N2 Packaging Sys., LLC v. Nebeker (In re Nebeker)

• Decision Date: 23 September 2022
• Docket Number: Bankruptcy Case No. 21-40596-JMM,Adv. Proceeding No. 22-08001-JMM
• Citation: 646 B.R. 294
• Parties: IN RE: Thane S. NEBEKER, Debtor. N2 Packaging Systems, LLC ; Green Tech Innovations, LLC, Plaintiffs, v. Thane S. Nebeker, Defendant.
• Court: U.S. Bankruptcy Court — District of Idaho

646 B.R. 294

IN RE: Thane S. NEBEKER, Debtor.N2 Packaging Systems, LLC ; Green Tech Innovations, LLC, Plaintiffs,

v.Thane S. Nebeker, Defendant.

Bankruptcy Case No. 21-40596-JMM

Adv. Proceeding No. 22-08001-JMM

United States Bankruptcy Court, D. Idaho.

Signed September 23, 2022

Janine Reynard, JOHNSON MAY, Boise, Idaho, Attorney for Plaintiffs.

Alexandra O. Caval, Twin Falls, Idaho, Attorney for Defendant.

MEMORANDUM OF DECISION

JOSEPH M. MEIER, CHIEF UNITED STATES BANKRUPTCY JUDGE

Procedural History

On October 13, 2021, Thane S. Nebeker ("Defendant") filed a chapter 7¹ bankruptcy petition. BK Doc. No. 1.² On January 4, 2022, Plaintiffs N2 Packaging Systems, LLC ("N2") and Green Tech Innovations, LLC ("Green Tech") (collectively, "Plaintiffs"), commenced this adversary proceeding seeking a determination that the debt owed to them by Defendant is nondischargeable. Doc. No. 1. Defendant thereafter filed a motion for a more definite statement which was withdrawn following the filing of an amended complaint. Doc. Nos. 6 & 8. Subsequently, Defendant filed a motion to dismiss counts 1, 2, 4, and 6 of the amended complaint, which was granted without prejudice following a hearing. Doc. Nos. 10, 13 & 14.

Plaintiffs filed a second amended complaint, after which Defendant filed the motion to dismiss presently at issue. Doc. Nos. 16 & 17. The Court heard oral argument on the motion on August 8, 2022, after which it took the matter under advisement. After considering the submissions and arguments of the parties, as well as the applicable law, this decision resolves the motion. Fed. R. Bankr. P. 7052 ; 9014.

Facts Alleged in Second Amended Complaint

N2 is an Arizona limited liability company specializing in packaging solutions that are marketed to third parties in the United States, Canada, and other countries. Complaint³ at ¶¶ 1 & 7. Green Tech is also an Arizona limited liability company. Id. at ¶ 2. Defendant commenced employment with Green Tech on September 20, 2016. Id. at ¶ 8. In November 2017, N2 purchased Green Tech, and thereafter Green Tech was wholly owned by and operated under N2, and N2 was the sole member/parent company of Green Tech. Id. at ¶¶ 2 & 9.

In 2018, Defendant became an employee of N2 following a transition of all Green Tech employees to N2. Id. at ¶ 15. Following this transition, Defendant's payroll, benefits, tax documents, and signature block reflected his employer was N2. Id. at ¶¶ 15–17.

Both N2 and Green Tech have invested and expended resources to develop confidential information and trade secrets relating to their operation and management, and as a result, both entities hold and own trade secrets from which they derive actual or potential economic value. Id. at ¶¶ 20–23. For example, N2 developed a proprietary process for packing controlled substances using nitrogen and a hermetically sealed lined container with a modified atmosphere that includes child-resistant packaging and complies with international markets, including Canada. Id. at ¶¶ 26–27. Moreover, both entities have undertaken security measures to protect this confidential information, including entering into non-disclosure and confidentiality agreements with employees, clients, and vendors. Id. at ¶¶ 24–25.

On or about January 1, 2018, Defendant executed an updated "Employment, Confidentiality, and Noncompetition Agreement" ("Emp. Agmt.") with Green Tech, and in return received a raise in his base salary, profit sharing, a contingent equity interest, and $500. Id. at ¶¶ 12 & 29. He executed the Emp. Agmt. in the "employment position of Operations Manager" for Green Tech "and the associated companies, entities and organizations" of Green Tech. Id. On this date and thereafter, N2 was an associated company, entity and organization of Green Tech. Id. at ¶ 13. Pertinent to the issues presented in this adversary proceeding, the Emp. Agmt. contains the following provisions:

Section 6(a), "Employee acknowledges and agrees that, since the beginning of Employer's business operations, Employer has spent considerable time, money, and effort building and developing business plans, business processes and methods of operation, financial and operational information, marketing information, technologies, intellectual property, customers, and customer lists, contacts and referral sources, trade secrets, and goodwill and reputation (the "Business Interests"). Employee agrees that Employers’ Business Interests are legitimate and should be protected."

Section 6(b), "Employee acknowledges and agrees he is a person who, by reason of Employer's investment of time, money, trust, exposure to Employer's Confidential Information (more specifically defined below to include, but not limited to, technologies, intellectual property, business plans, business processes and methods of operation, and business relationships) during the course of employment has gained or will gain a high level of inside knowledge, influence, credibility, notoriety or reputation by reason of being an employee of Employer, and, as a result, has the ability to harm or threaten Employer's legitimate Business Interests."

Section 6(c), in part, provides, "In order to protect Employer's Business Interests, and to preserve the Confidential Information defined immediately below, Employee and Employer agree as follows:

(1) Confidential Information. All Employer's non-public information regarding Employer's business operation to include, not by way of limitation: business plans, business processes, methods of operation, product pricing, product pricing methodologies, business development strategies, intellectual property, financial information, customer lists and information, business relationships and other information, materials and documents developed by Employer, and information, materials and documents that constitute Employer's "trade secrets" ("Confidential Information"). Through Employee's employment, Employee is, will become acquainted with and contribute to Employer's Confidential Information.

(2) Ownership of Confidential Information. The Confidential Information shall at all times, and shall be and remain, the sole and exclusive property of Employer, inclusive of other companies and entities associated or affiliated to Employer and Employer's business. ...

(3) Nondisclosure of Confidential Information. All Confidential Information shall be considered by Employee to be sensitive, confidential and proprietary in nature. Employee shall maintain the Confidential Information as completely confidential and secret at all times; and shall not, at any time, either during or subsequent to employment by Employer, directly or indirectly, use, disseminate, appropriate, disclose or divulge any Confidential Information to any person not then employed by employer[.]

(4) Return of Confidential Information and Other Information. All Confidential Information provided to Employee and all documents and things prepared by Employee in the course of Employee's employment, including but not necessarily limited to correspondence, manuals, letters, notes, lists, reports, flowcharts, computer programs, proposals, notebooks, planners, calendars, schedules, disks, data tapes, financial plans and information, business plans, and other documents and records, whether in hard copy, magnetic media, electronic, or otherwise, and any and all copies thereof, are the exclusive property of Employer[.]"

Section 6(d) provides, in part, "... for a period of twenty four (24) consecutive months immediately following termination of Employee's employment for any reason, Employee will not, directly or indirectly ... use[ ], disseminate[ ], appropriate[ ], disclose[ ] or divulge[ ] any Confidential Information; or ... provide[ ] any services to or on behalf of any person, business or entity, either as an independent contractor, consultant, or employee, that are the same as or similar to the services provided by Employee to Employer during the course of Employee's employment ...; or ... otherwise engage[ ] or become[s] interested (as owner, stockholder, partner, director, officer, consultant, member or creditor) in any business or operation directly or indirectly competitive to Employer in which Employer's Confidential Information and/or the services Employee provided to Employer during the course of Employee's employment with Employer are or may be utilized."

Id. at ¶ 28.

During the course of his employment with Green Tech, Defendant was introduced to and had access to confidential business operations, strategies, product development, and other information and processes of both Green Tech and N2. Id. at ¶¶ 30–31. He also was introduced and had access to such information while he was employed by N2. Id. at ¶ 32. He was entrusted with this information in his management role. Id. at ¶ 33.

As Plaintiffs’ employee, Defendant was introduced to both current and prospective clients and customers, including N2 Pack Canada Inc. ("N2 Canada") and its partners, specifically Alejo "Alex" Abellan, Brendan Pogue, and Erick Marciniak. Id. at ¶ 34. Prior to August 2018, N2 and N2 Canada entered into an agreement creating a partnership in Canadian sales of N2 Canada's products, which agreement included confidentiality and non-misappropriation provisions. Id. at ¶ 35.

While an employee of N2, Defendant provided confidential information developed by Plaintiffs, as well as trade secret information belonging to N2, to N2 Canada in exchange for monetary gain. Id. at ¶¶ 38–39. This included information about product vendors, pricing, and details concerning internal research and development conducted by Green Tech and N2. Id. at ¶¶ 40–41. Defendant knew the information included trade secrets and was confidential. Id. at ¶ 42. He specifically instructed competitors about how to circumvent N2's patents and pending patents, which were developed through significant time and expense to Plaintiffs. Id. at ¶¶ 43–44.

On or about September 7, 2018, Defendant filed with the Idaho...