Court Opinion

ID: 4025902
Source: CourtListenerOpinion
Date Created: 2016-08-17 16:01:04.323718+00
Date Added: 2024-06-11T13:01:46.962822
License: Public Domain

FILED
                                                                     United States Court of Appeals
                      UNITED STATES COURT OF APPEALS                         Tenth Circuit

                             FOR THE TENTH CIRCUIT                          August 17, 2016
                         _________________________________
                                                                          Elisabeth A. Shumaker
                                                                              Clerk of Court
RETIREE, INC.,

      Plaintiff - Appellee,

v.                                                          No. 15-3101
                                                   (D.C. No. 2:12-CV-02079-JAR)
DANA ANSPACH; SENSIBLE MONEY,                                 (D. Kan.)
LLC,

      Defendants - Appellants.
                      _________________________________

                             ORDER AND JUDGMENT*
                         _________________________________

Before TYMKOVICH, Chief Judge, LUCERO and BACHARACH, Circuit Judges.
                 _________________________________

      Retiree, Inc., filed suit against Dana Anspach and Sensible Money, LLC,

alleging breach of a confidentiality agreement. Following a bench trial, the district

court ruled in favor of Retiree, entered a permanent injunction, and awarded Retiree

$500,000 in liquidated damages. Defendants now appeal. Exercising jurisdiction

under 28 U.S.C. § 1291, we affirm in part and reverse in part.

                                           I

      Retiree is a retirement-planning firm specializing in decumulation—the

process of efficiently drawing down retirement assets. As described by Retiree

      *
         This order and judgment is not binding precedent, except under the doctrines
of law of the case, res judicata, and collateral estoppel. It may be cited, however, for
its persuasive value consistent with Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.
principal William Meyer, the company attempts to extend asset longevity by

coordinating five elements: (1) asset allocation, which refers to the mix of stocks and

bonds in a portfolio; (2) tax efficiency, which looks to increase the after-tax amount

of assets; (3) asset location, which concerns the placement of investments in

particular accounts; (4) withdrawal sequencing, which refers to the order of account

withdrawals; and (5) Social Security claiming strategies. Retiree spent more than

three years developing its “big model”—an Excel spreadsheet coordinating the five

elements, which includes more than 800 rows of tax calculations. The company has

also developed a simplified “QuickStart” model which generates free client reports

showing side-by-side comparisons of various decumulation strategies.

      Anspach is a Certified Financial Planner and has earned a Retirement

Management Analyst designation from the Retirement Income Industry Association

(“RIIA”). Since 2008, she has authored a popular retirement-planning blog. In early

2011, she was a principal of Wealth Management Solutions (“WMS”), a financial

planning and investment advisory firm. According to Meyer, decumulation was not

Anspach’s niche practice at WMS, although she was familiar with the decumulation

concepts identified above.

      In February 2011, Meyer contacted Anspach and the two began considering

merging Anspach’s portion of WMS’ practice into Retiree. In March 2011, Anspach

left WMS. She signed a Confidentiality, Non-Compete and Invention Ownership

Agreement (the “Confidentiality Agreement”) with Retiree. In the Confidentiality

Agreement, Anspach acknowledged that she would receive “Confidential

                                           2
Information,” which was defined as “certain confidential and proprietary information

concerning, without limitation, trade secrets, software products, software designs,

specifications, processes, plans, or other ideas or inventions relating to the financial

services industry.” Anspach agreed that she would “not use the Confidential

Information other than for the purposes of [her] business with [Retiree]” and would

“not disclose, publish or otherwise reveal any of the Confidential Information

received from [Retiree] to any other party whatsoever except with the specific prior

written authorization of [Retiree].” The Confidentiality Agreement also contained a

liquidated damages provision requiring Anspach to pay Retiree $250,000 for each

violation. During her affiliation with the company, she received access to documents

Retiree considered confidential and proprietary, including the QuickStart

spreadsheet. She was not provided access to the “big model,” although Meyer

showed her portions of it.

      Shortly after leaving WMS, however, Anspach decided against joining Retiree.

She instead formed a new company called Sensible Money. In February 2012,

Retiree filed suit alleging Anspach and Sensible Money had breached the

Confidentiality Agreement by using Retiree’s Confidential Information and by

disclosing that Confidential Information to third parties. Retiree sought both

injunctive relief and damages. The district court held a preliminary injunction

hearing followed by a bench trial.

      At those proceedings, Meyer testified that as of 2011 very few retirement

advisors focused on decumulation, and that none efficiently coordinated Retiree’s

                                            3
five elements. Meyer repeatedly stressed that the true value of the Retiree model was

the ability to coordinate these five components. He conceded that each individual

element is simple to understand, but testified only Retiree (and perhaps one other

competitor) was able to comprehensively coordinate all five factors. Meyer also

testified that interactions between the components made Retiree’s process

exponentially more complex. For example, withdrawal sequencing strategies

appearing optimal when viewed in isolation might result in more Social Security

income being subject to taxation, and maximizing tax efficiency in turn requires

proper asset location. However, Meyer acknowledged that many aspects of Retiree’s

complex methodology were in the public sphere because, for example, Retiree

principals authored publications explaining portions of the model. But Meyer

suggested that the publications were generally limited to case studies, and disclosed

only limited information on the underlying methods.

      To support Retiree’s use claim, Meyer compared Anspach’s spreadsheets from

before and after her association with Retiree. He noted that the “pre-Retiree”

spreadsheet contained several of Anspach’s annotations identifying gaps in her

model—in particular that “a tax calculation needs to be developed,” and that the

document should show “ideal allocation based on an algorithm that needs to be

defined/developed.” Further, Meyer observed that the pre-Retiree spreadsheet lacked

Social Security strategies. Meyer then offered Anspach’s more sophisticated “post-

Retiree” spreadsheet, which allowed Anspach to coordinate Social Security benefits

and withdrawal sequencing to minimize taxes. The post-Retiree spreadsheet also

                                          4
included information regarding the proper amounts to draw from taxable and tax-

deferred accounts.

      Anspach further developed her post-Retiree spreadsheet by the time of trial. In

June 2013, she authored a document describing her new “Spreadsheet 2.0” and

identifying “key differentiators” that “make it different from current planning

projection models.” Anspach stated that Spreadsheet 2.0: (1) allows users “to see

which years you have tax opportunities in a way that no other tool does”; (2)

“[a]ccurately incorporate[s] the taxation of Social Security”; and (3) has “[t]he ability

to tie withdrawal strategy to a specific investment allocation by account type.”

Meyer testified that the spreadsheet disclosed to Anspach does each of these things.

      Anspach’s testimony differed sharply from Meyer’s. She stated that although

planners use different terms and methods, the industry standard is for every financial

planner to advise clients in coordinating the five elements Meyer identified. She

denied that her spreadsheets use Retiree’s Confidential Information, claiming she

obtained her information from commercially available software. And she

distinguished her spreadsheets from Retiree’s by averring that hers could not

automatically coordinate tax and Social Security information.

      As to Retiree’s disclosure claim, Meyer testified that Anspach presented her

post-Retiree spreadsheets at RIIA events. Anspach denied promoting her spreadsheet

at the events, arguing that she only presented client reports which resulted from the

model. Retiree also argued that a book Anspach published included case studies

which constituted disclosure.

                                           5
      The district court found that Anspach violated the Confidentiality Agreement

“by appropriating the processes and methodology that underlay Retiree’s software

and practices.” It rejected Anspach’s position that Retiree’s methods were

commonplace, noting that after Anspach began calling “notably similar

methodologies and processes her own,” she herself described them as “novel, unique

and cutting-edge in the industry.” The differences between Anspach’s pre- and post-

Retiree spreadsheets, the court found, was “compelling” circumstantial evidence that

Anspach used Retiree’s Confidential Information. It noted that Anspach was able to

develop a spreadsheet similar to Retiree’s in just six months, while Retiree’s process

took several years. The court also held that Anspach disclosed Confidential

Information to Retiree’s competitors. It awarded $500,000 in liquidated damages

($250,000 each for the use and disclosure breaches), and entered a permanent

injunction.

      Anspach and Sensible Money moved to alter or amend the judgment. The

district court granted the motion in part. It clarified that the damages award was

entered only against Anspach, not Sensible Money. The court also set forth the terms

of its permanent injunction:

      Defendants shall be permanently enjoined from using their Post-Retiree
      Spreadsheets/Excel Models and shall remove all material on their
      website that was created using these spreadsheets/models, in particular
      their case studies page and The Free Report. Defendants are further
      enjoined from utilizing their Post-Retiree Spreadsheets/Excel Models in
      presentations, speaking engagements, books, and articles.

                                           6
The court defined “Post-Retiree Spreadsheets/Excel Models” as any “spreadsheet or

Excel model that utilizes this methodology that was shown to Anspach during her

affiliation with Retiree.” The court described Retiree’s appropriated methodology as

“integrat[ing] all of the[ five] factors and allow[ing] a client to see, in real-time, how

changing variables would affect their financial picture.” The court otherwise denied

defendants’ motion, and they timely appealed.

                                            II

       “In an appeal from a bench trial, we review the district court’s factual findings

for clear error and its legal conclusions de novo.” Weyerhaeuser Co. v. Brantley, 510

F.3d 1256, 1260 (10th Cir. 2007) (quotation omitted). The parties agree that

substantive Kansas state law governs this diversity case. See Erie R.R. Co. v.

Tompkins, 304 U.S. 64, 78 (1938).

                                            A

       Anspach first contends that the Confidentiality Agreement is unenforceable.

Whether a contractual provision is enforceable is a question of law we review de

novo. See Riley v. Kingsley Underwriting Agencies, Ltd., 969 F.2d 953, 956 (10th

Cir. 1992). “In Kansas, it is well recognized that a restrictive covenant in an

employment contract will only be applied to the extent it is reasonably necessary

under the facts and circumstances of the particular case.” Puritan-Bennett Corp. v.

Richter, 679 P.2d 206, 210 (Kan. 1984). “[O]nly a legitimate business interest may

be protected by a noncompetition covenant. If the sole purpose is to avoid ordinary

                                            7
competition, it is unreasonable and unenforceable.” Weber v. Tillman, 913 P.2d 84,

89 (Kan. 1996).

      As the Kansas Supreme Court has noted, many jurisdictions hold that

businesses possess a legitimate interest in protecting “the special training of

employees, trade secrets, confidential business information, loss of clients, good will,

reputation, seeing that contracts with clients continue, and referral sources.” Id. at

91. Kansas Courts have held that businesses may validly protect not only trade

secrets, but other confidential information through contract. In Kansas, the “law is

clear that an ex-employee may be enjoined from disclosing confidential material and

trade secrets gained in the course of his or her employment.” Farmers Grp. v. Lee,

28 P.3d 413, 419 (Kan. Ct. App. 2001); see also E. Distrib. Co. v. Flynn, 567 P.2d

1371, 1378 (Kan. 1977) (“The existence of trade secrets as evidence of enticing

customers from a former employer is sometimes relevant, but not essential, to

injunctive relief in a suit brought for breach of covenant not to compete.”); Heatron,

Inc. v. Shackelford, 898 F. Supp. 1491, 1500 (D. Kan. 1995) (“Kansas courts have

long recognized the employer’s right to maintain confidentiality of trade secrets or

other commercially sensitive information pertaining to the employer’s business

practices as an interest entitled to protection.”).1 The policy behind enforcing such

      1
         In Puritan-Bennett, the Kansas Supreme Court noted that agreements that
restrict more than “purely trade secrets, have been held unreasonable.” 679 P.2d at
211. But in the same decision, the court held that “[t]he question of trade secret
disclosure is not determinative of appellees’ right to have the noncompetition
covenant in force.” Id. at 212. We thus do not read Puritan-Bennett as establishing a
rule that only trade secrets are protectable by contract. See Rent-A-Center, Inc. v.
                                            8
confidentiality clauses is to bar an employee from “obtain[ing] an unfair competitive

advantage.” Weber, 913 P.2d at 92. But contractual provisions that “restrict

communication of ideas in general” are impermissible. Puritan-Bennett, 679 P.2d at

211.

       Anspach argues the Confidentiality Agreement is overbroad, relying on

Puritan-Bennett. There, the court held that a clause prohibiting a former employee

from using “any information connected with any aspect of the Company’s business”

was unenforceable. Id. Similarly, the Confidentiality Agreement in this case barred

use or disclosure of “other ideas or inventions relating to the financial services

industry.”

       Although this clause is overbroad, it does not render the entire Confidentiality

Agreement unenforceable. In Puritan-Bennett, the Kansas Supreme Court held that

“[s]trict enforcement” of the confidentiality clause at issue “would unreasonably

infringe upon appellant’s right to earn a living.” Id. But the court nevertheless

enforced the provision to the extent reasonable, enjoining the former employee “from

disclosing information relating to Puritan-Bennett’s research, development,

production or sales techniques of gaseous and chemical aircraft emergency oxygen

equipment.” Id.

Malinowski, 787 P.2d 742, 1990 Kan. App. LEXIS 66, at *3 (Kan. Ct. App. 1990)
(unpublished) (in Puritan-Bennett, the Kansas “Supreme Court also held that valid
purposes of covenants not to compete are not only to protect trade secrets, but also to
prevent an employee from using the expertise learned from his or her former
employer to a competitor’s benefit”).
                                            9
       The district court below effectively did the same. It determined that Retiree

had developed a “unique methodology . . . which is embodied and expressed through

[its] spreadsheet” and that Anspach “appropriate[d] the processes and methodology

that underlay Retiree’s software and practices.” The court made clear that it was not

barring Anspach from using spreadsheets, tax and Social Security planning software,

or other ideas or inventions related to the financial services industry in general.

Instead, the court enjoined the use of Retiree’s process and methodology by limiting

its injunction to the use of a coordinated spreadsheet that provided live updates based

on changing variables, such that a client could compare various strategies’ outcomes

in real time.

       As to this limited universe of information, we agree with the district court that

the Confidentiality Agreement is enforceable.2 As the district court found, “the

processes and methodology that underlay Retiree’s software and practices” fall

within the definition of “Confidential Information” in the Confidentiality Agreement.

This is true even omitting the overbroad “other ideas or inventions” clause. Meyer

testified that Retiree restricted access to those methods and processes and required

confidentiality agreements from anyone given access. He also testified that Retiree

was in negotiations with other companies to license Retiree’s services or invest in

Retiree’s intellectual property for millions of dollars. The steps taken by Retiree to

       2
        We acknowledge that Meyer made overbroad claims about the Confidential
Information in his testimony, stating for example that free reports issued to clients
without a confidentiality agreement were confidential. But we review the district
court’s orders, not the claims of Retiree’s witnesses.
                                           10
protect its spreadsheet model, combined with Anspach’s own words describing the

model’s novelty, convince us that the information used by Anspach was within the

enforceable ambit of the Confidentiality Agreement.

      Similarly, that portions of Retiree’s methodology use public information does

not render the Confidentiality Agreement unenforceable. Even a “trade secret can

exist in a combination of components, each of which, by itself, might be in the public

domain. A knowledge of the best combination of processes or systems of

combination of elements may amount to a trade secret.” Mann v. Tatge Chem. Co.,

440 P.2d 640, 647 (Kan. 1968). While affiliated with Retiree, Anspach learned

valuable confidential information regarding coordination of decumulation strategies.

And her spreadsheets changed quickly and dramatically after her relationship with

Retiree terminated. In making her new spreadsheets, Anspach used information that

she had contractually agreed not to use.

      Of course, the line between “ordinary competition” and “unfair competitive

advantage,” Weber, 913 P.2d at 92, is difficult to draw. So too is the line between

“confidential business information,” id. at 91, and “ideas in general,” Puritan-

Bennett, 679 P.2d at 211. Nevertheless, granting due deference to the district court’s

factual findings, see Weyerhaeuser, 510 F.3d at 1260, we conclude that the

restrictions of the Confidentiality Agreement enforced by the district court were

“reasonably necessary under the facts and circumstances of the particular case” and

thus permissible, Puritan-Bennett, 679 P.2d at 210.

                                           11
                                           B

      Anspach also argues that the district court erred in finding that she breached

the Confidentiality Agreement by using and disclosing Retiree’s Confidential

Information. We review these factual findings for clear error. Weyerhaeuser, 510

F.3d at 1260. “We will reverse for clear error only if the district court’s finding was

without factual support in the record or we are left with the definite and firm

conviction that a mistake has been made.” United States v. Martinez-Jimenez, 464

F.3d 1205, 1209 (10th Cir. 2006) (quotation omitted).

                                           1

      As to Retiree’s use claim, Anspach contends Retiree failed to present

necessary evidence indicating she misappropriated Retiree’s formulas or algorithms.

She further argues that the differences between her post-Retiree models and Retiree’s

spreadsheets demonstrate that she did not use proprietary information. We disagree.

      Anspach’s argument that her spreadsheets lacked the specific formulas

contained in Retiree’s spreadsheets is unavailing. The district court expressly found

that Anspach did not adopt the specific formulas from Retiree’s spreadsheets, but that

she nevertheless appropriated “the processes and methodology that underlay

Retiree’s software.” As described supra, Retiree’s methods are within the scope of

an enforceable agreement regardless of whether Anspach copied particular

spreadsheet cells. And after her affiliation with Retiree, Anspach described several

features that her “Spreadsheet 2.0” shared with Retiree’s spreadsheets as “different

from current planning projection models.” Thus, Anspach herself stated that the

                                           12
methods she adopted—which were nearly identical to Retiree’s methods—were

novel.

         The court further found that Anspach was able to develop a spreadsheet far

more sophisticated that the one she used prior to her affiliation with Retiree in only

six months, and concluded this was strong circumstantial evidence that she used

Retiree’s methods. Anspach counters that her spreadsheet was not as sophisticated as

Retiree’s. Specifically, she notes that her post-Retiree spreadsheet was not fully

integrated. The district court acknowledged that Anspach’s models were not as

detailed, but concluded that her ability to “replicate parts of Retiree’s spreadsheet” in

“an abbreviated time” led to the conclusion that Anspach used Retiree’s Confidential

Information. We are not left with a firm conviction that these findings are mistaken.

                                            2

         We reach the opposite conclusion as to Retiree’s disclosure claim. The district

court found that Anspach disclosed “confidential information to Retiree’s

competitors, including software providers Finance Logix and Social Security

Timing.” But Retiree states in its briefing that reference to these companies is

“misplaced,” and that Retiree introduced evidence about the Finance Logix-Social

Security Timing transaction merely “to show the reasonableness of the $250,000

liquidated damages number.” Retiree instead argues that Anspach disclosed

Confidential Information at conferences and in her book.

         Meyer testified that Anspach “presented her Excel model” at several RIIA

conferences. He did not claim to have attended these conferences, instead stating

                                            13
that “it was written up in the RIIA newsletter.” But the newsletter was not

introduced. Nor are we directed to any witness testimony contradicting Anspach’s

account of her presentation. Anspach testified that she showed “client reports, stuff

you would show to a client, just as an example of one way to lay out the information”

at the conferences. She stated that she “wasn’t promoting [her] Excel model.”

      Meyer’s bare-bones testimony that he learned from a newsletter that Anspach

presented her model is insufficient to support a finding that Anspach disclosed

Retiree’s Confidential Information. A factfinder cannot “engage in a degree of

speculation and conjecture that renders its finding a guess or mere possibility.”

Sunward Corp. v. Dun & Bradstreet, Inc., 811 F.2d 511, 521 (10th Cir. 1987)

(quotation omitted). Merely displaying client reports would not constitute disclosure

of Retiree’s Confidential Information. As Meyer conceded, client reports are “in the

public domain” and thus “not confidential.” Retiree itself provides free client reports

to the public, and Retiree’s principals have published papers containing client case

studies. Simply, client reports demonstrating that Retiree can coordinate various

elements are not protectable; rather “how to do it, how these things are coordinated”

is. See Puritan-Bennett, 679 P.2d at 211 (covenants that “restrict communication of

ideas in general” are unenforceable). Without any substantive evidence that Anspach

disclosed to conference attendees how Retiree’s methodology operates, the record

contains insufficient evidence that she disclosed protectable information at the

conferences.

                                          14
      Retiree contends that Anspach disclosed Confidential Information in a book

she authored. But the portions of Anspach’s book Retiree cites merely offer a case

study discussing various decumulation scenarios for a hypothetical couple. The case

study shows the results of implementing various methods Anspach appropriated from

Retiree, but does not disclose how to coordinate the various elements. Again, such

case studies are not protectable—and Retiree itself similarly makes case studies

publicly available. Meyer also claimed that Anspach disclosed Confidential

Information by recommending that her readers use commercially available Social

Security calculators. The idea of incorporating Social Security strategies, however,

is a general idea, and does not comprise Confidential Information about Retiree’s

methods. See id. Moreover, referring readers to a commercially available calculator

that does not use Retiree’s Confidential Information does not disclose any protectable

information. Accordingly, we conclude that the district court’s finding that Anspach

disclosed Retiree’s protectable information was without factual support in the

record.3

      3
         We also note that regardless of Retiree’s concession, Anspach’s involvement
in the Finance Logix and Social Security Timing transaction would not support a
finding that Anspach disclosed Confidential Information. Retiree cited Anspach’s
statement that Finance Logix would be rolling out a feature to incorporate Social
Security taxation thanks to her. Anspach testified that she recommended a
commercially available social security calculator offered by Social Security Timing
to a Finance Logix principal. Again merely referring a company to commercially
available software does not constitute disclosure of Retiree’s Confidential
Information.
                                         15
                                            C

       Lastly, defendants argue that the district court’s permanent injunction fails to

“state its terms specifically . . . and . . . describe in reasonable detail—and not by

referring to the complaint or other document—the act or acts restrained or required.”

Fed. R. Civ. P. 65(d). Whether an injunction is sufficiently specific is a legal

question we review de novo. Reliance Ins. Co. v. Mast Constr. Co., 159 F.3d 1311,

1316 (10th Cir. 1998).

       “[A]n injunction cannot be so general as to leave the party open to the hazard

of conducting business in the mistaken belief that it is not prohibited by the

injunction and thus make him vulnerable to prosecution for contempt.” Id. (quotation

omitted). “Rule 65(d) requires only that the enjoined conduct be described in

reasonable, not excessive, detail—particularly in cases . . . when overly precise terms

would permit the very conduct sought to be enjoined.” Id. In assessing whether an

order complies with Rule 65(d), we construe the district court’s language “in light of

the injunctive order as a whole.” Id.

       The district court enjoined defendants from “using their Post-Retiree

Spreadsheets/Excel Models” and “utilizing their Post-Retiree Spreadsheets/Excel

Models in presentations, speaking engagements, books, and articles.” It defined

“Post-Retiree Spreadsheets/Excel Models” to include any “spreadsheet or Excel

model that utilizes this methodology that was shown to Anspach during her

affiliation with Retiree.” And it explained that Retiree’s methodology was a “model

                                            16
that coordinated the five factors set out in” a prior order4 in a manner that

“integrate[s] all of these factors and allow[s] a client to see, in real-time, how

changing variables would affect their financial picture.” We hold that this

explanation adequately puts defendants on notice of the conduct that is prohibited,

and that which is permissible.

      Defendants relatedly challenge the injunction’s lack of a temporal limitation.

Retiree observes that in assessing the reasonableness of a non-competition covenant,

Kansas courts consider whether “the time and territorial limitations contained in the

covenant reasonable.” Id. However, Kansas courts have enforced non-disclosure

agreements without any temporal limitation. See Puritan-Bennett, 679 P.2d at 211-12

(enforcing non-disclosure agreement prohibiting disclosure of contractually protected

information “during my employment or at any time thereafter”). Because this case

concerns a non-disclosure agreement rather than a non-compete covenant baring all

competition, the indefinite term is permissible.

                                           III

      For the foregoing reasons, we REVERSE the district court’s award of

$250,000 in damages on Retiree’s disclosure claim. We AFFIRM the district court’s

      4
        The “prior order” identifies the five factors discussed supra. Defendants do
not argue that the injunction violates Rule 65(d) by “referring to the complaint or
other document,” see Fed. R. Civ. P. 65(d), and any such challenge is waived, see
Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 679 (10th Cir. 1998) (“Arguments
inadequately briefed in the opening brief are waived.”).

                                            17
judgment in all other respects and REMAND for modification of the damages award

consistent with this order and judgment.

                                            Entered for the Court

                                            Carlos F. Lucero
                                            Circuit Judge

                                           18