Babcock Power Inc. et al v. Kapsalis

Filing 34

MEMORANDUM OPINION by Judge John G. Heyburn, II on 12/23/20113; The Court will enter an Order consistent with this Memorandum Opinion.cc:counsel (TLB)

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF KENTUCKY
AT LOUISVILLE
CIVIL ACTION NO. 3:13-cv-717-H

BABCOCK POWER INC., et. al

PLAINTIFFS

v.
STEPHEN T. KAPSALIS

DEFENDANT

MEMORANDUM OPINION
Plaintiff Babcock Power, Inc. (“BPI”) and its subsidiary Vogt Power International, Inc.
(“Vogt”) (collectively, “Plaintiffs”), seek to enjoin its former employee, Mr. Kapsalis, from
using a certain Contact List1 and other proprietary documents that Kapsalis maintains access to at
his current job with Express Holdings, LLC (“Express”), a Vogt competitor. On December 12,
2013, this Court heard evidence on the specific issue of whether the subject Contact List is
protectable under the Kentucky Uniform Trade Secrets Act (“KUTSA”) and/or the employment
agreements Kapsalis signed at the outset of his employment with Plaintiffs. Upon the evidence
now before it, the Court is persuaded that tailored injunctive relief is appropriate.
I.
In determining whether to issue injunctive relief, the Court considers four factors: (i)
Plaintiffs’ likelihood of success on the merits; (ii) whether the injunction will save Plaintiffs
from irreparable injury; (iii) whether the injunction will harm others; and (iv) whether the public
interest would be harmed or served by the injunction. Transamerica Ins. Fin. Corp. v. North
1

The Court uses this term throughout to refer to the list of names and contact information presented at the hearing as
Plaintiffs’ Exhibit 2. This term excludes a subset of Kapsalis’s personal or prior business contacts, as detailed in
Section II. The contested Contact List was maintained in Kapsalis’s Lotus Notes on his Vogt-issued electronic
devices. The ins and outs of how this information remains available to Kapsalis at his current job are mostly
immaterial for purposes of this Order.

Am’n Tracking Ass’n, Inc., 937 F. Supp 630, 633 (W.D. Ky. 1996). The Court need not
definitively determine the underlying issues at this stage of the proceedings but must be satisfied
at the very least that Plaintiffs have demonstrated a likelihood of success on the merits as well as
irreparable harm.
A.
KUTSA protects as a “trade secret”
information . . . that (a) 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 (b) is the subject of efforts that are reasonable under the circumstances to
maintain its secrecy.
KRS § 365.880(4). The Contact List at issue appears to fit this definition. Kapsalis argues the
customer information in the Contact List is “nothing more than the name, address, and telephone
number” of BPI/Vogt customers and that such information cannot be considered a trade secret.
The Court concludes otherwise. Plaintiffs compiled the information in the Contact List over a
period of multiple decades at significant corporate cost, including multiple trips overseas. This
Contact List represents Vogt/BPI’s essential business play book. The inherent value is in its
compilation.
The information it contains is not “readily ascertainable” through such minimal efforts as,
for example, looking up automotive parts purchasers in a local phone book (or other public
source) and calling to ask who in the shop is responsible for buying parts. Compare ATC
Distribution Corp., Inc. v. Whatever It Takes Transmissions & Parts, Inc., 402 F.3d 700, 714−15
(6th Cir. 2005). It is immaterial that Kapsalis may be able to recreate a list of business-card type
information for buyers of its new company’s products through proper means, or that such list
might end up having striking similarities to the information contained on the list contested here.

2

That Kapsalis may have much of the same knowledge, may know many of the same persons, and
knows many of the telephone numbers by memory does not make the Vogt Contact List any less
protectable.
Even if the Contact List is not protectable as a trade secret, it is protectable under the
confidentiality agreement2 between Vogt and Kapsalis. Paragraph 1 of the Agreement prohibits
Kapsalis, during his employment and for five years thereafter, from divulging or using
BPI/Vogt’s confidential information for anyone’s benefit. “Confidential Information” is defined
to include trade secrets and marketing strategies. Paragraphs 2 and 3 arguably cover the Contact
List as well, and certainly do cover the other documents uploaded onto an external hard drive
that Kapsalis took upon his departure.
As to the second prong of the definition of trade secret, it is undisputed that Plaintiffs
centralized the collection of the key contact information found in the Contact List and took
measures to preserve its confidentiality, not least of all by ensuring that employees who would
have access signed restrictive covenants at the outset of their employment.
On this analysis, Plaintiffs have succeeded in demonstrating a likelihood of success on
the merits. Preliminarily, the Court does not find the evidence to suggest any disguise or plan on
the part of Kapsalis to appropriate the Contact List.3
B.
Plaintiffs also bear the burden of showing that the trade secret or confidential list was
misappropriated. While Kapsalis does not appear to have used the Contact List or other
proprietary documents in any way that violates the Agreement between the parties, he did either
2

The Court uses this term to refer to the Employee Non-Disclosure, Non-Solicitation, Non-Competition and
Assignment Agreement, ECF No. 27-1, which became effective July 10, 2009.
3
KUTSA recognizes as misappropriation “(b) …[U]se of a trade secret of another without express or implied
consent by a person who: …2. At the time of disclosure or use, knew or had reason to know that his knowledge of
the trade secret was:…b. Acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use.”
KRS § 365.880(2). The Court acknowledges that the facts may very well bear this out at trial.
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intentionally or inadvertently appropriate the Contact List for his continued business use. This is
the irreparable harm the Court’s Order will guard against.
The two parties do not directly compete in primary markets. The hearing did not disclose
any evidence that Kapsalis has encroached upon Vogt’s business, even though he may be
planning to do so at some point in the future. The evidence did indicate that Kapsalis absconded
with an external hard drive on which he had uploaded Vogt’s strategic plan in the industrialsized Heat Recovery Steam Generators (“HRSG”) market, where the two parties’ businesses do
overlap.
The two main witnesses, Kapsalis and Michael LeClair, CEO of Babcock Power, Inc.,
presented as truthful witnesses who simply view the circumstances from entirely contrasting
perspectives. Vogt has reason to be suspicious; Kapsalis has reason to regard the contested list as
inconsequential to his working knowledge of the industry. Vogt has reason to suspect that
Kapsalis may want to compete in its primary markets and was hired for that very purpose;
Kapsalis correctly points out that, so far, there is no evidence of any tangible plans.
Nevertheless, Kapsalis’s conduct has certainly given the appearance of crossing the line
which the agreement draws. Therefore, an injunction is appropriate to clarify the rights and
obligations of the parties.
II.
Whether or not Kapsalis disregarded a company policy by incorporating personal and
prior business contacts into the BPI/Vogt database, the Court declines to recognize these contacts
as protected under the new injunction. Neither party has demonstrated a willingness to delineate
the specific contacts on the Contact List it cares most about. Plaintiffs disclaim an interest in
Kapsalis’s personal or prior business contacts but ultimately insist all contacts be covered until

4

more discovery reveals who, exactly, is properly considered a personal or prior business contact;
Defendant claims none of the contacts are protectable under the KUTSA or the agreement. The
Court disagrees that “[o]nly if Kapsalis can prove that . . . contacts predate[] his employment or
are unrelated to Plaintiffs’ business should any portion of the Contact List be treated as anything
but Plaintiffs’ confidential proprietary and trade secret information.” In light of the extraordinary
remedy that Plaintiffs seek, it is incumbent on Plaintiffs to clarify which contacts should not be
considered Kapsalis’s personal or prior business contacts.
Thus, the injunction against the Contact List’s possession and use does not include
Kapsalis’s personal and prior business contacts, provisionally defined as all of the contacts
entered into the Contact List on August 7, 2009.4 This delineation does not alter Kapsalis’s
obligation under the Agreement to not contact individuals or companies with whom Plaintiffs
had a business relationship in the year preceding his departure for the purposes of trying to divert
their business to Express, regardless of when that contact became integrated into the Contact
List. Kapsalis acknowledges and appears to have honored this provision of the Agreement.
In sum, the Contact List that the new TRO will protect consists of all of the names and
contact information contained in Plaintiff’s Exhibit 2, minus Kapsalis’s personal and business
contacts, defined as each contact first entered into the database on August 7, 2009. The parties
are invited to contact Case Manager Andrea Morgan when they are prepared to elucidate who
else should or should not be considered one of Kapsalis’s personal or prior business contacts.
4

This date marks the first major upload of contacts and occurred at the outset of Kapsalis’s employment with
BPI/Vogt.
Plaintiffs point out that Mike LeClair testified that the names uploaded on August 7, 2009 “appeared to be”
comprised of multiple sources, some of which were contacts LeClair had introduced to Kapsalis. Further, Plaintiffs
argue that “if” contacts uploaded on August 7, 2009 were derived from Kapsalis’s work for BPI as a consultant or
expert (a job he performed prior to coming to work for BPI/Vogt), then those, too, would properly be Plaintiffs’
property. The means to identify who on the list Plaintiffs have a specific, protectable interest in are within Plaintiffs’
control. Where this is the case, a plea that “a party is not required to prove his case in full at a preliminary injunction
hearing,” while true, is not helpful. The Court is open to hearing more evidence on this issue at the parties’ earliest
convenience.
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The Court will enter an Order consistent with this Memorandum Opinion.

December 23, 2013

cc:

Counsel of Record

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