A.B. Chance Co. v. Schmidt

• Decision Date: 16 September 1986
• Docket Number: No. WD,WD
• Parties: A.B. CHANCE COMPANY, Respondent, v. Mark A. SCHMIDT, Appellant. 37545.
• Court: Missouri Court of Appeals

Page 854

719 S.W.2d 854

A.B. CHANCE COMPANY, Respondent, v. Mark A. SCHMIDT, Appellant.

No. WD 37545.

Missouri Court of Appeals,

Western District.

Sept. 16, 1986.

Motion for Rehearing and/or Transfer to Supreme Court Denied

Nov. 4, 1986.

Application to Transfer Denied Dec. 16, 1986.

Louis J. Leonatti, Ann P. Hagan, Seigfreid, Runge, Leonatti & Pohlmeyer, P.C., Mexico, for appellant.

Warren N. Williams, Schmidt, Johnson, Hovey & Williams, Paul D. Lamoree, Watson, Ess, Marshall & Enggas, Kansas City, James T. Ausmus, Ausmus, Ausmus, & Beck, Centralia, for respondent.

Before SHANGLER, P.J., and DIXON and LOWENSTEIN, JJ.

LOWENSTEIN, Judge.

As a former employee of the Chance Company (Chance) Schmidt appeals an injunction restraining him from divulging trade secrets of Chance. The parties agree that the order issued after hearing on the temporary injunction would be repeated for the permanent injunction and is final for purposes of appeal. Pomirko v. Sayad, 693 S.W.2d 323, 325 (Mo.App.1985). Rule 92.02.

The plaintiff, the A.B. Chance Company (Chance) of Centralia, makes epoxy resin rods and tubes reinforced with fiberglass. These "FRP" rods are manufactured by a special procedure and these products are designed primarily for use as tools for workmen in the handling of "hot" electrical wires. The plaintiff has developed this unique and complicated process called "pultrusion." Chance makes numerous other similar products utilizing pultrusion. Chance asserts much time and over a million dollars were spent to develop the process.

The defendant, a draftsman with 2 years of college, was employed by Chance for eleven years. Since 1980, he spent much time in the development, design and manufacture of the tubes and rods. Schmidt became familiar with the pultrusion process during his employment with Chance. After searching for a new job for some time, he resigned from Chance in early January 1985 to take a position with Hastings Fiber Glass Products, Inc. (Hastings) a competitor of Chance. Hastings, located in Michigan did not and still does not possess the process utilized by Chance. Chance instituted this suit to prevent Schmidt from divulging confidential information and trade secrets to Hastings. This opinion will not go into great detail on the pultrusion process which is highly technical in nature. Further, this court, as did the trial court, entered a protective order restricting access to this file and the evidence pertaining to the confidential pultrusion process. The development and production of tools using pultrusion was in a limited access portion of Chance's premises.

Mr. Schmidt, upon starting work in 1973 signed an agreement with Chance which is now set out:

(10) EMPLOYEE acknowledges that the COMPANY regards and treats information relating to its inventions, designs, processes, production techniques, testing procedures and internal affairs generally, for example but not by way of limitation, its drawings, specifications, formulations, test methods and data, cost data, customer and supplier lists and computer programs, unless and until disclosed to the public by the COMPANY in issued patents or otherwise, as confidential and proprietary information in the nature of trade secrets; and EMPLOYEE agrees that he will not, either during the term of his employment by the COMPANY or thereafter, directly or indirectly, use or reveal any of such confidential information of the COMPANY to any subsequent employer or other unauthorized person.

Chance brought this suit to restrain Schmidt from tortiously misappropriating confidential information and trade secrets he acquired at Chance, from breaching the above contract provision and from unfair competition.

Based on the following findings the circuit court enjoined Schmidt from engaging in the pultrusion of rods and poles until February 4, 1990.

Chance controls between 70% and 100% of the market for the products in question (hot line tools, ladders, conductor supports, pole and insulating devices made by the pultrusion process). Yearly sales of these products are in excess of $10 million. A walled off portion of Chance's plant is devoted to this production. Admittance to this area is restricted. Specifications, and production records as to these tools are confidentially maintained. Not only are the products unique, but the manufacture is quite different and highly complicated. Total research and development costs were in excess of $1.3 million. Chance obtained certain patents in 1965 and 1969 that do not disclose the pultrusion process. The Company had diligently sought to keep proprietary and confidential all the information it discovered. At most only one other company in the United States even comes close to duplicating the pultrusion process as developed by Chance. Schmidt's new employer Hastings is a direct competitor with Chance on sale of the tools and equipment in question. Hastings has a different method of production and makes a product with different qualities. The Chance method of pultrusion is more efficient and safer than Hastings "pre-preg" method.

Between 1980 and 1985 Schmidt became totally familiar with the pultrusion method during his employment with Chance. During this time period Schmidt was given unlimited access to the development of the pultrusion process. When he was job hunting in late 1984 he emphasized his knowledge and experience with the pultrusion process. Schmidt's resume was accompanied by a cover letter to prospective employers which stated he had, " ... considerable amount of experience in design of FRP products, processes and machinery. I feel that my qualifications could benefit your company with your present products, processes and in your research and development." His resume made numerous reference to his work on the design and development of seamless pultrusion lines and poles while with Chance. Hastings paid Schmidt more money than did Chance, and provided for additional compensation increments for his guaranteed three years of contract tenure. The three year employment contract resulted from Schmidt's insistence. Hastings had earlier balked at hiring him because Schmidt did not have a college degree in engineering. Schmidt's trial testimony about his work duties with Hastings was vague--he claimed that his confidentiality agreement with Hastings prevented him from discussing the specifics of the new job. He did say that during his job interview an executive of Hastings discussed Schmidt's experience with pultrusion. He acknowledged he was advised prior to leaving Chance of the non-disclosure aspects of their contract.

This suit was commenced prior to Schmidt's starting work with Hastings. The trial court concluded under comment b of the Restatement of Torts § 757, Chance's processes were protectable trade secrets. It determined that injunctive relief was appropriate because irreparable harm would likely occur from the imminent danger of Schmidt's disclosure to Hastings of the Chance trade secrets. The injunction issued to prevent Schmidt from disclosing the pultrusion trade secrets to his employer Hastings until February 4, 1990. This judgment translates to a restriction covering the first five years of Schmidt's employment with Hastings. On appeal Schmidt raises the following issues: 1) pultrusion was not a trade secret; 2) there was no evidence of disclosure of any secret and Chance had an adequate remedy at law; 3) the injunction was overly broad in that it referred to other documents and went beyond the contractual agreement; and, 4) he was improperly denied attorney fees.

The review of the circuit court's action is prescribed under Murphy v. Carron, 536 S.W.2d 30, 32 (Mo. banc 1976), its findings on the evidence given due regard for having the opportunity to judge the credibility of the witnesses. Rule 73.01(c)(2); St. Louis County v. St. Louis County Police Officers Association, Local 844, 652 S.W.2d 142, 144 (Mo.App.1983). The issuance and terms of an injunction rest within the sound discretion of the trial court to shape and fashion relief, when appropriate, based on the facts and equities of the case. May Dept. Stores Co. v. County of St. Louis, 607 S.W.2d 857, 870 (Mo.App.1980). Injunctive relief must be based on a real apprehension that future acts are not just threatened but in all probability will be committed. Hudson v. School District of Kansas City, 578 S.W.2d 301, 312 (Mo.App.1979).

As a general rule, Missouri courts will grant equitable protection for an employer's interest in trade secrets. Mo-Kan Central Recovery Co. v. Hedenkamp, 671 S.W.2d 396, 399 (Mo.App.1984). A restrictive covenant on the employee's right to compete must be reasonable as necessary to protect the employer's legitimate interest, and reasonable as to time and geographic scope. Orchard Containers Corp. v. Orchard, 601 S.W.2d 299, 303 (Mo.App.1980); Continental Research Corporation v. Scholz, 595 S.W.2d 396, 400 (Mo.App.1980). Such assessment must be made in consideration of the surrounding circumstances which include the subject matter, the purpose served, the situation of the parties, the limits of the restraint and the specialization of the business venture. Herrington v. Hall, 624 S.W.2d 148, 151 (Mo.App.1981).

I.

The first point to be considered is Schmidt's challenge to pultrusion being protectable by Chance as a trade secret. The following language in National Rejectors, Inc. v. Trieman, 409 S.W.2d 1, 18-19 (Mo. banc 1966), is from comment b to § 757 Restatement of Torts:

b. Definition of trade secret. 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. It differs from...