By Mark Engstrom, J.D.
Bixby Zane Insurance Services was entitled to a preliminary injunction against a former employee and the employee’s company, the federal district court in Sacramento, California, has ruled. The injunction enjoined the misuse of trade secrets that pertained to the company’s pricing and commission information. Bixby was not, however, entitled to preliminary relief against three other former employees and their companies. Its motion for a preliminary injunction was granted in part and denied in part (PEO Experts CA, Inc. v. Engstrom , September 21, 2017, Mueller, K.).
Plaintiff PEO Experts CA Inc., d/b/a Bixby Zane Insurance Services (hereinafter, "Bixby"), sued a former sales manager (Ryan Wakefield), two former sales agents (Michael Engstrom and Chris Longo), a former sales consultant (Jennifer Engstrom), and the businesses that those individuals were operating. The lawsuit accused the defendants of violating the federal Defend Trade Secrets Act (DTSA), California’s Uniform Trade Secrets Act (CUTSA), and other laws. Bixby sought a preliminary injunction that barred the defendants’ continued misappropriation of its trade secrets.
The court conducted a preliminary injunction analysis that evaluated the likelihood of Bixby’s success on the merits, the likelihood of irreparable harm to Bixby in the absence of injunctive relief, the balance of the equities, and the public interest.
Likelihood of success. According to Bixby its trade secrets included a list of customer identities, contact information, pricing information, prior purchase history, specifications, habits, and other forms of customer goodwill. According to the court, Bixby had sufficiently identified proprietary information that derived independent economic value from not being generally known to the public. Moreover, Bixby had taken reasonable steps to maintain the secrecy of that information.
Bixby had, for example, retained Salesforce.com Inc. to encrypt the company’s confidential insurance-services information. In addition, Bixby maintained the encrypted information on a password-protected drive and allowed employee access on a "need to know" basis. Access to the information by Engstrom and Longo was restricted to information about the accounts that they managed. In the court’s view, Bixby’s efforts to maintain the secrecy of its proprietary information was reasonable under the circumstances.
Bixby would likely succeed in showing that the company’s pricing and commission information about clients and vendors was valuable because it was not public information, the court decided, and the information had independent economic value and was subject to reasonable efforts to protect its secrecy. In the court’s view, Bixby had sufficiently identified a protected trade secret.
Engstrom and Longo. The record evidence showed that Engstrom and Longo owned, at least partially, the customer lists that had they created. Therefore, Bixby would not likely show that Engstrom and Longo had misappropriated that information when they contacted brokers and clients that had preexisting relationships them. Similarly, Bixby would not likely show that Engstrom would misappropriate that information through a shared home office with his wife, Jennifer Engstrom. Without a likelihood of success or even a "serious question" regarding the merits, Bixby’s motion for a preliminary injunction was denied as to the Engstroms, Longo, and their respective companies. The remainder of the court’s preliminary injunction analysis was therefore limited to Wakefield and his company.
Wakefield’s alleged misappropriation. On the basis of Wakefield’s discussions with a key business partner (Workforce Business Services Inc. (WBS), a Professional Employer Organization (PEO) that bundled services and insurance into packages that targeted the heavy construction industry), Bixby presented a "serious question" regarding the likelihood of succeeding on its misappropriation claim against Wakefield and his company. Without the details of Wakefield’s discussions with WBS, however, the court could not find that Bixby was likely to succeed on the merits. The court thus addressed the remaining preliminary injunction factors to determine whether an injunction against Wakefield was warranted under the Ninth Circuit’s "sliding scale" approach.
Irreparable harm. Bixby based its alleged irreparable harm on the broader damage that Wakefield had allegedly caused with WBS. Although the record was unclear, Bixby argued that WBS had experienced a "loss of confidence" in Bixby’s business judgment when WBS discovered that the defendants had left Bixby. As a result, WBS was likely to offer Bixby an "inferior commission deal" when the parties renegotiated their existing agreement.
That type of harm, if it occurred, could support an injunction, the court concluded. Bixby’s causal story was that Wakefield would continue to harm Bixby’s relationship with WBS by offering an alternative and cheaper client-access point. According to Bixby, Wakefield’s competition could affect the company’s pending and future negotiations with WBS, and that harm would plausibly recur if Wakefield continued to approach WBS with details from his prior dealings with Bixby. In the court’s view, intangible harm to Bixby was likely. The "irreparable harm" factor thus favored an injunction against Wakefield.
Balance of the equities. Wakefield admitted to soliciting business from WBS using information that he had acquired while employed by Bixby. An injunction would prevent Wakefield from soliciting business using Bixby’s commission information, the court explained, and would prevent Wakefield from continuing to undermine Bixby’s relationship with WBS and other "partner PEOs." The balance of the equities thus favored an injunction.
Public interest. According to the court, a "serious question" remained with respect to the merits of Bixby’s claim against Wakefield. In addition, irreparable harm was likely in the absence of an injunction, and the balance of equities favored Bixby. For those reasons, the public interest favored an injunction that was "specifically focused" on Wakefield’s misuse of Bixby’s trade secret.
Bond. In the event that Wakefield was later found to have been wrongfully enjoined, Bixby was ordered to pay a $5,000 security bond.
The case is No. 2:17-cv-00318-KJM-CKD.
Attorneys: Alden John Parker (Fisher & Phillips, LLP) for PEO Experts CA, Inc. Eric L. Graves (Stone Graves, LLP) for Michael Craig Engstrom.
Companies: PEO Experts CA, Inc., d/b/a Bixby Zane Insurance Services
MainStory: TopStory TradeSecrets CaliforniaNews
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