Polyone Corp. v. Kutka
Polyone Corp. v. Kutka
Opinion of the Court
MEMORANDUM OPINION AND ORDER OF PRELIMINARY INJUNCTION
This matter comes before the Court upon the Report and Recommendation of Magistrate Judge William H. Baughman, Jr. The Report and Recommendation (ECF #90), submitted on October 31, 2014, recommends that Plaintiffs Motion for a Preliminary Injunction (ECF #21) be granted in part as agreed to by Defendant Kutka except for the demand that Mr. Kutka by enjoined from continuing his employment at PolyMax. Magistrate Judge Baughman found that Plaintiff did not establish a strong case with clear and convincing evidence that it will be irreparably damaged without an injunction preventing Mr. Kutka from continuing his employment at PolyMax as vice president of operations.
Plaintiff has filed an objection to the Report and Recommendation asking this Court to enter a preliminary injunction enjoining Mr. Kutka from working for or otherwise providing services on behalf of PolyMax until trial and a ruling on Plaintiffs motion for a permanent injunction. Plaintiff asserts that the Magistrate Judge’s decision is based upon his acceptance of Mr. Kutka’s representations that he has returned all PolyOne information and that he will abide by his obligations not to disclose, use or keep PolyOne confidential and trade secret information in his employment with PolyMax. Plaintiff contends that Mr. Kutka’s word cannot be trusted.
Standard of Review for a Magistrate Judge’s Report and Recommendation
The applicable district court standard of review for a magistrate’s report and recommendation depends upon whether objections were made to that report. When objections are made to a report and recommendation of a magistrate judge, the district court reviews the case de novó. Fed. R. Civ. P. 72(b) provides this standard of review. It states, in pertinent part, the following:
The district judge to whom the case is assigned shall make a de novo determination upon the record, or after additional evidence, of any portion of the magistrate judge’s disposition to which specific written objection has been made in accordance with this rule. The district judge may accept, reject, or modify the recommended decision, receive further evidence, or recommit the matter to the magistrate judge with instructions.
Accordingly, this Court will review the Report and Recommendation, to which timely objections have been filed, de novo. See Dacas Nursing Support Sys., Inc. v. NLRB, 7 F.3d 511 (6th Cir. 1993).
Conclusion
The Court has reviewed the Réport and Recommendation of Magistrate Judge Baughman de novo. See Massey v. City of Ferndale, 7 F.3d 506 (6th Cir. 1993). The Court has also considered all of the pleadings, affidavits, motions, and filings of the parties. After careful evaluation of the record, the Report and Recommendation, and the objections filed by Plaintiff, this Court finds the Report and Recommendation issued by Magistrate Judge Baugh-man to be well supported and correct.
Accordingly, the Court hereby ADOPTS the Report and Recommendation issued by .Magistrate Judge Baughman and grants Plaintiffs Motion for a Preliminary Injunction with some modifications as follows:
1. Mr. Kutka is enjoined from using or disclosing any of PolyOne’s confidential or
2. Mr. Kutka is compelled to perform all the covenants in the non-compete agreement;
3. Mr. Kutka is to “preserve and return to PolyOne any and all property of PolyOne;”
4. Mr. Kutka will not contact any Poly-One customer or potential customer until after the trial in this action has been completed; and
5. Mr. Kutka will remain in his present role as vice president of operations-and not assume a sales or product development role-until the trial in this matter has been completed.
A trial in this matter is set for January 5, 2015 at 8:30 a.m.
IT IS SO ORDERED.
REPORT & RECOMMENDATION
Introduction
Before me by referral
For the reasons that follow, I will recommend that PolyOne’s motion for a preliminary injunction be granted as modified below.
Facts
The facts essential to adjudicating the motion for a preliminary injunction are briefly stated and mostly not in dispute.
That employment agreement contains restrictions on competition with PolyOne after Kutka’s employment with PolyOne came to an end. The agreement states at paragraph 5 that Kutka was prohibited from competing with PolyOne after concluding his employment there as set forth in an attachment to the employment agreement, which attachment provides different restrictions, such as geographic and temporal, based on the different kinds of jobs the employee may have held at Poly-One at the time he left.
As regards the prohibition against competing with PolyOne after the conclusion of employment, Kutka was prohibited in Attachment A of the employment agreement from engaging in any of the following activities:
(a) I am prohibited from being employed by or entering into or engaging in any business which competes with PolyOne’s business within the Restricted Territory applicable to me as defined above;
(b) I am prohibited from soliciting customers, business, orders for, or selling any products or services in competition with, or for any business that competes with, the business of PolyOne;
(c) I am prohibited from diverting, enticing, or taking away any customers, business, orders or sales of Poly-One or attempting to do so; and/or
(d) I am prohibited from promoting or assisting, financially or otherwise, any person, firm, association, partnership, corporation or other entity engaged in any business which competes with the business of PolyOne.17
Significantly, as noted, the agreement prohibits these activities only with what it terms “Restricted Territory.”
• If the employee was in “sales, sales management, or product marketing,” the Restricted Territory was within a 50-mile radius of any PolyOne facility where the employee worked, including a home office, and any geographic area where he was assigned or had responsibility; plus all the specific customer accounts for which the employee was responsible.
• If the employee had technical responsibilities, the Restricted Area was “the area of PolyOne’s business for which I had technical responsibility regardless of geographic location.”
• If the employee had plant. management, manufacturing management, sourcing, or production planning responsibilities, the Restricted Area “is the prohibited competitors (and their respective successors) listed on Attachment B that are within the business unit for which I had such responsibilities.”
• If'the employee was a participant in a long range incentive plan or the recipient of equity based awards, the Restricted Territory was also the listed prohibited competitors or their successors.19
PolyOne here seeks to enjoin Kutka from continuing employment at PolyMax because, it asserts, PolyMax is a competitor operating “in any. geographical area over which Kutka was assigned or had responsibility while at PolyOne; i.e., North America.”
The balance of PolyOne’s prayer for relief consists of seeking to:
1. Enjoin Kutka from using or disclosing any of PolyOne’s confidential or proprietary trade secrets, or information obtained in violation of the Computer Fraud and Abuse Act;
2. Compel Kutka to specifically perform all the covenants in the non-compete agreement; and
3. Order Kutka to “preserve and return to PolyOne any and all property of PolyOne.”21
For his part, Kutka states that he is:
1. willing to return any PolyOne trade secrets in his possession, as he maintains he has already done;
2. not to use or disclose any PolyOne trade secret information to anyone, which he again asserts does not apply because he has no such information;
3. not to contact any PolyOne customers (or potential customers) until December, 2014; and,
4. to remain in his present role as vice president of operations-and not assume a sales or product development role-until December, 2014.22
Accordingly, inasmuch as Kutka has essentially agreed to all the injunctive relief sought by PolyOne except for the demand that he be enjoined from continuing his employment at PolyMax, the only issue now before this Court is whether PolyOne is entitled to injunctive relief on that single claim.
Analysis
A. Relevant law
1. Preliminary injunction
The grant of a preliminary injunction under Federal Rule of Civil Pro
At the preliminary injunction stage, a district court does not resolve “doubtful or difficult questions of law or disputed questions of fact.”
2. Ohio non-compete agreements
A non-compete agreement is considered reasonable, under Ohio law, if three conditions are met: (1) it goes no
B. Application of relevant law
PolyOne has not sought injunctive relief as to any counts in the complaint going to past conduct of Kutka or the other defendants. In that regard, I note what Judge Wells found in a similar situation in Extracorporeal Alliance, L.L.C. v. Rosteck.
The purpose of an injunction is to prevent future violations rather than to remedy past harms. [Thus, even if the plaintiff is likely to prevail on a claim of breach of loyalty, this] is a past violation. Since [the defendant] is no longer subject to this duty of loyalty, the plaintiff does not need to be protected against future violations although it may be entitled to damages if it can prove [the defendant’s] past violations.35
I also observe, as was noted above, that Kutka has agreed to an injunction barring him from contacting any PolyOne customer or performing any sales role until December, 2014, and from using or disclosing any PolyOne trade secret or confidential information to anyone, as well as requiring him to return any PolyOne trade secrets in his possession.
Accordingly, the scope of the injunction PolyOne actually seeks here is narrow and is essentially to bar Kutka from continuing any employment at PolyMax because that would be a breach of his non-compete agreement with PolyOne.
In that regard, Kutka raises two arguments: (1) that PolyMax is not a competitor of PolyOne, and (2) that Kutka’s job at PolyMax is in operations and not in sales or product development and so does not breach the non-compete agreement.
As to whether PolyMax is a competitor, Kutka relies heavily on the evidence that his actual employer, PolyMax USA, is essentially a start-up, and so only “preparing to compete” against PolyOne in manufacturing and selling TPE products.
PolyOne, for its part, asserts that the evidence is that Nantong PolyMax [also referred to as PolyMax China] is an admitted competitor of PolyOne, and that since PolyMax USA was formed, “its principals have solicited some of PolyOne’s biggest customers and/or otherwise targeted these businesses in the United States.”
Based on the evidence of record, I recommend finding that PolyOne is likely to prevail on the issue of showing that Poly-Max USA is substantially the same entity as PolyMax China, and that PolyMax China is, and has been since 2013, a recognized competitor of PolyOne.
That said, however, Kutka’s argument that his job at PolyMax USA is an operations position and not in sales or in product development raises the issue of whether a non-compete restriction that barred an employee from any job at a competitor is too broad to be enforced under Ohio law.
To that point, in construing Ohio law as to non-compete agreements in the context of injunctive relief, the Seventh Circuit recently emphasized that the applicable rule is that “while [Ohio law] allows employers to implement protections against enterprising former employees, it only allows these protections up to the point that they do ‘not impose undue hardship on the employee[s].’ ”
It must also be noted, however, as Chief Judge Oliver concluded in Office Depot v. Impact Office Products, LLC, that Ohio courts teach that “[a] determination that a covenant is unduly harsh requires a much greater standard than determining whether the covenant is merely unfair.”
To that end, Judge Carr noted in MP TotalCare Services that, in assessing the reasonableness of contractual restrictions, courts in Ohio consider:
[Wjhether the covenant imposes temporal and spatial limitations, whether the employee had contact with customers, whether the employee possesses confidential information or trade secrets, whether the covenant bars only unfair competition, whether the covenant stifles the employee’s inherent skill and expertise, whether the benefit to the employer is disproportionate to the employee’s detriment, whether the covenant destroys the employee’s sole means of support, whether the employee’s talent was developed during the employment, and whether the forbidden employment is merely incidental to the main employment.48
Accordingly, while PolyOne has produced authority to show that Ohio regards one-year restrictions as reasonable, it has not produced authority showing that a total ban on any employment in any capacity with a competitor in any location in the country is reasonable, or that additional restrictions such as those agreed to by Kutka would not adequately protect the employer’s legitimate business interest while not destroying the employee’s sole means of support. Indeed, the total ban on any employment in any position with any competitor is not a ban on unfair competition, but a total ban on competition itself, producing a disproportionate benefit to the employer to the employee’s detriment.
Judge Helmick’s recent reasoning in Avery Dennison Corporation v. Juhasz is helpful.
While acknowledging, as FirstEnergy Solutions Corp. requires, that there are significant factual differences between Avery Dennison and this case, most notably in the exact wording of the terms of the agreement at issue, I note that Judge Helmick was clear that he was. unpersuaded by the argument that a position is necessarily a sham simply because the person does not have “every skill or qualification requirement in the job description----”
Thus, while acknowledging that the company felt it could not trust the defendant not to utilize company information in his new job, Judge Helmick found this suspicion “not sufficient, however, to establish a likelihood of success on the merits.”
Here, there is no “clear and convincing” evidence from PolyOne that Kutka’s position as vice president of operations of PolyMax USA is a “sham and a smokescreen.” At best, it remains an open question of fact as to what that position entails, and so, is not something this Court must resolve at this stage. More important, if Kutka can establish that this is a legitimate position and is enjoined from contact with PolyOne’s customers or involvement in product development, the question presented is whether a covenant barring him for doing that job, or indeed any job at PolyMax USA, is necessary to protect PolyOne’s legitimate business interest in protecting its trade secrets and confidential information.
Indeed, the rule in Ohio on inevitable disclosure as a ground for injunctive relief was stated in Procter & Gamble Co. v. Stoneham, as whether the employee with detailed knowledge of trade secrets “has begun employment with a competitor of the former employer in a position that is substantially similar to the position held during the former employment.”
Thus, I recommend finding that Poly-One has not met its burden of showing that a restriction precluding Kutka from any kind of employment with any kind of competitor at any location in the country is reasonable,
Thus, recognizing that if the likelihood of success on the merits is weak then the arguments for irreparable harm must be especially strong in order to obtain injunc-tive relief,
Conclusion
Accordingly, for the reasons stated, I recommend granting a preliminary injunction to PolyOne only as to the elements agreed to by Kutka and set forth above, and denying any further relief on the basis of the non-compete agreement, which should be modified as stated above. Of course, nothing in this injunction should preclude PolyOne from proving at trial any past or future violation of the agreement as modified.
Dated: Oct. 31, 2014.
.While Mr. Kutka represented to Magistrate Judge Baughman that he would not contact any PolyOne Customer (or potential customers) and would remain in his present role as vice president of operations of PolyMax — and not assume a sales or product development role — until December, 2014. However, as this action will remain pending beyond the stated completion of the non-compete agreement, Mr. Kutka’s obligations under the agreement will be extended until this action is complete.
. ECF #48.
. ECF #21. PolyOne has filed a supplement to the motion (ECF # 87), to which Kutka has responded (ECF # 88).
. ECF # 30 (First Amended Complaint).
. ECF #40.
. ECF #s 71, 86.
. ECF # 77 (Kutka proposed findings); ECF # s 78, 79 (PolyOne proposed findings).
. ECF #80.
. ECF #81. That motion was opposed by PolyMax, (ECF # 83), and PolyOne filed a reply (ECF # 84).
. ECF #52.
. ECF # 30 at 19 ¶ 70.
. See, ECF # 78 at ¶¶ 129-32.
. ECF # 30 at 15 ¶¶ 46, 47.
. ECF #52 at ¶ 30. From 2007 to 2011 when .he assumed his final position át Poly-One described above, Kutka was employed at PolyOne as a Technology Launch Manager, a position which dealt with the commercialization of newly-developed products and streamlining the communication process between PolyOne’s laboratory, marketing department, and sales department. ECF # 78 at ¶¶ 23, 24.
. ECF #30-1 (2011 employment agreement), at ¶ 5.
. Id., at 16.
. Id., at 17.
. Id., at 6.
. Id., at 5.
. Id.
. ECF #30 at 37.
. Id.
. ECF # 77 at 2.
. See, Penetone Corp. v. Palchem Inc., 627 F.Supp. 997, 1004 (N.D.Ohio 1985).
. See, Southern Milk Sales v. Martin, 924 F.2d 98, 102 (6th Cir. 1991).
. Leary v. Daeschner, 228 F.3d 729 (6th Cir. 2000); Blue Cross & Blue Shield Mut. of Ohio v. Blue Cross & Blue Shield Ass'n, 110 F.3d 318, 322 (6th Cir. 1997).
. Fed. Sav. & Loan Ins. Corp. v. Quinn, 711 F.Supp. 366, 376 (N.D.Ohio 1989), vacated on other grounds, 922 F.2d 1251 (6th Cir. 1991) (citing In re DeLorean Motor Co., 755 F.2d 1223, 1229 (6th Cir. 1985)).
. Baker v. Adams County/Ohio Valley School Bd., 310 F.3d 927, 928 (6th Cir. 2002).
. Cabot Corp. v. King, 790 F.Supp. 153, 155 (N.D.Ohio 1992).
. Basicomputer Corp. v. Scott, 791 F.Supp. 1280, 1285 (N.D.Ohio 1991), aff'd, 973 F.2d 507 (6th Cir. 1992).
. See, Tele-Save Merch. Co. v. Consumers Dist. Co., 814 F.2d 1120, 1122 (6th Cir. 1987) (holding that in diversity actions, federal district courts in Ohio adhere to contractual choice-of-law clauses “unless the law of the chosen state sought to be applied is concededly repugnant to and in violation of the public policy of [Ohio]”) (citing Jarvis v. Ashland Oil, 17 Ohio St.3d 189, 192, 478 N.E.2d 786, 789 (1985)).
. Neveux v. Webcraft Techs., 921 F.Supp. 1568, 1572 (E.D.Mich. 1996) (citing Int'l Molders’ and Allied Workers’ Local Union v. Nelson, 799 F.2d 547, 551 (9th Cir. 1986)); see also, Sargent v. Am. Greetings Corp., 588 F.Supp. 912, 925 (N.D.Ohio 1984) (denying a motion for preliminary injunction in part because genuine issues of material fact existed).
. Univ. of Texas v. Camenisch, 451 U.S. 390, 395, 101 S.Ct. 1830, 68 L.Ed.2d 175 (1981).
. Raimonde v. Van Vlerah, 42 Ohio St.2d 21, 25-26, 325 N.E.2d 544, 547 (1975).
. Extracorporeal Alliance, LLC. v. Rosteck, 285 F.Supp.2d 1028 (N.D.Ohio 2003).
. Id. at 1045 (internal citations omitted). Such a result of no present injunctive relief with the possibility of obtaining damages for past wrongdoing would obtain here as to Count I, which alleges Kutka breached his non-compete agreement while employed at PolyOne; Count V, alleging a breach of the duty of loyalty; Count VI, alleging a civil conspiracy among the defendants to interfere with Kutka’s employment agreement with Po-lyOne; Count VII, alleging Kutka fraudulently induced PolyOne to continue to employ him after he had already begun to work with the other defendants; Count VIII, asserting that between 2008 and 2011 all the defendants fraudulently represented Kutka as a "faithful employee” of PolyOne, or failed to disclose their relationship to PolyOne; Count IX, alleging that Kutka committed computer fraud and abuse in the immediate aftermath of his leaving PolyOne by improperly accessing and downloading PolyOne confidential information onto his personal external hard drives; Count X, contending that all the defendants conspired together to tortiously interfere with Kutka’s employment relationship with Poly-One; and Count XII, asserting that Kutka has willfully destroyed evidence.
. ECF # 77 at 3, 20.
. Id. at 3.
. Id. at 4.
. Id. at ¶ 36; conclusions of law at ¶ 14.
. Id.
. Id. at ¶ 35.
. Tradesman Int’l v. Black, 724 F.3d 1004, 1013 (7th Cir. 2013) (quoting Raimonde, 42 Ohio St.2d at 25-26, 325 N.E.2d at 547).
. MP TotalCare Servs. v. Mattimoe, 648 F.Supp.2d 956, 963 (N.D.Ohio 2009) (citations omitted).
. Id. (citations omitted).
. Id. (citations omitted).
. Office Depot v. Impact Office Prods., LLC, No. 1:09 CV 2791, 2011 WL 4833117, at *14 (N.D.Ohio Oct. 12, 2011) (citations omitted).
. FirstEnergy Solutions Corp. v. Flerick, 521 Fed.Appx. 521, 528 (6th Cir. 2013) (internal citations omitted).
. MP TotalCare Servs., 648 F.Supp.2d at 963 (internal quotation, citation omitted).
. See, id.
. Avery Dennison Corp. v. Juhasz, 924 F.Supp.2d 893 (N.D.Ohio 2013).
. Id. at 901.
. Id.
. Id.
. Id.
. Procter & Gamble Co. v. Stoneham, 140 Ohio App.3d 260, 274, 747 N.E.2d 268, 279 (2000) (citation omitted).
. See, Avery Dennison, 924 F.Supp.2d at 900-01. PolyOne’s attempt to show substantial similarity focuses on Kutka’s job as Technology Launch Manager. EOF #78 at 63. That position, however, is one that Kutka left fully two years before his employment at Poly-One ended. PolyOne makes no effort so show that Kutka's actual job during his final two years at PolyOne — the time period on which the non-compete agreement bases its restrictions — was in any way substantially similar to either his current job at PolyMax USA or indeed to any job at PolyMax USA.
.Indeed, the most broadly worded restriction in the'agreement here, which obtains in cases where the employee had "technical responsibilities” for the design, development, formulation, technical services, or engineering for an "area” of PolyOne’s business such as colors, adhesives or TPEs, tailors the one-year restriction to "the area of PolyOne’s business for which I had technical responsibility” during the two years prior to leaving ' PolyOne. EOF #30-1 at 5. Here, Kutka spent the two years prior to leaving PolyOne not involved with TPEs, but in another area of PolyOne’s business. While, of course, Poly-One argues that all its businesses are related, it cannot escape the plain meaning of this covenant which does distinguish between different areas of business and does not prohibit
.ECF # 86 at 30.
. Office Depot, 2011 WL 4833117, at *14.
. Prosonic Corp. v. Stafford, 539 F.Supp.2d 999, 1005 (S.D.Ohio 2008).
. See, Office Depot, 2011 WL 4833117, at *14 (citing Cabot v. King, 790 F.Supp. 153, 155 (N.D.Ohio 1992)).
Reference
- Full Case Name
- POLYONE CORPORATION v. Joseph KUTKA
- Cited By
- 2 cases
- Status
- Published