Pro Edge, L.P. v. Gue

374 F.Supp.2d 711

PRO EDGE, L.P., d/b/a Trans Ova Genetics, Inc., and Trans Ova Genetics, L.C., f/k/a Trans Ova Genetics, Inc., Plaintiffs, v. Charles S. GUE, III, DVM, Individually, and Progenesis Embryo Transfer, Ltd., a Montana Corporation, Defendants.

No. C 054068MWB.

United States District Court, N.D. Iowa, Western Division.

June 1, 2005.

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Charles T. Patterson, Heidman, Redmond, Fredregill, Patterson, Plaza, Dykstra & Prahl, Sioux City, IA, for Plaintiffs.

Richard H. Moeller, Berenstein, Moore, Berenstein, Heffernan & Moeller, LLP, Sioux City, IA, for Defendants.

MEMORANDUM OPINION AND ORDER REGARDING PLAINTIFFS' MOTION FOR PRELIMINARY INJUNCTION; DEFENDANTS' MOTION TO DISMISS; AND PRELIMINARY INJUNCTION

BENNETT, Chief Judge.

TABLE OF CONTENTS
I.  INTRODUCTION .....................................................................720
      A.  Procedural Background ........................................................720
      B.  Factual Background ...........................................................722
 II.  LEGAL ANALYSIS ...................................................................724
      A.  Personal Jurisdiction ........................................................724
          1.  Long-arm authority .......................................................725
          2.  Minimum contacts .........................................................725
              a.  Specific v. general jurisdiction .....................................726
              b.  The five factor test .................................................727
          3.  Arguments of the parties .................................................727
          4.  Analysis .................................................................728
              a.  Progenesis ...........................................................728
              b.  Dr. Gue ..............................................................728
                   i.  Quantity, quality, and relatedness of contacts ..................728
                   ii.  "Secondary factors" ............................................734
        B.  Standards For A Preliminary Injunction .....................................734
        C.  Conflict of Laws ...........................................................735
            1.  Iowa's choice of law rules in contract cases ...........................736
            2.  Application of § 187 ..............................................737
        D.  Covenant Not To Compete ....................................................739
            1.  Iowa law ...............................................................739
            2.  Enforceability of the 1996 Agreement ...................................740
            3.  Is the 1996 Agreement properly held by a plaintiff in this matter? .....741
                a.  Arguments of the parties ...........................................741
                b.  Corporate structure ................................................742
                c.  Analysis ...........................................................744
                     i.  Use of a fictitious name ......................................744
                     ii.  Transition from Pro Edge, Ltd. to Pro Edge, L.P. .............746
                     iii.  Capitalization of Trans Ova Genetics, L.C. ..................747
           E.  Consideration Of The Dataphase Factors ..................................747
             1.  Likelihood of success on the merits ...................................747
             2.  Irreparable harm ......................................................748
             3.  Balance of harms ......................................................750
             4.  The public interest ...................................................752
         F.  Rule 65's Bond Requirement ................................................752
         G.  Venue .....................................................................753
             1.  Improper Venue ........................................................753
             2.  Forum non conveniens ..................................................754
III.  CONCLUSION .......................................................................756

This lawsuit arises from an alleged violation of a covenant not to compete contained in an employment agreement between defendant Dr. Charles M. Gue, III, D.V.M., and plaintiffs. In the not so distant past, Dr. Gue was a long-standing employee of Trans Ova Genetics, L.C., specializing in embryo transfer in livestock. During his gestation with Trans Ova Genetics, L.C.'s predecessor Dr. Gue executed an Employment Agreement which contained a non-compete clause prohibiting him from performing similar services within a 250-mile radius of any Trans Ova Genetics facility for one year following his separation from employment. A year and a half after executing the agreement, Trans Ova Genetics, Inc., sought to strengthen its presence in the Belgrade, Montana, area and reassigned Dr. Gue to that area to act as a nucleus for Trans Ova Genetics's Montana location. After many years of apparent symbiotic harmony, Dr. Gue severed his employment relationship with Trans Ova Genetics, L.C., to work in his newly formed closely held corporation, defendant Progenesis Embryo Transfer, Ltd. This act superstimulated the plaintiffs, and they sued in Iowa state court to enjoin Dr. Gue from competing against them in the fertile Montana arena for embryo transfer services — and were granted a temporary restraining order by the state court. This was closely synchronized with the defendants removal of the action to this court, this court's grant of the plaintiffs' motion to extend the temporary restraining order, the plaintiffs' motion for a preliminary injunction, and the defendants' motion to dismiss for lack of personal jurisdiction and improper venue. Needless to say, this activity has successfully impregnated the court with multiple complex issues, some of which are regarding `transfer' of an entirely different nature, which are now full-term and ready for delivery.

I. INTRODUCTION

A. Procedural Background

On April 29, 2005, the plaintiffs in this action, Pro Edge, L.P. ("Pro Edge"), an Iowa limited partnership,¹ and Trans Ova Genetics, L.C.,² an Iowa limited liability corporation, filed a petition in the Iowa District Court for Sioux County, Iowa, against defendants Charles S. Gue, III, DVM ("Dr.Gue"), a former employee of Trans Ova Genetics, L.C., and Progenesis Embryo Transfer, Ltd. ("Progenesis"), a wholly-owned Montana corporation created by Dr. Gue. The plaintiffs' business includes embryo transfer services for cattle producers in several states, including Illinois, Iowa, Missouri, Montana and Oklahoma. In the petition, the plaintiffs allege that Dr. Gue was employed with the plaintiffs until April 8, 2005, and that Dr. Gue has violated the non-competition provisions of his employment contract since his separation from employment with the plaintiffs by providing services, similar or identical to those he performed prior to his termination, to Trans Ova Genetics, L.C. customers within a 250-mile radius of Trans Ova Genetics, L.C.'s Belgrade, Montana office. In Count I of the petition, the plaintiffs seek injunctive relief enjoining the defendants from violating the non-competition provisions of Dr. Gue's employment contract; in Count II, the plaintiffs seek damages and injunctive relief for retention, use, and disclosure by the defendants of the plaintiffs' trade secrets; in Count III, the plaintiffs seek injunctive relief and damages for the defendants' intentional interference with contracts between the plaintiffs and their customers; in Count IV, the plaintiffs seek injunctive relief and damages for the defendants' intentional interference with prospective contracts; and in Count V, the plaintiffs seek injunctive relief and damages for the defendants' breach of the covenant of good faith and fair dealing. On April 29, 2005 the Iowa District Court for Sioux County entered an ex parte temporary restraining order enjoining the defendants from violating the non-competition provisions of an employment agreement between the plaintiffs and Dr. Gue. Somewhat more specifically, the temporary restraining order temporarily enjoined Dr. Gue from providing embryo transfer services including, but not limited to, in vitro fertilization to any individuals or entities that are cattle producers that have been customers of Trans Ova's Belgrade, Montana, office within the 12-month period prior to the date of Dr. Gue's separation from employment on April 8, 2005. The order stated that it would become effective upon the filing of a bond in the amount of $30,000 with the Clerk of the Iowa District Court for Sioux County and the issuance of a writ of injunction. The order also set a hearing on May 9, 2005, on whether the temporary restraining order should continue. The plaintiffs posted the necessary bond and the Writ of Injunction issued on April 29, 2005. The plaintiffs represent that they provided notice of the temporary restraining order to Dr. Gue's counsel on May 1, 2005. However, they contend that Dr. Gue "evaded service" of the temporary restraining order until May 11, 2005. In the interim, while attempting to effect personal service on Dr. Gue, the plaintiffs represent that the defendants' counsel notified the Iowa District Court's Court Administrator that the May 9, 2005, hearing on the continuation of the plaintiffs' temporary restraining order was "unnecessary." However, they represent that the defendants did not move to dissolve the temporary restraining order.

On May 16, 2005, the defendants removed this...