Lincoln Chemical Corporation et al v. DuBois Chemicals Inc

Filing 49

OPINION AND ORDER granting 12 Motion for Preliminary Injunction; parties are given to/incl 12/27/12 to file memoranda and supporting documents concerning the amount the bond; Response to the initial memoranda to be filed by 1/4/2013; no replies shall be allowed. Movant shall submit its proposed injunction order by 12/27/12. Signed by Judge Robert L Miller, Jr on 12/13/12. (smp)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF INDIANA
SOUTH BEND DIVISION

LINCOLN CHEMICAL CORPORATION
and EDWARD DOLE,
Plaintiffs
vs.
DUBOIS CHEMICALS, INC.,
Defendant
and
GALAXY ASSOCIATES, INC.,
Defendant/Counterclaimant

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CAUSE NO. 3:12-CV-303 RLM-CAN

OPINION AND ORDER
An evidentiary hearing was held on October 22, 2102 on the motion of
Galaxy Associates, Inc. for a preliminary injunction against Lincoln Chemical
Corporation and Edward Dole to enforce a covenant not to compete that Galaxy
says it had with Mr. Dole, who quit his employment with Galaxy and went to work
for Lincoln. For the reasons that follow, the court finds that the injunction should
be issued.

I. FACTS
Edward Dole is a sales representative in the specialty chemical industry.
The employment agreement that Mr. Dole signed with Fremont Industries in
November 1998 contained a non-compete provision that prohibited him, for a
period of eighteen months, from selling competing products to customers to whom
he sold while working for “the Company.” The employment agreement contained
a provision that it was to be governed by Minnesota law. Mr. Dole had access to
a wide range of confidential information, including customers lists, data
concerning customers’ purchasing needs, and pricing information.
In April 2004, Fremont Acquisitions acquired some of Fremont Industries’
assets. The purchase agreement was contingent upon the seller delivering at least
75 percent of the sales dollars represented by Fremont Industries sales
representatives. In furtherance of that obligation, Fremont Industries sent all of
its sales representatives to Minneapolis to meet with Fremont Acquisitions
management. The representatives met as a group and individually with a
representative from the old and the new Fremont entities.
When Mr. Dole had his individual meeting, he was presented with a paper
called an “Acknowledgment,” saying that he understood that his non-compete
provision would apply to his employment with Fremont Acquisitions. Mr. Dole
asked if he could have someone look at the Acknowledgment and was told that it
had to be taken care of that day (the purchase date was only a day or two away).

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Mr. Dole wasn’t told that he could discuss the Acknowledgment with an attorney
or that his employment with Fremont Acquisitions wasn’t contingent upon his
signing it. Mr. Dole signed the paper. John Capone, another Fremont Industries
sales representative, declined to sign and continued working as a sales
representative after the Fremont Acquisitions purchase.
Galaxy Associates merged with Fremont Acquisitions in 2005; the resulting
company was called Galaxy Associates, Inc.
Mr. Dole worked as a sales representative for Fremont Acquisitions and then
Galaxy from 2004 to 2012, servicing accounts in Nebraska. In 2011, Lincoln
Chemicals, a competitor of Galaxy, began trying to hire experienced sales
representatives in the specialty chemicals field. John Capone was one of those
that Lincoln hired; when Mr. Capone began selling to his former Fremont
Acquisitions accounts, Galaxy sued him for breaching his non-compete clause.
DuBois Chemicals, Inc. acquired Galaxy in March 2012. Mr. Dole heard
rumors that DuBois was going to require Galaxy employees to sign new noncompete agreements. Mr. Dole resigned instead, on April 30, 2012, without prior
notice to either Galaxy or DuBois.
Galaxy hadn’t provided Mr. Dole with a computer, so he kept a considerable
amount of work-related material on his personal laptop. He retained that material
on his laptop after leaving Galaxy. He says he did so because Galaxy didn’t ask

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for it back. He accessed that material after changing employers, occasionally at
Lincoln’s request.
The material on Mr. Dole’s computer included: a document from a sales
meeting containing information regarding Galaxy’s sales, margins, accounts
receivables, and cost of sales; a service schedule Mr. Dole used to organize his
daily work; a company-wide list of Galaxy customers; a Metal Working Fluids Tool
Box; a list of prospects, including potential sales opportunities, the stage of each
opportunity, expected closing dates of the potential deals, potential annual sales
to the identified prospects, and featured products (Galaxy had asked Mr. Dole to
dispose of this document, which was marked “confidential”); a Galaxy prospect list
as of April 13, 2012; another Galaxy prospect list for Mr. Dole’s region; sales
reporting notes for Mr. Dole’s Galaxy accounts; commission information for Galaxy
sales representatives, including customer names, products sold, and margins; an
internal summary of all Galaxy products; a list of all Galaxy customers with the
products each customer purchased, old and new pricing, and margins; a 2011
pricing analysis by customer for every Galaxy customer in Mr. Dole’s region; a
customer pricing list for Mr. Dole’s Galaxy accounts; a budget worksheet showing
how all sales employees in Mr. Dole’s region were performing in sales versus
budget; a summary of all Galaxy sales employees’ commission rates from January
through October 2011 (Mr. Dole wasn’t supposed to get that summary, and his
supervisor asked him to discard it).

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II. PRELIMINARY INJUNCTION STANDARD
“[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.” Mazurek v. Armstrong, 520 U.S. 968, 972 (1997) (quoting 11A C.
WRIGHT, A. MILLER & M. KANE, FEDERAL PRACTICE AND PROCEDURE § 2948, pp. 129130 (2d ed. 1995)). “The purpose of a preliminary injunction is to minimize the
hardship to the parties pending resolution of their lawsuit.” Anderson v. U.S.F.
Logistics (IMC), Inc., 274 F.3d 470, 474 (7th Cir. 2001). One seeking a preliminary
injunction must demonstrate a reasonable likelihood of success on the merits of
its claim, a lack of an adequate remedy at law, and that irreparable harm will
result if the injunction isn’t granted. Girl Scouts of Manitou Council, Inc. v. Girl
Scouts of the United States, Inc., 549 F.3d 1079, 1086 (7th Cir. 2008); Lambert
v. Buss, 498 F.3d 446, 451 (7th Cir. 2007). If that showing is made, the court
must then consider any irreparable harm the preliminary injunction might impose
upon the party against whom the injunction is sought and whether the
preliminary injunction would harm or foster the public interest. Lambert v. Buss,
498 F.3d 446, 451 (7th Cir. 2007); Christian Legal Society v. Walker, 453 F.3d
853, 859 (7th Cir. 2006). “[T]he court then weighs all these factors employing a
sliding-scale approach. That is, the more likely the plaintiff’s chance of success
on the merits, the less the balance of harms need weigh in its favor.” Promatek
Indus., Ltd. v. Equitrac Corp., 300 F.3d 808, 811 (7th Cir. 2002).

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The moving party’s likelihood of success on the merits of the underlying
claim is the threshold consideration in analyzing a preliminary injunction motion.
Barbecue Marx, Inc. v. 551 Ogden, Inc., 235 F.3d 1041, 1043 (7th Cir. 2000);
Platinum Home Mortg. v. Platinum Fin. Group, 149 F.3d 722, 726 (7th Cir. 1998).
Galaxy has demonstrated a reasonable likelihood of success on its underlying
claims against Mr. Dole and Lincoln.

A. Likelihood of Success on the Merits
1. The Covenant Not to Compete
Galaxy contends Mr. Dole’s 1998 employment agreement with Fremont
Industries followed him from employer to employer until 2012. That agreement
contains a choice-of-law clause providing that Minnesota law governs the
agreement.
A non-compete agreement entered into at the beginning of an
employment agreement does not require independent consideration
and, thus, is enforceable if the agreement is found to be reasonable.
. . . ‘The test of reasonableness [under Minnesota law] is whether or
not the restraint is necessary for the protection of the business or
goodwill of the employer and, if so, whether the stipulation has
imposed upon the employee any greater restraint than is reasonably
necessary to protect the employer’s business, regard being had to the
nature and character of the employment, the time for which the
restriction is imposed, and the territorial extent of the locality to
which the prohibition extends.’

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Guidant Sales Corp. v. Niebur, No. Civ. 01-1772DWFAJB, 2001 WL 1636502, at
*6 (D. Minn. Oct. 18, 2001) (quoting Prow v. Medtronic, Inc., 770 F.2d 117, 120
(8th Cir. 1985)).
Lincoln and Mr. Dole don’t question the reasonableness of the covenant’s
scope (former Galaxy accounts) or duration (eighteen months). They contend Mr.
Dole’s employment agreement (and so his covenant not to compete) wasn’t
transferred to Fremont Acquisition. Thus, they explain, the Acknowledgment is the
closest thing to an employment agreement between Mr. Dole and Fremont
Acquisition, and the Acknowledgment and the circumstances surrounding its
signing fall short of what Minnesota law requires for an employment contract.
With respect to the counterclaim based on Galaxy’s trade secrets/confidential
secrets policy, Lincoln and Mr. Dole say no one from Galaxy asked him to return
the documents and the documents aren’t confidential in any event.
Minnesota law allows covenants not to compete to be transferred to a
successor in interest.
[I]n Minnesota . . . a finding of assignability [of a restrictive
covenant] likely depends on the language of the contract. Moreover,
Minnesota courts are historically reluctant to enforce covenants not
to compete because such covenants decrease competition and restrict
the employee’s ability to earn a living. Therefore, where the contract
does not provide for assignment, a Minnesota court . . . would likely
construe the language of the contract against the employer and find
any assignment void.

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Inter-Tel, Inc. v. CA Communications, Inc., No. Civ. 02-1864PAMLE, 2003 WL
23119384, at *4 (D. Minn. Dec. 29, 2003) (citing Jim W. Miller Constr., Inc. v.
Schaefer, 298 N.W.2d 455, 458 (Minn. 1980).
The strongest argument from Lincoln and Mr. Dole is that even if noncompete covenants are transferrable, the agreement between Fremont Industries
and Fremont Acquisitions didn’t transfer any such covenants: that agreement
listed the items transferred, and employment agreements weren’t among them.
Lincoln and Mr. Dole cite Schedule 2.1 of the closing documents, which lists the
purchased assets without reference to employment agreements or covenants not
to compete. A brief sprint through the complex set of acquisition papers — about
three inches thick and admitted at the hearing as Plaintiffs’ Exhibit H — shows
many references to the in-place sales force, sales employees, the seller’s (Fremont
Industries’) contractual obligations to sales representatives, and the purchaser’s
(Fremont Acquisitions’) obligations with respect to employment agreements.
At worst, the omission of employee agreements from Schedule 2.1 of the
closing document creates an ambiguity on which parol evidence would be
admissible (or so the court assumes; neither side cited Minnesota law on parol
evidence or contract interpretation, so the court assumes Minnesota law is the
same as Indiana’s, see Kochert v. Adagen Medical Int’l, Inc., 491 F.3d 674, 677
(7th Cir. 2007) (“Neither party argues that the application of Georgia law
(pursuant to the contract’s choice-of-law provision) would alter the outcome of the

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case. Where the parties have not identified a conflict in state law, we will generally
apply the law of the forum state.”). The purchase agreement, along with Mr.
Oeters’ hearing testimony that the sales force was part of the acquisition, indicate
that Galaxy has a strong likelihood of prevailing on its contention that the 1988
covenant was conveyed to Fremont Acquisitions and so still binds Mr. Dole.
That finding sinks Lincoln’s and Mr. Dole’s other attacks on the
Acknowledgment Mr. Dole signed in 2004. Lincoln and Mr. Dole argue that Mr.
Dole was given an opportunity neither to consult counsel nor even to think before
signing, and Mr. Dole was either incompletely informed or purposely misinformed
about the Acknowledgment’s nature. The Acknowledgment, though, has no impact
on the transfer or enforceability of the non-compete covenant in the 1998
agreement. Fremont Industries had the right to transfer the 1998 agreement to
Fremont Acquisitions, and it appears far more likely than not that Fremont
Industries did so. Mr. Dole’s consent, whether informed or not, wasn’t needed;
neither was the additional consideration ordinarily needed for a new contract
required.
Lincoln and Mr. Dole argue that even if the purchase agreement included
the sales representatives’ employment agreements (and their non-compete
covenants), Fremont Acquisitions didn’t comply with Section 5.4(a) of the
purchase agreement. That section, as Lincoln and Mr. Dole read it, required
Fremont Acquisitions to affirmatively hire (make offers with specific benefits to)

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the sales employees; required the sales representative to acknowledge that their
employment agreements were assigned; and required that the offers include
substantially similar or better terms. That paragraph isn’t quite as clear to the
court as Lincoln and Mr. Dole see it. The paragraph’s second sentence speaks of
current employees needing to acknowledge that they now work for Fremont
Acquisitions (which wouldn’t seem to entail offers for new employment), while the
next two sentences raise the topic of job offers:
. . . The Current Employees who are engaged in sales or sales
management positions (the “Sales Employees”) shall be required to
sign an Acknowledgment that their Employment Agreement with
Seller has been assigned to the Buyer (the “Sales Employee
Acknowledgments”). The offers for employment shall include
compensation on terms substantially similar to or more favorable
than those in existence on the date hereof as well as substantially
similar to or more favorable than those in existence on the date
hereof as well as substantially similar job duties and responsibilities
at their current locations and shall remain open through the Closing.
The offers for employment will also include employee benefits and
programs that, in the aggregate, are at least substantially similar to
those currently provided by Seller.
Neither side has offered an explanation of the section’s internal tension.
Lincoln and Mr. Dole argue that Section 5.4(a) (as they understand it)
created a condition precedent to the transfer to Fremont Acquisitions of the sales
force’s employment agreements. Since no one from Fremont Acquisitions made an
offer of employment to Mr. Dole, they say, his employment agreement (with the
non-compete covenant) wasn’t assigned to Fremont Acquisitions. Galaxy has a
very strong likelihood of succeeding on this argument: the purchase agreement

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was between Fremont Industries and Fremont Acquisitions. Mr. Dole was neither
a party to, nor a third-party beneficiary of, the purchase agreement. Had Fremont
Industries been dissatisfied with Fremont Acquisitions’ performance under Section
5.4(a), Fremont Industries might have had a right to not close. But the closing —
and the transfer of Mr. Dole’s employment agreement — wasn’t something that
required Mr. Dole’s satisfaction with Fremont Acquisitions’ performance.
Galaxy has shown that it has a strong likelihood of success on its claim that
Mr. Dole is breaching his covenant not to compete.

2. The Trade Secrets Misappropriation Claim
It appears to be undisputed that since leaving Galaxy, Mr. Dole has retained
on his personal computer considerable proprietary information of Galaxy and
customers that Mr. Dole serviced while he worked for Galaxy. Mr. Dole says he
retained it simply because Galaxy never asked for its return or destruction. When
he began working for Lincoln, Mr. Dole emailed Galaxy Material Safety Data
Sheets to Lincoln at Lincoln’s request. Galaxy considers such data sheets to be
proprietary confidential information; Mr. Dole and Lincoln dispute that
characterization.
To prevail on his claim of trade secrets violation in Count 5 of its
counterclaim, Galaxy must show that Mr. Dole retained trade secrets when he left
for Lincoln. “To qualify as a trade secret under Minn. Stat. § 325C.01, ‘(1) the

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information must not be generally known nor readily ascertainable; (2) the
information must derive independent economic value from secrecy; [and] (3) the
plaintiff must make reasonable efforts to maintain secrecy.’” Strategic Directions
Group, Inc. v. Bristol-Myers Squibb Co., 293 F.3d 1062, 1064-1065 (8th Cir.
2002) (quoting Widmark v. Northrup King Co., 530 N.W.2d 588, 592 (Minn. Ct.
App. 1995)). “In a trade secret case, ‘[s]imply to assert a trade secret resides in
some combination of otherwise known data is not sufficient, as the combination
itself must be delineated with some particularity in establishing its trade secret
status.’” SL Montevideo Technology, Inc. v. Eaton Aerospace, LLC, 491 F.3d 350,
354 (8th Cir. 2007) (quoting Jostens, Inc. v. National Computer Sys., 318 N.W.2d
691, 699 (Minn. 1982)).
If Galaxy establishes that Mr. Dole has retained trade secrets, it must also
show that Mr. Dole misappropriated them. “A defendant is liable for
misappropriation of a trade secret if the defendant has acquired the trade secret
through improper means. Minn. Stat. § 325C.01, subd. 3. In some instances, the
secret is so unique that the emergence of a similar, slightly altered product gives
rise to an inference of misappropriation.” Wyeth v. Natural Biologics, Inc., 395
F.3d 897, 900 (8th Cir. 2005).
Bill Oeters’s testimony at the hearing demonstrates that most of the
information Mr. Dole retained is neither generally known nor readily ascertainable
and derives independent economic value from secrecy. Mr. Dole’s original 1998

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employment agreement with Fremont Industries amounts to a reasonable effort
to maintain secrecy. Section 5 of the agreement provides (with Galaxy having
become “Company” by the time of the alleged tort):
5.
Confidential Information. Employee understands and
agrees that the business of the Company is highly competitive and is
based upon specialized work, and that as an Employee, Employee will
receive or contribute to Confidential Information, which information
is of substantial value and unique value to Company. The Employee
agrees that at all times during the period of Employee’s employment
and after the termination for any reason whatsoever, Employee shall
keep secret all such Confidential Information and that Employee will
not use or make known the same to any person, firm, or corporation
without first obtaining the written consent of the Company. . . .
Employee understands that Employee is legally obligated to not
disclose Confidential Information or in any way violate the terms of
this Agreement.
Section 1b of the employment agreement defined “Confidential Information” this
way:
b. “CONFIDENTIAL INFORMATION” means trade secrets and
other information proprietary in nature, to Company, not generally
known, relating to Company's affairs, which includes but is not
limited to such things as plans, production processes, financial data,
product specification and formulas, marketing strategies and
methods, production methods, technical and product bulletins,
inventory schedules, sales figures, data on equipment and chemicals
sold and equipment serviced, surveys, research and development
programs, sales techniques, formulas, price lists, correspondence
with suppliers and customers, customer lists or any other
information obtained regarding customers, customer prospect cards,
sa1es reports, financial information, technological developments,
customer needs and buying practices, “know-how” relating to
Company business and other confidential or proprietary information
of Company.

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When the list of retained items is added to the mix, Galaxy has convinced
the court that a very substantial likelihood exists that it will be able to prove that
Mr. Dole retained trade secrets.
Galaxy still must show that Mr. Dole misappropriated those trade secrets.
Again, his 1998 employment agreement is very helpful to Galaxy. Section 5 of that
agreement (which already was quoted in part above) also provides:
5. Confidential Information. . . . Upon termination of
Emp1oyee’s employment, or at any time Company may so require,
the Employee shall turn over to the Company all notes, memoranda,
notebooks, drawings or other records or documents made, compiled
by or delivered to Employee, concerning any Confidential Information,
including any copies in Employee’s possession, it being agreed that
the same and all information contained therein are at all times the
property of the Company. . . .
Mr. Dole had a contractual obligation to turn over all confidential
information (including trade secrets) to his employer when his employment ended.
He did not do so. Mr. Dole misappropriated the information because he possesses
it through improper means. Wyeth v. Natural Biologics, Inc., 395 F.3d at 900.
Whether the data sheets Mr. Dole provided to Lincoln are trade secrets — and
Galaxy seems to have the better of that argument — Mr. Dole has used trade
secrets to sell to his former Galaxy customers. Galaxy has shown a strong
likelihood of success on the merits of its trade secrets claim.

B. Irreparable Harm

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The next requisite factors for a preliminary injunction are a lack of adequate
remedy at law and a showing that irreparable harm will result if the injunction
isn’t granted. Lambert v. Buss, 498 F.3d 446, 451 (7th Cir. 2007). “An injury is
irreparable for purposes of granting preliminary injunctive relief only if it cannot
be remedied through a monetary award after trial.” East St. Louis Laborers’ Local
100 v. Bellon Wrecking & Salvage Co., 414 F.3d 700, 703 (7th Cir. 2005). Because
“speculative injuries do not justify this extraordinary remedy,” id. at 704, “a
[movant] cannot obtain a preliminary injunction by speculating about hypothetical
future injuries.” Id. at 705-706; see also Winter v. Natural Resources Defense
Council, Inc., 555 U.S. 7, 22 (2008) (“Our frequently reiterated standard requires
[movants] seeking preliminary relief to demonstrate that irreparable injury is likely
in the absence of an injunction.”). “To demonstrate irreparable injury, [Galaxy]
must show that [it] will suffer harm that cannot be prevented or fully rectified by
the final judgment after trial.” Anderson v. U.S.F. Logistics (IMC), Inc., 274 F.3d
470, 478 (7th Cir. 2001). “A [movant] may suffer irreparable harm if the nature of
the loss makes monetary damages difficult to calculate.” East St. Louis Laborers’
Local 100 v. Bellon Wrecking & Salvage Co., 414 F.3d at 705.
Those questions are easily answered. Only speculative damages would be
available at the end of the litigation process for Mr. Dole’s business dealings on
Lincoln’s behalf with his former Galaxy accounts; experts would be uncertain
what business Galaxy would have gotten, but lost because Mr. Dole breached his

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covenant not to compete. See Hess Newmark Owens Wolf, Inc. v. Owens, 415 F.3d
630, 632 (7th Cir. 2005) (“[I]t is precisely the difficulty of pinning down what
business has been or will be lost that makes an injury ‘irreparable.’”). Nor could
damages be reasonably calculated for any misuse of trade secrets between now
and the end of the litigation process. If not enjoined, Lincoln will continue to send
Mr. Dole out to sell to his former Galaxy accounts. Because damages wouldn’t be
adequate or sufficient, a failure to grant injunctive relief would cause Galaxy
irreparable harm.

C. Balancing Harms
“The balance between the harm to the plaintiff if injunctive relief is denied
and the harm to the defendant if it is granted is a critical consideration in deciding
whether to grant a preliminary injunction.” Ayres v. City of Chicago, 125 F.3d
1010, 1012 (7th Cir. 1997). “In balancing the harms, the court must weigh the
error of denying a preliminary injunction to the party who would win the case on
the merits against the error of granting an injunction to the party who would lose.”
Foodcomm Int’l v. Barry, 328 F.3d 300, 305 (7th Cir. 2003); see also Meridian
Mut. Ins. Co. v. Meridian Ins. Group, Inc., 128 F.3d 1111, 1120-1121 (7th Cir.
1997) (in balancing the harms, “the irreparable harm the nonmovant will suffer
if an injunction is granted is weighed against the irreparable damage the movant
will suffer if it is not”).

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Mr. Dole and Lincoln argue that the harm an erroneous injunction would
work on Mr. Dole more than counterbalances any irreparable harm threatening
Galaxy. As to the harm to Galaxy, they point out that Galaxy proceeded
unhurriedly to prevent the harms it cites: Galaxy didn’t replace either Mr. Dole or
his supervisor when they left for Lincoln; Galaxy’s parent, DuBois Chemical, has
three to four sales representatives in the Nebraska/Iowa territory; and Galaxy
didn’t seek quicker relief through a temporary restraining order. Mr. Dole, in
contrast, has worked and lived with his family in the Nebraska/Iowa market since
1998. He believed that DuBois’s acquisition of Galaxy threatened his livelihood
because at least one of his clients told him it wouldn’t do business with DuBois,
and Mr. Dole would have to share his territory with three DuBois sales reps.
The court is hesitant, when weighing harms arising from an injunction
decision, to penalize one side for not having rushed into court quickly enough.
This record doesn’t disclose when Galaxy learned that Mr. Dole was calling on
forbidden customers; merely going to work for Lincoln didn’t violate Mr. Dole’s
non-compete clause. This record doesn’t disclose what efforts (if any) Galaxy might
have undertaken to try to resolve the dispute before filing its injunction motion.
The record doesn’t disclose when Galaxy had assembled the information it deemed
necessary to win injunctive relief. The record shows only that

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(a)

Mr. Dole first violated the non-compete provision by contacting
a Galaxy account as a Lincoln representative on or around May
1, 2012;

(b)

Galaxy moved for a preliminary injunction on June 22, seven
weeks and four days later;

(c)

Galaxy sought and obtained expedited discovery; and

(d)

the parties jointly moved to continue the September 13 hearing
because they hadn’t been able to complete discovery, and the
court rescheduled the hearing for October 22.

The court doesn’t infer from that table of events that Galaxy’s pace of litigation
bespeaks minimal harm.
The court isn’t persuaded that the harm Mr. Dole would suffer from an
injunction later found to be entered in error counterbalances the risk of
irreparable harm facing Galaxy. The requested injunction wouldn’t prevent Mr.
Dole from working and living in the area where he has worked and lived for the
past fourteen years. It would simply prevent him from doing business with his
Galaxy clients for a year and half. Even if some present or later-discovered defense
entitles him to prevail, the harm to him would be no more than what he agreed to
in 1998.
The balance of harms and hardships favors Galaxy and the issuance of the
requested injunction.

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D. Public Interest
“The final factor to be considered in conjunction with a preliminary
injunction is the public interest, which is the effect that granting or denying the
injunction will have on nonparties.” Meridian Mut. Ins. Co. v. Meridian Ins.
Group, Inc., 128 F.3d 1111, 1121 (7th Cir. 1997); see also Platinum Home Mortg.
v. Platinum Fin. Group, 149 F.3d 722, 726 (7th Cir. 1998) (party seeking
preliminary injunction must demonstrate that “the preliminary injunction will not
harm the public interest”). “[A] court is supposed on its own initiative to refuse to
enter an injunction that disserves the public interest.” American Family Mut. Ins.
Co. v. Roth, 485 F.3d 930, 934 (7th Cir. 2007).
This dispute touches most lightly on the public interest. Who represents
DuBois/Galaxy and/or Lincoln in dealings with a limited number of businesses
in Nebraska and Iowa is important to those businesses and the parties before the
court, but has little public resonance.

E. Unclean Hands
Finally, Lincoln and Mr. Dole invoke the “unclean hands” doctrine: that he
who seeks equity must do equity. Lincoln and Mr. Dole note a wide range of what
they see as inequitable conduct by Galaxy and its principals. Most of that conduct
deals with events that occurred several years before today’s controversy arose.
More pertinent to the events before the court today are that Galaxy principals

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made misleading statements to Fremont Acquisition sales representatives in
conjunction with the signing of the Acknowledgments; Galaxy principals didn’t
require all similarly situated employees to sign Acknowledgments; and Galaxy
used a shorter non-compete term in its own contracts with sales representatives
than those in the contracts acquired from Fremont Acquisitions. Lincoln and Mr.
Dole assert other acts they see as inequitable, but the court finds from this record
that those things didn’t happen.
Today’s unclean hands doctrine is not what it once was:
Unclean hands is a traditional defense to an action for equitable
relief. The purpose is to discourage unlawful activity, and is as
relevant to preliminary as to final relief. It is true that a modern
chancellor unlike his medieval forbears does not have uncabined
discretion to punish moral shortcomings by withholding equitable
relief. Modern equity is a system of entitlements. But equitable relief
is costly to the judicial system, especially in a case such as this
where the relief sought would cast the court in a continuing
supervisory role. It would make no sense to incur that cost on behalf
of someone who was trying to defraud the person against whom he
was seeking the court's assistance. One who has defrauded his
adversary to his injury in the subject matter of the action will not be
heard to assert a right in equity.
The Original Great American Chocolate Chip Cookie Co., Inc. v. River Valley
Cookies, Ltd., 970 F.2d 273, 281 (7th Cir. 1992) (internal citations omitted).
None of the things Lincoln and Mr. Dole point to amount to the sort of
fraudulent or inequitable conduct that prevents injunctions. Whatever Galaxy’s
principals told its sales representatives about the Acknowledgments in 2004, and
however many sales representatives signed an Acknowledgment in 2004, caused

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no harm to Mr. Dole or Lincoln because the sales representatives’ contracts (with
the non-compete clauses) were transferred to Fremont Acquisitions regardless of
the Acknowledgments. Lincoln and Mr. Dole cite no authority for the proposition
that an employer can’t have differing terms in non-compete clauses depending on
the genesis of the employment agreement.
Actually, were some inequity or fraud discerned in the conduct to which
Lincoln and Mr. Dole point, the inequity of Lincoln’s own conduct would dwarf it.
According to the record before the court — and it must be remembered that
evidence presented later could change the way things look — Lincoln is building
a sales force by poaching competitors’ sales reps, then sending the poached reps
out to poach customers they worked with before coming to Lincoln, in willful
blindness to any covenants not to compete.
The doctrine of unclean hands doesn’t weigh against, or justify denying, the
requested injunction.

F. Bond
Before an injunction can become effective, a bond must be fixed and posted.
FED. R. CIV. P. 65(b). The parties didn’t address the appropriate bond at the
preliminary injunction hearing. The court is to err on the high side when setting
the bond amount:
Indeed, ‘when setting the amount of security, district courts
should err on the high side. If the district judge had set the bond at
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$50 million, as Abbott requested, this would not have entitled Abbott
to that sum; Abbott still would have had to prove its loss, converting
the ‘soft’ numbers to hard ones. An error in setting the bond too high
thus is not serious. (The fee for a solvent firm such as Mead Johnson
or its parent Bristol–Myers Squibb Co. to post a bond, a standby
letter of credit, or equivalent security is a very small fraction of the
sum involved.) . . . [A]n error in the other direction produces
irreparable injury, because the damages for an erroneous preliminary
injunction cannot exceed the amount of the bond.’
Habitat Education Ctr. v. United States Forest Serv., 607 F.3d 453, 456 (7th Cir.
2010) (quoting Mead Johnson & Co. v. Abbott Labs., 201 F.3d 883, 888 (7th Cir.
2000)).
But the court can’t just pull a figure out of the air. This order sets a
shortened briefing schedule for the parties to address the issue of bond. The
briefing schedule would be shortened even further had the court’s consideration
of the injunction motion not taken briefing into the holiday season.

III. CONCLUSION
The court GRANTS the motion of Galaxy Associates, Inc. for preliminary
injunction [docket # 12]. The parties are given to and including December 27,
2012 within which to file memoranda and supporting documents concerning the
amount of the bond, and then are given to January 4, 2013 within which to file
responses to the initial memoranda. No replies shall be allowed. The movant shall
submit its proposed injunction order by December 27.
SO ORDERED.

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ENTERED:

December 13, 2012

/s/ Robert L. Miller, Jr.
Judge, United States District Court

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