Retiree, Inc. v. Anspach ( 2016 )

FILED
United States Court of Appeals
UNITED STATES COURT OF APPEALS Tenth Circuit
FOR THE TENTH CIRCUIT August 17, 2016
_________________________________
Elisabeth A. Shumaker
Clerk of Court
RETIREE, INC.,
Plaintiff - Appellee,
v. No. 15-3101
(D.C. No. 2:12-CV-02079-JAR)
DANA ANSPACH; SENSIBLE MONEY, (D. Kan.)
LLC,
Defendants - Appellants.
_________________________________
ORDER AND JUDGMENT*
_________________________________
Before TYMKOVICH, Chief Judge, LUCERO and BACHARACH, Circuit Judges.
_________________________________
Retiree, Inc., filed suit against Dana Anspach and Sensible Money, LLC,
alleging breach of a confidentiality agreement. Following a bench trial, the district
court ruled in favor of Retiree, entered a permanent injunction, and awarded Retiree
$500,000 in liquidated damages. Defendants now appeal. Exercising jurisdiction
under 28 U.S.C. § 1291, we affirm in part and reverse in part.
I
Retiree is a retirement-planning firm specializing in decumulation—the
process of efficiently drawing down retirement assets. As described by Retiree
*
This order and judgment is not binding precedent, except under the doctrines
of law of the case, res judicata, and collateral estoppel. It may be cited, however, for
its persuasive value consistent with Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.
principal William Meyer, the company attempts to extend asset longevity by
coordinating five elements: (1) asset allocation, which refers to the mix of stocks and
bonds in a portfolio; (2) tax efficiency, which looks to increase the after-tax amount
of assets; (3) asset location, which concerns the placement of investments in
particular accounts; (4) withdrawal sequencing, which refers to the order of account
withdrawals; and (5) Social Security claiming strategies. Retiree spent more than
three years developing its “big model”—an Excel spreadsheet coordinating the five
elements, which includes more than 800 rows of tax calculations. The company has
also developed a simplified “QuickStart” model which generates free client reports
showing side-by-side comparisons of various decumulation strategies.
Anspach is a Certified Financial Planner and has earned a Retirement
Management Analyst designation from the Retirement Income Industry Association
(“RIIA”). Since 2008, she has authored a popular retirement-planning blog. In early
2011, she was a principal of Wealth Management Solutions (“WMS”), a financial
planning and investment advisory firm. According to Meyer, decumulation was not
Anspach’s niche practice at WMS, although she was familiar with the decumulation
concepts identified above.
In February 2011, Meyer contacted Anspach and the two began considering
merging Anspach’s portion of WMS’ practice into Retiree. In March 2011, Anspach
left WMS. She signed a Confidentiality, Non-Compete and Invention Ownership
Agreement (the “Confidentiality Agreement”) with Retiree. In the Confidentiality
Agreement, Anspach acknowledged that she would receive “Confidential
2
Information,” which was defined as “certain confidential and proprietary information
concerning, without limitation, trade secrets, software products, software designs,
specifications, processes, plans, or other ideas or inventions relating to the financial
services industry.” Anspach agreed that she would “not use the Confidential
Information other than for the purposes of [her] business with [Retiree]” and would
“not disclose, publish or otherwise reveal any of the Confidential Information
received from [Retiree] to any other party whatsoever except with the specific prior
written authorization of [Retiree].” The Confidentiality Agreement also contained a
liquidated damages provision requiring Anspach to pay Retiree $250,000 for each
violation. During her affiliation with the company, she received access to documents
Retiree considered confidential and proprietary, including the QuickStart
spreadsheet. She was not provided access to the “big model,” although Meyer
showed her portions of it.
Shortly after leaving WMS, however, Anspach decided against joining Retiree.
She instead formed a new company called Sensible Money. In February 2012,
Retiree filed suit alleging Anspach and Sensible Money had breached the
Confidentiality Agreement by using Retiree’s Confidential Information and by
disclosing that Confidential Information to third parties. Retiree sought both
injunctive relief and damages. The district court held a preliminary injunction
hearing followed by a bench trial.
At those proceedings, Meyer testified that as of 2011 very few retirement
advisors focused on decumulation, and that none efficiently coordinated Retiree’s
3
five elements. Meyer repeatedly stressed that the true value of the Retiree model was
the ability to coordinate these five components. He conceded that each individual
element is simple to understand, but testified only Retiree (and perhaps one other
competitor) was able to comprehensively coordinate all five factors. Meyer also
testified that interactions between the components made Retiree’s process
exponentially more complex. For example, withdrawal sequencing strategies
appearing optimal when viewed in isolation might result in more Social Security
income being subject to taxation, and maximizing tax efficiency in turn requires
proper asset location. However, Meyer acknowledged that many aspects of Retiree’s
complex methodology were in the public sphere because, for example, Retiree
principals authored publications explaining portions of the model. But Meyer
suggested that the publications were generally limited to case studies, and disclosed
only limited information on the underlying methods.
To support Retiree’s use claim, Meyer compared Anspach’s spreadsheets from
before and after her association with Retiree. He noted that the “pre-Retiree”
spreadsheet contained several of Anspach’s annotations identifying gaps in her
model—in particular that “a tax calculation needs to be developed,” and that the
document should show “ideal allocation based on an algorithm that needs to be
defined/developed.” Further, Meyer observed that the pre-Retiree spreadsheet lacked
Social Security strategies. Meyer then offered Anspach’s more sophisticated “post-
Retiree” spreadsheet, which allowed Anspach to coordinate Social Security benefits
and withdrawal sequencing to minimize taxes. The post-Retiree spreadsheet also
4
included information regarding the proper amounts to draw from taxable and tax-
deferred accounts.
Anspach further developed her post-Retiree spreadsheet by the time of trial. In
June 2013, she authored a document describing her new “Spreadsheet 2.0” and
identifying “key differentiators” that “make it different from current planning
projection models.” Anspach stated that Spreadsheet 2.0: (1) allows users “to see
which years you have tax opportunities in a way that no other tool does”; (2)
“[a]ccurately incorporate[s] the taxation of Social Security”; and (3) has “[t]he ability
to tie withdrawal strategy to a specific investment allocation by account type.”
Meyer testified that the spreadsheet disclosed to Anspach does each of these things.
Anspach’s testimony differed sharply from Meyer’s. She stated that although
planners use different terms and methods, the industry standard is for every financial
planner to advise clients in coordinating the five elements Meyer identified. She
denied that her spreadsheets use Retiree’s Confidential Information, claiming she
obtained her information from commercially available software. And she
distinguished her spreadsheets from Retiree’s by averring that hers could not
automatically coordinate tax and Social Security information.
As to Retiree’s disclosure claim, Meyer testified that Anspach presented her
post-Retiree spreadsheets at RIIA events. Anspach denied promoting her spreadsheet
at the events, arguing that she only presented client reports which resulted from the
model. Retiree also argued that a book Anspach published included case studies
which constituted disclosure.
5
The district court found that Anspach violated the Confidentiality Agreement
“by appropriating the processes and methodology that underlay Retiree’s software
and practices.” It rejected Anspach’s position that Retiree’s methods were
commonplace, noting that after Anspach began calling “notably similar
methodologies and processes her own,” she herself described them as “novel, unique
and cutting-edge in the industry.” The differences between Anspach’s pre- and post-
Retiree spreadsheets, the court found, was “compelling” circumstantial evidence that
Anspach used Retiree’s Confidential Information. It noted that Anspach was able to
develop a spreadsheet similar to Retiree’s in just six months, while Retiree’s process
took several years. The court also held that Anspach disclosed Confidential
Information to Retiree’s competitors. It awarded $500,000 in liquidated damages
($250,000 each for the use and disclosure breaches), and entered a permanent
injunction.
Anspach and Sensible Money moved to alter or amend the judgment. The
district court granted the motion in part. It clarified that the damages award was
entered only against Anspach, not Sensible Money. The court also set forth the terms
of its permanent injunction:
Defendants shall be permanently enjoined from using their Post-Retiree
Spreadsheets/Excel Models and shall remove all material on their
website that was created using these spreadsheets/models, in particular
their case studies page and The Free Report. Defendants are further
enjoined from utilizing their Post-Retiree Spreadsheets/Excel Models in
presentations, speaking engagements, books, and articles.
6
The court defined “Post-Retiree Spreadsheets/Excel Models” as any “spreadsheet or
Excel model that utilizes this methodology that was shown to Anspach during her
affiliation with Retiree.” The court described Retiree’s appropriated methodology as
“integrat[ing] all of the[ five] factors and allow[ing] a client to see, in real-time, how
changing variables would affect their financial picture.” The court otherwise denied
defendants’ motion, and they timely appealed.
II
“In an appeal from a bench trial, we review the district court’s factual findings
for clear error and its legal conclusions de novo.” Weyerhaeuser Co. v. Brantley, 510
F.3d 1256, 1260 (10th Cir. 2007) (quotation omitted). The parties agree that
substantive Kansas state law governs this diversity case. See Erie R.R. Co. v.
Tompkins, 304 U.S. 64, 78 (1938).
A
Anspach first contends that the Confidentiality Agreement is unenforceable.
Whether a contractual provision is enforceable is a question of law we review de
novo. See Riley v. Kingsley Underwriting Agencies, Ltd., 969 F.2d 953, 956 (10th
Cir. 1992). “In Kansas, it is well recognized that a restrictive covenant in an
employment contract will only be applied to the extent it is reasonably necessary
under the facts and circumstances of the particular case.” Puritan-Bennett Corp. v.
Richter, 679 P.2d 206, 210 (Kan. 1984). “[O]nly a legitimate business interest may
be protected by a noncompetition covenant. If the sole purpose is to avoid ordinary
7
competition, it is unreasonable and unenforceable.” Weber v. Tillman, 913 P.2d 84,
89 (Kan. 1996).
As the Kansas Supreme Court has noted, many jurisdictions hold that
businesses possess a legitimate interest in protecting “the special training of
employees, trade secrets, confidential business information, loss of clients, good will,
reputation, seeing that contracts with clients continue, and referral sources.” Id. at
91. Kansas Courts have held that businesses may validly protect not only trade
secrets, but other confidential information through contract. In Kansas, the “law is
clear that an ex-employee may be enjoined from disclosing confidential material and
trade secrets gained in the course of his or her employment.” Farmers Grp. v. Lee,
28 P.3d 413, 419 (Kan. Ct. App. 2001); see also E. Distrib. Co. v. Flynn, 567 P.2d
1371, 1378 (Kan. 1977) (“The existence of trade secrets as evidence of enticing
customers from a former employer is sometimes relevant, but not essential, to
injunctive relief in a suit brought for breach of covenant not to compete.”); Heatron,
Inc. v. Shackelford, 898 F. Supp. 1491, 1500 (D. Kan. 1995) (“Kansas courts have
long recognized the employer’s right to maintain confidentiality of trade secrets or
other commercially sensitive information pertaining to the employer’s business
practices as an interest entitled to protection.”).1 The policy behind enforcing such
1
In Puritan-Bennett, the Kansas Supreme Court noted that agreements that
restrict more than “purely trade secrets, have been held unreasonable.” 679 P.2d at
211. But in the same decision, the court held that “[t]he question of trade secret
disclosure is not determinative of appellees’ right to have the noncompetition
covenant in force.” Id. at 212. We thus do not read Puritan-Bennett as establishing a
rule that only trade secrets are protectable by contract. See Rent-A-Center, Inc. v.
8
confidentiality clauses is to bar an employee from “obtain[ing] an unfair competitive
advantage.” Weber, 913 P.2d at 92. But contractual provisions that “restrict
communication of ideas in general” are impermissible. Puritan-Bennett, 679 P.2d at
211.
Anspach argues the Confidentiality Agreement is overbroad, relying on
Puritan-Bennett. There, the court held that a clause prohibiting a former employee
from using “any information connected with any aspect of the Company’s business”
was unenforceable. Id. Similarly, the Confidentiality Agreement in this case barred
use or disclosure of “other ideas or inventions relating to the financial services
industry.”
Although this clause is overbroad, it does not render the entire Confidentiality
Agreement unenforceable. In Puritan-Bennett, the Kansas Supreme Court held that
“[s]trict enforcement” of the confidentiality clause at issue “would unreasonably
infringe upon appellant’s right to earn a living.” Id. But the court nevertheless
enforced the provision to the extent reasonable, enjoining the former employee “from
disclosing information relating to Puritan-Bennett’s research, development,
production or sales techniques of gaseous and chemical aircraft emergency oxygen
equipment.” Id.
Malinowski, 787 P.2d 742, 1990 Kan. App. LEXIS 66, at *3 (Kan. Ct. App. 1990)
(unpublished) (in Puritan-Bennett, the Kansas “Supreme Court also held that valid
purposes of covenants not to compete are not only to protect trade secrets, but also to
prevent an employee from using the expertise learned from his or her former
employer to a competitor’s benefit”).
9
The district court below effectively did the same. It determined that Retiree
had developed a “unique methodology . . . which is embodied and expressed through
[its] spreadsheet” and that Anspach “appropriate[d] the processes and methodology
that underlay Retiree’s software and practices.” The court made clear that it was not
barring Anspach from using spreadsheets, tax and Social Security planning software,
or other ideas or inventions related to the financial services industry in general.
Instead, the court enjoined the use of Retiree’s process and methodology by limiting
its injunction to the use of a coordinated spreadsheet that provided live updates based
on changing variables, such that a client could compare various strategies’ outcomes
in real time.
As to this limited universe of information, we agree with the district court that
the Confidentiality Agreement is enforceable.2 As the district court found, “the
processes and methodology that underlay Retiree’s software and practices” fall
within the definition of “Confidential Information” in the Confidentiality Agreement.
This is true even omitting the overbroad “other ideas or inventions” clause. Meyer
testified that Retiree restricted access to those methods and processes and required
confidentiality agreements from anyone given access. He also testified that Retiree
was in negotiations with other companies to license Retiree’s services or invest in
Retiree’s intellectual property for millions of dollars. The steps taken by Retiree to
2
We acknowledge that Meyer made overbroad claims about the Confidential
Information in his testimony, stating for example that free reports issued to clients
without a confidentiality agreement were confidential. But we review the district
court’s orders, not the claims of Retiree’s witnesses.
10
protect its spreadsheet model, combined with Anspach’s own words describing the
model’s novelty, convince us that the information used by Anspach was within the
enforceable ambit of the Confidentiality Agreement.
Similarly, that portions of Retiree’s methodology use public information does
not render the Confidentiality Agreement unenforceable. Even a “trade secret can
exist in a combination of components, each of which, by itself, might be in the public
domain. A knowledge of the best combination of processes or systems of
combination of elements may amount to a trade secret.” Mann v. Tatge Chem. Co.,
440 P.2d 640, 647 (Kan. 1968). While affiliated with Retiree, Anspach learned
valuable confidential information regarding coordination of decumulation strategies.
And her spreadsheets changed quickly and dramatically after her relationship with
Retiree terminated. In making her new spreadsheets, Anspach used information that
she had contractually agreed not to use.
Of course, the line between “ordinary competition” and “unfair competitive
advantage,” Weber, 913 P.2d at 92, is difficult to draw. So too is the line between
“confidential business information,” id. at 91, and “ideas in general,” Puritan-
Bennett, 679 P.2d at 211. Nevertheless, granting due deference to the district court’s
factual findings, see Weyerhaeuser, 510 F.3d at 1260, we conclude that the
restrictions of the Confidentiality Agreement enforced by the district court were
“reasonably necessary under the facts and circumstances of the particular case” and
thus permissible, Puritan-Bennett, 679 P.2d at 210.
11
B
Anspach also argues that the district court erred in finding that she breached
the Confidentiality Agreement by using and disclosing Retiree’s Confidential
Information. We review these factual findings for clear error. Weyerhaeuser, 510
F.3d at 1260. “We will reverse for clear error only if the district court’s finding was
without factual support in the record or we are left with the definite and firm
conviction that a mistake has been made.” United States v. Martinez-Jimenez, 464
F.3d 1205, 1209 (10th Cir. 2006) (quotation omitted).
1
As to Retiree’s use claim, Anspach contends Retiree failed to present
necessary evidence indicating she misappropriated Retiree’s formulas or algorithms.
She further argues that the differences between her post-Retiree models and Retiree’s
spreadsheets demonstrate that she did not use proprietary information. We disagree.
Anspach’s argument that her spreadsheets lacked the specific formulas
contained in Retiree’s spreadsheets is unavailing. The district court expressly found
that Anspach did not adopt the specific formulas from Retiree’s spreadsheets, but that
she nevertheless appropriated “the processes and methodology that underlay
Retiree’s software.” As described supra, Retiree’s methods are within the scope of
an enforceable agreement regardless of whether Anspach copied particular
spreadsheet cells. And after her affiliation with Retiree, Anspach described several
features that her “Spreadsheet 2.0” shared with Retiree’s spreadsheets as “different
from current planning projection models.” Thus, Anspach herself stated that the
12
methods she adopted—which were nearly identical to Retiree’s methods—were
novel.
The court further found that Anspach was able to develop a spreadsheet far
more sophisticated that the one she used prior to her affiliation with Retiree in only
six months, and concluded this was strong circumstantial evidence that she used
Retiree’s methods. Anspach counters that her spreadsheet was not as sophisticated as
Retiree’s. Specifically, she notes that her post-Retiree spreadsheet was not fully
integrated. The district court acknowledged that Anspach’s models were not as
detailed, but concluded that her ability to “replicate parts of Retiree’s spreadsheet” in
“an abbreviated time” led to the conclusion that Anspach used Retiree’s Confidential
Information. We are not left with a firm conviction that these findings are mistaken.
2
We reach the opposite conclusion as to Retiree’s disclosure claim. The district
court found that Anspach disclosed “confidential information to Retiree’s
competitors, including software providers Finance Logix and Social Security
Timing.” But Retiree states in its briefing that reference to these companies is
“misplaced,” and that Retiree introduced evidence about the Finance Logix-Social
Security Timing transaction merely “to show the reasonableness of the $250,000
liquidated damages number.” Retiree instead argues that Anspach disclosed
Confidential Information at conferences and in her book.
Meyer testified that Anspach “presented her Excel model” at several RIIA
conferences. He did not claim to have attended these conferences, instead stating
13
that “it was written up in the RIIA newsletter.” But the newsletter was not
introduced. Nor are we directed to any witness testimony contradicting Anspach’s
account of her presentation. Anspach testified that she showed “client reports, stuff
you would show to a client, just as an example of one way to lay out the information”
at the conferences. She stated that she “wasn’t promoting [her] Excel model.”
Meyer’s bare-bones testimony that he learned from a newsletter that Anspach
presented her model is insufficient to support a finding that Anspach disclosed
Retiree’s Confidential Information. A factfinder cannot “engage in a degree of
speculation and conjecture that renders its finding a guess or mere possibility.”
Sunward Corp. v. Dun & Bradstreet, Inc., 811 F.2d 511, 521 (10th Cir. 1987)
(quotation omitted). Merely displaying client reports would not constitute disclosure
of Retiree’s Confidential Information. As Meyer conceded, client reports are “in the
public domain” and thus “not confidential.” Retiree itself provides free client reports
to the public, and Retiree’s principals have published papers containing client case
studies. Simply, client reports demonstrating that Retiree can coordinate various
elements are not protectable; rather “how to do it, how these things are coordinated”
is. See Puritan-Bennett, 679 P.2d at 211 (covenants that “restrict communication of
ideas in general” are unenforceable). Without any substantive evidence that Anspach
disclosed to conference attendees how Retiree’s methodology operates, the record
contains insufficient evidence that she disclosed protectable information at the
conferences.
14
Retiree contends that Anspach disclosed Confidential Information in a book
she authored. But the portions of Anspach’s book Retiree cites merely offer a case
study discussing various decumulation scenarios for a hypothetical couple. The case
study shows the results of implementing various methods Anspach appropriated from
Retiree, but does not disclose how to coordinate the various elements. Again, such
case studies are not protectable—and Retiree itself similarly makes case studies
publicly available. Meyer also claimed that Anspach disclosed Confidential
Information by recommending that her readers use commercially available Social
Security calculators. The idea of incorporating Social Security strategies, however,
is a general idea, and does not comprise Confidential Information about Retiree’s
methods. See id. Moreover, referring readers to a commercially available calculator
that does not use Retiree’s Confidential Information does not disclose any protectable
information. Accordingly, we conclude that the district court’s finding that Anspach
disclosed Retiree’s protectable information was without factual support in the
record.3
3
We also note that regardless of Retiree’s concession, Anspach’s involvement
in the Finance Logix and Social Security Timing transaction would not support a
finding that Anspach disclosed Confidential Information. Retiree cited Anspach’s
statement that Finance Logix would be rolling out a feature to incorporate Social
Security taxation thanks to her. Anspach testified that she recommended a
commercially available social security calculator offered by Social Security Timing
to a Finance Logix principal. Again merely referring a company to commercially
available software does not constitute disclosure of Retiree’s Confidential
Information.
15
C
Lastly, defendants argue that the district court’s permanent injunction fails to
“state its terms specifically . . . and . . . describe in reasonable detail—and not by
referring to the complaint or other document—the act or acts restrained or required.”
Fed. R. Civ. P. 65(d). Whether an injunction is sufficiently specific is a legal
question we review de novo. Reliance Ins. Co. v. Mast Constr. Co., 159 F.3d 1311,
1316 (10th Cir. 1998).
“[A]n injunction cannot be so general as to leave the party open to the hazard
of conducting business in the mistaken belief that it is not prohibited by the
injunction and thus make him vulnerable to prosecution for contempt.” Id. (quotation
omitted). “Rule 65(d) requires only that the enjoined conduct be described in
reasonable, not excessive, detail—particularly in cases . . . when overly precise terms
would permit the very conduct sought to be enjoined.” Id. In assessing whether an
order complies with Rule 65(d), we construe the district court’s language “in light of
the injunctive order as a whole.” Id.The district court enjoined defendants from “using their Post-Retiree
Spreadsheets/Excel Models” and “utilizing their Post-Retiree Spreadsheets/Excel
Models in presentations, speaking engagements, books, and articles.” It defined
“Post-Retiree Spreadsheets/Excel Models” to include any “spreadsheet or Excel
model that utilizes this methodology that was shown to Anspach during her
affiliation with Retiree.” And it explained that Retiree’s methodology was a “model
16
that coordinated the five factors set out in” a prior order4 in a manner that
“integrate[s] all of these factors and allow[s] a client to see, in real-time, how
changing variables would affect their financial picture.” We hold that this
explanation adequately puts defendants on notice of the conduct that is prohibited,
and that which is permissible.
Defendants relatedly challenge the injunction’s lack of a temporal limitation.
Retiree observes that in assessing the reasonableness of a non-competition covenant,
Kansas courts consider whether “the time and territorial limitations contained in the
covenant reasonable.” Id. However, Kansas courts have enforced non-disclosure
agreements without any temporal limitation. See Puritan-Bennett, 679 P.2d at 211-12
(enforcing non-disclosure agreement prohibiting disclosure of contractually protected
information “during my employment or at any time thereafter”). Because this case
concerns a non-disclosure agreement rather than a non-compete covenant baring all
competition, the indefinite term is permissible.
III
For the foregoing reasons, we REVERSE the district court’s award of
$250,000 in damages on Retiree’s disclosure claim. We AFFIRM the district court’s
4
The “prior order” identifies the five factors discussed supra. Defendants do
not argue that the injunction violates Rule 65(d) by “referring to the complaint or
other document,” see Fed. R. Civ. P. 65(d), and any such challenge is waived, see
Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 679 (10th Cir. 1998) (“Arguments
inadequately briefed in the opening brief are waived.”).
17
judgment in all other respects and REMAND for modification of the damages award
consistent with this order and judgment.
Entered for the Court
Carlos F. Lucero
Circuit Judge
18