Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

WIHC LLC v. Nextgen Laboratories, Inc.

United States District Court, D. Hawaii

September 17, 2018

WHIC LLC dba ALOHA TOXICOLOGY, Plaintiff,
v.
NEXTGEN LABORATORIES, INC.; OHANA GENETICS, INC.; HEIDI MAKI; STEPHANIE SIMBULAN; and DOE DEFENDANTS 1-20, Defendants.

          ORDER GRANTING PRELIMINARY INJUNCTION

          J. Michael Seabright Chief United States District Judge

         I. INTRODUCTION

         Plaintiff WHIC LLC dba Aloha Toxicology (“Plaintiff” or “Aloha Toxicology”) brings a Motion for Preliminary Injunction (the “Motion”), seeking to prevent Defendants NextGen Laboratories, Inc. (“NextGen”), Ohana Genetics, Inc. (“Ohana”), [1] Heidi Maki (“Maki”), and Stephanie Simbulan (“Simbulan”)

         (collectively, “Defendants”) from: servicing former Aloha Toxicology clients; employing former Aloha Toxicology employees; possessing, using, or disclosing Aloha Toxicology's “confidential/proprietary/trade secret information”; and unfairly competing with Aloha Toxicology. ECF No. 10 at 2-3. Further, the Motion asks this court to order Defendants to: (1) produce their client and employee lists for in camera review to assist the court in carrying out the preliminary injunction; and (2) account for and return Aloha Toxicology “confidential/proprietary/trade secret information.” Id.

         For the following reasons, the court GRANTS a preliminary injunction, and the Motion is GRANTED with relief limited as described below. Defendants are hereby ordered to comply with the preliminary injunction as follows:

• By October 5, 2018, Ohana/NextGen must discontinue servicing all former Aloha Toxicology clients (who were clients of Aloha Toxicology as of June 1, 2018).[2]
• Defendants shall send a notification by September 20, 2018 to any former Aloha Toxicology client (who was a client of Aloha Toxicology as of June 1, 2018) that is now serviced by Ohana/NextGen. The notification shall state that Ohana/NextGen may continue servicing these clients only until October 5, 2018. A copy of this Order shall be included with the notification.
• Defendants shall send a copy of this Order by September 20, 2018 to any former Aloha Toxicology employee (who was employed by Aloha Toxicology as of June 1, 2018) who is now working at Ohana/NextGen.
• Defendants shall not utilize misappropriated trade secrets in any way, including to solicit any Aloha Toxicology client or employee (who was a client or employee of Aloha Toxicology as of June 1, 2018).
• Defendants shall discontinue and refrain from making any false statements about Aloha Toxicology, such as that Aloha Toxicology lost its certification, is shutting down, or was bought out by Ohana/NextGen.

         II. BACKGROUND

         A. Factual Background

         The court does not recite all facts and evidence presented during four days of testimony, but rather outlines those facts and evidence needed to place the issues and the court's ruling in context.

         Founded in 2006, Aloha Toxicology is a Hawaii business that provides drug testing services. Aloha Toxicology's collectors go to different client sites in Hawaii to collect urine samples and then deliver those samples to Aloha Toxicology's laboratory. The laboratory staff then tests the urine samples in a two-part process, a screening test followed by a confirmatory test using a mass spectrometer. The test results are then released to the clients.

         Around 2014, Summit Diagnostics contracted to provide sales services for Aloha Toxicology.[3] Maki was hired by Summit Diagnostics in April 2014 to help provide marketing services for several drug testing laboratories across the country. In early 2015, Summit Diagnostics assigned Maki to focus solely on growing sales at the Aloha Toxicology laboratory in Hawaii.[4] Maki's title at Aloha Toxicology was Sales and Operations Manager.

         Maki (and later Simbulan when she started working for Aloha Toxicology) were aware of the Aloha Toxicology Employee Handbook. The “Proprietary Information and Trade Secrets” section of the handbook provides:

The Company's policy is to protect its non-public business trade information property. Disclosure of confidential business trade information is in violation of the Company policy and may result in disciplinary action. To avoid inadvertent disclosure of confidential business trade information, you should not discuss confidential business trade matters where others may overhear. Information that the Company considers confidential business trade information includes, but is not limited to, the following:
• Non-public, internal operations methods and strategies and financial data and reports;
• Customer name lists;
• Customer personal information (including address, telephone number, email address, and medical/health related information);
• Vendor lists;
• Pricing lists;
• Sales figures and profit/loss data;
• Marketing goals or figures;
• Strategic business plans;
• The Company's sources of leads for or methods of obtaining new business;
• Any software or computer programs owned or licensed by or to the Company, its customers, or suppliers;
• Employee addresses or phone numbers not obtained during the normal course of work activity;
• Confidential business trade information does not generally include information about employees' wages, hours, or terms and conditions of employment except that confidential wage and salary information obtained by an employee who knowingly possesses special custody of such information as part of his or her job duties and is tasked with keeping such information confidential may not be disclosed by such an employee; and
• Employee social security numbers and personal health information.

Plaintiff s (“Pl.”) Ex. 19.

         To find clients, Maki conducted Google searches and reviewed the State of Hawaii's list of substance abuse treatment centers. Maki then reached out to these potential clients, asked to speak with their program directors, and built relationships with those directors over time. Maki built those relationships by making in-person visits, setting up educational opportunities for the clients (e.g., scheduling Aloha Toxicology's Lab Director to provide instruction), and explaining how test results worked. Maki obtained information from the clients about what type of testing they wanted, such as which types of drugs the client wanted tested for by Aloha Toxicology. Maki obtained a number of new clients, and as a result, there was a significant increase in the number of urine samples collected and tested. In addition, Maki hired most of the collectors and either set their salaries or knew the amount of their salaries.

         In mid-2017, Aloha Toxicology lost several members of its staff. At that point, Dr. Joe El-Khoury (“Dr. El-Khoury”), Aloha Toxicology's Lab Director from December 2015 to July 2018, had to take a more active role in the laboratory. Dr. El-Khoury, Co-Director of the Clinical Chemistry Laboratory at Yale University, was expected to work remotely, conducting in-person visits a few times a year. Ronald Li (“Li”), who had been a processor at the laboratory, began to take on more responsibilities, both as a result of obtaining his clinical laboratory personnel license from the State of Hawaii and because the laboratory was understaffed. However, while Li had received his license, he did not yet have sufficient skills and knowledge in using the mass spectrometer for confirmatory testing. After receiving his license, Li received some training in the confirmatory testing methods, but had not taken on the role of certifying scientist until Jennalyn Bishop (“Bishop”) unexpectedly left the laboratory in September 2017. When Bishop left, Li became the sole certifying scientist at Aloha Toxicology. While outside services were brought in to continue to train Li, he struggled to learn how to use the mass spectrometer.

         After recruitment by Maki, Simbulan began working at Aloha Toxicology in October 2017 as the Lab Coordinator. Simbulan's duties included the supervision of the day-to-day operations of the laboratory such as quality assurance, standard operating procedures, and compliance with audits.[5] Simbulan was also expected to help train Li in the use of the mass spectrometer, supervise Li, and report any issues to Dr. El-Khoury. According to Simbulan, the laboratory was in disarray when she started, and she spent the next few months trying to organize it.

         In December 2017, Simbulan received a call from Aloha Toxicology's accrediting body, the College of American Pathologists (“CAP”), in which she found out that CAP would be conducting an unscheduled inspection approximately one hour after the phone call.[6] The December 2017 unscheduled inspection was conducted because of a complaint lodged against Aloha Toxicology that was received by CAP. During the inspection, CAP found 22 deficiencies in the laboratory. Aloha Toxicology responded to CAP about each deficiency, as required, and worked to rectify the deficiencies. If Aloha Toxicology had not addressed the deficiencies to CAP, it could have lost its accreditation.

         Aloha Toxicology also failed a CAP proficiency test[7] conducted during the last quarter of 2017. The laboratory reviewed its testing procedures and submitted its review to CAP. And as a result, Dr. El-Khoury required the lab to implement weekly external quality control tests. Dr. El-Khoury then visited the laboratory in January 2018, and learned that Li (who was responsible for the failed proficiency test) was also manually changing the test results from the confirmatory test to match the screening test. Li was apparently admonished, but not terminated.

         Sometime in early 2018, Ohana/NextGen began recruiting Maki to work for their company. Ohana/NextGen was expanding its drug testing services into the Hawaii market and was a direct competitor of Aloha Toxicology. Dr. El-Khoury testified that Maki started to recruit him to work for another drug testing business (presumably Ohana/NextGen), also in early 2018. In March 2018, Maki signed a contract with Ohana/NextGen, which required her to work full-time for Ohana/NextGen.[8] She was paid a base salary of $150, 000 per year and 20% of the net profits from the business. At that time (and until June 26, 2018 when she resigned), Maki also continued her full-time position with Aloha Toxicology and was paid $100, 000 per year and 10% of the gross profits from the business.[9] In short, Maki was dual-employed by two competitors between March and late June 2018, receiving two full-time salaries. And Maki never informed the owners of Aloha Toxicology about her dual-employment.

         In April 2018, Maki emailed Dr. El-Khoury for advice on equipment purchases for Ohana/NextGen, which he provided. That same month, she also emailed Dr. El-Khoury an independent contractor agreement to work for Ohana/NextGen, which he never signed.[10]

         Simbulan testified that Maki began recruiting her to work for Ohana/NextGen in April 2018. In May 2018, Simbulan signed a full-time employment agreement with Ohana/NextGen, with a start date of May 15, 2018. Simbulan began receiving her $100, 000 annual salary from Ohana/NextGen, while simultaneously receiving her full-time salary of approximately $80, 000 or $85, 000 from Aloha Toxicology (until her June 29, 2018 resignation date). In short, Simbulan was dual-employed by two competitors between mid-May and June 26, 2018, receiving two full-time salaries. Like Maki, Simbulan never informed the owners of Aloha Toxicology about her dual-employment.

         Li and Andrealle Okamura (“Okamura”), the Lab Technician at Aloha Toxicology, testified that in March or April 2018, Maki called a meeting with Simbulan, Li, and Okamura. According to Li and Okamura, Maki stated that Simbulan was working on a research project for the owners of the company and would need to start working from home most of the time.[11] Between March or April 2018 and June 26, 2018, Simbulan conducted much of her work for both her employers from home.

         On June 6, 2018, CAP conducted its planned biannual accreditation inspection[12] and found seven deficiencies at Aloha Toxicology. The laboratory responded to six of the deficiencies and challenged one of the deficiencies, which CAP accepted. The lab had improved since the December 2017 unscheduled inspection, and its accreditation was renewed through 2020. In fact, Aloha Toxicology never lost its accreditation throughout the relevant time period.

         But on June 9, 2018, CAP informed Simbulan that Aloha Toxicology had failed its second quarter UDC proficiency test. Simbulan informed Dr. El-Khoury, who had to decide by July 1, 2018 how to respond to CAP, either by choosing to: (1) continue testing at the lab, but submit a comprehensive corrective action plan with supporting documentation to CAP; or (2) voluntarily cease testing.

         Dr. El-Khoury did not immediately reply to CAP, [13] but rather, on June 9, 2018, Dr. El-Khoury emailed Simbulan and Maki, instructing them that the laboratory must cease testing and send samples to Aloha Toxicology's reference lab, [14] Cordant, until an investigation was conducted.[15] Dr. El-Khoury testified, and Simbulan confirmed in her testimony, that Dr. El-Khoury was surprised by the failed proficiency test because the lab was supposed to be conducting weekly external quality control checks. Maki admitted in her testimony that (while dual-employed) instead of sending the samples to Cordant, she (after consultation with others) directed the laboratory staff, including Simbulan, to send the samples to Ohana/NextGen.[16]

         On June 18, 2018, Maki held a meeting with Simbulan, Li, and Okamura about the status of the laboratory. Maki testified that she told them that the laboratory would likely be shut down for six months and that it was in their best interest to look for other employment.[17] Okamura testified that Maki went further than this by stating that she was uncertain if the lab would ever continue testing again. Okamura also testified that Maki explained that they would be paid through the end of the month. Li testified that Maki said: (1) the owners wanted to shut the laboratory down; and (2) Li and Simbulan should resign to prevent anything from happening to their licenses. After the meeting, Simbulan and Li emailed their resignation letters to Maki, stating that their end dates were June 29, 2018.

         Maki testified that on June 18, 2018 she contacted or tried to contact all of Aloha Toxicology's clients to tell them that she was moving to Ohana/NextGen and she wanted the clients to come with her. On or around June 18, 2018, Maki also called various collectors about the status of the laboratory. Joshleen Baker, an Aloha Toxicology collector, testified by declaration that Maki called her and told her that: (1) Aloha Toxicology was under new ownership; (2) Aloha Toxicology owners were bought out by a new company; and (3) she would be working for the new company. Ohana/NextGen then sent a new-hire packet to Baker. Carrie Leaialoha and Kuhio Kapololu, also collectors for Aloha Toxicology, testified by declaration to having essentially the same experience with Maki.

         Dr. El-Khoury testified that on June 18, 2018, Maki told him that the owners of Aloha Toxicology wanted to shut down the lab. Dr. El-Khoury sent an email to Maki on June 21, 2018 asking her if she had written confirmation that the owners were shutting down the lab, so that he could decide whether to formally file the cease-testing notification with CAP. Pl.'s Ex. 28. Dr. El-Khoury never received written confirmation from Maki.

         Kiralee Ma-e (“Ma-e”), who works for a client of Aloha Toxicology, received an email on June 21, 2018 from Ohana/NextGen with log-in information to retrieve lab test results. Pl.'s Ex. 44. Ma-e testified that she was confused by the email, so she emailed Maki. See Id. Maki replied via email, “The short answer is Aloha Tox got purchased by another company and our name is changing to Ohana Laboratory's [sic].” Id. During her testimony, Maki admitted that this statement was false. Ma-e testified that she also spoke with Maki on the phone, and during the call Maki reiterated that Aloha Toxicology was being bought out by Ohana/NextGen.

         On June 22, 2018, according to Hlavachek, Maki told him on the phone that Simbulan's husband, who serves in the military, had taken a job transfer to Europe, so Simbulan would be leaving Aloha Toxicology.[18] Hlavachek testified that Maki then said that she was concerned that Li was probably going to resign, [19]and Hlavachek then replied that if Li did resign, the lab would have to send off its samples to Aloha Toxicology's reference lab, Cordant, for testing. Maki then emailed Hlavachek on June 25, 2018: “I informed the staff today of Stephanie's resignation, shortly after Ron resigned.” Pl.'s Ex. 30. Hlavachek testified that Maki called him on June 25, 2018 to tell him that Li had resigned.

         Dwayne Kojima, Substance Abuse Program Manager for the State of Hawaii's Department of Public Safety (“DPS”), testified that Maki called him on June 24, 2018. At that time, DPS was an Aloha Toxicology client. Kojima testified that Maki told him that: (1) Aloha Toxicology could not perform the confirmation testing for DPS; (2) Aloha Toxicology employees were leaving for another company; and (3) Maki could send him information about Ohana/NextGen, who could perform the confirmatory testing for DPS. Kojima testified that he asked to get clarification via email on what led to Aloha Toxicology's inability to conduct testing, but that Maki said she wanted to talk on the phone. According to Kojima, Maki then said (on the phone) that Aloha Toxicology lost its certification and rather than remedy the situation, the owners were going to shut down the laboratory.[20]

         On June 26, 2018, Maki resigned from her job at Aloha Toxicology by email, stating that she was leaving because Aloha Toxicology was no longer a viable business due to the failed CAP proficiency test, loss of “key lab personnel, ” and that the lab could not test samples. Pl.'s Ex. 30. On the same day, Dr. El-Khoury gave his 30-day notice of resignation by email. Defendant's Ex. 15. In his resignation, Dr. El-Khoury stated that the lab could resume testing once testing personnel demonstrate competency and successfully show CAP proficiency, as accepted by a new lab director. Id.

         Since that date, the owners of Aloha Toxicology and their agents reached out to Li and Okamura, told them the laboratory was not closing, and hired both of them back. They also reached out to their former clients and a few clients with smaller accounts have returned to Aloha Toxicology. They reached out to Dr. El-Khoury, who, when he found out the owners were not planning to shut down the laboratory, worked to help them get the laboratory back in order. And they hired Elite Diagnostics, a consulting company, who worked with Dr. El-Khoury to fix the testing problems and prepare the CAP documents. Dr. El-Khoury extended his resignation date in order to help the owners, and CAP extended its deadlines so that Aloha Toxicology could properly prepare responses to the UDC proficiency test failure, which were submitted on July 26, 2018.

         But Ohana/NextGen and Maki have continued their interference with Aloha Toxicology's business. Dr. El-Khoury testified that in early July, Maki asked if Dr. El-Khoury would send her the CAP Proficiency Testing Compliance Notice (the form he was supposed to send to CAP after the failure of the second quarter UDC proficiency test). He refused, saying that it was confidential information of Aloha Toxicology. On August 3, 2018, Erik Vargas of Ohana/NextGen sent out a marketing email stating, “Ohana Labs (formerly Aloha Toxicology) is hosting their annual dinner at Morton's.” Pl.'s Ex. 35 (emphasis added).

         Aloha Toxicology had 13 clients before Ohana/NextGen and Maki began taking its clients. A few clients with smaller accounts have returned to Aloha Toxicology. A few clients have gone with other competitors. Ohana/NextGen currently has six clients: Hina Mauka, Lokahi, Champ Clinic, Po‘ailani, Hope, Inc., and Mental Health Kokua. All of those clients were clients of Aloha Toxicology as of June 1, 2018.

         B. ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.