ACI Chemicals, Inc. v. Metaplex, Inc.

• Decision Date: 18 March 1993
• Docket Number: No. 89-CA-0413,89-CA-0413
• Citation: 615 So.2d 1192
• Parties: ACI CHEMICALS, INC., Harvey E. Patterson and Doris Patterson v. METAPLEX, INC., its Officers, Directors, and Stockholders, Howard Keith Settles, Andrew J. Hamilton, David A. Needham, June Depriest, James Smith, William Thompson, Kathleen M. Thompson, and Otto Rosenkranz.
• Court: Mississippi Supreme Court

Page 1192

615 So.2d 1192

ACI CHEMICALS, INC., Harvey E. Patterson and Doris Patterson v. METAPLEX, INC., its Officers, Directors, and Stockholders, Howard Keith Settles, Andrew J. Hamilton, David A. Needham, June Depriest, James Smith, William Thompson, Kathleen M.

Thompson, and Otto Rosenkranz.

No. 89-CA-0413.

Supreme Court of Mississippi.

March 18, 1993.

Stephen L. Beach, III, T.E. Davidson, Jackson, for appellants.

John H. Fox, III, Fox & Earwood, Jackson, for appellees.

Before HAWKINS, P.J., and PITTMAN and BANKS, JJ.

PITTMAN, Justice, for the Court:

On February 6, 1986, ACI Chemicals, Inc., a Texas Corporation (hereinafter ACI), filed a complaint for injunction and damages against Metaplex, Inc., a Mississippi Corporation, and Howard Keith Settles and Andrew J. Hamilton, residents of Hinds County, Mississippi. ACI alleged that the defendants obtained trade secrets and used them in their business to the financial injury of ACI, that the defendants wilfully interfered with ACI's business and contractual relationships with its customers, that Settles and Hamilton breached their fiduciary duty to ACI, and that Settles and Hamilton maliciously made false statements to ACI's customers regarding their products. The defendants filed an answer and counterclaim alleging that ACI through the acts of Harvey E. Patterson and Doris Patterson brought suit wilfully and maliciously for the purpose of defaming the defendants and destroying their business. The chancellor concluded that the defendants (hereinafter Metaplex) were entitled to nominal damages in the amount of $100, punitive damages in the amount of $44,965.76, and attorney's fees in the amount of $44,965.76.

ACI appealed the chancellor's decision to this Court with supersedeas in the amount of $112,539.40. Finding no reversible error with respect to the punitive damages award and the award of attorney's fees, this court affirms those awards. The award of nominal damages, however, is reversed and rendered.

I.

After graduating from college in 1948 with a degree in chemistry, Harvey Patterson went to work for Dow Chemical Company. In 1950, he changed jobs and went to work for American Chemical Paint Company which is now Am-Chem Products. Patterson was laid off in 1975. Although he signed a non-competition agreement with Am-Chem, it was not enforced and within 90 days of his termination, Patterson had formed his own company, ACI Chemicals, and was selling products in competition with Am-Chem. In fact, his first customer was a former Am-Chem customer.

Shortly after graduating from college, Keith Settles also took a job with Am-Chem Products as a salesman in 1973. For a time, Patterson was Settles' regional manager at Am-Chem. Settles left Am-Chem in 1978 to work for ACI, and he was able to take several Am-Chem customers with him.

In 1983, Patterson hired Andrew Hamilton as a chemist. Hamilton was a research chemist for Am-Chem from 1967 to 1980. According to Settles and David Haynes, a former salesman for ACI, Patterson hired Hamilton to get the Inland Steel account, later known as the Van Leer account. Patterson, however, testified that the only reason he hired Hamilton was because he was a good chemist.

In May of 1985, Settles received a non-competition contract in the mail from Patterson. According to Settles, Patterson promised him that he would not have to sign a non-competition contract when he left Am-Chem to come work for ACI. Settles refused to sign the contract. On July 5, 1985, Patterson came to Jackson, Mississippi, to discuss the matter with Settles. Settles still refused to sign the contract and his employment was terminated. Patterson took away Settles' company car and all company documents. Settles signed a document stating that he had returned all company documents in his possession.

As a result, Settles decided to go into business for himself, and he formed Metaplex which was incorporated in July of 1985. Stock was issued and Metaplex commenced operation in September of 1985.

Hamilton, as well as all other ACI employees, was also presented with a non-competition agreement. He refused to sign the contract, and he quit on September 15, 1985. Approximately ten days later, Hamilton went to work for Metaplex.

Both Metaplex and ACI are in the business of developing, mixing, and selling chemicals used to clean metal prior to painting. Metaplex made its first shipment in October of 1985. Several of ACI's customers started doing business with Metaplex. Patterson filed suit against Metaplex, Settles and Hamilton. Metaplex filed a counterclaim. Upon trial, the lower court awarded Metaplex damages totaling $90,031.52. ACI appealed the lower court's decision to this Court.

II.

ACI contends that the action of the lower court in dismissing its complaint was contrary to the applicable law and contrary to the overwhelming weight of the evidence. Count I of ACI's Amended Complaint alleges misappropriation of proprietary information and trade secrets. ACI contends that Settles and Hamilton acquired trade secrets such as chemical formulas while in the employ of ACI and are now using those secrets to the detriment of ACI.

In the case at hand, Settles and Hamilton refused to sign a non-competition agreement. Thus, they could compete with ACI as long as they did not use any trade secrets belonging to ACI.

Absent a covenant not to compete, it is not wrongful for an employee to terminate his employment and accept a position with a competitor, unless, of course, the latter lures him away for the purpose of acquiring a trade secret....

An employee, upon the termination of his employment, is free to draw upon his general knowledge, experience, memory and skill, howsoever gained, provided he does not use, disclose or impinge upon any of the secret processes or business secrets of his former employer. This rather piously oversimplified principle is much easier to state than to apply.

2 Callman, Unfair Competition, Trademarks and Monopolies Sec. 14.24 (4th ed. 1982) (footnotes omitted).

ACI asserts that Metaplex's formulas are essentially the same as those used by ACI, and as a result, they constitute trade secrets. In Cataphote Corporation v. Hudson, 422 F.2d 1290 (5th Cir.1970), the Fifth Circuit distinguished trade secrets from patents.

Consideration of the trial court's language requires comparison of trade secrets and patents and the requirements of each.

A trade secret may consist of any formula, pattern, device or compilation of information which is used in one's business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it. It may be a formula for a chemical compound, a process of manufacturing, treating or preserving materials, a pattern for a machine or other device, or a list of customers. * * * A trade secret is a process or device for continuous use in the operation of the business. Generally it relates to the formula for the production of an article. It may, however, relate to the sale of goods or to other operations in the business, such as a code for determining discounts, rebates or other concessions in a price list or catalogue, or a list of specialized customers, or a method of bookkeeping or other office management.

Water Services, Inc., v. Tesco Chemicals, Inc., 410 F.2d 163, 171 (5th Cir.1969), quoting from Restatement of Torts (1939) Sec. 757, Comment b, p. 5.... Protection of trade secrets is a form of protection against use by others, focusing upon inequitable use by another--by breach of contract not to reveal, or abuse of confidence, or impropriety in obtaining the secret. Restatement, supra, Sec. 757, Comment a, p. 4; Developments--Competitive Torts, 77 Harv.Law Rev. 888, 948 (1964).... The trade secret is protected only so long as competitors fail to duplicate it by legitimate, independent research. Water Services, Inc., supra. The trade secret is protected by being kept secret....

The subject matter of a trade secret must be secret. An item or process of public or general knowledge in an industry cannot be appropriated by one as his own secret.

... Its protection is not based on a policy of rewarding or otherwise encouraging the development of secret processes or devices. The protection is merely against breach of faith and reprehensible means of learning another's secret.

Cataphote, 422 F.2d at 1293-94 (footnote omitted). ¹

Hamilton was called as an adverse witness, and he testified extensively as to the chemical formulations used by ACI and Metaplex. According to Hamilton, the products used by ACI are basically the same as those used by Am-Chem and Metaplex. Hamilton testified that several of ACI's and Metaplex's formulas were similar if not almost identical. They are also similar and almost identical to the products sold by Am-Chem. Most of the formulas at issue contained the same components, but slightly different percentages of the components were used in the products.

Hamilton contended that the basic formulas for the products sold by ACI, Metaplex and Am-Chem are known throughout the industry. This testimony was corroborated by Percy A. Satoris, president of Bulk Chemicals. Satoris was also employed by Am-Chem at one time. He left the company to start his own chemical company to compete with Am-Chem. Satoris testified that he and Patterson consulted each other regarding chemical formulations. Although they had comparable products, they would refer to a formula in terms of its Am-Chem name because that was the "common denominator" between them. Satoris further testified as follows:

A: Well, as I stated earlier, since not only Mr. Patterson and myself, but there were--and I don't know how many are right at the moment, but there are approximately six or seven small chemical companies, such as ourselves, that were founded by ex-Am-Chem personnel.... And, naturally, we not only somewhat had a working knowledge of what was in the products and who was using them ......