Summit Fire Protection Co. v. Reich

Filing 12

MEMORANDUM AND ORDER - The Motion for Temporary Restraining Order, within ECF No. #6 , filed by Plaintiff Summit Fire Protection Co. is denied. The Clerk of Court is directed to designate the Motion for Preliminary Injunction, within ECF No. #6 , as still pending. Ordered by Senior Judge Laurie Smith Camp. (LKO)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEBRASKA

SUMMIT FIRE PROTECTION CO., a
Minnesota corporation;
8:19CV188
Plaintiff,
MEMORANDUM AND ORDER

vs.
TED REICH,
Defendant.

This matter is before the Court on the Motion for Temporary Restraining Order and
Preliminary Injunction, ECF No. 6, filed by Plaintiff Summit Fire Protection Co. (“Summit”).
Summit appeared before the Court on May 13, 2019, for a hearing on the Motion.
Defendant Ted Reich and his counsel also appeared at the hearing. The parties agreed
that the matter would proceed only on the question of whether a Temporary Restraining
Order should be issued, and the Court would hear the request for Preliminary Injunction
in the future. For the reasons stated below, the Court will deny the Motion for Temporary
Restraining Order and set the matter for hearing on Summit’s Motion for Preliminary
Injunction.
BACKGROUND
The following is a summary of the facts alleged in Summit’s Complaint, ECF No.
1, and supported by evidence Summit submitted in support of its Motion, ECF No. 8-1
through 8-12. At the hearing, counsel for Reich made a proffer which the Court accepted
as evidence. The Court considers this evidence for the limited purpose of deciding the
pending Motion for Temporary Restraining Order.

Summit is a provider of fire life safety services including fire sprinkler systems, fire
extinguishers, and fire alarm systems. Summit performs work selling, installing,
inspecting, and repairing sprinkler systems, fire extinguishers, and fire alarm systems.
Summit performs these services at regular intervals for its clients.
Summit hired Reich as a service manager in June 2015.

He had job and

management responsibilities, including managing field staffing, scheduling, dispatching,
sales, customer service, scheduling inspections of fire sprinkler systems, and completing
inspections of fire sprinkler systems. On or about July 13, 2015, Reich executed an
“Acknowledgement and Receipt of Employee Handbook” (the “Acknowledgement”). The
Acknowledgement states:
[C]onfidentiality is a major principle governing the Company's work
environment and that all information which is not generally known or readily
ascertainable by the general public through proper means which relates to
the Company's products, services, customers, or existing or reasonably
foreseeable business must be treated confidentially at all times. I am aware
that, during the course of my employment, confidential information will be
made available to me as defined in the Handbook and other related
information. I understand that this information is critical to the success of
the Company and must not be disseminated or used outside of my
employment, whether voluntary or involuntary. In the event of the
termination of my employment, whether voluntary or involuntary, I agree not
to use this information or disseminate it to any other individual or entity, I
also understand that as an employee of the Company, I owe it a duty of
loyalty as defined under applicable law and will abide by it.
Ex. A at 17, ECF No. 8-2, PageID.72.
Summit’s employee handbook defined confidential information as “information
which is not generally known or readily ascertainable by the general public through proper
means. It includes, but is not limited to, all designs, specifications, acknowledgements,
customer lists, accounting and financial information, production information, internal

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correspondence, and sales and customer information.”

Ex. A at 10, ECF No. 8-2,

PageID.65.
On or about September 1, 2018, Reich's job responsibilities changed and he began
working for Summit as a project foreman, overseeing installation of a sprinkler system at
a new construction site. Because of this change, Reich had regular access to a Summit
network drive that Summit alleges contained information about Summit’s customers.
Reich was issued a company HP laptop, Samsung Tablet, Apple iPad, and Samsung
Galaxy 8 phone (collectively the “Electronic Devices”). Reich used the Electronic Devices
to complete the tasks assigned to him within the scope of his employment duties.
On March 8, 2019, Reich resigned from Summit. Summit alleges that at the time
of his resignation, Reich was already employed by Total Fire, one of Summit’s
competitors. As evidence, Summit alleges that Reich had regular and frequent phone
contact with Total Fire while he was still employed by Summit, including 72 calls while he
was “clocked in” as an employee of Summit. Reich asserts that these calls were likely
related to his employment with Summit because Total Fire was a regular subcontractor
of Summit. Summit also alleges that on January 9, 2019, Reich accessed a document
titled, “Total Fire & Security Business Plan Ted Copy.Ink” on his summit-issued laptop.
Shakespeare Aff. at 2, ECF No. 8-4. Reich asserts that this was an unfinished document
that he provided to a business associate as a template, and that he did not access the
document in connection with his employment with Total Fire.
Summit conducted a forensic analysis of Reich’s Summit-issued Electronic
Devices after his resignation. The analysis revealed that 8 USB devices had connected
to Reich’s Summit-issued HP laptop between January and March of 2019. Shakespeare
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Aff. Ex. A, ECF No. 8-5. Summit alleges that at least two of the USB devices contained
Summit’s confidential customer information. For example, the document “WORK ORDER
TRACKING.xlsx” contained information about (1) the identity of Summit's customers in
the Omaha area, (2) the customers’ contact information, (3) frequency of inspections for
each customer, and (4) the dates on which inspections were coming due. Additionally,
the document “Barone Fire Sprinkler Accounts.lnk” contained a detailed listing of all of
Summit's sprinkler inspection accounts in Nebraska with a customer. The document
“JHatcher daywoks 2015.xls” contained a comprehensive list of service work performed
(including job number, customer, and date) on behalf of Summit by the manager of
Summit’s Omaha office, John Hatcher, since the office's inception. The analysis also
revealed that Reich deleted the browsing history from his laptop’s internet browser on
March 8, 2019.
After Reich’s resignation, he began soliciting Summit’s customers on behalf of
Total Fire. As of May 10, 2019, Summit claims that Reich, on behalf of Total Fire, has
successfully solicited at least 30 of Summit’s customer accounts. On April 26, 2019,
Summit filed this action asserting several causes of action against Reich, including breach
of contract, misappropriation of trade secrets, and breach of duty of loyalty. Reich,
through counsel, asserts that he did not access any confidential customer information on
behalf of Total Fire and does not now possess any information or data belonging to
Summit.
DISCUSSION
Courts in the Eighth Circuit apply the factors set forth in Dataphase Sys., Inc. v.
CL Sys., Inc., 640 F.2d 109, 114 (8th Cir. 1981) (en banc), when determining whether to
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issue a preliminary injunction or temporary restraining order. Those factors are: “(1) the
threat of irreparable harm to the movant; (2) the state of balance between this harm and
the injury that granting the injunction will inflict on other parties litigant; (3) the probability
that movant will succeed on the merits; and (4) the public interest.” Id. “No single factor
is determinative.” WWP, Inc. v. Wounded Warriors, Inc., 566 F. Supp. 2d 970, 974 (D.
Neb. 2008). “A preliminary injunction is an extraordinary remedy and the burden of
establishing the propriety of an injunction is on the movant.” Roudachevski v. All-Am.
Care Centers, Inc., 648 F.3d 701, 705 (8th Cir. 2011) (citing Watkins, Inc. v. Lewis, 346
F.3d 841, 844 (8th Cir. 2003)). Based on the evidence at this early stage, the factors do
not weigh in favor of a temporary restraining order.
I. Irreparable Harm
“Irreparable harm occurs when a party has no adequate remedy at law, typically
because its injuries cannot be fully compensated through an award of damages.” Grasso
Ents., LLC v. Express Scripts, Inc., 809 F.3d 1033, 1040 (8th Cir. 2016) (quoting Gen
Motors Corp. v. Harry Brown’s, LLC, 563 F.3d 312, 319 (8th Cir. 2009)). Thus, “economic
loss, on its own, is not an irreparable injury so long as the losses can be recovered.”
Chlorine Inst., Inc. v. Soo Line R.R., 792 F.3d 903, 915 (8th Cir. 2015) (quoting DISH
Network Serv. L.L.C. v. Laducer, 725 F.3d 877, 882 (8th Cir. 2013)). A mere possibility
of irreparable harm, however, is insufficient to justify a preliminary injunction. The movant
must “demonstrate that irreparable [harm] is likely in the absence of an injunction.” Sierra
Club v. U.S. Army Corps of Eng’rs, 645 F.3d 978, 992 (8th Cir. 2011) (quoting Winter v.
Nat. Res. Def. Council, Inc., 555 U.S. 7, 22 (2008) (emphasis in original). “The absence

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of irreparable injury is by itself sufficient to defeat a motion for a preliminary injunction.”
Chlorine Inst., 792 F.3d at 915 (quoting DISH Network, 725 F.3d at 882).
“Loss of intangible assets such as reputation and goodwill can constitute
irreparable injury.” United Healthcare Ins. Co. v. AdvancePCS, 316 F.3d 737, 741 (8th
Cir. 2002) (citing Gen. Mills, Inc. v. Kellogg Co., 824 F.2d 622, 625 (8th Cir. 1987)). A
loss of customers or customer goodwill are not necessarily irreparable.

Novus

Franchising, Inc. v. Dawson, 725 F.3d 885, 895 (8th Cir. 2013) (“[W]e question whether
[the] alleged injuries, i.e., a loss of customers or customer goodwill, are truly irreparable
in the sense that they could not be addressed through money damages . . . .”) (citing Gen.
Motors Corp. v. Harry Brown’s, L.L.C., 563 F.3d 312, 319 (8th Cir. 2009) (affirming denial
of preliminary injunction where the district court did not clearly err by finding the harm
from “lost customer relationships was equivalent to a claim of lost profits”).
Summit alleges it has lost 30 customers to Total Fire since Reich’s departure, and
that it will continue to lose customers absent an injunction. At this juncture, Summit has
not met its burden of demonstrating that its expectation of further lost customers or
customer goodwill would likely be “truly irreparable” and incapable of compensation
through money damages. Dawson, 725 F.3d at 895; see Rubald Decl., ECF No. 8-1,
Page ID 54 (concluding that “[t]he loss of customers . . . cannot be readily measured in
dollar terms”). Nor has Summit demonstrated that damage to its reputation or goodwill is
likely. Therefore, the Court finds that the irreparable-harm factor weighs against granting
a temporary restraining order.
II. Likelihood of Success on the Merits

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“In deciding whether to grant a preliminary injunction, likelihood of success on the
merits is most significant.” S.J.W. ex rel. Wilson v. Lee’s Summit R-7 Sch. Dist., 696 F.3d
771, 776 (8th Cir. 2012) (quoting Minn. Ass’n of Nurse Anesthetists v. Unity Hosp., 59
F.3d 80, 83 (8th Cir.1995)). With respect to this factor, it is not necessary for the movants
to prove they are more likely than not to prevail, the movants “need only show a
reasonable probability of success, that is, a fair chance of prevailing” on the merits.
Kroupa v. Nielsen, 731 F.3d 813, 818 (8th Cir. 2013); Dataphase, 640 F.2d at 113. For
each of Summit’s causes of action, Summit must show that Reich took confidential
information from Summit and has used it to unfairly solicit Summit’s customers.
The alleged confidential information, principally in the form of customer lists, may
be protected as a trade secret under Nebraska and federal law. See Home Pride Foods,
Inc. v. Johnson, 634 N.W.2d 774, 781 (Neb. 2001) (holding that a customer list was a
trade secret where “the customer list contained information not available from publicly
available lists,” such as which customers had previously placed food orders, along with
the amount of those orders). However, based on the evidence at this stage, Summit has
not shown that Reich has improperly used confidential customer information.

It is

undisputed that Reich is free to compete with Summit, even if such competition includes
soliciting Summit’s former customers using publicly available information. The evidence
does not create a reasonable inference that Summit has lost customers due to Reich’s
knowledge of Summit’s confidential information. Reich would be precluded from using
confidential information to solicit customers, but there is no evidence that he has done
so. Counsel for Reich asserted that Reich does not possess any of Summit’s information,

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nor has Reich used such information to solicit Summit’s customers. Accordingly, Summit
has not shown that it is likely to succeed on the merits.
III. Balance of the Harms
The primary question when applying the balance-of-harms factor is whether the
“balance of equities so favors the movant that justice requires the court to intervene to
preserve the status quo until the merits are determined.” Dataphase, 640 F.2d at 113.
To determine the harms that must be weighed, the Eighth Circuit has looked at the threat
to each of the parties' rights that would result from granting or denying the injunction.
Baker Elec. Co-op., 28 F.3d at 1473. A Court also must consider the potential economic
harm to each of the parties and to interested third parties. Id.
At this stage, Summit has not shown that the balance of harms weighs in favor of
a temporary restraining order. Summit asks that Reich be ordered not use confidential
information to solicit customers and that confidential information in Reich’s possession, if
any, be returned. Reich asserts that he has not used Summit’s confidential information,
nor does he have possession of any such information. Accordingly, the balance of harms
does not weigh in favor of a temporary restraining order.
IV. Public Interest
Courts have held that the public interest favors a fair, competitive marketplace.
See e.g. Minnesota Mining & Mfg. Co. v. Rauh Rubber, Inc., 943 F. Supp. 1117, 1134 (D.
Minn. 1996), aff'd sub nom. Minnesota Min. & Mfg. Co. v. Rauh Rubber, Inc., 130 F.3d
1305 (8th Cir. 1997). Reich is free to compete with Summit, including soliciting its
customers. The evidence is insufficient at this stage to show Reich has improperly
solicited Summit’s customers, using confidential information gained during his
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employment with Summit. Accordingly, the public interest does not favor a temporary
restraining order.
CONCLUSION
Based on the evidence at this stage, the Dataphase factors do not favor issuance
of a temporary restraining order. While Reich may not use confidential information
obtained from Summit, the evidence does not demonstrate that he has done so or is likely
to do so. The Court will schedule a hearing on Summit’s Motion for Preliminary Injunction
at a time convenient to the Court and the parties.
IT IS ORDERED:
1.

The Motion for Temporary Restraining Order, within ECF No. 6, filed by
Plaintiff Summit Fire Protection Co. is denied;

2.

The Clerk of Court is directed to designate the Motion for Preliminary
Injunction, within ECF No. 6, as still pending.

Dated this 13th day of May 2019.

BY THE COURT:
s/Laurie Smith Camp
Senior United States District Judge

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