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finding that absence of a geographical restriction in non-compete agreement was reasonable
Summary of this case from Kadant Johnson, Inc. v. D'AmicoOpinion
Case No. 00-CV-73439
August 22, 2000
OPINION AND ORDER GRANTING. IN PART, AND DENYING, IN PART, PLAINTIFF'S MOTION FOR A PRELIMINARY INJUNCTION
Plaintiff Superior Consultant Company, Inc. moves for a preliminary injunction relative to defendant Timothy Bailey's employment at defendant Software Technologies Corporation ("STC"). For the reasons set forth below, plaintiffs motion for a preliminary injunction will be GRANTED, IN PART, and DENIED, IN PART.
I. Procedural Background
Plaintiff Superior Consultant Company ("Superior") filed a ten count complaint on May 12, 2000 alleging defendant Timothy Bailey was employed at Superior under a written "Employment Agreement" initially signed by Bailey on June 19, 1997. Plaintiff alleges Bailey signed a second Employment Agreement on December 26, 1997. Plaintiff alleges Bailey was later promoted to the position of an Executive Director where he worked with proprietary and confidential systems and information, and was privy to Superior's corporate strategies and initiatives. Plaintiff alleges Bailey also worked closely with and/or supervised certain Superior employees including Tom Feuerer, Carl Duff, Bernard Addy, Ian Campbell, Jamie Scott and Scott Miller.
Plaintiff continues by alleging that Bailey announced his resignation from Superior on February 28, 2000, falsely reporting that he was going to work for the "Medibase Group of Atlanta" ("Medibase"). Plaintiff Superior alleges it discovered on May 10, 2000, however, that Bailey was in fact working for defendant STC, an alleged competitor of Superior. Plaintiff further alleges that Bailey and STC have since solicited and hired away Superior employees Feuerer, Duff and Scott, and have wrongfully solicited Addy, Miller and Campbell. Counts I through V, and Count IX allege Bailey breached various provisions of his Employment Agreement. Counts VI through VII allege STC is liable for tortious interference with contractual and business relations. Count VIII alleges Bailey is liable for breach of his fiduciary duty owing to Superior. Count X alleges violations of Michigan's Uniform Trade Secrets Act ("MUTSA"), M.C.L. § 445. 1901 et seq..
On May 25, 2000, a hearing was held on plaintiffs motion for a temporary restraining order. As a result of that hearing, the court issued a Temporary Restraining Order ("TRO") ordering inter alia that:(1) defendant Bailey neither recruit nor assist STC in soliciting or hiring Superior's employees; (2) defendant Bailey neither use nor disclose Superior's confidential business information, trade secrets, and/or proprietary information as set forth in the TRO;(3) the parties neither destroy, alter, modify nor conceal any relevant data, including data stored on computer media; (4) defendant STC neither use nor disclose Superior's confidential business information, trade secrets, and/or proprietary information as set forth in the TRO; (5) defendant STC neither recruit nor assist Bailey in recruiting or soliciting Superior's employees; (6) defendants Bailey and STC return specified property to Superior; (7) defendants Bailey and STC create and thereafter produce to defense counsel a backup file of defendant Bailey's laptop computer, and a backup file of any personal computer hard-drive to which defendant Bailey has had access at anytime, and; (8) defendants Bailey and STC produce a redacted copy of these harddrive backup files to plaintiffs counsel within three days after entry of the TRO.
Now before the court is plaintiff Superior's motion for a preliminary injunction. A hearing on the motion was held on July 6, 2000. Following the hearing, the parties were invited to submit supplemental briefs by July 21, 2000. The TRO has continued in effect. Plaintiff seeks a preliminary injunction incorporating the restrictions contained in the TRO and, in addition:(1) enjoining Bailey from working for STC for 6 months and/or from performing health care systems consulting or management business consulting for STC, and;(2) prohibiting STC from employing Bailey due to the alleged misappropriation of "trade secrets" as defined under the MUTSA, M.C.L. § 445. 1902.
II. Factual Development
Defendant Bailey received his initial computer training in the United States Air Force, where he served from March 10, 1986 to July 29, 1991. Upon leaving the Air Force, Bailey worked for the Hurley Medical Center in Flint, Michigan where he was responsible for integrating the Hospital's computer systems with the "TDS7000" computer application, a computer program written by Eclipsys Solutions Company ("Eclipsys"). In February 1996, Bailey began employment with Eclipsys, integrating the Eclipsys TDS7000 program with defendant STC's software product "DataGate". In June 1997, Bailey left Eclipsys to work for plaintiff Superior. Bailey signed written Employment Agreements with Superior on June 19, 1997 and December 26, 1997 as a "Systems Consultant". The December 1997 Employment Agreement reads in part:
1. Terms and Conditions of Employment: .... Terms of this employment agreement shall be effective on January 4, 1998 or with the pay period immediately following the date of receipt of the signed employment [agreement] (whichever is later) at Superior's Southfield office; however, the company explicitly reserves the right to refuse any acceptance not communicated in writing within one month from the above mentioned effective date. There is no fixed or minimum term to this Agreement. The employee recognizes that he/she is serving solely at the will of the company. Further, the employee recognizes that his/her employment can be terminated by the company, with or without cause, for any reason whatsoever, at any time by notice from the company. The employee agrees that there is no continuing right to compensation and bonus. The employee further recognizes his/her obligations under applicable sections of this Agreement, including, but not limited to, the sections governing employee warranties, non-competition, proprietary rights, and confidential information, will survive any termination of employment or this employment agreement
8. Company Resources: The employee recognizes that all company resources of any kind and nature including but not limited to personnel; equipment and telephones; software; written materials, methods and procedures; client and prospect names, files and documentation are the sole property of the company and shall not be used for personal or any other noncompany reasons.
9. Other Gainful Employment: The employee shall devote full employment energies, abilities and time to the performance of services hereunder. The employee is prohibited from performing services similar to those offered by Superior on behalf of any other company, organization, individual or other legal entity. The employee is also prohibited from soliciting or negotiating to perform services similar to those offered by Superior on behalf of any other company, organization, individual or legal entity. Further, the employee must seek written approval of the company prior to engaging in any employment of any nature, similar to the company's services or otherwise.
10. Non-competition: In consideration of employment with Superior Consultant Company, Inc., the employee is prohibited from recruiting, assisting in the recruitment or solicitation of employees of Superior or any of its subsidiaries or affiliates either directly or indirectly following employee's termination of employment with Superior. Furthermore, employee is prohibited from soliciting business and/or performing services via direct employment or through a party other than Superior for a period of ninety (90) days from the date of any termination of employment with Superior for clients of Superior or prospective clients of Superior identified during the term of employment.
For purposes of defining clients and prospective clients relative to noncompetition, a "client" is any entity that Superior has provided services with in the twenty-four (24) month period prior to the date of the employee's termination; a "prospective client" is any entity that has been subject to documented Superior sales and marketing activity, other than mass mailings, within six (6) months prior to the employee's termination date.
Further, the employee is prohibited from engaging in healtheare information systems consulting and management consulting businesses for a period of six (6) months following the date of termination.
Employee recognizes and agrees that Superior has a legitimate business purpose in the protection of its trade secrets, proprietary information and competitive position under this non-competition provision. Further, employee recognizes and agrees that Superior has the right to such information as is reasonably necessary to inform Superior whether the terms of this non-competition provision are being complied with. Accordingly, employee agrees that for a period of six (6) months following employees termination of employment, employee will promptly and forthrightly comply with any request by Superior that employee provide Superior with the identity of employee's new employer.
The non-competition provisions contained herein shall survive termination of employment.
11. Proprietary Rights: The employee agrees that all work and creation of work products associated with this Employment Agreement are deemed work for hire for Superior. In consideration of employment with Superior the employee assigns and transfers to Superior all property rights of any kind and nature (including without limitation royalties, other income and property rights) in discoveries, inventions, patentable material, copyrightable materials (including any writing, book, article, computer program, work method, film, recording or graphic production) and other work products. The employee further agrees the employee shall cause to be furnished to Superior such instruments, instructions, and documentation as Superior may reasonably require to insure that the aforesaid rights shall belong to Superior. The employee shall, upon request by Superior, return or destroy all proprietary information as so directed by the company.
The only items which may be excluded from this Agreement must meet all of the following criteria:
(1) Developed entirely on employee's own time and is outside the scope of his/her duties with Superior.
(2) Not related to employee's duties as an employee of the company.
(3) Developed without any use of the company's resources, facilities, personnel, financial support or data compiled as part of the employee's work with Superior.
12. Confidential Information: The employee recognizes that in the course
of performance of work for the company the employee will obtain access to materials and information of Superior, its subsidiaries and affihates that constitute trade secrets and confidential information of Superior, its superiors and affiliates including, without limitation, descriptions of Superior's, its subsidiaries and affiliates' products and services, planned products and services, business and marketing/sales plans, mergers and acquisition targets, employee compensation plans, employee medical information, the identities of suppliers, customers and prospective customers, identities of employees and prospective employees, prices and pricing policies in whatever form received by employee, including without limitation, written, voice, electronic or magnetic media or graphic display. The employee shall not utilize any such information for any purpose other than the performance of this Employment Agreement, and shall not disclose any such information to any third party. The employee shall, upon request by Superior, return or destroy, as directed by Superior, any media in which such information is recorded.
The employee shall also observe any restrictions with respect to the use and disclosure of the confidential information of Superior's clients that are specified in Superior's service agreements with the clients, or that are reasonably required by the clients.
The employee understands that his/her obligation of non- disclosure shall survive termination of employment for any reason whatsoever.
13. Employee Warranties: By entering into this Agreement, employee represents and warrants that he/she is able to perform the contemplated duties of employment without breach of confidentiality or disclosure of proprietary information of any third party, and that no proprietary information of any third party shall be disclosed to Superior. Employee also represents and warrants that he/she is not prohibited from entering into this Employment Agreement by any non-competition agreement, lawful or unlawful, or any other restrictions. ....
Employee acknowledges that due to the nature of the business of Superior, its subsidiaries and affiliates, and the value to Superior, its subsidiaries and affiliates, licensors and licensees of Proprietary Information, the breach by Employee of any of the provisions hereof, including without limitation, Confidential Information, Proprietary Information, and Proprietary Rights may not adequately be compensated in damages alone and, therefore, Superior shall be entitled to seek injunctive relief to prevent any threatened or continued breach of any of the terms and provisions hereof, and in addition shall be entitled to seek any and all remedies available at law or in equity. In the event Superior takes legal action to enforce its rights under this Agreement, Superior shall also be entitled to recover its actual costs and attorney fees. ....
15. Termination of Employment: In the event employment with the company is terminated by either the employee or the company, the employee agrees to return all materials acquired during the term of employment with the company. Specifically, this is to include without limitation, computer disks, computers, work papers, manuals, training manuals, notes, articles, phone lists, correspondence, proposals, addresses, reports, phone cards, office keys and any and all material related to employment with the company
19. Choice of Law and Forum: This Employment Agreement will be governed by and interpreted in accordance with the laws of the State of Michigan.
Any action arising out of this Agreement or the termination of this Agreement, or the performance of this agreement, or the relationship between the parties established herein, shall be brought only in the Oakland County Circuit Court, Michigan, or United States District Court for the Eastern District of Michigan, Southern Division at Detroit, Michigan, and Employee hereby consents to and submits to the jurisdiction of either of such courts for such purpose.
20. Savings Clause: In the event that any provision of the Employment Agreement is found to be invalid by any court of competent jurisdiction, the remaining provisions shall remain in full force and effect.
Bailey signed an "Amendment to Employment Agreement" on December 22, 1998 amending only Section 4 entitled "Salary" and Section 6 entitled "Bonus".
In January 1999, Bailey became an Executive Director at Superior, although he did not sign another written agreement. Bailey attests that he later learned he was being paid $10,000.00 to $15,000.00 a year less than other Executive Directors; Bailey's annual salary was $68,000.00. While employed at Superior, Bailey used STC's DataGate software and Eclipsys' TDS7000 software. According to Bailey, he, on behalf of Superior, proposed to Eclipsys that Superior market Eclipsys software in conjunction with Superior's computer consulting services, a contractual relationship that once existed between Eclipsys and Superior that had since expired. Superior was actively seeking such a relationship with Eclipsys when Bailey left Superior.
Bailey began looking for new employment in January 2000 based on anticipated paycuts and "unfunded" raises at Superior. Bailey received information about an Account Executive position at Medibase offering a base pay of $77,000.00 and a minimum earning potential of $123,200.00. In the meantime, Bailey retrieved information from Superior databases regarding businesses that were using Eclipsys software. One of these entities was the Foothills Provincial General Hospital. Evidence in the record indicates Bailey placed four phone calls to Foothills Hospital on February 22, 2000. On February 24, 2000, Bailey offered his opinions to Medibase's Jay Gehres concerning an Eclipsys consulting proposal being made by Medibase to Foothills Hospital. Four days later on February 28, 2000, Bailey received new information about the Account Executive position at Medibase, now offering a base salary of $80,000.00 and a minimum earning potential of $144,600.00. By way of a February 28, 2000 letter, however, defendant STC informed Bailey that STC had received his acceptance of a position with STO at an annual salary of $87,000.00; Bailey's STO employment application was dated February 24, 2000. Bailey attests that the higher February 28, 2000 Medibase offer was intended as a counter-offer to STC's offer. On February 28, 2000, Bailey informed Superior that he was resigning, which became effective March 25, 2000. According to Superior Divisional Vice President Teddy Abbott, Bailey said he was leaving Superior to work for Medibase. Bailey e-mailed STC on March 3,2000 accepting their position. Bailey attests that it "never occurred to him" to tell Superior that he had now decided to work at STO. In two later March 21, 2000 e-mails, Bailey represented to Superior that he was going to work for Medibase.
Evidence proffered by Superior also indicates STO informed Bailey of its "Employee Referral Program" under which STO employees are paid $3,000.00 to $10,000.00 for persons referred to, and hired by, STO. Gino Cesario of STO attests that STC has not targeted Superior employees, but instead seeks qualified personal from numerous sources including headhunters like Patrick Bourgeois who recruited Bailey. In March 2000, before leaving Superior, Bailey e-mailed the resumes of Thomas Feuerer, Clyde Blocker, Jamie Scott and Scott Miller to defendant STO. Feuerer, Scott and Carl Duff have since resigned from Superior to take positions at STC.
There is also evidence in the record that, after leaving Superior, Bailey accessed certain Superior computer files which, according to Superior's Teddy Abbott, contained "confidential and proprietary" information. In addition, former Superior employee Thomas Feuerer attests:
Mr. Abbott also attests that, during Bailey's tenure as an Executive Director at Superior, Bailey had access to Superior's "business model", budgets, a "current engagements list", Superior's organization chart, sold work and revenue detail, "pitched work, which identifies prospects", business plans, and client lists.
2. In March 2000, Tim Bailey approached me and offered to forward a copy of my resume for possible employment at STO. After Mr. Bailey's contact with me, STC solicited me, informing me that it was contacting me based upon Mr. Bailey's referral
4. After Mr. Bailey became employed by STC in late March/early April 2000, Bailey told me that he was instrumental in getting myself and Jamie Scott "on board" at STC and was now going to try and get Superior employees, Clyde Blocker and possibly Rett Addy.
5. In mid-April 2000, Tim Bailey informed me that after he became an STC employee, he had been looking through the Superior databases on his Superior lap top computer.
Bailey has testified that he accessed Superior's databases one week after his termination because he "was following up on client information and turning it over to Mr. Collins, Mr. Blocker." James Collins and Clyde Blocker have attested, however, that they have not received any client information from Bailey since his March 25, 2000 employment termination date.
By way of affidavit, defendant Bailey attests that he does not believe he has violated any of his obligations to Superior, and that he has not and will not use any of Superior's confidential or trade secret information in his position at STC. Bailey also attests that, since joining STC, he has worked solely for STC client Ames Department Stores, a retail business. With respect to the untimely return of his laptop computer to Superior on May 23, 2000, Bailey attests that "[t]he entire time that this property has been in my possession since leaving Superior, it has been gathering dust in my home in Tennessee." Bailey maintains that he did not immediately return Superior's laptop computer because Superior still owed him money for certain travel expenses.
III. Standard of Review
Whether to issue a preliminary injunction lies within the discretion of the district court. COX Transp., Inc. v. Tennessee State Bd. of Equalization, 964 F.2d 548, 552 (6th Cir. 1992). In determining whether to grant or deny an injunction, the district court must consider four factors: (1) whether the movant is likely to prevail on the merits; (2) whether the movant would suffer an irreparable injury if the court does not grant a preliminary injunction; (3) whether a preliminary injunction would cause substantial harm to others, and (4) whether a preliminary injunction would be in the public interest. G V Lounge v. Michiqan Liquor Control Comm'n, 23 F.3d 1071, 1076 (6th Cir. 1994) (citingInternational Longshoreman's Ass'n v. Norfolk S. Corp., 927 F.2d 900, 903 (6th Cir. 1991)), cert. denied, 502 U.S. 813 (1991). A district court is required to make specific findings concerning each of the four factors unless fewer are dispositive of the issue. Performance Unlimited v. Questar Publishers, Inc., 52 F.3d 1373, 1381 (6th Cir. 1995) (citations omitted). A preliminary injunction should not enter where money damages would make the plaintiff whole. Id.at 1382.
IV. Analysis
Plaintiff Superior seeks a preliminary injunction based upon two of its alleged legal theories, Bailey's alleged breach of his employment contract, and Bailey's alleged misappropriation of trade secrets in violation of the MUTSA. The parties rely upon Michigan law to support their positions, consistent with the Michigan choice of law provision found in Section 19 of the December 26, 1997 Employment Agreement. Accordingly, the court will apply Michigan law. See Banek Inc. v. Yogurt Ventures U.S. A.. Inc., 6 F.3d 357, 360-361 (6th Cir. 1993).
When determining the terms of an employment contract, courts must examine all of the relevant circumstances surrounding the employment relationship, including all writings, oral statements, and other conduct of the parties. See Rood v. General Dynamics Corp., 444 Mich. 107, 119, 507 N.W.2d 591 (1993). In Michigan, employment contracts containing non- compete clauses are governed in part by statute:
(1) An employer may obtain from an employee an agreement or covenant which protects an employer's reasonable competitive business interests and expressly prohibits an employee from engaging in employment or a line of business after termination of employment if the agreement or covenant is reasonable as to its duration, geographical area, and the type of employment or line of business. To the extent any such agreement or covenant is found to be unreasonable in any respect, a court may limit the agreement to render it reasonable in light of the circumstances in which it was made and specifically enforce the agreement as limited. (2) This section shall apply to covenants and agreements which are entered into after March 29, 1985.
M.C.L. § 445.774a. Even in the absence of an express agreement or covenant, a former employee is prohibited under the common law from using for his own benefit, and in competition with his former employer, trade secrets or confidential information given to him by the former employer or acquired by him in violation of a duty. Hayes-Albion Corporation v. Kuberski, 421 Mich. 170, 180-181; 364 N.W.2d 609 (1985); Follmer. Rudzewicz Co.. P.C. v. Kosco, 420 Mich. 394, 404, 362 N.W.2d 676 (1984).
Protection of trade secrets is also addressed by Michigan statutes. A "trade secret" is specifically defined under the MUTSA:
(d) "Trade secret" means information, including a formula, pattern, compilation, program, device, method, technique, or process, that is both of the following:
(i) Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use.
(ii) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
M.C.L. § 445. 1902(d). A customer list may constitute a trade secret entitled to protection from misappropriation. See Merrill Lynch v. Ran, 67 F. Supp.2d 764, 775 (E.D. Mich. 1999) (citing Hayes-Albion v. Kuberski, 108 Mich. App. 642, 651, 311 N.W.2d 122 (1981), aff'd in part, 421 Mich. 170 (1984)). Under the MUTSA, a court is empowered to enjoin an actual or threatened trade secret misappropriation, order that affirmative acts be taken to protect a trade secret, and/or to award damages for misappropriation. See M.C.L. § 445. 1903(1),(3); M.C.L. § 445. 1904. In any event, "a court shall preserve the secrecy of an alleged trade secret by reasonable means[.]" M.C.L. § 445. 1906.
A. Surerior's Likelihood of Prevailing on the Merits
i. Breach of Contract
Even though Bailey did not sign a new written EmploymentAgreement in 1999 when he was promoted to Executive Director, the totality of the relevant circumstances reflected in the record demonstrates plaintiff Superior is very likely to succeed on its claim that the parties intended Bailey would remain bound by the terms of his December 26, 1997 Employment Agreement after his promotion. Rood, 444 Mich. at 119. According to uncontradicted March 17, 2000 e-mail from Bailey to Superior's Teddy Abbott, Bailey understood that he owed certain contractual obligations under the written EmploymentAgreement:
Item #3 Terms and conditions of his/her Employment Agreement-For all separations, you must discuss the terms and conditions of his/her Employment Agreement and that he/she understands their obligations to honor with respect to: This has been discussed. Non-competition Confidentiality non-disclosure
(emphasis added). Bailey does not argue that he was working for Superior without a contract. It is unlikely that a trier of fact will conclude that Bailey could reasonably believe that his promotion to Executive Director, with its concomitant management and business development responsibilities, eliminated his contractual "Non-competition" and "Confidentiality non-disclosure" obligations.
The non-compete clauses within the December 26, 1997 Employment Agreement are, of course, enforceable only to the extent they are "reasonable as to [their] duration, geographic area, and the type of employment or line of business." M.C.L. § 445.774a. Section 10 of the Employment Agreement prohibits "soliciting business and/or performing services via direct employment through a party other than Superior for a period of ninety (90) days from the date of termination of employment with Superior for clients of Superior or prospective clients of Superior identified during the term of employment." Another noncompete clause in Section 10 prohibits "engaging in healtheare information systems consulting and management consulting businesses for a period of six(6)months following the date of termination." The non-solicitation clause of Section 10 prohibits "recruiting, assisting in the recruitment or solicitation of employees of Superior... either directly or indirectly following employee's termination of employment with Superior." Section 15 of the Employment Agreement requires the "return [of] all materials acquired during the term of employment" upon termination, including computers and computer disks. Section 11 prohibits using or disclosing confidential information such as "the identities of suppliers, customers and prospective customers. . . for any purpose other than the performance of this Employment Agreement."
In a similar case also involving plaintiff Superior, Superior Consulting Co.. Inc. v. Walling, 851 F. Supp. 839 (E.D. Mich. 1994), Judge Cohn found that a six month noncompetition time period was reasonable where, as here, the agreement "is designed in part to protect proprietary information learned by the employee." Id. at 847. Judge Cohn also found, again as is the case here, that a non-competition agreement lacking a geographical limitation "can be reasonable if the employer actually has legitimate business interests throughout the world." Id (citing Sigma Chemical Co. v. Harris, 586 F. Supp. 704, 710 (E.D. Mo. 1998)). Judge Cohn further concluded, however, that the non-compete clause before him was unreasonably broad with respect to restrictions on the type of employment or line of business.
The agreement, though, did not restrict the type of work to which it applied. A limitation on working in any capacity for a competitor of a former employer is too broad to be enforceable. See Telxon Corp. v. Hoffman, 720 F. Supp. 657 (N.D. III. 1989) (finding unreasonable an agreement that would prevent defendant "from working as a competitor's janitor.") ThE Court therefore restricted the noncompetition agreement so that it applies only to actual consulting and management work for competitors of SCC, and only in the competitor's healtheare information systems consulting businesses. So modified, the non-competition agreement is reasonable in scope.Id. at 847.
Consistent with the reasoning in Walling, this Court finds that the 90 day and six month non-compete restrictions in Section 10 of the December 26, 1997 Employment Agreement are reasonable, as is the absence of any geographical restriction. The Court further finds that the non-solicitation restriction in Section 10, construed as a noncompetition covenant, is unreasonable absent any time duration. The Court will, at this time, apply the same six month time limitation to the non-solicitation clause as applies to the non-compete provision. Section 15 requiring the return of Superior's materials upon termination is fundamentally reasonable. Section 11, indefinitely prohibiting the disclosure of confidential information, is also reasonable, and is consistent with Michigan public policy as embodied by the MUTSA. See Walling, 851 F. Supp. at 848.
Also consistent with Walling, this Court concludes that the non-compete clause in Section 10 prohibiting "engaging in healtheare information systems consulting and management consulting businesses for a period of six(6)months following the date of termination" is unreasonably overbroad to the extent it prohibits "management consulting". The term "management consulting" is a very broad, generic term, at least as developed to date. Further, a document proffered by the defendants titled "SUPERIOR CONSULTANT COMPANY, INC. INTRODUCTION", apparently generated from Superior's website, reads: "We serve the healtheare industry exclusively", leaving open the issue whether Superior would suffer any harm if Bailey engaged in "management consulting" in a non-healtheare venue. Plaintiff has not articulated to the Court's satisfaction a reasonable delimiter to the term "management consulting". Based on the current record, no tangible gain would be realized by Superior by prohibiting its former employees from providing computer consulting services to, say, the automotive industry. Applying a reasonableness standard to the type of employment Bailey may pursue under his Employment Agreement, the noncompete clause in Section 10 will be restricted to apply only to healtheare information systems consulting. See Walling, 851 F. Supp. at 847; M.C.L. § 445.774a(1).
Having determined that plaintiff Superior is very likely to succeed on its claim that defendant Bailey was bound by the terms of the December 26, 1997 Employment Agreement, and that the various post-termination requirements and restrictions are enforceable under M.C.L. § 445.774a to the extent they are reasonable as set forth above, the Court further concludes there is a substantial likelihood that Superior will succeed on its claims that defendant Bailey breached his employment contract by: (1) using and disclosing Superior's confidential information about Foothills Hospital for Medibase's benefit, and performing services for Medibase similar to those offered by Superior, December 26, 1997 Employment Agreement("EA"), ¶¶ 8,9 and 12;(2) failing to promptly and forthrightly provide Superior with the identity of his new employer defendant STC, at minimum, on March 21, 2000, EA, ¶ 10;(3) ¶ failing to return all materials to Superior, including the laptop, within a reasonable time after termination of employment, EA, ¶ 15, and;(4) assisting in soliciting or recruiting Superior employees Feuerer, Blocker, Scott, and Miller to work at defendant STC within six months of Bailey's termination, EA, ¶ 10.
Plaintiff Superior has not shown, to date, that there is a substantial likelihood that defendant Bailey has, as yet, breached his contractual duty not to engage in healtheare information systems consulting within six months after termination. As previously discussed, EA ¶ 10 is enforceable only to the extent it prohibits Bailey from providing "healtheare information consulting services", not "management consulting" services. The evidence submitted thus far does not support a finding that Bailey has performed healtheare information systems consulting for defendant STC, although it does support a finding that Bailey performed healtheare information consulting for Medibase while Bailiey was still employed by Superior. Plaintiff Superior has also failed to demonstrate, to date, that there is a substantial likelihood that Bailey breached EA ¶ 12 by actually disclosing proprietary or confidential information to defendant STC.
ii. Violation of MUTSA
Plaintiff Superior has demonstrated a substantial likelihood that defendant Bailey poses a threatened misappropriation of Superior trade secrets to STO which, at minimum, includes disclosure of Superior's potential customers that use Eclipsis software. See Ran 67 F. Supp.2d at 775 (finding customer list may constitute MUTSA trade secret). Strong circumstantial evidence before the Court also indicates a substantial likelihood that defendant Bailey accessed other confidential information about Superior that would be of economic value to third party competitors, and was subject to Superior's of efforts of secrecy i.e. business plans, pitched work. See M.C.L. § 445. 1902(d). The lack of direct evidence that Bailey copied Superior computer files after accessing them is not dispositive.
Nonetheless, with the exception of Bailey's actual disclosure of potential customer information to Medibase-data compiled by Superior reflecting healtheare facilities using Eclipsis software-Superior has not demonstrated a substantial likelihood that Bailey has made an actual misappropriation of trade secrets to defendant STC. Even a threatened misappropriation, however, is subject to a reasonable injunction under the MUTSA. See M.C.L. § 445. 1903(1),(3); M.C.L. § 445. 1904; M.C.L. § 445. 1906.
Superior relies upon Pepsico, Inc. v. Redmond, 54 F.3d 1262 (7th Cir. 1995) for the proposition that Bailey should be enjoined from working at STC for six months, in any capacity, regardless of Bailey's asserted current STC job responsibility of providing consulting services to Ames Department Stores, a non-healtheare entity. The Pepsico plaintiff, William Redford, occupied the position of Pepsi General Manager of the Northern California Business Unit, a unit that generated $500 million in yearly revenues, representing twenty percent of Pepsi's profits in the United States. Id. at 1264. Redford had detailed knowledge of Pepsi's pricing architecture as well as Pepsi's strategic "attack plans" for developing its product in the highly competitive non-carbonated beverage market. Id. Redford would have been responsible for implementing Pepsi's pricing architecture had he remained at Pepsi, but he accepted a position with Pepsi's direct competitor Quaker (Quaker produces "Gatorade" while Pepsi produces "All Sport") as Vice President-Field Operations. The Pepsico court affirmed the trial court's preliminary injunction, issued under the Illinois Trade Secrets Act ("ITSA"), which prohibited Redford "from assuming any duties with Quaker relating to beverage pricing, marketing, and distribution." Id. at 1263. The Pepsico court held that, under the ITSA, the Illinois version of the MUTSA:
[A] plaintiff may prove a claim of trade secret misappropriation by demonstrating that defendant's new employment will inevitably lead him to rely on the plaintiffs trade secrets.Id. at 1269. Given Redford's demonstrated showing of"a lack of candor" and willingness to misuse Pepsi's trade secrets, the injunction was upheld "when we couple the demonstrated inevitability that Redmond would rely on [Pepsi] trade secrets in his new job at Quaker." Id. at 1271.
Pepsico is distinguishable from the case at bar in several respects. Superior has not demonstrated that defendant Bailey's new employment with STC, established computer consulting services outside the healtheare industry, will inevitably lead to Bailey's reliance on Superior's confidential information and trade secrets. Even the Pepsico injunction reasonably restricted the "type of employment" Redmond could not engage in at Pepsi; Redmond was not barred from working at Pepsi. See Pepsico, 54 F.3rd at 1263. A palpable question of fact remains whether and to what degree, if any, plaintiff Superior and defendant STC are "competitors". The situation here is very different from the facts in Pepsico involving direct competitors in a specifically defined market, and a very high ranking policy-making employee attempting to "join the opposing team before the big game." Id. at 1270. The Pepsico court itself realized that trade secret law "should not prevent workers from pursuing their livelihoods when they leave their current positions." Id. at 1268. See also Hoskins Mfg. Co. v. PMC Corn., 47 F. Supp.2d 852, 857 (E.D. Mich. 1999) (noting that "a line must be drawn between the general skills and knowledge of the trade and information that is peculiar to the employer's business"). Defendant Bailey developed skills using Eclipsis software before joining Superior. Unlike the defendants in Pepsico, defendants Bailey and STC dispute that Bailey "might be faced with a decision that could be influenced by certain confidential information that he obtained while [with his former employer]." Id. at 1270. In that the Pepsico decision was premised on a demonstrated inevitability that the employee at issue would rely on trade secrets in his new job, and absent such a showing here, Superior's argument that Pepsico requires enjoining Bailey from working at all for STC is not well taken. See Hoskins, 47 F. Supp.2d at 857. Superior has demonstrated a substantial likelihood that defendant Bailey poses a threatened, but not inevitable, misappropriation of Superior's trade secrets and confidential information.
B. Whether Superior will Suffer Irreparable Harm If an Injunction is Not Granted
As was the case in Walling, defendant Bailey unquestionably had access to Superior's confidential client information while he worked at Superior. See Walling, 851 F. Supp. at 847. If Bailey disclosed this or other confidential or trade information to STC, and if STC used that information in competition with Superior, even if deciding whether to enter the healtheare consulting business (STC disputes that it provides such services), such disclosure would very likely result in irreparable harm to Superior. Id. at 848. Superior has shown it will suffer irreparable harm if the reasonable terms of Bailey's Employment Agreement are not enforced.
C. Whether an Iniunction Would Cause Substantial Harm to Others
Whether injunctive relief would cause substantial harm to others centers on the balance of hardship between the parties. See Walling, 851 F. Supp. at 848. Superior would suffer irreparable harm if Bailey disclosed Superior's trade secrets or confidential information to defendant STC, and STC in turn used that information to unfairly compete against Superior. Bailey would suffer substantial harm if he were completely prohibited from working in his computer consulting profession, even for six months. STC, or at least its client Ames Department Stores, would suffer some harm if Bailey were completely prohibited from working as a computer consultant. This factor weighs in favor of granting injunctive relief in a manner that reasonably protects each of the parties' interests.
D. Whether an Iniunction is in the Public Interest
Granting reasonable injunctive relief under the instant circumstances would further the public interest as expressly recognized in the MUTSA.See Walling, 851 F. Supp. at 848.
V. Conclusion
Each of the four factors weighs in favor of granting preliminary injunctive relief to plaintiff Superior consistent with the terms of the December 26, 1997 Employment Agreement and the standards of reasonableness recognized in M.C.L. § 445.774a and M.C.L. § 445. 1906. A court may, in appropriate circumstances, extend injunctive relief beyond the term of a non-competition agreement where a party has "flouted the terms" of the agreement. See Thermatool Corp. v. Borzym, 227 Mich. App. 366, 375, 575 N.W.2d 334 (1998). Superior is entitled to an extension of the six month non-solicitation agreement, a time limitation affixed by the Court, due to Bailey's demonstrated activities in soliciting Feuerer, Blocker, Scott, and Miller. The prohibition against disclosing confidential information and trade secrets is indefinite, and needs no extension. Superior has not shown that Bailey has breached a post-termination contractual duty not to provide healtheare information systems consulting for six months after his termination and, thus, no time extension is warranted. In that there has not been a showing that Bailey will inevitability rely on Superior's confidential or trade secret information in his new position at STC, and further considering that Bailey and STC are prohibited from using Superior's confidential information and trade secrets, it would be unreasonable to further prevent Bailey from working for STC in any and all capacities.
Accordingly, and consistent with the reasoning herein, Superior's motion for a preliminary injunction is hereby GRANTED, IN PART, to the extent that:
IT IS ORDERED that defendant Bailey shall neither recruit nor assist STC in recruiting, soliciting or hiring Superior's employees for a period of six months from the date of entry of this Order;
IT IS FURTHER ORDERED that defendant Bailey is hereby prohibited from performing health care systems consulting for STC for a period of six months as measured from his March 25, 2000 termination date, or until September 25, 2000;
IT IS FURTHER ORDERED that defendant Bailey shall neither use nor disclose Superior's confidential business information, trade secrets, and/or proprietary information as set forth in paragraph(e)of the TRO;
IT IS FURTHER ORDERED that the parties shall neither destroy, alter, modify nor conceal any relevant data, in any form;
IT IS FURTHER ORDERED that defendant STC shall neither use nor disclose Superior's confidential business information, trade secrets, and/or proprietary information as set forth in paragraph(e)of the TRO;
IT IS FURTHER ORDERED that STC shall neither recruit nor assist Bailey in recruiting or soliciting Superior's employees for a period of six months from the date of entry of this Order;
IT IS FURTHER ORDERED that STC shall not hire any Superior employees for a period of six months measured from the date of entry of this Order;
IT IS FURTHER ORDERED that defendants Bailey and STC shall return to Superior all property as set forth in paragraph(e)of the TRO;
IT IS FURTHER ORDERED that defendants Bailey and STC shall create and produce to defense counsel a backup file of defendant Bailey's laptop computer, and a backup file of any personal computer hard-drive to which defendant Bailey has had access at any time, to the extent such performance has yet to be rendered under the TRO;
IT IS FURTHER ORDERED that defendants Bailey and STC shall produce a redacted copy of these hard-drive backup files to plaintiffs counsel to the extent such performance has yet to be rendered under the TRO;
IT IS FURTHER ORDERED that no bond shall be required of any party. SO ORDERED.