When seeking an injunction barring a former employee from disclosing a company’s trade secrets, plaintiffs are not required to prove the employee actually misappropriated the trade secrets in question to obtain an injunction, according to a Feb. 3 ruling out of the North Carolina Business Court.
Judge Gregory McGuire ruled that the mere opportunity for an employee to access a company’s trade secrets can be enough to warrant an injunction.
McGuire’s ruling in American Air Filter Co. v. Samuel Price makes clear that North Carolina courts have expressly rejected the contention that evidence of actual misappropriation is required to obtain injunctive relief.
Attorneys involved in the case said they thought McGuire’s ruling marked a “King Solomon” moment because neither side got everything it wanted. McGuire approved the request for a preliminary injunction on the trade secrets issue, but he denied the injunction request related to a noncompete agreement signed by the lead defendant.
“We think Judge McGuire got it right,” said George Oliver of Smith Moore Leatherwood in Raleigh, who represents the defendants in the case. “He recognized that trade secrets are treated differently than noncompete agreements, though he did establish a new way of looking at trade secrets.”
McGuire’s decision resolves some of the initial questions at the heart of the dispute in American Air Filter.
The plaintiff, American Air Filter, alleges in its Nov. 4 complaint that Samuel Price violated a noncompete agreement by joining a direct competitor within one year of his departure and that he misappropriated trade secrets in violation of state law.
Price spent 27 years working for American Air Filter before leaving the company last year to join Camfil USA. The two companies specialize in manufacturing clean air products and equipment for commercial applications.
Court records say the majority of Price’s career was spent working as a branch manager and that he took a similar job at Camfil late last year.
In 2006, Price was required to sign an employment agreement that included a non-compete clause.
Price claims his decision to leave American Filter was driven in part by alleged issues with his compensation.
Court records say Price began speaking with Camfil in late July and early August 2016. Camfil allegedly sent Price an offer letter that included a non-disclosure agreement on July 24, 2016.
The two sides disagree about when Price actually began working for Camfil.
American Air Filter’s complaint alleges Price did not tell the company he had accepted employment with Camfil because “AAF would have discharged him on the spot” and “revoked Price’s access to trade secrets immediately.”
American Air Filter claims Price said he intended to retire, without disclosing his new position with Camfil. Price disputes that allegation.
Between the time Price announced his departure from American Air Filter and his start date at Camfil, American Air Filter claims Price accessed several of the company’s proprietary programs in order to access documents containing trade secrets. Price denies that he misappropriated any trade secrets and claims he has not shared any with Camfil, though it is undisputed that Price has contacted several American Air Filter customers.
Upon learning Price had begun working with Camfil, American Air Filter sued Price in Wake County Superior Court. The case, which also names Camfil as a defendant, was later transferred to Business Court.
Competing against the noncompete?
American Air Filter’s complaint alleges claims of breach of the 2006 employment agreement, breach of fiduciary duty, tortious interference with contract, misappropriation of trade secrets, civil conspiracy and violations of the Unfair and Deceptive Trade Practices Act.
American Air Filter did not seek a temporary restraining order, but, instead requested a preliminary injunction.
McGuire denied American Air Filter’s request for a preliminary injunction barring Price from working at Camfil despite the 2006 non-compete agreement because American Air Filter failed to show it had suffered or would suffer irreparable harm.
McGure took note of the fact that while American Air Filter learned of Price’s job at Camfil in August 2016, it did not file its complaint until November 2016—four months later.
“Plaintiff’s lack of urgency in seeking injunctive relief counsels against the idea that it is likely to suffer irreparable harm,” McGuire said.
American Air Filter’s attorney, Christopher Page of Young Moore and Henderson in Raleigh, said there is a perfectly good reason the complaint wasn’t filed sooner. “We were still gathering the evidence that Mr. Price had accessed American Air Filter’s trade secrets and had begun contacting customers,” Page said. “That’s always the strategic dilemma. You don’t want to go to court without sufficient evidence of wrongful conduct.”
What is misappropriation?
That said, the alleged delay in filing the complaint did play into McGuire’s analysis of the trade secrets injunction.
Price does not dispute that he has the opportunity to acquire American Air Filter’s trade secrets. But he said the company had not presented evidence that he “actually took anything.”
Price also argued that even if he had the opportunity to acquire trade secrets, which might raise a prima facie case of misappropriation, the defendants had rebutted that case by “showing that the employer granted access to trade secrets or that circumstances surrounding any accesses were not suspicious.
To support his position, Price cited a new Fourth U.S. Circuit Court of Appeals. In 2016, the Fourth Circuit laid out the evidentiary standard for establishing a prima facie trade secrets case in RLM Communications Inc. v. Tuschen.
The Fourth Circuit ruled that mere access to trade secrets, without more, is not sufficient to establish a prima facie case of misappropriation. Rather, the employer must establish either that the former employee accessed trade secrets without authorization or provide other sufficient evidence of misappropriation to raise an inference of actual acquisition or use of its trade secrets.
McGuire said based on the Fourth Circuit’s analysis, American Air Filter had established a prima facie case of misappropriation.
“The evidence shows that Camfil is one of AAF’s direct and major competitors, and that Price is now working for Camfil,” McGuire said. “Price’s primary responsibility with AAF and Camfil are the same—sales. Price admitted that he has contacted several of his former AAF customers since becoming employed with Camfil, and apparently may still b contacting AAF customers despite defendants’ promises he would not do so.”
Given that, McGuire said American Air Filter had established a likelihood of success on its claim for misappropriation of trade secrets and that it could potentially suffer irreparable harm unless a preliminary injunction was granted.
McGuire ordered American Air Filter to post a $100 bond to offset costs if Price was wrongfully enjoined.
American Air Filter’s attorney said the court must still decide whether Price actually misappropriated the company’s trade secrets. But Page said his clients were pleased with the decision.
“At the end of the day, keeping someone from getting a job is not a useful use of a preliminary injunction in this case because the non-compete agreement was only for a year and the deadline is about to expire,” Young Moore and Henderson’s Page said. “But taking advantage of trade secrets that he had access to and, we believe, misappropriated is a different matter.”
Price’s attorney said his client is looking forward to making the case that simply having access to trade secrets doesn’t mean he misappropriated them.
“We don’t think there is any evidence he accessed the information after he left the company,” Smith Moore Leatherwood’s Oliver said.
The 24-page opinion is American Air Filter Co. v. Price (Lawyers Weekly No. 020-020-17). An opinion digest is available at nclawyersweekly.com.
Follow Jeff Jeffrey on Twitter @NCLWJeffrey