Opinion
CV-22-00490-TUC-JCH
10-31-2022
Stella Management Incorporated, et al., Plaintiffs, v. CastleBlack LLC, et al., Defendants.
ORDER
John C. Hinderaker United States District Judge
Before the Court is Plaintiffs Stella Management Inc.'s ("Stella") and Digital Messaging Solutions, Inc.'s ("Digital Messaging") Motion for Entry of a Temporary Restraining Order (With Notice) and Preliminary Injunction ("Motion") (Doc. 2). On October 27, 2022, the Court held a status conference on the Motion. (See Doc. 10.) At the status conference, the parties stipulated to entry of a temporary restraining order ("TRO") the granted Plaintiff the injunctive relief sought in the Motion. (Trans. 26:17-24, 27:7-8; 27:23-28:3.) At the conclusion of the status conference, the Court entered the TRO, which is reflected in the Minutes. (Doc. 10.) The Court also directed the parties to meet within five business days to disclose a possible expedited discovery schedule. (Doc. 10.) This Order converts the TRO to a preliminary injunction and clarifies the procedural posture of the case to assist the parties moving forward.
I. Background
Stella is a Michigan corporation operating in Arizona to "provide quality newsletter publications and political donor information services." (Doc. 2 at 3.) Stella owns an email list of 700,000 Republican political donors (the "Republican Strong List" or the "List"). (Id.) Defendant CastleBlack LLC d/b/a Right Country Lists ("Right Country") is, among other things, an email list broker that manages and monetizes political donor email lists.(Doc. 1 at 5.)
Co-Defendant Campaign Services, Inc. d/b/a Campaign Solutions is a Virginia company operating in Arizona as Right Country's sole operating agent. (Doc. 1 at 3.) Stella alleges Right Country has no employees, and all Right Country's business is carried out through Campaign Solutions' employees. (Id.) Co-Plaintiff Digital Messaging Solutions, Inc., is a Georgia corporation operating in Arizona as an “Email Service Provider” both for Stella and ““later for a period of time after June 1, 2018” for Right Country. (Id. at 2-3.) Stella alleges it was a client and customer of both Right Country and Digital Messaging, under separate contracts with each. (Id. at 2.) For clarity, the Court will focus on the relationship between Stella and Right Country, and refer to Campaign Solutions and Digital Messaging only as necessary.
In March, 2018, Stella transferred the Republican Strong List to Right Country under a List Brokerage Agreement (the "Agreement"). (Doc. 2 at 4.) The Agreement includes the following terms:
1. Services. During the term of this Agreement, [Right Country] shall:
i. Manage the List[], including updating the data for additions, deletions, opt-outs, updates of existing information or appending new information ("Enriched Data"), all of which shall at all times remain a part of the List[] and the sole property of [Stella]."
....
iii. Monetize the List, or portions thereof, to [Right Country] clients or other third parties who wish to send content over the List for a fixed fee ("List Rentals"), revenue sharing, or other economic terms . . . . [Right Country] must obtain [Stella's] approval prior to engaging in a List Rental. [Right Country] shall not promise or provide any third party any ownership rights whatsoever to the List.....
iv. [Right Country] has authority to enter into additional contracts with third party vendors as appropriate to provide services contemplated under this Agreement or to fulfill its obligations under this Agreement.
2. List ownership. [Stella] shall remain the sole owner of the List at all times and owns all rights and interest in the List including all intellectual property rights.
5. Confidentiality. [. . .] Each party agrees that during the Term and at all times thereafter it shall not use, commercialize or disclose the other party's Confidential Information except in performing its obligations
under this Agreement[.](Doc. 1 at 5-6, 8.) In Stella's view, this Agreement, specifically sections 1(i) and 5, prohibited Right Country "from using any 'Republican Strong List' data (as updated by Right Country or 'enriched') for Right Country's own benefit." (Doc. 2 at 4-5.)
In May, 2018, Right Country began renting data from the Republican Strong List to its customers. (Doc. 2 at 5.) Between May, 2018, and September, 2020, Right Country made several rental payments to Stella for the Republican Strong List data. (Id.) Right Country's final September, 2020 payment "indicat[ed] that it was compensation for rental . . . of a list called the "GOP Revival List," which [Stella believed consisted] only of a portion of Stella's 'Republican Strong List' data as 'enriched' by Right Country for Stella's sole benefit. (Id. at 6.)
In late September, 2022, Stella learned that the "GOP Revival List" was a "blended" list that mixed Stella's data with third-party data owned neither by Stella nor Right Country. (Doc. 2 at 6-7.) The GOP Revival List contains "approximately 61,185 email addresses in total, of which 21,008 (34%) are exact matches from Stella's 'Republican Strong List.'" (Doc. 2 at 7.) Of the remaining 40,807 non-Stella email addresses on the GOP Revival List, "approximately 9,000 . . . [are] from a mailing list [belonging] to one of Right Country's largest customers, American Media Source." (Doc. 2 at 8.) At some point, American Media Source asserted claims against Stella in Pima County Superior Court, alleging "certain of the data contained on [the GOP Revival List] . . . [was] owned initially by its predecessors in interest." (Doc. 1 ¶ 36.) In that suit, the Superior Court ordered American Media Source to reveal to Stella the specific data claimed as the basis for its alleged trade secret claim against Stella. (Id.) Until the Superior Court compelled American Media Source's disclosure, Stella was unaware that its Republican Strong List formed part of the GOP Revival List. (Id.) Stella notes that "Right Country's [June 2022] Political Rate Card shows that Right Country continues to offer the GOP Revival List data" to its customers. (Doc. 2 at 7.) Stella does not indicate whether Right Country's use of the GOP Revival List after September, 2020, was readily discoverable through a "Political Rate Card" or other means.
On September 30, 2022, Stella sent Right Country a cease-and-desist letter. (Doc. 2 at 8.) Right Country replied the same day and agreed to investigate, but stated the investigation would take time. (Id.)
On October 21, 2022, after receiving no "formal response," and believing Right Country continued to use Stella's data in violation of the Agreement, Stella commenced this action. (Id. at 1, 7; Doc. 1 at 1.) Stella's Complaint asserts five counts: (1) violation of the Defend Trade Secrets Act ("DTSA"); (2) violation of Arizona's Uniform Trade Secret's Act ("AUTSA"); (3) breach of fiduciary duties; (4) breach of contract (between Stella and Right Country); and (5) breach of contract (between Stella, co-Plaintiff Digital Messaging, and Right Country). (Doc. 1 at 18-29.)
On October 27, 2022, the Court held a status conference on the Motion. (See Doc. 10.) At the status conference, the parties stipulated to a TRO binding Defendants indefinitely. (Trans. 26:17-24, 27:7-8; 27:23-28:3) The parties and the Court discussed that the order may need to be modified after discovery and further litigation related to Plaintiff's request for a preliminary injunction. (Trans. 29:3-6.) From this discussion, the Court understood the parties' implicit intent to be that the stipulated TRO would remain in effect indefinitely and not expire after 14 days.
v. Jurisdiction and Venue
The Court has federal question jurisdiction over Count 1 because it arises under federal law, namely the DTSA. See 28 U.S.C. § 1331. The Court has diversity jurisdiction over Count 2 because the parties are diverse and the amount in controversy over $75,000. See 28 U.S.C. § 1332. The Court has supplemental jurisdiction over Counts 3-5 because they refer to the contracts and responsibilities under those contracts that gave rise to Counts 1 and 2. See 28 U.S.C. § 1367.
Venue is proper because Stella and Digital Messaging reside or conduct business in Arizona, the contracts at issue were substantially performed in Arizona, and the trade secret data misappropriation alleged occurred in Arizona. See 28 U.S.C. § 1367.
vi. Legal Standard
Plaintiffs move for both a preliminary injunction and TRO. The Court may issue a preliminary injunction on notice to the adverse party. Fed.R.Civ.P. 65(a)(1). An order granting an injunction must state the reasons why it is issued, state its terms specifically, and describe in reasonable detail the acts restrained. Fed.R.Civ.P. 65(d)(1). An injunction binds only the following if they receive actual notice of it: (1) the parties; (2) the parties' officers, agents, servants, employees, and attorneys; and (3) other persons in active concert or participation with anyone described in (1) or (2). Fed.R.Civ.P. 65(d)(2).
In contrast with a preliminary injunction, a TRO may be issued without notice, expires no more than 14 days after the order, and may be extended for a like period to a maximum of 28 days. See Fed.R.Civ.P. 65(b)(1)-(2).
vii. Analysis
a. Stella's request for a preliminary injunction is granted
To avoid any confusion that the TRO might expire, the Court will convert the TRO to a preliminary injunction, thereby granting Stella's request for a preliminary injunction. This is appropriate because, (1) the Motion was with notice, but TRO's are without notice; and (2) the parties agreed the preliminary relief would have indefinite effect, but a TRO is limited to 14 days. Stella's request for preliminary injunction is therefore granted on the same terms agreed to by the parties at the status conference.
b. Stella's request for expedited discovery is denied without prejudice
In its "Proposed Temporary Restraining Order," (Doc. 2-1), Stella asks the Court to order Right Country to answer several interrogatories on an expedited basis. (See id. at § 2(a)-(e).) To the extent Stella seeks expedited discovery, a motion for preliminary relief is the wrong procedural vehicle. Also, based on Stella's discussion at the status conference the Court does not, at this time and on the current record, see a basis for granting expedited discovery against Defendants. More specifically, Stella gave two arguments to establish irreparable harm: (1) economic harm from the Defendant's misuse of the Republican Strong list; and (2) exposure to unwarranted third-party lawsuits arising out of Defendants' misuse of the Republican Strong List. With respect to the economic harm argument, Stella represented that the value of the Republican Strong List will decline significantly following the national election on November 8, 2022. The Court gave Stella an opportunity to explain how Defendants' alleged misuse of the Republican Strong List would exposure Stella to unwarranted third-party lawsuits, but the Court could not understand Stella's argument. Thus, Stella has yet to meet its burden of showing a risk of immediate irreparable harm that would support a request for expedited discovery. Accordingly, the Motion's request for expedited discovery is denied without prejudice. The Court ordered the parties to meet and confer within five business days regarding expedited discovery. If the parties are unable to reach an agreement, Stella may file a motion requesting expedited discovery under applicable rules and law.
viii. Order
For the reasons explained above, IT IS ORDERED GRANTING IN PART Plaintiffs' Motion (Doc. 2) and entering a preliminary injunction as follows:
CastleBlack LLC d/b/a/ Right Country Lists and Campaign Services Inc. d/b/a Campaign Solutions (the "Defendants") are hereby enjoined from selling or renting the "Republican Strong List" and the "GOP Revival List." Defendants shall not sell or rent any lists containing email addresses that were derived directly or indirectly from the "Republican Strong List." This order binds the following who receive notice of it by personal service or otherwise: (A) the parties, (B) the parties' officers, agents, servants, employees and attorneys, and (C) all other persons who are in active concert or participation with Defendants.
This Order revises the Court's Minute Entry (Doc. 10) only to the extent that the “Temporary Restraining Order” referenced there is now construed as a “Preliminary Injunction” here.
IT IS FURTHER ORDERED DENYING IN PART Plaintiffs' Motion (Doc. 2) and denying the TRO request as moot given the preliminary injunction entered above;
IT IS FURTHER ORDERED DENYING IN PART without prejudice Plaintiffs' Motion (Doc. 2) to the extent it requests expedited discovery against Defendants;
IT IS FURTHER ORDERED that once the parties have satisfied the Court's prior order to meet and confer, Plaintiffs' may file (1) a separate motion seeking to modify the preliminary injunction entered above; and/or (2) a motion for expedited discovery. To support any request for expedited proceedings, Plaintiffs will be required to cogently and coherently explain why Plaintiffs face irreparable harm absent expedited relief, which Plaintiffs have not done to this point.
IT IS FURTHER ORDERED Defendants will not respond to Plaintiffs' Motion (Doc. 2) because no aspect of that Motion remains pending.