Opinion
Civ. File No. 04-1158 (PAM/JSM)
April 9, 2004
MEMORANDUM AND ORDER
This matter is before the Court on Defendants' Motion for a Temporary Restraining Order. Because Plaintiffs have responded to the Motion, the Court will convert the Motion into a Motion for Preliminary Injunction.
BACKGROUND
Plaintiffs are former employees of Defendant Mortgage One Finance Corporation ("Mortgage One"). Mortgage One is a mortgage broker. Plaintiffs brought a Complaint against Mortgage One and its President, Defendant David Delavari, alleging that Defendants required them to work in excess of 40 hours per week without compensation in violation of the Fair Labor Standards Act. The Complaint purports to be on behalf of Plaintiffs and all others similarly situated. Mortgage One contends that Plaintiffs Kris Kurth, Nathan Reardon, Eric Flamm, and Ben Lambert stole secret customer information, in violation of Minnesota law and the confidentiality and non-solicitation agreements they signed with Mortgage One. Mortgage One also asserts that these Plaintiffs wrongfully entered a secure website maintained by a lender and downloaded customer information from that site, ostensibly in violation of the Computer Fraud and Abuse Act, 18 U.S.C. § 1030. Finally, Mortgage One alleges that Plaintiffs are wrongfully attempting to lure employees away from Mortgage One, in violation of Minnesota law and their non-solicitation agreements. Mortgage One seeks an injunction against all of these alleged wrongs.
Mortgage One makes no allegations with respect to the remaining five Plaintiffs. However, the Motion does not otherwise distinguish between Plaintiffs and seeks an injunction against all Plaintiffs.
DISCUSSION
A preliminary injunction may be granted only if the moving party can demonstrate: (1) a likelihood of success on the merits; (2) that the balance of harms favors the movant; (3) that the public interest favors the movant; and (4) that the movant will suffer irreparable harm absent the injunction. Dataphase Sys., Inc. v. C L Sys., Inc., 640 F.2d 109, 113 (8th Cir. 1981). Injunctive relief is considered to be a "drastic and extraordinary remedy that is not to be routinely granted." Intel Corp. v. ULSI Sys. Tech., Inc., 995 F.2d 1566, 1568 (Fed. Cir. 1993).
A. Likelihood of Success on the Merits
1. Breach of Confidentiality and Non-Solicitation Agreement
Although Mortgage One contends that this Motion is not based on the alleged breach of Plaintiffs' confidentiality and non-solicitation agreements, much of the discussion relating to whether Plaintiffs knew or should have known that Mortgage One's customer lists were confidential centers on the existence of these agreements. Thus, the Court must preliminarily determine whether these agreements are enforceable.
Mortgage One contends that the agreements were entered into at the inception of employment and are therefore supported by consideration and are valid. Plaintiffs, on the other hand, argue that they signed the agreements after beginning employment and that the agreements are therefore not valid. It is well settled in Minnesota that a restrictive covenant that is not part of the initial employment contract must be supported by independent consideration. Freeman v. Duluth Clinic, Inc., 334 N.W.2d 626, 630 (Minn. 1983). There is no evidence that the agreements at issue were supported by anything other than the promise of continued employment. Absent other consideration, the promise of continued employment does not constitute sufficient consideration for a restrictive covenant. See Davies Davies Agency v. Davies, 298 N.W.2d 127, 130-31 (Minn. 1980). Because there is a genuine dispute as to whether the agreements were signed before Plaintiffs began their employment, and because restrictive covenants are looked on with disfavor and carefully scrutinized, Nat'l Recruiters, Inc. v. Cashman, 323 N.W.2d 736, 740 (Minn. 1982), Mortgage One has not established a likelihood of success on any of its claims seeking to enforce the covenants in the confidentiality and non-solicitation agreements.
2. Computer Fraud Abuse Act
Mortgage One contends that its claims under the Act arise under 18 U.S.C. § 1030(a)(4). (Defs.' Supp. Mem. at 10.) This section prohibits "knowingly and with intent to defraud, access[ing] a protected computer without authorization . . . [and thereby] obtain[ing] anything of value [of more than $5000]. . . ." 18 U.S.C. § 1030(a)(4). The Act provides that one who suffers "damage or loss" because of a violation of the Act may bring a civil action for compensatory damages and injunctive relief. Id. § 1030(g). However, the Act limits civil enforcement to actions claiming a violation of § 1030(a)(5)(B), not § 1030(a)(4). Thus, Mortgage One cannot maintain a civil action on its claims for a violation of § 1030(a)(4), and is therefore not likely to succeed on its claims under the Act.
3. Misappropriate of Confidential Information and Trade Secrets
The crux of Mortgage One's claims of misappropriation is that Plaintiffs' stole Mortgage One's confidential customer lists. However, Mortgage One does not independently discuss this claim in its memorandum. Rather, Mortgage One quotes extensively from Plaintiffs' confidentiality agreements, and seems to rely on the alleged violation of the confidentiality agreements as proof that Plaintiffs misappropriated Mortgage One's confidential and trade-secret information. Thus, Mortgage One does not discuss the requirements for trade secrets, such as whether the information was not generally known or readily available, or whether Mortgage One made reasonable efforts to maintain the secrecy of the information. Minn. Stat. § 325C.01, subd. 5.
Absent any evidence that the information at issue indeed constitutes trade secrets or confidential information, Mortgage One cannot show that it is likely to succeed on the merits of its misappropriation claims. Moreover, the Court has determined that there is a substantial question as to whether the confidentiality agreements are enforceable. Thus, Mortgage One may not rely on the existence of confidentiality agreements to establish that the information protected by those agreements is a trade secret. Mortgage One has failed to show that it is likely to succeed on the merits of its misappropriation claims.
4. Other Claims
Mortgage One also argues that it is likely to succeed on the merits of its claims regarding Plaintiffs' alleged interference with Mortgage One's employees. However, Mortgage One clearly states in its memorandum that its request for injunctive relief is based solely on the irreparable harm caused by Plaintiffs' alleged misappropriation of confidential customer information. (Defs.' Supp. Mem. at 8.) Thus, the Court will not analyze the merits of Mortgage One's other claims.
B. Irreparable Harm
Mortgage One contends that Plaintiffs' activities in "obtaining [Mortgage One's] confident customer information and contacting prospective, current and former customers" are irreparably harming Mortgage One. (Defs.' Supp. Mem. at 8.) According to Mortgage One, the loss of a customer means not only that Mortgage One loses that customer's present business, but also the possibility of future business and referrals from that customer. Plaintiffs contend that any harm Mortgage One suffers can be easily quantified, and thus that there is no irreparable harm.
The misappropriation of trade secrets can constitute irreparable harm if the victim can show a threat that those secrets will be used and will cause the victim injury. However, because Mortgage One has failed to show that it is likely to succeed on the merits of its misappropriation claims, it has likewise failed to show that it will suffer any irreparable harm. Int'l Bus. Mach. Corp. v. Seagate Tech., Inc., 941 F. Supp. 98, 101 (D. Minn. 1992) (Magnuson, J.) (noting that for injunction to issue, movant must show both misappropriation of trade secrets and threat of disclosure of those secrets). The absence of irreparable harm alone justifies the denial of the Motion, and the Court need not consider the remaining Dataphase factors. See, e.g., Modern Computer Sys., Inc. v. Modern Banking Sys., Inc., 871 F.2d 734, 738 (8th Cir. 1989) (en banc) (injunction may not issue without a showing of irreparable harm); Dataphase, 640 F.2d at 114 n. 9 ("absence of a finding of irreparable injury is alone sufficient ground for vacating the preliminary injunction").
CONCLUSION
The Court finds that Mortgage One is not entitled to an injunction. Accordingly, IT IS HEREBY ORDERED that Defendants' Motion for injunctive relief (Clerk Doc. No. 5) is DENIED.