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Carlson Group, Inc. v. Davenport

United States District Court, N.D. Illinois, Eastern Division

December 13, 2016

THE CARLSON GROUP, INC., Plaintiff,
v.
SCOTT DAVENPORT, BRAD KURZ, REDSTITCH LLC, CHARLES O'DONNELL, ROBERT SOLOMON, and UNITED WIRE CRAFT, INC., d/b/a UNITED DISPLAY CRAFT, Defendants.

          MEMORANDUM OPINION AND ORDER

          AMY J. ST. EVE, United States District Judge:

         On December 5, 2016, Plaintiff The Carlson Group (“TCG”) petitioned the Court for entry of a temporary restraining order and preliminary injunction against Defendants Scott Davenport (“Davenport”), Brad Kurz (“Kurz”), RedStitch LLC (RedStitch”), Robert Solomon (“Solomon”) and United Wire Craft, Inc. (“United”) (collectively, Defendants”).[1] (R.21). After the parties submitted briefing and affidavit evidence, the Court held a hearing on December 8, 2016. (R.37). No party offered live witness testimony. During the course of that hearing, the parties reached agreement on certain parts of TCG's motion, specifically those related to Defendants' solicitation of and/or interference with TCG's employees and supply chain partners. The Court took the remainder of TCG's motion under advisement. (Id.). For the reasons set forth below, the Court now denies that motion. (R.21).

         BACKGROUND

         TCG-through its global network of supply chain partners-designs, engineers, manufactures, installs, and manages point-of-purchase (“POP”) displays and fixtures for manufacturing and retail clients, principally those in the sporting goods, apparel, footwear, and active lifestyle merchandise industry, such as Nike, Oakley, and Columbia. TCG, thus, is a “one-stop shop” within the POP display industry - an estimated $3 billion industry with a diverse customer base. This industry, however, is competitive, with customers frequently shopping design and price among POP display providers. (R.42, Adams Decl. ¶¶ 1-3, 5-32; R.43, Suppl. Adams Decl. ¶¶ 2-3, 18; R.31-1, Davenport Decl. ¶¶ 8, 11, 19, 24, 48; R.31-2, Carrigan Decl. ¶ 15; R.31-7, Nielsen Decl. ¶ 2). If a particular provider “wins the opportunity to manufacture a new retail display for a customer, ” though, it “generally can expect 3-5 years of re-orders of that display, ” which usually represent the highest margin sales orders. (R.43, Suppl. Adams Decl. ¶ 9).

         Davenport, Kurz, and Solomon are former TCG employees, each of whom signed an Employment Agreement containing a confidentiality provision and non-solicitation provision. (R.1-2, R.1-3, R.1-5 at Sec. 7, Sec. 9). Davenport served as TCG's Director of Sales, while Kurz served as Creative Director. As members of the Senior Management Team, both Davenport and Kurz had complete access to TCG's client, prospect, and target files, including access to TCG's Customer Relationship Management (“CRM”) system. (R.42, Adams Decl. ¶¶ 40-41, 44-45; R.43, Suppl. Adams Decl. ¶ 6). Over the years, Davenport and Kurz worked closely together and shared frustrations about TCG's Chief Operating Officer, Mark Adams (“Adams”). By late 2015, they had developed an outline to start their own business, RedStitch. (R.31-1, Davenport Decl. ¶¶ 28-32, 39; R.31-3, Kurz Decl. ¶¶ 5-7). In January 2016, Davenport and Kurz resigned from TCG to form RedStitch. (Id.). Solomon, meanwhile, was an Account Manager who reported to Davenport, and then to Adams following Davenport's departure. (R.42, Adams Decl. ¶ 46). Dissatisfied with TCG, Solomon resigned in June 2016 and joined RedStitch. (R.31-4, Solomon Decl. ¶¶ 6-7, 9).

         The membership of RedStitch consists of Davenport, Kurz, and United - another POP display provider. According to Defendants, to date, “100% of RedStitch's projects have been new projects [Davenport and Kurz] did not work on at TCG, and the majority of that work has been on strategy and design for store environments and POP displays.” (R.31-1, Davenport Decl. ¶¶ 40-42; R.31-2, Carrigan Decl. ¶¶ 2-3, 7; R.31-3, Kurz Decl. ¶ 19). According to TCG's complaint in this action, however, Davenport and Kurz “conspired” to misappropriate TCG trade secrets, to join forces with a direct competitor, to solicit and service TCG clients, and to induce TCG employees to leave TCG's employment. (R.1). TCG seeks “preliminary and permanent injunctive relief and/or monetary damages against the Defendants for misappropriation of trade secrets in violation of Illinois' Uniform Trade Secrets Act, 765 ILCS 1065/1, et seq., and the Defend Trade Secret Act of 2016, 18 U.S.C. § 1831 . . . for breaches of fiduciary duties . . . for breaches of reasonable contractual restrictions on the Defendants' solicitation of TCG's customers and employees, for acts of tortious interference with those contracts, and for civil conspiracy.” (Id. ¶ 1). As relevant to the present motion, TCG requests preliminary relief to prevent the solicitation of TCG's existing and prospective customers in violation of the Employment Agreements executed by Davenport, Kurz, and Solomon.

         LEGAL STANDARD

         To obtain a temporary restraining order or preliminary injunction, “the moving party must make an initial showing that (1) it will suffer irreparable harm in the period before final resolution of its claims; (2) traditional legal remedies are inadequate; and (3) the claim has some likelihood of success on the merits. If the moving party makes this showing, the court weighs the factors against one another, assessing whether the balance of harms favors the moving party or whether the harm to other parties or the public is sufficiently weighty that the injunction should be denied.” BBL, Inc. v. City of Angola, 809 F.3d 317, 323-24 (7th Cir. 2015) (citations omitted); see also Jones v. Markiewicz-Qualkinbush, __F.3d__, No. 16-3514, 2016 WL 7030354, at *3 (7th Cir. Dec. 2, 2016) (same). The same standard applies with respect to both temporary restraining orders and preliminary injunction orders. See Loveless v. Chicago Bd. of Election Commissioners, No. 04 C 5671, 2004 WL 2095662, at *2 (N.D. Ill. Sept. 17, 2004).

         TCG noticed its motion under Federal Rule of Civil Procedure 65(a) and 65(b). (R.21). See 11A Charles Alan Wright et al., Federal Practice and Procedure § 2951 (3d ed.) (“Applicants for injunctive relief occasionally are faced with the possibility that irreparable injury will occur before the hearing for a preliminary injunction required by Rule 65(a) can be held. In that event a temporary restraining order may be available under Rule 65(b)”). Here, Defendants briefed their opposition, submitted evidence, and appeared for oral argument. TCG, too, submitted initial and supplemental declarations, and appeared for oral argument. TCG has not indicated to the Court any additional evidence it intends to introduce to support its Rule 65(a) and 65(b) motion, even though it has known about these issues for months. Accordingly, the Court treats TCG's motion as one for a preliminary injunction. See Id. (“When the opposing party actually receives notice of the application for a restraining order, the procedure that is followed does not differ functionally from that on an application for a preliminary injunction and the proceeding is not subject to any special requirements. Indeed, even if a court denominates an order as a ‘temporary restraining order' in this situation, Rule 65(b) may not apply and, if there is an adversary hearing . . . the ‘temporary restraining order' may be treated as a preliminary injunction”); Chicago United Indus., Ltd. v. City of Chicago, 445 F.3d 940, 946 (7th Cir. 2006).

         ANALYSIS

         I. Likelihood of Success on TCG's Contract Claims

         To obtain preliminary relief, TCG must first demonstrate “at least a negligible chance of success on the merits.” D.U. v. Rhoades, 825 F.3d 331, 338 (7th Cir. 2016) (citing Curtis v. Thompson, 840 F.2d 1291, 1296 (7th Cir. 1988) (“where the plaintiff is unable to establish this minimum threshold, the harm to the plaintiff will never override his failure to establish a likelihood of success”)). Given the parties' agreement concerning TCG's employees and supply chain partners-the latter of which was the focus of TCG's trade secret misappropriation claim (R.42, Adams Decl. ¶¶ 6, 31)-and given TCG's failure to address its breach of fiduciary duty, tortious interference, and civil conspiracy claims, the Court limits its analysis to TCG's contract claims as related to the solicitation of TCG customers.

         A. Contract Enforceability

         The Employment Agreements contain the following provision prohibiting the improper disclosure and/or use of “Confidential Information:”

Employee recognizes that Employee will occupy a position of trust with respect to Confidential Information and/or Trade Secrets of the Company and such information will be imparted to and/or used by him or her from time to time in the course of his or her duties . . . “Confidential Information” means all information of or concerning the business of Company, which is not generally known to its competitors or the public and does not qualify as a Trade Secret. Confidential Information includes, but is not limited to, information relating to the Company's products and services, its business and financial plans, its marketing, research and development plans, its current, past and potential customers and suppliers (including each of their identities, contract terms, preferences, proposals, plans and contact information), its employees (including benefit and compensation programs and plans, contact information, performance and experience information, and personal information) and its operating techniques, policies and procedures. Confidential Information does not include information that lawfully is or has become generally or publicly known outside the Company, other than through the unlawful or improper act or omission of any person that has or had an obligation of nondisclosure or non-use with respect to such information, including without limitation by reason of the Employee's breach of this Agreement. Employee therefore agrees that . . . Employee will maintain and protect the confidentiality of the ...

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