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In re Alcor Energy, LLC

United States District Court, D. Delaware

December 10, 2019

IN RE ALCOR ENERGY, LLC, Debtor.
v.
ALCOR ENERGY, LLC, Appellee. ALCOR ENERGY SOLUTIONS, LLC and BARRY STONEHOUSE, Appellants, Adv. Proc. No. 19-50097 (CSS)

         Chapter 11

          MEMORANDUM ORDER

         Pending before this Court is an appeal by Alcor Energy Solutions, LLC ("Old Alcor") and Barry Stonehouse from a March 20, 2019 order (Adv. D.I. 47) ("Preliminary Injunction"), which was entered by the Bankruptcy Court in an adversary proceeding initiated by the above-captioned Chapter 11 debtor Alcor Energy, LLC ("Debtor"). The Preliminary Injunction was entered against Old Alcor and Stonehouse ("Defendants") and enjoined them from disclosing the Debtor's trade secrets, soliciting actual or potential customers of the Debtor until July 31, 2020, and interfering with the Debtor's ongoing contractual or business relationships.[1] For the reasons set forth below, the appeal is dismissed.

         1. Background. This dispute arises from a series of agreements between the Debtor and Defendants. Since its formation on May 19, 2017, the Debtor has operated a portable turbine generator business pursuant to which generators were rented primarily to oil and gas operators in need of power in remote places that are not easily connected to conventional power grids. In addition to its core electrical-generation business, and at issue in the parties' dispute, the Debtor claims to have a proprietary wastewater treatment and processing solution in development as part of its ongoing efforts to expand the suite of services that it provides to oil and gas operators and other potential energy, industrial, and agricultural customers. (A0015).

         2. The Debtor's business derives from Old Alcor, an Arizona limited liability company, formed on March 24, 2009, and AES Oil Field Services, LLC ("AES Oil"), an Arizona limited liability company, formed on May 25, 2012. (A0510).

         3. The Debtor was formed on May 19, 2017, and on May 23, 2017, Barry Stonehouse, Bruce Jorgenson, and Syau-fu Ma, as members of Old Alcor, executed a Contribution Agreement whereby Old Alcor and AES Oil contributed all of their business assets (as defined in the Contribution Agreement, the "Alcor Assets") to the newly-formed Debtor in exchange for a 50% interest in the Debtor. Id. The assets that Old Alcor and AES Oil contributed to the Debtor under Section 1.1 of the Contribution Agreement included client and customer lists, trade secrets, proprietary know-how, processes, proprietary technology, and all other intangible property. (A511-12). Schedule 1.1(f) specifically identified Old Alcor's and AES Oil's designs for water cleaning and evaporation technology as "Intellectual Property" that was contributed to the Debtor:

Designs, processes, schematics, know-how and similar items attached hereto or included in the data files listed on the accompanying attachments hereto. Patent application(s) relating to waste heat recovery, water cleaning and evaporation technologies (to be assigned to the [Debtor] promptly following Closing).*
*Barry Stonehouse will cause the applicable entity holding these rights, if other than Alcor or AES, to convey same to the [Debtor].

(A0536). Numerous schematics and engineering data files were attached to Schedule 1.1(f).

         4. Concurrently with the Contribution Agreement, the Debtor entered into a Consulting Services Agreement with Stonehouse and AES Energy Services, LLC ("AES Energy"), one of Stonehouse's affiliates, pursuant to which Stonehouse would "serve in an executive capacity" for the Debtor. (A580). Stonehouse served as an officer and LLC manager of the Debtor until his resignation on July 31, 2018. Under Section 6.2 of the Consulting Services Agreement, Stonehouse acknowledged the Debtor's ownership of "Work Product" developed during his time with the Debtor:

[Stonehouse] acknowledges that all inventions, innovations, improvements, developments, methods, processes, programs, designs, analyses, drawings, reports, and all similar or related information (whether or not patentable) that relate to [the Debtor's] or any of its affiliates' actual or anticipated business, research and development, or existing or future products or services and that are conceived, developed, contributed to, made, or reduced to practice by [Stonehouse] (either solely or jointly with others) while in service to [the Debtor] or any of its affiliates (including any of the foregoing that constitutes any proprietary information or records) (collectively, "Work Product") belong to [the Debtor] or such affiliate, and [Stonehouse] hereby assigns, and agrees to assign, all of the above Work Product to [the Debtor] or to such affiliate, as applicable.

(A583-84). The Alcor Assets under the Contribution Agreement and the Work Product under the Consulting Services Agreement are referred to herein collectively as the "Estate Property."

         5. Stonehouse also agreed to several important restrictions under the Consulting Services Agreement. Pursuant to Section 6.1 of the Consulting Services Agreement, Stonehouse agreed to maintain the confidentiality of the Debtor's "Confidential Information," which was defined to include "customer information and lists, proprietary technology and processes, products and design elements, know-how and other technical information, pricing and cost information and data, trade secrets, business strategies, and business opportunities." (A583). Under Section 7 of the Consulting Services Agreement, Stonehouse agreed not to compete with the Debtor, poach its employees, or solicit its customers during the term of his employment or for two years thereafter. (A585). In Section 8 of the Consulting Services Agreement, Stonehouse agreed that the Debtor would be irreparably harmed by any breach of Section 6 or 7. (A585-86).

         6. Finally, Stonehouse agreed to the provisions contained in Section 9 of the Consulting Services Agreement titled "Executive's Acknowledgments":

[Stonehouse] acknowledges that the provisions of Sections 6, 7 and 8 above are in consideration of [the Debtor's] willingness to engage [AES Energy] and [Stonehouse] as provided in this Agreement and to disclose Confidential Information to [Stonehouse], as well as additional good and valuable consideration. In addition, [Stonehouse] acknowledges that the restrictions contained in Sections 6 and 7 above do not preclude [Stonehouse] from earning a livelihood, nor do they unreasonably impose limitations on [Stonehouse's] ability to earn a living. [Stonehouse] acknowledges that the potential harm to [the Debtor] of the non-enforcement of Sections 6 and 7 above outweighs any potential harm to [Stonehouse] of its enforcement by injunction or otherwise. [Stonehouse] acknowledges that he has carefully read this Agreement and has had an opportunity to discuss it and its ramifications with independent counsel of his choice, and [Stonehouse] has given careful consideration to the restraints imposed upon him by this Agreement and is in full accord as to their necessity for the reasonable and proper protection of confidential, proprietary and competitive information of [the Debtor] and its affiliates now existing or to be developed in the future. ...

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