1 Judge William Downing IN THE SUPERIOR COURT FOR THE STATE OF WASHINGTON 8 IN AND FOR THE COUNTY OF KING 9 || PHYTALYTICS LLC D/B/A PHYTALAB, a Washington limited liability company; 20 || and ABATTIS BIOCEUTICALS CORP., 11 || @ British Columbia, Canada corporation; rr Plaintifs, NO. 14-2-30464-1 SEA FINDINGS OF FACT & CONCLUSIONS OF LAW FOR PRELIMINARY INJUNCTION 13 v. 14 || HERBAL ANALYTICS LLC, a Washington limited liability company; KALEB LUND, 15 || an individual; LAUREN HILTY, an 16 ||_ individual; JAMES BAXTER, an individual; ERIN LEARY, an individual; 17 || NICK BRUSATORE, an individual; AFFINOR GROWERS, INC., a Quebec, 18 || Canada corporation; and AFFINOR GROWERS, LLC, a Washington limited liability ao || company; 21 Defendants. 22 - in This matter came before the Court for hearing on the 16 day of 23 4 || Pecember, 2014 on Plaintiffs PhytaLytics LLC d/b/a PhytaLab (‘Phytal.ab") and 25 26 FINDINGS OF FACT & CONCLUSIONS HON, WILLIAM L. DOWNING OF LAW FOR PRELIMINARY King County Superior Court INJUNCTION - 1 Seattle, WA 9810410 u 12 13 4 16 Ww 18 19 20 Abattis Bioceuticals Corp.'s (‘Abattis") Motion for Preliminary Injunction and Expedited Discovery. The Court has considered: (1) PhytaLab and Abattis’ Motion for Preliminary Injunction and Expedited Discovery filed November 11, 2014; (2) The Declaration of Michelle Sexton in Support of PhytaLab and Abattis’ Motion for Preliminary Injunction and Expedited Discovery and attachments thereto filed November 11, 2014; (3) The Declaration of Michael Withrow in Support of PhytaLab and Abattis’ Motion for Preliminary Injunction and Expedited Discovery filed November 11, 2014; (4) The Declaration of Richard R. Beresford in Support of PhytaLab and Abattis’ Motion for Preliminary Injunction and Expedited Discovery filed November 11, 2014; (5) Defendants Herbal Analytic, James Baxter, Kaleb Lund, Lauren Hilty, and Erin Leary’s Emergency Response to Plaintiffs’ Motion for Temporary Restraining Order filed November 20, 2014 and submitted with the Declaration of James Baxter filed in United States District Court for the Western District of Washington under Case No. 14-cv-1651 on November 4, 2014 and submitted with the Declaration of Kaleb Lund filed in United States District Court for the Western District of Washington under Case No. 14-cv-1651 on November 4, 2014; (6) Defendant Affinor Growers, LLC's Opposition to Motion for Preliminary Injunction and Expedited Discovery filed November 20, 2014; FINDINGS OF FACT & CONCLUSIONS HON. WILLIAM L. DOWNING OF LAW FOR PRELIMINARY King County Superior Court INJUNCTION - 2 Seattle, WA 9810410 u 12 13 4 16 17 18 19 20 21 22 23 24 25 26 (7) Defendant Nick Brusatore’s Opposition to Plaintiffs’ Motion for Preliminary Injunction filed November 20, 2014; (8) Declaration of Nick Brusatore filed November 20, 2014; (9) Reply in Support of Motion for Preliminary Injunction and Expedited Discovery filed November 21, 2014; (10) Declaration of Timothy E. Steen filed November 21, 2014; (11) Memorandum in Opposition to Altering Bond filed December 5, 2014; (12) Declaration of Richard R. Beresford filed December 5, 2014; (13) Defendants Herbal Analytic, James Baxter, Kaleb Lund, Lauren Hilty and Erin Leary's Emergency Request for Increase in Bond filed December 5, 2014; (14) Order Continuing Plaintiffs’ Motion for Preliminary Injunction Hearing to December 16, 2014 and Extending Temporary Restraining Order filed December 5, 2014; (15) Defendants Herbal Analytic, James Baxter, Kaleb Lund, Lauren Hilty, and Erin Leary's Emergency Supplemental Response to Plaintiffs Motion for Preliminary Injunction and Expedited Discovery filed December 12, 2014; (16) Declaration of James Baxter in Support of Defendants Supplemental Response to Plaintiff Motion for Preliminary Injunction filed December 12, 2014; (17) Declaration of Kaleb Lund in Support of Defendants Supplemental Response to Plaintiffs Motion for Preliminary Injunction and Expidited [sic] Discovery filed December 12, 2014; (18) Declaration of Erin Leary in Support of Defendants Supplemental FINDINGS OF FACT & CONCLUSIONS HON. WILLIAM L. DOWNING OF LAW FOR PRELIMINARY King County Superior Court INJUNCTION - 3 Seattle, WA 9810410 n 12 13 uM 15 16 18 19 20 21 22 Response to Plaintiffs Motion for Preliminary Injunction and Expidited [sic] Discovery filed December 12, 2014; (19) Declaration of Ray Brooks in Support of Defendants Supplemental Response to Plaintiffs Motion for Preliminary Injunction and Expidited [sic] Discovery filed December 12, 2014; and (20) Supplemental Reply in Support of Motion for Preliminary Injunction and Expedited Discovery filed December 15, 2014. The Court, having considered the same and hearing oral argument from counsel and being otherwise fully advised finds as follows 1. FINDINGS OF FACT 1. PhytaLab is an herbal quality assurance testing facility in Kirkland, Washington, providing testing in compliance with the State of Washington's |- 502 regulations for quality control of cannabis and related products 2. Defendant Herbal Analytics, LLC (‘Herbal Analytics”) is a new, would-be, direct competitor of PhytaLab. 3. Defendants Kaleb Lund (‘Lund’) and Lauren Hilty (‘Hilty’) are former PhytaLab employees and continue to be members of PhytaLab and have been members of PhytaLab since on or about March 5, 2014. Both Lund and Hilty are currently employed by Defendant Herbal Analytics and are members thereof. 4, The cannabis-testing industry is a highly-regulated and highly- competitive industry involving various trade secrets, confidential information, and other proprietary documents and information relating to a facility or FINDINGS OF FACT & CONCLUSIONS HON. WILLIAM L. DOWNING OF LAW FOR PRELIMINARY King County Superior Court INJUNCTION - 4 Seattle, WA 9810410 ul 12 13 4 16 7 18 19 20 21 22 23 24 26 laboratory's procedures, processes, protocols, and methods for performing the testing. The information that a facility or laboratory discloses to the State of Washington when applying for approval pursuant the 1-502 regulations is particularly sensitive. Having access to the information used by an approved and successful laboratory significantly enhances a start-up facility's ability and likelihood of being able to compete in the marketplace and to entice customers away from existing facilities and laboratories. 5. PhytaLab has developed its own proprietary processes and procedures that have enabled it to achieve a favorable position in the field of quality-assurance testing. PhytaLab does not disclose this information to non- PhytaLab employees and the information is not in the public domain. 6. Throughout their employment with PhytaLab, Defendants Lund and Hilty were entrusted with access to confidential information about the testing procedures that have enabled PhytaLab to reach a position of market strength The proprietary information created and/or compiled by PhytaLab has shown independent economic value to PhytaLab by allowing PhytaLab to obtain state certification as an |-502 testing facility; perform quality, reliable testing; and earn fees for this work. Competitors, if allowed access, could potentially use this information to more quickly obtain certification by Washington State or other states as a testing laboratory, encroaching upon PhytaLab's business and earning profits that they would not otherwise achieve. 7. Inthe summer of 2014, Lund and Hilty decided to resign from their positions at PhytaLab and, in conjunction with Defendants Baxter and FINDINGS OF FACT & CONCLUSIONS HON. WILLIAM L. DOWNING ‘OF LAW FOR PRELIMINARY King County Superior Court INJUNCTION - 5 ‘Seattle, WA 9810410 ul 12 13 4 15 16 Wa 18, 19 20 21 23 24 26 Brusatore, form Herbal Analytics, a competitor. On August 22, 2014, Lund downloaded onto his personal laptop a copy of PhytaLab’s computer records, including PhytaLab's |-502 application materials. PhytaLab's |-502 application materials contain that company’s proprietary information and trade secrets, including but not limited to the Standard Operating Procedures (SOPs) and Quality Assurance Plan of PhytaLab. Lund formally resigned on September 1, 2014, effective October 1, 2014. Hilty resigned on September 10, 2014, effective 30 days later. Lund and Hilty continue to be members of PhytaLab. 8 Following Defendants Lund and Hilty’s resignations, these defendants sought to access and utilize the PhytaLab information in order to facilitate Herbal Analytics own application to the State. 9. The Defendants’ removal and continued or threatened use of Plaintiffs’ confidential information and trade secrets has or is likely to cause actual, substantial, and irreparable harm to Plaintiffs. i CONCLUSIONS OF LAW 1. This Court has jurisdiction over the primary parties (although the Court notes that Affinor Growers, Inc. is a Canadian corporation that has not yet been served). 2. Venue is proper in this Court. 3. For purposes of the current Motion, the Court is not persuaded that Washington law does not govern and, therefore, it is being applied 4, The individual Defendants who worked at PhytaLab had and have a FINDINGS OF FACT & CONCLUSIONS HON. WILLIAM L. DOWNING OF LAW FOR PRELIMINARY King County Superior Court INJUNCTION - 6 Seattle, WA 9810410 ul 12 13 4 15 16 cc 18. 19 20 21 22 23 24 25 26 duty to refrain from using confidential PhytaLab information and documents for the benefit of any entity other than PhytaLab, PhytaLab and Abattis are likely to demonstrate at trial that these individual Defendants breached this obligation by using PhytaLab's trade secrets and confidential information and documents, although the extent and value of such use is disputed and yet to be determined 5. PhytaLab’s confidential information and documents used for making application for |-502 accreditation constitute protectable trade secrets under RCW 19.108.010. The information has independent economic value and would allow a party to shorten the time required for earning certification to become a testing laboratory. The information is not generally known by the public and is not in the public domain. PhytaLab takes reasonable steps to protect it. Plaintiffs are likely to demonstrate at trial that these Defendants’ misappropriated PhytaLab's trade secrets when Lund accessed PhytaLab's confidential information and documents to be used in the Defendants’ own application for |-502 accreditation 6. Plaintiffs are likely to demonstrate at trial that Lund and Hilty have willfully breached their fiduciary duty of loyalty and care to PhytaLab as former manager and employees and materially breached their obligations to Abattis under the Consulting Agreement by attempting to gain unauthorized access to PhytaLab’s confidential information and documents for the sole purpose of establishing a competing business 7. Imorder to prevent the substantial and irreparable injury that would likely result to PhytaLab and Abattis from further breaches of statutory and FINDINGS OF FACT & CONCLUSIONS HON. WILLIAM L. DOWNING OF LAW FOR PRELIMINARY King County Superior Court INJUNCTION - 7 Seattle, WA 9810410 n 12 13 uM 16 16 17 18 19 20 21 22. 23 2A 26 common law obligations by these defendants or others acting in concert with them, a preliminary injunction will issue. Given that all defendants have represented they do not intend to use the materials at issue, the restriction is minimal and the equities clearly favor its imposition Ill PRELIMINARY INJUNCTION A. Defendant Lund, Hilty, Herbal Analytics, LLC, Affinor Growers, LLC, Baxter, Brusatore, Leary and anyone working in concert with some or all of them (collectively "Injunction Defendants’), are hereby enjoined as follows: 4. Injunction Defendants shall cease and desist from any and all use of PhytaLab’s trade secrets and confidential information and documents obtained from PhytaLab, including but not limited to, all materials contained in PhytaLab’s |-502 application which in turn includes but is not limited to SOPs and the Quality Assurance Pian. 2, Injunction Defendants are restrained from copying, transferring, using or disclosing to any other person or entity any documentation taken from PhytaLab and must either return it to PhytaLab or preserve it intact. If the materials are not immediately returned, a log shall be provided that details what documentation is being retained. 3, Injunction Defendants shall retain and preserve all existing documents and files, including electronic files and email messages, that mention, refer to, or are derived from PhytaLab, PhytaLab and Abattis’ customers, or PhytaLab and Abattis’ prospective customers. FINDINGS OF FACT & CONCLUSIONS HON. WILLIAM L. DOWNING OF LAW FOR PRELIMINARY King County Superior Court INJUNCTION - 8 ‘Seattle, WA 981044. The Court denies any request to impose a restriction on competition but does direct that Defendant Herbal Analytics shall keep a detailed, complete, and accurate accounting of its business operations. B. The $5,000.00 bond that Plaintiffs posted after issuance of the Temporary Restraining Order shall remain posted with the Court as a condition of the issuance of this Preliminary Injunction and is a reasonable amount to account for any damages that the Injunction Defendants could reasonably suffer should it later be determined the Injunction Defendants were wrongfully enjoined. C. This Preliminary Injunction is issued on December 16, 2014. This Preliminary Injunction shall remain in effect pending a trial on the merits in this action DONE IN OPEN COURT this 23" day of December 2014. DA\ L Q Judge Wiliam Bowring FINDINGS OF FACT & CONCLUSIONS HON. WILLIAM L. DOWNING OF LAW FOR PRELIMINARY King County Superior Court INJUNCTION - 9 Seattle, WA 98104