Examworks, LLC v. Todd Baldini ( 2020 )

NOT FOR PUBLICATION FILED
UNITED STATES COURT OF APPEALS DEC 2 2020
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
EXAMWORKS, LLC, No. 20-16125
Plaintiff-Appellee, D.C. No.
2:20-cv-00920-KJM-DB
v.
TODD BALDINI; ABYGAIL BIRD; MEMORANDUM*
LAWRENCE STUART GIRARD;
PAMELLA TEJADA,
Defendants-Appellants.
Appeal from the United States District Court
for the Eastern District of California
Kimberly J. Mueller, Chief District Judge, Presiding
Argued and Submitted November 16, 2020**
San Francisco, California
Before: NGUYEN, HURWITZ, and BRESS, Circuit Judges.
In this trade-secret misappropriation case, the defendants—former employees
of plaintiff ExamWorks, LLC—challenge a portion of the district court’s
preliminary injunction limiting defendants’ ability to conduct business with
ExamWorks customers. Like the parties, we refer to this portion of the preliminary
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
injunction as the “conducting business” provision. We have jurisdiction under 28
U.S.C. § 1292(a)(1). We vacate the “conducting business” provision and remand
for further proceedings consistent with this decision.
The “conducting business” provision states that:
Defendants are hereby enjoined from conducting business with any
individual or entity that did business with ExamWorks before
defendants stopped working there to the extent those individuals or
entities are identified in the bundle of trade secret materials
misappropriated by defendants, including, without limitation, curated
lists identifying ExamWorks’ clients, medical providers, and doctors;
provided however that defendants are not precluded from lawfully
announcing their new employment as long as any announcement does
not make use of plaintiff’s trade secrets.
Defendants contend this provision is too broad because it prevents them from
soliciting tens of thousands of publicly identifiable customers, even when defendants
have not solicited these customers using ExamWorks trade secrets.
The district court entered its preliminary injunction under California’s
Uniform Trade Secrets Act (UTSA), Cal. Civ. Code §§ 3426–3426.11, and the
analogous federal Defend Trade Secrets Act of 2016, 18 U.S.C. § 1836. The parties
have identified no relevant difference in California or federal law, and we thus
evaluate the “conducting business” provision under California law. Under
California law, “[a]ctual or threatened” trade secret misappropriation may be
enjoined. Cal. Civ. Code § 3426.2(a); see also 18 U.S.C. § 1836(b)(3)(A)(i). In
addition, “the injunction may be continued even after the trade secret has been
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lawfully disclosed ‘in order to eliminate commercial advantage that otherwise would
be derived from the misappropriation.’” Morlife, Inc. v. Perry, 66 Cal. Rptr. 2d 731,
740 (Ct. App. 1997) (quoting Cal. Civ. Code § 3426.2(a)).
At oral argument in this appeal, defendants did not contest that the district
court could preliminarily enjoin them from conducting business with those
ExamWorks customers they solicited using ExamWorks’s misappropriated trade
secrets. See Morlife, 66 Cal. Rptr. 2d at 739–40. The district court found that the
defendants had used ExamWorks’s trade-secret information to solicit at least some
ExamWorks customers. That finding is not clearly erroneous.
However, the district court did not determine how many—or which—
customers the defendants improperly solicited using ExamWorks’s trade secrets.
And the “conducting business” provision prevents defendants from conducting
business with any ExamWorks customer identified in the misappropriated trade-
secret information, even if defendants did not directly or indirectly use the trade-
secret information to solicit that customer. The district court’s findings do not justify
an injunction of that breadth, which prevents defendants from engaging in lawful
business.
In determining the proper scope of an injunction, California law requires
consideration of the employer’s interest in protecting its trade secrets and the former
employees’ interest in working and competing in their chosen field. Ret. Grp. v.
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Galante, 98 Cal. Rptr. 3d 585, 592–93 (Ct. App. 2009). In determining this balance,
“it is not the solicitation of the former employer’s customers, but is instead the
misuse of trade secret information, that may be enjoined.” Id. at 593. In addition,
“although an individual may violate the UTSA by using a former employer’s
confidential client list to solicit clients, the UTSA does not forbid an individual from
announcing a change of employment, even to clients on a protected trade secret
client list.” Reeves v. Hanlon, 95 P.3d 513, 522 (Cal. 2004).
Defendants maintain, and ExamWorks does not dispute, that defendants can
identify numerous potential customers through publicly available sources, such as
online directories. While these customers may also be among ExamWorks’s
thousands of customers, there is not a sufficient basis for enjoining defendants from
conducting business with ExamWorks customers they have not solicited using the
misappropriated trade secrets. See Galante, 98 Cal. Rptr. 3d at 593–96. To that
extent, the district court’s preliminary injunction “preclude[s] the precise type of
competition . . . [that] is otherwise permissible.” Id. at 594; see also Stormans, Inc.
v. Selecky, 586 F.3d 1109, 1119 (9th Cir. 2009) (injunctive relief must “be tailored
to remedy the specific harm alleged” (quotations omitted)). MAI Systems Corp. v.
Peak Computer, Inc., 991 F.2d 511 (9th Cir. 1993), upon which ExamWorks relies,
does not support the “conducting business” provision as it did not address the
propriety of enjoining a trade-secret defendant from doing business with any
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customer on a misappropriated trade-secret list.
We appreciate that the district court was handling a fast-moving preliminary
injunction proceeding and note that the defendants on appeal challenge only one
portion of the preliminary injunction. The other portions of the preliminary
injunction remain in effect. This includes the requirement that defendants are
enjoined “from acquiring, accessing, disclosing, or using” ExamWorks’s trade
secrets, which on its own prohibits defendants from using ExamWorks’s trade-secret
compilations to solicit ExamWorks’s customers. See Galante, 98 Cal. Rptr. 3d at
594.
For the foregoing reasons, we vacate the preliminary injunction’s “conducting
business” provision. On remand, the district court retains discretion, consistent with
this decision, to modify the preliminary injunction to ensure the protection of
ExamWorks’s trade secrets. The parties shall bear their own costs on appeal.1
VACATED AND REMANDED.
1
We note that defendant-appellant Tejada has settled and informed the Court that
she has withdrawn her appeal. ECF No. 53. We construe that as a motion to dismiss
the appeal as to Tejada, and grant that request. We are also informed, per
ExamWorks’s November 13, 2020, letter to the Court, ECF No. 52, that defendant-
appellant Bird has reached an agreement in principle with ExamWorks, under which
Bird will withdraw her appeal. However, Bird has yet to file such a request. In all
events, defendants’ arguments that Bird should not have been included in the
preliminary injunction lack merit and we reject them.
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