Title: Finkel v. Cashman Prof'l, Inc.

State: nevada

Issuer: Nevada Supreme Court

Document:

428 Nev, Advance Opinion Co
IN THE SUPREME COURT OF THE STATE OF NEVADA

MARC FINKEL, AN INDIVIDUAL, No. 54520
Appellant,

v5.
CASHMAN PROFESSIONAL, INC., A
NEVADA CORPORATION; CASHMAN FILED
ENTERPRISES, INC., A NEVADA
CORPORATION; AND CASHMAN 133.0 2012

PHOTO ENTERPRISES OF NEVADA, A capo siscsy
NEVADA CORPORATION, we Aa
Olio

 

Respondents.

   
   
   
  
   
 
   
    
   
  
  
  

MARC FINKEL, AN INDIVIDUAL; IQ No. 55377
VARIABLE DATA, LLC, A NEVADA
CORPORATION; RICHARD CLARK, AN
INDIVIDUAL; AND MFRC VENTURES,
LLC, D/B/A INFLUENT SOLUTIONS, A
NEVADA CORPORATION,
Appellants,

vs.
CASHMAN PROFESSIONAL, INC., A
NEVADA CORPORATION; CASHMAN
ENTERPRISES, INC., A NEVADA
CORPORATION; AND CASHMAN
PHOTO ENTERPRISES OF NEVADA, A
NEVADA CORPORATION,
Respondents.

 

 

Consolidated appeals from district court orders granting a
preliminary injunction and refusing to dissolve the preliminary injunction
in a contract action. Eighth Judicial District Court, Clark County; Mark
R. Denton, Judge.

 

1A -0658)

re

 
Law Office of Daniel Marks and Adam Levine, Daniel Marks, and
Christopher L. Marchand, Las Vegas,
for Appellants.

Kravitz, Schnitzer, Sloane & Johnson, Chtd., and Michael B. Lee and
Martin J. Kravitz, Las Vegas,
for Respondents.

 

BEFORE SAITTA, C.J., HARDESTY and PARRAGUIRRE, JJ.
OPINION

By the Court, PARRAGUIRRE,

 

In this appeal, we review two district court orders: one
granting a preliminary injunction to enforce restrictive provisions in a
consulting agreement (the Agreement) and to prevent likely violations of
Nevada's Uniform Trade Secrets Act, and the other refusing to dissolve
that preliminary injunction after the Agreement had been terminated.
Because substantial evidence supports the district court's findings that
appellant likely breached the Agreement and violated Nevada's Uniform
‘Trade Secrets Act, we affirm the district court's order granting
respondents’ request for preliminary injunctive relief. However, upon
termination of the Agreement, the district court should have granted
appellant's motion to dissolve the injunctive provisions that were
grounded on findings that appellant likely breached the Agreement, With
regard to the alleged trade secret violations, NRS 600A.040(1) requires the
district court to make findings as to the continued existence of a trade

secret and to what constitutes a “reasonable period of time” for

maintaining an injunction under Nevada's Uniform Trade Secrets Act.

 

 
Because the district court failed to make these findings, we reverse the
district court’s second order and remand to the district court for further
proceedings regarding the extent that the injunctive provision related to
likely violations of the Trade Secrets Act should continue to remain in
effect.
FACTS AND PROCEDURAL HISTORY

Beginning in 2001, appellant Mare Finkel was employed in
various executive positions at respondent Cashman Professional, Inc.,
which is affiliated with respondents Cashman Enterprises, Ine., and
Cashman Photo Enterprises of Nevada (collectively, Cashman). During
his employment, Finkel performed various tasks designed to expand and
streamline Cashman’s Las Vegas-based wedding photography busine:
Among other things, Finkel designed business software, negotiated sales

contracts with customers, developed new sales strategies, drafted

 

employment agreement:

 

created training programs, and implemented
new management techniques for the business.

Cashman went to great lengths to keep the above aspects of
its business confidential. In particular, Finkel was one of only four people
with access to Cashman’s contracts, which were kept under lock and key
to thwart attempts of underbidding by competitive companies.

Accordingly, when Finkel left his employment with Cashman
in 2008, Cashman and Finkel entered into the Agreement, which, in large
part, was designed to maintain the confidentiality of this information
following Finkel’s departure. The Agreement provided that Finkel would
serve as a consultant to Cashman and would abide by several restrictive

covenants in exchange for certain compensation. The restrictive

covenants prohibited Finkel from engaging in a competing business,

 

 
os

 

disparaging Cashman, soliciting Cashman’s employees, and disclosing
Cashman's confidential information.

In early 2009, Finkel purchased a printing company called 1Q
Variable Data, LLC (IQ), which he renamed as Influent Solutions.
According to the parties, 1Q was the only printing company in Las Vegas
that could provide overnight printing of wedding photo books, and
Cashman's photography business relied on IQ when overnight printing
services were required. Finkel continued to provide the same services as
IQ through Influent Solutions, and in doing so, he enlisted several

Cashman employees to help establish his business. Finkel also

 

approached at least two of Cashman’s customers and solicited them to

 

move their entire wedding photo and print production to Influent
Solutions.

Detecting a threat to its business interests, Cashman filed a
motion in the district court alleging breach of the Agreement and, in part,
secking a preliminary injunction to enforce the Agreement's restrictive
covenants. The district court granted Cashman's request for a
preliminary injunction in August 2009, concluding that Finkel had likely
violated several provisions in the Agreement and misappropriated trade
secrets in violation of Nevada's Uniform Trade Secrets Act, and that
Cashman would suffer irreparable injury absent the issuance of an
injunction. The preliminary injunction prevented Finkel from engaging in
a competing business, making disparaging remarks about Cashman,
soliciting Cashman’s employees, and disclosing Cashman’s confidential
information. It further enjoined Finkel from misappropriating Cashman’s
trade secrets.

 
Finkel appealed from the preliminary injunction order and
later informed Cashman that he was exercising his right to terminate the
Agreement. Because the restrictive covenants were only applicable while
the Agreement was in effect, Finkel then filed a motion to dissolve the
preliminary injunction upon termination of the Agreement, After a
hearing, the district court entered an order in January 2010, denying
Finkel’s motion to dissolve the injunction, finding that termination of the
Agreement did not end the district court's authority to protect Cashman
from an unfair competitive scenario, Finkel appealed from the order
refusing to dissolve the injunction, and this court consolidated the two
matters for resolution.
ISCUSSI

On appeal, Finkel first argues that the district court abused
its discretion by issuing the preliminary injunction because substantial
evidence does not support that Cashman would suffer irreparable harm
and that Cashman would likely succeed in establishing that Finkel had
breached the Agreement or misappropriated trade secrets.! As explained
below, we disagree.

1Finkel makes two alternative arguments. First, he argues that
Cashman failed to provide him the contractually mandated notice and
opportunity to cure before enforcing the Agreement. Although such
actions would be required prior to termination, the Agreement does not
mandate that notice and an opportunity to cure be given before an
injunction is sought. Thus, we conclude that this argument lacks meri

Finkel also argues that the preliminary injunction should be held
void for vagueness, claiming that he could not ascertain which actions
were prohibited. We find this argument unpersuasive, as the district
court made detailed findings in enjoining Finkel’s actions when issuing
continued on next page.

 

 
ee

 

‘The order issuing the preliminary injunction was supported by substantia
evidence

“A preliminary injunction is available when the moving party
can demonstrate that the nonmoving party's conduct, if allowed to
continue, will cause irreparable harm for which compensatory relief is
inadequate and that the moving party has a reasonable likelihood of
success on the merits.” Boulder Oaks Cmty. Ass'n v, B & J Andrews, 125
Nev. 397, 403, 215 P.3d 27, 31 (2009).
Standard of review

This court reviews a district court's issuance of a preliminary
injunction for an abuse of diseretion. Guerin v. Guerin, 114 Nev. 127, 134,
953 P.2d 716, 721 (1998), abrogated on other grounds by Pengilly v.
Rancho Santa Fe Homeowners, 116 Nev. 646, 648-49, 5 P.3d 569, 570-71
(2000). “A decision that lacks support in the form of substantial evidence
is arbitrary or capricious and, therefore, an abuse of discretion.”
Stratosphere Gaming Corp. v. Las Vegas, 120 Nev. 523, 528, 96 P.3d 756,
760 (2004) (quotation omitted). “Substantial evidence has been defined as
that which a reasonable mind might accept as adequate to support a
conclusion.” McClanahan v. Ralev’s, Inc,, 117 Nev. 921, 924, 34 P.3d 573,
576 (2001) (quotations omitted)

irreparable harm and likelihood of suecess on the merits
Finkel argues that the record lacks substantial evidence to

support the district court's conclusion that Cashman would likely succeed

= continued

the preliminary injunction, and we conclude that he was sufficiently
informed as to which acts were prohibited.

 
ome

 

‘on the merits on its breach of contract and related claims or that it would
suffer irreparable harm absent the issuance of the injunction.

‘This court has held in the context of an appeal from an order
granting an injunction that “acts committed without just cause which
unreasonably interfere with a business or destroy its credit or profits, may
do an irreparable injury.” Sobol v. Capital Management, 102 Nev. 444,
446, 726 P.2d 335, 337 (1986). Here, the district court found that Finkel
likely competed with Cashman, solicited Cashman's employees,
disparaged Cashman, disclosed Cashman’s confidential information, and
misappropriated Cashman’s trade secrets,

Contrary to Finkel’s arguments, substantial record evidence
supports the district court's conclusions. First, the Agreement restricted

Finkel's ability to engage in a competing business, defined in part as any

 

commercial photography or related service offered by Cashman, whether
performed internally or by an outside service. It is undisputed that Finkel
proceeded to acquire and operate the only vendor for wedding albums who
could provide next-day printing in the relevant area, and that IQ had
performed as an outside-service provider for Cashman in the past. Finkel
argues that this fact is insufficient to show that he was participating in a
competing business because Influent Solutions offered a variety of other
commercial printing services, However, this does not undermine the
district court's conclusion that Influent Solutions was in competition with
Cashman, especially in light of Finkel's admission that he approached
several of Cashman's customers, urging them to move their business to
Influent Solutions.

Second, the Agreement prohibited Finkel from making any
type of disparaging or derogatory remarks regarding Cashman. The

 
record indicates that Finkel repeatedly violated this clause by referring to
Cashman executives as untrustworthy, swindling “snake(s],” and other
similar remarks.

Next, the Agreement restricted Finkel from inducing or
attempting to induce any Cashman employee to leave Cashman. Here,
the record indicates that Finkel likely violated this condition, as at least
four Cashman employees visited Influent Solutions while still employed by
Cashman, and Finkel made more than 155 calls lasting a total of 1,104
minutes to those employees. Also, Finkel enlisted one Cashman employee
to set up his telephone and computer network and another employee to

arrange a business meeting with one of Cashman’s customers. Although

 

Finkel argues that he did not violate the Agreement, since he only

 

temporarily employed these individuals, the Agreement prohibited any
attempt to induce a Cashman employee.

Finally, the Agreement prohibited Finkel from disclosing any
nonpublic information, including information regarding Cashman’s plans,
pricing, customers, processes, or other data of any kind. The record
supports that Finkel identified several of Cashman's customers in his
online biography and that he described his invention of Cashman’s point-
of-sale operating system. Also, Finkel informed at least one outside party
of Cashman’s confidential pricing structures and marketing plans.

This is the precise sort of conduct that could cause a business
irreparable harm. Sobol, 102 Nev. at 446, 726 P.2d at 837 (determining
that where a person has “interfere{ed] with the operation of a legitimate
business by creating public confusion, infringing on goodwill, and
damaging reputation in the eyes of creditors,” it may result in irreparable

harm). ‘Therefore, substantial evidence supported the district court's

 

 
conclusion that Finkel’s conduct likely breached multiple provisions of the
party's Agreement and, if true, would likely cause irreparable harm to
Cashman,

With respect to the district court’s finding that Finkel likely
misappropriated trade secrets, Finkel argues that any information that he
may have used was not a “trade secret.” We disagree. Nevada's Uniform
Trade Secrets Act, NRS Chapter 600A, provides that the “[ajetual or
threatened misappropriation [of a trade secret] may be enjoined.” NRS
600A.040(1). Broadly defined, a trade secrot is information that “[dJerives
independent economic value, actual or potential, from not being generally
known to, and not being readily ascertainable by proper means by the

public,” as well as information that “[iJs the subject of efforts that are

 

reasonable under the circumstances to maintain its secrecy.” NRS
600A.030(6)(a)-(b). Whether information is a trade secret generally is a
question of fact. See Frantz v. Johnson, 116 Nev. 455, 466, 999 P.2d 351,
358 (2000), Factors to consider include:

(1) the extent to which the information is known,
outside of the business and the ease or difficulty
with which the acquired information could be
properly acquired by others; (2) whether the
information was confidential or secret; (3) the
extent and manner in which the employer guarded
the secrecy of the information; and (4) the former
employee's knowledge of customer's buying habits
and other customer data and whether this
information is known by the employer's
competitors ....

Id, at 467, 999 P.2d at 858-59 (quotation omitted).

 

Here, the district court found that Finkel acquired an intimate
knowledge of Cashman's confidential information while employed as an

executive for the company. ‘This included Cashman’s contracts, customers,

 

 
processes, prices, and other business-related confidential information,
Finkel acknowledged to the district court that confidential trade secrets
would include: “costs; discounts; future plans; business affairs;
processes; ... technical matters; customer lists; product designs; and,
copyrights.” While Finkel’s admit
item’s trade-secret status, it may be considered as a factor weighing
at 467, 999 P.2d at 358-

 

ion is not necessarily dispositive of an

towards such classification.? See Frantz, 116 No
59,

 

In addition to Finkel’s admis

 

ion, the parties’ treatment of the
above items tends to support their classification as trade secrets, Frantz,
116 Nev. at 466, 999 P.2d at 358. The record indicates that pricing

schemes were kept confidential, the point-of-sale software was not shared

 

with anyone outside the business, and Cashman required its employees to

 

keep business-related information confidential. Moreover, Cashman went

 

to extreme measures to protect its customer information, as only four

people had access to its contracts and customer data. Thus, substantial

*Although Finkel admitted and the district court concluded that
“customer lists” were confidential trade secrets, Finkel now argues that
the identities of Cashman’s well-known customers should not have been
deemed confidential. See Cambridge Filter v. Intern. Filter Co,, Inc., 548
F, Supp. 1301, 1306 (D. Nev. 1982) (‘Where the plaintiff's customers are
known to competitors as potential customers, the plaintiffs customer list
is not a trade secret.”), Although it is possible that not all of Cashman’s
relationships would have qualified as trade secrets, we decline to address
this matter based on the district court’s finding that Finkel likely
misappropriated other protected information. Instead, we instruct the
district court on remand to specify which business relationships are to be
afforded trade-secret status.

   

 

 
os

 

evidence supports the district court's conclusion that the information
allegedly misappropriated by Finkel would likely be confidential trade
secrets and that such misappropriation could result in irreparable harm,
making injunctive relief appropriate. See Saini v. International Game
Technology, 434 F. Supp. 2d 918, 919 (D. Nev. 2006) (“[Dlisclosure of
confidential information or trade secrets” creates serious harms, “which
are not readily addressed through payment of economic damages, [and]
are sufficient to meet the irreparable injury requirement for a preliminary
injunction.”).
Agrees should have
reliminary_inim lied_to_ ther

covenants contain: went

Finkel argues that the district court erred in refusing to
dissolve the injunction despite termination of the Agreement. We agree
with Finkel that the injunctive provisions that restricted his business
activities based on his likely violations of the Agreement should have been
dissolved once the Agreement was no longer enforceable. However, we do
not necessarily agree that the injunctive provisions that applied to prevent
likely trade secret violations should have been dissolved.

Although this is an i

 

 

jue of first impression in Nevada, the
majority of courts that have considered this matter have declined to
enforce an agreement not to compete after the period set forth in the
agreement had expired. Economics Laboratory, Inc, v. Donnolo, 612 F.2d
405, 408 (9th Cir. 1979); see also id, at 409 (“There is no reason ... to
enforce a covenant which by its terms is no longer in effect.”).

We agree with the Ninth Circuit's reasoning, and therefore
conclude that the district court abused its discretion by denying Finkel’s
‘motion to dissolve the injunction to the extent that it restricted Finkel’s

a

 
business activities based on the terminated Agreement, as there was no
longer any basis for enforcing that portion of the injunction.” Accordingly,
we reverse the district court's second order to the extent that it maintains
the injunctive provisions relating to Finkel’s alleged breach of the
Agreement and remand with instructions to grant Finkel's motion to
dissolve as to this portion of the injunction.

‘This brings us to the remaining portion of the injunction,
which was based on Finkel’s likely trade-secret violations. An injunction
entered under Nevada's Uniform Trade Secrets Act “must be terminated
when the trade secret has ceased to exist, but the injunction may be
continued for an additional reasonable period of time to eliminate
commercial or other advantage that otherwise would be derived from the
misappropriation.” NRS 600A.040(1).

Here, the
on the independent basis that Finkel had likely misappropriated

 

istrict court maintained the preliminary injunction

Cashman’s trade secrets. While this may be a valid ground for

maintaining a preliminary injunction beyond the termi:

 

ion date of the
parties’ agreement, we conclude that additional findings were required by
the district court. First, NRS 600A.040(1) requires that an injunction be

terminated when the trade secret:no longer exists. Here, the district court

*The district court

 

ems to have recognized its error, as it

subsequently purported to modify its second order by removing the
injunctive provisions that were based on the Agreement in an order
entered in February 2010. However, the district court lacked jurisdiction
to modify the order because Finkel had already filed this appeal. See Rust
v. Clark Cty. School District, 103 Nev. 686, 688, 747 P.2d 1380, 1382
(1987) (‘a timely notice of appeal divests the district court of jurisdiction to
act")

 

 
omen

 

should have made findings as to the extent that Cashman’s contracts,
customer lists, process, and prices remained protected as trade secrets.
Assuming that trade secrets are found to exist, an injunction may only be
extended for a “reasonable period of time” pursuant to NRS 600A.040(1).
‘Thus, the district court should also have articulated a duration for
extending the injunction pursuant to statute,

This conclusion is consistent with the comments to the
Uniform Trade Secrets Act, which indicate that “an injunction should last
for as long as is necessary, but no longer than is necessary, to eliminate
the commercial advantage or ‘lead time’ with respect to good faith
competitors that a person has obtained through misappropriation.” Unif.
Trade Secrets Act § 2 emt., 14 U.LA. 620 (2005). Accordingly, such a
determination should be made on a case-by-case bi
courts,

 

 

jis by the district

‘Therefore, we also reverse the part of the district court's

January 2010 order in which it maintained the injunctive provisions based

on Finkel's alleged misappropriation of trade secrets. On remand, the

district court shall reconsider to what extent the injunctive pr

should be maintained under NRS 600A.040(1) in light of this opinion,
CONCLUSION

Because substantial evidence exists to support the district

 

court’s decision to issue the preliminary injunction, we affirm the district
court's first order. However, because the district court improperly relied
on the terminated Agreement in declining to dissolve the injunction that
prohibited Finkel from conducting business activities that likely violated
the Agreement, and because the district court failed to make findings as to
the continued existence of a trade secret and for what constitutes a
“reasonable period of time” under NRS 600A.040(1), we reverse the

13

 
district court's second order and remand for further proceedings consistent,

with this opinion,

Parraguirre

 

Hardesty