North Carolina Business Litigation Report

First Published Opinion From New Business Court Judge Conrad

Business Court Judges don't have to issue written Opinions in cases granting Preliminary Injunctions.  (G.S. § 7A-45.3 limits the obligation to issue a written Opinion to rulings rendered per NCRCP 12, 56, 59, and 60).  But even so, new Business Court Judge Conrad chose a case granting a Preliminary injunction (Addison Whitney, LLC v. Cashion, 2017 NCBC 23) to be his first published (numbered) Opinion.

The Plaintiff, Addison Whitney, is a branding company.  Among other things, it creates product names, and has done so for a number of famous companies,  It came up with "Outlook" for Microsoft and "Escalade" for Cadillac.  It has a specialty in creating names for new drugs from pharmaceutical companies. 

Addison Whitney sued the Defendants -- all of whom had formerly held top positions at Addison Whitney -- after they left en masse and started a competing company.  Several of the Defendants had signed "Confidential Information and Unauthorized Disclosure Agreements" and "Employee Confidentiality Agreements."  One Defendant had signed an Employee Confidentiality Agreement which contained a non-compete provision.  The other Defendants had not signed any document containing a non-compete.

What Were The Trade Secrets?

Addison Whitney argued that it had three separate categories of trade secret information. 

First, it said that it had "created a database that contains information regarding drug product characteristics for nearly 4,000 drug products on the market.”   This was a mix of publicly accessible information and of information that was "not publicly available and chosen based on the 'professional judgment' of Addison Whitney employees." Op. ¶18.  This database was password-protected.

Second, Addison Whitney maintained 246 case studies of work it had done for particular clients which contained non-public information regarding its work and sometimes the confidential information of clients.  These were also password protected. 

Finally, Addison Whitney kept its client and prospective client information on SalesForce, a "customer relationship management program."  Addison Whitney put non-public information about clients’ buying habits and upcoming product into SalesForce.  Only a limited number of Addison Whitney employees had access to its SalesForce platform.

Addison Whitney said that each of these three categories of trade secret information gave it a "competitive advantage."  Judge Conrad ruled that all of these types of information are entitled to trade secret protection..  As to the client information, he said that North Carolina courts "routinely hold that such information is protectable as a trade secret".  Op. ¶35 (citing Drouillard v. Keister Williams Newspaper Servs., Inc., 108 N.C. App. 169, 174, 423 S.E.2d 324, 327 (1992); Computer Design & Integration, LLC v. Brown, 2017 NCBC LEXIS 8 at *27–28).

Establishing Misappropriation Of A Trade Secret

Since the Defendants, as former employees, had legitimate access to the Plaintiff's trade secrets, the existence of access and opportunity to acquire them was insufficient to establish misappropriation.

Relying on Judge Bledsoe's recent opinion in Am. Air Filter Co. v. Price, 2017 NCBC LEXIS 9, at *23, Judge Conrad held that:

there must be substantial evidence (1) that the wrongdoer accessed the trade secret without consent, or (2) of misappropriation resulting in an inference of actual acquisition or use of the trade secret.

Op. ¶38.

Access without consent can be shown by "showing that an employee continued to access trade secrets after receiving a job offer from a competitor and then later accepted the offer"  Op. ¶39.

The "relevant inquiry," per Judge Conrad, was "when Defendants’ plan to resign and to open their own competing business became sufficiently concrete to render continued access to trade secrets unauthorized."  Op. ¶39.

Since the Defendants told others at the company in December 2016 that they were planning to resign, Judge Conrad ruled that was the point after which their trade secret access became unauthorized.

After that point, they obtained copies of the case studies, a list of clients with open opportunities, and a list of prospective clients.  They also accessed a number of other documents both before and after resigning.  These included accessed "client brand guidelines, market research, linguistic reports, naming strategy briefs, and client strategy presentations.”  Op. ¶25. 

Plaintiff Didn't Show That All of Its Trade Secrets had Been Misappropriated

Judge Conrad Said that Addison Whitney had not shown that the Defendants had accessed the drug information database after December 2016.

On the other trade secret categories, however, there was "substantial evidence that Defendants accessed protected client information and case studies just prior to resigning."  Op. ¶43.  One Defendant had obtained a list of prospective clients and printouts of all of the case studies just before resigning. Other Defendants had logged in to SalesForce after stating to other employees their intentions to resign and to start a competing business.

Non-Solicitation Agreements Ruled Invalid

The Employee Confidentiality Agreements signed by all of the individual Defendants except one, contained a non-solicitation provision.

The validity of those agreements depended on a question of whether consideration was provided for them.Addison Whitney contended that the employment relationship itself constituted adequate consideration.

But the Defendants did not sign the Employee Confidentiality Agreements until September 2007, which was roughly 90 days after Addison Whitney's assets were acquired by a company called Ventiv.  Ventiv then terminated the Defendants' employment with "old" Addison Whitney and the Defendants entered into new employment with the acquired Addison Whitney.

Addison Whitney's explanation for the three month delay in securing signatures on the Agreements was that "the 90-day gap “was simply a result of [Defendants’] receiving a reasonable amount to sign the agreements ."  Op. ¶55.

The Defendants presented Affidavits testifying that they had not received the Agreements until September 2007.  Judge Conrad, doubtful on Addison Whitney's explanation for the delay in procuring signed agreements, said that it "does not hold water."  Op. ¶55.

Fiduciary Duty Claims

Addison Whitney argued that the Defendants had breached their fiduciary duties to it "by soliciting employees to leave the company, conspiring to resign on the same day, and planning to form a competing business."  Addison Whitney  requested that the Defendants be enjoined for competing against it for one year as a result.

Putting aside the question whether its former employees owed it a fiduciary duty (which Judge Conrad did not address, Op. ¶69), Judge Conrad noted that Addison Whitney had not shown any irreparable harm from the alleged breach of fiduciary duty.  He said that he was "not convinced that “compensation in money cannot atone for” any harm caused by the alleged breach of fiduciary duty. Op. ¶70 (quoting Hodge v. NC DOT, 137 N.C. App. 247, 252, 528 S.E.2d 22, 26 (2000), rev’d on other grounds, 352 N.C. 664, 535 S.E.2d 32 (2000).

Judge Conrad also commented on Addison Whitney's failure to obtain a non-compete from  the Defendants.  He said: By attempting to enjoin Defendants’ new competing business, Addison Whitney’s “requested relief seeks to provide [it] the benefit of a bargain [it] did not make without adequate basis or justification.” (quoting Computer Design & Integration, LLC v. Brown, 2017 NCBC LEXIS 8, at *36).

                                                                   *        *        *

For some reason, Judge Conrad has attracted several injunction motions lately which were dealt with in unpublished Orders.  He denied one last week in Guardian GC, LLC v. GCP Apartment Investors, LLC and granted one yesterday in Sterimed Technologies Int'l, Ltd. v. Innovative Healthcare Distribution, LLC.

But don't think that Judge Conrad is limiting himself to injunction cases.  Just yesterday, he published Kerry Bodenhamer Farms, LLC v. Nature's Pearl Corp., 2017 NCBC 27, which has nothing to do with injunctions (looks like tortious interference with contract and unfair trade practices).  Once upon a time I would have promised that I would write a post about that case tomorrow, but now?  I know that I would be overpromising and underdelivering if I said that. . . .

 

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Mack Sperling
Brooks Pierce, LLP
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