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BIMBO BAKERIES USA v. BOTTICELLA
ALEXANDER WILLIAMS JR., District Judge
Plaintiffs Carlos Quinteros, Iliana Mejia, and Pedro Santos, for themselves and others similarly situated, filed a complaint against Defendants Sparkle Clean, Inc. ("Sparkle"), Regal Cinemas, Inc. ("Regal"), Santos Bonilla, Dionisio Rivera, Sandra Y. Vasquez, and Jose Luis Bonilla, alleging violations of the overtime pay requirements under the Fair Labor Standards Act ("FLSA"), 29 U.S.C. § 201, et seq., the Maryland Wage and Hour Law, Md. Lab. Empl. Code § 3-403(a)(8), and the Maryland Wage Payment and Collection Law, Md. Lab. Empl. § 3-505. Currently pending before the Court and ready for judgment is Plaintiffs' Renewed Motion for Summary Judgment (Doc. No. 134). A hearing on the original motion was held on March 18, 2010, and the parties discussed this Motion at the Pretrial Conference on July 22, 2010. See Local Rule 105.6 (D. Md. 2008). For the reasons stated below, the Court will GRANT Plaintiffs' Renewed Motion for Summary Judgment.
Also pending before the Court is Plaintiffs' Motion for Plaintiff Iliana Mejia to be Relieved of the Obligation to Physically Present for her Deposition and Trial (Doc. No. 136). At the Pretrial Conference the parties represented that the Defendants will respond to this Motion on an expedited schedule, and thus the Court will wait for a response before ruling on this Motion.
I. FACTUAL AND PROCEDURAL BACKGROUNDThe facts of the case are laid out in the Court's Memorandum Opinion of January 28, 2008 (Doc. No. 27). In that Opinion the Court dismissed Defendant Regal from the suit and granted Plaintiffs' Motion for an Order Under Court Supervision Permitting Notice to Employees of their Opt-In Rights, pursuant to 29 U.S.C. § 216(b) of the Fair Labor Standards Act ("FLSA") and Federal Rule of Civil Procedure 23. Only four Plaintiffs opted into the suit, and the Court dismissed all but one of these, Plaintiff Jose Luis Morales, for failure to cooperate in discovery, in an Order dated March 18, 2008 (Doc. No. 125). Thus, the Plaintiffs in the suit are the three named Plaintiffs, Carlos Quinteros, Iliana Mejia, and Pedro Santos; and the opt-in Plaintiff, Jose Morales. The Plaintiffs never moved to certify the Plaintiffs as a class under Federal Rule of Civil Procedure 23, and the Court does not see fit to treat this as a class action. Additionally, as per the discussions at the July 22, 2002, Pretrial Conference, the Court will treat the four Plaintiffs as a decertified class, and also as permissively joined under Federal Rule of Civil Procedure 20. All of the counts in the Complaint remain to be tried, consisting of: failure to pay overtime under the FLSA (Count I); failure to pay overtime under the Maryland Wage and Hour Law (Count II); and failure to pay overtime under the Maryland Wage Payment and Collection Law (Count III). Now pending before the Court is Plaintiffs' renewed Motion for Summary Judgment on the issue of whether Plaintiffs were employees or independent contractors under the FLSA.
If the parties have any objections to the Court's interpretation of FLSA class as decertified and permissively joined, they should file these objections within five (5) days of the entry of this Order.
II. STANDARD OF REVIEWSummary judgment is only appropriate "if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c); see Celotex Corp. v. Catrett, 477 U.S. 317, 323-25 (1986). The Court must "draw all justifiable inferences in favor of the nonmoving party, including questions of credibility and of the weight to be accorded to particular evidence." Masson v. New Yorker Magazine, Inc., 501 U.S. 496, 520 (1991) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986)). To defeat a motion for summary judgment, the nonmoving party must come forward with affidavits or other similar evidence to show that a genuine issue of material fact exists. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). While the evidence of the nonmoving party is to be believed and all justifiable inferences drawn in his or her favor, a party cannot create a genuine dispute of material fact through mere speculation or compilation of inferences. See Deans v. CSX Transp., Inc., 152 F.3d 326, 330-31 (4th Cir. 1998). Additionally, hearsay statements or conclusory statements with no evidentiary basis cannot support or defeat a motion for summary judgment. See Greensboro Prof'l Fire Fighters Ass'n, Local 3157 v. City of Greensboro, 64 F.3d 962, 967 (4th Cir. 1995).
III. ANALYSIS
Plaintiffs seek summary judgment on their claim that the Plaintiffs are employees, rather than independent contractors, under the FLSA, 29 U.S.C. § 203. The Court made a preliminary decision on this issue before discovery and determined that there was a basis to define the relationship as that of employee/employer. After discovery, the parties filed cross-motions for summary judgment on this issue. In the March 18, 2008, hearing on those motions, the Court indicated that it leaned strongly towards finding Plaintiffs were employees, but that it would postpone its decision until the completion of the outstanding deposition of Plaintiff Pedro Santos. In the instant motion, Plaintiffs explain that the deposition of Pedro Santos did not lead to any basis for construing the employees as independent contractors. As such, Plaintiffs contend it is now appropriate for the Court to make a final determination that the employees are not independent contractors. The Court, applying the well established economic realities test, finds that the Plaintiffs were employees, rather than independent contractors, and thus the FLSA applies to them.
As the Court stated in its previous Memorandum Opinion on this issue, the determination of whether an individual is an employee or an independent contractor is a legal question under the FLSA. Schultz v. Capital Int'l Sec. Inc., 466 F.3d 298, 304 (4th Cir. 2006) ("The ultimate conclusion as to whether a worker is an employee or independent contractor under the FLSA presents a legal question"); see also Icicle Seafoods, Inc. v. Worthington, 475 U.S. 709, 713-14 (1986). At the Pretrial Conference and in their Supplement to the Pretrial Order (Doc. No. 135), Defendants contend that the question of whether Plaintiffs are employees under the FLSA is a jury question, and cite a sole case, Johnson v. Unified Gov't of Wyandotte County/Kansas City, 371 F.3d 723 (10th Cir. Kan. 2004), for this proposition. The Court believes Defendants have misinterpreted this case, as this case in no way holds that the determination of employment status under the FLSA is a question for the jury. The court below in that case allowed the parties to stipulate that the jury would decide the question of whether security guards working for the Housing Authority of Kansas were employees or independent contractors. The Tenth Circuit, explaining how it transpired that a jury was presented with the employment status question, provides "[a]pparently because the district court and the parties found this rule to be vexingly difficult to apply in the practical setting of a jury trial, the parties agreed to submit this issue to the jury." Clearly, this procedural scenario is inapposite to the instant case as Plaintiffs have not stipulated that the jury should decide this question. As such, the Court will decide this issue as a matter of law.
The Court has already laid out the test for determining whether a plaintiff meets the definition of "employee" under the FLSA in its Memorandum Opinion of January, 28, 2010. The Court merely summarizes the important points here to structure its analysis. The FLSA defines an employer as "any person acting directly or indirectly in the interest of an employer in relation to an employee." 29 U.S.C. § 203(d). Likewise, an employee is defined as "any individual employed by an employer." 29 U.S.C. § 203(e)(1). This definition stretches "the meaning of `employee' to cover some [workers] who might not qualify as such under a strict application of traditional agency [or contract] law principles." Id.; Nationwide Mut. Inc. Co. v. Darden, 503 U.S. 318, 326 (1992). The Supreme Court has instructed courts to construe the terms "employer" and "employee" expansively under the FLSA. Nationwide, 503 U.S. at 326; Rutherford Food Corp. v. McComb, 331 U.S. 722, 730 (1947).
Determining whether an entity is an employer or whether an employee is covered, for the purposes of the FLSA, turns on the "economic reality" of the relationship between the employee and the putative employer. Schultz, 466 F.3d at 304; see also Bartels v. Birmingham, 332 U.S. 126, 130 (1947). The crux of the analysis is whether the worker is "economically dependent on the business to which he renders service or is, as a matter of economic [reality], in business for himself." Id. (internal quotations omitted). Courts have established a six-factor test to determine whether a worker is an employee or an independent contractor, based on "economic reality." These factors are:
1) the degree of control that the putative employer has over the manner in which the work is performed;
2) the worker's opportunities for profit or loss dependent on his managerial skill;
3) the worker's investment in equipment or material, or his employment of other worker;
4) the degree of skill required for the work;
5) the permanence of the working relationship; and
6) the degree to which the services rendered are an integral part of the putative employer's business.Schultz, 466 F.3d at 304-05; see also Herman v. Mid-Atlantic Installation Serv. Inc., 164 F.Supp.2d 667, 671 (D. Md. 2000). No single factor is dispositive and a "mechanical" application of the factors is unwarranted; rather, the Court will apply these factors looking at the totality of the circumstances "to capture the economic realities of the relationship between the worker and putative employer." Schultz, 466 F.3d at 305; Herman, 164 F.Supp.2d at 671; see also Zheng v. Liberty Apparel Co. Inc., 355 F.3d 61, 66 (2d Cir. 2003).
The Court finds that because the record shows (1) Defendants exercised significant control over the schedule and work performance of the Plaintiffs; (2) Plaintiffs had little opportunity for profit or loss dependent on managerial skill; (4) Plaintiffs' work required little skill; (5) the relationship appeared to be somewhat permanent; and (6) the Plaintiffs were an integral part of the business, Defendant has not met its burden of showing the FLSA does not apply to Plaintiffs. The Court does not base its decision on the third factor — investment in equipment and employment of others — as it finds disputes of fact remain as to this one issue.
1. Control
The first Silk factor is the degree of control that the putative employer has over the manner in which the work is performed. Plaintiffs have presented much evidence that Defendant Sparkle controlled and directed Plaintiffs' work activities. According to Plaintiffs, Sparkle set their schedules, instructed and directed Plaintiffs to the work sites, and directed how they would perform their cleaning activities. Plaintiffs contend that an Area Manager often directed Plaintiffs to redo their work if the cleaning was not satisfactory, and this Area Manager testified that he could fire them. Defendants, on the other hand, argue that there was no right of control, but rather, merely a right of inspection. The Court believes the evidence supports Plaintiffs' contention that Sparkle did control Plaintiffs and their work as they determined the details surrounding the projects and monitored them to ensure satisfactory performance.
2. Opportunity for profit or loss dependent on managerial skill
Plaintiffs next argue that they had no opportunity for profit or loss from their employment with Sparkle, as they were paid an hourly wage, had no profit incentive, and did not have any managerial capacity while on the job. Plaintiffs argue that this factor makes them similar to the plaintiffs in Schultz, where the court found the second factor weighed in the plaintiffs' favor because "[t]here [was] no evidence the agents could exercise or hone their managerial skill to increase their pay." Schultz v. Capital Int'l Sec., Inc., 466 F.3d 298, 308 (4th Cir. 2006). Defendants argue that a subcontractor had an opportunity to effect his or her own profit or loss depending on whether the worker had other individuals performing services for Sparkle. Defendants also contend that a worker could affect his profit or loss by working faster and doing better work. The Court believes the Plaintiffs here did not have an opportunity to increase pay through managerial skill-building, and thus finds this factor weighs in Plaintiff's favor. The Court does not base its decision on the fact that Plaintiffs were allegedly paid by the hour, as this fact does seem to be in dispute. 3. Investment in equipment and employment of others
Plaintiffs argue that they did not purchase any materials or equipment to perform their jobs, while Defendants maintain that they did. Because the facts regarding this factor are in dispute, with Plaintiffs providing evidence that they did not purchase equipment, and defendants providing evidence that they did, the Court cannot consider this factor favorable for either party. Plaintiffs explain that disputes of material fact remain regarding this issue "because the 30(b)(6) witness Sandra Vasquez testified that Sparkle Cleaning maintains documents that identify what equipment is owned by which subcontractors," but never turned the information over to Plaintiffs. (Doc. No. 94 at 21.) Plaintiffs also argue that it is not reasonable to deem it possible that Plaintiffs, none of whom earned more than $19,065.00 according to their "1099s," could have purchased equipment that ranged in price from $25,000 to $250,000, according to Mr. Bonilla. They maintain that they were provided cleaning equipment and materials by Sparkle and that Sparkle trained them on this equipment. Defendants argue that all of their subcontractors are required to purchase their own equipment, which costs around $3,000. On occasion, Sparkle would allow a subcontractor to borrow Sparkles' equipment if the subcontractor's equipment was broken. The Court cannot resolve this factual dispute, and thus deems this factor neutral.
4. Degree of skill required
The fourth Silk factor is the level of skill required for the work. Janitorial services such as cleaning floors and carpets are not considered to be labor which requires a high degree of skill or technical expertise. Defendants contends that the Court cannot take judicial notice of this issue. But, the Court believes that in fact, it must do so under this test. See Schultz, 466 F.3d at 308 ("many of their tasks required little skill, for example, sorting the mail, making wake up calls, moving furniture, providing newspapers"). Accordingly, the Court observes that because the employees' tasks were highly scripted, and did not involve much skill, this factor weighs in favor of Plaintiffs.
5. Permanence of the working relationship
"The fifth factor is the degree of permanency of the working relationship. The more permanent the relationship, the more likely the worker is to be an employee." Id. at 308-309. Plaintiffs contend that the length of Plaintiffs' employment ranged from five months to four years in duration, and that the work with Sparkle was daily, continuous and permanent. Plaintiffs offer the Plaintiffs' pay stubs as evidence. Defendants, on the other hand, maintain that subcontractors are only used for "special projects." The court finds that the evidence on the record indicates a more permanent than temporal relationship and thus finds this factor weighs in Plaintiffs' favor.
6. Integral part of the business
"The sixth (and last) Silk factor is the extent to which the service rendered by the worker is an integral part of the putative employer's business." Id. at 309. Plaintiffs contend that because Sparkle is a janitorial services company and Plaintiffs are janitors, their work was clearly integral to the business. Plaintiffs claim that Sparkle has used 600 subcontractors during the relevant time period, a number it reaches based on the list provided by Sparkle. Ms. Vasquez, Defendants' Corporate Designee, on the other hand, stated in her affidavit that Sparkle has only about 5 or 6 subcontractors at a time. She also stated that Sparkle derives 60% of its revenues from 25 employees, while Sparkle's Profit and Loss Statements show that 60% of its costs are for compensation of subcontractors. Plaintiffs attempt to refute this claim by arguing it is impossible for Sparkle Cleaning to have only 25 employees on its payroll because after the salaries of the officers are paid, the funds are insufficient to pay the salaries of the purported 25 employees. The unrefuted evidence that 60% of Sparkle's costs is compensation of subcontractors weighs heavily in favor of concluding that the Plaintiffs were an integral part of the business.
IV. CONCLUSION
Because the totality of circumstances under the economic realities test weighs in favor of finding Plaintiffs are employees, the Court will GRANT Plaintiffs' Renewed Motion for Summary Judgment. A separate Order will follow.
D. Procedural History
After Botticella left Bimbo and joined Hostess, Bimbo brought this action seeking to protect its trade secrets and then promptly moved for preliminary injunctive relief. The District Court held a hearing on Bimbo's motion at which Bimbo presented portions of Botticella's video taped deposition as well as live testimony from Harris and Daniel Babin, one of Bimbo's senior executives. Botticella's counsel cross-examined Bimbo's witnesses but did not present any evidence on Botticella's behalf. The District Court granted Bimbo's motion and preliminarily enjoined Botticella from commencing employment with Hostess and from divulging to Hostess any confidential or proprietary information belonging to Bimbo. The Court further ordered Botticella to return to Bimbo any of the company's confidential or proprietary information in his possession. The Court issued the preliminary injunction on February 9, 2010, and provided that it was to remain in effect until a determination on the merits of the controversy at a trial, which the Court scheduled to begin on April 12, 2010. Nevertheless, notwithstanding the early trial date, Botticella appealed from the February 9, 2010 order to this Court on February 16, 2010. The case remains untried and pending in the District Court as that Court on March 5, 2010, after a conference with the attorneys, postponed the trial and stayed all proceedings until its further order. We have expedited our consideration of this appeal.
III. JURISDICTION AND STANDARD OF REVIEW
The District Court had jurisdiction over this diversity of citizenship action pursuant to 28 U.S.C. § 1332(a). We exercise jurisdiction over Botticella's interlocutory appeal pursuant to 28 U.S.C. § 1292(a)(1). When reviewing a district court's grant of a preliminary injunction, we review the court's findings of fact for clear error, its conclusions of law de novo, and the ultimate decision granting the preliminary injunction for an abuse of discretion. Miller v. Mitchell, 598 F.3d 139, 145 (3d Cir. 2010) (citing McTernan v. City of York, 577 F.3d 521, 526 (3d Cir. 2009)).
Bimbo is a citizen of Delaware and Pennsylvania and Botticella is a citizen of California.
IV. DISCUSSION
In determining whether to grant a preliminary injunction, a court must consider whether the party seeking the injunction has satisfied four factors: "(1) a likelihood of success on the merits; (2) he or she will suffer irreparable harm if the injunction is denied; (3) granting relief will not result in even greater harm to the nonmoving party; and (4) the public interest favors such relief." Miller, 598 F.3d at 147 (citing Child Evangelism Fellowship of New Jersey Inc. v. Stafford Twp. Sch. Dist., 386 F.3d 514, 524 (3d Cir. 2004)). We turn first to the question of whether Bimbo has demonstrated a likelihood of success on the merits, an inquiry that was the primary focus of the District Court, and, consequently, also is the primary focus of the parties on this appeal.
A. Likelihood of Success on the Merits
The District Court found that Bimbo was likely to prevail on the merits of its misappropriation of trade secrets claim. Under the Pennsylvania Uniform Trade Secrets Act ("PUTSA"), which is applicable in this case, a trade secret is defined as:
Information, including a formula, drawing, pattern, compilation including a customer list, program, device, method, technique or process that:
(1) Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use.
(2) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.12 Pa. Cons. Stat. Ann. § 5302 (West 2004); see also Rohm and Haas Co. v. Lin, 992 A.2d 132, 143 n. 4 (Pa.Super.Ct. 2010) ("A trade secret may consist of any formula, pattern, device or compilation of information which is used in one's business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it.") (internal citation omitted). The Pennsylvania courts look to the following factors to determine whether information is protected as a trade secret: (1) the extent to which the information is known outside of the company's business; (2) the extent to which the information is known by employees and others involved in the company's business; (3) the extent of the measures taken by the company to guard the secrecy of the information; (4) the value of the information to the company and its competitors; (5) the amount of effort or money the company spent in developing the information; and (6) the ease or difficulty with which the information could be acquired or duplicated legitimately by others. Crum v. Bridgestone/Firestone North American Tire, LLC, 907 A.2d 578, 585 (Pa.Super.Ct. 2006).
"The PUTSA displaced Pennsylvania's common law tort for misappropriation of trade secrets, but there is no indication that the statute effected a substantive shift in the definition of `trade secret.'" Youtie v. Macy's Retail Holding, Inc., 626 F.Supp.2d 511, 522 n. 10 (E.D.Pa. 2009).
Applying these standards, the District Court determined that during Botticella's employment at Bimbo, he had access to and acquired a number of Bimbo's trade secrets, including:
a. Information in Bimbo's code books, as well as and including formulas and designs for Thomas' English Muffins, Oroweat brand products, Sandwich Thins products, and other Bimbo products.
b. Bimbo's strategy for increasing profitability, embodied in a road map in January of 2009, which included line closures, plant closures, new process improvements, formula optimizations, and new product launches, and which achieved cost savings of $75 million over the course of a year.
c. Knowledge of how Bimbo produces bread `from scratch' instead of using pre-mixed ingredients.
d. Documents copied by [Botticella] from his work computer onto an external storage device with no credible explanation. . . .
e. Bimbo's promotional strategies with respect to specific customers.
f. Bimbo's cost positions.
g. Identities of Bimbo's customers targeted for upcoming bids.Bimbo Bakeries, 2010 WL 571774, at *10. The District Court then determined that Bimbo likely would be able to prove at trial that Botticella would misappropriate these trade secrets if allowed to work at Hostess.
A person has misappropriated a trade secret under Pennsylvania law when he acquires knowledge of another's trade secret in circumstances giving rise to a duty to maintain its confidentiality and then discloses or uses that trade secret without the other's consent. 12 Pa. Cons. Stat. Ann. § 5302 (West 2004). A court may enjoin the actual or threatened misappropriation of a trade secret. Id. § 5303(a). After determining that Bimbo was seeking an injunction on the basis of threatened misappropriation, the District Court found there was "a substantial likelihood, if not an inevitability, that [Botticella] will disclose or use Bimbo's trade secrets in the course of his employment with Hostess." Bimbo Bakeries, 2010 WL 571774, at 11-14. Accordingly, the Court concluded that Bimbo had demonstrated a likelihood of succeeding on the merits of its claim.
Botticella contends this conclusion was wrong as a matter of law because (a) a court only can enjoin a defendant from beginning a new job to protect a former employer's technical trade secrets, (b) such an injunction only can issue where it would be "virtually impossible" for the defendant to perform his new job without disclosing trade secrets, (c) Bimbo did not present any evidence from which the District Court could conclude that Botticella's responsibilities at Hostess would lead him to disclose Bimbo's trade secrets, and (d) the District Court drew impermissible adverse inferences against Botticella in a way that effectively shifted the burden of proof from Bimbo to Botticella.
1. Air Products and Inevitable Disclosure
The parties disagree about the circumstances that must be found to exist before a court can enjoin a defendant from beginning new employment. In its opinion granting the preliminary injunction, the District Court stated:
When analyzing threatened misappropriation of trade secrets, Pennsylvania courts apply the `inevitable disclosure doctrine.' That doctrine essentially posits that `a person may be enjoined from engaging in employment or certain aspects of his employment where that employment is likely to result in the disclosure of information, held secret by a former employer, of which the employee gained knowledge as a result of his former employment situation.['] The scope of the injunctive relief depends on the particular circumstances of the case.Bimbo Bakeries, 2010 WL 571774, at *11 (citing Victaulic Co. v. Tieman, 499 F.3d 227, 234 (3d Cir. 2007) (omitting citations); Air Prods. Chems., Inc. v. Johnson, 442 A.2d 1114, 1120 (Pa.Super.Ct. 1982)). In other words, the District Court concluded, albeit somewhat paradoxically, that Pennsylvania courts apply the "inevitable disclosure doctrine" to grant injunctions based not on a trade secret's inevitable disclosure but on its likely disclosure. Cf. PepsiCo, Inc. v. Redmond, 54 F.3d 1262, 1269 (7th Cir. 1995) ("[a] plaintiff may prove a claim of trade secret misappropriation by demonstrating that defendant's new employment will inevitably lead him to rely on the plaintiff's trade secrets.") (emphasis added). While we agree with the District Court that Pennsylvania law empowers a court to enjoin the threatened disclosure of trade secrets without requiring a plaintiff to show that disclosure is inevitable, we do not consider that an injunction granted absent such a showing was issued pursuant to the "inevitable disclosure doctrine."
The leading Pennsylvania decision to discuss the inevitability of trade secret disclosure is Air Products Chemicals, Inc. v. Johnson. In that case Air Products, a manufacturer and distributor of industrial gas, sought an order enjoining Johnson, one of its former employees who primarily was responsible for selling on-site gas, from working in the on-site gas division of a competitor, Liquid Air, that lagged behind Air Products in the on-site gas market. 442 A.2d at 1116-18. The trial court determined that Johnson, who had an engineering background, had acquired a number of technical and commercial trade secrets relevant to the operation and sale of on-site gas during his employment at Air Products, and that an injunction prohibiting Johnson from working in on-site sales at Liquid Air was necessary because "[i]t would be impossible [for Johnson] to perform his managerial functions in on-site work without drawing on the knowledge he possesses of Air Product[s]'s confidential information." Id. at 1122 (quoting trial court opinion).
While courts across the country have considered the applicability and scope of the inevitable disclosure doctrine, see generally Brandy L. Treadway, An Overview of Individual States' Application of Inevitable Disclosure: Concrete Doctrine or Equitable Tool?, 55 SMU L. Rev. 621, 626-49 (2002), our focus in this diversity action is on the decisions of the Pennsylvania courts.
"`On-site' gas serves large industrial customers. Gas is piped to the customer." Air Prods., 442 A.2d at 1116.
On appeal, the Superior Court affirmed, agreeing with the trial court that Johnson possessed trade secrets belonging to Air Products that included technological innovations as well as commercial information such as "the status of negotiations with customers, proposed plant configurations and methods of delivery as well as analysis of market opportunities." Id. at 1121 (quoting trial court opinion). In reaching this conclusion, the Court emphasized that "trade secrets need not be technical in nature" to be protected under Pennsylvania law. Id. at 1124 (citing Macbeth-Evans Glass Co. v. Schnelbach, 239 Pa. 76, 86 A. 688 (1913)).
With respect to the probability of disclosure required to warrant an injunction, the Superior Court stated at the outset of its analysis that Pennsylvania law permits the issuance of an injunction where a defendant's new employment "is likely to result in the disclosure" of a former employer's trade secrets. Id. at 1120 (emphasis added). The Court then determined that it was reasonable for the trial court to issue an injunction based on the inevitability that Johnson would disclose trade secrets, but the Superior Court explicitly chose "not [to] adopt the reasoning of the trial court or its use of the term inevitable." Id. at 1124. Based on these statements it seems clear that the Superior Court believed that the trial court permissibly could have granted the injunction even if the disclosure of trade secrets was not inevitable.
2. Protection for Non-Technical Trade Secrets
Botticella argues that "[w]hile confidential information concerning either technical or commercial issues can be protected as a trade secret, the inevitable disclosure doctrine, which prevents the defendant from taking on employment in his chosen field, applies only to technical trade secrets." Appellants br. at 28 (citing Iron Age Corp. v. Dvorak, 880 A.2d 657, 665 (Pa.Super.Ct. 2005); Oberg Indus., Inc. v. Finney, 382 Pa.Super. 525, 555 A.2d 1324, 1327 (1989)). Our review of the relevant decisional law leads us to reject Botticella's proposed distinction between technical and other information. To start with, it is clear that "trade secrets need not be technical in nature" to be protected fully by Pennsylvania law, Air Prods., 442 A.2d at 1124; see also Den-Tal-Ez, Inc. v. Siemens Capital Corp., 389 Pa.Super. 219, 566 A.2d 1214, 1228 (1989) (en banc) ("[T]he particular character of the information is not relevant. . . . [It] may consist of compilations of purely commercial information.") (citing Morgan's Home Equip. Corp. v. Martucci, 390 Pa. 618, 136 A.2d 838 (1957)). Furthermore, courts applying Pennsylvania law are empowered to enjoin both the actual and the threatened misappropriation of trade secrets. 12 Pa. Cons. Stat. Ann. § 5303(a) (West 2004). An injunction against employment therefore is simply one weapon in an equity court's arsenal to prevent the threatened misappropriation of trade secrets, regardless of those secrets' technical or nontechnical character.
In arguing that a court only may enjoin a defendant from beginning a new job to protect a former employer's technical trade secrets, Botticella relies primarily on two opinions of the Pennsylvania Superior Court applying Air Products. In Oberg Industries, Inc. v. Finney, the trial court had enjoined the general sales manager of a company that manufactured carbide stamping dies from working for one of that company's competitors. 555 A.2d at 1325. The court believed the employee, Finney, inevitably would disclose the trade secrets of his former employer, Oberg Industries, if allowed to work in the new position. Id. at 1326. The information the trial court classified as trade secrets consisted of customer information reports, including a master customer directory and histories of quoted prices and completed sales for various customers. Id. at 1325.
On appeal the Superior Court did not clearly state whether or not it considered this information to constitute trade secrets under Pennsylvania law. Nevertheless, the Court vacated the injunction because (1) the case did not involve a restrictive covenant, (2) there was no evidence that Finney took Oberg's confidential information to use in his new position, (3) some of the confidential reports at issue, "such as the list of customers and their contact persons, were so voluminous that they could not have been committed to memory," and (4) Finney's position at Oberg and the knowledge he obtained while in that position did not demonstrate an inevitability of disclosure comparable to that found in Air Products. Id. at 1327. With respect to the latter point, the Court opined that the focus of Air Products was on the employee's "engineering background and the special knowledge he possessed relating to a method of oil recovery not yet developed by the competitor company," despite the circumstance that the employee, like Finney, was involved in sales. Id. at 1327.
In Iron Age Corp. v. Dvorak, both the trial court and the Superior Court refused to enjoin a former district sales manager of a footwear manufacturer from using or contacting any of the company's current or prospective customers. 880 A.2d 657. The employee, Dvorak, had left the company, Iron Age, to work for a competitor. Id. at 661. The Superior Court affirmed the denial of the requested injunction because the trial court reasonably concluded that the information at issue — Iron Age's customer lists — was "available to competitors through legitimate means and cannot be declared a trade secret." Id. at 664. The Court went on to distinguish Air Products on the ground that:
In Air Products, the employee possessed intimate knowledge of his former employer's research and development data for on-site gas delivery technologies. The employee's new employer was attempting to develop similar technologies, and the employee was hired to provide research and development data obtained through his previous employment. In the instant case, [Dvorak] possesses no such technical knowledge, and [his] new employer already has an extensive customer base. [Dvorak] was not hired to provide information he obtained through his employment with [Iron Age].Id. at 665 (citing Air Prods., 442 A.2d at 1117). The Court also noted that Dvorak had signed an agreement with his new employer promising not to disclose any of Iron Age's secrets. Id.
Though some passages in Oberg and Iron Age suggest that Pennsylvania courts will enjoin new employment more readily when the disclosure of technical trade secrets, as distinguished from other materials, is threatened, those cases do not purport to establish an inflexible rule defining the scope of materials that can be subject to trade secret protection, nor do they limit the granting of injunctive relief affecting new employment to circumstances involving technical trade secrets. Rather, these opinions reach fact-specific conclusions that the former employer was not entitled to injunctive relief against its departing employee barring him from working for a competitor. Overall, we conclude that the relevant Pennsylvania decisions, viewed as a group, suggest that (1) a determination of whether to grant injunctive relief in a trade secrets case and, if so, the proper scope of the relief, depends on a highly fact-specific inquiry into the situation in the case the court is considering and (2) a court conducting this inquiry has discretion to enjoin a defendant from beginning new employment if the facts of the case demonstrate a substantial threat of trade secret misappropriation.
Putting aside the fact that Botticella had access to and acquired confidential information of a technical nature about the formulas and ingredients for a variety of Bimbo products, he also had access to and acquired confidential information about Bimbo's long term strategies, operating costs, and customer negotiations. Botticella does not dispute that these types of information qualify as trade secrets under Pennsylvania law. See Air Prods., 442 A.2d at 1121-22. Accordingly, the District Court had discretion to enjoin Botticella from working at Hostess to the extent this proposed employment threatened to lead to the misappropriation of these trade secrets.
By contrast, in Iron Age the Superior Court found that the relevant information in that case did not even qualify as a trade secret. 880 A.2d at 664-65. Hence, there was no threat that the defendant's change in employment would cause him to misappropriate a trade secret. Likewise, the court in Oberg did not find any threat that trade secrets would be misappropriated, although its reasoning underlying that conclusion was not particularly clear. See 555 A.2d at 1327 ("Finney's position in the company and the knowledge he obtained while in that position do not demonstrate an inevitability of disclosure as that found in Air Products which would require the issuance of an injunction in this case.").
3. The District Court Applied the Correct Standard
Botticella next argues that an injunction against employment can issue under Pennsylvania law only when it would be "virtually impossible" for an employee to fulfill his responsibilities for a new employer without disclosing a former employer's trade secrets. Appellant's br. at 23. Accordingly, Botticella contends that the District Court erred as a matter of law when it granted Bimbo an injunction on the basis that Botticella's employment with Hostess would lead to a "sufficient likelihood or substantial threat of disclosure of a trade secret," a lesser showing than it would have been "virtually impossible" to avoid the disclosure of trade secrets during Botticella's employment at Hostess. Appellant's br. at 22. Notwithstanding dictum to the contrary in one of our own recent opinions, see Victaulic, 499 F.3d at 234, we conclude that the District Court applied the correct standard.
The trial court in Air Products enjoined the defendant from working in on-site gas sales at his new employer because it concluded it would be impossible for the defendant to work in that field without disclosing his former employer's trade secrets. 442 A.2d at 1122. On appeal the Superior Court affirmed, but noted it was "not adopt[ing] the reasoning of the trial court or its use of the term inevitable." Id. at 1124. The Superior Court subsequently has stated that "[t]he proper inquiry" in determining whether to grant an injunction to prevent the threatened disclosure of trade secrets is "whether there is sufficient likelihood, or substantial threat" of a defendant disclosing trade secrets. Den-Tal-Ez, 566 A.2d at 1232 (citing Air Prods., 442 A.2d at 1122-25; SI Handling Sys., Inc. v. Heisley, 753 F.2d 1244, 1263-64 (3d Cir. 1985)); see also A.M. Skier Agency, Inc. v. Gold, 747 A.2d 936, 942 (Pa.Super.Ct. 2000) (citing Den-Tal-Ez, 566 A.2d at 1232). The District Court in this case applied the standard that the Superior Court applied in Den-Tal-Ez.
While the threat of trade secret disclosure in Den-Tal-Ez arose from a proposed merger between two companies and not from an employee leaving one company to work for another, there is no indication that the Superior Court's discussion of the relevant standard for injunctive relief in trade secrets cases, which was gleaned from Air Products, was intended to be limited to the merger situation. See Den-Tal-Ez, 566 A.2d at 1232-33.
In arguing for a "virtual impossibility" standard, Botticella understandably relies heavily on our decision in Victaulic. In that case, Tieman, a sales representative, had violated a covenant not to compete with his former employer Victaulic, a mechanical device manufacturer, by working for a competitor. Victaulic, 499 F.3d at 230-31. Victaulic brought a misappropriation of trade secrets claim in addition to asserting several claims based on the covenant not to compete. Victaulic sought injunctive relief in the action. Id. at 231. The District Court dismissed Victaulic's covenant claims and requested additional briefing on the trade secrets claim. Id. But before the trade secrets claim was resolved Victaulic filed an interlocutory appeal, asserting that we had jurisdiction under 28 U.S.C. § 1292(a)(1) on the ground that the District Court's dismissal of the covenant claims effectively denied Victaulic's request for a preliminary injunction. Id.
In determining that we had jurisdiction to hear the appeal, we concluded that "Victaulic did not request a preliminary injunction on its trade secrets claim, so the District Court's dismissal of the covenant claims left it with no means of receiving preliminary relief." Id. at 232. We then went on to state that "[e]ven if we believed that Victaulic requested a preliminary injunction on its trade secrets claim, we would find jurisdiction" because any trade secrets injunction potentially available to Victaulic necessarily would be narrower than that requested on the covenant claims. Id. We stated:
[S]omething like Victaulic's requested relief (preventing Tieman from selling similar products for [his new employer] for a year) could fit a trade secrets claim, as it is possible for a court to enjoin an employee working in the relevant industry or soliciting customers for some period of time. But such a wide-ranging injunction is atypical; rather, the usual injunction merely prevents the employee from disclosing specified trade secrets. . . . Under Pennsylvania law, a broader injunction only lies when it is `virtually impossible . . . [for the employee] to perform his . . . duties for [his new employer] without in effect giving [it] the benefit of [his] confidential information.'Id. at 234 (quoting Air Prods., 442 A.2d at 1123). Because Victaulic "had not alleged or argued inevitable disclosure" in its trade secrets claim, we concluded that the District Court lacked the authority to issue a broad injunction based on that claim. Id.
In light of the scope of the District Court's injunction in the case now on appeal before us, we acknowledge that after one reads Victaulic it is possible to conclude that the District Court erred by granting the injunction without requiring Bimbo to show that it would be "virtually impossible" for Botticella to work at Hostess without disclosing Bimbo's trade secrets. But that reading would leave the following questions: (1) did Victaulic correctly interpret Pennsylvania law, and (2) if not, are we nevertheless bound by that interpretation in the present case because Victaulic is a precedential opinion issued by a prior panel of this Court?
Our review of Victaulic leads us to conclude that in that case we did not interpret Air Products in a way precisely consistent with Pennsylvania state precedents. The Court in Air Products took the passage that Victaulic quoted and containing the "virtually impossible" language directly from a decision of a United States District Court in Ohio in a case under Ohio law that had facts very similar to those in Air Products. See 442 A.2d at 1123 (quoting Emery Indus., Inc. v. Cottier, 202 U.S.P.Q. 829 (S.D.Ohio 1978)). The Superior Court in Air Products found the reasoning of the Emery decision "persuasive" and held that the trial court in Air Products acted reasonably by granting a preliminary injunction based on "precisely the reasoning of the court in Emery." Id. at 1124-25. Nevertheless, the Superior Court explicitly chose "not [to] adopt the reasoning of the trial court." Id. at 1125. It follows that the Superior Court also chose not to adopt the reasoning of the Emery court, it being "precisely" the same as that of the trial court in the case on appeal before the Superior Court.
The Superior Court subsequently stated that the "proper inquiry" in determining whether to grant an injunction to prevent the threatened disclosure of trade secrets is not whether a defendant inevitably will disclose a trade secret in the absence of injunctive relief, but instead whether "there is sufficient likelihood, or substantial threat, of defendant doing so in the future." Den-Tal-Ez, 566 A.2d at 1232 (citing Air Prods., 442 A.2d at 1122-25; SI Handling Sys., 753 F.2d at 1263-64). We therefore conclude that Air Product's repetition of the phrase "virtually impossible" in describing the Emery holding should not be interpreted as a statement of Pennsylvania's standard for granting injunctions in trade secrets cases, our suggestion to the contrary in Victaulic notwithstanding.
Inasmuch as we have concluded that Victaulic questionably interpreted Pennsylvania law, we next must determine whether we nevertheless are bound by its statement of that law. In this regard we start by recognizing that it is "the tradition of this court that the holding of a panel in a precedential opinion is binding on subsequent panels" and cannot be overruled absent consideration en banc. Internal Operating Procedure 9.1. It is also well established, however, that we are not bound by dictum in an earlier panel opinion. Abdelfattah v. Dept. of Homeland Sec., 488 F.3d 178, 185 (3d Cir. 2007) (citing Mariana v. Fisher, 338 F.3d 189, 201 (3d Cir. 2003)).
A second panel has the obligation to follow the law that a prior panel set forth even when the prior panel decision applied state law unless "there is persuasive evidence that [the law] has undergone a change" in which case "we are not bound by our previous panel decision if it reflected our reliance on state law prior to its modification." Robinson v. Jiffy Executive Limousine Co., 4 F.3d 237, 239-40 (3d Cir. 1993) (citing Smith v. Calgon Carbon Corp., 917 F.2d 1338, 1343 (3d Cir. 1990)). We decided Victaulic in 2007, and since that time so far as we are aware there has not been a "clear statement by the Pennsylvania Supreme Court to the contrary or other persuasive evidence of a change in Pennsylvania law." See Smith, 917 F.2d at 1343 (emphasis removed). Accordingly, the holdings of the Victaulic panel bind us in the present case.
We conclude that the Victaulic panel's discussion of Air Products and the interplay between virtual impossibility and the inevitable disclosure doctrine was dictum and does not bind us in the present case. That discussion was not necessary to the panel's jurisdictional holding that Victaulic had failed to request a preliminary injunction on its trade secrets claim. On the contrary, the discussion occurred only in the context of a counterfactual hypothetical in which the Victaulic panel posited that, even if Victaulic had requested a preliminary injunction on its trade secrets claim, the Court nevertheless would have had jurisdiction. While we recognize that "where a decision rests on two or more grounds, none can be relegated to the category of obiter dictum," Philadelphia Marine Trade Ass'n — Int'l Longshoremen's Ass'n. Pension Fund v. Comm'r, 523 F.3d 140, 147 n. 5 (3d Cir. 2008) (quoting Woods v. Interstate Realty Co., 337 U.S. 535, 537, 69 S.Ct. 1235, 1237, 93 L.Ed. 1524 (1949)), we do not consider the Victaulic decision on jurisdiction to have rested on its interpretation of Pennsylvania's law of trade secrets with respect to its actual holding because with or without discussion of the counterfactual hypothetical, we would have held that we had jurisdiction. At bottom we merely held that the District Court had denied Victaulic all preliminary relief and thus we had jurisdiction. Accordingly, Victaulic does not prevent us from concluding that the District Court in this case applied the correct legal standard.
Botticella further argues for an "impossibility" standard by pointing to an unpublished memorandum opinion of the Pennsylvania Superior Court in Bacharach, Inc. v. Testo, Inc., No. 1257 WDA 2001 (Pa.Super.Ct. 2000), App. at 279-301. In that case, an employer argued that the Court could issue an injunction pursuant to Air Products based on "the mere `likelihood'" that a trade secret might be disclosed. App. at 291. The Superior Court rejected this argument noting that in Air Products it only had "determined that the inevitable disclosure doctrine might be properly applied because `it would be impossible for the employee to perform his duties at the new employer without disclosing trade secrets.'" App. at 291-92 (quoting Air Prods., 442 A.2d at 1124-25). Pursuant to Pennsylvania Superior Court Rule 65.37, an unpublished decision such as Bacharach cannot be considered as precedent or cited for any purpose relevant to the present case. Thus, Bacharach's interpretation of Air Products deserves little weight to the extent it conflicts with the Superior Court's precedential opinions. See A.M. Skier Agency, 747 A.2d at 942; Den-Tal-Ez, 566 A.2d at 1232. In any event, Bacharach stopped well short of requiring rigid adherence to the legal reasoning used by the trial court in Air Products. App. at 287 (rejecting notion that " Air Products enshrines the `inevitable disclosure' doctrine as an inviolable rule of law").
4. Evidence of Botticella's Responsibilities at HostessBotticella next contends that the District Court erred by determining the probability that Botticella would disclose trade secrets while working at Hostess without requiring Bimbo to provide more detailed evidence of Botticella's anticipated responsibilities at Hostess. The record before the District Court contained little evidence in this regard apart from what could be inferred from Botticella's compensation package at Hostess and his title as the Vice President of Baking Operations for the eastern region. Nevertheless the District Court concluded that Botticella's prospective position at Hostess was "substantially similar" to his former position at Bimbo, noting that the Hostess position was "an executive level position, with a salary comparable to his salary at Bimbo." Bimbo Bakeries, 2010 WL 571774, at *13. We agree that the record supports the conclusion that in his new position at Hostess, Botticella would have broad oversight over bakery operations, just as he had at Bimbo. Accordingly, the District Court did not abuse its discretion by preliminarily determining that the Bimbo and Hostess positions were substantially similar.
The District Court also noted that in his position at Hostess, Botticella would report to Hostess's Senior Vice President for Bakery Operations. Bimbo Bakeries, 2010 WL 571774, at * 13.
5. Adverse Inference Based on Botticella's Failure to Testify
The District Court determined that Botticella's conduct following his acceptance of the Hostess job offer demonstrated his intention to use Bimbo's trade secrets during his employment with Hostess. The District Court bolstered this determination by drawing an adverse inference from Botticella's failure to testify at the preliminary injunction hearing. In so doing, the District Court relied on our decision in SI Handling Systems, Inc. v. Heisley, where we stated that because the misappropriation of a trade secret often must be proved by "construct[ing] a web of perhaps ambiguous circumstantial evidence" that outweighs the defendants' direct denial, the failure of defendants to testify in the face of a strong showing that a misappropriation or misuse occurred "justifies the inference that their testimony would be unfavorable to their cause." 753 F.2d at 1261 (internal citations omitted). On the other hand, Botticella contends that an adverse inference was inappropriate because he chose not to put forward any evidence at the preliminary injunction hearing. In support of this position he points to Stowe Township v. Standard Life Ins. Co. of Indiana, where we stated that "whatever inference might otherwise be available from the failure to call a witness is not permissible when a defendant chooses to put on no evidence at all, in apparent reliance on its determination that plaintiff has not met its burden." 507 F.2d 1332, 1338 (3d Cir. 1975).
Even assuming that the District Court erred by drawing an adverse inference from Botticella's failure to testify, the conclusion that Botticella intended to use Bimbo's trade secrets during his employment with Hostess rests on a solid evidentiary basis, namely, Botticella's "not disclosing to Bimbo his acceptance of a job offer from a direct competitor, remaining in a position to receive Bimbo's confidential information and, in fact, receiving such information after committing to the Hostess job, and copying Bimbo's trade secret information from his work laptop onto external storage devices." Bimbo Bakeries, 2010 WL 571774, at *13. Accordingly, the District Court did not abuse its discretion by determining that Bimbo demonstrated a likelihood of success on its misappropriation of trade secrets claim.
B. Irreparable Harm
The District Court concluded that Bimbo would suffer irreparable harm absent injunctive relief because the disclosure of its trade secrets to Hostess would put Bimbo at a competitive disadvantage that a legal remedy could not redress. On appeal, Botticella does not contest this finding apart from arguing that any harm Bimbo potentially might suffer from Botticella's employment at Hostess could be prevented by a narrow injunction — to which Botticella would stipulate — prohibiting Botticella only from disclosing Bimbo's trade secrets. We recognize that the evidence at trial may show that if Bimbo is entitled to relief that relief might be narrow yet adequate, just as Botticella suggests. Nevertheless, at this preliminary stage of the proceedings, the District Court did not abuse its discretion when, faced with evidence of Botticella's suspicious conduct during his final weeks at Bimbo, it determined that a stronger remedy was needed in the interim to protect Bimbo from imminent irreparable harm. See Den-Tal-Ez, 566 A.2d at 1232 ("It is clear that under Pennsylvania law a court of equity may fashion a trade secrets injunction that is broad enough to ensure that the information is protected.") (quoting SI Handling Sys., 753 F.2d at 1265) (internal alteration removed).
C. Harm to Botticella Caused by Injunctive Relief
The District Court concluded that the harm of Bimbo's trade secrets being disclosed to Hostess outweighed the harm to Botticella of not being able to commence employment at Hostess until the Court made a final determination of the merits following a trial, which it scheduled to start about two months from the date it issued the preliminary injunction. The Court noted that Botticella would continue to receive compensation for the eleven weeks of vacation time that he had accrued before leaving Bimbo. We agree with the District Court's determination. In so doing, however, we note that even a temporary injunction prohibiting someone from pursuing his livelihood in the manner he chooses operates as a severe restriction on him that a court should not impose lightly. Nevertheless, such a temporary restriction on his employment is warranted where, as here, the facts demonstrate that the restriction is necessary to prevent greater irreparable harm from befalling another party. Following a disposition on the merits which in the normal course of events will follow the disposition of this appeal and the remand of the case to the District Court, if the Court holds that Bimbo is entitled to relief, the Court should fashion a remedy appropriate to protect Bimbo's trade secrets without unduly imposing on Botticella's right to pursue his chosen occupation.
Botticella in effect extended the duration of the preliminary injunction by pursuing an interlocutory appeal for, as we indicated above, the District Court has stayed this case during this appeal.
D. The Public Interest
We agree with the District Court's conclusion that granting the preliminary injunction was consistent with the public interest. There are several public interests at play in this case. As noted by the District Court, there is a generalized public interest in "upholding the inviolability of trade secrets and enforceability of confidentiality agreements." Bimbo Bakeries, 2010 WL 571774, at *16. Additionally, there is a public interest in employers being free to hire whom they please and in employees being free to work for whom they please. Of these latter two interests, Pennsylvania courts consider the right of the employee to be the more significant. See Renee Beauty Salons, Inc. v. Blose-Venable, 438 Pa.Super. 601, 652 A.2d 1345, 1347 (Pa.Super.Ct. 1995) ("[T]he right of a business person to be protected against unfair competition stemming from the usurpation of his or her trade secrets must be balanced against the right of an individual to the unhampered pursuit of the occupations and livelihoods for which he or she is best suited.") (internal citation omitted); see also Wexler v. Greenberg, 399 Pa. 569, 160 A.2d 430, 434-35 (1960) (noting a societal interest in employee mobility). We are satisfied on the facts of this case that the public interest in preventing the misappropriation of Bimbo's trade secrets outweighs the temporary restriction on Botticella's choice of employment. See SI Handling Sys., 753 F.2d at 1265 (finding unnecessary an "extended analysis of the public interest [because] extensive precedent supports an injunctive remedy where the elements of a trade secret claim are established").
V. CONCLUSION
For the reasons stated above, we will affirm the order of the District Court dated February 9, 2010, and entered on February 12, 2010, granting Bimbo's motion for a preliminary injunction and will remand the case to that Court for further proceedings.
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