Opinion
A-1105283
01-02-2012
TRILLIUM HEALTHCARE PRODUCTS, INC., et al. Plaintiffs v. VVF KANSAS SERVICES, LLC, et al. Defendants
DECISION
This case is before the Court on Plaintiffs request for a preliminary injunction. The hearing took place over three days. Following the hearing, the Court permitted High Ridge Brands to intervene. For the reasons discussed below, the Court grants Plaintiff a preliminary injunction, but on a more limited basis than requested by Plaintiff.
I. BACKGROUND
Defendant Tim Kelly previously worked at Plaintiff Trillium/St. Bernard Soap Company ("SBSC"). SBSC is a soap manufacturer and wholly owned by Trillium. Prior to 2006, SBSC was owned by P&G. Trillium purchased it in 2006. SBSC continues to manufacture soap products for P&G.
Kelly was employed by P&G for 19 years and remained with SBSC after the acquisition. He was a senior member of the management team and intimately involved in the manufacture of bar soap. He had knowledge of technology, quality, pricing, and manufacturing among other things.
In May of 2009 Kelly resigned and went to work for Defendant VVF. SBSC had concerns that his new employment violated a prior agreement between VVF and SBSC.
Following negotiations, SBSC and VVF entered into a settlement agreement. That Agreement provided:
2. Restrictions on Kelly's Employment Duties at VVF. Until the earlier of (a) December 8. 2011; or (b) such time, if any, that either Party acquires substantially all of the assets of the other Party:
(i) Former Trillium employee Timothy Kelly ("Kelly") shall not (A) directly or indirectly, have any responsibilities, involvement or duties for or on behalf of VVF with The Procter & Gamble Company, Unilever N.V., the Colgate-Palmolive Company, and the Kao Corporation or any of their respective affiliates (collectively, the "Restricted Companies"), or (B) provide consultation regarding those Restricted Companies to any VVF employee or representative;
(ii) Kelly shall not, directly or indirectly, contact or communicate with any Restricted Companies on behalf of VVF;
(iii) Kelly shall not, directly or indirectly, solicit any Trillium employees for employment on behalf of VVF; and
(iv) No VVF employee who has received, or hereafter receives, Trillium Confidential Information from Kelly related to Trillium's business shall use such Trillium Confidential Information in connection with any business or dealings with the Restricted Companies.
The restrictions in Sections 2(i), 2(H) and 2(iv) above shall only apply with respect to the bar soap contract manufacturing business in North America; neither VVF, Kelly, nor other VVF employees shall be subject to those restrictions in other business lines or geographies. Furthermore, other than the specific restrictions described in this Section 2, nothing in this Agreement is intended to prohibit nor limit VVF or any other VVF employees from contacting, communicating, or doing business with the Restricted Companies in any capacity or geography. "Substantially all" shall mean seventy-five percent (75%) or greater, determined by fair market value. "Assets of the other Party" shall mean, in the case of an acquisition by VVF, only Trillium's St. Bernard Soap Company plant and related assets located therein.
In January 2011, P&G sold its Zest brand to High Ridge Brands ("HRB"). Zest has been manufactured by SBSC for over 40 years. SBSC continued to work with HRB regarding Zest. Ultimately, HRB decided to move its Zest product to VVF. SBSC claims that Kelly and VVF violated the settlement agreement, that Kelly disclosed trade secret information to VVF and that Kelly will continue to do so if this Court does not enter an injunction.
VVF and Kelly claim they did not breach the agreement and that Kelly has provided no trade secret information to VVF.
HRB has intervened and argued that this Court should not enter any order that would prohibit VVF from manufacturing Zest.
II. DISCUSSION
As stated by the First District Court of Appeals in Procter & Gamble Company v. Stoneham (1st Dist. 2001), 140 Ohio App.3d 260:
The purpose of a preliminary injunction is to preserve a status between the parties pending a trial on the merits. Ordinarily, a party requesting a preliminary injunction must show that (1) there is a substantial likelihood that the plaintiff will prevail on the merits, (2) the plaintiff will suffer irreparable injury if the injunction is not granted, (3) no third parties will be unjustifiably harmed if the injunction is granted, and (4) the public interest will be served by the injunction.(Footnotes and citations omitted). These elements must be proved by clear and convincing evidence.
Injunctions are the appropriate remedy to restrain not only actual, but threatened use of misappropriated trade secrets. Ohio Rev. Code § 1333.61(A) ("Actual or threatened misappropriation may be enjoined."); Valco Cincinnati, Inc. v. N & D Machinery Service, Inc. (1986), 24 Ohio St.3d 41, 44-45; Dexxon Digital Storage, Inc. v. Haenszel (Delaware Cty. 2005), 161 Ohio App.3d 747, 753. Injunctions are also appropriate to enforce restrictive covenants and to restrain continued and threatened tortious interference. See, e.g. Elite Designer Homes, Inc. v. Landmark Partners (Summit Cty. 2006), 2006 Ohio 4079, ¶¶ 31-37; Prosonic Corp. v. Stafford, 539 F.Supp.3d 999, 1002 (S.D. Ohio 2008).
A. Substantial likelihood of success on the merits
Plaintiff has alleged causes of action for: 1) misappropriation of trade secrets; 2) breach of contract; and 3) tortious interference.
1. Misappropriation of trade secrets
Ohio law protects an employer's right to keep its trade secrets from appropriation and disclosure. R.C. § 1333.61, et seq. Defendants argue among other things that Kelly did not possess any information protected by the trade secret statute. The Court disagrees.
R.C. § 1333.61(D) defines trade secrets as:
information, including the whole or any portion or phase of any scientific or technical information, design, process, procedure, formula, pattern, compilation, program, device, method, technique, or improvement, or any business information or plans, financial information, or listing of names, addresses, or telephone numbers, that satisfies both of the following:
(1) It 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.
(2) It is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
As stated by the Court in Procter & Gamble v. Stoneham, supra:
In determining the existence of a trade secret, a trial court must consider (1) the extent to which the information is known outside the business; (2) the extent to which it is known to those inside the business, i.e., by the employees; (3)the precautions taken by the holder of the trade secret to guard the secrecy of the information; (4) the savings effected and the value to the holder in having the information withheld from competitors; (5) the amount of effort or money expended in obtaining and developing the information; and (6) the amount of time and expense it would take for others to acquire and duplicate the information.
The evidence established that Kelly was intimately involved in the Zest and other bar soap business while at SBSC. He was involved in all aspects including manufacturing, quality, pricing, conversion costs, toll fees, and technology. When he left SBSC, he took with him a flash drive that included hundreds of Trillium documents that he downloaded onto it. These documents include bills of materials, formulas, scrap information and legacy formula Zest information. It also includes information regarding other brands. The evidence established that he accessed documents while employed at VVF. Moreover, he accessed them at crucial times when VVF was meeting with HRB.
In addition to the information on the flash drive, Kelly testified that he has knowledge in his head from his years with P&G and SBSC.
The Court finds that much of the information on the flash drive is protected trade secret information. In determining that the information is protected trade secret information, the Court has considered the elements of Stoneham and finds that in particular, the information relating to formulas, toll fees, scrap information, manufacturing process, pricing and costs meets the test. The evidence established that this information was not known outside of SBSC and was known by only a few within (including Kelly). For example, while the customer provided the formula for the soap, SBSC refined the process and determined its own conversion costs. It protected this information and it could not be "reversed engineered." In addition, by some testimony Plaintiff spent over a million dollars refining the process over a lengthy period of time. Testimony also established that by "plugging in" some of the information, a competitor could readily determine its rivals' costs, thus saving time and money.
The next question is whether Kelly "misappropriated" any trade secrets. R.C. § 1333.61(B) provides:
(B) "Misappropriation" means any of the following:
(1) Acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means;
(2) Disclosure or use of a trade secret of another without the express or implied consent of the other person by a person who did any of the following:
(a) Used improper means to acquire knowledge of the trade secret;
(b) At the time of disclosure or use, knew or had reason to know that the knowledge of the trade secret that the person acquired was derived from or through a person who had utilized improper means to acquire it, was acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use, or was derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use;
(c) Before a material change of their position, knew or had reason to know that it was a trade secret and that knowledge of it had been acquired by accident or mistake.
The clear and convincing evidence establishes that Kelly downloaded trade secret information while employed at SBSC, at a time when he was considering working for VVF, and that he took this information with him when he left. As discussed above, the evidence also establishes that he accessed this information while at VVF and at a time VVF was seeking the Zest business.
Plaintiff argues that Kelly and VVF used some of this information to price a bid to HRB for the Zest business. Plaintiff argues that Kelly accessed cost information which allowed VVF to determine SBSC's conversion cost and thus underbid SBSC.
The Court agrees with Plaintiff that Kelly's accessing of the documents, his communications with others at VVF, and the timing are suspicious. For example, 8 days before VVF's initial meeting with HRB, Kelly sent a bill of materials to Terry Rushing who was responsible for developing the Zest product at VVF. It contained formula information and scrap information. Testimony established that this could allow a competitor to calculate a company's actual cost. Around the same time Kelly had telephone conversations with Rushing - one for 31 minutes and one for 15 minutes. That same day, Kelly accessed information relating to Zest on the flash drive. VVF sent its bid for Zest the same day. Rushing and Kelly continued to have communications, including communications regarding "FFA on Zest bars" (fatty free acids).
The Court finds that Kelly accessed trade secret information regarding Zest and the Plaintiff is likely to succeed on the merits of its claim that he improperly possessed, used and disclosed some of this information.
The evidence also established that HRB was dissatisfied with SBSC and had quality issues with its Zest product. HRB gave SBSC the opportunity to retain the Zest business by quoting a lower price than VVF's. SBSC chose not to bid at a lower price because it decided it could not afford to do so. The Court notes as discussed later, that as to the past bid of the Zest business, any damage to SBSC can be quantified in money damages (the loss of the Zest business). Whether Plaintiff can establish damages is for another day.
As to future use of Plaintiffs trade secret information, particularly with semisynthetic soaps like Olay, the Court finds that Plaintiff has established by clear and convincing evidence likelihood of success on the merits - Kelly has accessed information in the past, trade secret information is contained on the flash drive and VVF has never manufactured a semi-synthetic soap.
2. Breach of Contract
Plaintiff argues that Defendant breached the settlement agreement in several ways. The Court disagrees. First, the Court does not find that Plaintiff is likely to succeed on the merits on its claim that Kelly solicited P&G in violation of the agreement. Any contact with P&G was incidental.
Second, as to Colgate, the Court finds Kelly did not consult impermissibly. The evidence established that Kelly developed proposed costs for VVF's Colgate Mexico soap chip bid. Colgate is a "Restricted Company" under the settlement agreement. Kelly was to have no involvement "with respect to the bar soap contract manufacturing business in North America." The Court, however, finds that soap chips are not included in "bar soap contract manufacturing." According to the testimony, soap chips are a raw material. VVF was selling this raw material to Colgate for Colgate to manufacture. "Bar soap contract manufacturing" occurs if VVF were contracting for the manufacturing. Finally, despite the fact that according to the testimony P&G does not include Mexico as part of its North American business, the Court finds that Mexico is in North America. However, for the other reasons, the Court finds Plaintiff has not established it is likely to succeed on the merits on this breach of contract claim.
Third, as to Zest, the Court finds Plaintiff is not likely to succeed on the merits of a breach of contract claim. While Kelly may have had some involvement (see prior discussion), the settlement agreement deals only with "Restricted Companies." These are defined as Procter & Gamble, Unilever, Colgate and Kao Corporation and their "respective affiliates." HRB is not a Restricted Company. Nor is it an "affiliate" of a Restricted Company. The Agreement is clear and unambiguous, and as such the Court may not re-write the contract. While the spirit of the agreement may have been to include various brands or successors of Restricted Companies, the plain language of the contract is otherwise. Had the parties intended the agreement to apply to Zest or other brands, or to successors of the listed companies, they could easily have done so. They did not. Thus, the Court finds Plaintiff is not likely to succeed on its breach of contract claim as to Zest.
3. Tortious Interference
In order to succeed on its tortious interference with a contract claim, Plaintiff must establish: (1) the existence of a contract, (2) the defendant's knowledge of that contract (3) the defendant's intentional procurement of the contract's breach, (4) lack of justification, and (5) resulting damages from that breach. Sony Electronics, Inc. v. Grass Valley Group (1st Dist. 2002), 2002 Ohio 1614. Tortious interference with a business relationship is similar, but occurs when the result is not a breach of contract but rather a refusal of a third-party to enter into or continue a business relationship. Id.
Plaintiff had a relationship with HRB after P&G sold Zest to it. VVF knew of this relationship. VVF was free to solicit HRB's business so long as it did not "tortiuously interfere" with Plaintiffs relationship. In other words, VVF was free to fairly compete with Plaintiff for the Zest business.
Because the Court found that Plaintiff is likely to establish that Kelly disclosed trade secret information to use in the bidding process, Plaintiff is likely to show that Defendant intentionally interfered with Plaintiffs relationship with HRB without justification. The Court also notes that there is clear and convincing evidence that HRB switched to VVF due to quality and other issues. Thus, Plaintiff may not be able to show any damage resulting from Defendant's interference. The Court finds Plaintiff is not likely to succeed on this claim as it relates to Zest.
B. Irreparable Harm
Irreparable harm is an injury for which there is no plain and adequate remedy at law and for which money damages are not sufficient. DK Products, Inc, v. System Cycle (12stDist. 2009), 2009 Ohio 436.
As to the loss of the Zest business, this has already occurred and Plaintiff, if successful, may recover monetary damages. Thus, there is no irreparable harm.
However, the Court finds that Plaintiffs will suffer irreparable harm if Kelly uses Plaintiffs trade secrets in the future. For example, the future loss of business (Olay product for example) would cause irreparable injury.
Plaintiff need not show actual harm; a threat of harm is sufficient. Stoneham, supra. And while the parties recognized by their settlement agreement that employment of Kelly would not necessarily result in inevitable disclosure, his duty to protect trade secret information transcends the agreement.
So, while Kelly's obligations under the settlement agreement may end, he nonetheless has a duty not to disclose trade secret information in the future. Based on the evidence, there is a risk he may do so.
C. Harm to Third Parties
HRB has intervened in this action and has argued that it will suffer great harm if VVF is enjoined from manufacturing Zest for it. The Court accepts this.
Because the Court has found that the loss of the Zest business has already occurred and is compensable in monetary damages, the Court need not decide how this factor would weigh against the others. Plaintiffs are not entitled to such a broad injunction and one that would in effect alter the status quo and cause great harm to a third party.
D. Public Interest
The public interest weighs in favor of protecting contracts and trade secret information.
III. CONCLUSION
Plaintiffs have established by clear and convincing evidence that they are entitled to injunctive relief. They are not entitled to the broad relief they seek. The Court grants the injunction in part and: 1) requires Kelly to immediately return the flash drive and all downloaded versions; 2) requires Kelly and VVF to immediately return all originals, copies or other reproduction of any record or document containing Plaintiffs' confidential or trade secret information; and 3) enjoins Kelly from using or disclosing any of Plaintiffs' trade secret information for any purpose.
The parties are referred to Local Rule 17 for preparation of an Entry. This case is set for report on Monday, February 6, 2012 at 8:00 a.m.