failed to take reasonable measures to maintain the secrecy of those outward-facing features,” and (2) partial summary judgment be denied for defendant trade secret No. 13 because it “is not an outward facing feature” and issues of material fact remain).

§ 1.5.7 Sixth Circuit

Royal Truck & Trailer Sales & Servs. v. Kraft, 974 F.3d 756 (6th Cir. (Mich.) 2020). The plaintiff, Royal Truck & Trailer Sales and Services, brought suit against two former employees. The plaintiff alleged that the two defendants had abruptly resigned from their positions and immediately obtained employment with one of plaintiff's competitors. Id. at 758. After their departures, the plaintiff employed a forensics expert to analyze what the former employees had done on their company computers and cellphones and found that they had emailed company information (which they were authorized to access at the time) to their own personal accounts. Id. The plaintiff argued that this constituted a violation of Michigan law and the Computer Fraud and Abuse Act. Id. On appeal, the question was whether the employees' misconduct constituted "exceed[ing]" their "authorized access" under the Computer Fraud and Abuse Act. The 6th Circuit held no. Id. at 760. They reasoned that, because the statute defines "exceeds authorized access" as "to access a computer with authorization and to use such access to obtain or alter information in the computer that the accesser is not entitled so to obtain or alter," the statute only prohibits obtaining or altering unauthorized material in the computer, not general misconduct with authorized material. Id. They further reasoned that the damages and loss provisions of the statute attempt to narrow the scope of the provision to only prohibit hacking information.

This interpretation was later confirmed by the Supreme Court in Van Buren v. United States, 141 S. Ct. 1648 (2021). There, a Georgia police officer was found guilty of violating the criminal prohibition in the CFAA when he ran license plate searches in exchange for money. Id. at 1653. The Supreme Court granted certiorari in order to resolve a split among the Circuits regarding this issue. Id. at 1654. Writing for the majority, Justice Barrett held that the provision did not prohibit misuse of information that a defendant is authorized to access. Id. at 1661. In addition to the textual justifications the 6th Circuit made in Royal Truck, the Court also pointed out that a contrary interpretation of the statute would criminalize even such mundane uses of a computer as checking personal email on a work computer. Id.

Additional Cases of Note

Advance Wire Forming, Inc. v. Stein, 2020 US. Dist. LEXIS 153940 (N.D. Ohio 2020) (holding that the plaintiffs had failed to satisfy their burden of showing they tried to “maintain the secrecy of their trade secret information” because they did not undertake any measures to restrict access to the information); Bankers Life & Cas. Co. v. McDaniel, 2021 U.S. Dist. LEXIS 58145 (M.D. Tenn. 2021) (granting a temporary restraining order where insurance agents broke an agreement to not use or disseminate confidential information or trade secrets by downloading customer information and not returning the information upon resignation); Campfield v. Safelite Grp., Inc., 2021 U.S. Dist. LEXIS 62070 (S.D. Ohio 2021) (applying Ohio law) (unpublished) (finding defendant-employer failed to raise a genuine issue of material fact to prevail under a CFAA claim because the evidence did not establish that plaintiff-employee intentionally accessed a computer without authorization, and defendant-employer’s state law claims for tortious interference with contract were preempted by the Ohio Uniform Trade Secrets Act because they involved “no more than a restatement of the same operative facts that formed the basis of the . . . statutory claim for trade secret misappropriation”); FirstEnergy Corp. v. Pircio, 2021 U.S. Dist. LEXIS 43163 (N.D. Ohio 2021) (dismissing alleged violations of the Defend Trade Secrets Act because the defendant acted as a whistleblower when he divulged company information to the SEC through a lawyer and dismissing alleged violations of the CFAA because the defendant had authorization to access the materials in question at the time that he accessed them); Jannx Med. Sys. v. Agiliti, Inc., 2020 U.S. Dist. LEXIS 237184 (N.D. Ohio 2020) (explaining non-confidential information is by definition not a trade secret); LinTech Global, Inc. v. Can Softtech, Inc., 2021 U.S. Dist. LEXIS 49958 (E.D. Mich. 2021) (holding that a defendant's motion to dismiss plaintiff's tortious interference claim was not preempted by the Michigan Uniform Trade Secrets Act because the count involved some allegations that did not touch on the misappropriation of trade secrets); Radiant Global Logistics, Inc. v. BTX Air Express of Detroit LLC, 2021 U.S. Dist. LEXIS 68319, at *30-44 (E.D. Mich. 2021) (applying Michigan law) (unpublished) (explaining of the elements of state trade secret claims in detail); Viera v. Gen. Auto. Ins. Servs. & Permanent Assur. Corp., 2021 U.S. Dist. LEXIS 21424 (M.D. Tenn. 2021) (holding that an employee accessing a former employer's LinkedIn account and changing their profile to include derogatory content could constitute a breach of the CFAA even though she was originally authorized to have access to the account because when the employer fired her before this incident they had implicitly stripped her of her authorization).

§ 1.5.8 Seventh Circuit

Danaher Corp. v. Lean Focus, LLC, 2021 U.S. Dist. LEXIS 141800 (W.D. Wis. 2021) (unpublished). Baker, a former employee of Danaher, founded Lean Focus, LLC. Both Danaher and Lean Focus provide consulting services to clients based on “lean” manufacturing principles. Among other things, Danaher alleged that Baker and Lean Focus (Defendants) misappropriated Danaher’s trade secrets in violation of the federal Defend Trade Secrets Act and Wisconsin’s Uniform Trade Secrets Act. Among other things, defendants moved for summary judgement with regards to Danaher’s trade secret claims. Defendants argued that Danaher’s business system was not entitled to trade secret protection because Danaher did not make reasonable efforts to maintain the secrecy of its business system and Danaher’s business system was generally known and readily ascertainable outside of Danaher. The court denied defendants motion for summary judgment in this respect. First, with respect to whether Danaher had taken reasonable measures to maintain the secrecy of its trade secret, the court noted that this issue is rarely amenable to summary judgement. The court noted evidence sufficient to raise a genuine issue of material fact, alluding to Danaher’s code of conduct, which requires its employees not to reveal confidential information, its annual training modules that require confidential requirements, its password-protected intranet site; the required signing of nondisclosure agreements for certain employees, and its monitoring of any public disclosure of its trade secrets. Second, with respect to whether Danaher’s business system was generally known and readily ascertainable outside of Danaher, the court noted differing expert opinions and said that Danaher raised a general issue of fact as to whether its trade secret was generally known or readily ascertainable.

HCC Cas. Ins. Servs. v. Day, 2021 U.S. Dist. LEXIS 57433 (N.D. Ill. 2021) (unpublished) (applying Illinois law). Plaintiff HCC Casualty Insurance Services, Inc. brought a breach of contract suit against Day, its former president, claiming that Day violated certain restrictive covenants in his employment agreement. Plaintiff sought monetary and injunctive relief. The dispute arose out of Day’s employment agreement with plaintiff, which was originally effective through April 30, 2019, but which was amended and extended through April 30, 2020. The agreement contained three restrictive covenants around confidentiality, noncompetition, and nonsolicitation. The confidentiality restrictive covenant included plaintiff’s “trade secrets” within the information that Day was supposed to keep confidential. On May 2, 2020, two days following the expiration of his employment agreement with plaintiff, Day resigned from his position as plaintiff’s president. Shortly thereafter, Day then joined another insurance underwriter as its president. Plaintiff claimed that Day violated his previous employment agreement by hiring nine employees from plaintiff, disclosing plaintiff’s trade secrets to his new company, and directly competing with plaintiff. Day filed a motion to dismiss plaintiff’s claims for failure to state a claim. Day, among other things, argued that the restrictive covenants were overbroad and unenforceable. As to the confidentiality provision, Day argued that its definition of confidential information was too broad and that it did not contain geographical or temporal restraints. The employment agreement defined confidential information as “any information . . . that relate[d] to any aspect of the Company or its Affiliates or their respective business, finances, operation plans, budgets research, or strategic development.” Plaintiff argued that the confidentiality clause was not overbroad because it defined specific types of information that constituted “confidential information,” such as trade secrets. The court agreed with Day, holding that, unlike the noncompete and nonsolicitation provisions within the employment agreement, it could not “conceive of any set of facts under which it would be reasonable for [plaintiff] to prevent Day from disclosing ‘any information . . . that relates to any aspect’ of its business, in any geographical area, for all time.” (alterations in original). As to plaintiff’s argument, the court said that the specific categories of information were just examples and the employment agreement did not actually limit the broad definition of “confidential information.” Plaintiff’s allegations were dismissed to the extent that they were premised on Day’s breach of the confidentiality provision in his employment agreement.

Additional Cases of Note

Marquis ProCap Sys, LLC v. Novozymes N. Am., Inc., 2021 U.S. Dist. LEXIS 140757 (C.D. Ill. July 27, 2021) (unpublished) (denying defendant’s objection to magistrate judge’s order regarding motion to compel, finding that plaintiff’s description of alleged trade secrets was sufficiently detailed for the discovery stage).

§ 1.5.9 Eighth Circuit

Advanced Control Tech. v. Iversen, 2021 U.S. Dist. LEXIS 124624 (D. Minn. 2021) (unpublished). ACT manufactures float switches and liquid-level sensors. Iversen worked in ACT’s sales department and had access to ACT’s trade secrets and proprietary documents including customer list, manufacturing process data, pricing, customer quotes, company operations, vendor list, and product specifications. Iversen signed a nondisclosure agreement that also required him to return ACT’s property. ACT’s policy manual thoroughly addressed confidentiality obligations. Iversen was terminated by ACT, and later that day sent an email to ACT from his personal email account attaching a purchase order from an ACT customer. ACT asked Iversen to delete the email from his possession, but Iversen refused and suggested he would share ACT’s proprietary information with its customers. Further investigation revealed that Iversen regularly sent emails containing ACT trade secret information from his ACT email account to his personal email account, installed a password recovery tool used to recover credentials belonging to other ACT employees, and that he was in contact with two Chinese companies about manufacturing sensors. Iversen claimed he was entitled to keep ACT’s proprietary and confidential information. The court granted ACT’s motion for summary judgment on its trade secret claim, finding that Iversen was aware he could not use or take ACT’s trade secrets, and that he improperly retained ACT’s trade secrets, and used and threatened to use them to further his own needs. The court granted an injunction against Iversen and his new employer prohibiting use, copying, communicating, disclosure, divulging, or furnishing any of ACT’s trade secrets to any third party.

ATD Tools v. Fisher, 2021 U.S. Dist. LEXIS 27315 (E.D. Mo. 2021) (unpublished). See Section 1.2.9 for a summary of the case background and the court’s ruling on a duty of loyalty issue. The court found that ATD was likely to succeed on the merits of its trade secret misappropriation claim because (1) ATD’s trade secrets included business strategies, such as details on pricing arrangements with vendors, ATD’s process and decisions regarding which products will receive their private brand label, and other strategic plans; (2) ATD took reasonable measures to keep its information confidential and much of its business strategies and details on vendor relationships derive value from their secrecy, and (3) Fisher acquired ATD’s trade secrets while under a duty to maintain its secrecy. Irreparable harm was met because courts generally hold that disclosure of trade secrets, like business strategies, results in irreparable harm, especially where a defendant attempts to cover up their actions. The court also found that the harm ATD would suffer absent an injunction outweighed harm to Fisher if he was enjoined from using ATD’s trade secrets, and that an injunction would preserve the public’s interest in a fair a competitive business market.

Pitts v. Fire Extinguisher Sales & Servs. of Ark. LLC, 2021 U.S. Dist. LEXIS 117528 (E.D. Ark. 2021) (unpublished). See 1.3.9 for a summary of the case background and the court’s ruling on a noncompete issue. Under the terms of a noncompetition agreement with FESSAR, Pitts agreed never to disclose to any third party, any confidential or other non-public information of or relating to FESSAR, including customer information, and pricing and purchasing policies and procedures. The agreement also included a customer nonsolicitation provision. After Pitts was terminated from FESSAR, he emailed himself FESSAR’s customer lists, customer prices, and quotes. FESSAR sued Pitts for misappropriation of trade secrets. The court found that in executing the noncompetition agreement with Pitts, FESSAR took reasonable measures to keep secret its data and information relating to customers, pricing and purchasing policies and procedures, and other trade secrets. Based on Pitts’ email communication with a Pitts customer, and acquisition of two of FESSAR’s long time customers, the court found it is likely that Pitts disclosed or used FASSAR’s trade secrets. The court entered a TRO prohibiting Pitts from opening, looking at, forwarding, relying on, copying, or in any way utilizing FESSAR’s customer lists, company prices, and quotes Pitts emailed himself, or any other confidential information described in the noncompetition agreement. The TRO also prohibited Pitts from soliciting any customer of FASSAR.

Schlafly Trust v. Cori, 2021 U.S. Dist. LEXIS 2880 (E.D. Mo. 2021) (unpublished). Plaintiffs alleged that Cori misappropriated a trade secret database containing a compilation of business contacts and specific information on over 400,000 individuals and organizations, including their donation records, contact information, and other information collected for fundraising efforts over the past 50 years. At issue on a motion to dismiss was whether plaintiffs took reasonable measure to keep the database secret. Cori argued that that plaintiffs failed to take reasonable measures because employees with access to the database did not have confidentiality or noncompete agreements. The court found that plaintiffs took reasonable steps because (1) the database was kept in a locked safe before it was digitized; (2) after being digitized it was available on only one computer kept in a locked office with access granted to only a handful of employees; and (3) the database was not disclosed to any third party except an individual who wrote the source code and application software that allowed management of the database. Despite the lack of confidentiality agreements, the court found that plaintiffs adequately plead that it took reasonable efforts to maintain the secrecy of the database.

Syngenta Seeds, LLC v. Warner, 2021 U.S. Dist. LEXIS 32385 (D. Minn. 2021) (unpublished). Syngenta, an agtech company that develops crop seeds, sued former employees Warner and Sleper and their new employer, Farmer’s Business Network, for trade secret misappropriation. Defendants moved to dismiss arguing that Syngenta had not plausibly alleged trade secret misappropriation. The court’s analysis was guided by several principles, including (1) that misappropriation is plausible when a departing employee had retained trade secrets under suspicious circumstances and there is reason to believe that the employee has used or disclosed the trade secrets in their new employment, and (2) that surrounding circumstances may give rise to a reasonable inference of misappropriation at the pleading stage even without a direct allegation of a specific use or disclosure. Despite no direct allegations that Sleper disclosed a specific piece of trade secret information, the court found that Syngenta had plausibly alleged trade secret misappropriation against him under the specific circumstances of the case because Sleper’s role with Syngenta gave him access to its trade secrets and he had broad confidentiality obligations; in the months before he resigned he discussed building a competing seed breeding program at FBN and had meetings with FBN shortly before he resigned where he reportedly shared “great ideas” about “genomics and phenomics”; he accessed Syngenta’s trade secrets in a behavior consistent with copying the data, but did not return any such data; and months after Sleper joined FBN, it announced a new seed breeding program. For similar reasons, Syngenta had plausibly alleged that FBN misappropriated its trade secrets because Sleper’s main point of a contact was a former Syngenta employee who presumably knew of Sleper’s confidentiality obligations and the types of information Sleper could access; FBN engaged in discussion with Sleper about building a competing seed breeding program, FBN employees shared information they learned from Sleper and Warner; and shortly after Sleper joined FBN, it announced a new seed breeding program. Despite defendant’s different and plausible interpretation of the allegations, the court found that Syngenta had done enough to avoid dismissal of the trade secret claim.

United Healthcare Servs. v. Louro, 2021 U.S. Dist. LEXIS 32385 (D. Minn. 2021) (unpublished). See §8.3.9 for a summary of the case background and the court’s ruling on a noncompete issue. United sought a preliminary injunction on an inevitable disclosure theory of trade secret misappropriation. United argued that because Louro cannot unlearn United’s pricing strategies, formulas, and pricing factors, he will be unable to perform his role at Anthem without using and disclosing United’s trade secrets. The court found that United had not met the high bar for pleading inevitable disclosure. In finding that United was unlikely to prevail on its trade secret claim, the court noted that Louro’s position at Anthem is significantly different from his position at United, and that United had not demonstrated any nefarious motives on Louro’s part. The court also relied upon Anthem’s and Louro’s representations that both parties will take affirmative steps to prohibit Louro from disclosing any of United’s proprietary information.

§ 1.5.10 Ninth Circuit

Precision Indus. Contractors Inc. v. Jack R. Gage Refrigeration Inc., No. C19-5810 TSZ, 2021 U.S. Dist. LEXIS 148078 (W.D. Wash. 2021) (unpublished). Defendant Daniel Jason Hoyt was an employee of Precision Industrial Contractors Inc. (PIC), which provides project management services and products to industrial clients. Hoyt was eventually promoted to general superintendent, where he was granted access to PIC’s confidential information, including PIC’s strategies on how to secure winning bids and information about PIC’s existing and potential clients. In the past, PIC had won about 75 percent of the bids it submitted for the entity Port Townsend Paper. While Hoyt was employed with PIC, Port Towsend Paper planned a multimillion-dollar expansion project (the OCC project). Shortly after the OCC project was announced, Hoyt abruptly quit PIC. Following this, PIC was only awarded one project for the OCC project even though it submitted five or six bids. Though there were other factors in play, PIC believed that some of the reason it lost its bids is because Hoyt used PIC’s confidential information to submit bids to Port Townsend Paper. PIC eventually moved for summary judgment on its federal and state trade secret misappropriation claims, arguing that Hoyt improperly took PIC’s confidential information, including bidding sheets, internal costs, manuals, and other techniques developed internally and exclusively for PIC’s own use. PIC also declared that Hoyt had access to PIC’s confidential and proprietary information, including strategies on how to submit winning bids or proposals and information about new and potential customers, including Port Townsend Paper. Despite this, the court found that while Hoyt may have had access to some of PIC’s confidential information, that in itself did not demonstrate that Hoyt misappropriated the information. Moreover, the court noted that it was undisputed that Hoyt had decades of “know-how and experience,” including with submitting bids for industrial construction projects. In addition, Hoyt testified that he had no idea what PIC’s bids were going to be on the OCC project. In sum, there was no evidence that Hoyt misappropriated PIC’s trade secrets or acquired them through improper means, that he disclosed the trade secrets to his new company, or that he used the trade secrets in connection with submitting bids for the OCC project. Accordingly, summary judgment was denied as to PIC’s claims for trade secret misappropriation.

Additional Cases of Note

Pro Flexx LLC v. Hiroshi Yoshida, No. 20-00512 SOM-KJM, 2021 U.S. Dist. LEXIS 17858 (D. Haw. 2021) (unpublished) (defining the “same proof” standard for claim preemption by the HUTSA: if a non-HUTSA claim would simultaneously establish a claim for trade secret misappropriation, it is preempted, regardless of if additional elements are necessary to establish the non-HUTSA claim); VibrantCare Rehab., Inc. v. Deol, No. 2:20-cv-00791-MCE-AC, 2021 U.S. Dist. LEXIS 79718 (E.D. Cal. 2021) (unpublished) (noting that the CUTSA preempts any claim based entirely on the same factual allegations that form the basis of a trade secret claim); NW Monitoring LLC v. Hollander, No. C20-5572 RSM, 2021 U.S. Dist. LEXIS 73193 (W.D. Wash. 2021) (unpublished) (stating that under the “strong” form of preemption under the WUTSA, a plaintiff may not rely on acts that constitute trade secret misappropriation to support another cause of action, even if the other claim requires proof of additional elements).

§ 1.5.11 Tenth Circuit

Graystone Funding Co., LLC v. Network Funding, L.P., 2021 U.S. Dist. LEXIS 187818 (D. Utah 2021) (unpublished). On April 8, 2019, Jason Gautreau and Cristie North, two high-level employees at Graystone Funding Company, LLC (“Graystone”), left to join a different mortgage lending company, Network Funding, L.P. ("NFLP). When Kipp Myers, 90% owner of Graystone, found out about Jason Gautreau and Cristie North’s departure, he inquired whether the payment terms in a pro forma provided to him previously would still be available if Graystone merged with NFLP, and when informed by Gautreau that NFLP agreed to this, Graystone agreed to merge with NFLP that same day. On April, 19, 2019, having been disappointed with the payment terms of the offer he received the day before, Kipp Myers called off the merger and on May 20, 2019 Graystone demanded that NFLP and former Graystone employees who joined NFLP (of which there were about 50) return and destroy any Graystone information in their possession.

Graystone sued Gautreau, North, and NFLP, alleging, among other causes of action, that the defendants misappropriated trade secrets. In front of the court was defendants’ motion for summary judgement. Defendants argued that even assuming there is a genuine dispute on the reasonableness of the plaintiff’s efforts to maintain secrecy while Gautreau and North engaged in discussions with NFLP, plaintiffs waived all trade secret claims when it voluntarily disclosed such information after April 8, 2019, when Graystone agreed to merge with NLFP. The court agreed that since the plaintiff provided NFLP with certain information after April 8, 2019, that information lost any trade secret protections at that time, so to the degree plaintiff’s claims are based on alleged misappropriation after the voluntary disclosure, those claims fail as a matter of law. Similarly, for customer databases which were not provided to NFLP but were also not protected from disclosure to NFLP after the plaintiff agreed to the merger with NFLP, the court held that to the extent the customer databases were protected trade secrets, such protection was extinguished at that time, and such claims of misappropriation would fail as a matter of law. On the other hand, to the extent the plaintiff’s claims are based on alleged misappropriation prior to its voluntary disclosure, “the subsequent voluntary disclosure of the information does not destroy the trade secret protection that existed at the time the information was allegedly misappropriated” and such claims are not barred as a matter of law.

Ivanti, Inc. v. Staylinked Corp., 2021 U.S. Dist. LEXIS 146994 (D. Utah 2021) (unpublished). In an action for misappropriation of trade secrets, Ivanti sought a protective order to maintain a Confidential-Attorney’s Eyes Only (CAEO) designation or 734 documents in its case against Staylinked, claiming that the materials contained company proprietary information that would be damaging to share with the opposing side. Ivanti submitted the documents to the court for in camera review and the court made categorical determinations on which types of documents should be allowed CAEO status. Included in the documents determined to require CAEO status were customer names, revenues from specific customers, and computer-generated error logs specific to individual systems and products. The court denied CAEO status to documents in which only small portions contained sensitive information, internal discussions about general awareness of customer problems, internal presentations on staff efficiency and workload, internal meeting agendas and training topics, workplans setting goals and progress for specific employees, and manuals obtained by Ivanti from other companies.

LS3 Inc. v. Cherokee Fed. Sols., L.L.C., 2021 U.S. Dist. LEXIS 186460 (D. Colo. 2021) (unpublished). After losing a contract to defendant companies, plaintiff filed suit against Cherokee Nation companies and its own former employees, alleging breach of contract by the individual defendants, tortious interference with contract by the Cherokee defendants, and civil conspiracy and misappropriation of trade secrets by all defendants under the Defend Trade Secrets Act and the Colorado Uniform Trade Secrets Act. The employee defendants had signed either an “Employment Agreement” or an “Intellectual Property, Non-Interference/Non-Solicitation and Non-Disclosure Agreement” while working for plaintiff. During the hiring process, defendant companies sent the individual defendants an “Incumbent Questionnaire” which asked about their employment with plaintiff, including their job titles, duties, training, and clearance level. Ruling on the defendants’ motion to dismiss, the court dismissed plaintiff’s breach of contract and tortious interference claims, finding that there had been no breach. Turning to the misappropriation of trade secrets claim, the court examined whether the Questionnaire sought information that qualified as trade secrets. Plaintiff argued that because it had used password protection to conceal this information, it was secret and non-public. However, the court found that the information was not a trade secret, since: 1) nothing indicated how much of the information was known outside of plaintiff’s business; 2) plaintiff had not shown that the information was kept secret within its business; and 3) the information was not particularly valuable, hard to duplicate, or critical to the plaintiff’s business. Thus, the court dismissed this claim. Finally, since all other claims were dismissed, plaintiff’s conspiracy claim was dismissed since it was derivative.

Additional Cases of Note

Ace Oilfield Rentals, LLC v. Western Dakota Welding and Fabrication, LLC, 2021 U.S. Dist. LEXIS 191902 (W.D. Okla. 2021) (unpublished) (granting summary judgment on plaintiff’s misappropriation of trade secrets claim since plaintiff’s customer lists and the technical specifications of its hydraulic catwalks were trade secrets due to their independent economic value and the reasonable efforts made by plaintiff to conceal them); Core Progression Franchise LLC v. O’Hare, 2021 U.S. Dist. LEXIS 63471 (D. Colo. 2021) (unpublished) (holding that information disclosed to defendant in an operations manual about plaintiff’s software systems, training methodology, and site selection process while defendant was plaintiff’s franchisee were trade secrets entitled to protection via a preliminary injunction); JCorps Int'l, Inc. v. Charles & Lynn Schusterman Family Found., 2021 U.S. Dist. LEXIS 108017 (N.D. Okla. 2021) (holding that plaintiff failed to show the purported trade secrets derived independent economic value from remaining confidential where plaintiff mentioned that the trade secrets were its “secret sauce,” “held immense value to” plaintiff, and were not available to other organizations that could not achieve similar results to plaintiff, as plaintiff had not “identified anything about the process of developing the purported trade secrets or alleged how their particular value derives from their secrecy”); Snyder v. Beam Techs., 2021 U.S. Dist. LEXIS 207686 (D. Colo. 2021) (unpublished) (denying motion to dismiss trade secret claims on the basis that a former employee failed to take reasonable measures to protect trade secrets where the employee had saved the spreadsheets at question to a “private file” on his work computer and limited disclosure to only portions of the spreadsheet data to a select number of people; further, the court found the plaintiff sufficiently alleged improper acquisition where the defendant took the entirety of plaintiff’s spreadsheets knowingly and without consent, and proceeded to use the spreadsheets without consent); Quest Sol., Inc. v. RedLPR, LLC, 2021 U.S. Dist. LEXIS 82406 (D. Utah 2021) (unpublished) (holding that a plaintiff did not define the trade secrets with the required detail, reasoning that the fact that an oft-repeated portion of the plaintiff’s at-issue confidential discovery response is also found in a non-redacted memorandum “shows how little detail [plaintiff] actually has provided about what its trade secrets are”).

§ 1.5.12 Eleventh Circuit

Argos United States LLC v. Christopher Young & Southeast Ready Mix, 2021 U.S. Dist. LEXIS 140387 (N.D. Ga. 2021): Argos, a corporation specializing in the sale of ready mix concrete, sued former sales manager Young. Argos alleged that Young stole confidential documents to obtain proof supporting Young’s mistaken belief that Argos was engaged in illegal price fixing. In the discovery phase, Argos included a production request with eight categories of trade secrets, two of which were “ [e]lectronic and hard-copy documents Young took from Argos (designation subject to further description upon Young's return of such materials to Argos)”; and “8. [a]ll photographs Young took of Argos documents (designation subject to further description upon Young's return of such materials to Argos).” Young argued that the requests lacked reasonable particularity, and the court agreed. The court framed these requests as Argos’ attempt “to obtain whatever discovery it can from Defendant Young on these topics and subsequently designate its trade secrets accordingly.” Argos tried to justify the requests by asserting that its cause of action included a Computer Fraud Abuse Act claim that entitled Argos to discovery regarding any computer information regardless of whether it constituted a trade secret. The court rejected this argument, stating, “it runs contrary to logic that a plaintiff may expand the parameters of allowable discovery as to some claims simply by adding others, and [Young] cites no relevant authority to support this novel proposition.”

Castellano Cosmetic Surgery Ctr., P.A. v. Doyle, 2021 U.S. Dist. LEXIS 140610 (M.D. Fla. 2021): Castellano Cosmetic Surgery Center sued Doyle alleging that Doyle misappropriated trade secrets in violation of the Defend Trade Secrets Act (DTSA) and the Florida Uniform Trade Secrets Act (FUTSA). Castellano’s based its claim on Doyle’s use of a client email list obtained while Doyle was bound by a confidentiality clause in her employment contract with Castellano. In evaluating whether a preliminary injunction was appropriate, however, the court found that Castellano failed to show a substantial likelihood of success on the merits. The court specifically found that Doyle’s duty to maintain confidentiality was unclear. Although Doyle was still subject to the employment agreement’s confidentiality provision when she acquired the email list, Doyle was no longer subject to the confidentiality provision when she used the email list. The court noted that, for purposes of finding misappropriation, “[n]either the text of the [DTSA] nor the case law interpreting it clearly delineate whether the duty to maintain secrecy must exist at the time of use of the trade secret or whether the duty needs to exist only when the trade secret was acquired.” Because neither party briefed the issue, the court left this as an question open.

Decurtis LLC v. Carnival Corp., 2021 U.S. Dist. LEXIS 3163 (S.D. Fla. 2021): Carnival Corp. sued DeCurtis, a wireless communications business, for violation of DeCurtis’s confidentiality obligations. After working for Carnival, DeCurtis worked with direct competitors to develop similar wireless communications systems. Carnival alleged that DeCurtis breached its contract and misappropriated trade secrets under the Defend Trade Secrets Act and the Florida Uniform Trade Secrets Act. DeCurtis moved to dismiss Carnival’s complaint for failure to state a claim. Regarding the misappropriate claims, DeCurtis argued that the complaint failed to describe Carnival’s allegedly misappropriated trade secrets with reasonable particularity. The court noted that, although many plaintiffs lack knowledge of specific facts surrounding misappropriation, courts in the Eleventh Circuit had required reasonable particularity in the description of allegedly misappropriated trade secrets. The purpose of this requirement was to prevent plaintiffs from using the “old trick” of making “vague trade secrets allegations and then try[ing] to fill in the gaps when discovery begins.” The court adopted the reasonable particularity requirement, and found that Carnival’s broad trade secret categorizations failed to state a claim of action for misappropriation of trade secrets.

Gulf South Commc’ns, Inc. v. Woof Inc., 2021 U.S. Dist. LEXIS 109963 (M.D. Ala. 2021): Corbitt was a radio personality for Gulf South Communications. Corbitt left Gulf South to work for a direct competitor, WOOLF. Gulf South sued Corbitt and WOOLF, alleging that Corbitt wrongfully accessed certain information. Gulf Coast’s claims included theories of conversion and trespass to chattel. WOOLF sought to dismiss these claims on the grounds of preemption by the Alabama Trade Secrets Act (ATSA). Gulf Coast argued that it should be able to allege the conversion and trespass to chattel claims as an alternative to an ATSA claim in case there is insufficient proof to show the existence of trade secrets. The court rejected this argument, stating that “if the ATSA does not provide a remedy because the information at issue does not rise to the level of a trade secret, then the preemptive scope of the ATSA, which displaces common law inconsistent with the ATSA, . . . will not allow a conversion or trespass to chattels claim arising from the same facts.” By dismissing the common law counts as preempted by the ATSA, the court made clear that these common law claims and ATSA claims “cannot be pleaded in the alternative.”

Nephron Pharms. Corp. v. Hulsey, 2021 U.S. Dist. LEXIS 6403 (M.D. Fla. 2021), adopted by Nephron Pharms. Corp. v. Hulsey, 2021 U.S. Dist. LEXIS 37466 (M.D. Fla. 2021): Nephron, a pharmaceutical company, obtained a Temporary Restraining Order against Hulsey, Nephron’s former employee, and USC, Hulsey’s new employer, to enjoin the both defendants from using or disclosing Nephron’s trade secrets. Upon resigning from Nephron, Hulsey had almost immediately begun working for USC, and. Nephron alleged Hulsey had stolen trade secrets and provided them to her new employer. The court granted a TRO against Hulsey and USC preventing the direct or indirect use of Nephron’s information. Subsequently, the TRO was superseded by a mutually agreed-to consent preliminary injunction (CPI), which prevented the defendants and their agents from using or disclosing Nephron’s trade secrets. Shortly after entering into the CPI, USC hired a second former-employee of Nephron, and Nephron alleged that USC violated the CPI by obtaining information through this second employee. Nephron filed a motion to show cause for contempt because (1) USC failed to notify the second employee of the CPI, (2) the second employee conveyed Nephron’s information to USC to further its business, and (3) USC used the information. USC claimed that the CPI did not encompass information attained through the second employee. Specifically, USC argued that the CPI should be construed in accordance with the operative pleadings at the time the CPI was entered. Consequently, the CPI could only apply to the information obtained by Hulsey because the pleadings did not contemplate information from the second employee. The court soundly rejected this argument, finding that limiting a CPI’s scope in accordance with the operative pleadings would violate contractual principles by contravening the words of the CPI.

Additional Cases of Note

§ 1.5.14 State Cases

HouseCanary, Inc. v. Title Source, Inc., 622 S.W.3d 254 (Tex. 2021). HouseCanary, Inc. entered into a licensing agreement that allowed Title Source, Inc. to evaluate and ultimately use HouseCanary’s real estate appraisal technology. The parties later disputed the terms of the agreement, and Title Source sued for breach of contract, claiming HouseCanary failed to deliver what it promised. HouseCanary asserted counterclaims including misappropriation of its trade secrets, alleging Title Source used HouseCanary’s technology to build derivative products in violation of the licensing agreement. The trial concluded with jury findings in favor of HouseCanary, including that Title Source misappropriated HouseCanary's trade secrets. HouseCanary filed a post-trial motion under Texas Rule of Civil Procedure 76a to seal thirty exhibits used at trial, eight of which it argued contained trade secrets. Title Source and two intervening media organizations opposed the motion, which the trial court denied after a hearing. Because Rule 76a(7) prohibits motions for reconsideration “without first showing changed circumstances materially affecting the order,” HouseCanary filed a motion for reconsideration that expressly did not renew its arguments under Rule 76a but rather relied solely on the Texas Uniform Trade Secrets Act (TUTSA), arguing that it provides a statutory basis for sealing the eight exhibits that supersedes Rule 76a. This time, the court granted the motion and also gave HouseCanary more relief than it requested, ordering a total of fourteen exhibits sealed. The Texas Supreme Court considered whether the TUTSA provides a separate pathway for sealing court records to which Texas Rule of Civil Procedure 76a does not apply.

The Court held that the trial court abused its discretion by sealing records based solely on the TUSTSA. The Court explained that Rule 76a(1)(a)’s presumption that court records are open to the general public cannot be reconciled with TUTSA’s presumption in favor of granting protective orders to preserve alleged trade secrets, including those in court records. This conflict does not supplant Rule 76a entirely, however. HouseCanary failed to show that TUTSA’s lack of procedures (including a public notice requirement) conflicts with and was intended to replace the procedural portions of Rule 76a, which trial courts follow in all cases where records are sought to be sealed. Without such procedures, the TUTSA could not support a motion to seal trade secrets on its own.

Additional Cases of Note

Jim Olive Photography v. Univ. of Hous. Sys., 624 S.W.3d 764, 770-71 (Tex. 2021) (suggesting that the Takings Clauses of both the Federal Constitution and State Constitution protects trade secrets).

Johnston v. Vincent, 20-357 (La. App. 3 Cir 05/05/21) (holding that the trial court erred in declining to categorize a customer list as a trade secret because, unlike cited caselaw finding the contrary, employees did not surrender the customer list, and employer did not rely on the knowledge and memory of its long-time employees).

People Source Staffing Prof'ls LLC v. Robertson, 2021 U.S. Dist. LEXIS 105712, at *18 (W.D. La. June 3, 2021) (granting defendants’ motion for summary judgment regarding appropriation of confidential and proprietary business information plaintiff failed to prove material facts as to misappropriation and no evidence existed demonstrating defendants misappropriated plaintiff’s “confidential information and/or used it in their business”).

§ 1.6 Damages

§ 1.6.2 First Circuit

Anderson v. Trident Eng'g & Inspection Corp., No. 2:21-cv-00149-LEW, 2021 U.S. Dist. LEXIS 113646 (D. Me. 2021) (unpublished) - the Maine District Court denied an employee’s ex parte request for a temporary restraining order to prohibit an employer from accessing employee’s online accounts that contained both business and personal files because the employee failed to show irreparable harm, a balance of the equities that tipped in his favor, or an interest of the public that would favor ex parte relief. In that case, the employee established an online account for a cloud-based hosting service to host both personal files and business files related to his employment. After being terminated from his employment with the employer, employer accessed and modified the online account which prevented the employee and his family from accessing their privileged communications and personal files on the server. In determining whether the employee sufficiently alleged a claim entitled to ex parte relief, evidence before the court showed that the status quo between the parties had been maintained for two months prior to the request for ex parte relief. The court reasoned that during this two-month delay in seeking ex parte relief, a court could have evaluated a request for a preliminary injunction. Furthermore, the fact that the commandeered account contained both personal and business files was the employees own doing. Based on this evidence, the court held that it would exercise its discretion in allowing the employer to respond and denied the employee’s ex parte request.

§ 1.6.3 Second Circuit

Syntel Sterling Best Shores Mauritius Ltd. V. TriZetto Grp., Inc., 2021 U.S. Dist. LEXIS 75875 (S.D.N.Y. 2021). In a New York federal jury trial, Syntel was found to have infringed on one or more of TriZetto Group Inc.’s copyrights and to have misappropriated TriZetto’s trade secretions in violation of New York law. The jury awarded $284,855,192 million in compensatory damages and $569,710,384 million in punitive damages. After the verdict, Syntel renewed its motion for judgment as a matter of law, and alternatively requested a new trial or remittitur. New York Federal Judge Lorna Schofield denied Syntel’s motions, except for its request for remittitur. Judge Schofield reduced punitive damages to $284, 855,192, subject to TriZetto agreeing to remittitur, reasoning that a 1:1 ratio relative to the compensatory award should be the highest permissible outcome. The rationale behind her ruling was that Syntel’s conduct was reprehensible but not egregious. Also, the large compensatory damages award was calculated based on Syntel’s benefit. TriZetto subsequently agreed to remittitur, and Syntel has appealed the judgment.

Additional Cases of Note

§ 1.6.4 Third Circuit

Additional Cases of Note

PPG Indus., Inc. v. Jiangsu Tie Mao Glass Co., 2021 U.S. Dist. LEXIS 106961 (W.D.Pa 2021) (unpublished) (awarding $8.8M in monetary damages and $17.6M in exemplary damages, the maximum amount allowed by law, in egregious case of foreign trade secret misappropriation where default judgment was earlier entered).

§ 1.6.5 Fourth Circuit

There are no qualifying decisions within the Fourth Circuit.

§ 1.6.6 Fifth Circuit

Additional Cases of Note

Whitlock v. CSI Risk Mgmt., LLC, 2021 Tex. App. LEXIS 3345, at *34 (Tex. Ct. App., 5th Dist. Apr. 30, 2021) (holding that the jury’s damage award “was not contrary to the overwhelming weight of the evidence, nor was it unsupported by only a scintilla of evidence” and did not become improper because a lack of clarity in the jury's reasoning for the award was within the range permitted by the evidence).

§ 1.6.7 Sixth Circuit

Babcock Power, Inc. v. Kapsalis, 2021 U.S. App. LEXIS 8925 (6th Cir. (Ky.) 2021) (applying Kentucky law) (unpublished). Babcock Power, Inc. (BPI) and Vogt Power International, Inc. (Vogt) appealed the district court’s ruling reducing the jury’s verdict on their breach of contract claim against Stephen Kapsalis from $202,865 to $1. Kapsalis was hired as BPI’s chief operating officer and, upon being hired, signed a non-compete and nondisclosure agreement in which he promised not to divulge any of BPI’s “confidential information,” which included the company’s technical designs, trade secrets, financial data, marketing strategies, and manufacturing techniques. He also agreed to a non-solicitation agreement, that for one year after his employment, Kapsalis would not divert any business away from BPI. Before leaving BPI and starting a new job as the chief executive officer at Express Group Holdings, LLC (Express), a competitor of BPI’s, Kapsalis downloaded numerous files containing BPI’s confidential information onto an external hard drive. BPI sued Kapsalis under the Computer Fraud and Abuse Act (CFAA) and asserted several state law claims for breach of contract, misappropriation of trade secrets, breach of fiduciary duty, and conversion of intellectual property. The district court granted summary judgment in favor of Kapsalis on all claims except BPI’s claim that he breached the nondisclosure agreement and misappropriated trade secrets. The issue in the case was, under Kentucky law, whether BPI was permitted to recover damages under a “reasonable royalty” theory, when there was no proof of actual damages. The district court found that BPI suffered no evidence of actual damages, and Kapsalis did not profit in any way because he breached the nondisclosure agreement. The circuit court ultimately decided that “[i]n the absence of controlling authority on this specific issue, we apply the basic rule of Kentucky law that a plaintiff may recover actual damages or nominal damages for breach of contract.” As such, BPI did not suffer certain actual damages and the district court did not err in awarding BPI nominal damages.

Additional Cases of Note

Henkel of Am., Inc. v. Bell, 825 Fed. Appx. 243, 2020 U.S. App. LEXIS 26737 (applying Delaware law) (6th Cir. (Mich.) 2020) (ruling that the plaintiffs did have a cause of action for breach of fiduciary duty despite not showing damages because proving damages is not essential to a breach of fiduciary duty claim); Manville & Schell, P.C. v. Stricker, 2020 U.S. Dist. LEXIS 203302 (W.D. Mich. 2020) (The court dismissed the complaint because it found Plaintiff’s calculation for damages unreasonable.); Magnesium Mach. L.L.C. v. Terves, L.L.C., 2020 U.S. Dist. LEXIS 164640 (N.D. Ohio 2020) (holding that, under Ohio, Oklahoma, and U.S. trade secret acts, a misappropriation claim is brought in bad faith and a defendant can recover reasonable attorneys’ fees if the defendant received the information through proper discovery channels, took proper care to protect the information, and if the information did not contain secrets the plaintiff claimed were part of its trade secrets); Trent P. Fisher Enters. v. SAS Automation, 2021 U.S. Dist. LEXIS 62914 (S.D. Ohio 2021) (denying punitive damages in a trade secret misappropriation case because the plaintiff company did not allege sufficient facts to establish that a defendant company was “willful and malicious” in misappropriating plaintiff’s trade secrets).

§ 1.6.8 Seventh Circuit

Additional Cases of Note

Savis, Inc. v. Cardenas, 528 F. Supp. 3d 868 (N.D. III. 2021) (denying summary judgment for employer seeking damages for breach of noncompete clause by former employee because employer presented insufficient evidence of causation that the breach by former employee resulted in any loss of business).

Scalia v. Krieger, 2021 U.S. Dist. LEXIS 17125 (E.D. Wis. Jan 29, 2021) (entering default judgment and holding that plaintiff is entitled to $30,926.86 for employer’s breach of fiduciary duty for failure to remit payments and authorize distribution, and $3,903.53 for lost opportunity costs).

Zurich Am. Ins. Co. v. Hill, 2021 U.S. Dist. LEXIS 78449, at *10 (N.D. Ill. Apr. 23, 2021) (determining Zurich “presented a reasonable basis for computing its damages and established with a reasonable degree of certainty the net loss profits [of $194,700.88] for 2019 that were traceable to Hill’s breach” of the nonsolicitation provisions and post-termination restrictive covenants of the employment agreement).

§ 1.6.9 Eighth Circuit

Perficient, Inc. v. Munley, 2021 U.S. Dist. LEXIS 72506 (E.D. Mo. 2021) (unpublished). See Section 1.3.9 for a summary of the case background and the court’s ruling on a noncompete issue. On a motion for summary judgment, the court considered whether damages resulted from a breach of a noncompete agreement. Because Perficient quickly moved for and obtained injunctive relief, it prevented any actual damages. The court found that attorneys’ fees awarded pursuant to a contractual attorneys’ fees clause established the damages element for a breach of contract claim under Missouri law. The court also found that Perficient could be awarded nominal damages, which would also satisfy the breach of contract damages element.

§ 1.6.10 Ninth Circuit

There were no qualifying cases in the Ninth Circuit.

§ 1.6.11 Tenth Circuit

There were no qualifying decisions within the Tenth Circuit.

    Editors