Cdi Energy Services, Inc. v. West River Pumps, Inc.

• Citation: 567 F.3d 398
• Decision Date: 29 May 2009
• Docket Number: No. 08-1031.,08-1031.
• Parties: CDI ENERGY SERVICES, INC., Plaintiff-Appellant, v. WEST RIVER PUMPS, INC.; John Martinson; Dale Roller; Kent Heinle, Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (8th Circuit)

567 F.3d 398

CDI ENERGY SERVICES, INC., Plaintiff-Appellant, v. WEST RIVER PUMPS, INC.; John Martinson; Dale Roller; Kent Heinle, Defendants-Appellees.

No. 08-1031.

United States Court of Appeals, Eighth Circuit.

Submitted: November 13, 2008.

Filed: May 29, 2009.

Joshua D. Holleb, Davi L. Hirsch, Highland Park, IL, Leslie Bakken Oliver, Bismark, ND, for appellant.

Gary R. Wolberg, Petra H. Mandigo, Bismarck, ND. for appellee.

Before MELLOY, BOWMAN, and SMITH, Circuit Judges.

MELLOY, Circuit Judge.

CDI Energy Services, Inc. ("CDI"), sells and services equipment for use in the oilfield industry. CDI maintained a field office in Dickinson, North Dakota, with three employees, John Martinson, Dale Roller, and Kent Heinle. CDI alleges that these men started a competing company, West River Pumps, Inc. ("West River"), stole proprietary information, and solicited business from CDI's clients while still employed by CDI. Upon discovering its employees' actions, CDI filed the present diversity action asserting, among other claims, state-law claims of breach of loyalty, trade-secret misappropriation, and business interference. CDI obtained an initial, ex parte temporary restraining order and moved for preliminary injunctive relief. After the parties briefed the matter and submitted affidavits, the district court¹ denied the motion for a preliminary injunction and dissolved the temporary restraining order. CDI appeals, and we affirm.

I. Background

In February 2000, CDI entered the market for selling and servicing oilfield equipment in Dickinson, North Dakota, by hiring Martinson and Roller to open a CDI field office. At that time, Martinson and Roller were experienced in the industry, had client contacts in the area, and were working for one of CDI's competitors. While the men still were working for their previous employer, CDI encouraged them to solicit business from the competitor's clients and bring those clients with them to CDI. Roller and Martinson did so. One of the clients Roller brought with him to CDI subsequently accounted for approximately half of CDI's business.

At CDI, Martinson served as the district manager in North Dakota, and Roller served as the sales and service representative. Martinson hired defendant Kent Heinle in 2007 to work for CDI as a service technician.

In 2007, while employed by CDI, the three men formed West River and contacted CDI's clients. They informed CDI's clients of their plan to commence operations as a separate business and asked those clients to do business with West River. They also secured permission from several clients to move the clients' equipment from CDI's shop to West River's new location. On October 16, 2007, the three men resigned from CDI.

Martinson, Roller and Heinle were CDI's only employees in the area, and when they left CDI, CDI no longer had a presence in the local market. CDI's nearest field office was over 140 miles away in eastern Montana.

CDI argues that it made substantial investments to train Martinson, Roller, and Heinle, develop business in the Dickinson area, and develop trade-secret information. CDI argues that these investments and efforts support its breach of loyalty and trade-secret claims because the investments demonstrate the value that the defendants took from CDI. For example, CDI asserts that it provided extensive training to the men regarding marketing strategies and several aspects of CDI's business operations. The defendants argue that CDI provided no education or formal training but that CDI hired them specifically because they already had experience in the industry and, in fact, had customers they could bring to CDI.

CDI argues that it took efforts reasonable under the circumstances to protect certain information as trade secrets. CDI identifies customer lists, customer contact information, business strategies, customer repair and purchase histories, and CDI pricing information as trade secrets. CDI argues that it had policies in place informing employees that information was confidential and that employees were to maintain the information as confidential. The defendants assert that CDI's Dickinson office was open, the purportedly trade-secret materials were unguarded and unmarked, and CDI made no substantial efforts to ensure that the materials were kept confidential.

The defendants admit that Martinson, Roller, and Heinle took limited records with them when they left CDI. They provided the district court with a description of all the documents that they took, however, and claim that they returned those documents to CDI. They assert none of the materials are trade secrets.

In assessing the propriety of preliminary injunctive relief, the district court applied the factors from Dataphase Systems, Inc. v. C.L. Systems, Inc., 640 F.2d 109, 114 (8th Cir.1981) (en banc). The court found CDI had not made a showing sufficient to demonstrate that any of the materials the defendants took constituted trade secrets under North Dakota law. Accordingly, the court found CDI had not established a likelihood of success on the merits of the trade-secret claim. Regarding the men's solicitation of CDI's customers while still employed by CDI, the court found CDI was likely to succeed on the merits of a statutory claim for breach of loyalty.² See N.D. Cent.Code. § 34-02-14. Proceeding with the Dataphase analysis, the court examined the threat of irreparable harm and the balance of the harms of granting or not granting injunctive relief. Finally, the court examined the public's interest and held that injunctive relief was not warranted.

II. Discussion

"A district court has broad discretion when ruling on preliminary injunction requests, and we will reverse only for clearly erroneous factual determinations, an error of law, or an abuse of discretion." Coca-Cola Co. v. Purdy, 382 F.3d 774, 782 (8th Cir.2004). In Dataphase, we held that the relevant factors to consider when assessing the propriety of preliminary injunctive relief include: (1) the likelihood of success on the merits; (2) the presence or risk of irreparable harm; (3) the balancing of the harms of granting or denying an injunction; and (4) the public's interest. Dataphase, 640 F.2d at 114. "The party seeking injunctive relief bears the burden of proving these factors." Lankford v. Sherman, 451 F.3d 496, 503 (8th Cir.2006). We review the district court's application of these factors in turn.

a. Likelihood of Success on the Merits

We find no error in the district court's conclusion that CDI failed to meet its burden to prove that the defendants had taken trade-secret information or that CDI itself had taken reasonable steps to protect any purported trade secrets. The information at issue was of the type that may, in some industries, be treated as trade-secret information (customer names, contact information, pricing information, etc.). CDI, however, failed to show that any of the information in this case actually was a trade secret, i.e., information that has economic value by virtue of having been kept secret and that cannot be "ascertain[ed] by proper means." See N.D. Cent.Code § 47-25.1-01(4) ("`Trade secret' means information ... that: a. Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and b. Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.").

It appears undisputed that the potential customers for CDI and West River in the area surrounding Dickinson are a small collection of easily identifiable, locally operating oilfield companies. Information about these companies would be easily obtainable, if not already known, by relevant actors in the local oilfield service and equipment industry. Also, the record shows little effort by CDI to conceal data as trade secrets, and the defendants' affidavits contest CDI's assertions regarding those efforts. Because we review the district court's assessment of the factual record only for clear error, Coca-Cola, 382 F.3d at 782, we find no basis to disturb the district court's conclusion regarding the trade-secret claim.

With no likelihood of success on the merits, there is little justification for granting a preliminary injunction regarding the trade-secret claim. See Oglala Sioux Tribe v. C & W Enters., Inc., 542 F.3d 224, 233 (8th Cir.2008) (ceasing a Dataphase analysis after finding no likelihood of success on the merits). Regardless, because the district court determined CDI was likely to succeed on the merits of its other claims, we address the remaining factors below.

Regarding a likelihood of success on the statutory breach-of-loyalty claim under North Dakota Century Code § 34-02-14, the defendants do not...