PRIMEPAY, LLC v. BARNES et al
Filing
35
OPINION AND ORDER denying as moot 31 Motion to Reopen Preliminary Injunction Hearing; granting in part and denying in part 13 Motion for Preliminary Injunction. Signed by District Judge Paul D. Borman. (DTof)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
PRIMEPAY, LLC,
Plaintiff,
Case No. 14-11838
v.
Paul D. Borman
United States District Judge
RICHARD RANDALL BARNES,
TRACIE LASKIE and HIGH POINT
BUSINESS SERVICES, LLC,
Defendants.
___________________________________/
OPINION AND ORDER GRANTING IN PART AND DENYING IN PART
PLAINTIFF’S MOTION FOR A PRELIMINARY INJUNCTION (ECF NO. 13) and
DENYING AS MOOT DEFENDANTS’ MOTION TO REOPEN
PRELIMINARY INJUNCTION HEARING (ECF NO. 31)
Before the Court is Plaintiff PrimePay LLC’s (“PrimePay” or Plaintiff) Motion for a
Preliminary Injunction. (ECF No. 13.) Defendants Richard Randall Barnes (“Barnes”), High Point
Business Services, LLC (“High Point”) and Tracie Laskie (“Laskie”) filed a Response (ECF No. 15)
and Plaintiff filed a Reply (ECF No. 18). The Court held a multi-day hearing on October 2, 3, 6, and
7, 2014. Following the hearing, the Court entered a Stipulated Permanent Injunction and Order of
Dismissal as to Defendant Laskie. (ECF No. 21, Stipulated Permanent Injunction.) The Court then
ordered post-hearing briefing from the remaining parties and received Plaintiff’s Supplemental PostHearing Brief (ECF No. 27) on November 17, 2014, Defendants Barnes and High Point’s
(collectively hereafter “Defendants”) Responsive Supplemental Brief (ECF No. 29) on December
1
8, 2014, and Plaintiff’s Supplemental Reply on December 18, 2014 (ECF No. 32).1
INTRODUCTION
This action involves Plaintiff’s claim that Defendants have misappropriated trade secrets and
other confidential information in setting up a payroll service company that competes with Plaintiff,
the successor entity to Defendant Barnes’s former employer. In this motion, Plaintiff argues that
it is likely to succeed on its claims of misappropriation of trade secrets, breach of contract, breach
of fiduciary duty and tortious interference and seeks a preliminary injunction restraining Defendants
from providing or selling payroll services in the United States, soliciting or servicing Plaintiff’s
current and former clients, soliciting or attempting to divert Plaintiff’s employees or soliciting or
contacting Plaintiff’s referral sources and enjoining Defendants from using, disclosing or destroying
any documents, information or software programs obtained from Plaintiff or Plaintiff’s predecessor
entity. Defendants respond that nothing taken by Barnes constitutes a trade secret and that neither
Barnes, nor Defendants HighPoint or Laskie, has solicited any of Plaintiff’s customers or used any
of Plaintiff’s proprietary information for the benefit of any of the Defendants.
I.
BACKGROUND
A.
The Allegations of the Amended Complaint and the Motion for Preliminary
Injunction
Plaintiff PrimePay is engaged in the business of marketing and providing payroll and other
human resource related business services to employers throughout the United States. (ECF No. 11,
First Amended Complaint ¶ 13.) In the course of providing such services, PrimePay obtains the
1
On December 9, 2014, Defendants filed a Motion to Reopen Hearing on Plaintiff’s Motion for
Preliminary Injunction. (ECF No. 31.) Plaintiff filed a Response (ECF No. 33) and Defendants filed
a Reply (ECF No. 34). For the reasons discussed infra, the Court finds no basis to reopen the
hearing and accordingly DENIES AS MOOT Defendants’ motion to reopen the hearing.
2
highly confidential information of its clients’ employees and manages large sums of cash that are
deposited into PrimePay bank accounts for remittance to governmental agencies in satisfaction of
its clients’ various withholding tax obligations. Id. ¶¶ 14-16.
In December 2013, PrimePay reorganized its business and acquired the assets of several
independently-owned corporate entities that had been operating under the “PrimePay” name
pursuant to agreements between PrimePay, Inc. and the individual owners of those companies. Id.
¶ 17. Defendant Barnes was the President and Manager of one of those independent PrimePay
entities, PrimePay of Michigan, LLC (“PrimePay-Michigan”), which was originally owned by Chris
Tobin who had also owned an Indianapolis-based PrimePay entity. Id. ¶ 19; ECF No. 15, Defs.’
Resp. 1.
Under Barnes’s stewardship, PrimePay-Michigan had grown from zero clients in 1999 to 950
clients in 2013. Defs.’ Resp. 1. In his managerial role at PrimePay-Michigan, Barnes had access
to and managed all of PrimePay-Michigan’s files including highly confidential and valuable
personnel and financial information provided by clients and the employees of such clients. Id. ¶ 39.
Effective January, 2014, the newly organized Plaintiff, PrimePay, acquired the assets of
PrimePay-Michigan, and reduced Barnes’s salary significantly. Barnes resigned effective March
14, 2014. Id. ¶ 57. At his exit interview Barnes, who did not execute a non-compete agreement with
PrimePay, informed PrimePay that he would be setting up a competing entity. (Defs.’ Resp. 1.)
Indeed, on March 4, 2014, Barnes filed Articles of Organization for Defendant HighPoint Business
Services, LLC. (Pl.’s Mot. Ex. D, Michigan Dep’t of Licensing and Regulatory Affairs Filing
Endorsement.)
Defendant Laskie began her employment with PrimePay-Michigan around June 3, 2010 as
3
a payroll associate. Compl. ¶ 44-45. In connection with her employment with PrimePay-Michigan,
Laskie executed a Payroll Sales Associate Employment Agreement. (Pl.’s Mot. Ex. B, the “2010
Laskie Agreement”). The 2010 Laskie Agreement contained a non-compete provision precluding
Laskie from engaging in any business that was in competition with PrimePay-Michigan in the states
of Michigan, Ohio, Indiana or Illinois, for a period of one-year following her termination for any
reason. Id. ¶ 9(a).
When PrimePay acquired the assets of PrimePay-Michigan effective January 1, 2014, Laskie
became an employee of PrimePay as a sales executive in the Troy, Michigan office. Compl. ¶ 5152. On March 18, 2014, Laskie executed an Employee Loyalty and Non-Disclosure Agreement with
PrimePay that contained a non-solicitation and non-interference provision. (Pl.’s Mot. Ex. C, the
“2014 Laskie Agreement”). The 2014 Laskie Agreement prohibited Laskie, for a period of twelve
months following her termination for any reason, from directly, or indirectly through another person
or employer, diverting or attempting to divert from PrimePay any client, supplier, service provider
or other individual with whom PrimePay had a contractual relationship or from soliciting any such
person or entity on behalf of a business other than PrimePay that competes with the services offered
by PrimePay. Id. ¶ 3. The 2014 Laskie Agreement also binds Laskie to hold in confidence all
PrimePay “Proprietary Information,” including software, computer processing systems, techniques,
processes, compilations of data, reports, information regarding pricing, marketing, training methods,
customer information including banking, tax and financial information, which she acquires during
her employment. Id. ¶ 1. The 2014 Laskie Agreement also prohibited her, at any time during or
after her employment with PrimePay, from reproducing or utilizing in any manner PrimePay
confidential information. Id. Laskie was terminated by PrimePay on May 22, 2014, in part due to
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her alleged disparagement of PrimePay following Barnes’s resignation. Compl. ¶¶ 64-65.
PrimePay alleges that it took reasonable measures to protect the confidentiality of its client
and financial information by (1) requiring PrimePay sales staff who have access to non-public client
information to sign a non-disclosure and proprietary information confidentiality agreement, (2)
binding all PrimePay employees to a corporate privacy policy requiring confidentiality, (3) utilizing
password protection measures and keeping confidential client information in a restricted area on the
company’s server and limiting access to that information to Barnes and a limited number of
personnel on a need to know basis. (Compl. ¶¶ 23-25.) PrimePay headquarters also took reasonable
measures to protect confidential and proprietary information by (1) requiring user ID’s and
passwords to access PrimePay’s computer system, (2) securely storing and shredding when
appropriate confidential documents, (3) requiring an electronic pass key to gain access to
PrimePay’s headquarters, (4) using advance firewalls and data encryption, and (5) using alarms and
24/7 video monitoring. Id. ¶ 26. PrimePay-Michigan was similarly protected with the exception
of video monitoring and electronic pass keys. Id. ¶ 27. According to Plaintiff, all of the confidential
information to which Barnes was permitted access was to be stored on and accessed only from
PrimePay’s secure drive. Such information was never to be stored on Barnes’s personal laptop. Id.
¶ 28.
At some point following Defendant Barnes’s departure from PrimePay, PrimePay came to
believe that, prior to his resignation, Barnes had deleted files from PrimePay’s secure Detroit office
file server, including but not limited to QuickBooks accounting files and Microsoft Access databases
that are used for client tax review. Barnes was asked to return certain PrimePay confidential
information which Barnes allegedly refused to do. On April 30, 2014, PrimePay sent Barnes a cease
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and desist letter demanding, in part, the return of a PrimePay laptop and files, including PrimePay
QuickBooks files, that contained highly confidential client and employee-personnel related
information that was stored on the laptop that Barnes used when employed by PrimePay-Michigan.
(Pl.’s Mot. Ex. E, April 30, 2013 Letter.) The letter also advised Barnes that PrimePay reserved its
right to seek legal and equitable relief and advised Barnes that he was under an obligation to
preserve any PrimePay electronically stored information that he possessed. Id. at 2.
With Barnes’s consent, PrimePay conducted a forensic inspection of the laptop that Barnes
took with him from PrimePay-Michigan, as well as several computers that Barnes and Laskie were
using at HighPoint. The inspection was conducted by Spectrum Computer Forensics (“Spectrum”)
and they issued their report on July 16, 2014. (Pl.’s Mot. Ex. A, Spectrum Report.) Plaintiff alleges
in the Complaint that the Spectrum Report revealed the following:
•
Analysis of Barnes’s PrimePay laptop revealed that post-resignation, Barnes
accessed a Dropbox (a cloud-based storage service which enables a user to store and
access files from virtually any computer, smart phone or similar device that has
internet access) that contained many PrimePay related files, including QuickBooks
files (QuickBooks is an accounting application used for managing general ledger and
financial statements) and years of tax return information (Spectrum Report 6-7);
•
Sometime between April 12, 2014 and May 19, 2014, at least two files were deleted
from the Dropbox that contained confidential PrimePay material, one entitled
“PrimePay” that included a master payroll sales associate contract, new employee
orientation materials, sales training payroll information, and the second entitled
“New Folder” that included an Excel workbook containing monthly statistics of
years of financial information and operating metrics (Spectrum Report 8-12);
•
The Dropbox folders entitled “PrimePay” and “New Folder” were also present on the
computer used by Tracie Laskie at HighPoint and both were deleted from her
computer some time between April 7, 2014 and May 27, 2014. Although the files
had been deleted, a search of the computer’s unallocated clusters contained
numerous PrimePay related references that had been present in the “PrimePay”
related Dropbox folders, including sales contract, monthly statistics, expense reports,
“lost client” data and sales training payroll data (Spectrum Report 14);
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•
Ms. Laskie’s computer also revealed email communications by her with former
PrimePay clients (Spectrum Report 15);
•
A search of the unallocated clusters of Barnes’s HighPoint PC also disclosed that the
Dropbox and its PrimePay related information had been synced to that computer at
some point (Spectrum Report 18);
•
The Dropbox folder entitled “New Folder” was placed into the Dropbox on March
6, 2014, just days before Barnes resigned from PrimePay and later synced to his new
computer at HighPoint (Spectrum Report 20);
•
Two files created on Barnes’s PrimePay laptop under a folder entitled “New
Company” just shortly before his resignation relate to planning for a new company
with projections of clients, billings, revenue and costs (Spectrum Report 21).
In response to these allegations, Barnes stated in a pre-hearing Affidavit:
•
The laptop belongs to Barnes as he purchased it from PrimePay with Chris Tobin’s
approval at the time of the merger in January, 2014 (Defs.’ Resp. Ex. 5, Aug. 18,
2014 Declaration of Richard R. Barnes ¶ 39);
•
Barnes created the Dropbox long before he knew that PrimePay-Michigan would be
merging into PrimePay so that he could transfer and access files when he worked
remotely on PrimePay matters if he was away from the office, on vacation or
elsewhere and needed access to the PrimePay files, all with the knowledge and
approval of Chris Tobin (Id. ¶¶ 36-38);
•
When Barnes learned that his salary would be cut and that he could not afford to stay
with PrimePay, he began working on forming his own business but only worked on
these plans on his own time and never used PrimePay information or documents in
planning for, launching or operating HighPoint (Id. ¶¶ 42-43);
•
At the time of his departure from PrimePay, Barnes undertook to delete all PrimePay
material from his laptop and in the Dropbox and confirmed that back up of all these
files remained on the PrimePay server (Id. ¶¶ 44-46);
•
As to the two files that the Spectrum Report identifies, the “PrimePay” and “New
Folder” files, Barnes states that these were inadvertently retained and that the “New
Folder” file was uploaded to the Dropbox so that Barnes could work remotely to
prepare the budget for the PrimePay Troy office for 2014, that this entire file of
course remained on PrimePay’s main server, and that the information was used to
help Barnes prepare tax returns as he had done for the previous 15 years - the file
was never accessed nor the information used by him or anyone else after his
departure from PrimePay and has never been used by or disclosed to anyone and he
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does not recall deleting it and never consciously looked for information to delete
after receiving the April, 2014 preservation letter from Plaintiff. (Id. ¶¶ 47-48);
•
The “PrimePay” folder contained information that was never used or accessed by
him after his departure from PrimePay and was never used or disclosed to anyone
and has no use or value to him at HighPoint (Id. ¶¶ 49-50);
•
As to the QuickBooks file, Barnes intentionally retained that information because he
believed that Mr. Tobin, who was suffering from a significant medical condition
when Barnes left the company, would call upon him to prepare the 2014 tax returns
as he had been the preparer for the past several years - the file also was retained on
the PrimePay main server, is of no competitive use to Barnes at HighPoint and
Barnes’s counsel immediately offered to delete the file from his computer or return
it to PrimePay but has never had a response to that offer (Id. ¶¶ 51-59);
•
Certain other files that Barnes deleted before his departure were files that he created
to demonstrate to the new PrimePay management his ideas for tracking and
reconciling client accounts, tracking client billings for figuring sales commissions,
and reconciling tax returns between the Troy office and Tobin’s Indianapolis
PrimePay office, but Jason Wood of the “new” PrimePay management indicated that
they would not be using those methodologies, so Barnes deleted the files (Id. ¶¶ 6066).
•
Before hiring Tracie Laskie at HighPoint, Barnes requested a letter from Laskie’s
attorney confirming that she was no longer under any covenant not to compete with
PrimePay, which was supplied and explained that she was no longer subject to a
covenant not to compete but had signed a one-year non-solicitation agreement
shortly before leaving PrimePay (Id. ¶¶ 67-69);
•
Barnes attests that no PrimePay information is used at HighPoint, by either he or Ms.
Laskie and that HighPoint has not solicited, either directly or indirectly, any
PrimePay clients, although some may have independently contacted Ms. Laskie (Id.
¶¶ 73-77).
Barnes asserts that he explained all of this to PrimePay’s counsel in a series of
correspondence following receipt of the April, 2014 cease and desist letter and adds that he fully
cooperated with PrimePay’s review of his laptop and of the HighPoint computers. (Defs.’ Resp.
Exs. 2-4.) Defendants assert that PrimePay has instituted this specious trade secret action in bad
faith in an effort to prevent Barnes from entering into a legitimate competing payroll services
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company.
B.
The Evidentiary Hearing
The Court held a multi-day hearing and received extensive testimony and evidence.
Following the evidentiary hearing, the Court received supplemental briefing to narrow the issues that
remained in contention, particularly given the stipulated dismissal of Defendant Tracie Laskie. At
the outset of the hearing, the Court confirmed with the parties that Barnes’s salary was going to be
reduced from $210,000 to $80,000 as a result of the acquisition by PrimePay of PrimePay-Michigan.
(ECF No. 22, Transcript of Hearing on Motion for Preliminary Injunction held on October 2, 2014)
(hereinafter “10/2/14 Hr’g Tr. __.”)
1.
Martin C. Stowe
Plaintiff’s first witness was Martin C. Stowe, the Chief Services Officer for PrimePay.
Stowe had been with PrimePay for two-years, having previously been employed for 25 years by
Paychex. (10/2/14 Hr’g Tr. 7-8.) Stowe explained that PrimePay has over 30 offices throughout
the United States, 12 of which are payroll processing centers. Id. at 9. PrimePay obtains its clients
through two principal means: client referrals and referrals from strategic business partners. Id. at
10. Strategic business partners are Certified Public Accountant (“CPA”) firms, banks and brokerage
firms who PrimePay calls on and who in turn recommend to their clients that they use PrimePay
services. Id. Specific PrimePay sales representatives are assigned key strategic partners who they
call on weekly and/or monthly to “nurture” the strategic business partner relationship in the hope
of receiving more referrals and, for the specific sales associate, greater commissions. Id. at 11.
PrimePay acquired PrimePay-Michigan from Chris and Sue Tobin on December 31, 2013,
in a transaction in which the Tobins received a $3.5 million (3 times PrimePay-Michigan’s annual
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revenue) equity valuation of stock in exchange for all of the assets of PrimePay-Michigan. Id. at
13. As a result of the acquisition, there was a consolidation of all independently owned PrimePay
offices throughout the United States and each independent owner, including the Tobins, executed
a Contribution Agreement, in which they agreed to transfer to PrimePay without exclusion all assets
including goodwill “used or useable in connection with the Business.” Id. at 14, Pl.’s Ex. 1, Dec.
31, 2013 Contribution Agreement ¶ 1, Schedule 3 p. 18. According to Stowe, this included all
tangible assets, such as furniture, fixtures, computers and laptops as well as financial and banking
records, accounts receivable and accounts payable, as well as “good will assets,” such as “the client
relationships and ongoing client business, the relationships with strategic business partners, and the
reputation of PrimePay of Michigan.” 10/2/14 Hr’g Tr. 14. According to Stowe, the strategic
business partners were “key referral sources” that had been “invested in and nurtured through the
years,” and were of significant business value in the acquisition of PrimePay-Michigan. Id. at 15,
55.
Stowe met Barnes in early October, 2013, shortly before the announcement of the
consolidation. Id. at 16. Stowe testified that Barnes, as President of PrimePay-Michigan, would
have had access after the consolidation to PrimePay’s confidential business information, including
financial records (revenues, expenses, profit and loss and margins), financial history, client account
information, and “the features and functionalities and competitive advantages of the PrimePay
offerings and software,” as well as knowledge of “the strategic business partners, their history, their
level of referral sources, which ones referred more, which ones referred less, and the relationship
histories for each of them.” Id. at 21-23, 26. The financial information in particular was very
important to PrimePay’s “ongoing business, as far as [] budgeting, [] forecasting, [] strategic
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planning.” Id. at 35. Stowe testified that PrimePay went to “great lengths” to protect this
information by password protecting and encrypting the information and allowing only certain
individuals within the accounting department, which itself is kept behind locked doors, access to this
confidential information. Id. at 23-24, 38. PrimePay also has noncompete and technology
agreements that require employees to keep this information confidential and none of the information
is made publicly available. Id. at 24.
Stowe testified that Barnes, as President of PrimePay-Michigan, would have had continuing
access to all of this financial and confidential information after the consolidation and that Barnes
was supposed to “migrate the financial management and financial data to [PrimePay’s] accounting
department,” including “information on the key strategic business partnerships through various
customer relationship management software that would have been used [by PrimePay-Michigan].”
Id. at 26 (alterations added).
Following the consolidation, Barnes’s access to confidential
information would have been limited after the migration of the PrimePay-Michigan data because
accounting of all of the independent PrimePay entities was being consolidated into a central
accounting department and Barnes would have had less access to sales organization data and
possibly to daily activities regarding strategic business partners. Id. at 27.
Stowe testified that when the consolidation occurred, and the migration was supposed to take
place, certain data from the Detroit PrimePay-Michigan office was missing. This included “a
number of QuickBooks files that were integral to running that office that [PrimePay] was unable to
obtain.”
Id. (alteration added).
Stowe explained that the “QuickBooks” were used as a
reconciliation tool for PrimePay’s “PrimeChecks accounts.” Id. at 32; Pl.’s Exs. 14a-c, 17a-g
Sample QuickBooks files. PrimeChecks is a service provided to certain clients who “entrust
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[PrimePay] by giving [them] essentially their net pay that [PrimePay] deposit[s] into a PrimePay,
LLC account, and their checks will run through and reconcile through that account.” Id. at 32.
PrimePay has “a fiduciary responsibility to make sure that we monitor that on a daily basis, reconcile
it. And those files were missing.” Id. Stowe testified that not having the QuickBooks files
disrupted PrimePay’s business because they were “handcuffed to provide any information to clients
regarding their reconciliations and clearing of checks.” Id. at 37, 46-47. Stowe testified that the
information contained in the QuickBooks files would be of value to a competitor, who could glean
from the QuickBooks client names, amounts of their net payrolls so that a competitor could call on
these clients with the benefit of this historical data. Id. at 38, 48.
According to Stowe, Detroit was the only office from whom PrimePay did not receive
complete financial information following the consolidation, and they tried to work with Barnes to
obtain this information and he recalled that someone contacted Barnes who agreed to have
PrimePay’s accounting manager contact him about the QuickBooks files. Id. at 28, 31, 37. In fact,
it was Amy Wasilewski who asked Stowe, on or about March 17, 2014, about the QuickBooks files
and Stowe testified that he contacted Barnes and asked him to contact Amy about the QuickBooks
files. Id. at 104-05. Ms. Wasilewski never indicated to Stowe that she was unable to reach Barnes
or unable to obtain the QuickBooks information. Id. at 105-07. In fact, an email from Barnes to Ms.
Wasilewski dated March 17, 2014, the very date that Stowe reached out to Barnes, attached the
QuickBooks files with handwritten annotations explaining what information the documents relayed.
Id. at 111-12. Stowe testified that it was wrong for Barnes to retain these documents after leaving
PrimePay because “in the hands of a competitor [they] would allow you to know the financial
stability and viability of the competitor,” so that [w]hen you approach a client, you know how to
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discount . . . how far or what charges you could charge a client.” Id. at 39 (alteration added). Not
all PrimePay clients utilize the PrimeChecks service and thus not all PrimePay client names appear
on the QuickBooks documents. Id. at 49.
Also missing from the financial documentation that Barnes was supposed to migrate to
PrimePay from PrimePay-Michigan were monthly statistic spreadsheets which “measured every
business analytic from revenue sources, billing sources, sales activity, the client analysis and
breakdown by the clients of their weekly processing, their billing.” Id. at 41-42; Pl.’s Ex. 15. It was
important for PrimePay to have this historical information for PrimePay-Michigan for budgeting,
forecasting and strategic planning. Id. at 42. These business analytics, according to Stowe, would
provide a competitor with “a blueprint of revenue buildups, profitability, basically how to build a
business.” Id. at 43.
Stowe also identified exhibits offered by Plaintiff that included names of PrimePay strategic
business partners and, in some instances, the names of contacts at those strategic business partners
and clients, along with their contact information. (Id. at 50; Pl.’s Exs. 17h, I.) Stowe testified that
these documents illustrated the type of information that would appear on client management
software such as ACT! 10/2/14 Hr’g Tr. 52. ACT! is a client management software that allows one
to “track key engagements, transactions, the relationship with particular prospects, strategic business
partners.” Id. at 55. Stowe testified that this type of information would be of competitive value
because “it shows key strategic business partners that are apt to refer their clients to companies such
as PrimePay.” Id. at 57. Stowe testified that these lists of strategic business partners were assets
of PrimePay-Michigan that were purchased by PrimePay in the consolidation. Id. at 58. PrimePay
did receive client relationship information like this from other independent PrimePay offices that
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were part of the consolidation but did not receive this information from Barnes.
Id. at 54.
Plaintiff’s forensic computer expert later testified that these documents were found on Barnes’s
laptop computer which he took with him when he left PrimePay.
Stowe also identified exhibits that contained PrimePay’s confidential pricing and billing
tables, illustrating the prices charged by PrimePay for various services and payroll processing.
10/2/14 Hr’g Tr. 59-60; Pl.’s Exs. 17k, l. This information had competitive value, according to
Stowe, because a competitor would know, at least for a period of time, what products PrimePay was
offering, what they charged for those services and what they charged for payroll processing of
certain checks. 10/2/14 Hr’g Tr. 61. Stowe also identified training materials that outlined
PrimePay’s training program for its sales associates, which Stowe considered to have competitive
value. Id. at 63; Pl.’s Ex. 17m. Stowe further identified a sample monthly billing summary for all
of PrimePay’s clients at the Detroit office, showing frequency of billing (i.e. were they billed
monthly, biweekly, semi-monthly, monthly, etc.), the check charges and other ancillary charges that
were billed to each client, in sum all of the invoice charges that PrimePay would have billed these
clients. 10/2/14 Hr’g Tr. 64-65; Pl.’s Ex. 19b. Stowe testified that this information would be of
competitive value to Barnes at High Point because it would allow him to call on these clients,
knowing they are apt to outsource their payroll and knowing what they have paid for these services
in the past. Id. at 66-67.
Barnes did not have a non-compete agreement with PrimePay, id. at 71, but Stowe testified
to his belief that Barnes was still obligated to act in the best interests of PrimePay when leaving the
company, id. at 75. According to Stowe, Barnes should have turned over all files and property in
his possession to PrimePay and now has an unfair competitive advantage because High Point now
14
has “a complete history of [PrimePay’s] financial transactions, [] vulnerabilities, client names,
strategic partnerships and so forth.” Id. at 75. Stowe testified that PrimePay lost 115 clients in
2013 and had lost another 133 in 2014 as of the date of his testimony. Id. at 77. Stowe could not
state how many, if any, of those clients were lost to High Point but claimed that sources had
informed him that some had in fact gone to High Point and confirmed that some of the lost clients
did go to competitors other than High Point. Id. at 78, 97-98.
On cross-examination, Stowe conceded that PrimePay did not have an exclusive referral
relationship with its strategic partners and that any one of them could refer clients to other payroll
processing companies, including High Point, if they so chose. Id. at 90-91. The strategic business
partners were under no requirement to refer any particular number of clients to PrimePay or to do
it for any specified length of time. In fact, there was no contractual relationship at all between
PrimePay and its strategic business partners. Id. at 91-92. Stowe also acknowledged that after the
consolidation, around July, 2014, PrimePay instituted price increases at the Detroit office for various
services, including check processing, tax filing and other ancillary products. Id. at 92. PrimePay
also experienced “quite a turnover of [their] payroll specialists” after the consolidation. Id. at 98.
Stowe acknowledged that these other factors may have contributed to clients migrating to other
payroll services companies, and he conceded he had no knowledge, in any given case, why a specific
client left PrimePay. Id. at 99-100. Stowe had no information regarding whether Barnes had
accessed any of what Stowe deemed to be PrimePay’s confidential information after he left
PrimePay but Stowe believed that Barnes never should have possessed such information at any time
after leaving PrimePay. Id. at 120, 124.
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2.
Jeffrey Dorfman
Jeffrey Dorfman is the area sales manager for PrimePay in Detroit, Indianapolis and Chicago.
10/2/14 Hr’g Tr. 126. Dorfman testified about the significance of the strategic partners. He
explained that “a referral from a strategic partner closes at a very high rate which helps with the
success of our business. Secondly, it helps get our name out, improves the number of sales that we
will have in a given year. We rely on them for a good chunk of our business.” Id. at 127. He
explained that relationships with strategic business partners are forged in a “very organic” way, by
visiting them every three to four weeks and giving them “drops,” such as sweets, doughnuts and
such. Id. at 128. In his experience, the majority of clients are obtained through strategic partners.
Id. at 129. Dorfman also testified that no sales data was available to him when he took over at
PrimePay’s Detroit office. Id. at 131. When shown Plaintiff’s Exhibit 17i, Dorfman testified that
this was the type of information that he would have expected to have received from PrimePay and
that this information would have been uploaded into the Salesforce client referral management
system (“CRM”) software that was used at PrimePay after the consolidation. Id. at 134. Dorfman
testified that, although he did have a list of the current PrimePay clients when he took over sales at
PrimePay’s Detroit office, the type of information that would have been pulled from PrimePay’s
existing CRM would have been very helpful, particularly in view of the high turnover of sales
associates and the number of new sales associates coming into the territory with no background on
the client base. Id. at 134-35, 170.
The majority of Dorfman’s testimony concerned his interaction with Tracie Laskie, her
termination and her understanding, as expressed to him, of the restrictions imposed by her noncompete and non-solicitation agreements. Dorfman testified that Laskie told him that Barnes told
16
her that she could not call on former PrimePay clients when she joined High Point but that she could
“take her CPAs with her.” Id. at 144. Dorfman was able to identify a couple of clients that he was
sure had followed Laskie to High Point, including Lux Lounge. Id. at 146-47; Pl.’s Ex. 22.
Dorfman conceded, however, that he had never talked to Lux Lounge to find out why they left
PrimePay and had no idea why they decided to make the switch to High Point. Id. at 155.
3.
John Stott Matthews
Plaintiff conducted a forensic analysis of Barnes’s laptop as well as his desktop and the High
Point computers. John Stott Matthews, the forensic computer specialist who authored the Spectrum
Report, testified at the evidentiary hearing regarding the findings of that forensic exam. 10/2/14
Hr’g Tr. 176. On May 21, 2014, Matthews analyzed three computers that were located at Barnes’s
residence – a 320-gigabyte hard drive out of a Dell laptop, a 250-gigabyte hard drive out of an older
tower and a two-terabyte hard drive out of a new tower. Id. at 176-77. On June 11, 2014, Matthews
analyzed three computers that were present at the High Point offices – one belonging to Barnes, one
to his assistant Linda and one to Tracie Laskie. Id. at 177-78.
The main focus of the Spectrum analysis was on the 320-gigabyte hard drive from Barnes’s
Dell laptop that was recovered from his residence. As alleged in the Complaint, and discussed
supra, Matthews’s analysis yielded the information contained in the reports introduced by Plaintiff
in Exhibits 11-19. The reports were created by Matthews to illustrate the information that he found
on the various devices that were analyzed. Matthews created listings of the files that were found on
a device, categorized by Matthews by certain titles and omitting in certain instances particular files
to facilitate review of the information that he found. Id. at 178-79. For example, Exhibit 11b, in a
legend at the top of each page of the Exhibit, explains that the report lists the “User Files,” those that
17
are most commonly used in the business application such as .DOC, .PDF, .JPG, .TIF, that were
found on Barnes’s 320G Dell laptop, excluding for purposes of this listing the contents of the recycle
bin and excluding a Dropbox account. Id. at 179, Pl.’s Ex. 11b. The listing contained in Exhibit 11b
does not contain all of the active files on the Dell laptop, only those types of files that Matthews
defined as the most commonly used files for the business application. Id. at 180, 184-85. The
listings in Exhibit 11b excluded another file extension that appeared with frequency on the hard
drive, .ONE, that was not “originally on the radar” for the forensic analysis. Id. at 187-88. Those
files are separately listed on Exhibit 11a. Id. at 185.
Matthews explained the meaning of each of the categories or columns of data that he
included in this particular report: “Name” indicates the name given that particular file or folder by
its creator (id at 180); “File Ext.” such as .doc defines the operating system that will open that
particular file (id. at 180-81); “Del. ?” indicates a file that was deleted but did not appear in the
recycle bin (id. at 181); “Last Accessed” date can indicate the date on which a file was opened but
can also indicate the date on which the file was copied somewhere else and can be “somewhat
inconclusive” when analyzing a Windows 7 implementation of the operating system which was
utilized on the Dell laptop (id. at 181-82); “File Created” date is the date on which the file was
created on that device except when the “File Created” date is newer than the “Last Written” date,
in which case the “File Created” date would be the date that the file was copied to that device (id.
at 182); “Last Written” date relates to when a change was made to the document, such as a revision
that is saved or printing the document or simply saving the document (id. at 182); “Entry Modified”
date on this listing indicates the date on which a file is copied from one device to another but the
Entry Modified date on the Recycle Bin Report (Pl.’s Ex. 12c) indicates the date on which the file
18
was deleted (id. at 183); “Logical Size” is the size of the document in bytes (id. at 183); “Full Path”
was not well explained but appears to indicate the movement of the document on the hard drive (id.
at 183).
Another file of importance in the Spectrum analysis was the OneNote file that was found on
Barnes’s laptop. The contents of this file is listed on Plaintiff’s Exhibit 11a. Exhibit 11a lists active
files on the laptop with file extension .ONE, a Microsoft OneNote application file. Exhibit 11a also
includes some QuickBooks file types, marked by any file extension that begins with .q, that were
not included on the original QuickBooks report, Pl.’s Exs. 13, 14. 10/2/14 Hr’g Tr. 185-87.
Matthews explained that a OneNote file is an “electronic notebook where you can store different
files in an organized envelope or folder-style status.” Id. at 186-87. Matthews explained that the
OneNote files are not typically found among the active files in a business setting, so initially they
did not include an analysis of the OneNote files in their Report. Once they began the forensic
analysis, however, it became clear to them that in this instance the OneNote files were important for
the parties to review so they separately created the OneNote report reproduced in Exhibit 11a. Id.
at 187-88.
Matthews took special note with regard to a particular OneNote file listed on Exhibit 11a,
found on page 6 of Ex. 11a at the 7th entry from the bottom showing an Entry Modified date of
April 18, 2014. Matthews created a more detailed report of the information found in that file and
reproduced that information at Plaintiff’s Exhibit 17a. Matthews testified that the April 18, 2014
Last Written and Entry Modified date on Exhibit 11a indicated that the OneNote file was opened
on that date, a date after Barnes’s departure from PrimePay. ECF No. 23, Transcript of October 3,
2014 Hearing on Motion for Preliminary Injunction at 7-9 (hereinafter “10/3/14 Hr’g Tr. __.”)
19
Matthews summarized that all PrimePay files listed in Plaintiff’s Exhibits 11a and 11b, including
the detail found in Exhibit 17a, were found on Barnes’s Dell laptop. 10/2/14 Hr’g Tr. 188; 10/3/14
Hr’g Tr. 8.
Also found on the Dell laptop were a number of PrimePay QuickBooks-related files which
are separately listed on Plaintiff’s Exhibit 13a. As Matthews explained earlier in his testimony, on
this report where the path indicates recycle bin, the Entry Modified date is the date that the file was
deleted. Id. at 193. Matthews found it significant that on May 1, 2014, the date on which Barnes
received a cease and desist and document preservation letter from Plaintiff’s counsel at 1:03 p.m.
(Pl.’s Ex. 7), several files containing PrimePay related descriptions were deleted from the Dell
laptop between 6:57 and 7:15 p.m. that same day. Id. at 192-94. Matthews also found it significant
that on November 4, 2013, a date after Barnes allegedly knew about the consolidation but before he
left the company, there was a lot of activity with regard to the PrimePay QuickBooks files that were
on the Dell laptop. Id. at 194-95; 10/3/14 Hr’g Tr. 5-6. The contents of the large QuickBooks file,
202 megabytes (202,072,064), listed as the first entry on Exhibit 13a, is reproduced in greater detail
in Plaintiff’s Exhibits 14a-c. Id. at 6-7. Exhibits 14a-c contain December, 2013 profit and loss
detail for PrimePay-Michigan as well as customer deposit detail for PrimePay-Michigan for
December, 2013.
Matthews also noted the significance of a large Outlook mailbox file
(approximately 3.9 gigabytes) for rbarnes@primepay.com that was listed among the files on Exhibit
11b, at page 4 of Exhibit 11b (page 14 of Exhibit 11), eleven lines from the bottom of that page. Id.
at 9-10. In addition to the size of this file, Matthews found it significant that the Last Written date
of March 26, 2014, which he explained in a mailbox application means the date on which the file
was either opened or closed, indicating that Barnes went into his PrimePay mailbox on his laptop
20
computer on March 26, 2014, after he had resigned from the company. Id. at 10-11.
Matthews also found of interest several files located on Barnes’s Dell laptop in the Dropbox
folder and created a separate report listing folders in the Dropbox identified as containing PrimePay
materials. See Pl.’s Ex. 10a. Analyzing the Dropbox related materials on Barnes’s Dell laptop,
Matthews was able to determine that two folders, one titled “PrimePay” and one titled “New
Folder,” were deleted from the Dropbox sometime after Barnes left the company. 10/3/14 Hr’g Tr.
18-20. Matthews was able to determine that the “New Folder” was deleted on May 4, 2014 (id. at
20-21) and the “PrimePay” folder sometime between April 21, 2014 and May 21, 2014 (id. at 2223). The “New Folder” contained PrimePay monthly spreadsheets with confidential operating
metrics for PrimePay, e.g. check counts, discounts, monthly billing, outstanding balance, for each
month from approximately 2000 to 2012, as set forth in Plaintiff’s Exhibit 15. These files were
active on Barnes’s Dell laptop when he left PrimePay and were deleted on May 4, 2014, after his
resignation and after Barnes received the cease and desist/document preservation letter on May 1,
2014. 10/3/14 Hr’g Tr. 20-21. Matthews did not generate a separate report for the contents of the
“New Folder” but included a description of the contents of that folder in his Report. Id. at 32-33.
The contents of the “PrimePay” folder, detailed in Plaintiff’s Exhibit 10b, were deleted from the Dell
laptop sometime between April 12, 2014 and May 21, 2014. Id. at 22-23.2
Matthews also found it notable in his analysis of the files in the Recycle Bin on the Dell
laptop that many files, approximately 140, were deleted on May 1, 2014, at approximately 7:00 p.m.,
the date on which Barnes received the cease and desist/document preservation letter. Id. at 35-36.
2
This analysis is also supported by additional screenshots and further analysis contained in
Matthews’s Report, Plaintiff’s Exhibit 9, which was admitted into evidence at the preliminary
injunction hearing without objection from Defendants. 10/3/14 Hr’g Tr. 26.
21
Finally, Matthews testified regarding an analysis he conducted of certain client management
relationship files that were found on Barnes’s Dell laptop. Pl.’s Ex. 16. This analysis purports to
demonstrate that before Barnes left PrimePay, sometime in November, 2013, he copied ACT! files
from the PrimePay desktop computer that he left at PrimePay onto his Dell laptop. Id. at 24-29.
Matthews testified that he retrieved “very, very few” files on the High Point computers
because the majority of activity used to run the High Point computers was done using a cloud-based,
or Internet-based application and he did not have access to the High Point cloud-based system at the
time he performed his analysis. 10/3/14 Hr’g Tr. 11-12. Matthews found a few webmail artifacts
that were located in unallocated clusters (or empty space on the hard drive) on the High Point
computers. Id. at 13-14.
On cross-examination of Matthews, Defendants sought clarification of those files that
Plaintiff claims that Barnes actually accessed after his resignation. Id. at 42-43. Other than the
PrimeChecks files accessed on March 17, 2014, the date on which Amy Wasilewski asked Barnes
to send her the PrimeChecks data, the only other PrimePay related files that Plaintiff claims Barnes
accessed after his departure are (1) Exhibit 17a, the OneNote file discussed supra and (2) the file
activity on Exhibit 11b, page 4, discussed supra, that indicates that Barnes accessed his PrimePay
mailbox on March 26, 2015. Id. at 45. Specifically, with regard to the “New Folder” and
“PrimePay” folders that appear to have been deleted on May 4, 2014 and between April 12, 2014
and May 21, 2014, Pl.’s Exs. 15 and 10b respectively, Matthews had no idea when those folders or
files were last accessed. Id. at 45-47.
4.
John Allen
John Allen is the vice president of information security and governance for PrimePay.
22
10/3/14 Hr’g Tr. 61. Allen worked with PrimePay’s Human Resource Department to create the
company’s Technology Policy, which was first distributed to managers on January 1, 2014. (Pl.’s
Ex. 4.) Allen testified that Barnes was required to comply with this policy. Id. at 63. According
to Allen, Barnes was in charge of protecting confidential information from the Detroit PrimePay
office. Id. Allen testified that Barnes deleted over 2,000 files from the PrimePay server sometime
between March 6, 2014 and March 16, 2014, when Barnes left the company. Id. at 66; Pl.’s Ex. 19a.
Allen testified that deleting these files from the server was a violation of the PrimePay Technology
Policy. Id. at 67. Allen also testified that there were copies of the ACT! client referral management
data on the PrimePay server but that he did not have the passwords to access that data. Id. at 68.
Allen testified that Barnes’s Dell laptop was the property of PrimePay, not the property of Tobin and
should never have been sold to Barnes. Id. at 69. Barnes was not authorized to access any PrimePay
files following his resignation, including his Outlook email account. Id. at 70. Of the 2,000 files
listed on Exhibit 19a, Allen did not undertake to determine which files or folders were in fact
PrimePay related and conceded that many of the files contained photographs and music, which were
not to be kept on the PrimePay server. Id. at 72-73. Allen also acknowledged that there were some
300 referral contacts that were on the PrimePay server that were able to be added to the PrimePay
Salesforce database. Id. at 75.
5.
Randall Barnes
Barnes has a long history in the payroll services industry. Barnes got to know Chris Tobin
in the early 1980's when Barnes was employed as a regional manager at Paychex in the Detroit
office. 10/3/14 Hr’g Tr. 77. Barnes hired Tobin and moved him to the Paychex branch in
Indianapolis. Barnes occupied a management position at Paychex for seven years and had
23
responsibility for establishing and growing branch offices. Id. at 78. The principal way that
Paychex sought out, obtained and secured customers was by hiring salespeople to call on CPAs. Id.
Barnes left Paychex and went to a company called ABOW and became the chief operating officer.
Id. at 79. Barnes returned to the payroll industry in 1999 when Tobin contacted him about wanting
to leave Paychex and start his own payroll services company. Id. Ultimately, a number of
individuals got together to form PrimePay and Tobin asked Barnes if he would be interested in
opening up a Detroit PrimePay office, to which Barnes responded “absolutely.” Id. at 81. Tobin
and his wife would be the owners and Barnes would run and manage the Detroit office. Id. at 82.
The expectation was that Barnes would become a 50% owner. He began the Detroit office with zero
clients and when he left in 2013, the branch had over 950 clients. Id. at 82.
Barnes instituted the ACT! client management software program at PrimePay-Michigan in
about 2003. Prior to that time, sales associates were keeping pencil records. Id. at 83. The software
enabled PrimePay to keep track of contacts and to record activities with those contacts. If Barnes
called on a CPA he would record that activity and schedule a follow-up meeting. He instructed his
sales associates to do the same thing. Id. at 84. Each sales associate maintained their own ACT!
database and then they would all sync the database at their sales meetings. Id. at 85. This resulted
in a large, active database with probably several thousand entries that was backed up on Barnes’s
computer. Id. at 85-86. They used ACT! up until sometime in 2013 when the salespeople were no
longer comfortable with the ACT! software, finding it too “clumsy.” Id. at 85. They began using
a new client management software called Landslide which Tobin was using in Indianapolis and
began entering client and contact information into that new database because a single
synchronization with ACT! was not possible. Id. at 86. The salespeople were not happy with
24
Landslide either so the company migrated to Pipeline which was cloud-based, and ultimately were
not happy with that product either. Id. at 87-88. Before he could even begin to attempt to put the
data collected in Landslide into Pipeline, in February, 2014, rumblings of the consolidation began
and the word was that everyone would be migrating to Salesforce. Id. at 88. Barnes left in March,
2014 and did not see Salesforce installed. Id. Barnes testified that he did not like any of the other
CRM software programs that they tried and decided just to stay with ACT! so in late 2013 he created
RBarnes Personal ACT! to maintain his PrimePay activity. Id. at 89. Barnes’s last day in the
PrimePay office was March 13, 2014. Id. at 90. Barnes thought that he left the general ACT!
Database on the PrimePay server; he did not intentionally delete any of the ACT! data and no one
ever asked him for his ACT! Password. Id. at 90-91. The Randy Personal ACT! database contained
only Barnes’s personal contacts and calendar, if he personally dealt with a client or fixing a problem,
and the personal ACT! database did not contain any of the other salespeople’s contact information.
Id. at 163.
Barnes testified that he used a laptop computer (he had several different laptops over the
course of his employment, id. at 94) for 12 of his 15 years at PrimePay. Id. at 93. He used it to
access the office remotely so that he could work from home, took it to client meetings to
demonstrate services and illustrate products and he used it for QuickBooks. Id. at 93-94. He used
QuickBooks to record the financial records of the company and also to prepare company tax returns.
He recorded sales through a statistics file that would provide him with monthly reports. He did not
record sales individually by customer in QuickBooks. Id. at 95-96. Barnes explained that the
customer names that are seen in some of the QuickBooks files are the PrimeChecks clients, a small
group of 20 or 25 customers (out of 950-1,000) who used the PrimeChecks service. Id. at 96. The
25
QuickBooks files contained no information about pricing or billing customers. Id. at 97.
Barnes was told by Tobin that the QuickBooks files were still PrimePay-Michigan files and
were to be used to prepare the 2014 tax return for PrimePay-Michigan. Id. at 98. Also, after the
consolidation, Barnes continued to be the sole signatory on the PrimePay LLC checking account and
on the PrimeChecks account and continued to enter those transactions into the QuickBooks. Id. at
102-03. Also, at Amy Wasilewski’s request, Barnes did the reconciliation for the February, 2014
QuickBooks after his resignation and sent a paper copy to Ms. Wasilewski sometime after his
resignation on March 3, 2014. Id. at 104. She asked for an electronic copy, which Barnes did not
get to before he left and he still had the QuickBooks on his laptop as he was intending to prepare the
tax return for Tobin. Id.
At some point after Barnes resigned, Stowe called Barnes and explained that Ms. Wasilewski
needed the QuickBooks reconciliation report, which Barnes prepared and sent to Ms. Waslewski on
March 17, 2014. Barnes told her at that time that he needed to keep the QuickBooks so that he could
prepare the tax return, to which she had no objection. Id. at 105. Barnes explained that the March
17, 2004 Last Written dates in Plaintiff’s Exhibit 12c related to his sending Ms. Wasilewski the
QuickBooks reconciliation reports. Id. at 106. Barnes explained that the typewriting on the top of
the first page of Plaintiff’s Exhibit 17g was put there by him and that this was the attachment that
Barnes sent to Wasilewski on March 17, 2004. Id. Barnes explained that Defendants’ Exhibit 6,
a March 17, 2014 email from him to Ms. Wasilewski, was the email to which the QuickBooks
information was attached, as explained in the email. Id. at 107-08.
Barnes also explained that Tobin, whom Barnes believed to be a member of PrimePay, LLC,
the Plaintiff in this case, was aware that Barnes still had the QuickBooks files after he left PrimePay,
26
as illustrated by an email that Tobin sent to Barnes on March 25, 2014, thanking Barnes for sending
Tobin a repeat copy of the tax return that Barnes had prepared. Id. at 101, 108-09. Barnes testified
that Tobin was absolutely aware that Barnes was taking the QuickBooks information with him on
his laptop because Tobin had instructed Barnes to finish certain financial transactions that required
the QuickBooks and to prepare the tax return, which also required the QuickBooks. Id. at 109-10.
When asked about Plaintiff’s Exhibits 14a, b, and c, the sample PrimePay QuickBooks files
found on Barnes’s Dell laptop, Barnes saw no competitive value to High Point in the information
contained in these documents because the PrimeChecks product is not offered by High Point. Id.
at 113-14. Similarly, with regard to the monthly statistical reports contained in Plaintiff’s Exhibit
15, Barnes testified that he used this information at PrimePay to follow trends but would find it of
no value to him at High Point. Id. at 116. Barnes testified that he was unaware that he had retained
this information on his laptop when he left PrimePay and that the last time he accessed this
information was when he prepared the budget for Stowe in early March, 2014, before he left
PrimePay. Id. at 116-17. Barnes testified that before he left PrimePay, he tried to delete from his
laptop those files that he thought were PrimePay related. Id. at 117.
With regard to Plaintiff’s Exhibit 17a, the reconciliation detail for the QuickBooks files that
Plaintiff suggests was accessed by Barnes on April 18, 2014, after his departure from PrimePay,
Barnes had no recollection of opening this OneNote file on that date. Id. at 118. He noted that
nothing in the title of the file would have alerted him that it contained PrimePay information and he
stated that he may have looked at it to see what it was but had no recollection of doing so. Id. at
118-19. Barnes also found nothing in Exhibit 17a that would have been of competitive advantage
to him at High Point as it contained information pertaining to PrimeChecks, a product that High
27
Point does not even offer. Id. at 120. With regard to Plaintiff’s Exhibits 17b-e, PrimePay material
that the Spectrum analysis concludes was deleted on May 1, 2014 (see Pl.’s Ex. 12c), Barnes
testified that the information contained in these exhibits related to the reconciliation detail provided
to Ms. Wasilewski on March 17, 2014 and he testified that none of the information would be of
competitive value to him at High Point. 10/3/14 Hr’g Tr. 120-22. With regard to Exhibits 17f-m,
Barnes recognized these as PrimePay documents but testified that he never accessed them after
leaving PrimePay and would find none of them competitively advantageous to conducting business
at High Point. Id. at 122-26.
Regarding the listing on Plaintiff’s Exhibit 11b that Plaintiff alleges demonstrates that Barnes
accessed his PrimePay Outlook mailbox on March 26, 2014, after his departure, Barnes did not
recall for certain whether he accessed that account on that date but did recall that about that time he
did set up his High Point Outlook mail account and may have had to access the old PrimePay
Outlook mailbox in order to do that. Id. at 126-27. Barnes testified that as of March 26, 2014, he
was still in the process of evaluating software for High Point and purchasing equipment and had not
even found office space or hired any employees as of that time. Id. at 127.
Barnes explained that when he began working for Tobin to set up PrimePay-Michigan, they
discussed a non-compete and agreed that setting up a competing business at least 50 miles away
seemed like a reasonable restriction, but they never actually executed a non-compete. Id. at 130.
However, out of respect for those discussions, when Barnes left PrimePay he informed PrimePay
that he would be setting up a competing business and he ultimately located High Point 50.5 miles
from the PrimePay offices. Id. at 129-30. Barnes testified that he did not believe he was under any
restriction when he left PrimePay not to solicit PrimePay clients but nonetheless he has not solicited
28
any former PrimePay clients and has never used any confidential information that he retained in his
“head.” Id. at 130. Barnes believed that when he left PrimePay he had deleted everything that
would have been PrimePay related from his laptop, that he did not take anything knowingly, other
than the QuickBooks file and the tax returns, and would not have used anything had he inadvertently
retained it and come across it at High Point. Id. at 131, 161. Barnes concedes now that much of the
information that he had on his laptop, which he claims he did not know was still there, was in fact
PrimePay’s confidential information. Id. at 185-87, 197-201. He steadfastly maintains, however,
that he did not know that such confidential information was on his laptop. Id. at 202.
When asked about the deletions from his laptop that appeared to have occurred on May 1,
2014, the same day that Barnes received the cease and desist/document preservation letter, and about
apparently deleting the “New Folder” containing statistical spreadsheets on May 4, 2014, Barnes
admitted receiving the letter and explained as follows:
When I received this letter, I read it, and when I got to Mr. Jenkins’ signature, I
didn’t pay attention to the bottom part. It looked like boilerplate. It looked like,
“This is confidential, if you’re not the recipient, please delete it,” that kind of
language, and I honestly didn’t read it.
I – obviously, by getting the lawsuit, I sat down and said “Okay, I need to look and
see if there’s anything out there that shouldn’t be out there.” I did some deleting
because I found some. I apparently did that again on the 4th. It wasn’t in response
to this letter because I hadn’t read it, that portion of it. I know ignorance is no
excuse, but I hadn’t read it. It wasn’t until I had gotten the letter to counsel and sat
down that it was pointed out to me, at which point I didn’t do anything else.
10/3/14 Hr’g Tr. 132-33. Barnes testified that after he received the cease and desist/document
preservation letter, he authorized his attorney to offer to give back the QuickBooks files or dispose
of them in any other manner that Plaintiff might choose. Id. at 140. He clarified that he purchased
the Dell laptop from Tobin with his full approval, as evidenced by correspondence between Barnes
29
and Tobin in January, 2014, in which Tobin “okayed” Barnes’s purchase of the laptop. Id. at 14243; Defs.’ Ex. 4. At that time, it was Barnes’s understanding that Tobin was a member and an
officer of PrimePay, the Plaintiff. 10/3/14 Hr’g Tr. 144.
Barnes testified that at his exit interview he informed the regional sales manager who was
there in the office with him, and Jamie Press, the HR manager from PrimePay in Philadelphia, who
was on the telephone, that he was planning to start a competing company. Id. at 155. With regard
to the hiring of Laskie, Barnes testified that he advised her to talk to her attorney about what she
could and could not do if she came to work for High Point and informed her that if High Point was
sued due to her conduct after leaving PrimePay, she would be responsible for her own attorney fees.
Id. at 133-34. He advised her to leave PrimePay “clean,” and not to take anything with her,
including paper documents and electronic files. Id. at 161. Barnes did not believe that Laskie was
precluded from talking to referral sources, such as CPAs. 10/6/14 Hr’g Tr. 20-22.
Barnes acknowledged that client contacts and goodwill developed by him during his time
at PrimePay belonged to PrimePay, not to him personally. Id. at 168. Barnes stated that he believed
that the recorded information regarding clients and referral sources was confidential but that the
people were not confidential - the fact that the information was written down somewhere in a
database was confidential but not their identities. Id. at 169-70. Regarding the relationships with
strategic business partners, Barnes testified that he never considered those relationships to be
“assets” of PrimePay and that he continually told his salespeople “they had to kill [their] meat
everyday . . . to go out everyday and meet with those CPAs and reaffirm that they’re willing to refer
to us.” Id. at 193.
30
Regarding his decision to leave PrimePay, Barnes testified that he felt he was “pushed out,”
because his job as president was eliminated and his salary to remain as a “client services manager”
was going to be drastically lower ($210,000 to $80,000) than his salary had been as president of
PrimePay-Michigan. Id. at 178, 179-80. In his filings with the United States Bankruptcy Court for
the Eastern District of Michigan, Barnes stated that his position had been eliminated. Id. 179.
Barnes did not receive a severance package from PrimePay. Id. at 181. Barnes conceded that when
he filed to convert his Chapter 13 bankruptcy proceeding to a Chapter 7 proceeding based on his
“constructive termination” from PrimePay, he in fact could have stayed at PrimePay and continued
to receive a salary of $80,000/year. Id. at 183-84. Barnes also conceded that his attorney filed on
his behalf a motion to terminate spousal support in Oakland County Circuit Court on March 28,
2014, representing that Barnes had “retired” when in fact at that time he had already incorporated
High Point. ECF No. 24, Transcript of Preliminary Injunction Hearing held on October 6, 2014 at
10-13 (hereinafter 10/6/14 Hr’g Tr. __.”) Barnes explained that because he was using retirement
monies to fund High Point, he considered it retirement activity. Id. at 13. Barnes testified that he
believed he was forced to retire from PrimePay because he could not survive on $80,000/year. Id.
at 63.
6.
Tracie Laskie
Barnes and Laskie both testified regarding the circumstances under which approximately 27
former PrimePay clients came to High Point. Id. at 28-40; 44; Defs.’ Ex. 8. Many of the 27 clients
came as a result of Laskie’s relationships with certain CPAs and other referral sources and she
explained as to each client the circumstances under which they left PrimePay to go to High Point.
ECF No. 25, Transcript of Preliminary Injunction Hearing held on October 7, 2014 at 30-41
31
(hereinafter “10/7/14 Hr’g Tr. __.”) With regard to relationships with CPAs and other referral
sources, Laskie testified as follows:
[A] payroll company does not own a CPA. We work to establish a relationship with
them to get them to refer business to us, but we don’t own them, so I cannot force a
CPA to refer to me or anyone else. I just work that relationship.
*
*
*
[H]onestly, I think the CPAs refer to me more than the company that I worked for
because – so I honestly believe that, you know, when you work for a payroll
company, it’s really honestly the relationship that the salesperson develops with the
CPAs that gets the referrals, and it wouldn’t matter if I left and went to another
payroll company. If they don’t want to work with PrimePay, they’re not going to
work with PrimePay.
Id. at 57, 63. Laskie testified that when she joined PrimePay, she contacted the same CPAs with
whom she had relationships at Paychex and that she was only prohibited from soliciting Paychex
clients, not from contacting CPAs and other referral sources. Id. at 57. She testified that when she
joined PrimePay, there were no CPA relationships in place that she assumed – she developed
everything in her territory. Id. at 66.
Laskie testified that Barnes did not solicit her. Rather, she contacted him for a letter of
reference when she decided to leave PrimePay and it was then that they discussed the possibility of
her coming to work for High Point. Id. at 19. She testified that Barnes was “very apprehensive” of
hiring her because of the non-solicitation Laskie had signed and only agreed to hire her after
Laskie’s counsel had reviewed her agreements with PrimePay. Barnes told her to “leave clean” and
she did. She did not take client names, files or any PrimePay information with her. Id. at 20.
Laskie testified that she did not directly solicit any former PrimePay clients while working at High
Point but that several former customers did contact her, some expressing dissatisfaction with
PrimePay’s increased prices. Id. at 40.
32
II.
PRELIMINARY INJUNCTION STANDARDS
A preliminary injunction is “an extraordinary remedy that may only be awarded upon a clear
showing that the plaintiff is entitled to such relief.” Winter v. Natural Resources Defense Council,
Inc., 555 U.S. 7, 22 (2008) (citation omitted). Plaintiff bears the burden of demonstrating
entitlement to preliminary injunctive relief and the burden is substantial. Leary v. Daeschner, 228
F.3d 729, 739 (6th Cir. 2000). Such relief will only be granted where “the movant carries his or her
burden of proving that the circumstances clearly demand it.”
Overstreet v. Lexington-Fayette
Urban County Gov’t, 305 F.3d 566, 573 (6th Cir. 2002). When considering a motion for injunctive
relief, the Court must balance the following factors: (1) whether the movant has a strong likelihood
of success on the merits, (2) whether the movant would suffer irreparable injury absent preliminary
injunctive relief, (3) whether granting the preliminary injunctive relief would cause substantial harm
to others, and (4) whether the public interest would be served by granting the preliminary injunctive
relief. Certified Restoration Dry Cleaning Network, L.L.C. v. Tenke Corp., 511 F.3d 535, 540 (6th
Cir. 2007). “These factors are not prerequisites, but are factors that are to be balanced against each
other.” Overstreet, 305 F.3d at 573. “The proof required for the plaintiff to obtain a preliminary
injunction is much more stringent than the proof required to survive a summary judgment motion.”
Leary, 228 F.3d at 739. Plaintiff must do more than just “create a jury issue,” and must persuade
the court that it has a likelihood of succeeding on the merits of its claims. Id. “This is because the
preliminary injunction is an extraordinary remedy involving the exercise of a very far-reaching
power, which is to be applied only in [the] limited circumstances which clearly demand it.” Id.
(internal quotation marks and citation omitted) (alteration in original). “Although no one factor is
controlling, a finding that there is simply no likelihood of success on the merits is usually fatal.”
33
Gonzales v. Nat’l Bd. of Medical Examiners, 225 F.3d 620, 625 (6th Cir. 2000).
III.
ANALYSIS
While Plaintiff’s Eleven-Count Complaint sets forth a host of claims against Defendants, the
motion for preliminary injunctive relief is limited to Plaintiff’s trade secret, tortious interference and
breach of fiduciary duty claims.3
A.
PrimePay’s Misappropriation of Trade Secrets Claim
1.
The MUTSA
Plaintiff seeks injunctive relief under Michigan’s Uniform Trade Secrets Protection Act,
Mich. Comp. Laws § 445.1901 et seq. (“MUTSA”). A “trade secret” is defined under MUTSA as:
[I]nformation, including a formula, pattern, compilation, program, device, method,
technique, or process, that is both of the following:
(I) 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.
(ii) Is the subject of efforts that are reasonable under the
circumstances to maintain its secrecy.
Mich. Comp. Laws 445.1902(d).
Thus, a protectable trade secret under the MUTSA must be shown (1) to derive independent
economic value from not being generally known, or discoverable through proper means, to others
and (2) have been subject to reasonable efforts to maintain its secrecy. Mike’s Train House, Inc. v.
Lionel, L.L.C., 472 F.3d 398, 410 (6th Cir. 2006) (“For information to constitute a trade secret under
3
Plaintiff also sought preliminary injunctive relief against Tracie Laskie but Laskie has since been
dismissed from the case pursuant to a stipulated permanent injunction entered by the Court on
October 7, 2014 (ECF No. 21, Stipulated Permanent Injunction).
34
Michigan law, the information must (1) derive economic value from the fact that it is not known to
others who could make use of it, and (2) be the subject of efforts that are reasonable under the
circumstances to maintain its secrecy.”).
In determining whether information constitutes a trade secret under MUTSA, Michigan
courts consider the following factors:
(1) extent to which information is known outside of owner’s business, (2) extent to
which information is known by employees and others involved in business, (3) extent
of measures taken to guard secrecy of information, (4) value of information to
owners and competitors, (5) amount of effort and money expended in developing
information, and (6) ease or difficulty with which information could be properly
acquired or duplicated by other.
Dura Global Techs., Inc. v. Magna Donnelly Corp., 662 F. Supp. 2d 855, 859 (E.D. Mich. 2009)
(quoting Wysong Corp. v. M.I. Indus. ., 412 F. Supp. 2d 612, 626 (E.D. Mich. 2005)). “‘To be a
trade secret, the information must, of necessity, be a secret.’” Dura Global, 662 F. Supp. 2d at 859
(quoting Kubik, Inc. v. Hull, 56 Mich. App. 335, 347 (1974)). “Trade secrets do not ‘encompass
information which is readily ascertainable, i.e., capable of being acquired by competitors or the
general public without undue difficulty of hardship.’” Dura Global, 662 F. Supp. 2d at 859 (quoting
Kubik, 56 Mich. App. at 348). “Matters of public knowledge or general knowledge in the industry,
or ideas which are well known or easily ascertainable, cannot be trade secrets.” Allis-Chalmers Mfg.
Co. v. Continental Aviation and Engineering Corp., 255 F. Supp. 645, 654 (E.D. Mich. 1966) “‘[I]t
is widely accepted that a trade secret can exist in a combination of characteristics each of which, by
itself, is in the public domain.”) Mike’s, 472 F.3d at 411 (quoting Catalyst & Chem. Servs., Inc. v.
Global Ground Support, 350 F. Supp. 2d 1, 9 (D.D.C. 2004)) (alteration in original). “[U]nder
Michigan law a new combination of known steps or processes can be entitled to trade-secret
protection.” Mike’s, 472 F.3d at 411. Knowledge developed by an employee about how to address
35
a particular customer’s peculiar needs, or having developed solutions to specialized needs, can
constitute a trade secret. See Hayes-Albion v. Kuberski, 421 Mich. 170, 184-85 (1985) (“Specific
information regarding resolution of the problems of a particular customer is a trade secret” and use
of such information can be enjoined if a departing employ uses such “secret processes” in providing
for that customer’s needs on behalf of his new employer). “[E]vidence demonstrating that the
information plaintiff sought to protect was common knowledge,” can defeat a claim of
misappropriation. Id. at 186.
“An employer’s ‘pricing schemes, the details of its customer contacts, its markups, [and]
employee information’ are examples of possible ‘trade secrets’ under the MUTSA.” Kelly Servs.,
Inc. v. Greene, 535 F. Supp. 2d 180, 187 (D. Me. 2008) (interpreting Michigan’s trade secret act)
(quoting Kelly Servs., Inc. v. Eidnes, 530 F. Supp. 2d 940, 951-52 (E.D. Mich. 2008)(alteration in
original). However, “a list of customers compiled by a former employee from personal and public
sources available to that employee is not protectable as a trade secret.” Raymond James & Assoc.,
Inc. v. Leonard & Co., 411 F. Supp. 2d 689, 695 (E.D. Mich. 2006).
“‘A plaintiff in a trade secrets case bears the burden of pleading and proving the specific
nature of the trade secrets.’” Dura Global, 662 F. Supp. 2d at 859 (quoting Wilson v. Continental
Dev. Co., 112 F. Supp. 2d 648, 662 (W.D. Mich.1999)). “‘A party alleging trade secret
misappropriation must particularize and identify the purported misappropriated trade secrets with
specificity.’” Dura Global, supra at 859 (quoting Compuware Corp. v. Int'l Business Machines,
2003 WL 23212863, *6 (E.D. Mich. Dec. 19, 2003)).
Thus, the claimed trade secret must be
specifically identified, and its unique economic value explained:
Michigan courts have held that an alleged trade secret must be identified “clearly,
unambiguously, and with specificity.” Utilase, Inc. v. Williamson, No. 98–1233,
36
98–1320, 1999 WL 717969, at *6 (6th Cir. Sept.10, 1999) (quoting Shatterproof
Glass Corp. v. Guardian, Glass Co., 322 F. Supp. 854, 867 (E.D. Mich. 1970)).
Accordingly, “[a] party alleging trade secret misappropriation must particularize and
identify the purportedly misappropriated trade secrets with specificity.” Compuware
Corp. v. Intern. Bus. Machs. Corp., 2003 WL 23212863, at *6 (E.D. Mich. Dec.19,
2003). (citing Utilase, 1999 WL 717969, at *6). The identification of alleged trade
secrets is important because “the general knowledge of an employee does not
constitute a trade secret,” Lowry Holding Co., Inc. v. Geroco Tech Holding Corp.,
No. 303694, 2012 WL 1890231, at *3 (Mich. Ct. App. 2012), and the concept of
misappropriation of trade secrets “must not compromise the right of employees to
change jobs.” Degussa Admixtures, Inc. v. Burnett, 277 F. App'x 530, 535 (6th Cir.
2008). Accordingly, to establish a trade-secrets claim, the party “must establish more
than the existence of generalized trade secrets and a competitor’s employment of the
party’s former employee who has knowledge of trade secrets.” Id. (quoting CMI Int'l,
Inc. v. Intermet Int’l Corp., 251 Mich. App. 125, 649 N.W.2d 808, 813 (2002)).
Dana Ltd. v. American Axle and Mfg. Holdings, Inc., No. 10-450, 2012 WL 2524008, at *9 (W.D.
Mich. June 29, 2012).
“Sufficient measures” taken to protect confidential information as a trade secret under
MUTSA have been found in “‘either an express agreement between the employer and employee
restricting or prohibiting disclosure by the latter to third parties; a disclosure by employer to
employee in confidence or with a tacit understanding, inferable from the attendant circumstances,
that the information is confidential; or security precautions utilized by the employer to insure that
only a limited number of authorized individuals have access to the information.’” Wysong Corp.
v. M.I. Ind., 412 F. Supp. 2d 612, 626 (E.D. Mich. 2005) (quoting Kubik Inc. v. Hull, 56 Mich. App.
335, 347-48 (1974)). A departing employee need not be subject to a covenant not to compete in
order to violate the MUTSA where the employee agreed to keep his employer’s confidential
information protected from disclosure to others and, upon departure, retains and discloses or
threatens to disclose those secrets in the course of his subsequent employment. Henkel Corp. v. Cox,
386 F. Supp. 2d 898, 903-04 (E.D. Mich. 2005) (although not subject to a covenant not to compete,
37
defendant did sign an agreement forbidding disclosure of confidential information and evidence of
his subsequent utilization of his former employer’s secret formula for the benefit of his new
employer demonstrated a likelihood of success on the claim of actual or threatened misappropriation
under the MUTSA).
The MUTSA defines misappropriation as either of the following:
(I) Acquisition of a trade secret of another by a person who knows or has reason to
know that the trade secret was acquired by improper means.
(ii) Disclosure or use of a trade secret of another without express or implied consent
by a person who did 1 or more of the following:
(A) Used improper means to acquire knowledge of the trade secret.
(B) At the time of disclosure or use, knew or had reason to know that
his or her knowledge of the trade secret was derived from or through
a person who had utilized improper means to acquire it, acquired
under circumstances giving rise to a duty to maintain its secrecy or
limit its use, or derived from or through a person who owed a duty to
the person to maintain its secrecy or limit its use.
(C) Before a material change of his or her position, knew or had
reason to know that it was a trade secret and that knowledge of it had
been acquired by accident or mistake.
Mich. Comp. Laws § 445.1902.
Although “threatened misappropriation” has not been expressly adopted by Michigan courts,
“[t]o establish threatened misappropriation, a party must specifically identify the trade secret likely
to be misappropriated and must convince the court of the former employee’s “duplicity” by
proffering evidence indicating a significant lack of candor or willingness to misuse trade secrets.”
Gene Codes Corp. v. Thomson, No. 09-14687, 2011 WL 611957, at *5 (E.D. Mich. Feb. 11, 2011)
(citing and quoting from CMI Intern., Inc. v. Intermet Intern. Corp., 251 Mich. App. 125, 649
(2002)) (citations omitted).
38
“A trade secret will not be protected by the extraordinary remedy of injunction on mere
suspicion or apprehension of injury. There must be a substantial threat of impending injury before
an injunction will issue.” Allis-Chalmers, 255 F. Supp. at 654. See also Kelly Servs., Inc. v.
Marzullo, 591 F. Supp. 2d 924, 942 (E.D. Mich. 2008) (“It is well established that an injunction will
not lie upon the mere apprehension of future injury or where the threatened injury is speculative or
conjectural.”) (internal quotation marks and citations omitted). Where “evidence and arguments
[are] presented in support of both parties’ contentions” in a trade secrets case, and plaintiff fails to
identify an actual lost customer, plaintiff cannot establish “a substantial likelihood of success on the
merits” and injunctive relief is not warranted. Kelly Servs., Inc. v. Pinstripe, Inc., No. 06-10801,
2006 WL 2796018, at * 5 (E.D. Mich. Sept. 27, 2006).
2.
Likelihood of success on Plaintiff’s MUTSA claim.
Every company is entitled to protection of its trade secrets, but the nature of the product and
the transparency of the industry metrics in general cannot be ignored in evaluating a
misappropriation claim. For example, this case involves payroll processing services, not the formula
for Coca Cola. In this case, it appears undisputed that Barnes, who has been in the payroll services
industry for over 20 years, left PrimePay and retained electronically stored, confidential PrimePay
information on his Dell laptop. But his retention of PrimePay’s confidential information, while it
may or may not have violated other laws or contractual obligations, does not, standing alone, amount
to misappropriation of trade secrets. Raymond James, 411 F. Supp. 2d at 695 (“‘[A]n interest in
maintaining confidentiality may not, in itself, necessarily elevate information to the status of a trade
secret.’”) (quoting Merrill Lynch v. E.F. Hutton & Co., 403 F. Supp. 336 (1975)) (alteration in
original).
39
Plaintiff bears the burden of establishing a claim of misappropriation of trade secrets and
must (1) “particularize and identify” the material that it claims qualifies for trade secret protection,
(2) establish the independent economic value of the material, (3) establish the measures taken to
protect the material and maintain its secrecy, (4) establish that Barnes actually disclosed or used the
information or evidenced a lack of candor and willingness to misuse the information. At the very
least, it is undisputed that much of the information retained on Barnes’s laptop was PrimePay’s
confidential business information and even Barnes agrees that he should not have retained such
information on his laptop as he set off to establishing a competing business.
a.
Identification of the alleged “trade secrets”
To be characterized as “trade secrets,” the information PrimePay seeks to protect must be
shown to (1) derive independent economic value from not being generally known, or discoverable
through proper means, to others and (2) have been subject to reasonable efforts to maintain its
secrecy. Martin Stowe testified that in his opinion, the QuickBooks files, the monthly statistics
spreadsheets which measured several business analytics including revenue sources and sales activity,
were confidential PrimePay information that qualified as trade secret material. Stowe also testified
to the systems in place at PrimePay to password protect this information, which is likely sufficient
to establish reasonable efforts to maintain the secrecy of this information.4
Very little evidence was presented, however, to establish that any of this information derives
independent economic value from not being generally known or readily ascertainable by a
4
Of note is the fact that PrimePay never sought to protect the confidentiality of its alleged trade
secret material when filing materials in this litigation. Although attaching reams of allegedly trade
secret information in support of its motion for a preliminary injunction, PrimePay never sought to
have any of this information filed under seal.
40
competitor. Particularly with regard to the strategic business partners, the testimony is undisputed
that “no one owns” the CPAs or other referral sources and that strategic business partners are free
to refer business to any payroll services company of their choice. There is no contractual
relationship between any of the strategic business partners and PrimePay and in fact sales associates
are instructed to work very hard to keep those sources referring to PrimePay. Arguably some
competitive value could be derived from learning which strategic business partners had referred
clients in the past, perhaps narrowing the field of prospects or streamlining the sales associate’s
work in creating a strategic partner referral base.
With regard to the business analytics information, such as profit and loss, revenue, monthly
financial statistics, some of which admittedly was resident on Barnes’s personal laptop after he left
PrimePay, PrimePay suggests that because Barnes conceded that much of this information is
confidential PrimePay material, they have made their case for trade secret protection. As noted
supra, a desire to maintain the confidentiality of information “may not, in itself, necessarily elevate
information to the status of a trade secret.” Raymond James, 411 F. Supp. 2d at 695. PrimePay must
go further and demonstrate that the information has independent economic value from not being
readily known to its competitors. In its reply brief in support of its motion for preliminary injunctive
relief, Plaintiff states that information regarding “client accounts, client revenue and the company’s
financial information such as its profits . . . is not generally known and provides a competitive
advantage to a competitor.” ECF No. 18, Reply 2. Martin Stowe testified that this type of financial
information would be of significant competitive value because it would “provide a competitor with
a blueprint of revenue buildups, profitability, basically how to build a business,” and would allow
a competitor to approach a potential customer with knowledge of what prices they have paid and
41
what discounts they have been offered. ECF No. 22, Hr’g Tr. 38-41.
The Court finds that this evidence still falls short of explaining with any degree of clarity
how this information, given this particular industry, has competitive value from not being generally
known to every other payroll services company or how this type of information could be used by
a competitor to steal customers. Barnes suggests, for example, that the pricing information was out
of date and that in the payroll services industry, a competitor can simply ask a potential customer
how much they pay for their payroll services and quote the customer accordingly, effectively
undercutting the competition. ECF No. 23, Hr’g Tr. 198. However, because the Court concludes
at this stage of the proceedings, as discussed infra, that Plaintiff has failed to establish a strong
likelihood of success on misappropriation, it can assume without deciding, for purposes of this
preliminary injunction analysis, that PrimePay would have a strong likelihood of establishing the
existence of trade secret information among the material found on Barnes’s laptop.
b.
Misappropriation
Plaintiff proceeds on a theory of actual misappropriation and, alternatively, on a theory of
threatened misappropriation. But before discussing what the MUTSA prohibits, it is important to
be clear about what it does not prohibit Barnes from doing in this instance.
In December, 2013, Barnes was making $210,000 as the President of what by all accounts
was a very successful payroll processing company that he built himself from the ground up over the
previous fifteen years. In January, 2014, when Plaintiff consolidated the individually owned
PrimePay entities, Barnes lost his position as President and his management salary was cut to
$80,000. Barnes decided to leave the company. Barnes never signed a covenant not to compete or
any agreement restricting his solicitation of PrimePay customers after he left PrimePay. Indeed, at
42
his exit interview in early March, 2014, he informed Jamie Press that he would be setting up a
competing business.
Barnes purposefully located his High Point office 50.5 miles away from PrimePay. There
is no evidence that he has ever directly solicited a former PrimePay client; some have sought him
out and he has welcomed their business. Now, because Plaintiff has learned that Barnes took his
company-issued laptop with him when he left PrimePay (his purchase was approved by Chris Tobin)
and because it has come to light that the laptop contains PrimePay confidential information, none
of which (based on the preliminary injunction record) it appears likely that Barnes has actually
accessed since his resignation except at the March 17, 2014 request of PrimePay, see infra
discussion at section IIIA2bi, Plaintiff seeks to shut down High Point and preclude Barnes from
practicing his profession anywhere in the United States.
As noted before, there was no bargained-for contractual limitation on Barnes’s ability to
compete with PrimePay. Thus, Barnes was free to solicit former PrimePay customers and to call
on former referral sources, and in doing so he was free to use the knowledge he gained about those
customers and referral sources while at PrimePay. To read the MUTSA as preventing an employee
who has been made privy to particular customer information in the course of his employment from
ever using that knowledge when working for (or in this case becoming) a competitor would impose
a de facto covenant not to compete to which the employee had never agreed. In McKesson MedicalSurgical, Inc. v. Micro Bio-Medics, Inc., 266 F. Supp. 2d 590 (E.D. Mich. 2003) (Duggan, J.), the
court recognized the danger inherent in limiting the employment opportunities of a departing
employee through a trade secrets suit when that employee did not sign an agreement not to compete
with its former employer and did not agree not to use or divulge certain confidential information.
43
In McKesson, the plaintiffs had been employed by McKesson and prior to leaving to work for a
competitor they compiled a list of their customers at McKesson. They sent the list to their new
employer and that new employer contacted those customers introducing the plaintiffs as now being
affiliated with their new employer. Id. at 592. Plaintiffs subsequently were able to sell the new
employer’s products to some of its old employer’s customers. Id. The court concluded that, in the
absence of a bargained-for contractual agreement not to solicit their former employer’s customers,
or not to compete with their former employer, they were within their rights to have taken their own
customer lists and to have solicited those customers in their new employment:
In this Court's opinion, customer lists developed by the employee are not protectable
“trade secrets.” To the extent that the list of customers accumulated by the employee
includes “needs of customers” as learned by employee during the course of his
employment, such information is not protectable as a “trade secret.” It is, however,
protectable under an agreement in which the employee agrees not to disclose such
information. See Hayes–Albion [v. Kuberski, 421 Mich. 170, 183-84 (1985)].
To hold otherwise, would subject every former employee who elects to call on
customers he previously called upon with the former employer to a lawsuit for “trade
secret” violation because it is likely, in all those situations that, the former employee
would be aware of the needs of these customers which he/she learned about during
employment with the previous employer. To allow McKesson to prevail on its trade
secrets claim in the case at bar would essentially interpret the MUTSA to be a
blanket, statutorily created non-compete agreement between sales people and their
former employers. This would not serve the purpose of trade secrets law. See
Fleming Sales Co., Inc. v. Bailey, 611 F.Supp. 507, 514 (N.D.Ill. 1985), (stating that
allowing a similar claim would “not strike a proper balance between the purposes of
trade secrets law and the strong policy in favor of fair and vigorous business
competition”).
If an employer wishes to restrict an employee’s use of such information after the
employment relationship is terminated, the employer must do it with an appropriate
non-competition agreement.
266 F. Supp. 2d at 596-97. See also Raymond James, 411 F. Supp. 2d at 696 (finding that a
customer list developed by an employee who did not sign a covenant not to compete was not
44
necessarily a trade secret and concluding that finding otherwise would “essentially interpret the
MUTSA to be a blanket, statutorily created non-compete agreement between sales people and their
former employer. . . . [which] would not serve the purpose of trade secrets law.”). “If an employer
wishes to restrict an employee’s use of such information after the employment relationship is
terminated, the employer must do it with an appropriate non-competition agreement.” Id. See also
Degussa Admixtures, Inc. v. Burnett, 471 F. Supp. 2d 848, 855 (W.D. Mich. 2007) (noting that
plaintiff acknowledged that defendant’s customer lists and personal relationships with those
customers are not trade secrets); Allis-Chalmers, supra, 255 F. Supp. at 652-53 (“[A]n individual
has the right to change his employment for whatever reason he wishes and the right to utilize his
general skill, knowledge and experience for the benefit of his employer. Indeed it is inevitable that
some of the knowledge acquired while in the former employment should be made available to the
new employer, and courts will not deprive the employee of the right to use the skill he developed
throughout the years.”).
Bearing in mind what Barnes was free to do when he left PrimePay, the threshold issue
before the Court in the face of Plaintiff’s request for this extraordinary injunctive relief is whether
there is a substantial likelihood that Plaintiff will succeed on its claim that nonetheless Barnes has
misappropriated PrimePay’s trade secrets in setting up a competing business as High Point. Plaintiff
proceeds on both an actual and threatened theory of misappropriation and the Court examines them
separately.
45
i) Actual Misappropriation5
In its supplemental post-hearing brief, Plaintiff clarifies the conduct that it claims constitutes
actual misappropriation of trade secrets by Barnes and HBS:
PrimePay has demonstrated actual misappropriation by Barnes and HBS. Barnes has
retained and used the “Act!RandyPersonal” on the Dell laptop, which he has
admitted contains CRM data belonging to PrimePay. (Doc. #23, Tr. 185.) He also
has been caught red-handed accessing his PrimePay Outlook files on March 26, 2014
and the OneNote file containing PrimePay’s reconciliation data on April 18, 2014.
These files and the Act! database remain active files on the Dell laptop, which is in
Barnes’possession.
ECF No. 27, Supp. Br. at 7.
First, as to Barnes’s personal Act! database, the discussion supra puts to rest any claim based
upon his access to such a list that was developed through his personal effort. The testimony at page
185 of the transcript to which Plaintiff cites appears to be discussing not just Barnes’s
Act!RandyPersonal file but “Pipeline, that whole sequence of CRM software” that was discussed
earlier in Barnes’s testimony. Regardless, Barnes’s concession that the material was confidential
to PrimePay does not change the law, which clearly permits him to maintain a personal list of
customers and to solicit them where, as here, he has not contractually bargained away his right to
do so. In any event, it is undisputed that Barnes last accessed his Act!RandyPersonal database in
November, 2013. ECF No. 23, 10/3/14 Hr’g Tr. 51-52. Thus, even if the Act!RandyPersonal
database was a PrimePay trade secret, which it is not, there is no evidence that Barnes accessed and
actually used that database after he left PrimePay. This fact does not suggest a likelihood of success
5
Because the Court concludes, on the record presented at the preliminary injunction hearing, that
Plaintiff has failed to establish a strong likelihood of success on the merits of its claim that Barnes
accessed any PrimePay material after his resignation. The Court DENIES Defendants’ Motion to
Reopen Hearing (ECF No. 31) as MOOT.
46
on a claim of actual misappropriation of trade secrets.
As to the only other instances of alleged “red-handed” actual access post-resignation on
March 26, 2014 and April 18, 2014, at this stage of the proceedings, Plaintiff has failed to carry its
heavy burden of convincing the Court that it will succeed on a claim of actual misappropriation
based on these two instances. Plaintiff must do more than argue that the forensics suggest that
Barnes accessed the documents - Plaintiff must demonstrate a “strong likelihood” of success on the
merits of the claim that Barnes actually accessed this PrimePay confidential information after his
resignation. Plaintiff’s own forensic expert stopped short of testifying that Barnes accessed the
material in Exhibit 17a (the alleged April 18, 2014 access event), which it turns out was one
document that was found among the many files contained in the OneNote file that the forensics
established was opened on April 18, 2014. Matthews testified on cross-examination as follows:
Q:
So just to be clear . . . Exhibit 17a was accessed on April 18, correct?
A:
I did not say those files were – for clarity, the last access date does not
indicate that. The last written dates, for example, on the Unfiled
Lists.OneNote file, the last written date of 4-18-2014 shows that the file was
opened on that date, no doubt. . . . I have no way of comparing what may
have been added, deleted, viewed. I just know that the file was opened based
on that last written date of April 18, 2014.
ECF No. 23, 10/3/14 Hr’g Tr. 43-44. When viewed in light of Matthews’ earlier testimony that a
OneNote file is like an electronic notebook where you can store different files in a folder style status,
it is manifest that while the OneNote file that contained Exhibit 17a, among many other files, may
have been opened on April 18, 2014, Matthews’s forensic analysis did not specifically determine
that Exhibit 17a, a document that was held within that OneNote file, was accessed on that date.
Plaintiff acknowledged this in its Supplemental Reply Brief:
47
Mr. Matthews’ testimony on the OneNote file was accurate. On April 18, 2014,
Barnes opened the OneNote file, which contained Plaintiff’s Exhibit 17(a). Mr.
Matthews also explained to the Court that the OneNote file acts like a filing cabinet
and contains numerous documents. Barnes and his computer consultant claim that
he created an HBS document that same day, so he did not access the PrimePay
document. This, again, is an issue of credibility. The access date for that OneNote
file (which remains an active file with PrimePay and HBS material in it) is April 18,
2014. This Court should give little weight to Barnes’ claims about which documents
he may have viewed and which he did not.
ECF No. 32, Supp. Reply at 4. Barnes denies having accessed this document on this date or at
anytime after leaving PrimePay. He admits that he may have opened the larger OneNote file to add
something to it, but categorically denies opening Exhibit 17a. In seeking the extraordinary relief
of a preliminary injunction, Plaintiff must do more than suggest that Barnes’s alternate explanation
for the opening of the larger OneNote file on April 18, 2014 should not be believed. Plaintiff did
not eliminate the possibility that Barnes opened the OneNote file without accessing Exhibit 17a –
indeed Plaintiff did not even cast significant doubt on that explanation.
Similarly, with regard to the alleged March 26, 2014 access of Barnes’s PrimePay Outlook
email account, Matthews conceded that his forensic analysis did not determine what activity took
place when the Outlook mailbox was opened on that date:
Q:
And my question to you is, in your view, is it impossible that [the March 26,
2014] opening was automatically a function of opening up another Outlook
account on that same machine?
A:
I don’t know if it’s possible or impossible.
ECF No. 23, 10/3/14 Hr’g Tr. 60. Plaintiff’s counsel chose not to recross on this issue and again
Plaintiff’s post-hearing supplemental brief concedes the possibility that Barnes’s explanation, that
the March 26, 2014 opening of the PrimePay Outlook account was occasioned by the opening of a
new High Point Outlook account, was a possible one:
48
For the PrimePay Outlook file, Barnes retained the PrimePay Outlook account with
PrimePay e-mails and attachments on the Dell laptop computer following his
resignation. Barnes claims that he did not access it on March 26, 2014 and that the
access date coincides with his creation of the HBS’ Outlook account; however, in
light of Barnes’ credibility issues and his spoliation, his testimony should be given
little weight.
ECF No. 32, Supp. Reply at 4.
While such argument may be persuasive at a subsequent stage of the litigation, Plaintiff’s
significant burden when seeking the extraordinary remedy of a preliminary injunction has not been
met. In order to carry its burden of establishing not just a question of fact, but a high likelihood of
success, on its claim that Barnes accessed his PrimePay Outlook account and the confidential
materials it contained after he resigned from PrimePay, Plaintiff was required to rebut Barnes’s
explanation or at least present evidence casting doubt on its viability. With its own expert on the
stand, Plaintiff was unable to do so.
Rather than directing the Court’s attention to evidence that establishes to a high degree of
certainty that in fact Barnes did access these two documents after his resignation, Plaintiff admits
the possibility that Barnes in fact did not access them but urges the Court to disbelieve Barnes’s
explanation and to question Barnes’s credibility generally. (ECF No. 32, Supp. Reply 4.) To
support its request for the extraordinary remedy of injunctive relief, Plaintiff was required to do
more. For these reasons, the Court concludes that Plaintiff has failed to demonstrate a strong
likelihood of succeeding on its claim that Barnes actually accessed, much less utilized for
competitive advantage, any confidential PrimePay information after his resignation from PrimePay.6
6
Plaintiff also states in its supplemental post-hearing reply brief that Barnes “accessed PrimePay
documents following his resignation, including, but not limited to, the documents in the New Folder
and PrimePay folder in his DropBox account.” ECF No. 32, Supp. Reply at 3. This statement is not
supported by the evidence. Matthews clearly delineated those documents that the forensic analysis
49
ii) Threatened Misappropriation
The MUTSA provides that both “[a]ctual or threatened misappropriation may be enjoined.”
Mich. Comp. Laws § 445.1903(1). Plaintiff asserts that if actual misappropriation is not found, “[a]t
the very least, PrimePay has established threatened misappropriation. Barnes retains the Dell laptop,
which contains PrimePay’s trade secrets.
His duplicitous conduct demonstrates threatened
misappropriation.” ECF No. 27, Supp. Br. at 7. The Court concludes that, at this stage of the
proceedings, Plaintiff has not demonstrated a substantial likelihood that it will succeed in
establishing the type of duplicity that has been considered sufficient to support a claim of threatened
misappropriation.
Where plaintiff proceeds on a theory of “threatened misappropriation” through “inevitable
disclosure” or otherwise, the burden of establishing a violation of the MUTSA under such a theory
is more difficult to sustain. “The ‘inevitable disclosure’ doctrine . . . has not been adopted by
Michigan courts.” Marzullo, 591 F. Supp. 2d at 942. The Michigan Court of Appeals has noted
that “[e]ven assuming that the concept of ‘threatened misappropriation’ of trade secrets encompasses
a concept of inevitable disclosure, that concept must not compromise the right of employees to
change jobs.” CMI Int’l, Inc. v. Intermet Int’l Corp., 251 Mich. App. 125, 132-33 (2002).
The MUTSA has been interpreted as requiring more than a generalized claim that a departing
determined had been accessed post-resignation: 1) the PrimeChecks material on or about March 17,
2014 (Plaintiff does not rely on this access, which Barnes explained responded to a request from
PrimePay, for its actual misappropriation claim); 2) the OneNote file on April 18, 2014 and 3) the
PrimePay Outlook account on March 26, 2014. With regard to access of the New Folder and the
PrimePay folder in the DropBox account, which were deleted sometime in May, Matthews explicitly
testified that he did not determine when those folders were last accessed. ECF No. 23, 10/3/14 Hr’g
Tr. 45-46.
50
employee possessed trade secrets and would of necessity disclose them in his new employment:
We hold that for a party to make a claim of threatened misappropriation, whether
under a theory of inevitable disclosure or otherwise, the party must establish more
than the existence of generalized trade secrets and a competitor’s employment of the
party’s former employee who has knowledge of trade secret. . . . To establish
threatened misappropriation, a party must specifically identify the trade secret likely
to be misappropriated and must convince the court of the former employee's
“duplicity” by proffering evidence indicating a significant lack of candor or
willingness to misuse trade secrets.
Gene Codes, 2011 WL 611957, at *5 (citing and quoting from CMI Intern., Inc. v. Intermet Intern.
Corp., 251 Mich. App. 125, 649 (2002)) (citations omitted). Plaintiff urges the Court to adopt the
reasoning of the Seventh Circuit in PepsiCo, Inc. v. Redmond, 54 F.3d 1262 (7th Cir. 1995),
interpreting the Illinois Trade Secrets Act.7 However, as courts interpreting the MUTSA have
acknowledged, PepsiCo involved demonstrated acts of dishonesty on the part of the departing
employee: “In PepsiCo, the Seventh Circuit’s decision to affirm the District Court’s decision rested
in significant part on the lower court’s determination that the former employee’s conduct evidenced
a lack of candor, and proof of his willingness to misuse trade secrets.” Leach v. Ford Motor Co.,
299 F. Supp. 2d 763, 775 (E.D. Mich. 2004). Moreover, as this Court recognized in Leach,
subsequent discussions of the inevitable disclosure doctrine by Michigan courts were “gratuitous”
and “in dicta.” Id. at 775. Michigan courts interpreting the MUTSA have cautioned against
applying the PepsiCo holding to diminish the right of employees not subject to restrictive covenants
not to compete to freely change jobs. Conduct that unquestionably would violate a non-compete
7
Michigan courts have recognized that “Section 9 of the Michigan Uniform Trade Secrets Act
requires that the act ‘be applied and construed to effectuate its general purpose to make uniform the
law with respect to the subject of th[e] act among states enacting it.’ MCL 445.1909. Thus, it is
appropriate to seek guidance from the decisions of other jurisdictions. . . .” in interpreting the
MUTSA. Niemi v. Am. Axle Mfg. & Holding, Inc., No. 269155, 2007 WL 29383, at *2 n. 1 (Mich.
Ct. App. Jan. 4, 2007).
51
agreement may not amount to misappropriation of trade secrets. See, e.g. Marzullo, 591 F. Supp.
2d at 941-42 (distinguishing PepsiCo where plaintiff failed to proffer evidence of “duplicity”
establishing that the departing employee lacked candor in assuming his new job responsibilities or
demonstrated a willingness to misuse trade secrets); MSC Software, Inc. v. Altair Engineering, Inc.,
No. 07-12807, 2009 WL 1856222, at *2-3 (E.D. Mich. June 25, 2009) (noting that Michigan has not
endorsed the inevitable disclosure doctrine and concluding: “The individual defendants have
knowledge of MSC’s alleged trade secrets, MSC and Altair are strong competitors, and the
individual Defendants may perform the same type of work at Altair that they performed at MSC, and
use general knowledge gained from MSC at Altair. However, the fact that trade secrets may exist,
and the fact that Altair employs the individual Defendants who have knowledge of the alleged trade
secrets, are insufficient to allege a threatened misappropriation claim.”). But see Actuator
Specialties, Inc. v. Chinavare, No. 297915, 2011 WL 6004068 (Mich. Ct. App. Dec. 1, 2011)
(finding sufficient duplicity and lack of trustworthiness where departing employee possessed
confidential data, downloaded that data onto his new employer’s system and utilized that data for
the benefit of his new employer by altering one of his former employer’s documents, replaced their
letterhead with that of his new employer and failed to turn over USB devices and failed to preserve
a USB device with downloaded data from his former employer’s computer, despite receiving a cease
and desist letter).
Plaintiff suggests that Barnes evidenced a willingness to misuse PrimePay’s trade secrets
when he deleted roughly 2,000 files from the PrimePay server before his departure. ECF No. 23,
Hr’g Tr. 64-67; Pl.’s Exs. 19a, 19b. There has been no evidence presented at this stage of the
proceedings that these documents were copied somewhere else or somehow retained by Barnes or
52
that he sought to convert this data to his own use. PrimePay suggests, however, that Barnes’s
deletion of them from the PrimePay server was a violation of the PrimePay technology policy, and
presumably asks the Court to infer from this that therefore Barnes would be willing to misuse
PrimePay’s trade secrets if indeed he possessed them. ECF No. 23, Hr’g Tr. 67. Barnes explained,
both in his Affidavit filed in support of Defendants’ response to Plaintiff’s motion for preliminary
injunction, and also at the evidentiary hearing, that these files were deleted after Barnes met with
Jason Wood, the PrimePay representative who was sent to meet with Barnes to find out how Barnes
operated the Michigan branch. Mr. Wood told Barnes that PrimePay was doing things differently
and had no need for the information contained in the documents that Barnes deleted. ECF No. 15,
Ex. 5, Barnes Aff. ¶¶ 60-66; ECF No. 23, Hr’g Tr. 150-54. Plaintiff did not call Wood at the hearing
or provide an Affidavit from him or in any way impeach Barnes on this point. Barnes may have
violated the company technology policy in deleting these files and such claims are unaffected by this
Court’s preliminary injunction ruling. But Plaintiff has produced insufficient evidence for the Court
to conclude at this stage of the proceedings that there is a strong likelihood that Plaintiff will succeed
in establishing that these file deletions were intentional duplicitous acts manifesting Barnes’s
willingness to misuse PrimePay’s trade secrets.
Plaintiff also suggests duplicity in Barnes’s retention of his laptop, but this argument also
misses the mark. It is undisputed that Chris Tobin authorized Barnes to purchase the laptop and that
Barnes did not try to “secretly” make off with the laptop or its contents when he left PrimePay.
PrimePay never contradicted this testimony with evidence that Tobin never authorized such a
purchase or that Barnes was lying about the purchase transaction. It was reasonable for Barnes to
assume that Tobin, who was then an equity owner of PrimePay by virtue of the asset purchase,
53
represented the knowledge of PrimePay generally. And when Barnes received a call from Mike
Stowe asking him if he had the PrimeChecks data and if so would he provide it to Amy Wasilewski,
Barnes did so immediately. The tone of Barnes’s communications with PrimePay regarding the
PrimeChecks data certainly does not indicate suspicion on PrimePay’s part that the data had been
or would be misused by Barnes. The Court concludes that the mere act of Barnes’s retention of his
PrimePay laptop, which he openly purchased from Chris Tobin, which it now appears contains
PrimePay related confidential information, none of which it appears, at this stage of the proceedings,
that Barnes actually accessed after leaving PrimePay, does not establish a strong likelihood of
establishing the type of duplicity required to establish threatened misappropriation.
Plaintiff relies on MLive Media Grp. v. Webber, No. 14-13148, 2014 WL 4374376 (E.D.
Mich. Sept. 4, 2014), but that case is clearly distinguishable. The departing employee in that case
secretly copied data onto a thumb drive from MLive’s computer before leaving, and expressed the
intent to use material for the benefit of her new employer, including a document entitled “key
account growth plan,” which detailed MLive’s training program for new hires. 2014 WL 4374376,
at *3. The district court observed the following duplicitous conduct:
A review of Webber's phone revealed text messages from Webber in which she
claimed to have copied all of her MLive data on her computer to a USB device. Her
text messages further show that she copied the material knowing that she would start
working at Gannett, one of MLive's largest competitors, on August 18, 2014, and that
she planned to shift her clients over to Gannett one by one. Indeed, the day before
Webber's termination, she submitted a thirty-day cancellation notice for one of her
larger customers.
2014 WL 4374376, at *2. When confronted with a cease and desist letter requesting that she return
MLive’s property and allow an inspection of her computer, she refused MLive access to her
electronically stored information. Id. MLive’s forensic exam of Webber’s work computer disclosed
54
the use of two USB devices and a cloud-based drop-box shortly before her departure, neither of
which Webber had granted Mlive access to review. Id. Moreover, the customer list she allegedly
took was not the product of her personal efforts. Id.
To the contrary here, Barnes purchased the laptop in an open transaction with his former boss
who was then an equity owner of Plaintiff, he testified that he attempted to delete PrimePay-related
material before he left PrimePay and offered complete access to PrimePay’s forensic analyst when
it came to light that he had failed to remove all of PrimePay’s information. This evidence does not
indicate a strong likelihood that Plaintiff will be able to establish that Barnes was plotting and
planning to steal away with PrimePay’s confidential information, so as to capitalize on that
information and gain a competitive advantage in his business at High Point. In the five months
following his resignation, when he was working to set up his new business, it appears based on the
evidence Plaintiff has offered thus far that he never actually accessed any of the alleged trade secret
information.
Nor is this case like Pepsi-Co, which involved demonstrated acts of dishonesty on the part
of the departing employee. Unlike Barnes, who was forthright in his exit interview about the fact
that he intended to set up a competing business, the employee in PepsiCo kept PepsiCo in the dark
while he negotiated to join a competitor. In PepsiCo, the Seventh Circuit observed that the
defendant’s “lack of forthrightness on some occasions, and out and out lies on others, in the period
between the time he accepted the position with defendant Quaker and when he informed plaintiff
that he had accepted that position [led] the [district] court to conclude that defendant Redmond could
not be trusted to act with the necessary sensitivity and good faith under the circumstances in which
the only practical verification that he was not using plaintiff's secrets would be defendant Redmond's
55
word to that effect.” 54 F.3d at 1270 (alterations added). Importantly, as discussed supra, Michigan
courts interpreting the MUTSA have cautioned against applying the PepsiCo holding to diminish
the right of employees not subject to restrictive covenants not to compete to freely change jobs.
This case is factually similar to Sunbelt Rentals, Inc. v. Victor, No. 13-2420, 2014 WL
492364 (N.D. Cal. Feb. 5, 2014), decided under the similarly worded California Trade Secrets Act.
In Sunbelt, it was established that the departing employee (Victor) had emailed customer lists and
pricing information to his personal email while he was employed by Sunbelt and some of it he
emailed just shortly before he left Sunbelt to work for a competitor. Id. at *7 n.4. The court
concluded that the pricing information was likely protected as a trade secret and assumed, for
purposes of the misappropriation analysis, that the customer lists also were entitled to trade secret
protection. Id. at *6 n. 2. Victor argued that this was his normal business practice, placing this
information in his personal email so that he could more easily access the information when calling
on clients. Id. at *4. Sunbelt argued that Victor intended to use this proprietary information to
solicit Sunbelt customers after he left Sunbelt. Id. at *10. The court concluded that the “simple fact
that Victor emailed himself ostensibly proprietary information, without more, does not show
misappropriation.” Id. at *7. The court concluded that absent “compelling evidence” that the
departing employee had used the alleged trade secret information to solicit business from existing
customers of his former employer, the defendant was unlikely to succeed on its misappropriation
claim and an injunction was “unwarranted.” Id. at *10. So too here. While Plaintiff alleges that
Barnes will use the PrimePay information that remains resident on his laptop to undercut Plaintiff’s
pricing and customer discounting, there has been no evidence that Barnes has done so, or shown a
willingness to do so, as to even a single customer. Discovery may yield additional or different
56
information on this point. But at this stage of the proceedings, Barnes’s mere retention of the
PrimePay information on his laptop is insufficient to establish a likelihood of success on Plaintiff’s
threatened misappropriation claim.
Finally, the fact that Barnes may or may not have made misrepresentations in his bankruptcy
proceedings and his divorce proceedings about his retirement status does not necessarily
demonstrate a willingness to misuse Plaintiff’s trade secret information. Cases finding sufficient
duplicity to support a threatened misappropriation claim rely on a lack of candor related to a
willingness to misuse the trade secrets themselves, not on the employee’s general character for
honesty and truthfulness. For example, in Actuator Specialties, supra, the court found the following
facts supported a finding that the departing employee would likely be willing to misuse his former
employer’s trade secrets:
ASI showed that not only did defendant possess confidential ASI data, defendant
also downloaded that data onto [his new employer’s] computer system and utilized
that data for the benefit of [his new employer]. In addition, despite the knowledge
of the entry of a TRO that specifically compelled defendant to turn over such data
to ASI, defendant failed to do so. Significantly, defendant did not admit to having an
ASI USB drive or return it to ASI until ASI learned of defendant's use of an ASI
electronic form and confronted [his new employer] with the information.
2011 WL 6004068, at *3 (alterations added).
Here, Barnes immediately and fully cooperated with Plaintiff’s request that he allow a
computer forensic search of all of his computers. Plaintiff has failed to produce evidence, at least
at this stage of the proceedings, of Barnes’s “duplicity” sufficient to establish a strong likelihood
that it will succeed in proving that Barnes was engaged in underhanded conduct with regard to
57
PrimePay’s confidential information and was willing to misuse PrimePay’s trade secrets.8
B.
Likelihood Of Success on Plaintiff’s Tortious Interference and Breach of
Fiduciary Duty Claims
Preliminarily, to the extent that either Plaintiff’s tortious interference or breach of fiduciary
claims are premised upon the same acts alleged to constitute misappropriation of trade secrets, such
claims are displaced by the MUTSA. “The MUTSA displaces claims that are ‘based solely upon
the misappropriation of a trade secret.’” Wysong, 412 F. Supp. 2d at 623 (quoting Bliss Clearing
Niagara, Inc. v. Midwest Brake Bond Co., 270 F. Supp. 2d 943, 946 (W.D. Mich.2003)). “‘In
determining whether a claim is displaced, courts generally examine whether the claim is based solely
upon the misappropriation of a trade secret. If so, the claim must be dismissed.’” Wysong, 412 F.
Supp. 2d at 623 (quoting Bliss, 270 F. Supp. 2d at 946).
1.
Tortious interference.
Plaintiff has failed to establish a substantial likelihood of success on its claim of tortious
interference. To establish a prima facie case of tortious interference with a business relationship,
plaintiffs must show:
(1) the existence of a valid business relation (not necessarily evidenced by an
enforceable contract) or expectancy; (2) knowledge of the relationship or expectancy
on the part of the defendant interferer; (3) an intentional interference inducing or
causing a breach or termination of the relationship or expectancy; and (4) resultant
damage to the party whose relationship or expectancy has been disrupted. [O]ne who
alleges tortious interference with a contractual or business relationship must allege
the intentional doing of a per se wrongful act or the doing of a lawful act with malice
8
Martin Stowe testified that PrimePay has lost a total of 248 clients since the consolidation, 27 of
which PrimePay claims have gone to High Point. 10/2/14 Hr’g Tr. 77. PrimePay did not present
evidence of a single lost client who claimed to have been solicited by High Point, Barnes or Laskie.
The large number of lost clients following the consolidation, the vast majority of whom did not
transfer their business to High Point, indicates a larger, more systemic problem than alleged “unfair”
competition from High Point.
58
and unjustified in law for the purpose of invading the contractual rights or business
relationship of another.
Michigan Podiatric Medical Ass’n v. Nat’l Foot Care Program, 175 Mich. App. 723, 735-36 (1989)
(internal quotation marks and citations omitted) (alteration in original). “To establish tortious
interference, a plaintiff must show that the defendant unjustifiably instigated a breach of contract.
. . . [O]ne who alleges tortious interference with a contractual or business relationship must allege
the intentional doing of a per se wrongful act or the doing of a lawful act with malice and unjustified
in law for the purpose of invading the contractual rights or business relationship of another.” CMI,
251 Mich. App. at 131 (internal quotation marks and citations omitted) (alteration in original).
“‘Where the defendant’s actions were motivated by legitimate business reasons, its actions would
not constitute improper motive or interference.’” Raymond James, 411 F. Supp. 2d at 698 (quoting
BPS Clinical Laboratories v. Blue Cross & Blue Shield of Michigan, 217 Mich. App. 687, 699
(1996)).
Plaintiff’s evidence thus far does not establish a substantial likelihood that it will succeed
in proving that Barnes acted with malice or intentionally interfered with a PrimePay business
relationship or expectancy. Plaintiff asserts in its supplemental post-hearing brief that this claim is
based upon (1) Barnes’s allegedly instructing Laskie that she could continue to contact her referral
sources and (2) High Point’s alleged diversion of clients from PrimePay through Laskie’s conduct
in contacting those sources. First, Laskie testified that Barnes did not contact her to come work at
High Point but that she contacted and asked him to serve as a reference when she interviewed for
a job at Payroll 1. ECF No. 25, 10/7/14 Hr’g Tr. 19. It was only then that Barnes suggested that if
she was leaving PrimePay, she should consider coming to work for High Point. Id. Barnes told her
to leave PrimePay clean and she shared with Barnes the letter she had received from her attorney
59
explaining what she could and could not do for her new employer after leaving PrimePay. Id. at 20.
No evidence was presented to rebut this testimony and thus there is no evidence to suggest a
likelihood of success on any claim that Barnes instigated Laskie’s departure from PrimePay with
malicious intent.
Second, Laskie expressly testified that she acted in reliance on her counsel’s advice
regarding what she could and could not do after leaving PrimePay and joining a competing payroll
services company. Id. Laskie testified that Barnes told her to leave clean and take nothing with her.
Id. Laskie testified that she expressly discussed with her attorney the propriety of contacting her
referral sources after leaving PrimePay and that he informed her, as the evidence at the hearing in
this case suggests, that “technically a payroll company does not own a CPA,” and this confirmed
Laskie’s understanding that she could continue to work with her referral sources but could not solicit
PrimePay clients. Id. at 56-57. Laskie testified that she sought the advice of counsel on these
matters because she “didn’t want to get sued.” Id. at 57.
Plaintiff relies on Dorfman’s testimony that Laskie told him in her exit interview that Barnes
told her that she could continue to contact her referral sources. ECF No. 22, 10/3/14 Hr’g Tr. 144.
Dorfman and Laskie both confirmed in their testimony that during the exit interview the topic of
referral sources was discussed and that the conclusion reached that day was that the only thing it was
known for certain that Laskie was precluded from doing was soliciting PrimePay clients. Id. at 144;
ECF No. 25, 10/7/14 Hr’g Tr. 28. Laskie’s testimony is undisputed that her decision to continue
contacting her referral sources after leaving PrimePay was based on the advice of her attorney.
The evidence adduced thus far simply does not suggest a substantial likelihood of success
in proving that Barnes induced Laskie to violate her agreements with PrimePay. There is
60
insufficient evidence at this stage of the proceedings to suggest a substantial likelihood that Plaintiff
will be able to establish that Barnes and/or High Point intended to compete with PrimePay with an
unlawful purpose or malicious intent.
Moreover, as discussed infra, because Laskie no longer works for Barnes and is now subject
to a stipulated order restricting her ability to compete with PrimePay, there is no basis for injunctive
relief to prevent a continuing harm allegedly flowing from her employment at High Point. In any
event, PrimePay has failed to present any evidence that a single former PrimePay customer was
approached by Barnes or Laskie to leave PrimePay and switch to High Point. Not one customer
affidavit was offered in support of the request for preliminary injunctive relief that would support
the claim that any one of the 27 customers identified thus far left PrimePay because Barnes and/or
Laskie sought them out and urged them to switch their payroll service company.
2.
Breach of fiduciary duty.
PrimePay’s breach of fiduciary duty claim is a bit of a moving target. In its initial motion
for preliminary injunction, PrimePay alleged that Barnes had a “fiduciary obligation[] not to use or
disclose [PrimePay’s trade secrets and confidential] information during or upon termination of his
employment.” ECF No. 13, Mot. 21. Plaintiff asserted that Barnes’s “formation and operation of
HBS, his transfer or PrimePay data to the dropbox for misappropriation, his continued use of
PrimePay’s trade secrets constitute a breach of fiduciary duty, and his interference with PrimePay’s
clients through his deletion of data while employed constitute a breach of fiduciary duty.” Id. at 2122. Plaintiff cited Restatement (Second) Agency, § 396(b), which imposes a duty on an agent not
to use or disclose his employer’s confidential matters after termination of the agency. Plaintiff’s
opening brief cites no other authority in support of this claim.
61
Perhaps recognizing that its breach of fiduciary duty cannot be premised on the same conduct
alleged to support its MUTSA claim, Plaintiff alters course in its supplemental brief and focuses
only on Barnes’s conduct while still employed by PrimePay as the foundation for its breach of
fiduciary duty claim:
[Barnes] breached his fiduciary duty to PrimePay through his deletion of critical files
from PrimePay’s server; his failure to migrate the Detroit office data, including but
not limited to, the PrimeChecks data, QuickBooks files, and Act! database, from the
Dell laptop to the server; his failure to provide the passwords for the Act! database;
and his termination of the office’s CRM software for its employees prior to their
migration to PrimePay’s Salesforece program.
ECF No. 27, Supp. Br. 8.
Plaintiff’s supplemental brief cites no authority in support of its claim for injunctive relief
on this breach of fiduciary duty claim and Plaintiff’s supplemental reply does not even mention this
claim. Even assuming this conduct, all of which was engaged in and completed when Barnes was
still working for PrimePay, does support a claim for a breach of fiduciary duty, and thus does not
support a claim for injunctive relief. While such conduct, if proven to have occurred as alleged,
could have made things more difficult and costly for PrimePay, PrimePay offers no basis for the
Court to conclude that an injunction is necessary to prevent a continued harm flowing from this
conduct or to make them whole for this alleged breach, assuming that it can be proven. PrimePay
argues that the loss of data allegedly held by or deleted by Barnes “hindered PrimePay’s business”
and made PrimePay unable to answer some PrimeChecks client’s questions. ECF No. 27, Supp. Br.
9-10. PrimePay asserts that this conduct “hindered PrimePay’s ability to transition the office and
retain and grow the business.” Id. at 10. PrimePay does not identify one lost one client that it
attributes to this conduct nor does it endeavor to explain how an injunction prohibiting Barnes from
competing with PrimePay is necessary or appropriate to redress these alleged wrongs or why these
62
losses cannot be compensated by a monetary award of damages. See infra discussion at section IIIC.
Regardless of the likelihood that it might ultimately succeed on such a claim, PrimePay is not
entitled to injunctive relief on this claim.
C.
Evidence of Irreparable Harm Absent an Injunction
“‘Loss of customer goodwill often amounts to irreparable injury because the damages
flowing from such losses are difficult to compute.’” Kelly Servs., Inc. v. Noretto, 495 F. Supp. 2d
645, 659 (E.D. Mich. 2007) (granting preliminary injunctive relief under the MUTSA where the
departing employee was subject to a non-compete, non-disclosure and non-solicit agreement and
refused to return a company-issued flash drive containing work proposals for customers and
prospective customers). However, Plaintiff must demonstrate that it is likely to suffer irreparable
harm in the absence of an injunction. See Winter v. Natural Resources Defense Council, Inc., 555
U.S. 7, 22 (2008) (“Our frequently reiterated standard requires plaintiffs seeking preliminary relief
to demonstrate that irreparable injury is likely in the absence of an injunction. . . . Issuing a
preliminary injunction based only on a possibility of irreparable harm is inconsistent with our
characterization of injunctive relief as an extraordinary remedy that may only be awarded upon a
clear showing that the plaintiff is entitled to such relief.”) (emphasis in original) (internal citations
omitted). “The ‘key word’ in determining the extent of an injury sufficient to support the award of
injunctive relief is ‘irreparable.’ Mere injuries, however substantial, are not enough. Rather, ‘the
harm alleged must be both certain and immediate, rather than speculative or theoretical.’” Hudson
v. Caruso, 748 F. Supp. 2d 721, 730 (W.D. Mich. 2010) (quoting Michigan Coalition of Radioactive
Material Users, Inc. v. Griepentrog, 945 F.2d 150, 154 (6th Cir. 1991)). Irreparable injury can be
demonstrated with “evidence that the harm has occurred in the past and is likely to occur again.”
63
Id.
There has been no evidence presented at this stage of the proceedings to substantiate a claim
of irreparable harm. There is no evidence that even one of the 27 High Point customers identified
as former PrimePay customers has been solicited by Barnes or that Barnes somehow used
PrimePay’s confidential information to acquire any one of them as clients of High Point. There is
thus no evidence, at this stage of the proceedings, that irreparable harm likely would flow in the
absence of an injunction prohibiting Barnes and High Point from working in the payroll services
industry or from soliciting or servicing PrimePay customers.
As discussed supra, Plaintiff does not adequately address the nature of any irreparable harm
allegedly flowing from its breach of fiduciary duty claim other than to state that PrimePay has been
“hindered” in its ability to transition the PrimePay-Michigan office. “Mere injuries, however
substantial, in terms of money, time and energy necessarily expended in the absence of a stay, are
not enough. The possibility that adequate compensatory or other corrective relief will be available
at a later date, in the ordinary course of litigation, weighs heavily against a claim of irreparable
harm.” Sampson v. Murray, 415 U.S. 61, 90 (1974) (footnote and citation omitted). Accordingly,
as to each claim, this factor weighs against granting the broad injunctive relief that Plaintiff requests.
D.
Harm to Others Should an Injunction Issue
As this Court has recognized, evaluating this factor requires, inter alia, consideration of the
harm to the Defendants if an injunction should issue. Officemax, Inc. v. Medmax, Inc., No. 96-cv73446, 1997 WL 1189354, at * 1 (E.D. Mich. Feb. 10, 1997) (noting that this third factor must
consider “whether granting the injunction will cause harm to others, including Defendant”). Here,
the broad injunction Plaintiff seeks will put Barnes out of business. Barnes has already agreed not
64
to utilize any of the alleged trade secret material that Plaintiff has identified in this action and Barnes
has agreed, although he is not compelled to do so, not to solicit PrimePay customers. Plaintiff seeks
to prevent Barnes from working altogether in the industry he has worked in for over twenty years.
Given the breadth of the injunctive relief sought by the Plaintiff in this case, this factor weighs
against granting the broad and extraordinary relief requested.
E.
Impact of an Injunction on the Public Interest
The public interest will not be served by an injunction where it functions only to prevent
Barnes from working. “Filing a trade secret action to restrain legitimate competition and job
mobility, needless to say, is not proper.” Degussa, 277 F. App’x at 535-36. An injunction will also
leave HighPoint’s current customers without a payroll service company, and will deprive those
customers, who wish to switch from PrimePay to High Point, of that choice. This factor weighs
against the broad injunction that Plaintiff seeks.
IV.
CONCLUSION
“A trade secret will not be protected by the extraordinary remedy of injunction on mere
suspension or apprehension of injury. There must be a substantial threat of impending injury before
an injunction will issue.” CMI, 251 Mich. App. at 654. The Court concludes that Plaintiff has failed
to establish a substantial likelihood of success on its trade secret claim sufficient to justify the
extraordinary remedy of the broad requested injunctive relief. Additionally, Plaintiff has failed to
establish a substantial likelihood of success on its tortious interference claim and has failed to
separately identify the alleged irreparable harm that will result absent the requested injunctive relief
from the alleged tortious interference and breach of fiduciary duty claims. Accordingly, the Court
declines to issue the extremely broad injunctive relief that Plaintiff seeks.
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However, it is undisputed that certain PrimePay proprietary and confidential information,
information that Barnes concedes belongs to PrimePay and was allegedly accidentally retained by
him, remains in Barnes’s and/or HighPoint’s possession. The MUTSA provides that “[i]n
appropriate circumstances, affirmative acts to protect a trade secret may be compelled by court
order.” Mich. Comp. Laws § 445.1903(3). Plaintiff claims that Defendants have denied them access
to certain cloud-based data, although Defendants respond that such a request has never been made.
The Court also recognizes that this litigation is in its initial stages, discovery may not yet have begun
in earnest and there is a need to ensure the preservation of evidence. Accordingly, the Court:
(1) DENIES the injunctive relief requested in Paragraph A of Plaintiff’s Proposed
Preliminary Injunction Order (ECF No. 13-8, Proposed Order);
(2) DENIES AS MOOT the injunctive relief requested in Paragraph B of Plaintiff’s Proposed
Order;
(3) GRANTS IN PART the injunctive relief requested in Paragraph C of Plaintiff’s Proposed
Order as to Defendants Barnes and High Point ONLY as follows:
•
Defendants Barnes and High Point are enjoined and restrained, directly or
indirectly, and whether alone or in concert with others, including any officer,
agent, employee and/or representative of Defendants from:
(1) using or disclosing any documents or software programs obtained
from PrimePay or PrimePay of Michigan LLC, that contain PrimePay
client lists, prospect lists or prospect contact information, client
financial information, and related computer data such as data form
PrimePay’s QuickBooks and PrimePay’s PrimeChecks and other
bank accounts; or
(2) destroying, erasing, or otherwise making unavailable for further
proceedings in this matter, any records, telephonic records, or
documents (including data or information maintained or stored in
computer media) in Barnes or High Point’s possession, custody or
control, which were obtained from, or contain information derived
from, any of PrimePay’s or PrimePay-Michigan’s proprietary and
confidential records or information or which relate to the events
alleged in the First Amended Complaint;
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•
Defendants Barnes and High Point, at a reasonable time within the date of
this Order and under reasonably agreed upon procedures, and under such
Protective Order as Defendants deem reasonable to protect their own
confidential and proprietary information, and at Plaintiff’s expense, shall:
(1) permit the deletion and removal of proprietary and confidential
records, data, and files of PrimePay from Barnes’ and High Point’s
computers, work computers, discs, external hard drives, e-mail
accounts, and cloud based storage systems (e.g. Barnes’s drop-box)
by Plaintiff’s appointed forensic computer expert;
(2) permit the inspection and forensic analysis of HighPoint’s and
Barnes’s cloud-based storage applications and dropboxes;
(3) identify all individuals, companies or organizations to whom
Defendants disclosed, disseminated or transmitted for any purpose,
any such documents or information.
•
Barnes shall identify and produce to PrimePay all passwords and/or
credentials to all web-based e-mail accounts and cloud or electronic storage
databases containing any documents belonging to PrimePay or containing
information relating to PrimePay’s clients, financial, or accounting records.
This Order remains in full force and effect until such time as the Court orders otherwise.
IT IS SO ORDERED.
s/Paul D. Borman
PAUL D. BORMAN
UNITED STATES DISTRICT JUDGE
Dated: May 20, 2015
CERTIFICATE OF SERVICE
The undersigned certifies that a copy of the foregoing order was served upon each attorney or party
of record herein by electronic means or first class U.S. mail on May 20, 2015.
s/Deborah Tofil
Case Manager
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