Am. Air Filter Co. v. Price, 2017 NCBC 9.
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION COUNTY OF WAKE 16 CVS 13610
AMERICAN AIR FILTER COMPANY, ) INC. d/b/a AAF INTERNATIONAL, ) Plaintiff, ) ) ORDER ON MOTION FOR v. ) PRELIMINARY INJUNCTION ) SAMUEL C. PRICE, JR. and CAMFIL ) USA, INC. d/b/a CAMFIL AMERICAS, ) Defendant. )
THIS MATTER comes before the Court on Plaintiff’s Motion for Preliminary
Injunction (“Motion”).
THE COURT, having considered the Motion, the briefs in support of and in
opposition to the Motion, the arguments of counsel at the hearing, the record evidence
filed by the parties, and other appropriate matters of record, FINDS and
CONCLUDES, in its discretion, that the Motion should be GRANTED, in part, and
DENIED, in part, for the reasons set forth below.
FACTUAL AND PROCEDURAL HISTORY1
1. Plaintiff American Air Filter Company, Inc. (Plaintiff or “AAF”) is a
global manufacturer of clean air products and equipment. AAF offers a wide range of
products such as air filters, dust collection equipment, and other filters and
equipment for commercial buildings, data centers, healthcare facilities, food and
1 The Court’s factual findings are for purposes of deciding the Motion only, and are not binding in any subsequent proceedings. Daimlerchrysler Corp. v. Kirkhart, 148 N.C. App. 572, 578, 561 S.E.2d 276, 282 (2002) (quoting Kaplan v. Prolife Action League of Greensboro, 111 N.C. App. 1, 16, 431 S.E.2d 828, 835 (1993)). beverage establishments, and schools. AAF is headquartered in Louisville, Kentucky,
and does business in North Carolina, including Wake County.
2. Defendant Camfil USA, Inc. (“Camfil”) is a direct competitor of AAF.
Camfil also does business in North Carolina, including Wake County.
3. Defendant Samuel C. Price, Jr. (“Price”)2 is a resident of Johnston
County. AAF hired Price in the position of Branch Manager on or around December
11, 1989. (VFAC ¶ 28.)3 Price was assigned to AAF’s Raleigh, North Carolina branch.
AAF later moved Price to the position of District Manager, but returned him to the
position of Raleigh Branch Manager in 2001. Price was responsible for sales in
various counties in the State of North Carolina, and after his return to the Branch
Manager, for three national accounts based in South Carolina.
4. AAF’s “business is driven by relationships with its customers.” (Id. ¶ 8.)
AAF has made “significant investment[s] in developing and enhancing relationships”
with its customers, and in “obtaining and compiling a substantial body of confidential
and proprietary information and trade secrets . . . critical to its ability to serve
existing and prospective” customers. (Id. ¶¶ 11–12.)
5. AAF maintains web-based tools called “Sales Playbook” and
“Salesforce.com” in which it compiles confidential and proprietary information used
in its sales efforts. (Id. ¶¶ 15, 16, 18.) Sales Playbook and Salesforce.com are password
2 Price and Camfil are referred to collectively as “Defendants.”
3 References to the allegations contained in the Verified First Amended Complaint, filed by
Plaintiff on December 5, 2016, are denoted “VFAC.” protected. As an additional security measure, Sales Playbook cannot be downloaded
or printed.
6. AAF also has a proprietary program called Total Cost of Ownership
Diagnostics (“TCOD”). TCOD “provides technical data about AAF products and
competitors’ products based on AAF’s internal and third-party testing and
performance studies.” (VFAC ¶ 17.). TCOD also calculates the costs of ownership of
AAF’s products as compared to competitors’ products. TCOD is password protected.
7. Plaintiff alleges that “[t]he specific trade secrets accessible through
these programs include,” inter alia: “secret and highly sensitive company-wide prices
that AAF corporate officers negotiated on behalf of AAF with its national accounts”;
“quoting tools that use proprietary algorithms to create custom quotes that
incorporate prices AAF negotiated with national accounts, AAF’s custom discounts,
and customer-specific needs”; “audit reports created by AAF sales professionals at the
physical location of customer facilities which include identification of customers’
current air filtration products, sizes, specifications, and customer-specific issues or
talking points developed by AAF sales professionals”; “information on the costs of
goods sold that could allow calculation of AAF profit margins”; “technical
specifications and data that resulted from extensive internal and third-party product
testing and performance studies”; and “detailed drawings and product specifications
created by AAF for new customer construction projects.” (Id. ¶ 18.)
8. “AAF developed its trade secrets through decades of data collection,
research, and business development.” (Id. ¶ 24.) 9. AAF disables employee access to its systems and trade secrets
immediately upon an employee’s notice of resignation or termination, or if the
employee notifies AAF that they are going to work for a competitor.
10. Price “had access to and regularly relied on” AAF’s trade secrets, and
AAF provided Price with information available only to AAF “insiders.” (Id. ¶¶ 35, 37.)
11. At the time AAF hired Price, and through 2006, AAF and Price executed
several employment agreements. On November 13, 2006, AAF and Price executed a
written “Sales Representative Employment Agreement” (“2006 Agreement”). (VFAC
¶ 43, Ex. B.) The 2006 Agreement expressly stated that it superseded the previous
agreements. Plaintiff contends that in exchange for Price’s commitments in the 2006
Agreement, AAF provided Price a 3.5% increase in salary and a “Sales Quota and
Contribution Margin Target” that were “materially different” from Price’s Sales
Quota and Contribution Margin Target for 2005. (Id. ¶ 46.) Price contends that the
salary increase was not provided as part of the 2006 Agreement, but instead was a
“standard cost of living/merit increase” provided to all AAF employees. (Price 1st Aff.
¶ 20.) Price also claims he received no increased opportunity to earn commissions for
2007, and that he earned less compensation in 2007 than he had in 2006.
Additionally, Defendants contend that any consideration provided to Price for the
2006 Agreement was illusory because the 2006 Agreement expressly reserved to AAF
the right to unilaterally change the salary and commissions at any time.
12. The 2006 Agreement contained a non-competition clause that provided
as follows: If the Employee terminates this Agreement or Company terminates this Agreement for cause, then in either event, for a period of one (1) year after such termination, Employee will not either on Employee’s own behalf or on behalf of any other person, firm, corporation or other entity, either directly or indirectly, (a) contact, for the purpose of diverting, any of Company’s customers or the Accounts; (b) solicit the trade of, or trade with any of Company’s customers or the Accounts/Territory; (c) engage in any Competitive Business with the Accounts/Territory; (d) seek to cause any person, firm or corporation with whom the Employee came in contact as a representative or Company to refrain from doing business in whole or in part with or through Company; or (e) solicit or induce any employee, current or future, of Company, to leave Company or to work for another individual.
(VFAC ¶ 49; 2006 Agreement § 6.1.)
13. The 2006 Agreement was the final written employment agreement
entered into between AAF and Price. Plaintiff alleges that the 2006 Agreement
“automatically renewed for successive one-year periods” thereafter. (Id. ¶ 50.)
14. In 2016, Price decided to leave his employment with AAF because of
frustrations with his level of compensation. (Price 1st Aff. ¶ 44.) Price discussed
employment with Camfil in late July and early August, 2016. (Brunetti Aff. ¶ 5.) On
July 24, 2016, a Camfil representative emailed to Price an offer of employment and a
non-disclosure agreement. Plaintiff alleges “[u]pon information and belief, Price
agreed as of July 24, 2016, to work for Camfil in the same capacity and for at least
the same territory as he worked for AAF.” (VFAC ¶ 54.) Despite filing multiple
affidavits with the Court in opposition to the Motion, Defendants have alleged only
that “Price did not accept the July 24, 2016 offer and discussions continued,” but have not provided the date on which Price accepted employment with Camfil. (Brunetti
Aff. ¶ 5.) Price began employment with Camfil on August 15, 2016.
15. On August 5, 2016, Price sent an email to AAF management notifying
them of his resignation effective August 12, 2016. Plaintiff alleges that Price told
“senior AAF managers and others that he would be retiring from the air filtration
industry and would not be joining a competitor.”4 (VFAC ¶ 52.) Price contends that
he did not tell AAF management or co-workers that he was retiring. (Price 1st Aff. ¶
45.)
16. Price did not inform AAF that he had accepted employment with Camfil.
Plaintiff alleges that “[h]ad Price informed AAF that he would be working for Camfil,
AAF would have discharged him on the spot,” and “revoked Price’s access to trade
secrets immediately.” (VFAC ¶ 56.) Plaintiff contends that Price’s failure to inform
AAF that he had accepted employment with Camfil render any authority or consent
Price had to access its trade secrets “legally [in]effective.” (Id. ¶ 59.) Plaintiff first
learned that Price was working for Camfil in late August, 2016.
17. Price continued to work for AAF through August 12, 2016. With its reply
brief filed on January 19, 2017, and at the hearing, Plaintiff provided to the Court
documentation purporting to show that between July 24 and August 12, 2016, Price
accessed the TCOD program, his AAF Microsoft Outlook program, and other allegedly
4 Price’s claim that he was retiring apparently would explain why AAF deviated from its
alleged practice of immediately disabling access to its systems upon an employee’s notice of resignation. confidential information, and emailed or downloaded files to himself.5 The documents
did not reveal the specific files or data accessed by Price. Price contends that any
access to AAF’s systems that he made in the final weeks of his employment was to
fulfill his job duties for AAF. He also claims that he accessed and downloaded from
Microsoft Outlook only personal information and contacts. Price denies that he
misappropriated any AAF trade secrets, and claims he has not shared any AAF trade
secrets with Camfil. (Price 1st Aff. ¶ 49.)
18. It is undisputed that since going to work for Camfil, Price has contacted
several AAF customers. Plaintiff alleges that Price contacted AAF customers “in an
effort to divert their business from AAF to Camfil and damage AAF’s goodwill with
its customers.” (VFAC ¶ 83.) Price claims that since joining Camfil he has “not made
any sales to any AAF customer that I called on previously as an AAF employee.”
(Price 1st Aff. ¶ 46.) Camfil has directed Price not to solicit or sell to any AAF
customer that he serviced while employed by AAF. (Id.; Brunetti Aff. ¶ 8.)6 Plaintiff
concedes that it has not lost any customers to Camfil, and that it does not have
evidence that Price or Camfil has made a sale to any AAF customers.
19. Plaintiff filed the Complaint initiating this action on November 4, 2016,
and filed the VFAC on December 5, 2016. The VFAC raises claims against Price for
5 Plaintiff’s counsel was unable to provide the Court with any compelling reasons for the delay
in providing the documents or for Plaintiff’s failure to provide a foundational affidavit for the documents. Nevertheless, the Court, in its discretion, will consider the documents for purposes of deciding the Motion.
6 Despite Defendants’ assurances, at the hearing Plaintiff’s counsel provided the Court information indicating that Price has continued to contact his former AAF customers up to the time of the hearing. breach of the 2006 Agreement and breach of fiduciary duty. The VFAC also raises
claims against Defendants for tortious interference with contract, misappropriation
of trade secrets in violation of the North Carolina Trade Secrets Protection Act,
violation of the North Carolina Unfair and Deceptive Trade Practices Act, and civil
conspiracy.
20. Plaintiffs did not seek a temporary restraining order, but, instead, on
December 9, 2016 filed the Motion, along with supporting affidavits and evidentiary
materials. On January 6, 2017, Defendants filed a Response in Opposition to Motion
for Preliminary Injunction, and on January 19, 2017, Plaintiff replied. On January
26, 2017, the Court held a hearing on the Motion. The Motion is now ripe for
disposition.
DISCUSSION
21. Plaintiff seeks an injunction prohibiting Price “from continuing to
breach his Employment Agreement” and prohibiting Price and Camfil “from
misappropriating AAF’s valuable trade secrets and other confidential information.”
(Pl.’s Mot. Prelim. Inj. 1.)
22. A preliminary injunction may be issued during litigation when “it
appears by affidavit that a party thereto is doing or threatens or is about to do . . .
some act . . . in violation of the rights of another party to the litigation respecting the
subject of the action, and tending to render the judgment ineffectual.” N.C. Gen. Stat.
§ 1-485(2) (hereinafter, references to the North Carolina General Statutes will be to
“G.S.”). A preliminary injunction is “an extraordinary remedy and will not be lightly granted.” Travenol Labs., Inc. v. Turner, 30 N.C. App. 686, 692, 228 S.E.2d 478, 483
(1976). The movant bears the burden of establishing the right to a preliminary
injunction. Pruitt v. Williams, 288 N.C. 368, 372, 218 S.E.2d 348, 351 (1975). To
obtain a preliminary injunction a movant must show “a likelihood of success on the
merits of his case and . . . [that the movant] is likely to sustain irreparable loss unless
the injunction is issued, or if, in the opinion of the Court, issuance is necessary for
the protection of his rights during the course of litigation.” Analog Devices, Inc. v.
Michalski, 157 N.C. App. 462, 466, 579 S.E.2d 449, 452 (2003); accord Looney v.
Wilson, 97 N.C. App. 304, 307–08, 388 S.E.2d 142, 144–45 (1990). Likelihood of
success means a “reasonable likelihood.” A.E.P. Indus., Inc. v. McClure, 308 N.C. 393,
404, 302 S.E.2d. 754, 761 (1983).
23. In addition, the Court must balance the equities, and a preliminary
injunction “should not be granted where there is a serious question as to the right of
the defendant to engage in the activity and to forbid the defendant to do so, pending
the final determination of the matter, would cause the defendant greater damage
than the plaintiff would sustain from the continuance of the activity while the
litigation is pending.” Bd. of Provincial Elders v. Jones, 273 N.C. 174, 182, 159 S.E.2d
545, 551–52 (1968); accord Cty. of Johnston v. City of Wilson, 136 N.C. App 775, 780,
525 S.E.2d 826, 829 (2000) (noting that a court should weigh “the advantages and
disadvantages to the parties” in deciding whether to issue a preliminary
injunction). The issuance of an injunction is “a matter of discretion to be exercised by the hearing judge after a careful balancing of the equities.” State ex rel. Edmisten v.
Fayetteville St. Christian Sch., 299 N.C. 351, 357, 261 S.E.2d 908, 913 (1980).
24. In support of the Motion, AAF has argued the likelihood of success of its
claims for breach of the 2006 Agreement and misappropriation of trade secrets, and
the Court will address only these claims.
I. Breach of 2006 Agreement.
a. Likelihood of Success.
25. Preliminarily, the parties dispute whether the question of the 2006
Agreement’s enforceability should be decided under the law of Kentucky or North
Carolina.7 Plaintiff urges the Court to honor the choice of law provision in the 2006
Agreement and apply Kentucky law.8 (Pl.’s Br. Supp. Mot. Prelim. Inj. 12) Defendants
contend that the Court should apply North Carolina law because “Kentucky law on
restrictive covenants conflicts with North Carolina law and public policy,” and
because North Carolina has the greater interest in the subject matter of this dispute
(Defs.’ Resp. Opp. Mot. Prelim. Inj. 6–7.)
26. The Court, however, need not determine the appropriate law to be
applied in this case because even if Plaintiff could establish likelihood of success
7 There is a material difference in the standards applied by the two states in determining the
enforceability of covenants not to compete. Compare Charles T. Creech, Inc. v. Brown, No. 2011-CA-000629-MR, 2012 Ky. App. Unpub. LEXIS 1033, at *13–14 (Ky. Ct. App. Aug. 17, 2012), rev’d on other grounds, 433 S.W.3d 345 (2014) (outlining requirements for enforceability of a non-compete agreement under Kentucky law) with Hartman v. W.H. Odell & Assocs., 117 N.C. App. 307, 311, 450 S.E.2d 912, 916 (1994) (providing requirements for enforceability of a non-compete agreement under North Carolina law).
8 Section 7.2 of the 2006 Agreement provides “[t[he construction performance and completion
of this Agreement shall be governed by the laws of the State of Kentucky.” under either state’s law, it has failed to establish that it will suffer irreparable harm
if an injunction enforcing the non-compete provision is not issued.
b. Irreparable Harm.
27. “A prohibitory preliminary injunction is granted only when irreparable
injury is real and immediate.” United Tel. Co. v. Universal Plastics, Inc., 287 N.C.
232, 235, 214 S.E.2d 49, 51 (1975) (emphasis added). “An applicant for a preliminary
injunction must do more than merely allege that irreparable injury will occur. The
applicant is required to set out with particularity facts supporting such statements
so the court can decide for itself if irreparable injury will occur.” Id.
28. The request for a preliminary injunction in this case arises under
circumstances which establish that Plaintiff has not suffered any harm almost six
months after Price allegedly violated the non-competition covenant by accepting
employment with Camfil. Plaintiff concedes that it has no evidence that Price has
solicited away any AAF customers or that any AAF customers have ceased doing
business with AAF and are now customers of Camfil. Plaintiff also has not presented
evidence that there is a real and immediate danger of Price soliciting away any of
AAF’s customers.
29. It also is significant that Plaintiff learned Price was employed with
Camfil in late August, 2016, but did not file this action until November, 2016, did not
seek a TRO to enforce the non-competition covenant, and did not move for a
preliminary injunction until December 9, 2016. Plaintiff’s lack of urgency in seeking
injunctive relief counsels against the idea that it is likely to suffer irreparable harm. See N. Iredell Neighbors for Rural Life v. Iredell Cty., 196 N.C. App. 68, 79, 674
S.E.2d 436, 443 (2009) (affirming trial court’s finding of no irreparable harm where
“some two months elapsed without any contention by plaintiffs of an urgent threat of
irreparable harm and after having reviewed the standards set forth in both the
federal and North Carolina cases”); Southtech Orthopedics, Inc. v. Dingus, 428 F.
Supp. 2d 410, 420 (E.D.N.C. 2006) (applying North Carolina law) (“[T]he six to nine
week delay between plaintiff’s discovery of defendant’s competitive activities and its
filing suit weighs against injunctive relief.”).
30. The primary purpose of non-competition covenants is to protect the
employer’s customers and associated goodwill with those customers. United Labs.,
Inc. v. Kuykendall, 322 N.C. 643, 651, 370 S.E.2d 375, 381 (1988) (“[P]rotection of
customer relationships and goodwill against misappropriation by departing
employees is well recognized as a legitimate protectable interest of the employer.”).
The evidence establishes that Plaintiff has not lost, and is not likely to suffer an
immediate loss of, customers from Price’s alleged breach of the non-competition
covenant.
31. Accordingly, Plaintiff has failed to show that it is likely to sustain
irreparable harm unless an injunction is issued prohibiting Price from breaching or
continuing to breach the terms of the 2006 Agreement, and enforcing the 2006
Agreement.
32. The Court concludes, in its discretion, that Plaintiff’s Motion for
Preliminary Injunction prohibiting Price from breaching or continuing to breach the terms of the 2006 Agreement, and seeking enforcement of the 2006 Agreement,
should be DENIED.
II. Misappropriation of Trade Secrets.
33. Under the North Carolina Trade Secrets Protection Act (NCTSPA),
“misappropriation” is defined as “acquisition, disclosure, or use of a trade secret of
another without express or implied authority or consent, unless such trade secret was
arrived at by independent development, reverse engineering, or was obtained from
another person with a right to disclose the trade secret.” G.S. § 66-152(1). A “trade
secret” is “business or technical information, including but not limited to a formula,
pattern, program, device, compilation of information, method, technique, or process
that: (a) Derives independent actual or potential commercial value from not being
generally known or readily ascertainable through independent development or
reverse engineering by persons who can obtain economic value from its disclosure or
use; and (b) Is the subject of efforts that are reasonable under the circumstances to
maintain its secrecy.” G.S. § 66-152(3).
34. Defendants first argue that Plaintiff has not identified its trade secrets
with sufficient specificity to support a claim for misappropriation under the NCTSPA.
(Defs.’ Resp. Opp. Mot. Prelim. Inj. 20-22.) Defendant contends that Plaintiff
identifies only “generalized categories of information.” (Id. 21.) This argument is
without merit. Plaintiff provided evidence that the TCOD is a proprietary program
developed by AAF that contains data regarding AAF’s and its competitor’s products compiled, in part, through AAF’s own internal testing and performance studies. The
program calculates the costs of ownership of AAF’s products as compared to its
competitor’s products based on the customer’s operating parameters. (Id. ¶ 17.)
Plaintiff also presented evidence that the trade secrets at issue in this matter
included, inter alia, information about prices AAF negotiated with its national
accounts, tools that use proprietary algorithms to create custom quotes, reports
created by AAF at its customers’ facilities which include identification of customers’
current air filtration products, sizes, specifications, and other customer-specific
issues, AAF’s costs of goods sold from which AAF’s profit margins can be determined,
and detailed drawings and product specifications created by AAF for customers. (Id.
¶ 18.) This description of the information at issue satisfies Plaintiff’s obligations to
identify its trade secrets.
35. A prima facie case of misappropriation is established by introducing
“substantial evidence” that the defendant: “(1) knows or should have known of the
trade secret; and (2) has had a specific opportunity to acquire it for disclosure or use
or has acquired, disclosed, or used it without the express or implied consent or
authority of the owner.” G.S. § 66-155. A prima facie case of misappropriation may be
established by circumstantial evidence. TSG Finishing, LLC v. Bollinger, 238 N.C.
App. 586, 595, 767 S.E.2d 870, 878 (2014).
36. The Act also provides that “actual or threatened misappropriation of a
trade secret may be preliminarily enjoined during the pendency of the action.” G.S. § 66-154; Horner Int’l Co. v. McKoy, 232 N.C. App. 559, 568–69, 754 S.E.2d 852, 859
(2014).
37. Plaintiff alleges Price misappropriated AAF’s trade secrets by, among
other actions, accessing Plaintiff’s confidential databases and by repeatedly accessing
and downloading files from his Microsoft Outlook program, following Price’s receipt
of the offer of employment from Camfil. Plaintiff contends that Price’s access to the
trade secrets was without authorization because he accessed the information after
accepting employment with Camfil.
38. It is undisputed that Price knew or should have known of the trade
secrets. Accordingly, Plaintiff’s likelihood of success turns on whether there is
sufficient evidence to satisfy the second “prong” of G.S. § 66-155; did Price have
opportunity to acquire the trade secrets or actually acquire, use, or disclose the trade
secrets without the consent of AAF?
39. The evidence establishes, and Defendants do not dispute, that Price had
opportunity to acquire AAF’s trade secrets. Defendants argue, however, that a
preliminary injunction should issue only “where actual misappropriation is
demonstrated.” (Defs.’ Resp. Opp. Mot. Prelim. Inj. 22, quoting Allegis Grp., Inc. v.
Zachary Piper LLC, 2013 NCBC LEXIS 12, *27 (N.C. Super. Ct. 2013).) Defendants
contend that Plaintiff has not presented evidence “that Price actually took anything.”
(Id. at 24; emphasis in original.)
40. North Carolina, however, has expressly rejected the contention that
evidence of actual misappropriation is required to obtain injunctive relief under the TSPA. Horner, 232 N.C. App. at 568–70, 754 S.E.2d at 859–60. In Horner, the
defendant argued that the trial court erroneously issued a preliminary injunction
prohibiting the defendant from disclosing trades secrets because plaintiff established
only the “opportunity for misappropriation.” Id. at 568, 754 S.E.2d at 859. The Court
of Appeals rejected this argument, holding:
Defendant’s strenuous assertions on appeal that Plaintiff produced no direct or circumstantial evidence of his “acquisition, use, or disclosure of [Plaintiff’s] information” is misplaced. The TSPA permits preliminary injunctions where a prima facie case for “actual or threatened misappropriation of a trade secret” is established. N.C. Gen. Stat. § 66-154(a) (emphasis added). . . . Defendant’s knowledge of trade secrets and opportunity to use those in his work for his new employer create a threat of misappropriation, and thus the trial court’s grant of a preliminary injunction during the pendency of the action was proper.
Id. at 569–70, 754 S.E.2d at 859–60. Accordingly, Plaintiff is not required to establish
actual misappropriation to obtain an injunction.
41. Defendants further argue that even if opportunity to acquire trade
secrets, by itself, is sufficient to raise a prima facie case of misappropriation, the
prima facie showing is rebutted by Defendants “by showing that the employer
granted access to the trade secrets or that circumstances surrounding any accesses
were not suspicious.” (Defs.’ Resp. Opp. Mot. Prelim. Inj. 22–23.). In support,
Defendants rely on the Fourth Circuit Court of Appeals’ recent decision in RLM
Communications, Inc. v. Tuschen, 831 F.3d 190 (4th Cir. 2016).
42. In RLM, the Fourth Circuit considered the evidentiary standard for
establishing a prima facie case under G.S. § 66-155 in the context of reviewing the district court’s order granting summary judgment. The Court noted that if a plaintiff
satisfied the first “prong” of the statute, that defendant knew of the trade secrets,
“[a]t first blush, [the] second prong appears to allow a plaintiff to show either that
the defendant had an opportunity to acquire trade secrets or that the defendant in
fact acquired them without permission.” 831 F.3d. at 199 (emphasis in original). The
Court opined that such an interpretation was problematic because:
In the employment context, if knowledge and opportunity suffice for a prima facie case of misappropriation, then an employer can state a prima facie case against its employee merely by showing that it gave the employee access to its trade secrets. The employer can therefore force such an employee to go to trial on a misappropriation claim—unless the employee can rebut the prima facie case. Unfortunately, the statute does not clearly address rebuttal in a case such as this one, where the employee claims that she never acquired or used trade secrets at all. The statute provides three grounds for rebutting the prima facie evidence, but all grounds assume that the employee has in fact acquired the trade secrets: “prima facie evidence is rebutted by the introduction of substantial evidence that the person against whom relief is sought acquired the information comprising the trade secret by independent development, reverse engineering, or it was obtained from another person with a right to disclose the trade secret.” If these grounds were exclusive, an absurd result would follow: Every employee in North Carolina who had access to her employer's trade secrets but did not acquire them would have to go to trial to fend off the employer's claim of misappropriation.
Id. at 200–01.
43. The Fourth Circuit concluded that the North Carolina Supreme Court
would “not adopt such an interpretation” of G.S. § 66-155. Id. at 201. Instead, after
reviewing existing North Carolina case law on the question, the Court held that the Supreme Court would adopt one of two interpretations. The first would require that
to establish a prima facie case of misappropriation “the employer . . . prove not merely
that its employee had access to trade secrets, but also that the employee abused such
access—the employer would have to show knowledge and
an unauthorized opportunity to acquire or use trade secrets.” Id. (emphasis in
original).
44. The Fourth Circuit held that a second potential interpretation of G.S. §
66-155 would permit the plaintiff to establish a prima facie case by showing “mere
knowledge and opportunity” to acquire the trade secret, which would “give rise to an
inference of misappropriation.” Id. The defendant could rebut “the inference by
showing that the circumstances surrounding the opportunity were not suspicious,”
including by showing that “the opportunity was provided with consent.” Id. at 201–
02.9 The Court concluded, however, that:
The practical effect of this burden shifting, of course, is that an employer accusing an employee of misappropriation will often gain little benefit from making a prima facie case based on opportunity. Instead, the framework will collapse into the question whether the employer has sufficient evidence of misappropriation to raise an inference of actual acquisition or use of its trade secrets. Here again, this result is generally consistent with the practice of the North Carolina courts.
Id. at 202.
9 The Fourth Circuit’s conclusion in this regard is consistent with the conclusion reached in
Sunbelt Rentals, Inc. v. Head & Engquist Equip., L.L.C., 2002 NCBC LEXIS 2, *43 (N.C. Super. Ct. 2002) (“There is no specific requirement that plaintiff show that defendants have disclosed or used the trade secrets, only that they had a specific opportunity to acquire the trade secrets for use or disclosure. Once plaintiff establishes a prima facie case, the burden shifts to defendants to show that the trade secret was not acquired improperly.”). 45. The Court finds the Fourth Circuit’s reasoning and conclusion in RLM
compelling. Evidence that a former employee had access to, and therefore an
“opportunity to acquire,” an employer’s 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 its trade secrets without
authorization or provide other sufficient evidence of misappropriation to raise an
inference of actual acquisition or use of its trade secrets.
46. Applying this burden, the Court concludes that Plaintiff has produced
sufficient evidence to establish 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. 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 be
contacting AAF customers despite Defendants promises that he would not do so. TSG
Finishing, 238 N.C. App. at 595, 767 S.E.2d at 878 (holding that “plaintiff
demonstrated a likelihood of success on the merits of his claim for trade secret
misappropriation” where defendant former-employee was performing “similar duties”
and working for “share[d] customers” with a direct competitor.”).
47. More significantly, Camfil extended Price a job offer on July 24, 2016,
and Price continued to work for AAF and accessed its systems containing AAF’s
confidential and proprietary information, until August 12, 2016. Between July 24
and August 12, 2016, Price accessed the TCOD program, his AAF Microsoft Outlook program, and other allegedly confidential information, and emailed or downloaded
files to himself. Defendants contend that Price did not accept employment with
Camfil on July 24, 2016, but has failed to provide the date on which Price did accept
employment.
48. In addition, Price did not inform AAF that he was going to work for
Camfil when he notified AAF of his resignation on August 5, 2016. Had he done so,
AAF would have immediately terminated Price’s employment and his access to its
trade secrets. Under these circumstances, the Court concludes that Plaintiff has
made a sufficient showing to raise an inference that Price’s access to its trade secrets
after July 24, 2016 was not authorized. Barker Indus. v. Gould, 146 N.C. App. 561,
565–66, 553 S.E.2d 227, 230 (2001) (“[B]road injunctive relief is available where there
has been some showing of bad faith or underhanded dealings on the part of the party
to be enjoined.”).
49. Finally, the evidence in the record at this juncture supports the
conclusion that Price is performing the same type of sales duties he performed for
AAF, and that there is a threat that Price could use AAF’s trade secrets in his
employment with Camfil. This supports issuance of the requested injunction. Horner,
232 N.C. App. at 570, 754 S.E.2d at 860.
50. The Court concludes that Plaintiff has established a likelihood of success
on its claim for misappropriation of trade secrets.
b. Irreparable Harm. 51. The Court also concludes that the Plaintiff has shown that it is likely
suffer irreparable harm if the preliminary injunction does not issue. The acquisition
and potential disclosure or use of the information in Plaintiff’s confidential databases,
which contain extensive data collected by Plaintiff from its customers and proprietary
costing formulas, would cause irreparable harm to the Plaintiff.
52. Finally, balancing the relative burdens on the parties, it is clear that
Defendants will suffer little harm from being enjoined from misappropriating
Plaintiff’s trade secrets during the course of this action. Defendants have submitted
affidavits to this Court stating that they have not acquired or used Plaintiff’s trade
secret information. Accordingly, an injunction prohibiting such conduct will have
little impact on Defendants.
53. On these grounds, and balancing the equities here, the Court concludes,
in its discretion, that Plaintiff’s Motion for Preliminary Injunction prohibiting
Defendants from misappropriating AAF’s trade secrets should be GRANTED.
54. Before a preliminary injunction will issue, a bond must be posted “in
such sum as the judge deems proper, for the payment of such costs and damages as
may be incurred or suffered by any party who is found to have been wrongfully
enjoined.” G.S. § 1A-1, Rule 65(c). “Since the purpose of the security requirement is
to protect the restrained party from damages incurred as a result of the wrongful
issuance of the injunctive relief, the trial court has the discretion to determine what
amount of security, if any, is necessary to protect the enjoined party’s interests.” Barr-
Mullin, Inc. v. Browning, 108 N.C. App. 590, 598, 424 S.E.2d 226, 231 (1993) (citing Keith v. Day, 60 N.C. App. 559, 561, 299 S.E.2d 296, 297 (1983)). In its discretion and
in consideration of the likelihood of material damage and harm to the Defendants if
wrongfully enjoined, the Court requires Plaintiff to post a bond of $100.00.
THEREFORE, IT IS ORDERED that:
1. The Motion is DENIED, in part, and GRANTED, in part. The Motion is
DENIED as to the request for an injunction prohibiting Price from breaching or
continuing to breach the terms of the 2006 Agreement, and to the extent it seeks
enforcement of the 2006 Agreement.
2. The Motion is GRANTED as to the request for an injunction prohibiting
Defendants from misappropriating AAF’s trade secrets. Accordingly, Samuel C.
Price, Jr. and Camfil USA, Inc. d/b/a Camfil Americas (“Defendants”) are
IMMEDIATELY ENJOINED and PROHIBITED, directly or indirectly, alone or in
concert with others, from disclosing the trade secrets of American Air Filter
Company, Inc. d/b/a AAF International (“AAF”), including information maintained
by AAF in the Sales Playbook, Salesforce.com, and TCOD systems, and including, but
not limited to:
a. pricing information per customer, including the secret and highly
sensitive company-wide prices that AAF corporate officers negotiated on behalf
of AAF with its national accounts;
b. price sheets containing current and historic prices for each of AAF’s
products, which could be broken down further by part number, box quantity,
and box rate; c. quoting tools that use proprietary algorithms to create custom quotes
that incorporate prices AAF negotiated with national accounts, AAF’s custom
discounts, and customer-specific needs;
d. daily, monthly, and quarterly sale projections that could be broken down
by custom geographic territories;
e. audit reports created by AAF sales professionals at the physical location
of customer facilities which include identification of customers’ current air
filtration products, sizes, specifications, and customer-specific issues or talking
points developed by AAF sales professionals;
f. detailed spreadsheets identifying potential customers and projects,
including contact information for leads (names, phone numbers, and email
addresses) in addition to AAF’s sales professionals’ personal notes on previous
sales calls and the historic quotes AAF offered to potential customers;
g. information on the costs of goods sold that could allow calculation of AAF
profit margins;
h. technical specifications and data that resulted from extensive internal
and third-party product testing and performance studies; and
i. detailed drawings and product specifications created by AAF for new
customer construction projects.
3. On or before 5:00 pm on February 10, 2017, Plaintiff shall post a bond
of $100.00 in a form satisfactory to the Clerk of Superior Court of Wake County. If Plaintiff fails to post the required bond by 5:00 pm on February 10, 2017, the
injunction shall dissolve immediately.
4. Except as specifically granted herein, the Motion is DENIED.
SO ORDERED, this the 3rd day of February, 2017.
/s/ Gregory P. McGuire Gregory P. McGuire Special Superior Court Judge for Complex Business Cases