Henry Schein Inc. v. Cook

          ORDER GRANTING IN PART AND DENYING IN PART MOTION FOR PRELIMINARY INJUNCTION RE: ECF NO. 2

          JON S. TIGAR United States District Judge.

         Before the Court is Plaintiff Henry Schein, Inc.'s ("HSI") Motion for a Preliminary Injunction against Defendant and former HSI employee Jennifer Cook. ECF No. 2. This Court previously granted HSI's application for a temporary restraining order (TRO), on June 10, 2016, ECF No. 12, and now considers whether to grant an injunction on the same or similar terms. Cook has opposed the motion, ECF No. 15, and the Court has heard oral argument on the matter, ECF No. 17.

         The Court will grant the motion in part and deny it in part.

         I. BACKGROUND

         A. Plaintiff's Allegations

         According to Plaintiff's allegations, Plaintiff HSI "is in the business of marketing, distributing, and selling medical, dental and veterinary supplies and equipment, and other healthcare products, to medical, dental, and veterinary practitioners, and other healthcare professionals and organizations." ECF No. 2-3 ¶ 2. Defendant Cook was hired as a "Field Sales Consultant" with HSI in April 2005, and entered into a Confidentiality and Non-Solicitation Agreement in 2005, as well as a Letter Agreement in 2011 that required her to hold "in strictest confidence" any confidential information "concerning the products, processes, services, business, suppliers, and customers of HSI, " and to "neither copy nor take any such material upon leaving Company's employ." ECF No. 2-1 at 9-10. It also stated that upon her separation from HSI, and for twelve months thereafter, Cook may not "solicit the patronage of any past or then-current customer of the Company." ECF No. 1 at 24. Cook resigned from HSI on May 13, 2016, and began working for one of HSI's competitors, Patterson Dental ("Patterson"). Id. at 7, 11.

         Plaintiff alleges that prior to leaving HSI, Cook "began to loot HSI's confidential, proprietary, and trade secret documents and information with the apparent goal of diverting HSI's customers." On May 10, Cook forwarded from her work email account, to her personal email, "several comprehensive, confidential HSI customer practice reports that were produced using HSI's proprietary software, " which all "contained a wide array of confidential and trade secret information." Id. at 11. On May 12, 2016, the day before she resigned, Cook forwarded "numerous additional customer-related reports, including an equipment inventory report, price quotations for prospective customers, and equipment proposals on which HSI was working." Id. On May 13, Cook "logged into HSI's system with HSI's proprietary ‘FSC' computer program, " which "had the effect of ‘updating' onto Cook's laptop, substantial, specific, customer related sales and ordering data from the HSI computer system." Id. She then failed to return her laptop to HSI for two weeks. Id. On May 14, the day after she resigned, Cook "unlawfully accessed the HSI computer system, this time using a web-based ‘iPad app' and her company credentials." Id. This type of access "would enable Cook to obtain on her iPad, large amounts of ordering and purchase data for each of the HSI customers that had been assigned to her." Id.

         Cook also attempted to erase the e-mails that she sent from her HSI computer. Id. at 12. Before her resignation, Cook "also attempted to divert HSI customers to Patterson, " and "visited the offices of certain HSI customers, deleted the HSI product ordering icon from their computer systems and destroyed HSI catalogues and business cards." Id.

         On June 9, 2016, the same day HSI applied for a TRO, Plaintiff filed a complaint alleging eight causes of action: (1) Misappropriation of Trade Secrets Under the Defend Trade Secrets Act (DTSA), 18 U.S.C. § 1836, et seq.; (2) Misappropriation of Trade Secrets Under the California Uniform Trade Secrets Act (CUTSA), Cal. Civ. Code § 3426, et seq.; (3) Breach of Fiduciary Duty and Duty of Loyalty; (4) Breach of Written Contract; (5) Breach of Implied Covenant of Good Faith and Fair Dealing; (6) Tortious Interference with Prospective Economic Advantage; (7) Violation of California Unfair Competition Law (UCL); (8) Violation of California Penal Code § 502. ECF No. 1. Plaintiff also filed a declaration stating it attempted service of the complaint and application for TRO by e-mailing a copy to Cook's personal e-mail address and causing copies to be hand-delivered to Cook's last known home address. ECF No. 2-4.

         B. Issuance of TRO and Defendant's Allegations

         On June 10, 2016, this Court granted in part HSI's application for a TRO. ECF No. 12. It granted Plaintiff's request for a TRO requiring Defendant to "preserve all documents, data, tangible things, and other materials relating to this case, " and to refrain from "altering, destroying, or disposing of any evidence or other materials, in any form, relating to this action." Id. at 8-9. It also granted Plaintiff's request to enjoin Defendant from "directly or indirectly accessing, using, disclosing, or making available" any of HSI's confidential documents, data or information, "directly or indirectly violating or interfering with the confidentiality obligations" signed with Plaintiff, and "directly or indirectly, soliciting, continuing to solicit, initiating contact with, or accepting business from, any HSI customers whose accounts were assigned to her while she was employed by HSI." Id. It denied Plaintiff's further request for early discovery. Id. Finally, the order set a hearing and briefing schedule to consider Plaintiff's motion for a preliminary injunction. Id.

         Defendant filed an opposition to the motion for preliminary injunction. ECF No. 15. She states that she was recruited to HSI from a previous distributer of dental and medical equipment, and that HSI "instructed Ms. Cook to bring her clients with her and to send her clients' account ordering histories . . . to help her clients make the transition." ECF No. 15 at 7. She also states that "[a]s competitors in the dental supply industry, HSI and Patterson sell to many of the same clients, primarily dental practices and laboratories, " that "[b]oth companies provide the same or similar products manufactured by the same companies, " and that "nearly all dental practices purchase merchandise, equipment and technical support from more than one company simultaneously." Id. "In fact, Ms. Cook estimates that the majority of her clients at HSI also placed orders with Patterson." Id.

         Cook contests many of Plaintiff's factual assertions regarding her conduct. She states that many of the documents and much of the information asserted by HSI as trade secrets are in fact "generally available" through HSI's website or through its distribution of that information to clients. Id. at 8. She also states that she "did not intend to access HSI's systems" through her iPad and "does not believe that she accessed the system." She also states that while she did visit the offices of some of her HSI customers on behalf of Patterson, as alleged by HSI, she only did so after her resignation, and never removed any HSI documents or ordering icons, but merely informed them that she was now with Patterson and hoped for their business. Id. at 14-15.

         Finally, Cook states that as a sales representative, her compensation is "commission-based, " and therefore she has "worked hard to expand her client base." Id. at 9. "But because the TRO precludes Ms. Cook from communicating with any of her previous clients, including those with whom she worked prior to HSI, her entire career and livelihood is in jeopardy." Id. at 15. Cook states that during the eight days that the TRO was in effect, she was "contacted by at least twenty clients on multiple occasions who were inquiring into, among other things, previously-placed orders, why she has failed to show up for regularly scheduled visits with her clients recently, requests for assistance in placing new orders for supplies and equipment, and her general well-being." Id. Because she complied with the TRO, she ignored these inquiries, "each time risking alienating valued and longstanding clients and tarnishing her sterling reputation for excellent customer service." Id.

         II. LEGAL STANDARD

         Preliminary relief is "an extraordinary remedy that may only be awarded upon a clear showing that the plaintiff is entitled to such relief." Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7, 22 (2008). To obtain preliminary injunctive relief, the moving party must show: (1) a likelihood of success on the merits; (2) a likelihood of irreparable harm to the moving party in the absence of preliminary relief; (3) that the balance of equities tips in favor of the moving party; and (4) that an injunction is in the public interest. Id. at 20. "[S]erious questions going to the merits and a balance of hardships that tips sharply towards the plaintiff can support issuance of a preliminary injunction, so long as the plaintiff also shows that there is a likelihood of irreparable injury and that the injunction is in the public interest." Alliance for the Wild Rockies v. Cottrell, 632 F.3d 1127, 1135 (9th Cir. 2011) (internal quotation marks omitted).

         Preliminary relief may take two forms: it may be prohibitory or mandatory in nature. "A prohibitory injunction prohibits a party from taking action and preserves the status quo pending a determination of the action on the merits." Marlyn Nutraceuticals, Inc. v. Mucos Pharma GmbH & Co., 571 F.3d 873, 878 (9th Cir. 2009) (internal alterations and quotation marks omitted). A mandatory injunction orders a party to take action. Id. at 879. Because mandatory injunctions do more than preserve the status quo, they are "particularly disfavored, " the Ninth Circuit has observed that "courts should be extremely cautious about issuing a preliminary injunction" in those circumstances. Martin v. Int'l Olympic Committee, 740 F.2d 670, 675 (9th Cir. 1984).

         Due to the exigent nature of a preliminary injunction, a court may consider hearsay and other evidence that would otherwise be inadmissible at trial.^[1] See Johnson v. Couturier, 572 F.3d 1067, 1083 (9th Cir. 2009); see also Flynt Distrib. Co. v. Harvey, 734 F.2d 1389, 1394 (9th Cir. 1984) ("The trial court may give even inadmissible evidence some weight, when to do so serves the purpose of preventing irreparable harm before trial.").

         III. DISCUSSION

         The Court's prior order granted a TRO based on the Court's conclusion that Plaintiff had demonstrated a likelihood of irreparable injury and a likelihood of success on the merits; that the balance of equities tips in its favor; and that the public interest would be served by the issuance of a TRO. ECF No. 12. Addressing these same factors again after considering Defendant's opposition and the parties' arguments, the Court concludes that Plaintiff is entitled to a preliminary injunction prohibiting Defendant from accessing or otherwise using the alleged trade secrets that she e-mailed to herself and downloaded. The Court find, however, that Plaintiff is not entitled to an injunction preventing Defendant from contacting or doing business with former or current HSI customers.

         A. Likelihood of Success on the Merits

         In its prior order, the Court concluded that Plaintiff was likely to succeed on its trade secret claims, brought under the DTSA, CUTSA, and UCL, among others, because "customer information such as sales history and customer needs and preferences constitute trade secrets." ECF No. 12 at 5. It also concluded that Plaintiff was likely to succeed on its breach of contract claims, both in relation to Defendant's alleged breach of her agreement to keep ...