Basic American, Inc. v. Shatila

• Decision Date: 22 December 1999
• Docket Number: No. 24589.,24589.
• Citation: 133 Idaho 726,992 P.2d 175
• Parties: BASIC AMERICAN, INC., a Delaware corporation, Plaintiff-Respondent-Cross-Appellant, v. Mounir A. SHATILA, an individual, and Idaho Fresh-Pak, Inc., an Idaho corporation, Defendants-Appellants-Cross-Respondents.
• Court: Idaho Supreme Court

992 P.2d 175

133 Idaho 726

BASIC AMERICAN, INC., a Delaware corporation, Plaintiff-Respondent-Cross-Appellant, v. Mounir A. SHATILA, an individual, and Idaho Fresh-Pak, Inc., an Idaho corporation, Defendants-Appellants-Cross-Respondents.

No. 24589.

Supreme Court of Idaho. Pocatello, September 1999 Term.

December 22, 1999.

Moffatt, Thomas, Barrett, Rock & Fields, Boise; Dalling & Dalling, Idaho Falls; Parsons Behle & Latimer, Salt Lake City, Utah, for appellants. Raymond J. Etcheverry argued.

Hopkins, Roden, Crockett, Hansen & Hoopes, Idaho Falls; Flehr Hohback Test Albritton & Herbert, San Francisco, California, for respondent. Steven K. Brown and David J. Brezner argued.

SILAK, Justice.

Appellants Idaho Fresh-Pak (IFP) and Mounir Shatila (Shatila) appeal from an injunction and a $3.26 million judgment entered against them for misappropriation of trade secrets under the Uniform Trade Secrets Act, enacted as the Idaho Trade Secrets Act (ITSA), Chapter 8, Title 48 of the Idaho Code. We affirm.

I. FACTS AND PROCEDURAL BACKGROUND

A. Facts

Respondent Basic American, Inc., (Basic) is a Delaware corporation. Basic manufactures dehydrated potato products. Basic has maintained a research and development (R & D) facility at Blackfoot, Idaho, since 1957. The Blackfoot facility includes offices, a laboratory and pilot plant facilities. Appellant Shatila started working for Basic in its R & D department as a research engineer in 1964, shortly after graduating from Washington State University with a chemical engineering degree.

Shatila entered an employment agreement with Basic dated April 20, 1964, which included the following provisions:

1. It is understood that EMPLOYER is engaged in the experimentation, development and research in connection with the use, manufacture and sale of various articles, products and methods of manufacture; that its business is carried on under and by virtue of various patents, inventions, secret methods, processes, special machinery and appliances which are the property of EMPLOYER and which are intended to be kept guarded by EMPLOYER as its special property; that EMPLOYER is constantly spending money and effort to improve same; that in such employment said EMPLOYEE has become and will become familiar with the apparatus, methods, processes, tools, machinery, patents, appliances, secrets and developments of said EMPLOYER'S business; and that as part of his employment said EMPLOYEE will acquire access to the same.

2. It is agreed between EMPLOYER and EMPLOYEE that all such knowledge and information which EMPLOYEE now possesses, or shall hereafter acquire, concerning and pertaining to the business and secrets of EMPLOYER and all inventions or discoveries made or developed, or suggested by or to EMPLOYEE during said term of employment relating to EMPLOYER'S business shall, at all times and for all purposes, be regarded as acquired and held by EMPLOYEE in fiduciary capacity and solely for the benefit of EMPLOYER....

On March 5, 1968, Shatila and Basic entered into an "Employment Agreement Regarding Inventions and Secrecy, which states:

6. Employee will not disclose or reveal to any person outside Company any secret or confidential information concerning any Company product, process, equipment, machinery, design, formula, business, or other activity without prior permission of Company in writing. The obligation to protect the secrecy of such information continues after employment with Company may be terminated.

In August of 1972, Shatila became Assistant Director of R & D at Basic. Shatila became Director of R & D in 1975, and was made Vice-President of R & D in 1979. Basic developed a number of dehydrated potato products during Shatila's employment, including the "Golden Grill Hash Brown" product. The Golden Grill Hash Brown was developed after extensive testing and experimentation between 1977 and 1984. Basic experienced considerable difficulty in over-coming a certain phenomenon that commonly occurs in potato processing. The problem was eventually resolved some time in 1984, and the Golden Grill hash brown entered commercial production later that year. Appellant Shatila was personally involved in several stages of the development of the Golden Grill product.

On January 1, 1986, Shatila terminated his employment with Basic. Shatila and Basic entered into a one-year consulting agreement on January 21, 1986, which included the following provision:

5.01 Confidentiality. CONSULTANT shall not divulge or use in any manner any confidential information, or proprietary information not in the public domain concerning or relating to [Basic], or any division, subsidiary, parent or successor thereof, that may have been acquired while an employee of [Basic], or which may be acquired in the course of his employment under this Agreement. The provisions of this paragraph 5.01 shall survive the expiration or other termination of this Agreement.

Shatila and Basic entered a series of similar agreements from 1987 until 1989. Each of the consulting agreements included a confidentiality provision similar to that set forth above. Shatila's final stint as a consultant for Basic ended in June 1989.

In September 1989, John Barnecut, Basic's general counsel, wrote a letter granting Shatila permission to do consulting work for Western Empires Corporation. Barnecut added the following limitation to Shatila's consulting:

[I]t is understood that the restrictions of confidentiality set forth in Paragraph 5.01 of the Agreement remain in full force and effect and that no confidential or proprietary information of [Basic] will be disclosed by you to Western.

Shatila responded on September 14, 1989, certifying that he "read and understood this letter and [that he] agreed with the above matters."

On April 23, 1991, Shatila wrote a letter to Basic requesting that the non-competition clause of their agreement be waived so he could seek employment with Pillsbury, Carnation, Nonpareil and appellant IFP. Basic's response, dated June 5, 1991, permitted Shatila to seek employment with Pillsbury, Carnation and IFP, but not with Nonpareil. Basic's response also stated:

First of all, it is understood that the restrictions of confidentiality set forth in Paragraph 5.01 of the Agreement remain in full force and effect and that you are bound by your obligations not to disclose any confidential or proprietary information of [Basic]. Finally, it is understood that all of the terms and conditions of the Agreement remain in full force and effect except with respect to the waiver set forth above.

While working as a consultant to IFP in March 1992, Shatila began a series of experiments testing a process similar to that used to produce Basic's Golden Grill product. In May 26, 1992, IFP completed a successful pilot plant test run that produced a hash brown product similar to the Golden Grill. After less than ten days of additional testing, IFP conducted a full scale production plant run on February 9 and 10, 1993. In April 1993, Shatila applied for a patent on the process he was developing for IFP.

On April 22, 1993, David Brezner (Brezner), counsel for Basic, wrote a letter to Norman Hart, IFP's general manager. The letter stated that Basic believed that Shatila had "breached his confidentiality obligations by using [Basic's] proprietary information" in developing IFP's new "Potato Real" product. The letter also stated that this conclusion was based on "the striking similarity between the Potato Real product and the one produced by the process developed by Mr. Shatila when he was consulting for Basic." The letter also stated that Basic wished to commence an "interchange of technical information" in order to "resolve the matter short of litigation."

Hart responded on May 18, 1993, stating that IFP did not believe that its product infringed on "any protected Basic American product or technology." Since IFP believed its product was "a new technology and processing effort," Hart said IFP did not wish to "share any of [its] information concerning [its] Potato Real product with any third party."

IFP introduced its product, dubbed "Idahoan Real Hash Brown Potatoes," to the market in 1993.

B. Procedural Background

On December 17, 1993, Basic filed this action, alleging that IFP and Shatila had misappropriated trade secrets belonging to Basic in violation of the ITSA. The complaint alleged misappropriation of trade secrets relating to the production of an instant mashed potato product as well as the Golden Grill Hash Brown. On September 21, 1994, the district court issued a protective order sealing the case file in order to protect the confidential information of the companies involved.

By February 8, 1995, Basic had identified seventy-eight alleged trade secrets which IFP and Shatila had allegedly misappropriated. Basic subsequently narrowed this list down to twenty-six trade secrets. On June 7, 1996, Shatila and IFP filed a motion for summary judgment. On November 5, 1996, the district court issued a decision on the motion, granting dismissal of some of the trade secret claims. On March 10, 1997, Basic stipulated to the dismissal of its misappropriation claims related to the instant mashed potato process, leaving only seven alleged trade secrets relating to the process for manufacturing the hash brown product.

After a bench trial, the district court issued its findings of fact and conclusions of law on May 30, 1997. The trial court ruled that "the substance of Basic's claims, as interpreted in light of the evidence produced at trial, is a single claim," which the court labeled the "Trade Secret."¹ The court also ruled that the Trade Secret consisted of information that was not generally known or readily ascertainable. The court also determined that Shatila did not develop the process independently from his own knowledge, skill and experience. Instead, the court ruled that Shatila used the Trade Secret as a starting point for...