Smithfield Packaged Meats Sales Corp. v. Dietz & Watson, Inc.

452 F.Supp.3d 843

SMITHFIELD PACKAGED MEATS SALES CORP., Plaintiff,

v.DIETZ & WATSON, INC. and Chris Conrad, Defendants.

No. 1:20-cv-00005-RGE-CFB

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

Signed April 7, 2020

Randall D. Armentrout, Nyemaster Goode PC, Des Moines, IA, Jason P. Brown, Pro Hac Vice, Ryan M. Bates, Pro Hac Vice, Hunton Andrews Kurth LLP, Washington, DC, for Plaintiff.

Gary Dean Dickey, Jr., Dickey & Campbell Law Firm PLC, Des Moines, IA, Aliza R. Karetnick, Pro Hac Vice, Thomas Joseph Gallagher, Pro Hac Vice, Timothy D. Katsiff, Pro Hac Vice, Ballard Spahr LLP, Philadelphia, PA, for Defendants.

ORDER GRANTING PLAINTIFF'S MOTION FOR PRELIMINARY INJUNCTION

Rebecca Goodgame Ebinger, United States District Judge

I. INTRODUCTION

Plaintiff Smithfield Packaged Meats Sales Corp. sues Defendants Dietz & Watson, Inc. and Chris Conrad—a former Smithfield employee who now works at Dietz—for allegedly misappropriating Smithfield's trade secrets. Now before the Court is Smithfield's motion for a preliminary injunction against Dietz and Conrad. For the reasons set forth below, the Court grants Smithfield's motion.

II. BACKGROUND

The limited purpose of a preliminary injunction is "to preserve the relative positions of the parties until a trial on the merits can be held." Univ. of Tex. v. Camenisch , 451 U.S. 390, 395, 101 S.Ct. 1830, 68 L.Ed.2d 175 (1981). "[H]aste ... is often necessary if those positions are to be preserved." Id. As a result, the Court's decision to grant or deny an injunction rests on "procedures that are less formal and evidence that is less complete than in a trial on the merits." Id. Accordingly, the Court's findings of fact and conclusions of law in this Order are not binding at trial. See id.

A. Procedural Background

On February 13, 2020, Smithfield filed a six-count complaint against Dietz and Conrad. Compl., ECF No. 1. Smithfield sues Dietz and Conrad for violation of the federal Defend Trade Secrets Act, 18 U.S.C. § 1836 et seq. (Count I); violation of the Iowa Uniform Trade Secrets Act, Iowa Code § 550.1 et seq. (Count II); intentional interference with existing contract (Count III); and civil conspiracy (Count VI). ECF No. 1 ¶¶ 71–100, 115–18. Smithfield also sues Conrad individually for breach of fiduciary duties (Count IV) and breach of contract (Count V). Id. ¶¶ 101–14.

On February 14, 2020, Smithfield moved for a preliminary injunction against Dietz and Conrad on its claims for trade secret misappropriation. ECF No. 4. Dietz and Conrad oppose Smithfield's motion. ECF No. 25; see Defs.' Br. Supp. Resist. Pl.'s Mot. Prelim. Inj., ECF No. 25-1. On February 25, 2020, Dietz moved to dismiss for lack of personal jurisdiction. ECF No. 26. Smithfield resisted Dietz's motion. ECF No. 31. On March 2 and 3, 2020, the Court held an evidentiary hearing on Smithfield's motion for a preliminary injunction and Dietz's motion to dismiss. Mots. Hr'g Day One Mins., ECF No. 33; Mots. Hr'g Day Two Mins., ECF No. 34. Smithfield called three witnesses: Julian Ackert, an expert in computer forensics; Eric Waddell, Smithfield's Vice President of Retail Packaged Meat Sales for the Central United States; and Conrad. Mots. Hr'g Witness List, ECF No. 34-1. Dietz and Conrad called two witnesses: Christopher Yingling, Dietz's Vice President of Finance; and Nicholas Kauffman, Dietz's Sales Manager for the Midwest Division. Id. Both parties also offered, and the Court admitted, exhibits into evidence. Mots. Hr'g Ex. List, ECF No. 34-2; Defs.' Exs. B–C, E–M, Q–W, ECF Nos. 35-1 to 35-18; Pl.'s Exs. 1–2, 3A–3D, 4–13, 14A–14I, 15–22, 24–26, ECF Nos. 36, 36-1 to 36-15, 36-17 to 36-19, 37-1 to 37-16.

On March 17, 2020, the Court denied Dietz's motion to dismiss for lack of personal jurisdiction. Order Den. Def. Dietz's Mot. Dismiss, ECF No. 41. The Court now addresses Smithfield's motion for a preliminary injunction.

B. Factual Background

1. Smithfield and Dietz

Smithfield sells packaged deli products to grocery stores.¹ These sales occur in a few different ways. First, Smithfield sells its deli products directly to grocery stores. Direct sales arrangements are often part of "programs" between Smithfield and retail stores. Under these programs, Smithfield provides certain incentives for individual stores to sell its products on an exclusive basis. The programs are governed by program agreements that cover items like monetary compensation, advertising, marketing, merchandizing, sales volume, and sales incentives. See Pl.'s Exs. 14C–14G, 20–22, ECF Nos. 37-7 to 37-11, 37-14 to 37-16 (retail customer program agreements filed under seal). Waddell testified Smithfield enters into these program agreements to grow its business and increase its overall sales. The program agreements generally last between one and three years. Most of the agreements do not contain a confidentiality provision. See id. Nevertheless, Waddell testified he considers the terms of program agreements to be confidential.

Second, Smithfield sells its deli products through wholesalers and distributors. The wholesalers and distributors buy products from Smithfield and then sell them to grocery stores, acting as an intermediary between Smithfield and the retailers. One of these wholesalers is Associated Wholesale Grocers ("AWG"). AWG is a cooperative organization owned by its member retailers. As it does with retailers, Smithfield often enters into program agreements with wholesalers. These agreements provide the wholesalers monetary incentives to hit certain sales goals. The incentives include rebates, i.e., monetary rewards for meeting performance goals, and accruals, i.e., extra money that can be spent to increase sales.

Finally, Smithfield sells its deli products through brokers. Smithfield's brokers represent multiple sellers—including Smithfield's competitors—and sell Smithfield's products to retail stores where Smithfield lacks a direct sales force. These arrangements are also governed by agreements. Waddell testified Smithfield's agreements with brokers contain confidentiality provisions. But Conrad testified he never saw a confidentiality provision in one of Smithfield's broker agreements. Nevertheless, Conrad testified there is a "gentlemen's agreement" to keep the terms of the broker agreements confidential. Mots. Hr'g Tr. 259:18–20.² Conrad testified the brokers who represent both Dietz and Smithfield have not provided him with information about competitors in the past.

Dietz, like Smithfield, sells deli meats and cheeses. Dietz is a family-owned business. Yingling testified Dietz distinguishes itself from other companies by selling "super premium" products and by offering special services and solutions to its customers, including merchandising, in-house brand ambassadors and merchandising teams, and dedicated account managers. Mots. Hr'g Tr. 289:4–20. Yingling testified Dietz also has an analyst team that collects market intelligence and uses this data to identify ways Dietz and its retail customers can increase deli sales. Yingling testified he does not consider Smithfield a direct competitor of Dietz because Smithfield does not sell super premium deli products. He explained Dietz offers a different range of products, different services, and is consistently higher priced than Smithfield. Kauffman similarly testified Dietz does not compete with Smithfield on pricing because Dietz's products are appreciably higher priced. By contrast, Waddell testified Dietz is a "direct competitor" of Smithfield. Mots. Hr'g Tr. 100:25–101:2.

Dietz has its largest market share on the East and West Coasts. Compared to other companies selling deli products—including Smithfield—Dietz's Midwest sales are low. See Defs.' Ex. Q at 8, ECF No. 35-12 (comparing Dietz's market share in the Plains region to other deli sales companies, including Smithfield). In recent years, Dietz has taken steps to increase its market share in the Midwest. One of these steps was to become an official vendor selling deli products through AWG. Another was to create a Midwest sales team. As discussed below, Dietz hired Conrad as part of its effort to build a Midwest sales team and increase its Midwest sales.

2. Conrad's employment at Smithfield and transition to Dietz

Conrad worked at Smithfield from July 2007 to October 2019.³ At all relevant times, Conrad was Smithfield's Deli Sales Director for the Central and Southern Regions of the United States. Conrad worked from his home in Atlantic, Iowa. He frequently traveled for work throughout the central and southern regions of the United States. Conrad negotiated, wrote, and supervised the performance of many of Smithfield's programs with customers based in the Midwest United States. He was responsible for managing client relationships, and for training Smithfield's retail customers on deli industry knowledge. Waddell—Conrad's direct supervisor—testified Conrad's number one responsibility was to increase sales in his region.

Smithfield did not require Conrad to sign either a noncompetition agreement, to prevent him from joining a competitor after leaving Smithfield, or a non-solicitation agreement, to prevent him from soliciting any of Smithfield's customers after leaving Smithfield. Conrad did sign or acknowledge agreements prohibiting him from 1) using or disclosing Smithfield's trade secrets or proprietary and confidential information outside of his position at Smithfield, and 2) retaining any "records and papers" containing Smithfield's trade secrets or proprietary and confidential information after leaving Smithfield. Pl.'s Ex. 7 ¶ 2, ECF No. 36-6; Pl.'s Ex. 8, ECF No. 36-7; Pl.'s Ex. 10 at 3, ECF No. 36-9; see also Pl.'s Ex. 9, ECF No. 36-8. Kauffman, who recruited and hired Conrad for Dietz, testified he asked Conrad whether he had a noncompetition or non-solicitation agreement with Smithfield; Conrad said he did not. Kauffman testified Conrad did not mention the confidentiality agreements.

In the fall of 2019, Conrad began exploring...