Trading Secrets : Trade Secrets Lawyers & Attorneys : Seyfarth Shaw Law Firm : Computer Fraud, Confidentiality Agreements, Corporate Espionage

By Marcus Mintz

In a recent case filed in the United States District Court for the Northern District of Florida, Mainline Information Systems, Inc. v. Fordham, No. 11-137, 2011 WL 2938435 (N.D. Fl. July 21, 2011), the plaintiff sought a preliminary injunction against an individual defendant for tortious interference with business relationships and for misappropriation of trade secrets. Plaintiff provides integrated IT solutions for businesses and other related products and services. Plaintiff contended that the defendant was soliciting more than 20 of its employees directly, and an additional 14 employees indirectly, to terminate their employment relationships with plaintiff and join a competing company. Plaintiff also argued that defendant was seeking to misappropriate its trade secrets through the solicitation of its employees.

The district court denied plaintiff’s motion for preliminary injunction because plaintiff failed to demonstrate a “substantial likelihood” that plaintiff would prevail on the merits of either of its two claims, for tortious interference or misappropriation of trade secrets. At bottom, the court found that plaintiff had run into court without the evidence to support its claims. The court specifically found that plaintiff introduced no witnesses to testify at the preliminary injunction hearing and only presented two affidavits in support of its application for injunctive relief. One such affidavit was dismissed as “threadbare” in that it only asserted that the allegations of the complaint were true and correct. The second affidavit was made by one of plaintiff’s senior vice presidents who stated that defendant had, directly and indirectly, solicited plaintiff’s employees. Neither affidavit was sufficient to meet plaintiff’s burden to obtain a preliminary injunction, particularly in light of the evidence put forth by the defendant that contradicted plaintiff’s claims.

In contrast to the plaintiff, the defendant testified at the hearing and denied contacting the majority of the employees that plaintiff claimed were solicited by the defendant. The defendant also presented evidence from several of the purportedly solicited individuals who stated they were never contacted by defendant. Based on the foregoing evidence put forth by defendant, which directly contradicted plaintiff’s second affidavit, the court denied the motion for preliminary injunction as it related to tortious interference. Similarly, because no evidence was presented regarding defendant’s use of any trade secrets, the preliminary injunction was also denied as to defendant’s misappropriation claim.

The court’s brief ruling is an instruction to would-be litigants that argument by itself is insufficient to obtain injunctive relief in Florida’s district courts.

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White Wave International, Inc. filed an action in Florida against Lindsay Lohan, Lorit LLC, a company she has an indirect ownership interest in, and several other defendants arising out of a certain Confidentiality Agreement Between Firms (“CABF”) between White Wave and Lorit. It was alleged by White Wave that the CABF provided Lohan, Lorit and the other defendants with a time-limited opportunity to examine and obtain samples of White Wave’s product. It was further alleged that although Lorit made an offer to purchase the product from White Wave, the parties were unable to agree on a purchase price and the relationship was terminated. White Wave’s action arose, it alleged, when Lorit, Lohan and another defendant introduced a product which was claimed to contain the nearly identical ingredients as White Wave’s product.

White Wave’s complaint included five counts including breach of contract, theft of trade secrets (under the Uniform Trade Secrets Act), civil conspiracy, intentional interference with contract and deceptive and unfair trade practices. Lohan moved to dismiss the complaint as against her on the basis of lack of personal jurisdiction (notably, the action had been dismissed as against 3 other defendants previously on similar grounds).

Lohan argued that the court lacked personal jurisdiction over her because she did not have sufficient contacts with the State of Florida with respect to the facts that gave rise to the complaint, specifically regarding the CABF, Lorit or its business. White Wave argued that Lohan communicate with Florida citizens “through the internet” regarding Lorit’s product, and that consequently her physical presence in Florida was not necessary to confer jurisdiction.  Essentially, that her “telephonic, electronic, or written communications into Florida” regarding Lorit’s product were enough to invoke long-arm jurisdiction.

The court dismissed the action as against Lohan, finding that none of the activity prescribed to her by White Wave satisfied Florida's long-arm statute (subparagraphs (1)(a) through (h) of § 48.193 of the Florida Statutes).  Although the court agreed that “… a defendant does not have to be physically present in the state to commit a tort under § 48.193(1)(b)” and further that “[t]he Eleventh Circuit has consistently applied [a] broader construction of section (1)(b)”,  it further held that the cases in which the Eleventh Circuit has applied section (1)(b) to foreign torts causing injury within Florida, the conduct was directed at Florida residents, corporations, or property, and the harm was felt exclusively or primarily in Florida.  Because the alleged tortious act was the misappropriation of White Wave’s trade secrets, a misappropriation alleged to have occurred outside the State, the alleged tortious act was not directed at Florida residents, corporations or property and thus could not be used to invoke the long-arm statute.

As to the allegation that Lohan committed a tortious act within Florida “by making telephonic, electronic, or written communications” into the State, to wit her “internet communications” promoting Lorit’s product, the court found that the cause of action alleged, misappropriation of trade secrets, did not arise from said internet communications. Consequently the court ruled that the “tortious conduct” occurred outside of the state, and the damage alleged were insufficient to satisfy Florida's long-arm statute.

The court similarly rejected plaintiff’s argument that its civil conspiracy claim satisfied the long-arm statute.  White Wave argued that the long-arm statute conferred personal jurisdiction over an alleged conspirator where any other co-conspirator committed an act in Florida in furtherance of the conspiracy. The court found that the complaint failed to allege sufficient facts from which it could be reasonably inferred that the defendants, including Lohan, “…were part of a conspiracy either engineered in Florida or pursuant to which a tortious act in furtherance was committed in Florida.”

The court also rejected the argument that personal jurisdiction over Lohan could be established by the breach of contract provision of the Florida long-arm statute because the CABF was between White Wave and Lorit, and Lohan was only, at best under the facts alleged in the complaint, a member of the limited liability corporation. Consequently, the court found that she could not be personally liable for any liability of the limited liability corporation under the facts alleged, and therefore, jurisdiction under under the Florida long-arm statute failed there as well. As a result, the court did not reach Lohan’s due process arguments.

White Wave may decide to pursue its suit against Lohan in another forum where she is subject to personal jurisdiction, such as California.

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Jerry Powers, the founder of Miami's successful magazine, Ocean Drive, has sued the purchaser of the business and now-publisher of the magazine, Niche Media Holdings, LLC ("Niche Media")  seeking a declaratory judgment that the non-compete restrictions contained in the parties' asset purchase agreement ("APA") and the employment agreement he entered into following the sale do not (a) prevent Powers from helping inner-city youth publish their own magazine (Inspire, Enrich & Empower or IE2) as part of a non-profit effort and (b) prevent Powers from working in the luxury magazine world after November 1, 2009.   In the 126-page complaint, including exhibits, Powers alleges that there are inconsistencies in the provisions of the APA and his employment agreement, but that under the APA, his restrictive covenants cease as of November 1, 2009.  Niche Media, according to the complaint, contends that the restrictive covenants last until February 17, 2011 -- a rather significant difference in time.  In support of his theory, Powers points to the provision in the employment agreement that says that terms of the APA are controlling if there is any conflict between the APA and the employment agreement.

In the complaint, Powers claims that he filed suit based on the "intermeddling" of Niche Media in his efforts to publish IE2.  Indeed, Powers claims that Niche Media threatened to sue to stop the publication of IE2. 

The parties' dispute has attracted some media attention with the Miami Herald   and Law360 reporting on it.  The interest may derive in part from the charity involved in publishing IE2, Overtown Youth Center, is supported by Alonzo Mourning Charities.  Alonzo Mourning is a retired NBA star who played for the Miami Heat.  

Yet, without so much as an opposing brief being filed by Niche Media, the day after filing, the Court denied Powers's request for emergency relief.  The Court rejected the emergency nature of the brief, saying

the Complaint and Motion fail to set out in detail good cause of the necessity of expedited procedures, as required in an emergency motion.  Finally, the Court notes that the Complaint does not clearly allege a case or controversy that is ripe for adjudication, specifically as to the request for declaratory and injunctive relief regarding the expiration of the non-competition and non-solicitation provisions. 

This early of a set-back in a case of this sort may not bode well for Powers.  And, solely in my opinion (of course), Powers may need to be considering amending his complaint to avoid a motion to dismiss based on the Court's statements in her order. 

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On July 30, 2009, the Eleventh Circuit reversed a district court decision granting over $1.6 million in damages to a former employer, but upheld an injunction against the former employee, enforcing a non-compete agreement. In Proudfoot Consulting Co. v. Gordon, No. 09-14075, Judge Trager issued an opinion finding that a non-compete agreement that prevented a former Project Director from competing in North America and any other territory to which the employee had been assigned during his employment for six months following his employment was enforceable under Florida law.

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In Zupnik v. All Florida Paper, Inc., No. 3DO8-1371, 2008 WL 5412090 (Fla. 3rd D.C.A. Dec. 31, 2008), the Florida Court of Appeals for the Third Circuit reversed a trial court’s entry of a temporary injunction against Stewart Zupnik and Dade Paper & Bag Company. The Court’s reasoning was that the restrictive covenants in question had expired and All Florida Paper did not provide evidence of misappropriation. The facts of the case are as follows:

Zupnik is a sales representative with experience selling paper and janitorial products to customers in the food industry. On March 14, 2004, Zupnik signed an Agreement with All Florida that stated that the "employment shall be for a term of two years." The Agreement gave Zupnik the option to remain with All Florida as an at-will employee if he so elected within 72 hours of the expiration of the two-year term. The Agreement also contained a one-year non-compete and five-year non-disclosure of confidential information provisions, both of which were triggered post-employment by the termination of the term of employment.

After the expiration of the two-year term, Zupnik formed his own company – South Florida Paper Products – and conducted negotiations with Dade Paper & Bag Company as a potential supplier. All Florida subsequently alleged that Zupnik shared confidential information with Dade Paper in a meeting at a local restaurant. At an evidentiary hearing, the only evidence that All Florida offered of such a disclosure was testimony from a private investigator that: (1) Zupnik appeared to give Dade Paper operations manager William Baltzell a folder; and (2) Zupnik and Baltzell had All Florida invoices at the table..

The trial court enforced the non-compete provision and also found that Zupnik had shared trade secrets and confidential information with Dade Paper. The Third Circuit Court of Appeals reversed, holding that the non-compete and non-disclosure restrictions expired at the end of the two-year term. The expiration of the two-year term did not constitute a "termination" to trigger the post-employment restrictions. The Court of Appeals also overturned the trial court’s finding that Zupnik and Dade Paper misappropriated trade secrets and confidential information. The Court of Appeals held that All Florida did not show that its invoices and pricing information were confidential or that defendants misappropriated pricing information.

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In this breach of employment contract and misappropriation of trade secrets case, plaintiff moved to compel production of e-mails from defendant’s personal Yahoo! account. 

Plaintiff contended that Defendant used this specific e-mail account to engage in the activities upon which this entire lawsuit is based. Defendant claimed that he could not produce these e-mails, because they had been destroyed by Yahoo!. However, the defendant offered only a copy of a generic response from Yahoo! about deactivating accounts.  The court declined to accept defendant’s explanation that production was "impossible," particularly given the important evidentiary value of the e-mails and the "feeble offering" by defendant in support of the contention. Indeed, the Court indicated that it "will not accept Defendant's position that [defendant] cannot produce these emails until assurance is given from an executive at Yahoo! responsible for such tasks that this request is indeed impossible."

In addition, the court held that defendant's representation that he was being "completely truthful" when he did not identify the account, because he knew it would be impossible to ultimately produce these e-mails, to be sanctionable: "It will figure largely into the sanctions ultimately awarded in this matter if it is learned that Defendant's failure to identify this account earlier is the cause of the alleged impossibility."  The court stated the particular sanctions awarded would depend on the outcome of defendant's efforts to obtain the documents, and what was revealed by these efforts as to defendant's actions, if any, that resulted in spoilation of evidence or other more serious discovery violations.

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