Philips Electronics North America Corp. v. Hope, 1:09cv00363.

• Decision Date: 30 June 2009
• Docket Number: No. 1:09cv00363.,1:09cv00363.
• Citation: Philips Electronics North America Corp. v. Hope, 631 F.Supp.2d 705 (M.D. N.C. 2009)
• Court: U.S. District Court — Middle District of North Carolina
• Parties: PHILIPS ELECTRONICS NORTH AMERICA CORPORATION, Plaintiff, v. Jason HOPE, Defendant.

Page 705

631 F.Supp.2d 705

PHILIPS ELECTRONICS NORTH AMERICA CORPORATION, Plaintiff, v.Jason HOPE, Defendant.

No. 1:09cv00363.

United States District Court, M.D. North Carolina.

June 30, 2009.

COPYRIGHT MATERIAL OMITTED

Susan Pyle Dion, Bruce M. Steen, John G. McDonald, McGuire Woods, LLP, Charlotte, NC, for Plaintiff.

Allan R. Holmes, Gibbs & Holmes, Charleston, SC, William Joseph McMahon, IV, Constangy Brooks & Smith, LLC, Winston-Salem, NC, for Defendant.

MEMORANDUM OPINION AND ORDER ON PRELIMINARY INJUNCTION

THOMAS D. SCHROEDER, District Judge.

Before the court is the motion of PlaintiffPhilips Electronics North America Corporation("Philips") to preliminarily enjoin its former employee, DefendantJason Hope("Hope"), from competing with it and from using or disclosing alleged confidential and proprietary information, pursuant to Federal Rule of Civil Procedure 65(a).(Doc. 7.)After notice and a hearing, the court granted motions for a temporary restraining order("TRO") and expedited discovery.(Doc. 21.)Post-discovery briefing was filed (Docs. 25 & 31) and on June 1, 2009, the court held a hearing and renewed the TRO with the consent of the Defendant.For the reasons set forth herein, Philips' motion for preliminary injunction will be granted.

I.BACKGROUND

The court finds the following facts based on the Verified Complaint (Doc. 1), depositions, affidavits and evidentiary record filed by the parties.Philips is a Delaware corporation with its principal place of business in Massachusetts.(Doc. 1 ¶ 1.)On May 9, 2007, Philips acquired Netalog, Inc., which operated under the name Digital Lifestyle Outfitters ("DLO"), by purchasing all of its issued and outstanding stock.(Doc. 28, Ex. D, Pt. 2 at 37, Pt. 3 at 4.)Although DLO became a subsidiary of Philips, DLO operated as a separate business entity under its own brand name until it merged with Philips on January 1, 2009.(Doc. 25, Ex. Aat 3-4;Doc. 29, Ex. D, Pt. 5 at 25;Doc. 37at 17.)Philips now operates DLO's business within its Consumer Lifestyle Division.(Doc. 19at 3.)

In March 2006, DLO operated from its headquarters in Durham, North Carolina.(Doc. 1 ¶¶ 2-3.)DLO was one of the first companies to produce iPod^TM accessories and was a leading MP3 and mobile phone accessory supplier in the United States.(Doc. 1 ¶ 7.)DLO sold these products to national retail stores, such as Best Buy Co., Inc.("Best Buy"), which marketed and sold them on the Internet and in retail stores throughout the United States.(Doc. 1 ¶ 19;Doc. 25, Ex. B ¶¶ 4-5.)

DLO employed Hope as Vice President of Sales beginning on March 1, 2006¹(Doc. 1 ¶¶ 11-13;Doc. 25, Ex. C, Pt. 1 at 12), and he was one of approximately eight officers of the company (Doc. 28, Ex. D, Pt. 2 at 32-36, 37-38, Pt. 3 at 1-37, Pt. 4 at 1-34).Hope is a resident of South Carolina and worked out of DLO's office in Charleston, South Carolina, having relocated from Texas to do so.(Doc. 1 ¶¶ 3, 12;Doc. 25, Ex. C, Pt. 1 at 7.)As the Vice President of Sales, Hope was assigned to work with DLO clients in the United States and Canada.(Doc. 1 ¶¶ 11-13;Doc. 25, Ex. C, Pt. 1 at 12.)He was responsible for, and took a lead role in, assembling client programs, interfacing with buyers and merchants at key accounts, working with DLO employees on changes to products, and marketing DLO's products.(Doc. 1 ¶ 14;Doc. 25, Ex. C, Pt. 1 at 13-14.)Among his duties, Hope managed a team of employees responsible for serving Best Buy.(Doc. 1 ¶ 15.)DLO's sales to Best Buy accounted for more than one-half of the total annual revenue in its MP3 and mobile phone accessories category, and exceeded $75,000,000.(Doc. 1 ¶ 19.)Other top clients of DLO or its successor include Wal-Mart, Target, Sears/Kmart, Sam's Club, Costco, Radio Shack, and Apple Retail Store.(Doc. 39, Ex. Aat 4, Ex. Bat 13-15.)

Through this management position, Hope was privy to confidential and proprietary information of DLO and its clients.Hope received information regarding DLO's product roadmaps and product development efforts.(Doc. 1 ¶ 17;Doc. 25, Ex. C, Pt. 1 at 13-14.)As the key communication link between DLO's clients and its development team, Hope also had access to the specific needs and preferences of DLO's clients.(Doc. 1 ¶¶ 16-17;Doc. 25, Ex. C, Pt. 1 at 13-14.)Furthermore, DLO enabled Hope to develop relationships with its existing and potential customers and to learn about their business operations, needs, and processes.(Doc. 1 ¶ 20.)

On December 28, 2006, Hope executed a Letter Agreement with DLO ("Letter Agreement").(Doc. 1, Ex. 1.)In exchange for a promise to pay him $180,000 in four installments, Hope agreed to a covenant not to compete with DLO ("Non-Competition Agreement" or "Agreement").(Doc. 1, Ex. 1 §§ 2, 2.1, 3.)In pertinent part, this Non-Competition Agreement prohibits Hope from working for a direct competitor in the same or similar position as he held with DLO.(Doc. 1, Ex. 1 § 3.1.)This restriction applies during his employment with DLO and for two years thereafter.(Doc. 1, Ex. 1 § 3.1.)It covers geographic areas where DLO carries on or transacts business, as well as where it sells or markets its products.(Doc. 1, Ex. 1 § 3.1.)

Further, in the Letter Agreement, Hope acknowledged that his "experience and capabilities are such that [he] can obtain other work in the Territory (as defined [in the Non-Competition Agreement]) without competing against the Company."(Doc. 1, Ex. 1 § 3.)He also agreed that "the enforcement of the covenants contained in this letter agreement will not prevent [him] from earning a livelihood or otherwise impose undue hardship on [him]."(Doc. 1, Ex. 1 § 3.)Finally, Hope acknowledged that the Letter Agreement inures to the benefit of DLO's successors (Doc. 1, Ex. 1 § 7(h)), and that any violation entitles DLO to injunctive relief (Doc. 1, Ex. 1 § 7(n)).

In 2008, while still working for DLO but following Philips' purchase, Hope began to plan to leave.On February 4, 2008, he set up a private e-mail account and began communicating with other current and former DLO executives and employees about post-DLO employment opportunities, which he called the "Afterlife."(Doc. 25, Ex. C, Pt. 1 at 20-24, Pt. 2 at Ex. 9.)Hope concedes that the group decided to compete directly with DLO by October 2008(Doc. 25, Ex. C, Pt. 1 at 25-26, 29), yet e-mails reveal that he met with a manufacturer in as early as June 2008 to explore the possibility of making products similar to, and competitive with, those sold by DLO (Doc. 25, Ex. C, Pt. 1 at 28, Pt. 2 at Ex. 11).The June 2008 e-mails also identified further steps, such as pricing by category, inspection of sample products, and logistics and warehousing.(Doc. 25, Ex. C, Pt. 2 at Ex. 11.)

This "Afterlife" group exchanged several other e-mails and documents throughout 2008 as part of their extensive planning for their new business venture.Hope selected the name "Riot Outfitters, LLC"(Doc. 25, Ex. Cat 42-43), paralleling his employer's name of Digital Lifestyle Outfitters.These e-mails included discussions about product pricing, financial forecasts, product information, development of prototypes, organization of business entities, and recruitment of sale representatives, among other topics.(Doc. 25, Ex. C, Pt. 1 at 29-34, 41-63, 67-69, Pt. 2 at Exs. 12-13, Pts. 3-5 at Ex. 20, Pt. 5 at Exs. 21, 23-25, 27-28, 30.)In August 2008, while still employed by DLO/Philips, Hope procured a website domain name for Riot Outfitters.(Doc. 1 ¶ 30;Doc. 25, Ex. C, Pt. 1 at 35, 42-43.)

Hope performed much of his planning during company time and using confidential materials of DLO/Philips.He sent several emails during working hours and even met with a potential investor while on a DLO business trip.(Doc. 25, Ex. C, Pt. 1 at 5-6, Pt. 2 at Ex. 12, Pts. 3-5 at Ex. 20.)Without DLO's knowledge or permission, Hope appropriated a DLO 2008 business plan as a template for the business plan for Riot Outfitters.(Doc. 25, Ex. C, Pt. 1 at 36-40, Pts. 2-3 at Ex. 19.)He also secretly distributed DLO's confidential financial calculator, which DLO used to evaluate the profitability of its products, to one of his new partners.(Doc. 25, Ex. C, Pt. 1 at 52-57, Pt. 5 at Ex. 25.)Furthermore, Hope prepared a PowerPoint presentation for Riot Outfitters using a select market data analysis that DLO had identified and ordered from a third-party vendor at significant cost and which DLO regarded to be confidential.(Doc. 25, Ex. C, Pt. 1 at 41-45, Pts. 3-5 at Ex. 20.)In circulating the stolen DLO information, one of Hope's confederates warned, "[k]eep this between us" and "this is super confidential since it belongs to Philips/DLO."(Doc. 25, Ex. C, Pt. 5 at Exs. 31, 36.)

On December 16, 2008, the day after Riot Outfitters secured financing, Hope announced his resignation from DLO.(Doc. 25, Ex. C, Pt. 1 at 58-59, 64-65, Pt. 5 at Ex. 27.)Upon resigning, he falsely told several individuals at DLO that he would be working with his father's contract labor firm for photo processing machines.(Doc. 1 ¶¶ 24-25;Doc. 25, Ex. C, Pt. 1 at 66.)Hope never breathed a word about working for Riot Outfitters in direct competition with DLO.(Doc. 1 ¶ 25;Doc. 25, Ex. C, Pt. 1 at 65-67;Doc. 28, Ex. D.)Before leaving DLO, Hope also arranged to purchase his company laptop computer and ignored a written directive to remove all proprietary information.(Doc. 28, Ex. C at Ex. 33.)Hope's resignation took effect on December 31, 2008, yet he remained on the payroll through January 2, 2009, because of the New Year's holiday.(Doc. 25, Ex. E ¶¶ 4-5.)

In January 2009, immediately after resigning from DLO, Hope began working with Riot Outfitters.(Doc. 1 ¶ 26; Letter from Maureen Rouse-Ayoub, Bodman, LLP, to Susan Pyle Dion, McGuireWoods, LLP (May 15, 2009).)Riot Outfitters manufactures MP3 and mobile telephone accessories and sells its products at Best Buy, among other places, in...