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Activengage, Inc. v. Smith

United States District Court, M.D. Florida, Orlando Division

November 4, 2019

TODD L. SMITH, Defendant.



         This matter is before the Court on Plaintiff ActivEngage's Verified Motion for Preliminary Injunction (Doc. 9 ("Motion")); Defendant Todd L. Smith's response in opposition (Doc. 27); and Plaintiffs reply (Doc. 32). The Court held a hearing on the matter. (Doc. 34.) On review, the Motion is denied.

         I. Background

         Ted Rubin ("Rubin") and Defendant Todd L. Smith ("Smith") co-founded ActivEngage in 2007, a company which provides messaging services, including live call, email, chat, texting, and advertisement services to car dealerships throughout North America. (Doc. 15-1, ¶¶ 3, 4; Doc. 28-1, ¶¶ 3, 19, 26.) For a while, their partnership was a good match. A rarity in the world of start-ups, ActivEngage not only survived but grew; managing an average of 10, 000 dealership chats per day by 2011. (Doc. 28-1, ¶ 22.) And any tension between the co-founders over who controlled the company-Rubin and Smith had the same percentage of shares, but Rubin's family owned the other third-was put aside to work together for over a decade. (Id. ¶¶ 23, 24, 31.) Rubin is the President, and Smith served as the CEO from 2007 until November 26, 2018. (Doc. 15-1, ¶¶ 2, 5; Doc. 28-1, ¶¶ 3, 25, p. 267.)

         Starting in 2015, however, cracks began to show. Perhaps the first major warning sign was when Smith created his own company, 36OConverge, a holding company for "new technological ideas." (Doc. 28-1, ¶¶ 29, 31.) But Smith insists he always presented ideas that could be of value to ActivEngage first. (Id. ¶ 31.) One such idea came in early 2018 when Smith began working on a new product, ActivProspect. (Id. ¶¶ 37-38.) As he conceptualized it, ActivProspect would be a "lead enhancement" product for dealerships. (Id. ¶¶ 32-36.)

         Smith made some progress on ActivProspect during his time at ActivEngage. Smith met with a representative from Clarivoy, a company that could provide enhanced data for ActivEngage leads (id. ¶¶ 37, 39), but this partnership ended after failed test runs and Clarivoy's refusal to commit funds to developing ActivProspect. (Id. ¶¶ 58, 59; Doc. 29-1, pp. 22:21-25, 24:4-7.) Smith also met with TEEPS, an application development company, and provided TEEPS with examples of mobile applications in the market as models for ActivProspect's layout. (Doc. 28-1, ¶¶ 41, 44-46; Doc. 28-6, ¶¶ 3, 5.) ActivEngage hired TEEPS to develop ActivProspect into a mobile application, with a retainer of $10, 000 per month. (Doc. 15-1, ¶¶ 22, 27.) TEEPS created a timeline, estimate of costs, and mockups for ActivProspect. (Id. ¶ 24, pp. 14-21.) And then the cracks got wider. Smith terminated TEEPS's contract in August 2018. (Doc. 28-1, ¶ 69.) This, he claims, was at the direction of Rubin. (Id.) Rubin says Smith acted unilaterally. (Doc. 15- 1, ¶¶ 30, 31; Doc. 26, pp. 131:23-132:10.) TEEPS did not write code or develop software for ActivProspect. (Doc. 28-6, ¶ 8.)

         Smith continued to push for ActivProspect. Externally, he met with people outside ActivEngage to pitch ActivProspect. (Doc. 28-1, ¶¶ 51-52, 54.) Smith never required anyone to sign non-disclosure agreements at these meetings, but explains agreements weren't necessary since the concept was already in the market. (Id.) Internally, ActivEngage's marketing department prepared presentations for ActivProspect (Doc. 15-1, ¶ 21), and the Chief Financial Officer, David Zinn ("Zinn"), created a revenue model from discussions with Smith (Doc. 15-7, ¶¶ 2-11). In July 2018, Smith asked ActivEngage graphic designer, Alan Parker ("Parker"), to improve mockups for ActivProspect that TEEPS created. (Doc. 15-3, ¶ 5; Doc. 28-1, ¶ 56.) Parker also created video animation presentations and an investor deck for ActivProspect. (Doc. 15-3, ¶¶ 7-9.)

         At this point, the co-founders' relationship began to crumble. In August 2018, Smith alleges, Rubin instructed the ActivEngage executive team to stop working on ActivProspect. (Doc. 28-1, ¶ 69.) To Smith, this was the wrong decision. ActivEngage needed to grow as competitors were entering the market. (See Id. ¶¶ 36, 69, 70.) Smith told Michael Third ("Third"), the Vice President of Technology and Development, that ActivEngage did not have the funding or resources to keep working on ActivProspect. (Doc. 29-1, pp. 6:4-5, 18:7-18.) So Smith directed Parker to stop working on ActivProspect but paid Parker to re-brand the ActivProspect mockups with a new name-360Prospect (Doc. 15-3, ¶¶ 11, 12.) Smith paid Parker on the side, outside his employment with ActivEngage. (Id. ¶ 13, 14.) This re-branded work was never presented to an outside investor or dealership. (Doc. 28-1, ¶ 71.)

         Rubin and Smith's relationship finally collapsed as they adamantly disagreed over the future direction of the company, with Smith advocating for investing in new technology, like ActivProspect, and Rubin pushing to expand ActivEngage's existing chatservice. (Id. ¶¶ 62-65, 72.) Smith began working from home, feeling thathis opinions no longer had any value at ActivEngage. (Id. ¶ 64.) An October 2018 meeting with the investors was the final blow. The consensus at the investors meeting was to sell the company quickly and not invest in any new technology. (Id. ¶ 73; Doc. 26-2; see also Doc. 28-7, p. 24:3-19.) The meeting minutes state, "November we will go dark in creating anything new." (Doc. 26-2, p. 4.) Unwilling to give up, Smith made last minute calls to Rubin and Rubin's cousin (an ActivEngage board member), Clifford Stein ("Stein"), urging them to reconsider. (Doc. 28-1, ¶¶ 74, 75.)

         Shortly after, on November 12, 2018, Stein told Smith he was off the ActivEngage payroll but could work as an independent contractor to the company and build technology outside ActivEngage. (Id. ¶ 74; Doc. 28-7, pp. 11:5-6, 58:6-21.) Smith responded that he didn't have a non-competition agreement, which Stein acknowledged. (Doc. 28-1, ¶ 74.) Two weeks later, Smith was unceremoniously terminated. (Doc. 15-1, ¶ 36; Doc. 28-1, ¶ 75.) After his termination, ActivEngage sent Smith a proposed separation agreement with non-competition clauses that Smith never signed. (Doc. 28-1, ¶ 76.) Smith resigned from the Board but continues to hold a third of the stock. (Doc. 15-1, ¶¶ 38-40.) After his termination, as ActivEngage told him he could, Smith began developing new technology. (See Doc. 28-1, ¶ 74; Doc. 28-7, pp. 11:5-6, 58:6-21.) Smith worked on a customer relationship management platform (”CRM")[1]for his company, 36OConverge. (Doc. 28-1, ¶¶ 2, 78.) Rubin discovered that Smith was planning to release a product similar to ActivProspect in December 2018. (Doc. 15-1, ¶ 37.) Smith challenges the similarity to ActivProspect claiming his product does not handle any lead generation. (Doc. 28-1, ¶ 79.)

         On January 23, 2019, ActivEngage sued Smith in state court. (Doc. 2-4, p. 2.) ActivEngage moved for preliminary injunction on February 19, 2019. (Id.) After ActivEngage amended its complaint (see Doc. 2-1), Smith removed the action here (Doc. 2). ActivEngage is suing for breach of fiduciary duty and violations of the Florida Uniform Trade Secrets Act ("FUTSA") and the Defend Trade Secrets Act ("DTSA"). (Doc. 2-1.) Around the time this case was removed, in August 2019, Rubin and Carol Marshall ("Marshall"), ActivEngage's Vice President of Operations, attended the Digital Dealer Conference. (Doc. 15-1, ¶¶ 41-43.) 36OConverge presented at this conference, and Marshall took photographs of mockups that greatly resemble ActivProspect's mockups. (Id. ¶¶ 41-43, pp. 23-31.) On September 13, 2019, Zinn attended the Venture Central Florida Investor Showcase where 36OConverge discussed a revenue model with a "noticeable resemblance to the ActivProspect revenue model." (Doc. 15-7, ¶¶ 14-25.) Now ActivEngage moves for a preliminary injunction to enjoin Smith from pursuing 36OProspect, which ActivEngage alleges comes from the misappropriation of ActivProspect. (Doc. 9.) With Smith's response (Doc. 27) and ActivEngage's reply (Doc. 32), the Motion is ripe.

         II. Legal Standards

         A district court may issue a preliminary injunction when the movant shows: (1) a substantial likelihood of success on the merits; (2) that irreparable injury will be suffered unless the injunction issues; (3) the threatened injury to the movant outweighs whatever damage the proposed injunction may cause the opposing party; and (4) if issued, the injunction would not be adverse to the public interest. See Four Seasons Hotels & Resorts, B.V. v. Consorcio Barr, S.A.,320 F.3d 1205, 1210 (11thCir. 2003). Preliminary injunctions are "drastic" and "extraordinary" remedies, not to be issued unless the movant has ...

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