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Williams-Sonoma Direct, Inc. v. Arhaus, LLC

United States District Court, W.D. Tennessee, Western Division

June 18, 2015

WILLIAMS-SONOMA DIRECT, INC. and WILLIAMS-SONOMA RETAIL SERVICES, INC., Plaintiffs,
v.
ARHAUS, LLC d/b/a ARHAUS FURNITURE, TIMOTHY STOVER, BRAD VOELPEL, and JESSICA DAUGHERTY, Defendants.

ORDER GRANTING PRELIMINARY INJUNCTION

JON P. McCALLA, District Judge.

Before the Court is Plaintiffs' Motion for Temporary Restraining Order and Order to Show Cause Regarding Preliminary Injunction (ECF No. 13 (sealed)) and Supplemental Brief in Support of Motion for Preliminary Injunction (ECF No. 92). For the reasons stated below, Plaintiffs' Motion is GRANTED.

I. BACKGROUND

A. The Corporate Entities Involved

1. A Note on Nomenclature

Williams-Sonoma, Inc. is referred to herein as "WSI." Williams-Sonoma Direct, Inc. is referred to as "WSDI, " and Williams-Sonoma Retail Services, Inc. is referred to as "WSRSI." At various places in the record, an entity known simply as "Williams-Sonoma" is referenced. When the Court can describe a particular corporate entity, the Court will do so. When the record references "Williams-Sonoma" or generally all entities, however, the Court will use the term "Williams-Sonoma" to refer to either all or part of the conglomerated entities that include WSI and its subsidiaries.

2. Williams-Sonoma

Williams-Sonoma is a corporation that is primarily in the business of selling furniture and home furnishings. (October 24-25, 2014, Hr'g Tr. 41, ECF Nos. 104, 105 (sealed).) Williams-Sonoma sells its merchandise both through its 585 retail stores and through direct to consumer channels, including e-commerce. (Id. at 42.) The corporation's brands include Williams-Sonoma Home, Pottery Barn, Pottery Barn Kids, Pottery Barn Teen, West Elm, Mark and Graham, and Rejuvenation. (Id. at 41.)

3. Williams-Sonoma Direct, Inc.

WSDI is a wholly-owned subsidiary of WSI that provides supply chain services to Williams-Sonoma's entities. (Id. at 42.) WSDI was incorporated in 1999. (Id.) It has approximately $165 million in assets and employs approximately 3500 people in several states, including California, New Jersey, and Tennessee. (Id. at 43.)

4. Williams-Sonoma Retail Services Inc.

WSRSI has approximately $50 million in assets and employs approximately 800 people. (Id.) It is responsible for stocking Williams-Sonoma's retail stores as well as moving furniture. (Id. at 48.)

5. Arhaus, LLC

Arhaus, LLC ("Arhaus") has approximately fifty-two retail stores and sells special-order furniture. (Id. at 499.) Although no evidence was introduced indicating the exact revenue of either WSI or Arhaus, witness testimony indicated on numerous occasions that Arhaus is a significantly smaller company. (See, e.g., id. at 126 ("Arhaus would probably not get as good a rate because they don't have the volume [of Williams-Sonoma]...."); December 10, 2014, Hr'g at 45 ("[Williams-Sonoma's] carrier rates were ridiculous because they were rates that [Arhaus] could never get because we are so small."), ECF No. 140.)

B. Procedural Background

WSDI filed its Complaint on September 18, 2014 (ECF No. 1) and a Motion for Temporary Restraining Order on September 19, 2014 (ECF No. 13). Judge Samuel H. Mays, Jr. held a hearing on the Motion for Temporary Restraining Order on September 29 and 30, 2014. (ECF Nos. 52, 54.) Arhaus and Stover filed a Joint Motion to Dismiss on September 26, 2014. (ECF No. 31.) On September 29, 2014, WSDI amended the Complaint so as to correct a technical pleading defect. (ECF No. 51.) On September 30, 2014, Judge Mays issued an order granting in part and denying in part the Motion for Temporary Restraining Order. (ECF No. 56.) The order required Defendants to preserve evidence, and ordered Defendants not to acquire, access, disclose, or use any of WSDI's trade secrets - or to attempt to do so. (Id. at 3-4.) The order further restrained Daugherty and Stover from: acquiring, accessing, disclosing or using, or attempting to acquire, access, disclose, or use WSDI's or its derivatives' confidential information; and from soliciting employees of WSDI, its parents, subsidiaries, or affiliates. (Id. at 4.)

On October 14, 2014, the Court set a preliminary injunction hearing and, by consent, extended the TRO. (ECF No. 73.) Plaintiffs filed their Second Amended Complaint on October 22, 2014, which added Williams-Sonoma Retail Services, Inc. as a plaintiff. (ECF No. 83.) Plaintiffs then filed a Supplemental Brief in Support of Motion for Preliminary Injunction on October 23, 2014. (ECF No. 92.) Defendants each filed briefs in opposition to a preliminary injunction also on October 23, 2014. (ECF Nos. 94-100.) The Court held a preliminary injunction hearing on October 24 and 25, 2014 and December 10, 2014. (ECF Nos. 102, 104, [1] 141.) By consent of the parties (see ECF No. 106), on November 3, 2014, the Court extended the TRO until an order issued regarding the Plaintiffs' request for preliminary injunction. (ECF No. 109.)

Stover filed a Motion to Dismiss and in the Alternative Motion for Summary Judgment on November 5, 2014. (ECF No. 111.) Arhaus filed a Motion to Dismiss or in the Alternative Motion for Summary Judgment on November 10, 2014. (ECF No. 115.) Plaintiffs filed their response to these motions on December 11, 2014. (ECF No. 134.) The Court denied in part these motions on January 30, 2015. (ECF No. 160.)

By joint motion of Plaintiffs and Voelpel (ECF No. 121), the Court granted a Permanent Injunction and Judgment as to Voelpel on December 3, 2014. (ECF Nos. 128, 129.) Similarly, by joint motion of Plaintiffs and Daugherty (ECF No. 132), the Court granted a Permanent Injunction and Judgment as to Daugherty on December 19, 2014. (ECF Nos. 145, 146.)

II. TESTIMONY AND EVIDENCE INTRODUCED BY THE PARTIES

For the purposes of this Order, the Court makes the following factual findings.

1. Williams-Sonoma's Confidential Information

Most of the confidential information involved in this case is related to Williams-Sonoma's supply chain management. Steve Anderson, Williams-Sonoma's Senior Vice President of Operations, explained that managing Williams-Sonoma's supply chain entails

managing the movement of our purchased or manufactured merchandise from point of origin or manufacture to the United States or to the point where we are going to sell it, from that point, moving it to our distribution centers, and then ultimately warehousing that merchandise and then ultimately delivering it to our customer, whether it's delivering it directly to somebody's home or replenishing one of our 585 retail stores throughout the country.

(October 24-25, 2014, Hr'g Tr. 60.) Efficiently managing a supply chain can result in significant savings for a company: recent initiatives at Williams-Sonoma have yielded tens of millions of dollars in savings over the past few years. (See id. at 62.) Examples of areas where such savings can be generated include the software systems that are used, the number of distribution centers a company maintains, and how contracts are negotiated with third-party transporters, including ocean carriers and trucking companies. (See id.) Williams-Sonoma stores some of this type of information on a shared drive that its employees can access. (See id. at 237-38.)

Details of a corporation's supply chain management can be useful to competing organizations. For example, pricing information with third-party vendors can provide a competing organization with a benchmark that can be leveraged in the negotiating process. (See id. at 76.) The contents of contracts that include non-disclosure clauses can provide a competitive advantage. (See id. at 90-91.) Additionally, the process by which a company solicits bids and ultimately picks a third-party vendor can be of value to a competitor. (See id. at 159-61.)

Williams-Sonoma employs a number of measures to protect its confidential information, including the details of its supply chain management. (Id. at 66-67.) A log-on is required to get into the network system, which is provided by each employee's manager. (Id.) Each employee's access to the network is restricted based on the position the employee is in and what the employee needs to know. (Id.) Additionally, when an employee is hired by Williams-Sonoma, the employee is given a handbook that explains Williams-Sonoma's confidential information policies as well as how electronic information is handled. (Id. at 66.) Employees must also sign the Williams-Sonoma, Inc. Code of Business Conduct and Ethics ("Code of Conduct") (Ex. 1) every year and take a quiz on the contents of the Code of Conduct. (October 24-25, 2014, Hr'g Tr. 66-67.)

The Code of Conduct describes in some detail an employee's duties to protect Williams-Sonoma's confidential information. (See Ex. 1 at 10-11.) Two provisions of the Code of Conduct are at issue in this case. One provision describes the nature of the employee's duty to protect that information:

As associates of the Company, and for the benefit of ourselves as well as the Company, we each have a duty to safeguard our Company's trade secrets and Confidential Information and to refrain from any improper dealings with the confidential information of any other company, including our competitors. Associates may not disclose Confidential Information either while an employee of WSI or at any time after employment ends, regardless of the reason why employment ends.

(Id.) Another provision prohibits solicitation of Williams-Sonoma employees:

As part of our duty to safeguard the Company's trade secrets and Confidential Information, associates may not, either during their employment with the Company or for twelve months afterward, directly or indirectly recruit, solicit or induce... any employee... of the Company to terminate employment.

(Id. at 11.)

2. Defendants' Misconduct

Having described the nature and value of the confidential information at issue in this case, the Court now turns to the facts established regarding Defendants' misconduct. Stover worked for Williams-Sonoma for seventeen years. (October 24-25, 2014, Hr'g Tr. 63.) At the time of his departure, Stover was the Senior Vice President of Transportation, Engineering, and Planning. (Id.) In his role, Stover had access to transportation contracts, building contracts, and leases that Williams-Sonoma considered confidential. (Id. at 63-64.)

Stover first interviewed with Arhaus on June 17, 2014, at Arhaus' headquarters in Walton Hills, Ohio. (Id. at 303.) On the evening of June 17, 2014, Stover sent a text message to Jessica Daugherty, who was at that time Manager of Global Network Operations for Williams-Sonoma. (Id. at 304-07.) The content of the message was as follows: "I need to know our ocean costs from various origins to the US. Can you provide. [sic] Plus what would be my linehaul costs say from [C]leveland to [H]ouston and who would be my provider?" (Ex. 32.) At the hearing, Stover initially denied that he was asking for that information in order to use it during his interviews or for use if he was to be hired. (October 24-25, 2014, Hr'g Tr. 308-09.) Plaintiffs' counsel then pressed Stover on the ...


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