IP Law Daily, TRADE SECRETS—N.D. Cal.: Partial injunction granted in trade secrets case, balancing employee mobility against proprietary information protection, (Apr 24, 2026)

By Wendy Biddle, J.D.

The court found sufficient evidence of trade secret misappropriation while limiting the scope of relief to preserve employee mobility rights.

A federal court in California's Northern District partially granted a preliminary injunction against a former water treatment industry sales representative, finding sufficient evidence of trade secret misappropriation after the employee took confidential pricing, customer, and strategic business information before joining a competitor. While ordering the return of proprietary materials including cost breakdowns, bid histories, and sales opportunity notes, the court rejected broader requests that would have prevented the defendant from contacting customers for six months, citing California's strong public policy protecting employee mobility and the right to engage in lawful competition (United Flow Technologies Intermediate Holdco II, LLC v. Coholan, No. 3:26-cv-01845-RS (N.D. Cal. Apr. 20, 2026)).

Background. The case centers on Sean Coholan, a former employee of MISCOwater, a manufacturer's representative firm owned by United Flow Technologies. MISCOwater operates in the water treatment industry, purchasing products from manufacturers and reselling them at marked-up prices to municipal water and wastewater treatment facilities, contractors, and industrial markets.

Coholan joined MISCOwater in 2020 after extensive experience in the water and wastewater treatment industry, including prior work for manufacturers and competing representative firms. During his tenure, MISCOwater expanded its business, particularly in the chemical feed equipment sector where Coholan brought specialized expertise.

The relationship deteriorated in late 2025 when Poly Processing Company, a MISCOwater customer, canceled its Colorado distributorship. In January 2026, MISCOwater presented the employee with a revised compensation plan that reduced his commission rate and prohibited him from discussing compensation matters. When the employee refused to accept these terms, MISCOwater terminated his employment on January 15, 2026.

Prior to his termination, the employee retained confidential MISCOwater records. He claimed this action was motivated by concerns that the company would withhold commissions he had earned, which he alleged totaled nearly one million dollars. The plaintiffs contended that the employee took these materials to compete improperly against his former employer.

Following the employee's termination, he was hired by Goble Sampson Associates (GSA), a direct MISCOwater competitor. Five other MISCOwater employees subsequently left to join GSA as well. In the weeks that followed, MISCOwater lost several key distributorships to GSA, including relationships with ProMinent and Poly Processing in multiple states.

Procedural history and allegations. United Flow Technologies and MISCOwater filed suit on March 3, 2026, asserting claims under the federal Defend Trade Secrets Act and California Uniform Trade Secret Act, along with various state law claims. The company moved for a temporary restraining order on March 10, 2026.

At a March 16 hearing, the former employee's counsel represented that the defendant had not shared the materials he took with anyone else. However, shortly after the court granted a partial TRO requiring return of trade secret materials, the plaintiffs discovered significant additional information. On March 17, 2026, they learned the former employee had contacted a repeat customer appearing in the confidential materials. The following day, the GSA’s counsel revealed that the former employee had shared plaintiffs' materials with the GSA's chief financial officer on two occasions in connection with an internal investigation.

The former employee uploaded 43 files to a ShareFile link on March 18, 2026, though the plaintiffs asserted these were not in original format but rather converted to PDFs and in some cases combined into composite files. A supplemental production followed on March 19, 2026. Forensic analysis subsequently revealed that the former employee had connected USB devices to his computer 81 times between October 2025 and January 2026, though he had not produced any USB drives to the plaintiffs.

Trade secret status. The court applied the standards set forth in the DTSA and CUTSA, which courts analyze together due to their substantially similar elements. To succeed on a misappropriation claim, a plaintiff must prove possession of a trade secret and that the defendant misappropriated it.

The court first addressed whether the plaintiffs had adequately identified protectible trade secrets. The materials the former employee produced following the TRO included booking records, cost and margin breakdowns, budgetary proposals, accounting and profitability notes, bid and negotiation histories, sales opportunity notes, expansion plans, and employee sales histories.

The court found that most of these categories qualified as trade secrets, particularly given the nature of the manufacturer's representative business. The court reasoned that in a middleman market where firms do not manufacture products but rather purchase and resell at marked-up prices, cost and pricing strategies represent key competitive differentiators. The court distinguished the case from precedents cited by the defendant, explaining that cost, margin, and budget details communicate strategic information about business decisions that competitors could not readily ascertain through proper means.

Rejecting the former employee's argument that such information fails to qualify for protection, the court explained that in the context of cost and profit management, the protected information includes the strategies and decisions inherent in materials like cost and margin breakdowns, technical specifications, supply lists, budgetary proposals, and bid negotiations. The court noted that unlike software that manifests its design to users, pricing strategies in a competitive middleman market are not made plain by the set of projects a firm undertakes.

The court also found that sales opportunity notes and customer contact details qualified as trade secrets, citing precedent recognizing that knowledge of customer characteristics, preferences, and buying habits can constitute protectible information when such knowledge aids in securing and retaining business.

However, the court drew two important limitations. First, the court held that budgetary proposals made public, or later made public in substantially the same form, do not qualify as trade secrets because they do not derive economic value from remaining unknown. Second, the court found that employee sales histories did not qualify, noting the plaintiffs had not demonstrated efforts to ensure employees treated their own sales histories as confidential or that independent economic value could be derived from such information.

Misappropriation findings. On the question of misappropriation, the court found that the plaintiffs had established at least serious questions warranting preliminary relief. The court noted that courts routinely find misappropriation when an employee subject to confidentiality obligations copies or forwards proprietary materials in anticipation of departure.

The court rejected the former employee's argument that his motivation of protecting himself in a compensation dispute negated the misappropriation. The court explained that whatever the motivation, acquisition by improper means alone establishes misappropriation under both the DTSA and CUTSA. Furthermore, the former employee's disclosure of the materials to GSA's CFO without the plaintiffs' consent established additional grounds for finding misappropriation through unauthorized disclosure.

Balancing competing interests. While finding the plaintiffs had demonstrated likelihood of success on their trade secret claims and irreparable harm, the court significantly limited the scope of the preliminary injunction based on California's strong public policy favoring employee mobility and open competition.

The court noted that the former employee himself had stated he returned the documents and had no intention of using anything constituting a trade secret. Therefore, an injunction preventing such use would not burden him while protecting the plaintiffs' legitimate interests. However, the court found that the full scope of relief sought by the plaintiffs went too far.

Specifically, the court rejected the request to enjoin the former employee from contacting any customers or distributors included in the misappropriated materials for six months. The court characterized this as obstructing rather than protecting fair competition and as hamstringing the former employee's ability to perform his job and compete fairly. The court cited California Business and Professions Code Section 16600, which voids agreements restraining individuals from engaging in lawful professions, trades, or businesses.

The preliminary injunction as granted requires the former employee to return all materials reflecting detailed cost and margin breakdowns, technical specifications and supply lists, profitability notes, payment and delivery terms, bid and negotiation histories, booking records, and sales opportunity notes. The court clarified that if the former employee later finds publicly available material reflecting such information, he may use that publicly available information, but until specific showings are made that given information is publicly available, the presumption is that it reflects the plaintiffs' trade secrets.

Scope of discovery and inspection. The court also addressed the plaintiffs' requests for forensic access to the former employee's devices and accounts. The court granted requests requiring the former employee to submit to inspection of his devices and storage accounts, make available for imaging and forensic preservation every device or storage platform that contained the plaintiffs' business information, and provide the passcode for his company-issued phone.

However, the court denied requests requiring inspection of the former employee's text and instant messages, social media accounts, physical files, and "every other location where Plaintiffs' materials may exist." The court found that the burden on the former employee and invasion of privacy outweighed the protective value of such expansive measures, noting that the plaintiffs could seek such material through ordinary discovery procedures.

The court ordered the plaintiffs to post an additional bond of $25,000 as a condition of the preliminary injunction.

The Case is No. 3:26-cv-01845-RS.

Judge: Seeborg, R.

Attorneys: Ryan Thomas Weiss (Susman Godfrey LLP) for United Flow Technologies Intermediate Holdco II, LLC. Derek Karl Ulmer (Goyette, Ruano & Ulmer, Inc.) for Sean Coholan.

Companies: United Flow Technologies Intermediate Holdco II, LLC

Cases: TradeSecrets CaliforniaNews