Integrity Solutions, Ltd. v. MCS Consulting, Inc. et al

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IN THE UNITED STATES DISTRICT COURT
DISTRICT OF COLORADO
District Judge S. Kato Crews
CIVIL ACTION NO. 1:24-cv-02519-SKC-STV
INTEGRITY SOLUTIONS, LTD.,
Plaintiff,
v.
MCS CONSULTING, INC.,
ENERGY SYSTEMS CONSULTING, LLC,
MAKERS SOLUTIONS, LLC,
GEO-PRIME, LLC,
MEAGAN CUMBERLAND,
JOEL LINDSTROM,
KYLE MADER,
Defendants.
ORDER DENYING PLAINTIFF’S
EX PARTE APPLICATION FOR TRO (DKT. 11)
The above-referenced Application for an ex parte temporary restraining order
(TRO) is now before the Court. The Court has determined no hearing is necessary.
The Court denies the Application because Plaintiff has failed to demonstrate
irreparable harm and a likelihood of success on the merits, as explained more
particularly below.
BACKGROUND
This is a civil action for breach of contract and misappropriation of trade
secrets under both federal (18 U.S.C. § 1836 et. seq.) and Colorado law (Colo. Rev.
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Stat. § 7-74-101 et seq.). This action arises from Defendants’ alleged breach of their
contractual obligations with Plaintiff, and their alleged unlawful and unauthorized
download of Plaintiff’s claimed trade secrets and confidential and proprietary
technology.1 Plaintiff contends “Defendants’ actions have resulted in lost business for
Plaintiff, and have harmed and will continue to irreparably harm Plaintiff unless,
and until, relief is granted by the Court.” Dkt. 1 (Verified Complaint), ¶4.
BACKGROUND
The Verified Complaint (VC) alleges Defendants MCS Consulting, Inc., Energy
Systems Consulting, LLC, and Makers Solutions, LLC, are companies formed by its
former independent contractors, Defendants Meagan Cumberland, Joel Lindstrom,
and Kyle Mader, respectively. Id. at ¶¶54, 62, and 68. Cumberland, Mader, and
Lindstrom had regular access to Plaintiff’s confidential and proprietary technology
and trade secrets while performing work for Plaintiff as independent contractors. Id.
at ¶¶58, 64, and 71. According to the VC, these individual Defendants “through their
respective Independent Contractor Entities, were bound by the contractual
provisions in their respective Subcontractor Master Services Agreements
(“Agreement”) with Plaintiff.2 Id. at ¶87; see also Exhs. A, C, and E to the VC.
1 The Court notes Plaintiff does not assert its various breach of contract claims
against Defendant Geo-Prime, LLC.
2 The Agreements appear to be identical in all material respects. They each provide
they “shall be governed exclusively by and construed in accordance with the laws of
the State of Colorado, and venue shall lie in (sic) City and County of Denver.” Also,
the individual Defendants appear to have signed their respective agreements “doing
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In a nutshell, and according to the VC, in the weeks and days leading up to
Defendants’ respective departures from Plaintiff, they “accessed, reviewed, and/or
downloaded thousands of Plaintiff’s files, as well as Confidential and Proprietary
Technology and Trade Secret material belonging to Plaintiff, including the HCA
Software, the PFIM Software, the ADM Tool, the SafeSeam Tool, and Plaintiff’s
activation database.” Id. at ¶117. The VC alleges, “[u]pon information and belief,
Defendants intend to use or disclose, and have used or disclosed, Plaintiff’s
Confidential and Proprietary Technology including trade secret information, as part
of Defendants’ newly formed competing commercial venture, [Defendant] Geo-Prime,
LLC.” Id. at ¶3.
LEGAL PRINCIPLES
Federal Rule of Civil Procedure 65(b) governs a court’s entry of temporary
restraining orders. “The requirements for issuing a [temporary restraining order]
mirror the requirements for issuing a preliminary injunction.” Briscoe v. Sebelius,
business as” the entity they formed, although this is less clear regarding the
agreement signed by Defendant Lindstrom. In any event, to the extent the individual
Defendants are sued in their capacity of “doing business as” one of the entity
Defendants is immaterial for purposes of this Order and the Court need not decide
this issue at this time. See J&J Sports Prods., Inc. v. Brady, 672 F. App’x 798, 801
(10th Cir. 2016) (finding no legal distinction between the individual defendant and
the individual defendant “doing business as” an entity); Turner v. Metro. Prop. & Cas.
Ins. Co., No. 18-CV-00653-JFH-JFJ, 2021 WL 432172, at *1 n.1 (N.D. Okla. Feb. 8,
2021) (“Doing business under another name does not create an entity distinct from
the person operating the business. The business name is a fiction, and so too is any
implication that the business is a legal entity separate from its owner.”) (quotations
and citation omitted).
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927 F. Supp. 2d 1109, 1114 (D. Colo. 2013). A party seeking a temporary restraining
order or preliminary injunction must show: (1) a likelihood of success on the merits;
(2) a likelihood that the movant will suffer irreparable harm in the absence of
preliminary relief; (3) that the balance of equities tips in the movant’s favor; and (4)
that the injunction is in the public interest. Petrella v. Brownback, 787 F.3d 1242,
1257 (10th Cir. 2015) (citation omitted). The movant must show that “all four of the
equitable factors weigh in its favor.” Sierra Club, Inc. v. Bostick, 539 F. App’x 885,
888 (10th Cir. 2013) (emphasis and citation omitted).
“Preliminary injunctions are extraordinary remedies requiring that the
movant’s right to relief be clear and unequivocal.” Planned Parenthood of Kan. v.
Andersen, 882 F.3d 1205, 1223 (10th Cir. 2018) (citation omitted). Granting such
drastic relief is the exception, not the rule. See United States ex rel. Citizen Band
Potawatomi Indian Tribe of Okla. v. Enter. Mgmt. Consultants, Inc., 883 F.2d 886,
888-89 (10th Cir. 1989) (citing GTE Corp. v. Williams, 731 F.2d 676, 678 (10th Cir.
1984)).
ANALYSIS AND FINDINGS
While the VC alleges breaches of various provisions of the Agreements, the
Application only argues breach of the contractual non-solicitation obligation. Dkt. 11,
p.8. Thus, on Plaintiff’s breach of contract claim, the Court only considers the request
for a TRO in the context of the alleged breach of Section 3.05 (the non-solicitation
section) of each Agreement. The only additional claims argued in the Application are
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the claims for misappropriation of trade secrets arising under federal and state law.
For purposes of its ruling on the Application, the Court assumes, without deciding,
that Plaintiff’s claimed trade secrets qualify as such under federal and state law.
1. Plaintiff Has Not Shown It Will Suffer Irreparable Harm on Its Claims
for Breach of the Non-Solicitation Agreement and Misappropriation
of Trade Secrets
“A showing of probable irreparable harm is the single most important
prerequisite for the issuance of a preliminary injunction . . . .” Dominion Video
Satellite, Inc. v. Echostar Satellite Corp., 356 F.3d 1256, 1260 (10th Cir. 2004)
(quoting Reuters Ltd. v. United Press Int’l, Inc., 903 F.2d 904, 907 (2d Cir. 1990)).
“Irreparable harm . . . is harm that cannot be undone, such as by an award of
compensatory damages or otherwise.” Salt Lake Tribune Pub. Co., LLC v. AT & T
Corp., 320 F.3d 1081, 1105 (10th Cir. 2003) (citing Tri-State Generation &
Transmission Ass’n v. Shoshone River Power, Inc., 805 F.2d 351, 355 (10th Cir. 1986)).
“To constitute irreparable harm, an injury must be certain, great, actual and not
theoretical.” Schrier v. Univ. of Colo., 427 F.3d 1253, 1267 (10th Cir. 2005) (quoting
Heideman v. S. Salt Lake City, 348 F.3d 1182, 1189 (10th Cir. 2003)). “The party
seeking injunctive relief must show that the injury complained of is of such
imminence that there is a clear and present need for equitable relief to prevent
irreparable harm.” Id. (quoting Heideman, 348 F.3d at 1189 (alteration adopted)).
Plaintiff has not established it will suffer irreparable harm. First, Plaintiff has
failed to demonstrate its alleged harms cannot be remedied through an award of
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money damages. For example, in the Application, Plaintiff argues it “has already been
harmed by the loss of a major client[.]” Dkt. 11, p.9. The Application also describes
harm in the form of a “deprivation of future recurring business from Easton and
Sentinel.” Id. at p.13. The VC similarly alleges “Defendants’ actions have resulted in
lost business for Plaintiff[.] Dkt. 1, ¶4; see also id. at ¶¶234, 254 (each alleging “lost
business”). Even more, the VC includes a specific dollar amount as an award of
damages it seeks from each Defendant for their breach of their respective
Agreements. Dkt. 1, ¶¶194 (pleading breach of contract damages for $1,136,004.65
“in direct consequential and liquidated damages” from Cumberland/MCS
Consulting); ¶205 (pleading breach of contract damages for $1,017,650.00 “in direct
consequential and liquidated damages” from Mader)/Maker Solutions, ¶217 (pleading
breach of contract damages for $897,355.00 “in direct consequential and liquidated
damages” from Lindstrom/Energy Systems Consulting). In light of these verified
allegations, Plaintiff has failed to demonstrate there is no adequate remedy at law.
See Port City Props. v. Union Pac. R.R. Co., 518 F.3d 1186, 1190 (10th Cir. 2008)
(“[L]oss of business can be compensated in money damages.”); Mountain Med. Equip.,
Inc. v. Healthdyne, Inc., 582 F. Supp. 846, 848 (D. Colo. 1984) (“[T]he essence of the
concept requires a substantial threat of harm to the movant that cannot be
compensated by money.”); Energy Servs. v. W. River Pumps, Inc., 567 F.3d 398, 403
(8th Cir. 2009) (“The harm that had already occurred could be remedied through
damages.”); Ice Corp. v. Hamilton Sundstrand Corp., 615 F. Supp. 2d 1256, 1263 (D.
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Kan. 2009) (approving award of damages for misappropriation claims based on lost
sales as a result of misappropriation).
Second, given the nature of the Agreements’ liquidated damages clause, the
Court finds those provisions preclude a finding of irreparable harm. The liquidated
damages clause states:
Liquidated Damages
5.01. In the event of a breach by Contractor of the obligation contained
in Article 3 of this Agreement, payment of liquidated damages
shall be made for the period during which Contractor continues
to be in breach of such obligation. The parties to this Agreement
agree that damages are difficult to compute and incapable of
precise determination. The parties further agree that Company
could suffer irreparable harm if there is a breach of the provision
of this Agreement, and Company is entitled to a temporary
restraining order, temporary injunction and permanent
injunction if there is a breach in addition to damages. These
damages will be calculated as follows: Contractor, as the
breaching party, will pay Company an amount calculated as 5
times the amount billed to Company by Contractor in the twelve
months preceding the termination of this Agreement. The parties
agree that the amount established by this paragraph as liquidated
damages is reasonable under the circumstances existing at the
time of the execution of this Agreement.
Dkt. 1-1, p.8; 1-3, p.8; 1-5, p.8 (emphasis added).
Article 3, referenced in the liquidated damages clause, contains the Non-
Solicitation clause in Section 3.05. In its Application, Plaintiff focuses on Defendants’
alleged breach of Section 3.05, thus expressly triggering the liquidated damages
clause. The Court finds the liquidated damages clause unambiguously and expressly
applies to a breach of Section 3.05. And the liquidated damages clause unambiguously
sets forth a calculation of damages for a breach of Section 3.05, which the parties to
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those Agreements agreed resulted in an “amount that was reasonable under the
circumstances existing at the time of the execution of this Agreement.” To be sure,
Plaintiff further invokes and seeks to enforce the liquidated damages clause in its
allegations in the VC, and it performed and included a monetary calculation of its
liquidated damages for the alleged breach of Section 3.05. Dkt. 1, ¶¶94, 194, 205, 217,
235, 255. See Harvey Barnett, Inc. v. Shidler, 143 F. Supp. 2d 1247, 1255 (D. Colo.
2001) (“Therefore, any loss to ISR is not ‘irreparable,’ as ISR wrote the clause and
chose the amount that it felt would compensate its loss. I therefore conclude that ISR
has failed to meet its burden to show irreparable loss.”). Because the liquidated
damages clause is expressly tied to a breach of the non-solicitation provision (Section
3.05) of the Agreements, the Court finds Plaintiff has failed to show irreparable
harm.3
Third, the Application argues “Defendants already agreed that [Plaintiff]
would suffer irreparable harm in the event of Defendants’ breach of their contractor
agreements, and that [Plaintiff] would be entitled to a temporary restraining order,
3 The Court has considered whether Plaintiff has shown a probability of future
irreparable harm. While that too is speculative on the current record, even if the
Court assumes it, the result would be the same. The liquidated damages clause
expressly pertains to the breach of the non-solicitation provisions in Section 3.05 and
it further provides that “payment of liquidated damages shall be made for the period
during which Contractor continues to be in breach of such obligation.” (Emphasis
added). Thus, Plaintiff has not shown a probability of future irreparable harm in light
of its monetary remedy. Cf. DTC Energy Grp., Inc. v. Hirschfeld, 912 F.3d 1263, 1271
(10th Cir. 2018) (“not all plaintiffs who have already suffered lost customers, stolen
trade secrets, or intangible injury can show a sufficient probability of future
irreparable harm to warrant a preliminary injunction”).
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temporary injunction, and permanent injunction in the event of a breach.” Dkt. 11,
p.14. But the Court gives little credence to the parties’ agreement to injunctive relief
or irreparable harm in the event of breach. Their agreement alone does not alleviate
Plaintiff of its burden to make the requisite showing of its entitlement to injunctive
relief under all applicable elements. See Dominion Video Satellite, 356 F.3d at 1266
(“While courts have given weight to parties’ contractual statements regarding the
nature of harm and attendant remedies that will arise as a result of a breach of a
contract, they nonetheless characteristically hold that such statements alone are
insufficient to support a finding of irreparable harm and an award of injunctive
relief.” (surveying cases)); TTEC Holding, Inc. v. Da Silva, No. 20-CV-03645-CMA-
STV, 2020 WL 7398775, at *3 (D. Colo. Dec. 16, 2020) (noting “courts have rejected
similar attempts by litigants to contract around the required showing for injunctive
relief” and assigning no weight to the injunctive relief provision in the parties’
contract).
The same analysis and findings apply to Plaintiff’s misappropriation claims
under state and federal law. Plaintiff expressly pleaded a monetary remedy in
liquidated damages for Defendants’ alleged misappropriation of trade secrets, to wit:
Plaintiff is therefore entitled to an award of damages adequate to
compensate Plaintiff for its actual losses pursuant to 18 U.S.C.
§ 1836(b)(3)(B)(i)(I), but no less than $3,051,009.65 in liquidated
damages, collectively, 5 times the amount billed to Plaintiff by
Defendants . . . in the twelve months preceding the termination of their
respective Subcontractor Services Agreements.
* * *
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Plaintiff is therefore entitled to an award of damages adequate to
compensate Plaintiff for its actual losses pursuant to C.R.S. § 7-74-
104(1), but no less than $3,051,009.65 in liquidated damages,
collectively, 5 times the amount billed to Plaintiff by Defendants . . . in
the twelve months preceding the termination of their respective
Subcontractor Services Agreements.
Dkt. 1, ¶¶235 and 255, respectively. The fact that Plaintiff affirmatively avails itself
of the liquidated damages provision to claim specific monetary damages under its
misappropriation claims is countervailing to a showing of irreparable harm.
Plaintiff additionally argues (a) the value of its ability to exclusively control its
propriety materials is incalculable; (b) the value of PFIM software version 3.5
downloaded by Defendants is difficult to ascertain; and (c) “it is very likely that
Defendants are already leveraging” its confidential information for Geo-Prime’s
benefit. But these arguments are too speculative to be availing to a showing of
irreparable harm. See, e.g., TTEC Holding, 2020 WL 7398775, at *3 (finding
allegations of a “significant risk” and a “high probability” of harm too vague and
speculative to show irreparable harm); cf. DTC Energy Grp., 912 F.3d at 1271-73
(affirming denial of preliminary injunction based on loss of customers, loss of
goodwill, and erosion of competitive position where plaintiff failed to show a
probability of future irreparable harm and the prior loss of customers and general
decline of plaintiff’s value as a business can be quantified in money damages).
Further, the Tenth Circuit has held that irreparable harm is not presumed in
misappropriation cases because the federal Defend Trade Secrets Act and the
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Colorado Uniform Trade Secrets Act “merely authorize and do not mandate injunctive
relief . . . .” First W. Cap. Mgmt. Co. v. Malamed, 874 F.3d 1136, 1143 (10th Cir. 2017).
For all of these reasons, Plaintiff has failed to demonstrate it is likely to suffer
irreparable harm absent injunctive relief.
2. Plaintiff Has Not Shown A Likelihood of Success on the Merits of its
Claim for Breach of the Non-Solicitation Agreement
Under Colorado law, a non-solicitation agreement is a form of non-competition
agreement. Saturn Sys., Inc. v. Militare, 252 P.3d 516, 526 (Colo. App. 2011). As such,
“an agreement not to solicit an employer’s customers is enforceable so long as its
purpose is to protect the employer’s trade secrets and it is reasonably limited in time
and geographic scope.” Id. (citations omitted). That is, it must be no broader than
necessary “to protect the promisee’s legitimate interests, and it must not impose
hardship on the promisor.” Reed Mill & Lumber Co. v. Jensen, 165 P.3d 733, 736
(Colo. App. 2006), as modified on denial of reh’g (Feb. 15, 2007). Whether a specified
geographic scope and duration in a non-solicitation agreement is reasonable is a fact-
driven inquiry based on the facts of each case. Energex Enters., Inc. v. Anthony Doors,
Inc., 250 F. Supp. 2d 1278, 1283 (D. Colo. 2003).
The non-solicitation agreements here contain no geographic scope at all. See
Dkt. 1-1. P.6 (Section 3.05); Dkt. 1-3, p.6 (Section 3.05); Dkt. 1-5, p.6 (Section. 3.05).
As such, Plaintiff fails to demonstrate a likelihood of success on the merits because it
has not shown the non-solicitation clause in the Agreements is reasonable in its
geographic scope.
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3. Plaintiff Has Not Shown A Likelihood of Success On the Merits Re:
Geo-Prime
Defendant Geo-Prime is not a party to any agreement with Plaintiff. It is an
entity purportedly formed by the individual Defendants as a competitor to Plaintiff.
Unlike the other Defendants, there is no evidence Geo-Prime—a Texas LLC with its
principal place of business in Texas—consented to this Court’s jurisdiction. And
neither the VC nor the Application suggest any facts or evidence regarding this
Court’s personal jurisdiction over Geo-Prime.
A court cannot order injunctive relief without personal jurisdiction over the
party subject to that order. See AMBI Distribution Corp. v. Doe, No. 21-CV-1961-
WJM-NYW, 2021 WL 3269234, at *2 (D. Colo. July 28, 2021) (citing Ruhrgas AG v.
Marathon Oil Co., 526 U.S. 574, 584 (1999)); see also Advanced Tactical Ordnance
Sys., LLC v. Real Action Paintball, Inc., 751 F.3d 796, 800 (7th Cir. 2014) (“In order
for the district court’s preliminary injunction to be valid, that court had to have
personal jurisdiction over the defendant.”); cf. Williams v. Life Sav. & Loan, 802 F.2d
1200, 1203 (10th Cir. 1986) (“[W]hen entry of a default judgment is sought . . . , the
district court has an affirmative duty to look into its jurisdiction both over the subject
matter and the parties. In reviewing its personal jurisdiction, the court does not
assert a personal defense of the parties; rather, the court exercises its responsibility
to determine that it has the power to enter the default judgment.”).
Plaintiff has not demonstrated personal jurisdiction over Geo-Prime. It has
failed to show a likelihood of success on the merits against Geo-Prime as a result.
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AMBI Distribution Corp., 2021 WL 3269234, at *5 (denying ex parte motion for TRO
because plaintiff failed to establish personal jurisdiction and thus the court found
plaintiff failed to show a likelihood of success on the merits).
* * *
Because Plaintiff failed to meet its burden to establish both irreparable injury
and likelihood of success on the merits, the Court does not address the other elements
for a TRO. See First W. Capital Mgmt. Co, 874 F.3d at 1144. For the reasons shared
above, the Court DENIES Plaintiff’s Application for a TRO, on the record before it.
The Court FURTHER DENIES Plaintiff’s request to issue an Order to Show Cause.
Doing so would turn the burden of proof on its head regarding the showing required
to obtain a preliminary injunction. As discussed above, the parties’ agreement alone
does not alleviate Plaintiff of its burden to make the requisite showing of its
entitlement to injunctive relief. See supra p.9, citing cases.
DATED: September 20, 2024
BY THE COURT:
________________________________
S. Kato Crews
United States District Judge
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