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Cenveo Corp. v. Southern Graphic Systems, Inc.: US District Court : EMPLOYMENT - preliminary injunction granted as to trade secrets, not as to employment, business relationships

Civil No. 08-5521 (JRT/AJB)
90 South Seventh Street, Suite 3300, Minneapolis, MN 55402; and
Richard S. Busch, KING & BALLOW LAW OFFICES, 315 Union
Street, Suite 1100, Nashville, TN 37201, for plaintiffs.
Frederick E. Finch and Jonathan P. Norrie, BASSFORD REMELE, PA,
33 South Sixth Street, Suite 3800, Minneapolis, MN 55402-3707, for
On November 13, 2008, plaintiff Cenveo Corp. (Cenveo) moved for a
preliminary injunction against defendants Southern Graphic Systems, Inc. (SGS), Mike
Austin, Shawn Austin, Paul Pederson, Emily Ryan, and Susan Spears (collectively,
defendants). Plaintiffs sought to enjoin defendants from working with former and
current Cenveo clients and from using Cenveos confidential and proprietary information.
Based on oral argument and the written briefings, the Court now denies in part and grants
in part Cenveos motion for a preliminary injunction.
Cenveo provides printing, publishing, graphics arts, and direct marketing services
and operates a facility in Minneapolis that is primarily engaged in pre-press work.
(Docket No. 19 at 2.) Pre-press work involves the conversion of photographs, artwork,
and text into a medium that can be used by a commercial printer to create forms, catalogs,
advertising materials, and other graphic paper media. (Docket No. 34 at 2.) Cenveo
provides services to many clients, including Target, Best Buy, and OfficeMax. (Docket
No. 19 at 2.) Cenveo also directly competes for these clients business with defendant
SGS. (Id.)
Cenveos case is based on events that transpired from August to October 2008. As
of September 26, 2008, all individual defendants were employed with Cenveo in
Minneapolis. (Id.) The individual defendants played key roles in the management of
Cenveos relationship with Target, Best Buy, OfficeMax, and DKNY. Mike Austin was
a sales representative for Cenveo and the other individual defendants were members of
Mike Austins sales and accounting team. (Docket No. 34 at 3.) Cenveo alleges that in
August or September 2008, some or all of the individual defendants began planning to
leave Cenveo for SGS and conspired to recruit Cenveo employees and transfer Cenveo
business relationships to SGS. (Docket No. 19 at 3.) Cenveo alleges that there were four
aspects of this conspiracy.
First, Cenveo claims that the individual defendants used their positions of trust and
authority to reduce Cenveo business volume prior to their resignations. Cenveo claims
that this first step was necessary because the individual defendants determined that the
volume of business being done at Cenveo would be too large to easily transfer to SGS.
Cenveo alleges that the individual defendants planned to ramp business volume back up
once the clients transferred their business from Cenveo to SGS. (Id. at 4.) Second,
Cenveo claims that the individual defendants worked to convince Cenveos clients to
move their business from Cenveo to SGS. Third, Cenveo claims that defendants worked
together to hire away Cenveos sales and production staff to increase SGSs capability to
manage these new business relationships. (Id. at 6.) In particular, Cenveo notes that the
individual defendants arranged for an after-hours meeting between current Cenveo
employees and SGS, and that SGS set up an open house or a job-fair at their Brooklyn
Park facility as a means of hiring away Cenveo employees. Cenveo alleges that these
initial actions were done while individual defendants were still employed by Cenveo.
(Id. at 4-6.) Fourth, Cenveo claims that the final part of the conspiracy focused on the
individual defendants disclosure to SGS of Cenveos trade secrets. Cenveo identifies
two acts whereby the individual defendants took trade secrets to SGS: Spearss retention
of job history information (which included records of transactions and internal costs) and
Shawn Austins retention of a USB flash drive after their resignations from Cenveo. (Id.
at 10.)
Cenveo originally brought this action against defendants on October 14, 2008, and
filed an amended complaint on November 19, 2008, alleging a breach of a duty of loyalty
to Cenveo by the individual defendants, tortious interference with Cenveos business
relationships, tortious interference with Cenveos employees, and misappropriation of
trade secrets. Cenveo also made claims for unjust enrichment and unfair competition that
are not addressed in the parties briefs on the instant motion.
A month after filing their original complaint, Cenveo moved for a preliminary
injunction, claiming that injunctive relief is necessary to preserve the status quo between
the parties pending a final determination of the merits of their claims. (Id.) Specifically,
Cenveo seeks to
(1) enjoin the individual defendants from doing any work relating to any of
Cenveos current or former clients;
(2) enjoin SGS from doing any work for Cenveos current or former clients
which it was not doing as of September 1, 2008; and
(3) enjoin all defendants from using Cenveos confidential and proprietary
information (Docket No. 19 at 1.)
Defendants oppose the motion for preliminary injunction, arguing that Cenveo
failed to carry its burden for preliminary injunctions under Dataphase.
In determining whether a party is entitled to a preliminary injunction, the Court
considers (1) the threat of irreparable harm to the movant; (2) the state of the balance
between this harm and the injury that granting the injunction will inflict on other parties
litigant; (3) the probability that [the] movant will succeed on the merits; and (4) the
public interest. Dataphase Sys., Inc. v. CL Sys., Inc., 640 F.2d 109, 113 (8th Cir. 1981).
The Eighth Circuit has recently clarified the third prong of this test, noting that where a
preliminary injunction is sought to enjoin . . . [a] government action based on
presumptively reasoned democratic processes[,] . . . courts must make a threshold finding
that a party is likely to prevail on the merits. Planned Parenthood Minn., N.D., S.D. v.
Rounds, 530 F.3d 724, 732-33 (8th Cir. 2008). In circumstances that do not fall under this
category, such as those at issue here, courts merely assess whether the plaintiff has a fair
chance of prevailing. Id. at 732. It frequently is observed that a preliminary injunction
is an extraordinary and drastic remedy, one that should not be granted unless the movant,
by a clear showing, carries the burden of persuasion. Mazurek v. Armstrong, 520 U.S.
968, 972 (1997) (citing 11A C. Wright, A. Miller, & M. Kane, Federal Practice and
Procedure 2948, pp. 129-30 (2d. ed. 1995)).
The Courts consideration of Cenveos motion is separated into two separate
analyses: whether Cenveo is entitled to injunctive relief prohibiting the defendants from
working with current and former Cenveo clients as outlined in injunctive provisions
(1) and (2); and whether Cenveo is entitled to injunctive relief prohibiting all defendants
from using Cenveos confidential and proprietary information as requested in injunctive
provision (3).
A. The Threat of Irreparable Harm
The irreparable harm factor focuses on the harm or potential harm to the plaintiff
of defendants conduct or threatened conduct. Dataphase, 640 F.2d at 114. Failure to
show irreparable harm is an independently sufficient ground upon which to deny a
preliminary injunction. Watkins Inc. v. Lewis, 346 F.3d 841, 844 (8th Cir. 2003) (citing
Adam-Mellang v. Apartment Search, Inc., 96 F.3d 297, 299 (8th Cir. 1996)).
Cenveo claims that the purposeful arrangement by defendants to transfer Target
business to SGS and to recruit Cenveo employees to SGS inhibited Cenveos ability to
perform already contracted work for Target. (Docket No. 19 at 20.) As a result, Cenveo
claims that its business reputation and relationship with Target will be irreparably harmed
because there is no legal remedy that can mend damaged business relationships. See
Vital Images, Inc. v. Martel, No. Civ. 07-4195, 2007 WL 3095378 at *18-19 (D. Minn.
Oct. 19, 2007).
Defendants counter that monetary damages are often awarded for lost profits and
lost business opportunities. (Docket No. 34 at 11.) A dollar loss invokes the Courts
legal powers, as opposed to its equitable powers. Halikas v. Univ. of Minn., 856
F. Supp. 1331, 1334 (D. Minn. 1994) (citing Franklin v. Gwinnett Cty. Pub. Sch., 503
U.S. 60, 75-76 (1992)). Although the harm to business relationships or industry
reputation may not be quantifiable (and thus an injunction may be appropriate), the issue
is what an injunction would do to preserve the status quo.
The Court is not persuaded that injunctive relief is necessary to prevent Cenveo
from being irreparably harmed by defendants continued business relationships with
current and former Cenveo clients. The purpose of a preliminary injunction is to
preserve the status quo until the merits are determined. Dataphase, 640 F.2d 109. By
contrast, defendants alleged conduct underlying a breach of a duty of loyalty and tortious
interference with Cenveo clients and employees occurred some time ago. The status quo
refers to the existing state of affairs, and preliminary injunctive relief cannot go back in
time and recapture the status quo of an earlier time. That is, the Cenveo employees have
left for SGS and the Court cannot require the former Cenveo employees to return to their
old Cenveo jobs.
Moreover, lost profits and lost business can be readily calculated and redressed
through monetary relief. When there is an adequate remedy at law, a preliminary
injunction is not appropriate. Watkins, 346 F.3d at 844. Here, the Court has an
adequate legal remedy at its disposal: it may award monetary damages if Cenveo prevails
on their duty of loyalty and tort claims.
Cenveo failed to show that it would be irreparably harmed if the Court does not
enjoin defendants from working with current and former Cenveo clients. Generally, the
Court may cease its Dataphase analysis where there is no finding of irreparable harm.
See id. It is worth briefly mentioning, however, that balancing the harms of and
considering the public interest in limiting defendants client relationships also weighs
against issuing provisions (1) and (2) of Cenveos requested relief.
B. The Balance of Harms and the Public Interest
The balance of harms factor requires the Court to consider the balance between
the harm [to the movant] and the injury that the injunctions issuance would inflict on
other interested parties. Pottgen v. Missouri State High Sch. Activities Assn, 40 F.3d
926, 929 (8th Cir. 1994). What must be weighed is the threat to each of the parties
rights and economic interests that would result from either granting or denying the
preliminary injunction. Pro Edge, L.P. v. Gue, 374 F. Supp. 2d 711, 751 (N.D. Iowa
Defendants claim that their ability to make a living will be compromised if the
Court restricts which clients they may work with. (Docket No. 34 at 21.) This is clearly
relevant when balancing the harms of all interested parties. Further, the potential effect
on third parties indicates that the public interest would not support granting this type of
injunctive relief.
By prohibiting SGS from performing work for current and former Cenveo clients
that it was not doing as of September 1, 2008, the Court would be limiting those clients
right to work with a vendor of their choosing. It is unreasonable, given the concededly
fluid, competitive pre-press industry, for the Court to prevent third parties like Target
from selecting a vendor of their choosing. Indeed, in the pre-press industry, it appears
that loyalty to a vendor is often trumped by cost or convenience. Interference in that
business dynamic is inappropriate in this case because defendants and, importantly, thirdparty
clients, would be most harmed by the injunctive relief.
Because Cenveo has not shown that it will be irreparably harmed and because the
ultimate harm may actually fall on defendants or non-party clients, the remaining
Dataphase factors cannot tip the balance in favor of Cenveos motion. Accordingly, the
Court denies Cenveos request to enjoin defendants from working with current and
former clients as outlined in Cenveos motion. (See Docket No. 17.)
The Court concludes, however, that Cenveos motion to enjoin defendants from
disclosing or using Cenveos confidential proprietary information should be granted. The
parties contentions center on whether Cenveo has shown that they are likely to succeed
on the merits of a claim for misappropriation of trade secrets. Thus, the Court begins its
Dataphase analysis with that factor.
A. Fair Chance of Success on the Merits
When considering a plaintiffs likelihood of success on the merits under
Dataphase, and in circumstances where a preliminary injunction is sought to enjoin . . .
[a] government action based on presumptively reasoned democratic processes, courts
should determine whether the plaintiff has a mere fair chance of prevailing. Rounds,
530 F.3d at 732.
Even when there is no contractual duty, employees have a common law duty not
to use trade secrets or confidential information obtained from their employer. Eaton
Corp. v. Giere, 971 F.2d 136, 141 (8th Cir. 1992) (citing Jostens, Inc. v. Natl Computer
Sys., 318 N.W.2d 691, 701 (Minn. 1982)). To prove misappropriation of trade secrets
under Minnesota law, a plaintiff must show that (1) a trade secret existed, (2) the
defendant acquired the trade secret through a confidential relationship, and (3) the
defendant used or disclosed the trade secret. Jostens, 318 N.W.2d at 701. Information is
considered a confidential trade secret where (1) the information is not generally known or
readily ascertainable, (2) the information derives real or potential independent economic
value from its secrecy, and (3) the information has been protected by reasonable efforts to
maintain its secrecy. Minn. Stat. 325C.01 (2002).
Cenveo claims that defendants misappropriated trade secrets on two occasions.
First, Cenveo alleges that job histories for Cenveo Clients were taken by Susan Spears
upon her resignation from Cenveo. Cenveo claims that the job histories were not readily
available to anyone, that Cenveo dedicated significant resources to prepare that
information, and that Cenveo limited access to the information to only those employees
who needed to know the information. (Docket No. 19 at 18-19.)
Defendants respond that Cenveo is unlikely to succeed on this claim because they
have not specifically identified the allegedly secret information. An injunction is
inappropriate if a plaintiff fails to identify specific trade secrets and instead produc[es]
long lists of general areas of information which contain unidentified trade secrets. AMP
Inc. v. Fleischhacker, 823 F.2d 1199, 1203 (8th Cir. 1987). Defendants claim that
Cenveos description of the alleged trade secrets amounts to only general areas of
information that cannot constitute a trade secret. (Docket No. 34 at 19.) Further,
defendants claim that no actual disclosure of confidential information has occurred, as
required in Jostens. Defendants also claim that without actual disclosure, Cenveo failed
to demonstrate a high degree of probability of inevitable disclosure. See IBM Corp. v.
Seagate Tech., Inc., 941 F. Supp. 98, 101 (D. Minn. 1992). The Court disagrees with
Cenveo submitted as exhibits multiple copies of the subject job histories. The
Court reviewed the documents, and finds that there is a sufficient basis at this stage of the
litigation to find that the job histories likely constitute trade secrets under Minnesota law.
See id. It is plausible that SGS would unfairly benefit from knowledge of this internal
information because the job histories show when Cenveo completed certain jobs for its
clients and imply Cenveos profit margin. That information is particularly relevant in the
pre-press industry, as it creates opportunities for SGS to gain competitive advantages by
targeting certain clients at certain times.
Further, Cenveo has a fair chance of succeeding on its claim for misappropriation
of these trade secrets. The circumstances indicate that if Cenveos proprietary
information, which was taken by former Cenveo employee Spears, was not actually
disclosed, it is sufficiently probable that the information would inevitably be disclosed.
Although the Court makes no finding as to Spearss motives for keeping the job history
documents, discrepancies in her explanations for doing so and markings in the original
documents turned over by defendants may suggest that her motives were not altruistic.
The Court therefore finds that Cenveo has shown it has a fair chance of success on the
merits of its claim for misappropriation of job history information.
Cenveo refers to a second set of trade secrets as Cenveos proprietary and
confidential business records that were allegedly copied to a USB flash drive by Shawn
Austin. (Docket 19 at 20.) The Court agrees with defendants that Cenveo failed to
specify what trade secrets were contained on the USB flash drive that Shawn Austin
allegedly took to SGS. Cenveo merely claims that there must have been confidential
information on that flash drive, and that allegation hardly suggests that Cenveo has a fair
chance of success for a claim for misappropriation of trade secrets. Failure to satisfy the
success-on-the-merits factor, alone, may be sufficient to deny a motion for a preliminary
injunction. See Rounds, 530 F.3d at 738. Accordingly, the Court denies Cenveos
request for injunctive relief addressing information on the USB flash drive. The Courts
Dataphase analysis of defendants request for injunctive relief continues, however, based
on Cenveos claim of misappropriation of job histories.
B. The Threat of Irreparable Harm
[M]erely possessing trade secrets and holding a comparable position with a
competitor does not justify an injunction. IBM, 941 F. Supp. at 101. Although Cenveo
has not shown that Spears actually disclosed confidential job history information to SGS,
Spearss numerous explanations about how the job histories were retained, as well as the
seemingly obvious purpose behind retaining job history information, suggest that it is
very likely that some of the confidential information has been or could be disclosed to
SGS. In this case, Spears did not merely have knowledge of the job history information.
See id. Instead, Spears retained an original or a copy of the job histories after she
resigned from Cenveo. These circumstances show that there is a high degree of
probability of inevitable disclosure. Surgidev Corp. v. Eye Tech., Inc., 648 F. Supp.
661, 695 (D. Minn. 1986). As a result, issuance of a preliminary injunction is appropriate
to prevent Cenveo from being irreparably harmed by continued disclosure or use by SGS
of Cenveos confidential proprietary information.
C. The Balance of Harms and Public Interest
Cenveo expends a substantial amount of resources to compile and maintain client
job histories and those records would not otherwise be available to Cenveos competitors.
Given that defendants claim not to have misappropriated Cenveo job histories, there
would be no burden on defendants if they are enjoined from reviewing those records.
Moreover, the public interest supports the protection of confidential business records.
The Court finds that a preliminary injunction is appropriate to restrict defendants
from using Cenveos confidential proprietary information including job history
information retained by Spears. Defendants claim that the preliminary injunction should
be conditioned on a bond sufficient to protect defendants from substantial harm. See
Fed. R. Civ. P. 65(c). The individual defendants, however, claim that they have not
disclosed job history or other confidential information to SGS. The Court therefore finds
that defendants will not be harmed by an order prohibiting future disclosure and does not
require that plaintiffs post a bond.
Based on the foregoing, all the files, records, and proceedings herein, IT IS
HEREBY ORDERED that plaintiff Cenveo Corp.s motion for preliminary injunction
against defendants [Docket No. 17] is GRANTED in part and DENIED in part, as
1. All defendants are enjoined from disclosing or using Cenveos confidential
proprietary information including job histories retained by defendant Susan Spears on her
resignation from Cenveo. This injunction shall be in effect until further order of the
2. Cenveos motion for preliminary injunction is DENIED in all other
DATED: January 22, 2009 ____s/ ____
at Minneapolis, Minnesota. JOHN R. TUNHEIM
United States District Judge


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