Am. Achievement Corp. v. Jostens, Inc.
| Docket Number | Case No. 21-CV-2613 (NEB/BRT) |
| Decision Date | 18 August 2022 |
| Parties | AMERICAN ACHIEVEMENT CORP., Taylor Publishing Company, Commemorative Brands, Inc., Plaintiffs, v. JOSTENS, INC., Defendant. |
| Court | U.S. District Court — District of Minnesota |
Ariel K. Lierz, Donald G. Heeman, Jessica J. Nelson, Spencer Fane LLP, Minneapolis, MN, Jason Sternberg, Pro Hac Vice, John F. O'Sullivan, Pro Hac Vice, Joshua Fordin, Pro Hac Vice, Laura N. Ferguson, Pro Hac Vice, Quinn Emanuel Urquhart & Sullivan LLP, Miami, FL, David Tyler Adams, Pro Hac Vice, Quinn Emanuel Urquhart & Sullivan, LLP, New York, NY, for Plaintiffs.
Barry M. Landy, Jacob Fatula Siegel, Kyle W. Wislocky, Ciresi Conlin LLP, Minneapolis, MN, Felicia J. Boyd, Norton Rose Fulbright US LLP, Minneapolis, MN, Brett C. Govett, Pro Hac Vice, Jacqueline Groves Baker, Pro Hac Vice, James Renard, Pro Hac Vice, Norton Rose Fulbright US LLP, Dallas, TX, Nathan Benjamin Baum, Pro Hac Vice, Norton Rose Fulbright, Dallas, TX, for Defendant.
ORDER ON MOTIONS TO DISMISS
In this lawsuit, Balfour1 alleges that Jostens engaged in a nationwide scheme to steal Balfour's clients and confidential business information, in part by recruiting Balfour's sales representatives. Jostens counterclaims, seeking a declaratory judgment that its recruiting practices are lawful and raising several other claims related to one of its products, class rings. Now before the Court is Jostens's motion to dismiss Balfour's complaint on all counts except Count II, (ECF No. 65), and Balfour's motion to dismiss Jostens's counterclaims. (ECF No. 89.) The Court grants in part and denies in part both motions.
Balfour and Jostens both produce products for schools, including yearbooks, caps and gowns, and graduation announcements. (Am. Compl. ¶¶ 5, 32, 53; see also id. ¶ 55 ().)
Balfour operates through independent contractor sales representatives. (Id. ¶ 5.) These representatives develop relationships with clients, sometimes over decades, within a limited-service territory. (Id. ¶¶ 5, 7.) Balfour generally experiences minimal turnover, usually retaining 96-98 percent of its clients. (Id. ¶¶ 8, 36.)
The school products sales industry is personal, and Balfour's "sales representatives are the lifeblood of the company." (Id. ¶ 34.) They make long-term relationships and build goodwill critical to the business. (Id. ¶ 37.) Balfour spends money to support these relationships, including by paying for sales representatives' travel expenses and multi-day workshops. (Id. ¶ 38.) Sales representatives also have access to Balfour's products and sensitive business information, including client lists and contacts, selling procedures, prospective and current client lists, account information, financial information, and business development plans. (Id. ¶ 40.)
Balfour enters into Representative Agreements with its sales representatives that include non-competition, non-solicitation, and non-disclosure provisions. (Am. Compl. ¶ 42.) For example, the Representative Agreement of Jim Hawkinson (a Balfour-turned-Jostens sales representative) requires that:
for a period of two (2) years after the expiration or termination of this Agreement . . . Regional Representative will not, for himself or on behalf of or in conjunction with any other person or entity, directly or indirectly, sell products, solicit sales of products or assist others to sell or solicit sales of products of the kind or character of or similar to Taylor products in the Territory in which he sold Taylor products . . . .
(Id. ¶ 45.)
These provisions are common in the industry, and Jostens uses similar agreements. (Id. ¶ 53.) Jostens is aware of the non-competition, non-solicitation, and nondisclosure clauses in Balfour's Representative Agreements. (Id.) Despite this knowledge, over the last year, Jostens allegedly induced former Balfour sales representatives to move to Jostens and bring client information with them. (Id. ¶ 54 ().)
21 representatives. During "a short period in the middle of 2021," 21 former Balfour representatives around the country left Balfour for Jostens. (Id. ¶¶ 1, 61.) Together, these representatives generated over ten million dollars in sales. (Id. ¶ 62.) Jostens offered the representatives "considerable signing bonuses" to leave Balfour and help transfer clients to Jostens. (Id.) Balfour alleges that Jostens presented representatives with a "plan" to take Balfour's business: the outgoing Balfour representatives would tell a school about their intent to resign and encourage the school to transfer its account, and then a Jostens representative would reach out to ask the school if it wanted to hear a pitch. (Id. ¶¶ 63, 68.)
Balfour pleads one example of this plan: after Hawkinson left Balfour, a Jostens employee emailed his former clients to state, "Jim is no longer with Balfour" because he "has made the move to Jostens." (Id. ¶ 65.) According to Balfour, the Jostens employee and Hawkinson worked together to move former clients to Jostens. (Id. ¶¶ 65-66.)
Balfour also asserts that Jostens had former Balfour representatives "flip" territories to transition business. One former Balfour representative would flip territories with another former Balfour representative, and they would provide information to each other. (Id. ¶¶ 74-75.) Again, Balfour pleads one example: Hawkinson participated in a flip. He worked with Stacey Sisk, Payton Blewett, and McKinley Witbrodt (Sisk and Blewett are allegedly friends of Hawkinson's, and Witbrodt is his daughter) to have them take over in his former service territory. (Id. ¶¶ 77-78.)
Balfour next alleges a scheme in which Jostens encouraged "soft hand-offs," in which "a former Balfour representative would let their former clients know that they were resigning and introduce their former clients to a Jostens employee or sales representative who could 'take over' their account and service them in the same way as the former Balfour sales representative." (Id. ¶ 79.) Balfour alleges no specific instances of soft hand-offs.
Finally, Balfour alleges that Jostens spread false rumors (and encouraged former representatives to do the same) that Balfour would be going out of business and was not a reliable source for future products. (Id. ¶ 82.) Balfour pleads no specific details about the alleged rumors: it does not allege who made the statements, who heard the statements, when the statements were made, where the statements were made, or what was said.
Damages. In the five months since Balfour sales representatives started leaving for Jostens, Balfour asserts that it lost 1,000 clients, a significant majority of those serviced by former Balfour representatives. (Id. ¶ 86.) The full extent of damages from this exodus is not yet known, because some contracts have one-year renewal terms that have not expired yet. (Id. ¶ 87.)
Balfour alleges trade secret protection for "pricing information, account contact lists, customer information, product information, product lists, supplies bulletins, sales plans, financial information, and commission matrices," sales and marketing techniques and strategies, and compensation and bonus structures. (Am. Compl. ¶¶ 138, 142.) Balfour alleges that it makes reasonable efforts to maintain the secrecy of this information, including through provisions in the Representative Agreements that state that this information is confidential. (Id. ¶ 44.)
Balfour also alleges that it receives economic value from this secrecy, given the "personal nature of the school products industry." (Id. ¶¶ 35, 139.) Client development is tricky in the school products industry because there is little client turnover, so Balfour expends significant effort into building these relationships and apparently also into documenting those relationships in lists. (Id. ¶¶ 36-37, 138, 142-43.)
Michael Parker. Michael Parker worked at Balfour for decades, most recently as Vice President of National Sales. (Id. ¶ 57.) Just days before Parker resigned from Balfour, he began forwarding confidential information, including lists of Balfour sales representatives and their service territories, to his personal email address. (Id. ¶¶ 57-59.) Balfour also alleges that Parker provided client information to Jostens. (Id. ¶ 60.)
Country of Origin. Jostens raises several counterclaims against Balfour3 relating to Balfour's production of class rings. Most of these rings are produced in Mexico, and Jostens asserts that Balfour has misrepresented that fact. (Countercl. ¶¶ 68, 78, 87.) Balfour puts a removable paper label on its class rings, which states that they are "designed and engineered in Austin, Texas" and "Exclusively Manufactured by Balfour in Merida, Mexico." (Id. ¶ 74.) The label also identifies Balfour's Austin, Texas address. (Id. ¶ 73.) Jostens alleges that "engineered" means "designed and built using scientific principles," "to design and build something," or "to lay out, construct, or manage as an engineer." (Id. ¶ 82.) Thus, according to Jostens, the label on the rings misrepresents the country of origin because the rings were not "engineered"—meaning built or constructed—in Texas. (Id. ¶ 84.)
Jostens admits that the rings are designed in the United States and that parts of the rings might be produced in the United States. Jostens takes issue with the fact that domestic "manufacturing is limited to the creation of an unfinished ring product" which is then sent to Mexico to be made into a finished ring. (Id. ¶ 85.)
Bid to Clemson. Jostens also alleges that Balfour misrepresented the price of its rings to Clemson University. (Counter...
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