Appdiff, Inc. v. Bonine

Background

Appdiff sued its former employees Jennifer L. Bonine, Richard W. Faulise, and Andrew W. Birkholz. The complaint alleged breach of contract, breach of the duty of loyalty, deceptive trade practices under Minnesota law, and aiding and abetting a breach of the duty of loyalty. Before working for Appdiff, the defendants had founded the artificial-intelligence company PinkLion, which they sold to Appdiff in March 2020.

Appdiff alleged that, after the sale, the defendants continued acting as though they owned PinkLion, entered contracts on its behalf, sought investment for a separate project while presenting PinkLion as if it had not been sold, and gave Birkholz unauthorized access to PinkLion servers. Appdiff also alleged that Bonine and Faulise failed to provide passwords and other access information after their employment ended.

Appdiff sought a temporary restraining order barring the defendants from representing themselves as connected with Appdiff or PinkLion, using or disclosing confidential information, accessing certain systems, and taking other specified actions. After status conferences, the court allowed the defendants to respond and treated the request as a motion for a preliminary injunction. The defendants agreed to stop associating themselves with the PinkLion name and stated that they were preserving four disputed accounts: Microsoft Office365 email accounts, Birkholz’s GitHub account, Bonine’s HubSpot account, and Birkholz’s personal Slack account.

Analysis

The court applied the four factors used for preliminary-injunction requests: the likelihood of success on the merits, the threat of irreparable harm, the balance between the parties’ harms, and the public interest. Irreparable harm means harm that cannot be adequately remedied with money damages. The court addressed that factor first because it is required for preliminary injunctive relief.

The court found that Appdiff had not adequately shown likely irreparable harm. First, the defendants had agreed not to associate themselves with PinkLion and were preserving the disputed account information; the court concluded that past conduct could be remedied with damages. Second, the record appeared to show that Appdiff’s customer base was secure, and Appdiff identified no specific lost business despite asserting that it could not communicate with potential clients. Third, the defendants stated that they had never accessed Appdiff’s trade-secret artificial-intelligence technology or source code, so the court found no demonstrated risk of unauthorized use or disclosure. Fourth, the court held that a contract clause stating that a violation would cause irreparable harm was only one consideration and, by itself, did not establish irreparable harm.

The court also stated that, because the defendants were no longer employed by Appdiff, Appdiff faced no prospective harm on its loyalty-duty and aiding-and-abetting claims based on duties that exist only during employment. The court did not decide the remaining preliminary-injunction factors.

Disposition

Chief Judge John R. Tunheim denied Appdiff’s motion for a temporary restraining order. The court also directed the parties to engage in an expedited discovery schedule, to be set by the Magistrate Judge, concerning ownership of the limited accounts that remained in dispute. The court stated that denying equitable relief did not eliminate the possibility of later damages liability and encouraged Appdiff to renew its request for injunctive relief if the defendants violated or tested the limits of their agreement not to associate themselves with PinkLion.