Richard B. McNamara.
ORDER
The Petitioner, Narrative1, LLC ("Narrative1"), seeks an injunction against Jacqueline Arzouian ("Arzouian") and Datappraise, LLC ("Datappraise"), prohibiting them from misappropriating trade secrets and ceasing violation of Arzouian's obligations under her non-disclosure and confidentiality agreement. For the reasons stated in this Order, the requested relief is DENIED.
I
Narrative1 is engaged in the business of developing, licensing, and providing ongoing support for commercial appraisal software used by real estate appraisers. It employs approximately 8 people. Due to its small size, all employees are involved in discussions relating to sales, marketing, support for existing customers, and the development of new products and new features for existing products. Narrative1 holds regular employee meetings where all issues pertaining to the company are discussed, and minutes of those meetings are made available to Narrative1's employees.
Arzouian was hired on December 8, 2010 as an Account Manager/Sales Representative. As a condition of her employment, Arzouian executed a nondisclosure and confidentiality agreement. That agreement provided in relevant part:
1.
Definition of Confidential Information. For purposes of this agreement, "Confidential Information" shall include all business and client information related to narrative one software, LLC and its respective customers or prospects business information, software code, passwords, appraisal reports, spreadsheets, work files, database files, and credit card or other financial information.
...
3. Obligations of Receiving Party. Receiving Party shall hold and maintain the Confidential Information in strictest confidence for the sole and exclusive benefit of the Disclosing Party. Receiving Party shall carefully restrict access to Confidential Information to employees, contractors and third parties as is reasonably required.
Arzouian did not, however, sign a non-competition agreement.
Narrative1 asserts that over the past five years it has invested substantial time and expense in developing a database of information on important customers and prospective customers, which are sometimes referred to as "VIP" customers and prospects. During the course of her employment, Arzouian used this database to contact "VIP" customers and gained a substantial amount of information from them. Moreover, she participated in strategic meetings in which sales strategies relative to the VIP customers were discussed in detail. She also learned about new products that Narrative1 planned to offer. A copy of this material has been filed under seal, and reviewed by the Court.
Over the weekend of April 28- 29, 2012, Arzouian entered Narrative1's office, cleaned out her desk, left a short note stating that she was resigning from the company, and left her key on a window shelf outside the front door. Arzouian did not provide Narrative1 with any notice prior to her departure. Her desk was empty, and a search of her desk and her office revealed that none of the reports that had been printed for her and that were specifically stored at her office were there. Arzouian claims that she brought documents belonging to Narrative1 home with her, but burned them.
On May 1, 2012, Narrative1 learned that Arzouian gained new employment at Datappraise. Datappraise is a commercial appraisal software company located in Seattle, Washington and is a direct competitor of Narrative1. Its software product is similar in most respects to the software product sold by Narrative1. Further, Datap-praise sells its products to the exact same potential customers as Narrative1 and has been competing with Narrative1 for some of the same prospective customers. On May 7, 2012, Narrative1 wrote to Arzouian and advised her that it expected her to comply with the obligations under the non-disclosure and confidentiality agreements. The letter sent to Arzouian also referenced a number of trade secrets, including Narrative1's software source code passwords, information about Narrative1's new products, Narrative1's marketing and sales strategy information, prospective customer lists and their information. However, on May 14, 2012, Narrative1 learned from one of its customers that he had been contacted by Arzouian. Thereafter, Narrative1 filed its Petition.
At the hearing on Narrative1's request for a preliminary injunction, and in its filings, it focused on Respondents' alleged use of customer lists. Arzouian has filed an affidavit stating that she is not in possession of any documents belonging to Narrative1. The Respondents claim that after Arzouian joined Datappraise they agreed that Arzouian would tell Daniel Gallery, the principal of Datappraise, nothing about what she had done at Narrative1 or about whom she had contacted or made sales to. They agreed that Arzouian would focus on sales efforts for companies that contacted Datappraise by e-mail or by requesting a trial version and demonstration of its product. Respondents denied using any of Narrative1's confidential information.
Following the hearing on the request for a preliminary injunction, Narrative1 narrowed the scope of its requests and asked that: (1) the Respondents be enjoined from contacting any of the customers and potential customers on the lists that Narrative1 provided to the Court in its Confidential Affidavits and that were not on Datappraise's customer and prospect lists as of April 30, 2012; and (2) Arzouian be enjoined from disclosing any information that Narrative1 asserts as trade secrets and to refrain from using this information in connection with her work for Datappraise. Narrative1 argues that such relief is necessary to prevent "continued and inevitable future misappropriation of Narrative1's trade secrets" and violation of Arzouian's obligations under her confidentiality agreement.
Narrative1 admits that, despite the suspicious circumstances surrounding Ar-zouian's departure, it has no hard evidence to show that she has misused its confidential information. In seeking an injunction, Narrative1 asserts that "it would be impossible for Arzouian not to use Narrative1's trade secret information in connection with sales contacts with these customers and potential customers and, accordingly, Arzouian could not meet her confidentiality obligations under the 'Non-disclosure and Confidentiality Agreement.'" Petitioner's Supp. Memo. in Support of Petition for Preliminary and Permanent Injunction, 3. Narrative1 points out that:
"Determining whether a party has complied with a Court order is difficult under the best of circumstances and none more than in a situation such as this. Were Datappraise allowed to contact the customers and potential customers that are on the lists that Narrative1 provided to the Court in its Confidential Affidavits, Nar-
rativei could not know whether such contact was the result of a violation of the Order or if it were not."
Petitioner's Supp. Memo. in Support of Petition for Preliminary and Permanent Injunction, 4.
Finally, Narrative1 argues that its request is reasonable since Respondents have agreed that Arzouian would not contact those prospects with whom she had worked at Narrative1 for a period of time and that Respondents have ample opportunity to develop business without doing so.
Datappraise and Arzouian argue that the names of Narrative1's customers and potential customers and their contact information is not a trade secret, nor is it confidential information protected by the non-disclosure agreement. Further, Datappraise argues that what Petitioner really seeks is application of the inevitable disclosure rule, which has not yet been adopted by the New Hampshire Supreme Court. Respondent's Supp. Memo. in Opposition to Request for Preliminary Injunction, 7.
II
An injunction "is an extraordinary remedy" that "should not issue unless there is an immediate danger of irreparable harm to the party seeking injunctive relief, and there is no adequate remedy at law." N.H. Dep't of Environmental Services v. Mottolo, 155 N.H. 57, 63 (2007); Timberlane Regional School District v. Timberlane Regional Educational Association, 114 N.H. 245, 250 (1974). Moreover, in order to succeed on a petition, a party seeking preliminary injunctive relief must show that it will "likely succeed on the merits." Mottolo, 155 N.H. at 63; Unifirst Corporation v. Nashua, 130 N.H. 11, 14 (1987).
Respondents argue that the Petitioner's request for an injunction should be denied, in part, because the names of Narrative1's customers and potential customers in their contact information is not a trade secret nor is it confidential information protected by the nondisclosure agreement. The Court disagrees. New Hampshire RSA 350-B, the Uniform Trade Secret Act, defines a trade secret as:
information, including a formula, pattern, compilation, program, device, method, technique or process, that: (a) 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 . . . .
The New Hampshire Supreme Court has recognized that customer lists may constitute a trade secret. Mortgage Specialists Inc. v. Davey, 153 N.H. 764, 768 (2006). Other courts in states that have enacted the Uniform Trade Secret Act have reached similar results, as long as the customer lists are maintained in a way that protects their confidentiality. Johnson Controls, Inc. v. Guidry, 724 F. Supp.2d 612, 629 (W.D.La. 2012) (Louisiana law); Radiator Express Warehouse, Inc. v. Shie, 708 F.Supp.2d 762, 767 (E.D. Wash. 2010) (Washington law).
Respondents do not allege that Petitioner did not maintain its information in a confidential fashion. The record shows that Petitioner had its employees sign confidentiality agreements, utilized computer passwords, and otherwise acted to protect its information. Rather, Respondents argue that the information petitioner seeks to protect is not confidential, because it relates to a relatively small market of commercial real estate appraisers, which could be ascertained by review of public records. However, Respondents' argument misses the mark. While the information in Petitioner's database could be "ultimately ascertained by requesting and scouring public records, calling customers and operators," the information "is not readily ascertainable from public sources . . . without investing a significant amount of time, effort, and expense...." Pyro Spectaculars North, Inc. et al v. Souza, 2012 WL 968084 (E.D. Cal. March 21, 2012) *8 (emphasis added). The information Petitioner provided under seal indicates that it maintained information about its customers, their businesses, and information it created about each as it compiled its customer lists. At least at this preliminary stage of litigation, the Court will assume that Narrative1 has carried its burden of establishing that its customer information constitutes a trade secret.
However, even assuming that Narrative1's confidential customer lists are trade secrets, it has not established that it is entitled to relief. Narrative1 did not require Arzouian to sign a non-competition agreement, only a non-disclosure. Narrative1 argues, however, that it is entitled to injunctive relief that will, in fact, limit her employment because "it would be impossible for Arzouian not to use Narrative1's trade secret information in connection with sales contacts... and, accordingly, Arzouian could not meet her confidentiality obligations."
Although neither party has briefed the issue, it appears that Petitioner seeks to invoke the "inevitable disclosure rule" of Pepsico v. Redman, 54 F.3d 1262 (7th Circuit 1995). Under that rule, a plaintiff may prove a claim of trade secret misappropriation by demonstrating that a former employee's new employment will inevitably lead him to rely on the plaintiff's trade secrets. Id. at 1209. Instead of pointing to the inevitable disclosure doctrine, Narrative1 relies on the provisions of the Uniform Trade Secret Act, RSA 350-B to support its claim. The statute provides that actual or threatened misappropriation of trade secrets may be enjoined. RSA 350-B: 1.
The inevitable disclosure doctrine has never been considered by the New Hampshire Supreme Court, is not accepted in many states, and is generally applied narrowly. In fact, "[n]o court interpreting the provisions of the [Uniform Trade Secret Act] has applied the theory of inevitable disclosure." Lejeune v.Coin Acceptors, Inc., 849 A.2d 451, 470 (Md. 2004) (citations omitted). As the court noted in Earthweb, Inc. v. Shlack, 71 F.Supp.2d 299, 310 (S.D.N.Y. 1999), "... the inevitable disclosure doctrine treads an exceedingly narrow path through judicially disfavored territory" and "should be applied in only the rarest of cases." Specifically, the application of the doctrine creates a de facto covenant not to compete:
[t]he covenant is imposed after the employment contract is made and therefore alters the employment relationship without the employee's consent. When, as here, a confidentiality agreement is in place, the inevitable disclosure doctrine in effect converts the confidentiality agreement into such a covenant not to compete.
Whyte v. Schlage Lock Co.,
101 Cal.App.4th 1443, 1462-63 (Cal. App. 4th Dist. 2002) (citations and quotations omitted). "Another drawback to the doctrine is that courts are left without a frame of reference because there is no express non-compete agreement to test for reasonableness. Instead, courts must grapple with a decidedly more nebulous standard of 'inevitability.'"
Earthweb, Inc.,
71 F.Supp.2d at 311.
Courts which have declined to accept the doctrine have done so because of a concern that imposing what is, in substance, an ex post facto covenant not to compete violates an important public policy in favor of employee mobility. IBM v. Seagate Technology, Inc., 941 F.Supp. 98, 101 (D.Minn. 1992); Lejeune, 849 A.2d at 471; Kelly Services v. Greene, 535 F.Supp.2d 180, 187 (D.Me. 2008).
The New Hampshire Supreme Court has never considered the doctrine. However, the Court has stated that public policy in New Hampshire "discourages covenants not to compete" and such covenants are strictly construed. Concord Orthopedic Association v. Forbes, 142 N.H. 440, 442 (1997); see also Syncom Industries, Inc. v. Wood, 155 N.H. 73, 80 (2007). The Court has stated that a restraint on employment is only reasonable if it is no greater than necessary for the protection of the employer's legitimate interest, does not impose undue hardship on the employee and is not injurious to the public interest." ACAS Acquisitions v. Hobert, 155 N.H. 381, 389 (2007). Moore v. Dover Veterinary Hosp., Inc., 116 N.H. 680, 684 (1976). A covenant's reasonableness is a matter of law. The New Hampshire Supreme Court has noted that a court's "first step in determining the reasonableness of a given restraint is to determine whether the restraint was narrowly tailored to protect the employer's legitimate interests". ACAS Acquisitions v. Hobert, 155 N.H. at 389. This task is particularly difficult, when there is no covenant to construe and the courts is placed in the position of drafting an agreement that the parties themselves did not agree to. Earthweb, Inc. 71 F.Supp.2d at 311.
For these reasons the Court believes that the inevitable disclosure doctrine is not part of New Hampshire law and provides no basis for relief. Thus, Narrative1 has not established a likelihood of success on the merits at the current time and is not entitled to injunctive relief.
It may be that the Respondents will attempt to utilize confidential information belonging to the Petitioner, which would entitle it to relief. Certainly the circumstances of Ms. Arzouian's departure from Narrative1 are unusual, her contact of Narrative1's customers is suspicious, and her explanation for the lack of documents found in her office is improbable. However, Petitioner has produced insufficient evidence from which a Court could find, by a preponderance of the evidence, that its rights have been violated. Accordingly, the request for a preliminary injunction must be DENIED.
SO ORDERED.
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Richard B. McNamara,
Presiding Justice
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