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U.S. Water Services, Inc. v. Watertech of America, Inc.

United States District Court, Eighth Circuit

October 3, 2013

U.S. WATER SERVICES, INC., Plaintiff,
v.
WATERTECH OF AMERICA, INC. and SVEINN STORM, Defendants.

Michael D. Schwartz and Brandon M. Schwartz, SCHWARTZ LAW FIRM, for plaintiff.

Nicole J. Druckrey, QUARLES & BRADY LLP, for defendants.

ORDER

PATRICK J. SCHILTZ, District Judge.

Plaintiff U.S. Water Services, Inc. ("U.S. Water") is in the business of water-treatment sales and services. In 2006, U.S. Water hired defendant Sveinn Storm. At the time he was hired, Storm signed an employment agreement with U.S. Water that included (1) a covenant not to compete with U.S. Water during the 18 months following his termination and (2) a provision forbidding Storm from disclosing - at any time during or after his employment - confidential information that he learned while he was employed by U.S. Water. On April 30, 2012, Storm tendered his resignation from U.S. Water, see ECF No. 54-14, and he began working for defendant Watertech of America, Inc. ("Watertech") the next day, see Storm Decl. ΒΆ 15 [ECF No. 49]. U.S. Water and Watertech are competitors.

This matter is before the Court on the motion of U.S. Water for a preliminary injunction against Watertech and Storm.[1] U.S. Water alleges that Storm has violated the covenant not to compete by contacting U.S. Water's customers during the 18-month non-compete period. U.S. Water also alleges that Storm has violated the confidentiality provision by disclosing confidential information about U.S. Water's "MP5000" and "VOxOUT" products. U.S. Water seeks a preliminary injunction that would, among many other things, prohibit Storm from contacting any customer of U.S. Water and prohibit Watertech from using U.S. Water's confidential information.

The Court conducted a hearing on U.S. Water's preliminary-injunction motion on September 30, 2013. For the reasons set forth below, U.S. Water's motion is denied.

I. STANDARD OF REVIEW

In determining whether to grant a motion for a preliminary injunction, the Court considers four factors: (1) the movant's likelihood of success on the merits; (2) the threat of irreparable harm to the movant if the injunction is not granted; (3) the balance between this harm and the harm that the other parties will suffer if the injunction is granted; and (4) the public interest. Dataphase Sys., Inc. v. C L Sys., Inc., 640 F.2d 109, 114 (8th Cir. 1981). Preliminary injunctions are extraordinary remedies, and the party seeking a preliminary injunction bears the burden of establishing its entitlement to such relief under the Dataphase factors. See Watkins Inc. v. Lewis, 346 F.3d 841, 844 (8th Cir. 2003).

II. COVENANT NOT TO COMPETE

The parties are familiar with the facts, so they will not be recounted at length.

At the time he was hired by U.S. Water, Storm signed an employment agreement that included a covenant not to compete with U.S. Water "for a period of 18 months after termination...." ECF No. 34-2 at 1. U.S. Water alleges that Storm has violated this covenant not to compete, and it seeks an injunction preventing further violations.

It appears that Storm may indeed have violated the covenant not to compete, although Storm's defenses are far from frivolous, and Storm's alleged violations appear to have been few, minor, and nonconsequential. That being said, the Court cannot find that U.S. Water will be irreparably harmed if Storm is not enjoined from further violating the covenant. The covenant expires on October 30, 2013[2] - that is, in four weeks - and, at the Court's request, defendants have agreed that Storm will have no contact with any of U.S. Water's customers (including any facility operated by Valero Energy Corporation ("Valero")) before October 30. See ECF No. 60. In other words, defendants have voluntarily agreed to provide all of the relief that the Court would provide in an injunction. The Court therefore denies this component of U.S. Water's motion for preliminary relief. See Novus Franchising, Inc. v. Dawson, 725 F.3d 885, 893 (8th Cir. 2013) ("[A] failure to show irreparable harm is an independently sufficient ground upon which to deny a preliminary injunction....'" (quoting Watkins, 346 F.3d at 844)).

III. CONFIDENTIALITY PROVISION

Along with the covenant not to compete, Storm's employment agreement with U.S. Water also included a provision prohibiting Storm from disclosing confidential information learned during his employment with U.S. Water. See ECF No. 34-2 at 2-3. U.S. Water contends that Storm violated this confidentiality provision in three ways. First, U.S. Water alleges that Storm disclosed the formula for MP5000 to Watertech, [3] and that Watertech then used the formula to develop a knock-off product. Second, U.S. Water alleges that Storm disclosed the formula for VOxOUT to Watertech, [4] and that Watertech then modified the formula for its competing "Envirotrol" product. ...


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