IP Law Daily Beverage distributor obtains TRO against former employee, barring work for rival company
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Monday, August 26, 2019

Beverage distributor obtains TRO against former employee, barring work for rival company

By Cheryl Beise, J.D.

Former Keurig Dr Pepper sales vice president temporarily enjoined from using confidential information and trade secrets he allegedly misappropriated, working competitively with sports drink manufacturer BodyArmor, and making proposals to Wal-Mart.

The federal district court in Sherman, Texas, has granted a temporary restraining order to beverage distributor Keurig Dr Pepper to prevent a former employee from using confidential information and trade secrets he allegedly misappropriated, from working with competing sports drink manufacturer BodyArmor in the restricted geographic area as defined by noncompete agreements the employee agreed to, and from making proposals to Wal-Mart on behalf of BodyArmor. The court found that Keurig Dr Pepper established a likelihood of success on breach of contract and trade secret misappropriation claims under federal and Texas law against the former employee and that the plaintiff would suffer irreparable harm absent a TRO (Keurig Dr Pepper Inc. v. Chenier, August 22, 2019, Mazzant, A.).

Plaintiff Keurig Dr Pepper Inc., through its subsidiaries such as Dr Pepper/Seven Up, Inc., and the American Bottling Company (collectively, "KDP"), is engaged in the business of beverage manufacturing and distribution throughout the United States and the world. KDP’s business also entails partnering with emerging brands to distribute beverage on their behalf. In July 2017, KDP hired defendant John Chenier as a regional sales director, and later promoted him to vice president of sales, assigned to KDP’s Wal-Mart/Sam’s Club account. Chenier was bound by KDP’s Employee Confidentiality and Non-Competition Agreement and Mutual Arbitration Agreement (collectively, the "agreements"). During Chenier’s employment, KDP contracted with BodyArmor to distribute BodyArmor’s sports drink. Chenier worked directly with BodyArmor to help it promote its brand with Wal-Mart. In August 2018, BodyArmor terminated its distribution relationship with KDP. In Spring 2019, Chenier accepted a job with BodyArmor to serve as its vice president of sales for Wal-Mart/Sam’s Club. On June 6, 2019, Chenier notified his supervisor at KDP of his intent to resign. Upon learning that Chenier took a similar position with BodyArmor, KDP retained an outside expert to forensically image Chenier’s KDP-issued computer.

In July 2019, KDP filed a complaint against Chenier alleging breach of contract and actual and threatened misappropriation of trade secrets under the Texas Uniform Trade Secrets Act (TUTSA) and the Defend Trade Secrets Act (DTSA). KDP contended that Chenier’s employment with BodyArmor, and specifically as it related his contact with Wal-Mart, was in breach of covenants not to compete and solicit/interfere. Before the court was KDP’s emergency motion for a TRO and preliminary injunction.

Likelihood of success—trade secret misappropriation. KDP alleged that Chenier unlawfully downloaded KDP’s trade secrets on multiple thumb drives and sent trade secrets to his personal email address. Chenier did not dispute that the thumb drives contained the information that KDP claimed. Instead, Chenier argued only that KDP had not identified a trade secret that was misused or misappropriated. The court disagreed. KDP presented "a wealth of circumstantial evidence that strongly indicates Chenier acquired its trade secret by improper means," the court said. For example, KDP alleged that Chenier improperly used KDP trade secrets to solicit Wal-Mart on behalf of BodyArmor and presented a confidential KDP pitch presentation to Wal-Mart outlining its product growth strategy for certain non-carbonated beverages. Further, KDP argued that because Chenier held a substantially similar position with BodyArmor as he did with KDP, Chenier has used and will continue to use KDP’s confidential information.

Chenier provided sworn testimony that he had not used and will not use any confidential KDP information in the course of his work for BodyArmor. Chenier and his counsel also certified that any information that Chenier downloaded has been turned over to counsel and was not in Chenier’s possession. However, the court was not in a position at this point to weigh the credibility of this evidence. The court found that KDP sufficiently made a prima facie showing that the information that Chenier downloaded qualified as a trade secret and was acquired through improper means and in breach of a confidential relationship.

The court also found that KDP made a prima facie case based on threatened misappropriation. The court noted that it is proper for courts to enter an injunction upon a showing that a defendant probably, rather than, in fact, disclosed trade secrets. Moreover, such a showing can be made by proving that a defendant is "in possession of the information and is in a position to use it." KDP argued that Chenier’s use of its trade secrets had already benefited BodyArmor, evidenced by its relationship Wal-Mart through Chenier. KDP contended that if Chenier was not restrained, KDP stood to further lose millions in business, as well as goodwill, customer relations, and an erosion of its standing in the market.

Likelihood of success—breach of contract. KDP asserted that Chenier was in acting in contravention of his post-employment obligations and sought to enforce the agreement’s non-compete provision and non-solicitation provision. Under Texas Business and Commerce Code § 15.50, "a covenant not to compete is enforceable if it is ancillary to or part of an otherwise enforceable agreement at the time the agreement is made to the extent that it contains limitations as to time, geographical area, and scope of activity to be restrained that are reasonable and do not impose a greater restraint than is necessary to protect the goodwill or other business interest of the promisee."

Chenier contended that he never saw or signed the agreements. However, KDP alleged that Chenier received hundreds of thousands of dollars’ worth of restricted stock unit awards, the acceptance of which mandated Chenier’s agreement to post-employment restrictive covenants, including non-competition, non-solicitation, and confidentiality. Chenier was required to use his unique login credentials to access and accept the awards and he was required to click a box stating that he would be bound by the covenant not to compete. "In Texas this is sufficient to bind Chenier to the Agreements," the court said.

Because an agreement not to compete is in restraint of trade, it is unenforceable on grounds of public policy unless it is reasonable in terms of geographic restrictions, duration, and scope, the court noted. The court found that the agreement at issue restricting Chenier’s employment within the same geographic territory for one year was reasonable. Chenier argued that BodyArmor was not a competitor with KDP because its "Super Drink" product is a sports drink, whereas KDP’s affiliated brands produced coffees, carbonated soft drinks, teas, water, and juices. At this stage, the court rejected Chenier’s narrow interpretation of "competitor" as defined by the agreements.

The court concluded that KDP sufficiently showed that (1) the non-compete provision and non-solicitation provision were ancillary to or part of an otherwise enforceable agreement and (2) the restrictions set therein were reasonable. Accordingly, KDP established a likelihood of success on its breach of contract cause of action.

Other factors. KDP sufficiently alleged irreparable harm by claiming that it stood to lose millions in business, as well as goodwill, customer relations, and an erosion of its standing in the market. "In Texas, injury resulting from the breach of non-compete covenants is the epitome of irreparable injury," the court said. The balance of harms favored the granting of a TRO. The court did not find substantial harm to Chenier by temporarily restraining his actions until the preliminary injunction hearing on a few weeks. Finally, a temporary restraining order under the present circumstances would not disserve the public interest. "To the contrary, it is in the public interest to uphold contracts and to enforce a remedy that is provided for by Texas law," the court said.

Chenier was temporarily restrained from using or disclosing any of KDP’s confidential or trade secret information; from providing competitive services in the restricted area for BodyArmor; and from interfering, soliciting, servicing, or making proposals to Wal-Mart. He also was ordered to return to KDP all originals and copies of all files, devices, and documents that contain or relate to KDP’s confidential or trade secret information.

This case is No. 4:19-cv-00505-ALM.

Attorneys: Carol Collins Payne (Estes Thorne & Carr PLLC) and Justin K. Beyer (Seyfarth Shaw LLP) for Keurig Dr Pepper Inc. Jyotin Hamid (Debevoise & Plimpton LLP) for John Chenier.

Companies: Keurig Dr Pepper Inc.

MainStory: TopStory TradeSecrets TexasNews

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