Arborcraft v. Arizona Urban ( 2023 )

NOTICE: NOT FOR OFFICIAL PUBLICATION.
UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL
AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.
IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE
ARBORCRAFT LLC, Plaintiff/Appellee,
v.
ARIZONA URBAN ARBORIST, LLC, et al., Defendants/Appellants.
No. 1 CA-CV 23-0384
No. 1 CA-SA 23-0108
(Consolidated)
FILED 10-3-2023
Appeal from the Superior Court in Maricopa County
No. CV2022-095580
The Honorable Peter A. Thompson, Judge
AFFIRMED
COUNSEL
Jackson White PC, Mesa
By Nathaniel J. Hill, David C. Clukey
Counsel for Plaintiff/Appellee
Fischer & Phillips LLP, Phoenix
By Shayna Balch Santiago, Jacob R. Valdez
Counsel for Defendants/Appellants
ARBORCRAFT v. ARIZONA URBAN, et al.
Decision of the Court
MEMORANDUM DECISION
Chief Judge David B. Gass delivered the decision of the court, in which
Judge Brian Y. Furuya and Judge Andrew M. Jacobs joined.
G A S S, Chief Judge:
¶1 Arizona Urban Arborist, LLC, Martin Griner, Brenda Griner,
and Anthony Schmidt (collectively Urban) appeal the superior court’s
preliminary injunction order in favor of ArborCraft, LLC (ArborCraft). We
affirm.
FACTUAL AND PROCEDURAL HISTORY
¶2 ArborCraft is a tree-trimming company owned and operated
by Clayton Sherwood and Max Rezende. Since opening in 2018, ArborCraft
has invested about $370,000 in marketing and online services to grow its
base of over 7,000 clients.
¶3 ArborCraft stores all client and potential client information in
password-protected databases to which only Sherwood and Rezende have
full access. Patricia Bravo, ArborCraft’s office manager, also has full access
to the database and requires permission from Sherwood or Rezende to
perform any tasks beyond her assigned duties. Other ArborCraft
employees and independent contractors have access to the databases only
as necessary to complete their immediate job assignments.
¶4 ArborCraft engaged Bert Griner and Anthony Schmidt as
independent contractors in October 2019 and August 2021 respectively.
Neither Griner nor Schmidt signed a covenant not to compete or a non-
disclosure agreement. Griner and Schmidt worked as estimators,
interacting with clients, creating job quotes, and coordinating ArborCraft’s
tree-trimming crews.
¶5 In August 2022, Griner left ArborCraft to form Urban, and a
month later, Schmidt joined Griner as a co-owner. Without permission from
Sherwood or Rezende, Griner and Schmidt obtained a complete electronic
copy of ArborCraft’s client list. The superior court found Griner and
Schmidt received the copy “likely . . . through Patricia Bravo.”
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Decision of the Court
¶6 In the following weeks, ArborCraft discovered a marketing
email Urban had sent to clients identified on ArborCraft’s client list.
Suspecting Griner had illegitimately obtained the client list, Sherwood and
Rezende recorded a phone call with him in September 2022. During that
call, Griner denied having ArborCraft’s client information and suggested
the email was “spam.” In December 2022, ArborCraft clients again received
Urban’s marketing emails.
¶7 ArborCraft sued Urban, raising various claims and seeking a
preliminary injunction against Urban’s use of ArborCraft’s client list. After
an evidentiary hearing, the superior court determined ArborCraft’s client
list was a trade secret and entered an injunction in ArborCraft’s favor. The
superior court then ordered ArborCraft to post a $5,000.00 bond, which it
did.
¶8 The preliminary injunction prohibits Urban, its agents, and
employees from using the ArborCraft client list. The injunction further
prohibits Urban from contacting persons on the list without written
documentation showing the contacted person was Griner’s or Schmidt’s
client before October 2019. The injunction also requires Urban to return all
copies of ArborCraft’s client list it possesses. Urban unsuccessfully moved
the superior court to clarify and reconsider the injunction order.
¶9 Urban then filed both a petition for special action (1 CA-
SA 23-0108) and a direct appeal (1 CA-CV 23-0384) under A.R.S.
§ 12-2101.A.5.b. We consolidated both cases and have jurisdiction over
Urban’s timely appeal under article VI, section 9, of the Arizona
Constitution, and A.R.S. §§ 12-120.21.A.1 and -2101.A.5.b.
ANALYSIS
¶10 This court reviews a grant of a preliminary injunction for an
abuse of discretion. TP Racing, L.L.L.P. v. Simms, 232 Ariz. 489, 492 ¶ 8 (App.
2013). The superior court abuses its discretion if it: (1) “applie[s] the
incorrect substantive law or preliminary injunction standard”; (2) base[s]
its decision on an erroneous material finding of fact”; or (3) misapplies an
appropriate preliminary injunction standard. Id.I. Because this case involves ArborCraft’s trade-secret claim, Urban
misplaces its reliance on the law of noncompete agreements.
¶11 Urban argues the preliminary injunction violates public
policy because it places a “judicially imposed non-compete” on its business
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Decision of the Court
and therefore this court should analyze the injunction as a restrictive
covenant. But Urban’s argument misses the mark.
¶12 True, noncompete agreements outline what former
employees can and cannot do as it relates to the employer’s business,
including restricting use of the employer’s clients and client information.
See, e.g., Hilb, Rogal & Hamilton Co. of Ariz. v. McKinney, 190 Ariz. 213, 216
(App. 1997) (noting a noncompete agreement protecting an employer’s
legitimate business interest is enforceable); Bryceland v. Northey, 160 Ariz.
213, 216–17 (App. 1989) (noting employers may protect their interest in
customer relationships by using noncompete agreements); Amex Distrib.
Co., Inc. v. Mascari, 150 Ariz. 510, 517–19 (App. 1986) (noting an agreement
prohibiting terminated employee from doing business with former
employer’s customers for “some duration” under three years would have
been justifiable). But noncompete agreements are not the exclusive
mechanism for controlling the use of an employer’s client information, such
that the law governing noncompete agreements must control all means of
doing so.
¶13 Put simply, noncompete agreements are not injunctions.
Covenants not to compete are creatures of contract, primarily intended to
“prevent competitive use, for a time, of information or relationships which
pertain peculiarly to the employer and which the employee acquired in the
course of the employment.” Valley Med. Specialists, 194 Ariz. 363, 367 ¶ 12
(App. 2013) (quoting Harlan M. Blake, Employee Agreements not to Compete,
73 Harv. L. Rev. 363, 367 (1960)). An injunction against misuse of a trade
secret, by contrast, is court-imposed, usually involuntarily, and aimed at
undoing or preventing harm likely to result from misappropriation of a
trade secret while a lawsuit is pending. See A.R.S. § 44-402.A (providing for
injunctive relief when trade secrets are misappropriated); see also A.R.S.
§ 12-1801 (providing for injunctive relief generally); TP Racing, 232 Ariz. at
495 ¶ 21 (prerequisites for injunctive relief). Because noncompete covenants
are not injunctions, we do not look to the law of covenants not to compete
to determine the propriety of a preliminary injunction. For these reasons,
we need not consider Urban’s arguments about the scope of noncompete
agreements. Instead, we consider the case, as the superior court did, as one
involving a trade-secret claim under the Arizona Uniform Trade Secrets
Act.
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Decision of the Court
II. The superior court did not abuse its discretion when it determined
ArborCraft’s client list was a trade secret.
¶14 On appeal, Urban also argues the superior court erred when
it found the ArborCraft client list was a trade secret for the purposes of a
preliminary injunction. The analysis of whether something is a trade secret
is a mixed question of law and fact. Calisi v. Unified Fin. Servs., LLC, 232 Ariz.
103, 106 ¶ 13 (App. 2013). This court “defers to the [superior] court’s factual
findings unless clearly erroneous[] but review[s] its legal conclusions de
novo.” IB Prop. Holdings, LLC v. Rancho Del Mar Apartments Ltd. P’ship, 228
Ariz. 61, 64 ¶ 5 (App. 2011).
¶15 The Arizona Uniform Trade Secrets Act (AUTSA) governs the
protection of trade secrets. A.R.S. § 44-401 through -407. Under the AUTSA,
a trade secret is:
information, including a formula, pattern, compilation,
program, device, method, technique or process, that both:
(a) Derives independent economic value, actual or potential,
from not being generally known to, and not being readily
ascertainable by proper means by, other persons who can
obtain economic value from its disclosure or use.
(b) Is the subject of efforts that are reasonable under the
circumstances to maintain its secrecy.
A.R.S. § 44-401.4.
¶16 This court uses several factors to decide whether a client list
is a trade secret. Calisi, 232 Ariz. at 106 ¶ 15. A client list may receive trade-
secret protection if a claimant “compiled the list by expending substantial
efforts to identify and cultivate its customer base such that it would be
difficult for a competitor to acquire or duplicate the same information.” Id.
at 107 ¶ 17. “A related factor is whether the information contained in the
. . . list derives independent economic value from its secrecy[] and gives”
the list’s holder “a demonstrable competitive advantage over others in the
industry.” Id. at 107 ¶ 18. We also consider whether a business has divulged
its client list only to employees or has shared it with outsiders. See id. at 108–
09 ¶ 19.
¶17 The record shows ArborCraft expended “substantial efforts”
compiling its client list, spending five years and about $370,000 on
marketing to develop its client list through advertising and online services.
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Competitors, including Urban, could not easily replicate ArborCraft’s list
without similar investment.
¶18 The record also indicates ArborCraft kept its client list secure
and secret. ArborCraft limited access to the list by keeping it in a password-
protected database to which only ArborCraft’s two owners and office
manager had full access. And ArborCraft never granted its employees or
contractors, aside from Patricia Bravo, complete access to the database.
¶19 Even so, Urban argues the client list lacks independent
economic value because it only identifies publicly available contact
information and lacks details such as client needs, preferences, and pricing.
But Urban ignores the clear economic value derived from ArborCraft’s
years of investment in pursuing a competitive advantage in the
marketplace. See Calisi, 232 Ariz. at 107 ¶ 18 (competitive advantage
derived from list as factor to consider).
¶20 Next, Urban argues ArborCraft should have (1) spent
“substantial efforts” updating its client list and removing stale information
and (2) provided a written confidentiality agreement prohibiting the list’s
disclosure to third parties. Perhaps those measures would have been wise.
But nothing in Arizona law makes them necessary for the client list to
qualify as a trade secret. Urban cites no such law, and we find none. Instead,
a trade secret must be “the subject of efforts that are reasonable under the
circumstances to maintain its secrecy.” A.R.S. § 44-401.4(b). The resulting
secrecy “need not be absolute.” Enter. Leasing Co. of Phoenix v. Ehmke, 197
Ariz. 144, 150 ¶ 23 (App. 1999). ArborCraft’s limited disclosure and
password protection are reasonable precautions necessary to protect its
client list and satisfy the AUTSA’s requirements.
¶21 ArborCraft, thus, took reasonable steps to protect the client
list, and Urban neither innocently discovered ArborCraft’s trade secret nor
in good faith paid value for it. See id. at 151 ¶ 26. The superior court did not
abuse its discretion when it concluded the client list was a trade secret
entitled to protection because the record supports its conclusion.
III. The superior court did not abuse its discretion by granting
ArborCraft’s preliminary injunction.
¶22 Urban argues ArborCraft did not establish grounds sufficient
for a preliminary injunction. A preliminary injunction is appropriate if a
party shows: “(1) a strong likelihood of success on the merits, (2) the
possibility of irreparable harm if the relief is not granted, (3) the balance of
hardships favors the party seeking injunctive relief, and (4) public policy
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Decision of the Court
favors granting the injunctive relief.” Fann v. State, 251 Ariz. 425, 432 ¶ 16
(2021). “Alternatively, the movant can seek to prove one of two conjunctive
pairings: (1) probable success on the merits and the possibility of
irreparable harm, or (2) the presence of serious questions and the balance
of hardships tipping sharply in the movant’s favor.” City of Flagstaff v. Ariz.
Dep’t of Admin., 526 P.3d 152, 157 ¶ 14 (App. 2023). Here, the superior court
focused on the latter, alternative test, so we assess the preliminary
injunction on that basis.
¶23 In examining the superior court’s application of this test when
it is deciding whether to grant a preliminary injunction, “[t]he relationship
between probable success on the merits and the possibility of irreparable
harm is inversely proportionate: ‘The greater and less reparable the harm,
the less the showing of a strong likelihood of success on the merits need be.
Conversely, if the likelihood of success on the merits is weak, the showing
of irreparable harm must be stronger.’” Id. at 157 ¶ 17 (quoting Fann, 251
Ariz. at 432 ¶ 16).
¶24 For injunctive relief to be appropriate under the AUTSA,
Urban must have threatened to misappropriate or misappropriated a trade
secret. A.R.S. § 44-402.A. Misappropriation occurs when someone discloses
or uses a trade secret without the secret holder’s consent or acquires a trade
secret through improper means. A.R.S. § 44-401.2.
¶25 Urban obtained access to ArborCraft’s client list without
permission from either Sherwood or Rezende. Using the client list, Urban
actively marketed its services to ArborCraft clients. And when ArborCraft
confronted Urban about having the list without its permission, Urban
denied possessing it and continued to market its services to clients on
ArborCraft’s list. Urban thus misappropriated the client list, making
injunctive relief appropriate.
¶26 But Urban also contends the superior court erred in
determining ArborCraft faced irreparable harm. It argues the court’s
irreparable harm findings were (1) conclusory, (2) unsupported by
evidence, and (3) undermined by ArborCraft’s delay in seeking relief. We
address each argument in turn.
¶27 First, the superior court’s finding was not conclusory. The
superior court found the “economic loss due to unfair competition through
use of the confidential business information and trade secrets of ArborCraft
is not readily subject to a specific damages calculation and would also result
in irreparable harm in the form of loss of future business.” The superior
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Decision of the Court
court’s finding explains misappropriation of ArborCraft’s customer list
would inflict damage that would be difficult—if not impossible—to
quantify and would also result in loss of future business. Both these
grounds speak to the essence of irreparable damage because monetary
damages may be inadequate for uncertain losses. IB Prop. Holdings, 228
Ariz. at 65 ¶ 10. The superior court thus provided specific grounds for its
finding that ArborCraft could suffer irreparable harm.
¶28 True, a finding could set forth more information, recite more
facts, and detail more reasons to buttress the conclusion. But “[a] trial
court’s legal conclusions, like its fact-findings, are subject to change after a
full hearing and the opportunity for more mature deliberation.” City of
Flagstaff, 526 P.3d at 157 ¶ 13 (cleaned up). The superior court’s finding is
not conclusory because it discussed specific supporting grounds.
¶29 Second, substantial evidence in the record supports the
superior court’s irreparable injury finding. ArborCraft submitted testimony
that its proprietary customer list constitutes its main source of revenue
because it provided access to recurring customers and led to new customers
and business. Other testimony showed ArborCraft’s clients would lose
trust in it and withdraw their business were the customer list compromised.
Indeed, ArborCraft presented testimony that such loss had already
occurred. Additionally, the superior court found Urban’s witnesses not
credible. Though Urban may disagree with the superior court’s assessment,
“we do not reweigh the evidence or reassess credibility issues on appeal.”
Williams v. King, 248 Ariz. 311, 317 ¶ 26 (App. 2020) (as amended).
¶30 Third, the superior court did not abuse its discretion by
finding ArborCraft’s request for relief timely because Urban delayed the
proceedings. As the superior court observed, when Urban’s owners were
confronted in a September 2022 telephone call about ArborCraft’s customer
list—placed within days of learning of its possible compromise—they did
not admit to their appropriation and use of it. “Rather, they chose to remain
silent as to their possession of the list and mislead [ArborCraft] by giving
the impression that they did not have the list.” Because of Urban’s denials,
ArborCraft kept investigating until December 2022, when further mailings
to its customers provided new evidence of Urban’s involvement.
ArborCraft sought injunctive relief within the same month it finally
confirmed Urban possessed the list. The superior court, thus, did not err by
finding ArborCraft did not unreasonably delay seeking injunctive relief.
¶31 Urban also argues the superior court improperly considered
issues outside ArborCraft’s trade-secret claim when it issued the
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preliminary injunction. Urban cites the superior court’s repeated references
to “confidential business information” in its injunction order. We agree that
confidential business information and trade secrets conceptually overlap,
but they are not synonymous. See Orca Commc’ns Unlimited, LLC v. Noder,
236 Ariz. 180, 184 ¶ 20 (2014). And the superior court informed both parties
it would be “lasered in” on the trade-secret claim and tailored its injunction
to protect ArborCraft’s trade secret. Urban has not identified where the
superior court strayed, and our review shows it did not. We, thus, need not
address Urban’s argument about common-law misappropriation of
confidential business information.
¶32 ArborCraft met the relevant standards. For these reasons, the
superior court did not abuse its discretion when it granted a preliminary
injunction to protect ArborCraft’s client list.
IV. The superior court tailored its preliminary injunction
appropriately.
¶33 Urban argues the superior court abused its discretion because
it imposed an overbroad preliminary injunction on its business. Urban also
claims the injunction fails to meet the requirements of Rule 65(d)(1),
Arizona Rules of Civil Procedure.
¶34 Under Rule 65(d)(1), “[e]very order granting an injunction . . .
must: (A) state the reasons why it issued; (B) state its terms specifically; and
(C) describe in reasonable detail—and not by referring to the complaint or
other document—the act or acts restrained or required.” Ariz. R. Civ. P.
65(d)(1).
¶35 Urban contends the term “contacting” in the preliminary
injunction is too vague and implies no business contact of any kind. Yet the
term “contacting” is common in colloquial speech and is unambiguous
here. See A.R.S. § 1-213 (“Words and phrases shall be construed according
to the common and approved use of the language.”). Urban’s argument
likewise ignores the superior court’s detailed explanation of its order. The
superior court expressly stated:
There is no limitation on open and fair competition in the
marketplace. Defendants are free to use their past
relationships with past service providers, or others who also
contracted with ArborCraft for services. They can also contact
and continue relationships with those clients who they can
demonstrate were prior clients of theirs before October 2019.
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¶36 The superior court, thus, tailored the injunction appropriately
to prohibit Urban’s use of ArborCraft’s client list and did not limit Urban’s
ability to compete in the marketplace.
¶37 Urban argues the injunction bond set by the superior court
does not provide adequate security. The superior court may issue a
preliminary injunction “only if the movant gives security in such amount
as the court considers proper to pay the costs and damages sustained by
any party found to have been wrongfully enjoined or restrained.” Ariz. R.
Civ. P. 65(c)(1). The superior court has discretion over the amount of
security required. See United Food & Com. Workers Loc. 99 v. Brewer, 817 F.
Supp. 2d 1118, 1128 (D. Ariz. 2011) (interpreting substantively identical
federal rule); Fed. R. Civ. P. 65(c) (substantively identical to Ariz. R. Civ. P.
65(c)(1)); see also Flynn v. Campbell, 243 Ariz. 76, 80 (2017) (instructive and
persuasive value of federal court interpretations of federal procedural rules
for interpretation of similar Arizona procedural rules and desirability of
uniformity in interpretation). The superior court set a $5,000.00 bond.
Though a court can abuse its discretion by setting an unreasonably low
bond amount, appellants neither offered the superior court, nor now point
to, any evidence supporting a greater amount.
¶38 As a final matter, Urban appears to argue impossibility but
cites no authority for its claim. Urban says it is not capable of “returning”
all copies of the client list because the list does not exist in paper form. But
the list exists in electronic form, and nowhere in the injunction does the
superior court order Urban to return only paper copies. We, thus, find the
order language neither vague nor overbroad.
¶39 On this record, the superior court reasonably tailored the
preliminary injunction.
ATTORNEY FEES AND COSTS
¶40 Urban and ArborCraft request attorney fees and costs under
Ariz. R. Proc. Spec. Act. 4(g), A.R.S. §§ 12-341, 12-341.01, and 44-404.
Because Urban is not the prevailing party, we decline its request. Though
ArborCraft is the prevailing party, this case is at the preliminary injunction
stage. We, thus, decline to award attorney fees to ArborCraft. On remand,
the superior court may consider any request for attorney fees, including
attorney fees incurred in this appeal, when this litigation concludes.
See Eans-Snoderly v. Snoderly, 249 Ariz. 552, 559 ¶ 27 (App. 2020). We award
ArborCraft its taxable costs on appeal as prevailing party on compliance
with ARCAP 21.
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CONCLUSION
¶41 We affirm.
AMY M. WOOD • Clerk of the Court
FILED: AA
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