Addenda Corporation (Addenda) and PAG Holdings, Incorporated (PAG), are subsidiaries of Metals & Additives Corporation, Inc. (MAC). St. Louis Group, LLC (SLG) and PAG are competitors in the business of selling chemical additives. Dagoberto J. Hornedo was at one time president of PAG. Hornedo did not sign an employment agreement, confidentiality agreement, non-competition agreement, or non-solicitation agreement, but signed the MAC employee handbook. Hornedo resigned from PAG on April 8, 2010, and became president and part owner of the newly-formed SLG.
MAC and its subsidiaries filed a verified motion for preliminary injunction against Hornedo and SLG seeking to enjoin them from using MAC trade secrets and alleging that Hornedo breached his fiduciary duties by preparing to compete with MAC, Addenda, and PAG while still employed by PAG, and that he usurped corporate opportunities. The trial court denied MAC's request for injunctive relief and MAC now appeals from that order.
We affirm.
This case involves competition in the sale of antimony and zinc borate, metal compounds, and their derivatives. Antimony ore is mined most prevalently in China, Russia, Bolivia, and South America. Hornedo describes his experience and knowledge of the antimony business as his family business. His father was in the business for thirty years, and in Hornedo's youth, he lived on-site at an antimony facility in Texas. As an adult, Hornedo was employed for approximately twenty years by Chemtura, a leader in the antimony business and direct competitor of PAG and SLG. While employed by Chemtura, Hornedo was the global product manager for antimony, zinc borate, blends, and smoke suppressants. Hornedo developed relationships with suppliers throughout the world, including Bolivian suppliers Polymet and EMUSA, and had personal relationships with some of them because of his father's involvement in the industry.
Hornedo also gained experience at Chemtura in developing, testing, and marketing blends, as well as formulating blends to achieve a certain level of flame retardance and/or smoke suppressancy. MAC was aware of the extent of Hornedo's contacts and experience in the industry prior to offering him a position in their company.
In 2006, MAC purchased PAG from Fortune Ventures, Inc. (FVI), a division of R.J. Marshall. FVI manufactured antimony and non-antimony products, and its entire product line was acquired by MAC as a result of the purchase. In late 2006, while Hornedo was working for Chemtura, PAG began recruiting him for employment, and he began working for PAG as its president on January 15, 2007. Hornedo was not required to sign an employment agreement, confidentiality agreement, non-competition agreement, or non-solicitation agreement.
During his employment with PAG, Hornedo had access to highly confidential information, including operations, processes, and methods used at MAC's production plants in Indiana and Ohio. Under Hornedo's tenure as president, PAG grew from a three-milliondollar company that was not profitable, to a thirty-million-dollar, profitable company. Hornedo hired two of his colleagues from Chemtura to work for PAG and the three were the only PAG employees. Hornedo also expanded PAG's product line. As president of PAG, Hornedo attended board meetings of all three MAC organizations during which matters relating to planning, material sourcing, short and long term pricing models, research, and development of products were addressed. As such, Hornedo was aware of PAG's customers and distributors.
Hornedo and MAC's CEO, Greg Stevens, had discussions during PAG's recruitment of him about Hornedo's desire to have equity in PAG. Hornedo believed that he and Stevens had reached a verbal agreement that if Hornedo could make PAG profitable he would receive an equity interest in PAG. At the time of Hornedo's employment, it was not the custom or practice of MAC's management to execute written agreements with respect to its officers or directors.
In April 2009, a written employment agreement was presented to Hornedo and that offer remained outstanding for eight months before it was withdrawn at a December 2009 board meeting. That written employment agreement did not reflect Hornedo's understanding of the equity interest in PAG he believed had been offered to him during his recruitment, so he refused to execute it. MAC's proposed employment contract included provisions concerning MAC's proprietary information and trade secrets, and a provision for payment of damages from the improper disclosure or use of those materials.
In December 2009, PAG board members discussed the possibility of losing Hornedo as an employee and about the steps necessary to find a replacement for him. At roughly the same time, Hornedo's father died and Hornedo traveled to Laredo, Texas for the funeral. While there, Hornedo's childhood friend, Javier Rodriguez, asked Hornedo about working for Rodriguez's chemical company, St. Louis Group, Inc. (SLG Texas). SLG Texas had a history of selling antimony and worked with some of the same distributors and customers as PAG. Hornedo expressed some interest, but made no plans in December.
In January or February 2010, Hornedo was contacted by Luis Mercado, the owner of EMUSA, a Bolivian antimony supplier Hornedo had known since the 1990s. Hornedo had worked with Mercado at Chemtura and introduced PAG to EMUSA in 2009. Mercado stated that he was interested in establishing a new company to sell antimony directly instead of working through companies such as PAG, Chemtura, and other competitors. Mercado inquired if Hornedo was interested in running this new company. Hornedo mentioned the prior discussions he had with Rodriguez, whom Mercado did not know, and Mercado suggested that the three meet in person. In late February 2010, Hornedo, Mercado, and Rodriguez met to discuss starting a new company.
Because Hornedo was not in a position financially to leave PAG without having another job, he waited until the new company was created and capital was raised before leaving PAG. In mid- March, Rodriguez, an investor, signed a certificate of formation of SLG, and filed it with the State of Delaware. In early April, a lease for office space was signed, and on April 5, 2010 an LLC agreement was executed by investors in SLG.
Hornedo was demoted from his position as President of PAG on the morning of April 8, 2010, and he resigned from PAG at the same time. Somewhat ironically, PAG had a record month in terms of revenue and sales the last full month Hornedo worked for PAG. Following his resignation, Hornedo signed the LLC Agreement, registered SLG with the State of Indiana, and began working for SLG on April 9, 2010. Hornedo owns 24% of SLG and serves as its President. The other members of SLG are Rodriguez, Mercado, and Joseph Michael Jackson. Mercado is the major shareholder after purportedly investing $250,000 in SLG. Hornedo offered jobs to the two assistants with whom he had worked at Chemtura and had recruited to PAG. Hornedo and those two assistants were the only employees of SLG as of the date of the hearing on MAC's verified motion for preliminary injunction. Those two assistants had not signed non-competition agreements with PAG and had access to customer and supplier contacts while employed by PAG.
On August 13, 2010, MAC filed a verified motion for preliminary injunction and memorandum of law in support thereof against Hornedo and SLG. A hearing was held on the motion on October 20, 2010, at which time the trial court heard testimony and argument and exhibit books were submitted by all parties and made part of the record without objection. On November 10, 2010, the trial court issued its findings of fact and conclusions thereon denying MAC's motion for preliminary injunction.
This is an interlocutory appeal of right from the trial court's order denying MAC's motion for preliminary injunction against Hornedo and SLG. To obtain a preliminary injunction, the moving party has the burden of showing by a preponderance of the evidence that: (1) the moving party's remedies at law are inadequate, thus causing irreparable harm pending resolution of the substantive action; (2) the moving party has at least a reasonable likelihood of success at trial by establishing a prima facie case; (3) the threatened injury to the moving party outweighs the potential harm to the non-moving party resulting from the granting of the injunction; and (4) the public interest would not be disserved. PrimeCare Home Health v. Angels of Mercy Home Health Care, L.L.C., 824 N.E.2d 376 (Ind. Ct. App. 2005). The moving party must prove each of these requirements to obtain a preliminary injunction. Id. If the moving party fails to prove even one of these requirements, the trial court's grant of an injunction is an abuse of discretion. Id.
A party appealing from the trial court's denial of an injunction appeals from a negative judgment and must demonstrate that the trial court's judgment is contrary to law; that is, the evidence of record and the reasonable inferences therefrom are without conflict and lead unerringly to a conclusion opposite that reached by the trial court. Id. We cannot reweigh the evidence or judge the credibility of any witness. Id. Further, while we defer substantially to the trial court's findings of fact, we evaluate questions of law de novo. Id.
"The grant or denial of a preliminary injunction is within the sound discretion of the trial court, and the scope of appellate review is limited to deciding whether there has been a clear abuse of discretion." Bigley v. MSD of Wayne Twp. Sch., 823 N.E.2d 278, 281 (Ind. Ct. App. 2004). When determining whether to grant a preliminary injunction, the trial court is required to make special findings of fact and state its conclusions thereon. Id. When findings and conclusions are made, the reviewing court must determine if the trial court's findings support the judgment. Id. The trial court's judgment will be reversed only when clearly erroneous. Id. Findings of fact are clearly erroneous when the record lacks evidence or reasonable inferences from the evidence to support them. Id. A judgment is clearly erroneous when a review of the record leaves us with a firm conviction that a mistake has been made. Id. We consider the evidence only in the light most favorable to the judgment and construe findings together liberally in favor of the judgment. Id. "The power to issue a preliminary injunction should be used sparingly, and such relief should not be granted except in rare instances in which the law and facts are clearly within the moving party's favor. Barlow v. Sipes, 744 N.E.2d 1, 5 (Ind. Ct. App. 2001). We agree with the trial court that this is not the rare instance requiring injunctive relief.
MAC sought to enjoin Hornedo and SLG from using MAC trade secrets, and requested that Hornedo and SLG be enjoined from selling all products that were functionally similar to those sold by MAC. The trial court found this request to be overly broad, and we do as well.
Indiana's Trade Secrets Act is codified at Ind. Code Ann. § 24-2-3 et seq. (West, Westlaw current through Pub. Laws approved & effective through 6/28/2011). A protectable trade secret is defined as:
I.C. § 24-2-3-2 (West, Westlaw current through Pub. Laws approved & effective through 6/28/2011). The characteristics of a trade secret are (1) information, (2) which derives independent economic value, (3) is not generally known, or readily ascertainable by proper means by other persons who can obtain economic value from its disclosure or use, and (4) is the subject of efforts reasonable under the circumstances to maintain its secrecy. Hydraulic Exch. & Repair, Inc. v. KM Specialty Pumps, Inc., 690 N.E.2d 782 (Ind. Ct. App. 1998). Whether information constitutes a trade secret is a fact-sensitive determination, but is one for the trial court to make as a matter of law. Coleman v. Vukovich, 825 N.E.2d 397 (Ind. Ct. App. 2005).
"Formulas and their mixing instructions can be properly classified as "trade secrets" under appropriate circumstances as defined under IND. CODE 24-2-3-2." Michels v. Dyna-Kote Indus., Inc., 497 N.E.2d 586, 588-89 (Ind. Ct. App. 1986). "Depending on the facts of the case, customer lists may also be interpreted under the Act as to be classified as trade secrets." Id. at 589. Information that could be obtained from other persons, directly from customers, from competitors, and from public records, however, does not constitute a trade secret. M.K. Plastics Corp. v. Rossi, 838 N.E.2d 1068 (Ind. Ct. App. 2005). When customers may be identified through trade publications, contacts with other customers, or other competing businesses, a customer list cannot be a trade secret. Xpert Automation Sys., Corp. v. Vibromatic Co., Inc., 569 N.E.2d 351 (Ind. Ct. App. 1991). Indiana's trade secret statute does not require absolute secrecy, rather, reasonable security measures are sufficient. N. Elec. Co., Inc., v. Torma, 819 N.E.2d 417 (Ind. Ct. App. 2004).
MAC challenges the trial court's finding and conclusion that PAG's customers, distributors, suppliers, pricing information, and chemical blends and compounds are not trade secrets. MAC argues that it took more than reasonable steps to keep PAG's information confidential. We disagree.
The information now claimed by MAC as trade secrets is the same information it previously claimed, when it served its purposes, was generally known and not protectable. After MAC had successfully recruited Hornedo to become president of PAG, Chemtura, Hornedo's former employer, complained to MAC about Hornedo's employment and cautioned against the disclosure of trade secrets. In an August 2007 letter from MAC in response, MAC stated, "All matters relating to customer, customers[`] arrangements, pricing and products are generally available to the public and known within the industry including some though [sic] websites." Exhibit Volume IV, Tab S. MAC argued that Hornedo had no obligations to Chemtura and responded that had Chemtura wished to restrict Hornedo's activities in any way, it should have done so in the employment letter between Chemtura and Hornedo. Without heeding its own advice to Chemtura, MAC failed to require Hornedo to sign any agreement that would have limited or restricted his activities in any way in the antimony industry. MAC cannot have it both ways.
Further, as the trial court found, MAC's chief financial officer sent an e-mail to Hornedo, after his resignation, inquiring about specific pricing and order information for two of PAG's customers. Hornedo responded to the e-mail by providing the relevant information. If MAC and PAG were willing to share specific pricing information for two of its customers with a former employee who now was a competitor, then it certainly was not a stretch for the trial court to find that MAC and PAG were not taking reasonable security measures to protect its purported trade secrets.
In addition, MAC argues that its business contacts are the result of years of relationship building and have independent economic value. Hornedo did have access to PAG customer, supplier and distributor lists. We decline, however, to characterize the lists as trade secrets because they are readily ascertainable. The information about suppliers is well known in the industry and is publicly available on a website, ImportGenius.com. As Hornedo noted during his depositions, PAG used printouts from that website to show which suppliers and what materials SLG was using. Likewise, SLG used printouts to show which suppliers and what materials PAG was using. Both PAG and SLG used that website to monitor competitors and suppliers. Furthermore, distributors such as Cary and Kohl listed PAG on their website.
As we previously stated, when customers may be identified through trade publications, contacts with other customers, or other competing businesses, a customer list cannot be a trade secret. Xpert Automation Sys., Corp. v. Vibromatic Co., Inc., 569 N.E.2d 351. The record reflects that Hornedo was aware of the identities of antimony customers from his experience at Chemtura and could find new customers via the internet through his knowledge and skill. In regard to pricing lists, MAC claims that it does not make its pricing margins publicly available and considers them to be trade secrets. Yet, the price of antimony fluctuates weekly and is publicly available. If PAG's prices and margins at the time Hornedo left PAG were trade secrets, they are no longer trade secrets because they are valueless. The value of such information can diminish over time because customers can ask competitors to match or beat a price. PAG's blends are not trade secrets because companies within the industry often attempt to duplicate competitors' blends. We decline to adopt the inevitable disclosure doctrine here, since we conclude that the trial court correctly found that trade secrets were not involved.
MAC also alleged that Hornedo breached his fiduciary duty to PAG and MAC and usurped corporate opportunities. A claim for breach of fiduciary duty requires proof of three elements: (1) the existence of a fiduciary relationship; (2) a breach of the duty owed by the fiduciary to the beneficiary; and (3) harm to the beneficiary. Farmer's Elevator Co. of Oakville, Inc. v. Hamilton, 926 N.E.2d 68 (Ind. Ct. App. 2010). A breach of fiduciary duty is a tort claim for injury to personal property, and "[a]n action for . . . injury to personal property . . . must be commenced within two (2) years after the cause of action accrues." Id. at 79 (quoting Ind. Code Ann. § 34-11-2-4 (West, Westlaw current through 2011 Pub. Laws approved & effective through 6/28/2011)). The fiduciary duty owed is the same whether it arises from the capacity of a director, officer, or shareholder in a close corporation. G & N Aircraft, Inc. v. Boehm, 743 N.E.2d 227 (Ind. 2001). The fiduciary must deal fairly, honestly, and openly with his corporation. Hartungv. Architects Hartung/Odle/Burk, Inc., 157 Ind.App. 546, 301 N.E.2d 240 (1973). Further, the fiduciary must not be distracted from the performance of his official duties by personal interests. W& WEquip. Co., Inc. v. Mink, 568 N.E.2d 564 (Ind. Ct. App. 1991). Once it is established that a fiduciary has attempted to benefit from a questioned transaction, the law presumes fraud, and the burden of proof then shifts to the fiduciary to show that his actions were honest and in good faith. Id. Hornedo does not deny the existence of a fiduciary duty. Rather, he denies breach of that duty and any resulting harm.
Usurping a corporate opportunity is a breach of fiduciary duty. Hartung v. Architects Hartung/Odle/Burk, Inc., 301 N.E.2d 240. A corporate fiduciary may not appropriate to his own use a business opportunity that in equity and fairness belongs to the corporation. Id. "The particular facts and circumstances of each case must be examined to determine if the opportunity belonged to the corporation or if it is one personal to the individual." Id. at 244. The general rule is that the fiduciary cannot lure away corporate business or clients which in equity belong to his corporation. Id.
MAC claims that Hornedo had a clear fiduciary duty to MAC as both an officer and director, and that this duty existed even in the absence of a written employment agreement. MAC also contends that Hornedo's fiduciary duty was on-going even after his resignation from PAG. We are not persuaded by this argument.
As previously stated, MAC did not have Hornedo sign an employment agreement, confidentiality agreement, non-competition agreement, or non-solicitation agreement, any of which could have restricted Hornedo's activities. In the absence of a restrictive covenant, a corporate officer or director can resign and form a competing enterprise. Epperly v. E. & P. Brake Bonding, Inc., 348 N.E.2d 75 (Ind. Ct. App. 1976). In fact, we quote from 19 Am.Jur.2d Corporations § 13282, at 690-91 (1965) for a concise statement of the general rule:
Hornedo did sign an employee handbook, which contained a provision that employees shall not use for personal benefit or for the benefit of others any information gained through employment by MAC that might be deemed to conflict with MAC's best interests. An employee handbook bearing or accompanied by disclaimers that the handbook is not a contract, generally, as a matter of law does not create a unilateral contract, particularly when the employee has signed the disclaimers. Orr v. Westminster Village N., Inc., 689 N.E.2d 712 (Ind. 1997). Clearly, the terms of the employee handbook applied to Hornedo only during the course of his employment by MAC, ceasing to apply upon his resignation from PAG. Thus, we reject MAC's argument that Hornedo's fiduciary duty was on-going even after his resignation from PAG.
Furthermore, we reject MAC's interpretation of this court's holding in Abdalla v. Qadorh-Zidan, 913 N.E.2d 280 (Ind. Ct. App. 2009). In Abdalla we answered, in the affirmative the question "whether a company owes a continuing fiduciary duty to a former shareholder or member to fairly and accurately report the company's financial results to the IRS for a year in which the former shareholder held stock in the corporation or was a member of the LLC." Id. at 285. This holding, however, was a limited one, inapplicable to the case at bar, as it involved a company's obligation to former shareholders.
The challenged opportunity was the chance for Hornedo to run a new company. Such an opportunity was personal and unique to Hornedo. Hornedo and Mercado had known each other and had worked together prior to Hornedo's employment as president of PAG. Hornedo did not take from PAG a corporate opportunity to purchase antimony from EMUSA, as Hornedo had already established a supplier relationship between the two.
We turn now to MAC's argument that Hornedo breached his fiduciary duty to PAG and MAC because his actions constituted actual competition with MAC and not just preparation to compete. In Potts v. Review Bd. of Indiana Emp't Sec. Div., 475 N.E.2d 708 (Ind. Ct. App. 1985), a panel of this court discussed what activities constitute preparation to compete, in a case involving the issues of whether an employer had "just cause" to terminate an employee's employment for purposes of eligibility for unemployment compensation benefits.
Id. at 712 (internal quotations and citations omitted).
Here, the evidence supports the trial court's findings and conclusions that Hornedo's activities constituted preparation to compete with MAC and PAG. Hornedo discussed the formation of SLG with Rodriquez and Mercado, discussed possibly employing one if not both of PAG's other employees, and signed a lease for office space for SLG. Immediately prior to Hornedo's resignation from PAG, PAG, with Hornedo at the helm, had a record month in terms of revenue and sales. There is nothing in the record to support MAC's contention that the trial court erred by finding that Hornedo did not actually compete against PAG prior to his departure from its employ. We continue to acknowledge the concern for the integrity of the employment relationship demanding the undivided and unselfish loyalty of a corporate officer or employee to a corporation, while also acknowledging the need to safeguard the principles of free competition. We agree with the trial court that Hornedo properly exercised his right to leave his employment with PAG and form a rival business, SLG, and did so without actually competing with PAG prior to his departure.
Having concluded that MAC and PAG cannot succeed on the merits of either claim, violation of trade secrets or breach of fiduciary duty, we likewise agree with the trial court that injunctive relief is not warranted. We address the additional requirements for injunctive relief, nonetheless.
MAC and PAG were required to establish that its remedies at law were inadequate pending the resolution of the matter such that irreparable harm would be caused pending resolution of the substantive action in the absence of injunctive relief. PrimeCare Home Health v. Angels of Mercy Home Health Care, L.L. C., 824 N.E.2d 376. MAC and PAG have calculated their economic damages to be approximately $500,000 in lost sales and estimated a royalty of 5 cents per pound of materials sold, received or distributed by Hornedo and SLG from December 1, 2009 to April 8, 2010.
"One purpose of a preliminary injunction is to prevent harm to the moving party that could not be corrected by a final judgment." City of Gary, Ind. v. Majestic Star Casino, LLC, 905 N.E.2d 1076, 1083 (Ind. Ct. App. 2009). Injunctive relief will not issue where the law can provide a full, adequate, and complete form of redress. City of Gary, Ind. v. Majestic Star Casino, LLC, 905 N.E.2d 1076. Mere economic injury is not entitled to injunctive relief because damages are a sufficient method of making the injured party whole. Id. The trial court correctly concluded that injunctive relief was inappropriate here because the remedy at law, damages, would make MAC and PAG whole for the economic damage claimed. Because the legal remedy is as full and adequate as the equitable remedy of preliminary injunctive relief, we agree with the trial court's decision in this regard.
MAC and PAG were also required to establish that the threatened harm to them outweighed the threatened harm injunctive relief would inflict on Hornedo and SLG. We agree with the trial court's conclusion that to issue injunctive relief would be more injurious to Hornedo and SLG than the alleged harm to MAC and PAG of denying their request for injunctive relief. SLG is a business with three employees, whereas MAC is a multi-milliondollar corporation. The issuance of injunctive relief would have been disproportionately favorable to MAC, which sought to enjoin SLG from engaging in the sale of similar products, its sole business, and the payment of royalty fees.
Lastly, we consider the trial court's finding that the public interest would be disserved by the issuance of the injunction. Again, we agree with the trial court. MAC and PAG have failed to show how the issuance of the preliminary injunction would be of benefit to anyone other than them. Free competition, which is conducted without violating a statute or restrictive covenant, is favored in our free-market environment. We agree that the public interest in free competition would be disserved by the issuance of injunctive relief here.
Judgment affirmed.
BAILEY, J., and BROWN, J., concur.
