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What’s Illegal if a Manager and Staff Switch Teams and Win Over Customers? This NC Case Has Insights

A North Carolina case involving Foundation Building Materials (FBM) and ex-employees who started a rival store provides useful standards for determining when those former workers are stealing trade secrets—including what constitutes such a secret.

FBM, one of the nation’s biggest and fastest-growing drywall distribution dealers, sued Jeremy Chavis and the dealer he joined, Conking & Calabrese, after Chavis and many of the employees in FBM’s Charlotte, NC, branch left to start a Conking & Calabrese branch in the same city. Up to that time, Conking & Calabrese had just one store, located in New York State. While the case was being litigated, FBM was seeking a preliminary injunction to block Conking employees from using what they learned while at Beacon.

The court concluded that most of what Chavis and Conking could have taken from FBM wasn’t a trade secret or that FBM couldn’t prove Chavis and two other ex-FBM employees actually transferred the information to Conking. On the other hand, Superior Court Judge Julianna Theall Earp did see potential damage in one defendant’s e-mailing of a price sheet from an FBM vendor showing that vendor’s discount to the dealer. The judge barred Conking from using or disclosing FBM’s vendor rate arrangement with an unnamed vendor. All other claims of misappropriation failed.

FBM’s Charlotte branch had been part of Beacon’s interior products division before FBM acquired that division in February 2021, according to a public version of the decision. Chavis became branch manager of FBM’s new “Branch 314” and oversaw about 20 workers.

On May 19, 2023, Chavis resigned from FBM and joined Conking’s new Southeast division as VP of the Southeast Region. That same day, 14 of FBM’s Branch 314 employees left to join Conking. Soon after, three others did the same.

Neither. Chavis nor the others were under non-compete or non-solicitation agreements, but they did sign a code of conduct that prohibits disclosure of confidential information. According to the court ruling, much of that information is stored in FBM’s “Rainmaker” customer relationship management software, a business intelligence tool called “Power BI,” and FBM’s human resources management systems and computer operating system. All those are protected by passwords, have limits to who can see the information, contain prohibitions against non-branch employees getting access, and also feature print controls and prohibitions on the downloading of information via USB drivers.

FBM claims Chavis and two other employees who left gave Conking several categories of what it regards as confidential information:

  • Customer, vendor, and referral source information;

  • Customer credit information, including current and historical pricing data;

  • Vendor rebates and discounts;

  • Market share and buying strategies;

  • Quotation processes; and

  • Personnel files, salaries, incentives, and other compensation information.

Robert Henshaw, FBM’s district manager for the Carolinas, attached in his affidavit some examples of this information that reached Conking, the court said. He also showed e-mails from the defendants suggesting some FBM information was transferred.

However, for most categories, “Plaintiff provides only Henshaw’s affidavit stating that he ‘reasonably believes’ the information was misappropriated,” the court said. “In support of his belief, Henshaw avers only that Chavis [and two other ex-employees] had access to, created, and regularly used the information in their daily work for FBM. Plaintiff concludes that the fact that some FBM customers have moved portions of their business to Conking necessarily means that Conking is using FBM’s trade secrets.”

But Chavis and the other defendants argued what they shared with Conking “is publicly available ‘street knowledge’ and does not constitute even confidential information, much less trade secret information,” the court said. As for the shift of customers, the defendants said those change were the result of relationships Chavis and others formed with their customers.

The court also said FBM failed to prove one of the defendants, former Assistant Branch Manager Ron Greene, used company time to create an Outlook contact list in which most of the names were FBM customers or vendors.

In general, the court said, FBM must be able to identify its trade secrets “with sufficient particularity” so a defendant and the court can know what the defendant is accused of misappropriating. After that, FBM needs to present “substantial evidence” that the person accused of taking a trade secret knows he did so and had an opportunity to acquire it without the owner’s approval.

“While the Court recognizes that much of the information presented by FBM appears to be confidential and is undoubtedly important to its operations, the Court is not persuaded, based on this limited record, that all of the information at issue constitutes trade secrets, “ the court wrote. “Likewise, this Court determines that in some instances FBM has failed to present substantial evidence that particular information was misappropriated.”

The court found that Greene’s Outlook list wasn’t a trade secret. It did see value in FBM’s Power BI tool, which ranks revenue and profitability for Branch 314’s top 55 customers. It also regarded as important FBM’s Rainmaker CRM system, which has info on all jobs Branch 314 bid on, as well as key financial information related to each job. Access to both was restricted to only a few employees.

“However, there is no evidence that either of the compilations FBM references has been sent digitally or in hard copy to Conking,” the court declared. FBM may argue that Chavis knew what was in those files, but that’s not enough to claim he actually misappropriated the information. FBM only speculated that Chavis was using Power BI and Rainmaker info to benefit Conking, and there’s no evidence that he used that information when approaching FBM’s customers with hopes they’d switch to Conking.

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