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Specialty Coating Systems, Inc., A Delaware Corporation v. Warren Phillip Boomer

June 17, 2011

SPECIALTY COATING SYSTEMS, INC., A DELAWARE CORPORATION,
PLAINTIFF,
v.
WARREN PHILLIP BOOMER, AN INDIVIDUAL; AND KISCO CONFORMAL COATING, LLC. DEFENDANTS.



The opinion of the court was delivered by: Honorable Ronald E. Bush U. S. Magistrate Judge

MEMORANDUM DECISION AND ORDER

Currently pending before the Court is Defendants' Motion for Summary Judgment (Dkt. 38).*fn1 This matter has come before the undersigned United States Magistrate Judge pursuant to the consent of the parties. See Dkt. 25; 28 U.S.C. § 636(c), Fed. R. Civ. P. 73. The Court has carefully reviewed the record; considered the oral argument of counsel at the June 15, 2011 hearing; and now enters the following Order granting in part and denying in part Defendants' Motion.

BACKGROUND

Plaintiff, Specialty Coating Systems ("SCS") is a Delaware corporation with its principal place of business in Indianapolis, Indiana. Defendants' Statement of Undisputed Facts, p. 1 (Dkt. 38-1). SCS provides parylene coating services. Id. at p. 2.

As SCS describes, the parylene coating business is highly technical in nature. Plaintiff's Opposition to Defendants' Motion for Summary Judgment, p. 4 (Dkt. 42). SCS takes great efforts to understand its clients and provide specific products to meet their needs, and this knowledge is critical to its success. Id. To protect its interest in that client knowledge, SCS depends on its employees' confidentiality and good faith. Id.

Defendant, Warren Boomer, is a former employee of SCS who resides in Boise, Idaho. Defendants' Statement of Undisputed Facts, p. 1 (Dkt. 38-1). Boomer was the Northwest Regional Sales Manager, responsible for selling SCS products in the Northwest Territory- an area including California, Oregon, Washington, Nevada, Idaho, Wyoming, and Montana. Id. at p. 2. Boomer is now employed by Defendant, Kisco Conformal Coating, LLC ("Kisco"), a Delaware corporation with its principal place of business in California. Amended Complaint, ¶ 3 (Dkt. 1-5)

There are three contracts governing the employment relationship between Boomer and SCS. First, at the outset of his employment with SCS, Defendant Boomer signed an Employee Non-Competition Agreement ("Non-Competition Agreement"). See Ex. 1, Becker Statement in Support of Defendants' Motion for Summary Judgment (Dkt. 38-3). In this Non-Competition Agreement, Boomer agreed that, for the period of his employment and for twelve months thereafter, he would not work for any business interest in competition with SCS within the states comprising the Northwest Territory. Id.

Second, also at the outset of his employment with SCS, Boomer signed an Employee Confidentiality and Non-Solicitation Agreement (the "Confidentiality and Non-Solicitation Agreement.") Id. at Ex. 2. In the Confidentiality and Non-Solicitation Agreement, Boomer agreed that he would not solicit SCS employees or encourage any customer to terminate or alter its business relationship with SCS "for a period of time not to exceed 18 months from the date [his] employment with the company terminates." Id. Boomer also promised to never disclose SCS's confidential information. Id.

Third, upon termination of his employment with SCS in March 2008, Boomer signed a Separation Agreement with SCS. Id. at Ex. 3. In the Separation Agreement, Boomer released his right to bring certain legal claims against SCS in exchange for severance benefits. Id. The Separation Agreement also refers to the previous agreements stating, "[b]oth before and after the Termination Date, you will continue to be bound by, and will comply fully with your obligations under your Employee Non-Competition Agreement and your Employee Confidentiality and Non-Solicitation Agreement." Id.

On or about March 5, 2009, less than a year after Boomer's Termination Date, SCS learned that Boomer had taken a position with Kisco, a direct competitor in the parylene coating market. Plaintiff's Opposition to Defendants' Motion for Summary Judgment, p. 5 (Dkt. 42). Boomer was working as the National Sales Manager for Kisco, and SCS alleges that Boomer worked with customers throughout the country, including those same states for which he was responsible as the Northwest Territory Sales Manager for SCS. Id. at p. 5, n. 2. SCS further alleges that, around this same time, it also learned that Boomer had contacted certain SCS customers, who are not generally known in the industry as parylene conformal coating customers. Id. at p. 5.

PROCEDURAL HISTORY

On July 28, 2009, SCS sued Boomer in Idaho state district court alleging claims of breach of contract and unjust enrichment. SCS contends that, as a result of discovery in the state court action, SCS came to believe that Boomer's new employer and SCS's competitor, Kisco, knew of Boomer's post-SCS employment obligations, but nonetheless "sanctioned and encouraged his wrongful conduct." Plaintiff's Opposition to Defendants' Motion for Summary Judgment, p. 6 (Dkt. 42). SCS also came to believe that Kisco used SCS's confidential and proprietary information to its benefit and engaged in a course of business conduct specifically intended to harm SCS. Id. SCS then moved to file an amended complaint with claims against Boomer and Kisco, including the previous claims against Boomer and adding claims for misappropriation of trade secrets in violation of Idaho Code §§ 48-801, et seq. against both Defendants, a tortious interference with contract claim against Kisco for interfering with the contract between SCS and Boomer, and tortious interference with prospective economic advantage claims against both Defendants for interfering with SCS's relationships with existing and prospective customers.

After the Amended Complaint was filed, in July 2010, Kisco removed the case to federal district court. On October 7, 2010, the Court provided Defendants with leave to file a dispositive motion regarding the scope and applicability of the agreements between SCS and Boomer. Dkt. 33. Defendants now seek summary judgment to establish the following as a matter of law: (1) Indiana law applies to all of Plaintiff's claims; (2) Boomer did not breach Section Two of the Employee Confidentiality and Non-Solicitation Agreement; (3) the geographic restriction contained in the Employee Non-Competition Agreement is overly broad and unenforceable; and (4) recovery on Plaintiff's claims against Boomer (if any) is limited to the liquidated damages described in the Separation Agreement.

DEFENDANTS' MOTION FOR SUMMARY JUDGMENT

As set forth below, the Court will grant Defendants' motion for summary judgment to the extent it finds on the current record, as a matter of law, that the undisputed facts reflect that Indiana law applies to the breach of contract, unjust enrichment, and tort claims. The Court will deny the motion in all other regards.

A. Standard of Law

Summary judgment is appropriate where "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). One of the principal purposes of the summary judgment "is to isolate and dispose of factually unsupported claims ...." Celotex Corp. v. Catrett, 477 U.S. 317, 323--24 (1986). It is "not a disfavored procedural shortcut," but is instead the "principal tool[ ] by which factually insufficient claims or defenses [can] be isolated and prevented from going to trial with the attendant unwarranted consumption of public and private resources." Id. at 327. "[T]he mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247--48, (1986). Material facts are those which may affect the outcome of the case. See id. at 248. The evidence must be viewed in the light most favorable to the non-moving party, id. at 255, and the Court must not make credibility findings. Id.

B. Applicable Tort Law

The parties agree that Indiana law applies to Plaintiff's contract and unjust enrichment claims. In the Amended Complaint, Plaintiff also pled violations of Idaho trade secret and tort law. See Dkt. 1-5. On summary judgment, Defendants argue that Indiana law should also apply to these claims. In response, Plaintiff argues either Idaho law applies or, in the alternative, the Court should defer a ruling on the choice of law for the trade secret and tort claims, because the parties are still conducting discovery relevant to the issue. Plaintiff's Opposition to Defendants' Motion for Summary Judgment, p. 9 (Dkt. 42).

1. Standard of Law: "Most Significant Relation Test"

A federal district court sitting in diversity must apply the forum state's choice of law rules to determine the controlling substantive law. Fields v. Legacy Health Sys., 413 F.3d 943, 950 (9th Cir. 2005). Idaho applies the "most significant relation test" as set forth in the Restatement (Second) Conflict of Laws § 145 to determine the applicable law. Grover v. Isom, 137 Idaho 770, 53 P.3d 821, 823-24 (2002). This test requires courts consider the following facts in making their determination: "(a) the place where the injury occurred, (b) the place where the conduct causing the injury occurred, (c) the domicile, residence, nationality, place of incorporation and place of business of the parties, and (d) the place where the relationship, if any, between the parties is centered." Id. at 824.

The most important factor is where the injury occurred. Id. However, "[t]he goal of this test is to identify the state most significantly related to a particular issue and to apply its law to resolve that issue." Seubert Excavators, Inc. v. Anderson Logging Co., 126 Idaho 648, 889 P.2d 82 (1995).

2. Analysis

Defendants argue that Indiana law should apply, because (1) that is where Plaintiff's corporate headquarters is located; (2) the alleged injury to business interests occurs in the jurisdiction in which SCS feels economic pain; i.e., the corporate headquarters; (3) the allegations of improper use of SCS's "customer information" occurred in multiple, unspecified jurisdictions; and (4) SCS chose its home forum to govern the contracts. Memorandum in Support of Defendants' Motion for Summary Judgment, pp. 9-10 (Dkt. 38-2). At oral argument, SCS argued that Idaho law should apply, because: (1) Boomer is an Idaho resident; (2) Boomer ...


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