First W. Capital Mgmt. Co. v. Malamed

• Citation: 874 F.3d 1136
• Decision Date: 30 October 2017
• Docket Number: Nos. 16-1434, 16-1465 & 16-1502.,s. 16-1434, 16-1465 & 16-1502.
• Parties: FIRST WESTERN CAPITAL MANAGEMENT COMPANY, a Colorado corporation; First Western Financial, Inc., a Colorado corporation, Plaintiffs–Appellees, v. Kenneth D. MALAMED, Defendant–Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (10th Circuit)

874 F.3d 1136

FIRST WESTERN CAPITAL MANAGEMENT COMPANY, a Colorado corporation; First Western Financial, Inc., a Colorado corporation, Plaintiffs–Appellees,

v.Kenneth D. MALAMED, Defendant–Appellant.

Nos. 16-1434, 16-1465 & 16-1502.

United States Court of Appeals, Tenth Circuit.

FILED October 30, 2017

Submitted on the briefs:^*

Kent B. Goss, Orrick Herrington & Sutcliffe LLP, Los Angeles, California and Paul H. Schwartz, Shoemaker Ghiselli & Schwartz, LLC, Boulder, Colorado, for Appellant.

Timothy R. Beyer and Sarah L. Hartley, Bryan Cave LLP, Denver, Colorado, for Appellee.

Before McKAY, MATHESON, and McHUGH, Circuit Judges.

MATHESON, Circuit Judge.

First Western Capital Management ("FWCM"), an investment management company, and its parent company First Western Financial, Inc. (collectively, "First Western"), sought a preliminary injunction against former employee Kenneth Malamed for misappropriating trade secrets. The district court excused First Western from demonstrating irreparable harm— one of the four elements a party seeking injunctive relief is typically required to prove—and granted the injunction. Mr. Malamed appeals. Exercising jurisdiction under 28 U.S.C. § 1292(a)(1), we reverse.

I. BACKGROUND

A. Factual History

First Western is headquartered in Denver, Colorado. In 2008, it acquired Financial Management Advisors, LLC ("FMA"), an investment firm Mr. Malamed founded in 1985 primarily to serve high net worth individuals and entities such as trusts and foundations. After selling FMA, Mr. Malamed worked for FWCM from 2008 until FWCM terminated him on September 1, 2016.

In early 2016, a committee of FWCM directors began discussing the possibility of selling FWCM to another company. Although Mr. Malamed was not involved in these discussions, he learned about the potential sale and, in a meeting with other FWCM officers, expressed his displeasure with the buyer under consideration. Following the meeting, Mr. Malamed emailed his assistant asking her to print three copies of his client book, which contained the names and contact information for approximately 5,000 FWCM contacts. Of these contacts, 331 were current FWCM clients and roughly half of those had been clients of FMA before First Western acquired it. The printout also contained spreadsheets that included, among other information, client names, the total market value of their holdings under management, and the fees being charged by FWCM.

On September 1, 2016, shortly after Mr. Malamed's employment contract expired, First Western fired him.

B. Procedural History

On September 1, 2016, the same day Mr. Malamed was fired, First Western served him with a complaint it had filed in federal court a month earlier. The complaint alleged misappropriation of trade secrets under the federal Defend Trade Secrets Act of 2016, 18 U.S.C. § 1836 ("DTSA"), and the Colorado Uniform Trade Secrets Act, Colo. Rev. Stat. §§ 7-74-101 et seq. ("CUTSA"), breach of employment contract, and breach of fiduciary duty. First Western moved for a temporary restraining order and a preliminary injunction to prevent Mr. Malamed from soliciting FWCM's clients.

After conducting an evidentiary hearing, the district court issued a preliminary injunction preventing Mr. Malamed from "soliciting business from, or otherwise competing for the business of, any FWCM Client; and ... from accepting business offered from any FWCM Client," with some exceptions. App., Vol. I at 200.¹ In making this decision, the court excused First Western from demonstrating one of the standard requirements to obtain injunctive relief—a showing of irreparable harm in the absence of an injunction.² Citing our decision in Star Fuel Marts, LLC v. Sam's East, Inc. , 362 F.3d 639 (10th Cir. 2004), the court said, "[T]he irreparable harm requirement is excused when the evidence shows that a defendant is or will soon be engaged in acts or practices prohibited by statute, and that statute provides for injunctive relief to prevent such violations." App., Vol. I at 196. "Because both the DTSA, 18 U.S.C. § 1836(b)(3)(A), and CUTSA, Colo. Rev. Stat. § 7-74-103, provide for injunctive relief to prevent misuse of trade secrets," and because "Mr. Malamed [was] misusing or threatening to misuse trade secrets regarding FWCM clients," the court determined that "irreparable harm presumptively exists and need not be separately established." Id. at 196-97.

Had First Western not been excused from showing irreparable harm under Star Fuel , however, the court would have denied injunctive relief because it determined that money damages could be "reasonably quantified" and "would have adequately made [First Western] whole." Id. at 197 n.5. The court questioned whether Star Fuel remained good law in light of subsequent Supreme Court cases "strongly suggest[ing] that no element of the injunction test should be presumed." Id . But it concluded that because this court had not yet addressed that question, it was "bound to follow [ Star Fuel ]." Id .

This court addressed precisely that question in Fish v. Kobach , 840 F.3d 710 (10th Cir. 2016), issued just three weeks after the district court granted First Western the preliminary injunction. In Fish , we explained that Supreme Court cases following Star Fuel "clarif[ied] the narrow circumstances when a presumption of irreparable injury could apply." Id . at 751 n.24. Courts may presume irreparable harm only when a party is seeking an injunction under a statute that mandates injunctive relief as a remedy for a violation of the statute. Id . When Congress passes such a statute, it effectively withdraws the courts' traditional discretion to determine whether such relief is warranted. Id. When, by contrast, a statute merely authorizes injunctive relief, courts may not presume irreparable harm, as doing so would be "contrary to traditional equitable principles." Id. (quotations omitted).

On October 28, 2016, Mr. Malamed appealed, seeking our review of the preliminary injunction. This is appeal 16-1434. He later filed two additional appeals—16-1465 and 16-1502—challenging separate district court orders pertaining to the scope of the preliminary injunction. This court consolidated the appeals, and Mr. Malamed filed a single, consolidated opening brief for all three appeals. Our reversal of the preliminary injunction in appeal 16-1434 renders the other appeals moot.

II. DISCUSSION

We discuss: (A) our standard of review, (B) the requirements for obtaining injunctive relief, and (C) whether First Western is excused from demonstrating one of those requirements—irreparable harm. We conclude that First Western must show irreparable harm to obtain an injunction. Because the district court had already determined First Western cannot establish irreparable harm, injunctive relief was not warranted. We reverse.

A. Standard of Review

We review orders granting a preliminary injunction for abuse of discretion. Awad v. Ziriax , 670 F.3d 1111, 1125 (10th Cir. 2012). An abuse of discretion occurs when a decision is premised "on an erroneous conclusion of law or where there is no rational basis in the evidence for the ruling." Id . (quotations omitted). Thus, we review the district court's factual findings for clear error and its conclusions of law—including whether to excuse a party from showing irreparable harm—de novo. Heideman v. S. Salt Lake City , 348 F.3d 1182, 1188 (10th Cir. 2003).

B. Legal Background

1. Preliminary Injunctions

"A preliminary injunction is an extraordinary remedy never awarded as of right." Winter v. Natural Res. Def. Council , 555 U.S. 7, 24, 129 S.Ct. 365, 172 L.Ed.2d 249 (2008). A party may be granted a preliminary injunction only when monetary or other traditional legal remedies are inadequate, and "the right to relief [is] clear and unequivocal." Schrier v. Univ. of Colo. , 427 F.3d 1253, 1258 (10th Cir. 2005) (quotations omitted).

Under Rule 65 of the Federal Rules of Civil Procedure, a party seeking a preliminary injunction must show: "(1) the movant is substantially likely to succeed on the merits; (2) the movant will suffer irreparable injury if the injunction is denied; (3) the movant's threatened injury outweighs the injury the opposing party will suffer under the injunction; and (4) the injunction would not be adverse to the public interest." Fish , 840 F.3d at 723 (alterations and quotations omitted); see also Schrier , 427 F.3d at 1258.

Regarding irreparable harm, the movant "must demonstrate a significant risk that he or she will experience harm that cannot be compensated after the fact by money damages." Fish , 840 F.3d at 751 (quotations omitted). "[C]ourts have consistently noted that because a showing of probable irreparable harm is the single most important prerequisite for the issuance of a preliminary injunction, the moving party must first demonstrate that such injury is likely before the other requirements" will be considered. Dominion Video Satellite, Inc. v. Echostar Satellite Corp ., 356 F.3d 1256, 1260 (10th Cir. 2004) (quotations omitted). Demonstrating irreparable harm is "not an easy burden to fulfill." Greater Yellowstone Coal . v. Flowers , 321 F.3d 1250, 1258 (10th Cir. 2003).

2. Fish v. Kobach

Although a party seeking a preliminary injunction generally must show all four elements, in limited circumstances courts may presume irreparable harm and grant injunctive relief. Fish clarified when this presumption applies.

Under Fish , when a statute mandates injunctive relief as a remedy for a violation—or impending violation—of the statute, it has effectively constrained the courts' traditional discretion to determine whether such relief is warranted. Fish , 840 F.3d at 751 n.24. In that case, courts presume irreparable harm and grant an injunction even if the moving party failed to show it. Id. But when a statute merely authorizes—rather than mandates—injunctive relief, courts must determine that the moving party has established all four elements to grant injunctive relief. Id. ; see also...