Mchutchison v. Eason Horticultural Res., Inc.

• Court: U.S. District Court — Eastern District of Kentucky
• Writing for the Court: David L. Bunning United States District Judge
• Decision Date: 22 June 2021
• Docket Number: CIVIL CASE NO. 21-65-DLB-CJS
• Citation: Mchutchison v. Eason Horticultural Res., Inc., CIVIL CASE NO. 21-65-DLB-CJS (E.D. Ky. Jun 22, 2021)
• Parties: McHUTCHISON, INC. PLAINTIFF v. EASON HORTICULTURAL RESOURCES, INC., et al. DEFENDANTS

McHUTCHISON, INC. PLAINTIFF v. EASON HORTICULTURAL RESOURCES, INC., et al. DEFENDANTS

CIVIL CASE NO. 21-65-DLB-CJS

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF KENTUCKY NORTHERN DIVISION AT COVINGTON

June 22, 2021

MEMORANDUM OPINION AND ORDER* * * * * * * * * *

In March and April of 2021, twenty-five percent of the sales staff, the Vice President of the Nursery Division, and other customer service professionals of McHutchison, Inc. ("McHutchison") left their employment to join Eason Horticultural Resources, Inc. ("EHR"). In doing so, McHutchison alleges that the departed employees unlawfully took proprietary information to assist EHR in expanding its market footprint in the nursery wholesale business. Shortly thereafter, McHutchison moved for a Temporary Restraining Order and Preliminary Injunction to prevent EHR from taking orders from customers who were previously served by McHutchison. (Doc. # 10). Defendants EHR, James Eason, Michael Pezzillo, Jeremy Montgomery, Donald Blocker, John Campbell, Paige Pearce Moats, Steve Stier, James Etzel, and Lucretia Perkins filed a Response in opposition to Plaintiff's Motion. (Doc. # 30). Thereafter, Plaintiff McHutchison filed a Reply. (Doc. # 38). On June 16, 2021, the Court held a Hearing on the Motion in Covington. (Doc. # 49). At the conclusion of that hearing, the Court denied McHutchison's Motion. (Id.). In this Order, the Court gives its reasons for doing so.

I. FACTUAL AND PROCEDURAL BACKGROUND

Plaintiff McHutchison is a wholesale supplier of plants that previously employed Defendants Michael Pezzillo, Jeremy Montgomery, Donald Blocker, John Campbell, Paige Pearce Moats, Steve Stier, James Etzel, and Lucretia Perkins in different capacities in McHutchison's Nursery Division. (Doc. # 1 ¶¶ 1-3, 12-19). In March and April of 2021, Defendants Pezzillo, Montgomery, Blocker, Campbell, Moats, Stier, Etzel, and Perkins left their employment with McHutchison to join Defendant EHR, a company similarly involved in horticultural sales and distribution.¹ (Id. ¶¶ 10, 38-42). The remaining Defendant, James Eason, is the President of EHR. (Id. ¶ 11).

In its Complaint, Plaintiff alleges eleven claims: (I) breach of fiduciary duty and duty of loyalty, (II) tortious interference with contracts, (III) tortious interference with prospective business relations and business advantage, (IV) violation of Kentucky Uniform Trade Secrets Act (KRS §§ 365.880, et seq.), (V) violation of the Defense of Trade Secrets Act (18 U.S.C. §§ 1836, et seq.), (VI) conversion, (VII) civil conspiracy, (VIII) defamation, (IX) fraud, (X) unjust enrichment, and (XI) promissory estoppel. (Id. ¶¶ 113-185). According to McHutchison, each of these causes of action relate to "the unlawful conduct and fallout from a group of McHutchison employees—most notably the Vice President of its Nursery Division [Pezzillo] and multiple longtime Sales Representatives—recently leaving en masse to go to [EHR]." (Id. ¶ 1). McHutchison alleges that while the at-will employees were free to leave their employment with McHutchison to work for a competitor, they unlawfully held customer orders so that theycould book these orders when they began working at EHR, took critical trade secret, confidential and proprietary information, and made false and defamatory statements about McHutchison to customers and vendors. (Id. ¶ 5). There is no dispute as to whether the departed employees were able to leave McHutchison for employment elsewhere as none of these Defendants were bound by a covenant not to compete. As a result of this exodus of employees, and the actions alleged, McHutchison filed a Motion for a Temporary Restraining Order and Preliminary Injunction asking for the following relief:

(1) a temporary order that precludes Defendants from: (a) contacting and/or soliciting, in any manner, and/or taking orders from any McHutchison customer that was not also a nursery customer of [EHR]'s prior to March 12, 2021; (b) copying, distributing, or in any way utilizing McHutchison's confidential, trade secret, and proprietary information; and (c) making any defamatory statements about McHutchison, until McHutchison's preliminary injunction request is heard and resolved; and (2) a preliminary order that: (a) precludes Defendants from contacting and/or soliciting in any manner and/or taking orders from any McHutchison customer that was not also an [EHR] nursery customer prior to March 12, 2021—until January 1, 2022; (b) precludes Defendants from copying, distributing, retaining, or utilizing in any way McHutchison's confidential, trade secret, and proprietary information; (c) requires Defendants to return, and, under agreed parameters, delete such information; (d) precludes Defendants from making defamatory statements about McHutchison; and (e) precludes Defendant Pezzillo from making any misrepresentation to any McHutchison employee about job security or that McHutchison may be sold.

(Doc. # 10 at 1) (emphasis added). As part of Defendants' response pleadings, they assert that they have already complied with several of Plaintiff's requests. (Doc. # 30 at 9). Defendants state that they have returned or destroyed all materials they developed while employed by McHutchison and will refrain from making defamatory statements about McHutchison.² (Id.). Therefore, the Court will focus its consideration on whether itis appropriate to enjoin Defendants from "contacting and/or soliciting, in any manner, and/or taking orders" from McHutchison customers who were not EHR customers prior to March 12, 2021. (Doc. # 10 at 1).

II. ANALYSIS

A. Standard of Review

To determine whether a party should be granted a temporary restraining order or a preliminary injunction,³ a court weighs the following factors: "(1) whether the movant has a strong likelihood of success on the merits; (2) whether the movant would suffer irreparable injury absent the injunction; (3) whether the injunction would cause substantial harm to others; and (4) whether the public interest would be served by the issuance of an injunction." Memphis A. Philip Randolph Inst. v. Hargett, 978 F.3d 378, 385 (6th Cir. 2020) (quoting Am. Civ. Liberties Union Fund of Mich. v. Livingston Cnty., 796 F.3d 636, 642 (6th Cir. 2015)). The preceding factors are not prerequisites that must be met; instead, they are to be balanced by the court in order to determine whether a preliminary injunction is the appropriate remedy. United States v. Edward Rose & Sons, 384 F.3d 258, 261 (6th Cir. 2004). However, "even the strongest showing on the other three factors cannot 'eliminate the irreparable harm requirement.'" D.T. v. Sumner Cnty. Schs., 942 F.3d 324, 326-27 (6th Cir. 2019) (quoting Friendship Materials, Inc. v. Mich. Brick, Inc., 679 F.2d 100, 105 (6th Cir. 1982)). Although the party moving for a preliminary injunction"is not required to prove his case in full at a preliminary injunction hearing, it remains the case that preliminary injunctions are an extraordinary and drastic remedy." Fowler v. Benson, 924 F.3d 247, 256 (6th Cir. 2019) (internal citations and quotations omitted). The moving party bears the burden of establishing the necessity of the preliminary injunction, "including showing irreparable harm and likelihood of success." McNeilly v. Land, 684 F.3d 611, 615 (6th Cir 2012).

B. Likelihood of Success on the Merits

If Plaintiff is unlikely to succeed on the merits of its case, the first factor in the Court's analysis weighs against granting the motion for a preliminary injunction. Plaintiff is required to show "a strong likelihood of success on the merits," Hargett, 978 F.3d at 385 (quoting Am. Civ. Liberties Union, 796 F.3d at 642), instead of "a mere possibility of success," Certified Restoration Dry Cleaning Network, L.L.C. v. Tenke Corp., 511 F.3d 535, 543 (6th Cir. 2007) (quoting Six Clinics Holding Corp. v. Cafcomp Sys., Inc., 119 F.3d 393, 402 (6th Cir. 1997)). As discussed above, Plaintiff has alleged eleven causes of action in its Complaint. (See Doc. # 1 ¶¶ 113-185). Each of these counts will be discussed in turn.

1. Breach of Fiduciary Duty and Duty of Loyalty

Plaintiff McHutchison first alleges a breach of fiduciary duty and duty of loyalty claim against Pezzillo and Defendant sales representatives. (Doc. # 1 ¶¶ 113-120). To prove breach of a fiduciary duty under Kentucky law, a plaintiff must show: "(1) the existence of a fiduciary duty; (2) the breach of that duty; (3) injury; and (4) causation." Baptist Physicians Lexington, Inc. v. New Lexington Clinic, P.S.C., 436 S.W.3d 189, 193 (Ky. 2013). It is typically "presumed that an officer or director of a corporation [such asPezzillo] is a fiduciary," but "a mere salesperson" may only owe fiduciary duties to his employer "if the specific circumstances of his or her employment so require." Cmty. Ties of Am., Inc. v. NDT Care Servs., LLC, No. 3:12-cv-429, 2015 WL 520960, at *7 (W.D. Ky. Feb. 9, 2015) (internal quotations omitted). Specifically, "Kentucky courts are willing to find a fiduciary relationship between an employer and employee when the employee has a 'position of trust, the freedom of decision, and access to confidential corporate information.'" Id. (quoting Aero Drapery of Ky., Inc. v. Engdahl, 507 S.W.2d 166, 168 (Ky. 1974)). However, "such access [to confidential information] will not, alone, put an employee in a position of trust." Id.

Further, "[s]ettled law permits an employee to prepare to compete with his employer before leaving the company, provided the employee does not act unfairly or otherwise injure his principal before the departure." Insight Kentucky Partners II, L.P. v. Preferred Auto. Servs., Inc., 514 S.W.3d 537, 546-47 (Ky. Ct. App. 2016) (citing Miles Farm Supply, LLC v. Helena Chem. Co., 595 F.3d 663, 667 (6th Cir 2010)). Even if Pezzillo and the Defendant sales representatives were fiduciaries of McHutchison, "a fiduciary can compete after the fiduciary relationship has ended." Id. at 547. The end of an...