Wagner Aeronautical, Inc. v. Dotzenroth

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 FOR THE SOUTHERN DISTRICT OF CALIFORNIA 10 11 WAGNER AERONAUTICAL, INC., Case No.: 21CV0994 L AGS 12 et al, Plaintiffs, 13 (1) ORDER VACATING PRIOR SEALED ORDER [ECF NO. 373]; 14 v. (2) AMENDED ORDER DENYING 15 DAVID DOTZENROTH; et al, PLAINTIFFS’ RE-CALENDARED 16 MOTION FOR PRELIMINARY Defendants. INJUNCTION [ECF NO. 161-1]; 17 (3) ORDER DENYING 18 DOTZENROTH DEFENDANTS’ EX PARTE APPLICATION FOR 19 LEAVE TO FILE SUPPLEMENTAL 20 OPPOSITION [ECF No. 218]; 21 and 22 (2) ORDER DENYING DOTZENROTH DEFENDANTS’ EX 23 PARTE APPLICATION FOR 24 ENTRY OF REDACTED ORDER [ECF NO. 376] 25 26 On September 29, 2022, the Court issued a sealed Order denying Plaintiffs’ motion 27 for preliminary injunction. [ECF No. 373.] On October 6, 2022, the Dotzenroth 1 Defendants filed an unopposed ex parte application for entry of redacted order denying Plaintiffs’ motion for preliminary injunction. [ECF No. 376.] The Dotzenroth Defendants 2 request that the Order be publicly filed in part to disclose the contents of the Order to 3 their clients. Plaintiffs’ counsel has no objection other than redacting two mentions of a 4 confidential business name. (Fitzgerald Dec. at ¶ 2 Ex, A.) The NIAR Defendants’ 5 counsel joined the request to publicly docket the redacted Order. (Fitzgerald Dec. ¶ 3, Ex 6 B.) The Court has amended the prior sealed Order to omit the confidential name, as 7 evidenced below. Accordingly, the Court vacates the prior Order [ECF No. 373], files the 8 Amended Order, and denies the application to file redacted order as moot [376.] 9 10 Pending before the Court is Plaintiffs’ re-calendared motion for preliminary 11 injunction [ECF No. 161]. The Dotzenroth Defendants and NIAR Defendants filed 12 oppositions, and Plaintiffs filed a reply. Also pending before the Court is Dotzenroth 13 Defendants’ ex parte application for leave to file supplemental briefing in opposition to 14 Plaintiffs’ re-calendared motion for preliminary injunction. [ECF No. 218.] The Court 15 has granted the parties’ requests to seal the documents and their attachments. The Court 16 decides the matter on the papers submitted and without oral argument. See Civ. L. R. 17 7.1(d.1). For the reasons stated below, Plaintiffs’ motion is denied. 18 19 I. FACTUAL BACKGROUND 20 The facts as asserted in Plaintiffs’ Complaint include the following: 21 Plaintiff Mammoth Freighters LLC (“Mammoth” or “Mammoth Freighters”) is 22 developing a passenger aircraft conversion program, designed in part by Plaintiff Wagner 23 Aeronautical, Inc. (“Wagner Aeronautical”), that takes passenger aircraft and modifies 24 them to carry cargo for the world’s leading air freight companies. The co-CEOs of 25 Mammoth are Plaintiffs William Wagner (“Wagner”) and William Tarpley (“Tarpley”). 26 Wagner is the founder and president of Wagner Aeronautical and Tarpley is the business 27 lead for Mammoth’s conversion program. 1 When Wagner and Tarpley began work on the conversion program, they asked 2 Defendant David Dotzenroth (“Dotzenroth”), a long-time friend with connections in the 3 financial industry, if he would be interested in exploring the possibility of a collaboration 4 whereby Wagner and Wagner Aeronautical would contribute the engineering expertise; 5 Tarpley would contribute project management expertise and marketing expertise to 6 attract potential clients; and Dotzenroth would secure investment capital to fund the 7 development of the conversion program. 8 Plaintiffs now allege that Defendants David Dotzenroth, Charles Wiley 9 Dotzenroth, and Andrew Mansell, along with the NIAR Defendants, stole valuable, 10 confidential and proprietary information belonging to Plaintiffs including a business plan, 11 budget, and schedule roadmap, in order to launch a competing business converting large 12 passenger aircraft into cargo freighters. 13 The Dotzenroth Defendants purportedly shared the trade secrets with the National 14 Institute for Aviation Research (“NIAR”), which is part of Wichita State University. The 15 NIAR Defendants, including David Jones, Ronald Towry, and Eric Kivett, have 16 developed a 777 Conversion Program that is currently operating. Plaintiffs seek to enjoin 17 Defendants from using the trade secrets, and developing aircraft based on that 18 information. 19 I. PROCEDURAL BACKGROUND 20 On May 25, 2021, Plaintiffs filed a complaint in this Court alleging 21 misappropriation of trade secrets under federal and state law, false advertising under the 22 Lanham Act, unfair competition under California law, breach of fiduciary duty, and civil 23 conspiracy. (Complaint [ECF No. 1.]) On June 21, 2021, Plaintiffs filed a motion for 24 preliminary injunction. (Mot. [ECF No. 16.]) On July 8, 2021, Plaintiffs withdrew the 25 motion for preliminary injunction. [ECF No. 48.] On November 9, 2021, Plaintiffs filed a 26 First Amended Complaint, adding a claim for misappropriation against Defendant NIAR. 27 [ECF No. 132.] On November 23, 2021, the Dotzenroth Defendants filed a Motion to 1 Dismiss Counts Four and Five. [ECF No. 142.] By Order dated September 16, 2022, the Court granted Defendants’ Motion to Dismiss. [ECF No. 369.] 2 3 On December 21, 2021, Plaintiffs filed the present motion for re-calendared 4 preliminary injunction. [ECF No. 161-1.] The Dotzenroth Defendants filed a response in 5 opposition on January 24, 2022. [ECF No. 201.] On February 3, 2022, the Dotzenroth 6 Defendants filed an ex parte application for leave to file a supplemental opposition to 7 Plaintiffs’ recalendared motion for preliminary injunction. [ECF No. 218.] On February 8 4, 2022, Plaintiffs filed a response in opposition to Defendants’ ex parte application for 9 leave to file supplemental opposition, and a reply to the motion for preliminary 10 injunction. [ECF Nos. 222, 225.] On February 23, 2022, Defendants filed Newly 11 Acquired Evidence in opposition to Plaintiffs’ motion for preliminary injunction. [ECF 12 No. 250.] 13 14 II. DISCUSSION 15 “[P]laintiffs seeking a preliminary injunction must establish that (1) they are likely to 16 succeed on the merits; (2) they are likely to suffer irreparable harm in the absence of 17 preliminary relief; (3) the balance of equities tips in their favor; and (4) a preliminary 18 injunction is in the public interest.” Sierra Forest Legacy v. Rey, 577 F.3d 1015, 1021 (9th 19 Cir. 2009). “A preliminary injunction is an extraordinary remedy never awarded as of 20 right.” Alliance for the Wild Rockies v. Cottrell, 632 F.3d 1127, 1131 (9th Cir. 2011). “In 21 exercising their sound discretion, courts of equity should pay particular regard for the 22 public consequences in employing the extraordinary remedy of injunction.” Winter v. 23 Nat. Resource Def. Council, 555 U.S. 7, 24 (2008)(citing Romero-Barcelo, 456 U.S. 305, 24 312 (1982)). 25 26 [T]he elements of the preliminary injunction test are balanced, so that a stronger showing of one element may offset a weaker showing of another. For example, a 27 stronger showing of irreparable harm to plaintiff might offset a lesser showing of likelihood of success on the merits. [The Ninth] circuit has adopted and applied a 1 version of the sliding scale approach under which a preliminary injunction could issue where the likelihood of success is such that serious questions going to the 2 merits were raised and the balance of hardships tips sharply in plaintiff's favor. That test was described in this circuit as one alternative on a continuum. 3 4 Alliance for the Wild Rockies, 632 F.3d at 1131. 5 A. Likelihood of Success on Merits 6 7 Trade secret misappropriation includes “disclosure or use of a trade secret of 8 another without express or implied consent.” 18 U.S.C. § 1839(5)(A). Such disclosures 9 are unlawful when they are made “by a person who at the time of disclosure or use, knew 10 or had reason to know that the knowledge of the trade secret was acquired under 11 circumstances giving rise to a duty to maintain the secrecy of the trade secret or limit the 12 use of the trade secret; or derived from or through a person who owed a duty to the 13 person seeking relief to maintain the secrecy of the trade secret or limit the use of the 14 trade secret. Id.; see Cal.Civ.Code §3426.1(b). Similarly, under the UTSA, a plaintiff 15 must allege two elements: ‘(1) the existence of a trade secret, and (2) misappropriation of 16 the trade secret.’” AccuImage Diagnostics Corp. v. Terarecon, Inc., 260 F.Supp.2d 941, 17 950 (N.D.Cal.2003) (citing Cal. Civ.Code § 3426.1(b)). This standard has been adopted 18 by the Ninth Circuit. Imax Corp. v. Cinema Techs., Inc., 152 F.3d 1161, 1164–65 (9th 19 Cir.1998). Plaintiffs seeking relief for misappropriation of trade secrets “must identify the 20 trade secrets and carry the burden of showing that they exist.” MAI Sys. Corp. v. Peak 21 Computer, Inc., 991 F.2d 511, 522 (9th Cir.1993). 22 1. Existence of Trade Secrets 23 24 Trade secrets include: “all forms and types of financial, business, scientific, 25 technical, economic, or engineering information, including patterns, plans, compilations, 26 program devices, formulas, designs, prototypes, methods, techniques, processes, 27 procedures, programs, or codes. . .” 18 U.S.C.A. § 1839(3)(A). To prove ownership, the 1 keep such information secret; and (2) the information derives independent economic value, actual or potential, from not being generally known to, and not being readily 2 ascertainable through proper means by, another person who can obtain economic value 3 from the disclosure or use of the information.” 18 U.S.C.A. § 1839(3)(A). 4 5 Similarly, CUTSA defines trade secrets as: 6 information, including a formula, pattern, compilation, program, 7 device, method, technique, or process, that: 8 (1) Derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can 9 obtain economic value from its disclosure or use; and 10 (2) Is the subject of efforts that are reasonable under the 11 circumstances to maintain its secrecy. 12 Cal.Civ.Code § 3426.1(d)(2). 13 As a preliminary matter, a plaintiff seeking trade secret protection “should describe 14 the subject matter of the trade secret with sufficient particularity to separate it from 15 matters of general knowledge in the trade or of special knowledge of those persons ... 16 skilled in the trade.” Imax Corp. v. Cinema Technologies, Inc., 152 F.3d 1161, 1164-65 17 (9th Cir. 1998); see also Diodes, Inc. v. Franzen, 260 Cal.App.2d 244, 67 Cal.Rptr. 19 18 (2d Dist.1968); Pellerin v. Honeywell Int'l, Inc., 877 F. Supp. 2d 983, 988 (S.D. Cal. 19 2012); see also Cal.Civ.P. § 2019.210(“the party alleging the misappropriation shall 20 identify the trade secret with reasonable particularity.”) 21 Here, Plaintiffs describe the alleged trade secrets as the business plan, roadmap, 22 FAA certification schedules and descriptions, along with design specifications and 23 drawings. (Mot. at 9-11). The business plan was reflected in PowerPoint slide decks that 24 described the conversion process, analyzed risks and included competitive advantage 25 analysis and engineering details. (Id. at 3). The roadmap was a multi-tab Microsoft 26 Excel spreadsheet that included “revenue projections, month-by-month cost estimates, 27 1 development costs, schedule estimates, the rate of return, program input financing, staffing inputs and engineering headcounts, and other details.” (Id.) 2 3 These descriptions identify broad categories of documents, but do not describe 4 what part of those documents is protectable. See Calendar Rsch. LLC v. Stubhub, Inc., 5 No. 2:17-cv-04062-SVW-SS, 2020 WL 4390391, at *8 (C.D. Cal. May 13, 6 2020)(“‘[B]road, categorical terms’ are insufficient for the Court to discern the alleged 7 trade secret.”) In addition, Plaintiffs contend that “all drafts and variations” of the 8 documents are protectible trade secrets, but this overbroad request without clear 9 identification of the contents of those documents falls short of the “reasonable 10 particularity” requirement of CCP §2019.210. 11 Additionally, Defendants allege that much of the information contained within 12 these documents is actually in the public domain, and therefore cannot be included as a 13 trade secret. Plaintiffs acknowledge that some of the material orignated from various 14 public sources, but argue that a compliation of data collected from various sources may 15 still qualify for trade secret protection. However, Plaintiffs do not make efforts to identify 16 17 the protectable information from that which may be generally known. See Imax Corp, 18 152 F3d at 1164. Plaintiffs do not provide sufficiently detailed descriptions of their trade 19 secrets for the Court to discern whether they possess ownership of the information. 20 Despite this shortcoming, the Court presumes Plaintiffs can, or have, sufficiently 21 identified the protectible portions of those documents, and proceeds to determine whether 22 a preliminary injunction is warranted. 23 a. Secrecy 24 It is incumbent on the owner of trade secrets to protect the secrecy of that 25 information to retain its value. “Because of the intangible nature of a trade secret, the 26 extent of the property right therein is defined by the extent to which the owner of the 27 secret protects his interest from disclosure to others.” Ruckelshaus v. Monsanto Co., 467 1 US. 986, 1002 (1984). “If an individual discloses his trade secret to others who are under no obligation to protect the confidentiality of the information, or otherwise publicly 2 discloses the secret, his property right is extinguished.” Id. 3 4 Plaintiffs argue they made reasonable efforts to protect the secrecy of the alleged 5 trade secrets by using secure IT systems to store documents, Wagner Aeronautical 6 employees signed confidentiality agreements, Wagner Aeronautical offices were only 7 accessible to authorized personnel, and information was provided to outsiders only on a 8 need-to-know basis. (Mot. at 12). Plaintiffs claim they marked versions of trade secrets as 9 “proprietary,” and they obtained non-disclosure agreements with potential customers 10 before sharing the information. (Id.) In addition, Plaintiffs assert that any disclosures they 11 made did not imperil the secrecy of the trade secrets because the information did not go 12 to competitors and did not become generally known. (Reply at 14). They also contend 13 that there was an understanding between Wagner, Tarpley and Dotzenroth that the 14 information was confidential and not to be divulged to outsiders. 15 Defendants counter that Plaintiffs shared their data without non-disclosure 16 17 agreements (“NDA”) in place and as a result they lost their property interest in the data 18 because secrecy is a requisite element of a trade secret. (Dotzenroth Def. Oppo. at 14). 19 For example, Defendants contend that neither Defendant Dotzenroth nor Defendant 20 Wiley were bound by an NDA, yet Plaintiffs emailed all of their alleged trade secrets to 21 Wiley and to Dotzenroth without any “proprietary” or “confidentiality” indicators on 22 them. (Id.) Defendants also allege that Plaintiff Tarpley continued to send Dotzenroth 23 purportedly secret information even after Tarpley had parted ways with Dotzenroth, 24 therefore he could not have had any possible expectation of confidentiality. (Id.) 25 The record before the Court indicates that neither Wagner nor Tarpley took 26 consistent measures to protect the purportedly valuable trade secrets. Although Tarpley 27 stated that he and Wagner “had potential investors, partners, and customers sign non- 1 disclosure agreements (‘NDAs’) and that the business plan was stamped 2 ‘PROPRIETARY,’” the evidence shows that Tarpley emailed Dotzenroth the following 3 documents with no NDA in place, and no markings on the documents indicating they 4 were confidential or proprietary: Program Development Schedule, Payload Range 5 Capability, work schedules, Business Plan, slide presentation (Def. Ex 1-5, 8, 9, 21 [ECF 6 No. 199.] 7 In addition, Defendants submitted evidence that Tarpley emailed the business plan 8 to Steve Yeager, who was not bound by any NDA. (Supp. Ev. at 1 [ECF No. 250.] On 9 September 6, 2020, Tarpley texted Yeager at approximately 2 pm, and said, “Ok. I think 10 we need to get through next Thursday’s meetings to know we are a go. I can send you the 11 business plan -52 pages.” (Id. at 7). He follows at 6:34 P.M., “Sent you a big file via 12 email.” To which Yeager responds, “I have it … Thank you.” (Id. at 8). On September 8, 13 2020, Tarpley texted Yeager again asking, “Did you get a chance to look at the 14 presentation?” (Id.) Yeager responded, “I looked through it the other day. I plan to go 15 back through in more detail one night this week.” (Id.) 16 On October 11, 2021, Tarpley texted Yeager stating “You may get a call from Eric 17 Nitz, our attorney, asking you if you understood the business plan I sent you for 18 Mammoth was confidential and if you sent it to anyone else. Of course it was confidential 19 but I never asked you to sign an nda.” (Id. at 10). The disclosure of purported trade 20 secrets to outside parties with no NDA or other indicia of secrecy on the documents 21 suggests that the information was not truly secret. Ruckelshaus, 467 US. at 1002. In 22 addition, Wagners’s text to Yeager claiming the prior disclosure was confidential is an 23 after the fact effort to claw back the disclosure of information which is insufficient to 24 demonstrate genuine efforts to keep the information secret. 25 In an effort to explain that the disclosures did not compromise the secrecy of the 26 information, Plaintiffs allege that most of the disclosures were made to Tarpley’s friends, 27 family, and business associates under a mutual understanding of confidentiality and that 1 proprietary. (Reply at 13). Such disclosures for a limited purpose to a customer or 2 investor does not extinguish trade-secret status, according to Plaintiffs. (Id.) 3 Wagner disclosed the information to a potential business partner with only the 4 assurance that their employee was bound by their ethics policy requiring the 5 representative to maintain the confidentiality of non public information. This does not 6 ensure secrecy the way an NDA would for purportedly valuable information. However, if 7 a jury determined that there was an implied relationship of confidentiality between 8 Wagner and the potential business partner, the ethics policy could constitute reasonable 9 efforts to maintain secrecy. See DirectTechnologies v. Electronic Arts, 836 F.3d 1059, 10 1070 (9th Cir. 2016)(“It may be that in some factual circumstances, a rational jury could 11 find that when an implied relationship of confidentiality exists between two business 12 partners, it is ‘reasonable under the circumstances’ for the prospective seller to not make 13 additional efforts to maintain secrecy.”) 14 The facts before the Court indicate that Plaintiffs did not consistently protect the 15 secrecy of the alleged trade secrets as some copies of the documents included 16 “proprietary” stamps, while others had no indicia of secrecy. This is insufficient to 17 demonstrate Plaintiffs took reasonable efforts to protect the secrecy of the documents and 18 information for purposes of this request for injunctive relief. Ruckelshaus, 467 U.S. 986, 19 1011 (1984)(“Once the data that constitute a trade secret are disclosed to others, or others 20 are allowed to use those data, the holder of the trade secret has lost his property interest in 21 the data.”) 22 b. Economic Value 23 24 In addition to taking reasonable measures to ensure the secrecy of the information, 25 the holder of a trade secret must also show that the information has independent 26 economic value that derives from not being generally known. See 18 U.S.C. § 27 1839(3)(A). Plaintiffs argue that the time and resources Wagner expended demonstrate 1 the economic value of the information. (Mot. at 10). They contend more than $1 million in Wagner Aeronautical time in the course of about 18 months was spent developing the 2 conversion plan documents listed as trade secrets. (Id.) Defendants counter that Plaintiffs 3 “dramatically exaggerate the time and effort spent on their business plan” noting that the 4 evidence suggests it was closer to three weeks. (Dotzenroth Oppo. at 21). 5 6 The facts illustrate that both parties found economic value in the documents, as 7 both used them to further the discussions with each other, and outside parties, to garner 8 investment backing and general support. However, the fact that Plaintiffs divulged the 9 alleged trade secrets without attempting to consistently protect them counsels against 10 finding economic value, as “[a] trade secret’s value is the competitive advantage it gives 11 its owner.” Ruckelhaus, 467 U.S. at 1011. The independent economic value of trade 12 secrets derives from their secrecy. U.S. v. Chung, 659 F.3d 815, 825 (9th Cir. 2011). As 13 noted above, Plaintiffs made inconsistent efforts at protecting the purported trade secrets, 14 and disclosed them to individuals with no known connection to the business endeavor, in 15 addition to others. For purposes of the present preliminary injunction motion, the Court 16 finds that any economic value the trade secrets had was diminished by the disclosure of 17 them without efforts to protect their secrecy. Consequently, trade secret ownership has 18 not been sufficiently demonstrated by Plaintiffs. For the reasons discussed above, the 19 Court finds that Plaintiffs failed to establish ownership of the trade secrets. However, 20 even if Plaintiffs can demonstrate ownership of the alleged trade secrets, they cannot 21 demonstrate a likelihood of success on the merits for the following reasons. 22 23 2. Misappropriation 24 Trade secret misappropriation includes “disclosure or use of a trade secret of 25 another without express or implied consent.” 18 U.S.C. § 1839(5)(A). Such disclosures 26 are unlawful when they are made “by a person who at the time of disclosure or use, knew 27 or had reason to know that the knowledge of the trade secret was acquired under 1 circumstances giving rise to a duty to maintain the secrecy of the trade secret or limit the use of the trade secret; or derived from or through a person who owed a duty to the 2 person seeking relief to maintain the secrecy of the trade secret or limit the use of the 3 trade secret. Id.; see Cal.Civ.Code §3426.1(b). 4 5 Injunctive relief is warranted, according to Plaintiffs, because Defendants used and 6 disclosed Plaintiffs’ trade secrets to third parties without authorization. (Mot. at 13). 7 Specifically, Plaintiffs claim that Dotzenroth emailed the business plan and trade secrets 8 to NIAR Defendants Jones, Kivett, Wiley Dotzenroth, and Andy Mansell, a conversion 9 marketer in February 2020, among others. (Id. at 14). Plaintiffs claim that Defendants 10 agreed to keep the trade secrets confidential, or at a minimum had an implied duty of 11 confidentiality. (Id. at 16-18). 12 The Dotzenroth Defendants counter that Plaintiffs shared their data with no NDAs 13 in place, emailing them to Dotzenroth and Wiley as they hammered out the details of the 14 possible business venture. (Oppo. at 14). Plaintiff Tarpley continued to send purportedly 15 secret information to Dotzenroth even after May 2019, when the parties went their 16 17 separate ways. (Id.) The fact that Wagner entered into NDAs with outside parties did not 18 govern the relationship between Dotzenroth and Plaintiffs, according to Defendants. 19 Moreover, Wagner knew that Defendants were using the allegedly secret materials in 20 discussions with NIAR when he attended meetings at NIAR, expressing hope that the 21 NIAR/KMC business would include him, yet he did nothing to stop the dissemination of 22 the information at that time. (Id. at 16). Dotzenroth argues that there was never an 23 agreement between Wagner, Tarpley and Dotzenroth that the information could only be 24 used to benefit Tarpley and Wagner, and if the information was so valuable, they would 25 have protected it with NDAs. (Id. at 17). There was no implied duty of confidentiality 26 either, according to Dotzenroth Defendants, because no inference of confidentiality is 27 warranted where a plaintiff broadly discloses its supposed trade secrets. (Id. at 18-19). 1 As with many business relationships, the parties in this case began discussions with high hopes for future success. The parties were operating in a highly competitive market 2 and there is evidence that they were not working in concert at various points. Tarpley 3 formed Mammoth, the corporation that would be responsible for the Conversion 4 Program, without Wagner. Dotzenroth developed a plan to approach the Wichita State 5 University in Kansas to provide financial backing and resources, and Wagner was 6 included in the development of that plan, but he ultimately did not become a partner to 7 the venture. When the relationship ruptured, the individuals began leveling serious 8 allegations at each other.1 9 10 The facts as gleaned from competing declarations indicate that Wagner, Tarpley, 11 and Dotzenroth shared ideas, information, and resources liberally with each other in 12 developing the business plan and “roadmap” for the conversion program, sometimes with 13 markers of confidentiality, and sometimes without. Dotzenroth stated that: 14 Tarpley, Wagner, and I never agreed that the information we shared and the 15 business plan that resulted from that sharing was required to be kept confidential 16 by any one or all of us. NDA’s are standard practice in the aviation industry, so if 17 Tarpley or Wagner believed any of the information related to the potential 777 conversion was confidential, or constituted proprietary information belonging to 18 them, they would have protected that information with an NDA with me. Because I 19 was never bound by an NDA or other agreement defining ownership of any intellectual property or information shared amongst Tarpley, Wagner, and myself, I 20 considered myself free to use that information for my own benefit once our attempt 21 to start a business unraveled, just as Tarpley and Wagner used it for their own benefit. 22 (Dotzenroth Dec. at ¶ 9) 23 24 In contrast, William Wagner explained that he and William Tarpley “considered 25 the information and data contained in the business plan and roadmap to be proprietary 26 27 1 The Parties have made serious accusations of dishonesty, doctoring documents, paying bribes, and other malfeasance against each other. The Court will not engage in 1 and highly confidential.” (Wagner First Supp. Dec. at ¶2 [ECF 161-3.]) Both Wagner and Tarpley stated that Wagner, Tarpley and Dotzenroth agreed to keep the information about 2 the conversion program confidential, using them only to obtain financing for Plaintiffs’ 3 program. (Mot. at 17). Wagner stated that he told Dotzenroth as much in a May 21, 2019 4 text that read “Please remember that the schedule, budget and man loading info is 5 proprietary.” (Id.) According to Wagner, he participated in meetings with Dotzenroth at 6 NIAR, but he did not authorize David or Wiley Dotzenroth to use the “information in the 7 business plan and roadmap in connection with those meetings.” (Id. at ¶ 3). 8 9 The record demonstrates that both parties shared the information claimed to be 10 trade secrets without NDA’s in place, or other indicators of secrecy and ownership, at 11 various times in efforts to promote the conversion plan and secure funding. The parties 12 agree there was no formal arrangement between them, though it appears that details about 13 profit sharing and distributions were almost settled when the relationship soured. 14 Plaintiffs note many instances of disclosure by Dotzenroth to various NIAR Defendants 15 as evidence of misappropriation, however, Wagner knew that the information was being 16 disseminated in an effort to advance the NIAR relationship, and attended a meeting in 17 Kansas with NIAR to that purpose, even seeking to be included in the NIAR conversion 18 program. In fact, Wagner and Wichita State University, NIAR’s partner, entered into an 19 NDA in March 2020 to discuss a potential collaboration related to the 777 conversion 20 plan. (NIAR Oppo. at 18). NIAR Defendants David Jones and Ronald Towry flew to 21 Wagner Aerospaces’ offices for further discussion in September 2020, but according to 22 NIAR, Wagner failed to demonstrate he owned the 757 conversion material as he 23 claimed, and Wagner made clear that nothing discussed in the meeting was confidential 24 or proprietary. (Id. at 7). NIAR decided to pursue its program without Wagner, concerned 25 that Wagners small facilities and limited staff could not deliver on the 757 conversion 26 program. (Id.) 27 1 Plaintiffs argue that there was an implied duty of confidentiality between the Parties, however, Defendants have stated they were not on notice that the information 2 was confidential. “[C]ourts will consider the factual circumstances of each case on an 3 individual basis, to determine whether a confidential relationship may reasonably be 4 implied.” Pachmayr Gun Works v. Olin Mathieson Chem. Corp., 502 F.2d 802, 808 (9th 5 Cir. 1974). “An implied duty of confidentiality is found when the other party has reason 6 to know that the information was in fact confidential.” Carr v. AutoNation, 798 7 Fed.Appx. 129, 130 (9th Cir. 2020) “[N]o duty of confidence will be inferred unless the 8 recipient has notice of the confidential nature of the disclosure.” See Restatement (Third) 9 of Unfair Competition § 41 cmt. b (Am. Law Inst. 1995). 10 11 The limited facts before the Court in this request for injunctive relief indicate that 12 there are serious questions going to the merits regarding whether Defendants “knew or 13 had reason to know that the knowledge of the trade secret was acquired under 14 circumstances giving rise to a duty to maintain the secrecy of the trade secret.” 18 U.S.C. 15 § 1839(5)(A). Moreover, the after- the- fact text message from Wagner to Dotzenroth 16 stating that the documents were confidential is insufficient in light of the numerous 17 instances of non-protected disclosures made by Plaintiffs themselves. 18 19 B. Irreparable Harm 20 Plaintiffs argue that they will be irreparably harmed if they are not granted 21 injunctive relief to protect their trade secrets, contending that disclosure of trade secrets 22 to competitors constitutes irreparable harm on its own. (Mot. at 20). Loss of customers 23 to a competitor due to trade secret misappropriation also constitutes irreparable harm, 24 according to Plaintiffs. (Id. at 20-21). Plaintiffs claim they will suffer irreparable harm 25 because the theft of their trade secrets “dramatically accelerated Defendants’ competing 26 P2F program” and as a result Defendants are able to compete for the same small pool of 27 customers in a “zero-sum market.” (Id. at 20). For example, Plaintiffs note that they have 1 already lost one customer because the first 777 aircraft has arrived at NIAR and KMC for conversion. (Id. at 21). Plaintiffs explain their delay in filing for injunctive relief by 2 stating it was not until the public announcement in February 2021 that they realized the 3 competing conversion program posed a real risk, at which time they decided to try to 4 protect the alleged trade secrets. They also explain that they waited to file until the 5 possibility of irreparable harm ripened into a likelihood and argue that they are seeking 6 injunctive relief based on “ongoing, worsening injuries” (Reply at 21). 7 8 No presumption of irreparable harm should be made in trade secret cases, 9 according to Defendants. (Dotzenroth Defendants Oppo. at 24). Defendants claim that the 10 two- year delay in filing the preliminary injunction, indicates that there is no danger of 11 irreparable harm to Plaintiffs. (NIAR Def. Oppo. at 20; Dotzenroth Def. Oppo. at 22). If 12 Plaintiffs request was granted, Defendants contend that it would stop the NIAR/KMC 13 conversion program that has been operating for over two years with Plaintiffs’ knowledge 14 which would not serve the purpose of a preliminary injunction to preserve the status quo. 15 (Id. at 23). 16 17 Plaintiffs have not shown they will suffer irreparable harm in the absence of an 18 injunction. First, it is not certain that the trade secrets at issue are protectable, but even if 19 this case involves trade secrets, the Court is not required to presume irreparable harm 20 because of alleged trade secret loss. Calence, LLC v. DimensionData Holding, PLC, 222 21 Fed.Appx.563, 566 (9th Cir. 2007). 22 Second, Plaintiffs’ delay in seeking injunctive relief weighs against a finding of 23 irreparable harm. The facts indicate they knew as early as 2019 that Defendants began 24 distributing allegedly proprietary information but Plaintiffs did not seek injunctive relief 25 for over two years. The original complaint was filed on May 25, 2021 and Plaintiffs filed 26 a motion for preliminary injunction on June 21, 2021, which was withdrawn on July 8, 27 2021. Plaintiffs waited another six months before filing the present motion on December 1 21, 2021. Tarpley was also on notice from at least early 2020 that Dotzenroth had formed a new company, relying in part on “the information from the business plan that Wagner 2 and I had developed.” (Tarpley Dec. Ex 27 ¶ 18 [ECF No. 163-3.]) 3 4 A plaintiff's failure to seek judicial protection can imply “‘the lack of need for 5 speedy action,’ Arc of Cal. v. Douglas, 757 F.3d 975, 990 (9th Cir. 2014). “Plaintiff's 6 long delay before seeking a preliminary injunction implies a lack of urgency and 7 irreparable harm.” See Oakland Tribune, Inc. v. Chronicle Publ'g Co., 762 F.2d 1374, 8 1377 (9th Cir.1985); iFreedom Direct Corp. v. McCormick, 622 Fed.Appx.550, (9th Cir. 9 2016)(“ten-month delay in seeking a preliminary injunction undermined [plaintiff’s] 10 claim of irreparable harm.”) Here, Plaintiffs did not act with sufficient urgency to protect 11 the trade secrets, indicating they will not be irreparably harmed if no injunctive relief is 12 granted. 13 Plaintiffs claim that “delay is but a single factor to consider in evaluating 14 irreparable injury” where plaintiffs suffer “ongoing, worsening injuries” citing Arc of 15 California v. Douglas, 757 F.3d 975 (9th Cir. 2014). However, they do not demonstrate 16 17 “ongoing, worsening injuries” sufficient to justify the delay. In Arc, “non-profit 18 organizations sought a preliminary injunction enjoining California's reduction in its 19 reimbursement for services provided to developmentally disabled individuals under the 20 Medicaid program.” Id. at 979. The appellate court reversed the district court’s denial of 21 a preliminary injunction, noting that “the alleged injuries resulted from various cuts in 22 compensation, enacted over a period of time and having a cumulative impact. In such 23 circumstances, the magnitude of the potential harm becomes apparent gradually, 24 undermining any inference that the plaintiff was “‘sleeping on its rights.’” The Court 25 noted that the delay in seeking injunctive relief was offset by “ongoing, worsening 26 injuries,” making it only one factor to consider in the determination. Id. at 990. Here, 27 Plaintiffs have not sufficiently demonstrated that they are suffering from ongoing and 1 worsening harm as a result of the alleged misappropriation by Defendants of their trade secrets for purposes of this motion. 2 3 Instead, the Court finds that the delay of almost two years before filing the initial 4 preliminary injunction indicates Plaintiffs will not be irreparably harmed in the absence 5 of injunctive relief. 6 C. Balance of Equities 7 8 “To determine which way the balance of the hardships tips, a court must identify 9 the possible harm caused by the preliminary injunction against the possibility of the harm 10 caused by not issuing it.” Univ. Hawaii Prof. Assembly v Cayetano, 183 F.3d 1096, 1108 11 (9th Cir. 1999). The party seeking a preliminary injunction “must establish ... that the 12 balance of equities tips in his favor.” Winter, 129 S.Ct. at 374. A district court has a “duty 13 ... to balance the interests of all parties and weigh the damage to each” in determining 14 whether a party has met this burden. L.A. Mem'l Coliseum Comm'n v. Nat'l Football 15 League, 634 F.2d 1197, 1203 (9th Cir.1980). In balancing the relative hardships to the 16 parties the court may weigh the relative size and strength of the parties to determine the 17 respective ability to endure the potential hardship. Sardi’s rest. Corp. v. Sardie, 755 F.2d 18 719, 726 (9th Cir. 1985). 19 20 Plaintiffs claim they have invested thousands of hours tailoring their decades of 21 experience into the conversion program which would be unfairly diminished in the 22 absence of an injunction. (Mot. at 24). The Dotzenroth Defendants counter that Plaintiffs 23 and Fortress Investments, the $54 billion private equity firm that owns and funds 24 Plaintiffs, have attempted to destroy the Dotzenroth Defendants financially through this 25 litigation. (Oppo. at 25). The NIAR Defendants contend that Plainitffs are seeking to 26 enjoin the use of broad, ill-defined trade secrets, but they are not entitled to such an 27 injunction because it is not tailored to remedy the specific harm alleged citing E.Bay Sanctuary Covenant v. Barr, 934 F.3d 1026, 1029 (9th Cir. 2019). (NIAR Oppo. at 24). 1 In the present case, Plaintiffs assert they have lost business in a highly competitive market through Defendants’ use of their information, which indicates that a preliminary 2 injunction could balance the scales by stopping the use of those secrets in the conversion 3 program that is in progress. However, the lucrative backing of Fortress suggests that 4 Wagner and Tarpley have plentiful resources to continue to develop competing 5 conversion programs, utilizing the information they have developed. In contrast, the 6 issuance of a preliminary injunction would halt the NIAR conversion program and cause 7 unemployment, lost income, and delay the delivery of important cargo aircraft. These 8 interests weigh heavily in favor of not granting injunctive relief, and tip the balance to the 9 Defendants. 10 11 D. Public Interest 12 “In exercising their sound discretion, courts of equity should pay particular regard for 13 the public consequences in employing the extraordinary remedy of injunction.” Winter, 14 555 U.S. at 376-77, citing Weinberger v. Romero-Barcelo, 456 U.S. 305, 312 (1982). 15 “’The award of an interlocutory injunction by courts of equity has never been regarded as 16 strictly a matter of right, even though irreparable injury may otherwise result to the 17 plaintiff . . . (but is rather) a matter of sound judicial discretion . . .’ and careful balancing 18 of the interests of the respective parties.’” Friends of the Earth v. Coleman, 518 F.2d 323, 19 (9th Cir. 1975)(citing Yakus v United States, 321 U.S. 414, 440 (1944). 20 Plaintiffs contend that a preliminary injunction will serve the public interest in 21 protecting trade secrets as an investment in innovation. (Mot. at 24). This is particularly 22 true in the P2F industry because the public has become increasingly dependent on air- 23 freight shipping including the delivery of groceries, medication and other necessities. 24 (Id.) The public therefore has a strong interest in “ensuring ingenuity and creativity in the 25 air-cargo industry.” (Id. 24-25). 26 The Dotzenroth Defendants do not address this factor, but the NIAR Defendants 27 contend that the mission of both WSU and NIAR is to serve as an “educational, cultural | and economic driver for Kansas and the Wichita community” and the 777 Conversion Program supports this mission by employing a substantial number of Wichita residents. 3 (NIRA Def. Oppo. at 24). An injunction that affects NIAR’s ability to support the 777 A Conversion Program would impact WSU, the Wichita community, and the State of 5 Kansas which has recognized the importance of the aerospace industry in its growth. (/d.) 6 Preserving and protecting innovation in the air cargo industry is clearly in the public’s 7 interest, and for that very reason, the issuance of a preliminary injunction would not be in g || the public interest because it would mean the cessation of NIAR’s involvement with the g || 777 Conversion Program which has been operating for over two years. The impact to 19 || WSU, NIAR and the Wichita community would be tremendous, and weighs heavily in 11 || favor of denying injunctive relief. (Kuwayti Dec. Ex A-E [ECF No. 196-1.]) Kansas 12 || boasts a long history of aviation manufacturing, and “the KMC, in partnership with 13 || Wichita State University’s National Institute for Aviation Research (NIAR) WERX 14 || program, will help solidify the Wichita area as a leader in the maintenance, repair, and 15 |} overhaul (MRO) industry.” Ud. Ex B at 15). In light of the above, an injunction that has 16 || the effect of preventing the operation of the conversion program in Kansas would not be 17 |[1n the public interest. 18 IH. | CONCLUSION AND ORDER 19 For the foregoing reasons, the Court VACATES the prior sealed ORDER [ECF No “0 373], files this AMENDED ORDER DENYING Plaintiffs’ motion for preliminary injunction [ECF No. 161], DENIES Defendants’ request to file supplemental briefing as 2 moot [ECF No. 218], and DENIES Defendants’ ex part request to file a redacted order as moot [ECF No. 376.] 95 IT IS SO ORDERED 26 || Dated: October 7, 2022 H . James Lorenz, 27 United States District Judge 28 ID