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Home Line Furniture Indus., Inc. v. Banner Retail Marketing

June 15, 2009

HOME LINE FURNITURE INDUS., INC. B/D/A HOME LINE INDUS., PLAINTIFF,
v.
BANNER RETAIL MARKETING, LLC, DEFENDANT.



The opinion of the court was delivered by: Slomsky, J.

OPINION

I. INTRODUCTION

The underlying state court action, which gave rise to the current diversity action, was filed on April 21, 2009 by Plaintiff Home Line Furniture Industries, Inc. ("Home Line") against Defendant Banner Retail Marketing, LLC ("Banner") in the Philadelphia Court of Common Pleas for an alleged breach of confidentiality agreements entered into by the parties and for alleged misappropriation of trade secrets. Plaintiff is a furniture manufacturer and wholesale distributor. Defendant is in the business of marketing products such as those sold by Plaintiff.

At the same time Plaintiff filed its Complaint in the Court of Common Pleas, Plaintiff also filed a Petition for Preliminary Injunction, which was granted the next day, April 22, 2009, by the state court Emergency Judge. On the morning of April 23, 2009, Defendant removed this action to this Court. On the same day, Defendant filed a Motion to Reconsider State-Court Ordered Temporary Injunction (Doc. No. 3). After a telephone conference with counsel for the parties on the afternoon of April 23, 2009, this Court granted Defendant's Motion for Reconsideration and ordered the TRO issued by the state court Judge dissolved, vacated and set aside. A written Order confirming the ruling was filed on April 24, 2009 (Doc. No. 4), and an Opinion fully explaining the reasoning behind the decision to dissolve the TRO was filed on April 30, 2009 (Doc. No. 5). Although the TRO has been dissolved, Plaintiff's Petition for a Preliminary Injunction remained pending, and the Court held an evidentiary hearing on Plaintiff's Petition and Defendant's response on May 1, 2009. After considering the testimony and exhibits offered by the parties at the hearing and their filings in this case, the Court will grant the Petition for a Preliminary Injunction filed by Plaintiff.

II. FINDINGS OF FACT

Plaintiff Home Line is a manufacturer, importer and distributor of home furnishings. (Testimony of David Bregler ["Bregler"], Plaintiff's Director of Marketing, Transcript of Hearing, May 1, 2009 ["Tr."], at 7-10 to 7-11.) Defendant Banner is in the business of providing advertising and marketing strategy services to various businesses, and specializes in print advertising and designs. (Testimony of William Sauther ["Sauther "], Tr., at 266-1 to 266-9.)Banner focuses its business on services for furniture manufacturers and retailers. (Id.)

Banner solicited Home Line as a client. (Bregler, Tr., at 31-14 to 31-17.) Once Home Line hired Banner, but before revealing any confidential information, Home Line required Banner to enter into Independent Contractor Agreements, which Plaintiff styles as "Confidentiality Agreements." (Id. at 33-13 to 36-5.) Home Line and Banner eventually entered into two such agreements. (Id. at 44-7 to 45-2.) After entering into the Confidentiality Agreements, Home Line disclosed to Banner information about Home Line's proprietary Web Partner Program ("WPP"), an internet marketing program that Plaintiff developed at considerable expense. (Id. At 34-5 to 34-9; Verification of David Bregler, Exh. A to Pl.'s Petition for Preliminary Injunction at ¶ ¶5-7 [hereinafter "Bregler Verif."].) After reviewing Home Line's WPP, Banner copied the program and began marketing a nearly identical program to Banner's other clients, including Ashley Furniture Industries, Inc. ("Ashley"), one of Plaintiff's main competitors. (Pl. Compl. at 8-9; Bregler Verif. ¶ ¶ 28, 30-31.)

Home Line describes its Web Partner Program as a "novel, innovative, inventive and new" web-based marketing strategy which includes web hosting and web development. (Bregler Verif. ¶ ¶ 7-17.) The WPP is a unique marketing tool that Home Line sells to its retail furniture customers. (Bregler, Tr. at 14-2 to 14-5.) The WPP provides Home Line's retailers with the ability to purchase a customizable website from which the retailers can advertise and sell Home Line's products to the ultimate consumer. (Id.) This concept of cooperative advertising originated by Home Line in the furniture industry is not only confidential information protected by the Confidentiality Agreements, but also is a protectable interest and trade secret under the Pennsylvania Uniform Trade Secret Act, 12 Pa. Cons. Stat. §§ 5301-5308.

Banner alleges that it was evaluating, planning and designing a similar web-based marketing solution for home furnishing retail dealers long before Home Line became a customer of Banner, and that Banner developed its website independently of any work it was doing for Home Line. In support of their competing positions, the parties presented witnesses at the May 1, 2009 hearing, whose testimony will be summarized below. The Court finds that the testimony of Plaintiff's witnesses is credible, fully supports the need for the issuance of the preliminary injunction in this case, and confirms Defendant's legal obligation under the Confidentiality Agreements to protect the information provided by Plaintiff from misuse and unauthorized disclosure.

A. Plaintiff's Witnesses

1. Testimony of David Bregler

David Bregler is the Director of Marketing for Home Line. (Bregler, Tr., at 7-8.) As Director of Marketing, Bregler is responsible for Home Line's corporate literature, logos, branding, training the sales staff about marketing initiatives, and developing new marketing strategies. (Id. at 7-16 to 7-20.)

Bregler initially had the idea for Home Line's WPP. (Id. at 8-6.) Bregler began developing the program in late 2007, and presented it to the President and CEO of Home Line, Josh Verne, in early 2008. (Id. at 8-8 to 8-20.) After conceiving the idea, Bregler did research in the marketplace to determine if there was any product similar to the WPP in use at the time. (Id. at 9-3 to 9-8.) He found that although components of the WPP existed in the marketplace, nothing existed that combined components in the way Bregler wished to combine them in the WPP. (Id. at 9-5 to 9-12.) In order to develop the program, Bregler worked with Anthony Roccia, who developed and maintained the core database underlying the WPP. (Id. at 9-19 to 10-5.) Bregler estimated that he and Roccia spent several thousand man-hours developing the WPP, and that the cost of development was measured in the hundreds of thousands of dollars. (Id. at 11-9 and 11-11 to 11-14.) In May or June of 2008, Home Line was prepared to begin selling the WPP to its distributors. (Id. at 10-10 to 10-24.)

The basic idea behind the WPP is to allow a Home Line retailer to have access to a website developed and maintained by Home Line, but customizable by the retailer, that would cost a fraction of what the retailer would pay if the retailer had to develop its own website. (Id. at 14-2 to 14-5.) In order to encourage consumer traffic to each retailer's customized website, Home Line would send postcards to people located in the area of the retailer. (Id. at 14-20 to 15-18.) The postcard encourages the consumer to go to the website and enter information. In exchange for entering this information, the consumer would receive a valuable coupon. (Id.) Each retailer had the ability to customize its website to its liking, using a number of template websites made available by Home Line. (Id. at 21-5 to 21-23.) The main images of furniture sold by Home Line were controlled by Home Line so that when Home Line changed an image for a product in its database, the image would automatically be changed on each retailer's website as well. (Id. at 23-13 to 23-24.)

In April, 2008, Defendant Banner solicited Home Line as a client for Banner's marketing services. (Id. at 31-14 to 31-17.) In May, 2009, Bregler met with Erika Sparrow, Banner's Vice President of Sales. (Id. at 32-2 to 32-15.) Bregler agreed to meet with Sparrow only after Sparrow, in mid-April, 2008, on behalf of Banner, signed a Confidentiality Agreement covering the material to be discussed and provided between the parties. (Id. at 32-21 to 32-23, 33-13 to 36-5.) Home Line insisted on Banner signing the Confidentiality Agreement because Home Line felt its WPP was unique, and because Banner worked with a number of Home Line's competitors. (Id. at 32-24 to 33-7.) Home Line did not want Banner to reveal its unique program to those competitors. (Id.) Bregler felt that Banner needed to be aware of specific and unique aspects of the WPP in order to work effectively with Home Line and to meet Home Line's marketing needs. (Id. at 33-8 to 33-12, 34-14 to 35-3.) Bregler withheld specifics of the WPP until the Confidentiality Agreement was signed, and afterwards shared all aspects of the WPP with Sparrow. (Id. at 33-5 to 33-9, 37-16 to 38-7.)

No one at Banner objected to Sparrow signing the Confidentiality Agreement on Banner's behalf. (Id. at 37-14.) The Confidentiality Agreement covered all information furnished by Home Line to Banner. (Id. at 71-24 to72-5, 73-13 to 73-18.)*fn1

Home Line presented its WPP to the Court as Plaintiff's Exhibit 1 and 2 at the evidentiary hearing held on May 1, 2009. Bregler described the program to the Court as follows: The WPP is a new recipe of known ingredients, one that has never been put together in quite this way before. (Id. at 13-1 to 13-19.) The WPP integrates print advertising, webpages, postcards and circulars. (Id.) Home Line developed templates of webpages, which are customizable by Home Line's retail clients and allow them to pull all their product information from Home Line's main database. (Id. at 13-21 to 14-5.) The WPP consists of proprietary forms, which were used by each of Home Line's retailers for selecting options and providing information to be displayed on its own webpage. (Pl. Exh. 1 and 2.) In operation, an individual retailer WPP site would be created by inputting a retailer's specific information including its logo into the selected website templates, and the data from Home Line's own website in order to achieve a customized website particular to that dealer without revealing to the ultimate consumer any connection between Home Line and the website. (Bregler, Tr. 13-21 to 14-1, 16-9 to 16-17, 26-7 to 27-23.) This process would provide a website that is easy to update and individualized for each retailer at a fraction of the cost a retailer would pay if it had to create its own website. (Id. at 13-21 to 14-5.) Each website was customizable with each individual retailer's logo, different products chosen by the retailer, individualized consumer discount coupons and directions to the retailer's store. (Pl. Exh. 1 and 2.) Home Line drove traffic to these newly created websites by sending out postcards to individual local consumers, who were enticed to go to the webpage and enter their personal information in exchange for the valuable coupon. (Bregler, Tr., at 14-17 to 15-10.) This combination of strategies, particularly the creation of websites for individual retailers by Home Line, the manufacturer, was unique to the furniture industry, when developed by Bregler. (Id. at 18-25 to 19-4.)

In September, 2008, Bregler learned that Erika Sparrow had left Banner. (Id. at 42-19 to 42-23.) When Bregler found out that Sparrow had left Banner, he requested that another Confidentially Agreement be signed by someone else at Banner in order to protect Home Line's rights under the first Confidentiality Agreement. (Id. at 43-4 to 43-7, 44-7 to 44-14.) Bregler made this request to Tara Wright, who managed the Home Line account for Banner. (Id. at 43-8 to 43-11.) No one at Banner objected to signing a second Agreement. (Id. at 44-2 to 44-6, 45-3 to 45-12.) Richard Luna, Banner's Chief Financial Officer, signed the second Confidentiality Agreement on behalf of Banner and returned it to Bregler via email on September 5, 2008. (Id.) Bregler believed that based on the Confidentiality Agreement, it was Banner's responsibility to keep confidential all information Home Line provided Banner. (Id. at 45-20 to 45-23).

In October, 2008, Bregler heard a rumor in the industry that Banner was teaming up with Ashley Furniture to market a program similar to Home Line's WPP. (Id. at 49-7 to 49-13.) Although Ashley is a large competitor of Home Line, Bregler did nothing in response to the rumor at that time because it was not substantiated. (Id. at 49-14 to 49-23, 50-10 to 50-16.) On January 23, 2009, Bregler received an email from one of Home Line's sales representatives, Mike Freedman, stating that Banner and Ashley were planning to roll out their web-based program at a future furniture show. (Id. at 81-9 to 81-16, 88-2 to 88-8.) Through the end of 2008 and into the Spring of 2009, Home Line continued to be a customer of Banner. During that time, Banner engaged in print marketing services for Home Line. (Id. at 47-7 to 48-15.)

In the first week of April, 2009, Mike Freedman sent Bregler a copy of promotional materials prepared by Banner, promoting Banner's own web-based program. (Id. at 51-2 to 51-16.) It was essentially a copy of Home Line's WPP. (Id.) Bregler testified that although Banner added some embellishments, the two programs were the same. (Id. at 52-5 to 52-10, 60-4 to 60-5.) After reviewing both programs, the Court agrees with Bregler's assessment. Banner's web-based program has a nearly identical format to Home Line's WPP, the same product catalogs are shown in a photo gallery format, Banner included identical consumer incentive forms to capture consumer marketing data, and the pages of the program are set up using the same templates. (Pl. Exh. 18.) From the Banner materials, it is clear that retailers can customize their websites through Banner's web-based program. It is also clear that Banner had partnered with Ashley, one of Home Line's main competitors, to market Banner's web-based program to the detriment of Home Line, Banner's client. (Bregler, Tr., at 52-11 to 53-7.) The order for a website created by Banner is headed "Ashley Retail" and has Ashley's "Signature Design" logo partnered with Banner's logo in the top right hand corner. (Pl. Exh. 19.) Ashley has even agreed to pay the set up fee of $250 for the first 200 sites that Banner creates for Ashley retailers, demonstrating that Ashley is financially investing in the success of Banner's web-based program. (Id.)

Despite significant contact between Bregler and representatives of Banner, no one from Banner ever informed Bregler that Banner was developing its own web-based program. (Bregler, Tr., at 61-19 to 62-12.) In view of the signed Confidentiality Agreements, Banner should have, at the very least, informed Bregler that Banner was working on a similar program to the one Home Line had developed and shared with Banner, and sought approval to do so. (Id. at 63-19 to 64-4.)

Banner's program seriously affected the financial viability of the WPP, as it was sold to Home Line's same retail customers, and was destroying the competitive edge Home Line achieved by being the first to offer such a program. (Id. at 66-6 to 66-21.) The Court finds credible Bregler's claims that the loss of this competitive edge is priceless and cannot be reduced to a dollar amount. (Id. at 67-10 to 67-14.)

2. Testimony of Erika Sparrow

Erika Sparrow was hired by Banner in October, 2001 as the Director of National Accounts. (Testimony of Erika Sparrow ["Sparrow"], Tr.. at 95-3 to 95-8.) Sparrow was subsequently promoted to the position of Vice-President of Sales, where she managed client accounts and oversaw sales employees. (Sparrow, Tr., at 95-9 to 95-18.) As Vice-President of Sales, Sparrow's immediate supervisor was William Sauther, the Chief Executive Officer ("CEO") of Banner. (Id. at 95-19 to 95-20.)

In April or May, 2008, Sparrow emailed David Bregler in an attempt to secure Home Line as a client for Banner. (Id. at 97-13 to 98-8.) In speaking with Bregler, Sparrow learned that Home Line was interested in hiring Banner to perform circular and direct mail marketing functions. (Id. at 98-10 to 98-17.) Bregler informed Sparrow that Home Line was working on a web-based marketing program, but he could not share the details of the program with her until Banner had entered into a confidentiality agreement with Home Line. (Id. at 98-23 to 99-3.) Sparrow received permission to sign the Confidentiality Agreement from Banner's CEO William Sauther and from Chief Operations Officer ("COO") Paul Hamacher. (Id. at 99-4 to 99-6.) After Sparrow signed the Confidentiality Agreements, Bregler disclosed the content of the WPP to Sparrow. (Id. at 99-24 to 100-4.) When Sparrow saw the WPP, she thought it was interesting. She testified that she had not seen anything like it before. (Id. at 102-25 to 103-6.) Sparrow believed that the information about the WPP was confidential and would not be disclosed under the terms of the signed agreement. (Id. at 105-11 to 105-20.)

At the time that Sparrow solicited Home Line as a client and began working with Home Line, she had no knowledge that Banner, her employer, considered developing a web-based program that was the same as Home Line's WPP. (Id. at 100-9 to 100-20.) Sparrow testified that had Banner been working on a similar project, she, as Vice-President of Sales, would have been aware of it through her attendance at various manager meetings. (Id. at 100-21 to 101-11.) As far as Sparrow knew, as of June, 2008, Banner was not working with Ashley Furniture on a web-based program that was similar to the WPP. (Id. at 109-7 to 109-17.)

In late July, 2008, Sparrow attended a furniture trade show in Las Vegas, Nevada. (Id. at 116-2 to 116-21.) At that show, Banner promoted a product similar to Home Line's WPP in the form of a brochure with less detail than Home Line's promotional materials. (Id. at 116-11 to 117-6.) Another representative of Banner at the trade show asked Sparrow to present the brochure to Ashley Furniture sales representatives to gauge their ...


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