V'Guara Inc. v. Dec

925 F. Supp. 2d 1120, 2013 WL 596111, 2013 U.S. Dist. LEXIS 21635

• Court: District Court, D. Nevada
• Decided: February 15, 2013
• Docket: Case No. 2:13-cv-00076-GMN-NJK
• Status: Published

Opinion

ORDER

GLORIA M. NAVARRO, District Judge.

Pending before the Court is the Ex Parte Motion for Temporary Restraining Order (ECF No. 8) filed by Plaintiff V’Guara Inc. (“Plaintiff’).

I. BACKGROUND

This case arises from Plaintiffs ownership of certain trade secrets related to the production and bottling of Guaraña Vodka. (See Mot. for TRO, Ex. 1 (“Wierzbowski Deck”) ¶ 8, ECF No. 8.) Specifically, Defendant Steve Dec (“Dec”), formerly employed by Plaintiff, allegedly sold these trade secrets to S & D Beverage LLC (“S & D”), without Plaintiffs authorization. (Wierzbowski Deck ¶ 17.) Thereafter, Defendant allegedly approached the bottling company with whom Plaintiff had contracted, and “demand that they cease production of VGuara’s Guaraña Vodka or could potentially be sued.” (Wierzbowski Deck ¶ 19.)

In response to Dec’s and S & D’s actions, on January 16, 2013, Plaintiff filed its complaint asserting four causes of action: (1) Misappropriation of Trade Secrets; (2) Interference with Prospective Economic Advantage; (3) Declaratory Judgment pursuant to section 30.010-160 of the Nevada Revised Statutes; and (4) Breach of Contract. (Compl. ¶¶ 28-50, ECF No. 1.) , Given that public disclosure of trade secrets destroys the protection of a trade secret, Plaintiff filed this Ex Parte Motion for Temporary Restraining Order and Preliminary Injunction. (Mot. for TRO, ECF No. 8.)

II.LEGAL STANDARD

Federal Rule of Civil Procedure 65 governs preliminary injunctions and temporary restraining orders, and requires that a motion for temporary restraining order include “specific facts in an affidavit or a verified complaint [that] clearly show that immediate and irreparable injury, loss, or damage will result to the movant before the adverse party can be heard in opposition,” as well as written certification from the movant’s attorney stating “any efforts made to give notice and the reasons why it should not be required.” Fed. R.Civ.P. 65(b). However, “[t]he urgency of obtaining a preliminary injunction necessitates a prompt determination and makes it difficult to obtain affidavits from persons who would be competent to testify at trial.” Flynt Distrib. Co., Inc. v. Harvey, 734 F.2d 1389, 1394 (9th Cir.1984) (citing 11 C. Wright and A. Miller, Federal Practice and Procedure, Civil, § 2949 at 471 (1973)). Thus, “[t]he trial court may give even inadmissible evidence some weight, when to do so serves the purpose of preventing irreparable harm before trial.” Id.

Temporary restraining orders are governed by the same standard applicable to prehminary injunctions. See Cal. Indep. Sys. Operator Corp. v. Reliant Energy Servs., Inc., 181 F.Supp.2d 1111, 1126 (E.D.Cal.2001). Specifically, a preliminary injunction may be issued if a plaintiff establishes: (1) likelihood of success on the merits; (2) likelihood of irreparable harm in the absence of preliminary relief; (3) that the balance of equities tips in his favor; and (4) that an injunction is in the public interest. Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7, 20, 129 S.Ct. 365, 172 L.Ed.2d 249 (2008). “Injunctive relief [is] an extraordinary remedy that may only be awarded upon a clear showing that the plaintiff is entitled to such relief.” Id. at 22, 129 S.Ct. 365. Above all, a temporary restraining order “should be restricted to serving [its] underlying purpose of preserving the status quo and preventing irreparable harm just so long as is necessary to hold a hearing, and no longer.” Granny Goose Foods, Inc. v. Bhd. of Teamsters & Auto Truck Drivers Local No. 70, 415 U.S. 423, 439, 94 S.Ct. 1113, 39 L.Ed.2d 435 (1974).

III. DISCUSSION

A. Likelihood of Success on the Merits

“[F]ederal courts sitting in diversity apply state substantive law and federal procedural law.” Freund v. Nycomed Amersham, 347 F.3d 752, 761 (9th Cir.2003) (quoting Gasperini v. Ctr. for Humanities, Inc., 518 U.S. 415, 427, 116 S.Ct. 2211, 135 L.Ed.2d 659 (1996)). The basis for federal subject matter in this ease is diversity of citizenship pursuant to 28 U.S.C. § 1332. As such, the Court applies Nevada substantive law to determine whether Plaintiff will likely succeed on the merits.

Trade Secret actions are governed by the Nevada Trade Secrets Act. Nev.Rev. Stat. §§ 600A.010-600A.100. Specifically, to succeed on its trade secrets claim, Plaintiff will have to establish each of three elements:

(1) a valuable trade secret; (2) misappropriation of the trade secret through use, disclosure, or nondisclosure of use of the trade secret; and (3) the requirement that the misappropriation be wrongful because it was made in breach of an express or implied contract or by a party with a duty not to disclose.

Frantz v. Johnson, 116 Nev. 455, 999 P.2d 351, 358 (2000).

For the reasons discussed below, Plaintiff has provided sufficient factual basis from which the Court can find that Plaintiff will likely succeed on its claim that Defendant Dec misappropriated its trade secret Guaraña Vodka formulation.

1. The Existence of a Valuable Trade Secret

The Nevada Trade Secrets Act (the “Act”) covers, among defines a “trade secret” as:

information, including, without limitation, a formula, pattern, compilation, program, device, method, technique, product, system, process, design, prototype, procedure, computer programming instruction or code that:

(a) Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by the public or any other persons who can obtain commercial or economic value from its disclosure or use; and

(b) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

Nev.Rev.Stat. § 600A.030(5) (emphasis added). Thus, to establish that the information in question is actually a trade secret, Plaintiff will have to show that the asserted trade secret (1) “[djerives independent economic value ... from not being generally known ...” and (2) “is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.” Id.

First, the Act expressly covers the type of information that Plaintiff is attempting to protect here. Specifically, Plaintiff seeks to protect the actual formula for its Guaraña Vodka and the process used to bottle Plaintiffs Guaraña Vodka. Thus, this information is within the categories of information contemplated by the Act’s definition of “trade secret.”

Second, Plaintiff has provided a sufficient factual basis from which the Court can conclude that Plaintiff will likely succeed in establishing that this information “[djerives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by the public or any other persons who can obtain commercial or economic value from its disclosure or use.” See Nev.Rev.Stat. § 600A.030(5)(a). The affidavit attached to Plaintiffs motion states that the formula for Plaintiffs Guaraña Vodka product “is not generally known or readily ascertainable.” (Mot. for TRO, Ex. 1 (“Wierzbowski Decl.”) ¶21, ECF No. 8.) In fact, Plaintiff has heavily invested its time and financial resources into developing the Guaraña Vodka and, ever since, has “treated [the formulation] as a trade secret.” {Id. at ¶ 8-9.) In addition, the Guaraña Vodka is Plaintiffs “exclusive product.” {Id. at ¶ 21.) As its exclusive product, the Guaraña Vodka adds significant value to Plaintiff. {Id.) Furthermore, if the formula for the Guaraña Vodka product and its bottling process became generally known to the public, the value of that product to Plaintiff would be diminished.

Finally, Plaintiff has provided a sufficient factual basis from which the Court can conclude that Plaintiff will likely succeed in establishing that this information “is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.” See Nev.Rev.Stat. § 600A.030(5)(b). The Nevada Trade Secrets Act expressly provides a presumption that the owner of a trade secret has made adequate efforts to maintain the secrecy when the owner places an indication of secrecy or confidentiality on the alleged trade secret:

The owner of a trade secret is presumed to make a reasonable effort to maintain its secrecy if the word ‘Confidential’ or ‘Private’ or another indication of secrecy is placed in a reasonably noticeable manner on any medium or container that describes or includes any portion of the trade secret. This presumption must be rebutted only by clear and convincing evidence that the owner did not take reasonable efforts to maintain the secrecy of the trade secret.

Nev.Rev.Stat. § 600A.032.

The Court first finds that Plaintiff has failed to establish this presumption as to its bottling process. The affidavit attached to Plaintiffs motion fails to provide adequate facts from which the Court can conclude that this presumption should apply to the bottling process. In fact, completely absent from this affidavit is any mention of Plaintiffs efforts to maintain the secrecy of the bottling process. Thus, the Court cannot conclude that Plaintiff has carried its burden in establishing that Plaintiff will likely succeed in proving that the Guaraña Vodka bottling process is a trade secret.

In contrast, the Court finds that Plaintiff has established that this presumption applies to the Guaraña Vodka formulation. Specifically, the affidavit attached to Plaintiffs motion expressly states that “[t]he Guaraña Vodka formulation prepared for V’Guara and was marked confidential and maintained as confidential. The company treated it as a trade secret.” (Wierzbowski Deck ¶ 9 (emphasis added).) The affidavit further states that those individuals that had access to the formula were under instructions not to disclose the formula “to anyone who did not have a need to use it.” (Id.) Even when the formula was disclosed to someone that needed it, the formula was disclosed “only under an agreement that the person receiving it would keep it confidential.” (Id.) These facts adequately establish that the presumption of reasonable efforts to maintain secrecy applies. Furthermore, Court finds no evidence, at this stage, of clear and convincing evidence that Plaintiff failed to take reasonable efforts to maintain the secrecy of the Guaraña Vodka formulation.

Plaintiff has failed to provide sufficient facts from which the Court can conclude that Plaintiff will likely establish that the bottling process is a trade secret. In contrast, the Court determines that Plaintiff will likely succeed in establishing the first element of its trade secret claim: that the Guaraña Vodka formula is a trade secret.

2. Misappropriation of the Trade Secret through Use, Disclosure, or Nondisclosure of the Use of the Trade Secret

The Nevada Trade Secret Act defines “misappropriation” to include

(c) Disclosure or use of a trade secret of another without express or implied consent by a person who: ...

(2) At the time of disclosure or use, knew or had reason to know that his or her knowledge of the trade secret was: ...

(II) Acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use....

Nev.Rev.Stat. § 600A.030(2)(c). Thus, a trade secret is misappropriated when, as here, a person discloses the secret information to another party without consent and when, as here, the disclosing party acquired the secret information under circumstances giving rise to a duty to maintain the secrecy of that information.

Here, Defendant Dec had access to the formulation for the Guaraña Vodka because of his employment with the company. (Wierzbowski Deck ¶ 11-16.) Furthermore, Defendant Dec “was never given any right or authority to use, disclose, or sell the Guaraña Vodka formula or the bottling process.” (Wierzbowski Deck ¶ 13.) Thereafter, Defendant Dec allegedly disclosed the secret information when he “sold Plaintiffs trade secret formula for Guaraña Vodka.” (Wierzbowski Deck ¶ 17.)

3. The Misappropriation was Wrongful

When misappropriation of a trade secret is based on disclosure of that trade secret, the disclosure is wrongful when that disclosure is made without the consent or permission of the trade secret owner and when the disclosing party was under a duty to maintain the secrecy of the information. Nev.Rev.Stat. § 600A.030(2)(c).

Here, Defendant Dec “did not develop the Guaraña Vodka formula nor the bottling process for its manufacture, and all work by [Defendant] Dec on behalf of [Plaintiff] remains the property of [Plaintiff].” (Wierzbowski Deck ¶ 14.) Thus, Defendant Dec is not the owner of the trade secret; Plaintiff owns the secret formula for its Guaraña Vodka. As such, Defendant Dec could not permissibly disclose the secret Guaraña Vodka formula without Plaintiffs consent. However, Defendant Dec “was never given any right or authority to use, disclose, or sell the Guaraña Vodka formula or the bottling process.” (Wierzbowski Decl. ¶ 13.) Finally, because of Defendant Dec’s employment by Plaintiff, Defendant Dec was under a duty to maintain the secrecy of the Guaraña Vodka formulation.

B. Likelihood of Irreparable Harm

Plaintiff asserts that once the Court finds that Plaintiff is likely to succeed on the merits, the Court should presume irreparable harm. True enough, many courts, in the past, have held that once a plaintiff established that it was likely to succeed on the merits, irreparable injury was generally presumed. See, e.g., Abercrombie & Fitch Co. v. Moose Creek, Inc., 486 F.3d 629, 633 (9th Cir.2007) (presuming irreparable harm in a trademark case). More recently, however, the Ninth Circuit has held that, after the Supreme Court’s decisions in eBay v. MercExchange, L.L.C., 547 U.S. 388, 126 S.Ct. 1837, 164 L.Ed.2d 641 (2006) and in Winter v. Natural Resources Defense Council, Inc., 555 U.S. 7, 129 S.Ct. 365, 172 L.Ed.2d 249 (2008), such a presumption is impermissible, at least in the context of copyright claims. Flexible Lifeline Sys., Inc. v. Precision Lift, Inc., 654 F.3d 989, 998 (9th Cir.2011). Specifically, the Ninth Circuit in Flexible Lifeline Systems, noted that the “long-standing precedent finding a plaintiff entitled to a presumption of irreparable harm on a showing of likelihood of success on the merits in a copyright infringement case ... has been effectively overruled.” In light of this holding, the Court declines to rely on such a presumption in determining whether Plaintiff will suffer irreparable harm without the requested injunctive relief.

Even without this presumption, the Court finds that Plaintiff will likely suffer irreparable harm without the requested temporary restraining order. Specifically, “[p]ublie disclosure of a trade secret destroys the information’s status as a trade secret.” Saini v. Int’l Game Tech., 434 F.Supp.2d 913, 919 (D.Nev.2006). Such destruction causes irreparable harm to the trade secret owner “by both depriving him of a property interest and by allowing his competitors to reproduce his work without an equivalent investment of time and money.” Id. (citations omitted). Such harms are unlikely to be adequately redressed by monetary damages.

Here, Plaintiff heavily invested its time and money in the development of its Guaraña Vodka formulation. Specifically, Plaintiff “invested several years and hundreds of thousands of dollars in the development, manufacturing, marketing and distribution of its Gurana [sic] Vodka.” (Wierzbowski Decl. ¶ 8.) As such, Plaintiff would likely suffer irreparable injury because disclosure of Plaintiffs secret formulation would allow its competitors to reproduce its work without investing equal amounts of time and money.

C. The Balance of Equities Tips in Plaintiffs Favor

The balancing aspect of the TRO analysis requires courts to weigh “the competing claims of injury and [ ] consider the effect on each party of the granting or withholding of the requested relief.” Amoco Prod. Co. v. Village of Gambell, AK, 480 U.S. 531, 542, 107 S.Ct. 1396, 94 L.Ed.2d 542 (1987). As discussed above, Plaintiffs will suffer considerable harm if Defendant is permitted to disclose Plaintiffs trade secrets. Specifically, Plaintiff has invested several years and substantial sums of money to develop, manufacture, market, and distribute its Guaraña Vodka. (Wierzbowski Decl. ¶ 8.) On the other hand, the issuance of this temporary restraining order will prevent Defendants from profiting from the alleged trade secrets. The facts in the affidavits attached to Plaintiffs motion indicate that Defendants actually have no right to the alleged trade secrets. For these reasons, the Court finds that the balance of equities tips in favor of Plaintiffs.

D. The Issuance of a TRO Benefits the Public’s Interest

“The public interest analysis for the issuance of [injunctive relief] requires [district courts] to consider whether there exists some critical public interest that would be injured by the grant of preliminary relief.” Alliance for the Wild Rockies v. Cottrell, 682 F.3d 1127, 1138 (9th Cir.2011) (citation omitted). In this case, the Court finds no such public interest that would be injured by the issuance of such injunctive relief.

E. Security

Rule 65(c) of the Federal Rules of Civil Procedure requires that “[t]he court may issue a ... temporary restraining order only if the movant gives security in an amount that the court considers proper to pay the costs and damages sustained by any party found to have been wrongfully restrained.” Fed.R.Civ.P. 65(c). Thus, the primary purpose of such a bond is to safeguard Defendants from costs and damages incurred as a result of a temporary restraining order improvidently issued. The Court has found examples of bonds in trade secret temporary restraining orders ranging from $100.00, Merck & Co. Inc. v. Lyon, 941 F.Supp. 1443, 1463-64 (M.D.N.C.1996), to $100,000.00, Verigy US, Inc. v. Mayder, No. 07-cv-04330-RMW-HRL, 2007 WL 2429652, at *4 (N.D.Cal.2007).

In this case, given that the Court has found a high likelihood that Plaintiff will succeed on its trade secret claim, the Court orders that Plaintiff shall post a bond of $1,000.00.

IV. CONCLUSION

IT IS HEREBY ORDERED that the Ex Parte Motion for Temporary Restraining Order (ECF No. 8) filed by Plaintiff V’Guara Inc. is GRANTED. Defendants, including without limitation, all of their respective partners, officers, member, agents, servants, employees, and all other persons acting in concert or participation with Defendants, are temporarily enjoined and restrained from using and/or selling Plaintiff’s proprietary Guaraña Vodka formulation.

IT IS FURTHER ORDERED that Plaintiff V’Guara shall post a bond of one thousand dollars ($1,000.00) in order to recompense Defendants if the Court later determines that Defendants have been wrongfully restrained.

IT IS FURTHER ORDERED that Defendants shall have until 5:00 PM on Tuesday, February 19, 2013, to file their Response Brief to Plaintiffs Motion for Preliminary Injunction (ECF No. 9). Thereafter, Plaintiff shall have until 5:00 PM on Thursday, February 21, 2013, to file its Reply Brief. The matter shall be set for hearing on Plaintiffs Motion for Preliminary Injunction on Monday, February 25, 2013, at 3:00 PM.