Universal Engraving, Inc. v. Duarte

Citation519 F.Supp.2d 1140
Decision Date16 October 2007
Docket NumberNo. 07-2427-JAR.,07-2427-JAR.
PartiesUNIVERSAL ENGRAVING, INC., Plaintiff, v. Frederick DUARTE, Ph.D., Defendant.
CourtU.S. District Court — District of Kansas

Greg J. Mermis, Monica M. Fanning, Shughart Thomson & Kilroy, PC, Kansas City, MO, for Plaintiff.

MEMORANDUM AND ORDER GRANTING PLAINTIFF'S MOTION FOR PRELIMINARY INJUNCTION

JULIE A. ROBINSON, District Judge.

The Court now considers Universal Engraving, Inc.'s Motion for Preliminary Injunction (Doc. 11). An evidentiary hearing was held on September 21 and 26, 2007, after which the Court took the matter under advisement. For the reasons set forth below, plaintiff's motion is granted.

I. BACKGROUND

Universal Engraving, Inc. ("UEI)

UEI is an employee stock ownership, plan ("ESOP") company in the business of engraving and embossing. The company was founded in 1971 and has grown extensively since servicing the European community and the Americas. Engraving is quite the complicated feat. The engraving business evolves around using chemicals, machines, and computer technology to create images on copper or brass according to customer needs. UEI, over the years, has invested in carving images onto copper or brass metal through techniques developed within and outside of its walls. Typically, the engraving is accomplished by hand engraving, photoetching done by using chemicals to erode certain portions of the metal, mechanical engraving done, using manually operated milling machines, or through computer numerical control ("CNC") milling equipment. Most CNC milling equipment functions with software programs designed by various vendors. In UEI's case, it purchases software, then transforms it into applicable programs designed only for UEI's purposes and goals.

Over the years, UEI has developed not only software, but has redesigned most of its CNC milling machines to its specific needs. UEI generally purchases CNC milling machines from suppliers and revamps those machines with parts bought from various suppliers. After placing the parts together with the adaptive software that UEI either improves or edits, the new machines are then programmed to complete certain tasks as required by UEI. UEI considers its processes and programs so secretive that it rids most equipment coming in its doors of any brand markings. Thus, employees are not aware of what brand of equipment is being used. Furthermore, UEI requires confidentiality agreements with all its employees, requires passwords to access its computers, mandates signed confidentiality agreements for every meeting with employees, and restricts employees to certain facilities. One such facility is the research and development building, which is locked twenty-four hours per day and restricted to employees with authorized access cards.

Dr. Frederick Duarte

Dr. Frederick Duarte began his career with UEI as a research chemist in 1992. Before starting work, Dr. Duarte signed a Confidentiality and Proprietary Rights Agreement wherein Dr. Duarte promised to keep confidential all of UEI's proprietary information, including formulae, software, documentation, data, programs, trade secrets, and discoveries. The agreement provided that:

The parties acknowledge that UEI has been and will be engaged in a continuous program of acquisition, research, development and production respecting its business, present and future, and that, in connection with Employee's employment by UEI, Employee is and will be expected to make or have access to new contributions and inventions of value to UEI and that Employee's employment creates a relationship of confidence and trust between Employee and UEI with respect to any information applicable to the business of UEI or applicable to the business of any customer of UEI which has been or may be known to Employee by UEI or by any such customer or has been or may be learned by Employee during the period of Employee's employment with UEI. Employee possesses and had or will possess or have unfettered access to information that has been created, discovered, developed, acquired, or otherwise become known to UEI and which has commercial value in the business in which UEI has been and will be engaged and has been and is treated by UEI as confidential.

For almost fifteen years, Dr. Duarte worked with UEI conducting research and revamping software programs and CNC milling machines. In 2004, Dr. Duarte signed a Non-compete Agreement, which recites that:

You acknowledge that: ... (c) we compete with other businesses that are or could be located in any world location; and you agree that, during the period of your employment and during the five-year period after your employment ends ... you will not, directly or indirectly: (a) Engage or invest in, own, manage, finance, control, or participate in the ownership, management, operation, financing, or control of, be employed by, associated with, or in any manner connected with any business whose products or activities compete in whole or in part with the products or activities of [UEI].

In exchange for his signature, Dr. Duarte was given a 9.25% raise, which was not accounted for in the agreement, but was documented and recorded on his pay stubs. Additional documentation revealed that, over time, that 9.25% totaled $5,000.

While employed at UEI, Dr. Duarte took part in researching and developing innovative products and ideas dealing with processing specifically applied to UEI's machinery. For example, Dr. Duarte would authorize the purchase of raw materials used in the business. He would then synthesize those materials with other raw materials to suit UEI's needs. While working with machinery, Dr. Duarte would dissect machines purchased by the company and, with the aid of others, revamp those machines to create custom-made machinery. Most of Dr. Duarte's work, however, focused on developing software that would enable the most basic CNC milling machine to do things that it was not previously equipped or capable of doing. Dr. Duarte also took part in developing software to aid in the sale of UEI's products. One such software, permitted UEI to input information about a project, including the type of metal, the difficulty of the finished product, and the cost of certain materials used. After a calculation, the program would furnish a price quote for that product. The software was developed to respond to the world market, as it had a currency fluctuation device to calculate the price quote in different currencies.

Months Leading up to Resignation

In the months prior to his resignation, Dr. Duarte received a phone call from Metal Magic, Inc. ("Metal Magic"), a competitor of UEI, inquiring about his resume that was posted on www.monster.com.1 Metal Magic offered to fly Dr. Duarte to Phoenix, Arizona to visit with Charlie Brown, the owner of the company. Thereafter, Dr. Duarte made a number of trips to Phoenix to visit with Mr. Brown to discuss employment, and to view Metal Magic's CNC milling machines. Dr. Duarte and Mr. Brown corresponded back and forth through e-mail. Within weeks, Metal Magic offered Dr. Duarte a position within its company to take over the research and development of CNC milling machines. Dr. Duarte accepted the position and drafted his resignation letter.

Prior to submitting his letter of resignation on May 21, 2007, Dr. Duarte entered UEI's facilities with his access card on Sunday, May 20, 2007. He went to his office to obtain information from his computer and items from his office. UEI contends that Dr. Duarte accessed UEI's computer system to obtain proprietary information, while Dr. Duarte claims that he only uploaded his photographs and pictures from the computer files. There is also evidence that a Flash Drive or thumb drive2 was installed on the computer and that a program called "GoToMyPc" was installed to enable a user to access the computer from other locations. Upon handing in his resignation letter, which gave two-weeks notice, Dr. Duarte told the chairman of UEI that he was going to move back to Arizona and consider teaching. After completing his final two weeks and orienting the other employees to his work and tasks left undone, Dr. Duarte sent an e-mail to "Everyone World Wide." The e-mail detailed his accomplishments at UEI and explained to "everyone" all the areas of the company he was involved in. The e-mail stated, among other things:

I've had the opportunity to apply scientific principles mostly for Systems' products, processes, and assisted in Systems' customer training. However, throughout my tenure, I have also left my mark in areas such as copper production, art development, art department, counters, shipping, environmental compliance, water waste treatment (UE I has received numerous environmental awards), and CNC (machining and programming).

Work at Metal Magic, Inc.

After leaving UEI, Dr. Duarte went to work for Metal Magic. It was not long, however, before UEI obtained information3 that Dr. Duarte was working for its main competitor. UEI sent Dr. Duarte a letter on June 5, 2007, reminding Dr. Duarte that he was obligated under the employment agreement to not compete or share UEI's confidential and proprietary information. After confirming his employment with Metal Magic, UEI sent another letter on August 9, 2007, requesting that Dr. Duarte respond to certain allegations made in the letter and to detail his involvement with Metal Magic. The same letter was also sent to Mr. Brown, and Metal Magic responded through its attorneys, stating that the agreement between Dr. Duarte and UEI was ineffective and unenforceable.

Instant Proceedings

UEI then filed a Complaint (Doc. 1), claiming breach of contract, violation of the Computer Fraud and Abuse Act, breach of duty of loyalty, and an attached ex parte Motion for Temporary Restraining Order (Doc. 2), which was denied (Doc. 5). The Court set the motion for a TRO hearing on September 21, 2007, which did not conclude and was continued until ...

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