Carroll v. Long Tail Corp.

• Decision Date: 31 March 2021
• Docket Number: Court of Appeals Case No. 20A-PL-1285
• Citation: 167 N.E.3d 750
• Parties: Rex CARROLL, Appellant-Defendant, v. LONG TAIL CORPORATION, d/b/a CodeClouds, Appellee-Plaintiff.
• Court: Indiana Appellate Court

167 N.E.3d 750

Rex CARROLL, Appellant-Defendant,

v.LONG TAIL CORPORATION, d/b/a CodeClouds, Appellee-Plaintiff.

Court of Appeals Case No. 20A-PL-1285

Court of Appeals of Indiana.

FILED March 31, 2021

Attorneys for Appellant: J. Blake Hike, Larry L. Barnard, Jon A. Bragalone, Carson LLP, Fort Wayne, Indiana

Attorney for Appellee: Michael H. Michmerhuizen, Barrett McNagny LLP, Fort Wayne, Indiana

Brown, Judge.

[1] Rex Carroll appeals the trial court's order granting a motion for preliminary injunction filed by Long Tail Corporation, dba CodeClouds ("Long Tail"). We affirm in part and reverse in part.

Facts and Procedural History

[2] In 2009, Kinkar Saha began CodeClouds in Calcutta, India ("CodeClouds India"), and he later relocated to New Zealand and formed CodeClouds New Zealand ("CodeClouds New Zealand"). Brian Hill began working on web development projects with Saha, with Hill completing design aspects and Saha performing the development aspects, and at some point they moved into the affiliate marketing sector, or a segment of e-commerce industry in which a series of interveners generate sales by directing traffic for businesses and people to websites. They formed Long Tail in 2012, and each had shares in the corporation.

[3] In 2014, Hill wanted help increasing sales, and Carroll, who had no experience working in the affiliate marketing industry, started working as an independent contractor on a part-time and commission-based capacity, and he and Hill "split ... 50-50" anything he brought in. Transcript Volume II at 14. Saha introduced Carroll to the affiliate industry, and Saha and Hill spent significant time training and educating him on the importance of partnerships and introducing their industry partnerships. Saha and Hill also sent Carroll to a few trade shows to meet partners and clients.

[4] In 2016, Saha and Hill attempted to merge the companies into a single legal entity but, upon finding it very difficult to do so given the three different countries involved, stopped and signed instead "the dba"¹ to Long Tail and "just add[ed] a company named Long Tail to CodeClouds USA." Id. at 85. At some point, Hill became the sole owner of Long Tail Corporation, and Saha retained ownership of CodeClouds New Zealand and CodeClouds India. In June of that same year, a Non-Compete Agreement was executed between Long Tail Corporation "of ... Roanoke, IN 46763" and CodeClouds "IT Solutions Private Limited of 74A Calcutta Street, Khandallah, Wellington 6035, NZ." Exhibits Volume I at 3. That same month, a Non-Disclosure Agreement was executed between Long Tail Corporation and CodeClouds "IT Solutions Private Limited." Id. at 17.

[5] In January 2017, Carroll was named the director of business development for all of CodeClouds, and his job was to complete sales for all of CodeClouds "whether it was Long Tail, CodeClouds India or CodeClouds New Zealand," and he "worked with all the ... customers." Transcript Volume II at 17-18. At some point, he became unhappy with his pay as an independent contractor, and in March 2017, he requested to become an employee. That same month, he and Long Tail executed a document² titled, "Non Solicitation, and Confidentiality Agreement" ("NSA"), which identified "Long Tail Corporation, 5722 Coventry Lane, Fort Wayne, Indiana 46804 (the ‘Company’)" and defined Carroll as "the ‘Contractor.’ " Exhibits Volume I at 30. The NSA includes provisions governing the nonsolicitation of Customers and Contractors as well as a confidentiality provision.

[6] In August 2018, CodeClouds Australia was formed. Carroll was the director of business development until around October 2018, when he was made Vice President of Sales for all of CodeClouds. For the period of July 2018 to June 2019, Carroll earned a total of $244,726, which included $72,500 in salary from Long Tail and the remainder for commissions for bringing in new customers of the CodeClouds entities and maintaining the relationships with their existing customers. Carroll also earned profit sharing.

[7] On September 13, 2019, Carroll resigned. After Carroll left, Long Tail discovered that certain documents were missing including service agreements, notes that Carroll may have taken on phone calls, and any type of records of his conversations. When Carroll returned his company computer, it had been factory reset and "[t]here was nothing on it." Transcript Volume II at 27. Carroll also took a contact list of CodeClouds customers. At some point after leaving, Carroll formed Sketch Frames, a business that competes with CodeClouds. On January 23, 2020, Long Tail filed a complaint against Carroll. On March 20, 2020, Long Tail filed a motion for a preliminary injunction. On the same day, it filed a First Amended Verified Complaint for Preliminary Injunction, Permanent Injunction, and Damages asserting that Carroll violated the NSA by soliciting its clients and using its confidential information and trade secrets, breached the duty of loyalty, and committed acts involving tortious interference with business and contractual relations, conversion, misappropriation of trade secrets, and unfair competition. Carroll filed his answer denying Long Tail's allegations and asserted the NSA was unenforceable as a matter of public policy.

[8] The court held a hearing at which it heard testimony from, among others, Hill, Carroll, and Saha. The court admitted Carroll's contact lists from two email addresses, one from the "codeclouds.com" domain and the other from the "longtailtech.com" domain, as of September 13, 2019, as Exhibits 7-1 and 7-2. Id. at 93, 96. The court admitted the following lists: (1) as Exhibit 7-6, certain customers who would have paid CodeClouds New Zealand until the time Carroll resigned; (2) as Exhibit 7-7, an export of certain company names and customers of CodeClouds USA from the same time period as Exhibit 7-6; (3) as Exhibit 7-8, an export of certain company names and customers of CodeClouds India from the same time period as Exhibits 7-6 and 7-7; (4) as Exhibit 7-10, certain contacts from Carroll's business Skype account; (5) as Exhibits 7-11 and 7-12, the contacts for all leads and the names of customer entity names, respectively, of Long Tail; (6) as Exhibit 7-13, a "list doc" in Excel format of certain information maintained by Carroll, including columns of Company Names with corresponding names of individuals related to all CodeClouds entities as of the date that Carroll resigned, id. at 115; (7) as Exhibit 7-14, an invoice record of all customers to whom were sent an invoice from CodeClouds Australia and for whom Carroll was responsible for contacting and maintaining the relationships; (8) as Exhibit 7-15, an invoice record of all customers to whom were sent an invoice from CodeClouds India and for whom Carroll was responsible for maintaining the relationships; and (9) as Exhibit 10, a list of certain companies and contact persons that Carroll had downloaded and for which he had been provided access as Vice President.³

[9] On June 11, 2020, the trial court entered a thirty-four page order granting Long Tail's motion for preliminary injunction. The court found in part that Long Tail (CodeClouds USA), CodeClouds New Zealand, CodeClouds India, and CodeClouds Australia comprise the CodeClouds entities; the sales for all CodeClouds entities as well as the maintenance of all customer relationships of CodeClouds entities were handled by Long Tail; and Carroll's responsibilities included generating sales for all of the CodeClouds entities and servicing and maintaining relationships with their existing customers. The court enjoined Carroll from: contacting or soliciting any customer or partner of CodeClouds entities, including any person listed in "Exhibits 7-1, 7-2, 7-6 through 7-9, 7-11 through 7-16," for the purpose of gaining the business of such customer, providing the customer any products or services which are the same or substantially similar to those provided by Long Tail, or interfering with the business relationship; approaching soliciting, or enticing contractors of Long Tail to leave Long Tail's employment; and soliciting, contacting, or performing work for any person or entity in Exhibit 10 until further order of the court.⁴ Appellant's Appendix Volume II at 40.

Discussion

[10] Generally, to obtain a preliminary injunction, the moving party must demonstrate by a preponderance of the evidence: (1) a reasonable likelihood of success at trial; (2) the remedies at law are inadequate; (3) the threatened injury to the movant outweighs the potential harm to the nonmoving party from the granting of an injunction; and (4) the public interest would not be disserved by granting the requested injunction. Cent. Ind. Podiatry, P.C. v. Krueger , 882 N.E.2d 723, 727 (Ind. 2008). We review a trial court's grant or denial of a preliminary injunction for abuse of discretion. Id. "An abuse of discretion can occur under various circumstances, including when the trial court misinterprets the law." Heraeus Med., LLC v. Zimmer, Inc. , 135 N.E.3d 150, 152 (Ind. 2019) (citing Myers v. Myers , 560 N.E.2d 39, 42 (Ind. 1990) ). To the extent our analysis depends on the trial court's interpretation of a purely legal question, we afford that matter de novo review. Id. (citing Harrison v. Thomas , 761 N.E.2d 816, 818 (Ind. 2002) (noting that "construction of the terms of a written contract is a pure question of law for the court, reviewed de novo")).

[11] In Heraeus , the Indiana Supreme Court addressed a non-solicitation covenant and held: "Noncompetition agreements restrict former employees from using valuable information obtained during their employment—such as trade secrets or confidential client data—to harm their former employers." Id. at 152-153. "But because these agreements ‘are in restraint of trade,’ courts enforce them only if they are reasonable." Id. at 153 (quoting Krueger , 882 N.E.2d at 728-729 ; and citing Dicen v. New Sesco, Inc. , 839 N.E.2d 684, 687...