Court Opinion

ID: 4020573
Source: CourtListenerOpinion
Date Created: 2016-08-01 21:08:12.856824+00
Date Added: 2024-06-11T12:57:08.327729
License: Public Domain

This opinion will be unpublished and
                       may not be cited except as provided by
                       Minn. Stat. § 480A.08, subd. 3 (2014).

                            STATE OF MINNESOTA
                            IN COURT OF APPEALS
                                  A16-0010

                              Dexon Computer, Inc.,
                                  Respondent,

                                        vs.

                         Modern Enterprise Solutions, Inc.,
                                   Appellant,

                              Timothy Durant, et al.,
                                  Defendants.

                               Filed August 1, 2016
                                     Affirmed
                                   Jesson, Judge

                          Hennepin County District Court
                            File No. 27-CV-15-17171

Scott M. Flaherty, Michael C. Wilhelm, Michael M. Lafeber, Briggs and Morgan, P.A.,
Minneapolis, Minnesota (for respondent)

Christopher J. Harristhal, Daniel J. Ballintine, Andrew David Moran, Larkin Hoffman
Daly & Lindgren Ltd., Minneapolis, Minnesota (for appellant)

John A. Fabian, Nicholas G. B. May, Fabian May & Anderson PLLP, Minneapolis,
Minnesota (for defendants Timothy Durant and Andrew Uzpen)

      Considered and decided by Jesson, Presiding Judge; Halbrooks, Judge; and

Hooten, Judge.
                          UNPUBLISHED OPINION

JESSON, Judge

       Appellant Modern Enterprise Solutions Inc. (MES) claims that the district court

abused its discretion by granting a temporary restraining order. MES argues that the

district court’s order was based on improper evidence.              MES also maintains that

respondent Dexon Computer Inc. is unlikely to prevail on its underlying claims and has

failed to show that without a restraining order it will suffer irreparable harm. We affirm.

                                            FACTS

       Dexon buys and sells computer equipment. In early 2015 and for several years

prior, defendants Andrew Uzpen and Timothy Durant worked as sales representatives at

Dexon. In March of 2015, Uzpen ended his employment with Dexon and took a job with

its competitor, MES. In August of 2015, Durant also left Dexon for a position with MES.

At the time they left, Dexon was concerned that Uzpen and Durant took Dexon customer-

leads list information, described further below, with them to MES.

       Dexon maintains a list of customer leads that includes company names, contact

information, and hardware brand preferences for actual and potential Dexon customers.

Dexon purchases some of this information from Data.com, a service to which MES also

subscribes. But Dexon also develops the leads list through the research and networking

of its employees. Dexon’s full customer-leads list includes tens of thousands of contacts.

Only a few individuals within Dexon have access to this master list. Most employees

have access only to a portion of the leads list and use it to solicit sales.

                                               2
       The leads list is stored on the Dexon computer network, which can be accessed

through computers in Dexon’s offices. Although Uzpen and Durant dispute the extent to

which these policies were enforced, Dexon maintains that it requires employees to have

usernames and passwords to access Dexon computers and that employees must use keys

to access its offices.

       Dexon instructs employees to back-up their customer-leads list on personal flash

drives and take them home. Dexon has no written confidentiality policies related to the

customer-leads list and does not require employees to sign a noncompete agreement.

       When Uzpen went to MES, he kept his flash drive containing the portion of the

Dexon leads list to which he had access. He considered downloading this information to

MES’s customer-leads database, but did not because it was not compatible.

       When Durant left Dexon for MES, he also had a copy of the customer-leads list on

a flash drive.    Just days after leaving Dexon, Durant sent a mass email informing

customers that he was moving to MES and offering to underbid open Dexon orders and

quotes. Durant admits that the email was sent to contacts on the portion of the Dexon

customer-leads list that he had access to. A subsequent analysis of his flash drive

revealed that it contained contact information for 10,056 customers and was organized by

hardware preference.

       After Durant left, Dexon’s CEO, Stephen O’Neil, received a phone call from an

anonymous MES employee on August 31, 2015. The employee told O’Neil that Durant

had stolen 11,000 customer leads from Dexon and taken them to MES. The employee

said that MES had encouraged the theft and was using the leads to steal Dexon’s

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customers. The employee also told O’Neil that Uzpen brought customer leads from

Dexon to MES.

       O’Neil later received a letter from the anonymous MES employee. The letter

included copies of MES purchase orders for sales completed by Durant in the first several

weeks after he left Dexon. Some of the purchase orders show that Durant made sales at

MES to customers he had solicited while at Dexon.

       Shortly thereafter, in September of 2015, O’Neil received a call from a former

MES employee. The former employee also told O’Neil that he had heard from people

inside MES that Durant had stolen Dexon’s customer leads and brought them to MES.

       In October 2015, Dexon filed a verified complaint against MES, Uzpen, and

Durant. Dexon seeks damages for misappropriation of trade secrets and several other

claims. Dexon also moved for a temporary restraining order, requesting that defendants

be enjoined from “continued misappropriation of trade secrets” and other tortious activity

involving use of the customer-leads list.

       In December 2015, the district court issued an order granting Dexon’s request for

a temporary restraining order. The order prohibits MES, Uzpen, and Durant from using

or disclosing any “Confidential Dexon Information,” which is defined as “any and all

information derived from Dexon’s list of customer leads; except for that information

included on the Dexon list that was already known by Defendant MES prior to obtaining

the Dexon list; or was . . . obtained by MES from the Data.com subscription.” The order

also requires MES, Uzpen, and Durant to return the information derived from the flash

                                            4
drives to Dexon and to delete any “Confidential Dexon Information” from the MES

computer system or other electronic devices in their possession. This appeal follows.

                                     DECISION

       A temporary restraining order is an extraordinary equitable remedy used to

preserve the status quo pending adjudication of the merits of a case. Miller v. Foley, 317
N.W.2d 710, 712 (Minn. 1982). The decision to grant a temporary restraining order may

be reversed only for a clear abuse of discretion. Carl Bolander & Sons Co. v. City of

Minneapolis, 502 N.W.2d 203, 209 (Minn. 1993). The district court’s factual findings

will not be set aside unless clearly erroneous. LaValle v. Kulkay, 277 N.W.2d 400, 402

(Minn. 1979). We view the facts alleged in the pleadings and affidavits in the light most

favorable to the party prevailing in the district court. Pacific Equip. & Irr., Inc. v. Toro

Co., 519 N.W.2d 911, 914 (Minn. App. 1994), review denied (Minn. Sept. 16, 1994).

       A district court may grant a temporary restraining order if the party seeking the

order establishes that monetary damages are not adequate and that denial of the order will

result in irreparable harm. Cherne Indus., Inc. v. Grounds & Assocs., Inc., 278 N.W.2d
81, 92 (Minn. 1979). In evaluating whether the district court abused its discretion by

granting a temporary restraining order, we consider five factors: (1) the nature and

background of the relationship between the parties; (2) the balance of harms suffered by

the parties; (3) the likelihood that the party seeking the injunction will prevail on the

merits; (4) public-policy considerations as expressed in statute; and (5) the administrative

burdens involved in judicial supervision and enforcement of the injunction. Dahlberg

Bros., Inc. v. Ford Motor Co., 272 Minn. 264, 274-75, 137 N.W.2d 314, 321-22 (1965).

                                             5
      MES argues that, in granting the temporary restraining order, the district court

erred by relying on Dexon’s verified complaint, including the statements of the

anonymous and former MES employees. MES further argues that the district court

abused its discretion by determining that Dexon is likely to succeed against MES on its

trade secret and other claims and asserts that Dexon failed to show that it would suffer

irreparable harm in the absence of an injunction. We first address MES’s evidentiary

arguments and then discuss Dexon’s likelihood of success, irreparable harm, and the

remaining Dahlberg factors.

   A. MES’s evidentiary claims

      MES argues that Dexon’s complaint “was not properly verified and could not

support injunctive relief as a matter of law.” MES claims that a verified complaint must

be based only on personal knowledge and that it is unclear what allegations in Dexon’s

complaint are based on “reliable information” and what allegations are based on personal

knowledge. MES further argues that the statements of the anonymous and former MES

employees are hearsay and were improperly considered. We disagree.

      A temporary restraining order may be granted based solely on a complaint if the

complaint makes out a sufficient case, is verified, and contains positive allegations.

Minn. R. Civ. P. 65.01; Indep. Sch. Dist. No. 35 v. Engelstad, 274 Minn. 366, 369, 144
N.W.2d 245, 248 (1966). “[E]vidence is ‘positive’ where the witness states that a certain

thing did or did not happen or exist.” Miller v. Hughes, 259 Minn. 53, 59, 105 N.W.2d
693, 698 (1960).

                                           6
          MES cites a number of cases stating that injunctive relief cannot be issued on facts

stated on information and belief alone. See e.g., Armstrong v. Sanford, 7 Minn. 49, 52, 7
Gilmer 34, 40 (1862). But MES’s verified complaint is not based only on information and

belief.     The verification states that the complaint is based on O’Neil’s “personal

knowledge and reliable information.” Many of the allegations in the complaint are

positive and are within O’Neil’s personal knowledge as the CEO of Dexon. For example,

O’Neil would have personal knowledge of when Uzpen and Durant were employed at

Dexon; of Uzpen and Durant’s job duties and access to the customer-leads list while at

Dexon; and of how Dexon develops, stores, and uses customer-lead information. O’Neil

also personally received the mass email Durant sent to Dexon customers shortly after

leaving for MES.

          Furthermore, as the district court noted, many of the allegations in the complaint

are supported not just by the complaint but also by the affidavits of Uzpen and Durant.

Both Uzpen and Durant admitted that they left Dexon for MES and that they took flash

drives with them containing Dexon’s customer-leads list. Durant admits that he sent out

the mass email using Dexon’s customer-leads list. Durant also admits that he solicited

business from customers while at MES that he had previously worked with at Dexon. In

addition, sales Durant made to Dexon customers shortly after leaving Dexon are

catalogued in the purchase orders attached to the complaint.

          MES’s arguments that the district court erred by relying on the statements of the

anonymous MES employee and the former MES employee are also unavailing. Even if

this information is hearsay, given the haste with which preliminary-injunction decisions

                                               7
must be made, the United States Supreme Court has said that an injunction is

“customarily granted on the basis of procedures that are less formal and evidence that is

less complete than in a trial on the merits.” Univ. of Texas v. Camenisch, 451 U.S. 390,

395, 101 S. Ct. 1830, 1834 (1981).        Many federal courts of appeal have therefore

permitted hearsay to provide the basis for preliminary injunctive relief. See, e.g., Mullins

v. City of New York, 626 F.3d 47, 51-52 (2d Cir. 2010) (listing decisions from other

circuits that allow preliminary injunctive relief to be based on hearsay and adopting that

position). We find this reasoning persuasive.

       MES points to an unpublished decision of this court stating that a district court

may not grant a preliminary injunction based on hearsay. Kelley v. Rudd, No. C7-91-

1142, 1992 WL 3651 (Minn. App. Jan. 14, 1992), review denied (Minn. Mar. 26, 1992).

But unpublished decisions are not precedential. Minn. Stat. § 480A.08, subd. 3 (2014).

And Kelley denied injunctive relief because the appellant’s affidavit was “based entirely

on hearsay evidence.” 1992 WL 3651, at *4. In contrast, the district court here granted

the injunction based not only on the statements of the anonymous and former MES

employees but also on the facts in the complaint that were within O’Neil’s personal

knowledge, on the admissions of Uzpen and Durant, and on other documentary evidence.

   B. Likelihood that Dexon will succeed on its claims against MES

       We begin our analysis of the Dahlberg factors by discussing Dexon’s likelihood of

succeeding on the merits of its claims.       “If a plaintiff can show no likelihood of

prevailing on the merits, the district court errs as a matter of law in granting a temporary

                                             8
injunction.” Metro. Sports Facilities Comm’n v. Minn. Twins P’ship, 638 N.W.2d 214,

226 (Minn. App. 2002), review denied (Minn. Feb. 4, 2002).

              1.   Misappropriation of trade secrets

       To prevail on a claim under the Uniform Trade Secrets Act, Minn. Stat.

§§ 325C.01-.08 (2014), the plaintiff must show both the existence and misappropriation

of a trade secret. Electro-Craft Corp. v. Controlled Motion, Inc., 332 N.W.2d 890, 897

(Minn. 1983). The act defines a trade secret as information that (1) is not generally

known or readily ascertainable; (2) derives independent economic value from secrecy;

and (3) is the subject of efforts that are reasonable under the circumstances to maintain

secrecy. Minn. Stat. § 325C.01, subd. 5(i), (ii); Electro-Craft Corp., 332 N.W.2d at 899-

901. If an employee acquires a trade secret without express notice that it is a trade secret,

then the employee must know or have reason to know that the owner expects secrecy.

Minn. Stat. § 325C.01, subd. 5.

       MES argues that the customer-leads information is not a trade secret because this

information was either already possessed by MES or readily ascertainable. MES also

argues that Dexon failed to undertake reasonable efforts to keep its customer-leads list

confidential. The district court’s findings on whether information is generally known or

readily ascertainable and on whether information is the subject of efforts that are

reasonable under the circumstances to maintain secrecy are findings of fact that we

review for clear error. Electro-Craft, 332 N.W.2d at 899, 902.

                                             9
                 a. Generally known or readily ascertainable

       The district court acknowledged that some of the information in the customer-

leads list was already possessed by MES through its Data.com subscription. The district

court, however, found that Dexon’s customer-leads list also included information that

was not from Data.com. The question then is whether the information not included in the

Data.com subscription was generally known or readily ascertainable.

       We acknowledge that customer-lead lists are generally not trade secrets. See

Blackburn, Nickels & Smith, Inc. v. Erickson, 366 N.W.2d 640, 645 (Minn. App. 1985)

(holding that a customer list did not constitute a trade secret because “[i]t could be easily

duplicated from public sources”), review denied (Minn. June 24, 1985). The information

contained in customer-lead lists is often “‘readily ascertainable by proper means’ over the

course of time without efforts beyond those ordinarily exerted by salesmen in developing

customers.” Fleming Sales Co. v. Bailey, 611 F. Supp. 507, 514 (N.D. Ill. 1985).

       However, this case involves a very large amount of information—Durant’s flash

drive contained data on over 10,000 customers. In Cherne, our supreme court stated that

“[t]he presence of an alternate means of obtaining the names of [10,000 potential

customers] . . . without more, is not sufficient to establish that the information is

generally ascertainable.” 278 N.W.2d at 90. The district court concluded that Dexon’s

customer-leads list “included information that its employees acquired through their own

networking and research” and “included relevant sales information specific to individual

actual and potential customers.” Because it could take MES significant time and effort to

assemble a customer list containing the large amount of information contained on the

                                             10
Dexon list, the district court’s finding that the customer-leads list was not generally

known or readily ascertainable is not clearly erroneous.

                 b. Efforts that are reasonable under the circumstances to maintain
                    secrecy.

       MES argues that every case finding reasonable efforts to maintain the secrecy of

customer-leads information involves a noncompete or confidentiality agreement

identifying the information as confidential. See, e.g., Cherne, 278 N.W.2d at 90 (noting

reasonable efforts to maintain secrecy of customer-leads information where employees

signed a covenant not to compete that prohibited them from disclosing or taking

confidential information). Here, there was no noncompete or confidentiality agreement

and no written confidentiality policy. But MES has not cited any decision specifically

requiring the use of confidentiality agreements or explicit policies. This is because the

statute does not require any specific actions. Instead, the test is whether the information

“is the subject of efforts that are reasonable under the circumstances to maintain its

secrecy.” Minn. Stat. § 325C.01, subd. 5(i) (emphasis added).

       MES maintains that the customer-leads list was “unprotected” and cites case law

stating that reasonable efforts are not made when supposedly trade secret information is

not “locked up.” Nordale, Inc. v. Samsco, Inc., 830 F. Supp. 1263, 1274 (D. Minn. 1993)

(citing Gordon Employment, Inc. v. Jewell, 356 N.W.2d 738, 741 (Minn. App. 1984)).

But the district court found that passwords were necessary to logon to Dexon computers

and that keys were necessary to access Dexon’s offices. Although Uzpen and Durant

challenge the extent to which these policies were enforced, the district court’s finding is

                                            11
based on information in Dexon’s verified complaint, and, on appeal, we must view the

evidence in the light most favorable to the district court’s order. Toro Co., 519 N.W.2d

at 914. Dexon protected the customer-leads list information by requiring passwords to

access the computers on which the list was stored and by locking its offices. This is the

twenty-first century equivalent of keeping the customer-leads list in a locked file and

provides support for the district court’s finding that Dexon took reasonable efforts to

maintain the secrecy of the list.

       Dexon never explicitly informed its employees that the customer-leads list

information was confidential. This, however, does not negate the existence of a trade

secret as long as, under the circumstances, the employee “knows or has reason to know

that the owner intends or expects the secrecy of the type of information comprising the

trade secret to be maintained.” Minn. Stat. § 325C.01, subd. 5. By only allowing

employees to access a portion of the customer-leads list, requiring passwords to access its

computer network, and locking its offices, Dexon indicated to employees that the

information was confidential. Dexon’s security measures were undoubtedly weakened

by Dexon’s instruction to employees to download the information onto flash drives, but

its other actions did provide employees with a “reason to know” that Dexon intended the

information to be confidential. Moreover, district court judges can apply common sense,

as the court did here, finding that “Durant and Uzpen could not have reasonably believed

they were permitted to take with them to their new employer a list of over 10,000

customers . . ., developed by Dexon.”

                                            12
       We acknowledge that this was a close issue for the district court. But in reviewing

a district court’s findings, it is not our role to ascertain whether we would reach the same

result. As the reviewing court, our task is only to assess whether the district court’s

finding is clearly erroneous. See Electro-Craft Corp., 332 N.W.2d at 899, 902. We

conclude that the district court did not clearly err in finding that Dexon made reasonable

efforts to maintain the secrecy of the client-leads list, and it did not abuse its discretion by

determining that Dexon is likely to succeed on its misappropriation-of-trade-secret claim.

              2. Tortious interference with prospective economic advantage

       To prevail on a claim of tortious interference with prospective economic

advantage, a plaintiff must prove: (1) the existence of a reasonable expectation of

economic advantage; (2) the defendant’s knowledge of that expectation; (3) the

defendant’s intentional interference with the plaintiff’s reasonable expectation of

economic advantage in a manner that is tortious or in violation of a state or federal statute

or regulation; (4) that without the defendant’s interference, it is reasonably probable that

plaintiff would have realized this economic advantage; and (5) that the plaintiff suffered

damages. Gieseke ex. rel. Diversified Water Diversion, Inc. v. IDCA, Inc., 844 N.W.2d
210, 219 (Minn. 2014).        Dexon claims that, by soliciting its customers using the

customer-leads list, MES interfered with Dexon’s reasonable expectation of economic

advantage.    It claims that this interference was tortious because it involved the

misappropriation of trade secrets and the conversion of Dexon’s customer-leads list.

       Given that the leads list was not generally known or readily ascertainable and

contained information presumably helpful in making sales, Dexon likely did have a

                                              13
reasonable expectation of economic advantage.           By using the likely trade-secret

customer-leads list, MES may have tortiuously interfered with that expectation. The

district court’s determination that Dexon is likely to succeed on this claim is not an abuse

of discretion.1

       Because Dexon is likely to succeed against MES on at least some of its claims,2

the district court did not abuse its discretion by determining that the likelihood-of-success

factor weighed in favor of granting the injunction.

    C. Irreparable harm

       The party seeking a temporary restraining order must establish that the order is

necessary to prevent irreparable harm and that there is no adequate legal remedy.

Cherne, 278 N.W.2d at 92. MES argues that Dexon failed to meet this burden.

       Irreparable harm may be inferred from the misappropriation of confidential or

trade secret information. Creative Commc’ns Consultants, Inc. v. Gaylord, 403 N.W.2d
654, 657 (Minn. App. 1987). Dexon has established that MES likely misappropriated its

trade secret customer-leads list. There is also evidence that Durant’s use of the list has

resulted in Dexon losing customers. Dexon has shown irreparable harm.

1
  The district court also concluded that MES is likely to succeed on its claim of unfair
competition. Unfair competition is not an independent tort and does not have specific
elements. Rehabilitation Specialists, Inc. v. Koering, 404 N.W.2d 301, 305-06 (Minn.
App. 1987). Instead, an unfair-competition claim can be based on successful claims of
tortious interference with prospective economic advantage or misappropriation of trade
secrets. See United Wild Rice, Inc. v. Nelson, 313 N.W.2d 628, 632 (Minn. 1982).
Accordingly, we need not separately address Dexon’s likelihood of success on that claim.
2
  Dexon also brought a conversion claim against MES. The district court found that “[i]t
is possible that Dexon may prevail on its conversion argument.” Dexon concedes that the
district court did not base the temporary restraining order on its likelihood of success on
this claim. For this reason, we do not address it.

                                             14
       MES also argues that the legal remedy of damages would be adequate to

compensate any harm suffered by Dexon. The district court’s determination that a legal

remedy would not be adequate is not an abuse of discretion. The list contains more than

10,000 actual and potential customers. It would be very difficult to determine after the

fact whether Dexon lost those customers to MES as a result of MES obtaining the

customer-leads list or for some other legitimate reason. Thus causation would be difficult

to establish, and damages would be speculative.

   D. The nature of the parties’ relationship

       The nature and background of the parties’ relationship is also one of the Dahlberg

factors. Dahlberg Bros., Inc., 272 Minn. at 274, 137 N.W.2d at 321. The purpose of a

temporary restraining order is to maintain the status quo of the parties’ relationship until a

decision on the merits can be reached. Foley, 317 N.W.2d at 712.

       MES argues that the restraining order does not maintain the status quo as of the

date the district court issued the order, but rather reverts the matter back to the situation

before Durant took the customer-leads information with him to MES. We disagree. The

district court’s order does not require MES to abandon any customers it has gained as a

result of the use of the customer-leads list. It merely requires the company to refrain

from using the confidential information going forward and to return the information to

Dexon. This maintains the status quo by preserving fair competition between the parties.

       The district court did not abuse its discretion by determining that this factor

weighs in favor of granting the temporary restraining order.

                                             15
   E. Public-policy considerations

       The fourth Dahlberg factor requires the court to consider whether public-policy

considerations as expressed in statute favor either party. 272 Minn. at 275, 137 N.W.2d

at 321-22.    The Uniform Trade Secrets Act expresses a desire to eliminate the

misappropriation of trade secrets. See Minn. Stat. §§ 325C.01-.08. The district court did

not abuse its discretion by concluding that this factor weighs in favor of an injunction.

   F. Administrative burden

       The final Dahlberg factor is the administrative burden of judicial supervision and

enforcement of the temporary restraining order. 272 Minn. at 275, 137 N.W.2d at 322.

The district court determined that the administrative burden placed on the court weighed

neither for nor against granting injunctive relief.

       A report from a computer forensic expert indicated that deleting the information

the district court termed confidential from MES’s servers would take approximately 8-12

days. After the information is deleted, little to no additional oversight appears necessary.

While the district court has had to issue one clarifying order, no hearing was held, and

Dexon did not contest the clarification sought by MES.

       The district court fashioned a common-sense injunction that appears easy to

understand, implement, and maintain. The district court did not abuse its discretion by

determining that this factor does not weigh against granting the order.

                                              16
   G. Conclusion

      The district court considered the evidence presented by both parties and issued a

thorough and thoughtful order discussing each Dahlberg factor in depth. The district

court’s temporary restraining order was not an abuse of discretion.

      Affirmed.

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