SinglePoint Direct Solar LLC v. Curiel

Opinion

1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA

9 SinglePoint Direct Solar LLC, et al., No. CV-21-01076-PHX-JAT

10 Plaintiffs, PRELIMINARY INJUNCTION

11 v.

12 Pablo Diaz Curiel, et al.,

13 Defendants. 14 15 Pending before the Court is Plaintiffs SinglePoint, Inc. and SinglePoint Direct Solar, 16 LLC’s Motion for a Preliminary Injunction (Doc. 3). The Motion is fully briefed (Doc. 16, 17 20, 44, 51, 55, 59), and the Court held a preliminary injunction hearing on August 4, 2021. 18 The Court now rules on the Motion.1 19 I. FINDINGS OF FACT 20 This case concerns a business relationship between SinglePoint, Inc. 21 (“SinglePoint”) and Defendants Pablo Diaz Curiel, Kjelsea Johnson, and Brian Odle 22 regarding SinglePoint Direct Solar, LLC (“SDS”). SDS provides solar energy brokerage 23 services to homeowners and small businesses and was formed following an Asset Purchase 24 1 In response to Plaintiffs’ Motion for an Amended Temporary Restraining Order and 25 Preliminary Injunction (Doc. 44), Defendants filed a joint response and motion to dismiss (Doc. 51). Local Rule of Civil Procedure (“LRCiv”) 12.1(c) requires a party moving for 26 dismissal under Federal Rule of Civil Procedure (“Rule”) 12(b)(6) to include “certification that, before filing the motion, the movant notified the opposing party of the issues asserted 27 in the motion and the parties were unable to agree that the pleading was curable in any part by a permissible amendment offered by the pleading party.” Because Defendants failed to 28 meet this requirement, the Court will deny the motion without prejudice. See LRCiv 12.1(c) (“A motion that does not contain the required certification may be stricken summarily.”). 1 Agreement in February 2019. SinglePoint, Diaz, and Johnson, among others, were parties 2 to this agreement. As a result of the Asset Purchase Agreement, SinglePoint, Diaz, and 3 Johnson own 51, 45, and 4 percent of SDS, respectively. Diaz was also subject to an 4 Employment Agreement with SDS. Both the Asset Purchase Agreement and Employment 5 Agreement contain several restrictive covenants. As relevant here, the Agreements contain 6 non-compete, non-disclosure, and non-solicitation clauses. 7 Following SDS’s creation, Diaz served as chief executive officer of SDS until his 8 two-year Employment Contract term ended in May 2021. Johnson served as dealer 9 concierge, and Odle served as director of finance until they both resigned in June 2021. 10 In the instant motion, Plaintiffs allege that following Diaz and Johnson’s departure 11 from SDS, they implemented a plan to misappropriate SDS’s confidential data and 12 intangible assets to start and sell a rival solar energy company and changed passwords to 13 SDS accounts, which prevented SDS from continuing to operate effectively. Plaintiffs seek 14 to enjoin Diaz and Johnson from competing nationally in the solar energy industry and 15 from using any of the intangible assets that were the subject of the Asset Purchase 16 Agreement. 17 At the August 4, 2021 preliminary injunction hearing, the Court heard testimony 18 from SinglePoint CEO, Wil Ralston, as well as Diaz, Johnson, and Odle. Ralston testified 19 that the restrictive covenants were essential to his agreement to go into business with Diaz. 20 He testified that Diaz’s talent is networking and cultivating business relationships, and 21 allowing Diaz to leave SDS and provide those services elsewhere would be detrimental to 22 SDS. Ralston further testified that at last count, SDS operated in 38 states and has a goal 23 of expanding nationwide. 24 Odle testified regarding how the solar brokerage business operates. He testified that 25 dealers typically have nonexclusive agreements with multiple brokers such as SDS, and 26 the dealers determine which broker to refer a particular customer based on several criteria. 27 He further testified that intangible assets such as customer lists and pricing history are 28 “worthless” because repeat customers are rare in the solar energy industry. Odle testified 1 that the reason for this is because once customers have solar energy technology installed 2 on their homes, they will have no need to purchase replacement equipment for 25 or 30 3 years. Because Odle’s testimony is uncontroverted and the Court has no other basis in the 4 record from which obtain this information, the Court accepts Odle’s testimony regarding 5 the common practice in solar energy brokerage industry. However, the Court notes that it 6 did not find Odle to be a particularly credible witness. Odle did not testify as to his 7 professional background and experience or otherwise provide any basis for his testimony; 8 he simply relayed his understanding of the industry. But again, having no better source, the 9 Court accepts this testimony. 10 For his part, Diaz testified that the services he provides different companies are 11 unique to each company and that the company that he has created since leaving SDS does 12 not compete directly with SDS. He further testified that he did not believe that any of the 13 provisions of the Asset Purchase Agreement or Employment Agreement would prevent 14 him from working in the solar energy industry following his departure from SDS. 15 II. LEGAL STANDARD 16 For a court to issue a TRO or preliminary injunction, a plaintiff “must establish that 17 he is likely to succeed on the merits, that he is likely to suffer irreparable harm in the 18 absence of preliminary relief, that the balance of equities tips in his favor, and that an 19 injunction is in the public interest.” Am. Trucking Ass’ns, Inc. v. City of Los Angeles, 559 20 F.3d 1046, 1052 (9th Cir. 2009) (quoting Winter v. Nat. Res. Def. Council, Inc., 555 U.S. 21 7, 20 (2008)). Under the Ninth Circuit “serious questions” test, the four Winter factors may 22 be evaluated on a sliding scale, and a TRO or preliminary injunction “is appropriate when 23 a plaintiff demonstrates that serious questions going to the merits were raised and the 24 balance of hardships tips sharply in the plaintiff’s favor.” All. for the Wild Rockies v. 25 Cottrell, 632 F.3d 1127, 1134–35 (9th Cir. 2011) (quoting Lands Council v. McNair, 537 26 F.3d 981, 987 (9th Cir. 2008) (en banc)). 27 III. DISCUSSION AND CONCLUSIONS OF LAW 28 Plaintiffs argue that they are entitled to preliminary injunctive relief against Diaz 1 and Johnson because they are violating the terms of the Asset Purchase Agreement and 2 Diaz is violating the terms of his Employment Agreement. The Court discusses these 3 arguments below. 4 a. Likelihood of Success on the Merits 5 “Likelihood of success on the merits is the most important Winter factor; if a movant 6 fails to meet this threshold inquiry, the court need not consider the other factors in the 7 absence of serious questions going to the merits.” Disney Enters., Inc. v. VidAngel, Inc., 8 869 F.3d 848, 856 (9th Cir. 2017) (internal citations and quotations omitted); see also, e.g., 9 Krieger v. Nationwide Mut. Ins. Co., No. CV-11-1059-PHX-DGC, 2011 WL 3760876, at 10 *1 (D. Ariz. Aug. 25, 2011) (“Because Plaintiff has failed to show a likelihood of success 11 on the merits or the existence of serious questions, the Court will not issue a preliminary 12 injunction. The Court need not address the other requirements for preliminary injunctive 13 relief.”). 14 1. Non-Compete 15 First, Plaintiffs argue that Diaz and Johnson are violating the non-compete provision 16 of the Asset Purchase Agreement and that Diaz is violating the non-compete provision of 17 his Employment Agreement. Plaintiffs’ Motion requests that the Court enjoin Diaz and 18 Johnson from starting or working at a competing solar energy enterprise. The Court, 19 however, agrees with Defendants that these non-compete provisions are unenforceable 20 under Arizona law. 21 In Arizona, although the determination of whether a restrictive covenant is 22 enforceable is a “fact-intensive inquiry that depends on weighing the totality of the 23 circumstances,” it is ultimately a question of law. Valley Med. Specialists v. Farber, 982 24 P.2d 1277, 1280–81 ¶ 11 (Ariz. 1999). “[A] restrictive covenant is unreasonable if ‘(a) the 25 restraint is greater than is needed to protect the promisee’s legitimate interest, or (b) the 26 promisee’s need is outweighed by the hardship to the promisor and the likely injury to the 27 public.’” Fearnow v. Ridenour, Swenson, Cleere & Evans, P.C., 138 P.3d 723, 725, ¶ 8 28 (Ariz. 2006) (quoting Restatement (Second) of Contracts § 188 (1981)). 1 “Restrictive covenants that tend to prevent an employee from pursuing a similar 2 vocation after termination of employment are disfavored and are strictly construed against 3 the employer.” Bryceland v. Northey, 772 P.2d 36, 39 (Ariz. Ct. App. 1989). “A restrictive 4 covenant cannot be greater than necessary to protect the employer’s legitimate interests, 5 and its scope is defined by its duration and geographic area.” McKesson Med.-Surgical Inc. 6 v. Caccavale, No. CV-04-1351-PHX-SRB, 2008 WL 11338486, at *5 (D. Ariz. Dec. 23, 7 2008). 8 Here, Section 8.05(a) of the Asset Purchase Agreement provides that for a period of 9 eight years, the parties may “not, directly or indirectly, render services or assistance to, 10 own, manage, operate, control, invest or acquire an interest in . . . any Person that engages 11 in a Competing Business . . . or otherwise engage in or conduct . . . in a Competing 12 Business.” (Ex. 1). Section 8.05(a) does not specify any geographic scope, and this lack of 13 geographic scope proves fatal for its enforceability. 14 Plaintiffs’ motion largely ignores this point. Plaintiffs instead rely heavily on Gann 15 v. Morris, 596 P.2d 43 (Ariz. Ct. App. 1979). In Gann, the Arizona Court of Appeals 16 recognized that “[c]ourts distinguish between covenants incidental to employment 17 contracts and those incidental to sales of businesses because the policy considerations 18 necessarily differ.” Id. at 44. The court noted that the sale of a “business necessarily 19 includes the sale of good will and the purchaser has the right to assure himself as best he 20 can of the transfer of the good will.” Id. at 45. Relying on this language, Plaintiffs argue 21 that the eight-year restriction in the Asset Purchase Agreement is reasonable under the 22 circumstances and should be upheld as the ten-year restriction was in Gann. 23 But a fundamental distinction exists between Gann and the instant case. Gann 24 involved an agreement not to compete within “a 100 mile radius of Tucson,” and the court 25 noted that “[w]here limited as to time and space, [a] covenant is ordinarily valid unless it 26 is to refrain from all business whatsoever.” Id. at 44. Here, as discussed above, the non- 27 compete provision of the Asset Purchase Agreement is limited in time, but not in space. 28 Accordingly, Section 8.05(a) of the Asset Purchase Agreement is unenforceable under 1 Arizona law. 2 At the preliminary injunction hearing, Plaintiffs argued that Section 8.05(a) should 3 not be read in isolation, and even though Section 8.05(a) does not itself contain a 4 geographic scope, it refers specifically to a “Business” and a “Competing Business,” and 5 these defined terms make clear that the non-compete is national in scope. The Court is 6 unpersuaded. “Business” under the Asset Purchase Agreement refers to “the business of 7 solar brokerage whereby they advise consumers in the solar field and introduce consumers 8 to suitable professional contractors,” and “Competing Business” “means any business 9 which manufactures, distributes, designs, creates, or sells products or provides services that 10 compete directly with those distributed, manufactured, designed, sold, developed, in 11 development, or provided by Buyer as of immediately after the Closing or at any time 12 during the thirty-six (36) month period immediately preceding the Closing.” (Ex. 1). The 13 Court is unable to extrapolate a national scope from this language. 14 But even assuming the Asset Purchase Agreement did have a national scope, 15 Plaintiffs have failed to show that a national scope is reasonable under the circumstances. 16 Neither SinglePoint nor SDS operate in all 50 states. Accordingly, Plaintiffs have not 17 demonstrated that a national non-compete is no “greater than necessary to protect the 18 employer’s legitimate interests” See McKesson Med.-Surgical Inc., 2008 WL 11338486, 19 at *5. 20 Plaintiffs also argue that the Court can modify the non-compete provision of the 21 Asset Purchase Agreement pursuant to Section 8.05(e), the severability provision. Section 22 8.05(e) provides: 23 Severability. If the final judgment of a court of competent jurisdiction declares that any term or provision of this Section 24 8.05 invalid or unenforceable, the Parties agree that the court making the determination of invalidity or unenforceability 25 shall have the power to reduce the scope, duration or area of such term or provision, to delete specific words or phrases or 26 to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes 27 closest to expressing the intention of the invalid or unenforceable term or provision, and this Agreement shall be 28 enforceable as so modified after the expiration of the time within which the judgment may be appealed. 1 (Ex. 1). Although the plain meaning of Section 8.05(e) would allow the Court to restrict 2 the scope of Section 8.5(a), the severability provision is inconsistent with Arizona law. 3 Arizona law does not allow a court to rewrite an agreement “in an attempt to make it 4 enforceable.” Farber, 982 P.2d at 1285–86, ¶ 30. Instead, “Arizona courts will ‘blue pencil’ 5 restrictive covenants, eliminating grammatically severable, unreasonable provisions.” Id. 6 Here, because the non-compete provision does not contain any restriction on geographic 7 scope, no language exists for the Court to “blue-pencil” or “eliminate.” The Court would 8 instead be required to add a geographic limitation that does not exist. Because Arizona law 9 does not permit this sort of judicial contract-drafting, Section 8.05(e) does not allow the 10 Court to reduce the scope of the Asset Purchase Agreement’s non-compete provision. 11 The non-compete provision of Diaz’s Employment Agreement fares no better. 12 Section 6(a) of the Employment Agreement provides that for a period of three years, Diaz 13 “shall not in any manner, directly or indirectly . . . enter into or engage in any business 14 which is engaged in any business directly competitive with the business of the 15 Company . . . within the geographic area of the Company’s business, which is deemed by 16 the parties hereto to be nationwide.” (Ex. 2). Here, as discussed, the Court does not find 17 that a nationwide scope is reasonable under the circumstances. Because SDS does not do 18 business in all 50 states, a prohibition on competition in all 50 states is broader than 19 necessary to protect SDS’s interest. 20 In sum, the Court finds that the non-compete provisions of both the Asset Purchase 21 Agreement and the Employment Agreement unenforceable, and Plaintiffs have therefore 22 failed to demonstrate a likelihood of success on the merits of their claims related to these 23 provisions. 24 2. Non-Disclosure/Confidentiality 25 Next, Plaintiffs argue that Diaz and Johnson are violating the non-disclosure 26 provision of the Asset Purchase Agreement by using and attempting to sell the confidential 27 information that Plaintiffs purchased. Plaintiffs also argue that Diaz is violating the 28 confidentiality provision of his Employment Agreement. The Court finds that Plaintiffs 1 have shown a likelihood of success on the merits of these claims as they relate to some, but 2 not all, of the assets listed in the Asset Purchase Agreement. 3 Among the assets that SinglePoint purchased in the Asset Purchase Agreement were 4 “Intellectual Property Assets.” (Ex. 1). These Intellectual Property Assets include “all 5 processes related to running any and all operations of the sellers; customer lists; customer 6 purchasing histories; price lists; distribution lists, supplier lists, . . . strategic plans; . . . 7 business and technical information and know-how; databases; . . . web addresses; web 8 pages; accounts with Twitter, Facebook, and other social media companies and the content 9 found thereon.” (Id.). Section 8.05(c) of the Asset Purchase Agreement requires the parties 10 to “keep confidential all confidential, non-public or proprietary information and materials” 11 and provides that the parties “shall take all appropriate steps (and cause each of such 12 Person’s Affiliates and each of their respective Representatives acting on their behalf to 13 take all appropriate steps) to safeguard such information and to protect it against disclosure, 14 misuse, espionage, loss and theft.” (Id.). 15 Under the circumstances presented in this case, the Court finds that this restriction 16 is reasonable as it pertains to the Intellectual Property Assets that contain information 17 specific to SDS such as customer lists, databases, and webpages. The Intellectual Property 18 Assets SinglePoint purchased in the Asset Purchase Agreements such as customer lists and 19 purchase history have value because they provide information that a business can use to 20 generate revenues and are not publicly available. Requiring a party not to disclose this 21 information is a reasonable method of preserving this value. Allowing Diaz to sell the 22 information to SinglePoint only to then use the information for his own benefit would 23 undermine the purpose of including Intellectual Property Assets in the Asset Purchase 24 Agreement. 25 However, certain information included among the Intellectual Property Assets that 26 Plaintiff’s claims are their “property,” such as Mr. Diaz’s “business and technical 27 information and know-how,” are not readily identifiable. Plaintiffs seemingly argue that 28 they purchased Diaz’s knowledge and talent in the Asset Purchase Agreement. The Court 1 does not find that Arizona law recognizes the sale of one’s knowledge in such a manner. 2 “As another court has rather memorably put it, absent a special and enforceable duty, an 3 alert salesperson is not required to undergo a prefrontal lobotomy.” Amex Distrib. Co. v. 4 Mascari, 724 P.2d 596, 603 (Ariz. Ct. App. 1986) (citing Fleming Sales Co., Inc. v. Bailey, 5 611 F. Supp. 507, 514 (N.D. Ill. 1985)). Accordingly, the Court finds that the Asset 6 Purchase Agreement preventing Diaz from disclosing his “know-how” effectively amounts 7 to a non-compete agreement. And as discussed above, such a non-compete with no 8 geographic limitation is unenforceable under Arizona law. 9 The same rationale applies to the confidentiality provision of Diaz’s Employment 10 Agreement. Under the confidentiality provision, Diaz agreed “(i) not to use any such 11 Confidential and Proprietary Information for himself or others; and (ii) not to take any 12 Company material or reproductions . . . thereof from the Company’s offices at any time 13 during his employment by the Company, except as required in the execution of the 14 Executive’s duties to the Company.” (Ex. 2). The Employment Agreement further 15 provides: 16 Confidential and Proprietary Information shall include, but shall not be limited to, confidential or proprietary scientific or 17 technical information, data, and related concepts, business plans (both current and under development), client lists, 18 promotion and marketing programs, trade secrets, or any other confidential or proprietary business information relating to 19 development programs, costs, revenues, marketing, investments, sales activities, promotions, credit and financial 20 data, manufacturing processes, financing methods, plans or the business and affairs of the Company or of any affiliate or client 21 of the Company. 22 (Id.). Again, by its nature, confidential information derives its value from not being 23 publicly available, and the Court finds that preventing a party from disclosing confidential 24 information enforceable. 25 Accordingly, the Court will enjoin Diaz and Johnson from using any information 26 specific to SDS that was the subject of the Asset Purchase Agreement or Employment 27 Agreement. This includes any specific customer information, price lists, accounts, web 28 pages, and the like. However, Diaz may use his knowledge and expertise to compete in the 1 solar energy market. What Diaz may not do is compete by reselling, disclosing, or 2 otherwise using SDS trademarks, client lists, or any other proprietary data. 3 3. Non-Solicitation/Non-Hire 4 Next, Plaintiffs argue that Defendants Diaz and Johnson violated the Asset Purchase 5 Agreement’s and Employment Agreement’s prohibitions on non-solicitation and non-hire 6 provisions. 7 The non-solicitation provision of the Asset Purchase Agreement (Section 8.05(b)) 8 provides: 9 Non-Solicitation: No-Hire. In consideration of the payment of all amounts hereunder by Buyer and as a condition precedent 10 to Buyer’s consummation of the Transactions, during the Restrictive Covenant Period, no Seller or Beneficial Owner 11 shall, and each shall cause such Person’s Affiliates not to, directly or indirectly (i) recruit, solicit or otherwise induce or 12 attempt to induce any employee, consultant, distributor, partner, or independent contractor of Buyer or any of its 13 Affiliates to leave the employ or services Buyer or any of its Affiliates, as applicable, or in any way interfere with the 14 relationship between Buyer or any of its Affiliates and any employee, consultant, distributor, partner, or independent 15 contractor thereof, (ii) employ, hire or otherwise retain any Person who is an employee, consultant, distributor, partner, or 16 independent contractor of Buyer or any of its Affiliates while such Person has any relationship with Buyer or any of its 17 Affiliates, as applicable, and for twenty four (24) months thereafter, (iii) recruit, solicit or otherwise induce or attempt to 18 induce any customer, prospective customer, distributor, partner, supplier, licensee, licensor, franchisee or other 19 business relation of any of Buyer or any of its Affiliates to terminate, reduce or adversely modify its business with Buyer 20 or any of its Affiliates, as applicable, or in any way interfere with the relationship between any such customer, supplier, 21 distributor, partner, licensee or business relation and Buyer or any of its Affiliates, as applicable, or (iv) enter into any office, 22 warehouse, or other location where the Business is operated, or talk to or have any conversation with any employee, 23 consultant, distributor, partner, supplier, customer, or independent contractor of any Seller for any business purpose 24 without Buyer’s prior written consent. 25 The non-solicitation provision of the Employment Agreement, Section 6(b) 26 provides: 27 During the Term and for a period of 12 months thereafter, the 28 Executive shall not, directly or indirectly, without the prior 1 written consent of the Company: 2 (i) solicit or induce any employee of the Company or any of its affiliates to leave the employ of the Company or any such 3 affiliate; or hire for any purpose any employee of the Company 4 or any affiliate or any employee who has left the employment of the Company or any affiliate within one year of the 5 termination of such employee’s employment with the 6 Company or any such affiliate or at any time in violation of such employee’s non-competition agreement with the 7 Company or any such affiliate; or 8 (ii) solicit or accept employment or be retained by any Person 9 who, at any time during the term of this Agreement, was an agent, client or customer of the Company or any of its affiliates 10 where his position will be related to the business of the Company or any such affiliate; or 11 (iii) solicit or accept the business of any agent, client or 12 customer of the Company or any of its affiliates with respect 13 to products or services which compete directly with the products or services provided or supplied by the Company or 14 any of its affiliates, or 15 (iv) Notwithstanding the foregoing, Sections 6(b)(ii) and 16 6(b)(iii) shall not be enforceable by the Company against Executive if the Executive (i) is terminated by the Company 17 without Cause; or (ii) terminates this Agreement for Good Reason. 18 The Court finds that Section 8.05(b)’s eight-year duration (the “Restrictive 19 Covenant Period”) and Section 6(b)’s three-year duration (“the Term and for a period of 20 12 months thereafter”) are broader than necessary to protect Plaintiffs’ legitimate interests. 21 “In determining whether a restraint extends for a longer period of time than 22 necessary to protect the employer, the court must determine how much time is needed for 23 the risk of injury to be reasonably moderated.” Amex Distrib. Co., 724 P.2d at 604 (quoting 24 Blake, Employment Agreements Not to Compete, 73 Harvard L. Rev. 625, 677 (1960)). 25 Here, Plaintiffs have not carried their burden of showing that the eight- or three-year 26 durations are necessary. Aside from Ralston testifying generally that several employees 27 have left SDS following Diaz’s departure and that SDS was harmed by these employees 28 1 leaving, there is no evidentiary record to establish the extent of the damage caused by these 2 employees’ departure or how long would be necessary to replace them. The same goes with 3 the restriction as it pertains to non-employees. Plaintiffs have failed to justify the duration 4 of the temporal limitation established by the Agreements. Accordingly, on this record, the 5 Court concludes that the non-solicitation provisions are too broad to be enforced.2 6 4. Conversion 7 Finally, Plaintiffs argue that they are likely to succeed on the merits of their 8 conversion claim against Defendants. (Doc. 37 at 23–24; Doc. 44 at 12–13). As it pertains 9 to the confidential and proprietary information at issue in the instant Motion, the Court 10 disagrees. 11 To succeed on a conversion claim under Arizona law, Plaintiffs must show “an 12 intentional exercise of dominion or control over a chattel which so seriously interferes with 13 the right of another to control it that the actor may justly be required to pay the other the 14 full value of the chattel.” Focal Point, Inc. v. U–Haul Co. of Ariz., 746 P.2d 488, 489 (Ariz. 15 Ct. App. 1986) (quoting Restatement (Second) of Torts § 222(A)(1) (1965)). Furthermore, 16 “[a]n action for conversion ordinarily lies only for personal property that is tangible, or to 17 intangible property that is merged in, or identified with, some document.” Id. The Arizona 18 Court of Appeals considered a claim for conversion of a customer list in the context of a 19 breach of a restrictive covenant in Miller v. Hehlen, 104 P.3d 193 (Ariz. Ct. App. 2005). 20 In Miller, the defendant employee allegedly took “customer information and 21 interfer[ed] with the relationships Miller had established with those customers.” Id. at 203. 22 The court held that a claim for conversion was not appropriate because “Miller did not 23 allege that Hehlen took a customer list in the form of a single, unified document that had 24 2 Diaz and Johnson also argue that the non-solicitation provisions violate their First 25 Amendment right to freedom of speech. But the First Amendment, applicable to the states through the Fourteenth Amendment, provides that “Congress shall make no law . . . 26 abridging the freedom of speech,” U.S. Const. amend I (emphasis added), and “is a restraint on government action, not that of private persons.” Columbia Broad. Sys., Inc. v. 27 Democratic Nat’l Comm., 412 U.S. 94, 114 (1973); accord Manhattan Cmty. Access Corp. v. Halleck, 139 S. Ct. 1921, 1926 (2019) (“The Free Speech Clause of the First Amendment 28 constrains governmental actors and protects private actors.”). Because there is no state action at issue in this case, any argument rooted in the First Amendment is inapposite. 1 value as tangible property.” Id.; see also Barton & Assocs. Inc. v. Trainor, No. CV-20- 2 01560-PHX-SPL, 2020 WL 6081496 (D. Ariz. Oct. 15, 2020) (“CVs and strategic 3 documents are not independently valuable as tangible property; rather, by Barton’s own 4 admission, their value is derived from the competitive advantage they afford Barton.”); 5 Swisher Hygiene Franchise Corp. v. Clawson, No. CV-15-1331-PHX-DJH, 2017 WL 6 11247886, at *9 (D. Ariz. Sept. 11, 2017) (finding that “the customer and pricing 7 information at issue is not the proper subject of a conversion action. The information is 8 intangible but has not been merged in a document that has its own value in the same sense 9 as a stock certificate or insurance policy”). 10 Here, Plaintiffs argue that “[Diaz] and others in concert with him methodically took 11 steps to prevent Plaintiffs from accessing and possessing their own property by locking 12 them out of crucial online accounts containing confidential and proprietary business 13 information.” (Doc. 44 at 13). Although this information may be valuable, it is neither 14 tangible property, nor is it merged in a document that has its own value. Accordingly, 15 Plaintiffs’ Motion fails to demonstrate a likelihood of success on the conversion claims the 16 Motion discusses.3 17 b. Irreparable Harm 18 Because the Court concludes that Plaintiffs have shown a strong likelihood of 19 success on the merits of their claim that Diaz and Johnson violated the non-disclosure 20 provision of the Asset Purchase Agreement, the Court next considers whether Plaintiffs 21 will suffer irreparable harm absent the Court’s intervention. As discussed above, the 22 confidential business information that the Asset Purchase Agreement and Employment 23 Agreement protect from disclosure derives its value in part from its secret nature. The Court 24 finds that dissemination of this information poses a significant risk that Plaintiffs would

25 3 Plaintiffs’ First Amended Complaint also alleges that Defendants misappropriated SDS funds as an additional basis of conversion. (Doc. 37 at 24). The Court expresses no opinion 26 on the merits of Plaintiffs’ conversion claim as it pertains to those funds, but to the extent those claims have merit, Plaintiffs have failed to demonstrate that their harm could not be 27 remedied through a damages award rather than preliminary injunctive relief. Calence, LLC v. Dimension Data Holdings, PLC, 222 F. App’x 563, 566 (9th Cir. 2007) (“The district 28 court employed the correct legal standard and was not required to reach the likelihood of success on the merits where it determined that there was no evidence of irreparable harm.”). 1 lose customer relationships, revenue, and goodwill. Accordingly, the Court finds that 2 Plaintiffs are likely to suffer irreparable harm in the absence of preliminary injunctive 3 relief. See Stuhlbarg Int’l Sales Co. v. John D. Brush & Co., 240 F.3d 832, 841 (9th Cir. 4 2001) (“Evidence of threatened loss of prospective customers or goodwill certainly 5 supports a finding of the possibility of irreparable harm.”). 6 c. Balance of Equities 7 The Court also finds that the balance of equities tip in Plaintiffs’ favor. As discussed 8 above, SinglePoint purchased certain Intellectual Property Assets as part of the Asset 9 Purchase Agreement. This information derives it value from not being publicly available, 10 and this value may be severely diminished by disclosure of this information. 11 d. Public Interest 12 The Court also finds that “granting the injunction is consistent with the public policy 13 of protecting a company’s interest in its trade secrets and confidential information.” See 14 Metso Mins. Indus. Inc. v. Oakes, No. CV-14-00013-PHX-DGC, 2014 WL 1632927, at *3 15 (D. Ariz. Apr. 23, 2014). 16 e. Unclean Hands 17 Diaz and Johnson also argue that the doctrine of unclean hands bars Plaintiffs from 18 seeking injunctive relief. Specifically, they assert that SinglePoint has a pattern of 19 promising individual owners of smaller companies capital for growth if the owners agree 20 to sell the company to SinglePoint. (Doc. 16 at 3–4). Once the acquisition occurs, Diaz and 21 Johnson assert that SinglePoint drains the company of its resources and causes the 22 companies to become insolvent. (Id.). 23 A party “who seeks equity must do equity.” County Sanitation Dist. No. 2 of Los 24 Angeles Cnty. v. Inland Container Corp., 803 F.2d 1074, 1080 (9th Cir. 1986). In order to 25 apply the doctrine of unclean hands, the court must determine, based on its review of the 26 facts, that the plaintiff’s conduct was “inequitable” or “unconscionable,” and that the 27 plaintiff’s conduct “relate[d] to the very activity that is the basis of his claim.” Barr v. 28 Petzhold, 273 P.2d 161, 165–66 (Ariz. 1954); see also Smith v. Neely, 380 P.2d 148, 149 1 (Ariz. 1963) (“The dirt upon his hands must be his bad conduct in the transaction 2 complained of.” (emphasis removed)). 3 Although Defendants raised this issue in their briefing on the motion for a 4 preliminary injunction, Defendants did not present a sufficient factual basis for these claims 5 at the preliminary injunction hearing. Diaz testified that SinglePoint did not provide the 6 funds to SDS in accordance with an agreement outside the Asset Purchase Agreement, but 7 he offered no proof that such an agreement actually existed. Accordingly, Defendants have 8 failed their meet their burden to demonstrate that SinglePoint acted in a manner that was 9 inequitable or unconscionable, and the Court does not find that relief is barred by the 10 doctrine of unclean hands. 11 f. Bond 12 Federal Rule of Civil Procedure 65(c) provides that “[t]he court may issue a 13 preliminary injunction . . . only if the movant gives security in an amount that the court 14 considers proper to pay the costs and damages sustained by any party found to have been 15 wrongfully enjoined or restrained.” Here, Plaintiffs argue that the bond requirement should 16 be waived because there is “no realistic likelihood of harm to the [D]efendant[s] from 17 enjoining [their] conduct.” See Johnson v. Couturier, 572 F.3d 1067, 1086 (9th Cir. 2009) 18 (quoting Jorgensen v. Cassiday, 320 F.3d 906, 919 (9th Cir. 2003)). (Doc. 3 at 16). 19 Alternatively, Plaintiffs propose a bond amount of $20,000, “which approximates the gross 20 salary of Mr. Diaz and Ms. Johnson during the month immediately preceding their 21 departure from SinglePoint Direct Solar, LLC ($15,000.00), plus potential attorneys’ fees 22 and costs of $5,000 . . . .” (Doc. 44 at 16). 23 Defendants argue that an injunction in this case will prevent them from closing a 24 pending Membership Interest Purchase Agreement with Solar Integrated Roofing 25 Corporation, and the Court should set the bond at $12,200,000, the purchase price in the 26 Agreement. However, given the narrow scope of the Court’s injunction and crediting the 27 testimony of Defense witnesses that proprietary information such as customer lists, pricing 28 information, and project lists are “worthless,” the Court does not find that the injunction 1 || issued in this case should jeopardize this deal. 2 However, the Court does not find that waiving the bond requirement entirely is || appropriate in this case. Such waivers are rare, especially in cases involving commercial activity. See Zambelli Fireworks Mfg. Co. v. Wood, 592 F.3d 412, 426 (3d Cir. 2010) (“We 5 || have never excused a District Court from requiring a bond where an injunction prevents || commercial, money-making activities.”). Accordingly, the Court will require Plaintiffs to || post their proposed $20,000 bond. IV. CONCLUSION 9 For the foregoing reasons, 10 IT IS ORDERED that is Plaintiffs’ Motion for a Preliminary Injunction (Doc. 3) is 11 || GRANTED IN PART AND DENIED IN PART as specified above. 12 IT IS FURTHER ORDERED that, for the duration of this action until further order 13 | of this Court or final judgment enters, whichever is sooner, Diaz and Johnson are enjoined 14]| from using any information specific to SDS that was the subject of the Asset Purchase 15 || Agreement or Employment Agreement. This includes any specific customer information, price lists, accounts, web pages and similar specifically identifiable property; this 17 || injunction includes that Diaz and Johnson may not resell, disclose, or otherwise use SDS 18 || trademarks, client lists, or any other proprietary data. 19 IT IS FURTHER ORDERED that Plaintiffs are required to post a bond in the amount of $20,000. Plaintiffs must give Defendants notice upon posting the bond and this || Order will go into effect 24 hours after the bond is posted. 22 IT IS FINALLY ORDERED that Defendants’ Motion to Dismiss (Doc. 51) is 23 || DENIED WITHOUT PREJUDICE. Defendants shall answer or otherwise respond to the 24 || Amended Complaint (consistent with the Local Rules) within 14 days of this Order. 25 Dated this 6th day of August, 2021.

27 /

28 James A. Teilborg Senior United States District Judge

-16-