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Agjunction LLC v. Agrian Inc.

United States District Court, D. Kansas

July 23, 2014

AGJUNCTION LLC, Plaintiff,
v.
AGRIAN INC., ET AL., Defendant.

MEMORANDUM AND ORDER

DANIEL D. CRABTREE, District Judge.

This matter comes before the Court on the Motion for Preliminary Injunction (Doc. 25) filed by plaintiff AgJunction, LLC. The Court conducted a hearing on this motion on June 24 and 25, 2014 and received additional submissions from the parties after this hearing. After con-sidering the evidence, submissions, and the parties' arguments, the Court denies AgJunction's motion for preliminary injunction.

I. Introduction

Plaintiff AgJunction is in the business of developing and selling "precision" agronomy hardware and software. Defendant Agrian, historically, has developed and marketed "compliance" ag software and did not have its own line of precision ag software. In early April 2013, Agrian decided to begin developing a competing precision ag product as part of a new system it dubbed "NextGen." Over the next nine months, from April to December 2013, Agrian hired five employees who worked in AgJunction's precision ag division-Aaron Hunt, Matt Dedmon, Jeff Dearborn, Derrick Anderson, and David Nerpel (the "Employee Defendants").[1] The Employee Defendants immediately began working to develop Agrian's precision ag business.

Over the past couple of years, a company named Crop Production Services, Inc. ("CPS") has been AgJunction's largest precision ag client. In January 2014, CPS' CEO called Rick Heiniger, AgJunction's CEO, to tell him that CPS would not renew its precision ag contract with AgJunction for 2015. Instead, CPS was switching to Agrian's new "NextGen" system, which had all the functionalities of AgJunction's precision ag software and would become available in early 2015.

AgJunction contends that Agrian could not possibly have developed a comparable precision ag software so quickly on its own. According to AgJunction, defendants "deliberately plotted the serial exodus of key employees and the misappropriation of proprietary information" to create a competing, nearly identical precision ag software platform.[2] AgJunction filed this law-suit on February 16, 2014, and now seeks a preliminary injunction that prevents "Defendants from further development of features and functionalities of its NextGen product that exist in AgJunction's Precision Ag software."[3]

II. Legal Standard

To prevail on a motion for preliminary injunction, the movant must prove that all four of the following equitable factors weigh in its favor: (1) it is substantially likely to succeed on the merits; (2) it will suffer irreparable injury if the injunction is denied; (3) its threatened injury outweighs the injury the opposing party will suffer under the injunction; and (4) the injunction will not be adverse to the public interest. Sierra Club, Inc. v. Bostick, 539 F.Appx. 885, 888 (10th Cir. 2013). A preliminary injunction is an extraordinary remedy, so the right to relief must be "clear and unequivocal." Beltronics USA, Inc. v. Midwest Inventory Distrib., LLC, 562 F.3d 1067, 1070 (10th Cir. 2009). "In general, a preliminary injunction... is the exception rather than the rule." Gen. Motors Corp. v. Urban Gorilla, LLC, 500 F.3d 1222, 1226 (10th Cir. 2007).

Because the limited purpose of a preliminary injunction merely is to preserve the relative positions of the parties until the Court can hold a full trial on the merits, the Tenth Circuit has identified three types of specifically disfavored preliminary injunctions: (1) preliminary injunctions that alter the status quo; (2) mandatory preliminary injunctions; and (3) preliminary injunctions that afford the movant all the relief it could recover at the conclusion of a full trial on the merits. Schrier v. Univ. of Colo., 427 F.3d 1253, 1258-59 (10th Cir. 2005). Such disfavored injunctions "must be more closely scrutinized to assure that the exigencies of the case support the granting of a remedy that is extraordinary in the normal course." O Centro Espirita Beneficiente Uniao Do Vegetal v. Ashcroft, 389 F.3d 973, 975 (10th Cir. 2004). A party seeking a disfavored injunction must make a "strong showing" both with regard to the likelihood on the merits and with regard to the balance of harms. Id. at 976

An injunction disrupts the status quo when it changes the "last peaceable uncontested status existing between the parties before the dispute developed." Schrier, 427 F.3d at 1260. "In determining the status quo for preliminary injunctions, this court looks to the reality of the existing status and relationship between the parties and not solely to the parties' legal rights." Id. Defendants argue that "none of the conduct alleged in the Complaint occurred before the first [Employee Defendant]-Hunt-join[ed] Agrian."[4] Defendants have provided evidence, which AgJunction apparently does not dispute, that Agrian decided to begin developing precision ag software on April 1, 2013, before AgJunction alleges any wrongdoing occurred. AgJunction makes no argument in rebuttal-it claims it does not seek a mandatory injunction, but otherwise glosses over Defendants' status quo argument.[5]

Based on the facts before it, the Court concludes that the requested injunction would change the "last peaceable uncontested status" between the parties because Agrian had started developing NextGen before any alleged wrongdoing occurred. The requested injunction asks the Court to halt defendants' development of NextGen. This would disturb the status quo and is disfavored. Defendants therefore must make a "strong showing" both with regard to the likelihood on the merits and with regard to the balance of harms for the Court to grant an injunction here.

III. Likelihood of Success on the Merits

AgJunction filed three briefs and gave testimony over two days as support for its motion for a preliminary injunction. After combing through AgJunction's arguments, the Court has identified several "irreparable harms" AgJunction claims it has suffered and will continue to suffer because of defendants' wrongful conduct. The alleged wrongdoing underlying those harms falls into two categories: (1) defendants stole AgJunction's confidential and proprietary information; and (2) the Employee Defendants breached their contractual duty not to compete. AgJunction must make a strong showing of likelihood that defendants committed at least one of those wrongful acts, and that the wrongful acts caused AgJunction irreparable harm, for the Court to grant a preliminary injunction. The Court will address each in turn.

I. Theft of Confidential and Proprietary Information

AgJunction alleges that Agrian and the Employee Defendants conspired to steal proprietary and confidential information from AgJunction which irreparably harms AgJunction in several ways. Specifically, AgJunction claims that defendants' theft: (1) gave Agrian an "unfair head start" in developing NextGen, allowing it to develop a competing product much faster than if it had competed fairly; (2) caused AgJunction to lose customers and goodwill and will lead to further losses of customers and goodwill; (3) threatens the viability of AgJunction's business; and (4) caused the collapse of a potentially lucrative joint venture. For purposes of this motion, the Court will assume that each of those harms is irreparable. However, AgJunction must still make a "strong showing" that it is likely to prove the wrongdoing underlying those harms: that defendants have misappropriated its confidential and proprietary information.

AgJunction alleges that defendants misappropriated three types of information: proprietary customer information and requirements, particularized know how, and the AgJunction Precision Ag product.[6] AgJunction argues that this information is protected by both Kansas Trade Secret Law and the employment agreements signed by the Employee Defendants. The Court will examine whether AgJunction is substantially likely to prevail under either theory.

1. Trade Secrets

Kansas adopted the Uniform Trade Secrets Act's definition of a "trade secret."
"Trade secret" means information, including a formula, pattern, compilation, program, device, method, technique, or process, that:
(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, and
(ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

K.S.A. ยง 60-3320(4). Thus, to show that particular information is a trade secret, a plaintiff must demonstrate that it is valuable, not known to others who might profit by its use, and has been handled by means reasonably designed to maintain its secrecy. Dodson Int'l Parts, Inc. v. Alten-dorf, 347 F.Supp.2d 997, 1010 (D. Kan. 2004). The plaintiff's burden is not met by general allegations; instead, the plaintiff must describe the subject matter of its alleged trade secrets in sufficient detail to establish each element of a trade secret. Id. "Although plaintiffs are not required to disclose all of their trade secrets, they must do more than merely allege that they had trade secrets." Id. "[C]ursory descriptions do not meet [a plaintiff's] burden of providing that legitimate trade secrets and confidential information are actually at stake." Menzies Aviation (USA), Inc. v. Wilcox, 978 F.Supp.2d 983, 995 (D. Minn. 2013) (holding allegations that "information such as marketing information, internal reports, employment matters and financial condition were confidential" are not enough to prove the existence of trade secrets under the Uniform Trade Secrets Act's definition).

"Reluctance to be specific is understandable; the more precise the claim, the more a party does to tip off a business rival to where the real secrets lie and where the rival's own development efforts should be focused." IDX Sys. Corp. v. Epic Sys. Corp., 285 F.3d 581, 583 (7th Cir. 2002). Still, the plaintiff must make a serious effort to identify its trade secrets or the court cannot do its job. Id.

i. Customer Information and Requirements

"Customer lists and other customer information may constitute a trade secret." All West Pet Supply Co. v. Hill's Pet Prods. Div., Colgate-Palmolive Co., 840 F.Supp. 1433, 1438 (D. Kan. 1993). Customer lists containing merely public information that could be easily compiled by third parties will not be protected as trade secrets; however, where the party compiling the customer lists, while using public information as a source, expends a great deal of time, effort, and expense in developing the lists and treats the lists as confidential in its business, the lists may be entitled to trade secret protection. Fireworks Spectacular, Inc. v. Premier Pyrotechnics, Inc., 86 F.Supp.2d 1102, ...


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