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DigitalGlobe, Inc. v. Paladino

United States District Court, D. Colorado

September 18, 2017

DIGITALGLOBE, INC., a Delaware corporation, and DIGITALGLOBE INTELLIGENCE SOLUTIONS, INC., a Delaware corporation, Plaintiffs,
v.
LOUIS PALADINO, an individual, Defendant.

          ORDER DENYING PLAINTIFFS' MOTION FOR PRELIMINARY INJUNCTION

          William J. Martinez, United States District Judge

         Plaintiffs DigitalGlobe, Inc. (“DigitalGlobe”) and DigitalGlobe Intelligence Solutions, Inc. (“DGIS”) (together, “Plaintiffs”) sue a former employee, Defendant Louis Paladino (“Paladino”), for breach of contractual covenants of noncompetition, nonsolicitation of Plaintiffs' employees, and nondisclosure of Plaintiffs' trade secrets. Currently before the court is Plaintiffs' Renewed Motion for Preliminary Injunction. (ECF No. 25.) The Court has received and reviewed Paladino's response (ECF No. 26) and Plaintiffs' reply (ECF No. 29). The Court held an evidentiary hearing (“Preliminary Injunction Hearing”) on August 30, 2017. (ECF No. 39.) The Court then called for simultaneous further briefing on certain lingering questions. (ECF No. 41.) The Court has received and reviewed the parties' supplemental briefs. (ECF Nos. 45, 46.) Having considered the record as a whole as it currently stands, the Court denies Plaintiffs' motion for a preliminary injunction for the reasons explained below.

         I. FINDINGS OF FACT

         The preliminary injunction record supports the following findings of fact.

         Plaintiffs are in the business of satellite mapping and a host of related services. DGIS in particular focuses heavily on providing services to the Department of Defense. DGIS's main business emphasis is geospatial predictive analysis, which involves gathering various data sets (mostly, satellite imagery and photos in social media posts) to more-or-less surveil the world, “extract[ing] information of military interest, to inform predictions of where and when events will occur.” (ECF No. 46 at 3.)

         Paladino began working in this field in 2006, when he joined a company that later merged with another company named GeoEye Analytics, Inc. (“GeoEye Inc.”). In 2013, GeoEye Inc. went through a complicated series of transactions and emerged as a subsidiary of Plaintiff DigitalGlobe named GeoEye Analytics, LLC (“GeoEye LLC”). GeoEye LLC eventually changed its name to DigitalGlobe Intelligence Solutions- Plaintiff DGIS in this lawsuit. Despite the acquisitions, name changes, and so forth, Paladino's employers have always been based in Washington, D.C., or its suburbs, and that is where Paladino has lived and worked. The current parent entity, DigitalGlobe, is headquartered in Westminster, Colorado.

         In 2009 (before GeoEye Inc. became a DigitalGlobe subsidiary), Paladino began leading a GeoEye Inc. team of 4-5 employees on a classified geospatial predictive analysis project for the Defense Intelligence Agency (“DIA”) that went by the designation “DRI-7.” Paladino's title at the time was “Senior Manager - Geospatial.” His duties toward his subordinates were relatively limited. He delegated responsibilities to them and he contributed to their annual reviews, but they did not report directly to him and he had no hiring or firing authority (although he participated in hiring interviews). Paladino had three layers of DGIS management above him.

         A number of subcontractor employees from other companies also worked on DRI-7, including competitor firms named MDA, BigBear, and STR. All three of these firms will play a role in the events that led to Paladino's falling-out with DGIS, described below. But, at the time Paladino began work on DRI-7 in 2009, DGIS had yet to come into existence.

         In December 2010, GeoEye Inc. required Paladino to sign an Employee NonDisclosure Agreement (“GeoEye NDA”). (Plaintiff's Preliminary Injunction Hearing Exhibit (“PX”) 3.)[1] The GeoEye NDA prohibits solicitation of employees, and of “any customer or client of the Company with whom the Employee had dealings or about whom the Employee acquired proprietary information, ” for one year after the end of the employee's employment with GeoEye. (Id. §§ D, E.) It also prohibits disclosure of “Proprietary Information” for three years after the end of the employee's employment. (Id. § B.) “‘Proprietary Information' means information or material proprietary to the Company and not generally known by people not affiliated with the Company.” (Id. § A.)

         DRI-7 and Paladino's role in it continued after GeoEye Inc.'s 2013 acquisition and eventual name change to DGIS. Also in 2013, GeoEye LLC (soon to be DGIS) required Paladino to assent to the “Employee Invention, Confidential Information, Noncompetition and Non-Solicitation Agreement” (“2013 Agreement”). (PX 1.)[2] It contains a 1-year noncompetition clause with respect to “direct business lines, including, but not limited to, satellite and aerial imagery operations, product distribution, mapping and other value added services” (id. § 6); a 1-year nonsolicitation-of-employees clause (id. § 8); and an indefinite nondisclosure agreement regarding “Business Confidential Information” (id. § 2), defined as “certain information, including, but not limited to, business plans, customer lists, marketing programs, price lists, salary and human resource information, technology development information, drawings, reports, inventions, and other material[s] that contain, embody or disclose trade secrets, confidential business and technical information and proprietary business information of the Company” (id. § 1).

         Sometime between 2014 and 2016 (the evidence points in various directions), DGIS promoted Paladino to “Director of Geospatial, ” making him the “site lead [for DGIS] at DIA” (Preliminary Injunction Hearing Transcript (“Tr.”) at 239) and responsible for about thirty DGIS employees. In this position, there was only one layer of management between him and DGIS's CEO.

         In 2015, DGIS filed a patent application for certain technology that arose from the DRI-7 work. This upset Terry Busch, the DIA employee in charge of DRI-7. Busch believed that the technology in question had been developed with government dollars and therefore should not be proprietary to DGIS.

         Apparently in 2016, DigitalGlobe required Paladino to sign an Employee Stock Option Plan (“Stock Option Plan”). (PX 2.)[3] Despite primarily governing stock options, the Stock Option Plan also contains a 1-year noncompete provision (id. § 24(d)(i)), a 2-year nonsolicitation provision (id. § 24(d)(ii)), and an indefinite nondisclosure provision (id. § 24(b)).

         Also in 2016, DIA awarded DGIS a “sole-source” (i.e., no-bid) contract to continue developing a geospatial predictive analysis tool known as “Signature Analyst.” This contract could last up to five years. Year one was guaranteed and years two through five are known as “option years.” Whether to exercise those options is within DIA's discretion. Paladino was in charge of DGIS's performance under this contract.

         At DIA's urging, part of what DGIS explored in the first year of this contract was “I&W, ” short for “indicators and warnings.” I&W is a particular approach to geospatial predictive analysis. The parties have not explained how I&W differs from other approaches, because those details are classified. In any event, Paladino's team at DGIS diligently developed I&W.

         There is some dispute-not relevant to the present proceedings-whether I&W was properly within the scope of DGIS's sole-source contract. Regardless, all parties agree that DIA frequently uses existing “contract vehicles” to explore potentially out-of-scope ideas, with an eye toward proving their feasibility and then establishing a new “contract vehicle” specifically focused on a proven-feasible idea. Whether or not I&W was out of the scope of DGIS's sole-source contract, the parties expected that DIA would eventually place I&W work under its own contract.

         In January 2017, DIA exercised the first option year under DGIS's contract, but chose to fund only about $5.6 million of the $9.6 million available for that year. In February 2017, news leaked that MDA was planning to acquire DigitalGlobe. This further upset the DIA's Busch, due to an incident a few years previous in which a contract dispute allegedly prompted MDA to cut off a data stream that was highly important to an in-progress, boots-on-the-ground military operation. DIA had since excluded MDA from DRI-7.

         The MDA merger announcement caused concern for many DGIS employees, who feared that DIA would terminate DGIS's participation in DRI-7. Paladino was all the more worried given his knowledge of Busch's lingering resentment over DGIS's patent application. Paladino's specific worries deepened in March 2017 when DGIS's patent application was granted, and then, later in the month, DGIS began touting another allegedly proprietary technology as if it had been developed in-house, although Busch believed that it too had been developed with government dollars.

         Around this time, Paladino began to consider leaving DGIS. At first he explored starting his own company. He specifically discussed this idea with Frank Porcelli, CEO of BigBear, who had co-founded BigBear and therefore had advice to offer on that process. He also organized meetings with certain DGIS employees to discuss forming a new business. Nonetheless, Paladino continued his attempts to solidify DGIS as DIA's first choice for I&W work.

         In May 2017, a DIA employee named Joe Hartenstine began assuming Busch's role as DIA supervisor of DRI-7. Paladino learned that Hartenstine planned to shift the I&W exploratory work to a different “contract vehicle, ” namely, a sole-source contract previously awarded to STR, with BigBear as the relevant subcontractor. With an interesting mix of metaphors, Paladino describes this revelation as the event that finally prompted him to leave DGIS:

And that was really, so to speak, the straw that broke the camel's back. That, you know, after seeing that writing on the wall, which to me that writing on the wall appeared like a big neon sign on DRI-7's leadership's, you know, future direction, I decided to leave DGIS.

(Tr. at 263.) Paladino gave notice to his DGIS superiors on June 1, 2017, and his last day at DGIS was June 16, 2017. In between those dates, he applied for a posted position at BigBear. The record does not reveal precisely when BigBear extended an offer or when Paladino accepted it, but he started with BigBear in “late June” of 2017. (Tr. at 193.)

         On June 29, 2017, Hartenstine (or someone of similar authority at DIA) directed DGIS to stop work on I&W, because that work was going to BigBear. Paladino thus continues to work for BigBear on the I&W development he had been doing for DGIS. Five other DGIS employees have since joined Paladino at BigBear to work on I&W. Three of those employees were persons whom he had met with a few months earlier to explore the idea of starting a new company.

         Plaintiffs filed this lawsuit on July 5, 2017. (ECF No. 1.) Paladino learned of the lawsuit around that same time and reacted by sending an emotional group text message to a number of his colleagues back at DGIS:

DG is sueing [sic] me for violating my non-compete[.] They are saying that I am in direct competition with them. I have to return all my stock grants, including what I have sold, and [they] are threatening to continue to sue for lost future work amounts. Even [DGIS CEO] Tony [Frazier] himself told me that [DGIS's sole-source contract with DIA] was [at] high risk for [dis]continuation after the MDA merger, and now he is coming after me and my family. I wanted to stay close to [DRI-7], and now this. By doing this DG is going to put fear in others leaving, but I think they are sending the message that their employees are being held hostage.

(PX 15.)

         II. REQUESTED INJUNCTION

         Plaintiffs ask that Paladino be enjoined from

(i) owning, managing, operating, joining, controlling, providing services to, or serving as an employee, agent, consultant, officer or director of BigBear, Inc. or any entity engaging in geospatial predictive analysis, including the use of machine learning to perform I&W analysis and automate object detection from satellite imagery and ground photos; (ii) directly recruiting, soliciting, or attempting to persuade any DGIS employee to leave employment with DGIS for the purpose of employing him or her at any such entity; [and] (iii) using or disclosing DGIS Business Confidential Information as defined in Paragraph 1 of the [2013 Agreement].

(ECF No. 46 at 11-12.)

         III. PRELIMINARY INJUNCTION STANDARD

         A preliminary injunction is an extraordinary remedy; accordingly, the right to relief must be clear and unequivocal. See, e.g., Flood v. ClearOne Commc'ns, Inc., 618 F.3d 1110, 1117 (10th Cir. 2010). A movant must show: (1) a likelihood of success on the merits, (2) a threat of irreparable harm, which (3) outweighs any harm to the non-moving party, and that (4) the injunction would not adversely affect the public interest. See, e.g., Awad v. Ziriax, 670 F.3d 1111, 1125 (10th Cir. 2012).

         Until recently, the Tenth Circuit endorsed an alternate standard that relaxed the likelihood of success requirement when the other three factors tipped strongly in the movant's favor. See, e.g., Oklahoma ex rel. Okla. Tax Comm'n v. Int'l Registration Plan, Inc., 455 F.3d 1107, 1113 (10th Cir. 2006). The Tenth Circuit abrogated this standard last year, announcing that “any modified test which relaxes one of the prongs for preliminary relief and thus deviates from the standard test is impermissible.” Diné Citizens Against Ruining Our Environment v. Jewell, 839 F.3d 1276, 1282 (10th Cir. 2016).[4]

         “The Federal Rules of Evidence do not apply to preliminary injunction hearings.” Heideman v. S. Salt Lake City, 348 F.3d 1182, 1188 (10th Cir. 2003). The fact that evidence might be excludable goes to the weight of that evidence, not necessarily its admissibility. See, e.g., Pharmanex, Inc. v. HPF, 221 F.3d 1352 (table), 2000 WL 703164, at *3 (10th Cir. 2000).

         IV. ANALYSIS

         A. Likelihood of Success

         Plaintiffs sue Paladino for breach of contractual covenants of noncompetition, nonsolicitation of Plaintiffs' employees, and nondisclosure of Plaintiffs' trade secrets. Plaintiffs also sue for breach of the duty of loyalty, but that claim is not at issue in these preliminary injunction proceedings.

         1. Which of the Three Contracts Applies?

         Before the Court can evaluate Plaintiffs' likelihood of success on any of their contract theories, the Court must first determine which contract applies. As noted above, Paladino has signed three similar agreements: the GeoEye NDA, the 2013 Agreement, and the Stock Option Plan.

         The 2013 Agreement specifically states that it supersedes any prior agreement between the employee and what was then GeoEye LLC (which later changed its name to DGIS). (PX 1 § 9(b).) Thus, there appears to be no circumstance under which the GeoEye NDA is still enforceable.

         As for the Stock Option Plan, its covenants of noncompetition, nonsolicitation, and nondisclosure are stated as conditions for obtaining and keeping stock option awards, and violation of any of them allows DigitalGlobe to rescind and/or recapture those awards. (PX 2 § 24(a).) It is not clear that these provisions are enforceable apart from that purpose. (Cf. Tr. at 18 (Plaintiffs' counsel's acknowledgment that “the relief on the stock option agreement is that DigitalGlobe gets back the stock if he breaches”).) The Court therefore finds the Stock Option Plan irrelevant for present purposes.

         This leaves only the 2013 Agreement, and that is the focus of the Court's analysis below.

         2. Is the Noncompete ...


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