Dakota Beef, a South Dakota processor and seller of organic beef products, hired Scott Lively in 2006 to be its CEO. He signed an employment agreement prohibiting him for two years after his employment terminated from disclosing confidential information, soliciting Dakota Beef’s customers, and competing in the organic beef business, anywhere Dakota Beef conducts business. South Dakota law permits such contracts. Lively was fired in November 2008. In May 2010, he began competing against Dakota Beef which filed suit against him the next month seeking a TRO and a preliminary injunction. Six days later, a South Dakota federal judge entered the requested TRO and set the matter for a preliminary injunction hearing one week thereafter. Howard Venture LLC v. Lively, 2010-2 Trade Cases ¶ 77,200 (D.S.D., June 23, 2010).
Finding that “Dakota Beef is in a business that relies heavily on customer lists and customer good will developed over a substantial period of time,” the court reasoned that “In competing against Dakota Beef and soliciting its customers, it is likely that Lively will either intentionally or unintentionally disclose [Dakota Beef’s] confidential information,” and that if a TRO was not entered, Dakota Beef could not be compensated for all damages sustained because of the difficulty of proving them. While recognizing that wrongful grant of a TRO could cause greater injury to a new business like Lively’s than denial might damage Dakota Beef’s established business, the court concluded that the irreparable harm to Dakota Beef’s “competitive place in the organic beef marketplace” by disclosure of its confidential information tipped the balance in favor of granting the TRO.
Lively’s confidential relationship necessarily would have provided him access to Dakota Beef’s trade secrets, the court said, and since there was no evidence that Dakota Beef had disclosed its trade secrets to anyone not in a confidential relationship or that they had “been legitimately discovered and openly used by others,” Dakota Beef was found to have “a fair chance of prevailing on the merits.” Finally, the court determined that a TRO was warranted because there is a public interest both in the enforcement of lawful contracts and in “fair competition by protecting confidential and secret information.”