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Cabela's LLC v. Highby

United States District Court, D. Delaware

January 24, 2019

CABELA'S LLC, Plaintiff,
v.
MATTHEW HIGHBY and MOLLY HIGHBY, Defendants.

          MEMORANDUM ORDER

         Presently before the Court is Plaintiffs motion for preliminary injunction. (D.I. 70). I have considered the parties' briefing. (D.I. 71, 78, 91). I heard oral argument on December 21, 2018. (D.I. 107).

         I. BACKGROUND

         On July 31, 2018, Plaintiff Cabela's brought an action against Matthew Highby, Molly Highby, and Highby Outdoors, LLC (collectively "Defendants") in the Court of Chancery of the State of Delaware. (D.I. 1 ¶ 1). Defendants removed the case from the Court of Chancery to this Court. (Id. at 5). Cabela's has voluntarily dismissed without prejudice its claims against Highby Outdoors. (D.I. 17). I denied Defendants' motion to dismiss, or in the alternative, to transfer to the District of Nebraska. (D.I. 74).

         Cabela's brings claims for breach of contract and misappropriation of trade secrets under the Nebraska Trade Secrets Act.[1] Defendants Mr. and Mrs. Highby are former employees of Cabela's and the founders of Highby Outdoors. Both left Cabela's shortly after its merger with Bass Pro Group LLC ("Bass Pro"). (D.I. I ¶¶ 3, 5). Cabela's contract claims stem from two agreements-a Proprietary Matters Agreement ("PMA") and a Confidential Severance Agreement and General Release ("Severance Agreement"). (D.I. 1 ¶¶ 38-43). Each Defendant signed a PMA in exchange for company stock while employed (D.I. 1-1, exs. 1-2), and a Severance Agreement upon termination of employment (D.I. 1-1, exs. 4-5).

         Cabela's now moves for a preliminary injunction based on alleged violations of the PMA and misappropriation of trade secrets. (D.I. 70, 71). Specifically, Cabela's seeks to enjoin Defendants from violating the noncompetition, nonsolicitation, and confidentiality provisions of the PMA. (D.I. 70). The relevant sections of the PMA provide:

1. Nondisclosure of Confidential Information.
(a) Access. Employee acknowledges that employment with Company or any of its affiliates necessarily has involved, and will involve, exposure to, familiarity with, and the opportunity to learn highly sensitive, confidential, and proprietary information of Company, which may include, without limitation, information about Company's products and services, markets, customers, and prospective customers, the buying patterns and needs of customers and prospective customers, purchasing histories with vendors and suppliers, contact information for customers, prospective customers, vendors and suppliers, miscellaneous business relationships, investment products, pricing, quoting, costing systems, billing and collection procedures, proprietary software and the source code thereof, financial and accounting data, data processing and communications, technical data, marketing concepts and strategies, business plans, mergers and acquisitions, research and development of new or improved products and services, and general know-how regarding the business of Company and its products and services (collectively referred to herein as "Confidential Information"). ...
(b) Valuable Asset.
Employee further acknowledges that the Confidential Information is a valuable, special, and unique asset of the Company, such that the unauthorized disclosure or use by Employee or persons or entities outside the Company would cause irreparable damage to the business of Company. Accordingly, Employee agrees that, during and after Employee's employment with Company or any of its affiliates, Employee shall not directly or indirectly disclose to any person or entity or use for any purpose or permit the exploitation, copying, or summarizing of any Confidential Information of Company, except as specifically required in the proper performance of Employee's duties for Company. . . .
4. Nonsolicitation of Customers.
In order to prevent the improper use of Confidential Information and the resulting unfair competition and misappropriation of Goodwill and other proprietary interests, Employee agrees that while Employee is employed by Company or any of its affiliates and for a period of eighteen (18) months following the termination of Employee's employment for any reason whatsoever, . .. Employee will not.. . call on, solicit the business of, sell to, service, or accept business from any of Company's customers (with whom Employee had personal contact and did business with during the eighteen (18) month period immediately prior to the termination of Employee's employment) for the purpose of providing said customers with products and/or services of the type or character typically provided to such customers by Company.
5. Nonsolicitation of Vendors.
In order to prevent the improper use of Confidential Information and the resulting unfair competition and misappropriation of Goodwill and other proprietary interests, Employee agrees that while Employee is employed by Company or any of its affiliates and for a period of eighteen (18) months following the termination of Employee's employment for any reason whatsoever, . . . Employee will not.. .:
(a) Encourage, discourage, interfere with, or otherwise cause, in any manner, any business partner, independent contractor, vendor, or supplier of Company to curtail, sever, or alter its relationship or business with Company; or (b) Solicit, communicate, or do business with any of Company's business partners, independent contractors, vendors, or suppliers (with whom Employee had personal contact and did business with during the eighteen (18) month period immediately prior to the termination of Employee's employment) for or on behalf of a Competitor (as defined by Section 7, below).
6. Nonsolicitation of Employees.
Employee agrees that while Employee is employed by Company or any of its affiliates and for a period of eighteen (18) months following the termination of Employee's employment for any reason whatsoever, ... Employee will not. .. hire, employ, or solicit for employment any employee of Company with whom Employee had personal contact or about whom Employee received Confidential Information while employed by Company or any of its affiliates.
7. Noncompetition.
In order to prevent the improper use of Trade Secrets and Confidential Information and the resulting unfair competition and misappropriation of Goodwill and other proprietary interests, Employee agrees that while Employee is employed by Company or any of its affiliates and for a period of eighteen (18) months following the termination of Employee's employment for any reason whatsoever, . . . Employee will not... perform services within the United States of America or Canada for a Competitor that are the same as or similar to the services Employee performed for Company during the eighteen (18) month period immediately prior to the termination of Employee's employment. For purposes of this Agreement, a "Competitor" of Company shall mean Bass Pro Shops, Gander Mountain, Sportsman's Warehouse, The Sportsman's Guide, Orvis, Dick's Sporting Goods, The Sport's Authority, Big 5 Sporting Goods, Scheels, L.L. Bean, Lands' End, REI, Academy, Amazon.com, Field & Stream, Wholesale Sports, Sail, Le Baron, Mountain Equipment Co-op, Canadian Tire, The Fishin' Hole, Northwest Company, or any other multi-state, multi-province, and/or multi-channel retailer engaged in the sale of products and/or services associated with hunting, fishing, or camping.
8. Reasonable Restrictions.
(b) Tolling. In the event Employee is in breach of the post-employment obligations of this Agreement, the eighteen (18) month post-employment enforcement period of this Agreement shall be tolled, until such breach is ended unless an injunction is in place to protect Company's interests, up to a maximum extension of eighteen (18) months.

         A similar case, Cabela 's LLC v. Wellman, is proceeding before the Delaware Court of Chancery. Like the Highbys, several defendants in Wellman are former Cabela's employees who signed a PMA in exchange for company stock. I believe the PMAs in Wellman are substantively identical to the PMAs in this case. Cabela's moved for preliminary injunction based in part on breach of the same PMA provisions at issue in this case. The Court of Chancery granted the motion in part, enjoining the defendants from violating the PMA nonsolicitation and confidentiality provisions. Cabela's LLC v. Wellman, 2018 WL 5309954 (Del. Ch. Oct. 26, 2018). The Vice Chancellor denied the defendants' motions for reargument. (D.I. 102, Ex. 1).

         II. LEGAL STANDARD

         "A plaintiff seeking a preliminary injunction must establish [1] that he is likely to succeed on the merits, [2] that he is likely to suffer irreparable harm in the absence of preliminary relief, [3] that the balance of equities tips in his favor, and [4] that an injunction is in the public interest." Winter v. Nat. Res. Def. Council, Inc., 555 U.S. 7, 20 (2008). "A preliminary injunction is an extraordinary remedy never awarded as of right." Id. at 24.

         III. ANALYSIS

         A. Success on the Merits

         1. Cabela's Is Not Barred by Acquiescence or Estoppel from Asserting the PMA Against Defendants

         Defendants argue that Cabela's was aware of their plans to open a competing business and is therefore barred from asserting the PMA against Defendants by the doctrines of acquiescence and estoppel. (D.I. 78 at 17-18).

         "A claimant is deemed to have acquiesced in a complained-of-act where he: has full knowledge of his rights and the material facts and (1) remains inactive for a considerable time; or (2) freely does what amounts to recognition of the complained of act; or (3) acts in a manner inconsistent with the subsequent repudiation, which leads the other party to believe the act has been approved." Klaassen v. Allegro Dev. Corp., 106 A.3d 1035, 1047 (Del. 2014) (internal citations omitted). Acquiescence does not require showing that the claimant had conscious intent to approve the act, nor that the other party changed position or was prejudiced. Id.

         In contrast, equitable estoppel requires reliance, change of position, and prejudice. The party claiming estoppel must show that he "lacked knowledge or the means of obtaining knowledge of the truth of the facts in question; relied on the conduct of the party against whom estoppel is claimed; and suffered a prejudicial change of position ...


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