PSC Industrial Outsourcing, LP v. Kodysz

Filing 10

ORDER on Plaintiff's Ex Parte application for Temporary Restraqining Order and order to show cause re: Preliminary Injunction. signed by District Judge Anthony W. Ishii on 7/3/13. (Nazaroff, H)

1
2
3
4
5

UNITED STATES DISTRICT COURT

6

EASTERN DISTRICT OF CALIFORNIA

7
8
9

PSC INDUSTRIAL OUTSOURCING,
LP, a Delaware limited partnership,
Plaintiff

10
11
12
13

v.

CASE NO. 1:13-cv-0964
ORDER ON PLAINTIFF’S EX PARTE
APPLICATION FOR TEMPORARY
RESTRAINING ORDER AND ORDER
TO SHOW CAUSE RE: PRELIMINARY
INJUNCTION

KENNETH KODYSZ, and Individual,
Doc. # 5
Defendant.

14
15
16

In this action for damages and injunctive relief, plaintiff PSC Industrial Outsourcing, L.P.

17

(“Plaintiff”) has filed an ex parte application to enjoin defendant Kenneth Kodysz (“Defendant”)

18

from violation of confidentiality and non-competition agreements entered into by Defendant at the

19

beginning of his employment with Plaintiff’s predecessor. The underlying complaint alleges

20

diversity jurisdiction pursuant to 28 U.S.C. § 1332. Venue is proper in this court.

21
22

FACTUAL BACKGROUND
Plaintiff is an environmental and industrial services company that provides services such

23

as hydro-blasting, chemical cleaning, tank cleaning, dredging and other industrial cleaning

24

services on a contract basis to large businesses, including refineries. Defendant was hired by

25

Plaintiff’s predecessor, Allwaste Environmental Services/West Coast, Inc.(“Allwaste”) on or

26

about May 17, 1994. Allwaste was acquired by Plaintiff in 1998. Upon employment with

27

Allwaste, Defendant signed an employment agreement (the “Agreement”) that included, inter alia,

28

a one-year non-compete and non-solicitation agreement, an agreement for return of company

1

property, including lists and memoranda, and a non-disclosure of trade secrets agreement. See

2

Exh. “A” to Declaration of Josh M. McMorro, Doc # 5-4 at ¶¶ 3, 4 and 7. Defendant resigned

3

from Plaintiff’s employ on or about May 10, 2013, and immediately began employment with a

4

major competitor, Matrix Service Co., Inc. (“Matrix”).

5

At the end of his employment with Plaintiff, Defendant attended an “exit interview” with

6

his supervisor where Defendant was asked to return all of Plaintiff’s property “including all

7

documents and information that [Defendant] maintained on his cell phone, iPad and his laptops.”

8

Doc. # 5-1 at 14:19-20. A letter reminding Plaintiff of his obligation to return Plaintiff’s property

9

and to abide by the non-compete and trade secret agreements was sent to Plaintiff on or about May

10

20, 2013. Plaintiff alleges that, as of the date of Plaintiff’s filing of the complaint and the instant

11

request, Defendant has not responded to demands for return of Plaintiff’s property nor

12

acknowledged his obligations under the non-compete and trade secret agreements.

13

Plaintiff also alleges that immediately after his resignation from employment with

14

Plaintiff, Defendant “remotely accessed former PSC e-mail account without consent and

15

forwarded a chain of emails between him and a client [of Plaintiff’s] to [Defendant’s] Matrix

16

email account. The chain of emails is alleged to contain, among other things, the client’s contact

17

information, Plaintiff’s pricing information and information regarding Plaintiff’s “pending

18

contracted projects for other clients that may affect [Plaintiff’s] ability to perform the project for

19

the relevant client.” Doc. #5-1 at 15:21-23. Plaintiff asserts that Defendant’s conduct is

20

consistent with an underlying effort by Matrix to recruit Plaintiff’s employees and to

21

misappropriate Plaintiff’s trade secrets in order to facilitate Matrix’s transition from a company

22

that builds tanks into the business of servicing tanks in competition with Plaintiff. Plaintiff alleges

23

that Defendant is the third of Plaintiff’s employees to be “poached” by Matrix.

24

Plaintiff’s seeks injunctive relief by way of a temporary restraining order (“TRO”) to force

25

the return of over “27,000 files and folders and approximately 30 gigabytes of data currently in

26

Defendant’s possession and enforcement of the non-compete and trade secret provisions of the

27

Agreement. For the reasons that follow, that request will be granted in part and denied in part.

28
2

1
2

LEGAL STANDARD

3

Because Plaintiff seeks issuance of a TRO without notice to the Defendants, Plaintiff must

4

satisfy both the general standard for temporary restraining orders and the requirements for ex parte

5

orders set forth in Federal Rule of Civil Procedure 65(b). The general standard for issuing a TRO

6

is identical to the standard for issuing a preliminary injunction. Brown Jordan Int'l, Inc. v. Mind's

7

Eye Interiors, Inc., 236 F.Supp.2d 1152, 1154 (D.Haw.2002); Lockheed Missile & Space Co., Inc.

8

v. Hughes Aircraft Co., 887 F.Supp. 1320, 1323 (N.D.Cal.1995). A plaintiff seeking a

9

preliminary injunction must make a four-fold showing: (1) that he is likely to succeed on the

10

merits; (2) that he is likely to suffer irreparable harm in the absence of preliminary relief; (3) that

11

the balance of equities tips in his favor; and (4) that an injunction is in the public interest. Winter

12

v. Natural Res. Def. Council, Inc., 555 U.S. 7, 129 S.Ct. 365, 374, 172 L.Ed.2d 249 (2008); Amer.

13

Trucking Assocs., Inc. v. City of Los Angeles, 559 F.3d 1046, 1052 (9th Cir.2009). Pursuant to

14

Rule 65(b), Federal Rules of Civil Procedure, a temporary restraining order may be granted

15

without notice to the adverse party only if: 1) it clearly appears from specific facts shown by

16

affidavit or verified complaint that immediate and irreparable injury, loss or damage will result

17

before the adverse party can be heard in opposition, and 2) the applicant’s attorney certifies the

18

reasons that notice should not be required. The purpose in issuing a temporary restraining order is

19

to preserve the status quo for a short time pending a fuller hearing. The Ninth Circuit has

20

cautioned that there are very few circumstances justifying the issuance of an ex parte TRO. Reno

21

Air Racing Assoc., Inc. v. McCord, 452 F.3d 1126, 1131 (9th Cir.2006). Such circumstances

22

include “a very narrow band of cases in which ex parte orders are proper because notice to the

23

defendant would render fruitless the further prosecution of the action.” Id. (quoting Amer. Can Co.

24

v. Mansukhani, 742 F.2d 314, 322 (7th Cir.1984)).

25

ANALYSIS

26

In the underlying suit, Plaintiff has alleged claims for breach of contract, violation of

27

California’s Uniform Trade Secrets Act, Cal. Civ. Code § 3426 et seq. (“UTSA”), violation of

28

California’s Unfair Competition statute and violation of California Penal Code section 502.
3

1

Plaintiff alleges it will be irreparably harmed by divulgence of Plaintiff’s confidential information

2

and trade secrets, the solicitation of Plaintiff’s customers in violation of the non-compete

3

agreement and the solicitation or interference of Plaintiff’s employees.

4

I.

Likelihood of Success on the Merits

5

California Business and Professions Code section 16600 codifies California’s general policy

6

with regard to non-compete agreements in the context of employment contracts. Except for two

7

statutory exceptions not relevant here, “every contract by which anyone is restrained from

8

engaging in a lawful profession, trade, or business of any kind is to that extent void.” Bus. & Prof.

9

Code § 16600. Dowell v. Biosense Webster, Inc., 179 Cal.App.4th 564, 575 (2nd Dist. 2010). A

10

good deal of California case authority is devoted to the tension that is acknowledged to exist

11

between section 16600 and the UTSA. See e.g., Thompson v. Impaxx, Inc., 113 Cal.App.4th

12

1425, 1429-1430 (2nd Dist. 2003). Although California courts have expressed skepticism that

13

there is a common law “trade secret exception” to section 16600, see Dowell, 179 Cal.App.4th at

14

577, there appears to be no doubt that employee conduct that is otherwise tortious under UTSA or

15

under unfair competition law may be enjoined. “We distill from the foregoing cases that section

16

16600 bars a court from specifically enforcing (by way of injunctive relief) a contractual clause

17

purporting to ban a former employee from soliciting former customers to transfer their business

18

away from the former employer to the employee’s new business, but a court may enjoin tortious

19

conduct (as violative of either the Uniform Trade Secrets Act (Civ. Code § 3426 et seq.) and/or the

20

unfair competition law) by banning the former employee from using trade secret information to

21

identify existing customers to facilitate the solicitation of such customers, or to otherwise unfairly

22

compete with the former employer.” The Retirement Group v. Galante, 176 Cal.App.4th 1226,

23

1233 (2009) (italics in original).

24

From the foregoing it is apparent that section 16600 constrains the breadth of equitable

25

remedies that are available to those that are necessary to protect trade secrets. The sort of

26

injunctive relief that would be required to enforce Plaintiff’s requested injunctions against, for

27

example, solicitation of former customers or current employees as broadly requested in paragraphs

28

(f) and (h) of Plaintiff’s proposed Temporary Restraining Order is not available. In addition, the
4

1

California appellate court’s opinion in Thompson cautions that what is or is not a “trade secret” is

2

question of fact, not merely a matter of labeling. 113 Cal.App.4th at 1430. Thus, while Defendant

3

may be obliged as a matter of contract to return all of the “27,000 files and folders and

4

approximately 30 gigabytes of data” claimed to be in Defendant’s possession, the court cannot

5

presume on the information alleged that the court can exercise injunctive authority over the

6

entirety of that material because it is all “trade secret” or confidential information.

7

California’s UTSA defines a trade secret as a “formula, pattern, compilation, program, device,

8

method, technique, or process, that: (1) Derives independent economic value, actual or potential,

9

from not being generally known to the public or to other persons who can obtain economic value

10

from its disclosure or use; and (2) Is the subject of efforts that are reasonable under the

11

circumstances to maintain its secrecy.” Cal. “Civ. Code § 3426.1(d); Thompson, 113 Cal.App.4th

12

at 1430. Based on this definition, the court finds that, to the extent Plaintiff seeks to enjoin by

13

means of TRO Defendant’s conduct with respect to the entirety of the data alleged to be in

14

Plaintiff’s possession, the court presently lacks a legal basis for such broad regulation. However,

15

where the categories of data are further specified such that they clearly come within the ambit of

16

the statutory definition of trade secret, the court may appropriately impose injunctive relief.

17

At paragraph (i) of Plaintiff’s proposed TRO, Plaintiff requests that the court enjoin Defendant

18

from “disclosing and using [Plaintiff’s] Confidential Information and Trade Secrets and to return

19

such documents, data and information to [Plaintiff] and to not retain any copies, summaries or

20

other partial or complete excerpts of such documents and information.” Doc. # 5-5 at 4:4-8.

21

Plaintiff defines “Confidential Information and Trade Secrets” in the following paragraph as: “key

22

contact information for [Plaintiff’s] clients and potential clients, [Plaintiff’s] pricing data and

23

formulas, knowledge of upcoming client projects six to twelve months before the project will

24

become available for bidding, information regarding contracts and pricing arrangements with

25

clients, analysis and bids to clients relating to potential new projects, and details of particular

26

contracts handled by [Plaintiff].” Id. at 4:10-14.

27
28

Except for the first of the elements listed – “key contact information for [Plaintiff’s] clients
and potential clients” -- the court finds that the list of data categories Plaintiff uses to define
5

1

confidential information and trade secrets come well within the scope of the statutory definition of

2

trade secrets set forth in the USTA. While there is no doubt that customer lists may constitute

3

trade secret information, the determination is not determined simply by the fact that a company

4

has a list of actual or potential clients. To the extent a potential customer lists embodies

5

information that is readily ascertainable, courts are reluctant to impose injunctive protection.

6

Morelife, Inc. v. Perry, 56 Cal.App.4th 1514, 1521-1522 (1997). In a similar vein, some

7

California courts have declined to assert injunctive authority over a defendant’s use of memory of

8

personal contacts from customer lists that might otherwise have been confidential. Moss, Adams

9

& Co. v. Shilling¸179 Cal.App.3d 124, 129 ((1986). The court feels that any attempt to curtail

10

Defendant’s use of or reliance on Plaintiff’s lists of actual or potential clients must be fairly

11

narrow to meet the standard of “likely to prevail on the merits.” With regard to the remainder of

12

the categories listed by Plaintiff and set forth above, the court finds that Plaintiff meets the “likely

13

to succeed on the merits” standard.

14

II.

15

Irreparable Harm and Balance of Equities
The court may grant a preliminary injunction when there is evidence of the threat of

16

committing an act in violation of the rights of another party respecting the subject of the action.

17

Dodge, Warren & Peters Ins. Services, Inc. v. Riley, 105 Cal.App.4th 1414, 1418 (2003).

18

Plaintiff has presented evidence of an on-going effort by Matrix to “poach” Plaintiff’s employees

19

for the purpose of accelerating its entry into the business of environmental tank maintenance. To

20

the extent Matrix accomplishes this by use of Plaintiff’s bidding formulae, discount

21

considerations, confidential bids, or knowledge of pending projects, the rights of Plaintiff to the

22

continuing confidentiality of information it has expended time and capital to acquire is violated.

23

Given that Defendant was recruited by Matrix, and that other key employees were similarly

24

recruited by Matrix for the purpose of developing its new environmental services business, it is

25

fair to presume that the Confidential and Trade Secret Information in possession of Defendant

26

will be acquired and used by Matrix to Plaintiff’s detriment and in violation of California’s unfair

27

business practices statute. The court therefore finds that, with respect to categories of data listed

28

above as fitting within the statutory definition of “Trade Secret,” Plaintiff has adequately
6

1

demonstrated the likelihood of imminent harm in the absence of preliminary relief and that the

2

balance of equities tips in Plaintiff’s favor.

3

III.

4

Rule 65(b) Elements

The court is informed that Defendant’s counsel has received notice of this application and that

5

opposition can be expected in the next few days. Strictly speaking, the matter is therefore not ex

6

parte and the additional requirements of Rule 65(b) do not apply. However, it is the court’s intent

7

to impose injunctive limitations on Defendant’s conduct to the extent supported by the foregoing

8

analysis and necessary to prevent violation of Plaintiff’s right to the continuing confidentiality of

9

information that clearly falls within the definition of Trade Secret. The court does so with the

10

understanding that the order imposed herein may be modified by the court upon agreement of the

11

parties or upon good cause shown by either party and that the restrictions imposed hereby are

12

crafted to cause minimal disruption of either parties’ lawful activities.

13

ORDER

14

THEREFORE, in consideration of the foregoing, it is hereby ORDERED that:

15

1. Defendant shall not use or disclose any Trade Secret or Confidential Information

16

belonging to Plaintiff; including specifically any pricing data or formulas, information or

17

knowledge pertaining to upcoming client projects six to twelve months before the project

18

will become available for bidding, information regarding contracts and pricing

19

arrangements with clients, and details of particular contracts handled by Plaintiff.

20

2. Defendant shall not use, copy or disseminate client contact information that was made

21

available to Defendant by Plaintiff . Plaintiff shall not use, copy or disseminate potential

22

client contact information that was made available by Plaintiff to Defendant except to the

23

extent that such list of potential clients is readily available to the public or consists of a

24

class of potential clients whose identities may be readily discerned from public

25

information.

26

3. Defendant shall not copy, disseminate or use any information obtained from Defendant’s

27

email account at Plaintiff’s place of business and shall promptly delete any such

28

transferred files, messages or other information except to the extent any transferred email
7

1

files or communications are personal to Defendant and do not represent Plaintiff’s

2

proprietary information.

3

4. Plaintiff shall serve this order on Defendant and shall serve a copy of this order on
Defendant’s employer.

4

5. Plaintiff shall file any reply to Defendant’s opposition not later than fourteen (14) days

5

from the date of filing of Defendant’s opposition.

6
7

6. Upon filing of Plaintiff’s reply, the parties shall meet and confer to schedule a hearing and

8

shall contact the Deputy Clerk to schedule a hearing at the parties’ earliest convenience.

9
10
11
12

IT IS SO ORDERED.
Dated: July 3, 2013
SENIOR DISTRICT JUDGE
DEAC_Signature-END:

13
14

0m8i788

15
16
17
18
19
20
21
22
23
24
25
26
27
28
8