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Sirona Dental, Inc. v. Smithson

United States District Court, W.D. North Carolina, Charlotte Division

January 20, 2015

SIRONA DENTAL, INC., Plaintiff,
v.
JOHN SMITHSON and MARIA SMITHSON, Defendants.

ORDER

ROBERT J. CONRAD, Jr., District Judge.

THIS MATTER is before the court on Plaintiff's Motion for Preliminary Injunction (Doc. No. 3), supporting memorandum, exhibits, and supplemental authority (Doc. No. 14), and Defendants' Reply and supporting memorandum and exhibits (Doc. No. 13). This matter is now ripe for review.

I. BACKGROUND

Plaintiff Sirona is purportedly one of the world's largest dental equipment manufacturer. Sirona develops, manufactures, and markets a complete line of dental products, including three-dimensional ("3D") imaging systems and CAD/CAM (computer-aided design/computer-aided manufacture) restoration systems. (Doc. No. 3-1 at 2). Sirona also maintains several websites devoted to its 3D technology, including Sirona3D.com, 3DSummit.com, Sirona3DDrive.com, and GetYour3dOn.com. (Id.)

Defendant John Smithson is the former Director of Marketing Extraoral Imaging for Sirona. (Id. at 3). Mr. Smithson entered into an Employee Patent and Secrecy Agreement ("Agreement") with Sirona, which Sirona alleges was signed on January 28, 2003.[1] By signing the Agreement Mr. Smithson, among other things, agreed that all intellectual property or other work relating to Sirona that he created during his employment belonged to Sirona. (Id. at 4). The Agreement also required Mr. Smithson to keep all such information confidential and not to disclose or use it at any time, even after his employment, exception upon written consent of the company. (Id.)

Sirona alleges that in September 2014, it terminated Mr. Smithson for violating the company's Code of Business Conduct after discovering he had defrauded Sirona by establishing a vendor relationship with his wife, Ms. Smithson, without Sirona's knowledge or consent, and approved invoices for her services. (Id. at 4-5). After his termination Plaintiff alleges that Mr. Smithson copied and deleted all data from his company-issued laptop and refused to relinquish his control over Sirona's websites. (Id. at 5). Plaintiff further asserts that Mr. Smithson may publicly disclose confidential and proprietary information belonging to Sirona. (Id. at 8)

On December 22, 2014, Plaintiff's filed a Motion for a Temporary Restraining Order and Motion for Preliminary Injunction against Mr. Smithson, requiring him to relinquish to Plaintiff his control over the websites and enjoining him from publicly disclosing Plaintiff's confidential and proprietary information. (Doc. No. 3). This court granted the TRO on December 24, 2014 and held a hearing on January 6, 2015. (Doc. No. 8).

II. DISCUSSION

A preliminary injunction is an extraordinary remedy, the primary function of which is to protect the status quo and to prevent irreparable harm during the pendency of a lawsuit. In re Microsoft Corp. Antitrust Litigation, 333 F.3d 517, 525 (4th Cir. 2003). In each case, courts "must balance the competing claims of injury and must consider the effect on each party of the granting or withholding such request." Amoco Production Co. v. Gambell, 480 U.S. 531, 542 (2008). A plaintiff seeking a preliminary injunction must give notice to the opposing party under Federal Rule of Civil Procedure 65 and, at the hearing, must establish the following: (1) plaintiff is likely to succeed on the merits; (2) plaintiff is likely to suffer irreparable harm in the absence of preliminary relief; (3) the balance of the equities tips in plaintiff's favor; and (4) an injunction is in the public interest. Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7, 129 S.Ct. 365, 374 (2008).

The most recent test was adopted by the Court of Appeals for the Fourth Circuit in The Real Truth About Obama, Inc. v. Fed. Election Comm'n, 575 F.3d 342, 346-47 (4th Cir. 2009), vacated on other grounds, 130 S.Ct. 2371, 176 L.Ed.2d 764 (2010) (memorandum opinion), reissued in pertinent part, 607 F.3d 355 (4th Cir.2010), overruling Blackwelder Furniture Co. v. Selig Mfg. Co., 550 F.2d 189 (4th Cir.1977) (providing a four-pronged balance of the hardships test). The Winter Court emphasized that a plaintiff must demonstrate more than just a "possibility" of irreparable harm and a strong showing of likelihood of success on the merits. Winter, 129 S.Ct. at 375.

A. Likelihood of Success on the Merits

This Court finds that Plaintiff is likely to prevail on the merits of its claim. The issue here is whether the Patent and Secrecy Agreement was enforceable. In North Carolina, for a covenant to be valid it must be "(1) in writing, (2) part of the contract of employment or sale of the business, (3) based on valuable consideration, (4) reasonable both as to time and territory, and (5) not against public policy." United States Laboratories, Inc. v. Kuykendall, 332 N.C. 643, 649, 370 S.E.2d 375, 380 (1988). A restrictive covenant generally has to be in writing at the inception of employment, unless new consideration is tendered by the employer in the restrictive covenant agreement. See Worth Chemical Corporation v. Freeman, 261 N.C. 780, 781, 136 S.E.2d 118, 119 (1964). "An agreement is not in restraint of trade... if it does not seek to prevent a party from engaging in a similar business in competition with the promisee, but instead seeks to prevent the disclosure or use of confidential information." Chemimentals Processing, Inc. v. McEneny, 124 N.C.App. 194, 197 (1996). There must be new and additional consideration for non-compete agreements to be valid if signed after employment has commenced. See Worth Chemical Corporation v. Freeman, 261 N.C. 780 (1964). However, new and additional consideration is not required for agreements that do not restrain trade. See Robinson v. Ladd Furniture, 955 F.2d 1064 (4th Cir. 1993). In Robinson, the Fourth Circuit held that "continuance of an employment relationship is sufficient consideration for an employment agreement in North Carolina to be enforceable." 995 F.2d 1064 (4th Cir. 1993).

Here, Defendants assert that if the Agreement was executed on January 28, 2003, there was not adequate consideration for the Agreement to be valid. Defendants allege that Mr. Smithson began work on or about January 19, 2003, which was days before he signed the Agreement. (Doc. No. 13 at 2). Even if Plaintiff is correct that the Agreement was executed on January 28, 2003 instead of January 28, 2006, Defendants argue that the Agreement was not supported by adequate consideration because Mr. Smithson had already begun an employment relationship with Sirona. (Id. at 2-3). Therefore, since there was no new and additional consideration, Defendants contend that the Agreement was void. (Id.). This Court disagrees with Defendants arguments.

The Agreement between Plaintiff and Defendant does not restrain trade, but rather seeks to prevent disclosure or use of confidential information; therefore, new and additional consideration is not required. Although Defendants allege that Mr. Smithson began work prior to signing the Agreement, it is undisputed that after signing the Agreement he continued to work for Sirona until his termination in September 2014. The continuance of his employment relationship with Sirona is sufficient consideration for an employment agreement in North Carolina to ...


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