DTC Energy Grp., Inc. v. Adam Hirschfeld, Joseph Galban, & Ally Consulting, LLC

DTC ENERGY GROUP, INC., a Colorado Corporation, Plaintiff, v. ADAM HIRSCHFELD, JOSEPH GALBAN, and ALLY CONSULTING, LLCf/k/a WYODAK STAFFING, LLC, a Wyoming limited liability company, Defendants.

Civil Action No. 17-cv-01718-PAB-KLM

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO

March 2, 2018

Judge Philip A. Brimmer

ORDER

This matter is before the Court on Plaintiff's Amended Motion and Supporting Memorandum for Preliminary Injunction [Docket No. 25]. The Court has jurisdiction pursuant to 28 U.S.C. §§ 1331 and 1367.

I. BACKGROUND

Plaintiff DTC Energy Group initiated this lawsuit on July 14, 2017. Docket No. 1. On the same day, plaintiff moved for a temporary restraining order and preliminary injunction based on the alleged misappropriation of plaintiff's trade secrets by defendants Adam Hirschfeld, Joseph Galban, and Ally Consulting, LLC. Docket No. 4. After a hearing on the motion on August 1, 2017, the Court denied plaintiff's request for a temporary restraining order, finding that plaintiff had failed to demonstrate a likelihood of success on the merits of its misappropriation claims. See Docket No. 17 at 69. On September 13, 2017, plaintiff filed an amended complaint and an amended motion for a preliminary injunction. Docket Nos. 24, 25. Plaintiff's amended motion seeks injunctive relief against defendants Adam Hirschfeld, Joseph Galban, and Ally Consulting, LLC based on four claims in the amended complaint: (1) misappropriation of trade secrets under the federal Defend Trade Secrets Act ("DTSA"), 18 U.S.C. § 1831 et seq., and the Colorado Uniform Trade Secrets Act ("CUTSA"), Colo. Rev. Stat § 7-74-101 et seq.; (2) breach of contract; (3) breach of the duty of loyalty; and (4) unfair competition. See Docket No. 25 at 2, 6-16. After the Court denied Mr. Hirschfeld's Motion to Compel Arbitration and Stay Proceedings [Docket No. 26] on January 4, 2018, see Docket No. 37, defendants filed responses to plaintiff's amended motion for a preliminary injunction. Docket Nos. 39, 42. On January 30, 2018, the Court held an evidentiary hearing on plaintiff's motion. Docket No. 56.

II. FINDINGS OF FACT

The Court makes the following findings of fact based on the parties' filings and the evidence presented at the January 30, 2018 evidentiary hearing:

1. Plaintiff DTC Energy Group, Inc. is a Colorado corporation that provides consulting and staffing services for onshore oil and gas companies in the United States. See Docket No. 24 at 3, ¶ 7. The focus of DTC's business is the placement of supervisory personnel, including site supervisors, operations engineers, and project managers, with oil and gas producers. Bob Sylar and Luke Clausen co-owned DTC until May 1, 2017, when Luke Clausen bought Mr. Sylar's equity interest to become sole owner of the company.

2. Defendant Ally Consulting, LLC, is a Wyoming limited liability company thatprovides consulting and staffing services for the oil and gas industry. Docket No. 24 at 3, ¶ 10. Ally was formerly known as Wyodak Staffing Services. In 2015, Wyodak was co-owned by Robert Dutton and Joe Johnson. Mr. Clausen testified that the focus of Wyodak's business until at least 2016 was the staffing of directional drillers. Wyodak underwent a name change at some point in late 2015 or early 2016 to become Ally Consulting.

3. Oil and gas staffing firms work primarily with two groups: consultants and customers. "Consultants" are temporary employees hired by the oil and gas companies to work at well sites. "Customers" are the oil and gas companies who hire the consultants. The identities of consultants and customers are generally known by the oil and gas companies. In addition, their identities are readily available through various online sources. James Colvin, the owner/president of Energy First Consulting, testified that there are no exclusivity agreements binding consultants and both consultants and customers often work with multiple staffing firms at any given time.

4. In 2013, DTC hired defendant Adam Hirschfeld as a sales associate. Mr. Hirschfeld was ultimately promoted to the position of business development manager. During his employment with DTC, Mr. Hirschfeld was responsible for assessing the staffing needs of oil and gas companies and identifying appropriate candidates to fill those roles. Mr. Hirschfeld's day-to-day work consisted of recruiting consultants and building and maintaining relationships with oil and gas companies.

5. Mr. Hirschfeld entered into an employment contract with DTC on January 1, 2015. Exhibit 2. Section 11 of contract is a confidentiality provision, which states:

Employee covenants and agrees that he will not at any time during orafter the end of the [employment] Term, directly or indirectly, use for his own account, or disclose to any person, firm or corporation, other than authorized employees of the Company . . . Confidential Information (as hereinafter defined) of the Company. As used herein, "Confidential Information" of the Company means information about the Company of any kind, nature or description, including but not limited to, any proprietary information, trade secrets, trade values, data, formulae, supplier, client and customer lists or requirements, price lists or pricing structures, marketing and sales information, business plans or dealings and financial information and plans as well as all papers, resumes and records (including computer records) that are disclosed to or otherwise known to Employee as a direct or indirect consequence of Employee's employment with the Company, which information is not generally known to the public or in the businesses in which the Company is engaged. Confidential information also includes any information furnished to the Company by a third party with restrictions on its use or further disclosure.

Exhibit 2 at 4, ¶ 11. The contract also contains a nonsolicitation provision. Subsection (a) of that provision states:

[W]hile employed by the Company, and for a one-year period thereafter, Employee shall not, directly or indirectly, solicit or influence or attempt to solicit or influence any current customer, client, vendor or supplier of the Company or any of its affiliates or subsidiaries to divert their business to any Competitor . . . of the Company . . . or otherwise terminate its relationship with the Company for any purpose or no purpose, provided, however, that this Section 12 shall not be applicable . . . in the event of a termination of this agreement by the Employee without Good Reason but because there has been a change in the current equity ownership of the Company.

Id. at 5, ¶ 12(a). Subsection (b) further provides:

Employee agrees that, while employed by the Company and for a one-year period thereafter, Employee will not, directly or indirectly, induce, solicit or recruit any employee or consultant of the Company or its subsidiaries or affiliates for the purpose of (A) being employed by Employee or by any Competitor of the Company or (B) interfering with or terminating his or her employment relationship with the Company for any purpose or no purpose.

Id., ¶ 12(b)(ii). In the event of a breach by the employee, the contract states that DTC shall have the "right and remedy to have each and every one of the covenants in thisAgreement specifically enforced and the right and remedy to obtain injunctive relief, it being agreed that any breach or threatened breach of any of the confidentiality, nonsolicitation, or other restrictive covenants and agreements contained herein would cause irreparable injury to the Company and that money damages would not provide an adequate remedy at law." Id. at 5-6, ¶ 13(a).

6. In November 2014, DTC hired defendant Joseph Galban as a staff accountant. There is no evidence that Mr. Galban signed an employment agreement with DTC.

7. Mr. Hirschfeld and Mr. Galban resigned from DTC on May 31, 2017 and went to work for Ally. Mr. Hirschfeld currently serves as Ally's head of business development; Mr. Galban works for Ally as an accountant. Docket No. 24 at 3, ¶¶ 8-9.

8. In the summer of 2015, Mr. Hirschfeld met with Mr. Dutton and Mr. Johnson at Mr. Sylar's direction regarding a possible business relationship between Wyodak and DTC. Mr. Sylar testified that Wyodak was not doing well financially. When Mr. Dutton approached him regarding the possibility of a business relationship between the two companies, Mr. Sylar suggested that DTC could offer Wyodak administrative assistance. Mr. Sylar had very little involvement in the negotiations after that point and Mr. Hirschfeld took the lead in the negotiations. On January 11, 2016, Wyodak and DTC entered into a master service agreement ("MSA"). See Exhibit K. The MSA is silent as to the specific services DTC would provide Wyodak. Mr. Hirschfeld testified that the purpose of the MSA was to allow him to apply his business development efforts to customers at Ally/Wyodak. However, Matt Meyer and Mr. Clausen testified that the MSA was limited to the provision of administrative services, such as payroll andbenefits. This testimony is corroborated by Mr. Sylar's statement that, when he was approached by Mr. Dutton regarding the possibility of a business relationship, Mr. Sylar suggested that DTC could provide Wyodak with administrative support. The Court finds the testimony of Mr. Meyer, Mr. Clausen, and Mr. Sylar credible. The Court does not find Mr. Hirschfeld's testimony as to the purpose and scope of the MSA credible.

9. Mr. Dutton testified that Mr. Johnson spoke with him about his plans to build a new company - Ally Consulting - with Mr. Hirschfeld, although Mr. Dutton understood Mr. Hirschfeld to be working for DTC at the time. Mr. Meyer testified that Mr. Hirschfeld made strategic decisions on behalf of Ally and was a key player in the company's development. Exhibit 36 further shows that Mr. Hirschfeld was invited to a special members meeting for Ally on November 3, 2016.

10. Mr. Hirschfeld testified that he began selling services...