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Clearly Compliant, L.L.C. v. Bornbach

Court of Appeals of Iowa

November 8, 2017

CLEARLY COMPLIANT, L.L.C., Plaintiff-Appellant/Cross-Appellee,

         Appeal from the Iowa District Court for Linn County, Robert E. Sosalla, Judge.

         Clearly Compliant, L.L.C. appeals, and Theresa Bornbach and Capstone Charity Resources, L.L.C. cross-appeal from the district court's order denying the request for a permanent injunction.

          J. Michael Westonand Brenda K. Wallrichs of Lederer Weston Craig, P.L.C., Cedar Rapids, for appellant.

          Vernon P. Squires of Bradley & Riley P.C., Cedar Rapids, for appellees.

          Heard by Danilson, C.J., Mullins, J., and Carr, S.J. [*]

          DANILSON, Chief Judge.

         Clearly Compliant, L.L.C. appeals from the district court's order denying its request for a permanent injunction and attorney fees. Clearly Compliant contends it is entitled to a permanent injunction preventing Theresa Bornbach and Charity Resources, L.L.C., d/b/a Capstone Charity Resources, L.L.C. (Capstone), from continuing to use Clearly Compliant's trade-secret documents and pricing model to unfairly compete with Clearly Compliant. Clearly Compliant also asserts the district court abused its discretion in denying its request for attorney fees. On cross-appeal, Bornbach and Capstone maintain the district court should have granted Bornbach and Capstone's request for attorney fees.

         We conclude the district court properly denied Clearly Compliant's request for a permanent injunction and affirm on that ground. We also affirm the district court's order denying both parties' requests for attorney fees.

         I. Background Facts & Proceedings.

         Clearly Compliant is a charitable solicitation registration business formed by Sarah Else in 2008. Clearly Compliant provides services to nonprofit organizations to identify and ensure compliance with various states' requirements for the registration of organizations that solicit charitable donations. Else contends she spent years researching the requirements and practices respecting charitable solicitation registration in each state before obtaining her first paying client in 2011. Based on her research, Else developed a number of materials for Clearly Compliant, including an assessment form, intake form, uniform board resolution, confidentiality agreement, and a master spreadsheet of state-specific registration information. Else marked the documents "confidential" and kept them in an internet Dropbox account that required private log-in credential to access. Else also created a pricing model that encompasses a per-state fee with a reduced renewal fee and can include separate costs for additional tasks.

         In building her business, Else sought assistance from Bornbach, who owned a business-coaching company, Biz Savvy. Else participated in group classes offered by Biz Savvy in business development and marketing strategy. Bornbach promised confidentiality to the clients of Biz Savvy. Else also rented office space from an entity called Co-Works, which was owned by Bornbach. Bornbach stopped rendering coaching services to Else in December 2013.

         In February 2014, Else and Bornbach began negotiations to become partners in Clearly Compliant. While negotiating the potential partnership, Bornbach began collaborating with Else on client development. As part of the collaboration and to further the partnership negotiations, Else gave Bornbach access to Clearly Compliant's materials. Else did not require Bornbach to sign a nondisclosure, confidentiality, or noncompete agreement, but she expected Bornbach to maintain the promise of confidentiality made as part of the business-coaching relationship.

         Also in February 2014, Bornbach purchased a SalesForce[1] account under the name of Clearly Compliant and began populating the account with Clearly Compliant's materials. Else testified at the temporary-injunction hearing that she was aware of the SalesForce account and that Bornbach was populating the account with Clearly Compliant's materials "at a certain point" in March 2014. Bornbach testified at the temporary-injunction hearing that the purpose of setting up the SalesForce account for Clearly Compliant was to "automate some of the[] processes and not work from so many disparate spreadsheets that we don't know for sure when they're all-have been updated." At the permanent- injunction hearing, Bornbach explained the SalesForce account was intended "to demonstrate to [Else] that technology could be a tool that she-we could consider using in this business as we move forward together."

         The partnership negotiation was ultimately unsuccessful; Bornbach ended the negotiations and her relationship with Else on May 2, 2014. On May 7, Bornbach informed Else she intended to compete with Clearly Compliant. From that time, Clearly Compliant and Capstone have directly competed in the field of charitable-solicitation registration.

         Clearly Compliant filed the petition in this matter on December 19, 2014, seeking temporary and permanent injunctions preventing Capstone from further misappropriating trade-secret information. After a hearing held April 9 and May 26, 2015, the district court granted the request for a temporary injunction. The temporary injunction enjoined Bornbach and Capstone from

(a) any further misappropriation of [Clearly Compliant]'s trade secret information learned or discovered through any association, business dealing, or conversation with Sarah Else, [Else's husband], or any agent, employee, or volunteer worker of [Clearly Compliant]; (b) disclosing, using, or selling any information found in [Clearly Compliant]'s information and/or marketing strategies; and (c) injuring [Clearly Compliant]'s business reputation. I further enjoin Theresa Bornbach and [Capstone] from any further contact with [Clearly Compliant]'s clients and prospects that Sarah Else and/or [Clearly Compliant] disclosed to Theresa Bornbach or of whom Theresa Bornbach learned through her association with Sarah Else and/or [Clearly Compliant] prior to May 2, 2014.

         The hearing on the request for a permanent injunction was held June 21 and 22, 2016. The court entered an order on July 25, 2016, denying the request for a permanent injunction. The court determined that at the time of the permanent-injunction hearing Clearly Compliant and Capstone employed two different business models. The court stated that Clearly Compliant's master spreadsheet in its current, updated form[2] would likely constitute a trade secret justifying conversion of the temporary injunction into a permanent injunction to bar Capstone from using the current spreadsheet. However, the court noted both parties testified Capstone does not have access to the spreadsheet in its current form. Thus, the court determined imposition of a permanent injunction was not appropriate. The court also denied both parties' requests for attorney fees. Clearly Compliant now appeals, and Bornbach and Capstone cross-appeal.

         II. Standard of Review.

         "We review actions for injunctive relief de novo." Master Builders of Iowa, Inc. v. Polk Cty., 653 N.W.2d 382, 387 (Iowa 2002).

         We review the district court's refusal to award attorney fees pursuant to Iowa Code chapter 550 (2014) for an abuse of discretion. Olson v. Nieman's, Ltd., 579 N.W.2d 299, 316 (Iowa 1998).

         III. Permanent Injunction.

         Clearly Compliant contends the district court should have granted a permanent injunction preventing Capstone from utilizing Clearly Compliant's pricing model and materials to unfairly compete with Clearly Compliant.

         "A plaintiff who seeks a permanent injunction must establish '(1) an invasion or threatened invasion of a right; (2) that substantial injury or damages will result unless the request for an injunction is granted; and (3) that there is no adequate legal remedy available.'" In re Langholz, 887 N.W.2d 770, 779 (Iowa 2016) (citation omitted).

When determining whether an injunction is the proper remedy, the court must weigh the relative hardship to each party. A permanent injunction should be structured so it affords relief to the complainant but does not interfere with the legitimate and proper actions of the person against whom it is granted. A permanent injunction should only be ordered to ...

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