United States: Federal Court Provides Insight On Meaning Of "Solicitation" And Plaintiff's Burden On Motion For Preliminary Injunction

A federal court in Texas recently provided useful insights on what constitutes "solicitation" by a former employee under that employee's restrictive covenant with his former employer, and the court provided further insights on what inferences courts will, and will not, draw in favor of a plaintiff seeking a preliminary injunction based on alleged misappropriation of trade secrets.¹

The defendant worked for the plaintiff, Sunbelt, for over twenty years, primarily as a salesperson covering institutional customers.² As part of his employment, the defendant signed an employment agreement that, among other things, prohibited him from "solicit[ing]" Sunbelt's customers or competing with Sunbelt within a certain geographic area.³ He later left to join one of Sunbelt's competitors. Sunbelt filed suit and sought a preliminary injunction, asserting that the employed had, among other things, solicited Sunbelt's former customers, worked for Sunbelt's competitor within the area prohibited by the non-competition agreement, and misappropriated Sunbelt's trade secrets.⁴

In addressing Sunbelt's motion for a preliminary injunction, the federal court first held that Sunbelt had established a likelihood of success on the breach of the employee's non-competition provision, but that the alleged breach of the non-solicitation provision was a closer call. The court noted that what constitutes "solicitation" falls on a "spectrum," ranging from active attempts by the former employee to cultivate new business, to communications initiated by the customer without any prompting from the former employee. The court stated that activity falling within "the middle of this spectrum may support a valid inference that the promise has violated a nonsolicitation agreement."⁵

Here, however, the court refused "to draw the inference that [the defendant] likely violated the terms of the nonsolicitation restriction." The court explained that although the defendant had waited until he resigned from Sunbelt to contact his former customers and did so using his personal cell phone, the defendant testified that he did not give the customers the name of his new employer, he gave them the contact information for his replacement at Sunbelt, and he had long-term personal relationships with several of these customers. The court held "these facts make the issue a close one" and that because the burden was on Sunbelt to establish its entitlement to the "extraordinary … relief" of an injunction, the close call should go in the defendant's favor on this motion.⁶

The court was willing to some draw inferences in Sunbelt's favor when evaluating its claim under the Texas Uniform Trade Secrets Act (TUTSA), however. The court determined that the defendant had customer-specific pricing information that "likely qualifies as trade secret" because of the steps Sunbelt took to keep the information confidential; the fact that the information would be valuable to Sunbelt's competitors; and defendant's act of forwarding the information to his personal email indicated that the information could "not be easily reproduced from memory nor obtained by legitimate means." The court then inferred unauthorized use of this information based on the fact that the defendant held a sales role at Sunbelt's competitor similar to his role at Sunbelt; there was evidence that the defendant accessed some of the information after beginning his employment with the competitor; and there was evidence that Sunbelt's business with certain customers with whom the defendant interacted on behalf of his new employer had been reduced.⁷ Despite drawing that inference in Sunbelt's favor, the court declined to draw a similar inference regarding defendant's possession of "customer lists and jobsite information," finding that there was no evidence that the defendant had used this information when approaching Sunbelt clients.

This decision indicates that courts addressing restrictive covenant and trade secrets claims on a motion for a preliminary injunction will hold the plaintiff to its burden to demonstrate likelihood of success, and will draw inferences in the plaintiff's favor only if supported by sufficient evidence. The court's decision also suggests that what constitutes "solicitation" for purposes of a non-solicitation covenant is a complicated question that depends on the specific facts, circumstances, and context of each case.

Footnotes

1. Sunbelt Rentals, Inc. v. Holley, 2022 WL 1049468 (N.D. Tex. Apr. 7, 2022).

2. Id. at *1.

3. Id.

4. Id. at *2.

5. Id. at *4 (italics in original).

6. Id.

7. Id. at *5.

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