Opinion
Civil No. 02-951 (RHK/JMM)
May 20, 2002
James A. Beitz and Michael C. Hagerty, Hagerty, Johnson, Albrightson Beitz, Minneapolis, Minnesota, for Plaintiff.
Andrew E. Tanick and Peter D. Gray, Rider, Bennett, Egan Arundel, LLP, Minneapolis, Minnesota, for Defendant.
MEMORANDUM OPINION AND ORDER
Introduction
Before the Court is Plaintiff Universal Hospital Services, Inc.'s ("UHS") Motion for a Temporary Restraining Order (a "TRO"). UHS moves the Court to restrain Defendant Thomas Henderson from violating a non-compete agreement and the Minnesota Uniform Trade Secret Act. Both parties have appeared in this matter, and the Court has received and reviewed memoranda and affidavits submitted both in support of and in opposition to the pending motion. A hearing was held on May 20, 2002 before the undersigned. For the reasons set forth below, UHS' motion will be denied.
Background
UHS is a Delaware corporation located in Bloomington, Minnesota. (Compl. ¶ 4.) It provides various types of movable medical equipment to health care facilities across the country and provides asset management services to its clients. (Slater Aff. ¶ 2.) Defendant Thomas Henderson is a resident of the State of Texas. (Answer ¶ 7.) UHS employed Henderson in its Dallas, Texas office from mid-April 2000 to February 18, 2002. (Id. ¶¶ 5, 8.) Henderson worked there as an Account Manager, District Manager, and as a Regional Specialist. (Id.) During his employment, Henderson was responsible for preparing written proposals for current and prospective clients, and he had access to confidential information, including customer lists, contact persons, and pricing information. (Id. ¶¶ 6-7.)
The parties disagree about the date on which Henderson commenced his employment. UHS contends that Henderson began working on April 24, 2000, when he signed a number of documents, including a Confidentiality/Non-Competition Agreement (the "Agreement"). (Slater Aff. Ex. A.) To support its contention, UHS submitted to the Court copies of Henderson's employment application, the Agreement, and his "personnel action" form, all of which are dated April 24, 2002. (Blomfelt Aff. Ex. A.) At oral argument, counsel for UHS informed the Court that the personnel action is the document used to determine when a person is added to its payroll. Included with the employment application was a copy of Henderson's resume and a copy of a list of references, which was dated March 28, 2000. (Id.) Further, UHS submitted an Affidavit of Judy Slater, Vice President of the Sales West region, in which she states that "[i]n April, 2000, UHS conveyed to . . . Henderson an offer for full-time employment in UHS's Dallas, Texas office as an Account Manager . . . At the time it offered Henderson the job as Account Manager, UHS delivered to Henderson the standard UHS new-hire packet, including a `Confidentiality/Non-Competition Agreement.'" (Slater Aff. ¶ 3.) Slater further adds that "Henderson accepted UHS's offer of employment as a UHS Account Manager and started work and signed the Confidentiality/Non-Competition Agreement on April 24, 2000." (Id. ¶ 5.)
The Affidavit of Terri Blomfelt was filed with the Court on May 20, 2002.
In contrast, in an affidavit submitted to the Court, Henderson asserts that he had several interviews with UHS personnel before being offered the job as Account Manager. (Henderson Aff. ¶ 2.) Prior to being offered the job at UHS, no one told him that he would have to enter into a non-compete agreement as part of his employment. (Id.) In addition, he avers:
3. After I accepted UHS' offer, I reported to work on Wednesday, April 19, 2000. I also worked on April 20 and 21, accompanying an employee named Cavin Gee on sales calls.
4. The following Monday, April 24, 2000, UHS presented me with a new employee "packet" which included my Employment Agreement, part of which was a non-competition agreement. When I received that packet on April 24, it was the first time that I was aware that I would have to sign a non-compete agreement to continue working for UHS. Since UHS made it clear that I had no choice but to sign it if I wanted to remain employed, and I had a family to support, and since I did not realize the significance of a non-competition agreement, I simply signed the agreement, without engaging in any negotiations.
(Id. ¶¶ 3-4.)
Under either interpretation of the hiring date, both parties agree that Henderson signed the Agreement on April 24, 2000. (Id. Ex. A; Henderson Aff. ¶ 4.) The Agreement states that during his employment and for twelve (12) months thereafter, Henderson will not:
a) engage in any activity that competes with UHS Business within a one hundred (100) mile radius from the center of any city/cities in which a UHS office for which Employee had any oversight or management responsibilities or through which Employee operated during the last twelve (12) months of employment with UHS is located (hereinafter referenced as Covered Geographic Area);
b) induce any Clients of UHS located within the Covered Geographic Area to patronize any business which competes with UHS;
c) canvas, solicit, or accept any similar business from any Client of UHS located within the Covered Geographic Area of UHS;
d) request or advise any Client or Supplier of UHS to withdraw, reduce, or cancel their business or relationship with UHS;
e) disclose to any other person, firm, partnership, or corporation the names, addresses or telephone numbers; or other protected information of any of the Clients of UHS; or,
f) induce, canvas, solicit, request or advise any employees to accept employment with any person, firm or business which competes with UHS.
(Id. Ex. A ¶ 3.) The Agreement also contains a non-disclosure provision that is not limited in time or geographic scope. That provision prohibits Henderson from using or disclosing "Confidential Information [as defined by the Agreement] to any person or organization not authorized by UHS to receive such information." (Id. Ex. A ¶ 1.) The Agreement also provides that it shall be governed by the laws of Minnesota and that Henderson consents to personal jurisdiction in Minnesota. (Id. Ex. A ¶ 10.)
On February 18, 2002, Henderson stopped working for UHS. (Slater Aff. ¶ 8; Henderson Aff. ¶ 7.) On April 7, he began working for Mediq/PRN Life Support Services, Inc. ("Mediq"). (Henderson Aff. ¶ 12). In general, Mediq is a direct competitor of UHS in the movable medical equipment market. (Slater Aff. ¶ 8.) Henderson states that he is not competing with UHS because his work at Mediq involves selling products for bariatric patients, products which he claims UHS does not sell in Texas. (Henderson Aff. ¶ 15.) In response, UHS asserts that it "has in inventory and is in the business of providing SizeWise and other bariatrics products to its hospital and other health care facility customers." (Blomfelt Aff. ¶ 2.)
The parties describe Henderson's departure differently. UHS states that Henderson "left the employ of UHS" while Henderson states that he was "terminated involuntarily."
Bariatrics is the "branch of medicine that deals with the causes, prevention, and treatment of obesity." See Dictionary.com,www.dictionary.com (2002).
Beginning in April 2002, UHS employees learned through at least four customers that Henderson, while working for Mediq, was soliciting UHS' customers within one-hundred miles of the Dallas, Texas area. (Id.; Howell Aff. ¶¶ 3-6; Hurd Aff. ¶ 3.) Henderson admits that he has had contact with all four of these customers but states that he was not competing with UHS business because he was only soliciting customers for bariatric products. (Henderson Aff. ¶¶ 17-19.) On May 6, 2002, UHS filed a five-count Complaint, alleging breach of contract, interference with contractual relations, violations of the Minnesota Uniform Trade Secrets Act, and unjust enrichment and seeking injunctive relief. On May 13, 2002, UHS moved for a TRO seeking to restrain Henderson from continuing to violate the Agreement and the Minnesota Uniform Trade Secrets Act.
On May 20, 2002, Henderson filed his response to UHS' Motion for a TRO and his Answer and Counterclaim. In the four-count Counterclaim, he alleges tortious interference with at-will employment, illegal payroll deduction, failure to pay wages, and wrongful termination.
The Court received and reviewed copies of these papers on Saturday, May 18, 2002.
Analysis
Under Eighth Circuit precedent, a TRO may be granted only if the moving party can demonstrate: (1) a likelihood of success on the merits; (2) that the balance of harms favors the movant; (3) that the public interest favors the movant; and (4) that the movant will suffer irreparable harm absent the restraining order. Dataphase Sys., Inc. v. CL Sys., Inc., 640 F.2d 109, 113 (8th Cir. 1981). Injunctive relief is considered to be a "drastic and extraordinary remedy that is not to be routinely granted." Intel Corp. v. ULSI Sys. Tech., Inc., 995 F.2d 1566, 1568 (Fed. Cir. 1993). The party requesting the injunctive relief bears the "complete burden" of proving all the factors listed above. Gelco Corp. v. Coniston Partners, 811 F.2d 414, 418 (8th Cir. 1987).
A. Likelihood of Success
1. Count I-Breach of Contract
UHS argues that Henderson is violating the Agreement by working for Mediq in Texas. For UHS to succeed on the merits of its claim, it must establish that the Agreement is valid and enforceable against Henderson and that it has been violated. Minnesota courts disfavor noncompetition agreements as restraints on trade. National Recruiters, Inc. v. Cashman, 323 N.W.2d 736, 740 (Minn. 1982). For a non-compete agreement to be valid, it must be supported by consideration and reasonable in scope. Overholt Crop Ins. Servs. Co., Inc. v. Bredeson, 437 N.W.2d 698, 702-04 (Minn.Ct.App. 1989). A restrictive covenant entered into at the inception of the employment relationship does not require independent consideration. National Recruiters, 323 N.W.2d at 740. If, however, a non-compete agreement is not entered into at the beginning of the employment relationship, it must be supported by independent consideration. Id.
Henderson asserts that the Agreement is not valid because it was not entered into at the beginning of his employment relationship with UHS and that it was not supported by independent consideration. UHS argues that the Agreement was signed on the first day of Henderson's employment, along with his application for employment, so that no other independent consideration was necessary. UHS supports its argument with documents dated April 24, 2000, but those documents do not contradict Henderson's account of the events. Instead, it is entirely consistent that Henderson could have filled out the paperwork on April 24th but could have accepted UHS' employment offer before that date. UHS has not come forward with any other evidence to refute Henderson's affidavit. Instead, in her affidavit, Judy Slater avers that Henderson "accepted UHS's offer . . . and started work and signed the Confidentiality/Non-Competition Agreement on April 24, 2000." (Slater Aff. ¶ 5.) It seems unlikely that Henderson applied for, was offered, accepted, and began work as an Account Manager in one day. As Henderson claims, UHS could have offered, and Henderson could have accepted, the job before April 24, 2000, regardless of when the paperwork was completed. UHS has the burden of proving that the Agreement was valid; at this stage, it has not met its burden because it has not refuted Henderson's assertion that he accepted the employment offer before UHS asked him to sign the Agreement. See Sanborn Mfg. Co. v. Currie, 500 N.W.2d 161, 164 (Minn.Ct.App. 1993) (relying on evidence of oral agreement before non-compete agreement was executed). Therefore, UHS has not shown that it is likely to succeed on its breach of contract claim.
2. Count III-Misappropriation of Trade Secrets
UHS alleges that Henderson is violating Minnesota's Uniform Trade Secrets Act, Minn. Stat. §§ 325C.01 — 325C.08 ("the Act"). UHS asserts that Henderson had access to trade secret information, including names of customers and pricing information, and that he is "misappropriating" that information based on the fact that he is now working for a competitor.
The Act defines misappropriation as the improper acquisition, disclosure or use of a "trade secret." Minn. Stat. § 325C.01, subd. 3. To establish that a particular item is a "trade secret" under the Act, UHS bears the burden of proving that (1) the information is not generally known or readily ascertainable, (2) the information derives independent economic value from secrecy, and (3) the plaintiff makes reasonable efforts to maintain the information's secrecy. See NewLeaf Designs, L.L.C. v. BestBins Corp., 168 F. Supp.2d 1039, 1043 (D.Minn. 2001) (Tunheim, J.); Lexis-Nexis v. Beer, 41 F. Supp.2d 950, 958 (D.Minn. 1999) (Doty, J.). Furthermore, to obtain an injunction under the Act, UHS must demonstrate "a high degree of probability of inevitable disclosure." Lexis-Nexis, 41 F. Supp.2d at 958 (quoting International Bus. Machines Corp. v. Seagate Tech., Inc., 941 F. Supp. 98, 101 (D.Minn. 1992) (Magnuson, C.J.)). "Merely possessing trade secrets and holding a comparable position with a competitor does not justify an injunction." IBM Corp., 941 F. Supp. at 101.
The only support for UHS' trade secret claim is contained in the Affidavit of Judy Slater. In it she states that "Henderson was entrusted with confidential information belonging to UHS, including the identities of clients, contact persons, products and pricing information for those clients." (Slater Aff. ¶ 6.) UHS does not describe the "confidential information" in any further detail.
The Court cannot conclude, from the record before it, that the confidential information identified in the Slater Affidavit constitutes "trade secrets" under the Act; UHS has not described any specific information regarding customers, pricing, marketing, product formula, and product manufacturing that satisfies the statutory definition of a "trade secret." Indeed, it seems logical that some information regarding the price and specifications of products must be disclosed to the public in order to sell the products. Moreover, UHS has not shown that (1) the allegedly confidential information is not generally known, (2) the information derives independent economic value from secrecy, and (3) that it took reasonable efforts to maintain the information's secrecy. Without more, UHS has not met its burden of proving that it is likely to succeed on the merits of its trade secret claim.
Therefore, the Court concludes that UHS has not sustained its burden of showing a likelihood of success on the merits of either of its claims for the purposes of its TRO Motion. This conclusion is not intended to provide any opinion as to the ultimate merits of UHS' claims. The Court reaches this conclusion based upon the limited record available from both sides in this early stage of the proceeding. Discovery may produce new or additional facts that could change UHS' likelihood of success on the merits of either claim.
B. The Remaining Dataphase Factors
Having concluded that UHS has not met its burden of establishing a likelihood of success on the merits of its claims, the remaining factors may be dealt with briefly. "The basis of injunctive relief in the federal courts has always been irreparable harm and inadequacy of legal remedies. Thus, to warrant . . . preliminary [injunctive relief], the moving party must demonstrate a sufficient threat of irreparable harm." Bandag, Inc. v. Jack's Tire Oil, Inc., 190 F.3d 924, 926 (8th Cir. 1999) (quoting Beacon Theatres, Inc. v. Westover, 359 U.S. 500, 506-07 (1959)); Glenwood Bridge, Inc. v. City of Minneapolis, 940 F.2d 367, 371 (8th Cir. 1991); see also In re Travel Agency Commission Antitrust Litig., 898 F. Supp. 685, 689 (D.Minn. 1995) (Rosenbaum, J.). Because UHS has not met its burden with respect to success on the merits of its breach of restrictive covenant and misappropriation of trade secrets claims, the Court cannot infer that UHS will incur irreparable harm unless Henderson is enjoined from working for Mediq. See Lexis-Nexis, 41 F. Supp.2d at 959. In light of that conclusion, the balance of harms favors Henderson, who would experience the immediate loss of his livelihood if he were enjoined from working for Mediq. Finally, based upon the record before the Court, it is not in the public interest to award UHS a TRO; as noted above, Minnesota law looks with disfavor on restrictive covenants as partial restraints on trade. At this stage, it would be contrary to the public policy in Minnesota to enjoin Henderson, given that UHS has not carried its burden in showing that it is likely to succeed on the merits of its claims.
Conclusion
Upon all the files, records, and proceedings herein, and for the reasons stated above, IT IS ORDERED that
1. Universal Hospital Services, Inc.'s Motion for a Temporary Restraining Order (Doc. No. 2) is DENIED;
2. A Hearing for a Preliminary Injunction is set for Thursday, June 20, 2002 at 8 a.m.; and
3. In conformity with Fed.R.Civ.P. 26(d), the Court directs the parties that they may begin discovery in this matter; in view of the June 20th hearing date, it is imperative that discovery be conducted expeditiously and be limited to only those matters relating to the issue of a preliminary injunction. The Court expects counsel to proceed accordingly.