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Marco, Inc., A Minnesota Corporation v. Advanced Systems

July 13, 2011

MARCO, INC., A MINNESOTA CORPORATION, PLAINTIFF,
v.
ADVANCED SYSTEMS, INC., AN IOWA CORPORATION;
CHRISTINE M. BERGESON; WAYNE C. EWING; JIM E. LIEBSCH; MICHAEL R. LINTON; LORIN PITTS; AND KENT REILLY, DEFENDANTS.



The opinion of the court was delivered by: Karen E. Schreier Chief Judge

ORDER GRANTING PLAINTIFF'S AMENDED MOTION FOR A PRELIMINARY INJUNCTION

Plaintiff, Marco, Inc., entered a bidding competition with defendant Advanced Systems, Inc. (ASI) to purchase Best Business Products, Inc., a Sioux Falls-based company. Marco won the bidding competition and purchased all of Best's assets, excluding some antiques. After ASI lost the bidding competition, it entered the Sioux Falls market and Marco filed a 15-count complaint against ASI and defendants Christine M. Bergeson, Wayne C. Ewing, Jim E. Liebsch, Michael R. Linton, Lorin Pitts, and Kent Reilly, all of whom are former Best employees. Marco sought a temporary restraining order and preliminary injunction. The court denied the temporary restraining order and set the preliminary injunction hearing for June 21, 2011. Docket 50. The day before the hearing, Marco filed an amended motion for a preliminary injunction and limited its requested relief to an order prohibiting ASI from using, possessing, or disclosing any of Marco/Best's confidential and proprietary information and contacting, soliciting, inducing, or attempting to induce any Best customer to terminate its relationship with Best. Docket 61.*fn1 ASI resists the amended preliminary injunction motion. The motion is granted.

BACKGROUND

The pertinent facts to this order are as follows: Betty Best owned and operated Best, an office equipment sales and service company, which has six offices in South Dakota. ASI is engaged in a similar business and maintains its principal place of business in Waterloo, Iowa. Marco is also engaged in a similar business and maintains its principal place of business in St. Cloud, Minnesota.

After Betty passed away, ownership of Best passed to her estate. Her estate's trustee, Jim Schoettler with Wells Fargo in Minneapolis, took control of Best. Schoettler created a new board of directors with Schoettler as Best's president. Schoettler also created an executive team that included Ewing and Reilly to manage Best's day-to-day operations. Schoettler eventually decided that Best should be sold and 100 percent of Best, excluding some antiques, would be for sale. Schoettler used a bidding system to solicit bids from potential buyers.

There were three serious bidders for Best, including Marco and ASI. On September 17, 2010, ASI and Best entered into a "Confidential Disclosure Agreement" (September NDA). Schoettler signed as Best's president and James Newcomb, ASI's President and CEO, signed for ASI. ASI later requested that Best and ASI enter into another "Non-Disclosure and Confidentiality Agreement," which ASI drafted. Newcomb and Schoettler signed the second agreement on December 7, 2010 (December NDA).

Betty Erhardt, ASI's Chief Financial Officer, engaged in due diligence for ASI during the bidding process. After reviewing Best's initial disclosures, Erhardt determined that she needed more information to complete due diligence. ASI requested additional information from Best, specifically customer information contained in Best's "E-Automate" program, a software program used by companies to manage their inventory, finances, service histories, and customer service records. ASI received a CD containing a complete, unredacted copy of Best's entire customer database and other confidential and proprietary information. ASI concedes that the CD contains confidential and proprietary information.

Erhardt testified that ASI returned the CD after Marco announced that it was the winning bidder for Best. Mitch Johnson at Best signed a certified mail return receipt for the CD on April 28, 2011. At the hearing, however, Tim Griggs, ASI's Chief Operating Officer, admitted that he made a copy of the CD and retained possession of the CD in a sealed envelope, which he locked in an office drawer. Griggs was still in possession of the CD when he testified at the hearing.

Newcomb testified that if ASI did not win the bidding competition, ASI's Board of Directors had decided to independently enter the South Dakota market. ASI made active plans to enter the market. Newcomb also testified that hiring Best employees was part of ASI's plan to establish a South Dakota branch.

On April 15, 2011, Marco issued a press release announcing that it was acquiring Best's assets and planned to begin operations as of April 29, 2011.

On Monday, April 18, 2011, Ewing, a member of Best's executive team, generated two large reports, an equipment report and a contract profitability report, and backed up certain files from the "C" drive of his computer onto flash drives. The flash drives were not protected by a password.*fn2

Ewing did not prepare the two reports in the ordinary course of his job duties at Best. Instead, Ewing testified that he produced the reports to prepare for a prospective job interview with Marco. But Marco never informed Ewing that it would be interviewing him and Jennifer Mrozek, Marco's Chief Financial Officer, testified that Marco had no intention of hiring Ewing.

Ewing stated that he did not take the flash drives off of Best's property. But the very next morning, on April 19, 2011, Ewing and two other key Best employees met with ASI executives at a secret meeting in Albert Lea, Minnesota. When Ewing met with ASI on April 19, he was unaware that Marco was not going to hire him.

The April 19 Albert Lea meeting involved Reilly (Best's General Manager), Ewing, Doug Patrick (Best's Sales Manager), Newcomb, Don Hinckle (ASI's Service Manager), and Dave Quint (ASI's Vice President and General Sales Manager). The meeting took place in the restaurant section of an Albert Lea HyVee grocery store.

Patrick testified that he heard about the April 19 meeting from Reilly and that the meeting was a secret. Ewing also testified that Reilly told him that the April 19 meeting was a secret.

The April 19 meeting lasted between forty-five minutes and one hour. During the meeting, ASI informed the three Best employees that ASI intended to enter the Sioux Falls market. According to Patrick, ASI stated that it wanted to hire good service technicians and sales representatives and expressed a special interest in hiring key Best personnel. ASI's executives also stated that ASI desired to roll Best's customer contracts over to ASI, and employees, such as Patrick, would receive a financial incentive for each contract that they converted from Best to ASI. The ASI executives also explained that ASI planned to open offices in Sioux Falls, Aberdeen, and Watertown, which were all locations where Best had offices.

On April 20, Quint called Patrick and again told Patrick that he would receive a monetary incentive for every customer maintenance contract that Patrick could roll from Best to ASI. Quint also asked Patrick to identify and provide contact information of key Best employees. Patrick provided the names of Loren Pitts, Dan Haslehorst, Sean Falken, and John Rickarns [phonetic] to Quint.

On Thursday, April 21, ASI posted two employment openings on careerbuilder.com, one for sales representatives and one for service technicians. Dockets 44-1, 44-2. The ads were blind, meaning that ASI did not identify itself as the employer. ASI received 14 responses for sales representative and 61 responses for service technicians. Five people were hired, all former Best employees: Ewing, Bergeson, Liebsch, Linton, and Pitts.

Ewing applied through careerbuilder.com on April 22. Ewing learned from Hinkle on April 24 that he would be hired by ASI, but Ewing did not formally interview with ASI until April 28. Ewing resigned from Best on April 28.

While Ewing still officially worked for Best and knew that he would be hired by ASI, he attempted to recruit Craig Davis, a Best service technician with 25 years of experience to work for ASI. Davis testified that he was nervous about Marco taking control of Best and wanted to explore his options. On Tuesday, April 26, Ewing told Davis that he could go online and apply for a new job. Davis said he did not want to apply; he just wanted information about salary and health insurance. On Wednesday, April 27, Davis met with Ewing at Ewing's home over breakfast to discuss working for ASI. Ewing told Davis that even though Davis was a service technician, he would be working in sales until ASI had an established sales base. Ewing also told Davis that he would receive a financial "spiff" for every contract that he successfully rolled over from Best to ASI.

Ewing pressured Davis to make a decision quickly. Ewing said he had to have Davis's response before Friday, April 29. Because Marco required its employees to sign non-compete agreements, Ewing needed Davis's answer before April 29, when he would become a Marco employee.

When Davis questioned Ewing about whether he would be in legal trouble for working for ASI, Ewing told Davis not to worry about it because legal counsel would be made available to assist with any issues. Davis did not accept a position with ASI. Davis testified that a number of years ago, a young technician left Best, took confidential information with him, and lured some of Best's customers away from Best. Davis did not want to engage in similar behavior and stated that he would feel "dirty" about soliciting Best's customers.

Haslehorst, a service technician in Best's Aberdeen, South Dakota, office, testified that Hinckle called him while he was working at Best, a few days after the April 21 job posting on careerbuilder.com. Hinckle received Haslehorst's contact information from Patrick. Hinckle informally offered Haslehorst a job. Haslehorst then filled out an application on careerbuilder.com on April 26. Hinckle formally offered Haslehorst the job on April 27. Hinckle, Haslehorst, and Shawn Falken, another Best employee who received a job offer from ASI after Patrick provided Quint with Falken's contact information, met on April 28 to discuss working for ASI.

During the April 28 meeting, Haslehorst expressed his concerns about taking a job with ASI because ASI was not in the Aberdeen market. Hinckle told Haslehorst that he would cold call businesses and tell his former customers that if they rolled their services agreements from Best to ASI, Haslehorst could continue working as their service technician. Hinckle promised Haslehorst a financial incentive for every contract that he successfully rolled over from Best to ASI.

Hinckle told Haslehorst that he needed to make a decision quickly because as of Friday, April 29, Haslehorst would be a Marco employee and his non-compete agreement would be effective. During this process, Hinckle told Haslehorst not to tell anyone about the job offer.

Bergeson, a Best service technician of Canon copiers with 14 years of experience, learned about ASI through Ewing. She applied for a job through the blind careerbuilder.com ad on April 25. Hinkle called Bergeson that evening and the two discussed Bergeson working for ASI. Bergeson had a second interview with ASI on April 28 and was offered a job, which she accepted.

Liebsch was uncomfortable with Marco acquiring Best. He testified that after Betty passed away, he began looking for jobs. But the only time he applied for a job was through the careerbuilder.com ad in April of 2011. Quint called Liebsch, interviewed him, and offered him a job. Liebsch accepted ASI's job offer. Because ASI is not doing business in Yankton, where Liebsch worked with Best, he is cold calling businesses in Sioux Falls with Bergeson.

Linton, a Best employee with 6 years of experience, was told on April 29 that he would not be hired by Marco. After Linton left Best on April 29, Liebsch called and told Linton to call Quint if he needed a job. Linton met with Quint around 3:30 or 4 p.m. on April 29. After a two-hour discussion, Quint hired Linton. Linton admitted that he saw Best's customer list before he left Best.

Pitts was a service technician at Best with 37 years of experience. Pitts was getting anxious about Marco taking over Best and told Davis about his concerns. On Thursday, April 28, Davis told Pitts about careerbuilder.com and that there was going to be a meeting that night. Pitts applied, was offered a job, and accepted employment with ASI on ...


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