Maxim Defense Industries, LLC v. Kunsky

Background

Maxim Defense Industries, LLC, a Minnesota-based developer and manufacturer of firearms and firearm accessories, sued Jake Kunsky and Unconventional Equipment Solutions, LLC (UES). Kunsky owns and is the sole member of UES. Kunsky lives in Idaho, and UES is an Idaho limited-liability company. Maxim hired UES in 2017 to provide consulting services.

The consulting agreement contained confidentiality, noncompetition, and nonsolicitation provisions. It also required UES to return Maxim’s property and tangible confidential information when the agreement ended, but allowed UES to retain one copy of confidential information in its legal files. The agreement expired on November 1, 2018, and the copy attached to Maxim’s complaint contained Kunsky’s signature but no signature for Maxim. The agreement also contemplated that Kunsky would later become a Maxim employee and that the parties would enter a separate employment contract, but they did not do so.

Kunsky became a Maxim employee in May 2018. After Maxim suspended him in January 2019, the parties disputed the circumstances of his termination and whether he refused proposed new agreements. Maxim demanded the return of an iPhone and computer. Kunsky returned those devices, but Maxim asserted that their data had been deleted and that storage devices had later been connected to the computer. Kunsky had not returned an Apple Time Capsule, which he said he had given to his attorneys for safekeeping.

Motion and Legal Standard

Maxim initially sought a temporary restraining order. Because the defendants had notice of the motion and an opportunity to respond, the court considered it as a motion for a preliminary injunction under Federal Rule of Civil Procedure 65(a). A preliminary injunction is an extraordinary remedy. The court considered four factors: the likelihood that Maxim would succeed on its claims, the threat of irreparable harm, the balance of harms, and the public interest.

Maxim sought an injunction requiring the defendants to comply with the consulting agreement’s restrictive covenants and to return the Apple Time Capsule and storage devices. Maxim’s claims were for breach of contract, conversion, and breach of the duty of loyalty.

Likelihood of Success

The court held that Maxim had not shown a fair chance of succeeding on its breach-of-contract claim. The purported contract had expired, and the evidence did not show that Maxim had signed it. Maxim argued that the parties acted as though they had a contract, but the court noted that breach of an implied contract was different from the claim Maxim pleaded. The court also found factual questions about the terms of any implied contract.

The court rejected Maxim’s argument that the agreement’s survival clause established that the restrictive covenants continued after termination. Maxim had not supplied legal authority supporting that interpretation. Even assuming the restrictions survived for one year after November 2018, the court found no evidence that Kunsky or UES had violated them or imminently planned to do so. The agreement also allowed UES to retain a copy of Maxim’s confidential information. The court stated that the agreement prohibited use or disclosure, not copying or destruction, and Maxim had shown at most a possibility of disclosure rather than threatened disclosure.

The court also found that Maxim was unlikely to succeed on its duty-of-loyalty claim because an employee’s duty of loyalty ends when the employment relationship ends. Maxim had fired Kunsky, so the court found no continuing duty of loyalty supporting an injunction.

As to conversion, the court explained that Maxim had to show a property interest and deprivation of that property. Because Kunsky had returned the iPhone and computer, Maxim had no conversion claim based on those devices. The storage devices connected to the computer were not Maxim’s property, so they could not support a conversion claim. The court said Maxim might have a conversion claim involving the Apple Time Capsule because Kunsky had not returned it, but concluded that an injunction was not warranted because Kunsky had given it to his attorneys for safekeeping and would presumably allow Maxim access during discovery.

The court further held that Minnesota law did not support a conversion claim based on alleged misappropriation of Maxim’s intangible confidential information. The court also noted the defendants’ position that Maxim stored its information in the cloud and that the information remained accessible. Maxim therefore had not shown that it had been deprived of the use of its information.

Irreparable Harm and Other Factors

The court found no established misuse of Maxim’s information. It stated that the record showed, at most, that a former employee may have copied confidential information, which the alleged contract allowed. There was no indication that Kunsky had used the information or threatened to use it. Maxim also had not provided sufficiently specific allegations about which information required protection by injunction. The court therefore held that Maxim had not shown irreparable harm.

Because Maxim had not shown irreparable harm and questions remained about whether Kunsky was bound by the consulting agreement or whether the agreement prohibited the alleged conduct, the balance of harms did not favor an injunction. The court also found that the public interest did not require an injunction while the parties’ rights and obligations remained unclear.

Disposition

The court denied Plaintiff’s Motion for a Temporary Restraining Order. The order states that, because the defendants had notice and an opportunity to respond, the motion was considered as a motion for a preliminary injunction under Rule 65(a). The court ordered that judgment be entered accordingly.