CPI Card Group, Inc. et al v. Dwyer et al
Filing
267
REDACTED MEMORANDUM OPINION AND ORDER -- Public Version of 213 SEALED MEMORANDUM OPINION AND ORDER granting in part and denying in part 48 Motion to Dismiss/General; granting 143 Motion for Preliminary Injunction. See Order for details. Signed by Judge Susan Richard Nelson on 12/29/2017. Redacted as Approved by Judge Susan Richard Nelson on 02/20/2018. (Written Opinion) (SMD)
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
CPI Card Group, Inc., and
CPI Card Group-Minnesota, Inc.,
Plaintiffs,
File No. 17-cv-03983 (SRN/FLN)
MEMORANDUM OPINION AND
ORDER FILED UNDER SEAL
v.
John Dwyer, Multi Packaging
Solutions, Inc., John Searfoss, and
Ken Glinert,
Defendants.
Public Version -- Redacted as
Approved by Judge Susan
Richard Nelson, 2/20/2018
Karen D. McDaniel, James J. Long, and Lisa Colburn, Briggs & Morgan, PA, 80 South 8th
Street, Ste. 2200, Minneapolis, MN 55402, for Plaintiffs.
Ryan A. Olson, Richard R. Voelbel, and Scott D. Blake, Felhaber, Larson, Fenlon & Vogt,
PA, 220 South Sixth Street, Ste. 2200, Minneapolis, MN 55402 for Defendant John Dwyer.
Brian T. Benkstein, Gina K. Janeiro, and Janet M. Olawsky, Jackson Lewis P.C., 150 South
Fifth Street, Ste. 3500, Minneapolis, MN 55402, for Defendants Multi Packaging Solutions,
Inc., John Searfoss, and Ken Glinert.
SUSAN RICHARD NELSON, United States District Judge
Currently before the Court are the Motion for a Preliminary Injunction (“Pls.’ PI
Mot.”) [Doc. No. 143] filed on November 7, 2017 by Plaintiffs CPI Card Group, Inc. and
CPI Card Group-Minnesota, Inc. (collectively, “CPI” or “Plaintiffs”), and the Motion for
Partial Dismissal [Doc. No. 48] filed by Defendants Multi Packaging Solutions, Inc.
(“MPS”) and John Searfoss (“Searfoss”). For the reasons set forth below, CPI’s Motion for
a Preliminary Injunction is granted and MPS and Searfoss’s Motion for Partial Dismissal is
granted in part and denied in part as detailed herein.
I.
BACKGROUND
Before CPI filed its Motion for a Preliminary Injunction, the parties engaged in some
expedited discovery. In support of their respective positions on the motion, each party
submitted evidence, including affidavits, deposition testimony and exhibits. Based on that
record, and oral argument held on November 27, 2017, the Court recites below its
preliminary findings of fact relevant to this motion. See Calvin Klein Cosmetics Corp. v.
Parfums de Coeur, Ltd., 824 F.2d 665, 667 (8th Cir. 1987) (noting the district court’s use of
supporting materials, including affidavits and depositions of experts, to rule on the motion
for a preliminary injunction). The Court notes, however, that the facts recited herein are not
final determinations of disputed matters binding in later stages of litigation. It is a “general
rule that ‘the findings of fact and conclusions of law made by a court granting a preliminary
injunction are not binding at trial on the merits.’” Henderson v. Bodine Aluminum, Inc., 70
F.3d 958, 962 (8th Cir. 1995) (quoting Univ. of Tex. v. Camenisch, 451 U.S. 390, 395
(1981)).
A. Parties
Plaintiff CPI Card Group, Inc. is incorporated in Delaware and has a principal
place of business in Colorado. (Am. Complaint [Doc. No. 11] ¶ 3.) Plaintiff CPI Card
Group-Minnesota, Inc. is incorporated in Minnesota and also has its principal place of
business here. (Id.) CPI asserts that it is a leader in the business of “transaction cards,”
which include credit and debit cards, prepaid cards, phone cards, rebate or reward cards,
2
and transit cards. (see Id. ¶ 13; see also Ex. A of Decl. of Mira Vats-Fournier (“VatsFournier Decl.”) [Doc. No. 163], Dep. of John Dwyer (“Dwyer Dep.”) at A66/14. 1) In the
transaction card industry, cards may be categorized as “open loop” or “closed loop.”
(Decl. of Margaret O’Leary (“O’Leary Decl.”) [Doc. No. 158] ¶ 27.) “Open loop” cards
are those which can be used at any location, e.g., Visa or American Express. (Id.) In
contrast, “closed loop” cards can only be used at a singular retailer, such as Starbucks or
Home Depot. (Id.) CPI also asserts that it is focused on both closed loop and open loop
cards because “[t]here is significant overlap in customers,” and the needs of those
customers are similar. (Id.)
Defendant MPS, which is incorporated in Delaware and has its principal place of
business in New York, (Am. Compl. ¶ 5), is also involved in the transaction card
industry, (Decl. of Ken Glinert (“Glinert Decl.”) [Doc. No. 174] ¶ 4). MPS is a “print
and packaging company” and “manufactures and designs folding cartons, labels, rigid
packaging, displays, inserts, and transaction cards.” (Id. ¶ 2.) As part of its transaction
card business, MPS also provides closed loop and open loop cards. (Id. ¶ 5). MPS and
CPI are fierce competitors in what is a very competitive transaction card industry.
(O’Leary Decl. ¶ 3.)
1
Throughout this Order, the Court will cite to the depositions found in Exhibit A of the
Declaration of Mira Vats-Fournier with the following convention: the ECF page number
of the exhibit will be preceded by an “A,” followed by a slash and the internal page
number of the deposition. For example, the citation associated with this footnote refers to
page 14 of Dwyer’s deposition found at ECF page number 66 of Exhibit A to the VatsFournier Declaration.
3
Defendants Searfoss and Kenneth Glinert (“Glinert”) are currently Senior Vice
Presidents of Sales at MPS. (Ex. A of Vats-Fournier Decl., Dep. of John Searfoss
(“Searfoss Dep.”) at A38/13; Id., Dep. of Kenneth Glinert (“Glinert Dep.”) at A3/11.)
Searfoss has worked for MPS for approximately one year. (Searfoss Dep. at A37/12.) His
position for MPS involves “strategy, operation, and technology.” (Id. at A38/13.) Glinert
has been employed by MPS since approximately 2006 and is currently responsible for
transaction card sales. (Glinert Dep. at A3–4/11–13.) Searfoss and Glinert work together
building strategies for the technologies that MPS will bring to market in 2018. (Searfoss
Dep. at A39/19–20.)
Defendant John Dwyer (“Dwyer”) has worked in the transaction card industry
since 2004 and currently works for MPS. (Dwyer Dep. at A66/14.) Immediately before
that, he worked for CPI for a period of thirteen years. (Id. at A66/13.) Although his last
day of employment at CPI is heavily disputed, 2 as are many of the events leading up to
his resignation, Dwyer voluntarily resigned from CPI in late spring of 2017. (See Third
Decl. of John Dwyer (“Third Dwyer Decl.”) [Doc. No. 170] ¶ 4.) Even before resigning
from CPI, however, he signed an employment agreement with MPS. (Id. ¶ 3.)
At CPI, Dwyer was a Senior Account Executive. (Dwyer Dep. at A66/15.) In that
role, his responsibilities included “managing client relationships, prospecting new clients
and customers,” as well as heavy involvement in production and servicing of accounts.
(Id.) While at CPI, Dwyer had a “steady group of base customers,” whom Dwyer would
2
See discussion in Section I.E, infra.
4
“call on,” or meet with personally, to sell them new and existing transaction card
products. (Id. at A66–67/16–18.)
At least as related to these clients, Dwyer was exposed to a slew of information
which CPI categorizes as CPI confidential. He knew the pricing of the CPI products he
sold, as well as the pricing “strategy” for certain products; information that, as “a general
rule,” Dwyer acknowledges was CPI confidential information. (Id. at A67–68/19–22.) In
addition to confidential pricing schemes, Dwyer was also exposed to design
specifications and strategic plans at CPI, certain aspects of which Dwyer acknowledges
were deemed CPI confidential. (Id. at A68/24, A69/25.) He was also exposed to
information related to revenue and profits as well as information about products in
development and not yet released to market—information which Dwyer again
understands to have been CPI confidential information. (Id. at A69/26–27.)
Now, at MPS, Dwyer’s duties are primarily focused on WestRock, the entity that
recently purchased MPS. (Third Dwyer Decl. ¶ 14.) These responsibilities include:
“serving as a liaison between MPS and WestRock’s enterprise group focusing on key
enterprise accounts; . . . assessment of potential synergies between MPS and WestRock;
retail management and data analytics associated with merchandising displays; and
development of new product opportunities focused on connected packaging, consumer
promotions, and products focused on the insurance industry; . . . sale activities related to
merchandising display sales, and closed-loop product sales with MPS’s current customers
and prospects in the closed-loop space.” (Id.) Dwyer maintains that his current job duties
“are substantially different” from his prior duties at CPI. (Id. ¶ 15.)
5
B. Dwyer’s Employment Agreements with CPI
Because of the confidential nature of many aspects of CPI’s business, as well as
the heavy competition in the field, CPI protects its confidential and trade secret
information, in part, through the use of contractual agreements with its employees.
(O’Leary Decl. ¶ 8.) As relevant here, Dwyer signed three such employment agreements:
(1) a “Confidentiality and Nonsolicitation Agreement” (“Confidentiality Agreement”),
(see Am. Compl., Ex. A [Doc. No. 11-1]); (2) an Option Award Agreement (“Option
Agreement”), (see id., Ex. B [Doc. No. 11-2]); and (3) a Restricted Stock Unit Agreement
(“Unit Agreement”), (see id., Ex. C [Doc. No. 11-3]), (collectively, the “Original
Agreements”). Generally speaking, these agreements imposed on Dwyer confidentiality,
non-solicitation, and non-compete obligations, as explained below.
1. Confidentiality
The confidentiality, or non-disclosure, obligations imposed on Dwyer by the
Confidentiality Agreement are quite extensive. The Confidentiality Agreement prohibits
Dwyer from misusing or disclosing any CPI confidential information as defined therein.
(See Confidentiality Agreement ¶¶ 1–2.) Specifically, the agreement prohibits Dwyer,
during and after his employment, from using, disclosing, duplicating, recording, or
reproducing confidential information “except as ordinarily necessary” for the
performance of his work duties or unless CPI expressly directs him to do so. (Id. ¶ 2.)
These confidentiality obligations are further reinforced by the Option Agreement, which
also prohibits Dwyer from disclosing or using CPI confidential information, except as
related to and required by Dwyer’s performance duties at CPI. (Option Agreement
6
¶ 10(a).) The Option Agreement also tasks Dwyer with safeguarding and protecting CPI
confidential information against disclosure, misuse, espionage, loss, and theft. (Id.)
2. Non-Solicitation
The Original Agreements also imposed non-solicitation obligations on Dwyer. The
Confidentiality Agreement prohibited Dwyer—for 1 year following termination of
employment—from “directly or indirectly solicit[ing], on [his] own behalf or on behalf of
another, (a) any of [CPI’s] then-current customers, or (b) any of [CPI’s] potential
customers for whom [he] had contact or provided services, either directly or indirectly.”
(Confidentiality Agreement ¶ 7.) This clause covered “products in development,
developed, manufactured or sold” by CPI before Dwyer left CPI. (Id.)
The Option Agreement’s non-solicitation provisions, effective for two years after
Dwyer left CPI, prohibited Dwyer from “call[ing] on, solicit[ing] or servic[ing] any
customer, supplier, licensee, licensor or other business relation of [CPI] in order to induce
or attempt to induce any such [p]erson to cease doing business with [CPI], or in any way
interfere with the relationship between” CPI and any of these third parties. (Option
Agreement ¶ 10(c).) The Unit Agreement also prohibited Dwyer, inter alia, for one year
after leaving CPI, from soliciting, among others, customers, former customers, and active
prospects of the “Business” of CPI within the “Restricted Territory,” as well as from
selling products or services for any business that competes with the “Business” of CPI,
again within the “Restricted Territory” as defined in the agreement. (Unit Agreement
¶¶ 6(a)(i)(B), (C).)
7
3. Non-Compete
Finally, the Original Agreements also included strict non-compete provisions. The
Option Agreement required Dwyer to abstain from working for a competitor for two
years after leaving CPI. (See Option Agreement ¶ 10(b).) Specifically, this agreement
provided that “[Dwyer] shall not, directly or indirectly, either for himself or for or
through any other [p]erson, participate in any business or enterprise in a ‘Competitive
Business,’” a term defined to “include any company, person or entity that is involved in,
seeks to become involved in or competes with the Business in the Restricted Territory.”
(Id. ¶ 10(b).) “Business,” in turn, is defined through an extensive list of the many aspects
of the transaction card industry. (See id.)
The Unit Agreement also prohibited Dwyer, for one year after leaving CPI, from
“enter[ing] into or engag[ing] in any business that competes with the Business within the
Restricted Territory,” or “counsel[ing], promot[ing] or assist[ing], financially or
otherwise, any person engaged in any business that competes with the Business within
the Restricted Territory.” (Unit Agreement ¶¶ 6(a)(i)(A), (D).) This agreement again
defines the terms “Business” and “Restricted Territory.” (Id. ¶ 6(b).)
C. Dwyer Leaves CPI to Work for MPS
Dwyer contends that, at some point, he became frustrated with the compensation
plan at CPI and communicated that frustration—and intent to leave CPI if his
compensation did not improve—to his supervisor, Margaret O’Leary (“O’Leary”), in
January of 2016. (Third Dwyer Decl. ¶ 1.) Dwyer claims that O’Leary told him to “give
8
her one year to fix the compensation plan,” but that the new plan she presented to him
more than a year later was, in his view, even worse. (Id. ¶¶ 1–2.)
Meanwhile, according to Searfoss, at least by December 2016, “there was word on
the street that [Dwyer] was not happy” at CPI. (Searfoss Dep. at A43/33.) At that time,
Searfoss approached Dwyer about a position with MPS, (Id. at A42/32), and the two
began to negotiate Dwyer’s eventual employment with MPS, (see Ex. A of Vats-Fournier
Decl. (Ex. 19 (Dec. 23, 2016 email from Searfoss to Dwyer)) at A200–10.) In February
of 2017, Searfoss sent Dwyer the outline of an offer for employment. (Id. (Ex. 18 (Feb. 8,
2017 email from Searfoss to Dwyer)) at A197.) At some point, the now-President of
MPS, Marc Shore, also became involved in recruiting and hiring Dwyer. (Searfoss Dep.
at A43/33–34.) Shore reviewed details of Dwyer’s eventual compensation offer as well as
the non-compete covenants to which Dwyer was bound before passing the information on
to MPS’s attorneys for review. (Id.) Finally, on March 27, 2017, Dwyer signed an
employment agreement with MPS. (See Ex. A of Vats-Fournier Decl. (Ex. 20 (MPSDwyer Employment Agreement)) at A202–15.) Per the employment agreement, Dwyer
was to start work for MPS in April of 2017. (Id. at A203.)
On March 29, 2017—two days after he signed his employment agreement with
MPS—Dwyer sent O’Leary an email tendering his resignation from CPI. (Id. (Ex. 33
(Mar. 29, 2017 email from Dwyer to O’Leary)) at A303.) He did not, however, state that
he had already signed an employment agreement with MPS. (Id.) Instead, Dwyer
represented to O’Leary that he needed to take some time to figure out his future plans,
implying he did not have another opportunity already lined up. (Id.) Dwyer wrote to
9
O’Leary, “It is time for me to decide what the next chapter of my career will look like
and I am looking forward to taking a little time to figure this out.” (Id.)
After Dwyer resigned, O’Leary asked him to remain at CPI for a temporary period
to assist with transitioning his clients. (O’Leary Decl. ¶ 9; Third Dwyer Decl. ¶ 5.) Dwyer
obtained MPS’s agreement to postpone his start date, and then agreed to stay at CPI
temporarily. (Third Dwyer Decl. ¶¶ 6–7.) Dwyer contends that in exchange for staying on
longer, he asked to have certain provisions of the Original Agreements renegotiated and
revised. (Id. ¶ 6; O’Leary Decl. ¶ 9.) Though the circumstances surrounding the
negotiations are heavily disputed, CPI and Dwyer ultimately executed an amendment (the
“Amendment”) to the Original Agreements, as described below. At no time throughout
these negotiations did Dwyer disclose the fact that he had already signed an employment
agreement with CPI’s competitor MPS.
D. The Amendment with CPI
On May 12, 2017, Dwyer and CPI signed the Amendment, which made significant
changes to Dwyer’s non-compete and non-solicitation obligations to CPI. (See Am.
Compl., Ex. D, Amendment [Doc. No. 11-4].) The Amendment, however, did not alter
Dwyer’s confidentiality obligations under the Original Agreements. (See id.). The
Amendment appears to release Dwyer of the non-compete obligations he had under the
Original Agreements. In relevant part, the Amendment provides that “Sections 10(b) and
(c) of the Option Award Agreement” and “Section[s] 6(i) and (ii) of the Restricted Stock
Unit
Agreement”—sections
imposing
both
non-compete
and
non-solicitation
obligations—“shall be deleted in their entirety and replaced” by narrower non-solicitation
10
provisions—but no non-compete provisions—effective until March 29, 2018. (See
Amendment ¶¶ 4, 8.) In relevant part, the replacement non-solicitation language in the
Amendment prohibits Dwyer from “directly or indirectly, either for himself or any other
[p]erson, solicit[ing]” two categories of CPI clients:
“(1) clients producing revenue for CPI Holdings, Inc. on or before March 29, 2017
that [Dwyer] directly managed or consulted on in the areas of card fulfillment and
eServices, and
(2) clients producing revenue for CPI Card Group – Minnesota, Inc. on or before
March 29, 2017 in the business segment of open loop prepaid retail packaging.”
(Id. ¶ 4(b) (replacing non-compete & non-solicitation provisions of the Option
Agreement), ¶ 8 (doing same as to Unit Agreement).) The non-solicitation provision of
the Confidentiality Agreement was also replaced by identical language. (See id. ¶ 7.) In
short, the Amendment appears to remove Dwyer’s non-compete obligations under the
Original Agreements, leaves unaltered his confidentiality obligations, and significantly
narrows his non-solicitation restrictions.
CPI was unaware of Dwyer’s employment agreement with MPS while it
negotiated the Amendment with Dwyer. (O’Leary Decl. ¶ 9.) In fact, O’Leary states that
CPI would never have negotiated the Amendment, or asked Dwyer to continue working
for CPI for a transitional period, had Dwyer disclosed that he had already accepted a
position with MPS. (Id.) MPS, on the other hand, was aware of Dwyer’s negotiation of
the Amendment, as Dwyer kept MPS closely informed on the progress of negotiations.
(See, e.g., Ex. A of Vats-Fournier Decl. (Ex. 39 (May 5, 2017 email thread between
Dwyer, Searfoss, and Glinert)) at A346–48.) In fact, the evidence suggests that Dwyer,
11
Glinert, and Searfoss contemplated steps to keep details about Dwyer’s future
employment plans hidden from CPI at least until Dwyer signed the Amendment. For
instance, on May 5, 2017, Dwyer forwarded to Glinert and Searfoss an email that Dwyer
had sent to CPI with his “final offer” for language for the Amendment. (Id. at A346.)
Glinert responded, “[John Dwyer], if you are pressed for time I would have it signed in
current form below as I’m concerned about them pulling the rug out. Better to have
closed than no card industry at all.” (Id.) Glinert was concerned that “rumors are heating
up” such that time was “key.” (Id.) To this, Dwyer responded that “[t]o provide some
breathing room,” he had asked a friend who worked for a CPI customer to ask O’Leary if
that customer could hire Dwyer. (Id.) Dwyer stated that his request to his friend was
designed “to throw a little smoke.” (Id.)
Searfoss had a similar exchange with Dwyer. On May 1, 2017, Searfoss texted
Dwyer, “Just sat down with Adam DeMalignon and he told me you were coming to work
for MPS! He wouldn’t tell me who told him but I think Sev knows. I hope you get your
document signed before anyone finds this out.” (Ex. A of Vats-Fournier Decl. (Ex. 24
(text messages)) at A240, row 1679.) Presumably, the “document” Searfoss referred to
was the Amendment.
The Amendment contains apparently contradictory language regarding its
effective date. On one hand, the Amendment states that it is “made effective on the 12th
day of May, 2017.” (Amendment at 2.) On the other hand, it states, “Provided the
SATISFYING EVENT defined in Paragraph 3 of this Amendment is met, this
Amendment shall become effective on June 17, 2017,” but “[i]n the event the
12
SATISFYING EVENT . . . is not met, this Amendment shall be null and void.” (Id. ¶ 2.)
The “satisfying event” would be met if: (1) “Dwyer w[ould] continue providing services
to [CPI] up to and including June 16, 2017”; (2) Dwyer physically reported to work “up
to and including May 16, 2017, after which, he w[ould] receive payment for accrued
vacation . . . until such accrued vacation is exhausted on or about June 16, 2017”; and (3)
between May 13, 2017 and June 16, 2017, inclusive, Dwyer—although not required to
physically report to CPI—“w[ould] make himself available by phone, email, or in-person,
on an as needed basis to assist in addressing any job-related issues incident to his
employment with [CPI].” (Id. ¶ 3.)
E. The Alleged Trade Secret Misappropriation & Violation
Confidentiality, Non-Compete, and Non-Solicitation Obligations
of
In the months before and after his resignation from CPI, but before officially
starting work for MPS, 3 Dwyer engaged in behavior which CPI characterizes as the
misappropriation of CPI trade secrets and confidential information and chronic violations
of Dwyer’s confidentiality, non-compete, and non-solicitation obligations to CPI. (Pls.’
Mem. Supp. Mot. Prelim. Inj. (“Pls.’ PI Mem.”) [Doc. No. 154] at 6–10.) Dwyer and the
MPS Defendants heavily dispute these characterizations. (See Def. Dwyer Opp’n Mot.
Prelim. Inj. (“Dwyer’s Opp’n”) [Doc. No. 166]; MPS Defs.’ Opp’n Mot. Prelim. Inj.
3
Dwyer maintains that his last day of active employment at CPI was May 16, 2017—or
the last day he was to physically report to work at CPI per the Amendment. (Third Dwyer
Decl. ¶ 11.) CPI, however, maintains that Dwyer’s last day of employment at CPI was
June 16, 2017, or the last day he was to provide as-needed services to CPI. (Am. Compl.
¶ 4.) It appears to be uncontroverted, however, that Dwyer officially began working with
MPS on June 5, 2017. (Third Dwyer Decl. ¶ 14.)
13
(“MPS Defs.’ Opp’n”) [Doc. No. 172].) Although CPI’s contentions are summarized
here, the parties’ arguments are more fully described in Section II.A, infra.
CPI first points to an email entitled “Opportunity” which Dwyer sent to Searfoss
on January 9, 2017 while negotiations for Dwyer’s employment with MPS were
underway. (Ex. A of Vats-Fournier Decl. (Ex. 22 (Decl. of John Searfoss (“Searfoss
Decl.”) Ex. A)) at A224.) This email described a “fulfillment opportunity” for REDACT
ED
REDACTED
, contained REDACT ’s contact information, and included a
ED
suggestion by Dwyer to Searfoss that MPS should “get right on this as it could be your
foot in the door.” (Id.) According to CPI, this email constitutes a breach of Dwyer’s
confidentiality and non-compete obligations under the Original Agreements long before
the Amendment. (Pls.’ PI Mem. at 6–7.)
Next, CPI points to two emails which Dwyer sent in March of 2017 related to a
REDACTED
CPI was developing for
REDA
CTED
. (Id. at 8–9.) On March 10,
2017, Dwyer emailed Searfoss from his personal Gmail account, attaching a document
labeled REDACTED
,” and telling Searfoss: “Check out this patent…RE
DA
CTE
D
” (Id.; Ex. A of Vats-Fournier Decl. (Ex. 37 (Mar. 10,
2017 email from Dwyer to Searfoss)) at A330.) The patent in question was then under
licensing negotiations between
REDA
CTED
and CPI—negotiations that Dwyer was in fact
spearheading on behalf CPI. (O’Leary Decl. ¶ 19; Dwyer Dep. at A84/85–86.) Then, on
March 21, 2017, about a week before resigning from CPI, Dwyer sent another email to
Searfoss, telling Searfoss that Dwyer needed to talk to him about a PowerPoint
14
presentation attached to the email titled REDACTED
(Ex. A
of Vats-Fournier Decl. (Ex. 40 (March 21 email from Dwyer to Searfoss)) at A349–355.)
Dwyer had apparently received that presentation from a REDACTED
after the two
had discussed it the day before. (O’Leary Decl. ¶ 16.) CPI claims that these emails
constitute a breach of Dwyer’s confidentiality and non-compete obligations and also
constitute the misappropriation of trade secrets and confidential information, again long
before the Amendment was in effect. (Pls.’ Reply Supp. Mot. Prelim. Inj. (“Pls.’ PI
Reply”) [Doc. No. 184] at 1, 3.)
The next set of evidence that CPI points to is a series of emails that Dwyer
forwarded from his CPI email account to his personal Gmail account on March 29, 2017,
minutes before he emailed his resignation to O’Leary. (Pls.’ PI Mem. at 6–7.) These
emails contained attachments to various presentations and CPI documents, many of
which are marked as CPI confidential. (See Ex. A of Vats-Fournier Decl. (Exs. 33–36
(March 29 emails from Dwyer to Dwyer)) at A304–29.) Again, CPI contends that Dwyer
misappropriated trade secrets and breached his duty of confidentiality by forwarding
these emails to his personal account. (Pls.’ PI Reply at 1–2.)
Finally, CPI points to two PowerPoint presentations that Dwyer prepared and sent
to Searfoss and Glinert on May 18th and June 1st, respectively, while he was still
providing as-needed services to CPI. (Pls.’ PI Mem. at 7.) Dwyer first forwarded these
presentations from his CPI email account to his personal Gmail account, and then within
a few minutes forwarded those same presentations to Searfoss and Glinert from Gmail.
(Compare Ex. A of Vats-Fournier Decl. (Ex. 7 (May 18 email from Dwyer to Dwyer)) at
15
A133–37, and id. (Ex. 10 (June 1 email from Dwyer to Dwyer)) at A146–57, with id.
(Ex. 8 (May 18 email from Dwyer to Searfoss and Glinert)) at A138–42, and id. (Ex. 11
(June 1 email from Dwyer to Searfoss and Glinert)) at A158–77.) CPI contends that
these presentations include CPI trade secrets and confidential information, as well as
information on CPI products not yet released to market. (O’Leary Decl. ¶¶ 14–15.)
F. Forensic Investigation and Procedural Posture
At some point after these events, CPI conducted a forensic examination of
Dwyer’s CPI email account and learned about the emails Dwyer had forwarded to his
personal Gmail account, including the May 18th and June 1st emails. (Am. Compl., Ex. E
(litigation hold letter from CPI to Dwyer) [Doc. No. 11-5] at 2.) On July 13, 2017, the
law firm of Winston & Straw (“Winston”), then counsel for CPI, sent Dwyer a litigation
hold letter. (Id.) This letter also demanded that Dwyer cooperate with CPI’s computer
forensic vendor, FTI Consulting (“FTI”), “to accomplish removal and remediation of all
electronic copies of CPI’s materials from all [his] personal electronic devices, email
accounts, external drives and cloud based storage sites where they may reside.” (Id. at 2,
4.)
On July 18, the law firm of Kramer Levin, who was then representing Dwyer,
responded to Winston’s demand letter. (Am. Compl., Ex. F (Dwyer response to litigation
hold letter) [Doc. No. 11-6] at 18.) A few days later, the parties began an email
discussion and reached an agreement (the “ESI Agreement”) pursuant to which FTI
would locate and forensically remove CPI’s materials from Dwyer’s personal electronic
devices, email accounts, external drives, and cloud-based storage devices. (Dwyer’s
16
Opp’n at 8.) FTI conducted this forensic examination and deleted CPI-related information
and documents from Dwyer’s devices. (Id.)
Following the FTI forensic examination, attempts between the parties to reach an
out-of-court resolution broke down, and on August 25, 2017, local counsel Briggs and
Morgan (“Briggs”) initiated this lawsuit on behalf of CPI, alleging claims against Dwyer,
MPS, Searfoss, and Glinert. 4 (Compl. [Doc. No. 1].) 5 On September 15, 2017, Dwyer
filed a Motion to Disqualify CPI’s counsel [Doc. No. 27]. Dwyer argued that both
Winston and Briggs should be disqualified from representing CPI because they had
deliberately breached the parties’ ESI Agreement, intentionally reviewed attorney-client
privileged information, and violated the Minnesota Rules of Professional Conduct. (See
Dwyer’s Mem. Supp. Mot. Disqualify Pls.’ Counsel [Doc No. 29] at 1.) A hearing date
before the magistrate judge was set for October 2, 2017. (Sept. 21, 2017 Order [Doc. No.
54].)
Meanwhile, on September 21, 2017, both sides filed motions before this Court.
Defendants MPS and Searfoss moved to dismiss two counts of the Amended
Complaint pursuant to Federal Rules of Civil Procedure 12(b)(6) and 9(b). (See MPS and
Searfoss Mot. Partial. Dismissal.) First, MPS and Searfoss urge the Court to dismiss
4
The Court will refer to MPS, Searfoss, and Glinert collectively as the “MPS
Defendants.” “Defendants,” in turn, will refer to these defendants plus Dwyer.
5
On September 8, CPI filed the Amended Complaint, now the operative complaint in this
litigation. (See Am. Compl.)
17
CPI’s claim for Fraudulent Inducement of the Amendment as against the two of them,6
arguing that the claim does not meet the heightened pleading requirement under Rule
9(b). (MPS and Searfoss Mem. Supp. Partial Dismissal (“MPS and Searfoss Dismissal
Mem.”) [Doc. No. 50] at 1, 5–8.) Second, MPS and Searfoss ask this Court to dismiss
CPI’s claim for Unfair Competition, (see Am. Compl. ¶¶ 173–78 (Count IX)), for failure
to state a claim, (MPS and Searfoss Dismissal Mem. at 1–2, 8–10).
For its part, CPI moved for a preliminary injunction [Doc. No. 55]. Winston alone
submitted and signed CPI’s motion, (see id. at 4), and it alone signed CPI’s memorandum
in opposition to the Motion for Partial Dismissal filed by MPS and Searfoss.
On October 27, 2017, Magistrate Judge Franklin L. Noel issued an Order
disqualifying Winston—but not Briggs—from representing CPI. (See Oct. 27, 2017
Magistrate Judge Order (“MJ Order”) [Doc. No. 124].) 7 In light of the magistrate judge’s
order disqualifying Winston, this Court ordered that Winston withdraw CPI’s motion for
a preliminary injunction. (See Oct. 30, 2017 Order [Doc. No. 132].) Given the magistrate
judge’s finding of no impropriety by Briggs, this Court permitted Briggs to file a new
motion for a preliminary injunction on behalf of CPI—cured of any impropriety—and
6
The Amended Complaint does not assert Count III against Glinert. (See Am. Compl. ¶¶
117–22.)
7
Magistrate Judge Noel found that Winston had improperly reviewed and used
confidential and attorney-client privileged information belonging to Dwyer. (MJ Order at
7–12.) He found Winston’s conduct prejudicial to the administration of justice and in
violation of the Minnesota Rules of Professional Conduct, warranting disqualification as
CPI’s counsel. (Id. at 12.) However, Magistrate Judge Noel found that the conduct of
Briggs did not merit disqualification. (Id.)
18
directed CPI to re-file a response to MPS and Searfoss’s Motion for Partial Dismissal.
(See Min. Entry for Nov. 2, 2017 Teleconference [Doc. No. 136].)
On November 7, 2017, Briggs filed the instant Motion for a Preliminary Injunction
on behalf of CPI [Doc. No. 143]. CPI urges the Court to enjoin all Defendants from
“deliberate and extensive misappropriation of CPI’s trade secrets and other confidential
business information.” (Pls.’ PI Mot. at 1.) CPI further seeks to enjoin Dwyer from
working, directly or indirectly, in MPS’s transaction card industry during the pendency of
this lawsuit. (CPI Proposed Order [Doc. No. 152] at 2.) Finally, CPI seeks the return of
any of its confidential, proprietary, or trade secret information that may still be in
Defendants’ possession. (Id. at 3.)
CPI contends that it has and will continue to suffer irreparable harm if Defendants
are not enjoined. (Pls.’ PI Mem. at 12–18.) It also argues that it is likely to succeed on the
merits of at least seven of its claims: Counts I and II, Misappropriation of Trade Secrets
in violation of federal and state law (asserted against all Defendants), (see id. at 19–22);
Count III, Fraudulent Inducement of the Amendment (asserted against Dwyer, Searfoss,
and MPS), (see id. at 23–25); Counts IV–VI, Breach of the Non-Disclosure, NonCompetition, and Non-Solicitation Covenants in the Original Agreements, respectively
(asserted against Dwyer), (see id. at 22–25); and Count VIII, Tortious Interference with
Contract (asserted against the MPS Defendants), (see id. at 26–28). On November 17,
Briggs also filed a new response on behalf of CPI opposing MPS and Searfoss’s Motion
for Partial Dismissal. (Pls.’ Opp’n Partial Dismissal [Doc. No. 165].) The Court now
turns to the parties’ respective motions.
19
II.
DISCUSSION
A. Preliminary Injunction
1. Legal Standard
“A preliminary injunction is an extraordinary remedy never awarded as a matter of
right.” Winter v. Nat. Res. Def. Council, Inc., 555 U.S. 7, 24 (2008). This Court must
consider four factors to determine whether preliminary injunctive relief is warranted: (1) the
movant’s likelihood of success on the merits; (2) the threat of irreparable harm to the
movant in the absence of relief; (3) the balance between that harm and the harm injunctive
relief would cause to the other litigants; and (4) the public interest. Dataphase Sys., Inc. v.
CL Sys., Inc., 640 F.2d 109, 114 (8th Cir. 1981) (en banc); accord Watkins, Inc. v. Lewis,
346 F.3d 841, 844 (8th Cir. 2003) (quoting Dataphase). When applying these factors, “a
court should flexibly weigh the case’s particular circumstances to determine whether the
balance of equities so favors the movant that justice requires the court to intervene.”
Hubbard Feeds, Inc. v. Animal Feed Supplement, Inc., 182 F.3d 598, 601 (8th Cir. 1999)
(quoting United Indus. Corp. v. Clorox Co., 140 F.3d 1175, 1179 (8th Cir. 1998)). A
plaintiff “is entitled to a preliminary injunction only if the Dataphase factors, on balance,
weigh in [his] favor.” Home Instead, Inc. v. Florance, 721 F.3d 494, 499 (8th Cir. 2013)
(citing Dataphase, 640 F.2d at 113). The burden of establishing the four factors lies with the
party seeking injunctive relief. Watkins, 346 F.3d at 844.
2. Likelihood of Success on the Merits
“An injunction cannot issue if there is no chance on the merits.” Mid-Am. Real
Estate Co. v. Ia. Realty Co., 406 F.3d 969, 972 (8th Cir. 2005). However, the question is not
20
whether the movant has “prove[d] a greater than fifty percent likelihood that [it] will
prevail,” PCTV Gold, Inc. v. SpeedNet, LLC, 508 F.3d 1137, 1143 (8th Cir. 2007), but
rather whether any of its claims provide a “fair ground for litigation,” Watkins, 346 F.3d at
844. “In considering the likelihood of the movant prevailing on the merits, a court does not
decide whether the movant will ultimately win.” PCTV Gold, 508 F.3d at 1143. Rather, this
factor simply requires the movant to show that it has a “fair chance of prevailing” on its
claims. Planned Parenthood Minn., N.D., S.D. v. Rounds, 530 F.3d 724, 732 (8th Cir.
2008). Moreover, “[w]hile no single [Dataphase] factor is determinative, the probability of
success factor is the most significant.” Home Instead, 721 F.3d at 497 (quotation marks and
internal citations omitted). To satisfy this factor, the movant need only show likelihood of
success on the merits on a single cause of action, not every action it asserts in its complaint.
See United Healthcare Ins. Co. v. AdvancePCS, 316 F.3d 737, 742–43 (8th Cir. 2002).
a.
Misappropriation of CPI Trade Secrets (All Defendants)
CPI first argues that it is likely to succeed on its claims of misappropriation of
trade secrets in violation of the Defend Trade Secrets Act (“DTSA”), 18 U.S.C. § 1836 et
seq., as well as the Minnesota Uniform Trade Secrets Act (“MUTSA”), Minn. Stat.
§ 325C et seq., and Minnesota common law. (Pls.’ PI Mem. at 19–22.) To ultimately
prevail on a misappropriation claim under these statutes, CPI must show both the
“existence and the misappropriation of a trade secret.” Wilson v. Corning, Inc., 171 F.
Supp. 3d 869, 882 (D. Minn. 2016) (citations omitted); Katch, LLC, v. Sweetser, 143 F.
Supp. 3d 854, 868 (D. Minn. 2015) (citations omitted).
21
A “trade secret” is defined in both the DTSA and the MUTSA as “information”
that “(1) is not generally known or readily ascertainable, (2) has value as a result of its
secrecy, and (3) is the subject of reasonable efforts under the circumstances to protect its
secrecy.” Wyeth v. Nat. Biologics, Inc., 395 F.3d 897, 899 (8th Cir. 2005) (citing Minn.
Stat. § 325C.01, subdiv. 5); see 18 U.S.C. § 1839(3). “Misappropriation,” in turn, is
defined as the “acquisition,” “disclosure,” or “use” of another’s trade secrets by “improper
means.” See Minn. Stat. § 325C.01, subdiv. 3; 18 U.S.C. § 1839(5). The MUTSA defines
improper means as “theft, bribery, misrepresentation, breach or inducement of a breach
of a duty to maintain secrecy, or espionage through electronic or other means.” Minn.
Stat. § 325C.01, subdiv. 2. The definition of misappropriation under the DTSA is, almost
verbatim, the same. See 18 U.S.C. § 1839(5).
CPI points to three major categories of information which it claims are trade
secrets that were misappropriated by Dwyer and the MPS Defendants. Each is addressed
in turn.
i.
March Emails Relating to the REDACTED
Solution
CPI argues that all Defendants are liable for trade secret misappropriation because of
two emails Dwyer sent to Searfoss on March 10 and 21 containing details of a
REDA
CTED
that CPI was developing for REDAC (Pls.’ PI Mem. at 8–10, 21.) The
TED
March 10th email, titled
REDACTED
included a CPI patent then under
licensing negotiations between CPI and REDA —negotiations that Dwyer was spearheading
CTED
on behalf of CPI. (Ex. A of Vats-Fournier Decl. (Ex. 37 (Mar. 10, 2017 email from Dwyer
22
to Searfoss)) at A330.) In the email, Dwyer stated to Searfoss that the idea was gaining
traction at REDACTED
. The March 21st email included the PowerPoint presentation
titled REDACTED
(id. (Ex. 40 (March 21 email from Dwyer
to Searfoss)) at A349–355), which Dwyer received directly from a REDACTED
In essence, CPI argues that the
REDACTED
reflected in the
.
REDAC
TED
PowerPoint presentation is a trade secret because it was unknown to MPS at that
time and CPI has not released the solution to market yet. (See Pls.’ PI Mem. at 9–10, 21.)
CPI then argues that it was misappropriation because Dwyer and Searfoss discussed it, with
Searfoss testifying that the nature of those discussions were “[t]hat REDA was negotiating a
CTED
licensing agreement with CPI to use this methodology, and [Dwyer] wanted to know if we
were capable of doing it.” (Searfoss Dep. at A46/47.)
Here, although the issue is close, and further evidence may persuade the Court
otherwise, the Court concludes that CPI has not demonstrated a fair chance of ultimately
showing that the information contained in these emails is protectable as a trade secret.
Although CPI’s potential solution for any given customer likely has actual or potential
economic value to a competitor before that solution is released to market, CPI must still
meet the final element of a trade secret—that it made “efforts that are reasonable under the
circumstances to maintain its secrecy.” Minn. Stat. § 325C.01, subdiv. 5. That, CPI has
failed to do.
Beyond stating that it considers “REDACT interest in [CPI’s] patent and CPI and
ED
REDACT
ED
development of an application to use CPI’s patent and the specific solution
developed at CPI for REDACTED
to be CPI confidential information,”
23
(O’Leary Decl. ¶ 19), and generally pointing to the measures it takes to protect confidential
information, (see generally Decl. of Jay Arbabha [Doc. No. 146]), CPI has not shown a
likelihood of proving that it took reasonable measures to protect the secrecy of the contents
of this particular presentation. See Electro-Craft Corp. v. Controlled Motion, Inc., 332
N.W.2d 890, 901 (Minn. 1983) (explaining that “more than an ‘intention’” to keep
something secret is required). Critically, this presentation was created by REDA , not CPI.
CTED
And so far as the Court can discern, it was not marked “CPI Confidential” or “confidential”
at all. Though “[s]ecrecy need not be total,” CPI has not shown that it took reasonable steps
to “keep[] the information from those outside in the general trade or industry.” Jostens, Inc.
v. Nat’l Comput. Sys., Inc., 318 N.W.2d 691, 700 (Minn. 1982). In fact, Searfoss testified
that at some point, perhaps after Dwyer shared the presentation with him, although he could
not recall the specific timing, REDA itself shared the CPI solution with MPS. (Searfoss Dep.
CTED
A46–47/48–49; Third Dwyer Decl. ¶ 25 (“This information was distributed to
REDACT
ED
vendor base, including to MPS. The document does not contain any confidential
information of CPI, which makes sense given that CPI was not a
REDA
CTED
client at the
time.”).)
Although Dwyer’s transmission of this information to MPS without even sending it
to O’Leary, and MPS’s willingness to capitalize on this information while Dwyer was still
employed by CPI, strikes the Court as wrongful and is likely actionable on other grounds,
“[w]ithout a proven trade secret[,] there can be no action for misappropriation, even if
defendants’ actions were wrongful.” Electro-Craft, 332 N.W.2d at 897. Otherwise, courts
24
“would come dangerously close to expanding the trade secrets act into a catchall for
industrial torts.” Id.
ii.
Forwarded Emails
Next, CPI contends that Dwyer is liable for trade secret misappropriation because
he forwarded to his personal Gmail account, minutes before resigning, a series of emails
with information clearly marked CPI confidential. (PIs.’ PI Mem. at 6–7.) In response,
Dwyer contends that these emails do not constitute trade secrets, and that regardless,
there was no misappropriation because he did not forward the emails to CPI and his
intent in retaining that information was benign. (Dwyer’s Opp’n at 20–21; Third Dwyer
Decl. ¶ 18.) He contends that he forwarded these emails to his personal account “in case
clients and/or service teams needed answers regarding on-going projects after [he]
resigned, as [he] did not know whether [he] would continue to work during the two-week
notice period.” (Third Dwyer Decl. ¶ 18.)
Here, the Court again concludes that CPI has not shown a fair chance of prevailing
on this claim, at this time, on this record. At the outset, the Court notes that CPI does not
sufficiently identify why the information contained in these emails qualifies as a trade
secret. CPI generalizes that all the information at issue “constitutes CPI trade secrets and
confidential information” because “[t]his is the type of information from which a competitor
could derive advantage because it has actual or potential economic value,” and because it “is
information which CPI takes steps to protect as confidential.” (O’Leary Decl. ¶ 20.) But
generalized assertions and “cursory descriptions” do not meet CPI’s burden of showing that
legitimate trade secrets are at stake. Menzies Aviation (USA), Inc. v. Wilcox, 978 F. Supp. 2d
25
983, 995 (D. Minn. 2013); Guy Carpenter & Co., Inc. v. John B. Collins & Assocs., Inc.,
No. 05-cv-1623 (JRT/FLN), 2006 WL 2502232, at *2 (D. Minn. Aug. 29, 2006)
(“Carpenter’s failure to identify trade secrets with specificity renders the Court powerless to
enforce a trade secret claim.”) Although the documents Dwyer forwarded were in fact
marked “CPI Confidential,” information that an employer marks as “confidential” is not
automatically or even necessarily “trade secret” information. See Katch, 143 F.Supp. 3d
at 868. Rather, a company’s classification of its documents as “confidential” may be but
one factor courts consider to assess whether information is protectable as a trade secret.
See Jostens, 318 N.W.2d at 700–01 (affirming as not clearly erroneous trial court’s
finding that no trade secret existed where information was not marked “confidential”
until after litigation began).
But even if this Court concluded that CPI is likely to establish that these emails
contained trade secrets, CPI still faces an uphill battle to demonstrate that Dwyer or MPS
misappropriated them. Although the Court questions Dwyer’s candor in claiming that he
forwarded these emails to himself for the benefit of CPI’s customers, CPI has not
presented any evidence showing that Dwyer forwarded these emails to MPS or otherwise
personally used the information in a manner that is likely to constitute “misappropriation”
under the applicable statutes. Absent evidence of use or disclosure, CPI would need to
show “acquisition” by “improper means,” again defined to include “theft, bribery,
misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or
espionage . . . .” Minn. Stat. § 325C.01, subdiv. 2. Notably, Dwyer’s Confidentiality
Agreement did not per se prohibit him from forwarding emails to his personal email
26
account. And absent this express prohibition—or again evidence of use or disclosure—
the Court is hard-pressed to conclude that Dwyer’s behavior falls under the definition of
“improper means.” See id.
iii.
“Strategic
Plan”
Presentations
&
“Market
Opportunities”
Finally, CPI alleges that Dwyer misappropriated trade secrets by sending two
presentations to Searfoss and Glinert on May 18 and June 1 which it claims “focused on
soliciting CPI customers, and included reference to a number of CPI trade secrets, including
products not yet released to market by CPI and information relating to technology on which
CPI is seeking a patent.”8 (Pls.’ PI Mem. at 20–21.) As to Searfoss and Glinert, CPI argues
that they too are liable for misappropriation because they understood Dwyer had
confidentiality and non-competition obligations to CPI and nevertheless received, reviewed,
or and/or used the information contained in the two presentations. (Id. at 7, 20–21.)
This time, CPI points out specific information contained in the presentations that it
contends is protectable as a trade secret. First,
REDACTED
According to
O’Leary, REDACTED
Second, CPI contends that the presentation also references the REDACTED
8
So far as the Court can discern, the June 1st presentation duplicates some of the content
of the May 18th presentation and adds additional content. Because CPI focuses its
arguments on the contents of Exhibit 11, the June 1st presentation, so does the Court.
27
REDACTED
and reiterates that this is a form
of fraud control that REDACTED CPI are implementing—based on CPI’s patent—and which
has not been released to the market yet, (O’Leary Decl. ¶ 14). Next, CPI claims that the
presentation’s mention of REDACTED
technology, (see Ex. A of Vats-Fournier Decl. (Ex.
11 (June 1 email from Dwyer to Searfoss and Glinert - presentation)) at A163), is a
reference to “another concept [that] CPI is working on that has not been rolled out to the
market and will not be until February, 2018,” and of which Dwyer was aware while at CPI,
(O’Leary Decl. ¶ 14). Finally, CPI contends that the presentation’s reference to a REDACTE
D
REDACTED
is again a reference to CPI’s
technology for which it is currently in the process of securing a patent, (O’Leary Decl.
¶ 14).
Dwyer vigorously disputes CPI’s characterization of the contents of the presentation.
(See Dwyer’s Opp’n at 21–22.) He claims that the items he referenced in the PowerPoint are
not CPI trade secrets, but rather “common industry buzz words,” (id. at 22), and that the
presentation as a whole simply contained his ideas and “was a personal business plan [he]
created in anticipation of [his] employment with MPS,” (Third Dwyer Decl. ¶ 20).
Specifically, with respect
REDACTED
, Dwyer states that this general
concept is not proprietary to CPI. (Dwyer Dep. at A83/82.) In fact, he claims that he first
learned of the concept from someone other than CPI, and that CPI in fact copied it. (Id.) He
further states that to his understanding, the concept is actually covered under a patent
28
belonging to REDACTED
REDACTED
Next, Dwyer again argues that the REDA
CTED
is proprietary to REDAC not CPI, and that it was provided to
TED
many of
REDACT
ED
suppliers. (Dwyer Dep. at A83/84.) As to
REDACTED
technology,
although he acknowledges that during his time at CPI he was exposed to CPI technology in
this realm, Dwyer claims that “[v]irtual cards are relatively common in the marketplace,”
(id. at A86/93–96), and that, in fact, CPI’s former CEO regularly mentioned the concept on
calls with analysts, (Dwyer Decl. ¶ 23). Finally, Dwyer contends that with respect to REDAC
TED
, up until his departure from CPI, he was not aware of the
REDACTED
To the contrary, he
claims that MPS was “an attractive destination” in part because it had developed new
technology REDACTED
On these facts, and without a fuller record, the Court again is unable to conclude that
CPI has met its burden of establishing a fair chance of success on the merits because Dwyer
has presented sufficient evidence to call into question CPI’s contention that the presentation
disclosed CPI trade secrets. Based on Dwyer’s sworn testimony, buttressed in part by the
testimony of Searfoss and Glinert, the Court is not yet convinced that the concepts
mentioned in the presentation were not “generally known to” others in the industry. See
Minn. Stat. § 325C.01, subdiv. 5. It is well established that information which is generally
known to the public or within an industry, or is readily ascertainable, is not a trade secret.
Lexis–Nexis v. Beer, 41 F. Supp. 2d 950, 958 (D. Minn. 1999). Moreover, “information that
comprises general skills and knowledge acquired in the course of employment, do[es] not
constitute trade secrets.” Guy Carpenter, 2006 WL 2502232, at *2.
29
Here, in addition to Dwyer’s contentions, Glinert testified that he had some
intellectual property related to REDACTED
Similarly, Searfoss testified that he is
familiar with the concept of REDACTED
REDACTED
Given the limited and
conflicting testimony, the Court is unable to conclude at this time that CPI is likely to
succeed on the merits of this claim. See Lexis–Nexis, 41 F. Supp. 2d at 959 (denying
injunctive relief given the “contradictory nature of the evidence”); see also Cannon Servs.,
Inc. v. Culhane, No. 04-cv-1597 (ADM/AJB), 2004 WL 950414, at *3 (D. Minn. Apr. 30,
2004) (“Such circumstances present a classic dispute of material fact that precludes finding
a decisive likelihood of success by Plaintiffs.”). 9
In sum, for the purposes of this motion, the Court concludes that CPI has not met its
burden of establishing a fair chance of success on the merits on its trade secret
misappropriation claim. Nevertheless, as discussed infra and as set out in Section III of this
Order, because CPI meets its burden of proof with respect to its breach of contract claims
against Dwyer, he is enjoined from disclosing, utilizing, or in any way discussing with MPS
or others any of the aforementioned technology so far as he knows or has reason to know
9
The Court underscores that it is not making final factual findings as to the evidence on
this claim. In addition to the evidence described above, there abounds plenty of evidence
that calls into question the arguments of all parties. But given the extraordinary nature of
preliminary injunctions, “in weighing an application for a preliminary injunction, to
doubt is to deny.” Evening News Pub. Co. v. Allied Newspaper Carriers of N. J., 149 F.
Supp. 460, 463 (D.N.J. 1957) (citations omitted).
30
that it is CPI confidential and proprietary information. See Luigino’s, Inc. v. Peterson, 2002
WL 122389, at *8 (D. Minn. Jan. 28, 2002) (explaining that Plaintiff’s claims of breach of
contract may provide the appropriate avenue for remedy where confidential information is
not protectable as a trade secret); see also Jostens, 318 N.W.2d at 701 (explaining that
“employees have a common-law duty not to wrongfully use confidential information or
trade secret obtained from an employer,” and that confidential information “which would be
unfair for the employee to use elsewhere, is deemed confidential and is not to be disclosed
or used.”)
b.
Breach of Confidentiality Agreement (Dwyer)10
To ultimately prevail on a breach-of-contract claim under Minnesota law, a plaintiff
must demonstrate the “(1) formation of a contract, (2) performance by plaintiff of any
conditions precedent to his right to demand performance by the defendant, and (3) breach of
the contract by defendant.”11 Lyon Fin. Servs., Inc. v. Ill. Paper & Copier Co., 848 N.W.2d
539, 543 (Minn. 2014) (quoting Park Nicollet Clinic v. Hamann, 808 N.W.2d 828, 833
(Minn. 2011)). The parties do not appear to dispute that the first two elements are met here,
so this Court focuses on the third. See Sip-Top, Inc. v. Ekco Grp., Inc., 86 F.3d 827, 831 (8th
Cir. 1996).
10
Although CPI also claims that Dwyer breached the non-disclosure provisions of the
Option Agreement, (Am. Compl. ¶¶ 123–133 (Count IV)), for ease of analysis, the Court
will focus only on the Confidentiality Agreement.
11
The Confidentiality Agreement provides that it “shall be construed and interpreted
according to the laws of the State of Minnesota.” (Confidentiality Agreement ¶ 13.)
31
Here, CPI has clearly shown that Dwyer likely violated the confidentiality provisions
of the Confidentiality Agreement on numerous occasions. The agreement prohibits Dwyer,
during and after his employment, from using, disclosing, duplicating, recording, or
reproducing confidential information that he “learn[ed] or acquire[d] during [his]
employment except as ordinarily necessary for [him] to perform [his] assigned duties on
behalf of [CPI] or unless [CPI] expressly directs [him] to do so.” (Confidentiality
Agreement ¶ 2.a.) It further provides that Dwyer would “treat information as confidential
when it is labeled “confidential” or ‘trade secret,’” or “if, under the circumstances, [he]
know[s] or ha[s] reason to know that [CPI] intends to keep that type of information
confidential.” (Id. ¶ 2.b.) Confidential information, in turn, is defined to mean:
[A]ny information not generally known in CPI Card Group’s business or readily
ascertainable by proper means by others, including CPI Card Group competitors . .
. , and includes trade secrets. It includes . . . the names of CPI Card Group . . .
customers and suppliers and the nature of CPI Card Group’s relationships with
them, for example, types and amounts of products acquired from or supplied to
CPI Card Group. It includes information about CPI Card Group processes and
products, including information relating to its research, development,
manufacturing, engineering, marketing, and selling.
(Id. ¶ 1.)
Beginning with at least the email that Dwyer sent to Searfoss on January 9, 2017,
Dwyer likely breached the Confidentiality Agreement. This email contained details of a
fulfillment opportunity for
REDACTED
and included
REDACTED
contact information. Although Dwyer contends that he believed that CPI could not
perform the opportunity and that he contacted MPS per the industry practice of “sharing
leads,” (Third Dwyer Decl. ¶ 19), the names of CPI clients and the nature of CPI’s
32
relationship with them is clearly confidential information under the Confidentiality
Agreement. Moreover, Dwyer presents no evidence that he needed to share this information
to perform his CPI duties nor that O’Leary expressly authorized him to share details of one
of its largest customers with a direct competitor. (See O’Leary Decl. ¶ 13.)
Next, Dwyer also likely violated the Confidentiality Agreement by forwarding CPI
confidential information from his CPI email to his personal Gmail account minutes before
he resigned from CPI. While it is true that the Confidentiality Agreement did not expressly
prohibit Dwyer from forwarding emails to himself, it did prohibit Dwyer from taking action
as to confidential information “except as ordinarily necessary” to perform his job duties.
(Confidentiality Agreement ¶ 2.a.) Given Dwyer’s plan to resign less than ten minutes later,
it is unlikely he forwarded those emails without nefarious intent, i.e., to fulfill any remaining
performance duties at CPI.
Finally, Dwyer also likely violated the terms of the agreement by sending, prior to
his resignation, details of the
conjunction with
REDA
CTED
REDACTED
that CPI was developing in
. Again, the Confidentiality Agreement expressly states that CPI
considers the nature of CPI’s relationship with its clients to be confidential.
c.
Breach of Option Agreement & Unit Agreement (Dwyer)
CPI next argues that it is likely to succeed on the merits of its claim that Dwyer
breached his non-compete and non-solicitation duties under the Original Agreements. (See
Pls.’ PI Mem. at 23–25.) CPI also contends that it is likely to show that those agreements
remain operative because Dwyer procured the Amendment through fraud, rendering the
Amendment null and void. Although, as explained below, the Court finds that Dwyer likely
33
breached his duties under the Option Agreement and the Unit Agreement even before the
Amendment was signed, because of the relief sought by CPI, the Court finds it necessary to
reach the issue of whether the Amendment is likely null and void.
At the outset, however, although not briefed by the parties, the Court must address
the choice-of-law provision contained in the Option and the Unit Agreements. The Option
Agreement provides that it “will be construed and enforced in accordance with, and
governed by, the laws of the State of Delaware . . . .” (Option Agreement ¶ 19.) The Unit
Agreement contains similar language. (Unit Agreement ¶ 15(f).) A federal court
exercising supplemental jurisdiction over state law claims in a federal question action
must apply the substantive law of the forum state, including its choice-of-law rules. See
MRO Commc’ns, Inc. v. Am. Tel. & Tel. Co., 197 F. 3d 1276, 1282 (9th Cir. 1999) (“In a
federal question action where the federal court is exercising supplemental jurisdiction
over state claims, the federal court applies the choice-of-law rules of the forum state . . .
.” (quoting Paracor Fin., Inc. v. Gen. Elec. Capital Corp., 96 F.3d 1151, 1164 (9th Cir.
1996))).
Minnesota generally enforces choice of law provisions, applying the substantive
law agreed to by the parties. See Schwan’s Sales Enters., Inc. v. SIG Pack, Inc., 476 F.3d
594, 596 (8th Cir. 2007); Milliken & Co. v. Eagle Packaging Co., 295 N.W.2d 377, 380
n.1 (Minn. 1980). In some cases, contractual choice of law provisions also govern tort
claims related to the contract:
Where a plaintiff’s tort claims are closely related to the interpretation of the
contract and fall within the ambit of the express agreement, those tort
claims are also properly subject to the contract’s choice of law clause. In
34
other words, under Minnesota law, if analysis of the claims connected to a
contract involves interpretation of the contract, then the forum will apply
the contractual choice-of-law provisions to the tort claims.
Superior Edge, Inc. v. Monsanto Co., 964 F. Supp. 2d 1017, 1031–32 (D. Minn. 2013).
(quotations and citations omitted).
In this instance, CPI’s claim that the Amendment was procured by fraud is
unrelated to the interpretation of the Option and Unit Agreements, and this Court will
thus apply Minnesota law. To succeed on its fraud claim in Minnesota, CPI must ultimately
prove: “(1) a false representation by [Dwyer] of a past or existing material fact susceptible
of knowledge; (2) made with knowledge of the falsity of the representation or made without
knowing whether it was true or false; (3) with the intention to induce [CPI] to act in reliance
thereon; (4) that the representation caused [CPI] to act in reliance thereon; and (5) that [CPI]
suffered pecuniary damages as a result of the reliance.” Valspar Refinish, Inc. v. Gaylord’s,
Inc., 764 N.W.2d 359, 368 (Minn. 2009).12
Here, the Court agrees with CPI that it has a fair chance of prevailing on its fraud
claim against Dwyer. 13 In his resignation email, by stating that “it [was] time for [him] to
12
In any event, Delaware law on this fraud claim is substantially the same. In Delaware,
to prevail in a claim for fraud, a plaintiff must show: “1) a false representation, usually
one of fact . . . ; 2) the defendant’s knowledge or belief that the representation was false,
or was made with reckless indifference to the truth; 3) an intent to induce the plaintiff to
act or to refrain from acting; 4) the plaintiff’s action or inaction taken in justifiable
reliance upon the representation; and 5) damage to the plaintiff as a result of such
reliance.” Hauspie v. Stonington Partners, Inc., 945 A.2d 584, 586 (Del. 2008) (quoting
Gaffin v. Teledyne, Inc., 611 A.2d 467, 472 (Del. 1992)).
13
The Court reaches this conclusion as to Dwyer only, and does not address CPI’s fraud
claim against MPS and Searfoss. As to MPS and Searfoss, this claim is dismissed without
prejudice as discussed in Section II.B.2, infra.
35
decide what the next chapter of [his] career will look like” and that he was “looking forward
to taking a little time to figure this out,” (Ex. A of Vats-Fournier Decl. (Ex. 33 (Mar. 29,
2017 email from Dwyer to O’Leary)) at A303), Dwyer falsely represented to O’Leary that
he did not have another job. Dwyer’s claims that “[he] never told Ms. O’Leary that [he] did
not have another job,” (Third Dwyer Decl. ¶ 9), is a strained interpretation of the facts.
Moreover, Dwyer likely made this and other misrepresentations with the intent to induce
reliance on the part of CPI. Dwyer makes much of the fact that his email to O’Leary came
before they began negotiating the Amendment—thus negating any reliance claim—but his
resignation email suggests that Dwyer already anticipated potentially staying on at CPI for a
transitional period. In his resignation email, he also stated to O’Leary, “I spoke to Lisa about
the possibility of staying around longer, and she thinks that if this is good for our clients and
for CPI, then it should be an option.” (Ex. A of Vats-Fournier Decl. (Ex. 33 (Mar. 29,
2017 email from Dwyer to O’Leary)) at A303.)
But more importantly, there is additional evidence to suggest that up until the date
when the parties signed the Amendment (May 12), Dwyer maintained an intent to mislead
CPI so that negotiations could continue. As just one example, responding to Glinert’s
concern that CPI could “pull[] the rug out” on the Amendment, Dwyer responded that “[t]o
provide more breathing room,” and to “throw a little smoke,” he asked a friend of his who
worked for a CPI customer to ask O’Leary if the customer could hire him, knowing full well
he already had another job with MPS. (Ex. A of Vats-Fournier Decl. (Ex. 39 (May 5, 2017
email thread between Dwyer, Searfoss, and Glinert)) at A346; see O’Leary Decl. ¶ 22.)
And Dwyer was successful in inducing reliance, as O’Leary states that had CPI known that
36
Dwyer had accepted employment with MPS, CPI would have terminated him, would not
have asked him to stay for a transitional period, or amended the Original Agreements.
(O’Leary Decl. ¶ 9.) In short, the Court concludes that CPI has shown a fair chance of
prevailing on its fraud claim against Dwyer.
Next, the Court also concludes that CPI is likely to prevail on its claim that Dwyer
breached the non-compete and non-solicitation provisions of the Option and the Unit
Agreements even before the Amendment was signed. In this instance, the Court will apply
Delaware law to CPI’s breach of contract claims because they are governed by the choice
of law provision in the agreements.
Under Delaware law, a party moving for injunctive relief based on a breach of
restrictive covenants must show evidence of a breach and the enforceability of the
covenants. See TP Group–CI, Inc. v. Vetecnik, No. 1:16-CV-00623-RGA, 2016 WL
5864030, at *2 (D. Del. Oct. 6, 2016). Here, CPI has presented ample evidence that
Dwyer breached the non-compete and non-solicitation provisions of the Option and Unit
Agreements. Without reiterating points already thoroughly discussed, Dwyer likely
violated the non-solicitation and non-compete covenants of the agreements at least by: (1)
sending REDACTED information to MPS, stating it could be MPS’s foot in the door; (2)
telling MPS that CPI’s patent was gaining traction at
REDACTED
; and (3)
sending to MPS—but not O’Leary—the PowerPoint presentation that he received from
REDA
CTED
in March before his resignation. This list is not exhaustive, but the Court finds no
need to expound on every instance of a likely breach.
37
Next, under Delaware law, to be enforceable, restrictive covenants “must (1) meet
general contract law requirements, (2) be reasonable in scope and duration, (3) advance a
legitimate economic interest of the party enforcing the covenant, and (4) survive a
balance of the equities.” Id. (quoting Tristate Courier & Carriage, Inc. v. Berryman, No.
C.A. 20574–NC, 2004 WL 835886, at *10 (Del. Ch. Apr. 15, 2004)); Research &
Trading Corp. v. Pfuhl, No. CIV. A. 12527, 1992 WL 345465, at *6 (Del. Ch. Nov. 18,
1992) (“an agreement restricting competition will still be unenforceable, even at law,
unless (1) its duration is reasonably limited temporally, (2) its scope is reasonably limited
geographically, (3) its purpose is to protect legitimate interests of the employer, and (4)
its operation is such as to reasonably protect those interests.”)
Here, the restrictive covenants meet these requirements. First, they meet general
contract law requirements because Dwyer promised to abide by the non-compete and
non-solicitation provisions in exchange for a stock option and a stock award. See id.
Next, while the Court underscores that it is not making a final determination on this issue,
it finds that the covenants are likely reasonable in scope and duration, especially given
CPI’s position that it only seeks to enforce them to prohibit Dwyer from working in
MPS’s transaction card business during the pendency of this litigation. (See Pls.’ PI
Mem. at 16.) Moreover, the covenants surely protect the legitimate economic interests of
CPI to protect its confidential information, trade secrets, and the goodwill of its clients.
See, e.g., Pfuhl, 1992 WL 345465, at *12 (“Courts have long recognized that an employer
has an interest in the goodwill created by its sales representatives and other employees,
38
which is vulnerable to misappropriation if the employer’s former employees are allowed
to solicit its customers shortly after changing jobs.”)
In sum, the Court concludes that, for the purposes of this motion, CPI has shown a
fair chance of prevailing on the merits of its claim against Dwyer for fraudulent
inducement of the amendment and for breach of the restrictive covenants in the Option
Agreement and the Unit Agreement.
d.
Tortious Interference with Contract (Searfoss and Glinert)
On this claim, the Court need not determine whether Minnesota or Delaware law
ultimately governs because the law in both states is essentially the same. To succeed on a
claim for tortious interference with contract, CPI must show “(1) the existence of a contract;
(2) the alleged wrongdoer’s knowledge of the contract; (3) intentional procurement of its
breach; (4) without justification; and (5) damages.” E–Shops Corp. v. U.S. Bank Ass’n, 678
F.3d 659, 664 (8th Cir. 2012) (internal quotation and citation omitted); Tristate Courier,
2004 WL 835886, at *12 (Tortious interference with contract requires plaintiff to show (1)
“that there is a contract which the defendant was aware of”; (2) “an intentional act by the
defendant that is a significant factor in causing the breach of that contract”; and (3) that such
act was committed “without justification” and caused injury.)
In their depositions, Searfoss and Glinert acknowledged that they understood from
the beginning of the process of hiring Dwyer that he had certain contractual obligations to
CPI, including those of non-disclosure and non-compete. (Glinert Dep. at A16/63–64;
Searfoss Dep. at A45/41.) With respect to Searfoss, this Court finds that he actively pursued
information and advice from Dwyer related to confidential CPI matters for the benefit of
39
MPS. For example, on April 12, a month before the Amendment was signed, Dwyer texted
to Searfoss: “Here is what my designer came up with for a REDACTED
To this,
Searfoss responded, “Looks good…I would like to run these REDACTED
for
efficiencies . . . .” (Id., Entry No. 1862.) At his deposition, Searfoss indicated that he
understood this exchange to relate to the REDACTED
and that Searfoss
“was looking to design something more efficient, which was related to the envelope
business.” (Searfoss Dep. at A56/85–86.) This Court is hard-pressed to find that this does
not provide fair grounds for showing that Searfoss tortiously interfered with Dwyer’s
contractual obligations to CPI.
Similarly, this Court finds that CPI has carried its burden as to Glinert. On April 20,
again before the Amendment was signed, Dwyer emailed to Glinert, as well as another
individual per Glinert’s direction,14 a list of the accounts that he managed as of April 12,
2017, along with the products generating revenue for those accounts for the preceding 12month period. (Ex. A to Vats-Fournier Decl. (Ex. 5 (email thread between Dwyer and
Glinert)) at A123–24; see also Glinert Dep. at A18–19/72–74.) Under the Confidentiality
Agreement, the names of customers, as well as the types and amounts of products acquired
from CPI, were expressly included in the definition of “confidential information” Dwyer
was not to divulge except as required to carry out his duties. (Confidentiality Agreement
¶ 1.) The Court notes that neither Glinert nor Searfoss countered this evidence or advanced
14
It is unclear whether the other individual was an attorney, but Glinert states that this list
of customers was being provided to MPS attorneys. (Glinert Dep. at A18–19/72–74.)
40
arguments for why the Court should not find that CPI has a fair chance of prevailing on this
claim; instead, they simply argue that “CPI’s claims for tortious interference and civil
conspiracy are not germane to this Motion. Once again, CPI focuses exclusively on
historical conduct and events.” (MPS Defs’ Opp’n at 18.)
In sum, after thoroughly reviewing the record before it and the parties’ arguments,
the Court concludes that CPI has shown a likelihood of success on the merits on several
counts, favoring CPI’s request for injunctive relief.
3. Irreparable Harm
To receive injunctive relief, the moving party must also show that it faces a
sufficient threat of irreparable harm. Bandag, Inc. v. Jack’s Tire & Oil, Inc., 190 F.3d
924, 926 (8th Cir. 1999) (per curiam). Here, the Court again need not decide whether
Minnesota or Delaware law controls, because under either, CPI has carried its burden of
showing irreparable harm.
Under Delaware law, “contractual stipulations as to irreparable harm alone suffice
to establish that element for the purpose of issuing preliminary injunctive relief.” Cirrus
Holding Co. v. Cirrus Indus., Inc., 794 A.2d 1191, 1209 (Del. Ch. 2001); see True N.
Commc’ns Inc. v. Publicis S.A., 711 A.2d 34, 44 (Del. Ch. 1997) (“The irreparable harm
element of the injunction standard is established by [defendant’s] own contractual
stipulation” that its breach “will constitute irreparable harm to [plaintiff], entitling
[plaintiff] to injunctive relief.”); Vitalink Pharmacy Servs., Inc. v. Grancare, Inc., No.
15744, 1997 WL 458494, at *9 (Del. Ch. Aug. 7, 1997) (holding that a contractual
stipulation that breach of the non-compete clause would cause “substantial and
41
irreparable harm” “alone suffices to establish the element of irreparable harm, and
[defendant] cannot be heard to contend otherwise.”)
Here, the Option Agreement and the Unit Agreement include a stipulation that if
Dwyer were to breach the restrictive covenants, CPI would suffer irreparable harm. The
Option Agreement provides that “[Dwyer’s] services to [CPI] are unique in nature and of
an extraordinary value to [CPI], and . . . [CPI] could be irreparably damaged if [Dwyer]
were to provide similar services to any person or entity competing with [CPI] or engaged
in a similar business.” (Option Agreement ¶ 10(b).) Similarly, Dwyer acknowledged in
the Unit Agreement that he “has been entrusted with access to trade secrets and
confidential information that, if made available to non-[CPI] employees, would cause
irreparable harm to [CPI] . . . .” (Unit Agreement ¶ 6(a)(iv).) In this same agreement,
Dwyer stipulated that “[i]n the event of [his] actual or threatened breach,” “[CPI] will be
entitled to provisional and injunctive relief in addition to any other available remedies at
law or equity.” (Id. ¶ 6(d)(iii).) Under Delaware law, these stipulations suffice for a
finding of irreparable harm.
But even without these stipulations, CPI has demonstrated that Dwyer’s breach of
the restrictive covenants has caused and will continue to cause irreparable harm. The
record reflects that Dwyer engaged in chronic violations of the confidentiality and noncompete obligations he had to CPI. Although Dwyer and MPS repeatedly stress that MPS
never pursued some of these leads, there is conflicting evidence in the record. And it is
difficult, if not impossible, to quantify the monetary harm that sharing this kind of
information caused or will cause CPI. In her second declaration, O’Leary further
42
describes how Defendants’ conduct is likely causing irreparable harm to CPI. (See
Second Decl. of Margaret O’Leary (“Second O’Leary Decl.”) [Doc. No. 185].) For
example, she describes a CPI customer telling her that “MPS had informed [the
customer] that if [the customer] went with MPS, [it] could expect pricing to be lower
within a specific range than the pricing the customer was receiving from CPI.” (Id. ¶ 6.)
O’Leary contends that “[t]he only way that MPS would know CPI’s specific pricing is if
it had been provided to them from someone with inside knowledge of CPI’s pricing,”
such as Dwyer. (Id.) O’Leary provides additional similar examples that support a finding
of irreparable harm. (See Second O’Leary Decl.)
Minnesota law is in accord with a finding of irreparable harm in this case. In
Minnesota, “[i]rreparable injury can be inferred from the breach of a restrictive covenant
if the former employee came into contact with the employer’s customers in a way which
obtains a personal hold on the good will of the business.” Medtronic, Inc. v. Advanced
Bionics Corp., 630 N.W.2d 438, 452 (Minn. Ct. App. 2001) (alteration in original)
(citations omitted). For example, in Webb Publishing Co. v. Fosshage, the Minnesota
Court of Appeals inferred irreparable harm where the defendant “worked closely” with
the plaintiff’s clients and considered them friends, and at least one client considered
defendant part of “a winning team.” 426 N.W.2d 445, 448–49 (Minn. Ct. App. 1988).
Similarly, in St. Jude Medical. S.C., Inc. v. Ord, the court inferred irreparable harm where
the employee who marketed and sold the plaintiff’s products had violated a non-compete
covenant, finding that the defendant was “the beneficiary of the good will of [plaintiff’s]
customers and that [plaintiff] faces irreparable harm from continued non-compete
43
violations by [defendant].” No. 09-cv-738 (JNE/JSM), 2009 WL 973275, at *5 (D. Minn.
Apr. 10, 2009). In contrast, courts have not inferred irreparable harm where defendant
had “virtually no interaction” with the plaintiff’s customers and had no personal influence
over them. See AdvancePCS v. Moen, No. 01-cv-2099 (JRT/FLN), 2001 WL 1690043, at
*3 (D. Minn. Dec. 7, 2001).
Here, there is ample evidence to suggest that Dwyer had a personal hold on the
good will of CPI’s business such that irreparable harm can be inferred. For instance,
Dwyer himself indicated that his responsibilities at CPI included managing client
relationships, prospecting new clients and customers, as well as heavy involvement in
production and servicing of accounts. Dwyer would call on these clients and meet with
them personally. Other evidence suggests that Dwyer even considered some of these
customers his friends. Moreover, Glinert testified that MPS hired Dwyer because he was
considered a “good salesperson and team player.” (Glinert Dep. at A13/49.) These words
would ring hollow unless, through his position at CPI, Dwyer had established a track
record of forming meaningful relationships with the customers he serviced. 15
In sum, the Court finds that this factor also weighs strongly in favor of granting
injunctive relief.
15
Moreover, the Court finds unpersuasive Defendants’ efforts to cast CPI’s motion as
being preoccupied with historical events. As already described, these events allow the
Court to infer irreparable harm, even if it had not otherwise found evidence of actual past
and future irreparable harm. For similar reasons, the Court need not address CPI’s
alternative argument that it should draw a negative inference against MPS based on the
parties’ discovery disputes. (Pls.’ Reply at 6–10.) The Court expresses no opinion on this
issue.
44
4. Balance of Harms
When considering the balance of harms, courts must weigh “the threat to each of the
parties’ rights and economic interests that would result from either granting or denying the
preliminary injunction.” Cenveo Corp. v. S. Graphic Sys., Inc., No. 08–5521 (JRT/AJB),
2009 WL 161210, at *4 (D. Minn. Jan. 22, 2009) (quotations omitted). The goal is to assess
the harm the movant would suffer absent an injunction, as well as the harm other interested
parties and the public would experience if the injunction issued. Pottgen v. Mo. State High
Sch. Activities Ass’n, 40 F.3d 926, 928 (8th Cir. 1994).
As the Court already described, CPI would be irreparably harmed absent an
injunction. The same, however, is not true for Dwyer or MPS. CPI stated its amenability to
enforcing the restrictive covenants in the Original Agreements only to the extent they
prevent Dwyer from working in MPS’s transaction card business. (Pls.’ PI Mem. at 16.)
Thus, Dwyer will not be restricted from working for MPS generally or earning a living. In
fact, MPS and Dwyer contend that Dwyer’s primary responsibilities do not primarily relate
to transaction cards, and that they are “substantially different” from those he had at CPI,
minimizing any harm that they might incur. (See Third Dwyer Decl. ¶¶ 14–15.)
Accordingly, the balance of the equities also favors the entry of an injunction.
5. Public Interest
The public has a strong interest in preserving and fostering business competition. See
Lasermaster Corp. v. Sentinel Imaging, Inc., 931 F. Supp. 628, 637 (D. Minn. 1996). This
same interest does not extend to unfair competition. See Millard v. Elec. Cable Specialists,
790 F. Supp. 857, 863 (D. Minn. 1992). Public interest favors “the enforcement of valid
45
business agreements and the protection of legitimate business interests in an industry
propelled by vigorous but fair competition.” Bos. Sci. Corp. v. Duberg, 754 F. Supp. 2d
1033, 1042 (D. Minn. 2010) (quotations omitted). However, courts also recognize that “[a]
person’s right to labor in any occupation in which he is fit to engage is a valuable right,
[and] should not be taken from him, or limited, by injunction, except in a clear case showing
the justice and necessity therefor.” Ultra Lube, Inc. v. Dave Peterson Monticello FordMercury, Inc., No. C8-02-658, 2002 WL 31302981, at *6 (Minn. Ct. App. Oct. 15, 2002)
(citing Standard Oil Co. v. Bertelsen, 243 N.W. 701, 703 (Minn. 1932)).
Here, the Court again concludes that given the extent of Dwyer’s and the MPS
Defendants’ wrongful conduct, protecting CPI’s confidential information and legitimate
business interests outweighs the temporary restrictions on Dwyer’s employment options
and MPS’s related business activities. As such, CPI’s Motion for a Preliminary Injunction
is granted as detailed in Section III of this Order.
B. Motion for Partial Dismissal
1. Standard of Review
On a motion to dismiss under Rule 12(b)(6), the Court accepts as true the factual
allegations in the complaint and construes all reasonable inferences arising therefrom most
favorably to the plaintiff. Hager v. Ark. Dep’t of Health, 735 F.3d 1009, 1013 (8th Cir.
2013) (citing Gross v. Weber, 186 F.3d 1089, 1090 (8th Cir. 1999)). The Court, however,
need not accept as true wholly conclusory allegations, Hanten v. Sch. Dist. of Riverview
Gardens, 183 F.3d 799, 805 (8th Cir. 1999), or legal conclusions that plaintiffs draw from
the facts pled. Westcott v. City of Omaha, 901 F.2d 1486, 1488 (8th Cir. 1990). In addition,
46
the Court ordinarily does not consider matters outside the pleadings on a motion to dismiss.
See Fed. R. Civ. P. 12(d). The Court may, however, consider exhibits attached to the
complaint and documents that are necessarily embraced by the pleadings, Mattes v. ABC
Plastics, Inc., 323 F.3d 695, 697 n.4 (8th Cir. 2003), and may also consider public records,
Levy v. Ohl, 477 F.3d 988, 991 (8th Cir. 2007).
To survive a motion to dismiss, a complaint must contain “enough facts to state a
claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570
(2007). Although a complaint need not contain “detailed factual allegations,” it must contain
facts with enough specificity “to raise a right to relief above the speculative level.” Id. at
555. “Threadbare recitals of the elements of a cause of action, supported by mere
conclusory statements, do not suffice.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing
Twombly, 550 U.S. at 555). In sum, this standard “calls for enough fact[s] to raise a
reasonable expectation that discovery will reveal evidence of [the claim].” Twombly, 550
U.S. at 556.
In addition to the standards set forth above, Rule 9(b) mandates a heightened
pleading standard with respect to fraud-based claims. See Drobnak v. Andersen Corp., 561
F.3d 778, 783–84 (8th Cir. 2009) (applying Federal Rule of Civil Procedure 9(b)’s
heightened pleading standard to fraud-based claims brought under state law). In order to
satisfy Rule 9(b)’s particularity requirement, “the complaint must plead such facts as the
time, place, and content of the defendant’s false representations, as well as the details of the
defendant’s fraudulent acts, including when the acts occurred, who engaged in them, and
what was obtained as a result.” United States ex rel. Thayer v. Planned Parenthood of the
47
Heartland, 765 F.3d 914, 916–17 (8th Cir. 2014) (citation and internal quotation marks
omitted). “In other words, the complaint must identify the who, what, where, when, and
how of the alleged fraud.” Id. at 917 (citation and internal quotation marks omitted).
However, “Rule 9(b) does not require that the exact particulars of every instance of fraud be
alleged, so long as the complaint includes enough detail to inform the defendant of the core
factual basis of the fraud claims.” Ransom v. VFS, Inc., 918 F. Supp. 2d 888, 898 (D. Minn.
2013) (citation and internal quotation marks omitted). In determining whether allegations of
fraud are sufficiently pled, the Court should consider the complaint as a whole. See
Evangelical Lutheran Church in Am. Bd. of Pensions v. Spherion Pac. Workforce LLC, No.
04-4791 (ADM/AJB), 2005 WL 1041487, at *3 (D. Minn. May 4, 2005) (finding that a
claim of negligent misrepresentation survived where the complaint, “analyzed as a whole,
adequately put[] [the defendant] on notice of the particular instances of misrepresentation
claimed by [the plaintiff]”).
2. Fraudulent Inducement Claim Against MPS and Searfoss (Count III)
MPS argues that CPI’s claim against MPS and Searfoss for fraudulent inducement of
the Amendment (Count III) must be dismissed because CPI failed to meet the particularity
requirements of Rule 9(b). (See MPS and Searfoss Dismissal Mem.) Specifically, MPS
alleges that CPI does not identify any alleged misrepresentations made by MPS or Searfoss,
and absent any alleged misrepresentation, MPS’s claim does not state a claim for fraudulent
inducement. (Id. at 7–8.)
CPI disagrees. It contends that Minnesota does not require proof of a direct
misrepresentation to impose liability for common law fraud, and that in any event, it has
48
properly alleged that MPS and Searfoss took part in the fraudulent inducement through a
conspiracy. (Pls.’ Mem. Opp’n Partial Dismissal (“Pls.’ Opp’n Dismissal”) [Doc. No. 165]
at 3–4.)
This Court agrees with MPS and Searfoss and finds that Count III of the Amended
Complaint does not meet the particularity requirement of Rule 9(b) as to them. CPI’s
complaint is devoid of any “who, what, where, when, and how” of MPS and Searfoss’s
alleged fraudulent inducement. The potentially relevant parts of the complaint state:
65. Dwyer’s misappropriation of CPI’s trade secrets and other confidential business
information was part of a persistent, well-orchestrated campaign of unfair
competition by MPS, Searfoss, and Glinert. MPS, Searfoss, and Glinert, through
their systematic, concerted, and unlawful efforts, are attempting to move business
from CPI to MPS.
66. In furtherance of MPS’ scheme, Dwyer conspired with MPS, Searfoss, and
Glinert to misappropriate CPI confidential information and to target CPI clients in
furtherance of MPS’ corporate interests while still employed by CPI.
67. Dwyer’s collusion with MPS, Searfoss, and Glinert started well before the
termination of his employment with CPI on June 16, 2017. For example, Dwyer sent
a copy of the Confidentiality and Nonsolicitation Agreement to Searfoss on January
4, 2017, from his personal email account (mr.j.dwyer@gmail.com).
(Am. Compl. ¶¶ 65–67.) And none of the paragraphs under Count III in the Amended
Complaint contain a single factual assertion that would support the fraudulent inducement
claim against MPS and Searfoss. (See Am. Compl. ¶¶ 117–22.) Moreover, the Court rejects
CPI’s contention that its allegation of a civil conspiracy (Count X) saves its fraud claim
under Rule 9(b). The allegations under Count X likewise do not contain any factual
allegations that comply with the particularity requirements of that Rule.
49
Therefore, these Defendants’ Motion for Partial Dismissal as to Count III is
granted. However, in view of the liberal pleading standards of the Federal Rules of Civil
Procedure, and because the date for amending pleadings has not been set, let alone
passed, the Court grants the motion without prejudice and allows CPI, per their request,
leave to amend the Amended Complaint to attempt to add sufficient facts to support its
fraud claim. 16
3. Unfair Competition Claim Against MPS (Count IX)
Next, MPS argues that CPI’s claim for unfair competition must be dismissed,
asserting that in Minnesota, a claim for unfair competition is not an independent cause of
action. (MPS and Searfoss Dismissal Mem. at 8.) Rather, MPS asserts that this claim is
entirely “parasitic” and requires identifying an underlying tort that is not duplicative of other
counts in the complaint. (Id. n. 4 (citing United Wild Rice, Inc. v. Nelson, 313 N.W.2d 628,
632 (Minn. 1982).) MPS argues that CPI has failed to meet this requirement. (Id. at 8–9.)
CPI again disagrees. It contends that while “an unfair competition claim cannot be
wholly duplicative of another claim,” it is permitted when non-duplicative tortious behavior
is alleged. (Pls.’ Opp’n Dismissal at 5.) CPI contends that it has alleged two non-duplicative
grounds to support its unfair competition claim: (1) that MPS improperly obtained and used
confidential information; and (2) that MPS intentionally interfered with current and
prospective business relationships of CPI. (Id.)
16
CPI asserts that it now has information to add Glinert as a defendant on that count, and
it will be permitted to do so as well.
50
The Court agrees with CPI, and finds that its claim that MPS engaged in unfair
competition does not warrant dismissal at this stage. At the outset, MPS and Searfoss’s
contention that unfair competition is not an independent cause of action in Minnesota is not
quite on point. See Radisson Hotels Int’l, Inc. v. Westin Hotel Co., 931 F. Supp. 638, 643
(D. Minn. 1996) (“Minnesota recognizes unfair competition as an independent cause of
action.”). However, because “[u]nfair competition is a general category of torts recognized .
. . to protect commercial interests,” it is true that it does not have specific, standalone
elements applicable to every case. Midwest Sports Mktg., Inc. v. Hillerich & Bradsby of
Canada, Ltd., 552 N.W.2d 254, 268 (Minn. App. 1996) (citation omitted). This is why, “[i]n
order to pursue a claim for unfair competition, a plaintiff must identify the underlying tort
that is the basis for the claim.” Cenveo Corp. v. S. Graphic Sys., Inc., 784 F. Supp. 2d 1130,
1142 (D. Minn. 2011) (citation omitted). The underlying torts that may support an unfair
competition claim include, but are not limited to, tortious interference with prospective
economic advantage or misappropriation of trade secrets. Dexon Comput., Inc. v. Modern
Enter. Sols., Inc., No. A16-0010, 2016 WL 4069225, at *7 n.1 (Minn. Ct. App. Aug. 1,
2016). That a plaintiff must identify the underlying tort, however, is quite different from the
contention that unfair competition is not an independent cause of action in Minnesota. As
MPS correctly contends, however, where a plaintiff bases its claim of unfair competition on
the same tort independently alleged in the complaint, the unfair competition claim may be
duplicative of the tort claim and may be dismissed. See Cenveo, 784 F. Supp. 2d at 1142.
Here, the Court is persuaded that, at this stage in litigation, CPI has sufficiently
identified at least two underlying torts that may support its claim of unfair competition
51
which do not wholly duplicate other counts in the complaint. First, CPI alleges that MPS
obtained and used confidential information to unfairly compete with CPI. (Am. Comp.
¶ 174.) As thoroughly discussed above, disclosure, misuse, or acquisition of confidential
information is not necessarily actionable as misappropriation of trade secrets. Otherwise
stated, confidential information is broader than trade secret information, and thus a claim
of unfair competition based on misuse of confidential information is not wholly
subsumed by a trade secrets misappropriation claim. See Radisson Hotels, 931 F. Supp. at
644 (refusing to dismiss the unfair competition claim under Rule 12(b)(6) where plaintiff’s
unfair competition claim was not necessarily based on exactly the same conduct as the
trade secret and breach of contract claims alleged as separate counts in the complaint);
accord ACIST Med. Sys., Inc. v. OPSENS, Inc., No. 11-cv-539 (ADM/JJK), 2011 WL
4640884, at * 5 (D. Minn. Oct. 4, 2011) (ultimately dismissing unfair competition claim
as duplicative but first noting that “the unfair competition claim is distinguishable from
the misappropriation of trade secrets claim in that it covers disclosure of confidential
information”).
Moreover, CPI has also alleged that MPS tortiously “interfere[d] with CPI’s
current and prospective relationships with its customers,” and does not allege this tort as
a standalone count in its complaint. 17 To prevail on a claim for tortious interference with
17
CPI does allege tortious interference with contract against the MPS Defendants. (Am.
Compl. ¶¶ 161–66 (Count VIII).) However, Minnesota recognizes both tortious
interference of contract as well as “tortious interference with prospective economic
advantage.” Gieseke ex rel. Diversified Water Diversion, Inc. v. IDCA, Inc., 844 N.W.2d
210, 217 (Minn. 2014); Witte Transp. Co. v. Murphy Motor Freight Lines, Inc., 193
52
prospective economic advantage, 18 a plaintiff must prove: “1) [t]he existence of a
reasonable expectation of economic advantage; 2) [d]efendant’s knowledge of that
expectation of economic advantage; 3) [t]hat defendant intentionally interfered with
plaintiff’s reasonable expectation of economic advantage, and the intentional interference
is either independently tortious or in violation of a state or federal statute or regulation; 4)
[t]hat in the absence of the wrongful act of defendant, it is reasonably probable that
plaintiff would have realized his economic advantage or benefit; and 5) [t]hat plaintiff
sustained damages.” Gieseke ex rel. Diversified Water Diversion, Inc. v. IDCA, Inc., 844
N.W.2d 210, 219 (Minn. 2014). The Court is not persuaded at this stage in litigation that
CPI’s claim of unfair competition based on this underlying tort is wholly duplicative of
other claims in the complaint. Accordingly, MPS’s Motion for Partial Dismissal is denied
as to Count IX (Unfair Competition).
III.
ORDER
Based on the foregoing, and all the files, records, and proceedings herein, IT IS
HEREBY ORDERED THAT:
1. Plaintiffs’ Motion for a Preliminary Injunction is GRANTED as follows:
N.W.2d 148, 151 (Minn. 1971) (noting that a claim can be brought “for the wrongful
interference with noncontractual as well as contractual business relationships”).
18
Although CPI alleges that MPS “interfered with CPI’s current and prospective business
relationships with its customers,” the Minnesota Supreme Court recently explained that
“the phrase ‘tortious interference with prospective economic advantage’ most accurately
describes the cause of action,” and this Court encourages the parties to follow this
convention. See 844 N.W.2d at 217.
53
a. Defendants Dwyer, Searfoss, Glinert, and MPS whether alone, through
a corporate entity, or in concert with others, including any officer, agent,
employee, and/or representative of MPS, are restrained from directly or
indirectly:
i. Communicating, disclosing, divulging, or furnishing any of
CPI’s confidential and proprietary information or trade secrets to
any person, firm, corporation, association, or other entity for any
reason or purpose whatsoever; or
ii. Using any of CPI’s confidential and proprietary information or
trade secrets;
b. Defendant Dwyer, additionally, whether alone, through a corporate
entity, or in concert with others, including any officer, agent, employee,
and/or representative of MPS, is restrained from directly or indirectly
working in or being exposed to, any aspect of MPS’s transaction card
business. Moreover:
i. MPS and Dwyer are instructed to work with their counsel to
create a plan to ensure that Dwyer is walled off from information
relating to MPS’s transaction card business, similar to the ethical
walls that attorneys use in private practice.
ii. That plan shall be submitted to this Court within fourteen (14)
days of the date of this Order, and CPI shall have an opportunity
to review and lodge any objections to the plan.
iii. The plan shall include an enumeration of the steps that MPS
proposes to take to wall off Dwyer as described herein; the
communication plan to inform MPS employees and others who
need to know of this wall; and the measures with respect to IT to
ensure that Dwyer is not exposed to information about MPS’s
transaction business in electronic communications.
c. Defendants Dwyer, Searfoss, Glinert, and MPS shall return all
documents containing CPI’s confidential, proprietary, or trade secret
information in their possession and control no later than seven (7)
business days following the date of entry of this Order.
d. Defendants Dwyer, Searfoss, Glinert, and MPS shall execute
declarations under oath that they no longer possess any documents
containing CPI’s confidential, proprietary, or trade secret information.
54
2. MPS and Searfoss’s Motion for Partial Dismissal pursuant to Federal Rules of
Civil Procedure 9(b) and 12(b)(6) [Doc. No. 48] is GRANTED in part and
DENIED in part as follows:
a. Plaintiffs’ Count III (Fraudulent Inducement of the Amendment) is
DISMISSED as to Defendants MPS and Searfoss WITHOUT
PREJUDICE; and
b. MPS and Searfoss’s Motion for Partial Dismissal is DENIED as to
Count XI (Unfair Competition).
3. This Order is filed under seal. Within fourteen (14) days of the date of this
Order, the parties are ORDERED to show cause as to why the Order should
remain under seal, and if so, which portions of the Order should remain sealed
and for how long. The parties will file briefs, under seal, each no longer than
seven (7) pages, on this subject. Each party will also file, again under seal, a
copy of this Order showing its proposed redactions. If the parties agree on
these issues, they may file under seal a joint brief and/or proposed redacted
order.
Dated: December 29, 2017
s/Susan Richard Nelson
SUSAN RICHARD NELSON
United States District Judge
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