District Court Holds Non-Party in Contempt for Violating Preliminary Injunction

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In a recent decision out of the U.S. District Court for the District of Minnesota, a court ruled that a non-party to a lawsuit could be held in contempt for violating a preliminary injunction entered against the defendants in the lawsuit regarding, among other things, trade secrets such as customer lists and customer contacts.

In the case of Powerlift Door Consultants, Inc. v. Lynn Shepard et al., 0-21-cv-01316 (DMN 2021-09-20, Order) (Wilhelmina M. Wright), plaintiff Powerlift Door Consultants, Inc. (Powerlift) and defendant Lynn Shepard (Shepard), on behalf of Rearden Steel Manufacturing LLC (Rearden), had entered into a license and distribution agreement in 2014 for Rearden to market, sell and install Powerlift's hydraulic lift doors. By 2021, the relationship soured; Powerlift terminated the agreement and commenced an action against the defendants – Shepard, Rearden Steel Manufacturing LLC, Rearden Steel Inc. and ABC Corp. – for breach of contract and trademark infringement based on the defendants' improper post-termination use of Powerlift's trademarks and violation of their post-termination obligations not to compete against Powerlift. Specifically, in Article 9.C of the agreement, Shepard and Rearden acknowledged that they would receive "valuable training and Confidential Information that [they] otherwise would not receive or have access to" and had thus agreed to abide by the terms of a noncompetition covenant. The aforementioned "Confidential Information" included Powerlift's operations manual, sales techniques, installation procedures/processes and other knowledge concerning the methods of operation of Powerlift. The court granted Powerlift's motion for a preliminary injunction preventing Shephard, Rearden Steel Manufacturing LLC and Rearden Steel Inc. from using Powerlift's trademarks and ordering the defendants to comply with the post-termination non-compete obligations. Such obligations required the defendants to, among other things, provide Powerlift with their customer lists and copies of all customer contracts and warranties.

The defendants filed a notice of appeal to the U.S. Court of Appeals for the Eighth Circuit and moved to stay the injunction pending appeal. On that same day, Powerlift moved for an order holding the defendants and non-party PowerTek Doors LLC (PowerTek) in civil contempt for willfully refusing to comply with the injunction. In particular, the defendants and PowerTek allegedly continued to use the plaintiff's trademarks and had not complied with the non-compete obligations in the 2014 license and distribution agreement. The court denied the defendants' motion to stay the injunction, but granted Powerlift's motion for civil contempt and sanctioned not just the defendants, but also non-party PowerTek.

The court found that non-party PowerTek had a responsibility to comply with the injunction order because it was an entity created by the defendants: one is PowerTek's registered agent and shares an address with PowerTek, and another defendant was PowerTek's authorized representative. Therefore, since PowerTek had notice of the injunction order from the aforementioned defendants and since the injunction order was directed toward the defendants and their "agents, employees and persons acting in concert with them," the court held that PowerTek was also subject to sanctions.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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