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Crom, LLC v. Preload, LLC
Citation: 380 F. Supp. 3d 1190Docket: Case No. 1:16cv238-MCR/GRJ
Court: District Court, N.D. Florida; March 31, 2019; Federal District Court
Crom, LLC filed a lawsuit against former employee Phuong Bacon for breaching a Non-Compete Agreement and her duty of loyalty, claiming damages (Counts I and II). The suit also targets Bacon's current employer, Preload, LLC, for tortious interference with Crom's business relations (Count III), civil conspiracy (Count IV), and unfair competition (Count V). These claims arise from allegations that Bacon misappropriated trade secrets and confidential information upon joining Preload, a competitor in the prestressed concrete tank (PCT) market. Crom specializes in constructing PCTs, primarily AWWA D110 Type II tanks, and claims its unique internal design procedures set it apart from competitors, which include Preload. Preload competes with Crom for PCT projects and is also developing Liquefied Natural Gas (LNG) tanks, a sector in which Crom does not operate. Bacon, who worked at Crom from 2007 to 2016, acquired her expertise in PCT design there before moving to Preload. Crom asserts that Bacon's employment with Preload violates her Non-Compete Agreement and contends that Preload was aware of this agreement, thereby facilitating the breach to gain market advantage. The Court is currently considering Defendants' Motion for Summary Judgment and Motion to Strike affidavits related to damages, with the summary judgment motion set to be partially granted and partially denied, while the motion to strike is denied. Preload argues that the Non-Compete Agreement signed by Bacon is invalid and not aligned with Crom's legitimate business interests in the PCT industry. They contend there is no evidence that Bacon misappropriated trade secrets or confidential information, nor that Crom suffered damage or loss of profits due to Bacon's or Preload's actions. The facts indicate that Bacon, while an engineering student, began a paid internship with Crom on September 24, 2007, where she signed a Non-Compete Agreement committing to confidentiality and a non-competition clause for three years post-employment. After graduating with a Master's in Engineering in May 2010, Bacon was offered a full-time position as a Staff Engineer, contingent on a background screening and drug test. Although required to sign another Non-Compete Agreement, she was not asked to do so upon acceptance of the 2010 Offer. During her tenure, Bacon advanced to Engineer III and worked remotely from South Carolina, contributing to various design projects across multiple states. She had access to confidential design programs and participated in developing proprietary tools. In 2015, while seeking new employment, Bacon reached out to her former supervisor Harvey, who later offered her a position at Preload in early 2016, which involved designing LNG tanks and was unrelated to her previous work at Crom. Bacon learned during her Preload interview that additional skills were required for the LNG job. On March 11, 2016, she received a job offer from Harvey to design LNG storage tanks for projects in the Northeastern U.S. She resigned from Crom on March 21, 2016, providing four weeks' notice and informing Crawford about her new job offer. Crawford advised against accepting the Preload offer due to a Non-Compete Agreement with Crom. After reviewing the agreement and discussing it with Harvey, Bacon concluded that her role at Preload would not compete with Crom, leading her to accept the position. Upon notifying Crom of her decision, her last employment date was moved up to March 25, 2016. Crom sent IT employee Alex Barrio to retrieve company equipment from Bacon’s home. Before Barrio's arrival, Bacon organized Crom's property, transferred her personal files to a flash drive, and made backups of Crom's files. She allowed Barrio to inspect her personal computer but he declined to search her personal flash drive despite her offer. Barrio's deposition indicated he found no Crom-related information on her computer and noted Bacon was cooperative. Crom then hired a forensic consultant to examine Bacon's work equipment for any confidential information she might have taken. The forensic report identified over 100,000 files across four hard drives, with a significant number accessed in March 2016. It indicated that external devices were connected during this period but did not establish a connection between accessed files and those devices. The report suggested further analysis to link the external devices to accessed files. Shortly before filing suit, Crom's attorney alleged that Bacon violated her Non-Compete Agreement and misappropriated confidential information, based on the forensic evidence. Despite the report not finding a direct link between accessed files and external devices, the attorney accused Bacon of accessing and transferring company files and requested preservation of all related documents from Bacon and Preload. Bacon discovered that some files related to Crom were inadvertently saved with her personal files and provided three personal storage devices to her attorney, who had them analyzed by a forensic consultant before returning them to Crom. In a letter to Crom, Bacon's attorney clarified that these files were examined and that some personal files had been deleted prior to their return. Notably, a list of Crom engineers, including Bacon, was found on her Preload laptop, but no other Crom files were present. Crom has not substantiated claims about the files' contents with affidavits or testimony. During her July 2017 deposition, Bacon acknowledged downloading some Crom-related files unknowingly, asserting she had not intentionally taken any confidential programs. She clarified that her role at Preload involved research and design of LNG storage tanks, with specific projects in Pennsylvania and Alaska. Preload's CEO, Harvey, confirmed that Bacon's work was limited to LNG tank projects and stated he had not directed her to transfer any Crom materials, emphasizing a directive to avoid bringing items from Crom. Crom claimed damages due to lost profits from being outbid by Preload on two projects after Bacon's departure on March 25, 2016. Specifically, Crom cited losses of $286,752 from a project in Rainbow City, Alabama, and $382,491 from a project in San Antonio, Texas. Defendants argued that Crom's damages were not caused by Preload's bids, as Crom was not the second lowest bidder on either project. Affidavits from general contractors confirmed Crom's bids were the highest. In response to a summary judgment motion, Crom submitted new affidavits alleging that Preload's low bids were driving down market prices, thereby harming Crom. Jeff Pomeroy, the Chief Financial Officer of Crom, testified via affidavit that from the second quarter of 2016, Crom had to lower its bid prices for PCT projects due to competitive pricing from Preload, leading to over $900,000 in lost profits from April 1, 2016, to March 17, 2017. He identified four specific projects affected by Preload's pricing strategy: Crom lost contracts in Paducah, Kentucky, and Lake Charles, Louisiana, and won contracts in Lexington, Kentucky, and Morristown, Tennessee, but with reduced profit margins. In response, Harvey, representing the Defendants, provided an affidavit disputing Pomeroy's claims. He noted that Preload was not the low bidder for the Paducah project, Crom's bid for the Louisiana project was rejected, Crom won the Lexington project over Preload's bid, and Preload did not participate in the Tennessee project. Crom did not provide evidence to counter Harvey's statements. The document outlines the legal standard for summary judgment, emphasizing that it is appropriate when no genuine dispute exists regarding material facts, placing the burden on the moving party to demonstrate this. If fulfilled, the non-moving party must present specific facts indicating a genuine trial issue. The court evaluates the evidence favorably toward the non-moving party and leaves credibility and evidence weighing to the jury. For breach of contract claims under Florida law, essential elements include a valid contract, a material breach, and resulting damages, with non-compete agreements interpreted in favor of protecting legitimate business interests. In Florida, non-compete provisions are enforceable if deemed reasonable in time, area, and business scope, as per Fla. Stat. 542.335. The agreement must be written, with the enforcing party responsible for demonstrating a legitimate business interest and the necessity of the restriction. Once a prima facie case is made, the burden shifts to the opposing party to prove the restriction's unreasonableness. Reasonableness is determined by the trial court, which also considers statutory rebuttable presumptions regarding the restriction's duration; generally, a restraint longer than two years is presumed unreasonable, except for trade secrets, which may allow a five-year period. A valid and violated restrictive covenant presumes irreparable injury, warranting injunctive relief or other remedies, although the employee may contest this presumption based on case-specific facts. In the case of Bacon, she claims the restrictive covenant is unenforceable as it expired in 2013, following her internship. The Court finds her reliance on Sanz v. R.T. Aero misplaced, as that case involved a fixed-term non-compete that lapsed due to the employee's continuous employment under an oral agreement. Unlike Sanz, Bacon's contract did not specify a term limit and indicated that the three-year restriction would begin upon termination of her employment, not her internship. The term "employment" was not confined to her intern status, and the evidence indicates that her employment with Crom continued beyond her internship. Thus, the Court concludes that Bacon’s assumption regarding the expiration of her Non-Compete Agreement is incorrect. In April 2010, Crom offered Bacon a full-time position, transitioning her from an intern to a full-time employee with benefits and increased responsibilities. This change confirmed that her Non-Compete Agreement, which included a consideration clause related to continued employment, remained in effect despite the transition. Crom did not need to issue a new Non-Compete Agreement, and there was no indication that the previous agreement from 2007 was terminated by her continued employment. The three-year restriction on Bacon working for competitors commenced with her termination in 2016, not her full-time status in 2010. Bacon contends that the Non-Compete Agreement is unenforceable due to a lack of legitimate business interest. A restrictive covenant is void unless supported by a legitimate business interest, which can include trade secrets and confidential business information. While Bacon argues that Crom lacks a legitimate interest in restricting her from working in the LNG tank industry, Crom demonstrated a valid interest in preventing her from competing in the PCT design and construction arena, where it operates and where Bacon possesses specialized knowledge. Crom’s trade secrets and proprietary information developed during her employment validate the need for the restriction. The onus is on Bacon to prove that the restriction is overly broad or unnecessary to protect Crom’s legitimate business interests, which could lead to judicial modification of the terms. Reasonableness of the non-compete clause is a factual determination for the trial court. Bacon argues that the clause is overbroad because Crom's business interests do not include the LNG tank industry, that a three-year restriction is presumptively unreasonable, and that the absence of a geographic limitation makes it excessively broad. The court notes a factual dispute regarding the reasonableness of the three-year employment restriction, which lacks geographic boundaries. Bacon's assertion that her work is limited to LNG design, while Crom does not operate in this area, involves credibility determinations inappropriate for summary judgment. Testimony indicates that Crom's interests in PCT design, which overlaps with Bacon's work, justify the restriction. The court emphasizes that credibility will be pivotal, presenting a factual question. Regarding the three-year restriction, Florida law presumes that restrictions over two years are unreasonable. However, if the restriction aims to protect trade secrets, a five-year or shorter duration may be reasonable. Crom’s design programs might qualify as trade secrets, and Bacon's access to them raises questions about the restriction's reasonableness. Even if these programs are not classified as trade secrets, Bacon's specialized training and knowledge acquired at Crom may validate the restriction's necessity against a direct competitor. The absence of a geographic boundary further complicates the inquiry into reasonableness, reinforcing that these issues are questions of fact requiring further examination. A worldwide restriction in the Non-Compete Agreement is deemed overly broad, as Crom primarily operates in the Southeastern United States, and Crawford could not confirm that the provided list of states and countries included areas of Crom's business. This finding does not invalidate the agreement but suggests that it may be reasonably modified based on credibility assessments. Determining the reasonableness of such a modification and whether Bacon violated it will involve resolving conflicting inferences regarding Preload's use of Bacon's specialized knowledge in PCT design. Even if a modified restriction is found to be violated, it does not automatically result in relief, as the presumption of irreparable harm is rebuttable, necessitating a case-specific factual inquiry. Consequently, Bacon is not entitled to summary judgment for the breach of the three-year restriction in the Non-Compete Agreement. Regarding misappropriation claims, Crom must prove that Bacon misappropriated legally protected trade secrets or confidential information. The Non-Compete Agreement prohibits Bacon from disclosing any trade secrets or confidential information obtained during her employment. For enforcement of the nondisclosure restriction, there must be evidence of actual misappropriation. Although Bacon had access to Crom's trade secrets, including various design programs, there is no substantial evidence to suggest she took or used these programs at Preload. Crom's reliance on a forensic report indicating accessed files during Bacon's employment does not sufficiently link those files to any actual transfer or use. Crawford's testimony, which listed broad categories of information allegedly taken, is based on the forensic report and lacks factual support connecting the accessed files to any misappropriation. The report recommended additional analysis to explore a potential link, but no such analysis exists in the record. Bacon found Crom-related files on her personal devices during litigation, which have since been returned to Crom. However, Crom has not provided evidence detailing any specific documents or files retained by Bacon, making it speculative to assert that any of those files were confidential. The only relevant file identified on her Preload laptop was a list of engineers and their licensing dates, which does not qualify as confidential or a trade secret. Since Crom has possessed the electronic data since March 2017 and failed to identify any specific files that Bacon did not return which contained legally protected information, its claims of misappropriation and violation of the Non-Compete Agreement are weakened. Although Bacon did not return all materials belonging to Crom after her termination, which violated a provision of the Non-Compete Agreement, she has returned all items in her possession. Consequently, any request for injunctive relief related to this violation is moot, and claims for damages are unsupported. Crom's claims, which hinge on the alleged breach of the Non-Compete Agreement, also lack evidence of resulting damages. For recovery of lost profits under Florida law, causation must be established with reasonable certainty, and Crom has not linked the breach of the Non-Compete Agreement to actual business losses. While Crom argues that Bacon's actions with Preload provided the latter an unfair advantage resulting in lost profits, no substantiated connection has been made between the breach and any concrete damages suffered by Crom. Preload's reduction in bids has led to Crom losing four subcontract bids for prestressed concrete tank projects in Rainbow City, San Antonio, Paducah, and Lake Charles, as well as experiencing diminished profits on two projects it won. Crom claims that Preload's ability to lower its bid prices is due to the alleged misuse of confidential information from Bacon, a former employee. However, there is no evidence supporting this claim; speculation does not connect Bacon’s experience or knowledge to Preload’s pricing strategies. Evidence from general contractors indicates that Crom was not the second-lowest bidder on the Rainbow City and San Antonio projects, implying it would not have won even without Preload's presence. Additionally, the defendants provided unrefuted evidence showing that Preload's bids were not responsible for Crom's losses. Consequently, the court granted in part and denied in part the Defendants' Motion for Summary Judgment: it denied the motion regarding the potential breach of the Non-Compete Agreement for equitable relief, while granting it for all other claims. The parties must confer and inform the court within fourteen days about the scheduling of an injunction hearing and the relevance of equitable relief after three years without Crom seeking a restraining order against Bacon's employment with Preload. The motion to strike was denied, meaning no sanctions will be imposed. The court found that the motions could be resolved without oral argument, noting the case had been pending for over ten months. Diversity jurisdiction was confirmed, with Crom being a Florida LLC and Preload a Kentucky LLC. Members of the industry, including Preload and J.M. Crom, contributed to the design of prestressed concrete tanks, with Preload's invention credited to them. Harvey, a former employee of Crom, left the company in 2011 to join Caldwell Tanks, Inc., which prompted Crom to sue him in 2012 for allegedly breaching noncompete agreements due to Caldwell being a competitor. The lawsuit settled in 2013. In 2015, Caldwell's majority shareholders acquired a controlling interest in Preload, and Harvey became Preload's CEO. Crom's employment agreements included provisions that prohibited employees from disclosing trade secrets or confidential information during and after their employment and required them to return all documents related to Crom’s business upon termination. Employees were also restricted from seeking employment with competitors for three years following termination. A severability clause was included to ensure the validity of remaining provisions if any part was found unenforceable. Bacon received a contingent offer for a Staff Engineer position based on her prior internship work, with a starting salary and benefits outlined. Her health benefits began on July 1, 2010, following her hiring date of May 17, 2010. Crom viewed this as a promotion rather than a new employment, as indicated by her unchanged employee ID and acknowledgment from HR. Despite her title, she did not have responsibilities such as being the engineer of record, marketing, sales, or contract negotiations. Additionally, she was offered a position with Savannah River Remediation, an entity not competing with Crom. The Court lacks expert testimony or an affidavit to clarify Crom's forensic report concerning equipment returned by Bacon. Crom's counsel alleged that Bacon "accessed and downloaded" numerous files between November 2015 and March 2016, but these claims are unsupported by the report or any evidence. The report indicated that many files were accessed during Bacon's employment, and external devices were connected to her work computers, yet it did not confirm any downloads or transfers to those devices, suggesting further investigation instead. Crom did not implement tracking or audit software recommended by the report. Although counsel mentioned a list of deleted personal data files was available, Crom accused Preload of deleting confidential information without providing evidence to substantiate that any specific file transferred by Bacon was confidential or a trade secret. An inquiry during Bacon's deposition about the existence of matches to confidential information was deemed insufficient as evidence. The Magistrate Judge noted Crom's claims were not about financial loss but rather loss of profits from potential bids, instructing Crom to list jobs it allegedly lost due to the defendants’ actions and to estimate damages. Additionally, evidence was presented regarding Bacon's attendance at a meeting shortly after her employment ended, which was countered by proof of her presence in Japan at the time, leading the Court to determine that the factual dispute was immaterial, as no evidence directly linked Bacon to Preload’s bidding process. Defendants seek to strike new affidavits, contending that Mincey's affidavit lacks personal knowledge and relies on hearsay, while Pomeroy's affidavit introduces a new damages theory regarding Preload's impact on market competition, which is deemed untimely. The Court finds striking the affidavits unnecessary since there is no established causal link between Bacon's employment with Preload and Crom's claimed lost profits, highlighting that contract interpretation favors clear, unambiguous terms. Bacon's role as a "new hire" is clarified as akin to a promotion, maintaining her employment with Crom, supported by Marquis-Torrez's testimony. The Court notes that standard design specifications are not confidential, but Crom possesses protectible internal procedures and software, which Bacon contributed to. Crawford's affidavit outlines Crom's business presence across numerous states and countries, though he later admits uncertainty regarding actual operations in those locations. Evidence shows that non-compete agreements from 2010 to 2016 featured narrower restrictions, and Harvey's 2006 agreement limited competition in specific states for two years. The determination of Bacon's potential violation hinges on whether Preload could leverage her knowledge against Crom in relevant markets. Count I of the complaint alleges breach of the Non-Compete Agreement based on misappropriation and retention of materials, while Count II alleges a breach of loyalty through misappropriation and conspiracy to misappropriate Crom's confidential information. Count III alleges tortious interference, while Counts IV and V claim civil conspiracy and unfair competition against Preload and Bacon, all connected to accusations of misappropriation. Crom asserts that Bacon misappropriated trade secrets and confidential information, transferring them to Preload to damage Crom's business. During a deposition on March 20, 2017, Crawford discussed a list of files from a forensic report, which was not included as evidence. Bacon's personal storage devices were provided to Crom on March 24, 2017, with Bacon claiming any retention of materials was inadvertent. The court notes that the intent behind Bacon's actions cannot be determined at the summary judgment stage due to factual and credibility issues. Crom's arguments rely on claims that Bacon accessed numerous files shortly before a representative arrived to retrieve Crom's property; however, evidence to substantiate these claims is lacking. The forensic report mentions only one instance of file access shortly before the property was secured, contradicting Crom's assertions. Although Crom states that Bacon admitted to retaining confidential files, no record evidence supports this claim. During Bacon's deposition, while Crom's attorney referred to files as confidential, Bacon did not confirm their contents, suggesting that the attorney's characterizations do not constitute evidence. Bacon did retain some Crom files, which were returned, but the specifics of these files remain unverified. The court emphasizes that it is not obligated to search through extensive records for supporting facts. Crom's failure to provide record citations undermines its ability to counter the defendants' motion for summary judgment. Additionally, to establish tortious interference, Crom must demonstrate the existence of a business relationship, the defendant's knowledge of that relationship, intentional and unjustified interference, and resulting damages. In Wackenhut Corp. v. Maimone and related cases, it is established that a tortious interference claim based on unfair competition shares the same elements as tortious interference itself. Under Florida law, a civil conspiracy requires proof of: 1) an agreement among at least two parties, 2) to engage in an unlawful act, 3) an overt act taken to promote the conspiracy, and 4) resulting damages to the plaintiff. In the case at hand, the court found that affidavits from Mincey and Pomeroy did not sufficiently demonstrate a causal link between Bacon's employment and Preload's bids, leading to a denial of the Motion to Strike. Additionally, the complaint alleges that Preload encouraged former Crom employees to violate their Non-Compete Agreements and disrupt Crom's business relations with Bacon; however, these claims were dismissed due to Crom's lack of evidence showing damages from these actions.