The U.S. District Court for the District of Minnesota recently denied a former employer’s motion for a preliminary injunction seeking to restrict a former employee’s ability to work for a direct competitor, in part on the grounds that soliciting customers from memory does not constitute statutory misappropriation of trade secrets.
The former employee had resigned his position at an asset management company, Honkamp Krueger Financial Services, Inc. (HKFS), to work for Mariner, LLC (Mariner), a direct competitor. That same day he filed an action for declaratory judgment that HKFS’s restrictive covenants were unenforceable. HKFS filed counterclaims against the former employee and Mariner alleging breach of contract, violation of Iowa’s Uniform Trade Secrets Act (IUTSA), and tortious interference with contractual relations.
In addition to seeking declaratory relief, on the day the former employee resigned, he retained a forensic expert to image his cell phone and laptop and deleted all business-related contacts on his cell phone. He later called former clients based on publicly available information or phone numbers he had committed to memory. HKFS reported that the former employee took clients with $11 million of assets under management to Mariner.
In defending against HKFS’s trade secrets claims, the former employee submitted an affidavit stating that he deleted all business contacts at the time of his resignation and that he hired a forensic expert to ensure he did not have protected information on his personal devices. The purported misappropriated trade secrets, therefore, existed solely in the memory of the former employee.
The District Court, relying on a decision from the Iowa Supreme Court, Lemmon v. Hendrickson, 559 N.W.2d 278 (Iowa 1997), found that Iowa courts do not consider the names of customers retained in a former employee’s memory to be trade secrets, but rather general information. The Lemmon case was decided based on common-law claims for misappropriation of trade secrets, but the District of Minnesota found compelling reasons to extend the holding to the statutory IUTSA claims as well.
However, the District Court did find that although the former employee did not misappropriate any trade secrets in violation of IUTSA, HKFS had established a likelihood of success on the claim that the former employee breached an agreement prohibiting his “mak[ing] any use” of HKFS’s client contacts. Despite this holding, the court denied HKFS’s motion for a preliminary injunction on the grounds that HKFS failed to establish irreparable harm.
Although injunctive relief was denied, the District of Minnesota’s decision stands as a reminder to former employees that even if forensics can show that personal devices are clean as a whistle, using client information from memory might still run afoul of an enforceable contract.
Moeschler v. Honkamp Krueger Financial Services, Inc., No. 21-CV-0416 (PJS/DTS), 2021 WL 4273481 (D. Minn. Sept. 21, 2021)