Opinion
CV-24-01773-PHX-DJH
08-01-2024
Conventus Orthopaedics Incorporated, Plaintiff, v. Fusion Orthopedics USA LLC, et al., Defendants.
ORDER
Honorable Diane J. Humetewa United States District Judge
Plaintiff Conventus Orthopaedics Incorporated d/b/a Conventus Flower Orthopedics (“Plaintiff”) has filed a Complaint (Doc. 1) against Defendants Fusion Orthopedics USA, LLC (“Fusion”), Eric Cracraft (“Cracraft”), and Jonathan DoBosh (“DoBosh”) (collectively “Defendants”) alleging breach of contract, tortious interference, and misappropriation of trade secrets. Plaintiff concurrently filed an Application for Temporary Restraining Order (“TRO”) and Expedited Discovery (Doc. 2) with supporting documents thereto (Docs. 3; 4). The Court held a hearing on July 31, 2024, allowed oral argument, and took the matter under advisement (Doc. 28) (the “TRO Hearing”). Upon consideration of the briefing and the parties' supplemental arguments, the Court will deny Plaintiff's Application in its entirety.
The matter is fully briefed. Defendants filed a Response (Doc. 22) in accordance with the Court's July 22, 2014, Order (Doc. 16).
Plaintiff also concurrently filed a Motion for Hearing (Doc. 5), which the Court granted (Doc. 23).
I. Background
Plaintiff is a manufacturer of fracture and corrective treatments in the orthopedic extremities market. (Doc. 1 at ¶ 11). Fusion is a direct competitor of Plaintiff that is “dedicated to developing innovative solutions for the orthopedic industry.” (Id. at ¶¶ 8, 33). Plaintiff claims Cracraft and DoBosh (Plaintiff's prior employees) continue to violate the non-compete, non-solicitation, and non-disclosure covenants contained in the employment agreements they executed with Plaintiff when they went to work for Fusion.
Cracraft served in various capacities while working for Plaintiff from February 2019-April 2024, including Director of Sales Training, Senior Director of Sales & Marketing, and Senior Director of Training, Education, and Market Development. (Docs. 1 at ¶¶ 14-15, 27; 22-1 at 2). Among other things, Cracraft managed Plaintiff's sales distribution primarily in the western region of the United States and was tasked with developing and selling Plaintiff's Flex-Thread Distal Fibula Nail. (Doc. 22-1 at 2-3). After voluntarily resigning from his position with Plaintiff, Cracraft began working for Fusion on May 15, 2024 as its Director of MIS Trauma and Extremities. (Docs. 1 at ¶¶ 27, 32; 22-1 at 7). Through this role, Defendants state Cracraft is tasked with leading Fusion's acquisition efforts for new products-he is not responsible for sales and marketing in any location. (Doc. 22-1 at 7; 22-3 at 2).
DoBosh worked as Plaintiff's Area Sales Director for the northeast region of the United States from March 2021-May 2024. (Id. at ¶¶ 16, 30). After voluntarily resigning from his position with Plaintiff, DoBosh began working for Fusion on May 16, 2024, as its Director of Trauma Market Development. (Docs. 1 at ¶¶ 30, 32; 22-2 at 7). Through this role, Defendants state DoBosh is responsible for marketing in the western region of the Unite States. (Doc. 22-2 at 7).
Plaintiff claims Cracraft and DoBosh both “had access to Plaintiff's confidential and proprietary information that is not known to the public including, but not limited to, the identities of customers, research and development pipelines, pricing formulae, marketing strategies, sources of supply” (Doc. 1 at ¶ 17), and “[Plaintiff's] patented designs such as surgical techniques for products like [Plaintiff's] highly coveted Flex-Thread Distal Fibula Intramedullary Nail System (the ‘Fibula Nail')” throughout their tenure with Plaintiff. (Doc. 3 at 3). Plaintiff characterizes this information as its trade secrets. (Docs. 1 at ¶ 17; 3 at 3).
Below is a summary of events that transpired when Cracraft and DoBosh transitioned their employment from Plaintiff to Fusion.
A. Cracraft and DoBosh Enter into Agreements with Plaintiff
During their employment with Plaintiff, Cracraft entered into an “Employee Proprietary Information And Inventions Agreement” (Doc. 1-2 at 3-9)-which has a Minnesota choice-of-law provision (id. at 7)-and DoBosh entered into an “Employee Confidentiality and Restrictive Covenant Agreements” (id. at 10-15)-which has a Pennsylvania choice-of-law provision (id. at 15) (collectively the “Agreements”). Relevant here, the Agreements contain non-compete covenants effective one year after Cracraft and DoBosh's employment. Cracraft's Agreement states in relevant part:
I agree that during the term of my employment, and for one year after my employment ends for any reason, without [Plaintiff's] express written consent, I will not, directly or indirectly, alone or as a partner, officer, director, shareholder or employee of any other firm or entity, engage in any commercial activity in competition with any part of [Plaintiff's] business . . . with respect to which I have Proprietary Information. (Id. at 5).
DoBosh's non-compete covenant states in relevant part:
Employee covenants and agrees that during the period that Employee is employed or engaged by [Plaintiff] and for a period of one (1) year following the date of termination of the Employee's employment or engagement with [Plaintiff] for any reason, the Employee shall not, directly or indirectly, own, manage, operate, control . . . or be connected as an officer, employee, partner, director, or otherwise with . . . any entity or business that directly competes with the business conducted by [Plaintiff] . . . . (Id. at 11).
The Agreements also contain non-solicitation covenants effective one year after Cracraft and DoBosh's employment. Cracraft's Agreement states in relevant part:
During the term of my employment and for one year after my employment
ends for any reason, I will not directly or indirectly (a) hire, solicit, induce, or attempt to hire, solicit or induce, any employee of [Plaintiff] . . . to leave the employ of the [Plaintiff] . . . or in any way interfere intentionally and adversely with the relationship between any such employee and [Plaintiff] . . . (b) hire, solicit, or induce, or attempt to hire, solicit or induce, any current or former employee of [Plaintiff]. . . to work for, render services or provide advice to or supply Proprietary Information of [Plaintiff] . . . to any third person, firm or corporation . . . or (c) solicit or induce, or attempt to solicit or induce, any customer, supplier, licensee, licensor or other business relation of [Plaintiff] . . . to lessen or cease doing business with [Plaintiff] . . . or in any way interfere intentionally with the relationship between any such customer, supplier, licensee, licensor or other business relation and [Plaintiff] . . . . (Id. at 6).
DoBosh's non-solicitation covenant states in relevant part:
Employee covenants and agrees that during the period the Employee is employed or engaged by [Plaintiff] and for a period of one (1) year following the date of termination of the Employee's employment or engagement with [Plaintiff] for any reason, Employee shall not, directly or indirectly . . . [p]ersuade or attempt to persuade any customer of [Plaintiff] to cease doing business with [Plaintiff] . . . or to reduce the amount of business any customer does with [Plaintiff] . . .; [s]olicit for himself or any entity the business of a customer of the [Plaintiff] . . .; and [p]ersuade or attempt to persuade any employee of [Plaintiff] . . . to leave the employe of [Plaintiff] . . . . (Id. at 11).
The Agreements also included non-disclosure covenants that prevent Cracraft and DoBosh from disclosing or using in any manner Plaintiff's confidential propriety information during or after their employment with Plaintiff. (Id. at 3, 11-12). Cracraft Agreement states relevant in part:
I will not disclose or use in any manner or at any time either during or after my employment with the Company any Proprietary Information (defined below) except for the exclusive benefit of the Company as required by my duties for the Company. (Id. at 3).
DoBosh's non-disclosure covenant states in relevant part:
During employment and at all times thereafter, except as otherwise permissible in accordance with the duties and responsibilities of Employee,
or with the prior written consent of Employer, Employee shall not disclose to anyone at anytime any Trade Secrets and Confidential Proprietary Information. (Id. at 11-12).
Plaintiff's counsel reminded Cracraft of the terms of his Agreement shortly after he resigned in April 2024. (Id. at 17-18).
B. Cracraft and DoBosh Join Fusion
Upon learning that Cracraft had started working at Fusion, Plaintiff's counsel sent Cracraft a “Cease and Desist Letter” on May 17, 2024 (id. at 20-27), demanding that Cracraft resign in light of his Agreement's non-compete covenant. (Id. at 20). That same day, Plaintiff's counsel reminded DoBosh of the terms of his Agreement after becoming aware that DoBosh traveled to Fusion's headquarters. (Docs. 1-2. at 29-36; 1 at ¶ 31). Plaintiff's counsel forwarded copies of the Cease and Desist Letter and DoBosh's reminder to Fusion to put Fusion on notice of the Agreements' terms. (Doc. 1 at ¶¶ 35, 37).
Defendants' counsel responded to the Cease and Desist Letter on May 22, 2024, stating (a) Cracraft and DoBosh terminated their employment with Plaintiff because they “were subject to toxic and hostile work environment issues”; (b) Cracraft and DoBosh “deny that they are engaging in any conduct that would constitute a violation of any valid restrictive covenants set forth in the respective Agreements”; (c) Cracraft and DoBosh “have not and will not disclose any confidential and/or proprietary information of [Plaintiff] to any third party, including Fusion”; and (d) Cracraft and DoBosh “are no longer in possession of any confidential and/or proprietary information of [Plaintiff] and that all such confidential and/or proprietary information of [Plaintiff] has been returned to [Plaintiff].” (Doc. 1-2 at 38-39 (“Fusion's Response Letter”)).
Plaintiff's counsel replied on May 31, 2024, outlining various misconduct by DoBosh that implicated his Agreement. (Id. at 41-42) (“Plaintiff's Reply Letter”)). First, Plaintiff learned DoBosh had contacted one of Plaintiff's distributors to inform the distributor of his intent to transition several of Plaintiff's customers to Fusion. (Id. at 41). Plaintiff also claimed DoBosh offered the distributor a job with Fusion. (Id.) Second, Plaintiff was aware that Fusion recently offered jobs to two of Plaintiff's employees. (Id.) Third, Plaintiff understood that Defendants intended for Fusion to develop a Fibula Nail, which is one of Plaintiff's patented products. (Id. at 42).
On June 9, 2024, Plaintiff informed Defendants' counsel that a forensic review of the laptops previously belonging to Cracraft and DoBosh during their employment with Plaintiff showed they had forwarded several internal emails to their respective personal emails. (Doc. 1 at ¶ 48). Plaintiff claims that the emails DoBosh forwarded contained Plaintiff's “proprietary information including product forecasts and inventories as well as highly confidential information regarding Plaintiff's portfolio of government contracts.” (Id. at ¶ 47).
Plaintiff represents it met with Fusion to discuss possibilities of resolution without Court intervention, and the parties reached a tentative agreement. (Id. at ¶ 49). However, that agreement did not come to fruition when one of Plaintiff's distributors inadvertently sent a Fusion price list for one of Plaintiff's surgery center clients in central Ohio to DoBosh's Plaintiff-issued email address. (Doc. 1-2 at 44). Plaintiff took this to believe that DoBosh's misconduct was ongoing despite repeated assurances to the contrary from Fusion, and that it was left with no choice but to seek injunctive relief. (Doc. 1 at ¶ 5051). Plaintiff thus filed a Complaint in this Court against Defendants alleging breach of contract against Cracraft and DoBosh, tortious interference of contract against Fusion, and misappropriation of trade secrets against all Defendants under the Defend Trade Secrets Act, 18 U.S.C. § 1832 (“DTSA”), as well as an application for a TRO and expedited discovery. (Docs. 1; 2; 3).
II. Legal Standard
The standards governing temporary restraining orders and preliminary injunctions are “substantially identical.” Washington v. Trump, 847 F.3d 1151, 1159 n.3 (9th Cir. 2017) (citation omitted). Preliminary injunctive relief is an “extraordinary remedy never awarded as of right.” Winter v. Nat. Res. Def. Council, Inc., 555 U.S. 7, 24 (2008). To obtain a preliminary injunction, a plaintiff must show: (1) a likelihood of success on the merits, (2) a likelihood of irreparable harm if injunctive relief were denied, (3) that the equities weigh in the Plaintiff's favor, and (4) that the public interest favors injunctive relief. Id. at 20. The movant carries the burden of proof on each element of the test. See Los Angeles Memorial Coliseum Comm'n v. National Football League, 634 F.2d 1197, 1203 (9th Cir. 1980). The last two factors merge when the government is a party. Drakes Bay Oyster Co. v. Jewell, 747 F.3d 1073, 1092 (9th Cir. 2014).
The Ninth Circuit also employs a “sliding scale” approach to preliminary injunctions, under which “the elements of the preliminary injunction test are balanced, so that a stronger showing of one element may offset a weaker showing of another.” All. for the Wild Rockies v. Cottrell, 632 F.3d 1127, 1131 (9th Cir. 2011). “The moving party may meet [its] burden by showing either: (1) a combination of probable success on the merits and a possibility of irreparable injury, or (2) the existence of serious questions going to the merits and that the balance of hardships tips sharply in its favor.” Nouveau Riche Corp. v. Tree, 2008 WL 55381513, at *4 (D. Ariz. Dec. 23, 2008) (citing Earth Island Inst. v. U.S. Forest Serv., 351 F.3d 1291, 1298 (9th Cir. 2003)). “[C]ourts ‘must balance the competing claims of injury and must consider the effect on each party of the granting or withholding of the requested relief,'” and should be particularly mindful, in exercising their sound discretion, of the “public consequences in employing the extraordinary remedy of injunction.” Id. at 24 (citations omitted).
III. Discussion
Plaintiff seeks a TRO that restrains Defendants from the following activity:
1. Cracraft and DoBosh are enjoined for a period of forty-five (45) calendar days, to be extended by a period of time equal to the length; of breach, from working, directly or indirectly, for Fusion or any other competitor of Plaintiff;
2. Cracraft and DoBosh are enjoined for a period of forty-five (45) calendar days, to be extended by a period of time equal to the length of breach, from directly or indirectly soliciting or inducing any customer, supplier, licensee, licensor, or other business relation of Plaintiff to cease doing business with Plaintiff;
3. Cracraft and DoBosh are enjoined for a period of forty-five (45) calendar days, to be extended by a period of time equal to the length of breach, from directly or indirectly soliciting or inducing any of Plaintiff's employees to leave their employment with Plaintiff whether for employment at Fusion or elsewhere;
4. Defendants are enjoined from directly or indirectly disclosing or using confidential or trade secret information belonging to Plaintiff including, without limitation, Plaintiff's product forecasts and inventories, portfolio of government contracts, patented design information, and pricing lists; and
5. Defendants shall return to Plaintiff, and retain no copies of, all confidential and/or trade secret information belonging to Plaintiff.(Docs. 2-1; 24). Plaintiff also seeks expedited discovery. The Court will evaluate each requested relief in turn.
Plaintiff initially sought a TRO for a period of one (1) year (see Doc. 2-1) but later filed a Notice of Errata explaining this was a clerical error (See Doc. 24). Plaintiff clarified it seeks a TRO for a period of forty-five (45) calendar days “to provide Plaintiff ample time to conduct expedited discovery prior to any preliminary injunction hearing on the instant matter.” (Id. at 2).
A. Temporary Restraining Order
1. Likelihood of Success on the Merits
The first Winter factor requires Plaintiff to show a likelihood of success on or serious questions going to the merits of its claims for breach of contract, tortious interference, and misappropriate of trade secrets. A reasonable probability of success is all that need be shown for preliminary injunctive relief-an overwhelming likelihood is not necessary. Candrian v. RS Indus., Inc., 2013 WL 2244601, at *3 (D. Ariz. May 21, 2013) (citing Gilder v. PGA Tour, Inc., 936 F.2d 417, 422 (9th Cir. 1991)). Furthermore, “ ‘serious questions' refers to questions which cannot be resolved one way or the other at the hearing on the injunction and as to which the court perceives a need to preserve the status quo lest one side prevent resolution of the questions or execution of any judgment by altering the status quo.” Gilder, 936 F.2d at 422 (quoting Republic of Philippines v. Marcos, 862 F.2d 1355, 1362 (9th Cir. 1988)). “Serious questions are ‘substantial, difficult and doubtful, as to make them a fair ground for litigation and thus for more deliberative investigation.' ” Id. (quoting Hamilton Watch Co. v. Benrus Watch Co., 206 F.2d 738, 740 (2nd Cir. 1953)). “Serious questions need not promise a certainty of success, nor even present a probability of success, but must involve a ‘fair chance of success on the merits.' ” Id. (quoting National Wildlife Fed'n v. Coston, 773 F.2d 1513, 1517 (9th Cir. 1985)).
a. Breach of Contract against Cracraft and DoBosh
Plaintiff argues DoBosh's Agreement is governed by Pennsylvania law and Cracraft's Agreement is governed by Minnesota law according to express choice-of-law provisions. (Doc. 3 at 9-10). Breach of contract claims under either body of state law require (1) existence of a valid contract; (2) breach of the contract; and (3) resulting damages. Compare Meyer, Darragh, Buckler, Bebenek & Eck, P.L.L.C. v. Law Firm of Malone Middleman, P.C., 137 A.3d 1247, 1258 (Pa. 2016); Midwest Sign & Screen Printing Supply Co. v. Dalpe, 386 F.Supp.3d 1037, 1046 (D. Minn. 2019). Defendants argue Plaintiff has not shown a likelihood of success on the merits of on its breach of contract claim because the restrictive covenants in the Agreements are unenforceable and Plaintiff has not provided any evidence showing breach. (Doc. 22 at 9-11).
Defendants do not challenge the validity of the choice-of-law provisions for the purpose of the TRO Application, but reserves the right to at a later time.
i. The FTC's Ban on Noncompete Covenants
Defendants first say the non-compete covenants are unenforceable because the Federal Trade Commission (“FTC”) recently promulgated a rule that bans the use of noncompete restrictions that goes into effect on September 4, 2024 (the “Rule”). 16 C.F.R. §§ 910, 912 (2024); 89 Fed.Reg. 38342 (May 7, 2024); (see Doc. 22 at 10). However, the FTC explained that existing non-competes can remain in force for senior executives, while existing noncompetes with other workers are not enforceable after the effective date. 89 Fed. Reg 38342. The Rule defines senior executives as workers who were in policymaking position and made a certain minimum compensation. 16 C.F.R. § 910.1.
Plaintiff conceded at the TRO Hearing that Cracraft and DoBosh are not senior executives for the purpose of the Rule and so their non-compete covenants will be voided upon the Rule's September 4, 2024, effective date. (Doc. 28). However, Plaintiff further maintained the Rule does not bar its claims because it is not yet certain that the Rule will go into effect. (Id.) The Court disagrees. As of now, no federal court or court with jurisdiction over this case has issued an injunction against the Rule. The prospective Rule thus undermines Plaintiff's ability to show likelihood of success on the merits of its breach of non-compete covenant claim. Irrespective of the Rule's retroactive effect, the Court finds Plaintiff has not adequality justified the restrictive covenants' broad scope.
ii. Overbreadth
Although disfavored, restrictive covenants are enforceable under Pennsylvania state law “if they are: (1) ancillary to the taking of employment; (2) supported by adequate consideration; (3) reasonably limited in time and geographic scope; and (4) reasonably designed to safeguard a legitimate interest of the former employer.” Nat'l Bus. Servs., Inc. v. Wright, 2 F.Supp.2d 701, 707 (E.D. Pa. 1998). Pennsylvania courts have “have upheld non-compete covenants lacking geographic limits (or with very broad geographic restrictions) where the employee's duties and the employer's customers were geographically broad.” (Doc. 3 at 13 (quoting Quaker Chem. Corp. v. Varga, 509 F.Supp.2d 469, 476 (E.D. 2007) (discussing cases upholding nationwide non-compete restrictions)). In certain circumstances, “nationwide geographic scopes are reasonable for national companies” and so “worldwide geographic scopes are similarly reasonable for worldwide companies.” Quaker, 509 F.Supp.2d at 476; see also Nat'l Bus. Servs., Inc., 2 F.Supp.2d at 708 (finding a nationwide covenant reasonable, although disfavored, because “both [the former employer] and [the new employer] are nationwide businesses, and [the employee], while employed by [the former employer], had extensive contacts with customers all over the nation”).
Under Minnesota law, the reasonableness of a covenant requires consideration of “the nature and character of the employment, the nature and extent of the business, the time for which the restriction is imposed, the territorial extent of the covenant, and other pertinent conditions.” Dynamic Air, Inc. v. Bloch, 502 N.W.2d 796, 709 (Minn.Ct.App. 1993). Although restrictive covenants lacking a territorial limits may be unreasonable, they are not per se unenforceable under Minnesota law. Id. at 800. Like Pennsylvania law, Minnesota law recognizes that “a restrictive covenant unlimited as to territory [may be] reasonably necessary to protect the employer's interests, for example, in employment with multinational corporations.” Id.
Plaintiff contends the restrictive covenants' lack of geographical scope amounts to a nationwide covenant since Plaintiff is a nation-wide employer, and therefore enforceable under the exceptions recognized by Pennsylvania and Minnesota law. (See Docs. 3 at 1214; 28). Plaintiff further cites authority acknowledging that “[c]ourts have repeatedly recognized that non[-]compete agreements in the medical device industry serve employers' important and legitimate interests in long-term customer relationships and preserving goodwill.” (Doc. 3 at 13 (quoting Boston Scientific Corp. v. Duberg, 754 F.Supp.2d 1033, 1039 (D. Minn. 2010)). Defendants oppose, arguing the fact that the covenants “purport[] to prohibit Cracraft [(and DoBosh)] from working in his chosen profession anywhere in the world renders the covenants unreasonable and thus unenforceable.” (Doc. 22 at 11).
The parties clarified at the TRO Hearing that (a) Cracraft's employment duties for Plaintiff included oversight of sales in the western region while his duties for Fusion have nothing to do with sales in any part of the country; and (b) DoBosh's employment duties for Plaintiff concerned sales in the northeast region while his duties for Fusion have shifted to the western region. (Doc. 28). So, it appears Cracraft and DoBosh's responsibilities to either employer are confined to certain regions, and those regions do not overlap. This lack of conflict combined with Defendants' assertion that there are some states in which Plaintiff does not do business at all weighs against the reasonableness of the nation-wide restrictive covenants. Cf. Nat'l Bus. Servs., 2 F.Supp.2d at 708 (finding a nation-wide covenant reasonable in part because the employee had “extensive contacts with customers all over the nation” while employed by the former employer) (emphasis added). But even assuming the restrictive covenants are enforceable against Cracraft and DoBosh, Plaintiff has not submitted sufficient evidence of breach.
ii. Insufficient Evidence of Breach
Plaintiff argues there is adequate evidence of breach for two reasons. First, Plaintiff contends Cracraft and DoBosh violated their non-disclosure covenants when they emailed Plaintiff's confidential and proprietary information to their personal emails while still employed by Plaintiff. (Doc. 3 at 14). Plaintiff has not provided copies of Cracraft's alleged emails. However, Plaintiff submitted exhibits showing DoBosh forwarded emails containing Plaintiff's pricing and inventory lists. (Doc. 3-1 at 22-26). Specifically, DoBosh's emails included Plaintiff's “FT Plating forecast”, Plaintiff's Fibula Nail inventory totals, Plaintiff's updated price files, and information regarding Plaintiff's government contract portfolio. (Id.) Second, as to the non-solicitation covenants, Plaintiff maintains there is reason to believe that Cracraft solicited DoBosh for employment at Fusion and Cracraft and DoBosh worked in tandem to solicit two more of Plaintiff's current employees as well as its distributors and customers. (Doc. 3 at 14). For support, Plaintiff submitted an email showing that one of their distributors sent DoBosh's former Plaintiff-issued email a Fusion pricing list (Doc. 1-2 at 44) as well as a Declaration by Plaintiff's Senior Vice President of Finance and Corporate Controller stating as much. (Doc. 3-1 at ¶¶ 12-14).
(a) Cracraft's Explanations
To refute these allegations, Cracraft submitted a declaration denying that he has any of Plaintiff's confidential or propriety information and that he did not solicit DoBosh or any of employee or distributor of Plaintiff to join Fusion. (Doc. 22-1 at 9-10). He also submitted copies of his emails showing he returned all of Plaintiff's employment material to Plaintiff (id. at 13-15) and that he only forwarded personal information from his work account (i.e., his paystubs) (Id. at 22). Given that the burden for injunctive relief is extraordinarily high, the Court finds Cracraft's explanations are sufficient to undermine Plaintiff's claims against him. Other than allegations, Plaintiff does not provide copies of Cracraft's emails that allegedly contain its confidential information, or evidence of Cracraft's purported conversations soliciting Plaintiff's employees to work for Fusion. In fact, Plaintiff conceded at the TRO hearing that Cracraft only forwarded paystubs and documents concerning benefits to his personal email. (Doc. 28). This undermines Cracraft's likelihood of breach.
(b) DoBosh's Justifications
DoBosh similarly submitted a declaration denying that he has any of Plaintiff's confidential or propriety information. (Doc. 22-2 at 8). DoBosh explained he factory reset his laptop in light of Plaintiff's practice to recycle former employee's computers because his laptop contained his personal information, such as personal passwords, bank information, credit card information, cryptocurrency codes, personal photos and personal journals, etc. (Id. at 9). The emails in contention were sent by DoBosh in April 2024 while he was still working for Plaintiff (Doc. 3-1 at 22-26), and DoBosh stated he forwarded Plaintiff's pricing forecasts and inventories to his personal email and then to Rick Epstein, the Chairman of Plaintiff's Board of Directors (“Chairman”), under instructions by the Chairman to conceal certain communications. (Doc. 22-2 at 8). For support, DoBosh provided copies of the later correspondence between his personal email and the Chairman's personal email. (Id. at 24-27). DoBosh also averred he forwarded Plaintiff's government contract information by accident. (Id. at 8, 29-30).
As to Plaintiff's solicitation allegations, DoBosh admitted he had conversations with one of Plaintiff's employees (Kevin Rzasa) about Fusion but did not invite Rzasa to join Fusion. (Id. at 10). DoBosh states that when Rzasa asked him where he was going to work, he refused to tell Rzasa. (Id.). DoBosh also averred Rzasa had already talked with Fusion's CEO before reaching out to DoBosh about work. (Id.) DoBosh further admitted he spoke to one of Plaintiff's distributors, but it was to encourage the distributor to apply for his former position with Plaintiff. (Id.) As to the Fusion price list sent to DoBosh's former Plaintiff-issued email by another one of Plaintiff's distributors, DoBosh stated Fusion has maintained a relationship with this distributor since November 2021, which is long before DoBosh joined Fusion. (Id. at 10).
Like Cracraft, DoBosh has provided sufficient explanations at this juncture to survive a TRO. First, Plaintiff has neither shown a likelihood of success nor serious questions going to the merits on its breach non-disclosure covenant claim given DoBosh's justification that he forwarded Plaintiff's information to his personal email only to send to Plaintiff's Chairman under the Chairman's express instructions. Second, Plaintiff's exhibit showing Plaintiff's distributor sent DoBosh's Fusion price list does not directly support wrongful solicitation, especially in light of Defendants' justification that this distributor has done business with Fusion since November 2021. Although sent inadvertently, it seems reasonable for one of Fusion's distributors to confirm a Fusion price list with DoBosh, a Fusion employee. None of Plaintiff's information were at issue during this inadvertent correspondence.
In sum, Plaintiff has failed to bring forth a likely breach of contract claim under the first Winter factor.
b. Tortious Interference of Contract against Fusion
The parties both apply Arizona law to Plaintiff's tortious interference claim. (Docs. 3 at 15; 22 at 11). To prove the tort of intentional interference with contractual relations, a plaintiff must show: (1) “the existence of a valid contractual relationship or business expectancy;” (2) “the interferer's knowledge of the relationship or expectancy;” (3) “intentional interference inducing or causing a breach or termination of the relationship or expectancy;” (4) “resultant damage to the party whose relationship or expectancy has been disrupted”; and (5) “the interference must be improper as to motive or means . . . .” Neonatology Assocs., Ltd. v. Phx. Perinatal Assocs. Inc., 164 P.3d 691, 693 (Ariz.Ct.App. 2007).
To determine whether conduct is improper under the fifth element, Arizona courts consider the following seven factors:
(a) the nature of the actor's conduct,
(b) the actor's motive,
(c) the interests of the other with which the actor's conduct interferes,
(d) the interests sought to be advanced by the actor,
(e) the social interests in protecting the freedom of action of the actor and the contractual interests of the other,
(f) the proximity or remoteness of the actor's conduct to the interference and
(g) the relations between the parties.Neonatology, 164 P.3d at 694.
Although it is undisputed that Fusion was put on notice of the Agreements, as discussed, the Court is uncertain of the enforceability of nation-wide restrictive covenants and unconvinced by Plaintiff's proffered evidence of breach. See supra Section II.A(1)(a). Plaintiff has thus failed to show reasonable probability on elements one and three. Furthermore, Fusion's mere employment of Cracraft does not establish a reasonable probability of improper interference with the Agreements under the third and fifth elements. Given the parties' statements that Cracraft and DoBosh provide services at Fusion that differ from the work they did for Plaintiff, the Court finds Fusion's recruitment of Cracraft and DoBosh was likely for legitimate competitive purposes. See USI Ins. Servs. LLC v. AlliantIns. Servs., 2023 WL 3792749 (D. Ariz. June 2, 2023) (citing Burns v. Talon Grp., Inc., 2007 WL 9724464, at *4 n.2 (D. Ariz. Sept. 30, 2007)). Plaintiff has not shown likely success on the merits of its tortious interference claim.
c. Misappropriation of Trade Secrets under the DTSA
To state a claim under the DTSA, a plaintiff must allege: “(1) that the plaintiff possessed a trade secret, (2) that the defendant misappropriated the trade secret; and (3) that the misappropriation caused or threatened damage to the plaintiff.” InteliClear, LLC v. ETC Glob. Holdings, Inc., 978 F.3d 653, 657-58 (9th Cir. 2020; see 18 U.S.C. § 1836(b)(1). For purposes of the first element, a trade secret is “financial, business, scientific, technical, economic, or engineering information” that the owner takes reasonable measures to keep secret and the information derives independent economic value from being a secret. 18 U.S.C. § 1839(3). A plaintiff need not spell out the details of the trade secret but must “describe the subject matter of the trade secret with sufficient particularity to separate it from matters of general knowledge in the trade . . . and to permit the defendant to ascertain at least the boundaries within which the secret lies.” Vendavo, Inc. v. Price f(x) AG, 2018 WL 1456697, at *4 (N.D. Cal. Mar. 23, 2018) (internal citation omitted). Broad trade secret allegations “that are merely descriptive of the types of information that generally may qualify as protectable trade secrets are insufficient to state a claim.” Cisco Sys., Inc. v. Chung, 462 F.Supp.3d 1024, 1048 (N.D. Cal. 2020) (internal citation omitted). A plaintiff may rely on the following theories of liability to establish misappropriation under the second element: “(1) acquisition of the trade secret by a person who knows or has reason to know that the trade secret was acquired by improper means; (2) disclosure of the trade secret of another without express or implied consent; or (3) use of the trade secret of another without express or implied consent.” 18 U.S.C. § 1839(5)(A)-(B); Space Data Corp. v. Alphabet Inc., 2017 WL 9840133, at *4 (N.D. Cal. Dec. 18, 2017).
Plaintiff maintains Cracraft possesses trade secrets regarding the Fibula Nail (Doc. 28), and DoBosh committed misappropriation when he forwarded Plaintiff's materials to his personal email address (Doc. 3 at 11). Specifically, Plaintiff contends DoBosh sent confidential information about its pricing forecasts, government contracts, and inventory lists. (Id.) Defendants oppose, arguing Plaintiff has not specified any particular trade secret and instead “provide[d] a laundry list of generic categories of information that it contends is maintained by the company as confidential.” (Doc. 22 at 12). Defendants contend Plaintiff has “publicly published all the necessary information any company would need to reverse engineer, develop and launch a competitive fibula nail system” and so it does not constituted a trade secret under the DTSA. (Docs. 22 at 7; 22-3 at 6-8 (citing Doc. 22-3 16-60)). Last, Defendants deny that Cracraft or DoBosh possess any information relating to that product. (Doc. 22 at 7).
Defendants point is well taken that Plaintiff has publicly published extensive information on its patented Fibula Nail. (See Doc. 22-3 at 16-77). It is “well-settled that publication of information in a patent application eliminates any trade secrecy.” Attia v. Google LLC, 983 F.3d 420, 426 (9th Cir. 2020) (citing Ultimax Cement Mfg. Co. v. CTS CementMfg. Co., 587 F.3d 1339, 1355-56 (Fed. Cir. 2009) (holding that the district court properly granted summary judgment disposing of plaintiffs' trade secret claims under California law because plaintiffs could not prove the existence of a trade secret where its trade secret had been “disclosed in a patent,” making it “generally known to the public”)). To be sure, Plaintiff asserted at the TRO hearing that Cracraft possesses knowledge of trade secrets regarding the Fibula Nail that exist beyond the patent due to the fact Cracraft helped develop the Fibula Nail while working for Plaintiff. But to accept that argument would create a broad exception to the general rule that information disclosed in a patent is not entitled to trade secret protection. See id. In any event, Defendants represented at the TRO Hearing that Cracraft's duties as a Fusion employee involve product acquisition, not product engineering, and Fusion does not otherwise sell Fibula Nails. (Doc. 28).
As to Plaintiff's assertion that DoBosh forwarded its trade secrets to his personal email, this assertion remains bald without further supporting evidence. Plaintiff has neither described the forwarded documents with sufficient particularity nor proffered independent evidence demonstrating it has taken specific measures to keep such documents secret. See Vendavo, 2018 WL 1456697, at *4; see also 18 U.S.C. § 1839(3)(A) (defining a trade secret as information the owner has taken reasonable measures to keep secret). Its broad description of pricing forecasts, inventories, and government contracts simply state the types of information that generally may qualify as protectable trade secret and is insufficient to state a claim. See Cisco Sys., 462 F.Supp.3d at 1048. Even more, DoBosh's disclosure of the alleged protected material was supposedly made under direction by Plaintiff's Chairman while DoBosh still working for Plaintiff, which undercuts any liability due to improper acquisition or disclosure. (See Docs. 3-1 at 22-27; 22-2 at 24-27). Plaintiff is certainly able to communicate with its Chairman. To the extent that contrary evidence exists, the Chairman should set forth that information in a manner reviewable by the Court. But without that additional evidence, what Plaintiff has produced is a mere allegation that DoBosh sent himself company information regarding pricing forecasts, inventories, government contract information.
Even if DoBosh is in possession of Plaintiff's trade secrets, Plaintiff has not provided evidence that DoBosh used or is using those trade secrets improperly, that DoBosh disclosed those trade secrets to Fusion, or that Fusion used or is using Plaintiff's trade secrets without consent. Plaintiff's claims are based on the sheer possibility that Fusion might develop a Fibula Nail. Plaintiff has thus failed to bring forth a likely misappropriation claim under the first Winter factor.
At the TRO hearing, Plaintiff stated it has received concerns from its customers, distributors, and surgeons that Fusion is developing a Fibula Nail. (Doc. 28). But like many of Plaintiff's allegations, concrete evidence of those concerns remains to be seen.
2. Likelihood of Irreparable Harm
Under the second Winter factor, “[a] plaintiff must do more than merely allege imminent harm sufficient to establish standing; a plaintiff must demonstrate immediate threatened injury as a prerequisite to preliminary injunctive relief.” Forefront Dermatology S.C. v. Crossman, 642 F.Supp.3d 947 (D. Ariz. 2022) (quoting Caribbean Marine Servs. Co., Inc. v. Baldrige, 844 F.2d 668, 674 (9th Cir. 1988)). “Speculative injury does not constitute irreparable injury sufficient to warrant granting a preliminary injunction.” Id.; see also All. for the Wild Rockies, 632 F.3d at 1131 (emphasis in original) (“Under Winter, plaintiffs must establish that irreparable harm is likely, not just possible, in order to obtain a preliminary injunction.”). Irreparable harm is harm “that cannot be redressed by a legal or equitable remedy following trial.” Premier Nutrition, Inc. v. Organic Food Bar, Inc., 475 F.Supp.2d 995, 1007 (C.D. Cal. 2007) (internal quotation marks omitted). “Courts have found that the loss of customers, business reputation, and customer goodwill can constitute irreparable harm.” Forefront Dermatology S.C. v. Crossman, 642 F.Supp.3d 947, 951 (D. Ariz. 2022. However, “[t]hose seeking injunctive relief must proffer evidence sufficient to establish a likelihood of irreparable harm.” Herb Reed Enters., LLC v. Fla. Ent. Mgmt., Inc., 736 F.3d 1239, 1250-51 (9th Cir. 2013).
Plaintiff argues it faces the following irreparable harms absent injunctive relief: “(1) diminished value of the Agreements as a result of [Cracraft and DoBosh's] violations of the Agreements' restrictions, (2) damage to [Plaintiff's] reputation and employee morale as a result of facing a raid led by former employees on behalf of a competitor, (3) loss of investment in the talent of highly-skilled employees via unfair competition, and (4) the use of its Trade Secrets by the [Cracraft and DoBosh] for the benefit of Fusion.” (Doc. 3 at 16). Plaintiff also argues Fusion stands to undercut Plaintiff in the market “should Fusion be able to develop a Fibula Nail based on [Plaintiff's] intellectual property” and in light of DoBosh's knowledge of Plaintiff's pricing and inventories of the Fibula Nail. (Id. at 15). Defendants argue Plaintiff's claimed harm is based on “conclusory statements that repeat the unfounded allegations of breach of contract that have been flatly contradicted in the declarations provided by Cracraft and DoBosh along with supporting evidence.” (Doc. 22 at 13). Defendants further contend “[t]here is also no evidence to show that monetary damages would be insufficient even if [Plaintiff] were to prevail on its causes of action” and “[Plaintiff] did not even attempt to quantify the harm that it contends is imminent.” (Id.) The Court agrees with Defendants.
Plaintiff has failed to show it will suffer imminent, irreparable harm unless Defendants are enjoined. As explained supra, the evidence before the Court undermines the validity of the restrictive covenants and contradicts a showing that Cracraft and DoBosh are in violation of those covenants. See supra Section III.A. (1)(a). And Plaintiff's concerns regarding its reputation, employee morale, and loss of investment are too speculative for the purpose of seeking an TRO. See Herb, 736 F.3d at 1250-51 (holding that platitudes about goodwill and reputation, not grounded in evidence, are insufficient to establish a likelihood of irreparable injury). The primary harm Plaintiff asserts appears to be the mere possibility that Fusion could use its trade secrets to develop a similar Fibula Nail. But the current evidentiary record reflects it is questionable whether Cracraft and Fusion are in possession of any trade secrets, and Plaintiff has not otherwise provided evidence showing DoBosh disclosed information to Fusion that constitutes misappropriation. See supra Section III.A. (1)(b). In other words, at this stage of the proceedings, Plaintiff has not provided adequate evidence of breach or misappropriation, much less the requisite link to resultant harm. Cf. Cutera, Inc. v. Lutronic Aesthetics, Inc., 444 F.Supp.3d 1198, 1209 (E.D. Cal. 2020) (irreparable harm where evidence suggested that defendants would continue to use trade secrets absent an injunction). Plaintiff has only alleged speculative harm and thus fails to satisfy the second Winter factor.
3. Balance of Equities
As to the third Winter factor, “district courts must give serious consideration to the balance of equities.” Earth Island Inst. v. Carlton, 626 F.3d 462, 475 (9th Cir. 2010) (citation omitted). In doing so, courts must consider “all of the competing interests at stake.” Id. “The basic function of a preliminary injunction is to preserve the status quo pending a determination of the action on the merits.” Chalk v. United States Dist. Court Cent. Dist., 840 F.2d 701, 704 (9th Cir. 1988). “Status quo is defined as the last, uncontested status which preceded the pending controversy.” Susanville Indian Rancheria v. Leavitt, 2007 U.S. Dist. LEXIS 18702, at *21 (E.D. Cal. Feb. 28, 2007) (quoting Regents of the Univ. of Cal., 747 F.2d 511, 514 (9th Cir 1984).
Plaintiff re-states the irreparable harm it stands to face to argue the balance of equities tip in its favor. (Doc. 3 at 17). Defendants contend the injunction poses greater harm to them because it would prevent Cracraft and DoBosh from earning a living and supporting their families, and “Fusion has explained how it would lose out on business opportunities and additional revenue that is immeasurable” in their absence. (Doc. 22 at 15). At the TRO Hearing, Defendants clarified that Cracraft is responsible for ongoing negotiations with a third-party company regarding an external fixator system. (Doc. 28). They say that if Cracraft was prevented from working for Fusion for the next forty-five (45) days, it would bring that new product opportunity to a halt. (Id.)
Because Plaintiff has failed to show the existence of serious questions going to the merits, the Court need not reach this factor. See Nouveau, 2008 WL 55381513, at *4 (citing Earth Island Inst., 351 F.3d at 1298. In any event, the balance of equities tip in Defendants favor in light of their claimed impacts and the fact Plaintiff has failed to show irreparable harm.
4. The Public Interest
“The public interest analysis for the issuance of a[n] injunction requires [the court] to consider whether there exists some critical public interest that would be injured by the grant of [injunctive] relief.” Pure Wafer Inc. v. City of Prescott, 275 F.Supp.3d 1173, 1179 (D. Ariz. 2017) (citation omitted). Plaintiff urges its requested TRO is in the public interest's favor because “[c]ourts have held that the public interest is served by protecting a company's right to proprietary information, business operations, and contractual rights.” Compass Bank v. Hartley, 430 F.Supp.2d 973, 983 (D. Ariz. 2006). Defendants oppose, contending Plaintiff has failed to show the restrictive covenants in the Agreements are valid and enforceable to protect its legitimate business interests. (Doc. 22 at 15). Because Plaintiff has not met its burden under the first, second, and third Winter factors, the Court need not opine on the public interest to conclude Plaintiff's request for a TRO is denied.
B. Expedited Discovery
Plaintiff also moves for the following expedited discovery:
1. The Parties shall respond to Requests for Production of Documents within five (5) business days after they are electronically served;
2. The Parties shall respond to Interrogatories within five (5) business days after they are electronically served;
3. The Parties shall respond to Requests for Admission within five (5) business days after they are electronically served;
4. Depositions may be scheduled on or after August 1, 2024, upon five (5) business days' noticed for a total of five (5) depositions per side; and
5. Inspections, including those conducted by Plaintiff's electronic data expert of devices and email addresses, upon three (3) business days' notice to access, inspect, and electronically copy all computer software and all data stored on any computer system or computer storage medium and retrieve the proprietary information of Plaintiff that has been and continues to be misappropriated by Defendants.(Doc. 2-2 at 2). “A party may not seek discovery from any source before the parties have conferred as required by Rule 26(f), except in a proceeding exempted from initial disclosure under Rule 26(a)(1)(B), or when authorized by these rules, by stipulation, or by court order.” Fed.R.Civ.P. 26(d)(1). District courts within this circuit have required a showing of “good cause” when requesting expedited discovery. BakeMark USA LLC v. Pastis, 2024 WL 149727, *4 (D. Ariz. Jan. 12, 2024) (collecting cases).
Plaintiff argues expedited discovery is warranted due to the ongoing harm posed by Cracraft and DoBosh's solicitation of Plaintiff's employees, distributors, and customers. (Doc. 2 at 4). Plaintiff further urges that “[g]iven DoBosh factory reset his laptop prior to returning it to [Plaintiff], Plaintiff has been disadvantaged in being able to determine the full scope of his misconduct[.]” (Doc. 3 at 11). Defendants contend Plaintiff has failed to show any urgency for obtaining discovery, especially given that Plaintiff has been aware of the allegations in its Complaint for more than two months and this dispute has already been discussed by the parties at length. (Doc. 22 at 18). Should the Court grant Plaintiff expedited discovery, Defendants request they also be granted permission to seek expedited discovery from Plaintiff concurrently and on the same expedited timetable. (Id.)
The Court has already settled that Plaintiff has not met its burden to show likelihood of success on its claims or irreparable harm, and so there is no cause for expedited discovery on those bases. Although the DoBosh's wiping of his computer and forwarding Plaintiff's information to his personal email is concerning to the Court, the completed exhibits (Docs. 3-1 at 22-27; 22-2 at 24-27) expressly show the materials at issue-with the exception of the government contacts-were then sent to Plaintiff's Chairman. So, there does not appear to be evidence of improper use of these materials that clearly demonstrates good cause for expedited discovery. Regardless, any additional discovery on this matter is already in Plaintiff's possession through its Chairman. There being no good cause showing, Plaintiff's request for expedited discovery is denied. This ruling, however, does not prevent the parties from meeting and conferring on a reasonable timeframe for discovery to proceed in advance of the Court setting a scheduling order under Federal Rule of Civil Procedure 16.
DoBosh averred he forwarded Plaintiff's government contract information by accident. (Doc. 22-2 at 8, 29-30).
Accordingly,
IT IS ORDERED that Plaintiff Conventus Orthopaedics Incorporated's Application for Temporary Restraining Order and Expedited Discovery (Doc. 2) is DENIED.