Logansport Machine Co Inc v. Neidlein-Spannzeuge GmbH et al

Filing 27

OPINION AND ORDER DENYING 2 LMC's Motion for Injunctive Relief; and DENYING AS MOOT 5 Motion to Dissolve the Temporary Restraining Order. No temporary restraining order or injunction is effective at this time in this case. Signed by Judge Jon E DeGuilio on 5/22/12. (smp)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF INDIANA
SOUTH BEND DIVISION
LOGANSPORT MACHINE CO., INC.,
Plaintiff,
v.
NEIDLEIN-SPANNZEUGE GmbH and
JAMES STROKER,
Defendants.

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CAUSE NO. 3:12-CV-233 JD

Opinion and Order
Plaintiff Logansport Machine Co., Inc. (LMC) and Defendant Neidlein-Spannzeuge
GmbH (Neidlein) attempted to sever its business relationship after Neidlein decided that it no
longer wanted to retain LMC as its sole distributor and importer of Neidlein’s face drivers in
North America. After learning of Neidlein’s intent to terminate the business relationship, LMC
discovered that Defendant James Stroker (Stroker), LMC’s former national sales manager
responsible for the sale of Neidlein chucking tools in North America, started up his own
business, Spin Tech Tools, and was expected to become the new exclusive distributor of
Neidlein products in North America.
On April 30, 2012, the day before the cancellation of LMC’s Distributorship Agreement
with Neidlein was to become effective (and over six months after notice of its termination was
provided by Neidlein to LMC), LMC filed a Verified Complaint in Cass County Circuit Court.
LMC claims that Stroker breached his fiduciary duties and tortiously interfered with LMC’s
business relationships by stealing confidential, proprietary, and trade secret information from
LMC in order to hit the ground running with the sale of Neidlein products through Spin Tech
Tools. LMC also asserts that Neidlein breached its agreements with LMC and failed to perform

promises that LMC relied on to its detriment. LMC sought and received an ex parte temporary
restraining order (TRO) under Indiana Trial Rule 65. The TRO temporarily enjoined the
Defendants from the following:
1.
2.
3.
4.

Changing the status quo regarding the distribution Agreement and/or
terminating the same;
Selling Neidlein products in the United States, Canada, and Mexico
through any entity but LMC;
Interfering with LMC’s customers and vendors using LMC’s confidential
information; and
Otherwise using or disclosing LMC’s Confidential Information and trade
secrets.

[DE 2-7].
On May 4, 2012, Defendants removed this case from Cass County Circuit Court and
established that this Court has diversity jurisdiction over the matter under 28 U.S.C. § 1332(a)(3)
[DE 2]. Defendants concurrently filed an Emergency Motion to Dissolve the TRO pursuant to
Federal Rule of Civil Procedure 65(b)(4) [DE 5, 6]. After holding an emergency status hearing
on the same day, the Court gave notice to the parties that the Court would proceed directly to a
preliminary injunction hearing because time was of the essence.1 Prior to the hearing, LMC filed
its memorandum arguing that the Court should extend the TRO or issue a preliminary injunction
[DE 10] and Defendants filed their memorandum opposing any request to extend the TRO or
issue a preliminary injunction [DE 17].

1

See Granny Goose Foods, Inc. v. Brotherhood of Teamsters and Auto Truck Drivers Local No. 70 of Alameda
County, 415 U.S. 423, 441 (1974) (“[s]ituations may arise where the parties, at the time of the hearing on the motion
to dissolve the restraining order, find themselves in a position to present their evidence and legal arguments for or
against a preliminary injunction. In such circumstances, of course, the court can proceed with the hearing as if it
were a hearing on an application for a preliminary injunction. At such hearing, as in any other hearing in which a
preliminary injunction is sought, the party seeking the injunction would bear the burden of demonstrating the various
factors justifying preliminary injunctive relief, such as the likelihood of irreparable injury to it if an injunction is
denied and its likelihood of success on the merits.”).

2

On May 10, 2012, the Court held the evidentiary hearing during which the parties
presented evidence and argument, and Defendants moved the Court to enter judgment rejecting
the preliminary injunction request under Rule 52(c) of the Federal Rules of Civil Procedure. The
Court took the matter under advisement.
As acknowledged by the parties in their submissions to the Court [DE 10 at 2; DE 17 at
10-11], absent an extension for good cause, the TRO has automatically dissolved by operation of
law given the time limits set forth in the rules. Granny Goose Foods, 415 U.S. at 439-40 (“[a]n
ex parte temporary restraining order issued by a state court prior to removal remains in force
after removal no longer than it would have remained in effect under state law, but in no event
does the order remain in force longer than the time limitations imposed by Rule 65(b), measured
from the date of removal.”). The Court now states its findings of fact and conclusions of law as
required under Rules 52 and 65 of the Federal Rules of Procedure to support its determination
that no preliminary injunction is warranted in this case.2
I.

Findings of Fact
A.

The Parties

Plaintiff LMC is an Indiana corporation with its principal place of business in Indiana.
LMC is a manufacturer and distributor of chucking tools. LMC distributes various
manufacturers’ chucks, which is a specialized type of clamp used to hold an object in place,
typically a cylindrical object or rotating workpiece.
Defendant Neidlein is a German corporation with its principal place of business in

2

For the same reasons that a preliminary injunction shall not issue at this time, as identified
herein, the Court finds that no good cause for extending the TRO exists under Rule 65(b)(2).
3

Germany. Neidlein produces face drivers that, when fitted into production machines, allow a
machine operator to turn, grind, mill or hard-turn an entire outside diameter of a workpiece in
one operation. Face drivers are different than chucks and have different applications. Neidlein’s
face drivers are used by various original equipment manufacturers (“OEMs”) and their parts’
suppliers, and are vital to the supply of machined parts to OEMs such as General Motors and
Caterpillar.
Defendant Stroker is a citizen of Ohio and is the owner of Spin Tech Tools.
B.

The Parties’ Business Relationships

In 1993, LMC began distributing Neidlein’s face drivers in North America. Since then,
LMC has distributed face drivers manufactured only by Neidlein and LMC does not
manufacturer its own face drivers. On December 8, 2007, LMC and Neidlein entered into a
written distribution agreement (the “Distributorship Agreement”), which became effective
January 1, 2008 [DE 1-1]. The Distributorship Agreement appointed LMC as the sole distributor
and sole importer of Neidlein chucking tools in the United States and Canada, and as a
distributor of Neidlein chucking tools in Mexico, but not on an exclusive basis. Id. In relevant
part, the Distributorship Agreement required LMC to buy Neidlein tools for its own account;
abstain from competition resulting in a detriment to Neidlein; treat all technical and commercial
information from Neidlein as confidential; and refrain from manufacturing face drivers during
the life of the agreement and for two years after its termination. Id. The Distributorship
Agreement also indicated that it could be cancelled by the parties subject to six months notice,
and that upon cancellation of the agreement the parties would “negotiate the terms for
disposition of customer lists and all items related to the operation of Neidlein business” and

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required Neidlein to “re-purchase from LMC its inventory of Neidlein products (which are
usable and saleable within the last 12 months) at a purchase price equal to the price paid by LMC
to Neidlein for such products less 20% restocking charge.” Id.
Neidlein represents that in the early Fall of 2009, Neidlein made LMC aware that it was
dissatisfied with LMC’s performance under the Distributorship Agreement because Neidlein’s
share in the face driver market had declined. Neidlein did not terminate the Distributorship
Agreement at the time because it believed that LMC would provide more consistency in the
administration of Neidlein’s account through a single account manager. However, by late Fall
Neidlein was still dissatisfied. LMC’s current President, Gordon “Jay” Duerr III, then notified
Neidlein that it was hoping to hire Jim Stroker as “someone who is trained in sales and has a
history to get moving right away and has product knowledge [relative to the application of face
drivers]” [Defendants’ Exhibit 2].
Stroker represents that in late 2009, an LMC representative approached Stroker with an
offer to join LMC. At the time of LMC’s offer, Stroker was employed as regional sales manager
at Riten, a manufacturer of face drivers and a competitor of Neidlein. On or about February 1,
2010, LMC hired Stroker as its national sales manager responsible for the sale of Neidlein
chucking tools in North America, and LMC reported to Neidlein that it was excited to have
Stroker as an employee because he “has great product, industry and customer knowledge.”
[Defendants’ Exhibit 3]. Stroker contends that after he started working for LMC, he discovered
that sales of Neidlein’s face drivers for the 2009 fiscal year were on pace for $450,000, which
was far less than what was represented to him before he came to LMC. Dissatisfied with LMC,
Stroker resigned from LMC on September 6, 2011.

5

On October 14, 2011, Neidlein sent LMC a letter cancelling the Distributorship
Agreement effective April 30, 2012 [DE 1-2]. The letter indicated that Neidlein could not
understand why Stroker was no longer with LMC, when it believed that Neidlein’s high business
volume during the recent months was due to Stroker’s efforts. Id. In light of its notice of
cancellation, Neidlein requested that LMC “make sure that the client details
(addresses/contacts/sales figures/sales volumes) from the Neidlein business” were sent to
Neidlein. Id.
Duerr testified that upon receipt of the cancellation notice, he and his father went to
Germany to discuss the matter at Neidlein’s office, but Neidlein refused to reconsider. At this
point, the parties began to engage in negotiations for the termination of their business
relationship. Documents show that on December 15, 2011, Neidlein communicated with LMC
that it would not pay LMC the 600.000 EUR requested by LMC in exchange for its promise to
refrain from distributing competitive products for five years3 [DE 1-3]. Instead, Neidlein
counter-offered to pay LMC 100.000 EUR for the customer lists and a two year anti-competition
agreement. Id. Neidlein further offered to take back specified inventory at twenty percent less
the purchase price, granted LMC a two month transition period during which goods already
ordered could be delivered after April 30, 2012, and required customers to be notified about the
distribution change two to three months prior to May 1, 2012. Id. Neidlein also informed LMC
for the first time on December 15 that Neidlein would be distributing its products in the United
States via Stroker and Spin Tech Tools. Id.

3

At the time, nothing prevented LMC from competing against Neidlein by selling another
manufacturer’s face drivers.
6

After narrowing its terms [Defendants’ Exhibit 18], Neidlein and LMC had their
attorneys draft a Cancellation Agreement [DE 1-4]. The Cancellation Agreement reflected that
“[b]oth parties are interested in terminating their business partnership to their mutual
satisfaction, and that, while there was no obligation on the part of LMC to transfer any customer
data under the Distributorship Agreement, LMC “agrees to release all customer information by
May 3rd, 2012 . . .[data which comprised of] address[es], contact person[s], turnover and the
sales data of all customers of the respective items sold.” Id. In the Cancellation Agreement,
LMC agreed to abstain from selling competitive products, that is “face drivers, exchangeable
parts of face drivers, live centers, dead centers, spare parts, and single components,” in North
America for two years and promised to ensure a “smooth transition of business;” and, in return,
Neidlein agreed to make a payment of 85.000 EUR on the first day of May for the next three
years and agreed to take back existing inventory (as reflected on LMC’s inventory lists) at
specified prices. Id. Neidlein would also allow LMC two months to complete orders which were
placed before May 1, 2012. Id. The Cancellation Agreement, once fulfilled, purported to
discharge the parties from claims arising from the Distributorship Agreement. Id.
Four months after issuing the notice of termination, in February of 2012, Neidlein, with
the knowledge of LMC, began notifying end users/customers of Neidlein face drivers that,
effective as of May 1, 2012, they would no longer be able to order Neidlein face drivers from
LMC. Neidlein also advised customers that they would only be able to order Neidlein face
drivers and component parts from Spin Tech Tools. Per Duerr, this negatively impacted LMC’s
business and LMC complained to Neidlein.
In any event, LMC began complying with the Cancellation Agreement and provided

7

Neidlein with its inventory lists4 [Defendants’ Exhibit 19]. LMC claimed that it also turned over
detailed customer data, including contact information and sales histories; yet, Duerr admitted
that as of April 20, 2012, LMC had not released complete customer data, including customer
lists, names, contacts, and sales figures as requested in the initial notice of cancellation from
Neidlein [Defendants’ Exhibits 9, 26]. Duerr admitted that turning over this information was a
prerequisite for Neidlein’s making payments to LMC.
Neidlein argues that it was LMC’s attorneys who refused to accept the terms agreed to by
Neidlein and then offered substantially different terms, although not related to the amount of
money to be paid for LMC’s customer information. Neidlein produced a letter and
memorandum dated April 13, 2012 from Duerr, wherein LMC required various substantive
changes to occur to the Cancellation Agreement before LMC would “finalize and sign the
agreement.” [Defendants’ Exhibit 25]. Duerr confirmed at the evidentiary hearing that these
were the changes that LMC wanted made to the Cancellation Agreement, however, he believed
that once Neidlein rejected these changes, LMC ultimately accepted the Cancellation Agreement
as written. The correspondence between Neidlein and LMC in late April indicates otherwise. In
fact, it appears that any attempt to negotiate a final solution for the termination of the business
relationship was halted. [Defendants’ Exhibits 26, 27].
C.

LMC’s Customer Development and Business Tracking System

LMC is a small family run operation and since opening its doors in 1916 the Duerr

4

At the time of the evidentiary hearing, Duerr testified that LMC had approximately $200,000 in
Neidlein inventory and was unable to fill all of their purchase orders because LMC began
reducing Neidlein inventory in February 2012 (per Neidlein’s request) and Neidlein stopped
shipping to LMC regularly.
8

family has invested time, energy, and financial resources in developing goodwill with its vendors
and customers. In relevant part, when LMC began distributing Neidlein’s face drivers in 1993,
Duerr explained that no one else sold the product in North America. LMC was responsible for
buying the product, determining price margins, marketing the product in English, and finding
end users. Neidlein did not tell LMC who to sell the product to and did not necessarily know the
identity of the end users (although Neidlein learned the identity of some customers through
warranty claims or other business dealings with LMC).
In order to track its products and customer orders, Duerr represented that since 1996,
every single product sold (including Neidlein products) and the purchaser of the product have
been recorded in LMC’s Enterprise Resource Program known as Made to Manage (“M2M”).
Duerr explained that M2M contains the identification of up to 1,000 LMC customer names and
has the capacity to run various reports disclosing the identity of LMC’s customers, the identity of
the contact persons and phone numbers for the customers, quotes (open and closed) and quote
dates, price margins, part numbers, product classes, status notes, shipping terms, safety stock
numbers, and essentially all of LMC’s accumulated proprietary business sales information
[Plaintiff’s Exhibits P-1, P-2, P-3; DE 24, 25]. Mr. David Lee Rumple, Vice President of Sales
at LMC, also testified that M2M contains all of LMC’s information for every customer and
every product sold since 1996.
LMC limited access to the M2M system by keeping it password protected and only
allowing approximately fourteen office and clerical staff members access to the system;
however, it did not normally implement confidentiality or non-compete agreements with its
employees, nor did it effectuate a company policy that such information was to be kept

9

confidential. Further, the M2M information is available in paper format and maintained in
unlocked filing cabinets during the day, thereby allowing all LMC employees to have access to
the M2M information. LMC customers and Neidlein do not have access to M2M.
When LMC hired Stroker as its national sales manager for Neidlein products, LMC gave
Stroker training and complete access to the M2M system. LMC identifies the information
contained in M2M as the confidential information it believes Stroker downloaded and provided
to Neidlein [Plaintiff’s Exhibits P-1, P-2, P-3; DE 24, 25], and LMC admits that “[t]he
dispositive issue in this case” concerns this confidential information [DE 10 at 5]. The only
evidence that LMC has to support its allegation of misappropriation is an email dated September
6, 2011 (the date Stroker resigned), which revealed that Stroker attempted to email himself
LMC’s sales orders (copies of customer orders) for the week ending in September
2—information that is stored in the M2M system [Plaintiff’s Exhibit P-7]. However, the email
message that Stroker attempted to send to his personal email account was truncated due to its
size, and Duerr never determined exactly what Stroker attempted to send to his personal email
account on September 6. Id. Despite having access to Stroker’s business computer since Stroker
resigned, Duerr confirmed that the September email is the extent of the evidence that LMC has
obtained which indicates that Stroker took LMC’s confidential information from the M2M
system. Rumple confirmed that he too, had no knowledge that Stroker ever downloaded and
gave M2M information to Neidlein.
At the evidentiary hearing, Duerr clarified that the information contained in LMC’s M2M
system is the same confidential information that LMC offered to sell Neidlein for a particular
price during their negotiations to terminate the business relationship. Duerr testified that LMC

10

suffered irreparable harm when Stroker stole and used the M2M information without payment to
LMC because it gave Neidlein and Stroker a sixth month competitive advantage.
During the evidentiary hearing, Stroker testified that he only used M2M to look up LMC
part numbers and he never had knowledge of how to download M2M materials and send the
downloads to himself. Stroker explained that the September 6 email which he sent to his
personal account represented information that an LMC employee sent to him for followup on
sales. In fact, Stroker testified that he did followup on these sales for a couple of weeks after his
resignation. Stroker maintains that he did not take and use business information from LMC for
the benefit of Neidlein or Spin Tech Tools. He also argues that the market for face drivers is
well known in the industry and he had personal knowledge of the industry prior to joining LMC.
Stroker represented that the money derived from Spin Tech Tools is his sole source of income
and he is currently deriving “zero” business on account of the TRO issued by the state court.
Stroker reported that given his limited funds, the TRO has drastically impacted his livelihood.
II.

Conclusions of Law5
To win a preliminary injunction, a party must show6 that it has (1) no adequate remedy at

5

Findings made at this stage do not bind the Court as the case progresses given that the Court did
not consolidate the preliminary injunction hearing with a trial on the merits. See Michigan v.
U.S. Army Corps of Engineers, 667 F.3d 765, 782 (7th Cir. 2011).
6

The decision to grant LMC’s injunction in state court would have been measured by similar
factors: (1) whether the plaintiff's remedies at law are inadequate, thus causing irreparable harm
pending the resolution of the substantive action if the injunction does not issue; 2) whether the
plaintiff has demonstrated at least a reasonable likelihood of success at trial by establishing a
prima facie case; 3) whether the threatened injury to the plaintiff outweighs the threatened harm
the grant of the injunction may inflict on the defendant; and 4) whether, by the grant of the
preliminary injunction, the public interest would be disserved. See Aberdeen Apartments v. Cary
Campbell Realty Alliance, Inc., 820 N.E.2d 158, 163-64 (Ind. Ct. App. 2005).
11

law and will suffer irreparable harm if a preliminary injunction is denied and (2) some likelihood
of success on the merits. Ezell v. City of Chi., 651 F.3d 684, 694 (7th Cir. 2011) (citation
omitted). If the moving party meets these threshold requirements, the district court weighs the
factors against one another, assessing whether the balance of harms favors the moving party or
whether the harm to the nonmoving party or the public is sufficiently weighty that the injunction
should be denied. Id.
In determining whether to grant injunctive relief, the district court must take into account
all four of these factors and then exercise its discretion to arrive at a decision “based on a
subjective evaluation of the import of the various factors and a personal, intuitive sense about the
nature of the case.” Lawson Prods., Inc. v. Avnet, Inc., 782 F.2d 1429, 1436 (7th Cir. 1986).
This process involves engaging in what is called the “sliding scale” approach, meaning that “the
more likely it is the plaintiff will succeed on the merits, the less balance of irreparable harms
need weigh toward its side; the less likely it is the plaintiff will succeed, the more the balance
need weigh towards its side.” Abbott Labs. v. Mead Johnson & Co., 971 F.2d 6, 12 (7th Cir.
1992). The sliding scale approach is not mathematical in nature, rather “it is more properly
characterized as subjective and intuitive, one which permits district courts to weigh the
competing considerations and mold appropriate relief.” Ty, Inc. v. Jones Group, Inc., 237 F.3d
891, 895-96 (7th Cir. 2001) (quoting Abbott Labs., 971 F.2d at 12).
A.

Likelihood of Success on the Merits
1.

Trade Secret and Misappropriation Claim

In support of its trade secret claim, LMC has provided confidential business records
created from its M2M data management program that were allegedly misappropriated by Stroker

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and used for the benefit of Neidlein and Spin Tech Tools [DE 24, 25]. Included in this data is
the information that Duerr and Rumple of LMC testified was available through the M2M system,
including lists of customers who have purchased Neidlein products from LMC while Stroker was
employed at LMC, along with their contact information, pricing and margin information, order
status information, and other product and sales history information.
Under the Indiana Uniform Trade Secrets Act, a trade secret is: (1) information; (2)
deriving independent economic value; (3) not generally known or readily ascertainable by proper
means by another who can obtain economic value from its disclosure or use; and (4) the subject
of efforts, reasonable, under the circumstances, to maintain its secrecy. Amoco Prod. Co. v.
Laird, 622 N.E.2d 912 (Ind. 1993); see Ind. Code § 24-2-3-2 (defining “trade secret” as
“information, including a formula, pattern, compilation, program, device, method, technique, or
process, that: (1) derives independent economic value, actual or potential, from not being
generally known to, and not being readily ascertainable by proper means by, other persons who
can obtain economic value from its disclosure or use; and (2) is the subject of efforts that are
reasonable under the circumstances to maintain its secrecy.”).
A party that asserts actual or threatened misappropriation of its trade secrets may seek an
injunction, and a complainant may recover damages for the actual loss caused by
misappropriation. See Ind. Code § 24-2-3-3 to 4. Misappropriation includes the acquisition of a
trade secret by a person who knows or has reason to know that the trade secret was acquired by
improper means, and it includes the disclosure or use of a trade secret by a person who either
used improper means to acquire knowledge of the information, or had a duty to maintain the
secrecy of the information, or obtained the information from a person who had a duty to maintain

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its secrecy. See id. § 24-2-3-2. The party asserting misappropriation of a trade secret must
identify the trade secrets and prove that they exist, prove the acquisition of the trade secret as a
result of a confidential relationship, and show the unauthorized use of the secret. See Eaton
Corp. v. Appliance Valves Corp., 526 F.Supp. 1172, 1178 (N.D. Ind. 1981); Amoco Prod., 622
N.E.2d at 920.
Relevant to this case is the fact that combinations of publicly known or readily
ascertainable information may be a trade secret if the combination is unique and was not
previously known in the market place. Weston v. Buckley, 677 N.E.2d 1089, 1092 (Ind. Ct. App.
1997) (citing Amoco Prod., 622 N.E.2d at 920) (“[I]t is a well settled principle ‘that a trade
secret can exist in a combination of characteristics and components, each of which, by itself, is
in the public domain, but the unified process and operation of which, in unique combination,
affords a competitive advantage and is a protectable secret.’”). Whether information is readily
ascertainable depends upon the degree of time, effort and expense required to duplicate or
acquire the information by proper means. Id. Thus, the effort of compiling useful information is,
of itself, entitled to protection even if the information is otherwise generally known. Amoco
Prod., 622 N.E.2d at 920 (citation omitted). Indiana courts have held that customer lists and
pricing information are protectable trade secrets. See Ackerman v. Kimball Intern., Inc., 634
N.E.2d 778, 783-84 (Ind. Ct. App. 1994), aff’d, 652 N.E.2d 507 (Ind. 1995) (finding that
customer and supplier lists and pricing information are trade secrets); Michels v. Dyna–Kote
Indus., Inc., 497 N.E.2d 586, 588-89 (Ind. Ct. App. 1986) (customer lists may be interpreted as
trade secrets).
Therefore, in order for LMC to succeed in showing a likelihood of success on the merits

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of its misappropriation of trade secrets claim, it must show that the information had independent
value, that the information is not readily ascertainable, that the information in combination was
unique and not previously known in the market place, that LMC took reasonable steps to protect
the information, and that Stroker acquired and used the trade secrets from LMC. For the reasons
discussed below, the Court finds that it is unlikely that LMC could prove all of the above stated
elements for its asserted trade secrets located in the M2M system.
The Court notes at the outset that LMC did not normally employ secrecy agreements,
confidentiality agreements, or non-compete agreement with its employees, including Stroker.
Although this fact is not dispositive on the element that LMC must have made efforts
“reasonable under the circumstances” to keep its confidential information secret, it is a factor
weighing against LMC on that element for its alleged M2M secrets.
LMC has shown that its M2M system was password protected and that LMC limited
access to its electronically stored information to only a dozen or so employees. However, LMC
also maintained paper files of the M2M information which were stored in unlocked file cabinets
during the day, that were then locked after hours. Duerr confirmed that physical access to the
company’s M2M paper files and records were still restricted to Plaintiff’s employees. Further,
LMC did not give its competitors or customers access to M2M, and LMC verbally warned its
employees that the M2M information was to be kept confidential.
Also weighing in favor of LMC’s position that the M2M information constitutes
protectable trade secret information, is the fact that the information is not readily obtainable in
its current form and it possesses independent economic value. Although Defendants argue that
the customer base for chucking tools is information known publically in the industry and that

15

Stroker had personal knowledge of end users/customers, no party disputes that LMC has
accumulated almost sixteen years worth of detailed customer information, including the
identification of the customers’ direct contact person, pricing and shipping arrangements,
product and sales information, quotes, etc. Notwithstanding the fact that some of the information
contained in the M2M database is generally known or available in the public domain, the
information compiled in the M2M system demonstrated a unique undertaking by LMC, who
engaged in a considerable outlay of resources of time, effort, and expense to consistently
maintain and update its customer database. The unique compilation of the M2M information
generated by LMC over the course of many years would require considerable resources to
duplicate or acquire the information by proper means. In addition, the fact that Neidlein was
willing to pay for the information and LMC was willing to put a price on the information
supports the finding that the accumulated customer information possessed independent economic
value. Stroker indicated that the M2M system allowed him to quickly search for products and
product numbers which then gave him the information necessary to service any customer, and
Duerr confirmed that the information available in M2M would allow someone to immediately
startup a competing business. These factors would suggest that the M2M information is entitled
to protection under Indiana law.
Unfortunately for LMC, its evidence does not demonstrate that upon Stroker’s departure,
he took with him or has used materials that likely satisfy this test. While it is likely that LMC’s
compilation of customer contacts, quotes, status of orders, and other materials accumulated since
1996 are likely protected as trade secrets, LMC has provided no evidence, other than a truncated
email from September 2011, which would support LMC’s allegation that such materials were

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improperly transferred from Stroker to Neidlein or Spin Tech Tools. In fact, Duerr had Stroker’s
computer since September 2011, and he knew since December 2011 that Stroker was named
Neidlein’s new exclusive distributor. Yet five months later, there is still no evidence that Stroker
downloaded information from the M2M system and/or used that information for the benefit of
Neidlein or Spin Tech Tools. In addition, the mere fact that Spin Tech Tools has received
customer orders for Neidlein products does not show that Stroker took customer information
from M2M, because customers were put on notice in early 2012 that future orders would be
placed through Spin Tech Tools, and LMC admittedly gave Neidlein access to some customer
information during their business dealings and as part of the termination process. LMC has not
demonstrated that Stroker or Neidlein acquired M2M information by unlawful means or that they
have subsequently used that information. Given the complete lack of evidence suggesting that
Stroker or Neidlein acquired and used any of LMC’s trade secrets, the Court cannot say that
LMC is likely to prevail on this claim. Going forward, circumstances evidencing the Defendants
inappropriate acquisition or use of LMC’s trade secrets may be cause for future equitable action
by this Court.
2.

Common Law Claims

LMC alleges a host of common law claims under state law, including breach of contract,
estoppel, tortious interference with business relationships, and breach of fiduciary duty. In
particular, LMC claims that Neidlein breached its contract with LMC, presumably the
Distributorship Agreement, by not repurchasing inventory and failing to negotiate terms for the
disposition of the customer information. LMC also claims that Neidlein should be estopped
from using LMC’s M2M trade secrets without providing any compensation, because LMC relied

17

on Neidlein’s promises to pay for the trade secrets, presumably under the Cancellation
Agreement. LMC further alleges that Stroker breached his fiduciary duties to LMC by preparing
to compete with LMC and using LMC’s M2M information, and that he, along with Neidlein,
tortiously interfered with LMC’s clients and vendors using the information obtained from M2M.
As acknowledged by LMC, the crux of whether a preliminary injunction should issue in
this case relates to whether or not LMC’s M2M information is a protected trade secret and
whether or not Stroker unlawfully acquired and used that information. Thus, there was little
information, if any, presented to the Court which would enable the Court to effectively evaluate
LMC’s ability to succeed on its various common law claims. In any event, the Court discusses
those claims briefly.
Neither party disputes the existence of the Distributorship Agreement. However, based
on the record it does not appear the LMC could successfully prove that Neidlein breached that
agreement. See Rice v. Hulsey, 829 N.E.2d 87, 89 (Ind. Ct. App. 2005) (noting that the essential
elements of a breach of contract action are the existence of a contract, the defendant’s breach
thereof, and damages). Since Neidlein gave more than six months advance notice of its
termination and engaged in extensive negotiations for the disposition of customer lists and
related items, it does not appear that a breach occurred under these provisions. Although
Neidlein was required to re-purchase from LMC its inventory of Neidlein products pursuant to a
previously established valuation method, LMC admits that Neidlein and LMC had in fact
resolved the amount that Neidlein was to pay for inventory which was specified in LMC’s
inventory lists. It is possible that Neidlein has defaulted in making the payments for the
inventory, but again, insufficient evidence was presented for such a determination to be made.

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In any event, this type of claim which could be satisfied by a monetary award would not support
the Court’s issuing an injunction, but the Court would encourage the parties to fulfill their
respective obligations in this regard without delay.
To establish that the Cancellation Agreement was enforceable based on promissory
estoppel, LMC would be required to prove that Neidlein made a promise which it should
reasonably have expected to induce LMC to act, that the promise induced LMC to take action of
a substantial character, and that injustice could only be avoided by enforcing the promise. See
Larabee v. Booth, 463 N.E.2d 487, 490 (Ind. Ct. App. 1984). Here too, the information provided
to the Court would suggest that the parties never reached a final consummation of the agreement
by the end of April 2012. In addition, LMC admitted at the hearing that it did not provide
Neidlein with the complete customer data, including customer lists, names, contacts, and sales
figures, which was requested in the initial notice of cancellation from Neidlein—which was also
a prerequisite for Neidlein’s making payments to LMC. Given the limited information available
at this time, the Court is unable to say that LMC has met its burden in proving its likely success
on these contract claims.
Similarly, any claim for tortious interference with a business relationship requires some
independent illegal action on the part of Defendants, see Rice v. Hulsey, 829 N.E.2d 87, 91 (Ind.
Ct. App. 2005), and any claim for breach of Stroker’s fiduciary duties under general agency
principles would require LMC to establish that Stroker violated his duty of loyalty to LMC by
using LMC’s trade secrets to the detriment of LMC, see SJS Refractory Co., LLC v. Empire
Refractory Sales, Inc., 952 N.E.2d 758, 768 (Ind. Ct. App. 2011) (reasoning that an employee
may make arrangements to compete with his employer, but he cannot properly use confidential

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information specific to his employer’s business); Northern Elec. Co., Inc. v. Torma, 819 N.E.2d
417, 430 (Ind. Ct. App. 2004). LMC seems to assert that simply because Stroker “had access to
LMC’s confidential information, quit, [and] signed on with Neidlein,” then one can presume
wrongful conduct on the part of Defendants [DE 2-6 at 7]. But given the above discussion
relative to the lack of evidence showing that Stroker acquired and/or used any of LMC’s
confidential M2M information, and the fact that LMC did not provide any evidence during the
preliminary injunction hearing which tended to show that Defendants engaged in other illegal
actions relative to this information, the Court finds LMC’s likelihood of success on these claims
to be minimal at this time.
Although there is some likelihood that LMC would succeed in showing that it had a trade
secret in its M2M information, the evidence LMC presents establishing its likelihood of
succeeding on the claims alleged in its Verified Complaint is weak. The Court will weigh this
finding with the other factors for determining whether to issue an injunction.
B.

Adequate Remedy at Law and Irreparable Harm

In order to obtain an injunction, the plaintiff must show the threat of irreparable harm
without adequate remedy at law. See Ezell, 651 F.3d at 694. The Court is not persuaded that the
evidence weighs in favor of a finding that there is no adequate remedy at law, or that LMC will
suffer irreparable harm without the issuance of an injunction.
First and most importantly, LMC relies too heavily on the argument that Stroker had
access to the M2M information, that Stroker admittedly sent one week worth of sales
information to himself on the day that he quit, and that he then went to work for Neidlein, and
therefore, the acquisition and use of LMC’s trade secrets is inevitable.

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After LMC discovered in October 2011 that it would no longer be Neidlein’s distributor
and discovered in December 2011 that Stroker would become Neidlein’s new distributor, LMC
waited over four months to file this lawsuit and seek a restraining order. Further, since Stroker
quit LMC in September 2011, LMC has had control over Stroker’s work computer, and has yet
to produce any evidence that Stroker took or used LMC’s M2M information, other than a single
truncated email purportedly consisting of one week’s worth of sales which was discovered by
LMC on September 7, 2011. LMC’s delay in seeking an injunction weighs against finding
irreparable harm when it knew in December 2011 that Stroker was going to work for a
competitor and could have sought such an injunction at that time.
Also important to the Court’s determination that LMC does not face irreparable harm
absent the issuance of an injunction, is Duerr’s representation that the alleged irreparable harm
suffered by LMC was that Neidlein and Stroker had a sixth month competitive advantage by
using LMC’s M2M information. However, the harm identified by Duerr constitutes past harm,
which is insufficient to support injunctive relief. See e.g. Schirmer v. Nagode, 621 F.3d 581, 585
(7th Cir. 2010) (standing to request injunctive relief is lacking when only past harm is alleged).
To the extent that LMC argues that it delayed in filing this lawsuit and seeking injunctive
relief because it relied in good faith on Neidlein’s promises to pay LMC for its confidential
M2M information, this argument supports the finding that an adequate remedy at law exists.
Consistent with Duerr’s testimony that LMC placed a price on its customer information and
offered to sell it to Neidlein, LMC has essentially conceded that a particular value can be placed
on its confidential information (even if it were later secured by unlawful means). And the
argument made by LMC that the M2M information, once allegedly stolen, could not have a

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monetary value placed on it, is without merit. In fact, it appears that LMC is still willing to
accept payment for this information. Further, LMC made no efforts to secure its M2M customer
information with standard confidentiality agreements and/or non-compete agreements with its
employees, including Stroker. LMC did limit M2M’s access to its employees, but having not
taken active steps to limit its employees’ use of that information belies any claim that the trade
secrets have immeasurable worth.
And while it is true that loss of goodwill can constitute irreparable harm for which no
adequate remedy exists, see Promatek Indus., Ltd. v. Equitrac Corp., 300 F.3d 808, 813 (7th Cir.
2002), LMC has not shown a loss of goodwill on the part of Stroker’s acquisition and use of its
confidential information. Rather, the evidence produced shows that customers were notified in
early 2012 that the business relationship between LMC and Neidlein was over (at the end of
April 2012) and they were told that future orders for Neidlein’s products would be placed
through Spin Tech Tools. Any proof regarding loss of goodwill is vague and speculative and
does not lend much support to LMC’s request for injunctive relief.
Given the above discussion, LMC has failed to show that there is not an adequate remedy
at law by way of monetary damages which would make LMC whole if it prevails on the merits.
See Kartman v. State Farm Mut. Auto. Ins. Co., 634 F.3d 883, 892 (7th Cir. 2011) (an injunction
requires a showing that monetary damages are inadequate to remedy the injury). LMC has also
failed to show that it will suffer irreparable harm if a preliminary injunction is denied. See Ezell,
651 F.3d at 694.
C.

Balance of Harms

In considering a request for a preliminary injunction, the district court must choose the

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course of action that will minimize the cost of being mistaken. See Am. Hosp. Supply v. Hosp.
Prod., Ltd., 780 F.2d 589, 593 (7th Cir. 1985). The Court now weighs the factors against one
another and assesses whether the balance of harms favors the moving party or whether the harm
to the nonmoving party or the public is sufficiently weighty that the injunction should be denied.
Ezell, 651 F.3d at 694. In considering the impact of the relief sought by LMC, the Court
considers the potential effects to the Defendants and to nonparty individuals, including the
interests of nonparty customers and their rights to conduct business freely.
LMC has not shown that its confidential information is imperiled by a departed
employee. Instead, LMC has only speculated that Stroker took M2M information with him
when he quit, and that he then provided that information to Neidlein. Further, LMC is a
manufacturer and distributor of various chucking tools, and it has not shown an inability to
continue running a successful business without the ability to sell Neidlein’s face drivers. And
assuming the non-compete provision in the Cancellation Agreement is not in effect, LMC could
even become a distributor for any other face driver manufacturer. Indeed, any illusory harm to
LMC at this stage will not outweigh the actual harm likely to be suffered by Stroker and the
public.
Stroker has shown that if the Court were to grant the injunction the harm to him would be
substantial. The evidence established that the money derived from Spin Tech Tools is Stroker’s
sole source of income and he was deriving no business on account of the TRO issued by the state
court. Thus, should the injunction continue, it will have a drastic impact on Stroker’s livelihood
given his limited funds.
The public interest here also favors the non-issuance of an injunction. LMC has not only

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failed to demonstrate that the harms it alleges are supported by the evidence, but LMC has
confirmed that it no longer has sufficient inventory to fill all customer orders on account of LMC
and Neidlein’s mutual attempt to dissolve its business relationship since October 2011.
Requiring Neidlein to revert back to using LMC as its distributor, after notifying customers in
February 2012 that Stroker would be the new Neidlein distributor, would cause substantial
disruptions and delays for end users/customers of Neidlein products, including various OEMs.
Accordingly, the Court finds that the balance of harm favors the denial of an injunction.
LMC has a legitimate interest in preventing the disclosure of its M2M customer trade secret
information, but whether the information was ever taken is speculative at best. Furthermore,
Stroker has a legitimate right to pursue employment in his area of expertise and training. See
Eaton Corp., 526 F.Supp. at 1180 (noting that an employee, upon leaving his employment, may
take with him and utilize the skill and general knowledge obtained by him during his
employment). The evidence also shows that the customer base for chucking tools is limited and
that LMC does not maintain an exclusive customer base. Where, as in this case, an injunction
would likely destroy Stroker financially, but only cause LMC to suffer some competitive loss
without resulting in devastation of its business, injunction is not the appropriate remedy. See
Ram Prods. Co., Inc. v. Chauncey, 967 F.Supp. 1071, 1089 (N.D. Ind. 1997).
A preliminary injunction is an extraordinary and drastic remedy, one that should not be
granted unless the movant, by a clear showing, carries the burden of persuasion. See Goodman v.
Ill. Dept. of Fin. and Prof’l Regulation, 430 F.3d 432, 437 (7th Cir. 2005) (citation omitted). For
the reasons set forth above, the Court concludes that LMC is not entitled to a preliminary
injunction. Accordingly, LMC’s Motion for Injunctive Relief [DE 2-5] is DENIED and

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Defendants’ Motion to Dissolve the Temporary Restraining Order is DENIED AS MOOT [DE
5]. No temporary restraining order or injunction is effective at this time in this case.
SO ORDERED.
ENTERED:

May 22, 2012

/s/ JON E. DEGUILIO
Judge
United States District Court

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