IP Law Daily, TRADE SECRETS—D. Ariz.: Temporary restraining order issued in fire investigator dispute, (Aug 20, 2024)

By Kevin M. Finson

A temporary restraining order was justified as to non-solicitation and confidentiality agreements entered into by a former employee, but not as to a non-compete agreement, because the non-compete was invalid for being overbroad.

A thermal science service provider was entitled to a temporary restraining order enforcing a non-solicitation and confidentiality agreement against a former employee who left to begin a competing company, the U.S. District Court in Phoenix has held. The parties’ non-competition agreement, however, was void due to being overbroad (Colwell Consulting, LLC v.Papageorge, No. 2:24-cv-01824-JCG (D. Ariz. Aug. 14, 2024)).

Colwell Consulting, LLC (Colwell) was in the business of providing thermal science services, such as determining the cause, origin, and propagation of fires. Colwell employed Michael Papageorge as an engineer, and Papageorge signed non-competition, non-solicitation, and confidentiality agreements as part of his employment. Papageorge eventually resigned from Colwell and founded his own business, PPG Consulting, LLC (PPG). Colwell brought suit against Papageorge and PPG for breach of restrictive covenants, misappropriation of trade secrets under the federal Defend Trade Secrets Act (DTSA) and the Arizona Uniform Trade Secrets Act (AUTSA), and related state law claims, and sought a temporary restraining order. The court considered the traditional injunctive relief factors.

Likelihood of success on the merits. The court considered first whether the restrictive covenants were viable under Arizona law, which required reasonable time and geographic limitations, among other things. The non-competition agreement, unlike the others, extended to the entirety of the United States. Colwell argued that this was reasonable because Papageorge had worked for them in 39 states. The court held that a prohibition on the employee practicing his chosen trade anywhere in the country was overbroad, especially since it was not limited to Colwell’s clients or places where Papageorge had significant contacts during his employment by Colwell.

The other agreements had no such objectionable breadth, however, and Colwell had shown plausible evidence that Papageorge had accepted work from former Colwell clients and taken a substantial number of computer files from Colwell shortly before he resigned, so the court held that Colwell had shown a likelihood of success on the merits on the breach of non-solicitation and confidentiality agreements, but not the non-compete agreement.

As for the trade secrets claim, Papageorge and PPG argued that Colwell had failed to identify specific trade secrets. The court held that allegations Papageorge had taken “expert reports and testing data” on numerous cases and “information, data, calculations, formulas, literature reviews, work product, expert reports, and presentations” along with client billing and contact information, and a declaration of Colwell’s forensic IT expert listing the specific files which Colwell claimed Pagageorge had copied from their computer systems, were sufficient to identify the claimed secrets. There was no dispute that Colwell had taken reasonable steps to protect its data and that Colwell plausibly alleged damages, so the court held that Colwell had shown a likelihood of success on the merits as to the trade secrets claim.

Irreparable harm. The court held that loss of goodwill and potential customers was not compensable by monetary damages and, therefore, Colwell had shown it would suffer irreparable harm.

Balance of hardships. The court found that the balance of hardships favored Colwell because Papageorge would be allowed to accept clients other than those with whom he worked while at Colwell.

Public interest. The court determined that the public interest favored the enforcement of contracts including the restrictive covenants in this case.

The court granted the motion for a temporary restraining order.

The Case is No. 2:24-cv-01824-JCG.

Judge: Groves, J.

Attorneys: Jorge Eduardo Coss Ortega (Greenberg Traurig LLP) for Colwell Consulting LLC. Victoria Elizabeth Ames (Artemis Law Firm) for Michael Papageorge and PPG Consulting LLC.

Companies: Colwell Consulting LLC; PPG Consulting LLC

Cases: TradeSecrets ArizonaNews