United States District Court, N.D. Illinois, Eastern Division
MEMORANDUM OPINION AND ORDER
ST. EVE United States District Court Judge.
5, 2017, Plaintiff Cortz, Inc., d/b/a In the Swim
(“Cortz”) filed a six-count First Amended
Complaint for Injunctive and Other Relief against its former
employee Tim Murphy (“Murphy”) and Doheny
Enterprises, Inc. (“Doheny Enterprises”) alleging
violations of the Defend Trade Secrets Act of 2016
(“DTSA”), 18 U.S.C. § 1831, et seq.
(Count I), and the Illinois Trade Secrets Act
(“ITSA”), 765 ILCS 1065/1, et seq.
(Count II), three breach of contract claims (Counts III-V),
and a tortious interference with contract claim (Count VI).
See 28 U.S.C. §§ 1331, 1367(a).
the Court is Cortz's renewed motion for a preliminary
injunction brought pursuant to Federal Rule of Civil
Procedure 65(a) in which Cortz focuses on its trade secret
claims and two breach of contract claims alleged in the First
Amended Complaint. The Court held a preliminary injunction
hearing on June 28 and 29, 2017, at which time the following
witnesses testified: (1) David Newman, Cortz's Executive
Vice President of Finance; (2) Michael “Mick”
Doheny, Vice President of Doheny Enterprises; (3) Timothy
Murphy, Cortz's former Director of Purchasing; and (4)
Rick Parise, a Category Director at Leslie's Pool
Supplies. The parties produced the following witness
testimony through deposition designations: (1) John Doheny,
President of Doheny Enterprises; (2) Brink Spruill, Vice
President of Sales and Marketing at Kelley Technical Coatings
(“Kelley”); and (3) Martin (“Marty”)
Mullarkey, President of Mullarkey Associates and a sales
representative/agent for Kelley.
assessing the parties' preliminary injunction arguments,
the Court considered the totality of the evidence presented
at the evidentiary hearing, including the deposition
designations, and carefully examined the credibility of the
witnesses. When assessing witness credibility, the Court
considered each witness' demeanor and facial expressions;
intelligence; ability and opportunity to see, hear, or know
the matters about which the witness testified; memory;
potential for bias; and, significantly, the believability of
the witness' testimony in light of the other evidence
presented. See Anderson v. City of Bessemer, N.C.,
470 U.S. 564, 575 (1985); Furry v. United States,
712 F.3d 988, 993 (7th Cir. 2013). Further, the Court
thoroughly analyzed the controlling legal authority.
these standards in mind, Cortz has not met its burden of
establishing the likelihood of success on the merits as to
its breach of contract claim against Doheny Enterprises in
relation to the November 30, 2015 Confidentiality Agreement,
its DTSA and ITSA claims, and its breach of an employment
contract claim against Murphy. Therefore, the Court, in its
discretion, denies Cortz's motion for a preliminary
injunction. See Winter v. Nat. Res. Def. Council,
Inc., 555 U.S. 7, 24 (2008) (“A preliminary
injunction is an extraordinary remedy never awarded as of
right.”); Turnell v. CentiMark Corp., 796 F.3d
656, 661 (7th Cir. 2015) (“A preliminary injunction is
an extraordinary equitable remedy that is available only when
the movant shows clear need.”). Further, the Court, in
its discretion, grants Defendants' in limine motion
limiting Rick Parise's testimony as inadmissible hearsay,
as discussed in detail below. See Fed.R.Evid.
has been in business for over thirty years and provides
swimming pool and spa-related products to residential and
commercial customers across the United States. (6/28/17,
Newman Prelim. Inj. Hr'g.) Specifically, Cortz offers an
assortment of merchandise, such as spa and pool chemicals,
equipment, supplies, and parts, from different manufacturers
and has its own branded products. (Id.) In addition,
Cortz sells its products through a variety of different
marketplaces and websites, such as Amazon and eBay.
(Id.) Doheny Enterprises, which has been in business
for fifty years, directly competes with Cortz and offers pool
and spa chemicals, equipment, and accessories to customers
across the United States. (6/28 M. Doheny Prelim. Inj.
Hr'g.) Like Cortz, Doheny Enterprises sells its products
through online marketplaces like Amazon and eBay, as well as
through its own proprietary website and at its retail stores.
Prospective Purchase of Cortz
November 2015, John Doheny, Doheny Enterprises'
President, discovered that Cortz might be for sale. (R. 84,
J. Doheny Dep., at 40-41.) More specifically, John Doheny
learned that Lincoln International, LLC
(“Lincoln”) was acting as a broker for the sale
of Cortz, after which he contacted a representative at
Lincoln to express an interest in purchasing Cortz.
(Id. at 40-41.) In connection with this inquiry,
John Doheny signed a Confidentiality Agreement on behalf of
Doheny Enterprises. (Id. at 42.) In particular,
Doheny Enterprises' counsel forwarded the Confidentiality
Agreement to John Doheny, who signed it on November 30, 2015.
(Id. at 42-43; Prelim. Inj. Hr'g Ex. 35,
the execution of the Confidentiality Agreement, in December
2015, an associate at Lincoln sent Cortz marketing materials
to John Doheny and Doheny Enterprises' counsel. (J.
Doheny Dep., at 52-53; Prelim. Inj. Hr'g Ex. 39.) In
January 2016, John Doheny attended a meeting with Cortz's
management team. (J. Doheny Dep., at 53.) The Cortz employees
attending the January 2016 meeting were Steve Druckman (CEO),
Eric Rohrdanz (COO), David Newman (CFO), and Christine
Mattson (CMO). (6/28 Newman Prelim. Inj. Hr'g; 6/29 M.
Doheny Prelim Inj. Hr'g.) Defendant Tim Murphy,
Cortz's former Director of Purchasing, did not attend the
January 2016 meeting and did not participate in any
discussions with Doheny Enterprises regarding the potential
sale of Cortz. (6/29 M. Doheny Prelim Inj. Hr'g.) At that
time, however, John Doheny knew who Murphy was and that he
worked for Cortz. (J. Doheny Dep., at 51.) Meanwhile, at the
January 2016 meeting, Cortz distributed an information packet
marked confidential to the following Doheny Enterprises'
personnel attending the meeting - John Doheny (President),
Mick Doheny (Vice President), and Brian Hendrickson (Vice
President of Marketing). (Id. at 30-31, 52-53.)
point after the January 2016 meeting, John Doheny expressed
an interest in purchasing Cortz. (J. Doheny Dep., at 55-56.)
Nonetheless, in February 2016, Cortz's counsel sent a
letter to John Doheny - but not to Doheny Enterprises'
counsel - explaining that because Doheny's participation
in the sale had ended, John Doheny should destroy the
confidential information provided by Cortz pursuant to
paragraph 6 of the Confidentiality Agreement. (Id.
at 71-72.) According to John Doheny, upon receiving this
letter, he destroyed the confidential information and
contacted Mick Doheny and Brian Henderson directing them to
do the same. (Id.) John Doheny specifically
testified that because Doheny Enterprises' counsel had
not attended the January 2016 meeting and had not received
the packet of confidential information, he did not think to
contact counsel and ask him to destroy any confidential
documents that counsel might have. (Id. at 72-74.)
Pool Supplies (“Leslie's”) was the successful
purchaser of Cortz, and around the end of June 2016,
Leslie's closed on its acquisition of Cortz. (6/28 Newman
Prelim. Inj. Hr'g.) Cortz is now a wholly-owned
subsidiary of Leslie's. (Id.) At the preliminary
injunction hearing, Newman testified that Leslie's paid
approximately $7 million for Cortz, along with paying
approximately $30 million in Cortz's debt. (Id.)
Newman further explained that prior to Leslie's 2016
acquisition, more specifically from 2012 to 2016, Cortz's
sales were steady, but its earnings were going down.
(Id.) Newman also clarified that Leslie's yearly
sales figures are about five times larger than Cortz's
yearly sales. (Id.) Similarly, Mick Doheny testified
at the preliminary injunction hearing that Leslie's is
ten times larger than Doheny Enterprises. (6/29 M. Doheny
Prelim. Inj. Hr'g.)
Murphy began his employment with Cortz in April 1997 starting
as a Store Assistant Manager. (6/29 Murphy Prelim. Inj.
Hr'g.) At that time, Murphy entered into an employment
agreement with Cortz. (Id.) During his employment at
Cortz, Murphy worked his way up to the position of
Cortz's Director of Purchasing. (Id.) When
Murphy was the Director of Purchasing, his responsibilities
included purchasing products from vendors and negotiating
vendor agreements. (Id.) At the preliminary
injunction hearing, Newman testified that as Cortz's
employee, Murphy had access to the costs of goods from its
suppliers, the suppliers' rebate structures, and the
suppliers' early-buy discount terms, as well as certain
marketing strategies like bundling products for a discounted
price. (6/28 Newman Prelim. Inj. Hr'g.) In particular,
Newman testified that Murphy attended daily management
meetings, at which time various Cortz officers and managers
met with Cortz's CEO and reviewed what Newman
characterizes as a “great sum of data.”
(Id.; Prelim. Inj. Hr'g Ex. 43.) Newman further
elucidated that Murphy was privy to the daily flash report
sent to approximately twenty-five to thirty other Cortz
employees. (6/28 Newman Prelim. Inj. Hr'g.) Also, Newman
stated that after Cortz fired Murphy, Murphy did not
physically take any documents containing Cortz's trade
secrets with him. (Id.)
terminated Murphy's employment on July 14, 2016.
(Id.; 6/29 Murphy Prelim. Inj. Hr'g.) At the
preliminary injunction hearing, Murphy explained that Cortz
terminated his employment due in part to his refusal to sign
a retention bonus agreement that Leslie's offered because
it contained a two-year non-compete clause prohibiting him
for working in the swimming pool supply industry if he left
Leslie's employment or if Leslie's terminated his
employment. (6/29 Murphy Prelim. Inj. Hr'g.) Murphy also
testified that prior to rejecting the retention bonus, he had
numerous conversations with Cortz and Leslie's, at which
time he expressed his concerns about the two year non-compete
clause. (Id.) Similarly, Newman testified that Cortz
terminated Murphy's employment because Murphy would not
sign the two year non-compete agreement. (6/28 Newman Prelim.
his termination, Murphy began looking for work and called
Mick Doheny in July 2016. (Id.; 6/28 M. Doheny
Prelim. Inj. Hr'g.) That phone call resulted in several
meetings between Murphy and Mick Doheny. (6/28 M. Doheny
Prelim. Inj. Hr'g.) Doheny offered to hire Murphy as a
re-buyer working with 14 vendors. (6/29 Murphy Prelim. Inj.
Hr'g; 6/29 M. Doheny Prelim. Inj. Hr'g.) At the
preliminary injunction hearing, Mick Doheny clarified that a
re-buyer is tasked with looking at sales trends to build and
then place orders for products with certain vendors. (6/28 M.
Doheny Prelim. Inj. Hr'g.) Doheny Enterprises and Murphy
agreed that Murphy would initially work as a consultant with
the understanding that it was for a one-year trial period.
(J. Doheny Dep., at 57-58; 6/28 M. Doheny Prelim. Inj.
Hr'g.) Doheny Enterprises and Murphy signed a consulting
agreement dated August 29, 2016 (“Consulting
Agreement”) and Murphy started working for Doheny
Enterprises on September 6, 2016. (6/28 M. Doheny Prelim.
Inj. Hr'g; Prelim. Inj. Hr'g Ex. 7 Consulting Agmt.)
The Consulting Agreement affirmatively prohibited Murphy from
using third-party confidential information in connection with
his employment with Doheny. (Consulting Agmt. ¶ 10.)
preliminary injunction hearing, Rick Parise, a Leslie's
employee who works with vendors, testified that he had a
telephone conversation with Brink Spruill, an employee of
pool supply vendor Kelley, sometime in February 2017.
(6/29/17 Parise Prelim. Inj. Hr'g.) Parise testified that
during this telephone conversation, Spruill brought to his
attention that Murphy - who now works for Doheny Enterprises
- had pressured Spruill about costs and vendor pricing.
(Id.) Further, Parise testified that he talked to
Spruill another time after the first conversation, although
he did not recall the exact date. (Id.) During this
second conversation, Parise told Spruill that Leslie's
legal counsel had contacted him about the February 2017
telephone conversation. (Id.)
other hand, Brink Spruill testified at his deposition that he
did not recall this conversation with Parise and that he has
not talked to or e-mailed Murphy after Leslie's acquired
Cortz in June 2016. (R. 83, Spruill Dep., at 29-32, 39.) Not
only did Spruill testify that he did not remember any such
conversation, but he specifically denied that he told Parise
that Murphy put pressure on him regarding vendor pricing or
that he discussed Murphy putting pressure on him with any
other vendors. (Id. at 32-33.) Spruill also
testified that no one at Doheny Enterprises, including
Murphy, has told him that they know the prices Cortz pays
Kelley. (Id. at 60-61.)
Cortz points to the ongoing three-year negotiation between
Doheny Enterprises and Kelley regarding the per gallon price
of a product called “Zeron, ” which is an epoxy
pool coating. (R. 86, Mullarkey Dep., at 74; 6/28 M. Doheny
Prelim. Inj. Hr'g.) In particular, in November 2016,
Kelley's agent, Marty Mullarkey, along with Mick Doheny
and Brink Spruill, exchanged a series of e-mails concerning
Mick Doheny's request for lower Zeron prices from Kelley.
(Mullarkey Dep., at 76-81; 6/28 M. Doheny Prelim. Inj.
Hr'g.) Shortly thereafter, in a letter to Mick Doheny,
Spruill mentioned Cortz (by its abbreviation ITS) and offered
Doheny a reduced price on the Zeron. (6/28 M. Doheny Prelim.
Inj. Hr'g; Ex. 33, 11/17/16 Spruill Letter.) Spruill
specifically referenced Cortz as follows:
Please consider that Kelley Technical Coatings has done some
good things in support of the Doheny efforts to reach deep
into the marketplace. For instance, we direct hundreds of
callers to you when inquiring about purchasing Olympic, a
very trusted brand. I believe our website to be superb and we
will be ramping up our social media presence for the upcoming
year, along with our ongoing marketing investments. I also
think it important to mention we sent out at no charge over
$43, 000 in free goods plus freight last year to Doheny
customers (we code them) for whatever complaint they were
being unreasonable about, just to maintain a smooth
relationship and faith in the line. Remember, Doheny grew 12%
over the last 4 years where ITS [Cortz] flat lined.
(11/17/16 Spruill Letter.) Mick Doheny replied to
Spruill's letter requesting an additional $4.00 per
gallon price reduction on Zeron. (6/28 M. Doheny Prelim. Inj.
Hr'g; Prelim. Inj. Hr'g Ex. 34, 11/22/16 e-mail.)
Kelley eventually offered to reduce the price by an
additional $2.00 a gallon, which Mick Doheny accepted. (6/28
M. Doheny Prelim. Inj. Hr'g.) In explaining why he asked
for a lower per gallon price for Zeron, Mick Doheny testified
that he requested a lower price because he discovered through
Cortz's advertising that Cortz was selling its
self-branded version of Zeron for a retail price of $69.99 a
gallon, which was essentially Doheny Enterprises'
wholesale per gallon cost of the product. (Id.) Mick
Doheny explained that “I just wanted a better price on
it because I couldn't sell it for what they were selling
it for and not lose money.” (Id.) Furthermore,
Mick Doheny testified that Murphy was not involved in the
Zeron price negotiations and that Murphy never told him the
vendor price that Cortz paid. (Id.)
preliminary injunction is an extraordinary equitable remedy
that is available only when the movant shows clear
need.” Turnell v. CentiMark Corp., 796 F.3d
656, 661 (7th Cir. 2015); see also Whitaker By Whitaker
v. Kenosha Unified Sch. Dist. No. 1 Bd. of Educ., 858
F.3d 1034, 1044 (7th Cir. 2017) (“A preliminary
injunction is an extraordinary remedy.”). Moreover, a
preliminary injunction is “a way to maintain the status
quo until merits issues can be resolved at trial.”
Michigan v. U.S. Army Corp of Eng'rs, 667 F.3d
765, 783 (7th Cir. 2011). To obtain a preliminary injunction,
the moving party must show that (1) its claims have some
likelihood of success on the merits; (2) it will suffer
irreparable harm prior to ...