Labor & Employment Law Daily Wrap Up, TORT CLAIMS—D. Ariz.: RV retailer denied preliminary injunction against competitor and former employees, (Jan 23, 2025)

By Brian Craig, J.D.

The RV retailer failed to present specific evidence that its reputation and goodwill are likely to be irreparably harmed.

In a dispute over alleged misappropriation of trade secrets, brought by a retailer of recreational vehicles against two former employees and a competing retailer that sells camper shells, the federal district court in Arizona has denied a preliminary injunction request. While the court found that RV retailer Blue Compass RV LLC showed a likelihood of success on the merits of some claims, the court concluded that the RV retailer failed to present specific evidence that its reputation and goodwill are likely to be irreparably harmed to merit a preliminary injunction (Blue Compass RV LLC v. McFadden, No. 2:24-cv-03704-KML (D. Ariz. Jan. 16, 2025)).

Blue Compass RV LLC (“Blue Compass”) is a company that sells recreational vehicles with six locations in Arizona and one location in New Mexico. The RV retailer filed suit in the federal district court of Arizona against two former employers and Camper Capital, LLC, a competing business that sells and installs camper shells. The RV retailer alleges that a former employee has in his possession some of Blue Compass’s confidential information. The RV retailer alleges violation of the federal Defend Trade Secrets Act, breach of contract, breach of fiduciary duties, and other related claims. The RV retailer seeks a temporary restraining order and preliminary injunction that would, in effect, prohibit the two former employees and the competing retailer for camper shells from conducting business. The court analyzed the standard for preliminary injunctive relief.

Likelihood of success. The court concluded that the RV retailer showed a likelihood of success on the merit of at least some claims. It is undisputed that one of the former employees has in his possession monthly operating reports. Assuming those reports qualify as confidential information, there is a strong likelihood that the RV retailer will succeed on this aspect of its breach of contract claim. But the court concluded that the RV retailer failed to show a likelihood of success on the merits of the Defend Trade Secrets Act claim. There is no evidence the former employee’s continued retention of the reports has caused or threatened damage to the RV retailer. The former employee claims that he has not used the information in the operating reports and that the reports have no relevance to the operations of the competing business that sells camper shells. Based on the given evidence, the court found that possession of the reports has not caused or threatened harm.

Irreparable harm. While the court found a likelihood of success on some claims, the RV retailer failed to show irreparable harm to merit a preliminary injunction. The Ninth Circuit has noted some intangible injuries, such as injury to a business’s goodwill, may qualify as irreparable. The RV retailer claims damage to its customer relationships but failed to explain how these intangible injuries are likely to occur. At the very least, the RV retailer has not provided specific evidence that its reputation and goodwill are likely to be irreparably harmed. Furthermore, the former employee’s noncompete obligations expire 12 months after the end of his employment, or approximately eleven months from now. The RV retailer failed to explain why it would be inordinately difficult to calculate the damages it suffers during such a discrete and relatively short period of time.

Public interest. The court concluded that the public interest does not support either party. Withholding an injunction will not affect the RV retailer’s other contract-based remedies.

Balance of hardships. Finally, the court held that the balance of hardships warrants denial of the request for a preliminary injunction. The RV retailer has not made a sufficient showing it will suffer irreparable harm. Thus, the balance of equities tips strongly in favor of the former employees and the retailer of camper shells. The court recognized the RV retailer’s likelihood of success on some of its claims creates a significant possibility that at some point, the former employees will be subject to an injunction or monetary damages, and they should tailor their behavior and plans accordingly.

Therefore, without a showing of irreparable injunction, the court denied the motion for a temporary restraining order and preliminary injunction.

The case is No. 2:24-cv-03704-KML.

Judge: Lanham, K.

Attorneys: Donald Peder Johnsen (Gallagher & Kennedy) for Blue Compass RV LLC. Audrey Elaine Chastain (Snell & Wilmer) for Michael McFadden.

Companies: Blue Compass RV LLC

Cases: TortClaims RemediesDamages ArizonaNews