Holbrook MFG LLC v. Rhyno Mfg. Inc.

• Decision Date: 29 October 2020
• Docket Number: Case No. 20-cv-05940
• Citation: 497 F.Supp.3d 319
• Parties: HOLBROOK MFG LLC, an Illinois limited liability company; EFG Holdings, Inc., a Delaware corporation; Elgin Fastener Group LLC, a Delaware limited liability company, Plaintiffs, v. RHYNO MANUFACTURING INC., an Illinois corporation; Derek Kuhns, an individual; and Shawn Kuhns, an individual., Defendants.
• Court: U.S. District Court — Northern District of Illinois

497 F.Supp.3d 319

HOLBROOK MFG LLC, an Illinois limited liability company; EFG Holdings, Inc., a Delaware corporation; Elgin Fastener Group LLC, a Delaware limited liability company, Plaintiffs,

v.RHYNO MANUFACTURING INC., an Illinois corporation; Derek Kuhns, an individual; and Shawn Kuhns, an individual., Defendants.

Case No. 20-cv-05940

United States District Court, N.D. Illinois, Eastern Division.

Signed October 29, 2020

Bradley Paul Nelson, Fisher Broyles LLP, Chicago, IL, for Plaintiffs.

Margherita Maria Albarello, Riccardo Anthony DiMonte, Jonathan R. Ksiazek, Di Monte & Lizak, LLC, Park Ridge, IL, for Defendants.

MEMORANDUM OPINION AND ORDER

FRANKLIN U. VALDERRAMA, Judge

Holbrook Mfg LLC ("Holbrook No. 2"), EFG Holdings, Inc. ("EFG Holdings"), and Elgin Fastener Group LLC ("EFG," collectively, "Plaintiffs") filed suit against Rhyno Manufacturing Inc. ("Rhyno"), Derek Kuhns, and Shawn Kuhns (collectively, "Defendants"), asserting several causes of action stemming from Defendants’ alleged use of an unregistered trademark and deceptive practices relating to a now-inactive website and Defendants’ alleged breaches and tortious conduct relating to the "raid" on Plaintiffs’ employees, customers, suppliers, and manufacturing representatives. Plaintiffs now move the Court to enter a preliminary injunction against Defendants as to five counts pursuant to Fed. R. Civ. P. 65(a). For the reasons stated below, the Court grants in part and denies in part Plaintiffs’ motion for a preliminary injunction.

Background

EFG Holdings and EFG are providers of engineered fastening solutions serving wholesalers, distributors, and original equipment manufacturers. ECF No. 12, Exh. A, Kochan Decl. ¶ 3. Before January 2016, Holbrook Mfg., Inc. ("Holbrook No. 1") was a specialty manufacturer and distributor of fasteners, including custom engineered and specialty products for commercial and industrial applications. Id. ¶ 4. Holbrook No. 1 was owned by Donald Kuhns, the father of employee-defendants, Shawn Kuhns and Derek Kuhns, and another shareholder. Id. Shawn and Derek Kuhns both worked at Holbrook No. 1; Shawn was as an Engineering Manager, and Derek held an inside sales position. Id.

On January 4, 2016, EFG Holdings acquired Holbrook No. 1 pursuant to an Equity Purchase Agreement. Kochan Decl. ¶ 4 As part of the acquisition, Holbrook No. 1 was merged into Plaintiff Holbrook No. 2. Id. ¶ 5. Holbrook No. 2 is an indirect wholly owned subsidiary of EFG, which is in turn, a wholly owned subsidiary of EFG Holdings. Id. ¶ 2.

Following the acquisition, Holbrook No. 2 continued to employ many of the Holbrook No. 1 former employees, including Defendants Shawn and Derek Kuhns, who remained in the same positions, Engineering Manager and inside sales, respectively. Kochan Decl. ¶ 8. Holbrook No. 2 required all employees, including Shawn and Derek, to review and acknowledge the policies and guidance provided in the Elgin Fastener Group Employee Handbook (the "Employee Handbook"). Among other provisions, the Employee Handbook contains a "Conflict of Interest" provision, a "Confidential Nature of Work" provision, a provision that expressly disclaims the creation of a contract, and a provision that allows the company to reserve the right to amend the contents of the Handbook. Compl. Exhs. C, D; ECF No. 14, Resp. to Prelim. Inj. Mot. at 10; ECF No. 14, Resp. to Prelim. Inj. Mot., Exh. A, Portions EFG Handbook at 4. Shawn Kuhns acknowledged that he read the Employee Handbook on January 14, 2020, Compl. Exh. C, and Derek Kuhns acknowledged that he read the Employee Handbook on January 8, 2020, Compl. Exh. D.

On April 8, 2020, Derek Kuhns was terminated from his sales position at Holbrook No. 2. Kochan Decl. ¶ 15. On May 13, 2020, Defendant Rhyno, also a provider of engineered fastening solutions, was incorporated. Id. Upon information and belief, Joe Kochan states that Derek Kuhns was involved in the formation of Rhyno. Id. On August 5, 2020, Rhyno registered a YRL and domain name for https://www.rhynomfginc.com. Compl. ¶ 35. And, on August 10, 2020, Shawn Kuhns resigned, without notice, from his position as Holbrook's Engineering Manager. Kochan Decl. ¶ 17. Shawn Kuhns went to work for Rhyno. Resp. to Prelim. Inj. Mot., Exh. D, S. Kuhns Decl. ¶¶ 4–5.

Throughout August and September 2020, Rhyno hired away five Holbrook No. 2 employees, including Shawn Kuhns and Jesse Arambula, a key highly skilled toolmaker essential to Holbrook's business. Kochan Decl. ¶ 39.

On or about August 20, 2020, Rhyno's original website went online and was available to the public. Kochan Decl. ¶ 19. Rhyno's original website falsely stated that Rhyno was a licensed supplier of numerous branded fastener lines, including but not limited to TORX® and TORX PLUS®. Id. ¶ 20. On or about August 24, 2020, Rhyno took down its original website after the owner of the TORX® and TORX PLUS® marks complained that Rhyno was falsely representing it was a TORX® and TORX PLUS® licensee. Id. ¶ 22.

On or about September 23, 2020, Defendants launched a new Rhyno website. Kochan Decl. ¶ 23. Rhyno's amended website had embedded the TORX® trademark into its URL and code. Id. ¶ 24. Rhyno is not a licensed TORX® and TORX PLUS® supplier and does not and cannot sell TORX® and TORX PLUS® fasteners. Id. ¶ 25. Similarly, Rhyno's amended website incorporated the unregistered Holbrook™ mark into its website code. Id. ¶ 30. Rhyno's website also copied and used large amounts of content from Holbrook's website, as well as large amounts of TORX® content from the brand owner's website. Id. ¶¶ 26, 31, 32. And, the amended website contained false statements that one of Defendants’ systems is federally registered and contains a patented feature that Rhyno does not own patent rights in. Id. ¶ 28. The amended website was taken down on October 6, 2020 and Defendants are rebuilding the website from scratch using a professional. ECF No. 19, Am. Resp. to Prelim. Inj. Mot. at 2, Exh. A, D. Kuhns Suppl. Decl. ¶ 17.

On October 6, 2020, Plaintiffs filed suit against Rhyno, Derek Kuhns, and Shawn Kuhns. The Complaint asserts eight counts stemming from Defendants’ allegedly deceptive practices relating to Rhyno's now-inactive website and Defendants’ alleged breaches and tortious conduct relating to the "raid" on Plaintiffs’ employees, customers, suppliers, and manufacturing representatives. Count I alleges that Defendants violated section 43(a) of the Lanham Act through their use of the unregistered Holbrook trademark and the TORX® and TORX PLUS® marks on Rhyno's website and in its metadata, as well as their use of the "®" symbol with an unregistered term. Count II alleges that Rhyno's website contained statements constituting false patent marking in violation of 35 U.S.C. § 292. Count III alleges that Defendants have violated the Illinois Uniform Deceptive Trade Practices Act, 815 ILCS 5/102. Count IV asserts a breach of contract action against Derek and Shawn Kuhns for allegedly breaching the confidentiality provision of the Employee Handbook. Count V alleges Tortious Interference with Contract, against all Defendants. Count VI alleges Tortious Interference with Contract against Rhyno. Count VII alleges Tortious Interference with Prospective Economic Advantage against all Defendants. And, Count VIII alleges Unfair Competition against all Defendants.

On October 14, 2020, Plaintiffs filed an Emergency Motion for a Temporary Restraining Order and Preliminary Injunction. ECF No. 10, Prelim. Inj. Mot. Plaintiffs maintain that they are entitled to injunctive relief because they: (1) have some likelihood of success on the merits; (2) lack an adequate remedy at law; and (3) will suffer irreparable harm if injunctive relief is denied. Id. ; ECF No. 12, Mem. in Support of Prelim. Inj. Mot. Plaintiffs seek injunctive relief via Counts I through III, VII, and VIII.

Defendants counter that the Court should deny Plaintiffs’ Motion because Plaintiffs fail to satisfy the elements for issuance of injunctive relief. Resp. to Prelim. Inj. Both parties submitted declarations and other evidence in support of their respective Motion and Response. After the filing of Defendants’ Response, Plaintiffs filed a supplemental declaration in support of the Motion for a preliminary injunction. ECF No. 15, Kochan Suppl. Decl.

The Court held a hearing on Plaintiffs’ Motion on October 19, 2020. Based on the parties’ arguments, and with the parties’ agreement, the Court construed the Plaintiffs’ Emergency Motion for a Temporary Restraining Order and Preliminary Injunction as a Motion for a Preliminary Injunction. ECF No. 18; see Carlson Group, Inc. v. Davenport, et al. , 2016 WL 7212522, at *2 (N.D. Ill. Dec. 13, 2016) (construing the plaintiff's motion for a temporary restraining order and preliminary injunction as a motion for a preliminary injunction after both parties had filed briefs in support and opposition, submitted declarations and supplemental declarations, and appeared for oral argument). The Court granted Defendants leave to file an amended response opposing the Motion for a Preliminary Injunction and granted Plaintiffs leave to file a reply in support. Both parties filed the aforementioned briefs. ECF No. 19, Am. Resp. to Prelim. Inj. Mot.; ECF No. 20, Reply.

Legal Standard

A party seeking a preliminary injunction is required to demonstrate (i) a likelihood of success on the merits, (ii) that it has no adequate remedy at law, and (iii) that it will suffer irreparable harm if the relief is not granted. Promatek Indus., Ltd. v. Equitrac Corp. , 300 F.3d 808, 811 (7th Cir. 2002), as amended (Oct. 18, 2002). The Seventh Circuit recently clarified how likely success on the merits must be in order to satisfy the standard. Illinois Republican Party v. Pritzker , 973 F.3d 760, 762 (7th Cir. 2020). The Court explained that a "possibility of success is not enough" and "[n]either is a better than negligible chance." Id. (internal citations and quotations omitted)...