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E*Trade Financial Corporation v. Eaton

United States District Court, D. Arizona

April 24, 2018

E*Trade Financial Corporation, Plaintiff,
v.
Lance Eaton, Defendant.

          ORDER

          HONORABLE JOHN J. TUCHI, UNITED STATES DISTRICT JUDGE.

         At issue is Plaintiff E*Trade Financial Corporation's Motion for Preliminary Injunction (Doc. 52, Pl's Mot.), to which Defendant Lance Eaton filed a Response (Doc. 74, Def's Resp.). Also at issue is Eaton's own Motion for Preliminary Injunction (Doc. 58, Def's Mot.), to which E*Trade filed a Response (Doc. 73, Pl's Resp.). After the parties conducted limited discovery, the Court held an evidentiary hearing on the competing motions for preliminary injunction on April 6, 2018 and entertained extensive argument from the parties (Doc. 86, Apr. 6, 2018 Tr.).

         The parties' filings in support of, and in opposition to, the respective motions for preliminary injunction and the transcript of the hearing set forth in detail the facts of the matter. The Court will not recite them here except as necessary to its analysis below.

         I. STANDARD

         In order to obtain a preliminary injunction, a movant must show that “(1) [they are] likely to succeed on the merits, (2) [they are] likely to suffer irreparable harm in the absence of preliminary relief, (3) the balance of equities tips in [their] favor, and (4) an injunction is in the public interest.” Garcia v. Google, Inc., 786 F.3d 733, 740 (9th Cir. 2015) (citing Winter v. Nat. Res. Def. Council, Inc., 555 U.S. 7, 9 (2008)). The Ninth Circuit, employing a sliding scale analysis, has also stated “‘serious questions going to the merits' and a hardship balance that tips sharply toward the [movant] can support issuance of an injunction, assuming the other two elements of the Winter test are also met.” Drakes Bay Oyster Co. v. Jewell, 747 F.3d 1073, 1078 (9th Cir. 2013) cert. denied, 134 S.Ct. 2877 (2014) (quoting Alliance for the Wild Rockies v. Cottrell, 632 F.3d 1127, 1132 (9th Cir. 2011)).

         I. ANALYSIS

         A. E*Trade's Motion for Preliminary Injunction

         1. Likelihood of Success on the Merits

         E*Trade grounds its motion for injunctive relief on three claims: 1) its claim for breach of the duty of loyalty owed by Eaton to E*Trade during the existence of their fiduciary relationship; 2) its claim for breach of the employment contract between the parties; and 3) its claim for intentional interference by Eaton with E*Trade's business and contractual relations with its clients. (Pl's Mot. at 8.) The Court examines E*Trade's likelihood of success on these claims, respectively.

         a. Breach of Duty of Loyalty

         An employee owes an employer a fiduciary duty. Taser Int'l, Inc. v. Ward, 231 P.3d 921, 926 (Ariz.Ct.App. 2010) (internal citations omitted). “One aspect of this broad principle is that an employee is precluded from actively competing with his [] employer during the period of employment.” Id. (internal citations omitted). While the Court finds below that E*Trade likely will succeed in showing that Eaton did compete with it after he left E*Trade's employ, it does not similarly find E*Trade likely will succeed in showing that same active competition during his employment.

         The evidence before the Court at this preliminary stage of litigation shows that in the two to three days just before Eaton resigned from E*Trade, he accessed the client files, which were the property of E*Trade, for about half of his approximately 100 clients at E*Trade. But no party produced evidence that Eaton contacted any of those clients to alert them of his departure from E*Trade, let alone solicited them to follow him, while he was still employed by E*Trade. The evidence, when fully developed and presented to the FINRA arbitration panel, may at that point demonstrate other acts by Eaton constituting competition on or before July 6, 2017, while he was still an employee of E*Trade and thus owed it a duty of loyalty. No. such showing has been made to this point.

         The Court grants that the inordinate amount of time Eaton spent accessing so many client records on July 3 and 4, 2017, could well be preparatory to an attempt to solicit those clients. But that activity is properly addressed, as an analytical matter, as evidence of a potential breach of the non-solicitation clause of the employment agreement as set forth below. At the time Eaton accessed the E*Trade client files, he had authorization to do so, he was tasked with serving those clients as an employee of E*Trade, and even if he did so to access the clients' contact information, without more at that point the Court cannot conclude he likely breached his duty of loyalty. E*Trade's claim for breach of duty of loyalty is thus insufficient as a basis for its motion for preliminary injunction in light of the evidence E*Trade has shown thus far.

         b. Breach Of Contractual Non-Solitication Provision

         E*Trade's breach of contract claim stands in a different light. The “Nonsolicitation and Nondisclosure Agreement” (“Agreement”) Eaton entered into with E*Trade on May 16, 2011 provided that he would not “copy, take, send or remove” without permission, among other things, any of E*Trade's records, client lists, electronic data or other materials containing “Confidential Information.” (Doc. 54-1, Agreement ¶ 4.) The Agreement defines Confidential Information, in relevant part, as client lists, “[i]nformation regarding [E*Trade]'s clients” and contact information. (Id.) The Agreement also provided, in a section entitled “Nonsolicitation of Clients, ” that

[d]uring the term of [Eaton]'s employment with [E*Trade] and for a period of one year from [any termination, Eaton] will not, directly or indirectly, solicit, induce, or attempt to solicit or induce, any Client or Potential Client of [E*Trade] to purchase from [Eaton] or any other person, firm, partnership, corporation, limited liability company or other entity, goods or services competitive with those offered and/or provided by [Eaton] during [his] previous two years of employment with [E*Trade] or that [Eaton] possessed Confidential Information about during [his] employment with [E*Trade].

(Id. ¶ 6.) Finally, the Agreement required Eaton, upon termination, to return to E*Trade

all documents, copies, recordings of any kind, papers, computer records or programs, drawings, manuals, letters, notes, notebooks, reports, formulae, memoranda, client lists, and other material in [his] possession or under [his] control that relate to [E*Trade]'s business and ...

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