Opinion
Case No. 17-CV-340-JPS
08-31-2020
CHARLES SCHWAB & CO. INC., Plaintiff, v. Robert LAGRANT, Defendant.
Adam A. Brown, Michael R. Greco, Fisher & Phillips LLP, Denver, CO, Paul J. Greco, Fisher & Phillips LLP, Radnor, PA, Craig R. Annunziata, Fisher & Phillips LLP, Chicago, IL, for Plaintiff. John D. Finerty, Jr., Kimberly A. Streff, Michael Best & Friedrich LLP, Milwaukee, WI, Katherine B. Harrison, Leonard Weintraub, Paduano & Weintraub LLP, New York, NY, for Defendant.
Adam A. Brown, Michael R. Greco, Fisher & Phillips LLP, Denver, CO, Paul J. Greco, Fisher & Phillips LLP, Radnor, PA, Craig R. Annunziata, Fisher & Phillips LLP, Chicago, IL, for Plaintiff.
John D. Finerty, Jr., Kimberly A. Streff, Michael Best & Friedrich LLP, Milwaukee, WI, Katherine B. Harrison, Leonard Weintraub, Paduano & Weintraub LLP, New York, NY, for Defendant.
ORDER
J.P. Stadtmueller, U.S. District Judge This case first came before the Court on Plaintiff's motion for a preliminary injunction to preserve the status quo ante pending arbitration of certain breach of contract and misappropriation of trade secret claims. (Docket #1). On September 20, 2017, the Court issued an order granting the parties’ joint motion for entry of a stipulated permanent injunction, and instated the agreed-upon injunction. (Docket #14, #15). The injunction dismissed the case without prejudice and noted that the Court would "retain jurisdiction to enforce the terms of this Stipulated Permanent Injunction." (Docket #15 at 1).
On June 6, 2019, Plaintiff filed a motion to reopen the case, claiming that Defendant violated the terms of the injunction by, "among other things, using Schwab's confidential and trade secret customer information to initiate contact with Schwab's clients, to solicit them, and to conduct business with them on behalf of J.P. Morgan." (Docket #16 at 3). The Court granted Plaintiff permission to conduct discovery and file a motion for contempt against Defendant. (Docket #29). Plaintiff thereafter filed a motion for contempt, which is fully briefed. (Docket #32). For the reasons explained below, the Court will deny the motion for contempt.
1. LEGAL STANDARD
"To hold a party in contempt, the district court must be able to point to a decree from the court which sets forth in specific detail an unequivocal command which the party in contempt violated." Stotler & Co. v. Able , 870 F.2d 1158, 1163 (7th Cir. 1989) (citations and quotations omitted). "A complaining party must prove that the order was violated by clear and convincing evidence." Id. (quotations omitted). The Court may grant a motion for contempt if a party has not been "reasonably diligent and energetic in attempting to accomplish what was ordered." Am. Fletcher Mort. Co. v. Bass , 688 F.2d 513, 517 (7th Cir. 1982) (citations and quotations omitted).
Where a Court enters an order that approves obligations incurred under an agreement, the order must "use language which turn[s] a contractual duty into an obligation to obey an operative command," before a party can be found in contempt. H.K. Porter Co. v. Nat'l Friction Prods. Corp. , 568 F.2d 24, 27 (7th Cir. 1977). Once the Court finds a party in contempt, it may employ judicial sanctions "to coerce the defendant into compliance with the court's order, [or] to compensate the complainant for losses sustained." United States v. United Mine Workers of Am. , 330 U.S. 258, 303–04, 67 S.Ct. 677, 91 L.Ed. 884 (1947). District courts have "broad discretion to fashion an appropriate remedy in a civil contempt action." F.T.C. v. Trudeau , 579 F.3d 754, 772 (7th Cir. 2009).
2. RELEVANT FACTS
The stipulated injunction prevented Defendant from engaging in certain competitive activities. Defendant is now alleged to have breached "Section 2" of the injunction, which reads, in relevant part:
The Defendant is hereby enjoined, directly or indirectly, and whether alone or in concert with others, including any officer, agent, employee and/or representative of any employer, from:
(a) using, disclosing, or transmitting for any purpose, including the solicitation or conducting of business or initiation of any contact with Schwab clients, the information contained in the records of Schwab, or other information pertaining to Schwab clients, including, but not limited to, the names, addresses, email addresses, telephone numbers, personal data and financial information of the clients.
(Docket #15 at 2).
In Defendant's own words, his offending conduct consisted of "us[ing] his memory alone to draft a list of a few dozen Schwab customers with whom he had developed close relationships (out of the hundreds of Schwab clients whom he had serviced)." (Docket #39 at 10). "Then, using only public information, he and his staff looked up contact information for those people." Id. In some instances, when faced with multiple addresses, Defendant used what he had learned of these individuals while at Schwab to confirm which address was correct. Despite using his staff—J.P. Morgan analysts—to track down the contact information for these individuals, Defendant maintains that his intents were personal. He claims that he "contacted those people—not to solicit—but to reconnect and to let them know why he had not been in touch." Id. His efforts yielded a spreadsheet of contact information for 46 high net worth clients. Defendant used this list to send annual holiday cards, invite former clients out for coffee or meals, and, in some instances, attach J.P. Morgan pamphlets to his emails. Some of these clients welcomed his contact, and four individuals transferred their accounts from Schwab to J.P. Morgan. Other clients found him to be off-putting and complained to Schwab that he had their contact information.
Defendant was subject to a strict non-solicitation provision, embodied in Section 1 of the stipulated injunction, which was determined to have an 18-month time limit pursuant to the parties’ initial employment agreement. See (Docket #29 at 7), (Docket #42 at 10).
Defendant describes these "higher net worth individuals" as those with "2 million dollars and above." (Docket #32-4 at 12:20–24).
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3. ANALYSIS
Based on the clear and convincing evidence provided by Plaintiff—and the admissions in Defendant's own opposition—there is no question, or even really a dispute, that Defendant used knowledge acquired at Schwab to re-create a partial customer list and transmit it to J.P. Morgan's analysts, as prohibited by Section 2. The issue, here, is that Section 2 of the injunction embodies an agreement between the parties that is unenforceable under Wisconsin law. Specifically, Section 2 is a non-disclosure provision that lacks temporal or geographic limits.
The Seventh Circuit instructs that "courts should be hesitant to set aside settlements that are reached knowingly and voluntarily by the parties." Billhartz v. C.I.R., 794 F.3d 794, 799 (7th Cir. 2015). However, Wisconsin law regarding geographic and temporal limits for employment non-compete clauses is well-established and unequivocal:
A covenant by an assistant, servant or agent not to compete with his or her employer or principal during the term of the employment or agency, or after the
termination of that employment or agency, within a specified territory and during a specified time is lawful and enforceable only if the restrictions imposed are reasonably necessary for the protection of the employer or principal. Any covenant, described in this section, imposing an unreasonable restraint is illegal, void and unenforceable even as to any part of the covenant or performance that would be a reasonable restraint.
Wis. Stat. § 103.465. Although the statute does not explicitly address non-disclosure agreements, these restrictions apply to them as well. As Judge Griesbach explained,
[A]n employee's agreement to keep her employer's business information private is, in effect, a covenant not to compete. "It is clear that [the employer] seeks to restrain competition through use of the non-disclosure provision. It seeks to shield its customer data, programs, and business practices from competitors’ eyes ... This is the essence of a trade restraint; it would be an exercise in semantics to overlook Wis. Stat. § 103.465 merely because paragraph 1 of the agreement is not labeled a ‘covenant not to compete.’ " Tatge v. Chambers & Owen, Inc., 219 Wis.2d 99, 579 N.W.2d 217, 222 (1998). The Wisconsin Supreme Court has also found that non-disclosure agreements must have a time limitation: "We also point out that paragraph 7 in its entirety constitutes an unreasonable restraint of trade. That paragraph provides that the employee will never, without time limitation, disclose the list of customers to any person ... [T]his provision ... is unreasonable and void." Gary Van Zeeland Talent, Inc. v. Sandas , 84 Wis.2d 202, 267 N.W.2d 242, 250 (1978).
Schetter v. Newcomer Funeral Serv. Grp., Inc. , 191 F. Supp. 3d 959, 965 (E.D. Wis. 2016) (internal formatting and citations edited). Section 2, which indefinitely prohibits the use of Schwab's client information "for any purpose," constitutes a non-disclosure agreement that ought to contain temporal and geographical restraints.
Plaintiff argues that Defendant's recreated list of clients is a "customer list" subject to trade secret protection. It is true that trade secrets, which "derive[ ] independent economic value ... from not being generally known ..." and which are "the subject of efforts to maintain ... secrecy," are an exception to the rule that non-disclosure agreements require geographical and temporal limits. Wis. Stat. § 134.90(c) ; Sysco Food Servs. of E. Wis., LLC v. Ziccarelli , 445 F. Supp. 2d 1039, 1052 (E.D. Wis. 2006) (citing Nalco Chem. Co. v. Hydro Tech., Inc. , 984 F.2d 801, 803 (7th Cir. 1993) ).
Under the Wisconsin Uniform Trade Secret Act, "[s]ome customer lists are afforded protection" as trade secrets. Minuteman, Inc. v. Alexander , 147 Wis.2d 842, 434 N.W.2d 773, 779 (1989). "The use of customer lists and contacts by ex-employees stands on the periphery of trade secret law. Written customer lists generally have been regarded as trade secrets when the nature of the industry permits the list to be kept secret and the list cannot readily be duplicated by independent means." Gary Van Zeeland Talent, Inc. , 267 N.W.2d at 246, 84 Wis.2d 202 (citations and quotations omitted). The Seventh Circuit found that a customer list hosted on an insurance company's database, which was cultivated and refined by various agents, was a trade secret because the names in the database were "filtered for their suitability to buy insurance, resulting ... in a defined, manageable and economically viable universe of uniquely receptive potential customers." Am. Fam. Mut. Ins. Co. v. Roth , 485 F.3d 930, 934 (7th Cir. 2007) (quotations omitted).
However, "[b]are bones listings of customer information, such as names, addresses, phone numbers, and contact persons, have been routinely rejected by the Wisconsin courts as constituting a trade secret." Share Corp. v. Momar Inc. , Case No. 10-CV-109, 2011 WL 284273, at *9 (E.D. Wis. Jan. 26, 2011) ; Abbott Labs v. Norse Chem. Corp. , 33 Wis.2d 445, 147 N.W.2d 529, 549 (1967) (holding that a customer list was not a trade secret when it did not contain "complicated marketing data which had been laboriously compiled" and was practically and independently ascertainable); Gary Van Zeeland Talent, Inc. , 267 N.W.2d at 247, 84 Wis.2d 202 (finding that a talent agency's customer list was not a trade secret where "the information contained on the list was readily available to anyone ... who wished to go through the routine of making inquiries from established sources."). Indeed, "where the names, addresses, and contact persons of a company's customers are readily ascertainable by proper means, a customer list is not a trade secret." Ziccarelli , 445 F. Supp. 2d at 1052–53. Additionally, "an agent is permitted to use general information concerning ... the names of customers retained in the agent's memory, if not acquired in violation of his duty as an agent." Fed. Pants, Inc. v. Stocking , 762 F.2d 561, 568 (7th Cir. 1985).
Plaintiff contends that the facts in this case are akin to those in B.C. Ziegler & Co. v. Ehren , which conferred trade secret protection to a list of securities customers’ names and contact information that "identifie[d] persons who have invested in the securities Ziegler sells, who have sufficient money to make investments and who regularly invest in bonds as opposed to other investments." 141 Wis.2d 19, 414 N.W.2d 48, 53 (Ct. App. 1987). In Ziegler , the court took note of the facts that the list was "completely confidential and not known outside" the company; it was made available to employees only on a need-to-know basis; the company maintained a reasonable confidentiality policy; the information had "substantial value" to competitors; the list was developed "through ... substantial efforts over the last seventy-five years"; the information was detailed and current; and the information could not be acquired from any other source. Id. , at 51.
In this case, Defendant wrote up a list of moderately wealthy individuals that he knew from working at Schwab. It did not constitute the entirety of his client list at Schwab; it was merely a fraction of the people with whom he remembers having shared a rapport. The only thing that this list has in common with the Ziegler list is that it consists of the names of individuals who have funds to invest. But compiling a list of high net worth individuals’ names is not difficult, and that, alone, is insufficient to warrant trade secret protection. See Ziccarelli , 445 F. Supp. 2d at 1053 (finding that easily ascertainable information does not constitute a trade secret).
Unlike the customer list in Ziegler , which contained the names and addresses of "past and ... active prospects for future sales," this "customer list" as it related to Schwab was at least two years out of date and consisted only of names of people that Defendant knew personally and with whom he had occasionally socialized. See 414 N.W.2d at 51. The rest of the information on the list—specifically, the individuals’ contact information—was derived from publicly available sources. Gary Van Zeeland Talent, Inc. , 267 N.W.2d at 247. For these reasons, the Court is constrained to find that Defendant's list of former clients does not constitute a protected trade secret. Because Section 2 covers information that does not qualify as a trade secret, it must have a reasonable geographic and temporal limit; otherwise, it will be an unreasonable restraint on commerce. Wis. Stat. § 103.465. There is no temporal or geographic limit in the text of the subsection. Accordingly, the Court must find it void. Id.
4. CONCLUSION
"[A] court is supposed on its own initiative to refuse to enter an injunction that disserves the public interest." Am. Fam. Mut. Ins. Co. , 485 F.3d at 934. "An unlimited prohibition against the use of a former principal's customer information that is not a trade secret might be viewed in that light." Id. While the Court may have entered the injunction at the parties’ request, the Court now concludes that enforcing the subsection would be contrary to Wisconsin law, and therefore declines to do so.
Accordingly,
IT IS ORDERED that Section 2 of the permanent injunction be and the same is hereby VOID for lack of enforceability; and
IT IS FURTHER ORDERED that Plaintiff's motion for contempt (Docket #32) be and the same is hereby DENIED as stated in the terms of this Order.
The Clerk of the Court is directed to close this case.