Abrasic 90 Inc. v. Weldcote Metals, Inc.

364 F.Supp.3d 888

ABRASIC 90 INC., d/b/a CGW Camel Grinding Wheels, USA, Plaintiff,

v.WELDCOTE METALS, INC., Joseph O'Mera, and Colleen Cervencik, Defendants.

No. 18 C 05376

United States District Court, N.D. Illinois, Eastern Division.

Signed March 4, 2019

Arthur Edward Rosenson, Cohen Rosenson & Zuckerman, LLC, Chicago, IL, for Plaintiff.

David E. Morrison, Meredith S. Kirshenbaum, Goldberg Kohn Ltd., Chicago, IL, for Defendants.

MEMORANDUM OPINION

John J. Tharp, Jr., United States District Judge

After some 18 years as President of Abrasic 90, Inc., a manufacturer of grinding and sanding discs doing business as Camel Grinding Wheels, U.S.A. ("CGW"), defendant Joe O'Mera left to set up a competing abrasives business for Weldcote Metals, Inc. ("Weldcote"). He took with him some CGW files containing, the company contends, trade secret information about its pricing, customers, and suppliers. CGW has moved for a preliminary injunction against Weldcote, O'Mera, and Colleen Cervencik, another CGW employee who left to work for Weldcote, seeking to bar the defendants from operating in the abrasives industry and from using its trade secrets. But CGW has failed to show that a preliminary injunction is warranted. Largely because it did not protect its supposedly secret information, CGW has not shown that it is likely to succeed on the merits of its claims under any legal theory that could serve as the basis for a preliminary injunction. The injunction it seeks, moreover, is disproportionate to any harm it is likely to suffer and disserves the public's interest in fostering competitive markets. Accordingly, the motion for preliminary injunction, ECF No. 44, is denied.

I. BACKGROUND

CGW is a company based in Niles, Illinois that manufactures and sells over 5,000 abrasive products. CGW purchases materials from about 45 suppliers and sells its finished abrasive products through its internal sales force and a cadre of independent sales agents to roughly 4,000 distributors. About half of CGW's distributors receive prices from CGW that are discounted against CGW's "Mix & Match" catalogue, which is CGW's product-by-product starting point for pricing that is distributed to thousands of recipients. A software program tracks CGW's many thousands of pieces of transactional data and exports that data into various Excel spreadsheets. CGW stored its business and financial information—which included these Excel spreadsheets, the Mix & Match catalogue, sales reports containing information such as CGW's profitability by customer and by item, and other information such as shipping packaging weights—on CGW's shared drive (collectively, the "information at issue"). CGW's employees could access and work on the information on the shared drive as desired, and CGW sent some of the information, such as the sales reports, to its independent sales representatives.

From 2000 to January 29, 2018, Joseph O'Mera was CGW's President. O'Mera was also a director of CGW beginning at least as early as 2005.¹ Many of O'Mera's customers from his previous employer followed him to CGW. At CGW, O'Mera developed and oversaw various aspects of CGW's operations, identified at least 40 of CGW's 45 suppliers, and played the primary role in negotiating costs with suppliers. O'Mera also set CGW's prices for its entire product line and approved all pricing discounts. During O'Mera's tenure, CGW's annual sales increased from $ 2.8 million to $ 33 million.

O'Mera had an employment agreement with CGW from 2002 through 2007² that included a nine-month non-compete provision and confidentiality requirements. The employment agreement required O'Mera to keep CGW information confidential during the term of his employment and to return the exclusive property of CGW when the agreement or his term of employment ended. Although CGW's parent company, Gamal, presented O'Mera with another employment agreement in 2013, that agreement was never executed because the parties could not agree on a long-term compensation plan.

So far as the record reflects, no other CGW officer or employee has ever been subject to a non-compete or confidentiality provision in an employment contract. CGW's employee handbook, which O'Mera approved in 2010, provides that employees may not "reveal or discuss information about CGW, its customers or its employees when outside of the company," Joint Ex., Hr'g on Mot. for Prelim. Inj. ("Joint Ex.") 1, at 3, but it does not impose any obligations on employees after their employment at CGW ends. CGW's independent sales representatives signed agreements informing them that "[c]ustomer information, pricing, strategies and sales analysis records" were considered confidential and requiring them to return CGW property when their relationships with CGW ended, Pl.'s Prelim. Inj. Ex. ("Pl.'s Ex.") 45 ¶¶ 11, 14, but nothing in the record suggests that others with access to the information at issue—such as CGW's own employees—entered into similar agreements or were likewise instructed regarding the confidentiality of certain categories of information. CGW also did not generally require others who had access to some of the information at issue, such as CGW's suppliers and distributors, to sign confidentiality or non-disclosure agreements.

Defendant Colleen Cervencik began working at CGW in 1998. She served as CGW's IT Manager from 2012 until approximately April 2018 when she was effectively demoted to a position as a "Special Projects Manager." During her tenure as the IT Manager, Cervencik maintained the shared drive where the information at issue was stored. She generally granted "office personnel" access to the shared drive if they asked for it (there is no evidence that any employee who sought access to the shared drive was denied such access), and about 39 of 108 CGW employees were given access. If an employee was given access to the shared drive, no inquiry was made as to whether the employee needed access to any particular subset of the information at issue, and there were no restrictions as to which folders within the shared drive that the employee could access; that employee had access to the entire shared drive. Nor were any restrictions imposed on what could be saved to the shared drive. None of the folders or files were password protected or encrypted. There were also no restrictions placed on the employee's ability to download the files, save them to his or her hard drive or an external storage device, print them, or email them. Until April 2018, all employees were instructed to use the same password so that another employee could log in using the other employee's login credentials if necessary. CGW only labeled certain research and development files as "proprietary information," see, e.g. , Defs.' Ex., Hr'g on Mot. for Prelim. Inj. ("Defs.' Ex.") 18; none of the sales and financial information at issue in this case was marked confidential or proprietary. It is undisputed that the shared drive included information that even CGW acknowledges was distributed publicly, such as the widely available Mix & Match pricing catalogue and shipping packaging weights.

In February 2017, CGW hired Ana Maria Gheciu, who holds a degree from DeVry in network and telecommunications management, to work for Cervencik. Around April 2018, Gheciu replaced Cervencik as IT Manager. Gheciu suggested that CGW implement additional security measures, including limiting employees' access to certain files within the shared drive and implementing an "Acceptable Device Use Policy" requiring that employees remove company data from their personal devices at the time of their separation. See, e.g. , Joint Ex. 3. CGW did not implement those measures. Indeed, notwithstanding her recommendation to limit the dissemination of company materials via personal devices, Gheciu sent some of the information at issue to O'Mera's personal email account.

In 2017, O'Mera began engaging in business talks with Zika Group Ltd. ("Zika") about Zika's plans to start an abrasives business that would compete with CGW (among others). Those talks ultimately culminated in plans for Zika to acquire and expand the business of Weldcote, historically a manufacturer of welding products, to sell abrasives and safety products to welders. O'Mera accepted Zika's offer to work as CEO of Weldcote on January 28, 2018. But while O'Mera was still President of CGW, in April 2017, O'Mera sent an email to a Zika executive informing the Zika executive that O'Mera had obtained from VSM, a CGW supplier, a commitment to "work with [him] under the same exact pricing terms on their entire product line." Pl.'s Ex. 44, at 1. Other emails in the same thread suggest that O'Mera was engaging in similar discussions with CGW's major China vendor, Ningbo. O'Mera told Zika that O'Mera generally had "all the suppliers lined up." Id. at 5. O'Mera also wrote in the thread that he had "spent an enormous amount of time on new product testing," and that it would be best if he left CGW before CGW could benefit from his work. Id. O'Mera denies ever having conducted due diligence for Zika with respect to its acquisition of Weldcote, but he at least provided advice about the focus of some of Zika's due diligence work and met with Zika in North Carolina, where the Weldcote facility was then located, to discuss matters related to that potential acquisition. See Pl.'s Ex. 44; Tr. of Proceedings, Prelim. Inj. Hr'g, Oct. 19 & 22, 2018 ("Hr'g Tr.") 47:19–48:25, 160:21-23.

O'Mera resigned from CGW on the afternoon of January 29, 2018, to join Weldcote as its President. Shortly before resigning, O'Mera gathered his CGW laptop and other equipment from his home and turned it in to CGW. O'Mera kept, however, a flash drive storage device containing both personal files and some of the information at issue. Included among the files O'Mera kept was CGW's "All Items File," which contained a comprehensive summary of CGW's transactional information, including sales data, prices, and costs for its...