IP Law Daily Preliminary injunction barring former employee from disclosing trade secrets to competitor affirmed
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Monday, June 15, 2020

Preliminary injunction barring former employee from disclosing trade secrets to competitor affirmed

By David Yucht, J.D.

The former employer was likely to succeed in proving that its ex-regional vice president of operations could not be trusted with trade secrets.

An order issuing a preliminary injunction requiring an ex-employee to return his former employer’s property and prohibiting him from disclosing company trade secrets has been affirmed by the U.S. Court of Appeals for the Sixth Circuit has held. In Michigan, proof that a former employee showed a "lack of trustworthiness beyond his decision to work for a competitor," including his deception of the former employer about accepting a position with the competitor, can support a conclusion that the employee cannot be "trusted" to keep trade secrets confidential. The former employer showed that it would likely succeed in proving that its ex-regional vice president of operations could not be trusted with trade secrets. Consequently, the appellate court upheld this decision (RGIS, LLC v. Gerdes, June 12, 2020, Murphy, E.).

Regional VP of operations leaves company. RGIS, LLC offers inventory-related services to business customers internationally. A former employee worked for RGIS for 30 years, eventually becoming a regional vice president of operations. He left RGIS and immediately became Vice President of U.S. Operations with one of RGIS’s main competitors. His employment agreement barred him from accepting a job with a competitor for one year after leaving RGIS and required him to keep confidential certain RGIS business information. RGIS also believed that he had failed to return a company laptop. RGIS sued for breaching the employment agreement and misappropriating trade secrets. The court granted RGIS’s application for a preliminary injunction barring the ex-employee from working for the competitor for one year, requiring him to return RGIS property, and prohibiting him from disclosing trade secrets. The former employee appealed.

Procedure. The Sixth Circuit upheld the preliminary injunction. The former employee argued that the lower court abused its discretion by ruling on RGIS’s preliminary-injunction motion without giving him an opportunity to respond. The appellate court found that he had an opportunity to respond but failed to do so. RGIS filed its motion on July 1, 2019, and the court set a hearing for August 14. The ex-employee had 21 days to respond. He filed a motion to dismiss on July 29th but failed to respond to the injunction request.

Personal jurisdiction. The appellate court found that there was a likelihood of success on the merits. The panel was not swayed by the argument that RGIS did not have a likelihood of success because the district court lacked personal jurisdiction over him. RGIS showed that it would likely rebut this personal-jurisdiction defense based on a waiver in the employment agreement due to a forum-selection clause which stated that any dispute arising from that agreement "shall and must be filed in" a court in Michigan.

Trade secrets. After determining that the non-competition clause issue was moot because the preliminary injunction enforcing this clause had already expired, the appellate court found that the district court did not abuse its discretion in granting an injunction prohibiting the ex-employee from misappropriating trade secrets. RGIS showed a likelihood of success that it could satisfy both the "trade secret" and the "misappropriation" elements of these claims. The ex-employee did not dispute the "trade secret" element. The district court also did not err when it found that RGIS had shown that he likely would have misappropriated RGIS’s trade secrets. In Michigan, proof that a former employee showed a "lack of trustworthiness beyond his decision to work for a competitor," including his deception of the former employer about accepting a position with the competitor, can support a conclusion that the employee cannot be "trusted" to keep trade secrets confidential. Here, RGIS identified specific pieces of business information that qualify as trade secrets and presented enough evidence to support a finding that the ex-employee showed a "lack of trustworthiness beyond" merely deciding to work for a competitor. He appeared to be deceptive about his reasons for leaving RGIS. He had told the company that he needed more "personal time and that he was not sure what he was going to do next," but immediately went to work for a competitor. In addition, he allegedly failed to return a company laptop. Moreover, the court found that RGIS risked irreparable harm because any disclosure of RGIS’s trade secrets would harm its "ability to compete with its competitors."

This case is No. 19-2051.

Attorneys: Timothy J. Lowe (McDonald Hopkins LLC) for RGIS, LLC. Hideaki Sano (Salvatore Prescott & Porter, PLLC) for Keith Gerdes.

Companies: RGIS, LLC

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