Stemtech International, Inc. v. Drapeau
ORDER DENYING 29 Motion for Preliminary Injunction. Signed by Judge Robert Pitman. (td)
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF TEXAS
STEMTECH INTERNATIONAL INC.,
CHRISTIAN DRAPEAU, GREG NEWMAN, §
CERULE, LLC, BIOMICS LLC, and
Before the Court is Plaintiff Stemtech International, Inc.’s Application for Preliminary
Injunction. (Dkt. 29). For the reasons that follow, the Court finds that Plaintiff’s Application should
Plaintiff Stemtech International, Inc. (“Stemtech”) is a Delaware corporation with its
principal place of business in Pembroke Pines, Florida. Stemtech was formed in 2005 by Ray Carter,
now CEO of Stemtech, and Defendants Greg Newman (“Newman”) and Christian Drapeau
(“Drapeau”). Stemtech was initially formed to serve as a marketing partner for Defendant Cerule
LLC (“Cerule”)1 to market Cerule’s stem cell nutrition product, StemEnhance. Stemtech has grown
over the years to market a variety of stem cell nutrition products worldwide.
Cerule is an Oregon corporation with its principal place of business near Klamath Falls,
Oregon. It harvests algae known as Aphanizomenon flos-aquae (“AFA”) and manufactures the AFA
Cerule was known as Desert Lake Technologies, LLC at the time. To avoid confusion, the Court
refers to the entities as they are known now.
extracts which make up its StemEnhance product. Cerule was Stemtech’s sole source of
StemEnhance and was a key Stemtech supplier between 2005 and 2016. Cerule recently launched a
slate of stem cell nutrition products that compete with Stemtech’s.
Drapeau has served as the Chief Science Officer of Cerule since around July 2016. Prior to
2005, he had served as Cerule’s Director of Research and Development and was largely responsible
for the development of StemEnhance. After co-founding Stemtech, he served as that company’s
Chief Science Officer and led research efforts and the development of new stem cell nutrition
products. His employment contract expired as of July 2015 and he thereafter worked for Stemtech
as an independent contractor. Until March 2016, Drapeau also served on Stemtech’s board of
directors. Drapeau continues to be a major shareholder of Stemtech, with forty-three percent of the
Defendant Biomics LLC (“Biomics”) is a limited liability company organized under the laws
of the State of Texas and is headquartered in Austin, Texas. Drapeau formed Biomics on March 22,
2016, the day before he resigned from Stemtech’s board of directors. The Complaint says little about
Biomics, other than alleging that it was formed to compete with Stemtech and that it has
trademarked “Mesenkine” for use with an ingredient used in Cerule’s competing products and
“StemAloe” for use with an additional stem cell nutrition product.
Newman is the CEO of Cerule. He is another co-founder of Stemtech, along with Drapeau
and Ray Carter, with Carter being the majority shareholder (50.2%) and CEO of Stemtech. He is a
resident of Klamath Falls, Oregon.
Defendant George Tashjian was Stemtech’s Director of IT. In July 2016, Tashjian left
Stemtech for Cerule. The Application for Preliminary Injunction says almost nothing about him, and
the proposed order does not mention him at all. Stemtech’s Reply in support of its Application for
Preliminary Injunction suggests that the injunction is sought against Drapeau and Cerule only.
(Reply, Dkt. 54, at 5 n.3). Tashjian is a resident of San Clemente, California.
In 2005, Stemtech was founded by Carter, Drapeau, and Newman. Drapeau and Newman
were then affiliated with Cerule as the Director of Research and Development and CEO,
respectively. Stemtech was originally envisioned as a company that would market StemEnhance,
Cerule’s algae extract that purportedly supports adult stem cell function. Originally based in Oregon,
Carter decided to move the company to Orange County, California, in 2006. Stemtech takes the
form of a multi-level marketing business, known colloquially as “pyramid schemes.” Independent
contractors—or “Independent Business Partners,” as Stemtech calls them—promote and sell
Stemtech’s products in exchange for commission and perhaps other compensation. Stemtech also
incentivizes each distributor to build “downlines” by sponsoring new Independent Business
Partners in order to grow the business. Stemtech now has about 30,000 distributors worldwide.
Early on, Stemtech and Cerule entered into a Manufacturing, License, and Supply
Agreement (the “License Agreement”), under which Cerule agreed not to sell or market
StemEnhance to anyone but Stemtech. Cerule further agreed that Stemtech’s marketing concepts,
customer lists, and lists of distributors would be intellectual property belonging to Stemtech. As part
of the agreement, Stemtech paid Cerule a licensing fee of $1.5 million. Until recently, Cerule’s sales
of StemEnhance to Stemtech constituted 70% of Cerule’s revenue.
Since Stemtech’s inception, Ray Carter has served as the corporation’s CEO. He also serves
on its board of directors and is, at least now, the owner of 50.2% of its stock. Drapeau also joined
Stemtech as an employee at some time and served as its Chief Science Officer. Over the course of
his employment, Drapeau led Stemtech in developing and launching a variety of stem cell nutrition
Drapeau signed several agreements with the Company while at Stemtech. Of those produced in this
litigation, the first is a Stockholder Agreement, dated June 2007. It outlines certain rights and
restrictions with respect to the parties’ shares in the company. The Stockholder Agreement was
amended one month later by a Buy Sell Agreement. This latter agreement imposed restrictions on
the transfer of shares by shareholders and granted rights of first refusal to the company and the nontransferring shareholder. It also included non-compete and non-disparagement clauses that remain
in effect until one year after Drapeau sells his shares. In May 2011, Drapeau signed an Employee
Proprietary Information and Inventions Agreement (the “Inventions Agreement”). It included a
non-disclosure clause and an agreement that Drapeau would assign all inventions made during his
employment to Stemtech. It also included an agreement that Drapeau would return all company
devices to the company when he left his employment.
The final two agreements are an Executive Employment Agreement and an Amended Buy
Sell Agreement, both dated July 1, 2012. 2 The Executive Employment Agreement outlined
Drapeau’s responsibilities and compensation. It included non-compete and non-disparagement
clauses that remained in effect until one year after the expiration of the contract. It also included an
arbitration clause. The Amended Buy Sell Agreement had many of the same covenants as the prior
Buy Sell Agreement, including the non-compete and non-disparagement clauses, though it made
further arrangements related to the rights of the parties’ spouses. The Amended Agreement
provided that it replaced the June 2007 Stockholder Agreement in its entirety.
The relationship between Carter and Drapeau, the two driving forces behind Stemtech, was
strained from very early on. The acrimony first began with Carter’s decision to relocate Stemtech
The parties presented evidence at an evidentiary hearing suggesting that the agreements were not in
fact executed on July 1, 2012. The Court finds it unnecessary to make explicit findings as to when
each was in fact signed.
from Oregon to California. It appears to be motivated in large part by Drapeau’s disagreements with
Carter’s management style and Drapeau’s feeling that Carter—the majority shareholder, CEO, and
one-third of the board of directors—would not take his opinion into account when making major
corporate decisions. The tension was only exacerbated by Stemtech’s financial difficulties, which
began around 2012. Carter asserted in his deposition that the problems were caused by Cerule’s
failure to produce enough StemEnhance for Stemtech to fulfill all of its orders. Stemtech negotiated
a payment agreement with Howard Newman, then CEO of Cerule and father of Defendant Greg
Newman. However, this agreement was rescinded in 2014 and led to Stemtech again falling behind
in making payments to Cerule.
By 2015, it seemed clear that Drapeau was on his way out at Stemtech. He allowed his
employment contract to expire in July 2015, after which time he states that he assumed independent
contractor status. 3 Efforts to draft a new agreement, which was to include a modified non-compete
clause, failed. 4 Drapeau stated in his deposition that he began making plans to leave Stemtech and
form a competing company in 2015. Aware of his non-compete clause, which purported to be active
for a year following the expiration of his employment agreement, he decided to continue working
for Stemtech until the end of June 2016. News that Drapeau was planning to exit the company and
form a competing company began reaching Carter in 2016. Carter alleges that he heard from certain
independent distributors that they had been approached by certain Stemtech executives who hinted
at their intention to follow Drapeau to a new company. Stemtech alleges that these executives
impliedly solicited the distributors to join them. According to Stemtech, the executives would also
Stemtech maintains that Drapeau was still an employee of Stemtech at this time. It produced
evidence that Drapeau was still classified as an employee for tax purposes. Putting aside whether
Drapeau was an employee as a matter of law, Stemtech did not argue that his employment contract
remained in effect after July 2015.
Stemtech pointed to an email exchange between Drapeau and Carter in which the two discussed a
non-compete provision that was to be included in a new contract. It has not been shown that a valid
and enforceable contract has resulted from this exchange.
disclose that Stemtech had been cut off by key suppliers for failure to pay for goods, was in default
on its loans, and owed other money to a judgment creditor.
In March 2016, Drapeau announced his resignation and offered to stay at Stemtech until July
1, 2016. Carter decided that it would be harmful to the company to have Drapeau continue to work
until July and decided that Drapeau would work only through March. Drapeau apparently retained
his company laptop after leaving. He asserted that he kept the computer so that Stemtech would
return personal items he left in his office and reimburse him for around $4,000 in company
expenses. According to Stemtech, the laptop is a treasure trove of trade secrets, but Drapeau insists
he has accessed it only once to delete personal financial information. At the hearing on Plaintiff’s
Application, Drapeau gave the computer to Stemtech in exchange for a check.
Around the time of Drapeau’s departure, Cerule provided Stemtech with a notice that it
would cancel the License Agreement if Stemtech did not cure its default in payment within 90 days.
In May 2016, Carter sent Cerule a letter indicating that it would no longer use Cerule’s StemEnhance
in its products and would not pay Cerule the amount owed. Cerule then sued Stemtech in Oregon
for breach of contract that same month and ultimately terminated the License Agreement in June. 5
Since leaving Stemtech, Drapeau formed his company, Biomics LLC, in June 2016. He
insists is only a vehicle for his consulting activities and only markets products in the Middle East,
where Stemtech has no operations. He has also trademarked the term “Mesenkine” for use with a
stem cell nutrition ingredient and licensed the term to Cerule for use with a product that competes
with Stemtech’s. He began association with Cerule to develop a line of products that would replace
the revenue lost from Stemtech’s decision to drop StemEnhance from their products. This meant,
of course, that both Stemtech’s products and Cerule’s products would compete in the stem cell
nutrition market. Drapeau would also host conference calls and presentations promoting Cerule’s
See Cerule v. Stemtech, No. 1:16-cv-873 (D. Or. 2016).
new products. When doing so, Drapeau would allegedly state that Stemtech’s products are no longer
effective without StemEnhance and that Stemtech was being poorly managed and might not be
around much longer. Allegedly due to these activities and other solicitation on Drapeau’s part,
executives and distributors began leaving Stemtech for Cerule.
Aside from the loss of distributors and other employees, Stemtech alleges that the activities
of Cerule and Drapeau have caused it a host of other problems. For example, Stemtech alleges that
the Defendants have solicited Stemtech’s suppliers to stop doing business with it. However, Carter
testified in his deposition that Stemtech had been cut off from some of these suppliers for failure to
make payments. Stemtech alleges that Cerule and Drapeau are responsible for its bank raising the
interest rates on Stemtech’s loans. However, Carter’s deposition testimony reveals that the higher
rate was part of a renegotiation that Stemtech requested because it could not make its loan
payments. Stemtech also blames the Defendants for its credit card processor’s placing a hold on
Stemtech’s credit card income until it built up a $300,000 reserve. At his deposition, Carter
acknowledged that the lawyer for a $1.6 million judgment creditor contacted its processor and
informed them of the judgment. He is certain, though, that someone associated with Defendants
must have revealed the identity of the processor to the lawyer. These allegations form the basis of
Stemtech’s tortious interference claims.
The Cast Party
Stemtech filed this lawsuit on July 27, 2016. It filed an emergency application for a
temporary restraining order on September 1, 2016. This Court denied the application because
Stemtech had shown neither a likelihood of success on the merits nor irreparable injury, and had not
complied with the notice certification requirements of Federal Rule of Civil Procedure 65. (See Dkt.
11). Stemtech now moves for a preliminary injunction.
Though the Second Amended Complaint asserts twelve claims against the Defendants, only
three form the basis of Stemtech’s Application for Preliminary Injunction. 6 These are (1) breach of
contract; (2) misappropriation of trade secrets; and (3) tortious interference with contract.
A preliminary injunction is an extraordinary remedy and the decision to grant a preliminary
injunction is to be treated as the exception rather than the rule. Valley v. Rapides Parish Sch. Bd., 118
F.3d 1047, 1050 (5th Cir. 1997). “A plaintiff seeking a preliminary injunction must establish that he
is likely to succeed on the merits, that he is likely to suffer irreparable harm in the absence of
preliminary relief, that the balance of equities tips in his favor, and that an injunction is in the public
interest.” Winter v. Nat. Res. Def. Council, Inc., 555 U.S. 7, 20 (2008). The party seeking injunctive relief
must “carr[y] the burden of persuasion on all four requirements.” PCI Transp. Inc. v. Western R.R. Co.,
418 F.3d 535, 545 (5th Cir. 2005). “However, even when a movant established each of the four
requirements described above, the decision whether to grant or deny a preliminary injunction
remains within the Court’s discretion[.]” Sirius Comput. Sols. v. Sparks, 138 F. Supp. 3d 821, 836 (W.D.
Breach of Contract
There are two parts to Stemtech’s breach of contract claim against Drapeau: (1) competition
and (2) non-disclosure. 7
Stemtech’s Application for Preliminary Injunction also urged claims under the Computer Fraud
and Abuse Act, 18 U.S.C. § 1030. However, these claims were not discussed at the hearing on
Plaintiff’s Application, and the court understands them to be resolved by Drapeau’s return of
Stemtech’s computer, at least as far as they concern preliminary injunctive relief. Accordingly, the
Court does not address those claims here.
Originally, Stemtech pressed claims for breach of contract on the basis of Drapeau’s failure to get
permission to publish an article and assign an invention to Stemtech as well as his failure to return
Stemtech property after ending his employment. Stemtech indicated that it was withdrawing its
Stemtech argues that Drapeau’s competitive activity is a breach of the non-competition
clause in the Amended Buy Sell Agreement he signed in 2012 (the “Buy Sell Agreement”). That
agreement provides that:
Each Stockholder agrees that so long as this Agreement shall remain in effect and for
a period of one (1) year following any termination of this Agreement [by agreement,
transfer of shares, dissolution of the company, or simultaneous death of the
stockholders], such Stockholder shall not either directly or indirectly, and will not
permit any entity which is controlled by such Stockholder to either directly or
indirectly, participate in, assist, aid or advise in any way, any competitive business or
enterprise that competes with [Stemtech’s stem cell nutritional products] in [any
country in which Stemtech receives revenues from the sale of such products].
(Buy Sell Agreement, Dkt. 29-6, at 9). Stemtech alleges that Drapeau has violated this contract
through his trademarking names for stem cell nutrition ingredients following his departure from
Stemtech and by working with Cerule to develop stem cell nutrition products.
Drapeau remains a Stemtech stockholder and does not argue that the Buy Sell Agreement is
no longer in effect. He also acknowledges that the products he develops for Cerule compete with
Stemtech’s products in relevant markets. However, he argues that the Buy Sell Agreement is
governed by California law, which generally holds non-competition clauses invalid. See Cal. Bus. &
Prof. Code § 16600 (“Every contract by which anyone is restrained from engaging in a lawful
profession, trade or business of any kind is to that extent void.”). As this argument is disputed by
Stemtech, it is necessary to analyze which state’s law governs the Buy Sell Agreement.
A federal court sitting in diversity determines the applicable law through use of the forum’s
choice of law rules. Benchmark Elec., Inc. v. JM Huber Corp., 343 F.3d 719, 726 (5th Cir. 2003). “Under
Texas choice-of-law rules governing contracts . . . we look to the Restatement (Second) of Conflict
arguments concerning publishing and assignment. The Court also understands that Stemtech no
longer pursues injunctive relief for the return of the computer.
of Laws.” Sonat Expl. Co. v. Cudd Pressure Control, Inc., 271 S.W.3d 228, 231 (Tex. 2008). In the
absence of a choice-of-law provisions, “[t]he rights and duties of the parties . . . are determined by
the local law of the state which . . . has the most significant relationship to the transaction and the
parties under the principles stated in § 6 [of the Restatement].” Restatement (Second) of Conflict of
Laws § 188(1).
Section six of the Restatement offers several factors for courts to consider. These include,
among others, the relevant policies of the forum state and other interested states and the relative
interests of those states in the determination of the particular issue; the protection of justified
expectations; the basic policies underlying the particular field of law; and the certainty, predictability
and uniformity of results. Id. § 6. In evaluating these factors, the court must consider the place of
contracting, the place of negotiation of the contract, the place of performance, the location of the
subject matter of the contract, and the domicile, residence, nationality, place of incorporation and
place of business of the parties. Id. § 188(2). Even when the contract contains a choice of law
provision, a different state’s law may be applied if that state has a more significant relationship to the
parties and transaction, a materially greater interest than the resolution of the issue, and applying the
chosen law would contravene the fundamental policy of that state. Chesapeake Operating, Inc. v. Nabors
Drilling USA, Inc., 84 S.W.3d 163 (Tex. App. 2002).
Defendants provide several facts to support their argument that California law should apply.
For example, Stemtech was headquartered in California when the relevant Buy Sell Agreement was
executed. It was entered into by Drapeau on behalf of the CJ Drapeau Trust in California in 2012,
when Drapeau also lived in California. The Agreement itself references California probate and
community property law. It also provides that, should the parties fail to agree on an arbitrator to
settle valuation disputes, an arbitrator will be appointed by the presiding judge of the Superior Court
for Orange County, California. Stemtech, on the other hand, argues that Delaware law should apply
because it is a Delaware corporation and that the Buy Sell Agreement implicates the relationship and
obligations shared among the corporation and its shareholders. 8
Most of the Restatement factors favor the application of California law. There is no dispute
that the contract was negotiated and executed in California. The parties do not discuss the place of
performance, but this factor also favors California law. The Buy Sell Agreement imposed obligations
respecting the other shareholders and the corporation upon the transfer of shares. As Drapeau,
Carter, and Stemtech were all based in California when the agreement was made, performance
necessarily implicated California at that time. Further, Stemtech has cited Delaware cases that enforce
non-compete agreements, but none of these cases evince a Delaware policy in favor of enforcing
non-competition agreements that might counteract California’s “settled public policy in favor of
open competition.” See Hill Medical Corp. v. Wycoff, 86 Cal. App. 4th 895, 900 (Cal. Ct. App. 2001).
Even more, while Delaware does enforce agreements against employees to protect employers from
damages, it is not clear whether Delaware would also enforce such agreements against active
corporate shareholders. 9 Unlike employees, shareholders are not agents of the corporation and usually
owe no fiduciary duties to the corporation. Ivanhoe Partners v. Newmont Mining Corp., 535 A.2d 1334,
1344 (Del. 1987). 10
Alternatively, Stemtech argues for the application of the laws of Florida, where Stemtech is now
based, or the laws of Texas, where Drapeau is now domiciled. However, the parties moved to those
jurisdictions after the contract was executed, and there is no other evidence that those states had any
connection to the transaction. The laws of those states are therefore inapplicable. Sonat, 271 S.W.3d
at 236 (“[C]ontracts should be governed by the law the parties had in mind when the contract was
made . . . .”).
Concededly, Drapeau was also an employee when he executed the Buy Sell Agreement. However,
his employment agreement contained its own non-compete clause which has by now expired. The
only non-compete obligation remaining arises solely from his status as a shareholder.
Stemtech argues that the non-compete is necessary because Drapeau is privy to confidential
information about Stemtech by virtue of his status as a shareholder. At the same time, Stemtech has
chosen not to exercise its option to repurchase Drapeau’s shares, which would prevent him from
obtaining confidential information at any shareholder meetings Stemtech might have. (See Buy Sell
Agreement, Dkt. 29-6, at 6).
Certain other factors are more neutral. For example, the ease of application of the governing
law does not favor either side, as a Texas court is no more at ease applying California’s laws than
Delaware’s. The expectations of the parties also favor neither side. On the one hand, the Buy Sell
Agreement did replace a contract that expressly designated Delaware law to govern it. On the other
hand, all relevant parties were located in California at the time of the agreement, Drapeau
concurrently signed an Executive Employment Agreement governed by California law, and the Buy
Sell Agreement also borrows from California law. 11 Additionally, the parties clearly intended that the
Buy Sell Agreement should completely replace the Stockholder Agreement and did not again
provide for the application of Delaware law. As most factors point to California and the others are
neutral, the Court finds that California law should apply.
Stemtech makes a number of arguments against the application of California law, but none
carries the day. For example, Stemtech points out that the Buy Sell Agreement was intended as an
amendment and restatement of the Stockholder Agreement Signed in June 2007. That Stockholder
Agreement expressly chose Delaware law to govern it. (Stockholder Agreement, Dkt. 54-5, at 18).
Stemtech argues that Buy Sell Agreement did not, among the provisions it changed, alter the choice
of law provision. This argument fails because, although the Buy Sell Agreement contains no election
of governing law, it does provide that it “replaces and amends in its entirety the June StemTech
Stockholders Agreement.” (Buy Sell Agreement, Dkt. 29-6, at 13) (emphasis added). This provision
clearly nullifies the choice of law provision in the Stockholder Agreement.
At the hearing on this matter, Stemtech argued that the provision for California law in one section
of the Agreement suggests that the parties did not believe California law governed the whole
contract. The Court might agree if the parties had in fact made an election of law to govern the
section. The reference at issue here, however, merely specifies how discrete terms should be defined.
The defining of discrete terms is not necessarily relevant to the ultimate determination of governing
law. For example, a contract defining the term “spouse” by reference to Texas law might tell us
whether the term encompasses a common-law husband. It does not tell us whether extrinsic
evidence is admissible to show an ambiguity as to the identity of the spouse—a separate question of
contract law concerning the same term that could as easily be determined by another state’s law.
Next, Stemtech argues that the Buy Sell Agreement, as a restatement of the Stockholder
Agreement, concerns the rights and duties of the stockholders amongst themselves and with respect
to the corporation. Thus, according to Stemtech, the laws of Delaware, the state of incorporation,
should apply. Stemtech relies on Weber v. PACT XPP Technologies, AG, to support its argument. 811
F.3d 758 (5th Cir. 2016). That case is distinguishable. The contract at issue there was a Germanlanguage contract concerning the compensation of an executive of a German corporation for his
performance on the corporation’s supervisory board. Id. at 772. The contract also contemplated the
jurisdiction of German courts to resolve disputes. Id. The Court found that the contract implicated
important issues of German corporate law and policy and otherwise held that the balance of factors
favored Germany. At issue here is a contract negotiated and executed in California, the jurisdiction
in which the corporation was headquartered. In contrast to the Stockholder Agreement, which
included provisions concerning the voting of shares and irrevocable proxies—which naturally
implicate Delaware corporate law—the Buy Sell Agreement concerned only restraints on the
transfer of the parties’ shares, which are their personal property. It does not, for example, concern
the rights and responsibilities share ownership entails vis-à-vis the internal management of the
corporation. As the Weber court found it important that the contract there was in German and
contemplated the jurisdiction of German courts, this Court likewise finds it relevant that the
Agreement here references California law and contemplates that the resolution of disputes may
involve the California courts. (Buy Sell Agreement, Dkt. 29-6, at 10 (“[I]f the parties cannot agree
upon an appraiser, then the appraiser shall be named by an arbitrator designed [sic] by the presiding
judge of the Superior Court in Orange County, California.”)).
Stemtech also relies on Askanase v. Fatjo for its argument that the Buy Sell Agreement
concerns internal corporate affairs that should be governed by Delaware law. 130 F.3d 657 (5th Cir.
1997). However, the Court there held that “the place of incorporation does not decide necessarily
which law to apply” and rejected application of Delaware law when the place of incorporation was
the only corporation’s only tie to Delaware. Id. at 670. Like the corporation in Askanase, Stemtech’s
place of incorporation is its only apparent tie to Delaware.
Finally, Stemtech argues that Delaware law should apply because the parties intended to be
bound by the non-compete agreement. But the case Stemtech cites for this proposition, Cardoni v.
Prosperity Bank, recognizes that even the parties’ express designation of governing law can be
overcome on grounds of the public policy of the state with a greater relationship to the transaction.
805 F.3d 573, 580 (5th Cir. 2015) (citing DeSantis v. Wackenhut Corp., 793 S.W.2d 670, 677 (Tex.
1990) (“[The parties] cannot by agreement thwart or offend the public policy of the state the law of
which ought otherwise to apply.”). If public policy can overcome an express choice of law, it follows
a fortiori that it can overcome an implied choice divined from the parties’ mere expectation that a
provision offensive to that policy will nonetheless be binding. After all, what good is public policy if
the parties may escape it simply by intending to do so?
As the Court has found that California law governs the Buy Sell Agreement, the next inquiry
is whether the non-compete agreement is the valid under that law.
Validity of the Non-Compete Agreement
California law is largely hostile to non-compete agreements. Indeed, they are voided by
statute. See Cal. Bus. & Prof. Code § 16600. Many other jurisdictions in the country evolved toward a
“rule of reasonableness”—enforcing non-compete clauses so long as they are reasonably limited in
scope and duration—but California has explicitly rejected that approach. Hill Med. Corp., 86 Cal.
App. 4th at 901. Nonetheless, Stemtech argues that there are two bases for enforcement of the noncompete clause despite California’s prohibition. First, Stemtech argues that the covenant in the
Stockholder Agreement falls within a statutory exception concerning the sale of an ownership
interest in a business. Second, Stemtech argues that California courts enforce non-compete clauses
to the extent necessary to protect trade secrets.
Stemtech suggests in a footnote that section 16601 of the California Business and
Professions Code applies to the Stockholder Agreement’s covenant not to compete and makes it
enforceable. That section provides that “[a]ny person . . . selling or otherwise disposing of all of his
or her ownership interest in [a] business entity . . . may agree with the buyer to refrain from carrying
on a similar business[.]” Cal. Bus. & Prof. Code § 16601. The plain language of the statute applies
where (1) a sale of a business interest takes place and (2) the non-compete agreement is made with
the buyer of the business interest. Id. It is inapplicable to our situation because (1) Drapeau has not
sold his shares and (2) the agreement is made not with the buyer of the shares, but with the other
major shareholder and the corporation.
It is ostensibly unusual to impose greater obligations on someone who no longer has
anything to do with the company than on one who still retains his shares. However, this makes
sense when the policy underlying the statutory exception is considered. The statute recognizes that it
would be “‘unfair’ for the seller to engage in competition which diminishes the value of the asset he
[or she] sold.” Hill Med. Corp., 86 Cal. App. 4th at 902 (quoting Monogram Indus., Inc. v. Sar Indus., Inc.,
64 Cal. App. 4th 692 (Cal. Ct. App. 1976)). It thus protects buyers of stock from purchasing a
business interest at an inflated price that assumes a lack of competition, only to have the seller
diminish the asset by opening a competing business. The statute also recognizes that sellers of stock
may not be able to get a fair price if the law would not allow them to agree not to compete, as
buyers may factor the risk of future competition into the price. See id. These fairness concerns simply
have no bearing on situations where, as here, a current stockholder undertakes competing activity.
As the competition is open and ongoing, any sale of stock will necessarily take into account the
seller’s competition. Further, the seller voluntarily bears any loss that his competition causes to his
It bears mentioning, too, that Drapeau’s sale of his stock to Stemtech would not
automatically make the non-compete enforceable. California courts have long read a requirement
into the statute that the sale include the company’s goodwill. See, e.g., Bosley Med. Grp. v. Abramson,
161 Cal. App. 3d 284, 290 (Cal. Ct. App. 1984). And “[s]imply selling shares to an individual vendee
or back to the corporation does not necessarily demonstrate that goodwill is part of the agreement.”
Hill Med. Corp., 86 Cal. App. 4th at 904. Rather, courts must evaluate “all aspects of the sales
arrangement,” including whether the sales price reflected the anticipated costs of competition to the
buyer, or of the inability to compete to the seller. Id. This fact-intensive inquiry both suggests that
the statutory exception does not apply in the absence of a sale and that the Buy Sell Agreement’s
non-compete clause would be unenforceable in any case if the sales price of Drapeau’s stock reflects
his competition—as it likely would given his current open competition.
Stemtech’s next argument—that California enforces non-compete agreements as necessary
to protect trade secrets—has stronger footing, but still falters. The California Supreme Court
recently held that non-competition clauses are invalid unless they fall within a statutory exception.
Edwards v. Arthur Andersen LLP, 44 Cal. 4th 937, 946 (2008). However, the court stated expressly
that it was not ruling on the validity of the judicially created trade-secret exception as it was not
presented in the case. Id. at 946 n.4. Lower courts have since tried to reconcile Edwards’s clear
holding that only those agreements within a statutory exception are valid with the non-statutory
trade-secret exception. Some courts have expressed “doubt [as to] the continued validity of the
common law trade secret exception[.]” see, e.g., Dowell v. Biosense Webster, Inc., 179 Cal. App. 4th 564,
578 (Cal. Ct. App. 2009). Others have continued to apply it. See, e.g., Wanke, Indus., Commercial,
Residential, Inc. v. Superior Court, 309 Cal. App. 4th 1151, 1176–80 (Cal. Ct. App. 2012). Others
recognize the issue as an open question. See, e.g., Anaqua, Inc. v. Bullard, 2014 WL 10542986, at *10
n.9 (Mass. Super. July 24, 2014). The leading case, however, explains that, after Edwards:
[S]ection 16600 bars a court from specifically enforcing (by way of injunctive relief) a
contractual clause [restraining competition] but a court may enjoin tortious conduct
(as violative of the Uniform Trade Secrets Act and/or the Unfair Competition Law)
by banning the former employee from using trade secret information to . . . unfairly
compete with the former employer. Viewed in this light, therefore, the conduct is
enjoinable not because it falls within a judicially-created “exception” to section
16600’s ban on contractual [non-compete] clauses, but is instead enjoinable because
it is wrongful independent of any contractual undertaking.
Retirement Grp. v. Galante, 176 Cal. App. 4th 1226, 1238 (Cal. Ct. App. 2009) (emphasis in original).
Galante is persuasive as it is faithful both to the language of section 16600 and to Edwards’s holding
that restraints must fall within a statutory exception in order to be valid. Following its reasoning, the
Buy Sell Agreement’s non-compete clause is unenforceable under section 16600 and cannot support
an injunction. Rather, Stemtech must show that Drapeau’s conduct is independently tortious. See id.
at 1238. As will be discussed below, Stemtech does not show that an injunction is necessary to
protect its trade secrets. 12
Stemtech alleges that Drapeau has breached the non-disclosure provision of the Inventions
Agreement he signed in May 2011 while employed at Stemtech.
The Inventions Agreement provides that, during his employment and thereafter, Drapeau
will not disclose, use, lecture upon or publish any of Stemtech’s proprietary information. (Inventions
Agreement, Dkt. 29-5, at 2). The agreement defines proprietary information somewhat circularly as
“any and all confidential and/or proprietary knowledge, data or information of the Company.” (Id.).
This includes Stemtech’s research, formulas, discoveries, trade secrets, and other developments, as
Defendants argue that the Buy Sell Agreement was a “sham” intended to circumvent section
16600. They also raise the colorful argument that the Employment Agreement’s merger clause
superseded the Buy Sell Agreement. As the Court has found the non-compete provision
unenforceable on other grounds, it is unnecessary to reach these arguments.
well as business plans and employee compensation. (Id.). The agreement also contains the following
curious clause: “Notwithstanding the foregoing, it is understood that, at all such times, I am free to
use information which is not gained as result [sic] of a breach of this Agreement, and my own skill,
knowledge, know-how and experience to whatever extent and in whichever way I wish.” (Id.).
Stemtech alleges that Drapeau has breached the agreement in numerous ways. In its
Application for Preliminary Injunction, Stemtech asserts that Drapeau is using its confidential
distributor and supplier lists, and that Drapeau is using his knowledge of its products’ formulations
to create competing products. In its Reply, Stemtech elaborates that Drapeau is also using
information concerning Stemtech’s business model, including its network of distributors, vendors,
and the location of its most successful markets. Additionally, Stemtech asserts, Drapeau is using his
knowledge of Stemtech’s top distributors to lure them away to join Cerule. Finally, Stemtech
explains that while Cerule’s competing products feature different formulations and ingredients,
Drapeau nonetheless wrongfully used Stemtech’s know-how to avoid lengthy research and trial-anderror processes when formulating the new products. Drapeau responds simply that he has used no
information that has not been publicly disclosed.
Unlike the Buy Sell Agreement, the Inventions Agreement expressly designates that
California law applies. The non-disclosure provision therefore runs into immediate trouble as such
agreements fall within the scope of section 16600 of the California Business and Professions Code
to the extent they restrain competition. See Metro Traffic Control, Inc. v. Shadow Traffic Network, 22 Cal.
App. 4th 853 (Cal. Ct. App. 1994) (invalidating a non-disclosure agreement as void under section
16600). For the reasons stated previously, it is unlikely that this provision can support an injunction
that is not independently supported by the Uniform Trade Secrets Act. See id. at 861 (“‘[An]
employer will be able to restrain by contract only that conduct of the former employee that would
have been subject to judicial restraint under the law of unfair competition, absent the contract.’”);
Galante, 176 Cal. App. 4th at 1238.
As for those applications of the non-disclosure agreement that may not be anticompetitive,
there is a second problem. That is, an odd clause exempts all information not obtained as a result of
a breach of the agreement, as well as Drapeau’s own knowledge, skill, and know-how—terms left
undefined in the agreement. The clause is puzzling because the only information that would be
obtained as a result of a breach would be that which has been improperly disclosed or used. This
puts all information not disclosed within the realm of information the clause allows Drapeau to use
freely. Further, the experience Drapeau gains while employed becomes his knowledge, skill, and
know-how, and the Inventions Agreement provides no guidance on how to differentiate what
know-how is Drapeau’s and what is Stemtech’s. Attempting to make sense of the clause, it could be
surmised that the intent was to allow Drapeau to use any information that Stemtech has authorized
to be disclosed and the know-how he possessed prior to joining Stemtech. See Roden v.
AmerisourceBergen Corp., 186 Cal. App. 4th 620, 651 (Cal. Ct. App. 2010) (“[Courts] must interpret a
contract in a manner that is reasonable and does not lead to an absurd result.”).
Even read this way, Stemtech’s claims on the non-disclosure clause are weak. As for
Stemtech’s allegations that Drapeau is soliciting its distributors, Drapeau has produced a printout
from Stemtech’s website listing the names and information of the only two distributors alleged to
have been solicited directly by Drapeau. (Stemtech Printout, Dkt. 31-3, at 2). 13 Stemtech has also
put forward no evidence that Drapeau has disclosed or used any supplier “list,” and Drapeau insists
As Drapeau has pointed out, as a business that relies on independent business distributors,
Stemtech necessarily relies on individuals publicly identifying themselves as Stemtech distributors in
order to market its products. While distributor “lists” may be confidential, the identities of discrete
distributors—including those alleged to have been solicited—cannot possibly be confidential as a
matter of common sense. (See Drapeau Dep., Dkt. 49-4, 63:19-22 (“So a company can consider that
list secret to them, but these are not secret people, they’re people that promote themselves, advertise
themselves and make it known that they are part of a business.”)).
that the suppliers advertise themselves, can be found with a Google search, and that he has released
a video (presumably while at Stemtech) disclosing the identity of the Stemtech aloe supplier at issue
here. (Drapeau Dep., Dkt. 49-9, 67:3–68:7). As for Stemtech’s product formulations, Drapeau points
out that Stemtech must disclose its product formulations—including ingredients and their
concentrations—to foreign governments, and that these disclosures are publicly available. (See
Government of Canada Webpage, Dkt. 41-2, at 2). Given the ready availability of this information,
the formulations may fall within the Inventions Agreement’s clause allowing the use of information
obtained by means other than a breach of the nondisclosure agreement. 14
The nondisclosure agreement is likely invalid under California law to the extent it restrains
Drapeau’s competition. As for whatever applications the agreement has that are not anticompetitive, Stemtech has not shown that any of the information Drapeau allegedly used was not
previously disclosed and thus within the exception clause of the Inventions Agreement. Accordingly,
Stemtech fails to show a likelihood of success on the merits of this breach of contract claim.
Misappropriation of Trade Secrets
Under Texas law, 15 a plaintiff establishes a claim for misappropriation of trade secrets by
showing that: “(1) a trade secret existed; (2) the trade secret was acquired through a breach of a
confidential relationship or was discovered by improper means; (3) the defendant used the trade
Pointing to Sirius Computer Solution, Inc. v. Sparks, 138 F. Supp. 3d 821 (W.D. Tex. 2015), Stemtech
appears to argue that an injunction is warranted simply because Drapeau possesses other
confidential information that he might use against Stemtech. The holding to that effect in Sirius was
based in part on the court’s finding that the non-disclosure provision was essentially an agreement
not to compete enforceable under Texas law. Id. at 136. As explained above, the enforceability of the
non-disclosure provision is doubtful under California law, which governs the non-disclosure clause.
Further, California law does not recognize the “inevitable disclosure” doctrine that permits an
injunction based on the mere risk of disclosure. Whyte v. Schlage Lock Co., 101 Cal. App. 4th 1443,
1458–65 (Cal. Ct. App. 2002).
All relevant states have enacted the Uniform Trade Secrets Act, but the parties do not specify
which state’s trade secret jurisprudence should govern. Stemtech cites Texas law exclusively, and
Defendants cite to both California and Texas law. As the bulk of allegations concern Drapeau’s
competing activities, which he presumably conducts largely in Texas, Texas law appears to be
secret without the plaintiff’s authorization; and (4) the plaintiff suffered damages as a result.” Tex.
Integrated Conveyor Sys., Inc. v. Innovative Conveyor Concepts, Inc., 300 S.W.3d 348, 366–67 (Tex. App.
2009). A trade secret is any “information, . . . device, method, technique, process, financial data, or
list of actual or potential customers or suppliers, that:  derives independent economic value . . .
from not being generally known to, and not being readily ascertainable by proper means by, other
persons . . . and is the subject of efforts that are reasonable under the circumstances to maintain its
secrecy.” Tex. Civ. Prac. & Rem. Code § 134A.002(6).
Stemtech’s trade secret allegations are a bit murky. Between the Complaint and its briefing, it
is unclear what exactly Stemtech claims as a trade secret, why the information constitutes a trade
secret, what facts demonstrate Defendants’ use of those secrets, and what damages Stemtech has
suffered as a result. The Court understands Stemtech’s principal allegations to be as follows:
(1) Defendants are using Stemtech’s confidential distributor list to target Stemtech’s distributors and
employees to join Cerule in competing with Stemtech; (2) Defendants are using Stemtech’s
confidential supplier list to contact suppliers in an effort to interfere with Stemtech’s contracts with
those suppliers and to obtain ingredients for Cerule’s competing products; (3) Drapeau has used his
knowledge of Stemtech’s secret product formulas to create competing products for Cerule; (4) that
Drapeau is using his knowledge of Stemtech’s business structure and marketing strategy to organize
Cerule’s business. Though damages are addressed somewhat obliquely in Stemtech’s arguments
concerning trade secrets, it could be synthesized from its briefing that the Defendants’ actions have
eroded Stemtech’s competitive advantage and harmed Stemtech’s relationships with distributors and
As Defendants point out, Stemtech does not establish that much of the relevant information
warrants trade secret protection. For example, while a confidential distributor list could warrant
protection, Stemtech has not produced any evidence—other than speculation—that Drapeau has
access to a distributor “list,” or that he has used such a list to contact employees. (See Drapeau
Dep., Dkt. 49-4, at 66:19-24 (denying that he has access to a list of distributors)). To the extent
Stemtech has produced evidence that Drapeau solicited distributors, the evidence concerns only
distributors whose identities had been released publicly by Stemtech. (Stemtech Printout, Dkt. 31-3,
The same is true of Stemtech’s suppliers. Stemtech’s allegations focus on Drapeau’s alleged
contact with two suppliers in Madagascar and China. In July 2016, Drapeau allegedly contacted the
Madagascar supplier to inform it that Stemtech owed money to several creditors and that it was
poorly run. (Second Am. Compl. (“SAC”) § 28). On the other hand, Drapeau asserts that the
Madagascar supplier called him out of the blue to vent about Stemtech, including about not
receiving timely payment, during the course of which conversation Drapeau blamed Carter for
mismanagement and Stemtech’s debts for the non-payment of the Madagascar distributor. (Drapeau
Dep., Dkt. 49-4, 106:3-16). The parties provide similarly conflicting stories about the Chinese
supplier. Stemtech asserts that Drapeau traveled to China to meet with its supplier, while Drapeau
denies having ever been to China. (Id. 111:16). He does, however, acknowledge briefly discussing
Stemtech’s financial problems after a representative from the Chinese distributor approached him at
an event in Las Vegas. (Id. 111:5-13). Even crediting Stemtech’s version of events, there has been no
showing that these suppliers are confidential. Stemtech concedes that “one or two key suppliers may
be touted to a larger group.” (SAC § 28); see Zeocon Indus. v. Am. Stockman Tag Co., 713 F.2d 1174,
1178 (5th Cir. 1983) (noting that not all employment relationships are confidential such that
disclosed information would constitute a trade secret). Drapeau has claimed that he released a video
identifying the Madagascar supplier, presumably on behalf of Stemtech, and that Cerule in any case
does not use the Chinese supplier for any of its products. While the statements may be relevant to a
non-disparagement agreement, they do not establish that either Drapeau or Cerule misappropriated
trade secrets, and certainly do not show that Stemtech was thereby damaged.
Stemtech’s allegations regarding its product formulations are perhaps the weakest. It is
indisputable that the exact ingredients and concentrations of Stemtech’s products are available to
anyone with an internet connection. (See Government of Canada Webpage, Dkt. 41-2, at 2). “Texas
requires that a trade secret be ‘secret’, i.e., that it be neither generally known by others in the same
business nor readily ascertainable by an independent investigation.” A.M. Castle & Co. v. Byrne, 123
F. Supp. 3d 895, 901–02 (S.D. Tex. 2015) (citing Carson Prods. Co. v. Califano, 594 F.2d 453, 461 (5th
Cir. 1979) (“However strong may be . . . the other indicia of trade secret status, it is elemental that
. . . [it] must be secret.”)). The public availability of these formulas makes them ineligible for trade
secret protection. See id. This is true even when disclosure is made pursuant to government
regulations, at least where the persons to whom the information is disclosed are under no obligation
to keep it confidential. See Polar Molecular Corp. v. Amway Corp., 1:07-CV-460, 2008 WL 907472 (W.D.
Mich. Mar. 31, 2008) (holding that information disclosed to third party pursuant to federal
regulations was not a trade secret where disclosure was not accompanied by a confidentiality
It is also the case that the two products primarily at issue—Cerule’s PlasmaFlo and
StemEnhance Ultra—feature formulations that differ from Stemtech’s products. According to
Defendants, PlasmaFlo and Stemtech’s StemFlo share only two ingredients (lemon extract and
cacao) which Cerule obtains from different vendors. The ingredients for Cerule’s StemEnhance
Ultra are more similar to Stemtech’s se3 and StemRelease products. According to Defendants, se3 is
Even if foreign disclosure did not waive trade secret protection in the United States, it would still
be accessible to Drapeau through means which do not constitute a breach of any non-disclosure
agreement. This would bring the information within the clause in the Inventions Agreement
allowing Drapeau to use any information he obtains by means other than through a breach of that
agreement. (See Invention Agreement, Dkt. 29-5, at 2).
a mixture of AFA (StemEnhance), aloe macroclada, and undaria pinnatifida—a source of fucoidan.
StemEnhance is Cerule’s own product, which was supplied to Stemtech under a License Agreement
that is now the subject of litigation in Oregon. Defendants further add that Cerule’s StemEnhance
Ultra does not contain aloe macroclada, and that the undaria pinnatifida is not a trade secret but
rather the subject of a publicly released study by Marinova, an Australian biotechnology company. 17
Stemtech argues that, notwithstanding the different formulations, Drapeau and Cerule have
been able to develop and market products within a matter of mere months because of the knowhow Drapeau developed over his years of research at Stemtech. The evidentiary support for this
particular claim of misappropriation is a bit nebulous. 18 Under Texas law, “[a]n employee may use
his general knowledge, skill, and experience acquired in the former employment to compete.” Abetter
Trucking Co. v. Arizpe, 113 S.W.3d 503, 512 (Tex. App. 2003). The employee may do so “even if the
former employment has acted to increase his skills and if such training is complex and extensive.”
Reading & Bates Constr. Co. v. O’Donnell, 627 S.W.2d 239, 243 (Tex. App. 1982). These principles
would seem to give Drapeau substantial leeway, particularly given that Stemtech’s product
formulations have already been publicly disclosed. As it stands now, the record does not show that
Drapeau is relying on any undisclosed trade secrets—as opposed to his own knowledge and
experience and/or publicly disclosed information—in the development of Cerule’s products.
Similarly vague is Stemtech’s fourth and final principal allegation of misappropriation.
Stemtech alleges that Defendants are using information concerning its business model—including its
Stemtech has noted that it filed for patent protection on aloe macroclada and undaria pinnatifida
related to stem cell support, and that it holds a patent related to its StemFlo product. “[A] published
patent application destroys the secrecy of its contents for trade secret purposes[.]” Tewari De-Ox Sys.
Inc. v. Mountain States/Rosen, LLC, 637 F.3d 604, 612 (5th Cir. 2011). The decision whether to seek a
patent or maintain a trade secret protection is “an either/or choice.” Id. (citing Luccous v. J.C. Kinley
Co., 376 S.W.2d 336 (Tex. 1964) (“[A trade secret claim] is totally incompatible with the election to
surrender the protection of secrecy in return for a patent.”)).
When pressed at the evidentiary hearing, Stemtech could point to no evidence showing that
Drapeau had relied on Stemtech trade secrets in formulating Cerule’s products.
distributor network and vendors, the location of its most viable markets, its marketing and financial
strategy, and its business plans—to compete. The issues concerning distributors and vendors have
already been addressed. Stemtech provides no evidence beyond speculation that might support an
inference that Defendants are misappropriating the other information. To the extent Stemtech
alleges that Cerule is copying its multi-level marketing business structure, Drapeau has testified that
Cerule is his fourth similar multi-level marketing endeavor. (Drapeau Dep., Dkt. 49-4, at 35:24–
36:7). The similarity of business structure does not itself establish a trade secret violation, but that is
all that Stemtech has demonstrated.
Stemtech has not sufficiently supported its allegations that Cerule’s concededly similar
business structure and products are the result of Drapeau’s misappropriation rather than
information permissibly obtained. It may well be that Stemtech has viable misappropriation claims.
On the record currently before the Court, however, Stemtech has not shown a substantial likelihood
of success on the claims it has pressed in its Application for Preliminary Injunction.
Tortious Interference with Contract
The final claim Stemtech urges in its Application for Preliminary Injunction is for tortious
interference with contract, asserted against Drapeau and Cerule.
To maintain a tortious interference claim under Texas law, the plaintiff must show that: (1) a
valid contract exists; (2) that defendant willfully and intentionally interfered with that contract; (3)
the defendant’s interference proximately caused plaintiff’s injury; and (4) plaintiff suffered actual
damage or loss. Butnaru v. Ford Motor Co., 84 S.W.3d 198, 207 (Tex. 2002). Not all conduct that
interferes with contracts can support liability. “Efforts to induce someone to exercise their rights to
dissolve a contract do not constitute tortious interference of contract [if] the efforts are justified.”
Kadco Contract v. Dow Chemical Co., 198 F.3d 241 (5th Cir. 1999) (per curiam). “Efforts are justified if
(1) the relationship concerns a matter of competition between the actor and the other (2) the actor
does not employ wrongful means (3) his action does not create or continue unlawful restraint of
trade and (4) his purpose is at least in part to advance his interest in competing with the other.” Id.
In its Application for Preliminary Injunction, Stemtech mentions contracts “with its
suppliers, employees, credit card processors, banks, customers, and distributors.” (Appl. Prelim. Inj.,
Dkt. 29, at 15). The remaining discussion focuses only on Defendants’ interference respecting
Stemtech’s distributors and suppliers. In its Reply, Stemtech again primarily discusses the
interference with its distributor contracts. It adds only that Defendants have filed an affidavit in this
litigation by a former Stemtech executive which discloses Stemtech’s confidential information.
Stemtech argues that this, too, is tortious interference with the executive’s non-disclosure agreement.
At the hearing on Plaintiff’s Application, Stemtech clarified that the basis of its allegations are that
Defendants (1) encouraged distributors to breach by selling competing products; (2) encouraged
distributors to breach by soliciting their downline to sell competing products and/or leave Stemtech
for Cerule; and (3) encouraged Drapeau, Lester, and Tashjian to breach their non-disclosure
One problem with Stemtech’s tortious interference claims concerning its distributors is that
the bulk of the conduct it complains of goes to the heart of the competitive justification. Drapeau’s
discussions with Stemtech distributors concern a matter of competition between Cerule and
Stemtech, do not unlawfully restrain trade, and further Defendants’ competitive interest. Further,
Stemtech has not shown this conduct to be otherwise wrongful. 19 As this sort of conduct does not
give rise to tort liability, it undermines Plaintiff’s likelihood of success on these claims.
A second problem is that Stemtech has not established that Defendants’ conduct has
proximately caused its actual damages. Though Plaintiff has produced a chart showing a decline in
At the hearing on Plaintiff’s Application for Preliminary Injunction, Plaintiff’s counsel conceded
that Drapeau’s own solicitation of Stemtech distributors would not in itself be wrongful unless he
were using Stemtech’s confidential information to do so. They have produced no evidence beyond
speculation that he has used such confidential information with any particular Stemtech distributors.
sales in certain markets, no evidence in the record establishes that this is due to Defendants’
wrongful interference. As Defendants have pointed out, Stemtech ceased use of AFA—previously a
key product—just before the decline in sales. Defendants have also shown that Carter announced to
staff that Drapeau had left the company and was starting a competing venture. These events might
destabilize the company and cause a reduction in sales and the number of distributors independently
of any wrongful conduct by Defendants. Indeed, according to the chart shown by Stemtech, sales
had started to decline months before Cerule began to sell its competing products. Though it is
plausible that the decline in sales is attributable to Defendants’ interference, Plaintiff is not here
defending a motion to dismiss and is not entitled to favorable inferences. Stemtech must carry its
burden of establishing its entitlement to relief, and it has not done so.
As for Stemtech’s allegations concerning the disclosure of confidential information in this
lawsuit, Stemtech has again failed to show that the disclosure has caused any actual damages. In any
case, the Court is not convinced that the equities favor hamstringing by injunction Defendants’
ability to raise relevant defenses in this action. In fact, under Texas law as well as in federal courts,
the protections afforded to trade secrets and other confidential information can give way when the
information is relevant and necessary to a litigant’s case. In re Cont’l Gen. Tire, Inc., 979 S.W.2d 609,
612 (Tex. 1998). This policy privileging fair and full adjudication over confidentiality is also evident
in a lawyer’s ability to disclose information otherwise protected by attorney-client privilege when
necessary to defend herself against a client’s claims. See United States v. Ballard, 779 F.2d 287, 291 (5th
Cir. 1986). 20
This is by no means an invitation for the parties to disregard the other’s confidentiality rights. If it
is necessary to disclose confidential information to the Court in support of a claim or defense, the
parties are encouraged to work together to ensure the information remains protected from further
disclosure. Procedures for filing under seal and for seeking a protective order are found in the
Court’s Local Rules.
Turning now to the arguments raised in the briefing only, Stemtech’s allegations concerning
Defendants’ interference with its suppliers span a single sentence. (See Appl. Prelim. Inj. 15
(“Further, Drapeau is targeting Stemtech’s suppliers to break their contracts in favor of Cerule.”)).
These allegations again concern Drapeau’s competition—conduct that does not typically support
tort liability. Further, Stemtech has not demonstrated that Drapeau’s activities have caused injury.
Stemtech has only identified two or three suppliers that were allegedly the target of Defendants’
interference. The record shows that Stemtech owes these suppliers money, and any disruption of
business relationships could just as likely stem from that as from the actions of Defendants.
The allegations concerning Stemtech’s credit card processors and banks receive absolutely
no explanation in Stemtech’s briefing and were not addressed at the hearing. Gleaning from the
record, the issue becomes clearer. Stemtech alleges that Defendant Newman, CEO of Cerule, called
Stemtech’s bank and informed the bank that Stemtech owed Cerule money and that Cerule would
no longer supply Stemtech with its key product which would put Stemtech out of business. The
bank thereafter raised the interest rates on Stemtech’s loans. Carter also alleges that someone
associated with Defendants called the processor and informed the processor of the money Stemtech
owes as a judgment creditor. The credit card processor thereafter informed Stemtech that it would
place a hold on Stemtech’s credit card income until it had built up a reserve of $300,000.
Stemtech has not shown that the interest rate increased was proximately caused by
Defendants’ interference. The record indicates that the rate increase was part of a loan renegotiation
requested by Stemtech to lower its monthly payments. (Carter Dep., Dkt. 49-3, 117:6–120:9).
Stemtech’s allegations concerning its credit card processor are based solely on speculation. (Id.
Carter conceded that a lawyer for a judgment creditor, not Defendants, contacted the credit card
processor. He nonetheless insists that either Defendant Newman or non-party Jonathan Lester must
have revealed the identity of the credit card processor to that lawyer. When asked the basis for his
Stemtech has failed to show a substantial likelihood of success on the merits of its tortious
interference claims because its primary allegations concern conduct that typically does not support
tort liability. For those and all other claims, Stemtech has not established causation. Accordingly,
these claims provide no basis for a preliminary injunction.
Defendants object to evidence contained in several of Stemtech’s depositions as hearsay not
within any exception or as speculation lacking foundation. (Dkts. 42, 62). Stemtech correctly points
out that the Court may consider otherwise inadmissible evidence at the preliminary injunction stage.
(Dkt. 51); ADT, LLC v. Capital Connect, Inc., 145 F. Supp. 3d 671, 682 (N.D. Tex. 2015) (“The law is
well settled that . . . the court may rely upon otherwise inadmissible evidence when considering a
preliminary injunction.”). Defendants’ objections are therefore overruled.
For the reasons stated above, Stemtech has not shown a substantial likelihood of success on
the merits of its claims. Accordingly, Stemtech’s Application for Preliminary Injunction is
SIGNED on December 27, 2016.
UNITED STATES DISTRICT JUDGE
belief, he stated that he “find[s] it strange” that the lawyer would be able to identify Stemtech’s
credit card processor out of thousands without inside information, and because Defendants and the
lawyer for the judgment creditor have allegedly been in contact. There is no other evidence in the
record to support Carter’s claims.
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