Dr. Bakotic is a skin pathologist previously employed by ProPath in Dallas, Texas.[1] While in that employment, Dr. Bakotic signed an Employment Contract with ProPath that included a non-competition agreement. Dr. Bakotic later resigned from that employment on August 20, 2004, and subsequently took a job with AmeriPath beginning August 23, 2004. Defendant AmeriPath is a direct competitor of ProPath.

The facts of Dr. Bakotic's resignation are now a source of deep dispute. While both parties agree that he took a copy of a Diagnostic Manual from ProPath when he left, Plaintiffs claim Dr. Bakotic did so in a clandestine fashion, while Defendants maintain Dr. Bakotic was ignorant of any improprieties. Additionally, Plaintiffs assert Dr. Bakotic acquired illicitly other confidential information including client lists and marketing strategies, as well as patient information.

After discovering Dr. Bakotic's actions, Plaintiffs filed suit on August 17, 2004, and obtained a temporary restraining order (“TRO”) that prohibited: (1) Defendants using and disseminating Plaintiffs' confidential information; (2) Dr. Bakotic soliciting ProPath customers with whom he had worked; (3) Dr. Bakotic recruiting ProPath employees; (4) Dr. Bakotic violating any other restrictive covenants in his Employment Agreement; (5) Defendants deleting or destroying any documents or emails containing any ProPath related information and requiring such material to be segregated; and (6) Dr. Bakotic accessing AmeriPath's email system.[2]

On August 26, 2004, the parties extended the TRO by agreement until September 7, 2004, 11:59 p.m., and a hearing on the temporary injunction was set for September 7, 2004, 1:30 p.m. Defendants then removed this case to federal court on September 1, 2004, based on diversity.[3] On September 7, 2004, this Court issued an Order extending the TRO to September 18, 2004, and modified the original TRO to allow Dr. Bakotic access to AmeriPath's email system.[4] At that time, the Court also issued a briefing schedule to determine the validity of a preliminary injunction.[5] Thereafter, on September 17, 2004, the Court issued yet another Order extending the TRO to October 8, 2004, in order to allow the parties to submit supplemental briefing.[6] Subsequently, on September 28, 2004, the Court extended the TRO to October 15, 2004.[7] Following the September 28, 2004, Order, Plaintiffs filed a Motion for Leave to File Supplement to their Preliminary Injunction Response Briefing (“Motion for Leave”) on October 7, 2004, and Defendants filed a Joint Opposition to Plaintiffs' Motion for Leave on October 12, 2004.[8]Finally, on October 15, 2004, the Court extended the TRO to October 22, 2004.

*2 In ruling on a motion for a preliminary injunction, the Court must consider whether: (1) there is a substantial likelihood of success on the merits; (2) there is a substantial threat of irreparable injury if the injunction is not granted; (3) the threatened injury to the plaintiff outweighs the threatened injury to the defendant; and (4) granting of the preliminary injunction serves the public interest. Cherokee Pump & Equip. Inc. v. Aurora Pump, 38 F.3d 246, 249 (5th Cir.1994). These factors must be balanced to determine whether they collectively favor the issuance of an injunction. DSC Communications Corp. v. DGI Tech., Inc., 898 F.Supp. 1183, 1187 (N.D.Tex.1995), aff'd 81 F.3d 597 (5th Cir.1996).[9] If a party cannot prove all four elements, a court must deny the injunctive relief since “[t]he decision to grant a preliminary injunction is to be treated as the exception rather than the rule.” Mississippi Power & Light Co. v. United Gas Pipe Line Co., 760 F.2d 618, 621 (5th Cir.1985).

Except where noted, the Court finds that Plaintiffs have a substantial likelihood of success on the merits of their claims. Defendants, however, argue that injunctive relief must fail due to the alleged unenforceability of the non-competition agreement, among other reasons. They maintain all such agreements for licensed physicians must provide for access to medical records, contain a buy-out of the restrictive covenant, and provide for arbitration to determine the reasonableness of the buy-out, as required by state law.[10] As Dr. Bakotic's non-competition agreement is devoid of such provisions, Defendants argue there is no cause for injunctive relief. Plaintiffs attempt to rebut this argument by asserting that state law regarding restrictive covenants was never intended to apply to pathologists.[11] While such an issue presents a question of first impression, the Court finds it unnecessary to undertake this analysis.

Texas courts have long recognized that “even without an enforceable contractual restriction ‘a former employee is precluded from using for his own advantage, and to the detriment of his former employer, confidential information or trade secrets acquired by or imparted to him in the course of his employment.” ’ Rugen v. Interactive Bus. Sys., 864 S.W.2d 548, 551 (quoting Johnston v. American Speedreading Academy, Inc., 526 S.W.2d 163, 166 (Tex.Civ.App.-Dallas 1975, no writ)); Collins v. Ryon's Saddle & Ranch Supplies, Inc., 576 S.W.2d 914, 915 (Tex.Civ.App.1979, no writ); Lason Services, Inc. v. Rathe, 2003 WL 21728184 at *5 (N.D.Tex. March 14, 2003); Zoecon Indus. v. The Am. Stockman Tag Co., 713 F.2d 1174, 1176 (5th Cir.1983).

In Guy Carpenter & Co., Inc. v. Provenzale, 334 F.3d 459 (5th Cir.2003), the Fifth Circuit listed the requisites to prevail on a claim for misappropriation of trade secrets. To wit, Plaintiffs in this case “must show: (1) the existence of a trade secret; (2) a breach of a confidential relationship or improper discovery of the trade secret; and (3) use of the trade secret without authorization.” Id. at 467 (citing Phillips v. Frey, 20 F.3d 623, 627 (5th Cir.1994). While Defendants maintain the absence of any trade secrets or confidential information, the Court finds the evidence thus presented to indicate otherwise.

*3 As stated in Rugen, “[a] trade secret may consist of ‘any formula, pattern, device or compilation of information which is used in one's business, and which gives one an opportunity to obtain an advantage over competitors who do not know or use it. It may be ... a list of customers.” ’ 864 S.W.2d at 552 (citing Hyde Corp., 158 Tex. 566, 314 S.W.2d 763, 776 (Tex.1958)). However, Rugen also states that “[t]he word ‘secret’ implies that the information is not generally known or readily ascertainable by independent investigation.” Id. Plaintiffs assert they have taken “appropriate steps to keep [their] confidential information out of the hands of [their] competitors” through non-disclosure agreements, secured building access and camera monitoring, computer username and password access with applicable policies and procedures, and confidentiality clauses and covenants not to compete.[12]

Despite Plaintiffs' protective measures, Defendants maintain that Plaintiffs shared, exposed or gathered all alleged confidential information with or from public sources, and therefore have lost any shield of protection. The Court finds this to be a dubious proposition in light of all the facts, but nevertheless examines the larger group of confidential information under the three sub-categories of: (1) the diagnostic manual; (2) client lists and marketing stragegies; and (3) patient information.

Of all the confidential information, the most recognizable piece is Plaintiffs' Diagnostic Manual. Although Defendants purport that “the manual overwhelmingly consists of nothing more than material that was taken from textbooks and articles that are available to the public,” this statement ignores the whole of the facts.[13] Clearly, the Diagnostic Manual consists of more than a conglomeration of public facts and common knowledge. Indeed, Plaintiffs present evidence that another employee of ProPath, Dr. Rodney Miller (“Dr.Miller”), supplemented the public information with professional and clinical observations that he collected over the course of his career.[14] Such a combination can hardly be classified as fodder for the masses. Nonetheless, Defendants respond that Plaintiffs further destroyed any possibility of confidentiality by disseminating the Diagnostic Manual to third parties and outside sources. Such an assertion, if taken on its face, would indeed destroy the protective bubble of confidentiality.

However, in this case, all “outside” individuals who received a copy of the Diagnostic Manual also received instructions to keep such information confidential.[15] In essence, Plaintiffs did not lose any trade secret protection through limited disclosure because those disclosures came with a duty “not to disclose or use the secret.” Phillips v. Frey, 20 F.3d 623, 630 (5th Cir.1994). As the Fifth Circuit emphasized:

[W]hile it is true that outside any confidential relationship, one who voluntarily discloses secret information or who fails to take reasonable precautions to secure its secrecy cannot properly claim that information constitutes a trade secret, creating such a duty upon the disclosee is a reasonable precaution, and a voluntary disclosure made within the periphery of a confidential relationship eliminates the need to take further precautions to secure the trade secret.

*4 Id. at 630–31 (emphasis added) (internal citations omitted). As Plaintiffs disclosures fall within the gambit of “confidential periphery,” the Diagnostic Manual qualifies as a trade secret that deserves protection.

Similar to confidential information and trade secrets, Texas courts have long recognized that even absent a non-solicitation agreement, former employees cannot use confidential or proprietary information to contact the customers of their former employers. Such actions are considered to be improper. “In Galtney v. Underwood Neuhaus & Co., 700 S.W.2d 602, 604 (Tex.App.1985, no writ), the court upheld the issuance of a temporary injunction prohibiting a former employee from using her former employer's information to solicit or contact, directly or indirectly, all persons who placed orders with her former employer during the employee's term of employment.” Merril Lynch, Pierce, Fenner & Smith, Inc. v. Wright, 1993 WL 13036199 at *4 (N.D.Tex. July 2, 1993). Fifth Circuit precedent further verifies this holding of employer client list protection. E.g., Zoecon, 713 F.2d at 1176 (finding it unnecessary to address the validity of the non-competition agreement because the employee breached a confidential relationship by using the employer's customer list).

To be sure, Defendants do not maintain directly that Plaintiffs' client list is not confidential information, but instead assert that an injunction regarding such information is unnecessary as “Plaintiffs have no evidence Dr. Bakotic took their client list with him, downloaded it, or ever printed it.”[16] Again, such an assertion appears to take liberties with the facts, as even Dr. Bakotic cannot definitively state whether he may have copies of such confidential lists.[17]What is known is that he accessed the client list shortly before tendering his resignation while he contemporaneously burned CDs and sent emails that may have contained Plaintiffs' confidential or proprietary information.[18] Additionally, Defendants cannot conclusively state if any of Plaintiffs' confidential or proprietary data resides on Dr. Bakotic's home computer. The uncertainty of these facts coupled with the value of the client list, leads the Court to resolve the conflicting evidence in favor of the Plaintiffs. Cf. Gibson v. Canfield, 2001 WL 21491, at *1 (Tex.App.2001) (“Because there was conflicting evidence on the issue of whether the customer list was confidential, we conclude the trial court did not abuse its discretion in granting the temporary injunction.”).

On the other hand, while Dr. Bakotic may not utilize Plaintiffs' confidential or proprietary information, the Court will not allow Plaintiffs to enforce the noncompetition agreement through a backdoor approach. To be sure, Plaintiffs must still address the mandate of Rugen that “[a]s a general rule, in the absence of an enforceable agreement not to compete, an employer is not entitled to an injunction preventing a former employee from soliciting the employer's clients.” 864 S.W.2d at 551. As Plaintiffs present no alternative to the general decree, Rugen must be followed. Therefore, the combination of Rugen with Galtney results in the following: that Dr. Bakotic must not use Plaintiffs' confidential or proprietary information to solicit Plaintiffs' clients. This amalgamation of holdings complies with all precedent and results in protection that is neither overbroad nor underinclusive.

*5 In a similar fashion to the client list, Defendants assert that Plaintiffs' marketing strategies cannot be classified as a trade secret or confidential information because such information is available in the public domain. However, Plaintiffs present contrasting evidence proving such data is far from common knowledge. Specifically, Plaintiffs' marketing strategies include “months for advertising placement and privately negotiated rates for [Plaintiffs'] advertising campaign, ... information regarding [Plaintiffs'] marketing partners” and details on “where and when [Plaintiff] plans to market.”[19] Therefore, in accordance with Texas law, such marketing strategies qualify as confidential information. Cf. Gonzales v. Zamora, 791 S.W.2d 258, 264 (Tex.App.-Corpus Christi 1990) (“[W]hen money and time are invested in the development of a procedure or device which is based on an idea which is not new to a particular industry, and when that certain procedure or device is not generally known, trade secret protection will exist.”) (citing K & G Oil Tool & Serv. Co. v. G & G Fishing Tool Serv., 158 Tex. 594, 314 S.W.2d 782, 785 (Tex.1958)).

Conversely, the PowerPoint materials Dr. Bakotic uses in his presentations cannot be classified as confidential because they have been shared previously in public settings. Nevertheless, such a conclusion does not equate to unlimited use of such materials. Although Defendants orchestrate a formidable attack on the enforceability of the noncompetition agreement, such a strategy fails to destroy the whole of the employment agreement.

Specifically, while Plaintiffs rely heavily on their confidentiality argument, they also reference other portions of the employment agreement. Notably, Plaintiffs state that “[i]n his Employment Agreement with ProPath, [Dr.] Bakotic agreed to the terms that required him ‘to abide by all the policies and procedures of the [ProPath] Group.” ’[20]Furthermore, “the Handbook states that ‘information obtained and documents produced during [Dr. Bakotic's] employment are the property of ProPath’ and that ‘[i]t is against Company policy to remove Company information and/or documents, either physically or electronically transmitted without prior authorization.” ’[21] Thus, Plaintiffs' reliance on the employment agreement as a whole illustrates the fact that ProPath may also protect its proprietary data, as well as its confidential information. Nonetheless, Defendants infer that Dr. Bakotic created portions of these materials prior to his ProPath employment.[22] As such, the PowerPoint materials as they existed before Dr. Bakotic's ProPath employment will not receive injunction protection.

Therefore, in accordance with these findings, the Court concludes that while the PowerPoint materials may not receive confidential protection, any portions of those materials that Dr. Bakotic produced during his ProPath tenure, or any modifications he made during that time, remain the property of ProPath, and will be protected by the preliminary injunction. In making this determination, the Court emphasizes that it places its focus on the whole of the employment agreement, rather than on the individual competition clause.

*6 Additionally, Defendants assert that publicly displayed newsletters do not deserve confidential status and protection. The Court agrees with this contention. However, once again, the question becomes one of proprietary information. The Handbook mandates that information obtained and produced during employment remain the property of ProPath. Defendants' arguments regarding confidentiality cannot defeat this contention. Therefore, the Court concludes that any newsletter material Dr. Bakotic produced during his ProPath tenure, or any modifications he made during that time, remain the property of ProPath and will be protected by the preliminary injunction.

Lastly, Defendants claim that non-identifying patient information, including pictures of patients, patient slides and pathology reports, cannot be classified as confidential because that information has already been shared with the public. Indeed, to the extent such an assertion is true, Plaintiffs cannot now claim such information deserves confidential protection. See, e.g., Southwest Research, 103 S.W.3d at 482 (finding that “a large body of previously published information, including research papers and patents” was not confidential because of its public nature). Plaintiffs, however, claim that federal regulations prohibit Dr. Bakotic from accessing and using any type of patient information whatsoever. While it is true that a “laboratory must retain stained slides at least ten years from the date of examination and retain specimen blocks at least two years from the date of examination,” such a regulation does not automatically equate to confidential status. 42 C.F.R. § 493.1259(b). Moreover, Plaintiffs references to other statutory and regulatory authority confuses the real issue of whether Defendants have or are using Plaintiffs' confidential information.

However, as was the case with the PowerPoint materials and the newsletters, patient information still receives protection through the Employment Agreement. That document specifically references patient records and notes: “All patient records are the property of [ProPath]. Upon termination of your employment, all patient records shall be retained by [ProPath].[23] Although not defined in the Employment Agreement, the Court interprets the phrase “all patients” to mean ProPath patients, and not Dr. Bakotic's ancillary patients who failed to become ProPath clients. Therefore, in accordance with that definition, the Court finds that Defendants may not retain or utilize any ProPath patient information, including patients who subsequently became ProPath clients during Dr. Bakotic's ProPath employment.

The second prong of the preliminary injunction test asks whether Plaintiffs will suffer any irreparable harm. When deciding this question, “[i]t is not so much the magnitude of the harm claimed by Plaintiff but the irreparability that counts for purposes of a preliminary injunction.” Danden Petroleum, Inc. v. Northern Natural Gas Co., 615 F.Supp. 1093, 1098–99 (N.D.Tex.1985) (internal citations omitted). The Fifth Circuit has found an injury to be irreparable if it cannot be undone through monetary relief. Enter. Int'l, Inc. v. Corporacion Estatal Petrolera Ecuatoriana, 762 F.2d 464, 472–73 (5th Cir.1985).

Id. (internal citations omitted). Hence, the Court's equitable powers will be invoked only upon a showing that monetary damages will be insufficient to remedy the injury the movant is presently suffering.

Notably, the Fifth Circuit stated that damages are incalculable when determining the exploitation of an employer's clientele. Merrill Lynch, Pierce, Fenner & Smith, 658 F.2d 1098, 1102 n. 8 (5th Cir.1981). Furthermore, “[i]n a situation where trade secrets and goodwill are involved, the threat is significant that the harm experienced by the misappropriation or misuse of trade secrets will be irreparable....” Am. Express Fin. Advisors, Inc. v. Scott, 955 F.Supp. 688, 693 (N.D.Tex.1996). Finally, “[i]t is not the number of trade secrets taken that determines whether the threat of irreparable harm exists. The fact that a single trade secret may be disclosed is enough,” FMC Corp. v. Varco Int'l., Inc., 677 F.2d 500, 503 (5th Cir.1982), and “an injunction ‘is usually the only way use of the [trade] secret by the former employee can be prevented.” ’ Picker Int'l, Inc. v. Blanton, 756 F.Supp. 971, 983 (N.D.Tex.1990) (quoting Williams v. Compressor Engineering Corp., 704 S.W.2d 469, 472 (Tex.App.—Houston [14th Dist.] 1986, writ ref'd n.r.e.)). Therefore, in light of the client lists, trade secrets and other highly confidential information, the Court finds Plaintiffs have met the burden of proving irreparable injury.

In this case, the threatened harm to Plaintiffs outweighs the threatened harm to Defendants. Plaintiffs conceded to removing the restriction to let Dr. Bakotic access his email, and the Court has altered the preliminary injunction to prevent overbroad injuries to Defendants. While it is possible Defendants will still suffer some harm because of the injunction, Plaintiffs stand to suffer greater losses through exposed secrets, lost customers and other breaches of protected data. The balance therefore tips in favor of Plaintiffs.

The Court finds no reason to believe that granting the preliminary injunction will disserve the public interest. Consequently, the Court finds that all factors for issuing the preliminary injunction have been met and thereby GRANTS in PART and DENIES in PART Plaintiffs Application for Preliminary Injunction.

For the foregoing reasons, Plaintiffs' Application for Preliminary Injunction is GRANTED in PART and DENIED in PART.

Therefore, it is hereby ORDERED that AmeriPath and Dr. Bakotic are immediately restrained and enjoined from doing any of the following:

(4) Defendants shall not delete, destroy, or alter any document, e-mail or computer drive containing any ProPath or ProPath related information, but shall segregate said items into a confidential file not to be used in their business.

It is so ordered.

Although this Memorandum Opinion and Order essentially repeats the factual details of the Court's Order (filed September 17, 2004) that denied Plaintiffs' Emergency Motion to Remand, the Court finds such details necessary to determine the preliminary injunction.

The TRO also brought five claims against Defendants: (1) breach of contract; (2) tortious interference with contract; (3) breach of duty of loyalty and fiduciary duties; (4) misappropriation of confidential information; and (5) Texas theft liability act violation.

Additionally, Plaintiffs filed an Emergency Motion to Remand on September 2, 2004. Defendants then filed their Response on September 10, 2004. On September 17, 2004, the Court issued an Order denying Plaintiffs' Emergency Motion to Remand.

This allowance was made provided that AmeriPath produce to ProPath a list identifying all documents segregated on the confidential server, and that Dr. Bakotic produce to ProPath a list of all ProPath related documents that Dr. Bakotic transferred to any location outside of ProPath. All such documents were to be provided within two days of the Order.

That Order required Plaintiffs to file their Reply to Defendants' Response to Plaintiffs' Emergency Motion to Extend Temporary Restraining Order (“Pls.' Mot. to Extend TRO”) on or before September 8, 2004. (Defendants filed their Response (“Defs.' Resp. To TRO”) to Pls.' Mot. to Extend TRO on September 3, 2004.)

The Court's September 17, 2004, Order allowed each party to file a supplemental brief on or before September 27, 2004, and for each party to file a responsive brief on or before October 1, 2004.

Additionally, the Court modified the briefing schedule to allow each party to file a supplemental brief on or before September 30, 2004, and for each party to file a responsive brief on or before October 6, 2004.

In light of the ruling in this Memorandum Opinion and Order, the Court finds it unnecessary to address Plaintiffs' Motion for Leave. To the extent that Plaintiffs believe Defendants violated the TROs, Plaintiffs may assert such allegations in a motion for contempt, as well as through any other appropriate legal avenue.

Additionally, “[a]t the hearing for the [preliminary] injunction, the applicant is not required to prove that he will prevail at trial but must establish the right to preserve the status quo pending trial on the merits” by proving all of the four elements. Southwest Research v. Keraplast Technologies, Ltd., 103 S.W.3d 478, 481 (Tex.App.-San Antonio 2003) (citing Sun Oil Co. v. Whitaker, 424 S.W.2d 216, 218 (Tex.1968)).

Defs.' Resp. to TRO at p. 4 (citing Tex. Bus. & Com.Code Ann. § 15.50(b)(1)-(3)).

Pls.' Reply to TRO at p. 6–7.

Pls.' Application for Prelim. Inj. at p. 5.

Joint Brief at p. 17.

Miller Aff. ¶¶ 2–3 (App. to Application for Prelim. Inj. at pp. 403–04).

Miller dep. at p. 21, l. to p. 24, l. 25; p. 50, ll. 1–17; p. 51, l. 22 to p. 52, l. 15 (App. to Application for Prelim. Inj. at pp. 115, 120).

Defs.' Reply in Opp'n to Pls.' Application for Prelim. Inj. at p. 5.

Bakotic dep. at p. 185, l.13 to p. 190, l.22 (App. to Application for Prelim. Inj. at pp. 38–39).

Id. at p. 181, l.11 to p. 205, l. 12; p. 39, l. 12 to p. 44, l. 10 (App. to Application for Prelim. Inj. at pp. 37–42; 11–12).

2nd Crews Aff. at ¶ 7 (Supplemental App. to Application for Prelim. Inj. at p. 416).

Pls.' Supplemental Resp. Briefing and Evidence in Support of Application for Prelim. Inj. (“Pls.'s Supplemental Resp.”) at p. 3 (quoting Employment Agreement at p. 4 (App. to Application for Prelim. Inj. at 207)).

Pls.' Reply to TRO at p. 2 (quoting Handbook at p. 17 (Attach. to Pls.' Reply to TRO, Exhibit A)).

Defs.' Reply in Opp'n to Pls.' Application for Prelim. Inj. at p. 5.

It further states that “[ProPath] will honor the written request of any patient that a copy of such patient's records be forwarded to you.”

See 2nd Crews Aff. at ¶ 8 (Supplemental App. to Application for Prelim. Inj. at p. 416).