Share Corporation v. Momar Inc et al

Filing 62

ORDER signed by Judge J P Stadtmueller on 3/11/10 denying 4 plaintiff's Motion for Temporary Restraining Order and Preliminary Injunction. See Order. (cc: all counsel) (nm)

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF WISCONSIN
____________________________________________ S H A R E CORPORATION, P l a i n t if f , v. M O M A R INC., RICHARD ARENSBERG, FRED BAYER, TED BERGER, W E N D Y BUTTREY, STEPHEN KUTI, ROD MILLER, LAW R E N C E SMITH, and IR A W O R E N , D e fe n d a n ts . ____________________________________________ Case No. 10-CV-109

ORDER
O n March 8, 2010, the defendants, Momar Inc. ("Momar"), Richard Arensberg ("A r e n s b e rg "), Fred Bayer ("Bayer"), Ted Berger ("Berger"), W e n d y Buttrey ("B u ttre y"), Stephen Kuti ("Kuti"), Rod Miller ("Miller), Lawrence Smith ("Smith"), and Ira W o re n ("W o r e n "), filed their response brief (Docket #61) to the motion of the p la in tiff, Share Corporation ("Share"), for a temporary restraining order and p re lim in a ry injunction. (Docket #4). W ith the defendants' brief, the court has been a p p ris e d by both sides regarding legal efficacy of the plaintiff's motion and is now p re p a re d to rule on the motion.1

The court finds no need to hold a hearing on a m o t io n for a prelim in a r y injunction. The argum e n t s p r o f f e r e d by the parties in their briefs to the court, coupled with the evidence provided by the parties thus far, a llo w s this court to conclude that a hearing is unnecessary.

1

F AC T U AL BACKGROUND The court already discussed the facts animating this dispute in its February 2 6 , 2010 order on the plaintiff's motion for court ordered expedited discovery (Docket # 3 5 ), but, as a reminder, the present dispute is between companies within the c h e m ic a l sales industry, Share and Momar. Each company sells chemicals and c le a n in g and maintenance products to customers throughout the country through its re s p e c tive "sales representatives" whose work is overseen, in turn, by a "manager." B o th the customers and products each company deals with are diverse in nature; S h a re boasts that it has "a product to serve virtually every industry and business." A b o u t Share Corporation, http://www.sharecorp.com/aboutus.php (last visited March 9 , 2010). Starting in the summer of 2009, Momar hired several salespersons 2 and m a n a g e rs 3 who formerly worked for Share, all of whom consist of the individually n a m e d defendants. W o rrie d that their former employees would lure away the

c u s to m e rs they served while at Share, the plaintiff sent "cease and desist" letters to th e individual defendants in October of last year, demanding that the employee: (1) "im m e d ia te l y cease" any "solicitation of Share's customers, agents, or employees"; (2 ) stop the use of "Share's Proprietary and Confidential Information"; and (3) return "a n y and all of Share's" confidential information that is in the employee's possession. A p p a r e n tly finding the defendants' response to the plaintiff's letters inadequate,

2

Defendants Bayer, Buttrey, Kuti, and Sm ith were em p lo ye d as sales representatives with Share. Defendants Arensberg, Berger, Miller, and W o r e n were em p lo ye d as m a n a g e r s with Share.

3

-2 -

S h a r e opted to file a complaint against Momar and the plaintiff's former employees o n February 9, 2010. (Docket #1). The plaintiff waited three days and then filed a m o tio n for a preliminary injunction. (Docket #4). Having been briefed by both sides o n the legal issues in this case, the court will deny the plaintiff's motion. DISCUSSION Initia lly , the court notes that a preliminary injunction is "an exercise of a very fa r reaching power, never to be indulged except in a case clearly demanding it." R o la n d Mach. Co. v. Dresser Indus., Inc., 749 F.2d 380, 389 (7th Cir. 1984) (internal c ita tio n s omitted). As a result, the plaintiff has a number of hurdles to overcome

b e fo r e it can obtain preliminary injunctive relief. It must first demonstrate as a th re s h o ld matter: (1) some likelihood of success on the merits of its claims; (2) the p la in tiff will suffer irreparable harm if the injunction is denied; and (3) there is no a d e q u a te remedy at law. Girl Scouts of Manitou Council, Inc. v. Girl Scouts of the U n ite d States of America, Inc., 549 F.3d 1079, 1086 (7th Cir. 2008). If the plaintiff s a tis fie s these three elements, the court must then determine whether: (1) the harm the plaintiff would suffer if the court denied an injunction would outweigh the harm th e defendant would suffer if the injunction issues; and (2) the public interest would n o t be affected negatively by the issuance of an injunction. Id. During the balancing s ta g e of the preliminary injunction inquiry, the court employs a "sliding scale" a p p ro a c h , such that the less likely it appears that a plaintiff is able to succeed on the

-3-

m e rits of its claim, the greater the balance of irreparable harms demonstrated will n e e d to favor the plaintiff. Id. A. Likelihood of Success T o meet the first threshold element for preliminary injunctive relief, the moving p a r ty must show "a better than negligible" chance of success on the merits of at least o n e of its claims. Id. at 1096. The plaintiff argues that it can succeed on its claims fo r: (1) breach of contract; (2) misappropriation of trade secrets; and (3) tortious in te r fe r e n c e with contract. The court will examine the likelihood of success on each c la im respectively. 1. B r e a c h of Contract

E a c h of the individual defendants signed an agreement with Share when they w e re employed by the plaintiff. Share contends that its former employees have b re a c h e d various clauses in their employment agreement. Specifically, Share

c o n te n d s that its former managers breached clauses in their respective employment a g re e m e n ts that required: (1) for one year that the former employees not solicit c u s to m e rs they had served while at Share; (2) for two to three years, depending on th e individual agreement,4 not solicit employees of Share to join the defendant's new e m p lo ye r; and (3) to not disclose Share's proprietary or confidential information. S h a re also contends that its former sales representatives breached clauses in their

Arensberg and Miller's em p lo ym e n t agreem e n ts had em p lo ye e non-solicitation clauses that lasted th r e e years. Berger and W o r e n 's em p lo ym e n t agreem e n ts had em p lo ye e non-solicitation clauses that lasted t w o years.

4

-4-

e m p lo y m e n t agreements, similar to the clauses in the former managers' a g re e m e n ts , requiring confidentiality regarding Share's proprietary information. The d e fe n d a n ts claim that each of the clauses are unenforceable, negating Share's b re a c h of contract claims. a. Customer Non-Solicitation Clause

T h e parties agree that W is c o n s i n law is to be applied in assessing the p la in tiff's claims and, with that, the enforceability of the restrictive covenants within th e employment agreements. W is. Stat. § 103.465 states in relevant part: A covenant by an assistant, servant or agent not to compete with his or h e r employer or principal during the term of the employment or agency, o r after the termination of that employment or agency, within a specified te rrito ry and during a specified time is lawful and enforceable only if the re s tric tio n s imposed are reasonably necessary for the protection of the e m p lo ye r or principal. Any covenant, described in this subsection, im p o s in g an unreasonable restraint is illegal, void and unenforceable e ve n as to any part of the covenant or performance that would be a re a s o n a b le restraint. C o ve n a n ts to not compete are generally disfavored, as W is c o n s in law p ro m o te s the mobility of workers. Sysco Food Servs. of E. Wis., LLC v. Ziccarelli, 4 4 5 F. Supp. 2d 1039, 1043 (E.D. W is . 2006). Therefore, "a contract that operates to restrict trade or competition is prima facie suspect and will be liberally construed in favor of the employee." Id. at 1043-44 (internal citations omitted). To determine w h e th e r a provision is reasonable under § 103.465, W is c o n s in courts typically e xa m in e five factors: (1) whether the agreement is necessary to protect a legitimate b u s in e s s interest of the employer; (2) whether it is reasonable as to duration; (3)

-5-

w h e th e r it is reasonable as to geography; (4) whether it is reasonable as to the e m p lo ye e ; and (5) whether it is reasonable as to the general public. Chuck Wagon C a te rin g , Inc. v. Raduege, 88 Wis. 2d 740, 751 (1979). Ultimately, whether a nonc o m p e te agreement is reasonable depends on the totality of the facts and c irc u m s ta n c e s . Techworks, LLC v. Wille, 2009 W I App 101, ¶ 4 (Ct. App. 2009). T h e customer non-solicitation clause at issue in this case reads as follows:5 M a n a g e r further agrees that for a period of one year following the te rm in a tio n of his/her employment with SHARE CORPORATION, M a n a g e r will not solicit business for chemical sales within his/her g e o g ra p h ic region from any customers whom he/she served while e m p lo ye d at SHARE CORPORATION, or who were served by persons w o rk in g under his/her direct supervision or control and with whom M a n g e r had direct contact as an employee of SHARE CORPORATION. T h e court finds, for the purpose of the preliminary injunction inquiry, that the c u s to m e r non-solicitation clause is unenforceable under W is c o n s in law. The clause, w h ile only applicable for one year after the employee leaves Share, is still very b ro a d . First, the restrictive covenant's limit on "geographic region" is not much of a lim it at all, as the covenant prevents the employee from soliciting any customers w ith in his or her "geographic region," a phrase that on its face has no limiting factor a n d , in reality, would prevent the employee from contacting any of his or her former c u s to m e rs . Failing to define what "geographic region" means the customer nons o lic ita tio n covenant is immediately questionable. See Sysco Food Servs., 445 F. S u p p . 2d at 1048, ("[T]he non-solicitation covenant is immediately suspect because

5

The clauses vary im m a t e r i a lly based on the particular defendant.

-6 -

it fails to define a specific territory.") W h ile that fact alone may not be fatal to the c u s to m e r non-solicitation clause, see Rollins Burdick Hunter, Inc. v. Hamilton, 101 W is . 2d 460, 467 (Wis. 1981) ("[W ] e hold that the territorial limitation of a restrictive c o ve n a n t need not be expressed in geographic terms as an absolute prerequisite to a valid and enforceable agreement"), the fact that the customer non-solicitation c la u s e provides no "backward restriction" regarding which customers the former S h a r e employees can contact makes this case virtually indistinguishable from Equity E n te r p r is e s , Inc. v. Milosch, 2001 W I App 186 (Ct. App. 2001), a case in which the W is c o n s in court of appeals found a clause that restricted an employee from soliciting a n y customer the employee transacted business with or serviced on behalf of his fo rm e r employer for eighteen months after the end of his employment to be u n e n fo rc e a b le . Id. at ¶ 15 n.4; cf. Techworks, 2009 W I App 101 at ¶ 10

(d is tin g u is h in g Equity Enterprises based on whether the restrictive covenant had a b a c k w a rd restriction). Here, the covenant in question is arguably more restrictive th a n the one in Equity Enterprises, as the customer solicitation clause would not only p ro h ib it the individual defendants from doing business with any customers that the m a n a g e r personally served while employed at Share, but would also restrict the m a n a g e r s from contacting clients that the manager's sales representatives served w h ile at Share. In the case of defendant Miller, the restrictive covenant would p re ve n t him from contacting customers he or his sales representatives serviced over tw e n ty years ago.

-7-

T h e cases cited for support by the plaintiff mainly involve cases in which there w a s a clear backward restriction limiting the scope of the restrictive covenant.6 See S ta r Direct, Inc. v. Dal Pra, 2009 WI 76, ¶ 9 (2009) (upholding a customer nons o lic itatio n clause that restricted the employee from contacting individuals who were c u s to m e rs "within a period time of one year prior to the termination of the employee's e m p lo ym e n t"); Rollins Burdick, 101 W is . 2d at 462-63 (upholding a restrictive c o ve n a n t that prohibited an employee from contacting clients who were customers fo r the previous two years); Techworks, 2009 W I App 101 at ¶ 10 (upholding a c u s to m e r non-solicitation clause preventing the employee from contacting individuals w h o were "customers during the two years antedating [the employee's] departure fro m Techworks.") The only case that stands at odds is Chuck Wagon Catering, w h e re the court upheld a restrictive covenant without a clear backward restriction. 8 8 W is . 2d at 754. However, in Chuck Wagon Catering, the restrictive covenant lim ite d the employee from soliciting customers he served while he was Chuck W a g o n 's lessee, a period of only two years. Id. at 746 n.2. Moreover, the restrictive c o ve n a n t only reached the customers the lessee personally serviced. Id. Here, the c u s to m e r non-solicitation clauses are far more broad and, as a result, constitutes an u n re a s o n a b le restraint of trade.7

6 The plaintiff also cites to Lakeside Oil Co. v. Slutsky, 8 W is . 2d 157 (1959). That case, however, d id not involve a custom e r non-solicitation clause and is not terribly instructive for the present case.

The court notes that the ruling here is not that a "lack of a backward restriction m e a n s that the c o v e n a n t is per se unenforceable." Here, however, the court, viewing the totality of the circum s ta n c e s , in c lu d in g the lack of a backward restriction on the custom e r non-solicitation clause, can conclude that the c o v e n a n t is unreasonable.

7

-8-

b.

E m p lo ye e Non-Solicitation Clause

T h e second clause at issue in this case is the employee non-solicitation c la u s e . Containing either a two or three year duration period depending on the d e fe n d a n t,8 the clause reads as follows: [T h e manager] agrees that if he/she leaves Share Corporation's e m p lo ym e n t for any reason, for a period of [two/three] years he/she will n o t, directly or indirectly, solicit any employees of Share Corporation to w o rk with him/her or any company with whom he/she is employed or w ith which he/she is affiliated, provided, however, that this restriction o n ly applies to employment in the chemical sales industry. H e re , while the plaintiff spends a considerable amount of their brief to the c o u rt explaining why the customer non-solicitation clause is "necessary" for Share's p ro te c tio n , see Pl's Br. 10 ("Employers have a legitimate interest in protecting th e m s e lve s from the loss of business or customers to a former employee by use of th e opportunity which the employment has given the former employee"), Share has n o t clearly developed any argument as to why the employee-solicitation clause is va lid . As such, the court finds that the plaintiff has not met its burden on this issue a n d cannot find that the plaintiff is likely to succeed on its breach of contract claim re la te d to the employee non-solicitation clause. See Techworks, W I App 101 at ¶ 25 (h o ld in g that for a court to find a restrictive covenant enforceable, the party a tte m p tin g to enforce the covenant must present "developed arguments" on the s p e c ific issue).

Defendants Arsenberg and Miller's contracts contain a three year period in which they cannot solicit S h a r e 's em p lo ye e s . Defendants Berger and W o r e n 's em p lo ye e non-solicitation periods only last two years.

8

-9 -

c.

C o n f id e n t ia lity Clauses

T h e last clause at issue with regard to the breach of contract claim is a c o n fid e n tia li t y clause that is contained in each of the individual defendant's e m p lo y m e n t agreements. The clause reads as follows: [M a n a g e r /re p re s e n ta tiv e ] acknowledges that Share Corporation's p ro d u c t formulations, manufacturing processes, financial information, m a r k e tin g and sales plans, and materials developed for sales, m a rk e tin g , promotion, and training are proprietary and confidential in fo r m a tio n . [Manager/representative] agrees not to disclose such in form a tio n at any time in any form to persons outside of Share C o rp o ra tio n , except as necessary in the conduct of the business affairs o f Share Corporation. [Manager/representative] further agrees not to u s e or disclose Share proprietary or confidential information for the b e n e fit of any competitor of Share Corporation. W h ile not specifically contemplated by W is. Stat. § 103.465, W isc o n s in courts h a ve found that nondisclosure agreements can constitute an unreasonable restraint o n competition and, as a result, be prohibited by the statute. Gary Van Zeeland T a le n t, Inc. v. Sandas, 84 Wis. 2d 202, 218 (1978). In Tatge, the W is c o n s in

S u p re m e Court found that a non-disclosure provision that prohibited the disclosure o f the company's "information to any person, firm, corporation, association, or other e n tity for any reason or purpose whatever" was a restraint on trade because it was a n attempt by the employer to "shield customer data, programs, and business p ra c tic e s from competitors' eyes." Tatge v. Chambers & Owen, Inc., 219 W is . 2d 99, 1 1 2 (1998). The provisions at issue in this case are indistinguishable from those at is s u e in Van Zeeland and Tatge. The only question that remains is whether the re s tra in ts imposed on trade by the non-disclosure clauses are unreasonable. -10-

H e re , the question is fairly easy for the court to resolve. As a recent case in fe d e ra l court in the W e s te rn District of W is c o n s in noted, the lack of any time lim ita tio n in a non-disclosure agreement "renders a restrictive covenant u n re a s o n a b le per se." Friemuth v. Fiskars Brands, Inc., No. 09-CV-494, 2010 U.S. D is t. LEXIS 9878, at *7-8 (W .D . W is . Feb. 3, 2010) (citing to Van Zeeland, 84 W is . 2 d at 218). There is no time limitation with regard to the confidentiality provisions w ith in the employment agreements, and, as such, the clauses are unenforceable. It is not likely that the plaintiff will succeed on its breach of contract claim. 2. Misappropriation of Trade Secrets

T h e W is c o n s in Uniform Trade Secrets Act provides that actual or threatened m is a p p ro p ria tio n of trade secrets is prohibited. W is . Stat. § 134.90(2). However, the p la in t iff must prove, at this stage of the proceedings, that the information that it a lle g e s the defendants of having misappropriated is a "trade secret" within the m e a n in g of the act. W is. Stat. § 134.90(1). To establish a trade secret, the plaintiff m u s t show that the information "derives independent economic value, actual or p o te n tia l, from not being generally known to, and not being readily ascertainable by p ro p e r means by, other persons who can obtain economic value from its disclosure o r use" and that "[t]he information is the subject of efforts to maintain its secrecy that a re reasonable under the circumstances." Wis. Stat. § 134.90(1)(c). Here, the p la in tiff contends that the following information constitute trade secrets: the "identity o f the purchasing agents and buyers, the nature of the business, particular

-11-

p u r c h a s in g requirements and habits, stocking requirements, product applications, u s e s and preferences, prices paid for particular products, and practices and p ro c e d u re s of customers and prospective customers." (Pl.'s Br. 15). In this case, the plaintiff has failed to demonstrate that any of the generic b u s in e s s information Share describes in its submissions to the court constitute a tra d e secret. The information described by the plaintiff is extremely vague, and the c o u rt cannot guess at which pieces of information are trade secrets. Idx Sys. Corp. v . Epic Sys. Corp., 285 F.3d 581, 583 (7th Cir. 2002) (holding that "a plaintiff must d o more than just identify [the general information at issue] and then invite the court to hunt through the details in search of items meeting the statutory definition.") At b e s t, the information consists of data about various customers, information that W is c o n s in courts routinely reject deeming as trade secrets. See Nalco Chem. Co. v . Hydro Technologies, 149 F.R.D. 686, 693 (E.D. W is . 1993). Moreover, Share has p ro vid e d the court with little reason to conclude that the company took reasonable m e a s u re s to protect the confidentiality of the information. Abbott Laboratories v. N o rs e Chemical Corp., 33 Wis. 2d 445, 457 (1967) ("The subject matter of a trade s e c re t must be secret . . . . [a] substantial element of secrecy must exist, so that, e xc e p t by the use of improper means, there would be difficulty in acquiring the in fo rm a tio n .") The only protections the court knows of that Share took to protect the re le va n t information is that the company had the managers and representatives sign c o n fid e n tia lity agreements. This alone cannot elevate the information the plaintiff

-12-

a lle g e s are trade secrets to such a status.9 Cf. B.C. Ziegler & Co. v. Ehren, 141 W is . 2 d 19, 27-29, 414 N.W .2 d 48 (Ct. App. 1987) (holding a customer list to be a trade s e c re t where list was kept in locked room and only accessible to one or two key e m p lo y e e s ) . 3. T o r tio u s Interference with Contract

S h a re alleges that Momar induced the individual defendants to breach their e m p lo ym e n t agreements. (Pl's Br. 17). However, given that the clauses in the c o n tr a c ts that Momar allegedly induced the individual defendants to breach are u n e n fo rc e a b le , soliciting the individual defendants to breach those contracts would n o t constitute tortious interference with contract. IDS Life Ins. Co. v. Royal Alliance A s s o c s ., 266 F.3d 645, 649 (7th Cir. 2001) (applying analogous Illinois law). As s u c h , the plaintiff does not have a likelihood of succeeding on its remaining claim. B. Irreparable Harm L ik e w is e , the court is not satisfied that the plaintiff has demonstrated it will be irre p a ra b ly harmed if the court does not issue a preliminary injunction. Despite the fac t that its employees were leaving as early as the Spring of 2009 to join Momar, S h a r e did not file this lawsuit until February 9, 2010. (Docket #1). The plaintiff then w a ite d another three days before deciding that a motion for a temporary restraining o rd e r or a preliminary injunction would be appropriate. Delay in pursuing a

The court notes that while discovery has not occurred in this case, the data that Share poses as a tr a d e secret is within the com p a n y's possession, and the plaintiff could have easily presented inform a tio n on w h y the data constitutes a trade secret. The lack of evidence presented is telling.

9

-1 3 -

p r e lim in a r y injunction "raises questions" regarding the plaintiff's claim that it will face irre p a ra b le harm if a preliminary injunction is not entered. Ty, Inc. v. Jones Group In c ., 237 F.3d 891, 903 (7th Cir. 2001). Moreover, the court notes that so much time h a s passed since Share's former employees left the company, that much of the h a rm alleged, if it occurred at all, occurred in the past. The purpose of a preliminary in ju n c tio n is to preserve the "state of affairs existing immediately before the filing of the litigation," see Rexnord, Inc. v. Laitram Corp., 628 F. Supp. 467, 469 (E.D. W is . 1 9 8 6 ), and that purpose is not satisfied in this case. The plaintiff has not

d e m o n s tra te d that irreparable injury will beset Share in the future absent this court o rd e rin g a preliminary injunction. C. Conclusion B e c a u s e the court concludes that the plaintiff is unlikely to succeed on the m e rits of its claims and that the plaintiff is unlikely to suffer irreparable injury absent th is court imposing an preliminary injunction, the court need not delve into the re m a in in g factors to determine whether preliminary injunctive relief is appropriate in th is case. In re Forty-Eight Insulations, 115 F.3d 1294, 1301 (7th Cir. 1997)

("A p p lic a n ts for preliminary relief have threshold burdens to demonstrate the first two fa c to rs : they must show that they have some likelihood of success on the merits and tha t they will suffer irreparable harm if the requested relief is denied . . . However, if the movant does not make the requisite showings on either of these two factors, th e court's inquiry into the balance of harms is unnecessary, and the stay should be

-14-

d e n ie d without further analysis.") Going forward, the court awaits briefing on the d e fe n d a n t's motion to dismiss, filed March 4, 2010. (Docket #50). Accordingly, IT IS ORDERED that plaintiff's "motion for temporary restraining order and p re lim in a r y injunction" (Docket #4) be and the same is hereby DENIED. D a te d at Milwaukee, W is c o n s in , this 11th day of March, 2010. B Y THE COURT:

J .P . Stadtmueller U .S . District Judge

-15-