Elwood Staffing Services, Inc. v. KGS2 Group, LLC et al, No. 3:2014cv01270 - Document 24 (D. Or. 2014)
Court Description: OPINION & ORDER: Elwood's Motion for a Temporary Restraining Order 7 and order to show cause why a preliminary injunction should not issue is Denied. Signed on 12/15/14 by Magistrate Judge Dennis J. Hubel. (gm)
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Elwood Staffing Services, Inc. v. KGS2 Group, LLC et al Doc. 24 1 2 3 4 5 6 7 UNITED STATES DISTRICT COURT 8 DISTRICT OF OREGON 9 PORTLAND DIVISION 10 11 12 ELWOOD STAFFING SERVICES, INC., an Indiana Corporation, 13 No. 3:14-cv-01270-HU OPINION AND ORDER Plaintiff, 14 v. 15 16 17 18 19 20 KGS2 GROUP, LLC, an Oregon Limited Liability Company, d/b/a EXPRESS EMPLOYMENT PROFESSIONALS; THE STOLLER GROUP, INC., an Oregon Corporation; and SUSAN KONOPSKI, individually and in her capacity as an agent and officer of EXPRESS EMPLOYMENT PROFESSIONALS, INC., Defendants. 21 22 COUNSEL 23 Krishna Balasubramani and Sarah B. Ewing, Sather, Byerly & Holloway, LLP, Portland, Oregon, for Plaintiff Elwood Staffing Services, Inc. 24 25 26 27 Lucas W. Reese, Garrett Hemann Robertson P.C., Salem, Oregon, for Defendants KGS2 Group, LLC, d/b/a Express Employment Professionals, and The Stoller Group, Inc. Zachary J. Dablow, Zachary Dablow, Attorney at Law, Salem, Oregon, for Defendant Susan Konopski. 28 Page 1 - OPINION AND ORDER Dockets.Justia.com 1 HUBEL, Magistrate Judge: 2 Plaintiff Elwood Staffing Services, Inc. (“Elwood”) brought 3 this diversity action against Defendants KGS2 Group, LLC (“KGS2”), 4 The Stoller Group, Inc. (“Stoller”) and Susan Konopski (“Konopski”) 5 (collectively, “Defendants”) on August 6, 2014, alleging claims for 6 injunctive 7 intentional 8 confidential relationship, and misappropriation of trade secrets. 9 Plaintiff now moves, pursuant to Federal Rule of Civil Procedure 10 (“Rule”) 65(a) and (b), for a temporary restraining order and an 11 order to show cause why a preliminary injunction should not issue 12 in this proceeding. 13 Elwood’s motion (Docket No. 7) for a temporary restraining order 14 and order to show cause why a preliminary injunction should not 15 issue is DENIED. relief, interference 16 17 breach of with contract, economic promissory relations, estoppel, breach of For the reasons explained more fully below, I. FACTS AND PROCEDURAL HISTORY Elwood is an Indiana Corporation that provides “temporary and 18 direct 19 companies 20 professional, and technical industries.” 21 February 15, 2013, Elwood acquired non-party SOS Staffing Services, 22 Inc. (“SOS Staffing”) through a stock purchase. (Compl. ¶ 9; 23 Basile assigned 24 employees’ non-competition and non-solicitations agreements to 25 Elwood as part of the acquisition, including the agreement Konopski 26 signed on May 24, 2006, at the inception of her employment with SOS 27 Staffing. staffing . Decl. . ¶ services . , 1.) to primarily SOS a variety in Staffing the of industrial, Page 2 - OPINION AND ORDER client clerical, (Compl. ¶ 7.) purportedly (Compl. ¶¶ 8-9; Basile Decl. ¶ 1.) 28 business On its 1 2 3 4 The agreement signed by Konopski on May 24, 2006, provides in relevant part: [T]o protect our proprietary, confidential and/or trade secret information, for the one-year period following the termination of your employment with us, for any reason or for cause, whether voluntary or involuntary, you agree: 5 6 7 8 a. either directly or indirectly, in person or through a third party or associate, not to call on, solicit or otherwise deal with any of our customers located within 60 miles of your territory, branch, or specific location at which you worked for us, or any other of our customers if you dealt with such customer while employed by us; 9 10 11 12 b. either directly or indirectly, in person or through a third party or associate, not to either solicit for employment, employ in anyway or cause any employee to be hired at your subsequent competing employer any of our employees (including, without limitation, temporary employees and/or staff employees) who were employed by us during the period of time you were employed by us; and 13 14 15 16 17 c. in order to further protect our confidential, proprietary and/or trade secret information, and as a condition of employment, continued employment with us and access to our proprietary and/or confidential information and trade secrets, not to work for, consult with or be employed by, directly or indirectly, any of our competitors at any location within 60 miles of your territory, branch, or specific location at which you worked while employed by us. 18 25 You agree that the term of this non-competition provision is reasonable and that the limited geographic scope of this non-competition provision does not preclude you from working in your given field, and you represent that you can seek employment with our competitors at a location outside of the limited geographic limitations of this non-competition provision. You agree that each of the foregoing restrictive covenants are reasonable and will not result in any undue hardship to you. You also agree that the confidential, proprietary and/or trade secret information obtained while working for us or our affiliated companies will not be used in any way to the detriment of our business, reputation or good standing at any time in the future. 26 (Basile Decl. Ex. A at 1-2.) Notably, the agreement purports to be 27 legally binding on the employee, SOS Staffing, and SOS Staffing’s 19 20 21 22 23 24 28 Page 3 - OPINION AND ORDER 1 “subsidiaries or affiliates,” but it is silent with respect to 2 assignees. (Basile Decl. Ex. A at 1.) 3 When Elwood acquired SOS Staffing in February 2013, Konopski 4 “received no pay increase, increase of duties, changes to [her] 5 supervisors, 6 employment[.]” 7 any new hire paperwork. 8 time in March of 2013, Konopski was instructed to place a signature 9 block in all outgoing emails that referred to her as an employee of or other changes or (Konopski Decl. ¶ 2.) interruptions in [her] Nor did Konopski complete (Basile Decl. ¶ 1.) At some unspecified 10 “SOS Employment Group[,] An Elwood Staffing Company.” 11 Decl. 12 continues, to date, to be a wholly owned subsidiary of Elwood with 13 continued operations,” Elwood did not receive a certificate of 14 authority to conduct business in Oregon until December 18, 2013.1 15 (Kasten Decl. ¶¶ 4, 9.) ¶ 4) (emphasis added). Though “SOS Staffing (Konopski was and 16 Five days later, on December 23, 2013, Konopski received an 17 email from Elwood’s employee relations manager, Fran Matragos 18 (“Matragos”), that stated: 19 20 21 22 23 As you are aware, the employment of all SOS Staffing Services, Inc. staff employees will be transferred to Elwood Staffing Services, Inc. effective January 1, 2014. In order to accomplish this transition all current SOS staff employees are required to sign the attached form, entitled: Employees Acknowledgment of Employee Handbook; Acknowledgment and Consent of Change of Employer; and Assignment of Confidentiality and Non-Solicitation and/or Non-Competition Agreement. 24 . . . . 25 26 1 27 28 The parties do not dispute that, at all material times, Konopski was an Oregon resident whose “[c]ustomers covered territory from Downtown Portland, to Forest Grove, to Wilsonville, Oregon.” (Compl. ¶¶ 2, 11.) Page 4 - OPINION AND ORDER 1 The agreement must be signed and returned by email . . . or fax . . . no later than Thursday, December 26, 2013. 2 3 Failure to submit this promptly may interfere with the transfer of your employment from SOS to Elwood. If you have questions please contact Human Resources. 4 5 (Matragos Decl. Ex. A at 1-2; Konopski Decl. ¶ 5.) 6 7 The form attached to Matragos’ email, which was ultimately signed by Konopski on January 2, 2014, stated: 8 I . . . hereby acknowledge that effective January 1, 2014, I will be an employee of Elwood Staffing Services, Inc. . . . I hereby consent to the assignment of my employment from SOS Staffing Services, Inc. . . . to Elwood Staffing. I understand and agree all compensation paid to me after January 1, 2014, even if earned while employed by SOS, will be paid by Elwood Staffing. 9 10 11 12 I hereby consent to the assignment from SOS to Elwood Staffing of the following agreement: Agreement Regarding Non-Competition & Non-Solicitation of Customers and Employees entered into between me and SOS at the time I was employed by SOS or during the course of my employment with SOS. 13 14 15 16 (Basile Decl. Ex. B at 1.) 17 provided any type of job offer, written or otherwise, prior to 18 being presented” with the assignment quoted above. (Konopski Decl. 19 ¶ 5.) Konopski maintains that she was “not 20 Also in early January 2014, “all former SOS Staffing employees 21 were directed to use a signature block that referred only to 22 Elwood.” 23 June 18, 2014, Konopski sent an email to her regional manager at 24 Elwood, Tracie Basile (“Basile”), indicating that she was “ready to 25 take that next step into management and . . . didn’t see any 26 opportunities here in the Portland area with Elwood,” that she had 27 been presented “a management offer” that would increase her base 28 salary by $20,000, and that she was giving her two weeks notice. (Kasten Decl. ¶ 7.) Page 5 - OPINION AND ORDER A little over six months later, on 1 (Basile Decl. ¶ 6, Ex. C at 1.) Basile then called Konopski, who 2 explained that she was taking the branch manager position with 3 Express Employment Professionals (“Express”).2 (Basile Decl. ¶ 6.) 4 Later that same day, June 18, 2014, Konopski sent Elwood’s 5 human 6 resignation and a proposed waiver of “the non-competition portion 7 of 8 Konopski 9 confidentially provisions. resources our department now-terminated agreeing to an email employment adhere to attaching agreement,” the in a letter exchange non-solicitation (Compl. ¶ 16, Ex. D at 1.) of for and Konopski 10 began working for Express on or about July 1, 2014, even though 11 Elwood never signed or agreed to Konopski’s proposed waiver of the 12 non-competition provision. 13 the basis of the foregoing, Elwood filed the present action against 14 Defendants on August 6, 2014. 15 restraining order and order to show cause why a preliminary 16 injunction should not issue followed on September 16, 2014. 17 (Compl. ¶ 18; Basile Decl. ¶ 18.) On Elwood’s motion for a temporary II. LEGAL STANDARD 18 “A party seeking a temporary restraining order must make the 19 fourfold showing necessary for the issuance of a preliminary 20 injunction.” 21 2803017, at *1 (D. Or. June 19, 2014) (citing Stuhlbarg Int’l Sales 22 Co. v. John D. Brush & Co., 240 F.3d 832, 839 n.7 (9th Cir. 2001)); 23 see also Alexander v. Williams, No. 6:11–cv–06215–PK, 2012 WL 24 3527042, at *1 n.1 (D. Or. Aug. 14, 2012) (“[T]he standards for Williamson v. Oregon, No. 3:14–cv–00591–PK, 2014 WL 25 26 2 27 28 Express is limited liability corporation with Tualatin, Oregon, an assumed business name for KGS2, an Oregon company. (Compl. ¶ 3.) Stoller, a closely held its principal place of business located in is a managing member of KGS2. (Compl. ¶ 4.) Page 6 - OPINION AND ORDER 1 issuance of a temporary restraining order are at least as exacting 2 as 3 Specifically, the plaintiff “must show ‘that he is likely to 4 succeed on the merits, that he is likely to suffer irreparable harm 5 in the absence of preliminary relief, that the balance of equities 6 tips in his favor, and that an injunction is in the public 7 interest.’” 8 Trucking Ass’ns, Inc. v. City of L.A., 559 F.3d 1046, 1052 (9th 9 Cir. 2009)). those for a preliminary injunction.”) (citation omitted). Williamson, 2014 WL 2803017, at *1 (quoting Am. 10 III. DISCUSSION 11 For the purposes of the pending motion, the parties have 12 agreed to limit the scope of their dispute to the enforceability of 13 Konopski’s non-competition agreement. 14 dispute requires this Court to address the legal ramifications of 15 Elwood’s acquisition of SOS Staffing, as well as the potential 16 validity or invalidity of any purported assignments of Konopski’s 17 non-competition agreement. 18 A. 19 Resolution of the parties’ The Stock Purchase Agreement To invoke the requirements of the post-January 1, 2008 version 20 of 21 establishes the requirements for a valid non-competition agreement 22 in Oregon, Konopski argues that her initial employment with Elwood 23 began on February 15, 2013, when the stock purchase agreement 24 between Elwood and SOS Staffing officially closed.3 Oregon Revised Statute (“ORS”) 653.295, the statute that According to 25 26 27 28 3 “The Oregon legislature amended the [ORS 653.295] in 2007 to expressly exclude from the statute’s scope a ‘covenant not to . . . solicit or transact business with customers of the employer.’” Moreland v. World Commc’n Ctr., Inc., No. Civ. 09–913–AC, 2010 WL 4237302, at *2 (D. Or. Sept. 17, 2010) (citation Page 7 - OPINION AND ORDER 1 Konopski, “[p]articularly dispositive of this argument is that on 2 or about March 1, 2013, [she] was made to alter her public 3 signatures on all outgoing emails to reference that she now worked 4 for Elwood.” 5 (Def. Konopski’s Opp’n at 7.) The Court is not convinced that Konopski’s employment with 6 Elwood 7 presumption that a parent company is not the employer of its 8 subsidiary’s employees.” 9 Works, 635 F.3d 440, 453 (9th Cir. 2011) (citation omitted); Frank 10 v. U.S. West, Inc., 3 F.3d 1357, 1362 (10th Cir. 1993) (stating 11 that there is “a strong presumption that a parent company is not 12 the employer of its subsidiary’s employees, and the courts have 13 found otherwise only in extraordinary circumstances.”). began on February 15, 2013. “[T]here is a strong City of Los Angeles v. Sand Pedro Boat 14 The record in this case indicates that, as of February 15, 15 2013, “SOS Staffing was and continues, to date, to be a wholly 16 owned subsidiary of Elwood with continued operations.” 17 Decl. ¶ 4.) 18 March 2013 to state that she was an employee of “SOS Employment 19 Group[,] An Elwood Staffing Company,” reflects nothing more than a 20 parent-subsidiary relationship between SOS Staffing and Elwood, not 21 an employee-employer relationship between Konopski and Elwood. The 22 Court 23 employment with Elwood began on February 15, 2013. 24 /// 25 /// (Kasten Having Konopski alter her electronic signature in therefore declines to conclude that Konopski’s initial 26 27 28 omitted). This exclusion applies “only to agreements ‘entered into on or after’ January 1, 2008, the effective date of the 2007 Act.” Id. Page 8 - OPINION AND ORDER 1 B. 2 Assignability Next, the parties dispute whether the non-competition 3 agreement 4 assignable. 5 Or. 1965), Konopski maintains that, “[a]bsent a clause indicating 6 that the parties to an original non-compete agreement intended the 7 terms to inure to the benefit of their successors, such agreements 8 are not assignable under Oregon law.” 9 4.) executed by Konopski on May 24, 2006, was even Citing Perthou v. Stewart, 243 F. Supp. 655, 659 (D. (Def. Konopski’s Opp’n at Konopski thus argues that the lack of an assignment clause in 10 the non-competition agreement renders it unenforceable by Elwood. 11 In Perthou, the federal district court addressed, among other 12 things, whether non-competition covenants were assignable. Perthou, 13 243 F. Supp. at 658. 14 view that personal service contracts cannot be assigned, regardless 15 of whether “the assignment be to a corporation or partnership with 16 a changed membership which carries on a business substantially in 17 the same way in which it was previously operated.” 18 the district court went on to explain, “[t]he fact that a person 19 may have confidence in the character and personality of one 20 employer does not mean that the employee would be willing to suffer 21 a restraint on his freedom for the benefit of a stranger to the 22 original undertaking.” The district court essentially adopted the Id. at 659. As Id. 23 Seven years later, in Mail-Well Envelope Co. v. Saley, 262 Or. 24 143 (1972), the Oregon Supreme Court was presented with the 25 question of whether an employment agreement, including its non- 26 competition provisions, was assignable. 27 Supreme Court began by noting that there were two competing rules: 28 the first being that “‘[r]ights which would not otherwise be Page 9 - OPINION AND ORDER Id. at 149. The Oregon 1 capable of assignment . . . [m]ay be assigned or delegated [i]f the 2 contract so provides, or if in the absence of such a provision the 3 other 4 Contracts 5 “noncompetition 6 otherwise valid are assignable even in the absence of provisions 7 permitting the assignment of such contracts,” id. at 150 (citing 4 8 Corbin, Contracts § 885 (1951)). 9 held that, “[r]egardless of whether the proper rule should be as 10 stated by Williston or by Corbin, the employment contract in this 11 case, included a provision permitting assignment and was thus 12 assignable under either version of that rule.” party § consents,’” 423 3d id. ed. at 149-50 1960)), provisions in and (quoting the employment 3 second Williston, being contracts that which are The Oregon Supreme Court then Id. 13 The rule stated by Williston seems to be the more employee- 14 friendly of the two rules discussed by the Oregon Supreme Court in 15 Mail-Well, as it essentially requires the employee to assent to the 16 written 17 alternatively, to provide his consent in the absence of such a 18 provision.4 19 expressly adopt the rule stated by Williston or by Corbin, the 20 Court will apply the Williston rule here because it was clearly one terms of an Although express the Oregon assignment Supreme provision, Court declined or, to 21 22 23 24 25 26 27 28 4 In Epiq Class Action & Claims Solutions, Inc. v. Prutsman, No. CV 09–1185–MO, 2009 WL 3923413 (D. Or. Nov. 13, 2009), Judge Mosman stated: “When read together, Perthou and Mail–Well suggest that a personal service contract prohibiting competition against a specific employer is only assignable if the employee is on notice, at the time the employee signs the agreement, that he or she would also be prohibited from competing with a subsequent assignee.” Id. at *3 n.2. This Court’s combined reading of Perthou and Mail-Well is not as restrictive as that announced in Epiq Class. This Court also places more emphasis on Mail Well than on the federal district court’s decision in Perthou, because the Oregon Supreme Court ultimately determines Oregon state law. Page 10 - OPINION AND ORDER 1 of two options entertained by the Oregon Supreme Court, and because 2 it more adequately protects employees from surprise and oppressive 3 tactics. 4 (discussing 5 treatment of noncompetition agreements). See generally Epiq public policy the Class, 2009 WL considerations 3923423, behind at *3 Oregon’s 6 The first purported assignment of Konopski’s non-competition 7 agreement, according to the complaint filed by Elwood, occurred on 8 or about February 15, 2013, when the Stock Purchase Agreement 9 officially closed: “On or about February 15, 2013, Elwood, through 10 a 11 assigned 12 Agreements to Elwood. No new hire paperwork was completed.” (Compl. 13 ¶ 9.) 14 provision permitting assignment and SOS Staffing had not yet 15 attempted to obtain Konopski’s consent. 16 by SOS Staffing to Elwood in February 2013 was thus invalid. 17 Court is satisfied that this invalid assignment had no legal effect 18 on Konopski’s obligations to SOS Staffing who, as discussed above, 19 remained Konopski’s employer post-closure of the Stock Purchase 20 Agreement. 21 12–01695, 2013 WL 1390038, at *5 (C.D. Cal. Apr. 4, 2013) (holding, 22 in a different context, that an invalid assignment of a trust deed 23 had no effect on the borrower’s responsibilities). 24 stock The purchase, its acquired employees’ SOS Staffing Non-Competition stock. and SOS Staffing Non-Solicitation Konopski’s non-competition agreement did not include a See, second e.g., attempt Williams to v. assign Any unilateral assignment One West Konopski’s Bank, FSB, The No. non-competition 25 agreement began with an email on December 23, 2013——five days after 26 Elwood received a certificate of authority to conduct business in 27 Oregon. 28 after Christmas to execute a form consenting to the assignment of That email informed Konopski that she had until the day Page 11 - OPINION AND ORDER 1 her non-competition agreement to Elwood, and that the failure to 2 promptly 3 employment.” 4 After “express[ing] [her] reservations at signing the document,” 5 Konopski ultimately signed the consent form on January 2, 2014, 6 which purported to assign her non-competition agreement to Elwood. 7 (Konopski Decl. ¶ 6; Basile Decl. Ex. B at 1; Matragos Decl. Ex. A 8 at 1-3.) do so “may interfere with the transfer of [her] (Matragos Decl. Ex. A at 1-2; Konopski Decl. ¶ 5.) 9 It’s clear to the Court that Konopski was under no legal 10 obligation to consent to the assignment of her non-competition 11 agreement to Elwood and, as previously discussed, SOS Staffing had 12 no right to unilaterally assign the non-competition agreement in 13 the absence of a provision expressly permitting it to do so. Faced 14 with the reality that it needed to obtain Konopski’s consent, it 15 appears that Elwood essentially presented Konopski with the option 16 of consenting to the assignment of her non-competition agreement, 17 or potentially risk being fired. 18 “Used in a purely legal context, ‘consent’ is defined as 19 ‘capable, deliberate, and voluntary assent or agreement to, or 20 concurrence in, some act or purpose, implying physical and mental 21 power and free action.’” 22 (citation omitted). 23 the Court is compelled to conclude that Elwood failed to obtain 24 adequate consent from Konopski in this case. 25 that Konopski execute an assignment without suggesting that her job 26 could be impacted by the decision and not demanded a decision very 27 quickly over Christmas, perhaps this case would be different. State v. Harrell, 353 Or. 247, 256 (2013) Based on the circumstances described above, 28 Page 12 - OPINION AND ORDER Had Elwood requested 1 Accordingly, the Court concludes any purported noncompetition 2 agreement between Elwood and Konopski is unenforceable.5 3 4 IV. CONCLUSION For the reasons stated, Elwood’s motion (Docket No. 7) for a 5 temporary 6 preliminary injunction should not issue is DENIED. restraining 7 Dated this and order to show cause why a IT IS SO ORDERED. 8 order 15th day of December, 2014. 9 /s/ Dennis J. Hubel _________________________________ DENNIS J. HUBEL United States Magistrate Judge 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 5 The Court’s central holding has been fashioned in a way to accommodate Elwood and Konopski’s joint request for the Court to determine whether the noncompetition agreement is valid and enforceable. Setting that request aside for a moment, the facts of this case fall well short of the showing necessary to grant a temporary restraining order which is an “extraordinary and drastic remed[y] that may only be awarded upon a clear showing that the moving party is entitled to relief.” Velasco v. Homewide Lending Corp., No. 13-cv-698, 2013 WL 3188854, at *6 n.2 (C.D. Cal. June 21, 2013). Indeed, the circumstances surrounding Elwood’s attempt to obtain Konopski’s consent (a necessary prerequisite to enforceability given the absence of an assignment clause in the underlying noncompetition agreement) negates the possibility that Elwood has made “a clear showing” that it is entitled to relief. They would similarly preclude the grant of a motion for summary judgment in Elwood’s favor on the issue of enforceability. Page 13 - OPINION AND ORDER
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