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Xoran Holdings LLC v. Luick

United States District Court, E.D. Michigan, Southern Division

September 27, 2019

XORAN HOLDINGS LLC, and XORAN TECHNOLOGIES LLC, Plaintiffs,
v.
DAVID LUICK and TUNGSTEN MEDICAL NETWORK, LLC, Defendants.

          ORDER RE: VARIOUS MOTIONS

          DENISE PAGE HOOD, UNITED STATES DISTRICT JUDGE

         I. INTRODUCTION

         Plaintiffs filed this action seeking an order enjoining Defendants from using and disclosing Plaintiffs’ trade secrets and confidential and proprietary information and competing against Plaintiffs. Plaintiffs assert Defendant David Luick (“Luick”) violated express contractual obligations he made pursuant to an employment agreement (“Employment Agreement”) he executed as an employee of Plaintiff Xoran Technologies LLC (“Xoran”). Defendants counter that Plaintiffs have not identified any particular piece of information entitled to trade secret protection, nor have Plaintiffs demonstrated actual or threatened misappropriation of any trade secrets.

         Currently before the Court are the following matters:

A. Plaintiffs’ Objections to the Magistrate Judge’s November 16, 2018 Bench Order to produce certain documents and supplemental interrogatory responses. Dkt. No. 106.
B. Motion to Extend Discovery, filed by Defendants. Dkt. No. 113.
C. Motion to Stay Dkt. No. 102 Pending Ruling on Dkt. Nos. 106 and 108, filed by Plaintiffs. Dkt. No. 119.
D. Motion to Adjourn All Remaining Dates, filed by Defendants. Dkt. No. 138.
E. Motion for Partial Summary Judgment Regarding Competition, filed by Plaintiffs. Dkt. No. 141.
F. Motion for Relief per Federal Rule of Civil Procedure 56(d), filed by Plaintiffs. Dkt. No. 152.
G. Motion for Reconsideration of Order Granting Defendants’ Motion for Partial Summary Judgment, Dkt. No. 158, filed by Plaintiffs. Dkt. No. 164.
H. Objections to the Magistrate Judge’s May 19, 2019 Order, Dkt. No. 175, filed by Defendants. Dkt. No. 177.

         To the extent permissible, each of the foregoing filings has been fully briefed.

         II. BACKGROUND

         From September 2011 through May 2016, Luick was employed by Xoran Technologies LLC as Director of Sales (he began his employment in 2007 as Project Manager). Xoran is a research and development company based in Ann Arbor, Michigan, that has developed, patented and marketed a line of small, specialized CT scanners and related products for the United States and international markets, particularly low-dose radiation, cone-beam based CT scanners for use in office and operating rooms. Dkt. No. 1, ¶¶10-11. As Director of Sales, Luick was required to sign the Employment Agreement as a condition of his employment, which he did on or about September 18, 2011. Dkt. No. 1, Ex. 1. The Employment Agreement signed by Luick sets forth the following relevant provisions:

         RECITALS

         * * * * *

B. Xoran possesses Confidential Information (hereinafter defined in Paragraph 6) that is a valuable and unique assets of Xoran. In connection with Employee’s employment, Employee holds, or will hold, a position that will provide Employee with access to and knowledge of Confidential Information of Xoran and of clients and customers of Xoran.
* * * * *
6. Non-Disclosure of Information. Employee acknowledges that much, if not all, of the material and information related to the products, technology, software and hardware, techniques, and othr business affairs of Xoran and its affiliates, including without limitation, and and all Work Product (as defined in Paragraph 5.1 of this Agreement), discovered or created pursuant to this Agreement, and the business affairs and information of Xoran and its customers and clients (including but not limited to, any business plans, practices and procedures, pricing information, sales figures, profit or loss figures, information relating to clients, suppliers, sources of supply and customer lists, customer identity, pricing information, and business development plans), which have or will come into Employee’s possession or knowledge in connection with Employee’s performance under this Agreement, consists of confidential and proprietary data of Xoran and its affiliates (collectively, “Confidential Information”). . . . Employee further agrees not to make use of Confidential Information for Employee’s own benefit, either during the term of Employee’s employment with Xoran of [sic] after the termination of such employment. In the event of any breach of this confidentiality obligation by Employee, Employee acknowledges that Xoran would have no adequate remedy at law because the harm caused by such a breach would not be easily measured and compensated for in the form of damages. Accordingly, Employee hereby waives his/her right to contest any equitable relief sought by Xoran, other than Employee’s right to contest the question of whether a breach has occurred. Employee hereby waives the requirement of any bond being posted as security for such equitable relief.
* * * * *
8.1 Term of Non-Competition. The “Term of NonCompetition” means the period beginning on the date of this Agreement and continuing for a period of twelve (12) consecutive, full calendar months following the termination of Employee’s employment for any reason.
8.2 Prohibited Activities.
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8.2.2 During the Term of Non-Competition, Employee will not provide directly or indirectly, individually or as a principal, officer, director, employee, shareholder (other than a holder of fewer than 5% of the outstanding shares of a publicly-traded company), consultant, partner, joint venturer, agent, equity owner or in any other capacity whatsoever, a “Competing Service” to any entity regardless of whether it is a sole proprietorship or a corporation, partnership, business association, or other entity. The term “Competing Service” includes, but is not limited to, the design, development, sale, marketing, or distribution of the same or similar products and/or services that are provided by Xoran and its affiliates. If any portion of this Paragraph 8.2.2 is deemed unenforceable by a court of law or arbitrator, the parties’ agreement restricting Employee’s ability to provide Competing Services shall be enforced to the fullest extent allowed by applicable law.
8.2.3 During the Term of Non-Competition, Employee will not, directly or indirectly, individually or on behalf of or in connection with any other person, entity or organization: (a) cause, encourage, direct, solicit, induce or attempt to induce any person who is or has been employed or retained by Xoran to leave the employ or services of Xoran, or in any way interfere with the relationship between Xoran and any employee or consultant thereof; and/or (b) call on, solicit, have contact with, or service any customer, prospective customer, consultant, strategic partner, funding source, or other business relation of Xoran in order to (i) solicit business of the type provided by Xoran, (ii) induce or attempt to induce such person or entity to cease doing business with, or reduce the amount of business conducted with, Xoran, or (iii) in any way to interfere with the relationship between any such person or entity and Xoran.
8.3 Remedies. In addition to exercising any remedies for a breach of this Paragraph 8 available to Xoran at law or in equity, if during any calendar month within the Term of Non-Competition, Employee is not in compliance with the terms of this Paragraph 8, Xoran shall be entitled to seek compliance by Employee with the terms of this Paragraph 8 for an additional number of full, calendar months equal to the number of calendar months during which such noncompliance occurred. The “Term of Non-Competition” shall also include this additional period.
* * * * *
11.10 Survival. Employee hereby acknowledges that the rights and obligations of Employee and Xoran under all subparagraphs of Paragraphs 5, 6, 7, 8, 9, and 11 of this Agreement shall survive the termination of this Agreement. Employee acknowledges and agrees that: . . . (iv) Xoran will be entitled to enforce this Agreement through a temporary restraining order, an injunction and/or other equitable remedies in the event of a breach, in addition to any other remedies available to Xoran (including, without limitation, monetary damages), without the requirement for posting a bond or security for such injunctive relief; and (v) injunctive relief will not deprive Employee of an ability to earn a living because he/she is qualified for many positions which do not otherwise necessitate the breach of any provision of this Agreement.

Id.

         According to Plaintiffs, Luick resigned from Xoran in May 2016. Defendants contend that Luick was wrongfully fired in May 2016, a termination that Defendants claim was the result of Luick reporting misconduct by Xoran’s Chief Executive Officer, Miodrag Rakic, to Xoran’s Human Resources administrator. Xoran later discovered that Plaintiff had filed incorporation papers on June 29, 2016 for a new entity, Tungsten Medical Network, LLC (“Tungsten”), that Luick operated out of his home. Dkt. No. 1, Ex. 2. When Xoran learned that Defendants might be using Confidential Information (as defined in Section 6 of the Employment Agreement) to compete with Xoran, Xoran tried to address the issue with Luick without resorting to litigation, including sending a letter from counsel reminding him of his obligations. Dkt. No. 11, Ex. 3. Luick assured Xoran personnel that he was not using Confidential Information or competing with Xoran.

         In September 2016, Xoran’s President, Dr. David Sarment, saw Defendant Luick talking with representatives from Xoran’s largest competitor at an industry conference. When Dr. Sarment approached Luick, Luick indicated that he was not competing with Xoran. Dkt. No. 11, Ex. 4 at ¶ 5. Luick stated that he had looked into other positions, but none of those options could “meet his salary expectations.” Id. at ¶ 7.

         On October 18, 2016, Plaintiffs filed a Complaint with the following five counts: (1) Misappropriation of Trade Secrets under the Defend Trade Secrets Act, 18 U.S.C. § 1836 (“DTSA”); (2) Injunctive Relief; (3) Misappropriation of Trade Secrets under the Michigan Uniform Trade Secrets Act, M.C.L. 445.1901 et seq.; (4) Breach of Contract (Luick only); and (5) Tortious Interference with a Contractual Relationship. Defendants filed an answer to the Complaint and Counterclaim on November 1, 2016. On November 1, 2016, Defendants filed a Counterclaim for wrongful termination against Plaintiffs.

         Shortly after filing this action, Plaintiffs filed a Motion for Temporary Restraining Order and an Emergency Motion for Preliminary Injunction against Defendants. At the time Plaintiffs’ filed their motion for temporary restraining order, Tungsten’s website indicated that it is “experienced with these brands” and displayed the names “Xoran, ” “Morita, ” and “Carestream, ” a competitor of Xoran’s. Carestream is the same competitor that Dr. Sarment had seen Luick speaking with at the conference. Contrary to Plaintiffs’ statements, there did not appear to be any other reference to Carestream on Tungsten’s website (and not anything that stated Tungsten had a relationship with Carestream). Xoran also believed that Defendants were using a claimed (but nonexistent) business relationship with Xoran to get access to Xoran’s customers and then attempt to steer those customers away from Xoran by providing false information about Xoran’s business. Dkt. No. 11, Ex. 3 at ¶¶ 18-21.

         Prior to the scheduled hearing, the parties entered into a Stipulated Order on November 4, 2016 (“Stipulated Order”). Dkt. No. 14. The Stipulated Order provided, in part, as follows:

WHEREAS, The Employment Agreement contained certain non-compete provisions which are at issue in the current litigation, and which restricted Defendant Luick from certain activities Xoran for a period of 12 months from the date of termination (“non-compete period”); and
* * * * *
IT IS HEREBY ORDERED AS FOLLOWS:
1. Defendants will not use any work product derived in whole or in part from work product Luick or any other Xoran employee produced while working at Xoran ...

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