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Qualitybuilt.com, Inc. v. Coast to Coast Engineering Services

April 18, 2007

QUALITYBUILT.COM, INC., PLAINTIFF,
v.
COAST TO COAST ENGINEERING SERVICES, INC. D/B/A CRITERIUM ENGINEERS; AND DOES 1 THROUGH 20, INCLUSIVE, DEFENDANT.



The opinion of the court was delivered by: William Q. Hayes United States District Judge

(Doc. # 11)

ORDER

The matter before the Court is the "Temporary Restraining Order and Order to Show Cause Why a Preliminary Injunction Should Not Issue," issued by the Superior Court of the State of California, County of San Diego on April 5, 2007, and, after removal, modified by this Court on April 11, 2007. Plaintiff QualityBuilt.com, Inc. ("QualityBuilt") argues that the Court should extend the temporary restraining order ("TRO") or issue a preliminary injunction, while Defendant Coast to Coast Engineering Services, Inc., d/b/a Criterium Engineers ("Criterium") opposes the ordering of any injunctive relief.

I. Background

On April 3, 2007, QualityBuilt filed a Complaint and "Request for Ex Parte Application for a Temporary Restraining Order and an Order to Show Cause Why a Preliminary Injunction Should Not Issue" ("Application for TRO") against Criterium in state court. In the Complaint and Application for TRO, QualityBuilt alleges that it provided Criterium with its proprietary information, including its customer list, in conjunction with a "Master Services and Licensing Agreement" (the "Contract"). (Compl. ¶¶ 15, 18-19; see also Luhr Decl. ¶ 14.) By the end of 2006, a dispute had arisen over approximately $1.9 million in payments Criterium claimed it was owed by QualityBuilt for engineering services performed on construction projects pursuant to the Contract. (Apr. 14, 2007 Tinsman Decl. ¶ 11.) QualityBuilt claims that Criterium has "submitted billings not accurately depicting the nature and extent of its services," and "[i]n order to determine the extent of Criterium's non-performance, QualityBuilt has undertaken an audit of all projects where Criterium provided services." (Apr. 3, 2007 Michaelis Decl. ¶ 10.) According to QualityBuilt, "[o]nce QualityBuilt has completed the audit, QualityBuilt will be in a position to determine what is actually owed between the parties."*fn1 (Apr. 3, 2007 Michaelis Decl. ¶ 12.)

In early 2007, Criterium sent letters to QualityBuilt clients stating that, as QualityBuilt's subcontractor, a portion of the client's outstanding invoices to QualityBuilt is due to Criterium. (Suppl. Mem. Supp. Extending TRO, Ex. G; Apr. 14, 2007 Tinsman Decl. ¶¶ 13-15, Ex. 2.) For example, one such letter states, in part:

Unfortunately, to date, we have not received payment of these funds from [QualityBuilt]. As a subcontractor, there are certain legal protections provided to us in these types of instances where a contractor does not pay its subcontractor, one of which is to file mechanic liens and/or a civil complaint against the client.

Because [Criterium] values the relationship we have had with you in the past and hope to maintain a positive relationship with you in the future, we are very eager to avoid any necessary legal entanglements, such as lien filings. We are therefore respectfully requesting that you pay the [Criterium] share of each [QualityBuilt] invoice directly to [Criterium] and then pay the balance of the invoice to [QualityBuilt] for their share. The attached schedule shows both the total amount of the [QualityBuilt] invoice and the [Criterium] share, which we ask to be paid to us.

Upon clearing of funds, we will in turn provide you with a Release absolving you of any further obligation to [Criterium] and we will notify [QualityBuilt] of said payment to us.

Given the strict timelines in pursuing mechanic lien claims, time is of the essence.

(Suppl. Mem. Supp. Extending TRO, Ex. G.) After sending these letters, "Criterium followed up with a number of third parties by telephone and e-mail." (Apr. 14, 2007 Tinsman Decl. ¶ 14.) According to Criterium, "[t]he sole purpose of these collection efforts was to reconcile our accounts and ensure that Criterium received payment for services rendered." (Apr. 14, 2007 Tinsman Decl. ¶ 15.)

In its Complaint, QualityBuilt alleges that these collection letters are part of "a campaign to contact QualityBuilt's clients to solicit business" and "disparage QualityBuilt's reputation and integrity." (Compl. ¶ 23.) QualityBuilt brings claims for misappropriation of trade secrets and unfair competition, seeking economic damages, punitive damages and injunctive relief. (Compl. ¶¶ 17-35.)

On April 5, 2007, the state court issued the "Temporary Restraining Order and Order to Show Cause Why a Preliminary Injunction Should Not Issue" ("TRO"). The TRO provides:

Based upon the Complaint, the Memorandum in Support of the ex parte application for a Temporary Restraining Order and an Order to Show Cause why a preliminary injunction should not issue, and the declarations ...


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