When employees breach a duty of loyalty to their former employer and the harm to that former employer has already occurred, what remedy is appropriate? The Eighth Circuit Court of Appeals recently addressed this in CDI Energy Services, Inc. v. West River Pumps, Inc., 567 F.3d 398 (8th Cir. 2009).
That case originated when three employees of CDI Energy Services (CDI), an oilfield equipment vendor, left CDI’s North Dakota field office to found a competitor, West River Pumps (WRP). Before leaving CDI, the employees asked CDI’s clients to move their business to WRP. The CDI North Dakota office closed following the employees’ resignations, since they were that office’s only employees.
CDI then sued WRP, bringing state law claims of breach of loyalty and trade secret misappropriation. CDI moved for a preliminary injunction to prevent WRP from continuing its business. The district court denied CDI’s motion, and CDI appealed.
On appeal, in assessing the propriety of the district court’s denial of preliminary injunctive relief, the Eighth Circuit Court of Appeals considered four factors set forth in Dataphase Systems, Inc. v. C L Systems, Inc., 640 F.2d 109, 114 (8th Cir. 1981). Specifically, the court considered: (1) the likelihood of success on the merits, (2) the presence/risk of irreparable harm, (3) the balance of the harms of granting/ denying the injunction, and (4) the public’s interest.
Examining the trade secret claim under the first factor, the court found that CDI failed to show that its customer information actually was concealed as trade secret data. It was further undisputed that the customers in North Dakota were a small collection of readily identifiable oilfield companies, so the customer data was easily obtainable. The court thus found no justification for granting a preliminary injunction regarding CDI’s trade secret claim, and hence did not need to consider the remaining three factors for that claim.
For the breach of loyalty claim, the Eighth Circuit found the first factor was met. CDI had a likelihood of success since North Dakota law precludes employees from soliciting their current employer’s customers. Thus, the court then considered the remaining three factors regarding this claim.
For the second factor, the court found that the theft of CDI’s clients had already occurred and CDI’s office closed, so an injunction against WRP would no longer help CDI. The court could not order WRP’s customers to return to CDI.
Regarding the third factor, the court found the balance of the harms weighed in favor of WRP since an injunction would put WRP out of business. However, CDI’s office had already closed so it was unclear what additional harm an injunction might prevent for CDI.
The fourth factor weighed slightly in WRP’s favor. The court found that the public would best be served by preserving its access to WRP’s services.
The Eighth Circuit thus concluded that the district court was correct, and the factors supported denial of the preliminary injunction against WRP. Though CDI had been substantially harmed, the harm had already occurred and could best be remedied through damages rather than injunctive relief.