United States District Court, D. Arizona
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 ...