Spirax Sarco, Inc. et al v. SSI Engineering, Inc. et al

Filing 82

ORDER denying 25 Motion for Temporary Restraining Order to the extent it seeks further relief than that allowed in the court's October 23,2014, Order [DE-51]. Signed by Senior Judge James C. Fox on 4/17/2015. (Grady, B.)

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF NORTH CAROLINA
WESTERN DIVISION
No. 5:14-CV-519-F
SPIRAX SARCO, INC. and SPIRAXSARCO ENGINEERING, PLC,

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Plaintiffs,

v.
SSI ENGINEERING, INC., SSI
SERVICES, INC., BRYAN JOHNSON,
BENJAMIN DONALD LEWIS and
MICHELLE H. LEWIS,
Defendants.

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ORDER

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This matter is before the court on the Plaintiffs Motion for Temporary Restraining Order and
Preliminary Injunction [DE-25]. In an order filed October 23,2014 [DE-51], which was modified
by the court's October 27, 2014, order [DE-53], the court allowed the motion, in part, as to its first
request for relief: an order enjoining Defendants from any use, copying, or disclosure ofSpirax data
that presently is in the custody of Clark Walton. As to the second category for relief in the motion,
the court invited more briefing. The parties have complied, and after reviewing the briefing and the
record, the court concludes that the Motion [DE-25] is DENIED as to the additional requested relief.
I. Standard of Review
The standard of review for a motion for a temporary restraining order and motion for
preliminary injunction are the same. A preliminary injunction is an extraordinary interlocutory
remedy, the purpose of which is to protect the status quo and prevent irreparable harm during the
pendency of a lawsuit. In re Microsoft Corp Antitrust Litig., 333 F .3d 517, 524-25 (4th Cir. 2003).
A court, in its discretion, may issue a preliminary injunction only if the moving party clearly

establishes the following factors: (1) he is likely to succeed on the merits; (2) he is likely to suffer
irreparable harm in the absence of preliminary relief; (3) the balance of equities tips in his favor, and
(4) an injunction is in the public interest. Winter v. Natural Res. Def Council, Inc., 555 U.S. 7, 20
(2008); West Virginia Ass 'n of Club Owners & Fraternal Servs., Inc. v. Musgrave, 553 F.3d 292,
298 (4th Cir. 2009).
II. Background
Plaintiffs are Spirax Sarco Inc., and Spirax-Sarco Engineering, PLC. Spirax-Sarco is a
Delaware corporation with its principal place of business in South Carolina. It manufactures goods
and sells services for control and efficient use of steam, air, and other industrial fluids to industrial
and commercial users in the United States.

Spirax-Sarco Engineering, PLC is a UK-based

engineering company and the parent of Spirax Sarco, Inc. The court will refer to them collectively
as "Spirax" or "Plaintiffs."
Defendant Bryan Johnson is a former employee of Spirax Sarco, Inc. He was hired as a
District Sales Manager for Spirax on June 1, 1998. Spirax alleges that at the time of his hire, he was
bound to a covenant of non-solicitation, pursuant to which he agreed that for the 12-month period
following his employment with Spirax, he would not solicit any customers upon whom he had called
in the last two years ofhis employment with Spirax. Plaintiffs also allege that Johnson was bound
a covenant of confidentiality, pursuant to which he agreed to protect proprietary and trade secret
information belonging to Spirax in accordance with specified policies and procedures. Spirax,
however, has no signed copy of either agreement. Defendants have proffered evidence that Johnson
refused to sign a non-compete. See Decl. of Jacenko [DE-48]

~

16.

During the course of his employment, Johnson was the Spirax employee handling the
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relationship with Defendant SSI Engineering, Inc. on Spirax's behalf from December 2013 until his
resignation on May 27,2014. Bryan Johnson contends that at the time of his resignation, he was in
discussions with Mark McGinn, the new Vice President of Sales for Spirax, regarding a transition
from an employee with Spirax to an Independent Manufacturer Representative ("IMR") in North
Carolina and South Carolina for Spirax.
SSI Engineering, Inc. had a Consulting Agreement with Spirax Sarco, Inc., which it
terminated by letter dated May 30,2014. Defendants Benjamin Lewis and Michelle Lewis, who are
married, are the principals of SSI Engineering, Inc. and SSI Services. Following Johnson's
resignation from Spirax, he went to work for SSI Services as an outside sales manager.
On June 2, 2014, two employees retrieved the laptop issued to Johnson by Spirax. Later that
week, IT employees reviewed the laptop and were suspicious that Johnson had deleted files, so the
laptop was sent to a third-party for forensic analysis. That analysis revealed that two external
electronic storage devices were connected to the laptop on May 26, 2014 (the day before Johnson
resigned), and that he copied approximately 11,000 files on May 12 and 19,000 files on May 26. He
also deleted 18,000 files on May 26.
The record indicates that Spirax Sarco, Inc., was in contact with an attorney for Johnson in
July 2014. Johnson denied having any confidential information. His attorney also stated that
Johnson used the laptop for personal use in addition to business use, and the information
downloaded was photographs, personal emails, and other items and not confidential Spirax
information.
Spirax disputed the characterization of the files being personal information. Eventually
Johnson hired different counsel-the same attorney now representing him in this court-and the

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parties agreed to a protocol regarding the disputed information. Under this protocol, the parties
authorized a third party, Clark Walton, to take possession ofthe two electronic devices Johnson used
to download files, as well as a Dropbox account he used to store electronic files. Under the parties'
agreement, Walton made one copy of the content of each of the electronic devices and the Drop box
account ("the Copy"). Walton then delivered the Copy ofthe two electronic devices and the Drop box
account to Johnson and his attorney on September 11, 2014. Walton retained possession of the
originals. The parties agreed that Johnson, with his attorney, would remove information that
belonged solely to him by transferring the information from the copy to a new device ("the Johnson
device"). Johnson and his attorney also kept a list of all the files removed. On September 25, 2014,
the removal process was complete, and the next day Johnson's attorney sent the list to Spirax.
Johnson and his attorney then sent the Copy and the Johnson device to Walton, who verified in
writing the items that were transferred from the Copy to Johnson's device. Walton then moved the
information remaining on the Copy to a new Spirax device, and sent that to Spirax, along with the
password information for Drop box account. The record indicates that the transfer of possession of
the Dropbox account occurred on September 26, 2014.
When Spirax later reviewed the list of files transferred from the Copy to the Johnson device,
it believed that Johnson was continuing to assert ownership over information that actually belonged
to Spirax. It also reviewed the Dropbox account, and discovered that Johnson had deleted or
removed hundreds of photo files from the Dropbox account between September 2 and 3, 2014.
Additionally, Plaintiffs contend that Defendants were bidding on projects against Spirax.
The Amended Complaint and record indicates that Spirax knew about this behavior since at least
early June. In August 2014 Spirax also learned that Defendants were bidding on a project with one

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of their customers. After Defendants learned that Spirax knew about the bid, they withdrew from
the process.
Plaintiffs filed a verified complaint in this court on September 17, 2014, and with
Defendants' consent, filed an amended verified complaint on October 16, 2014 [DE-24]. The
amended verified complaint alleges a claim of computer trespass against Johnson; violation of the
North Carolina and South Carolina trade secrets acts against all defendants; unfair and deceptive
trade practices against all defendants; breach of contract against Johnson; breach of duty ofloyalty
against Johnson; conversion against all Defendants; and tortious interference with prospective
economic advantage/contractual relations against all Defendants. That same day, Plaintiffs filed the
instant motion for temporary restraining order and preliminary injunction.
The court held a hearing on the motion on October 22, 2014, and issued an order on October
23, 2014, reflecting the injunctive relief to which the parties had agreed to in open court. The court
requested additional briefing. While the additional briefing was underway, Defendants filed a
verified answers and counterclaims. All the parties subsequently filed motions to dismiss various
claims and counterclaims, which are not addressed in this order. 1

III. Discussion
The second part of the relief requested by Plaintiffs is an order enjoining Defendant Bryan
Johnson, for a period of one year, from directly or indirectly marketing to or otherwise soliciting
work from the customers whom he solicited on behalf of Spirax during the two years prior to May
27, 2014. Plaintiffs initially argued that they were entitled to this relief on the basis of their breach
of contract claim, to the extent it rests upon Defendant Bryan Johnson's alleged covenant not to

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An order addressing those motions is forthcoming.

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compete. As the parties and the court discussed at the October 22, 2014 hearing on the motion,
however, North Carolina requires that any contract which "limit[s] the rights of any person to do
business anywhere in the State ofNorth Carolina" must be "in writing duly signed by the party who
agrees not to enter into any such business within such territory ...." N.C. Gen. Stat. § 75-4. 2
Although Plaintiffs contend that Defendant Bryan Johnson has, in fact, signed a non-compete
agreement, Plaintiffs have not proffered an actual copy of such an agreement that is signed by
Johnson. With regard to the likelihood of success on the merits, Plaintiffs bear the burden of making
"a clear showing that [they are] likely to succeed at trial on the merits." Real Truth About Obama,

Inc. v. Fed. Election Comm'n, 575 F.3d 342, 351 (4th Cir. 2009) cert. granted, judgment vacated,
559 U.S. 1089 (2010) and adhered to in part sub nom. The Real Truth About Obama, Inc. v. FE. C.,
607 F.3d 355 (4th Cir. 2010). Without a signed contract, Plaintiffs cannot make this showing as to
their claim for breach of the covenant not to compete.
At the hearing, Plaintiffs proffered an alternate reason why Defendant Bryan Johnson should
be enjoined from soliciting his former customers: the court should enjoin Johnson from soliciting
specified former customers under the theory of "inevitable disclosure" of trade secrets. See Merck
& Co., Inc. v. Lyon, 941 F. Supp. 1443, 1457 (M.D.N.C. 1996). The court requested, and the parties

have provided, supplemental briefing on this issue.
The North Carolina Trade SecretsProtectionAct("TSPA"), N.C. Gen Stat.§§ 66-152 to 66162, provides the owner of a trade secret with a private right of action against a party which has

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Plaintiffs also argued in their briefing that alleged agreement should not be subject to North Carolina
General Statute Section 75-4 because it is a non-solicitation agreement, as opposed to a non-compete
agreement. Plaintiffs cited no authority for this argument, and the court finds it unavailing.

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misappropriated that trade secret. N.C. Gen. Stat. § 66-153. 3 To state a cause of action under the
TSP A, "a plaintiff must identify a trade secret with sufficient particularity so as to enable a defendant
to delineate that which he is accused of misappropriating and a court to determine whether
misappropriation has or is threatened to occur." Analog Devices, Inc. v. Michalski, 157 N.C. App.
462, 468, 579 S.E.2d 449, 453 (2003). Additionally, a general allegation that an employee "acquired
knowledge of [the former employer's] business methods; clients; their specific requirements and
needs; and other confidential information pertaining to [the former employer's] business "is not
adequate to state a TSPAclaim." Washburn v. Yadkin Valley Bank& Trust Co., 190N.C. App. 315,
327, 660 S.E.2d 577, 586 (2008).
With regard to injunctive relief, the TSP A provides that "actual or threatened
misappropriation of a trade secret may be preliminarily enjoined during the pendency of [an] action."
N.C. Gen. Stat. § 66-154(a). North Carolina courts have stated that "[a] prelminary injunction is an
appropriate remedy "where actual misappropriation is demonstrated .... " Unimin Corp v. Gallo,
2014 NCBC 43 ~51. 2014 WL 444162, at *12 (N.C. Super. Ct. Sept. 4, 2012) (citingAllegis Group,
Inc. v. Zachary Piper LLC, 2013 NCBC 13 ~52, 2013 WL 709581, at *10 (N.C. Super. Ct. Feb. 25,
2013)). North Carolina courts have been reluctant, however, to "grant injunctive relief solely on the
basis of threatened misappropriation without proof of actual misappropriation." /d. (citing Analog
Devices, 157 N.C. App. at 470-71, 579 S.E.2d at 455).
Here, Plaintiffs contend that they have demonstrated "actual misappropriation" of trade

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The parties also reference the South Carolina Trade Secrets Protection Act, and South Carolina's
interpretation ofthe law and the doctrine of inevitable disclosure. The court does not find South Carolina's
interpretation to be materially different than that ofNorth Carolina, and so for purposes of this motion, the
court will assume that North Carolina law applies.

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secrets, by virtue ofDefendants returning Spirax documents to them and consenting to the injunctive
relief set forth in the court's October 23,2014 order [DE-51], and accordingly, they are entitled to
their requested additional injunctive relief. Alternatively, they argue that the doctrine of inevitable
disclosure applies and makes their additional requested injunctive relief appropriate.
As to Plaintiffs' first contention-that there is proof that Defendant Johnson has acquired,
if not used, trade secrets, and therefore has misappropriated them-the court finds that Plaintiff's
argument misses the mark. First, the court notes that Defendants have consented to be enjoined from
the use, copying, or disclosure of the data that is presently in the custody of Clark Walton. Thus,
even if this court assumes that the data contains trade secrets, Defendants cannot use this data in any
sort of competition with Plaintiffs, irrespective of whether any of the Defendants previously
misappropriated the documents. 4 Second, although Plaintiff argues that Johnson's return of files
demonstrates his earlier bad faith and underhandedness, the court does not find, given the hotly
disputed facts, there is sufficient evidence of bad faith or underhandedness on the part of Johnson.
Thus, the court may only consider the additional injunctive relief sought by Plaintiffs if they
can successfully rely on the doctrine of inevitable disclosure. As the North Carolina Court of
Appeals has stated, the doctrine of"inevitable disclosure" is applied "when an employee who knows
trade secrets ofhis employer leaves the employer for a competitor, and, because of the similarity of

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Although Plaintiffs state that this court, by virtue of its October 23, 2014, order, has made a variety of
findings and conclusions as to the existence oftrade secrets, irreparable harm, and the like, the reality is that
the court's ruling was premised upon Defendants' consent to the limited injunction. See October 23, 2014
[DE-51] Order at 2 ("At the hearing, counsel for Defendants stated they had no objection to this, to the extent
they are enjoined from the use, copying or disclosure of data that presently is in the custody of a third-party,
Clark Walton. Plaintiffs concurred, and accordingly, Plaintiffs' motion for preliminary injunction [DE-25]
is ALLOWED as to this requested relief."). The court, accordingly, has made none of the findings referenced
by Plaintiffs.

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the employee's work for the two companies, it is 'inevitable' that he will use or disclose trade secrets
of the first employer." Analog Devices, Inc. v. Michalski, 157 N.C. App. 462,470, 579 S.E.2d 449,
445 n.3 (2003). The doctrine, however, has never been adopted by the North Carolina Supreme
Court or the North Carolina Court of Appeals. See id at 470, 579 S.E.2d at 454-55 (declining to
reach the question of whether the doctrine applies under North Carolina law); Allegis Group, Inc.
v. Zachary Piper LLC, 2013 NCBC 13, 2013 WL 709581, at *11 (N.C. Super. Ct. Feb. 25, 2013)
(recognizing that "[it] is less than clear as to how that doctrine is to be applied in North Carolina"
and that the latest North Carolina appellate opinion discussing "inevitable disclosure" "did not reach
that issue squarely" but "clearly suggested ... that should the doctrine be applied, it should be used
only to limit the scope of an employee's new employment duties while not preventing any and all
employment with the plaintiffs competitor."). A federal district court in the Middle District ofNorth
Carolina, however, has predicted that the North Carolina Supreme Court will recognize the doctrine
in appropriate circumstances. Merck, 941 F. Supp. at 1459. 5
In so doing, the Merck court listed several factors it found important to consider when
determining whether to apply the doctrine of inevitable disclosure, including ( 1) the circumstances
surrounding the termination of employment; (2) the importance of the employee's job or position;
(3) the type of work performed by the employee; (4) the kind of information sought to be protected
and the value of the information; (5) the degree of competition between the former and new
employer; (6) the new employer's efforts to safeguard the former employer's trade secrets; (7) the

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Similarly, no South Carolina state court has adopted the doctrine, although federal district courts in South
Carolina have predicted that South Carolina would apply it. See Nucor Corp. v. Bell, CIA No. 2:06-CV02972-DCN, 2008 WL 9894350, at* 15-16 (D.SC. March 14, 2008) ("The South Carolina courts have not
addressed whether the inevitable disclosure doctrine applies in this state .... Nonetheless, the court believes
that the South Carolina Supreme Court would recognize the inevitable disclosure doctrine.").

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former employer's lack of forthrightness in his activities before accepting his job and in his
testimony; and (8) the degree of similarity between the employee's former and current position.
The court will assume-without deciding-that North Carolina would adopt the doctrine of
inevitable disclosure under certain circumstances. Nevertheless, examining the factors set forth in
Merck, the court does not find that Plaintiffs have made the showing necessary for an issuance of a

preliminary injunction prohibiting Defendant Johnson from competitive activity on the basis of
threatened inevitable disclosure. First, the court emphasizes, again, that Johnson and the other
Defendants have consented to not utilizing any information that is in the custody of Clark Walton.
Plaintiffs have not convincingly shown that this information6-being held by a third party
custodian-will be "inevitably disclosed" should Johnson continue to work for the other defendants
in sales. Second, all of the factors typically considered by courts in an inevitable disclosure analysis
are hotly disputed by the parties, and the court does not find Plaintiffs evidence to clearly establish
any of them. Third, Plaintiffs point to Johnson's deletion of items from the Dropbox Account, as
evidence that he will use trade secrets of Plaintiffs. There is no indication in the record, however,
that any of these items contain "trade secrets" under the law. Plaintiffs maintain it is not their fault
they cannot articulate what, exactly, was deleted from the Dropbox Account, but it is undisputed that
they had access to the Account on September 26, 2014, at which time they would have been able to
ascertain the contents of any files. Under these circumstances, the court will not infer that what
Defendant Johnson allegedly deleted constituted trade secrets, or even property, of Spirax.
Accordingly, on this record, the court is left to hypothesize what, exactly, Defendant Johnson may

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Again, the court will assume, for purposes of this motion only, that the data in fact includes trade secrets
of Plaintiffs.

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disclose to the other defendants while he works for them. This is not sufficient to show a likelihood
of success on the merits on an "inevitable disclosure" theory, and consequently, Plaintiffs further
request for injunctive relief is not appropriate.

IV. Conclusion
For the foregoing reasons, Plaintiffs Motion for Preliminary Injunction [DE-25] is DENIED
to the extent it seeks further relief than that allowed in the court's October 23,2014, Order [DE-51].
SO ORDERED .
.r

This the !.2_ day of April, 2015.

enior United States District Judge

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In the Motion for Preliminary Injunction [DE-25], Plaintiffs sought an order containing the following
preliminary injunctive relief:
a.
Enjoining all Defendants from any use, copying, or disclosure of Spirax documents;
b.
Enjoining Defendant Johnson for one year from directly or indirectly marketing or otherwise
soliciting work from the customers whom he solicited on behalf of Spirax during the two years prior
to May 27,2014 .... ;
c.
Enjoining all Defendants to return all property (both tangible and intangible, including all copies
thereof) of the Plaintiffs that has been stolen, misappropriated, or otherwise taken by any of the
Defendants; and
d.
Enjoining Defendants from continued delivery of any goods or services on any contracts or work
solicited by Defendant Johnson from his former Spirax customers and from any contracts or work
obtained by any of the Defendants through use of Spirax documents or other property.
The court finds that the consent injunctive relief awarded by the court adequately covers the relief sought
in paragraph a. Additionally, given the protocol entered into by the parties, combined with the injunctive
relief already awarded, the court finds the paragraph c to be redundant. Finally, the remainder of the
requested relief is inappropriate because of the lack of clear showing of success on the merits of an inevitable
disclosure theory.
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