Mazak Optonics Corporation v. Marlette

Filing 78

MEMORANDUM OPINION Signed by the Honorable Samuel Der-Yeghiayan on 8/8/2017: Granting Plaintiff's motion for preliminary injunction 5 . Mailed notice(mw, )

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
MAZAK OPTONICS CORPORATION, )
)
Plaintiff,
)
)
v.
)
)
DOUG MARLETTE, et al.,
)
)
Defendants.
)

No. 17 C 1023

MEMORANDUM OPINION
SAMUEL DER-YEGHIAYAN, District Judge
This matter is before the court on Plaintiff Mazak Optonics
Corporation’s (Mazak) motion for a preliminary injunction. For the reasons stated
below, the motion for a preliminary injunction is granted.

BACKGROUND
Defendant Doug Marlette (Marlette) was allegedly employed by Mazak.
Mazak contends that it discovered that Marlette had, for years, been engaging in a
covert scheme to provide a competitor MG Laser, Inc. (MG) with highly confidential
and proprietary information from Mazak. Mazak contends that Marlette has violated
the terms of the Non-Compete Agreement, Confidentiality Agreement, and Trade
Secret Agreement (collectively referred to as “Agreements”) signed by Marlette.

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When Mazak discovered the misconduct and confronted Marlette, he allegedly
admitted to engaging in the ongoing scheme to funnel Mazak’s trade secrets and
proprietary information to MG. Mazak further contends that it terminated Marlette’s
employment and that days after Marlette’s termination, he set up an Illinois
corporation, Defendant DGM Laser Company (DGM). According to Mazak,
Marlette then used Mazak’s proprietary information to work with MG and compete
with Mazak in violation of the Agreements. Mazak includes in its second amended
complaint trade claims alleging violations of the Defend Trade Secrets Act (DTSA)
of 2016, 18 U.S.C. § 1831 et seq. (Count I), claims alleging violations of the Illinois
Trade Secrets Act (ITSA), 765 ILCS 1065/1 et seq. (Count II), a breach of contract
claim brought against Marlette (Count III), a breach of fiduciary duty and duty of
loyalty claim brought against Marlette (Count IV), tortious interference with
prospective economic advantage (TIPEA) claims brought against MG and DGM
(Count V), conversion claims brought against all Defendants (Count VI), and
tortious interference with contract (TIC) claims brought against MG and DGM
(Count VII). In an opinion entered contemporaneously with this ruling, the court
denied MG’s motion to dismiss the TIPEA claim brought against MG (Count V),
and granted MG’s motion to dismiss the conversion claim brought against MG
(Count VI) and the TIC claim brought against MG (Count VII). Mazak now moves
for a preliminary injunction.

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DISCUSSION
The court initially notes that Mazak has moved for both a temporary
restraining order (TRO) and a preliminary injunction in the same memorandum. A
TRO is a type of emergency relief available to a plaintiff, and the ruling on such a
motion is typically based on a cursory presentation of the facts to the court in an
expedited fashion. See Geneva Assur. Syndicate, Inc. v. Med. Emergency Servs.
Assocs. (MESA) S.C., 964 F.2d 599, 600 (7th Cir. 1992)(stating that “[t]he essence of
a temporary restraining order is its brevity, its ex parte character, and (related to the
second element) its informality”). Once the parties have taken the opportunity to
prepare extensive written arguments and brief the motion such as in the instant
action, the motion is more properly considered a motion for a preliminary injunction.
The court also notes that MG acknowledges in its response to the instant motion that
the proper motion before the court is a motion for a preliminary injunction, (Resp. 5),
and MG has not sought any preliminary injunction hearing. In this case, based on the
agreed extended briefing schedule for the instant motion, and the breadth of the
parties’ arguments, this motion is properly adjudicated as a motion for a preliminary
injunction rather than a motion for a TRO.
In order to prevail on a motion for a preliminary injunction, the plaintiff must
first satisfy the requirements of the threshold stage. Girl Scouts of Manitou Council,
Inc. v. Girl Scouts of U.S. of America, Inc., 549 F.3d 1079, 1085-86 (7th Cir. 2008).
If the plaintiff satisfies such requirements, the court should proceed to the balancing
phase to ascertain whether the motion should be granted. Id.; see also Livable v. City
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of Chicago, 2017 WL 955421, at *4 (N.D. Ill. 2017)(explaining two phases); Hope v.
Comm'’ of Indiana Dep't of Correction, 2017 WL 1301569, at *4 (S.D. Ind.
2017)(same).

I. Threshold Phase
During the threshold phase, a party seeking a preliminary injunction must
initially establish: (1) “that absent a preliminary injunction, it will suffer irreparable
harm in the interim period prior to final resolution of its claims,” (2) “that traditional
legal remedies would be inadequate,” and (3) “that its claim has some likelihood of
succeeding on the merits.” Girl Scouts, 549 F.3d at 1086. If the moving party fails
to satisfy any of the above elements, the court must deny the motion for a
preliminary injunction. Id.

A. Irreparable Harm and Inadequate Remedy at Law
Mazak argues that it will suffer irreparable harm if the motion for a
preliminary junction is not granted and that it lacks adequate legal remedies. Mazak
has provided sufficient evidence at this initial phase to show that important
confidential and proprietary information has been misappropriated by Marlette
without authorization, and is being used by Marlette and MG. Mazak has also shown
that Marlette has been purloining such information for MG’s benefit for an extensive
amount of time and that there continues to be a risk of irreparable harm to Mazak’s
good will and customer base due to Marlette’s conduct. It would also be extremely
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difficult to quantify the precise monetary losses that might continue to be suffered by
Mazak due to loss of goodwill, the loss of sales relating to Defendants’ misconduct,
and the unfair economic advantages that MG has gained through its unlawful use of
Mazak’s secret information. See Whitaker By Whitaker v. Kenosha Unified Sch.
Dist. No. 1 Bd. of Educ., 858 F.3d 1034, 1046 (7th Cir. 2017)(stating that a plaintiff
is not required to “demonstrate that the remedy be wholly ineffectual,” and that there
must only be a showing “that any award would be seriously deficient as compared to
the harm suffered”)(internal quotations omitted)(quoting Foodcomm Int'l v. Barry,
328 F.3d 300, 304 (7th Cir. 2003)). In addition, although MG contends that it has
now destroyed some of the confidential information gained from Mazak, Mazak has
provided sufficient evidence to show that MG still possesses confidential
information. Mazak has thus shown that it will suffer irreparable harm and will be
without an adequate legal remedy if the injunction is not granted.

B. Likelihood of Success on the Merits
Mazak argues that it has a strong likelihood of success on the merits. A
plaintiff seeking a “preliminary injunctive relief need not demonstrate a likelihood of
absolute success on the merits,” and “[i]nstead, he must only show that his chances to
succeed on his claims are ‘better than negligible’” Whitaker, 858 F.3d at 1046
(quoting Cooper v. Salazar, 196 F.3d 809, 813 (7th Cir. 1999))(stating that “[t]his is
a low threshold”). In regard to the remaining claims in this action, Mazak has put
forth sufficient evidence to show at this juncture that it is likely to prevail in this
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matter. The evidence provided by Mazak indicates that Marlette misappropriated
confidential and proprietary information and gave it to MG for its unauthorized use.
At his deposition, Marlette admitted he downloaded numerous confidential
documents from Mazak’s internal server that were not available to third parties and
sent them to MG. (Mar. Dep. 55-56). There is also evidence showing that Marlette
understood that what he was doing was wrong and violated the Agreements. For
example, Marlette also admitted at his deposition that after receiving a letter from
Mazak’s counsel telling him to preserve evidence of such transfers, Marlette deleted
texts, emails, and pictures that documented his funneling of confidential information
to MG. (Mar. Dep. 69-70). Marlette further admitted at his deposition that he knew
MG was a competitor of Mazak and when asked why he was “assisting a competitor
by giving him information or help,” he responded only “I don’t know why.” (Mar.
Dep. 59). Mazak has also provided sufficient evidence showing that the information
in question includes trade secrets that would be protected by the DTSA and the
ITSA. Mazak has also produced evidence showing that Defendants diverted existing
customers away from Mazak.
Defendants have failed to produce sufficient evidence to call into question
many facts concerning Marlette’s misconduct and Defendants instead focus their
arguments on defenses relating to issues such as ownership of trade secrets, statutes
of limitations, and statute of frauds. Mazak has put forth sufficient evidence at this
preliminary stage to show that certain information in question in this case constitutes
trade secrets that have been properly protected by Mazak, and that Mazak has
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ownership of such trade secrets. Mazak has also sufficiently identified the trade
secrets in question at this preliminary stage of the proceedings. In regard to the
statute of frauds, MG has not pointed to sufficient evidence of any pertinent oral
agreement that could not be performed within one year. In regard to the statute of
limitations defense, MG has shown that at best only a portion of Mazak’s claims
could be excluded.
Marlette fails to point to evidence to justify his actions under the Agreements
and instead seeks to avoid his obligations under such Agreements by arguing that the
Agreements are unenforceable. Based on the record at this juncture, the evidence
shows that Marlette knowingly and voluntarily signed the Agreements. The
provisions in the Agreements such that they unduly prevent Marlette from working
and are not unconscionable. The scope and period for the non-compete provisions
are properly limited. Marlette also argues that Mazak somehow waived its right to
enforce the Agreements, but there is insufficient evidence to support such a
conclusion. Based on the court’s review of the evidence at this preliminary stage,
Mazak has shown a very strong likelihood of success on the merits in regard to the
remaining claims in this case.

II. Balancing Phase
If the moving party satisfies all of the initial requirements for a preliminary
injunction, the court must “proceed[] to the balancing phase of the analysis.” Girl
Scouts, 549 F.3d at 1086. During the balancing phase, the court should balance: (1)
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the potential harm to the parties, (2) the likelihood of success on the merits, and (3)
the public interest. Id. The court should employ “a sliding scale approach: [t]he
more likely the plaintiff is to win, the less heavily need the balance of harms weigh
in his favor; the less likely he is to win, the more need it weigh in his favor.” Id.
(internal quotations omitted)(quoting Roland Mach. Co. v. Dresser Indus., Inc., 749
F.2d 380, 389 (7th Cir. 1984)).

A. Potential Harm to the Parties and Likelihood of Success
Mazak has shown that it could face significant irreparable harm if Marlette
and MG are allowed to continue their ongoing use of Mazak’s secretes unabated. On
the other hand, the evidence shows that Marlette would suffer only minimal
hardships as a result of temporary injunctive relief. Marlette chose to work for
Mazak and sign the Agreements limiting his use of information and ability to
compete and ability to use Mazak’s confidential information, and there is nothing
unfair in maintaining the status quo at this point to address the merits of Mazak’s
claims. Mazak has also shown at this juncture a significant likelihood of success on
the remaining claims. The sliding scale thus makes the irreparable harm faced by
Mazak if temporary injunctive relief is denied of greater importance. Thus, the
balancing of harms favors the entry of the preliminary injunction.

B. Public Interest
Mazak argues that the public interest is promoted by the entry of the
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preliminary injunction. The public interest is supported by upholding the sanctity of
confidential information such as trade secrets and preventing others from the
unauthorized use of such confidential information for their own benefit. There is
little incentive in our capitalist system for business to strive to develop trade secrets
in order to excel if such secrets can be stolen at will without repercussions and
without the protection of the legal system. The public interest is also supported by
requiring parties to honor their promises in agreements rather than later avoiding
such obligations based on perceived technicalities. Marlette worked for Mazak and
was paid and received the benefits accorded to him under the Agreements. Without
legal justification, he cannot now avoid his own obligations. The court concludes
that the public interest factor favors entry of the preliminary injunction. Based on the
above, Mazak has shown that the extraordinary relief in the form of a preliminary
injunction is warranted in this case to preserve the status quo. Therefore, Mazak’s
motion for a preliminary injunction is granted.

CONCLUSION
Based on the foregoing analysis, Mazak’s motion for a preliminary injunction
is granted.

___________________________________
Samuel Der-Yeghiayan
United States District Court Judge
Dated: August 8, 2017
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