Xoran Holdings LLC et al v. David Luick et al
ORDER Regarding Docket Nos. 16 Motion to Dismiss Plaintiffs' Complaint for Lack of Subject Matter Jurisdiction; 18 Motion to Dismiss Defendants' Counterclaim; 21 Amended Motion for Order to Show Cause Why Defendant Should Not be Held in Contempt. Signed by District Judge Denise Page Hood. (JOwe)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
XORAN HOLDINGS LLC, and
XORAN TECHNOLOGIES LLC,
Case No. 16-13703
HON. DENISE PAGE HOOD
DAVID LUICK and TUNGSTEN
MEDICAL NETWORK, LLC,
ORDER REGARDING DOCKET Nos. 16, 18 and 21
Plaintiffs filed this action seeking an order enjoining Defendants from using
and disclosing Plaintiffs’ trade secrets and confidential and proprietary information
and competing against Plaintiffs. Plaintiffs assert Luick has violated express
contractual obligations he made pursuant to an employment agreement (“Employment
Agreement”) he executed as an employee of Plaintiff Xoran Technologies LLC
(“Xoran”). Defendants counter that Plaintiffs have not identified any particular piece
of information entitled to trade secret protection, nor have Plaintiffs demonstrated
actual or threatened misappropriation of any trade secrets. After Plaintiffs filed a
motion for temporary restraining order against Defendants, the parties entered into
a Stipulated Order on November 4, 2016 (“Stipulated Order”). Dkt. No. 14.
On November 18, 2016, Defendants filed a Motion to Dismiss Plaintiffs’
Complaint for Lack of Subject Matter Jurisdiction. Dkt. No. 16. On November 22,
2016, Plaintiffs filed a Motion to Dismiss Defendants’ Counterclaim. Dkt. No. 18.
On December 7, 2016, Plaintiffs filed an Amended Motion for Order to Show Cause
Why Defendant Should Not be Held in Contempt. Dkt. No. 21. All three motions
have been briefed, and a hearing was held on January 25, 2017.
From September 2011 through May 2016, Luick was employed by Xoran
Technologies LLC as Director of Sales (he began his employment in 2007 as Project
Manager). Xoran is a research and development company based in Ann Arbor,
Michigan, that has developed, patented and marketed a line of small, specialized CT
scanners and related products for the United States and international markets,
particularly low-dose radiation, cone-beam based CT scanners for use in office and
operating rooms. Dkt. No. 1, ¶¶10-11. As Director of Sales, Luick was required to
sign the Employment Agreement as a condition of his employment, which he did on
or about September 18, 2011. Dkt. No. 1, Ex. 1. The Employment Agreement signed
by Luick sets forth the following relevant provisions:
Xoran possesses Confidential Information (hereinafter
defined in Paragraph 6) that is a valuable and unique assets of Xoran.
In connection with Employee’s employment, Employee holds, or will
hold, a position that will provide Employee with access to and
knowledge of Confidential Information of Xoran and of clients and
customers of Xoran.
Non-Disclosure of Information. Employee acknowledges that
much, if not all, of the material and information related to the products,
technology, software and hardware, techniques, and othr business affairs
of Xoran and its affiliates, including without limitation, and and all
Work Product (as defined in Paragraph 5.1 of this Agreement),
discovered or created pursuant to this Agreement, and the business
affairs and information of Xoran and its customers and clients (including
but not limited to, any business plans, practices and procedures, pricing
information, sales figures, profit or loss figures, information relating to
clients, suppliers, sources of supply and customer lists, customer
identity, pricing information, and business development plans), which
have or will come into Employee’s possession or knowledge in
connection with Employee’s performance under this Agreement,
consists of confidential and proprietary data of Xoran and its affiliates
(collectively, “Confidential Information”). . . . Employee further agrees
not to make use of Confidential Information for Employee’s own
benefit, either during the term of Employee’s employment with Xoran
of [sic] after the termination of such employment. In the event of any
breach of this confidentiality obligation by Employee, Employee
acknowledges that Xoran would have no adequate remedy at law
because the harm caused by such a breach would not be easily measured
and compensated for in the form of damages. Accordingly, Employee
hereby waives his/her right to contest any equitable relief sought by
Xoran, other than Employee’s right to contest the question of whether
a breach has occurred. Employee hereby waives the requirement of any
bond being posted as security for such equitable relief.
Term of Non-Competition. The “Term of NonCompetition” means the period beginning on the date of this Agreement
and continuing for a period of twelve (12) consecutive, full calendar
months following the termination of Employee’s employment for any
8.2.2 During the Term of Non-Competition, Employee will not
provide directly or indirectly, individually or as a principal, officer,
director, employee, shareholder (other than a holder of fewer than 5%
of the outstanding shares of a publicly-traded company), consultant,
partner, joint venturer, agent, equity owner or in any other capacity
whatsoever, a “Competing Service” to any entity regardless of whether
it is a sole proprietorship or a corporation, partnership, business
association, or other entity. The term “Competing Service” includes, but
is not limited to, the design, development, sale, marketing, or
distribution of the same or similar products and/or services that are
provided by Xoran and its affiliates. If any portion of this Paragraph
8.2.2 is deemed unenforceable by a court of law or arbitrator, the
parties’ agreement restricting Employee’s ability to provide Competing
Services shall be enforced to the fullest extent allowed by applicable
8.2.3 During the Term of Non-Competition, Employee will not, directly
or indirectly, individually or on behalf of or in connection with any other
person, entity or organization: (a) cause, encourage, direct, solicit,
induce or attempt to induce any person who is or has been employed or
retained by Xoran to leave the employ or services of Xoran, or in any
way interfere with the relationship between Xoran and any employee or
consultant thereof; and/or (b) call on, solicit, have contact with, or
service any customer, prospective customer, consultant, strategic
partner, funding source, or other business relation of Xoran in order to
(i) solicit business of the type provided by Xoran, (ii) induce or attempt
to induce such person or entity to cease doing business with, or reduce
the amount of business conducted with, Xoran, or (iii) in any way to
interfere with the relationship between any such person or entity and
11.10 Survival. Employee hereby acknowledges that the rights and
obligations of Employee and Xoran under all subparagraphs of
Paragraphs 5, 6, 7, 8, 9, and 11 of this Agreement shall survive the
termination of this Agreement. Employee acknowledges and agrees
that: . . . (iv) Xoran will be entitled to enforce this Agreement through
a temporary restraining order, an injunction and/or other equitable
remedies in the event of a breach, in addition to any other remedies
available to Xoran (including, without limitation, monetary damages),
without the requirement for posting a bond or security for such
injunctive relief; and (v) injunctive relief will not deprive Employee of
an ability to earn a living because he/she is qualified for many positions
which do not otherwise necessitate the breach of any provision of this
In May 2016, Luick resigned. The parties dispute whether he resigned
voluntarily or involuntarily, as Defendants contend that Luick was fired, a
termination that Defendants claim was the result of Luick reporting misconduct by
Xoran’s Chief Executive Officer, Miodrag Rakic, to Xoran’s Human Resources
administrator. Xoran later discovered that Plaintiff had filed incorporation papers for
a new entity, Tungsten Medical Network, LLC (“Tungsten”), that Luick operated out
of his home. Dkt. No. 1, Ex. 2. When Xoran learned that Defendants might be using
Confidential Information (as defined in Section 6 of the Employment Agreement) to
compete with Xoran, Xoran tried to address the issue with Luick without resorting to
litigation, including sending a letter from counsel reminding him of his obligations.
Dkt. No. 11, Ex. 3. Luick assured Xoran personnel that he was not using Confidential
Information or competing with Xoran.
In September 2016, Xoran’s President, Dr. David Sarment, saw Defendant
Luick talking with representatives from Xoran’s largest competitor at an industry
conference. When Dr. Sarment approached Luick, Luick indicated that he was not
competing with Xoran. Dkt. No. 11, Ex. 4 at ¶ 5. Luick stated that he had looked into
other positions, but none of those options could “meet his salary expectations.” Id.
at ¶ 7.
On October 18, 2016, Plaintiffs filed a Complaint with the following five
counts: (1) Misappropriation of Trade Secrets under the Defend Trade Secrets Act,
18 U.S.C. § 1836 (“DTSA”); (2) Injunctive Relief; (3) Misappropriation of Trade
Secrets under the Michigan Uniform Trade Secrets Act, M.C.L. 445.1901 et seq.; (4)
Breach of Contract (Luick only); and (5) Tortious Interference with a Contractual
Relationship. Defendants filed an answer to the Complaint and Counterclaim on
November 1, 2016. On November 1, 2016, Defendants filed a Counterclaim for
wrongful termination against Plaintiffs.
At the time Plaintiffs’ filed their motion for temporary restraining order,
Tungsten’s website indicated that it is “experienced with these brands” and displayed
the names “Xoran,” “Morita,” and “Carestream,” a competitor of Xoran’s.
Carestream is the same competitor that Dr. Sarment had seen Luick speaking with at
the conference. Contrary to Plaintiffs’ statements, there did not appear to be any
other reference to Carestream on Tungsten’s website (and not anything that states
Tungsten has a relationship with Carestream). Xoran also believed that Defendants
are using a claimed (but non-existent) business relationship with Xoran to get access
to Xoran’s customers and then attempt to steer those customers away from Xoran by
providing false information about Xoran’s business. Dkt. No. 11, Ex. 3 at ¶¶ 18-21.
On November 4, 2016, the parties submitted, and the Court signed, a Stipulated
Order that provided, in part, as follows:
WHEREAS, The Employment Agreement contained certain
non-compete provisions which are at issue in the current litigation, and
which restricted Defendant Luick from certain activities Xoran for a
period of 12 months from the date of termination (“non-compete
IT IS HEREBY ORDERED AS FOLLOWS:
1. Defendants will not use any work product derived in whole or in part
from work product Luick or any other Xoran employee produced while
working at Xoran unless otherwise publicly available.
2. With respect to this Order, Xoran Customer is defined as any specific
location that currently has a Xoran product and/or limited or
comprehensive service contract for the Xoran MiniCat, xCAT,
XoranConnect, VetCAT, or CBCT Service Contract, or prospective
customers that Luick was personally engaged in active sales discussions
at the time of his termination.
3. Until the completion of the “non-compete period”, Defendants will
not (1) directly or indirectly initiate contact with any Xoran Customer;
(2) offer to sell a competing product or service to any Xoran Customer,
or assist or advise in any such transaction; (3) hold himself out as an
agent of Xoran to any person; (4) take a position as an agent or
executive of any Xoran competitor company, including but not limited
to Carestream and Morita, in transactions involving Xoran Customers.
4. Defendants will not advertise a business affiliation with Xoran.
5. Defendants will not use, sell or otherwise disclose information about
Xoran’s product and service pricing that Luick learned while employed
at Xoran, unless it is otherwise publicly available.
Dkt. No. 14.
Defendants’ Motion to Dismiss
Defendants contend that the Court does not have federal jurisdiction over this
case, as Plaintiffs’ sole basis for jurisdiction is their claim pursuant to the Defend
Trade Secrets Act, 18 U.S.C. § 1836 et seq. (“DTSA”). Defendants argue that the
DTSA claim should be dismissed for failure to state a claim pursuant to Federal Rule
of Civil Procedure 12(b)(6). Then, once the DTSA claim is dismissed, Defendants
suggest that the Court should dismiss the entirety of Plaintiffs’ cause of action
pursuant to Rule 12(b)(1) due to the lack of any other basis for federal subject matter
Standard of Review
A Rule 12(b)(6) motion to dismiss tests the legal sufficiency of the plaintiff’s
complaint. Accepting all factual allegations as true, the court will review the
complaint in the light most favorable to the plaintiff. Eidson v. Tennessee Dep’t of
Children’s Servs., 510 F.3d 631, 634 (6th Cir. 2007). As a general rule, to survive
a motion to dismiss, the complaint must state sufficient “facts to state a claim to relief
that is plausible on its face.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570
(2007). The complaint must demonstrate more than a sheer possibility that the
defendant’s conduct was unlawful. Id. at 556. Claims comprised of “labels and
conclusions, and a formulaic recitation of the elements of a cause of action will not
do.” Id. at 555. Rather, “[a] claim has facial plausibility when the plaintiff pleads
Plaintiffs propose that the Court convert Defendants’ Motion to Dismiss to a Rule 56
motion because Defendants rely on documents outside the pleadings. As the Court can resolve
Defendants’ Motion to Dismiss solely on the pleadings, the Court declines Plaintiffs’ proposal.
factual content that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678
With respect to Rule 12(b)(1), the Sixth Circuit has held:
Fed.R.Civ.P. 12(b)(1) provides for the dismissal of an action for
lack of subject matter jurisdiction. A Rule 12(b)(1) motion for lack of
subject matter jurisdiction can challenge the sufficiency of the pleading
itself (facial attack) or the factual existence of subject matter jurisdiction
(factual attack). United States v. Ritchie, 15 F.3d 592, 598 (6th Cir.
1994). A facial attack goes to the question of whether the plaintiff has
alleged a basis for subject matter jurisdiction, and the court takes the
allegations of the complaint as true for purposes of Rule 12(b)(1)
A factual attack challenges the factual existence of subject matter
jurisdiction. In the case of a factual attack, a court has broad discretion
with respect to what evidence to consider in deciding whether subject
matter jurisdiction exists, including evidence outside of the pleadings,
and has the power to weigh the evidence and determine the effect of that
evidence on the court’s authority to hear the case. Id. Plaintiff bears the
burden of establishing that subject matter jurisdiction exists. DLX, Inc.
v. Commonwealth of Kentucky, 381 F.3d 511, 516 (6th Cir. 2004).
Cartwright v. Garner, 751 F.3d 752, 759-60 (6th Cir. 2014).
Under the DTSA, information is a “trade secret” only if:
(A) the owner thereof has taken reasonable measures to keep such
information secret; and
(B) the information derives independent economic value, actual or
potential, from not being generally known to, and not being readily
ascertainable through proper means by, another person who can obtain
economic value from the disclosure or use of the information.
Id. § 1839(3). Under the DTSA, “misappropriation” is defined as the:
(A) 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
(B) disclosure or use of a trade secret of another without express or
implied consent by a person who—
(i) used improper means to acquire knowledge of the trade secret;
(ii) at the time of disclosure or use, knew or had reason to know
that the knowledge of the trade secret was—
(I) derived from or through a person who had used
improper means to acquire the trade secret;
(II) acquired under circumstances giving rise to a duty to
maintain the secrecy of the trade secret or limit the use of
the trade secret; or
(III) derived from or through a person who owed a duty to
the person seeking relief to maintain the secrecy of the
trade secret or limit the use of the trade secret; or
(iii) before a material change of the position of the person, knew
or had reason to know that—
(I) the trade secret was a trade secret; and
(II) knowledge of the trade secret had been
acquired by accident or mistake;
18 U.S.C. § 1839(5).
In their Complaint, Plaintiffs allege that, among other things:
16. Xoran has trade secrets rights in its ongoing confidential
research and development work, non-patented innovative technology,
business information, proprietary pricing models, customer contact lists
(which include the peculiar needs of particular clients), cost, profit and
sales data, development of accreditation support programs, development
of selling strategies, bundled offerings, tiered pricing, financing, and
related work product (collectively, the “Trade Secret Information.”)
Dkt. No. 1, ¶ 16. Defendants argue that Plaintiffs have not adequately identified what
the trade secrets were that Luick allegedly misappropriated. Defendants contend that
the list of items set forth in Paragraph 16 of the Complaint is boilerplate language, as
best exemplified by the final item (“and related work product”). Defendants also
assert that many of the items listed are comprised of information likely available to
any customer or prospective customer of Xoran. Citing 18 U.S.C. § 1839(3)(B)
(information does not qualify as a trade secret if it is “readily ascertainable through
proper means by, another person who can obtain economic value from the disclosure
or use of the information”). Defendants also assert that Plaintiffs had an obligation
to describe or make specific reference to concrete documents of “trade secret”
information allegedly misappropriated.
The Court finds that Defendants seem to be asserting a quasi-Rule 9 (fraud)
argument that requires a heightened pleading standard. Defendants do not cite any
authority that would support the Court concluding that: (1) Paragraph 16 does not
adequately allege that Plaintiffs had trade secret information; or (2) a heightened
pleading requirement is necessary.
Defendants next suggest that Plaintiffs have not sufficiently pled that Xoran
took “reasonable measures to keep [the alleged trade secret information] secret.”
Citing 18 U.S.C. § 1839(b)(3). The Court rejects Defendants’: (a) contention that
Plaintiffs allegations are insufficient; and (b) Defendants’ reliance on a non-binding
district court case from Illinois (holding that an agreement restricting an employee
from using such information, in itself, was not enough). Citing Fire ‘Em Up, Inc. v.
Technocarb Equip. (2004) Lt., 799 F.Supp.2d 846, 851 (N.D. Ill. 2011). As
Defendants acknowledge, Plaintiffs alleged that Xoran: (1) takes “extensive measures
to guard the secrecy of its Trade Secret Information;” and (2) requires its employees,
including Luick, to “sign contracts which protect the Trade Secret Information and
return and destroy all copies of the Trade Secret Information upon the termination of
employment.” The Court finds that Plaintiffs’ allegations that they took reasonable
measures to keep their trade secret information are sufficient for purposes of
surviving a motion to dismiss.
Defendants next argue that Plaintiffs do not “plausibly allege” that Luick
misappropriated Xoran’s purported trade secrets. The parties agree that the only
misappropriation theory asserted by Plaintiffs is that Luick is using Xoran’s trade
secrets in violation of his Employment Agreement and the DTSA. Defendants
acknowledge that Plaintiffs set forth a number of allegations but contend that
Plaintiffs “fail to identify which, if any, of the information in [Plaintiffs’] laundry
list of ‘trade secrets’ that Luick allegedly misappropriated, or how. Defendants
propose that Plaintiffs’ trade secret claim appears to be couched primarily on the
theory that Luick, by continuing to work in the CT industry, must be misappropriating
trade secrets.” Defendants assert that theory, known as “inevitable disclosure,” was
rejected by Congress. Citing 18 U.S.C. § 1839(b)(3)(A)(i)(I) (providing that an
injunction to prevent the actual or threatened misappropriation of a trade secret “shall
be based on evidence of threatened misappropriation and not merely on information
the person knows.”).
The Court concludes that Defendants’ argument lacks merit. Plaintiffs alleged
that Luick “used Xoran’s Trade Secret Information to compare Tungsten services and
pricing to Xoran’s services” in an email to Dr. Lewit Worrell.” Dkt. No. 1, ¶ 34.
Defendants invite the Court to “review” the Luick email to ascertain what Luick is
describing therein. When considering a motion to dismiss, however, the Court
cannot, and declines Plaintiffs’ invitation to, review the underlying facts or evidence
to determine whether Plaintiffs’ allegations are true. The Court finds that, for
purposes of evaluating the allegations of misappropriation under the motion to
dismiss standard, Plaintiffs’ allegations are sufficiently pled.
The Court finds merit in Defendants’ uncontested argument that Plaintiffs have
not pled a basis for attorney fees or exemplary damages pursuant to their DTSA
claim. As Defendants argue, the recovery of attorneys fees and exemplary damages
under the DTSA (and the Michigan Uniform Trade Secrets Act) require not only
willful misappropriation but also that the misappropriation be conducted with malice.
18 U.S.C. § 1836(b)(3)(C) and (D); M.C.L. § 445.9105. In Paragraph 9 of the
Complaint, Plaintiffs allege that Luick’s conduct constituted an “intentional and
malicious breach of his confidentiality and non-compete agreement with his former
employer,” but they do not plead any facts to support that conclusory allegation in the
DTSA claim (or even allege any “malicious” conduct to support exemplary damages
or attorneys fees in the DTSA claim).
It is also undisputed that Xoran did not provide notice of employee
whistleblower immunity provisions in the Employment Agreement (or elsewhere).
See 18 U.S.C. § 1833(b)(3)(A) (requiring employers to provide notice of employee
whistleblower immunity provisions in any contract governing the use of trade secrets
for award of attorneys fees or exemplary damages). For that reason, Plaintiffs also
cannot, as a matter of law, recover attorneys fees or exemplary damages on their
The Court denies Defendants’ request for a more definite statement. It was not
made prior to filing responsive pleadings, as their Answer, Affirmative Defenses, and
Counterclaim were filed on November 1, 2016, over two weeks earlier. See Rule
Plaintiffs’ Motion to Dismiss Counterclaim
Plaintiffs argue that the clear and unambiguous terms of the Employment
Agreement require Defendants to arbitrate Luick’s counterclaim for wrongful
discharge. The Arbitration Clause of the Employment Agreement provides:
9.1 Introduction. Employee and Xoran mutually agree that all Claims
(as defined in Paragraph 9.2 of this Agreement) related to the
employment relationship (including the termination of employment) that
either party may presently or in the future have against the other party
shall be submitted to final and binding arbitration before an impartial
arbitrator in accordance with the principles of fundamental fairness. This
includes claims that Employee may have against Xoran's parent
organizations, subsidiaries, officers, directors, or agents. The parties
agree that this Arbitration provision shall survive the termination of
Employee's employment and shall survive the termination or expiration
of this Agreement.
9.2 Scope of Coverage. The Claims covered by this Arbitration
provision include, but are not limited to: claims for wages, benefits, or
other compensation; allegations of wrongful termination, breach of
contract, and tort claims; allegations of unlawful discrimination,
unlawful harassment, or violations of civil rights under federal, state, or
local law; and all other employment-related claim for violation of any
non-criminal, federal, state, or other governmental common law, statute,
regulation, or ordinance. Employee and Xoran acknowledge that they
are waiving their right to sue in court for any alleged civil rights
violations under any federal, state, or local law, and that an arbitrator not a judge or jury - will decide such claims. The following Claims by
Employee against Xoran shall NOT be covered by this Arbitration
provision: claims for workers' compensation and unemployment
insurance. The following Claims by Xoran against Employee shall NOT
be covered by this Arbitration provision: claims by Xoran against
Employee seeking injunctive or other equitable relief for alleged
violations by Employee of the "Rights to Work Product'' Section of this
Agreement (Paragraph 5); the "Non-Disclosure of Information" Section
of this Agreement (Section 6); and the ''Non-Competition" Section of
this Agreement (Section 8).
9.3 Procedures and Time In Which to Arbitrate. A party requesting
arbitration must send written demand to the other party pursuant to
Paragraph 11.3 of this Agreement. In consideration of his/her
employment, Employee agrees to initiate any arbitration proceeding
arising out of or in any way related to this Agreement, his/her
employment, and/or the cessation of his/her employment within one
hundred-eighty (180) days after the claim(s) arise(s), or within the
applicable statutory limitations period(s) provided by law, whichever
occurs first. Employee acknowledges that his/her failure to do so shall
act as a bar to any claim that he/she may have, and Employee waives any
longer statutory limitations period to the contrary. If either party
breaches this Arbitration provision by filing a lawsuit in Court for a
claim covered by this Arbitration provision, the other party shall be
awarded costs and attorneys' fees as are reasonably necessary to compel
arbitration of any claims. Except as provided in this Agreement,
arbitration shall be conducted by an impartial arbitrator selected
mutually by Xoran and Employee. The party requesting the arbitration
shall pay all arbitration filing fees. All other arbitration costs shall be
borne equally by Xoran and Employee. The arbitration shall take place
in the city in which Employee is assigned to work for Xoran or, in the
case of termination, was last employed by Xoran. Each party shall be
entitled to retain counsel, and each party shall be responsible for paying
the costs and fees of their own counsel. Either party may request that the
arbitration proceedings be transcribed, but the requesting party shall pay
all transcription fees and costs. The Arbitrator shall issue a written
decision. The Arbitrator may, as part of the written decision, award
costs, arbitrator's fees, and attorneys fees, if applicable, to the prevailing
party. The Arbitrator's decision shall be final and binding on all parties
and a judgment can be rendered upon the Arbitrator's award in any court
of competent jurisdiction meaning either party may seek enforcement of
the Arbitrator's decision in any court of competent jurisdiction.
Dkt. No. 18, Ex. 1, ¶ 9.1 – 9.3 (emphasis in original). Plaintiffs contend that Luick’s
counterclaim for termination of employment falls squarely within the Arbitration
clause and should be dismissed.
Defendants do not contest that any claims arising from Luick’s employment,
other than those specifically exempted by the Employment Agreement, must be
submitted to binding arbitration. Dkt. No. 24, PgID 840. Specifically, Defendants do
not argue that its Counterclaim is not subject to the Arbitration clause. Defendants
instead contend that Plaintiffs’ motion ignores the fact that some of Plaintiffs’ claims
(or at least the relief sought) also must be submitted to arbitration under the
Arbitration clause. Defendants maintain that by filing some of their non-equitable
(arbitrable) claims in this Court, Plaintiffs have waived the application of the
Arbitration clause – for Plaintiffs and Defendants.
Defendants assert it is within the Court’s discretion to determine if Plaintiffs’
litigation conduct is inconsistent with invoking the Arbitration clause such that it
constitutes wiaver. Citing JPD, Inc. v. Chronimed Holdings, Inc., 539 F.3d 388, 393,
395 (6th Cir. 2008); Hurley v. Deutsche Bank Trust Co. Ams., 610 F.3d 334, 338 (6
th Cir. 2015) (citation and internal quotation marks omitted) (stating that “a party may
waive an agreement to arbitrate by engaging in two courses of conduct: (1) taking
actions that are completely inconsistent with any reliance on an arbitration agreement;
and (2) delaying its assertion to such an extent that the opposing party incurs actual
Defendants suggest that it would be prejudiced by having to submit to
arbitration and incur double expenses. Defendants reiterate that Plaintiffs’ conduct
in asserting non-injunctive, non-equitable claims against Defendants is grounds for
finding that Plaintiffs waived the right to demand arbitration of Defendants’
counterclaim based on Luick’s employment relationship with Xoran. Plaintiffs have
not responded to this argument. This is a reasonable argument, but it is rejected
because the more appropriate mechanism would be to require that all of the nonequitable, non-injunctive claims (or the damages portions of such claims) be resolved
in arbitration (if a party files such claims in arbitration).2
Defendants also argue that the Arbitration clause has unenforceable fee-shifting
The Court dismisses Count II of Plaintiffs’ Complaint. Count II is a claim for
“Injunctive Relief.” Injunctive relief is not a freestanding claim, however, but is simply a form
of relief. See Terlecki v. Stewart, 278 Mich.App. 644, 663 (2008) (“It is well settled that an
injunction is an equitable remedy, not an independent cause of action”).
and fee-splitting language because those provisions would deter persons from
attempting to vindicate their rights in arbitration. Citing Morrison v. Circuit City
Stores, Inc., 317 F.3d 646, 658 (6th Cir. 2003) (involving Title VII statutory rights);
Rembert v. Ryan’s Family Steak Houses, Inc., 235 Mich.App. 118, 124 (1999)
(agreement to arbitrate statutory employment claims cannot waive any rights or
remedies under the statute and the arbitral process must be fair). Plaintiffs have not
responded to this argument. The Court rejects this argument. First, Luick is not an
uninformed party. He is a college graduate who entered into the Employment
Second, the cases he cited had underlying statutory claims, not
employment claims. Litigation in those cases was subject to the governing statutes,
something that is not present here. Third, the cost-shifting provisions could work in
Defendants’ favor just as easily as in Plaintiffs’ favor.
Defendants argue that, if the Court concludes Luick’s counterclaim should be
dismissed in favor of binding arbitration, any claim for monetary damages asserted
by Plaintiffs against Defendants must meet the same fate. Citing Decker v. Merrill
Lynch, Pierce, Fenner & Smith Inc., 205 F.3d 906, 911 (6th Cir. 2000). The Court
finds Defendants’ argument on this issue persuasive, but there is no motion before the
Court. The Court will dismiss all claims subject to binding arbitration upon proper
motion or stipulation.3
Defendants further suggest that, if the Court determines that arbitration of all
non-equitable, non-injunctive claims is appropriate, the Court should stay the
proceedings in this Court pending resolution of the parties’ issues in arbitration.
Citing Landis v. North American Co., 299 U.S. 248, 254 (1936). Plaintiffs have not
responded to this argument, but the Court rejects any such stay here. The essence of
Plaintiffs’ case is to enjoin Luick from using trade secret information and competing
with Plaintiffs, and Plaintiffs seek injunctive, equitable relief for such conduct. This
is not a case that is appropriate for issuance of a stay in this Court, as it will only
serve to avoid resolution of the issues before the Court.
Plaintiffs’ Motion to Dismiss Counterclaim is granted.
Amended Motion for Order to Show Cause Why Defendant Should Not be
Held in Contempt
Plaintiffs ask the Court to order Defendants to show cause why they should not
be held in criminal or civil contempt, have profits disgorged, and have sanctions,
attorney fees and costs imposed upon them for violation of the Stipulated Order.
Plaintiffs assert that Defendants have ignored the Stipulated Order by: (1) continuing
to contact Xoran Customers; (2) continuing to solicit Xoran Customers and market
If there are any remaining claims that are subject to binding arbitration, the
Court advises that the parties stipulate to the dismissal of such claims.
competitive products; (3) continuing to utilize Xoran product and service pricing in
order to compete with Xoran; and (4) continuing to utilize Xoran work product.
Based on all of these alleged transgressions of the Stipulated Order, Plaintiffs ask the
Court to order immediate disclosure of all of Tungsten’s books and records, including
business records, billing statements, accounting records, active and pending contracts,
and current and prospective customer lists. Defendants assert that no finding of
criminal or civil contempt is appropriate because they have not disobeyed, resisted,
or violated the Stipulated Order.
Plaintiffs first argue that Defendants began a relationship with Craig Kilgore
(“Kilgore”) of Charleston ENT and Allergy (“Charleston ENT”) on September 14,
2016, a relationship that was ongoing at the time the Stipulated Order was entered.
Plaintiffs cite email communications between Kilgore and Xoran employees that
reflect that Kilgore had concerns about some of Xoran’s scanners, at least one of
which Charleston ENT had been paying both Xoran and Tungsten for coverage.
Plaintiffs contend that, by receiving payment from Charleston ENT and maintaining
an ongoing sales relationship with Chareleston ENT, Defendants directly violated the
Plaintiffs next argue that on December 5, 2016, Xoran obtained an email from
another current customer, Southwest Allergy & Asthma Center (“Southwest Allergy”)
that showed that, after entry of the Stipulated Order, Tungsten had solicited
Southwest Allergy for a contract to provide services for Xoran’s MiniCAT product,
a product specifically noted in the Stipulated Order. In the Tungsten email, Luick
compared Tungsten’s services and pricing to Xoran’s, offered to start in May, and
asked “In the meantime, is there any additional information I can provide?” Dkt. No.
21, Ex. 5. Plaintiffs also note that Defendants specifically stated in that email that
“Xoran uses a proprietary file format for data archive.” Plaintiffs suggests that
statement meant that Plaintiffs’ format is not publicly available and is trade secret
information protected by the Stipulated Order. Plaintiffs argue that the email
constitutes a direct violation of the Stipulated Order.
Plaintiffs contend that it received information that Defendants were planning
to be on-site at a client of Xoran’s in South Carolina in early December. Finally,
Plaintiffs state that Defendants have entered into a partnership with a former Xoran
business provider (Fusion One) to try to sell web-based data storage and remote
retrieval systems to Xoran Customers, in direct competition with Xoran’s product
XoranConnect, a product specifically addressed in the Stipulated Order.
Plaintiffs argue that Defendants’ violations of the Stipulated Order constitute
violations of a court order punishable by civil or criminal contempt. “To warrant the
imposition of criminal contempt sanctions, a party must willfully violate a specific,
clear, and unequivocal court order.” Downey v. Clauder, 30 F.3d 681, 686 (6th Cir.
1994) (citing United States v. West, 21 F.3d 607, 609 (5th Cir. 1994). The elements
for criminal contempt under 18 U.S.C. § 401(3) are that the alleged actor: “(1) had
notice of a reasonably specific court order, (2) disobeyed it, and (3) acted with intent
or willfulness in doing so.” United States v. Hendrickson, 822 F.3d 812, 820-21 (6th
Cir. 2016) (citation omitted). “For purposes of criminal contempt, ‘willfulness’
means ‘a deliberate or intended violation, as distinguished from an accidental,
inadvertent or negligent violation’ of a court order.” Id. at 822.
Alternatively, Defendants request that the Court find Defendants in civil
contempt for the above behavior, a finding that warrants punishment with a fine and
a term of imprisonment. Penfield Co. of Cal. v. SEC, 330 U.S. 585, 590 (1947);
Wright, King, & Klein, FEDERAL PRACT. & PROC.: CRIMINAL 2d § 704 at 452
(explaining “the same sanctions, fine and imprisonment, are imposed for civil
contempt as for criminal contempt”). “In a civil contempt proceeding, the petitioner
must prove by clear and convincing evidence that the respondent violated the court’s
prior order.” Glover v. Johnson, 934 F.2d 703, 707 (6th Cir. 1991). If the purpose of
the sanction is remedial in nature (“coercing the defendant to do what he had refused
to do”), then a civil contempt proceeding is appropriate. Penfield Co., 330 U.S. at 590
(citation and internal quotations omitted).
In general, refusing to do an act
commanded is civil contempt while doing a forbidden act is criminal contempt.
Wright, King, & Klein, FEDERAL PRACT. & PROC.: CIVIL 2d § 2690 at 367
(citing Gompers v. Buck’s Stove & Range Co., 221 U.S. 418, 498 (1911)).
Plaintiffs argue that the prohibition against Defendants “directly or indirectly
initiat[ing] contact with any Xoran Customer” has been violated by contacting
Kilgore and Southwest. Plaintiffs argue that Defendants violated the requirement that
they not “offer to sell a competing product or service to any Xoran Customer, or assist
or advise in any such transaction” when partnering with Fusion One to do so – and
by contacting Southwest and Kilgore. Plaintiffs further argue that Defendants
violated the requirement that they “not use, sell or otherwise disclose information
about Xoran’s product and service pricing that Luick learned while employed at
Xoran” when comparing Tungsten’s products and prices to Xoran’s in the email to
Defendants assert that the service contracts with Charleston ENT were entered
into on September 14, 2016, before the lawsuit was filed and before the Stipulated
Order was entered. Defendants argue that, once the Stipulated Order was entered,
Luick advised Kilgore that Defendants would no longer be able to honor the service
contracts and that all payments received after November 1, 2016 would be refunded.
Defendants state that: (a) they have not otherwise solicited Charleston ENT; (b) there
are no active or pending contracts between Defendants and Charleston ENT; (c)
Defendants did not provide any on-site or remote service to Charleston ENT; and (d)
Luick was not involved in any software issue at Charleston ENT, nor did he misuse
Xoran administrator credentials, related to Charleston ENT.
maintain that Luick’s scheduled visit to Charleston ENT was for the purpose of
looking at purchasing a non-functional machine from Charleston ENT. Defendants
submit declarations of Kilgore and Luick as evidence of the purpose of that scheduled
trip. For these reasons, Defendants do not believe they have violated the Stipulated
Order by maintaining a relationship with Charleston ENT.
Plaintiffs argue that Defendants’ response constitutes an admission that Luick
competed with Xoran during the non-compete period and earned money doing so.
Even if true, this has no bearing on Plaintiffs’ motion for order to show cause
regarding contempt, as that competition pre-dated November 4, 2016 (and the filing
of Plaintiffs’ cause of action).
Plaintiffs also argue that the Stipulated Order prohibited Defendants from
contacting any Xoran Customers, directly or indirectly. Plaintiffs contend that
Defendants never raised the need to contact customers to cancel service contracts
before entry of the Stipulated Order, which Plaintiffs suggest Defendants logically
would have done if Defendants wanted a provision in the Stipulated Order that
allowed Defendants to do so without violating the Stipulated Order. Plaintiffs further
assert that the Stipulated Order does not permit Defendants to contact Xoran
Customers at all; by contacting Xoran Customers and telling them Tungsten can work
with them after May 2017, he violated the Stipulated Order.
Plaintiffs contend that having a current Xoran Customer (Kilgore) submit a
declaration that reveals communications between Luick and Charleston ENT after
November 4, 2016 reveals that Luick is “directly or indirectly” contacting Xoran
Customers. Plaintiffs state that Defendants could not have cancelled a contract
without directly or indirectly contacting the Xoran Customer, nor negotiated the
purchase of any equipment from a Xoran Customer. Finally, Plaintiffs argue that
Kilgore’s declaration stating that Tungsten provides a better option than Xoran for
Charleston ENT, a Xoran Customer who Luick serviced while employed by Xoran,
only serve to exemplify how Luick has violated the non-compete and Defendants
have violated the Stipulated Order.
Plaintiffs argument is not persuasive regarding Charleston ENT.
Plaintiffs are proposing that Defendants should not have contacted Charleston ENT
to terminate the services contracts but instead have continued to violate the
Employment Agreement and the Stipulated Order, the very issues Plaintiffs are
litigating. Second, the Stipulated Order says Defendants shall not “initiate” contact.
It does not appear that Defendants “initiated” any contact regarding Charleston ENT,
except to cancel the service contracts.
Defendants claim that they did not initiate contact with Southwest Allergy, as
Luick merely responded to requests for information in emails from Southwest
Allergy. Defendants argue that Luick’s response to Southwest Allergy indicated that
Tungsten would not offer any services until May 2017 (after non-compete period
expired) and that any discussion of those services wait until May (“Since
[Defendants] can start in May for MiniCAT CT scanner service, I can follow-up with
you at that time for your Plano and Dennison scanners together. In the meantime, is
there any additional information I can provide?”). Defendants suggest that there is
no “offer to sell a competing product or service” being made, and that “[n]othing in
the Stipulated Order nor the [E]mployment [A]greement prohibits Luick from
preparing to compete with Xoran.” Citing Fitness Experience, Inc. v. TFC Fitness
Equip., Inc., 355 F.Supp.2d 877, 893 (N.D. Ohio 2004) (citation and internal
quotation marks omitted) (when addressing a breach of loyalty claim, the court
observed that “preparing to compete is qualitatively different than actually
competing”). As to Southwest Allergy, it is unclear who initiated the contact, but
Defendants appear to be in violation of at least the intent of the Stipulated Order.
Unlike in Fitness Experience, where the employees did not contact customers or
actually compete with their employer, Defendants did contact Southwest Allergy with
the intent to provide Southwest Allergy with services in the future, as evidenced by
the language cited above.
Defendants contend that Luick’s statement that “Xoran uses a proprietary file
format for data archive” does not signal Defendants’ use of Xoran work product but
instead simply reflects that Xoran uses its own file format for data archiving.
Defendants represent that is why Luick said proprietary – to distinguish Xoran’s
format from Tungsten’s – and not indicative of any trade secret information protected
by Xoran. Defendants suggest that Plaintiffs’ allegations regarding “proprietary”
information are made as a basis for the Court to find jurisdiction over this case. The
Court finds that Defendants’ use of the term “proprietary” was a general term to
suggest Xoran had its own format for data archiving, not that Defendants were
referencing any trade secret information of Xoran.
Defendants argue that they have not sold or offered to sell any Fusion One
product to any Xoran Customer, nor is there a partnership agreement between
Defendants and Fusion One. Defendants assert that Plaintiffs have not submitted any
evidence that would show an improper relationship exists between Defendants and
Fusion One. At this point, without more, the Court agrees with Defendants and the
Motion for Order to Show Cause Why Defendants Should Not be Held in Contempt
IT IS ORDERED that Defendants’ Motion to Dismiss [Dkt. No. 16] is
IT IS FURTHER ORDERED that Count II of Plaintiff’s Complaint is
IT IS FURTHER ORDERED that Plaintiffs’ Motion to Dismiss Counterclaim
[Dkt. No. 18] is GRANTED.
IT IS FURTHER ORDERED that Plaintiffs’ Motion for Order to Show Cause
why Defendants Should Not be Held in Contempt [Dkt. No. 21] is DENIED.
IT IS FURTHER ORDERED that Defendants shall advise the Court and
Plaintiffs, in writing within 7 days of the date of this Order , of any relationship either
of them has with any current or former Xoran Customer.
IT IS FURTHER ORDERED that Defendants are barred from any contact
whatsoever with any current or former Xoran Customer for any reason (unless
permitted by the Court) prior to the expiration of the non-compete period.
IT IS FURTHER ORDERED that Defendants are barred from communicating
with anyone any details of any Xoran-specific information of which Luick is aware,
unless Defendants can produce tangible evidence that such information is publicly
IT IS ORDERED.
S/Denise Page Hood
Denise Page Hood
Chief Judge, United States District Court
Dated: September 13, 2017
I hereby certify that a copy of the foregoing document was served upon counsel of
record on September 13, 2017, by electronic and/or ordinary mail.
s/Julie Owens Acting in the absence of LaShawn R. Saulsberry
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