DTC Energy Grp., Inc. v. Hirschfeld

• Decision Date: 28 December 2018
• Docket Number: No. 18-1113,18-1113
• Citation: 912 F.3d 1263
• Parties: DTC ENERGY GROUP, INC., a Colorado Corporation, Plaintiff - Appellant, v. Adam HIRSCHFELD; Joseph Galban; Ally Consulting, LLC, f/k/a Wyodak Staffing, LLC, a Wyoming Limited Liability Company, Defendants - Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

912 F.3d 1263

DTC ENERGY GROUP, INC., a Colorado Corporation, Plaintiff - Appellant,

v.Adam HIRSCHFELD; Joseph Galban; Ally Consulting, LLC, f/k/a Wyodak Staffing, LLC, a Wyoming Limited Liability Company, Defendants - Appellees.

No. 18-1113

United States Court of Appeals, Tenth Circuit.

FILED December 28, 2018

Submitted on the briefs:^*

Charles W. Weese, John H. Bernetich, and Devin C. Daines, Lewis, Bess, Williams & Weese P.C., Denver, Colorado, on the briefs for Appellant.

C. Forrest Morgan, III, Morgan & Associates, LLC, Denver, Colorado, on the brief for Appellee Ally Consulting, LLC.

David Brian Seserman, Sesserman Law LLC, Denver, Colorado, on the brief for Appellees Adam Hirschfeld and Joseph Galban.

Before BRISCOE, MURPHY, and McHUGH, Circuit Judges.

BRISCOE, Circuit Judge.

This is an appeal from the denial of a preliminary injunction in a business tort case. Plaintiff-Appellant DTC Energy Group, Inc., has sued two of its former employees—Adam Hirschfeld and Joseph Galban—as well as one of its industry competitors—Ally Consulting, LLC—for using DTC’s trade secrets to divert business from DTC to Ally. DTC moved for a preliminary injunction based on its claims for breach of contract, breach of the duty of loyalty, misappropriation of trade secrets, and unfair competition. The district court denied the motion. It found that DTC had shown a probability of irreparable harm from Hirschfeld’s ongoing solicitation of DTC clients, but that DTC could not show the ongoing solicitation violated Hirschfeld’s employment agreement. Exercising jurisdiction pursuant to 28 U.S.C. § 1292(a)(1), we AFFIRM.

I

DTC is a staffing company. App. Vol. I at 178. It serves as the middleman between oil and gas companies who are looking for workers and workers who are looking for jobs. Id. When DTC places a worker (referred to as a consultant) in a job at an oil and gas company (referred to as a customer), the customer pays DTC a fee and DTC gives a portion of that fee to the consultant as compensation for his labor. Id. at 179. For the majority of time relevant to this appeal, DTC was owned by Bob Sylar and Luke Clausen. Id. at 178.

DTC’s primary tool for matching consultants and customers is a collection of consultant resumes that DTC assembled and regularly updates. Id. at 182, 184. While the resumes themselves are supplied by consultants, DTC edits the resumes before sending them to customers and maintains the collection of resumes in a password-protected, searchable Dropbox folder, so it is easy to find qualified candidates when a customer needs a consultant. Id. at 184.

In 2013, DTC hired Hirschfeld as a sales associate. Id. at 179. Hirschfeld’s job was to develop relationships with consultants and customers to win business for DTC. Id. His role at DTC grew over time and he was eventually named the business development manager. Id. Aside from Hirschfeld, DTC only employed a handful of people. Galban, the other individual defendant in this case, was DTC’s accountant. Id. at 181.

Hirschfeld signed an employment agreement with DTC when he became its business development manager. App. Vol. I at 179; see also App. Vol. III at 510–20. He was the only employee who signed an employment agreement with restrictive covenants. App. Vol. II at 246–47. The agreement required him to "devote substantially all of his" professional time to DTC and act in DTC’s "best interests." App. Vol. III at 510. The agreement also included confidentiality, non-solicitation, and non-interference provisions. Id. at 513–15. The confidentiality provision prohibits Hirschfeld from using DTC’s confidential information—including trade secrets, customer lists, price lists, and resumes—for his own benefit or the benefit of another company. Id. at 513. The nonsolicitation and non-interference provisions prohibited Hirschfeld from encouraging DTC’s current customers to take their business to a competitor and from recruiting DTC’s employees to work for a competitor. Id. at 514. The non-solicitation and non-interference provisions applied while Hirschfeld was employed by DTC and for one year after the end of his employment. Id. The only exception was that neither provision applied if he resigned because of "a change in the current equity ownership of" DTC (the "change in ownership" clause). Id.

In January 2016, DTC and Ally¹ (another oil and gas staffing company) began to negotiate an agreement. At that time, both companies provided similar staffing services, but Ally’s business was smaller and limited to directional drillers. App. Vol. II at 223, 273, 391, 433. In comparison, DTC placed consultants at many kinds of oil and gas companies. App. Vol. I at 178–79. Ultimately, the agreement established that DTC would provide "administrative services, such as payroll and benefits," to Ally for a fee. App. Vol. I at 181–82. Despite the limited scope of the agreement between Ally and DTC, Hirschfeld began using DTC’s resources (its employees and its collection of consultant resumes) to win business for Ally. Id. at 182. At the same time that DTC and Ally executed the service agreement, "Hirschfeld’s father, Craig Hirschfeld, became a 35% owner of Ally." Id. Hirschfeld hid his work for Ally, and his father’s ownership interest in Ally, from DTC’s owners. See, e.g. , App. Vol. II at 288.

Ally terminated the service agreement with DTC in July 2016, but Hirschfeld continued to work with other DTC employees on Ally’s behalf. App. Vol. I at 183. That same month, DTC’s owners learned about some of the connections between their employees and Ally. Id. at 182–83; App. Vol. III at 541–45. When asked about his work for Ally, Hirschfeld offered a technically true, but misleading, answer—that he had "no ownership of any sort in" Ally, that he "receive[s] no direct compensation from" Ally, and that he is "compensated by DTC only." App. Vol. III at 544. Hirschfeld did not disclose that his father was an owner of Ally. App. Vol. II at 316–17. DTC’s owners were upset about the relationship between DTC’s employees and Ally, but took no action against any DTC employee. App. Vol. I at 182–83. Hirschfeld’s work for Ally continued.

In April 2017, Clausen purchased Sylar’s interest in DTC and became the sole owner of the business. App. Vol. II at 237, 436–37. Then, on May 3, 2017, Hirschfeld resigned from DTC, effective at the end of the month. App. Vol. I at 184. In his resignation letter, Hirschfeld cited "the recent change in the equity ownership of DTC" as his reason for leaving. App. Vol. III at 558. When Hirschfeld left DTC, he took a flash drive containing "thousands of ... resumes" and a laptop containing "all of the files stored in DTC’s Dropbox" folders. App. Vol. I at 184. Hirschfeld’s laptop remained signed-in to DTC’s Dropbox account, so Hirschfeld could access DTC’s online folders after leaving DTC. Id. at 185. Hirschfeld lost access to his DTC email when he resigned. Id.

The day after leaving DTC, Hirschfeld began working at Ally as its director of business development. App. Vol. II at 327. Hirschfeld "has continued to solicit DTC’s customers since joining Ally." App. Vol. I at 185. In July or August 2017, Defendants gave Hirschfeld’s laptop and the DTC flash drive to a third-party forensics company as part of a litigation hold for this case. Id. Hirschfeld no longer has access to DTC’s Dropbox account. Id.

In September 2017, DTC filed its first amended complaint. DTC alleges that Hirschfeld and Galban began to improperly divert business from DTC to Ally beginning in early 2016, and that Defendants continue to profit at DTC’s expense. See App. Vol. I at 9–42. DTC then moved for a preliminary injunction based on four of its claims: Hirschfeld’s breach of his employment agreement; Hirschfeld’s and Galban’s breaches of their duties of loyalty to DTC; all Defendants’ misappropriation of trade secrets in violation of the federal Defend Trade Secrets Act (DTSA), 18 U.S.C. § 1836, and the Colorado Uniform Trade Secrets Act (CUTSA), Colo. Rev. Stat. § 7-74-103 ; and Ally’s unfair competition with DTC.² App. Vol. I at 72–91.

DTC sought a broad injunction that, in DTC’s attorney’s own words, would "enjoin[ ] [Ally] from any business operations until a trial." App. Vol. II at 480. The injunction would have imposed the following restrictions through the conclusion of this case: Hirschfeld and Galban would be prohibited from working at Ally; Ally would only be allowed to work with directional drillers; no Defendant could work with any customer or consultant with whom Hirschfeld or Galban worked while at DTC; and all Defendants would be required to stop using confidential information from DTC. App. Vol. I at 73–74.

The district court held an evidentiary hearing in January 2018, see App. Vol. II at 203, and denied the motion in March 2018, App. Vol. I at 200. DTC timely filed an interlocutory appeal. Id. at 201–02.

At the end of March 2018, DTC moved to expedite its appeal. We denied the motion "without prejudice to renewal upon completion of briefing." DTC has not renewed its motion for expedited consideration, but nonetheless we have expedited our resolution of this appeal.

II

We first briefly address our jurisdiction. Defendants contend that this appeal is moot, Aple. Br. at 34–41, but their argument actually addresses the merits of DTC’s motion for a preliminary injunction. "In considering mootness, we ask ‘whether granting a present determination of the issues offered will have some effect in the real world.’ " Fleming v. Gutierrez , 785 F.3d 442, 444–45 (10th Cir. 2015) (quoting Rio Grande Silvery Minnow v. Bureau of Reclamation , 601 F.3d 1096, 1110 (10th Cir. 2010) ). "The doctrine of mootness in no way depends on the merits of the plaintiff’s contention." Keller Tank Servs. II, Inc. v. Comm’r , 854 F.3d 1178, 1194 (10th Cir. 2017) (quotation marks and alteration omitted).

"[W]here an act sought to be enjoined has occurred, an appeal of a district court order denying an injunction is moot." Thournir v....