TDBBS LLC v. Ethical Products Inc.

          ORDER

          HONORABLR SUSAN M. BRNOVICH UNITED STATES DISTRICT JUDGE.

         Plaintiff filed a request for a preliminary injunction and a hearing was held on March 13, 2019. The Court has now considered the pleadings, testimony and exhibits from the hearing, relevant case law and arguments of counsel.

         I. Background

         Plaintiff TDBBS, LLC (“TDBBS”) is a pet chews and treats business. (Doc. 1 ¶ 1). Defendant Ethical Products, Inc. (“EPI”) is a potential competitor of TDBBS that hired Timothy Fabits (“Fabits”), a former employee of TDBBS. (Id. ¶ 2). Fabits was the Vice President of Sales for most of his employment at TDBBS, and EPI hired him to be the General Manager of a new product line EPI planned to build to compete with TDBBS. The dispute concerns whether EPI misappropriated TDBBS's trade secrets and confidential information to help EPI jump start a competing line of pet chews and treats. (Id. ¶ 2).

         Fabits is a veteran of the pet food industry. He was hired by TDBBS in March 2017 after working for Redbarn, another competitor in the industry, for 14 years. (Id. ¶ 32). The relationship between Fabits and TDBBS deteriorated and his employment ended on May 31, 2018. (Id. ¶¶ 52-64; Doc. 28, Exh. 1 ¶ 28). Though it is difficult for the Court to understand the entirety of the relationship from the pleadings and the hearing, it appears that the disagreements between Fabits and TDBBS hit a crescendo in mid-to-late April 2018, when he was notified by TDBBS's new CEO that he would no longer be the VP of Sales and his base compensation would be reduced. (Doc. 28, Exh. 1 ¶ 22). Though the new compensation package would allow for a larger bonus that could make up the difference, Fabits alleges that the bonus increase was “meaningless” due to “TDBBS's inability to support” a growth in sales. (Id.).

         On Fabits's last day, TDBBS sent him a separation agreement around 12pm MST. (Doc. 28, Exh. 1 ¶ 28). That same afternoon, he sent an email to TDBBS asking for the “master, ” which he subsequently forwarded to his personal email account. (Doc. 1, Exh. G). The “master, ” also called the “Master List, ” is a spreadsheet containing extensive pricing information for TDBBS's products. (Id. ¶ 71). TDBBS alleges it is a trade secret. (Id. ¶¶ 65-78). TDBBS also alleges Fabits had been forwarding himself “lost revenue reports” containing “detailed information showing . . . any quantity differences between amounts ordered and amounts shipped, ” which they also allege to be a trade secret. (Id. ¶ 67). Fabits forwarded the Lost Revenue Reports to his personal email on March 27, April 2, and April 19. (Doc. 20, Exh. F). Within TDBBS, these documents are “limited to specific individuals who have a particular TDBBS business need for them.” (Doc. 20 ¶ 75).

         In addition to this lawsuit, TDBBS previously filed similar allegations against Fabits (the “Fabits Litigation”). That case is currently pending before Judge Humetewa after it was removed from state court in October 2018. (Case No. 18-cv-3566-DJH, Doc. 1). EPI is not a party to the Fabits Litigation, but it is aware of the case and TDBBS noted in that case's Rule 26(f) report that it “may seek leave to add Ethical Pet as a defendant if the facts warrant.” (No. 18-cv-3566-DJH, Doc. 22 at 4). EPI has also provided documents to TDBBS in response to a subpoena issued in that case. (Doc. 21 at 6, Exh. 1). TDBBS received those documents on February 11, 2019. (Id.)

         TDBBS alleges that it first learned of EPI's competing product line at a February 4, 2019 trade show. (Doc. 1 ¶ 107). TDBBS believes the existence of this product line proves that trade secrets were misappropriated because it should take at least 18 months to develop a competing line given the product-specific difficulties, including finding suppliers, distribution challenges, and the niche market. (Doc. 1 ¶¶ 110-117). Among the documents provided by EPI in the Fabits Litigation was an email that TDBBS alleges proves that EPI participated in Fabits taking the Master List and Lost Revenue Reports: an email from Jonathan Zelinger (“Zelinger”), EPI's President, explaining why EPI wanted to hire Fabits. (Doc. 1 ¶ 102, Exh. A). The email stated that Fabits “knows where their Achilles heel is and where they are vulnerable and that's what we will be going after with his guidance should we finalize a deal with him.” (Id.). The email also said TDBBS was having a “terrible fill rate and long lead time, there are many dissatisfied customers(low hanging fruit) [sic] that Tim feels we will be able to takeover.” (Id.). He also noted that many of the companies in the single-ingredient pet chew business are experiencing management changes due to being bought out, making it easier to break into the market. (Id.).

         During the March 13, 2019 preliminary injunction hearing and in his declaration, Fabits claimed he never sent the Master List or Lost Revenue Reports to anyone. He did not explain why he asked for the Master List on his last day other than “a vague sense that it might be useful.” (Doc. 28, Exh. 1 ¶ 29). He also testified that he wanted the Lost Revenue Reports to be able to explain to his sales team why they were not receiving the commissions they expected. (Doc. 28, Exh. 1 ¶¶ 17-18). He says the reason he forwarded these materials is because it was easier to print from his personal email at his home office and has not kept physical copies of them. He further testified that he has not used any of the information from the Master List or the Lost Revenue Report in bringing the EPI product line to market, instead relying on relationships that pre-existed his time at TDBBS and his experience at Redbarn. TDBBS counters that this cannot be true because the Lost Revenue Report had a last saved date of October 16, 2018, and Fabits delayed for months in returning his TDBBS-provided laptop. (Doc. 21 at 5).

         Prior to the preliminary injunction hearing, TDBBS deposed Zelinger. During the Deposition, Zelinger said that during a May 2018 telephonic interview with Fabits, they discussed how Fabits could “leverage” his relationships to bring customers to EPI. (Doc. 30, Exh. 2). TDBBS alleges in this phone call, at a time when TDBBS still employed Fabits, Fabits told Zelinger about “horrific undershipping and short fill rates, ” unhappy TDBBS customers, and projected sales of a potential competing line. TDBBS alleges Zelinger “requested . . . commercially sensitive, nonpublic information” about TDBBS. (Doc. 30 at 4). Zelinger's own characterization of the conversation was that it was in “general terms” and that Fabits “just said that there were a lot of shortages.” (Doc. 28, Exh. 2; Doc. 30, Exh. 2 at ¶ 79:22-23). Later in the deposition, Zelinger said that in a follow-up, in-person interview Fabits may have said TDBBS had the hardest problem keeping bully sticks in stock and filling orders on them. (Doc. 30, Exh. 2 at 82:8-16). The in-person interview took place after Fabits's employment with TDBBS ended in June or July 2018. (Id.).

         At the preliminary injunction hearing, TDBBS's new Vice President of Sales, Greg Solt testified. Solt began working at TDBBS April 30, 2018. (Testimony of G. Solt, March 13, 2019). He testified that TDBBS had a fill rate problem at the time of Fabits's departure from TDBBS and that it is still a problem for the company. (Id.). He also testified that the ballpark sales of TDBBS in 2018 was $89 million. He agreed that EPI's projected sales of $1.5 million in their first year would not have a significant effect on TDBBS.

         TDBBS asks the Court to grant a preliminary injunction: “(a) requiring EPI (including but not limited to Fabits) to immediately cease using, and return to TDBBS, all of TDBBS's trade secrets and confidential information; (b) prohibiting EPI from directly or indirectly selling, exhibiting, marketing, advertising, or otherwise promoting its Fieldcrest Farms line, or any other animal body parts products, at the 2019 BCI Annual Spring Expo or the 2019 Global Pet Expo; and (c) requiring EPI, for a period of 18 months, to cease and desist from engaging in any pet treats and chews business that was developed or implemented, in whole or in part, directly or indirectly, with the assistance or input of Fabits, or using any of TDBBS's trade secrets or confidential information.” (Doc. 21 at 2).

         II. Legal Standard

         Under Rule 65 of the Federal Rules of Civil Procedure, a party may seek injunctive relief if it believes it will suffer irreparable harm during the pendency of an action. “A preliminary injunction is ‘an extraordinary and drastic remedy, one that should not be granted unless the movant, by a clear showing, carries the burden of persuasion.'” Lopez v. Brewer, 680 F.3d 1068, 1072 (9th Cir. 2012) (quoting Mazurek v. Armstrong, 520 U.S. 968, 972 (1997) (per curiam) (emphasis omitted)); see also Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7, 24 (2008) (citation omitted) (“A preliminary injunction is an extraordinary remedy never awarded as of right.”). A plaintiff seeking a preliminary injunction must show that (1) he is likely to succeed on the merits, (2) he is likely to suffer irreparable harm without an injunction, (3) the balance of equities tips in his favor, and (4) an injunction is in the public interest. Winter, 555 U.S. at 20. “But if a plaintiff can only show that there are ‘serious questions going to the merits'-a lesser showing than likelihood of success on the merits-then a preliminary injunction may still issue if the ‘balance of hardships tips sharply in the plaintiff's favor,' and the other two Winter factors are satisfied.” Shell Offshore, Inc. v. Greenpeace, Inc., 709 F.3d 1281, 1291 (9th Cir. 2013) (quoting Alliance for the Wild Rockies v. Cottrell, 632 F.3d 1127, 1135 (9th Cir. 2011)). Under this “serious questions” variant of the Winter test, “[t]he elements . . . must be balanced, so that a stronger showing of one element may offset a weaker showing of another.” Lopez, 680 F.3d at 1072.

         1. Likelihood of Success/Serious Questions

         Plaintiff's Complaint includes 7 different claims. At the preliminary injunction hearing, Plaintiff focused on two: violation of the trade secret acts and aiding ...