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Rapid Hot Flow, LLC, A Colorado Limited Liability Company v. Rocky Mountain Oilfield Services

March 15, 2011

RAPID HOT FLOW, LLC, A COLORADO LIMITED LIABILITY COMPANY, PLAINTIFF,
v.
ROCKY MOUNTAIN OILFIELD SERVICES, LLC, AN IDAHO LIMITED LIABILITY COMPANY, SOUTHERN FIELD WELDING, LLC., AN IDAHO LIMITED LIABILITY COMPANY, MATTHEW MASON, AN IDAHO RESIDENT,
MICHAEL NEIL JUSTESEN, AN IDAHO RESIDENT, AND DOES 1 - 10, INCLUSIVE, DEFENDANTS.



The opinion of the court was delivered by: U. S. District Judge Honorable Edward J. Lodge

MEMORANDUM ORDER AND DECISION

Pending before the Court in the above-entitled matter is the Plaintiff's Motion for Preliminary Injunction. The parties have filed their responsive briefing and the matter is now ripe for the Court's consideration. Having fully reviewed the record herein, the Court finds that the facts and legal arguments are adequately presented in the briefs and record.

Accordingly, in the interest of avoiding further delay, and because the Court conclusively finds that the decisional process would not be significantly aided by oral argument, this Motion shall be decided on the record before this Court without oral argument.

Factual and Procedural Background

The Plaintiff, Rapid Hot Flow, LLC, filed a Verified Complaint in this matter on December 6, 2010 against the Defendants Rocky Mountain Oilfield Services, LLC, Southern Field Welding, LLC, Matthew Mason, and Michael Neil Justesen. (Dkt. No. 1.) The Complaint alleges claims for violation of Idaho's Trade Secrets Act, Conversion, Tortuous Interference with Prospective Economic Advantage, Negligent Interference with Prospective Economic Advantage, and Breach of Contract. (Dkt. No. 1.) The claims arise from the Defendants' alleged use of Rapid Hot Flow's proprietary information. (Dkt. No. 1, ¶ 12.)

Rapid Hot Flow provides frac water heating services to the oil and gas industry nationwide. (Dkt. No. 1, ¶ 10.) Rapid Hot Flow hired Matthew Mason in October of 2008 to work in a supervisory position at customer project sites where Rapid Hot Flow delivered frac water heating services. In this capacity, the Complaint alleges, Mr. Mason had access to Rapid Hot Flow's confidential, proprietary, and trade secret information which included: information about Rapid Hot Flow's methods, techniques, processes, formulas, schematics, records, marketing materials, and customer and price lists. (Dkt. No. 1, ¶ 12.) Rapid Hot Flow asserts Mr. Mason was also "integrally involved in, and intimately knowledgeable about," its development and acquisition of its valuable business and trade secrets relating to obtaining and retaining customers. (Dkt. No. 1, ¶ 12.) During his employment, the Complaint argues, Mr. Mason developed close working relationships and goodwill with Rapid Hot Flow's customers which are critical to selling Rapid Hot Flow's services. (Dkt. No. 1, ¶ 13.) Such information and relationships obtained by Mr. Mason during his employment regarding Rapid Hot Flow and its customers, they allege, were trade secrets. Mr. Mason's employment was terminated in March of 2009.

Also during the summer of 2008, Rapid Hot Flow claims it entered into an agreement with Defendant Southern Field Welding through its owner Michael Justesen to manufacture customized frac water heating vehicles exclusively for Rapid Hot Flow. (Dkt. No. 1, ¶ 15.) Rapid Hot Flow asserts it gave Southern Field Welding industry-specific information regarding frac water heating vehicles and specifications for Rapid Hot Flow's vehicles in exchange for its agreement to refrain from selling frac water heating vehicles to Rapid Hot Flow's competitors. (Dkt. No. 1, ¶¶ 15-16.) In July of 2010, Southern Field Welding notified Rapid Hot Flow that it could not manufacture any additional frac water heating vehicles for it due to other commitments. (Dkt. No. 1, ¶ 18.)

Following his termination, Rapid Hot Flow alleges, Mr. Mason worked in collaboration with Southern Field Welding and Mr. Justesen to create Rocky Mountain Oilfield Services, LLC; pointing to the August 2010 Certificate of Organization for Defendant Rocky Mountain which lists Mr. Mason as a member/manager, lists Mr. Justesen as its registered agent, and provides the same street and mailing address as Southern Field Welding's principal office. (Dkt. No. 1, ¶ 19.) Through Rocky Mountain, Rapid Hot Flow asserts, the Defendants contacted at least two of Rapid Hot Flow's present customers - Delta Petroleum and Noble Energy - and suppliers in an attempt to attract these businesses away from Rapid Hot Flow. (Dkt. No. 1, ¶ 20.) These activities were done, Rapid Hot Flow argues, using the proprietary information Mr. Mason was privy to during his employment at Rapid Hot Flow.

Rapid Hot Flow filed its Complaint to recover damages resulting from these activities and has also filed this Motion for Preliminary Injunction to halt the Defendants actions. Rapid Hot Flow seeks an injunction preventing Defendants from (a) providing any frac water heating services to Delta Petroleum and (b) soliciting or performing services for any of its current and potential frac water heating customers with which Mr. Mason had contact or about which he became aware through his employment with Rapid Hot Flow. (Dkt. No. 8.)

Standard of Law

A preliminary injunction is not a preliminary adjudication on the merits, but a device for preserving the status quo and preventing the irreparable loss of rights before judgment. Textile Unlimited, Inc. v. A..BMH Co., Inc., 240 F.3d 781 (9th Cir. 2001) (citing Sierra On-Line, Inc. v. Phoenix Software, Inc., 739 F.2d 1415, 1422 (9th Cir. 1984). While courts are given considerable discretion in deciding whether a preliminary injunction should enter, injunctive relief is not obtained as a matter of right and it is considered to be an extraordinary remedy that should not be granted unless the movant, by a clear showing, carries the burden of persuasion. See Sampson v. Murray, 415 U.S. 61 (1974); Brotherhood of Locomotive Engineers v. Missouri-Kansas-Texas R. Co., 363 U.S. 528 (1960); and Stanley v. Univ. of Southern California, 13 F.3d 1313 (9th Cir. 1994).

Until recently the preliminary injunction standard in the Ninth Circuit was that a party is entitled to a preliminary injunction when it can demonstrate either: (1) a combination of probable success on the merits and the possibility of irreparable injury, or (2) the existence of serious questions going to the merits, where the balance of hardships tips sharply in the movant's favor. GoTo.com, Inc. v. Walt Disney Co., 202 F.3d 1199, 1204-05 (9th Cir. 2000). The Supreme Court, however, recently found the Ninth Circuit's standard of the "possibility of irreparable harm" was too lenient and held that the moving party must demonstrate that irreparable injury is "likely in the absence of an injunction." Winter v. Natural Res. Def. Council, Inc., 129 S.Ct. 365, 375-76 (2008) ("Issuing a preliminary injunction based only a possibility of irreparable harm is inconsistent with our characterization of injunctive relief as an extraordinary remedy that may only be awarded upon a clear showing that the plaintiff is entitled to such relief.") (citations omitted). Thus, the Supreme Court has now clarified that the standard for a preliminary injunction requires a plaintiff to show "[1] 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, 129 S.Ct. at 374 (citations omitted).

No longer are plaintiffs granted the presumption of irreparable harm upon a showing of a likelihood of success on the merits. Instead, plaintiffs seeking a preliminary injunction must establish they are likely to succeed on the merits, that they are likely to suffer irreparable harm in the absence of preliminary relief, that the balance of equities tips in his favor, and that an injunction is in the public interest. Jacobsen v. Katzer, 609 F.Supp.2d 925, 936 (N.D. Cal. 2009). The Ninth Circuit recently recognized the applicability of the Winter decision in this Circuit stating the rule as: "A plaintiff seeking a preliminary injunction must establish that he is likely to succeed on the merits, that he is likely to suffer irreparable harm in the absence of preliminary relief, that the balance of equities tips in his favor, and that an injunction is in the public interest." See American Trucking Ass'ns, Inc. v. City of Los Angeles, 559 F.3d 1046, 1052 (9th Cir 2009) (quoting Winter, 129 S.Ct. at 374).

ANALYSIS

I. Likelihood of Success on the Merits

The Motion for Preliminary Injunction seeks an injunction based upon two of the five claims raised in the Complaint: violation of the Idaho Trade Secrets Act and tortious interference with prospective economic advantage. (Dkt. No. 8.) Applying the above-standard to these two claims, the Court finds as follows.

A. Idaho Trade Secrets Act Claim ("ITSA")

Rapid Hot Flow's first cause of action seeks recovery for violations of the ITSA alleging the Defendants misappropriated and misused its confidential, proprietary, and trade secret information. (Dkt. No. 1, ¶ 31.) The ITSA defines "misappropriation" as:

(a) Acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was ...


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