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Reg Seneca, LLC v. Harden

United States District Court, S.D. Iowa, Central Division

April 9, 2013

REG SENECA, LLC, Plaintiff,

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For REG Seneca, LLC, Plaintiff: Randall D Armentrout, Thomas M Cunningham, LEAD ATTORNEYS, Ryan Wade Leemkuil, NYEMASTER GOODE PC, DES MOINES, IA.

For Phillip Harden, Defendant: Gene R La Suer, LEAD ATTORNEY, Deborah M Tharnish, DAVIS BROWN KOEHN SHORS & ROBERTS PC, DES MOINES, IA.

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This matter comes before the court pursuant to plaintiff's March 15, 2013 Motion for Preliminary Injunction. [Dkt. No. 4] The court held a hearing on this motion on April 1, 2013 at which the plaintiff was represented by Randall Armentrout, Thomas Cunningham and Ryan Leemkuil. The defendant was represented by Gene LaSuer and Deborah Tharnish. Plaintiff's application for a preliminary injunction is granted.

I. Nature of the Action

The plaintiff is the nation's largest producer of biodiesel. The defendant was an employee of the plaintiff until his resignation on March 12, 2013. Plaintiff brings this action to enforce employment agreements and enjoin the defendant from working in the biodiesel industry for two years. The defendant contends that the restrictions on his employment are unreasonable, that the plaintiff cannot demonstrate irreparable harm and that the balance

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of harms suggests that a preliminary injunction should not issue. The court makes the following findings of fact and conclusions of law.

II. Findings of Fact

The plaintiff REG (Renewable Energy Group) is the nation's largest producer of biodiesel. Among other plants, it operates a facility in Seneca, Illinois, capable of producing sixty million gallons of biodiesel per year from three production lines called " trains" . Defendant Phillip Harden worked at the Seneca plant for several years as one of four " lead operators" . A lead operator is in charge of plant operations on any given shift. Prior to working for the plaintiff, Mr. Harden worked for Scott Petroleum, another biodiesel manufacturer, in Harden's hometown of Greenville, Mississippi. By all accounts, Mr. Harden is a gifted and valuable employee.

Over the past six months, Mr. Harden came under increasing family pressure to return to his hometown in Mississippi. He attempted to secure a transfer to an REG plant closer to Greenville without success. Upon securing the position of assistant plant manager with Scott Petroleum, Harden resigned his employment with REG on March 12, 2013. Management at REG attempted to get Mr. Harden to stay with REG. He was placed on paid administrative leave. Shortly thereafter, REG brought this action to enjoin Harden from working for Scott Petroleum. REG then offered employment closer to Harden's hometown.

A. Production of Biodiesel

The REG Seneca plant, Scott Petroleum's Greenville, Mississippi plant, and an unrelated plant in Wisconsin are all very similar. Each was built by Nova BioSource. The plants at Seneca and Greenville have experienced similar difficulties in achieving production approaching the stated capacity of the plant.

The process for manufacturing biodiesel is conceptually simple but in practice it is technically difficult. The process of transesterification reacts a fat such as soybean oil with alcohol (methanol or ethanol) to produce biodiesel and glycerol. Among many variables, time, temperature, and pressure are important to the reaction. The transesterification process at REG Seneca has been under intense scrutiny for years. Mr. Harden has been an integral part of those efforts since they began. REG has spent approximately $10 million improving its process for producing biodiesel since that plant was purchased out of a bankruptcy.

REG is a very sophisticated producer of biodiesel. While some producers use soybean oil as the exclusive " feedstock" for manufacturing biodiesel, REG uses a wide variety of fats such as used oils from fast food restaurants, yellow grease and beef tallow. The use of non-virgin oil presents unique challenges for the production of biodiesel. While much has been written about the process of making biodiesel, the record is very clear here that REG Seneca's success is attributable to knowledgeable people and a lot of trial and error.

Scott Petroleum is a biodiesel manufacturer that began its operations as an outgrowth of its business delivering diesel fuel to farmers. Farm clients requested that Scott begin manufacturing biodiesel and Scott became interested in producing approximately 10 million gallons of biodiesel per year. Scott was convinced by a partner to double that capacity but that partner abandoned the project for financial reasons. The Scott plant has a 20 million gallon per year capacity but operates at a capacity of approximately 11 million gallons per year. Scott has hired consultants in an effort to increase efficiency. Despite the assistance of these consultants, it is

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only recently beginning to experience an increase in efficiency.

Scott's 11 million gallons of biodiesel are sold in two ways. First, Scott blends biodiesel with diesel fuel and it delivers 7 million gallons per year to farm customers in the Mississippi Delta region of northwest Mississippi, northeast Louisiana and southern Arkansas. Second, approximately 4 million gallons of biodiesel is sold on the open market to distributers. Thus, the extent of head-to-head competition for biodiesel sales in Mississippi between the plaintiff and Scott is very small.

Scott Petroleum and REG also compete very indirectly. Both receive renewable identification numbers (RINs) for the production of biodiesel. Although the testimony was somewhat unclear on this issue, REG and Solon Scott agreed that the manufacturer receives 1.5 RINs for every qualifying gallon of biodiesel. The Environmental Protection Agency sets annual quotas dictating how much biofuel must be blended with fossil fuel. Parties obligated to meet such quotas, such as gasoline producers, must ...

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