Opinion
No. 1:23-cv-1066
2023-12-27
QUEST CAR CARE PRODUCTS, INC., Plaintiff, v. Paul TITUS, Defendant.
Timothy Paul Monsma, Brion Bannon Doyle, Gage Michael Selvius, Varnum Riddering Schmidt & Howlett LLP, Grand Rapids, MI, for Plaintiff. Warren Lee Wahl, Wahl Legal Group, Traverse City, MI, Steven A. Lee, Neumann Law Group, Traverse City, MI, for Defendant.
Timothy Paul Monsma, Brion Bannon Doyle, Gage Michael Selvius, Varnum Riddering Schmidt & Howlett LLP, Grand Rapids, MI, for Plaintiff.
Warren Lee Wahl, Wahl Legal Group, Traverse City, MI, Steven A. Lee, Neumann Law Group, Traverse City, MI, for Defendant.
ORDER REGARDING PRELIMINARY INJUNCTION
Paul L. Maloney, United States District Judge.
This case concerns the enforcement of a non-compete clause of an employment contract. Plaintiff seeks to enforce its non-competition agreement against Defendant. As explained below, the Court will grant Plaintiff's motion for a preliminary injunction.
I. Background
Plaintiff, Quest Car Care Products, produces car wash products. Defendant, Paul Titus, was formerly vice president of sales for Plaintiff before he resigned on July 6, 2023. Defendant has since started working for Ver-Tech Labs, which is a competitor of Plaintiff's. Plaintiff originally sought and received a temporary restraining order ("TRO") against Defendant in state court. On the eve of the hearing regarding the state court TRO, Defendant removed the action to this Court. (ECF No. 1).
Plaintiff has filed an "emergency motion for preliminary injunction." (ECF No. 11). Defendant responded (ECF No. 14) and Plaintiff filed a reply. (ECF No. 17). The Court held a hearing on December 5, 2023. The parties filed supplemental briefing as directed by the Court after the hearing. (ECF Nos. 25, 26).
Plaintiff alleges that (1) Defendant violated the non-compete clause in his employment contract and began working with a direct competitor; (2) Defendant became aware of confidential business information, including business plans, customer information, strategic planning, financials, manufacturing processes, and trade secrets in his former role as vice president of sales for Plaintiff; (3) Defendant deleted emails upon his departure from Plaintiff's employ; (4) Defendant systematically targeted Plaintiff's customers in an attempt to bring them over to Ver-Tech. Defendant summarily denies all allegations, but acknowledges he works for Ver-Tech. In particular, Defendant avers that any information he learned was standard industry knowledge and not confidential.
Defendant's supplemental briefing indicates that Defendant is no longer with Ver-Tech since the Court held oral argument.
After quitting his job with Plaintiff, Defendant apparently solicited three of Plaintiff's customers. The first was Carson Oil. Plaintiff alleges that Ver-Tech made an offer to Carson Oil, which essentially mirrored Plaintiff's nonpublic pricing structure. The inference here is that Defendant took Plaintiff's pricing structure and tried to poach one of Quest's customers with confidential information. Apparently, Plaintiff has a unique pricing structure with Carson Oil because Carson Oil buys so many products. Further, Plaintiff alleges that Ver-Tech contacted one of Carson Oil's representatives through a personal cell phone number and nonpublic email. According to Plaintiff, Defendant provided
Ver-Tech with the cell phone number and the nonpublic email address.
Second, Plaintiff alleges that Defendant solicited Jorge Cruz, who works for JPO Wash Systems. JPO is a distributor for Quest. Plaintiff asserts that Mr. Cruz is crucial to their relationship with H-E-B, another of Plaintiff's large customers. Apparently, Defendant only met Mr. Cruz because of his employment with Quest. Third, Plaintiff asserts that Defendant attended an industry wide roadshow where Defendant had direct contact with Plaintiff's customers. Finally, Plaintiff alleges that they lost a customer—Kind Car Wash—to Ver-Tech, and Plaintiff complains that Defendant violated the state court TRO, which required Defendant to turn over to Plaintiff a slew of accounts for forensic analysis.
Defendant denies the allegations. Defendant's declaration states that (1) he did not delete his emails; (2) his position with Ver-Tech is for sales only; (3) he did not disclose Plaintiff's pricing structure or any confidential information; (4) he did not contact H-E-B or JPO Wash Systems; and (5) JPO was already a Ver-Tech client prior to his employment. (ECF No. 14-2 at PID 192-94).
Plaintiff and Defendant signed an employment contract. The most important sections concern a five-year confidentiality clause and a one-year, United States wide, non-compete. The contract also includes a provision where the Defendant expressly agrees the terms are "reasonable and adequate." (ECF No. 12-1 at 148).
Confidential Information. Employee agrees to hold in strict confidence and, except as the Company may authorize or direct, not disclose to any person or use (except in the performance of his services under this Agreement) any confidential information or materials received by Employee from the Company and any confidential information or materials of other parties received by Employee in connection with the performance of his duties under this Agreement. For purposes of this Section 5, confidential information or materials shall include, but are not limited to, existing and potential client information, existing and potential vendor information, product information, pricing and profitability information, financial information, sales and marketing strategies and techniques and business ideas or practices (hereafter "Confidential Information"). The restriction on Employee's use or disclosure of Confidential Information shall remain in force during Employee's employment and until the expiration of a period of five (5) years after termination of Employee's employment....
Noncompetition. Employee covenants and agrees that so long as he is employed by the Company, and for a period of one (1) year after he is no longer employed by the Company, that Employee will not, directly or indirectly, either for Employee or on behalf of any other person or entity, compete with the Company within the United States of America (the "Geographic Area"). For the purposes of this Agreement, "compete" includes serving, with or without consideration, as an owner, director, manager, officer, employee, independent contractor, consultant, advisor, or other similar role for any other person or entity that carries out the same or similar business activities as the Company.
Nonsolicitation. Employee covenants and agrees that so long as he is employed by the Company, and for a period of one (1) year after he is no longer employed by the Company, that Employee will not, directly or indirectly, either for Employee or on behalf of any other person or entity, do any of the following....
(ECF No. 12-1 at PID 146-47).
II. Legal Standard
A district court has discretion to grant or deny preliminary injunctions. Planet Aid v. City of St. Johns, 782 F.3d 318, 323 (6th Cir. 2015). When deciding a motion for a preliminary injunction, a court should consider and balance four factors: (1) whether the plaintiff has established a substantial likelihood or probability of success on the merits; (2) whether there is a threat of irreparable harm to the plaintiff; (3) whether issuance of the injunction would cause substantial harm to others; and (4) whether the public interest would be served by granting injunctive relief. Six Clinics Holding Corp. v. Cafcomp Sys., Inc., 119 F.3d 393, 399 (6th Cir. 1997). The four factors are not prerequisites that must be established at the outset but are interconnected considerations that must be balanced together. Id. at 400. The purpose of a preliminary injunction is to preserve the status quo until a trial on the merits can be held. Id. A preliminary injunction is an "extraordinary and drastic remedy," Munaf v. Geren, 553 U.S. 674, 690, 128 S.Ct. 2207, 171 L.Ed.2d 1 (2008) (citation omitted) that should "only be awarded upon a clear showing that the plaintiff is entitled to such relief," Winter v. Nat. Res. Def. Council, Inc., 555 U.S. 7, 22, 129 S.Ct. 365, 172 L.Ed.2d 249 (2008) (citation omitted).
III. Analysis
Plaintiff requests a preliminary injunction and relies on the continued threat of lost revenue and the sharing of its confidential information to demonstrate harm. Defendant argues that Plaintiff lacks a sufficient factual basis warranting a preliminary injunction.
As an initial matter, Plaintiff requests that this Court enforce a provision of the state court's TRO that required Defendant to turn over his electronic devices for forensic analysis. Because that TRO was issued ex parte and discovery is looming, the Court declines to enforce that provision at this time.
Plaintiff has established a substantial likelihood of success on the merits. To show success on the merits, a Plaintiff must show "more than a mere possibility of success." Six Clinics Holding Corp., 119 F.3d at 402. "[I]t is ordinarily sufficient if the plaintiff has raised questions going to the merits so serious, substantial, difficult, and doubtful as to make them a fair ground for litigation and thus for more deliberate investigation." Id.
Whether Plaintiff can prevail on the merits depends on the enforceability of the employment contract, namely the non-compete provision. Under Michigan law, a non-compete clause is enforceable "if the agreement or covenant is reasonable as to its duration, geographical area, and the type of employment or line of business." MCL 445.774(a)(1). Therefore, the Court's inquiry turns on the reasonableness of the non-compete agreement.
As noted above, the non-compete in this case spans one year, and its geographic area spans the entire United States. Michigan courts have upheld non—compete agreements that span several years. Rooyakker & Sitz, P.L.L.C. v. Plante & Moran, P.L.L.C., 276 Mich.App. 146, 742 N.W.2d 409, 415 (2007) (upholding a two-year non-compete); Brillhart v. Danneffel, 36 Mich. App. 359, 194 N.W.2d 63, 64 (1971) (upholding a five-year non-compete). With this authority noted, the Court finds that a duration of six months under the totality of the circumstances meets the reasonableness standard. The non-compete is limited to Plaintiff's "same or similar business activities," which makes it reasonable. (ECF No. 12-1 at PID 147). The closer issue is whether the geographic limitation (the entire United States) is reasonable. "Geographic limitations in non-competition agreements must be tailored so that the scope of the agreement is no greater than is reasonably necessary to protect the employer's legitimate business interests." Superior Consulting Co. v. Walling, 851 F. Supp. 839, 847 (E.D. Mich. 1994).
The Court finds the geographic limitation is sufficiently tailored for the purposes of the preliminary injunction. First, Plaintiff conducts business in forty-nine states. Second, Defendant assented to the employment contract with a clause agreeing the geographic limitation is reasonable. The Court also notes that Defendant was familiar with non-compete agreements prior to signing the one at issue. Finally, the Court notes Plaintiff's exponential growth as of late, and enforcement of the non-compete would protect prospective business interests as well as those that are ongoing. The non-compete's scope mirrors Plaintiff's nationwide presence.
Defendant relies heavily on Whirlpool Corp. v. Burns, 457 F. Supp. 2d 806, 813 (W.D. Mich. 2006). In Whirlpool, there was no geographic limitation in the non-compete, and that court found that the contract was not tailored "so that the scope of the agreement is no greater than is reasonably necessary to protect the employer's legitimate business interests." Id. at 813 (citing Walling, 851 F. Supp. at 847). Whirlpool is easily distinguishable here as the instant non-compete includes a geographic limitation. The first factor favors Plaintiff.
Defendant's supplemental briefing asserts that "90% of [Plaintiff's] business was related to" seven states: Michigan, Indiana, Ohio, Pennsylvania, New York, New Jersey, and Maryland. (ECF No. 26 at PID 313). The Court notes that Defendant's belief is contradictory to Defendant's assertion that he learned no confidential information about Plaintiff's business during the course of his employment. The Court finds Plaintiff's declaration on the matter more credible. (See ECF No. 25-1 at PID 297-98).
The irreparable harm factor favors the Plaintiff. "A plaintiff's harm from the denial of [injunctive relief] is irreparable if it is not fully compensable by monetary damages." Overstreet v. Lexington-Fayette Urb. Cnty. Gov't., 305 F.3d 566, 578 (6th Cir. 2002). "[A]n injury is not fully compensable by money damages if the nature of the plaintiff's loss would make the damages difficult to calculate." Basicomputer Corp. v. Scott, 973 F.2d 507, 511 (6th Cir. 1992). The Sixth Circuit has held that the loss of customer goodwill can amount to irreparable injury because the damages flowing from such an immeasurable loss are extremely difficult to compute. Id.
Plaintiff's alleged harms outweigh Defendant's. Plaintiff has established that Defendant went to work for a direct competitor. Plaintiff also alleges that Defendant or the company that Defendant's new company has had contact with some of Plaintiff's customers. This potential damage would be difficult to calculate. On the other hand, Defendant would be enjoined from working in the car wash chemical industry for, at most, one year. The Court notes that Defendant's salesman skills are readily transferable to other industries. Overall, Plaintiff bears more harm than Defendant.
The third factor, whether others would face substantial harm, favors Plaintiff. This "factor is commonly evaluated in terms of the balance of hardship between the parties." Walling, 851 F.
Supp at 848. Defendant argues that the only person harmed is himself. Plaintiff makes similar arguments as explained above: the loss of customers and disclosure of confidential information would be "irreparable and catastrophic." (ECF No. 12 at PID 142-43). Overall, Plaintiff should be able to exercise its benefit of the bargain from the employment contract.
The final factor concerns the public policy interests at stake. "It is the public policy of Michigan as embodied by statute to enforce reasonable non-competition provisions in employment contracts." Whirlpool Corp., 457 F. Supp. 2d at 813. Because the Court found that the non-compete is valid and enforceable to support a preliminary injunction, the Court finds this factor also favors the Plaintiff. This factor may be the least compelling of the four, but the Court notes it was troubled by Defendant's cavalier testimony that his non-compete did not matter.
IV. Conclusion
The Court finds that all four factors favor a preliminary injunction. Defendant was in clear violation of his employment contract. The Court will enforce the non-compete as described below and will issue a preliminary injunction.
IT IS ORDERED that Plaintiff's motion for a preliminary injunction (ECF No. 11) is GRANTED in part.
IT IS FURTHER ORDERED that Defendant is prohibited from working for Ver-tech or any other competitor in the car wash chemical industry within the United States.
IT IS FURTHER ORDERED that Defendant is prohibited from accessing or disclosing Plaintiff's confidential information.
IT IS FURTHER ORDERED that Defendant is prohibited from soliciting Plaintiff's customers.
IT IS FURTHER ORDERED that this preliminary injunction shall remain in effect for six months from the date this order is issued.
IT IS SO ORDERED.