ORDER
This matter is before the court on plaintiffs (1) motion for sanctions and (2) motion for preliminary injunction. Based on a review of the file, record, and proceedings herein, and for the reasons stated, the court (1) grants in part and continues in part plaintiffs motion for sanctions and (2)
BACKGROUND
In September 1995, David Beer began working as an account manager for Lexis-Nexis, one of the largest electronic data services companies in the world. Before joining Lexis-Nexis, Beer worked as a salesperson for Scantron, selling software to companies in Minnesota and Wisconsin. As a condition of his employment, Lexis-Nexis required Beer to sign its standard noncompete/nondisclosure agreement. By this agreement, Beer promised that (1) during and for one year after his employment, he would not engage in any competitive activity, without Lexis-Nexis’s written consent and (2) during and at any time after his employment, he would not disclose or misappropriate confidential Lexis-Nexis information.
During his three years at Lexis-Nexis, Beer sold Lexis-Nexis products and services to Minnesota customers. He worked largely from a home office, sometimes traveling to Lexis-Nexis’s branch or national offices to receive sales training. Communicating via mail and e-mail, Lexis-Nexis frequently sent Beer what it considered sensitive company documents, including detailed performance reports, sales strategies and policies, and product development reports. Lexis-Nexis also provided Beer with home office equipment, including a laptop computer. Onto this laptop, Beer loaded a database program called ACT that he had brought with him from his previous job at Scantron. Beer used the ACT database to record customer information and track customer contacts.
Dissatisfied with his compensation, Beer began interviewing with other companies in the summer of 1998. In August 1998, he was contacted by a recruiter working with Dow Jones Interactive Publishing, a direct competitor of Lexis-Nexis. By the end of the month, Beer had received an offer of employment from Dow Jones. On September 14, 1998, Beer notified his supervisor, Barbara Gabric, that he was resigning from the company and that he intended to go into the landscaping business for himself. In the following days, Beer repeatedly told Lexis-Nexis employees of his landscaping plans. On September 25, 1998, after Lexis-Nexis refused several requests by Beer for a salary increase, Beer officially ended his employment with Lexis-Nexis. A week later, on October 1, 1998, Beer began working for Dow Jones. Beer’s job at Dow Jones was to involve substantially the same duties as those he performed at Lexis-Nexis: selling information services and products to corporate customers and prospective customers located in Minnesota.
Before he began working at Dow Jones, Beer copied the Lexis-Nexis ACT database onto a high-capacity Iomega Zip disk. Beer claims that he acted under the assumption that the ACT database, which he had brought with him from his previous job, was his personal property. Beer also copied hundreds of Lexis-Nexis e-mails, many with arguably sensitive company documents. Beer now claims that, at the time, he meant to copy only a few e-mails containing personal subject matter. At about the same time, Beer went through his ACT database on the Lexis-Nexis laptop to clean out outdated information. Lexis-Nexis alleges that rather than deleting useless data, Beer deleted important customer information. On September 30, 1998, Beer returned the Lexis-Nexis laptop to Joe Krammer, the other Lexis-Nexis sales representative for the Minnesota territory. Thereafter, Beer took the ACT database and e-mails on the Zip disk and transferred them to a new laptop he had received from Dow Jones. He then threw the Zip disk away.
Lexis-Nexis alleges that on October 23, 1998 it first became certain of Beer’s employment at Dow Jones. On November 18, 1998, Lexis-Nexis wrote to Beer and demanded that he immediately stop working with Dow Jones and that he return all
On November 30, 1998, this court held a hearing on Lexis-Nexis’s motion for TRO. At the hearing, the court stated: “I want[ ] to make sure you [know] not to make another copy or, somehow or another, try to avoid what is the obvious intent of this order — which is that everything that Mister Beer has that he developed, got, and so forth — while he was at Lexis-Nexis — be given back to Lexis-Nexis ... so that there’s nothing in physical form.” Transcript of TRO Hearing at 87 (Nov. 30, 1999). The court specifically instructed that “another copy ought not to be made before it is turned over. In other words, Mister Beer ought not to have any of that material with him, ... and that is what I am so ordering here this afternoon.” TRO Hearing at 84-85. In response, Beer’s TRO attorney, who has since been replaced as counsel, assured the court that he would produce all Lexis-Nexis documents Beer had within 24 hours. The following day, the court issued a written order, repeating that “Beer shall deliver to Lexis-Nexis the copy of the ACT! database that he made and shall retain no copy.” Nov. 30,1998 TRO at 3. At no time during the hearing, or immediately after, did Beer’s counsel inform the court that Beer’s copy of the ACT database and other Lexis-Nexis information was located on a laptop owned by Dow Jones. 1
After the hearing, rather than handing over his current copy of the Lexis-Nexis information as ordered by the court, Beer attempted to reconstruct the Lexis-Nexis ACT database on the Dow Jones laptop to which he had copied the original. He copied the reconstructed version onto another Zip disk, along with 37 Léxis-Nexis emails, and handed the disk over to his TRO counsel, who, in turn, delivered it to Lexis-Nexis’s counsel. Beer then deleted the entire ACT database from his hard drive.
After the TRO hearing, the parties engaged in expedited discovery. In December 1998, Beer’s new counsel informed Lexis-Nexis’s counsel that the TRO disk Lexis-Nexis had received was a reconstructed version of the Lexis-Nexis ACT database and that Beer had deleted an earlier version of the database from his Dow Jones computer. Lexis-Nexis’s counsel asked Beer’s counsel to take immediate possession of Beer’s Dow Jones laptop. After obtaining the laptop, Beer’s counsel attempted to make an image copy of the laptop’s hard drive. Beer’s counsel now concedes that, during this process, they inadvertently overwrote the remnants of some previously deleted data.
Finally, late in January, the Dow Jones laptop was produced to Lexis-Nexis and analyzed by its forensic computer expert. Proceeding on the premise that Beer had deleted all Lexis-Nexis information from the computer, as Beer had represented, Lexis-Nexis’s expert analyzed the deleted files on the Dow Jones laptop’s hard drive. Lexis-Nexis’s expert determined that Beer had deleted a number of important Lexis-Nexis documents that he had not
After the filing of Lexis-Nexis’s motion papers, however, more information came to light. Experts for both parties discovered that the apparently deleted Lexis-Nexis documents were, in fact, still present in active files on the Dow Jones laptop. Further, the experts found hundreds of Lexis-Nexis e-mails, many with sensitive company documents attached, none of which Beer had previously acknowledged possessing. Beer claims that the transfer of these Lexis-Nexis documents to his Dow Jones was completely inadvertent and that he had no knowledge of these documents at any prior time. The parties sharply disagree as to whether the forensic evidence supports Beer’s contention.
I. Motion for Sanctions
In its motion for sanctions, Lexis-Nexis alleges that Beer (1) destroyed evidence critical to its noncompete and trade secret claims and (2) violated several pretrial orders, including the court’s November 30, 1998 TRO. To remedy these alleged abuses, Lexis-Nexis asks the court to (1) draw from the destroyed material evidentiary inferences adverse to Beer when ruling on the concurrent preliminary injunction motion and (2) award Lexis-Nexis the costs and attorneys fees that Beer’s alleged misconduct caused.
When a party violates a discovery order, Federal Rule of Civil Procedure 37(b)(2) provides that “the court in which the action is pending may make such orders in regard to the failure as are just.” The court’s menu of sanctions include: (1) “[a]n order that the matters regarding which the order was made or any other designated facts shall be taken to be established for the purposes of the action” and (2) an order requiring “the party failing to obey the order or the attorney advising that party or both to pay the reasonable expenses, including attorney’s fees, cause by the failure .” Further, the court may invoke its inherent power to sanction parties for abusive practices even when a party’s actions lie outside the formal boundaries of Rule 37.
See Capellupo v. FMC Corp.,
The Eighth Circuit has stated that “ ‘[sjanctions may be imposed against a litigant who is on notice that documents and information in his possession are relevant to litigation, or potential litigation, or are reasonably calculated to lead to the discovery of admissible evidence, and destroys such documents and information.’ ”
Dillon v. Nissan Motor Co.,
Here, Lexis-Nexis has established the last three elements of his destruction of evidence claim: from the moment he decided to go to work for Dow Jones, a direct competitor of Lexis-Nexis, Beer either knew or should have known that the Lexis-Nexis material he possessed was relevant to reasonably foreseeable litigation. However, the court is not convinced that Lexis-Nexis can show the first and most important element: that relevant evidence was actually destroyed. First, as the most recent expert reports from both parties establish, the documents that Lexis-Nexis
Moreover, even if the court were to find that some relevant information had been overwritten, Lexis-Nexis has not demonstrated that this loss of evidence would prejudice its case.
See Dillon,
That being said, the court nonetheless concludes that Beer’s conduct warrants monetary sanctions. On November 30, 1998, this court ordered Beer to (1) turn over to Lexis-Nexis’s counsel all the Lexis-Nexis information he possessed, regardless of form, and (2) refrain from making an additional copy of this information. Beer complied with neither aspect of the order. Rather than turning over the Lexis-Nexis information as it existed at the time of the hearing, Beer fashioned a new copy of the Lexis-Nexis ACT database and then deleted the version on the Dow Jones computer. Further, Beer failed to immediately turn over hundreds of Lexis-Nexis e-mails, some of them with potentially sensitive company documents attached. He retained possession of this material until at least a month after the TRO hearing, a clear violation of the court’s order.
In response to these undisputed facts, Beer states that (1) after the TRO, he produced the reconstructed disk and deleted information from his Dow Jones laptop only at the instruction of his TRO counsel and (2) he is as surprised as anyone by the presence on the Dow Jones laptop of hundreds of previously undisclosed e-mails and company documents. With regard to the first point, the court notes that Beer was personally present at the TRO hearing. He was fully capable of following the court’s instructions and correcting any ■wrong impression his attorney might have left with the court and Lexis-Nexis’s counsel about the actual status of the Lexis-Nexis information in his possession. With regard to the second point, the court is far from convinced that someone as experienced with computer software as Beer
Regardless, Beer’s actions — and his delay in revealing them to the opposing party — set off a high-tech wild goose chase that has needlessly multiplied the time and expense of this litigation. Accordingly, the court concludes that monetary sanctions are appropriate. For the time being, however, the court will reserve judgment as to the size of the sanction. Because this litigation is still at an early stage, the court will wait for a more complete factual picture to emerge before assessing fees and costs. The court asks Lexis-Nexis to renew its motion at an appropriate time later in the litigation.
II. Preliminary Injunction Motion
Lexis-Nexis also brings a motion for preliminary injunction, asking the court to enter an order terminating Beer’s employment with Dow Jones. In evaluating a motion for preliminary injunction, the court considers the four factors set forth by the Eighth Circuit in
Dataphase Systems, Inc. v. CL Systems, Inc.:
(1) the likelihood of the movant’s success on the merits; (2) the threat of irreparable harm to the movant in the absence of relief; (3) the balance between that harm and the harm that the relief would cause to the other litigants; and (4) the public interest.
A. Likelihood of Success on the Merits
In their motion papers, the parties have focused on two of Lexis-Nexis’s claims against Beer: his alleged breach of the noncompete agreement and his alleged misappropriation of trade secrets. The court will address each claim in turn.
1. Noncompete Claim
The parties agree that Ohio law should govern the court’s assessment of Lexis-Nexis’s noncompete claim. Ohio courts will enforce reasonable noncompete agreements only.
See Raimonde v. Van Vlerah,
As used herein, the term “competitive activity” shall include acting directly or indirectly as an agent, employee, officer, director ... partner or any other capacity whatsoever, in any business, venture, association or organization which engages in programming, designing, or marketing computerized information retrieval systems, system components anywhere in the United States of America, the United Kingdom, Canada, France, or any country in which Lexis-Nexis offers services or products to the public.
Lexis-Nexis Non-Compete/Non-Disclosure Agreement at 1.
Beer argues that this agreement is vastly overbroad in that it prevents a lower-tier Lexis-Nexis employee like him from working in any capacity, anywhere in the world where Lexis-Nexis does business, for any company that programs, designs, or markets “computerized information retrieval systems, system components or products.” The court agrees. First, by its plain terms, the agreement fails to sensibly identify the kind of competitive businesses that an employee like Beer must stay out of in order for Lexis-Nexis to protect its legitimate business interests. As witnesses for both parties agree, the term “computerized information retrieval systems” implicates potentially thousands of companies that Lexis-Nexis does not actually compete with. Second, given the inherently territorial nature of Beer’s customer contacts, the almost worldwide application of the noncompete agreement makes its geographic scope unreasonably broad. Lexis-Nexis’s own actions support these conclusions. On September 15, 1995, only four days after Beer signed the noncompete agreement at issue in this case, Lexis-Nexis revised its standard non-compete language. The revised agreement states that the term “competitive activity” should be interpreted to cover only businesses that “compete! ] with Lexis-Nexis’s business as conducted during the period of my employment with Lexis-Nexis.” Lexis-Nexis Non-C om-pete/N on-Disclosure/N on-Solicitation Agreement at 1 (attached to Memo from Larry Fultz dated Sept. 15, 1995). Further, Lexis-Nexis revised the broad geographic definition contained in Beer’s agreement by enumerating four different definitions of territories in which a Lexis-Nexis employee may not compete. The definition most readily applicable to a salesperson like Beer restricts the employee from working for a competitor within “a zone inside of a 100 mile radius of each of the counties or parishes in which my customer accounts are located or in which I performed services.” Id. In light of these considerations, the court determines that Lexis-Nexis is highly unlikely to demonstrate that the noncompete agreement that Beer signed is reasonable.
However, this does not end the court’s inquiry. Under
Raimonde,
if the court determines that the noncompete agreement is unreasonable, it is “empowered to modify or amend [the agreement] to achieve [reasonable] results.”
Such a restriction is supported by each of the considerations outlined in Raí-memele. It is narrowly tailored to the geographic area where Beer worked for Lexis-Nexis and to the customers Beer contacted in his capacity as a Lexis-Nexis sales representative. Its duration is long enough to ensure that Lexis-Nexis can maintain its hard-earned good will but not so long as to give Lexis-Nexis undeserved protection in the competitive market for electronic data services. It allows Beer to continue to exercise his inherent skill and experience without allowing him to exploit, at Lexis-Nexis’s expense, the skills and relationships he developed while working for the company. Finally, it permits Beer to stay in his current job at Dow Jones, which is most likely his best means of earning a living. In short, the modified noncompete agreement contemplated above fairly balances the legitimate interests of both parties.
2. Trade Secret Claims
Lexis-Nexis also asks the court to enjoin Beer from working at Dow Jones on the grounds that it is likely to succeed on its trade secret claim against him. The Minnesota Uniform Trade Secrets Act (“MUTSA”), Minn.Stat. §§ 325C.01-325C.08, protects certain types of information through an action for misappropriation. MUTSA defines misappropriation as improper acquisition, disclosure, or use of a “trade secret.” Minn. Stat. § 325C.01, subd. 3. The court analyzes three factors to determine whether a particular item constitutes a trade secret: (1) the information must not be generally known or readily ascertainable; (2) the information must derive independent economic value from secrecy; and (3) the party asserting misappropriation must have made reasonable efforts to maintain the secrecy of the item.
See Nordale, Inc. v. Samsco, Inc.,
Applying these standards to the current record, the court is unable to conclude that the information possessed by Beer during and after his employment by Lexis-Nexis constitute trade secrets under MUTSA. Lexis-Nexis has submitted thousands of pages of documents, filling six boxes, that it alleges are trade secrets to which Beer has been exposed. The documents include detailed financial and usage reports, sales strategies and policies, and product development information. However, Beer has introduced evidence that much of the information contained in these documents is either readily ascertainable or will quickly become obsolete, thereby losing its independent economic value.
See Lasermaster Corp. v. Sentinel Imaging,
Finally, regardless of whether the information at issue constitutes a trade secret, Lexis-Nexis has failed to show that Beer would inevitably disclose the information to Dow Jones if he continued to work there. There is little evidence that Beer now possesses confidential Lexis-Nexis information, apart from what he might retain in his memory. And even on this point, the record clearly demonstrates that Beer, a sales manager, did not have the kind of intimate familiarity with corporate policies and strategies that might support a finding of inevitable disclosure under prior cases.
See, e.g., PepsiCo, Inc. v. Redmond,
B. The Remaining Dataphase Factors
An inference of irreparable harm to Lexis-Nexis arises from Beer’s earlier breach of the noncompete agreement as modified under the rule of reasonableness above.
See Thermorama, Inc. v. Buckwold,
On the other hand, because Lexis-Nexis has not shown that Beer currently possesses trade secrets or that he will inevitably disclose confidential information, the court cannot infer that irreparable harm will occur unless he is enjoined completely from working for Dow Jones. If the court were to issue the sweeping injunction Lexis-Nexis requests, not only would Beer’s livelihood become endangered on the basis of ambiguous misappropriation evidence, Lexis-Nexis would obtain, through the back door of trade secret law, the kind of unreasonable restriction it could not obtain via its original noncompete agreement.
See Seagate,
CONCLUSION
For the foregoing reasons, IT IS HEREBY ORDERED that:
1. Lexis-Nexis’s motion for sanctions is denied in part and continued in part. At an appropriate time later in the litigation, Lexis-Nexis may renew its motion for monetary sanctions.
3. David Beer is enjoined from soliciting or contacting any customers or prospective customers in the State of Minnesota while working in his capacity as a sales representative for Dow Jones Interactive Publishing. In the absence of another order, this injunction shall terminate on September 25, 1999. Beer shall also continue to conform to his contractual and legal duties not to disclose confidential information he gained during his employment with Lexis-Nexis.
Notes
. What is more, it appears that on the day of the hearing, the laptop was in the hands of a Dow Jones computer technician in Chicago. It is unclear how the laptop was subsequently returned to Beer.
. The agreement also contains a nondisclosure provision, which Lexis-Nexis asserts Beer has also breached. This aspect of the agreement is unquestionably enforceable, at least to the extent it overlaps with the statutory and common law duties of a former employee to keep secret confidential information. The issue of how Beer's various duties regarding confidential information factor into the preliminary injunction equation is addressed in Part II.A.2 below.