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SMITHFIELD PACKAGED MEATS SALES CORP., Plaintiff, v. DIETZ & WATSON, INC. and Chris Conrad, Defendants.
ORDER GRANTING PLAINTIFF'S MOTION FOR PRELIMINARY INJUNCTION
Plaintiff Smithfield Packaged Meats Sales Corp. sues Defendants Dietz & Watson, Inc. and Chris Conrad—a former Smithfield employee who now works at Dietz—for allegedly misappropriating Smithfield's trade secrets. Now before the Court is Smithfield's motion for a preliminary injunction against Dietz and Conrad. For the reasons set forth below, the Court grants Smithfield's motion.
The limited purpose of a preliminary injunction is “to preserve the relative positions of the parties until a trial on the merits can be held.” Univ. of Tex. v. Camenisch, 451 U.S. 390, 395, 101 S.Ct. 1830, 68 L.Ed.2d 175 (1981). “[H]aste ․ is often necessary if those positions are to be preserved.” Id. As a result, the Court's decision to grant or deny an injunction rests on “procedures that are less formal and evidence that is less complete than in a trial on the merits.” Id. Accordingly, the Court's findings of fact and conclusions of law in this Order are not binding at trial. See id.
A. Procedural Background
On February 13, 2020, Smithfield filed a six-count complaint against Dietz and Conrad. Compl., ECF No. 1. Smithfield sues Dietz and Conrad for violation of the federal Defend Trade Secrets Act, 18 U.S.C. § 1836 et seq. (Count I); violation of the Iowa Uniform Trade Secrets Act, Iowa Code § 550.1 et seq. (Count II); intentional interference with existing contract (Count III); and civil conspiracy (Count VI). ECF No. 1 ¶¶ 71–100, 115–18. Smithfield also sues Conrad individually for breach of fiduciary duties (Count IV) and breach of contract (Count V). Id. ¶¶ 101–14.
On February 14, 2020, Smithfield moved for a preliminary injunction against Dietz and Conrad on its claims for trade secret misappropriation. ECF No. 4. Dietz and Conrad oppose Smithfield's motion. ECF No. 25; see Defs.' Br. Supp. Resist. Pl.'s Mot. Prelim. Inj., ECF No. 25-1. On February 25, 2020, Dietz moved to dismiss for lack of personal jurisdiction. ECF No. 26. Smithfield resisted Dietz's motion. ECF No. 31. On March 2 and 3, 2020, the Court held an evidentiary hearing on Smithfield's motion for a preliminary injunction and Dietz's motion to dismiss. Mots. Hr'g Day One Mins., ECF No. 33; Mots. Hr'g Day Two Mins., ECF No. 34. Smithfield called three witnesses: Julian Ackert, an expert in computer forensics; Eric Waddell, Smithfield's Vice President of Retail Packaged Meat Sales for the Central United States; and Conrad. Mots. Hr'g Witness List, ECF No. 34-1. Dietz and Conrad called two witnesses: Christopher Yingling, Dietz's Vice President of Finance; and Nicholas Kauffman, Dietz's Sales Manager for the Midwest Division. Id. Both parties also offered, and the Court admitted, exhibits into evidence. Mots. Hr'g Ex. List, ECF No. 34-2; Defs.' Exs. B–C, E–M, Q–W, ECF Nos. 35-1 to 35-18; Pl.'s Exs. 1–2, 3A–3D, 4–13, 14A–14I, 15–22, 24–26, ECF Nos. 36, 36-1 to 36-15, 36-17 to 36-19, 37-1 to 37-16.
On March 17, 2020, the Court denied Dietz's motion to dismiss for lack of personal jurisdiction. Order Den. Def. Dietz's Mot. Dismiss, ECF No. 41. The Court now addresses Smithfield's motion for a preliminary injunction.
B. Factual Background
1. Smithfield and Dietz
Smithfield sells packaged deli products to grocery stores.1 These sales occur in a few different ways. First, Smithfield sells its deli products directly to grocery stores. Direct sales arrangements are often part of “programs” between Smithfield and retail stores. Under these programs, Smithfield provides certain incentives for individual stores to sell its products on an exclusive basis. The programs are governed by program agreements that cover items like monetary compensation, advertising, marketing, merchandizing, sales volume, and sales incentives. See Pl.'s Exs. 14C–14G, 20–22, ECF Nos. 37-7 to 37-11, 37-14 to 37-16 (retail customer program agreements filed under seal). Waddell testified Smithfield enters into these program agreements to grow its business and increase its overall sales. The program agreements generally last between one and three years. Most of the agreements do not contain a confidentiality provision. See id. Nevertheless, Waddell testified he considers the terms of program agreements to be confidential.
Second, Smithfield sells its deli products through wholesalers and distributors. The wholesalers and distributors buy products from Smithfield and then sell them to grocery stores, acting as an intermediary between Smithfield and the retailers. One of these wholesalers is Associated Wholesale Grocers (“AWG”). AWG is a cooperative organization owned by its member retailers. As it does with retailers, Smithfield often enters into program agreements with wholesalers. These agreements provide the wholesalers monetary incentives to hit certain sales goals. The incentives include rebates, i.e., monetary rewards for meeting performance goals, and accruals, i.e., extra money that can be spent to increase sales.
Finally, Smithfield sells its deli products through brokers. Smithfield's brokers represent multiple sellers—including Smithfield's competitors—and sell Smithfield's products to retail stores where Smithfield lacks a direct sales force. These arrangements are also governed by agreements. Waddell testified Smithfield's agreements with brokers contain confidentiality provisions. But Conrad testified he never saw a confidentiality provision in one of Smithfield's broker agreements. Nevertheless, Conrad testified there is a “gentlemen's agreement” to keep the terms of the broker agreements confidential. Mots. Hr'g Tr. 259:18–20.2 Conrad testified the brokers who represent both Dietz and Smithfield have not provided him with information about competitors in the past.
Dietz, like Smithfield, sells deli meats and cheeses. Dietz is a family-owned business. Yingling testified Dietz distinguishes itself from other companies by selling “super premium” products and by offering special services and solutions to its customers, including merchandising, in-house brand ambassadors and merchandising teams, and dedicated account managers. Mots. Hr'g Tr. 289:4–20. Yingling testified Dietz also has an analyst team that collects market intelligence and uses this data to identify ways Dietz and its retail customers can increase deli sales. Yingling testified he does not consider Smithfield a direct competitor of Dietz because Smithfield does not sell super premium deli products. He explained Dietz offers a different range of products, different services, and is consistently higher priced than Smithfield. Kauffman similarly testified Dietz does not compete with Smithfield on pricing because Dietz's products are appreciably higher priced. By contrast, Waddell testified Dietz is a “direct competitor” of Smithfield. Mots. Hr'g Tr. 100:25–101:2.
Dietz has its largest market share on the East and West Coasts. Compared to other companies selling deli products—including Smithfield—Dietz's Midwest sales are low. See Defs.' Ex. Q at 8, ECF No. 35-12 (comparing Dietz's market share in the Plains region to other deli sales companies, including Smithfield). In recent years, Dietz has taken steps to increase its market share in the Midwest. One of these steps was to become an official vendor selling deli products through AWG. Another was to create a Midwest sales team. As discussed below, Dietz hired Conrad as part of its effort to build a Midwest sales team and increase its Midwest sales.
2. Conrad's employment at Smithfield and transition to Dietz
Conrad worked at Smithfield from July 2007 to October 2019.3 At all relevant times, Conrad was Smithfield's Deli Sales Director for the Central and Southern Regions of the United States. Conrad worked from his home in Atlantic, Iowa. He frequently traveled for work throughout the central and southern regions of the United States. Conrad negotiated, wrote, and supervised the performance of many of Smithfield's programs with customers based in the Midwest United States. He was responsible for managing client relationships, and for training Smithfield's retail customers on deli industry knowledge. Waddell—Conrad's direct supervisor—testified Conrad's number one responsibility was to increase sales in his region.
Smithfield did not require Conrad to sign either a noncompetition agreement, to prevent him from joining a competitor after leaving Smithfield, or a non-solicitation agreement, to prevent him from soliciting any of Smithfield's customers after leaving Smithfield. Conrad did sign or acknowledge agreements prohibiting him from 1) using or disclosing Smithfield's trade secrets or proprietary and confidential information outside of his position at Smithfield, and 2) retaining any “records and papers” containing Smithfield's trade secrets or proprietary and confidential information after leaving Smithfield. Pl.'s Ex. 7 ¶ 2, ECF No. 36-6; Pl.'s Ex. 8, ECF No. 36-7; Pl.'s Ex. 10 at 3, ECF No. 36-9; see also Pl.'s Ex. 9, ECF No. 36-8. Kauffman, who recruited and hired Conrad for Dietz, testified he asked Conrad whether he had a noncompetition or non-solicitation agreement with Smithfield; Conrad said he did not. Kauffman testified Conrad did not mention the confidentiality agreements.
In the fall of 2019, Conrad began exploring employment opportunities at other companies. On September 13, 2019, Conrad attended AWG's Nebraska 2019 Holiday Food Show. At this event, Conrad told a Dietz representative he was interested in working at Dietz. A few days later, representatives from Smithfield and Dietz attended AWG's business review in Kansas City, Missouri. At this event, AWG's president recommended hiring Conrad to Dietz's Vice President of Sales and Marketing. Conrad interviewed with Dietz in Pennsylvania and received an offer of employment from Dietz around October 16, 2019. Conrad accepted the offer on October 21, 2019. Conrad testified he explored opportunities at other companies, but he settled on Dietz because it was tightly knit, family-owned company.
On October 25, 2019, Conrad submitted his resignation to Smithfield. Smithfield accepted Conrad's resignation the same day and informed him that October 25, 2019, was his last day of work. Conrad had an exit interview with Smithfield's Human Resources Manager. After the exit interview, Smithfield's Human Resources Manager emailed Conrad about what company property to return to Smithfield. Pl.'s Ex. 18, ECF No. 36-14. One of the items listed in the email was “IT equipment.” Id. at 2. On November 1, 2019, Conrad traveled to Smithfield's Kansas City office and returned his Smithfield-issued laptop, cell phone, credit card, car, and other company property.
Conrad began working for Dietz on November 4, 2019. He currently serves as its Regional Manager for the Midwest Division. Conrad continues to work remotely from his home in Iowa. He still travels frequently for work. Conrad's salary at Dietz is lower than his previous salary at Smithfield. In addition to his yearly salary, Conrad is eligible for a fixed-rate bonus each year, provided he meets certain performance goals. Conrad does not earn commission on any of his sales at Dietz. Growing sales and bringing in new customers is part of Conrad's job at Dietz. Conrad continues to work with AWG in his new role at Dietz.
Conrad has worked in sales for his entire 31-year career. Prior to joining Smithfield, Conrad sold bakery products. Conrad testified relationships and trust have been important to his success in sales, and his relationships within the industry have led many retailers, wholesalers, and brokers to buy products from him. When asked why he left Smithfield, Conrad testified, “I didn't feel that I had a very clear definition of what my future was with the company and felt very uncomfortable that I would not be part of the equation farther down the road.” Mots. Hr'g Tr. 249:9–12. Conrad specifically identified AWG's September 17, 2019, business review as the day he decided to look for other opportunities. He testified that during Smithfield's presentation there, Waddell told an AWG representative that Conrad was no longer going to be AWG's contact at Smithfield.
3. Alleged misappropriation of trade secrets
Smithfield's lawsuit is based on several actions Conrad took around the time of his resignation. On September 16, 2019, Conrad downloaded two presentations from his Smithfield laptop to a Lexar-brand USB-drive he had purchased weeks earlier (“the USB Drive”). The files were titled: “New Kretschmar Bulk Deli Presliced Specs 9-16-2019.PPTX” and “AWG 2020 Clip Presentation.PPTX.” See Pl.'s Exs. 5–6, ECF Nos. 37-1 to 37-2. On October 22, 2019—the day after he accepted Dietz's employment offer and three days before he resigned from Smithfield—Conrad saved a document titled “DC'd item volume.SLSX” to the USB Drive. This document listed Smithfield's discontinued and soon-to-be-discontinued products. See Pl.'s Ex. 4, ECF No. 37. The same day, Conrad transferred a .PST file containing emails from his Smithfield laptop to the USB Drive. Ackert, who performed a forensic analysis on Conrad's Smithfield laptop, testified he could not determine how many emails were contained in the .PST file without viewing the contents of the USB Drive. But based on the file size, he testified it “certainly” could have been thousands. Mots. Hr'g Tr. 74:3–5. Also on October 22, 2019, Conrad transferred the entire documents folder on his Smithfield laptop to the USB Drive. Id. at 251:6–12, 263:23–264:3.
On the morning of October 25, 2019—less than an hour before he resigned—Conrad transferred a document titled, “Copy of 2020 ALL BRANDS price list Effective 12.29.19” to the USB drive. See Pl.'s Ex. 12, ECF No. 37-3. On October 29, 2019, Conrad accessed his iCloud account from his Smithfield laptop. Finally, Conrad retained approximately 1,300 pages of hard copy documents related to Smithfield's business in his home office after resigning from Smithfield. Among these documents were Smithfield's 2019 “customer event trackers,” which contain the terms of Smithfield's program agreements with many different AWG divisions, and copies of the program agreements between Smithfield and certain retailers. See Pl.'s Exs. 14A–G, 20–22, ECF Nos. 37-5 to 37-11, 37-14 to 37-16.
Conrad denies transferring the .PST file of emails to the USB Drive. He testified he never backed up any of the emails on his Smithfield laptop. But he does not deny taking the other actions described above. He testified he transferred the presentations to the USB Drive on September 16, 2019, so he could access them during Smithfield's presentation at the AWG business review. He testified he transferred the list of discontinued items to the USB Drive on October 22, 2019, because AWG had requested the list by the close of business that day, and it was an important document. He further explained Smithfield had not discontinued items in a long time; AWG has a history of denying that they received things from Smithfield; and he has experienced computer crashes in the past.
As for why he transferred his entire documents folder to the USB Drive on October 22, 2019, Conrad testified he is not computer savvy, and saving his documents folder seemed to him the simplest way to back up the personal information he kept on his Smithfield laptop. Conrad explained his Smithfield laptop doubled as his personal computer, and he had important personal documents stored on it, such as his banking information, credit card statements, and new house plans. Conrad testified he saved the 2020 All Brands Price List to the USB Drive on October 25, 2019, because it reflected Smithfield's first price increase in a long time, making it an important document. He further explained that he was conducting business for Smithfield until he resigned, and when he transferred the list, he still planned to work for two more weeks. Conrad testified he accessed his iCloud account on October 29, 2019, to save the photos, contacts, and notes from his phone. He testified he did not upload any Smithfield information, but he did upload his business contacts. He further testified he has not accessed any of this information since uploading it to his iCloud account.
Conrad testified he retained the USB Drive in his home office in Iowa until he provided it to Defendants' counsel in February 2020. At the time of the hearing, Defendants' counsel still possessed the USB Drive, and its contents had not been shared with Smithfield's counsel. At the close of the hearing, the Court ordered Defendants' counsel to produce a forensic image of the USB Drive to Smithfield's counsel. Order Re: Expedited Electronic Discovery, ECF No. 38. Although Smithfield's counsel did not have access to the USB Drive prior to the hearing, Smithfield's counsel learned of some of the file transfers described above through Ackert's forensic analysis of Conrad's Smithfield laptop. Ackert was able to detect some transfers because Conrad opened the transferred files on his laptop after transferring them to the USB Drive. Ackert would have been unable to detect the file transfers if Conrad had not accessed the transferred files on his Smithfield laptop. Accordingly, Ackert testified Conrad may have made additional transfers to the USB Drive that his analysis did not detect. Indeed, Conrad testified he transferred his entire documents folder onto the USB Drive, but Ackert's analysis did not detect this transfer. Conrad testified he did not return the USB Drive to Smithfield's Kansas City office on November 1, 2019, because Smithfield did not specifically request it. At the hearing, Smithfield's counsel asked whether Conrad considered the USB Drive “IT equipment,” which Smithfield's Human Resources Manager instructed him to return. Conrad testified he did not.
Ackert testified he did not see a history of routine mobile-device or email back-ups on Conrad's Smithfield laptop. But on cross-examination, Ackert testified Conrad had used other USB drives in the past on his Smithfield computer. Conrad testified he had used one or two USB drives in the past.
Conrad testified the 1,300 pages of hard copy documents sat untouched in his home storage space from the time he resigned until Defendants' counsel requested them. He testified he kept these documents because Smithfield did not request their return, and because he is a “pack rat.” Mots. Hr'g Tr. 218:11. He testified he mailed these documents to Defendants' counsel the day they requested them. Defendants' counsel provided the hard copy documents to Smithfield's counsel in January 2020.
Conrad was asked multiple times at the hearing whether he had ever used the USB Drive on his Dietz computer. He initially testified he had not. But he later testified he had used the USB Drive on his Dietz laptop “from time to time” to access personal documents that were stored on it, such as bank records and house plans. Mots. Hr'g Tr. 202:18–20. He denied ever accessing any of the Smithfield information stored on the USB Drive. He later testified he used the USB Drive on his Dietz computer to access store lists and contact information for retailers that were doing business with Dietz.
Conrad testified he has not used any Smithfield information in his new employment at Dietz, but he also testified: “I guess you can't take the knowledge out of my head for doing the same thing for the last 12 years.” Id. at 219:3–4. Yingling and Kauffman testified they were not aware of the USB Drive until the hearing. They further testified they hired Conrad to help grow Dietz's Midwest business and not for access to Smithfield's confidential information. They also testified Conrad has not shared any Smithfield information with them.
Waddell testified that, within weeks of Conrad's move to Dietz, he learned Dietz was soliciting Smithfield's customers. For example, Waddell testified Dietz made a program offer to Customer A,4 Smithfield's largest retail customer, which forced Smithfield to renegotiate its contract with Customer A on terms less favorable to Smithfield. Waddell testified Dietz also solicited Customer B, and Customer B broke its contract with Smithfield to enter a program with Dietz. Additionally, Waddell testified Dietz solicited Customer C, which forced Smithfield to renegotiate its existing contract with Customer C on terms less favorable to Smithfield. At the same time, Waddell acknowledged on cross-examination that Dietz was soliciting these customers before Conrad joined Dietz. And Kauffman testified Conrad had no input on the program proposals for these customers.
At the time of the hearing, Waddell estimated Conrad had already solicited fifteen to twenty Smithfield customers on behalf of Dietz, and he expected this trend to continue. He testified the details of Smithfield's programs with all of these customers are reflected in the 2019 customer event trackers documents Conrad retained in hard copy after leaving Smithfield. See Pl.'s Exs. 14A–14B, ECF Nos. 37-5 to 37-6. Conrad confirmed that he has solicited multiple Smithfield customers while working for Dietz and that the program details for some of the customers are on the 2019 customer event trackers. But he denied using any Smithfield information to solicit these customers.
Additional facts are set forth below as necessary.
III. LEGAL STANDARD
Smithfield seeks an injunction under Federal Rule of Civil Procedure 65(a). See ECF No. 4 at 1. “The party seeking a preliminary injunction bears the burden of establishing the necessity of this equitable remedy.” Gen. Motors Corp. v. Harry Brown's, LLC, 563 F.3d 312, 316 (8th Cir. 2009). To decide if a movant satisfies this burden, a court considers the four Dataphase factors: “(1) the threat of irreparable harm to the moving party; (2) the weight of this harm as compared to any injury an injunction would inflict on other interested parties; (3) the probability that the moving party will succeed on the merits; and (4) the public interest.” Id. (citing Dataphase Sys., Inc. v. C L Sys., Inc., 640 F.2d 109, 113 (8th Cir. 1981)). The Dataphase factors are not applied as a “rigid formula.” Bandag, Inc. v. Jack's Tire & Oil, Inc., 190 F.3d 924, 926 (8th Cir. 1999). “No single factor in itself is dispositive; in each case all the factors must be considered to determine whether on balance they weigh towards granting the injunction.” Calvin Klein Cosmetics Corp. v. Lenox Labs., Inc., 815 F.2d 500, 503 (8th Cir. 1987).
“A preliminary injunction is an extraordinary remedy never awarded as of right.” Winter v. Nat. Res. Def. Council, Inc., 555 U.S. 7, 24, 129 S.Ct. 365, 172 L.Ed.2d 249 (2008). “[T]he burden on the movant is heavy, in particular where ․ ‘granting the preliminary injunction will give [the movant] substantially the relief it would obtain after a trial on the merits.’ ” United Indus. Corp. v. Clorox Co., 140 F.3d 1175, 1179 (8th Cir. 1998) (second alteration in original) (quoting Sanborn Mfg. Co., Inc. v. Campbell Hausfeld/Scott Fetzer Co., 997 F.2d 484, 486 (8th Cir. 1993)). Ultimately, a court “has broad discretion when ruling on requests for preliminary injunctions.” Id.
Smithfield seeks a preliminary injunction on its state and federal claims for trade secret misappropriation. ECF No. 4 ¶ 33. After considering the Dataphase factors, the Court concludes Smithfield is entitled to a preliminary injunction on its claim for trade secret misappropriation under the Iowa Uniform Trade Secrets Act (IUTSA). Because Smithfield seeks the same relief under its federal Defend Trade Secrets Act claim, the Court need not analyze Smithfield's arguments as to that claim. See Musco Corp. v. Flores, No. 4:15-cv-00374-SMR-HCA, 2015 WL 13064935, at *4 (S.D. Iowa Oct. 29, 2015) (“Because the Court concludes that the claim based on Iowa's trade secrets law provides the Court a sufficient basis for issuing the restraining order [the plaintiff] seeks, the Court does not address [the plaintiff's] arguments based on the breach of the non-compete agreement.”).
A. Likelihood of Success on the Merits
Although “ ‘no single factor is determinative,’ ” likelihood of success on the merits is “the most significant.” Home Instead, Inc. v. Florance, 721 F.3d 494, 497 (8th Cir. 2013) (quoting Dataphase, 640 F.2d at 113). Therefore, the Court analyzes this factor first. To determine the likelihood of success on the merits, a court assesses whether the plaintiff has a “fair chance” of prevailing. Planned Parenthood v. Rounds, 530 F.3d 724, 732–33 (8th Cir. 2008) (en banc). In doing so, “a court should flexibly weigh the case's particular circumstances to determine whether the balance of equities so favors the movant that justice requires the court to intervene to preserve the status quo.” United Indus., 140 F.3d at 1179 (quoting Calvin Klein Cosmetics, 815 F.2d at 503).
The IUTSA provides that “[t]he owner of a trade secret may petition the district court to enjoin an actual or threatened misappropriation” of the trade secret. Iowa Code § 550.3(1). To obtain an injunction, Smithfield must prove both 1) the existence of a trade secret, and 2) misappropriation of the trade secret. Clearly Compliant, L.L.C. v. Bornbach, No. 16-1418, 909 N.W.2d 442, 2017 WL 5178994, at *3–4 (Iowa Ct. App. Nov. 8, 2017).5 As set forth below, Smithfield has demonstrated that some of the information Conrad retained after leaving Smithfield qualifies as trade secrets. Smithfield has further demonstrated that Conrad—acting as a Dietz employee—threatens to misappropriate those trade secrets. Therefore, the Court grants Smithfield a preliminary injunction on the terms set forth below.
1. Existence of trade secrets
The IUTSA defines “Trade secret” as:
information, including but not limited to a formula, pattern, compilation, program, device, method, technique, or process that is both of the following:
a. Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by a person able to obtain economic value from its disclosure or use.
b. Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
Iowa Code § 550.2(4). Whether information constitutes a trade secret is a mixed question of law and fact. Econ. Roofing & Insulating Co. v. Zumaris, 538 N.W.2d 641, 648–49 (Iowa 1995). First, the court must make a legal determination that the alleged trade secrets qualify as “information, including but not limited to a formula, pattern, compilation, program, device, method, technique, or process.” Id. at 648. If so, subsections (a) and (b) require the additional factual determinations that the information has “independent economic value” and that it is the subject of “efforts that are reasonable under the circumstances to maintain its secrecy.” Id. at 648–49.
In Smithfield's brief supporting its motion for a preliminary injunction, it identifies various categories of information—including pricing; discontinued products; sales numbers, volumes, and margins; and customer contracts—as trade secrets. See ECF No. 4-1 at 2. But at the close of the hearing, Smithfield significantly narrowed the categories of information it seeks to protect as trade secrets. At this stage, Smithfield only seeks to protect: the accrual amounts listed on the 2020 All Brands Price List; the various program terms reflected in the 2019 customer event trackers; and the handful of program agreements that Conrad retained in hard copy. See Pl.'s Exs. 12, 14A–14G, 20–22, ECF Nos. 37-3, 37-5 to 37-11, 37-14 to 37-16. In other words, Smithfield only seeks to protect one category of information: the terms of its program agreements with retail and wholesale customers. These terms include accruals, rebates, growth payouts, and certain other incentives. See id. At the hearing, Smithfield specifically highlighted the amount of program information contained on the 2019 customer event trackers, which it says contain “the entire universe of contract terms [for Smithfield's] programs with each of its AWG customers.”6 Mots. Hr'g Tr. 345:19–23.
As an initial matter, Dietz and Conrad do not dispute that Smithfield's program terms satisfy the legal component of the trade secret definition. And the Court concludes the program terms—which reflect the unique compensation and incentive structure that Smithfield uses with its customers—fall within Iowa's “broad interpretation of ‘information’ that could legally constitute trade secrets.” Econ. Roofing, 538 N.W.2d at 646 (quoting Iowa Code § 550.2(4)); see US W. Commc'ns, Inc. v. Office of Consumer Advocate, 498 N.W.2d 711, 714 (Iowa 1993) (“[A] broad range of business data and facts which, if kept secret, provide the holder with an economic advantage over competitors or others, qualify as trade secrets.”).
On the other hand, Dietz and Conrad do dispute that Smithfield's program terms satisfy the factual components of the trade secret definition—independent economic value and reasonable efforts to maintain secrecy. The Court concludes Smithfield has presented enough evidence at this stage to satisfy both factual prongs of the IUTSA's trade secret definition.
a. Independent economic value
“The value of the information for which protection is sought must be substantial.” Cemen Tech, Inc. v. Three D Indus., L.L.C., 753 N.W.2d 1, 7 (Iowa 2008). The Iowa Supreme Court follows the Restatement (Third) of Unfair Competition, which elaborates on the economic value requirement:
A trade secret must be of sufficient value in the operation of a business or other enterprise to provide an actual or potential economic advantage over others who do not possess the information. The advantage, however, need not be great. It is sufficient if the secret provides an advantage that is more than trivial. Although a trade secret can consist of a patentable invention, there is no requirement that the trade secret meet the standard of inventiveness applicable under federal patent law.
Id. (quoting Restatement (Third) of Unfair Competition § 39 cmt. e (Am. L. Inst. 1995)). “[I]ndependent economic value” refers to “the value of the information to either the owner or a competitor,” and includes “any information which protects the owner's competitive edge or advantage.” US W. Commc'ns, Inc., 498 N.W.2d at 714. “Thus, information kept secret that would be useful to a competitor and require cost, time and effort to duplicate is of economic value.” Id.
The parties presented conflicting evidence on the value of Smithfield's program terms. Waddell testified Smithfield's program terms have value because a competitor could use them to craft slightly better program proposals to win over Smithfield's customers. He testified the customer event trackers are especially valuable because they summarize all of Smithfield's program terms with different AWG divisions. By contrast, Conrad, Yingling, and Kauffman testified Smithfield's program terms have no value to Dietz because Dietz's program proposals are based on Dietz's unique program offerings and the individualized circumstances of each customer arrangement. Kauffman further testified Dietz can learn its competitors' program terms simply by asking potential customers for them. He testified he could not recall negotiating with a retailer that refused to share its current program terms with Dietz.
The Court credits the testimony of Waddell and finds Smithfield's program terms have “independent economic value.” Iowa Code § 550.2(4)(a). Kauffman himself explained the value of this information. When asked why customers share their current program details with Dietz, Kauffman testified, “if they can tell us what they're getting from the competition, their hope is that we could come with a better offer to them.” Mots. Hr'g Tr. 323:3–7. This explanation perfectly tracks Waddell's explanation of the value behind knowing a competitor's program details: A company that knows its competitor's program terms can use them to generate a better offer for the customer. Dietz's counsel conceded at the hearing that Smithfield's program terms have “some value,” but argued their value is not “substantial.” Id. 365:4–6, 366:3–13. The Court concludes information that helps a company attract paying customers away from its competitors has “substantial” value because, at the very least, it provides “an advantage that is more than trivial.” Cemen Tech, 753 N.W.2d at 7 (quoting Restatement (Third) of Unfair Competition § 39 cmt. e).
The Court further finds Smithfield's program terms derive their value “from not being generally known to, and not being readily ascertainable by proper means by a person able to obtain economic value from its disclosure or use.” Iowa Code § 550.2(4)(a). The evidence did not show the terms of Smithfield's program agreements are “generally known” in the deli industry. Id. Instead, Kauffman testified Dietz can discover its competitors' program details during negotiations with potential customers. Importantly, Kauffman did not testify Dietz normally obtains copies of potential customers' program agreements. In fact, he could only recall one instance when a customer provided him a copy of its current program agreement. If Dietz can only learn Smithfield's program terms by entering negotiations with Smithfield's customers in the hopes that these customers will orally disclose their program terms, then the terms are not “readily accessible” to Dietz. Id. Rather, they “require cost, time and effort to duplicate.” US W. Commc'ns, Inc., 498 N.W.2d at 714. This is especially true for the information contained in the 2019 customer event trackers and the 2020 All Brands Price List. Even if Dietz can learn some of Smithfield's program terms by requesting them from Smithfield's customers on an individual basis, Dietz does not have access to master lists of these program terms—which is exactly what the customer event trackers and price list provide. Cf. Interbake Foods, L.L.C. v. Tomasiello, 461 F. Supp. 2d 943, 966 (N.D. Iowa 2006) (“Although almost all the individual segments of [the plaintiff's] production system presumably are generally known to the baking industry ․ the entirety of [the plaintiff's] manufacturing process ․ is sufficiently unique to constitute a trade secret under Iowa law.”).
b. Reasonable efforts to maintain secrecy
Beyond having independent economic value, the information must also be “the subject of efforts that are reasonable under the circumstances to maintain its secrecy.” Iowa Code § 550.2(4)(b). “The key to this second element of the trade secret test is found in the words ‘reasonable under the circumstances.’ ” 205 Corp. v. Brandow, 517 N.W.2d 548, 551 (Iowa 1994) (quoting Iowa Code § 550.2(4)(b)). The inquiry is “fact-intensive.” SHI R2 Sols., Inc. v. Pella Corp., No. 13-0259, 2015 WL 1546346, at *6 (Iowa Ct. App. Apr. 8, 2015). Relevant precautions to maintain secrecy include “physical security designed to prevent unauthorized access, procedures intended to limit disclosure based upon the ‘need to know,’ and measures that emphasize to recipients the confidential nature of the information such as nondisclosure agreements, signs, and restrictive legends.” Restatement (Third) of Unfair Competition § 39 cmt. g.
Nondisclosure or confidentiality agreements are particularly relevant to whether a plaintiff has taken reasonable efforts to preserve the secrecy of its information. The Iowa Supreme Court has held confidentiality agreements barring former employees from using or disclosing trade secrets “may constitute reasonable steps to insure secrecy of information.” Cemen Tech, 753 N.W.2d at 9. In Cemen Tech, a cement mixer manufacturer sued a competitor and several former employees, alleging the former employees used their knowledge of its cement mixer to develop a similar cement mixer for the competitor. Id. at 4. The Iowa Supreme Court found a jury question existed as to whether the manufacturer took reasonable steps to maintain the secrecy of its information. Id. at 9. The court based its finding in large part on a prohibition in the employee handbook against the improper use or disclosure of “trade secrets or confidential business information,” which the handbook defined broadly to encompass information about the cement mixer. Id. The court acknowledged the employees had not signed noncompetition agreements, but it reasoned “the absence of a noncompete agreement is not determinative of the existence of a trade secret.” Id.
By the same token, courts have held a company that discloses its alleged trade secrets to customers without requiring them to sign confidentiality agreements may fail the reasonable efforts requirement. In Titan International, Inc. v. Bridgestone Firestone North American Tire, LLC, for example, a judge in this District held a company's pricing strategies and pricing were not trade secrets because 1) the company disclosed its pricing strategies to customers without requiring them to sign confidentiality agreements, and 2) “customer pricing information ultimately belongs to the customer and can be divulged by the customer to anyone if the customer is willing to provide that information.” 752 F. Supp. 2d 1032, 1040 (S.D. Iowa 2010).
Another factor that may bear on the secrecy of information is a defendant's method of acquiring the alleged trade secrets. In Cemen Tech, the Iowa Supreme Court quoted a passage from the Restatement (Third) of Unfair Competition explaining why a defendant's improper means of acquiring information may support a finding that the information is confidential:
In some circumstances the actor's decision to employ improper means of acquisition is itself evidence that the information is not readily ascertainable through proper means and is thus protectable as a trade secret. Because of the public interest in deterring the acquisition of information by improper means, doubts regarding the status of information as a trade secret are likely to be resolved in favor of protection when the means of acquisition are clearly improper.
753 N.W.2d at 10 (quoting Restatement (Third) of Unfair Competition § 43 cmt. d). Applying this guidance, the Cemen Tech court found the former employees' means of acquiring the alleged trade secrets “could reasonably be considered improper” because a jury could find the employees violated their confidentiality agreements by using the manufacturer's information for the competitor's benefit. Id. at 10–11. Moreover, there was evidence that some of the employees had copied the manufacturer's files onto a CD that they never returned. Id. The court concluded the employees' actions supported the manufacturer's claim “that the information was intended to be confidential.” Id. at 10.
Here, Smithfield took several steps to preserve the secrecy of its program terms. Waddell testified Smithfield restricts access to its electronic information by requiring computer login credentials and by storing its confidential information on shared drives that employees cannot access without company permission. Waddell also testified that only employees who are working on the program have access to a customer's program terms. As for physical security, Waddell testified Smithfield requires codes, badges, or fobs to access its physical offices and plants, and requires visitors to sign agreements preventing them from removing information from offices and plants. Smithfield does not prohibit or disable the use of USB drives on employee laptops; does not encrypt the contents of USB drives; does not require two-factor authentication on company computers; and does not have remote data wiping software that would allow it to erase files remotely. Ackert testified some companies employ these additional security measures, though they are not common in his experience.
Perhaps most importantly, Smithfield requires its employees to sign or acknowledge confidentiality agreements. At the hearing, Smithfield offered, and the Court admitted, several of these agreements as evidence. First, Smithfield introduced a copy of its “Employee's Patent and Trade Secret Agreement,” which Conrad signed in 2007. Pl.'s Ex. 7, ECF No. 36-6. This agreement requires employees to “use the utmost diligence to guard and protect” Smithfield's “trade secrets, proprietary and confidential information.” Id. ¶ 2. It provides that employees “will not, during or after the period of employment with [Smithfield], use, except for the benefit of [Smithfield], or divulge to others, any of [Smithfield's] trade secrets, proprietary or confidential information.” Id. The agreement further provides that, upon termination, employees “will not take, but will leave with [Smithfield], all records and papers and all matter of whatever nature which bears [Smithfield's] trade secrets, proprietary or confidential information.” Id. The terms “trade secrets,” “proprietary information,” and “confidential information” are defined broadly to include “processes, methods, techniques, systems, formulas, patterns, models, devices, compilations, computer software programs, lists of customers, business arrangements or any other information of whatever nature which gives to [Smithfield] an opportunity to obtain an advantage over its competitors who do not know or use it.” Id.
Second, Smithfield introduced a “Business Ethics Acknowledgement,” also signed by Conrad in 2007, which requires employees to treat certain information “as confidential and thus share only with appropriate personnel internally and then only on a strictly need-to-know basis.” Pl.'s Ex. 8, ECF No. 36-7. The listed information includes “Proprietary Information,” “Sales Information,” “Company Records,” and “Electronic Data.” Id.
In addition to these two agreements, Smithfield introduced its “Code of Business Conduct and Ethics.” Pl.'s Ex. 10, ECF No. 36-9. This document—which Conrad acknowledged periodically as a Smithfield employee—echoes key provisions of the Employee's Patent and Trade Secret Agreement. It requires employees to hold Smithfield's “trade secrets and other confidential information ․ in strict confidence and not disclose or use them outside of Smithfield without the protections of a confidentiality agreement.” Id. at 3. Upon termination, it requires employees to “return immediately to Smithfield all intellectual property, confidential information, trade secrets and other Smithfield property in [their] possession.” Id. Additionally, terminated employees are required to “continue to hold in strict confidence Smithfield's trade secrets and other confidential information,” and to “not use it for any purpose, including in any future business venture, new employment, or other commercial or non-commercial purpose.” Id.
Finally, Smithfield introduced a “Technology Policy,” signed by Conrad on an unknown date. Pl.'s Ex. 9, ECF No. 36-8. This policy states in part: “The Company's policy against disclosure of Company trade secrets and confidentiality or proprietary information applies to use of the Technology. Sensitive or confidential information should not be communicated externally using the Technology unless security safeguards are in place.” Id. Thus, Smithfield took several steps to maintain the secrecy of its program terms.
There are other steps Smithfield did not take. Smithfield did not require Conrad to sign a noncompetition or non-solicitation agreement. Therefore, Waddell testified Conrad was not prohibited from working for a competitor, or from soliciting Smithfield's customers after leaving Smithfield. Instead, he testified Conrad was only prohibited from using or disclosing Smithfield's trade secrets.
Although Waddell testified Smithfield requires brokers to execute confidentiality agreements, the evidence shows Smithfield does not routinely require its wholesale or retail customers to sign confidentiality agreements. For example, Waddell testified Smithfield does not require AWG to sign confidentiality agreements. And of the eight retail program agreements that Smithfield introduced, only one contains a confidentiality provision. Compare Pl.'s Ex. 21, ECF No. 37-15, with Pl.'s Exs. 14C–14G, 20, 22, ECF Nos. 37-7 to 37-11, 37-14, 37-16. Additionally, none of these program agreements is marked or labeled “confidential.” See id.
As to how the program terms are treated, as a practical matter, there was some testimony indicating they are kept confidential. For example, Waddell testified he considers Smithfield's program terms confidential, and he has never seen a competitor's program. Additionally, while Smithfield provides certain information to data brokers and AWG for publication, it is undisputed that the information does not include the terms of Smithfield's customer programs. Even Conrad testified he never shared Smithfield's program terms with a competitor while working at Smithfield because he “understand[s] relationships” and “would not do that.” Mots. Hr'g Tr. 212:12–17. He also testified that, while he never saw a confidentiality agreement in Smithfield's contracts with brokers, there is a “gentlemen's agreement” to keep the terms confidential. Id. at 259:18–20.
There was also testimony tending to show that Smithfield's program agreements are not treated as confidential. Conrad testified Smithfield's program terms are not confidential. He explained AWG has a “general idea” of Smithfield's program terms with retailers because AWG works closely with Smithfield's retailers. Id. at 211:2–18. And he suggested Smithfield's competitors have an idea of Smithfield's program terms because they bid on the same projects. Conrad further testified that, when he worked at Smithfield, AWG shared competitors' accrual rates with him. He also testified Smithfield's accrual rates are common knowledge and until 2019 they had not changed in eight years. Additionally, Kauffman testified he knows Dietz's competitors' accrual rates because AWG asks Dietz to match them. But he testified he does not know the terms of competitors' rebates with AWG. Finally, as discussed previously, Kauffman testified prospective customers often share their current programs with him during negotiations, though he could only recall one time when a customer gave him a copy of its current program.
Although the question is close, the Court concludes Smithfield made reasonable efforts to maintain the secrecy of its program terms. Smithfield uses several confidentiality agreements to thoroughly protect the secrecy of its confidential information. See Pl.'s Exs. 7–10, ECF Nos. 36-6 to 36-9; cf. Interbake Foods, 461 F. Supp. 2d at 967 (describing the plaintiff's confidentiality agreement as “indolent, at best” but still concluding the information at issue constituted trade secrets). These agreements—which prohibit employees from using, disclosing, or retaining Smithfield's confidential information outside of their employment—clearly cover Smithfield's program terms. See, e.g., Pl.'s Ex. 7 ¶ 2, ECF No. 36-6 (defining “trade secrets,” “proprietary information,” and “confidential information” to include “business arrangements”).
Like the Iowa Supreme Court in Cemen Tech, the Court does not find the absence of a noncompetition or non-solicitation agreement determinative. 753 N.W.2d at 9. Yingling testified postemployment restrictions on deli salespeople are uncommon. In fact, he testified Dietz does not require its salespeople to sign noncompetition or even confidentiality agreements. Given these industry norms, it was “reasonable under the circumstances” for Smithfield to require Conrad to sign a confidentiality agreement, without further requiring him to sign a noncompetition or non-solicitation agreement. Iowa Code § 550.2(4)(b).
Smithfield's more general steps to maintain the confidentiality of its information—such as requiring login credentials and access passes, using shared drives, and only sharing program details with the employees working on the programs—are also reasonable. See Restatement (Third) of Unfair Competition § 39 cmt. g. The Court does not fault Smithfield for failing to implement additional computer security measures—such as encryption, two-factor authentication, or remote data wiping. Ackert testified these measures are uncommon in his experience, and there was no evidence to indicate such measures are prevalent in the deli industry.
Additionally, Conrad's conduct in acquiring—or at least retaining—the alleged trade secrets supports a finding “that the information was intended to be confidential.” Cemen Tech, 753 N.W.2d at 10. Without delving into the merits of Smithfield's breach of contract claim, the Court observes that Conrad's retention of hard copy and electronic files after leaving Smithfield appears to have violated both Smithfield's Code of Conduct and the Employee Patent and Trade Secret Agreement. See Pl.'s Ex. 7 ¶ 2, ECF No. 36-6 (requiring employees to return “all records and papers and all matter of whatever nature which bear [Smithfield's] trade secrets, proprietary or confidential information” upon termination); Pl.'s Ex. 10 at 3, ECF No. 36-9 (“If your employment with Smithfield ends for any reason, you must return immediately to Smithfield all intellectual property, confidential information, trade secrets and other Smithfield property in your possession.”). Conrad's actions in transferring documents to the USB Drive and retaining the USB Drive along with 1,300 hard copy documents resemble the “improper” actions taken by the employees in Cemen Tech, which contributed to the court's finding of confidentiality. 753 N.W.2d at 10–11.
The IUTSA does not require Smithfield to take “all reasonable precautions” to protect the secrecy of its program terms. Interbake Foods, 461 F. Supp. 2d at 967 n.11; Restatement (Third) of Unfair Competition § 39 cmt. f (“The secrecy ․ need not be absolute.”). Even though Smithfield does not require most of its customers to sign confidentiality agreements, it takes several other reasonable steps to protect the confidentiality of its program terms. Coupled with Conrad's improper actions in retaining Smithfield's alleged trade secrets, these other steps convince the Court that Smithfield has at least a “fair chance” of prevailing on the factual issue of whether it made reasonable efforts to maintain the secrecy of its program terms. Rounds, 530 F.3d at 732–33; cf. SHI R2, 2015 WL 1546346, at *6 (finding genuine issue of material fact as to whether plaintiff made reasonable efforts to maintain secrecy of its information despite absence of confidentiality agreement).
For these reasons, the Court finds, for purposes of Smithfield's motion for a preliminary injunction, that Smithfield's program terms qualify as trade secrets.
Smithfield must next show its trade secrets were misappropriated. Dietz does not vigorously dispute that Smithfield has demonstrated misappropriation. “Misappropriation,” as defined in the IUTSA, includes “[d]isclosure or use of a trade secret by a person who at the time of disclosure or use knows that the trade secret is acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use.” Iowa Code § 550.2(3)(d). “Knows” means “a person has actual knowledge of information or a circumstance or that the person has reason to know of the information or circumstance.” Id. § 550.2(2).
At the hearing, Smithfield presented evidence that Conrad acquired its trade secret information “under circumstances giving rise to a duty to maintain its secrecy or limit its use” and that he knew of these circumstances. Id. § 550.2(3)(d). Specifically, Smithfield offered several agreements signed or acknowledged by Conrad during his employment at Smithfield in which Conrad agreed to protect Smithfield's trade secrets and to avoid using or sharing them outside of his employment with Smithfield. Pl.'s Exs. 7–10, ECF Nos. 36-6 to 36-9. As discussed above, these agreements cover Smithfield's customer program terms. Dietz did not rebut this evidence. Accordingly, the Court concludes Conrad knowingly acquired Smithfield's trade secret information “under circumstances giving rise to a duty to maintain its secrecy or limit its use.” Iowa Code § 550.2(3)(d).
On the other hand, Smithfield did not present evidence at the hearing showing Conrad actually used or disclosed its trade secrets. Instead, Smithfield relies on a theory of “threatened misappropriation,” or “inevitable disclosure.” See ECF No. 4-1 at 7–8. As noted above, the IUTSA authorizes injunctions against both “actual” and “threatened” misappropriation of trade secrets. Iowa Code § 550.3(1).
The seminal case on the inevitable disclosure doctrine is PepsiCo, Inc. v. Redmond, 54 F.3d 1262 (7th Cir. 1995). There, the Seventh Circuit held, based on language from the Illinois Trade Secrets Act authorizing courts to enjoin “[a]ctual or threatened misappropriation,” that “a plaintiff may prove a claim of trade secret misappropriation by demonstrating that defendant's new employment will inevitably lead him to rely on the plaintiff's trade secrets.” Id. at 1267–69; 765 Ill. Comp. Stat. 1065/3(a). Another federal court in Iowa has summarized the relationship between the inevitable disclosure doctrine—which the Iowa Supreme Court has not adopted—and “threatened misappropriation,” which the IUTSA expressly allows courts to enjoin: “[T]he inevitable disclosure doctrine is just one way of showing a threatened disclosure in cases where additional evidence showing the existence of a substantial threat of impending injury is unavailable to the movant.” Interbake Foods, 461 F. Supp. 2d at 973; accord Barilla Am., Inc. v. Wright, No. 4-02-CV-90267, 2002 WL 31165069, at *9 (S.D. Iowa July 5, 2002).
Here, Smithfield need not rely on the inevitable disclosure doctrine because it has presented compelling evidence of threatened misappropriation. Indeed, another judge in this District has found threatened misappropriation on similar facts. See Barilla, 2002 WL 31165069, at *11–12. In Barilla, a former employee resigned with several items of company property still in his possession, including CDs, notebooks, photographs, and financial statements. Id. The employee—who left to work for a competitor—claimed he returned some of the items, destroyed others, and had not accessed the rest. Id. at *1, *11. The court found the employee's actions demonstrated a threat of misappropriation because he retained the items under “troubling” circumstances and offered shifting explanations—some of which conflicted with other evidence in the case—for why he retained the items. Id. at *11.
This case bears many similarities to Barilla. Like the employee there, Conrad left his former employer with a significant amount of its business information—including trade secrets—still in his possession. Conrad saved some of this information to the USB Drive as late as the day he resigned. Conrad testified he backed up the files because they were important and because he was wary of computer crashes. But the evidence does not establish that Conrad routinely backed up important documents on his Smithfield laptop. And Conrad's only explanation for why he retained the USB Drive and hard copy documents after resigning is that Smithfield did not specifically request them back. Waddell testified there was no legitimate reason for Conrad to save the documents to the USB Drive, except for the presentations Conrad saved on September 16, 2019.
Conrad also offered inconsistent testimony on key points related to the USB Drive. For example, he initially testified he never plugged the USB Drive into his Dietz computer. But he later reversed his testimony, clarifying he had used it “a couple times” on his Dietz computer. Mots. Hr'g Tr. 202:18–20. Similarly, Conrad initially testified he only used the USB Drive on his Dietz computer to access his personal files. But he later testified he had also accessed store lists and contact information for retailers that were doing business with Dietz.
Conrad's actions after joining Dietz further demonstrate a threat of misappropriation. Waddell testified that, within weeks of Conrad's resignation, he noticed Dietz was soliciting Smithfield's customers. He testified it seemed Dietz was intentionally targeting Smithfield's largest customers first and working down from there. Waddell estimated Conrad has already solicited fifteen to twenty Smithfield customers on behalf of Dietz—all of whose program terms are reflected in the 2019 customer event trackers and the 2020 All Brands Price List. Kauffman denied Conrad had any input on Dietz's offers to Customers A, B, and C, but Conrad testified he had solicited other Smithfield customers whose program information is reflected on the customer event trackers.
As in Barilla, these events and circumstances are “troubling,” and Conrad's explanations for them are not credible. Barilla, 2002 WL 31165069, at *11. The Court notes both Yingling and Kauffman testified that they had no knowledge of the USB Drive before the hearing and that Conrad had not disclosed any Smithfield information to them. And Waddell admitted on cross-examination that Dietz was soliciting Smithfield's customers before Conrad joined Dietz. Even so, the evidence shows Conrad retained documents containing Smithfield's program terms with many customers—which, as discussed above, were trade secrets—and he later solicited some of these same customers on behalf of Dietz. This evidence demonstrates threatened misappropriation of Smithfield's trade secrets. See id.; cf. Del Monte Fresh Produce Co. v. Dole Food Co., Inc., 148 F. Supp. 2d 1326, 1339 (S.D. Fla. 2001) (finding no threatened misappropriation where former employee “took no documents or confidential information with him when he left” and there was “no evidence that he made an effort to take such information”).
Accordingly, the Court concludes Smithfield has demonstrated a likelihood of success on the merits of its claim for trade secret misappropriation under the IUTSA.
B. Irreparable Harm
The Court turns next to the threat of irreparable harm. “To succeed in demonstrating a threat of irreparable harm, ‘a party must show that the harm is certain and great and of such imminence that there is a clear and present need for equitable relief.’ ” Roudachevski v. All-Am. Care Ctrs., Inc., 648 F.3d 701, 706 (8th Cir. 2011) (quoting Iowa Utils. Bd. v. FCC, 109 F.3d 418, 425 (8th Cir. 1996)). “The primary function of a preliminary injunction is to preserve the status quo until, upon final hearing, a court may grant full, effective relief.” Kansas City S. Transp. Co. v. Teamsters Local Union No. 41, 126 F.3d 1059, 1066–67 (8th Cir. 1997) (internal quotation marks omitted) (quoting Ferry–Morse Seed Co. v. Food Corn, Inc., 729 F.2d 589, 593 (8th Cir. 1984)). Although the likelihood of success on the merits prong carries the most weight of the Dataphase factors, see Home Instead, 721 F.3d at 497, “[w]hen there is an adequate remedy at law, a preliminary injunction is not appropriate,” Watkins Inc. v. Lewis, 346 F.3d 841, 844 (8th Cir. 2003). “Irreparable harm occurs when a party has no adequate remedy at law, typically because its injuries cannot be fully compensated through an award of damages.” Rogers Grp., Inc. v. City of Fayetteville, 629 F.3d 784, 789 (8th Cir. 2010) (internal quotations marks omitted) (quoting Gen. Motors Corp., 563 F.3d at 319). A court may infer irreparable harm from the breach of a restrictive covenant. Overholt Crop Ins. Serv. Co. v. Travis, 941 F.2d 1361, 1371 (8th Cir. 1991).
Smithfield has demonstrated a threat of irreparable harm. First, as discussed above, the Court has made a provisional determination that Conrad's actions in retaining Smithfield's trade secrets violated the confidentiality agreements he signed as a Smithfield employee. See Overholt, 941 F.2d at 1371; cf. Uncle B's Bakery, Inc. v. O'Rourke, 920 F. Supp. 1405, 1434 (N.D. Iowa 1996) (concluding the plaintiff “adequately demonstrated a threat of irreparable harm” because there was “a threat of a breach of the [confidentiality] agreement implicit in [the defendant's] employment with a competitor”).
Second, Waddell testified to the unquantifiable harms Smithfield will suffer without an injunction. He testified when Smithfield loses a customer, it is very hard to get the customer back. And while Smithfield's lost sales may be quantifiable, Waddell testified losing customers often corresponds to discontinuing items altogether. He further testified losing customers—and thus market share—harms Smithfield's brand, goodwill, and reputation. The evidence shows Dietz and Conrad have already been pursuing Smithfield's customers, and that some of Smithfield's customers have broken their contracts to enter into new programs with Dietz. Waddell testified he anticipates this trend will continue. Waddell's testimony establishes that Smithfield faces an ongoing threat of injuries that “cannot be fully compensated through an award of damages.” Rogers Grp., 629 F.3d at 789 (internal quotations marks omitted) (quoting Gen. Motors Corp., 563 F.3d at 319). Therefore, Smithfield has demonstrated a threat of irreparable harm.
C. Balance of Harms
The Court next considers “the balance between th[e] harm [to the movant] and the injury that the injunction's issuance would inflict on other interested parties.” Pottgen v. Mo. State High Sch. Activities Ass'n, 40 F.3d 926, 928 (8th Cir. 1994). This factor requires examining the harm granting or denying the injunction poses to all parties to the dispute, as well as other interested parties. See Dataphase, 640 F.2d at 113–14; accord Baker Elec. Coop., Inc. v. Chaske, 28 F.3d 1466, 1473 (8th Cir. 1994).
Smithfield seeks an injunction prohibiting Conrad from working with customers whose program information is contained in the 2019 customer event trackers, the 2020 All Brands Price List, and the program agreements he retained in hard copy. See Pl.'s Exs. 12, 14A–14G, 20–22, ECF Nos. 37-3, 37-5 to 37-11, 37-14 to 37-16. Smithfield's counsel conceded this injunction would bar Conrad from working with AWG, but he clarified Conrad could still work with many other wholesalers, brokers, and retailers. The Court does not doubt both Conrad and Dietz would suffer significant harm if Conrad were no longer able to work with AWG—one of the Midwest's major deli wholesalers. But this harm was foreseeable to Conrad, who chose to retain a significant amount of Smithfield's business information after signing confidentiality agreements prohibiting him from doing so. See Katecho, Inc. v. Cont'l Mfg. Chemist, Inc., No. 4:18-cv-00314-RGE-CFB, 2018 WL 9814656, at *9 (S.D. Iowa Oct. 16, 2018) (finding “serious harm” to plaintiff's former employees was offset the by the foreseeability of the harm, which arose from their violation of noncompetition agreements). And, as Smithfield points out, Conrad will remain free to work with other wholesalers, brokers, and retailers on behalf of Dietz. By contrast, Smithfield faces a threat of significant, ongoing harm that it specifically sought to protect against by requiring Conrad to sign confidentiality agreements. See id. In these circumstances, the balance of harms favors Smithfield.
D. Public Interest
Finally, the Court considers whether a preliminary injunction would serve the public interest. Dataphase, 640 F.2d at 113. The public interest can include, for example: promoting the national defense, Winter, 555 U.S. at 24, 129 S.Ct. 365; protecting constitutional rights, Phelps–Roper v. Nixon, 545 F.3d 685, 690 (8th Cir. 2008), rev'd on other grounds sub nom. Phelps–Roper v. City of Manchester, 697 F.3d 678 (8th Cir. 2012) (en banc); or having governmental agencies fulfill their obligations, Sierra Club v. U.S. Army Corps of Eng'rs, 645 F.3d 978, 997 (8th Cir. 2011).
Here, the public has only a limited interest in this private dispute between private parties. See Katecho, 2018 WL 9814656, at *9; Reg Seneca, LLC v. Harden, 938 F. Supp. 2d 852, 862 (S.D. Iowa 2013). Nevertheless, courts have found the public interest favors both the enforcement of restrictive covenants and the protection of trade secrets. See, e.g., Am. Express Fin. Advisors, Inc. v. Yantis, 358 F. Supp. 2d 818, 836 (N.D. Iowa 2005). Dietz asserts that promoting free competition is also in the public interest. ECF No. 25-1 at 21. But Smithfield has made a preliminary showing that Conrad is engaging in unlawful competition, and Dietz does not contend unlawful competition is in the public interest. Therefore, the Court finds the public interest also favors an injunction.
E. Scope of Injunction
Having determined a preliminary injunction is warranted, the Court must decide terms of the injunction. Smithfield asks the Court to enjoin Conrad from working with any Smithfield customers whose program details are among the electronic or hard copy documents Conrad misappropriated from Smithfield. These documents are the 2020 All Brands Price List, the 2019 customer event trackers, and the program agreements Conrad retained in hard copy. See Pl.'s Exs. 12, 14A–14G, 20–22, ECF Nos. 37-3, 37-5 to 37-11, 37-14 to 37-16. Smithfield requests this injunction remain in force until the Court holds a full trial on the merits. Dietz and Conrad assert Smithfield's requested injunction is overbroad, but they do not suggest ways the Court might narrow it. Instead, they argue any injunction is improper.
Smithfield's requested injunction is appropriately tailored. As discussed above, Smithfield's program terms have competitive value to Defendants because they can use them to craft better program proposals and unfairly win the business of Smithfield's customers. Unless Conrad is enjoined from working with the customers whose program terms he retained, Conrad would be free to use the program terms to advantage Dietz. Therefore, the Court grants Smithfield's requested injunction until a full trial on the merits is held.
Applying the four Dataphase factors, the Court concludes Smithfield's request for a preliminary injunction is warranted. Smithfield has demonstrated a fair chance of prevailing on its claim for trade secret misappropriation under Iowa law. First, Smithfield has demonstrated its program terms are trade secrets. Second, Smithfield has demonstrated Conrad threatens to misappropriate those trade secrets. Smithfield has also demonstrated a threat of irreparable harm that outweighs the harm an injunction would cause Dietz and Conrad. Finally, the public interest favors Smithfield's requested injunction.
Accordingly, IT IS ORDERED that Plaintiff Smithfield Packaged Meats Sales Corp.'s Motion for a Preliminary Injunction, ECF No. 4, is GRANTED. Defendant Chris Conrad is enjoined from soliciting, or otherwise working with, any of the customers whose program terms are contained in Plaintiff's Exhibit 12 (the 2020 All Brands Price List); Plaintiffs Exhibits 14A and 14B (the 2019 customer event trackers); and Plaintiff's Exhibits 14C through 14G and 20 through 22 (hard copy program agreements). See ECF Nos. 37-3, 37-5 to 37-11, 37-14 to 37-16. This injunction shall remain in force until a full trial on the merits is held in this matter.
When issuing a preliminary injunction, the Court must require the moving party to provide a bond or security. Fed. R. Civ. P. 65(c) (“The court may issue a preliminary injunction ․ 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 enjoined or restrained.”). A district court has “much discretion,” in establishing a bond but must not “abuse[ ] that discretion due to some improper purpose,” must “require an adequate bond,” and must “make the necessary findings in support of its determinations.” Hill v. Xyquad, Inc., 939 F.2d 627, 632 (8th Cir. 1991); accord Richland/Wilkin Joint Powers Auth. v. U.S. Army Corps of Eng'rs, 826 F.3d 1030, 1043 (8th Cir. 2016).
Here, the Court will impose bond in the amount of $320,000. This amount reflects two years of Conrad's salary at Dietz. The Court orders this amount because enjoining Conrad from working with customers, including AWG, may deprive Dietz of much of Conrad's value to the company. Conrad will remain free to work with other customers. But Dietz may lose out on the value of new contracts Conrad could have secured for Dietz, which it likely anticipated in arriving at Conrad's salary. Therefore, the Court concludes Conrad's yearly salary is a fair approximation of the value that Dietz will lose through the injunction. The Court imposes two years of salary because it estimates a full trial on the merits will not be held for approximately two years. A scheduling order has not yet been issued in this case. But two years is a reasonable estimate of the time required for parties in civil suits to complete discovery, dispositive motion practice, and pretrial motions, under current circumstances.
IT IS ORDERED that Plaintiff Smithfield Packaged Meats Sales Corp. is authorized to and shall deposit $320,000, by check or money order, made payable to “U.S. District Court,” and delivered, together with a copy of this Order, to the Clerk of Court for the United States District Court for the Southern District of Iowa within ten days of this Order.
IT IS FURTHER ORDERED that the Clerk is directed to deposit the funds into an interest-bearing account with the Court Registry Investment System as specified in Administrative Order 16-AO-8-P and to retain such funds on deposit until further order of the Court.
IT IS FURTHER ORDERED that based on the record presented, the Court does not find the funds at issue must be treated as “disputed ownership funds” as that term is defined by the Internal Revenue Service (26 C.F.R. § 1.468B-9(b)(1)). Accordingly, the Administrative Office of the United States Courts is hereby authorized and directed to administer the funds, and charge fees, under the Court Registry Investment System.
IT IS SO ORDERED.
1. Smithfield sells its products through different brand names. Smithfield's deli meats and cheeses brand is “Kretschmar.” For simplicity, the Court refers to both Smithfield and Kretschmar as “Smithfield.”
2. The motions hearing transcript is consecutively paginated across two volumes: Volume 1, ECF No. 43, comprises pages 1–281 of the transcript; and Volume 2, ECF No. 44, comprises pages 282–374. The Court cites to the transcript by page number without reference to the volume number or ECF number.
3. Conrad was hired by Smithfield's corporate predecessor, John Morrell & Co. For simplicity, this Order refers to John Morrell & Co. and Smithfield as “Smithfield.”
4. The parties' briefing keeps the identities of Smithfield's customers confidential. The Court adopts the parties' anonymous naming conventions for these customers.
5. Smithfield relies in part on Iowa's common law of trade secret misappropriation. See Pl.'s Br. Supp. Mot. Prelim. Inj. 5, ECF No. 4-1 (quoting common law test for trade secret misappropriation). But Smithfield brings only a statutory claim for trade secret misappropriation. ECF No. 1 ¶¶ 82–90. The Iowa Supreme Court has held the IUTSA does not preempt common law claims for trade secret misappropriation. 205 Corp. v. Brandow, 517 N.W.2d 548, 551–52 (Iowa 1994). And it has rejected the argument that the IUTSA simply codifies Iowa's common law of trade secret misappropriation. See id. at 550. At the same time, courts have noted that Iowa's common law of trade secret misappropriation is “practically indistinguishable” from the IUTSA. Titan Int'l, Inc. v. Bridgestone Firestone N. Am. Tire, LLC, 752 F. Supp. 2d 1032, 1039 (S.D. Iowa 2010). Therefore, the Court treats Iowa common law as instructive, though not binding, authority. Cf. Cemen Tech, Inc. v. Three D Indus., L.L.C., 753 N.W.2d 1, 7 (Iowa 2008) (relying on common law trade secret factors to interpret IUTSA's “trade secret” definition).
6. A significant amount of evidence at the hearing related to whether Smithfield's pricing information, product volume and availability, and product discontinuations qualify as trade secrets. Smithfield's counsel made clear at the close of the hearing that Smithfield no longer seeks a preliminary injunction preventing the use or disclosure of that information. Therefore, the Court need not decide whether it qualifies as trade secrets.
Rebecca Goodgame Ebinger, United States District Judge
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