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holding that customer lists and information are generally not deemed trade secrets, unless it can be shown they meet the elements of the MUTSA
Summary of this case from Katch, LLC v. SweetserOpinion
No. A05-2079.
Filed September 5, 2006.
Appeal from the District Court, Hennepin County, File No. Ct 05-002563.
R. Ann Huntrods, Karna A. Berg, Katie M. Connolly, Briggs Morgan, P.A., (for appellants)
Roy A. Ginsburg, James D. Kremer, Kevin A. Finnerty, Gabrielle D. Mead, Dorsey Whitney Llp, (for respondents)
Considered and decided by Dietzen, Presiding Judge; Toussaint, Chief Judge; and Stoneburner, Judge.
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2004).
UNPUBLISHED OPINION
Appellants ReliaStar Life Insurance Company, a Minnesota corporation, and ReliaStar Life Insurance Company of New York, a New York corporation (collectively ReliaStar), challenge the denial of their motion for a temporary injunction seeking to enjoin respondents KMG America Corporation, a Virginia company, Kanawha Insurance Company, a South Carolina company, Kenneth Kuk, T.J. Gibb, Paul Kraemer, and Paul Moore from misappropriating ReliaStar's trade secrets and using confidential information in breach of the common-law duty of loyalty and breach of fiduciary duty. Because the district court did not abuse its discretion, we affirm its denial of a temporary injunction.
FACTS
ReliaStar offers insurance to individual and corporate clients. Its employee-benefits division sells group and voluntary insurance products to employers and their employees through brokers and enrollment firms. Kenneth Kuk was a senior executive in the employee-benefits division from June 1985 until he resigned in June 2001. By the end of 2001, he was thinking of reentering the business of employee-benefits insurance and had begun discussing potential business concepts with former ReliaStar executives and managers.
In 2003, Kuk elected to acquire an existing insurance company. An investment-banking firm helped him identify Kanawha as a potential acquisition. Kuk proceeded with due diligence, drafted a plan, and obtained a professional marketing plan. In January 2004, Kuk and others incorporated KMG, a Minnesota-based insurance company. In October, KMG identified Paul Moore and Paul Kraemer as senior management who would join KMG after the initial public offering. On December 15, 2004, KMG conducted an initial public offering and became a Minnesota-based NYSE company.
The day after the initial public offering, Moore and Kraemer resigned from ReliaStar and by December 18, 2004, they had begun speaking with and extending offers to eight ReliaStar employees. On December 21, 2004, KMG acquired Kanawha. On January 3, 2005, seven of the employees solicited by Moore and Kraemer resigned from ReliaStar and joined KMG. T.J. Gibb was employed with ReliaStar until January 25, 2005, when his employment was terminated. KMG hired Gibb as a project director on March 2, 2005.
DECISION
The district court may grant a temporary injunction if affidavits, deposition testimony, or oral testimony demonstrate sufficient grounds. Minn. R. Civ. P. 65.02(b). The party seeking the injunction must establish that the injunction is necessary to prevent irreparable harm and that the legal remedy is inadequate. Cherne Indus., Inc. v. Grounds Assoc., Inc., 278 N.W.2d 81, 92 (Minn. 1979). The decision to deny a temporary injunction is within the district court's discretion and will be reversed only if the district court clearly abused its discretion. Id. at 91. A district court's findings will not be set aside unless clearly erroneous. LaValle v. Kulkay, 277 N.W.2d 400, 402 (Minn. 1979). On review, this court considers the facts in the light most favorable to the prevailing party. Bud Johnson Constr. Co. v. Metro. Transit Comm'n, 272 N.W.2d 31, 33 (Minn. 1978).
A temporary injunction is an extraordinary equitable remedy intended to preserve the status quo pending adjudication on the merits. Miller v. Foley, 317 N.W.2d 710, 712 (Minn. 1982). In evaluating whether the district court abused its discretion, this court considers five factors: (1) the nature and background of the parties' relationships; (2) the balance of harms to be suffered by the parties; (3) the likelihood that one party or the other will prevail on the merits; (4) consideration of public policy; and (5) the administrative burdens involved in judicial supervision and enforcement. Dahlberg Bros. v. Ford Motor Co., 272 Minn. 264, 274-75, 137 N.W.2d 314, 321-22 (1965). ReliaStar argues that the district court's findings on the Dahlberg factors were not supported by the law or the record. Because ReliaStar's claim of irreparable harm hinges on the district court's resolution of issues regarding ReliaStar's relationship with KMG, Kanawha, Kuk, Gibb, Kraemer, and Moore and its likelihood of success on the merits, we consider those factors first.
Relationship Between the Parties
The district court found that KMG and Kanawha had no relationship with ReliaStar. ReliaStar argues, but only in its reply brief, that the district court "erred in its analysis of the relationship between ReliaStar and KMG/Kanawha." Because ReliaStar did not raise this issue in its primary brief, the alleged error is waived. McIntire v. State, 458 N.W.2d 714, 717 n. 2 (Minn.App. 1990), review denied (Minn. Sept. 28, 1990).
ReliaStar also argues that the district court erred in not finding that Moore, Kraemer, and Gibb had a confidential relationship with ReliaStar. But the district court found that Moore and Kraemer signed a confidentiality agreement as part of an employee-benefits bonus agreement. The confidentiality agreement states:
The Sales Representative agrees that during the course of employment and at all times thereafter, the Sales Representative will not directly or indirectly disclose, copy, or make use of confidential and proprietary methods and information of the Company ("Information") for purposes other than providing services for the Company, without the prior written consent of the Company, except as may be required by judicial process. Information includes, but is not limited to, client and prospect lists, renewal lists, broker lists and arrangements, client information regarding policy expiration dates, policy terms and rates, Company sales figures, pricing information, business plans, as well as the compensation structure under this Agreement. . . . This paragraph shall survive the termination of the Agreement.
The district court also found that Gibb had signed a different agreement including "a similar confidentiality provision" and provisions for non-solicitation of employees, agents, and customers for 12 months.
These findings were not clearly erroneous. The district court did not abuse its discretion in concluding that the parties' relationships, without more, did not warrant an injunction. Insofar as ReliaStar argues that confidentiality agreements were breached, we consider the claim under the likelihood of success on the merits.
Likelihood of Success on the Merits Duty-of-Loyalty Claims. The district court found that Moore, Kraemer, and Gibb did not violate the duty of loyalty by preparing to compete with ReliaStar. The court found that ReliaStar presented minimal evidence that they "competed, solicited customers, hired other employees or acted improperly while they were still employed by ReliaStar." ReliaStar argues that the district court erred by finding Moore, Kraemer, and Gibb only prepared to compete while employed by ReliaStar.
"An employee has the right, . . . while still employed, to prepare to enter into competition with [his or] her employer." Rehab. Specialists, Inc. v. Koering, 404 N.W.2d 301, 304 (Minn.App. 1987) (citing Sanitary Farm Dairies v. Wolf, 261 Minn. 166, 175-76, 112 N.W.2d 42, 48-49 (1961)). This right must be balanced against the common-law duty of loyalty that prohibits an employee from directly soliciting an employer's customers or otherwise competing with the employer while still employed. See Eaton Corp. v. Giere, 971 F.2d 136, 141 (8th Cir. 1992) (interpreting Minnesota law).
Moore, Kraemer, and Gibb, long-time employees of ReliaStar, admit having spent some time in 2003 and 2004 helping Kuk and others to establish another insurance company. They state that, while employed by ReliaStar, they spent minimal time reviewing Kuk's draft business plan, a list of potential companies to acquire, portions of the Kanawha financial statement, and draft employment agreements.
The record does not show that, as employees of ReliaStar, Moore, Kraemer, and Gibb used particular confidential information to compete with ReliaStar or ever failed to perform their duties as employees of ReliaStar. To the contrary, Kraemer was a top producer and was offered a promotion, and Moore's region was a top performer despite various obstacles.
ReliaStar relies primarily on the KMG 2003 marketing materials to show that Moore, Kraemer, and Gibb were competing against ReliaStar. But the information about ReliaStar in the KMG marketing materials appears to be primarily Kuk's product and Kuk made no secret of the fact that he considered his success at ReliaStar to be an asset and a selling point for KMG. The record does not show that Moore, Kraemer, and Gibb contributed ReliaStar confidential information to these materials or that the materials were then used to compete with ReliaStar while Moore, Kraemer, and Gibb were employed by ReliaStar. Significantly, KMG sold no insurance until after it acquired Kanawha, which was after Moore and Kraemer had left ReliaStar.
Moore, Kraemer, and Gibb do not specifically comment on these marketing materials except to state that they did not participate in fundraising. The evidence does not specifically link them to the marketing of the proposed new insurance company.
It is clear that the materials were not generally known in the industry because the record indicates neither ReliaStar nor Moore and Kraemer's close associates were aware of KMG, its possible purchase of Kanawha, or any link between them, much less the specific statements in the marketing materials.
The district court did not abuse its discretion by finding that Moore, Kraemer, and Gibb merely prepared to compete during their employment with ReliaStar.
Claims of Breach of Confidentiality and Misappropriation of Trade Secrets. ReliaStar argues that the district court erroneously ruled that Moore, Kraemer, and Gibb's duty to protect ReliaStar's confidential information ended with their employment. We do not agree that the district court made such a sweeping legal conclusion. The court found that they had signed confidentiality agreements and that the information alleged to be either confidential or trade secret was either not protected or was not misused by KMG, Kanawha, Kuk, Gibb, Kraemer, and Moore. For purposes of analysis, the tort of breach of confidentiality is basically the common-law version of misappropriation of trade secrets. See Jostens, Inc. v. Nat'l Computer Sys., Inc., 318 N.W.2d 691, 701 (Minn. 1982).
ReliaStar alleges that KMG, Kanawha, Kuk, Gibb, Kraemer, and Moore misappropriated ReliaStar's trade secrets. The district court considered the four general areas of information that ReliaStar claimed as trade secrets and determined that they did not meet the criteria under the Uniform Trade Secrets Act, Minn. Stat. §§ 325C.01-.08 (2004) (UTSA).
The UTSA articulates and clarifies much of the common law concerning trade secrets and confidential information, allowing the protection of certain types of information through an action for misappropriation. Electro-Craft Corp. v. Controlled Motion, Inc., 332 N.W.2d 890, 897-98 (Minn. 1983). Minnesota courts require the party seeking protection to show both the existence and the misappropriation of the trade secret. Id. at 897. To qualify as a trade secret under the act, information (1) must not be generally known or readily ascertainable; (2) must derive independent economic value from secrecy; and (3) must be the subject of reasonable efforts to maintain its secrecy. Minn. Stat. § 325C.01, subd. 5. Actual or threatened misappropriation may be enjoined. Minn. Stat. § 325C.02(a). But the moving party must demonstrate "a high degree of probability of inevitable disclosure." Lexis-Nexis v. Beer, 41 F. Supp. 2d 950, 958 (D. Minn. 1999).
The record includes numerous statements from ReliaStar employees indicating that ReliaStar labeled very little information "confidential," asked employees only for an on-line affirmation of the code of conduct, held no special meetings, and took no other steps to impress upon employees the confidentiality of the items now alleged to be trade secrets. "Employees need to understand that information which is not readily available to the trade is not to be made so by them." Jostens, 318 N.W.2d at 700. The employer must take steps to impress this upon the employees. Id. The district court did not abuse its discretion in finding that ReliaStar did not meet its burden to show that it maintained the secrecy of the information that it alleged was trade secrets.
ReliaStar complains that the district court did not properly analyze its claim regarding "customer information" and considered only "customer lists." But any confusion between these terms stemmed from the breadth of ReliaStar's claim. It was ReliaStar's responsibility to specify the precise information that it claimed to be protected trade secrets. See Electro-Craft, 332 N.W.2d at 898.
Customer lists are generally not deemed trade secrets or confidential. See Blackburn, Nickels Smith, Inc. v. Erickson, 366 N.W.2d 640, 645 (Minn.App. 1985), review denied (Minn. June 24, 1985). But customer lists and information that meet the elements of the USTA will receive protection. See Cherne, 278 N.W.2d at 89.
Viewed in the light most favorable to respondents, the record reflects that, in the employee-benefits insurance business, information about customers is not considered confidential or given special protection and is readily accessible from many sources. Brokers have access to information about customers and their accounts and share it with sales representatives. Broker relationships and contact lists are treated as a sales representative's asset that an insurance company expects its new lateral hires to use for the company's benefit. See, e.g., Fox Sports Net North, LLC v. Minn. Twins P'ship, 319 F.3d 329 (8th Cir. 2003). Other sources indicate that the information is not ReliaStar's trade secrets: requests for proposals often reveal key information about customers, product information is in the public domain, and commission statements may contain customer information. Even if particular information about customers were to satisfy the elements of a trade secrets, ReliaStar did not show that its information was taken or misused.
ReliaStar alleges that Moore took his PDA, which contained "his contact list" with "customer information." But Moore alleges that his contact list did not contain ReliaStar proprietary information, and, in any event, it was discarded just after he left ReliaStar because it malfunctioned. Although this issue may be further developed during discovery, at the time of the hearing, the court did not have facts warranting an injunction based on the PDA.
The record does not show that Moore, Kraemer, and Gibb were in positions to have special knowledge of business, pricing, and sales strategies or that they provided KMG with this information for KMG's benefit. Moore and Kraemer were regional vice presidents/general managers and not part of the "upper management" enlisted to develop ReliaStar strategies. They attended ReliaStar meetings at which strategies were discussed but did not have any special knowledge of them. Moreover, "[m]erely possessing trade secrets and holding a comparable position with a competitor does not justify an injunction." Int'l Bus. Machines Corp. v. Seagate Tech., Inc., 941 F. Supp. 98, 101 (D. Minn. 1992).
ReliaStar alleges that KMG's marketing documents show that respondents "admit" ReliaStar developed a "unique business strategy." But the marketing documents appear to have been created by Kuk, not by Moore, Kraemer, and Gibb. Rather than relying on Kuk's characterization of the strategy as "unique," ReliaStar, to meet its burden, needed to show that the information was in fact unique, was secret, had remained confidential, and was misappropriated.
ReliaStar also alleges that Moore, Kraemer, and Gibb were "familiar with" pricing strategies and the worksheets and formulas used to set prices of policies and that they had been involved in "discussions" of long-range plans at a November 2004 meeting. But the record does link particular secret documents with Moore, Kraemer, and Gibb's special knowledge or use of this information.
ReliaStar argues that product profitability, sales figures, and development of new products are trade secrets and that Moore, Kraemer, and Gibb had access to ReliaStar's quarterly profitability reports and had discussed its product-development plans.
Viewing the evidence in the light most favorable to respondents, ReliaStar did not meet its burden to establish that specific product information was taken and used to benefit KMG. Both Kraemer and Moore indicated that they were not directly involved in product pricing, development, and prioritization and that they did not take this type of information to use at KMG.
ReliaStar alleges that it uses a complex, unique, highly confidential compensation system whose formula changes each year and varies from representative to representative. It claims that Moore, Kraemer, and Gibb exploited their access to this system to target the most successful sales representatives. But no record evidence supports this claim. Furthermore, the employees who left ReliaStar did not consider their compensation information confidential in negotiating a salary at KMG, and many of them stated they would use the information in negotiating a compensation package with any prospective employer. Kraemer and Moore claim only general knowledge of the identities and compensation of ReliaStar's top producers; they did not need the specific information about employee compensation because the sales representatives simply volunteered it.
This claim does not appear to be made against Gibb, who did not take part in recruiting sales representatives for KMG.
The district court did not abuse its discretion in finding that ReliaStar's trade-secret and confidentiality claims were unlikely to succeed on the merits.
Balance of Harm
ReliaStar must demonstrate irreparable harm to obtain an injunction, while KMG, Kanawha, Kuk, Gibb, Kraemer, and Moore need show only substantial harm to bar an injunction. Pacific Equip. Irr., Inc. v. Toro Co., 519 N.W.2d 911, 915 (Minn.App. 1994), review denied (Minn. Sept. 16, 1994). Failure to show irreparable harm is grounds for denial of a temporary injunction. Morse v. City of Waterville, 458 N.W.2d 728, 729 (Minn.App. 1990), review denied (Minn. Sept. 28, 1990). If an adequate remedy at law exists, there is no irreparable harm. Miller v. Foley, 317 N.W.2d 710, 713 (Minn. 1982).
ReliaStar contends that the district court "erred in not finding disclosure or threatened disclosure of confidential information itself constitutes irreparable harm to ReliaStar." It argues that its irreparable harm is KMG taking business from ReliaStar, raiding its employees, and negatively affecting "the effectiveness of ReliaStar's strategic plans."
The district court found that, as of the injunction hearing in August 2005, eight months after KMG's first opportunity to sell insurance, ReliaStar had identified only two instances in which KMG employees might have used prior contacts to obtain clients. In light of ReliaStar's size and its more than 4,000 clients, this was not enough to show irreparable or immediate harm. We see no abuse of discretion in this conclusion.
ReliaStar Life Insurance Company, a Minnesota corporation, and ReliaStar Life Insurance Company of New York, a New York corporation, are wholly owned subsidiaries of ING America Insurance Holdings, Inc., which, in turn, is a subsidiary of ING Groep N.V., a Dutch company.
ReliaStar sought to enjoin KMG, Kanawha, Kuk, Gibb, Kraemer, and Moore from continuing to employ anyone employed by ReliaStar on December 14, 2004, from soliciting ReliaStar customers and employees and from using any ReliaStar "information." As the district court emphasized, these employees (with the sole possible exception of Gibb) were not subject to non-competition agreements. A broad injunction whereby Kuk, Gibb, Kraemer, Moore, and the KMG sales representatives who formerly worked for ReliaStar would all lose their jobs would have substantially harmed the employees and KMG.
Thus, the district court did not abuse its discretion in balancing the harms and concluding ReliaStar had not shown irreparable harm.
Considerations of Public Policy
The district court recognized as prevailing the public policy favoring competition and employment of individuals. In light of ReliaStar's minimal evidence of immediate or irreparable harm from misappropriation of trade secrets and the substantial harm of job losses resulting from an injunction, the court did not abuse its discretion in concluding that this factor did not support an injunction.
Administrative Burdens
The district court found that the administrative burden of enforcing the injunction would be great. The requested injunctive relief was very broad, and the court anticipated that it would be asked to "pass judgment on every customer solicitation by KMG." ReliaStar claims that it would be in a position "to discover violations and report them to the Court." But clearly the court's task would not end with ReliaStar's reports. The district court did not abuse its discretion in determining that the burden of enforcement would be great and that this factor did not favor granting the injunction.
Injunctive relief should be awarded only in clear cases, reasonably free from doubt, and when necessary to prevent great and irreparable injury. In light of the record at the time of the injunction hearing, the district court's application of the Dahlberg factors was sound and its denial of the temporary injunction was not an abuse of discretion.