According to the court’s opinion, the employer had an exclusive franchise agreement with an HVAC equipment manufacturer which accounted for approximately 90% of its business. The manufacturer then terminated the agreement and brought suit in federal court against the employer because: “an audit of company records disclosed what they considered to be a "pervasive pattern of deception to cheat [the manufacturer]" out of "well over $1,000,000" that they claimed had been retained by appellant and were due [the manufacturer].” The manufacturer then opened its own distribution facility and show room. Thereafter, two employees resigned and went to work for a competitor. In doing so, the employees notified two of the employer’s customers and also submitted bids to two of the employer’s customers. The employer brought suit against the two employees and their new employer and sought a preliminary injunction, which was denied.
As noted by the trial court, “The facts demonstrate that proof of any irreparable harm or business loss caused by [the former employees] would be very difficult, particularly in view of the substantial damage to the business by loss of the [manufacturer’s] franchise and damage to its reputation by allegations by [the manufacturer] of fraud. The trial court noted that the allegations of fraud were ‘well known in the business community.’ The trial court concluded: ‘The evidence thus would suggest that, if Plaintiff has suffered a loss of business, [the manufacturer’s] action in canceling the franchise are just as likely, if not more likely, to be the cause of such loss of business.’" In addition, although the employer could show that the employees approached two of its customers, it could not show the loss of any customers as a result of these solicitations. “Under these facts, [the court] conclude[d] that the trial court did not abuse its discretion in denying a preliminary injunction. The trial court reasonably concluded that [the employer] failed to establish by clear and convincing evidence that it would suffer irreparable harm if the injunction did not issue and that [the employer] was likely to succeed on the merits.”
The Court also affirmed the denial of any trade secret claim. First, the employees had never been subject to a confidentiality agreement. In addition, any marketing information which the employees possessed was rendered obsolete by the prior termination of the franchise agreement. Unlike the trade secret product information at issue in Procter & Gamble Co. v. Stoneham (2000), 140 Ohio App.3d 260, this case “concerned company practices in service operations before the termination of the [manufacturer’s] franchise and that [the employer’s] service business has substantially changed because of the [franchise] termination and dispute.” The employee’s “knowledge related to service business and existing building sales when [the employer] was a distributor for [the manufacturer’s] products . . .. Before the franchise termination, as a distributor, [the employer] would make equipment sales on behalf of [the manufacturer] directly to the customer. . . . Now the majority of service work remains work on [the manufacturer’s] equipment. [The employer], however, no longer holds the status of a [manufacturer] distributor to assist in securing sales of service contracts. It purchases parts and equipment for [the manufacturer’s] products used in service just like any contractor in town. The record lacks evidence to indicate that the same marketing strategy or cost structure applied to the service and existing building sales part of the [the employer’s] business after termination of the franchise.”
A plaintiff is required to establish actual irreparable harm or the existence of an actual threat of such injury when the equitable remedy of an injunction is sought. . . . In such a case, proof of irreparable harm must be by clear and convincing evidence. . . . . Such proof is lacking here. This case does not present tangible, highly technical or specific evidence of trade secrets held by either [employee] upon which it could be said that the likelihood of irreparable harm was immediate and concrete as considered by the First District Court of Appeals in Stoneham.
Insomniacs can read the full court opinion at http://www.sconet.state.oh.us/rod/docs/pdf/6/2009/2009-ohio-772.pdf.
NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with an attorney.
