In Finkel v. Cashman Professional, Inc., et al., Case Nos. 54520, 55377, 2012 WL 669897 (Nev. March 1, 2012), the Supreme Court of Nevada addressed the validity of non-solicitation, non-competition, and non-disclosure covenants and the proper duration of a preliminary injunction prohibiting disclosure or use of trade secrets. The Nevada Supreme Court received the case after it consolidated two appeals from Marc Finkel: one challenging the original preliminary injunction entered against him and the second challenging the lower court’s denial of Finkel’s motion to dissolve the injunction after Finkel terminated a consulting contract containing the restrictive covenants.
Finkel is a former executive with Cashman Professional, Inc. (“Cashman”). While employed by Cashman, Finkel was responsible for expanding and streamlining Cashman’s Las Vegas-based wedding photography business. Among other things, Cashman designed business software, negotiated sales contracts with customers, developed new strategies, created training programs, and implemented new management techniques. Cashman went to “great lengths” to keep these aspects of its business confidential.
When Finkel left Cashman in 2008, Cashman and Finkel entered into a consulting agreement (“Agreement”) providing that Finkel would abide by restrictive covenants prohibiting Finkel from, among other things, engaging in a business competitive with Cashman, soliciting Cashman’s employees, and disclosing Cashman’s confidential information.
In 2009, Finkel purchased a printing company which was the only printing company in Las Vegas that could provide overnight printing of wedding photo books (“PrintCo”). Prior to and after Finkel’s purchase of PrintCo, Cashman relied on PrintCo when overnight printing services were required. Finkel enlisted several Cashman employees to help establish PrintCo, solicited several Cashman customers to move their business to PrintCo, and in the process disclosed Cashman’s confidential information and misappropriated its trade secrets.
Cashman then obtained a preliminary injunction (“PI”) against Finkel enforcing the Agreement’s restrictive covenants and concluding that Finkel had misappropriated trade secrets in violation of Nevada’s Uniform Trade Secrets Act. Finkel appealed the PI order and then exercised his right to terminate the Agreement. Finkel then moved to dissolve the PI upon termination of the Agreement. The lower court denied Finkel’s motion to dissolve and Finkel appealed.
The District Court Did Not Err in Granting the Preliminary Injunction
The Nevada Supreme Court found that substantial evidence supported the district court’s conclusions that Finkel likely competed with Cashman, solicited Cashman’s employees, disclosed Cashman’s confidential information, and misappropriated Cashman’s trade secrets. The court rejected Finkel’s argument that the information used by him were not Cashman trade secrets. Specifically, in rejecting Finkel’s argument, the court noted Finkel’s admission that costs, discounts, future plans, business processes, technical matters, and product designs are confidential trade secrets to hold that the Cashman information used by Finkel likely constituted trade secrets and that Cashman had taken reasonable measures to maintain the confidentiality of its information.
After Finkel Terminated the Agreement, the District Court Should Have Dissolved the Aspect of the PI Applying to the Restrictive Covenants
The Nevada Supreme Court held that the district court erred by refusing to dissolve the aspect of the injunction enforcing the restrictive covenants. The court reasoned that, because the Agreement was no longer in effect, the restrictive covenants were no longer enforceable. Although this was an issue of “first impression” in Nevada, the court cited the Ninth Circuit decision of Economics Laboratory, Inc. v. Donnolo, 612 F.2d 405, 408 (9th Cir. 1979) in support. Ultimately, the court reasoned that it was an abuse of discretion to restrict Finkel’s business activities based restrictive covenants within a terminated agreement.
Finally, the Supreme Court held that, under Nevada’s adoption of the Uniform Trade Secrets Act, the district court had not made findings as to (1) whether the information alleged by Cashman to be trade secret remained trade secret at the time of Finkel’s appeal; and (2) the proper duration of the injunction. The court remanded this issue to the district court for reconsideration.
In Nevada, confidential information that does not rise to the level of a trade secret may nonetheless be protected from disclosure by contract. Breach of such contracts may serve an independent basis to obtain injunctive relief.
Employers should carefully consider how to best structure termination clauses in non-disclosure agreements in order to help ensure that the duration of restrictive covenants within such agreements cannot be prematurely and unilaterally terminated.