Court Opinion

ID: 5121878
Source: CourtListenerOpinion
Date Created: 2021-10-28 19:00:42.135381+00
Date Added: 2024-06-11T08:22:24.845790
License: Public Domain

NOT RECOMMENDED FOR PUBLICATION
                                File Name: 21a0491n.06

                                        Case No. 20-4312

                          UNITED STATES COURT OF APPEALS
                               FOR THE SIXTH CIRCUIT
                                                                                  FILED
                                                                             Oct 28, 2021
RECO EQUIPMENT, INC.,                                )                  DEBORAH S. HUNT, Clerk
                                                     )
       Plaintiff-Appellee,                           )
                                                     )      ON APPEAL FROM THE UNITED
       v.                                            )      STATES DISTRICT COURT FOR
                                                     )      THE SOUTHERN DISTRICT OF
JEFFREY S. WILSON; JOSEPH CRAIG                      )      OHIO
RUSSO;    REPUBLIC    EQUIPMENT                      )
HOLDING, LLC,                                        )
                                                     )
       Defendants-Appellants.                        )

       Before: ROGERS, GRIFFIN, and THAPAR, Circuit Judges.

       THAPAR, Circuit Judge. Jeffrey Wilson and Joseph Craig Russo left a company so they

could start their own business. Along the way, they broke some rules, including smuggling out

company documents. The lower court preliminarily enjoined Wilson and Russo for breach of

contract and misappropriation of trade secrets. But the company didn’t provide enough evidence

to support its breach-of-contract claim. For the reasons below, we affirm in part, vacate in part,

and remand for further proceedings.

                                                I.

       RECO Equipment, Inc. is an Ohio company that sells, leases, maintains, and services heavy

construction equipment. It operates in several states across the Midwest and Mid-Atlantic but sells
Case No. 20-4312, RECO Equipment, Inc. v. Wilson et al.

in many more. Part of its business includes repairing and rebuilding old machinery to extend the

life of deteriorating equipment.

       Two of the defendants, Jeffrey Wilson and Joseph Craig Russo, began working for RECO

in 2014, when RECO purchased their former employer. Both started as at-will employees. But in

early 2019, Wilson signed an employment contract with RECO. The contract limited what Wilson

could do if he left the company. It specified that he had to return “all of [RECO’s] tangible and

intellectual property,” including his cell phone; that he couldn’t disclose RECO’s confidential

information or use it for his own advantage; and that for three years after leaving, he couldn’t

compete with RECO within fifty miles of its operating territory. R. 1, Pg. ID 17–19.

       The next year, Wilson resigned after a dispute with RECO about his position at the

company. Around that time, Wilson started his own competitor equipment company—Republic

Equipment Holding, LLC. He didn’t turn over his cell phone, and RECO found he had also kept

other confidential, proprietary information about the accounts he managed. So the company sued

Wilson, bringing claims for breach of contract and misappropriation of trade secrets. It asked the

district court to grant a preliminary injunction.

       Russo never entered into a formal employment contract. But around the same time as

Wilson, he also left RECO. He told the company he was leaving to join Wilson’s new business.

Yet before he resigned, an IT technician had noticed a syncing program running on his computer

one day. She investigated it after he left. And she found that Russo had downloaded hundreds of

files from RECO’s cloud drive to his computer, copied everything on his work computer into

Dropbox, and moved his Dropbox account to his personal address. He had also shared a Google

Drive link—granting access to the company’s folders and files—with a new email address: his

account with Wilson’s new venture.

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Case No. 20-4312, RECO Equipment, Inc. v. Wilson et al.

        In the end, RECO estimated that Russo had downloaded over 400 files and folders on

sensitive matters; they included customer information, company finances, and manuals on machine

repair history and troubleshooting. So RECO added both Russo and Wilson’s new company to

the pending lawsuit against Wilson and requested preliminary injunctions against them.

        The case proceeded in a few stages. First, the district court granted a preliminary injunction

against Wilson. It ordered him to return his cell phone to RECO and stop competing with RECO

for ninety days.

        Then RECO moved for another preliminary injunction, this time requesting that the court

(1) direct Wilson to comply with his noncompete provisions, (2) enjoin Wilson and Russo from

using trade secrets to solicit business from RECO customers, and (3) order the pair to return the

stolen RECO information. The court held a hearing and granted the company’s motion, finding

that RECO was likely to succeed on the merits of both its breach-of-contract claim and its trade-

secrets claim. Wilson and Russo appealed the preliminary injunction, which we review for an

abuse of discretion.

                                                   II.

        A preliminary injunction is an extraordinary equitable remedy. To obtain one, a moving

party must show: (1) a likelihood of success on the merits; (2) a likelihood of irreparable harm

absent an injunction; (3) the balance of the equities tips in its favor; and (4) the injunction is in the

public’s interest. Winter v. Nat. Res. Def. Council, Inc., 555 U.S. 7, 20 (2008). Although we

balance these factors, the movant must show at least some likelihood of success on the merits and

that it likely will suffer irreparable harm absent the injunction. See D.T. v. Sumner Cnty. Schs.,

942 F.3d 324, 326–27 (6th Cir. 2019); S. Glazer’s Distribs. of Ohio, L.L.C. v. Great Lakes Brewing

Co., 860 F.3d 844, 849 (6th Cir. 2017).

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Case No. 20-4312, RECO Equipment, Inc. v. Wilson et al.

        When a movant seeks a preliminary injunction on multiple claims, courts evaluate each

claim separately. See, e.g., Lexmark Int’l, Inc. v. Static Control Components, Inc., 387 F.3d 522

(6th Cir. 2004). The defendants here challenge aspects of the district court’s decisions on two

claims: RECO’s breach-of-contract claim and its misappropriation-of-trade-secrets claim. We

address each in turn.

                                                    A.

        Take RECO’s breach-of-contract claim. Here, RECO sought a preliminary injunction

against Wilson, arguing that his decision to open a competitor company violated his contract’s

three-year noncompete provisions. Wilson does not contest that he breached the noncompete

agreement. Instead, he contends that the agreement is unenforceable and that RECO thus failed to

establish that it is likely to succeed on this claim.

        The enforceability of Wilson’s noncompete agreement turns on whether it is “reasonable.”

Chi. Title Ins. Corp. v. Magnuson, 487 F.3d 985, 990 (6th Cir. 2007). A noncompete agreement

is reasonable under Ohio law if it satisfies three factors. It must not (1) be “greater than is required

for the protection of the employer,” (2) “impose undue hardship on the employee,” or (3) be

“injurious to the public.” Id. at 991 (quoting Raimonde v. Van Vlerah, 325 N.E.2d 544, 547 (Ohio

1975)). RECO bears the burden of establishing each of these factors by “clear and convincing

evidence.” Id. (quoting Levine v. Beckman, 548 N.E.2d 267, 270 (Ohio 1988)).1

        RECO failed to carry that burden. That is, it failed to establish at least one of those

factors—namely, that the three-year restriction “does not impose undue hardship” on Wilson. Id.

1
 Courts interpreting Ohio law are divided on whether they must consider just these three factors or also an
augmented list of nine. Compare Try Hours, Inc. v. Douville, 985 N.E.2d 955, 965 & n.1 (Ohio Ct. App.
2013) (three reasonableness factors), with Basicomputer Corp. v. Scott, 973 F.2d 507, 512 (6th Cir. 1992)
(nine), and Magnuson, 487 F.3d at 991–92 (applying the nine-factor approach). Because RECO did not
show even the minimum three, we need not consider the longer list.
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Case No. 20-4312, RECO Equipment, Inc. v. Wilson et al.

Indeed, RECO failed to present any evidence on the question at all. It did not highlight relevant

evidence in its preliminary-injunction briefing; nor at the lower court hearing; and it did no more

than gesture to it here. Instead, RECO claims that Wilson should have testified about his own

harm. But the burden is on RECO to provide “clear and convincing evidence” for this factor. Id.

It simply did not.

        Since RECO did not make this showing, it also did not show it is likely to succeed on the

merits of its breach-of-contract claim at this stage. And because RECO cannot win a preliminary

injunction where there is simply no likelihood of success on the merits, see Great Lakes Brewing

Co., 860 F.3d at 849, we vacate the preliminary injunction as it relates to Wilson’s noncompete

provisions.

                                                    B.

        Next, RECO’s claim for misappropriation of trade secrets. RECO contends that Wilson

and Russo stole documents that detail the company’s process for providing services, repairs, and

rebuilds; the work done by their technicians; the troubleshooting involved; and the novel problems

RECO employees encountered. The lower court ordered the pair to return the documents and

barred them from using the information to solicit business. On appeal, Wilson and Russo contend

that the injunction should not have issued because RECO failed to show that it is likely to succeed

on the merits and that it will suffer irreparable injury. We take each issue in turn.2

                                                    1.

        To succeed on a misappropriation-of-trade-secrets claim, RECO must make three

showings, each by a preponderance of the evidence: (1) that a piece of information is a trade

2
  Since Wilson and Russo do not challenge the lower court’s analysis of the third and fourth preliminary-
injunction factors, we will not review them here. See RGIS, L.L.C. v. Gerdes, 817 F. App’x 158, 163 (6th
Cir. 2020); see also Indeck Energy Servs., Inc. v. Consumers Energy Co., 250 F.3d 972, 979 (6th Cir. 2000).
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Case No. 20-4312, RECO Equipment, Inc. v. Wilson et al.

secret; (2) that the defendant acquired the trade secret through a confidential relationship; and

(3) that the defendant used the trade secret without authorization. See Handel’s Enters., Inc. v.

Schulenburg, 765 F. App’x 117, 122 (6th Cir. 2019). Wilson and Russo dispute only the first

element: whether RECO showed the information they took actually constitutes trade secrets.

       Under our precedent, the “question of whether something is a trade secret is a question of

fact to be determined by the trier of fact upon the greater weight of the evidence.” Hoover Transp.

Servs., Inc. v. Frye, 77 F. App’x 776, 782 (6th Cir. 2003). So we review the district court’s

determination under the clear-error standard. Handel’s Enters., 765 F. App’x at 121–22. As the

Supreme Court has explained, clear error is a generous standard of review. We defer to the district

court’s factual findings and the inferences it drew from them so long as the “account of the

evidence is plausible in light of the record viewed in its entirety.” Anderson v. City of Bessemer

City, 470 U.S. 564, 573–74 (1985). We may not reverse these findings even if we are “convinced”

that we “would have weighed the evidence differently” on first impression. Id. at 574.

       Under Ohio statutory law, information is a trade secret only if it meets two conditions.

First, it must “derive[] independent economic value, actual or potential, from not being generally

known to, and not being readily ascertainable by proper means by, other persons who can obtain

economic value from its disclosure or use.” Ohio Rev. Code Ann. § 1333.61(D)(1). And second,

the information must be “the subject of efforts that are reasonable under the circumstances to

maintain its secrecy.” Id. § 1333.61(D)(2).

       The Ohio Supreme Court has outlined six factors to analyze whether an item constitutes a

trade secret: (1) “the extent to which the information is known outside the business”; (2) “the

extent to which it is known to those inside the business, i.e., by the employees”; (3) “the

precautions taken by the holder of the trade secret to guard the secrecy of the information”; (4) “the

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Case No. 20-4312, RECO Equipment, Inc. v. Wilson et al.

savings effected and the value to the holder in having the information as against competitors”;

(5) “the amount of effort or money expended in obtaining and developing the information”; and

(6) “the amount of time and expense it would take for others to acquire and duplicate the

information.” Handel’s Enters., 765 F. App’x at 122; State ex rel. The Plain Dealer v. Ohio Dep’t

of Ins., 687 N.E.2d 661, 672 (Ohio 1997), superseded by statute on other grounds as stated in

State ex rel. Besser v. Ohio State Univ., 732 N.E.2d 373, 378 (Ohio 2000). Though no factor is

dispositive, we have noted that a “business or possessor of a potential trade secret must take some

active steps to maintain its secrecy in order to enjoy presumptive trade secret status.” Handel’s

Enters., 765 F. App’x at 122 (citation omitted).

       Here, the district court did not clearly err in finding that the documents in this case

constitute trade secrets. The record contains “compelling evidence” highlighting the importance

of these documents to RECO’s business. R. 41, Pg. ID 589. RECO’s vice president testified that

the stolen documents contain RECO’s “secret sauce for [the] business.” R. 50, Pg. ID 659. He

explained that this is because machine parts often “break in unique ways.” Id. at 642. Over years

of troubleshooting and fixing these machines, RECO technicians diligently “capture[d] that

information” to build institutional knowledge. Id. They stored this institutional memory in

“troubleshooting trees,” which technicians would use the next time an issue arose to “shorten the

time frame” to repair a machine. Id. at 646; R. 41, Pg. ID 589. These efficiency gains offer RECO

a marked competitive advantage.

       Put another way, the documents Wilson and Russo took with them featured insights that

RECO had learned only after spending “years developing technical expertise in the maintenance,

servicing, and rebuilding” of certain specialized equipment. R. 20-1, Pg. ID 295. RECO maintains

that “[t]his expertise is not generally known within the industry, and is a primary reason why

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Case No. 20-4312, RECO Equipment, Inc. v. Wilson et al.

RECO has been financially successful.” Id. What’s more, the defendants cannot point to record

evidence showing that this “unique” and “novel” information (the troubleshooting trees, for

example) is publicly available. Though they argue these documents aren’t actually RECO’s

secrets, and instead belong to the machine manufacturers or the customers themselves, this doesn’t

move the ball. The record reflects that RECO created repair and remanufacturing summaries on

how to fix novel, unique issues that it hadn’t encountered in machine manuals. Based on the

testimony, those documents are created directly by RECO—they don’t come from (or go to) the

manufacturers or RECO’s customers.

       Finally, these documents are password protected to keep them from broad distribution.

Only RECO employees whose positions require it are allowed access to the documents—the

company’s effort to guard against situations such as this one. This is enough to show the district

court did not clearly err in finding that the information is not publicly available and is “the subject

of efforts” to keep it secret. Ohio Rev. Code Ann. § 1333.61(D)(2).

       Taken together, we find no reason to depart from the district court’s assessment. It is clear

from the record that the documents Wilson and Russo pilfered include valuable private information

that RECO had gradually developed and sought to safeguard in multiple ways. Thus, the evidence

supports the district court’s finding that these documents are trade secrets under Ohio law. And

because the defendants don’t challenge the other two elements of the misappropriation claim, the

district court correctly concluded that RECO is likely to succeed on the merits of this claim.

                                                  2.

       The defendants next argue that RECO failed to establish that it is likely to suffer an

irreparable injury without an injunction. Cf. Nat’l Viatical, Inc. v. Univ. Settlements Int’l, Inc.,

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Case No. 20-4312, RECO Equipment, Inc. v. Wilson et al.

716 F.3d 952, 957 (6th Cir. 2013) (finding that “a plaintiff’s harm is not irreparable if it is fully

compensable by money damages”). We disagree.

       An injury is irreparable if the harm is difficult to calculate. See Basicomputer Corp. v.

Scott, 973 F.2d 507, 511 (6th Cir. 1992). And under our precedent, a “competitive injury” is one

such irreparable harm. Id. at 512. That’s because of the difficulty in calculating the damages that

flow from such a harm. Id.; see also Collins Inkjet Corp. v. Eastman Kodak Co., 781 F.3d 264,

279 (6th Cir. 2015) (pointing out that harm to “goodwill and competitive position . . . would be

hard to compensate”). The loss of goodwill is also irreparable. Hall v. Edgewood Partners Ins.

Ctr., Inc., 878 F.3d 524, 530 (6th Cir. 2017). That’s especially true in the trade-secrets context,

where the offending competitor may mix profits and savings attributable to the misappropriated

information—such as those from higher quality products and reduced research costs—with its own

natural profits. See Avery Dennison Corp. v. Four Pillars Enter. Co., 45 F. App’x 479, 485 (6th

Cir. 2002) (attempting to calculate damages and noting this makes it “difficult”).

       Here, the district court correctly found RECO would likely suffer irreparable harm without

an injunction. The district court observed that RECO’s trade secrets are an important competitive

advantage for the company, and when Wilson and Russo stole the proprietary information, they

opened RECO up to threats of unfair competition. Indeed, RECO’s vice president testified that

these secrets allow RECO technicians to service equipment particularly quickly, and they are

known for their speed. In short, the trade secrets allow them to be fast, and their speed sets them

apart. By stealing the secrets, the defendants could speed up their own process and steal customers.

But quantifying this harm with any level of precision would be impossible—a court would not be

able to determine whether the use of the trade secrets or legitimate business efforts caused

customers to leave RECO. See id. at 485–87. Plus, quantifying this competitive advantage alone

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Case No. 20-4312, RECO Equipment, Inc. v. Wilson et al.

is almost impossible. For these reasons, RECO’s damages would be difficult to calculate. So it

has shown a likelihood of irreparable harm.

       The defendants point to two cases to support their argument to the contrary. First, they

suggest that the facts here are analogous to Extracorporeal Alliance, L.L.C. v. Rosteck, 285 F.

Supp. 2d 1028 (N.D. Ohio 2003), aff’d 113 F. App’x 98 (6th Cir. 2004) (per curiam). There, the

court refused to enjoin the defendants where the plaintiff had an already-existing contract with a

customer whose business it feared it would lose after the defendants misappropriated its trade

secrets. But in that case, an existing contract provided an explicit dollar amount that the court

could use to calculate the plaintiff’s damages. Id. at 1044–45. Here, there is no existing contract

from which to calculate damages.

       Second, the defendants point to Basicomputer, where we found a likelihood of irreparable

harm based on testimony regarding incalculable damages. See 973 F.2d at 512. The defendants

seem to argue that because the testimony in that case was more robust, RECO’s testimony here is

insufficient to support an injunction. But nothing in Basicomputer set a floor for the amount of

testimony necessary for an injunction. Because the testimony here also shows that damages are

difficult to calculate, RECO has established a likelihood of irreparable harm.

                                         *       *       *

       RECO showed that it is likely both to succeed on the merits of the misappropriation claim

and suffer irreparable injury. And the defendants do not contest the district court’s conclusions on

the other preliminary-injunction factors. Thus, we affirm the lower court’s preliminary injunction

as to RECO’s trade secrets.

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Case No. 20-4312, RECO Equipment, Inc. v. Wilson et al.

                                                    III.

        Lastly, the defendants argue that the preliminary injunction must be vacated for a reason

unrelated to the merits. That is, because the district court failed to consider whether to require

security—i.e., bond. Under Federal Rule of Civil Procedure 65(c), a court can issue a preliminary

injunction “only if the movant gives security.” This rule “protects the enjoined party from any

pecuniary injury that may accrue while a wrongfully issued equitable order remains in effect.”

Brown v. City of Upper Arlington, 637 F.3d 668, 674 (6th Cir. 2011) (cleaned up).

        Though Rule 65(c)’s language suggests security is mandatory, our circuit has long

recognized a district court’s “discretion over whether to require the posting of security.”

Appalachian Reg’l Healthcare, Inc. v. Coventry Health & Life Ins., 714 F.3d 424, 431 (6th Cir.

2013) (citation omitted). In other words, a lower court can expressly choose not to require security.

But it must affirmatively do so—it can’t ignore the issue altogether. See Roth v. Bank of the

Commonwealth, 583 F.2d 527, 539 (6th Cir. 1978).

        Yet here the district court didn’t discuss security at all. Thus, we remand for the district

court to assess security for the remaining parts of the preliminary injunction. See NACCO

Materials Handling Grp., Inc. v. Toyota Materials Handling USA, Inc., 246 F. App’x 929, 952–

53 (6th Cir. 2007) (affirming a grant of a motion for a preliminary injunction but remanding for

the court to assess the amount of bond to impose when the issue is raised, even after the preliminary

injunction is entered).3

3
  RECO contends that Wilson (but not the other defendants) waived the security requirement in his
employment agreement. Because we are remanding the security issue and received little briefing on this
matter, we leave this question for the district court to consider in the first instance. Cf. Hawver v. United
States, 808 F.3d 693, 693 (6th Cir. 2015) (remanding for the district court to consider equitable-tolling
arguments in the first instance).
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Case No. 20-4312, RECO Equipment, Inc. v. Wilson et al.

                                       *      *      *

       For these reasons, we affirm the preliminary injunction to the extent it enjoins the

defendants from using or keeping the protected information. But we vacate the preliminary

injunction for RECO’s breach-of-contract claim and remand for proceedings consistent with this

opinion.

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