Cabela's LLC v. Ryan Wellman

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
CABELA’S LLC, a Delaware limited )
liability company, )
)
Plaintiff, )
)
v. ) C.A. No. 2018-0607-TMR
)
RYAN WELLMAN, an individual, )
TRENT SANTERO, an individual, )
MIKE RIDDLE, an individual, )
JEREMY NESBITT, an individual, )
and NEXGEN OUTFITTERS, LLC, a )
Delaware limited liability company, )
)
Defendants. )
MEMORANDUM OPINION
Date Submitted: October 17, 2018
Date Decided: October 26, 2018
Kevin M. Coen and Alexandra M. Cumings, MORRIS, NICHOLS, ARSHT &
TUNNELL LLP, Wilmington, Delaware; Sean M. Berkowitz, Matthew W. Walch,
and Reuben J. Stob, LATHAM & WATKINS LLP, Chicago, Illinois; Attorneys for
Plaintiff.
Henry E. Gallagher, Timothy M. Holly, Mary I. Akhimien, and Shaun Michael
Kelly, CONNOLLY GALLAGHER LLP, Wilmington, Delaware; Patrick J. Barrett
and Rhianna A. Kittrell, FRASER STRYKER PC LLO, Omaha, Nebraska;
Attorneys for Defendants.
MONTGOMERY-REEVES, Vice Chancellor.
This memorandum opinion addresses an employer’s Motion for a Preliminary
Injunction. The employer requests that this Court enjoin four former employees
from violating noncompete, nonsolicitation, and confidentiality provisions
contained in agreements they each executed during their employment. The employer
also requests that this Court enjoin the former employees and the limited liability
company they founded from tortiously interfering with agreements held by any other
defendant or any third party. In this opinion, I grant a preliminary injunction
enforcing the parties’ contractual confidentiality and nonsolicitation provisions.
I. BACKGROUND
Plaintiff Cabela’s LLC (“Cabela’s”) is “the World’s Foremost Outfitter of
hunting, fishing, and outdoor gear.” 1 Until its 2017 merger with Bass Pro Group,
LLC (“Bass Pro”), Cabela’s had its headquarters in Sidney, Nebraska, “a small rural
community,” 2 and it employed nearly one third of the town’s residents.3 Currently,
Cabela’s maintains an office in Sidney and is the town’s single largest employer. 4
1
Our History, Cabela’s, https://www.cabelas.com (last visited October 22, 2018);
accord Cumings Aff. Ex. 11, at 8.
2
Akhimien Aff. Ex. 63C, at 2.
3
Id. Ex. 61 ¶¶ 4-5.
4
Compl. ¶ 4.
1
Four of the defendants are former employees of Cabela’s (the “Individual
Defendants”), and each had worked for Cabela’s for over a decade. 5 Ryan Wellman
worked as the Director of Hunting at Cabela’s. 6 His responsibilities included
product sourcing, inventory management, vendor negotiations, and departmental
budgeting.7 Mike Riddle and Trent Santero had similar responsibilities in their roles
at Cabela’s. Riddle worked as the Archery Category Manager for Cabela’s,8 and
Santero was the Camping Category Manager. 9 They both selected products,
negotiated costs, interacted with vendors, managed inventories, and set retail
prices.10 Jeremy Nesbitt worked as the Senior Director of Planning and Inventory.11
In this role, he gathered Company data to make inventory planning decisions, and
he generated sales data and future projections.12
5
Id. ¶¶ 21-24.
6
Cumings Aff. Ex. 1, at 21.
7
Id. Ex. 2, at 1.
8
Id. Ex. 5, at 11.
9
Id. Ex. 51, at 12.
10
Id. Ex. 3, at 1; id. Ex 4, at 15; id. Ex 5, at 12-13, 18.
11
Compl. ¶ 24; Cumings Aff. Ex. 6, at 9, 18.
12
Cumings Aff. Ex. 6, at 9-10, 14-15, 43.
2
A. The Individual Defendants’ Various Agreements with Cabela’s
Cabela’s offered equity benefits to key employees holding senior roles,
including the Individual Defendants.13 To receive Company stock, each employee
was required to sign a Proprietary Matters Agreement (the “PMA”) and a Restricted
Stock Unit Agreement (the “RSUA”). 14 Each year that an employee received a grant
of stock, the employee electronically signed a new PMA and RSUA. 15
By signing the PMA, the employee agreed not to disclose the Company’s
“Confidential Information.” 16 The PMA also included provisions restricting the
employee’s conduct after leaving Cabela’s, whether through voluntary or
involuntary termination. In the Nonsolicitation of Customers provision, the
employee agreed that for a period of eighteen months after leaving Cabela’s, the
13
Compl. ¶ 26.
14
See id.; Cumings Aff. Exs. 17-20.
15
Cumings Aff. Ex. 10, at 30.
16
Id. Ex. 17 § 1(a) (“Confidential Information” includes “information about [the]
Company’s products and services, markets, customers and prospective customers,
the buying patterns and needs of customers and prospective customers, purchasing
histories with vendors and suppliers, contact information for customers, prospective
customers, vendors and suppliers, miscellaneous business relationships, investment
products, pricing, quoting, costing systems, billing and collection procedures,
proprietary software and the source code thereof, financial and accounting data, data
processing and communications, technical data, marketing concepts and strategies,
business plans, mergers and acquisitions, research and development of new or
improved products and services, and general know-how regarding the business of
[the] Company and its products and services.”).
3
employee would not solicit Cabela’s customers with whom the employee had
personal contact and did business during the eighteen months prior to leaving
Cabela’s. 17 In the Nonsolicitation of Vendors provision, the employee agreed that
for a period of eighteen months after leaving Cabela’s, the employee would not
solicit vendors with whom the employee had personal contact and did business
during the eighteen months prior to leaving Cabela’s. 18 In the Nonsolicitation of
Employees provision, the employee agreed that for a period of eighteen months after
leaving Cabela’s, the employee would not solicit any Company employees if the
employee had personal contact with or received confidential information about the
Company employee. 19 In the Noncompetition provision, the employee agreed to not
perform services for a competitor that are similar to the employee’s work for
Cabela’s for a period of eighteen months after leaving Cabela’s. 20 “Competitor”
includes any “multi-state, multi-province, and/or multi-channel retailer [in the
United States or Canada] engaged in the sale of products and/or services associated
17
Id. § 4.
18
Id. § 5.
19
Id. § 6.
20
Id. § 7.
4
with hunting, fishing, or camping.”21 The Individual Defendants each entered into
a PMA in March or April 2016.22
In February 2016, Wellman and Nesbitt also each entered into a Key
Employee Change of Control Severance Agreement (the “CIC Agreement”).23 The
purpose of the CIC Agreements was to retain certain high-level employees during
the merger with Bass Pro. 24 In the CIC Agreements, Wellman and Nesbitt again
agreed to not disclose the Company’s confidential information.25 But the CIC
Agreements terminated the noncompetition and nonsolicitation provisions in other
agreements, effective as of the date Wellman’s and Nesbitt’s employment with
Cabela’s ended.26 These agreements provided the terms of Wellman’s and Nesbitt’s
severance packages.27
21
Id.
22
Cumings Aff. Exs. 17-20.
23
Id. Exs. 24, 25.
24
Id. Ex. 10, at 10.
25
Id. Ex. 24 § 6(a)(ii); id. Ex. 25 § 6(a)(ii).
26
Id. Ex. 24 § 2(e); id. Ex. 25 § 2(e).
27
Id. Ex. 24 § 2, id. Ex. 25 § 2.
5
In March 2017, each of the Individual Defendants executed a cash incentive
agreement with Cabela’s (“Cash Incentive Agreement”).28 In light of the upcoming
merger with Bass Pro, Cabela’s could no longer grant stock to its employees and,
instead, issued cash-based incentive awards. 29 Unlike the PMAs, the Cash Incentive
Agreements failed to include any confidentiality, nonsolicitation, or noncompetition
provisions. 30
B. The Individual Defendants Leave Cabela’s
Cabela’s terminated Wellman’s employment in February 2018.31 He accepted
the severance package pursuant to the terms of his CIC Agreement. 32 Nesbitt left
Cabela’s in February 2018. 33 Similarly, he accepted the severance package pursuant
to the terms of his CIC Agreement. 34
28
Akhimien Aff. Exs. 63A, 64A, 65A, 66A.
29
Cumings Aff. Ex. 13, at 60-61; see also id. Ex. 10, at 39; Akhimien Aff. Exs. 63A,
64A, 65A, 66A.
30
See, e.g., Akhimien Aff. Ex. 63A.
31
Cumings Aff. Ex. 10, at 63.
32
See id. Ex. 24.
33
Compl. ¶ 37.
34
See Cumings Aff. Ex. 25.
6
In February 2018, Cabela’s terminated Riddle’s employment. 35 Cabela’s
provided Riddle with a severance package, and as a condition of receiving that
severance package, Riddle executed a General Release Agreement and Covenant
Not to Sue (the “Riddle Separation Agreement”) on February 22, 2018. 36 The Riddle
Separation Agreement explicitly does not “affect, modify, or nullify any prior
agreement” Riddle entered into with Cabela’s “regarding confidentiality, trade
secrets, intellectual property, or unfair competition.” 37
Santero ended his employment with Cabela’s in March 2018. 38 Cabela’s
provided Santero with a severance package, and as a condition of receiving that
severance package, Santero executed a Confidential Severance Agreement and
General Release (the “Santero Separation Agreement”) on March 13, 2018. 39 The
Santero Separation Agreement explicitly supersedes all prior agreements between
Santero and Cabela’s “with regard to the subject matter” of the Santero Separation
Agreement. 40 The agreement, however, does not “affect, modify, or nullify any
35
Id. Ex. 10, at 41-42.
36
Id. Ex. 22.
37
Id. § 14.
38
Cumings Aff. Ex. 10, at 41-42, 49.
39
Id. Ex. 26.
40
Id. § 17.
7
agreement” Santero entered into with Cabela’s that obligates Santero “to protect
Cabela’s confidential information and/or to refrain from solicitating Cabela’s
employees or customers after [Santero]’s employment is terminated.” 41 The Santero
Separation Agreement is silent as to soliciting Cabela’s vendors and as to
noncompete provisions in other agreements. 42
C. The Individual Defendants Lay the Groundwork for NexGen
In December 2017 and January 2018, before the Individual Defendants left
Cabela’s, they started making preparations for their new business, NexGen. These
preparatory steps included designing a logo that included Cabela’s colors; 43 using a
Cabela’s-issued computer to install “Business-in-a-Box,” a tool for setting up a new
business; 44 meeting with vendors at a Las Vegas trade show; 45 and developing a
vision for the new business that included providing products and services to Cabela’s
customers. 46
41
Id.
42
See id.
43
Cumings Aff. Ex. 27.
44
Stob Decl. ¶ 5.
45
See Cumings Aff. Ex. 5, at 80; id. Exs. 32, 33.
46
Id. Ex. 34.
8
In February and March 2018, the Individual Defendants started taking more
concrete steps. Santero downloaded Cabela’s information regarding national brands
and shared that information with the other Individual Defendants.47 Two Cabela’s
employees, Alex Mousel and Stacy Schumacher, left their Cabela’s employment to
begin working for NexGen; Mousel had worked under Santero at Cabela’s, and
Schumacher had worked under Nesbitt. 48 Riddle emailed a vendor he had worked
with at Cabela’s, asking that the vendor keep the email confidential because he was
starting a new business and wanted to invite the vendor to participate.49 In April
2018, the Sidney City Council committed eight acres of the town’s industrial park
for use by NexGen in exchange for NexGen’s commitment to create twelve jobs and
$640,000 in employee payroll. 50
D. Cabela’s Responds
Cabela’s learned of the Individual Defendants’ new business through a
newspaper article.51 Cabela’s sent cease-and-desist letters to each of the Individual
47
Id. Ex. 39.
48
Id. Ex. 6, at 61; id. Ex. 36, at 18, 24; id. Ex. 37, at 7; id. Ex. 40, at 6.
49
Id. Ex. 55.
50
Id. Ex. 48.
51
Id.
9
Defendants in June 2018.52 Having received no sign from the Individual Defendants
that they would halt the launch of NexGen, Cabela’s filed this action in August
2018. 53
II. ANALYSIS
This Court has broad discretion in granting or denying a preliminary
injunction. 54 “A preliminary injunction may be granted where the movant[]
demonstrate[s]: (1) a reasonable probability of success on the merits at a final
hearing; (2) an imminent threat of irreparable injury; and (3) a balance of the equities
that tips in favor of issuance of the requested relief.”55 “The moving party bears a
considerable burden in establishing each of these necessary elements. Plaintiff[]
may not merely show that a dispute exists and that plaintiff[] might be injured; rather,
plaintiff[] must establish clearly each element because injunctive relief ‘will never
be granted unless earned.’” 56 Yet, “there is no steadfast formula for the relative
52
Cumings Aff. Ex. 49.
53
See generally Compl.
54
Data Gen. Corp. v. Dig. Comput. Controls, Inc., 297 A.2d 437, 439 (Del. 1972)
(citing Richard Paul, Inc. v. Union Improvement Co., 91 A.2d 49 (Del. 1952)).
55
Nutzz.com, LLC v. Vertrue Inc., 2005 WL 1653974, at *6 (Del. Ch. July 6, 2005).
56
La. Mun. Police Emps.’ Ret. Sys. v. Crawford, 918 A.2d 1172, 1185 (Del. Ch. 2007)
(quoting Lenahan v. Nat’l Comput. Analysts Corp., 310 A.2d 661, 664 (Del. Ch.
1973)).
10
weight each deserves. Accordingly, a strong demonstration as to one element may
serve to overcome a marginal demonstration of another.”57
A. Cabela’s Reasonable Probability of Success on the Merits at a Final
Hearing
In its Complaint, Cabela’s alleges three separate causes of action: (1) breach
of contract against the Individual Defendants, (2) violation of the Nebraska Trade
Secrets Act against all Defendants, and (3) tortious interference under Nebraska law
against all Defendants.
1. The breach of contract claim
To succeed in its breach of contract claim, Cabela’s must show that (1) a valid
contract exists, (2) defendants breached an obligation under that contract, and
(3) plaintiff suffered damages as a result of the breach.58 For its breach of contract
claim, Cabela’s asserts that the PMAs control regarding the noncompetition,
nonsolicitation, and confidentiality provisions applicable to the Individual
57
Alpha Builders, Inc. v. Sullivan, 2004 WL 2694917, at *3 (citing Cantor Fitzgerald,
L.P. v. Cantor, 724 A.2d 571, 579 (Del. Ch. 1998)).
58
See VLIW Tech., LLC v. Hewlett-Packard Co., 840 A.2d 606, 612 (Del. 2003).
Nebraska’s requirements to show a breach of contract claim are similar to
Delaware’s: On a claim for breach of contract, “the plaintiff must plead the
existence of a promise, its breach, damages, and compliance with any conditions
precedent that activate the defendant’s duty.” Kotrous v. Zerbe, 846 N.W.2d 122,
126 (Neb. 2014). There is no condition precedent present here to activate the
defendant’s duty. To evaluate damages for breach of contract in the context of a
motion for preliminary injunction, I evaluate the imminent threat of irreparable
harm. See Section II.B below.
11
Defendants’ conduct. 59 The Individual Defendants argue that the PMAs are
superseded by other agreements: the CIC Agreements for Wellman and Nesbitt and
the Separation Agreements for Riddle and Santero.60 Cabela’s also contends that
Delaware law governs the PMAs because the PMAs contain a choice-of-law
provision.61 The Individual Defendants respond that Nebraska law governs because
the provisions violate Nebraska’s public policy and Nebraska has a materially
greater interest than Delaware in the enforcement of these provisions.62
a. The PMAs control with regard to their
noncompetition, nonsolicitation, and confidentiality
provisions
i. The PMA supersedes Wellman’s and Nesbitt’s
other agreements
Delaware recognizes that where a new, later contract between the parties
covers the same subject matter as an earlier contract, the new contract supersedes
and controls that issue, if the two agreements conflict.63
59
Pl.’s Reply Br. 12.
60
Defs.’ Answering Br. 12-20.
61
Pl.’s Reply Br. 8-12.
62
Defs.’ Answering Br. 21-28.
63
Country Life Homes, Inc. v. Shaffer, 2007 WL 333075, at *5 (Del. Ch. Jan. 31, 2007)
(“The new contract, as a general matter, will control over the old contract with
respect to the same subject matter to the extent that the new contract is inconsistent
with the old contract or if the parties expressly agreed that the new contract would
supersede the old one.”); see Bioveris Corp. v. Meso Scale Diagnostics, LLC, 2017
WL 5035530, at *7 n.71 (Del. Ch. Nov. 2, 2017) (“Because there is no way for a
12
Wellman and Nesbitt entered into their CIC Agreements in February 2016 and
November 2015, respectively. 64 Section 2(e) of the CIC Agreements terminates
noncompetition and nonsolicitation provisions of other agreements:
Section 6(b) . . . of this Agreement and similar provisions
(including non-competition and non-solicitation
provisions but excluding confidentiality provisions) in
other agreements between the Employee and the
Company shall be terminated and of no further force and
effect as of the Date of Termination, but Section 6(a) . . .
of this Agreement and similar confidentiality provisions in
other agreements between the Employee and the Company
shall remain in full force and effect after the Date of
Termination.65
For each grant of stock that Wellman or Nesbitt received from Cabela’s, they
entered into a new PMA. 66 The most recent PMAs for Wellman and Nesbitt are
dated April 1, 2016, and March 15, 2016, respectively. 67 The PMAs contain the
following noncompetition and nonsolicitation provisions:
party to comply with both dispute resolution provisions the later in time
provision . . . supersedes the earlier provision . . . .” (citing Country Life Homes,
2007 WL 333075, at *5)); Antonin Scalia & Bryan A. Garner, Reading Law: The
Interpretation of Legal Texts 189 (2012) (comparing canons of interpretation when
a conflicting provision is adopted later in time with when conflicting provisions are
adopted simultaneously).
64
Cumings Aff. Exs. 24, 25.
65
Id. Ex. 24 § 2(e) (emphasis added).
66
Id. Ex. 10, at 30.
67
Id. Ex. 17, at 15; id. Ex. 20, at 15.
13
Nonsolicitation of Customers. In order to prevent the
improper use of Confidential Information and the resulting
unfair competition and misappropriation of Goodwill and
other proprietary interests, Employee agrees that while
Employee is employed by Company or any of its affiliates
and for a period of eighteen (18) months following the
termination of Employee’s employment for any reason
whatsoever, whether such termination is voluntary or
involuntary, and regardless of cause, Employee will not,
directly or indirectly, on Employee’s own behalf or by
aiding any other individual or entity, call on, solicit the
business of, sell to, service, or accept business from any of
Company’s customers (with whom Employee had
personal contact and did business with during the eighteen
(18) month period immediately prior to the termination of
Employee’s employment) for the purpose of providing
said customers with products and/or services of the type or
character typically provided to such customers by
Company. 68
Nonsoliciation of Vendors. In order to prevent the
improper use of Trade Secrets and Confidential
Information and the resulting unfair competition and
misappropriation of Goodwill and other proprietary
interests, Employee agrees that while Employee is
employed by Company or any of its affiliates and for a
period of eighteen (18) months following the termination
of Employee’s employment for any reason whatsoever,
whether such termination is voluntary or involuntary, and
regardless of cause, Employee will not, directly or
indirectly, on Employee’s own behalf or by aiding any
other individual or entity:
(a) Encourage, discourage, interfere with, or otherwise
cause, in any manner, any business partner,
independent contractor, vendor, or supplier of
68
Id. Ex. 17 § 4.
14
Company to curtail, sever, or alter its relationship or
business with Company; or
(b) Solicit, communicate, or do business with any of
Company’s business partners, independent contractors,
vendors, or suppliers (with whom Employee had
personal contact and did business with during the
eighteen (18) month period immediately prior to the
termination of Employee’s employment) for or on
behalf of a Competitor . . . . 69
Nonsoliciation of Employees. Employee agrees that
while Employee is employed by Company or any of its
affiliates and for a period of eighteen (18) months
following the termination of Employee’s employment for
any reason whatsoever, whether such termination is
voluntary or involuntary, and regardless of cause,
Employee will not, directly or indirectly, on Employee’s
own behalf or by aiding any other individual or entity,
hire, employ, or solicit for employment any employee of
Company with whom Employee had personal contact or
about whom Employee received Confidential Information
while employed by Company or any of its affiliates. 70
Noncompetition. In order to prevent the improper use of
Trade Secrets and Confidential Information and the
resulting unfair competition and misappropriation of
Goodwill and other proprietary interests, Employee agrees
that while Employee is employed by Company or any of
its affiliates and for a period of eighteen (18) months
following the termination of Employee’s employment for
any reason whatsoever, whether such termination is
voluntary or involuntary, and regardless of cause,
Employee will not, directly or indirectly, perform services
within the United States of America or Canada for a
Competitor that are the same as or similar to the services
69
Id. § 5.
70
Id. § 6.
15
Employee performed for Company during the eighteen
(18) month period immediately prior to the termination of
Employee’s employment. For purposes of this
Agreement, a “Competitor” of Company shall mean
[specific, named competitor businesses], or any other
multi-state, multi-province, and/or multi-channel retailer
engaged in the sale of products and/or services associated
with hunting, fishing, or camping. 71
Wellman and Nesbitt argue that their CIC Agreements supersede the
noncompetition and nonsolicitation provisions of their PMAs.72 This argument fails.
The PMAs from March and April 2016 are later in time than the November 2015
and February 2016 CIC Agreements. 73 Therefore, where the PMAs cover the same
subject matter as the CIC Agreements and the two agreements conflict, the PMAs
supersede and control that issue. The noncompetition and nonsolicitation provisions
of Wellman’s and Nesbitt’s PMAs, which conflict with Section 2(e) of the CIC
Agreements, thus control to the extent they are valid under governing law. Other
terms of the CIC Agreements that do not conflict with the PMAs remain in effect.
Wellman and Nesbitt also argue that Cabela’s SEC Form 8-K dated October
3, 2016, provides that the provisions of the CIC Agreements would be enforced.74
71
Id. § 7.
72
Defs.’ Answering Br. 15-17.
73
Compare Cumings Aff. Exs. 17, 20, with id. Exs. 24, 25.
74
Defs.’ Answering Br. 16-17.
16
Section 5.11 of the Form 8-K states that Cabela’s will “honor . . . the Company’s . . .
employment, severance, retention and termination plans, policies, programs,
agreements and arrangements (including any change in control or severance
agreement between the Company . . . and any Company Employee), in each case, in
accordance with their terms as in effect immediately prior to” the merger with Bass
Pro.75 Here, Section 2(e), a term of the CIC Agreements, was not in effect in October
2016, when the Form 8-K was filed, or immediately prior to the merger because it
was superseded by the relevant provisions of the PMAs in March and April 2016.
ii. The Santero Separation Agreement preserves
the terms of Santero’s PMA
Section 17 of the Santero Separation Agreement states,
This Agreement is a complete agreement between the
parties and supersedes all prior discussion, negotiations,
and agreements with regard to the subject matter herein,
whether oral or written. However, Employee agrees that
this Agreement shall not in any way affect, modify, or
nullify any agreement(s) Employee may have entered into
with Cabela’s that obligate Employee to protect Cabela’s
confidential information and/or to refrain from soliciting
Cabela’s employees or customers after Employee’s
employment is terminated, . . . and that any such
obligations contained in those agreement(s) remain in full
force and effect to the extent permitted by law. 76
75
Akhimien Aff. Ex. 62E, at 58 (emphases added).
76
Cumings Aff. Ex. 26 § 17 (emphases added).
17
The Santero Separation Agreement preserves the confidentiality,
nonsolicitation-of-employees, and nonsolicitation-of-customers provisions of the
PMA. Santero argues that the nonsolicitation-of-vendors and noncompetition
provisions of the PMA are superseded by Section 17 of his Separation Agreement.77
None of the Separation Agreement’s terms refer to nonsolicitation-of-vendors or
noncompetition obligations.78 These obligations, therefore, are not part of the
“subject matter” of the Separation Agreement, and the Separation Agreement does
not supersede the relevant provisions of the PMA. The confidentiality,
nonsolicitation, and noncompetition provisions of the PMA, therefore, remain in
effect to the extent they are valid under governing law.
iii. The Riddle Separation Agreement preserves the
terms of Riddle’s PMA
Section 14 of the Riddle Separation Agreement states,
This Agreement constitutes the entire agreement between
the Company and [Riddle] with respect to the issues
addressed in this Agreement, except this Agreement does
not in any way affect, modify, or nullify any prior
agreement [Riddle] entered into with the Company
regarding confidentiality, trade secrets, intellectual
property, or unfair competition.79
77
Defs.’ Answering Br. 18-20.
78
See Cumings Aff. Ex. 26.
79
Cumings Aff. Ex. 22 § 14 (emphases added).
18
The Riddle Separation Agreement preserves the confidentiality provision of
Riddle’s PMA. Riddle argues that the nonsolicitation and noncompetition
provisions of the PMA are superseded by Section 14 of his Separation Agreement.80
The Riddle Separation Agreement preserves “any prior agreement [he] entered
into . . regarding . . . unfair competition.”81 To the extent that the noncompetition
provision of the PMA covers unfair competition, the Riddle Separation Agreement
preserves that provision. The Riddle Separation Agreement’s terms do not refer to
any obligations related to ordinary (or not unfair) competition; to the extent that the
noncompetition provision of the PMA covers ordinary competition, the Separation
Agreement does not supersede the noncompetition provision of the PMA.
Further, none of the Riddle Separation Agreement’s terms refer to any
nonsolicitation obligations.82 These obligations, therefore, are not “issues addressed
in” the Riddle Separation Agreement, and the Separation Agreement does not
supersede the relevant provisions of the PMA.
The confidentiality, nonsolicitation, and noncompetition provisions of the
PMA, therefore, remain in effect to the extent they are valid under governing law.
80
Defs.’ Answering Br. 18-20.
81
Cumings Aff. Ex. 22 § 14.
82
See Cumings Aff. Ex. 22.
19
iv. The Cash Incentive Agreements do not
supersede the PMAs
The Individual Defendants argue in the alternative that the Cash Incentive
Agreements superseded the noncompetition and nonsolicitation provisions of the
PMAs. 83 The Cash Incentive Agreements dated March 2, 2017, “supersede[] all
other oral or written agreements or understandings, between [the employee] and the
Company regarding the subject matter hereof.”84 None of the Cash Incentive
Agreements’ terms refer to noncompetition or nonsolicitation obligations.85 These
obligations, therefore, are not part of the “subject matter” of the Cash Incentive
Agreements, and the Cash Incentive Agreements do not supersede the relevant
provisions of the PMAs. 86
b. Nebraska law governs the PMAs
In the PMAs, Cabela’s and the Individual Defendants agreed to a Delaware
choice-of-law provision.87 When evaluating choice-of-law provisions, Delaware
83
Defs.’ Answering Brief 18.
84
Akhimien Aff. Exs. 63A, 64A, 65A, 66A.
85
See Akhimien Aff. Exs. 63A, 64A, 65A, 66A.
86
The Individual Defendants further argue that the PMAs are not valid agreements
because the Individual Defendants electronically signed and accepted the terms of
the PMAs. This argument fails because Delaware law allows digital acceptance of
the terms of an agreement. Newell Rubbermaid Inc. v. Storm, 2014 WL 1266827,
at *6-8 (Del. Ch. Mar. 27, 2014).
87
See, e.g., Cumings Aff. Ex. 17 § 16(b).
20
follows the Restatement (Second) of Conflict of Laws (the “Restatement”).88 Under
the Restatement, the parties’ choice of law generally will control an agreement.89
The Restatement, however, recognizes an exception to that general principal. Where
the parties enter a contract which, except for the choice-of-law provision, would be
governed by the law of a particular state, and that state has a public policy under
which a contractual provision would be limited or void, “the Restatement recognizes
that allowing the parties to contract around that public policy would be an
unwholesome exercise of freedom of contract.”90 “[A]llowing parties to circumvent
state policy-based contractual prohibitions through the promiscuous use of [choice-
of-law] provisions would eliminate the right of [other] state[s] to have control over
enforceability of contracts concerning [their] citizens.”91
88
Ascension Ins. Hldgs, LLC v. Underwood, 2015 WL 356002, at *2 (Del. Ch. Jan.
28, 2015) (citing Total Hldgs. USA, Inc. v. Curran Composites, Inc., 999 A.2d 873,
881-82 (Del. Ch. 2009); Weil v. Morgan Stanley DW Inc., 877 A.2d 1024, 1032 &
n.16 (Del. Ch.), aff’d, 894 A.2d 407 (Del. 2005); Abry P’rs V, L.P. v. F & W Acq.
LLC, 891 A.2d 1032, 1047 (Del. Ch. 2006)); accord DCS Sanitation, 435 F.3d at
895 (explaining that Nebraska follows the Restatement (Second) of Conflict of
Laws).
89
Restatement § 187(1) (providing that “[t]he law of the state chosen by the parties to
govern their contractual rights and duties will be applied if the particular issue is
one which the parties could have resolved by an explicit provision in their agreement
directed to that issue”).
90
Ascension, 2015 WL 356002, at *2 (citing Restatement § 187).
91
Id.
21
Here, Cabela’s, a corporation with its headquarters in Nebraska, entered into
agreements with its employees, residents of Nebraska.92 The employees worked in
Nebraska, and the parties entered into the agreement in Nebraska. 93 Other than the
choice-of-law provision in the PMAs, the only connections to Delaware are
(1) Cabela’s is a Delaware corporation and (2) the Individual Defendants signed the
PMAs as a condition to receive Delaware stock.94 Nebraska is the state with the
strongest contacts to the contract; in the absence of the Delaware choice-of-law
provision, Nebraska law would apply to the PMAs.95 As a result, the Restatement
instructs that I first determine whether enforcement of the noncompete provision
would conflict with a fundamental policy of Nebraska. If so, then I must also
determine whether Nebraska has a materially greater interest in the enforcement of
92
Compl. ¶¶ 1, 10, 12-15; see Cumings Aff. Exs. 17-20.
93
Cumings Aff. Ex. 21, at 45-47.
94
Oral Arg. Tr. 24:21-24.
95
Ascension, 2015 WL 356002, at *3; Restatement § 188(2) (listing contacts to
evaluate when determining the law applicable to an issue); accord DCS Sanitation,
435 F.3d at 896 (8th Cir. 2006) (finding a substantial relationship to Nebraska when
the parties entered into the agreement in Nebraska, the services at issue occurred in
Nebraska, the former employees reside in Nebraska, enforcement of the
noncompete affects employment in Nebraska, and the former employer does
business in Nebraska).
22
the PMAs than Delaware. If both these conditions are met, then Nebraska law will
apply despite the PMAs’ choice-of-law provision.96
Nebraska law has long recognized that all contracts in restraint of trade or
commerce are against public policy and void. 97 “A restraint on the employee is
illegal [in Nebraska] when its purpose is the prevention of competition . . . .”98
Ordinary competition may not be constrained. 99 In other words, an employer cannot
prevent its former employee from using any general knowledge, skill, or facility
acquired on the job as an edge for ordinary competition. 100 Nebraska, however, does
allow for a narrow exception: An employer may protect itself from a former
96
See Ascension, 2015 WL 356002, at *3; Restatement § 187(2)(b).
97
Gaver v. Schneider’s O.K. Tire Co., 856 N.W.2d 121, 127 (Neb. 2014); see also
Neb. Rev. Stat. § 59-1603.
98
Chambers-Dobson, Inc. v. Squier, 472 N.W.2d 391, 398 (Neb. 1991) (quoting 6A
A. Corbin, Corbin on Contracts § 1394, at 100 (1962)); see, e.g., Gaver, 856
N.W.2d at 133 (“By attempting to restrict Gaver from opening or having an
ownership interest in a competing business not coupled with a recognized
protectable interest [of the former employer], [the former employer] is attempting
to prevent ordinary competition by a former employee, not unfair competition.”).
99
See Chambers-Dobson, 472 N.W.2d 391 at 398-99; Gaver, 856 N.W.2d at 127; Aon
Consulting, Inc. v. Midlands Fin. Benefits, Inc., 748 N.W.2d 626, 638 (Neb. 2008);
Polly v. Ray D. Hilderman & Co., 407 N.W.2d 751, 755 (Neb. 1987); Boisen v.
Petersen Flying Serv., Inc., 383 N.W.2d 239, 245 (Neb. 1986).
100
Gaver, 856 N.W.2d at 131 (quoting Boisen, 383 N.W.2d at 34); Restatement
(Second) of Contracts § 188 cmt. g (Am. Law Inst. 1981) (“A line must be drawn
between the general skills and knowledge of the trade and information that is
peculiar to the employer’s business.”).
23
employee’s improper or unfair competition.101 Nebraska courts have held that
improper or unfair competition includes misappropriation of the employer’s
(1) goodwill by soliciting the employer’s customers when the employee had
substantial personal contact with the employer’s customers, (2) confidential
information, or (3) trade secrets.102
Delaware law, to the contrary, allows a much broader range of noncompete
agreements. Noncompete agreements that are “reasonable in scope and duration, . . .
advance a legitimate economic interest of the [former employer], and . . . survive a
101
Gaver, 856 N.W.2d at 130; Aon Consulting, 748 N.W.2d at 638; Polly, 407 N.W.2d
at 755; Boisen, 383 N.W.2d at 245.
102
E.g., Gaver, 856 N.W.2d at 130-31 (“Legitimate interests of an employer which
may be protected from competition include: the employer’s trade secrets which
have been communicated to the employee during the course of employment; [and]
confidential information communicated by the employer to the employee . . . .”
(quoting 54A Am. Jur. 2d Monopolies and Restraints of Trade § 906, at 208
(2009))); Aon Consulting, 748 N.W.2d at 638 (“The nonsolicitation agreement
signed by Pearson did not prevent him from engaging in ‘ordinary competition’ with
Aon after leaving its employment. It only prevented him from business contacts
with those customers with whom he had personal business dealings during the last
2 years of his employment with Aon.”); id. (“To distinguish between ‘ordinary
competition’ and ‘unfair competition,’ [Nebraska courts] have focused on an
employee’s opportunity to appropriate the employer’s goodwill by initiating
personal contacts with the employer’s customers. Where an employee has
substantial personal contact with the employer’s customers, develops goodwill with
such customers, and siphons away the goodwill under circumstances where the
goodwill properly belongs to the employer, the employee’s resultant competition is
unfair and the employer has a legitimate need for protection against the employee’s
competition.”).
24
balance of the equities” are enforced in Delaware.103 Cabela’s argues that the
Nebraska courts’ interpretation of reasonable noncompete agreements is
“consistent” with Delaware’s requirement of reasonableness.104 But this argument
does not withstand scrutiny. An agreement prohibiting ordinary competition is
enforced in Delaware so long as the agreement is not “oppressive to an employee,”105
but the same agreement is void in Nebraska precisely because the agreement
prohibits ordinary competition. 106
Cabela’s also argues that Nebraska’s public policy against restrictions on
trade or commerce is not strong because it is not defined by a statute, but instead by
common law. This argument is wrong. First, Nebraska’s policy is set out, albeit
briefly, in statute: “Any contract . . . in restraint of trade or commerce shall be
103
Weichert Co. v. Young, 2007 WL 4372823, at *3 (Del. Ch. Dec. 7, 2007).
104
Oral Arg. Tr. 26:19-22.
105
EDIX Media Gp. v. Mahani, 2006 WL 3742595, at *7-8 (Del. Ch. Dec. 12, 2006)
(enforcing agreement as to actions that compete directly with plaintiff’s business
activities); see also Hough Assocs., Inc. v. Hill, 2007 WL 148751, at *6, 14-15 (Del.
Ch. Jan. 17, 2007) (enforcing noncompete agreement against ordinary competition);
Del. Express Shuttle, Inc. v. Older, 2002 WL 31458243, at *6, 15 (Del. Ch. Oct. 23,
2002) (same).
106
Compare Gaver, 856 N.W.2d at 125-27 (holding that noncompete agreement
regarding “any trade business similar to the business owned and operated by
Employer” is unenforceable), with Hough Assocs., 2007 WL 148751, at *6, 14-15
(holding that noncompete agreement regarding “any business which is similar to the
business conducted by the Company” is enforceable).
25
unlawful.”107 Second, I am unaware of, and Plaintiff does not cite, any authority to
support the proposition that public policy is strong only when it is enshrined in a
statute. To the contrary, for example, Delaware’s strong public policy regarding
right to freedom of contract is not set out in statute but is abundantly supported by
case law.
As I explained above, noncompete agreements are allowed by Nebraska law
only to the extent they protect the employer against improper and unfair competition
such as misappropriation of goodwill, confidential information, or trade secrets.108
Any noncompete agreement prohibiting ordinary competition is contrary to a
fundamental policy of Nebraska. 109 Here, the noncompete provision in the PMAs
prohibits the employee from performing services for a competitor that are the same
as or similar to the services the employee performed for Cabela’s during the
eighteen-month period immediately prior to the termination of the employee’s
employment. 110 “For purposes of [the PMAs], a ‘Competitor’” means any “multi-
107
Neb. Rev. Stat. § 59-1603. Compare id., with Cal. Bus. & Prof. Code § 16600
(“Except as provided in this chapter, every contract by which anyone is restrained
from engaging in a lawful profession, trade, or business of any kind is to that extent
void.”).
108
See supra note 101.
109
Gaver, 856 N.W.2d at 127.
110
Cumings Aff. Ex. 17 § 7.
26
state, multi-province, and/or multi-channel retailer engaged in the sale of products
and/or services associated with hunting, fishing, or camping.”111 This provision is a
prohibition of ordinary competition and, thus, is in conflict with a fundamental
policy of Nebraska.112
I must next determine whether Nebraska’s specific interest is materially
greater than Delaware’s general interest in enforcing a contract that has no
substantial relationship to this state. “Upholding freedom of contract is a
fundamental policy of this State.”113 “[W]here Delaware’s law applies, with very
limited exceptions, our courts will enforce the contractual scheme that the parties
have arrived at through their own self-ordering, both in recognition of a right to self-
order and to promote certainty of obligations and benefits.”114 But “where it is clear
111
Id.
112
E.g., DCS Sanitation, 435 F.3d 892 at 894, 897 (affirming district court’s holding
that noncompete agreement was overbroad and unenforceable when noncompete
agreement stated “For a period of one (1) year following the date of termination of
employment for any reason, I will not directly or indirectly engage in, or in any
manner be concerned with or employed by any person, firm, or corporation in
competition with [DCS] or engaged in providing contract cleaning services within
a radius of one-hundred (100) miles of any customer of [DCS] or with any customer
or client of [DCS] or any entity or enterprise having business dealings with [DCS]
which is then providing its own cleaning services in-house or which requests my
assistance or knowledge of contract cleaning services to provide its own cleaning
services in-house” (alterations in original)).
113
Ascension, 2015 WL 356002, at *4 (citing NACCO Indus., Inc. v. Applica Inc., 997
A.2d 1, 35 (Del. Ch. 2009)).
114
Id.
27
that the policy of [Nebraska] is that the contract at issue is abhorrent and void, and
where, as here, the formation and enforcement of the contract relate overwhelmingly
to [Nebraska], a general interest in freedom of contract is unlikely to be the equal of
that public policy under the Restatement analysis.”115 Because Nebraska has a
greater material interest in the agreements and application of Delaware law would
violate a fundamental policy of Nebraska law, I apply Nebraska law to the question
of the validity and enforceability of the nonsolicitation and noncompete provisions
of the PMAs. 116
c. Validity of the confidentiality, nonsolicitation, and
noncompete provisions of the PMAs
i. The confidentiality provision
The Defendants do not argue that the confidentiality provision of the PMAs
is unenforceable or void under Nebraska law. Nor can they; Nebraska law identifies
confidential information as a legitimate protectable business interest. 117
115
Id. at *5; see Gaver, 856 N.W.2d at 127 (“[A]ll contracts in restraint of trade are
against public policy and void.”); accord DCS Sanitation Mgmt., 435 F.3d at 897
(holding that reformation of an overbroad noncompete agreement violates a
fundamental policy of Nebraska law).
116
DCS Sanitation, 435 F.3d at 897; Aon Consulting, 748 N.W.2d at 638.
117
Gaver, 856 N.W.2d at 130 (“We have identified legitimate protectable business
interests as including employer’s goodwill, confidential information, and trade
secrets.”); Boisen, 383 N.W.2d at 34 (“[A]n employer has a legitimate need to curb
or prevent competitive endeavors by a former employee who has acquired
confidential information or trade secrets pertaining to the employer’s business
operations.” (citing Brewer v. Tracy, 253 N.W.2d 319, 321 (Neb. 1977))).
28
ii. The nonsolicitation provisions
Under Nebraska law, nonsolicitation provisions are valid if they focus on the
former employee’s personal contacts with the employer’s customers. 118 Nebraska
courts will enforce a nonsolicitation provision that prohibits the former employee
from soliciting those customers with whom the employee had personal contact. 119
The PMAs prohibit the solicitation of customers, vendors, and employees.
The Individual Defendants are prohibited from soliciting customers “with whom
[they] had personal contact and did business with during the eighteen (18) month
period immediately prior to the termination of [their] employment.” 120 Because the
provision is limited to those customers with whom the employee had personal
contact, it legitimately protects Cabela’s goodwill and is enforceable under Nebraska
law.
Similarly, the PMAs prohibit the Individual Defendants from soliciting
vendors or suppliers “with whom Employee had personal contact and did business
with during the eighteen (18) month period immediately prior to the termination of
118
Aon Consulting, 748 N.W.2d at 638 (citing Moore v. Eggers Consulting Co., 562
N.W.2d 534 (Neb. 1997); Boisen, 383 N.W.2d 29).
119
E.g., Aon Consulting, 648 N.W.2d at 638.
120
Cumings Aff. Ex. 17 § 4.
29
Employee’s employment.” 121 For the same reasons above, this provision protects
Cabela’s legitimate business interest and is enforceable under Nebraska law.
Finally, the PMAs prohibit the Individual Defendants from soliciting Cabela’s
employees “with whom Employee had personal contact or about whom Employee
received Confidential Information while employed by [the] Company.” 122 Again,
this provision protects Cabela’s legitimate business interest and is enforceable under
Nebraska law. The three nonsolicitation provisions are enforceable here. 123
iii. The noncompetition provision
Under Nebraska law, noncompete agreements are allowed only to the extent
they protect the employer against unfair competition. 124
To distinguish between “ordinary competition” and
“unfair competition,” [Nebraska courts] have focused on
an employee’s opportunity to appropriate the employer’s
goodwill by initiating personal contacts with the
employer’s customers. Where an employee has
substantial personal contact with the employer’s
customers, develops goodwill with such customers, and
121
Id. § 6.
122
Id.
123
Nebraska law requires that nonsolicitation agreements be no greater than reasonably
necessary to protect the employer’s legitimate business interest. Under this
requirement, nonsolicitation agreements must be reasonably limited in duration.
See Aon Consulting, 748 N.W.2d at 653-54. The parties do not address whether the
nonsolicitation provision’s duration is reasonable. I, therefore, do not address this
issue.
124
See supra note 101.
30
siphons away the goodwill under circumstances where the
goodwill properly belongs to the employer, the
employee’s resultant competition is unfair and the
employer has a legitimate need for protection against the
employee’s competition.125
Any noncompete agreement prohibiting ordinary competition is void.126
“[A]n employer does not ordinarily have a legitimate business interest in the
postemployment preclusion of an employee’s use of some general skill.” 127 Further,
“an employer has no legitimate business interest in post-employment prevention of
an employee’s use of some general skill or training acquired while working for the
employer, although such on-the-job acquisition of general knowledge, skill, or
facility may make the employee an effective competitor for the former employer.”128
Here, the noncompete provision in the PMAs prohibits the employee from
performing services for a competitor that are the same as or similar to the services
the employee performed for Cabela’s during the eighteen-month period immediately
prior to the termination of the employee’s employment. 129 “For purposes of [the
125
Aon Consulting, 748 N.W.2d at 638 (footnote omitted) (citing Moore, 562 N.W.2d
534; Boisen, 383 N.W.2d 29; Schuelke v. Wilson, 587 N.W.2d 369 (Neb. 1998)).
126
Gaver, 856 N.W.2d at 127.
127
Id. at 131 (citing Moore, 562 N.W.2d 534).
128
Id. (quoting Boisen, 562 N.W.2d at 34).
129
Cumings Aff. Ex. 17 § 7.
31
PMAs], a ‘Competitor’” means any “multi-state, multi-province, and/or multi-
channel retailer engaged in the sale of products and/or services associated with
hunting, fishing, or camping.”130
“[P]erform[ing] services . . . that are the same as or similar to the services . . .
performed for [the] Company” precludes the use for a competitor of the employee’s
general skills.131 Because the Individual Defendants may not work for “any other
multi-state, multi-province, and/or multi-channel retailer engaged in the sale of
products and/or services associated with hunting, fishing, or camping,” the PMAs’
noncompetition provision is a prohibition of ordinary competition and is
unreasonable under Nebraska law. 132
“[The Supreme Court of Nebraska] has long held that it is not the function of
the courts to reform a covenant not to compete in order to make it enforceable.”133
130
Id.
131
Id.
132
Id. Compare id., with Gaver, 856 N.W.2d at 125 (“any trade business similar to the
business owned and operated by Employer”).
133
H & R Block Tax Servs., Inc. v. Circle A Enters., Inc., 693 N.W.2d 548, 552 (Neb.
2005) (citing CAE Vanguard, Inc. v. Newman, 518 N.W.2d 652 (Neb. 1994);
Brockley v. Lozier Corp., 488 N.W.2d 556 (Neb. 1992); Vlasin v. Len Johnson &
Co., 455 N.W.2d 772 (1990); Philip G. Johnson & Co. v. Salmen, 317 N.W.2d 900
(Neb. 1982)).
32
Nebraska courts either enforce the provision as written or not at all.134 Because the
noncompete provision in the PMAs is unreasonable, under Nebraska law, I cannot
enforce the provision, nor can I reform it.
d. The Individual Defendants’ breaches of the PMAs
Cabela’s alleges that the Individual Defendants breached the nonsolicitation,
confidentiality, and noncompetition provisions of the PMAs. I address only the
allegations regarding the nonsolicitation and confidentiality provisions as I cannot
enforce the noncompetition provision under Nebraska law.
Cabela’s accuses the Individual Defendants of collectively contacting at least
thirteen vendors with whom Cabela’s has done business in violation of the
nonsolicitation-of-vendors provision.135 For example, Cabela’s provides evidence
that Riddle contacted at least one vendor “with whom [he] had personal contact and
did business with.”136 Riddle reached out via email to his old Cabela’s contact at
Ten Point Crossbows. 137 He asked in that email that the vendor keep the email
confidential because he was starting a new business and wanted to invite the vendor
134
H & R Block, 693 N.W.2d at 552 (quoting CAE Vanguard, 518 N.W.2d at 656).
135
Pl.’s Opening Br. 39.
136
Cumings Aff. Ex. 17 § 5(b).
137
Id. Ex. 55; see also id. Ex. 5, at 148-49.
33
to participate.138 Based on this evidence, I find that Cabela’s has demonstrated a
reasonable probability it can show at the final hearing that the Individual Defendants
breached the nonsolicitation-of-vendors provision of his PMA.
Cabela’s also alleges that the Individual Defendants violated the
nonsolicitation-of-employees provision of the PMAs. Two Cabela’s employees,
Alex Mousel and Stacy Schumacher, left their Cabela’s employment to begin
working for NexGen; Mousel worked directly under Santero at Cabela’s, and
Schumacher under Nesbitt.139 This evidence shows Cabela’s has a reasonable
probability of proving that the Individual Defendants breached the nonsolicitation-
of-employees provision of the PMAs.
Cabela’s alleges violations of the confidentiality provisions of the PMAs. By
signing the PMAs, the Individual Defendants each agreed that he “shall not directly
or indirectly disclose to any person or entity or use for any purpose or permit the
exploitation, copying, or summarizing of any Confidential Information of [the]
Company, except as specifically required in the proper performance of [his] duties
for [the] Company.” 140 Cabela’s provides evidence that the Individual Defendants
138
Id. Ex. 55.
139
Id. Ex. 6, at 61; id. Ex. 36, at 18, 24; id. Ex. 37, at 7; id. Ex. 40, at 6.
140
Id. Ex. 17 § 1(b); see supra note 16 (quoting the PMAs’ definition of “Confidential
Information”).
34
sent Cabela’s confidential documents to their personal email accounts for non-
Cabela’s use and that they used a thumb drive to save confidential information for
non-Cabela’s use. First, Cabela’s alleges that Riddle forwarded Cabela’s “new
vendor” form from his personal email address. 141 Second, Santero emailed a
Cabela’s “top brands” spreadsheet to the other three Individual Defendants.142 Third
and finally, Cabela’s alleges that Riddle has retained other confidential information,
including copies of Cabela’s weekly reports. 143 The Company’s evidence supporting
these allegations is based in part on Riddle’s own deposition testimony. 144
The Individual Defendants argue that the information Cabela’s claims is
confidential (1) is not, in fact, confidential information 145 or (2) is irrelevant to
NexGen’s business.146 I need not determine at this stage whether each document is
141
Pl.’s Opening Br. 42.
142
Id.; Cumings Aff. Ex. 39.
143
Pl.’s Opening Br. 43; Cumings Aff. Ex. 5, at 53.
144
E.g., Cumings Aff. Ex. 5, at 41, 53.
145
Defs.’ Answering Br. 38-39 (pricing information), 41 (shipping methods), 42
(market information), 42 (customer lists), 43-44 (vendor information).
146
Id. at 39-40 (buying practices), 41 (marketing plans, including merchandise plan
inventory), 43-44 (vendor information). Where the Individual Defendants concede
the confidential nature of the information but dispute their use of the information,
their argument is irrelevant. The confidentiality provision of the PMAs prohibits
the unauthorized disclosure of confidential information “for any purpose.” Cumings
Aff. Ex. 17 § 1(b).
35
confidential; I need only determine whether there is a reasonable probability that
Cabela’s will succeed in its claim that these documents, or a portion of them, are
confidential. The documents at issue include Cabela’s (1) vendor lists with
associated sales data and (2) pricing information and margins. This information is
arguably confidential and the use of this information by NexGen may be unfair
competition because NexGen would be using information unique to Cabela’s to
promote NexGen’s business.
I find that Cabela’s has shown a reasonable probability of success on the
merits of its claim that the Individual Defendants have breached the nonsolicitation
and confidentiality provisions of the PMAs.
2. The Nebraska Trade Secrets Act claim
Cabela’s alleges that the Individual Defendants and NexGen violated the
Nebraska Trade Secrets Act 147 by misappropriating and misusing Cabela’s trade
secrets. 148 “[M]uch of the confidential information of Cabela’s as defined in the
PMA constitutes its trade secrets.” 149
In connection with the confidentiality provision of the PMAs, Cabela’s
requests that this Court enjoin the Individual Defendants from using or disclosing
147
Neb. Rev. Stat. §§ 87-501 to -507.
148
Compl. ¶ 56.
149
Id. ¶ 53.
36
the Company’s confidential information. This relief also addresses potential
continuing misappropriation and misuse of Cabela’s trade secrets. I need not
separately address the merits of Cabela’s second cause of action as to the Individual
Defendants.
For this Court to enjoin NexGen, Cabela’s must demonstrate a reasonable
probability of success on the merits. NexGen is a small company, and the four
Individual Defendants are intimately involved in every aspect of the company. 150
The Individual Defendants have confidential information from Cabela’s, and
Cabela’s has shown, through the Individual Defendants’ own statements, that the
Individual Defendants intend to use Cabela’s potential trade secrets to benefit
NexGen.151 This evidence is sufficient to show Cabela’s reasonable probability of
success on the merits against NexGen.
3. The tortious interference claim
Cabela’s argues that the Individual Defendants and NexGen tortiously
interfered with Cabela’s business relationships with its employees. For example,
Cabela’s argues that by inducing Alex Mousel and Stacy Schumacher to leave
150
See Cumings Aff. Ex. 37, at 5; id. Ex. 40, at 6.
151
See, e.g., id. Ex. 7.
37
Cabela’s and join NexGen, the Individual Defendants and NexGen induced the two
employees to breach his or her PMA with Cabela’s. 152
In connection with its tortious interference claim, Cabela’s requests that this
Court enjoin the Individual Defendants from hiring, employing, or soliciting for
employment any Cabela’s employee with whom the Individual Defendants had
personal contact or about whom the Individual Defendants received Confidential
Information. Enforcement of the nonsolicitation provision of the PMAs addresses
Cabela’s request for relief as to the Individual Defendants. I therefore need not
separately address the merits of Cabela’s third cause of action.
NexGen, through the Individual Defendants, has induced former Cabela’s
employees to breach various provisions of the PMAs and other agreements. This
inducement is sufficient for Cabela’s to demonstrate a reasonable probability of
success on the merits of its claim against NexGen.
B. Imminent Threat of Irreparable Harm
“Harm is irreparable unless ‘alternative legal redress [is] clearly available and
[is] as practical and efficient to the ends of justice and its prompt administration as
the remedy in equity.’” 153 “Damages would not adequately compensate Plaintiff[]
152
Pl.’s Opening Br. 25-26, 51.
153
Destra Targeted Income Unit Inv. Tr. v. Parmar, 2017 WL 373207, at *2 (Del. Ch.
Jan. 25, 2017) (alterations in original) (quoting T. Rowe Price Recovery Fund, L.P.
v. Rubin, 770 A.2d 536, 557 (Del. Ch. 2000)).
38
for a breach of the confidentiality provisions because the purpose of such provisions
is to prevent harm and misuse before it occurs.” 154 “[W]here an employee has
agreed . . . that he will not divulge or disclose to his employer’s detriment any trade
secrets or other confidential information which he has acquired in the course of his
employment, the employer is entitled to an injunction against a threatened use or
disclosure of such confidential information . . . .” 155
Here, Cabela’s has adequately shown that the Individual Defendants and
NexGen are attempting to use the confidential information the Individual Defendants
obtained as Cabela’s employees. Allowing such use subjects Cabela’s to unfair
competition and irreparable harm.
Additionally, this Court has held that contractual stipulations as to irreparable
harm may suffice to establish that element for the purpose of issuing preliminary
injunctive relief.156 The Individual Defendants agreed in the PMAs that “a breach
of any of the . . . agreements contained [in the PMA] will result in irreparable and
154
Horizon Pers. Commc’ns, Inc. v. Sprint Corp., 2006 WL 2337592, at *20 (Del. Ch.
Aug. 4, 2006) (citing T. Rowe Price Recovery Fund, 770 A.2d at 557 n.66; E.I. du
Pont de Nemours & Co. v. Am. Potash & Chem. Corp., 200 A.2d 428, 431 (Del. Ch.
1964)).
155
E. I. duPont de Nemours, 200 A.2d at 431.
156
Cirrus Hldg. Co. Ltd. v. Cirrus Indus., Inc., 794 A.2d 1191, 1209 (Del. Ch. 2001)
(citing True N. Commc’ns Inc. v. Publicis S.A., 711 A.2d 34, 44 (Del. Ch. 1997);
Vitalink Pharmacy Servs., Inc. v. Grancare, Inc., 1997 WL 458494, at *9-10 (Del.
Ch. Aug. 7, 1997)).
39
continuing damage to [the] Company.” 157 This stipulation is sufficient to show
irreparable harm under the circumstances of this case related to breaches of the
nonsolicitation and confidentiality provisions.
C. Balance of the Equities
Cabela’s argues that the balance of the equities favors Cabela’s because the
Individual Defendants received valuable stock in exchange for the confidentiality,
nonsolicitation, and noncompetition provisions of the PMAs. 158 Failure to enforce
these provisions would deny Cabela’s the benefit of the parties’ bargain. The
Individual Defendants respond by arguing that the economic loss that will be
suffered by the Individual Defendants, NexGen employees, and the City of Sidney
will outweigh any harm to Cabela’s, which, according to Defendants, would be
negligible.159
As discussed above, the confidentiality and nonsolicitation provisions of the
PMAs serve to protect Cabela’s legitimate business interest. The Individual
Defendants received Company stock in exchange for their voluntary agreement to
the provisions. By seeking to enforce the terms of those provisions, Cabela’s has
157
Cumings Aff. Ex. 7 § 12.
158
Pl.’s Opening Br. 56-57.
159
Defs.’ Reply Br. 51-53.
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not exceeded the scope of its legitimate business interests.160 I conclude, therefore,
that, on balance, there is nothing inequitable in allowing Cabela’s to enforce the
confidentiality and nonsolicitation provisions.
I conclude that Cabela’s has satisfied the requisite elements for injunctive
relief, and I GRANT in part its Motion for a Preliminary Injunction.
III. BOND
Court of Chancery Rule 65(c) provides that “[n]o . . . preliminary injunction
shall issue except upon the giving of security by the applicant, in such sum as the
Court deems proper, for the payment of such costs and damages as may be incurred
or suffered by any party who is found to have been wrongfully enjoined or
restrained.” “The security, usually a bond, fixes the maximum amount that an
enjoined party may recover. . . . Because actual damages are uncertain, and because
a wrongfully enjoined party has no recourse other than the security, the court should
‘err on the high side’ in setting the bond.” 161 The party seeking the bond, however,
must support its application with “facts of record or . . . some realistic as opposed to
a yet-unproven legal theory from which damages could flow to the party
160
See Kan-Di-Ki, LLC v. Suer, 2015 WL 4503210, at *20 (Del. Ch. July 22, 2015).
161
Guzzetta v. Serv. Corp. of Westover Hills, 7 A.3d 467, 470 (Del. 2010) (citing
Coyne-Delany Co., Inc. v. Capital Dev. Bd., 717 F.2d 385, 393 (7th Cir. 1983)).
41
enjoined.”162 “[T]he amount of a bond is a matter of discretion,” but there must be
a “credible basis for the estimated damages.” 163
Because NexGen is new and has no significant financial history, it is difficult
to estimate the costs and damages it may incur during the pendency of the
preliminary injunction. NexGen has created profit and loss estimates for the second
half of 2018 and for 2019.164 NexGen estimates its total gross profits for the second
half of 2018 at $1,011,360 and for 2019 at $1,518,461.28. If NexGen continues as
a business in the face of this preliminary injunction, it will continue to have expenses
but will be prevented from generating income and building its business through
contacts the Individual Defendants made while at Cabela’s.
NexGen’s launch is currently set for October 29, 2018. To simplify my
calculations, I assume a launch date of November 1, 2018. To “err on the high side,”
I set the bond at an amount equal to two months’ gross profits for 2018 and all gross
profits for 2019, or $1,855,581.28.165
162
Id. (omission in original) (quoting Petty v. Penntech Papers, Inc., 1975 WL 7481,
at *1 (Del. Ch. Sept. 24, 1975)).
163
Id. at 471.
164
Cumings Aff. Ex. 38.
165
The portion of the bond representing two months’ gross profits for 2018 is
$1,011,360 divided by six months and then multiplied by two months.
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IV. CONCLUSION
For the foregoing reasons, I conclude that Cabela’s has satisfied the requisite
elements for injunctive relief, and I GRANT in part its Motion for a Preliminary
Injunction as to the use of Cabela’s confidential information and as to solicitation of
Cabela’s vendors, employees, or customers. Plaintiff shall submit a proposed
implementing form of order and post a bond in the amount of $1,855,581.28 within
five days of this opinion.
IT IS SO ORDERED.
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