United States District Court, W.D. Texas, San Antonio Division
REPORT AND RECOMMENDATION OF UNITED STATES MAGISTRATE
ELIZABETH S. ("BETSY") CHESTNEY JUDGE.
Honorable United States District Judge Fred Biery:
Report and Recommendation concerns the request for a
preliminary injunction filed by Plaintiffs BCOWW, LLC and
BCOWW Outfitters, LLC (collectively, “Plaintiffs”
or “BCOWW”) against Defendants Daniel Collins and
JADAC, LLC (“JADAC”) (collectively,
“Defendants”). All pretrial matters in this case
have been referred to the undersigned for disposition
pursuant to Western District of Texas Local Rule CV-72 and
Appendix C [#9]. The undersigned has authority to enter
this recommendation pursuant to 28 U.S.C. § 636(b)(1)(B)
(authorizing a U.S. Magistrate Judge to conduct an
evidentiary hearing and submit proposed findings of fact and
recommendations to a district judge on a motion for
injunctive relief); see also Local Rule CV-72
(“The magistrate judges of this court are authorized to
perform all the duties allowed to magistrate judges under the
Federal Magistrates Act as amended in 28 United States Code
§ 636). This Court has subject matter jurisdiction over
this matter under 28 U.S.C. § 1331 because Plaintiffs
raise a federal question by asserting a violation of 15
U.S.C. § 1125(a).Accordingly the Court has supplemental
jurisdiction over Plaintiffs' state-law claims pursuant
to 28 U.S.C. § 1367.
undersigned held a hearing on Plaintiffs' request for
preliminary injunction on August 28, 2017 and August 29,
2017. After considering Plaintiffs' brief [#2-3],
Plaintiffs' supplemental brief in support of their
request for a preliminary injunction [#43-2], Plaintiffs'
post-hearing brief [#51], the response and supplemental
response in opposition to the request filed by Defendants
[#35, #42], the testimony and other evidence presented during
and in advance of the hearing, the arguments of counsel, and
the case file, the undersigned recommends that the District
Court DENY Plaintiffs' request for
an unfair competition case brought by Plaintiffs against a
former member Defendant Daniel Collins, as well as Defendant
JADAC, a company Collins formed after resigning from BCOWW.
Plaintiffs filed suit against Defendants on May 1, 2017,
asserting claims for breach of contract, trademark
infringement, trade secret misappropriation, breach of
fiduciary duty, tortious interference with prospective
business relationships, tortious interference with existing
contracts, common law unfair competition, and civil
conspiracy [#1]. At the same time they filed their Complaint,
Plaintiffs filed a motion requesting a temporary restraining
order, expedited discovery, and preliminary injunction [#2].
Construing the motion for temporary restraining order as a
motion for preservation of evidence, the District Court
granted the request [#8] and referred all pre-trial matters
to the U.S. Magistrate Judge [#9]. The case was then stayed
for mediation pursuant to a mandatory mediation provision in
the Restated Company Agreement [#19, #21]. The stay was
lifted on July 12, 2017 when the mediation ended in impasse,
and the case was re-referred [#26]. U.S. Magistrate Judge
John Primomo then set a hearing on Plaintiffs' request
for preliminary injunction, and the parties subsequently
conducted expedited discovery [#29, #32]. On August 22, 2017,
the case was reassigned to the undersigned, who held a
two-day hearing beginning on August 28, 2017.
purpose of a preliminary injunction is to preserve the status
quo by preventing irreparable harm until the respective
rights of the parties can be ascertained during a trial on
the merits. Mississippi Power & Light Co. v. United
Gas Pipe Line Co., 760 F.2d 618, 627 (5th Cir. 1985);
Nichols v. Alcatel USA, Inc., 532 F.3d 364, 372 (5th
Cir. 2008). A party seeking a preliminary injunction must
establish the following factors: (1) a substantial likelihood
of success on the merits; (2) a substantial threat of
irreparable harm if the injunction is not granted; (3) that
the threatened injury outweighs any harm that may result from
the injunction to the non-movant; and (4) that the injunction
will not disserve the public interest. Mississippi
Power, 760 F.2d at 621; Nichols, 532 F.3d at
preliminary injunction is an ‘extraordinary remedy'
and should only be granted if the plaintiffs have clearly
carried the burden of persuasion on all four
requirements.” Mississippi Power, 760 F.2d at
621; Nichols, 532 F.3d at 372 (internal quotations
and citation omitted). Accordingly, a preliminary injunction
must be denied where the movant has failed sufficiently to
establish any one of these four criteria. Black
Fire Fighters Ass'n v. City of Dall., 905 F.2d 63,
65 (5th Cir. 1990) (emphasis in original). Only if a movant
demonstrates a likelihood of success on the merits must the
Court analyze the threat of irreparable harm or weigh the
relative hardships. See State of Tex. v. Seatrain
Int'l, S. A., 518 F.2d 175, 180 (5th Cir. 1975).
“The decision to grant a preliminary injunction is to
be treated as the exception rather than the rule.”
Mississippi Power, 760 F.2d at 621.
a substantial likelihood of success, a movant must present a
prima facie case, but need not prove that he is entitled to
summary judgment. Daniels Health Sciences, L.L.C. v.
Vascular Health Sciences, L.L.C., 710 F.3d 579, 582 (5th
Cir. 2013). Courts look to the standards of substantive law
when determining whether this element has been met. Miss
Power, 760 F.2d at 622.
movant establishes a substantial likelihood success on its
claim, the Court evaluates whether a substantial threat of
irreparable harm exists if the injunction is not granted. To
meet this factor, a plaintiff must show “a significant
threat of injury from the impending action, that the injury
is imminent, and that money damages would not fully repair
the harm.” Humana, Inc. v. Avram A. Jacobson, M.D.,
P.A., 804 F.2d 1390, 1394 (5th Cir. 1986). But
“[t]he purpose of an injunction is to prevent
future violations.” United States v. W. T.
Grant Co., 345 U.S. 629, 633 (1953) (emphasis added).
Where a movant requests injunctive relief on the basis of a
defendant's past violations, “the ultimate test . .
. is whether [the] defendant's past conduct indicates
that there is a reasonable likelihood of further violations
in the future.” Sec. & Exch. Comm'n v.
Blatt, 583 F.2d 1325, 1334 (5th Cir. 1978); see also
Armstrong v. Turner Indus., Inc., 141 F.3d 554, 563 (5th
Cir. 1998) (“[t]o pursue an injunction . . . the
[plaintiffs] must allege a likelihood of future violations of
their rights by [the defendant], not simply future effects
from past violations.”). This is because
“[i]njunctive relief is not to punish for past
violations, but to prevent future violations.”
Wirtz v. Lone Star Steel Co., 405 F.2d 668, 670 (5th
court generally holds an evidentiary hearing on a request for
preliminary injunction to resolve factual disputes apparent
from the parties' conflicting evidence. See Kaepa,
Inc. v. Achilles Corp., 76 F.3d 624, 628 (5th Cir.
1996); see also Heil Trailer Int'l. Co. v. Kula,
542 Fed. App'x 329, 334 (5th Cir. 2013). At this hearing,
“the procedures in the district court are less formal,
and the trial court may rely on otherwise inadmissible
evidence, including hearsay evidence.” Sierra Club,
Lone Star Chapter v. F.D.I.C., 992 F.2d 545, 551 (5th
Cir. 1993). As with all other evidentiary hearings, a trial
court weighs the evidence and may make credibility findings.
See United States v. Edwards, 333 F.2d 575, 578 (5th
Cir. 1964). “Although the district court may employ
informal procedures and rely on generally inadmissible
evidence [at the preliminary injunction stage], the record
must nevertheless support the district court's
decision.” Sierra Club, 992 F.2d at 551
(citing Fed.R.Civ.P. 52).
FINDINGS OF FACT
the hearing, Plaintiffs called the following witnesses:
Lizabeth “Libby” Williams, Daniel Collins
(through his video-taped deposition), John Williams, and
Osborn Barrett. Plaintiffs also offered Collins's
deposition transcript (Exhibit 1), Deposition Exhibits 1-
and Exhibits 2-37, 51-53, which the undersigned
admitted. Defendants recalled Daniel Collins (live)
and John Williams, and offered Exhibits 1-23, which the
undersigned admitted. The undersigned makes the following
factual findings, based upon this evidence.
Formation of BCOWW
BCOWW is a company formed by members John Williams, his wife
Libby Williams, Osborn Barrett, and John Williams's
childhood friend, Defendant Collins, on or about January 1,
2007. (See Restated Company Agreement, Collins Dep.
Ex. 4). Collins and Barrett were both BCOWW Vice Presidents.
(See Collins Dep. Ex. 3; Collins testimony).
original purpose of BCOWW was to source goods in China that
would be brought to the United States and resold at a profit.
(See Ver. Compl. [#1] ¶ 8; see also
Libby William and John Williams testimony.)
Pursuant to BCOWW's Restated Company Agreement, all
members were required to “bring all investment or
business opportunities to the Company” that they became
aware of and “which are within the scope of the
purposes of the company.” (Restated Company Agreement
¶ 11.8). Members also acknowledged in the Agreement that
“from time to time, they may receive information from
or regarding the Company in the nature of trade secrets or
that otherwise is confidential, the release of which may be
damaging to the Company.” (Id. ¶ 12.12).
Accordingly, each member agreed to “hold in strict
confidence any information received regarding the Company
that is identified as being confidential” and not to
disclose it to any non-member except to “advisers or
representatives of the member . . . but only if the
recipients have agreed to be bound by the provisions of [the
Agreement].” (Id.) The Restated Company
Agreement was executed by all of BCOWW's founding
forming BCOWW, John Williams, Libby Williams, and Barrett
each invested capital in the Company, and received Class A
stock for their investment. (See Schedule A to
Restated Company Agreement; see also John and Libby
Williams testimony) Collins, on the other hand, received
Class B stock for his investment of time and prior experience
in developing and sourcing products overseas. (See
Schedule A to Restated Company Agreement; see also
John and Libby Williams testimony).
Shortly after the company's formation, BCOWW requested
that an attorney prepare employment agreements for the
members/employees to sign. (See Libby Williams
testimony). The attorney, Larry Berkman, did, in fact, draft
an agreement, which imposes nondisclosure, non-solicitation,
and non-compete obligations on BCOWW employees. (Id.; see
also Collins Dep. Ex. 5). John Williams, Libby Williams,
and Osborn Barrett all testified that they signed their
agreements, although none was able to produce an executed
copy of the agreement he or she executed.
Collins admits that he received the draft agreement from the
attorney. Collins, however, vehemently denies that he ever
executed an agreement. In fact, he was able to produce the
original letter from the attorney's firm enclosing the
agreement and requesting that he sign it and return it in the
enclosed envelope. (See Def. Ex. 21). The original,
unexecuted employment agreement was transmitted by
Berkman's secretary on bonded paper to Collins on or
about April 13, 2007. In the cover letter, which is also
printed on bonded paper and signed in blue ink, Berkman's
secretary requested that Collins sign the agreement, forward
the original to John Williams “so that it will be fully
executed, ” and transmit a copy to Berkman in the
self-addressed enclosed envelope. (See id.).
Berkman, like BCOWW, does not have an executed copy of
Collins's employment agreements in his records-presumably
because Collins never returned the envelope as requested.
Collins testified that he did not sign the agreement because
he thought it would prevent him from being able to make a
living. Collins's claim that he never signed the
employment agreement is corroborated by Defendants'
Exhibit 21 as well as by the fact Plaintiffs have been able
to produce an executed version.
Despite this evidence, BCOWW claims Collins executed the
employment agreement. (See Ver. Compl. ¶ 10;
Ex. B to Verif. Compl.; Libby and John Williams testimony).
BCOWW has accused Collins of stealing a folder allegedly
containing the signature pages of employment agreements
executed by each BCOWW member when Collins lived with the
Williamses. (See Ver. Compl. ¶¶ 27-30;
see also Libby Williams testimony). BCOWW makes this
accusation without any proof except that Collins had access
to the office where company documents were stored while he
lived with John and Libby Williams.
During the hearing, Libby Williams testified that she
recalled seeing the executed signature page to Collins's
employment agreement in the pocket of BCOWW's binder at
some point approximately two to three years ago. Notably,
this would have been years after Collins resided
with the Williamses, and therefore this testimony is
inconsistent with BCOWW's accusation that Collins stole
the documents when he lived with the Williamses. Similarly,
John Williams testified that he, too, recalled seeing a copy
of Collins's signature page in the BCOWW binder, and he
is “positive” that the notebook contained
Collins's signature page along with signature pages for
the other BCOWW members. But John Williams cannot recall
when, in the past decade, he last remembers seeing these
signature pages. Moreover, neither John nor Libby Williams
can recall how BCOWW allegedly obtained Collins's
signature page. The Williamses each testified that they never
saw Collins execute or deliver a signed copy of the
employment agreement. John Williams's speculative
testimony that Collins likely handed him the executed
signature page is unconvincing.
BCOWW's final member, Osborn Barrett, claimed during his
testimony that “everyone” signed the employment
agreement, but like the Williamses, Barrett admitted that he
did not see Collins execute the agreement. Nor did Barrett
claim he ever saw a copy of Collins's executed agreement
or even the signature page. Indeed, Barrett testified that he
was not even sure the unexecuted copy of the employment
agreement he produced in this case (Exhibit 5 to
Collins's deposition) was the “final final
[agreement], ” i.e., that it could have been an earlier
draft. Barrett also admitted he does not have “the best
John Williams admitted that nobody ever told Collins he could
only continue working with BCOWW if he signed the employment
BCOWW has submitted evidence indicating that at one point
Collins may have been under the impression he had executed an
employment agreement with the company. Specifically, shortly
before his resignation, Collins contacted BCOWW's
attorney, Larry Berkman, to inquire about “what
[Berkman] had relating to possible employment
agreements.” (See Collins testimony). BCOWW
also offered emails sent by Collins in which he discusses a
need to “void” his employment agreement with
BCOWW. (See, e.g., Collins Dep. Exs. 8-9). This
evidence arguably conflicts with Collins's testimony that
at no point did he believe he had ever executed a non-compete
agreement with BCOWW, although Collins contends these
communications just demonstrate his efforts to confirm that
no executed agreement existed, and that he took these steps
after he became aware BCOWW was taking a contrary position.
Whether or not Collins ever believed that he may have
executed an agreement, the evidence presented during the
hearing makes it very unlikely that a fact finder would
conclude that Collins in fact executed an agreement.
BCOWW's Texas and fleur-de-lis waffle makers
Shortly after BCOWW's formation, Collins and John
Williams traveled to China looking for manufacturers that
could make products for resale in the United States.
(See John Williams testimony). Although BCOWW
explored manufacturing various types of products, it
eventually settled on producing a home waffle maker that
could make waffles in the shape of Texas. (Id.)
During their trip to China, Collins and Williams visited the
Canton fair-a trade fair with a focus on export
trade- and encountered a booth hosted by a
Chinese manufacturer specializing in producing home appliance
products. (Id.) That manufacturer was later bought
out by a company known as Elec-tech. (Id.)
John and Libby Williams testified that BCOWW thereafter
engaged Elec-tech to manufacture the Texas waffle maker,
graphic artist Bruce Carr to design the box, and engineer
Scott Crossman to design the plates. According to Libby
Williams, BCOWW also sought the assistance of Chinese
consultant HaiJie Qi to help facilitate sourcing from China.
All of these individuals were engaged as contractors; none
were employees of BCOWW. (See Libby Williams
testimony). It is undisputed that Collins had relationships
with Crossman and Qi that predated his or their relationship
with BCOWW. (See id.; see also Collins
testimony). Moreover, Elec-tech is a publicly available
company. (See http://www.elec-
is also undisputed that BCOWW did not enter into exclusivity
or non-disclosure agreements with Carr, Crossman, Qi, or
Elec-tech. (See Libby and John Williams testimony).
In fact, there was no evidence presented at the hearing that
Carr, Crossman, Qi, or Elec-tech were placed under
any restrictions regarding how they were to treat
information received from or provided to BCOWW or information
about BCOWW. There is no evidence in the record that any of
these contractors were made aware of, let alone that they
agreed to be bound by, the Restated Company Agreement and its
confidentiality provision, notwithstanding Paragraph
2011, BCOWW began producing and selling a second waffle
maker-one that made waffles in the shape of a fleur-de-lis.
(See Libby and John Williams testimony).
BCOWW's maple-leaf waffle maker
Sometime between 2010 and 2012, BCOWW discussed expanding its
product line to include a waffle maker that makes waffles in
the shape of a maple-leaf. The parties dispute who conceived
of this idea. Libby and John Williams both testified that
Barrett conceived of the idea based upon his Canadian roots,
while Collins testified that the idea was his. Regardless, it
is undisputed that BCOWW invested money exploring the concept
up until approximately 2015, paying Crossman to engineer the
maple-leaf plates and Carr to create the design work for the
box. (See, e.g., Pl. Exs. 3-9). BCOWW also
contracted with a “maple leaf sales guy.” (Pl.
with the Texas and fleur-de-lis waffle makers, BCOWW did not
enter into exclusivity agreements with Carr, Crossman, Qi, or
Elech-tech with respect to the maple-leaf waffle maker.
(See Libby and John Williams testimony). Nor did
BCOWW ever require these vendors to sign non-disclosure
agreements. (Id.) When questioned by the
undersigned, John Williams admitted that company information
was routinely provided to these vendors via unsecured email,
and that the documents were not marked
“confidential.” (See John Williams
testimony). Moreover, despite the procedures outlined in
Paragraph 12.12 of the Restated Company Agreement, BCOWW
never placed any restrictions upon the vendors' storage
or use of the information; nor did BCOWW even have an
expectation that the vendors keep the information
confidential. (See John Williams
testimony). As John Williams conceded, Crossman would
have been free to openly use BCOWW's designs in his
customer portfolio. (Id.) Finally, the evidence
reveals that BCOWW did not even retain copies of information
any information relating to the maple-leaf waffle maker.
Instead, BCOWW left all of this information in the hands of
its vendors. (See Collins Dep. Ex. 27) (John
Williams email to Qi requesting “[a]ny information,
design, or engineering plans” that Qi has regarding the
Texas, fleur-de-lis, and maple-leaf waffle makers).
When it initially pursued the maple-leaf concept, BCOWW
secured interest in the product from retailer Canadian tire
and explored whether other large retailers such as TJX and
Costco Canada would also be interested. (See Pl.
Exs. 8-9; Collins Dep. Ex. 33).
Over the years, Collins requested on several different
occasions that BCOWW bring the maple-leaf product to market.
(See Collins testimony; see also Def. Ex.
4). However, from 2012 through 2016, the other BCOWW's
members informed Collins that this could not occur at least
until the company paid down its line of credit. (See
Libby and John Williams testimony & Collins testimony).
Collins testified that John Williams informed him that the
other BCOWW members would also first need to also be paid
back their initial investment, which―according to
Collins-would have taken many years. (See Collins
Collins begins pursuing the maple-leaf waffle maker on his
own, while still an officer and member of BCOWW.
Disagreeing with the “financial management
decisions” of the other members as well as their
“lack of desire to grow the business, ” Collins
informed Qi on August 12, 2016 that he had decided to
“do the Canadian Maple Leaf waffle maker on [his]
own-outside BCOWW, ” and inquired whether Qi would join
him in his new venture. (See Collins Dep. Ex. 23).
When Qi asked Collins why he would not simply purchase BCOWW
to pursue this opportunity, Collins responded that he
“do[es] not think the cost of buying the business would
provide a successful foundation for continuing the
business.” (Id.) However, Collins also noted
that “maybe in the future once the business really
starts to flounder there could be an opportunity where my
partners are more willing to look at a realistic
price.” (Id.) Although Collins recognized that
there was a risk in pursuing this endeavor without BCOWW,
Collins explained to Qi that because he was forming a new
company with a different name, it would be hard for his
partners to discover he was starting a competitive company.
(Id.) Finally, Collins informed Qi that the legal
“down side is minimal.” (Id.) According
to Collins, even if BCOWW decides to pursue legal action
“there is no way to patent or trademark any of the work
that has been done so far.” (Id.)
Thereafter, Collins, while still a BCOWW member and officer,
took active steps to begin forming a new company, JADAC, to
compete with BCOWW in producing and selling maple-leaf waffle
makers. The evidence reveals that Collins sought to use
BCOWW's design, artwork, and packaging to produce a
similar, if not identical, maple-leaf waffle maker, as the
one Collins was involved in designing during his time with
BCOWW. Specifically, Collins contacted Carr to obtain a quote
regarding the cost to “modify the unit box artwork,
instruction sheet, and shipping cartoon with new company
verbiage and network.” (See Collins Dep. Exs.
34-36). In one email to Carr, Collins revealed that the
“basic unit design will remain the same except we will
reduce the supplier from 800 to 700 watts.” (Collins
Dep. Ex. 34). In another series of emails to Carr, Collins
explained, “my new company name will be JADAC LLC. I
will be setting that up later this week.” (See
Collins Dep. Ex. 35). “I need to settle some open
issues with BCOWW and set up my LLC. Then we are off to the
races.” (See Collins Dep. Exs. 36). On the
advice of Carr, Collins aimed to have the product ready in
time for Canada's Sesquicentennial, which was July 1,
2017. (See Collins Dep. Exs. 8, 33; see
also Collins testimony).
Collins also continued to solicit Qi's participation in
his new venture, directing Qi to contact BCOWW's
manufacturer, Elec-tech, to see if it could manufacture the
maple-leaf waffle maker using BCOWW's current design but
modifying the wattage and powder coating. (See
Collins. Dep. Exs. 24, 29; see also Pl. Ex. 12). To
aid in his discussions with Elec-tech, Qi sent the
manufacturing company a file containing a maple-leaf design
that Collins had worked on for BCOWW (presumably with
Crossman) several years prior. (See Collins Dep Ex.
Collins concedes that he never received BCOWW's
permission to use the maple-leaf design. (See
Collins Dep. at 163:6-22).
August 30, 2016, Collins emailed Qi the following “high
level plan” in pursuing the maple-leaf waffle maker:
#1. Get free of BCOWW - by mid -September #2. Approach
Canadian Tire to see what sort of interest ...