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Colorcon, Inc v. Aminah-Iman Lewis and Sensient Technologies Corp

May 31, 2011

COLORCON, INC.,
PLAINTIFF,
v.
AMINAH-IMAN LEWIS AND SENSIENT TECHNOLOGIES CORP., DEFENDANTS.



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

MEMORANDUM

I. INTRODUCTION

Plaintiff Colorcon, Inc. ("Colorcon") alleges in this action that former employee AminahIman Lewis's new employment at one of Colorcon's competitors, Sensient Technologies Corporation ("Sensient"), violates Lewis's non-competition agreement with Colorcon and makes it likely that Lewis will use Colorcon's trade secrets for Sensient's benefit. Presently before the Court is Colorcon's Motion for a Preliminary Injunction, which seeks an order barring Lewis from continuing in her current position at Sensient for the duration of the term of her non-competition agreement, approximately 13 months. The Court held a three-day hearing on Colorcon's motion on March 22, April 5 and April 6, 2011. The parties subsequently submitted proposed findings of fact and conclusions of law. In accordance with Federal Rule of Civil Procedure 52(a)(2), the Court incorporates its findings of fact and conclusions of law into this Memorandum. For the reasons that follow, Colorcon's Motion for a Preliminary Injunction is denied.

II. FINDINGS OF FACT

A. Background

1. The Parties

Colorcon is a privately held corporation that develops and manufactures colorants and coatings for use in pharmaceutical and food products. (Prelim. Inj. Hr'g Tr. 3/22/11 at 8, 20.) Pharmaceutical coatings and colorants comprise about 95 percent of the company's business, with food and confectionary products constituting the remaining 5 percent. (Id. at 8.) Colorcon is headquartered in Harleysville, Pennsylvania, but sells its products globally. (Id. at 8-9.)

Sensient is a competitor of Colorcon that manufactures colors, flavors and fragrances for use in a variety of products, including food and pharmaceutical products. (Id. at 75; Prelim. Inj. Hr'g Ex. P-31.) Sensient also sells its products worldwide. (Prelim. Inj. Hr'g Tr. 4/6/11 at 156.) One of Sensient's subsidiaries, Sensient Colors, LLC, is a St. Louis, Missouri-based company that works primarily with food colors but includes a unit that develops and sells pharmaceutical coating systems. (Id. at 157, 165.)*fn1 In July 2010, Sensient announced plans to expand its pharmaceutical coating operations. (Prelim. Inj. Hr'g Ex. P-32.)

For more than 25 years, Sensient supplied Colorcon with dye Colorcon used to manufacture some of its products. (Id. Ex. D-4.) In October 2010, however, Sensient notified Colorcon that it would no longer serve as a Colorcon supplier. (Id.) Colorcon responded by threatening legal action against Sensient. (Id.)

Defendant Lewis is a former Colorcon employee who now works for Sensient in St. Louis. Lewis was born in St. Louis but grew up in Philadelphia. (Prelim. Inj. Hr'g Tr. 4/5/11 at 166). She attended Prairie View A & M University in Texas, where she graduated in 2000 with a bachelor of science degree, having majored in biology and minored in chemistry. (Prelim. Inj. Hr'g Ex. P-36.) From 2003 to 2010, she worked at Colorcon's West Point, Pennsylvania facility in a variety of technical and sales roles on the food side of the company's business. (Id. Ex. P-16; Prelim. Inj. Hr'g Tr. 4/5/11 at 9; Prelim. Inj. Hr'g Tr. 4/6/11 at 114.) She was terminated by Colorcon on July 8, 2010. (Prelim. Inj. Hr'g Ex. P-2.) After living much of her life in the Philadelphia area, Lewis moved back to St. Louis in December 2010 to commence her employment with Sensient. (Prelim. Inj. Hr'g Tr. 4/5/11 at 166.)

2. The Technology: Food and Pharmaceutical Coatings and Colorants The coloring and coating systems created by companies like Colorcon and Sensient have several functions. Such systems can provide a product with a distinctive color; serve as a barrier to moisture, light or oxygen to enhance a product's shelf life; mask or enhance a particular taste; and control the speed at which and location in the body where a medication is released once it is ingested. (See Prelim. Inj. Hr'g Tr. 3/22/11 at 9-10.)

Much of the evidence presented during the three-day preliminary injunction hearing centered on the level of similarity between coatings and colorants that are used in food and confectionary products and those used in pharmaceutical products. The evidence revealed some commonalties between the two fields. For example, many of the techniques used to apply coatings to one set of products can also be used in at least some applications with the other set of products. (See generally Prelim. Inj. Hr'g Exs. P-4 to P-13.) Much of the technology now employed in food applications was originally developed for pharmaceutical applications.

(Prelim. Inj. Hr'g Tr. 3/22/11 at 16.)

The evidence also showed, however, that there are important distinctions between the two fields. First, the ingredients used in the two products are often different. For example, polyvinyl alcohol ("PVA"), a commonly used ingredient in pharmaceutical coatings, is permitted in food in some countries but banned from use in food in North America. (See id. at 108, 115.) Also, sugar is used frequently in food coatings but rarely in pharmaceutical coatings. (See Prelim. Inj. Hr'g Tr. 4/5/11 at 204; Prelim. Inj. Hr'g Tr. 3/22/11 at 121; Prelim. Inj. Hr'g Ex. D-55; see also Prelim. Inj. Hr'g Ex. P-57; Prelim. Inj. Hr'g Tr. 4/6/11 at 144 (demonstrating that Colorcon's revenue during the years 2008-10 from sugar-based pharmaceutical products amounted to less than 1 percent of its revenue for all pharmaceutical products during those years).)

Second, the overlap noted above in techniques used to apply food and pharmaceutical coatings is relatively minimal. Most sugar-based food coatings are applied using a time-consuming process known as "pan coating." (Prelim. Inj. Hr'g Tr. 4/5/11 at 210.) By contrast, a more rapid process known as "film coating" is more common in the pharmaceutical industry. (Id.)

Third, the profit margins for pharmaceutical coatings are generally higher than the profit margins for food coatings. (See Prelim. Inj. Hr'g Tr. 4/6/11 at 143; Prelim. Inj. Hr'g Tr. 4/5/11 at 105.) Fourth, the time-release function of certain pharmaceutical coatings is inapplicable to food coatings. (See Prelim. Inj. Hr'g Tr. 4/5/11 at 227.) A faulty time-release coating on a pharmaceutical product can injure or kill the consumer. (Id.) Hence, the potential liability exposure for work on pharmaceutical products is substantially greater than for food products. (Id.)

In sum, although food and pharmaceutical coating technologies overlap to a limited extent, there are important distinctions in the composition of the coatings, how they are applied and the business considerations involved in selling them.

B. Colorcon's Trade Secrets

Colorcon has developed 30,000 total formulations between its food and pharmaceutical products. (Prelim. Inj. Hr'g Tr. 3/22/11 at 21.) A vast array of technical information about these products -- from the grade of the raw materials used to the manufacturing processes and equipment employed -- is kept confidential. (See Prelim. Inj. Hr'g Ex. P-3 at 12.) The company also keeps confidential customer information, including pricing, and business information, such as budgets, forecasts and financial statements. (See id. Ex. P-3 at 13-14.)

Colorcon uses a variety of methods to keep all of this information confidential. First, the company keeps all the information about its 30,000 formulations in a password-protected database known as FormulaCentral. (Prelim. Inj. Hr'g Tr. 3/22/11 at 30-31.) Second, the company maintains restricted badge access to its laboratories. (Id. at 31.) Third, Colorcon requires employees to sign agreements that include non-competition covenants and covenants not to disclose confidential information. (Id.) Fourth, the company engages in a variety of training programs to make employees aware of the need to maintain the secrecy of confidential information. (Id. at 31-32.) Finally, Colorcon enters into confidentiality agreements with the customers it serves. (Id. at 32-33.)

C. Lewis's Employment With Colorcon

Lewis arrived at Colorcon in July 2003 as a temporary worker. (Prelim. Inj. Hr'g Tr. 4/5/11 at 5.) She worked as a food technologist, producing samples of Colorcon products for the company's food customers. (Id. at 169-70.)

1. Lewis's Hiring

In March 2004, Colorcon hired Lewis for a permanent position as a food technologist. (Prelim. Inj. Hr'g Ex. P-16.) Two weeks before she was hired, Lewis received a letter that informed her, inter alia, that she would be required to sign an enclosed employment agreement at her orientation when she started work. (Id. Ex. P-39.) Lewis signed the letter and returned it to Colorcon. (Id.)

Lewis became a permanent Colorcon employee on March 15, 2004. (Id. Ex. P-16.) That day, she signed an employment agreement with the company. (Id. Ex. P-1.) The agreement included the following two pertinent provisions:

4. CONFIDENTIAL INFORMATION.

Without the COMPANY's prior written permission, I will not, during or after my employment with the COMPANY, use for myself or others, or disclose to others, any formulae, trade secrets, inventions, designs, customer lists or customer information, price lists or pricing information, supplier lists or supplier information, marketing plans or marketing information, financial information, know-how or other private or confidential information of or about the COMPANY which is not already available to the public. . . .

6. COVENANT NOT TO COMPETE.

I agree that for a period of two years after the termination of my employment, whether by resignation or dismissal, with or without cause, I will not either for my own account or business, or for or on behalf of or in the employ of any other person or entity which does business in any geographic location in which COMPANY does business engage directly or indirectly in any work or activity in the same technical areas in which I worked or to which I was exposed during my employment with COMPANY. I further agree that I will not either for my own account or business or for or on behalf of or in the employ of any other person or entity which does business in any geographic location in which COMPANY does business directly or indirectly sell or distribute or attempt to sell or distribute products or services which are the same as, similar to, or competitive with products or services sold or developed by the COMPANY to any customer I contacted or serviced during the three years prior to termination of my employment.

(Id.) Lewis's assent to the agreement was given "[i]n consideration of my employment by COLORCON." (Id.)

2. Lewis's Work at Colorcon

During approximately the first five years she was a permanent employee at Colorcon, Lewis worked in the company's food group on the technical side of the business. (Id. Ex. P-16.) She received two promotions during that time. (Id.) Then, on January 1, 2009, Lewis became a business development manager, a sales position in which she was responsible for selling Colorcon's food and confectionary products. (Prelim. Inj. Hr'g Ex. P-16; Prelim. Inj. Hr'g Tr. 3/22/11 at 35.)

In terms of Lewis's job performance, the parties agree that Lewis was a gifted technical employee who excelled in all of her technical positions. (Prelim. Inj. Hr'g Tr. 3/22/11 at 34-35; Prelim. Inj. Hr'g Tr. 4/5/11 at 28.) However, Lewis "struggled" in her sales role, according to her supervisor, because she failed to make a sufficient number of sales calls. (Prelim. Inj. Hr'g Tr. 3/22/11 at 196-98, 222.)

Lewis worked her entire career for Colorcon as a part of the company's food group. At one point, she requested to move to the pharmaceutical side of the business, but that request was denied. (Prelim. Inj. Hr'g Tr. 3/22/11 at 125.) Lewis did have some interaction with the pharmaceutical side of the business, (see Prelim. Inj. Hr'g Ex. P-42), and she and her colleagues in the food group shared office space with members of the pharmaceutical group for much of the time she worked at Colorcon. (See Prelim. Inj. Hr'g Tr. 4/5/11 at 181.)

However, Lewis's professional interactions with members of the pharmaceutical group were limited. Much of those interactions consisted of Lewis ordering a color for a colleague in the pharmaceutical group or advising the colleague, based on her experiences with food products, about which color could be used to achieve a desired effect in a pharmaceutical product. (Prelim. Inj. Hr'g Tr. 4/6/11 at 7-12.) The interactions were also rare, numbering fewer than twenty over the course of the more than seven years that Lewis worked at Colorcon, and constituted a small fraction of the work Lewis performed for the company. (Id. at 42; Prelim. Inj. Hr'g Ex. P-42.) The two groups -- food and pharmaceutical -- did not share weekly technical meetings, and members of the food group were not required (and sometimes not invited) to attend company-wide meetings where pharmaceutical technology was discussed. (Prelim. Inj. Hr'g Tr. 4/5/11 at 197-201.)

Lewis also had only minimal exposure to the manufacturing processes, pricing structures and marketing strategies at Colorcon. (See Prelim. Inj. Hr'g Exs. P-18 to P-21, P-43 to P-50; Prelim. Inj. Hr'g Tr. 4/5/11 at 255; Prelim. Inj. Hr'g Tr. 4/6/11 at 53-56.) There is no evidence Lewis retained copies of any of this or any other confidential information when she left Colorcon. (See Prelim. Inj. Hr'g Tr. 4/5/11 at 261; Prelim. Inj. Hr'g Tr. 3/22/11 at 129.)

3. Lewis's Termination

Colorcon terminated Lewis's employment on July 8, 2010 because of her poor sales performance. (Prelim. Inj. Hr'g Ex. P-2; Prelim. Inj. Hr'g Tr. 3/22/11 at 197-98.) On the day she was terminated, Lewis signed a severance agreement that provided, in pertinent part:

(a) General Release of Claims Agreement. You will sign the General Release of Claims Agreement attached as Exhibit A. By doing so, you are releasing any and all claims you might have against the Company and its affiliates and each of their directors, officers, employees and related parties including, without limitation, any and all claims based on your employment or the termination of your employment (including, without limitation, any and all claims under Title VII of the Civil Rights Act, the Age Discrimination in Employment Act, the Americans with Disabilities Act and state and local discrimination laws. . . .

(g) Employment Agreement. You will abide by the terms of the Employment Agreement you signed on March 15, 2004, including without limitation their provisions on inventions, confidential information, restrictions on competition and solicitation and return of all Company documents and other property. . . .

(h) Non-Disclosure. In addition to your existing common law obligation to do so and in addition to your obligations under the March 15, 2004 Employment Agreement you agree that all confidential information (whether written, graphic, oral, committed to memory or otherwise in your possession) . . . shall remain strictly confidential and secret so long as that information has not been published in form generally available to the public and you will not use it or disclose it to others.

(Prelim. Inj. Hr'g Ex. P-2 ¶ 9.) In exchange for these and other promises, Lewis received (1) a severance payment of $20,200, equal to approximately sixteen weeks' salary; (2) a pro-rated bonus payment of $978; (3) two months' of health care coverage paid by Colorcon; (4) an offer of professional outplacement services; (5) a promise not to contest Lewis's application for unemployment benefits; and (6) a promise to provide neutral letters of reference in the future that would not include the fact that Lewis was terminated. (Id. ¶¶ 2-4, 6-8.) ...


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