Stonhard v. Gabriel

          OPINION

          SUE E. MYERSCOUGH, UNITED STATES DISTRICT JUDGE

         This cause is before the Court on the Motion for Preliminary Injunction (d/e 4) filed by Plaintiff Stonhard, a division of Stoncor Group, Inc. (Stonhard). Because Stonhard has not shown a reasonable likelihood of success on the merits, the motion is DENIED.

         I. PROCEDURAL BACKGROUND

         On January 10, 2019, Stonhard filed a Complaint for Injunctive and Other Relief (d/e 1). Count I of the Complaint asserts a claim for breach of contract against Defendant Ronald E. Gabriel (Gabriel), a former employee of Stonhard. Stonhard alleges that Gabriel breached the noncompete provision of the employment agreement Gabriel entered into with Stonhard by obtaining employment with, and becoming a shareholder of, Central Illinois Coatings, Inc. (CIC), a direct competitor of Stonhard in central Illinois. Count II of the Complaint is a tortious interference claim against CIC in which Stonhard alleges that CIC has continued to employ Gabriel despite having knowledge of the employment agreement Gabriel entered into with Stonhard. Stonhard seeks monetary damages as well as preliminary and permanent injunctions against Gabriel and CIC.

         On January 14, 2019, Stonhard filed its Motion for Preliminary Injunction. Stonhard asks the Court to preliminarily enjoin Gabriel from performing services for CIC in any capacity; performing activities that compete with Stonhard in Illinois, Wisconsin, Michigan, Minnesota, Missouri, Indiana, Iowa, Ohio, and parts of Kentucky; and using or disclosing any non-public information that was entrusted to Gabriel by Stonhard or to which Gabriel had access by virtue of his employment with Stonhard. See Proposed Order (d/e 6), ¶¶ 1-2; Transcript (d/e 24), at 15 (Stonhard's counsel noting that Iowa should have been included in the proposed order but was not). Stonhard also asks the Court to enjoin CIC from employing Gabriel, receiving services from Gabriel in any capacity, and using any non-public information belonging to Stonhard that was disclosed to CIC by Gabriel. See Proposed Order, ¶¶ 3-4.

         On January 25, 2019, Gabriel filed his Memorandum of Law in Response to Plaintiff Request for Preliminary Injunction (d/e 20). Gabriel argues that Stonhard cannot establish irreparable harm, claiming that he does not possess Stonhard's confidential information and will not, while the noncompete provision remains in effect, contact or solicit Stonhard customers that Gabriel contacted while working for Stonhard. Response (d/e 20), at 11. Gabriel also argues that the harm he will suffer if the Court issues the preliminary injunction requested by Stonhard weighs heavily against the issuance of the preliminary injunction. Id. at 14-15.

         At an evidentiary hearing held on January 29, 2019, the Court heard testimony from Gabriel; Reed Goodwin, Stonhard's National Linings Manager; and Matthew Connelly, Stonhard's Area Manager for the Great Lakes West region. The Court also admitted several exhibits tendered at the hearing by Stonhard and Gabriel. No. one attended the hearing on behalf of CIC.

         II. FACTUAL BACKGROUND

         Stonhard manufactures and installs epoxy, polyurethane, and methyl methacrylate (MMA) floors, walls, and lining systems. Connelly Certification (d/e 5-1), ¶ 4; Goodwin Affidavit (d/e 5-2), ¶ 3. Unlike some other companies in this industry, Stonhard manufactures its own materials to be used during the installation process. Transcript, at 182. Stonhard's products are installed by third-party contractors who install only Stonhard's products. Id. at 26, 131-32.

         A significant amount of Stonhard's business is obtained through a competitive bidding process in which potential customers solicit bids from various companies for a project before awarding that project to a particular company. Transcript, at 68. A customer's decision on which company to award a project to is based on pricing, goodwill, and the relationship between the customer and each company that submits a bid. Id. at 68-69.

         On November 4, 2013, Gabriel began his employment with Stonhard as a Territory Manager assigned to central Illinois. Id. at 27. Gabriel and Stonhard entered into an employment agreement that contained the following provisions:

5.1 I recognize that Stonhard will necessarily share with me various kinds of Stonhard's Confidential Information. I further recognize that I will be using this Confidential Information in the course of performing my duties of employment for Stonhard. I also recognize that this Confidential Information would be of value to any business entity competing with Stonhard. I further recognize that I may receive training in the performance of my Stonhard employment duties and/or relating to Stonhard's products, which training would make me of value to a business entity competing with Stonhard. I still further recognize that such training and the Stonhard Confidential Information I will be receiving collectively represent a significant dollar expense and investment by Stonhard. Accordingly:

5.1.1 During my employment with Stonhard, and for a period of two (2) years subsequent to termination of my employment, regardless of the reason for such termination, I shall not compete with Stonhard by engaging in any activity similar to the activities I undertake during the course of my employment with Stonhard. I further agree that during such two-year period subsequent to termination of my employment, I shall not, directly or indirectly, solicit any Stonhard employee to work for me, for my employer or for any Stonhard competitor.

5.1.2 I acknowledge and agree that the geographic scope of this Covenant shall include any assigned territory in which I worked while employed by Stonhard.

         Complaint, Ex. A, ¶¶ 5.1, 5.1.1, 5.1.2. The employment agreement defined “Classified Information” to include any version or edition, in any form or format, of Stonhard's SFA, ^[1] Stonhard's P-File, ^[2] and Stonhard's Price Guide as well as any raw data used to prepare any such version or edition and any data items contained in any such version or edition. Id. ¶ 2.2. The employment agreement defined “Confidential Information” to include, in addition to “Classified Information, ” the following:

[A]ll of Stonhard's other proprietary, non-public information, including operating plans, prices, pricing policies, customer lists and identities, supplier lists and identities, installer lists and identities, raw and purchased material specifications, product and equipment specifications, reports, records, memoranda, notes, sales training materials, sales and marketing strategies and business practices, techniques and plans for Stonhard, including its operating units, groups and regions.

Id. ¶ 2.3. With the exception of raw material specifications, Gabriel had access to all “Confidential Information” that did not meet the definition of “Classified Information.” Transcript, at 48-50. Gabriel agreed to refrain from using any “Confidential Information” other than “for Stonhard's benefit in the course of performing [Gabriel's] employment duties for Stonhard.” Complaint, Ex. A, ¶ 6.2(a).

         Gabriel's duties as a Territory Manager included pursuing and generating sales leads, developing relationships with customers and general contractors, and negotiating contract terms with Stonhard's customers and prospective customers. Connelly Certification, ¶ 11. As a Territory Manager, Gabriel prepared proposals to submit to Stonhard's customers or prospective customers. Transcript, at 28. These proposals included price terms for Stonhard's products and installation, the latter of which included labor overhead. Id. at 29. As a Territory Manager, Gabriel had the ability to increase or decrease the price of a particular project, although the approval of an Area Manager would have been needed during Gabriel's first year with Stonhard (and potentially even after that, depending on the size of the project and the products involved). Id. at 194-96.

         Gabriel's duties as a Territory Manager also included overseeing the installation of Stonhard's products, which entailed coordinating material delivery, negotiating with subcontractors to perform installation work, and analyzing the cost and overhead of various projects. Connelly Certification, ¶ 12; Transcript, at 43-44. As part of Gabriele's training as a Territory Manager, he learned about Stonhard's sales techniques and sales strategies. Transcript, at 56. Prior to obtaining employment with Stonhard, Gabriel knew nothing about pricing epoxy or MMA floors and had not received training on the different materials that Stonhard sells. Id. at 45.

         Through his employment with Stonhard, Gabriel was introduced to Stonhard's customers and prospective customers in the geographic regions to which he was assigned. Connelly Certification, ¶ 13. Throughout his employment with Stonhard, Gabriel developed and maintained relationships with Stonhard's customers. Id. Of the Stonhard customers Gabriel worked with, an overwhelming majority were customers that Gabriel first met while working for Stonhard. Transcript, at 45-46.

         As a Stonhard employee, Gabriel had access to customer lists, customer contact information, sales leads, information on customer needs and requirements, and discounts and other contractual terms pertaining to particular customers. Connelly Certification, ¶ 14. Gabriel also had access to Stonhard's confidential pricing information and Stonhard's method for pricing materials and installation services. Id. At no time did Gabriel have access to the profit margin for any particular project. Gabriel Affidavit (d/e 20-1), ¶ 11. Stonhard does not disclose profit margin to its Territory Managers. Transcript, at 194.

         Stonhard takes steps to prevent the disclosure of confidential information to the public, including Stonhard's competitors. Gabriel Affidavit, ¶ 15. The identity of Stonhard's customers, the contact information for those customers, the nature and terms of Stonhard's business relationships, and Stonhard's pricing formulas are not known by Stonhard's competitors and cannot be determined through public sources. Goodwin Affidavit, ¶ 4.

         While employed by Stonhard, Gabriel had access to Stonhard's SFA, a computer application Gabriel accessed with a username and password specific to him. Transcript, at 29-30; Gabriel Affidavit, ¶ 10. The SFA, which Gabriel used to price projects, contains customer contact information, a history of communications with customers or potential customers, quotes provided to customers, and notes about customer needs or preferences. Id. at 30-31. After speaking with a customer or potential customer, Gabriel would enter notes in the SFA about the conversation. Id. at 31.

         The SFA also contains detailed information on projects that Stonhard bid on and was awarded, including customer contacts and information on pricing, labor costs, and material costs. Id. at 31-32, 134. Information in the SFA on a customer's previous projects can assist a Territory Manager in preparing a quote for another project that the customer would find acceptable. Id. at 39. The information in Stonhard's SFA is not available to Stonhard's competitors. Id. at 35.

         As a Territory Manager, Gabriel had access to certain SFA information for all of Stonhard's customers and potential customers in central Illinois. Id. at 36. Gabriel had access to information on labor charges, labor overhead, material list prices, material quotes, and miscellaneous charges, but he did not have access to information on cost of sales percentages, material costs, estimated use taxes, or gross profit percentages. Id. at 41-43. Gabriel, as a Territory Manager, did not have access to SFA information for any territory other than the territory assigned to Gabriel. Id. at 121.

         On or about September 1, 2017, Stonhard promoted Gabriel to the position of Regional Linings Manager. Goodwin Affidavit, ¶ 7; Transcript, at 138. While still responsible for business development, Gabriel's focus as a Regional Linings Manager shifted from all of Stonhard's products to Stonhard's Stonchem line of products. Goodwin Affidavit, ¶ 9; Transcript, at 139. Due to his promotion, Gabriel's assigned territory expanded to include the states of Illinois, Wisconsin, Michigan, Minnesota, Missouri, Iowa, Indiana, Ohio, and areas of Kentucky that included the cities of Lexington and Louisville. Goodwin Affidavit, ¶ 9; Transcript, at 15. Accordingly, as a Regional Linings Manager, Gabriel had access to SFA information for all of Stonhard's customers and potential customers in 26 territories. Transcript, at 36, 56, 121. During his time as a Regional Linings Manager, Gabriel reported to Reed Goodwin (Goodwin). Id. at 57.

         Around November 7, 2017, Gary Zimmerman (Zimmerman) initiated a conversation with Gabriel about purchasing CIC's assets. Transcript, at 76, 142-43. Over the next several months, while Gabriel was employed by Stonhard, Gabriel and Zimmerman had extensive business discussions and exchanged information. Id. at 85, 89-90, 143. Gabriel indicated that he could take over Zimmerman's role of pricing jobs for CIC's customers. Id. at 86.

         In May 2018, Coatings of Illinois, Inc. (Coatings of Illinois), was incorporated in the State of Illinois. Transcript, at 63, 76; Pl. Ex. 8. In August 2018, Gabriel and Zimmerman's two sons signed an agreement on behalf of Coatings of Illinois through which Coatings of Illinois purchased ...