Basic Chemicals, Inc. v. Benson

• Decision Date: 16 March 1977
• Docket Number: No. 57167,57167
• Citation: 251 N.W.2d 220
• Parties: BASIC CHEMICALS, INC., Appellee, v. Richard E. BENSON et al., Defendants, Benson and Berman appealing, and The Mellocraft Company, Added Appellant.
• Court: Iowa Supreme Court

Page 220

251 N.W.2d 220

195 U.S.P.Q. 197

BASIC CHEMICALS, INC., Appellee, v. Richard E. BENSON et al., Defendants, Benson and Berman appealing and The Mellocraft Company, Added Appellant.

No. 57167.

Supreme Court of Iowa.

March 16, 1977.

Jerry E. Williams and R. Craig Shives, of Nyemaster, Goode, McLaughlin, Emery & O'Brien, Des Moines, for appellants Berman Chemical Co. and The Mellocraft Co.

Terry F. Wright, Des Moines, for appellant Richard E. Benson.

H. M. Coggeshall and David J. W. Proctor, of Bradshaw, Fowler, Proctor & Fairgrave, Des Moines, for appellee.

Heard before REYNOLDSON, Acting C. J., and MASON, LeGRAND, HARRIS and McCORMICK, JJ.

MASON, Justice.

This is an appeal by defendants Richard E. Benson, Berman Chemical Company and The Mellocraft Company from an adverse decree of the trial court entered in an equitable action brought against them by Basic Chemicals, Inc., on the theory defendants had appropriated and removed for their benefit trade secrets of plaintiff and had enticed its employees to join defendants and enter into unfair competition with plaintiff. Plaintiff's action against Curtis Noll Corporation, another defendant, was dismissed and there is no appeal from that portion of the trial court's decree.

Plaintiff, Basic Chemicals, Inc., a Des Moines firm, had alleged as a basis of its claim for relief that defendants conspired to (1) terminate Benson's employment relationship with plaintiff, (2) acquire and utilize plaintiff's customer list, cost books, buy books, production formulae and other confidential material, (3) entice other employees of plaintiff to sever relations with plaintiff and commence employment with defendant corporations, and (4) duplicate plaintiff's products and induce plaintiff's customers to purchase from defendants rather than plaintiff.

Plaintiff prayed for the return of all confidential material appropriated by defendants, injunctive relief, compensatory damages in the amount of $35,000 and punitive damages in the amount of $200,000. Plaintiff subsequently sought and obtained leave of court to amend the petition adding as a party defendant The Mellocraft Company, parent corporation of Berman Chemical Company and wholly owned subsidiary of Curtis Noll Corporation. In addition, plaintiff's prayer for compensatory damages was increased to $150,000.

Defendants denied plaintiff's allegations and the action was tried to the court in February of 1973. The trial court's findings of fact and conclusions of law were filed December 26, 1973, and a decree pursuant thereto was entered of record February 14, 1974. Based upon those findings and conclusions plaintiff was denied injunctive relief and punitive damages but was awarded compensatory damages in the sum of $109,756.03. Judgment was entered against defendants Benson, Berman Chemical Company and The Mellocraft Company, jointly and severally, but plaintiff's claim for relief against Curtis Noll Corporation was dismissed pursuant to the court's determination there was "insufficient evidence to prove that Defendant Curtis Noll Corporation played an active role in the conspiracy."

Basic Chemicals, Inc., was organized in 1963 pursuant to a written agreement between defendant Richard E. Benson and Herman C. Behrendt. The prime objective of this agreement was the establishment of a chemical company to be engaged in the production and sale of chemicals for the wholesale market in the sanitary supply and contract cleaning industries. The agreement provided Benson would "devote his efforts entirely to the prime objective as well as afford time for other assignments so designated by Mr. Behrendt in connection with his other business enterprises," and specifically stated Benson was to "establish formulae, lowest costs, highest profits in keeping with competitive markets, sell and create necessary selling force, and otherwise be responsible for all details of this Corporation Basic Chemicals Inc." Provisions for Benson's salary and expense account were also included therein.

Pursuant to their agreement, Benson, an individual with many years of experience in the production and sale of sanitary supplies, served as president and general manager of plaintiff until his resignation January 15, 1971. Behrendt provided the necessary financing for the enterprise and was chairman of plaintiff's board of directors.

Defendants Berman and Mellocraft are Ohio corporations. Mellocraft compounds, sells and distributes maintenance and sanitation supplies to retailers and contract cleaners. In addition to producing its own line of products, Mellocraft produces the items sold by Berman which has no production facilities of its own. As noted, Mellocraft is the sole stockholder of Berman and is itself wholly owned by Curtis Noll Corporation.

Plaintiff, like Mellocraft, compounds and sells maintenance and sanitation supplies, including protective floor coatings, disinfectants and detergents. Plaintiff, Mellocraft and Berman are all to some extent involved in what is referred to as the "private label chemical business," which simply means the purchaser's label rather than the Berman, Mellocraft or Basic label is affixed to the product.

Benson's resignation as president and general manager of plaintiff, effective January 15, 1971, was tendered a few days prior to that date. Plaintiff maintained and the trial court found that prior to January 1971 Benson had an understanding with Berman and Mellocraft whereby Benson would become an employee of defendant corporations immediately upon his resignation from plaintiff. Defendants however offered testimony in an attempt to demonstrate that, although employment discussions had occurred, no agreement was reached until the evening of Benson's resignation.

Behrendt testified that subsequent to his receipt of Benson's resignation but prior to the effective date thereof Basic's formula books, cost books, raw material source books and customer lists were discovered missing. When asked about the missing items Behrendt testified Benson said they were at his home and would be returned. According to Behrendt those items were never returned.

Lyle Middleton, successor to Benson and son-in-law of Behrendt, testified he discussed the missing items with Benson and was told that somehow Basic's buy books, formula books and some other items were inadvertently shipped to Ohio with some personal items belonging to Benson. Middleton stated he was told Benson would call his secretary and have her return them. Benson testified no such conversation occurred and pointed out he didn't even know he was going to Ohio until January 15, the day after the conversation allegedly took place.

Upon becoming president of Berman, and thus a salaried employee of Mellocraft, Benson immediately sent a letter, dated "January, 1971," to retailers and contract cleaners, including customers of plaintiff. That letter, announcing his new position and address provided in part as follows:

"This advises of my resignation as President of Basic Chemicals Incorporated at Des Moines, Iowa. Many of you knew my secretary Millie Catlett 'my right arm that is' she resigned as of December 1, 1970.

"I am now President of Berman Chemicals, headquarters at Toledo, Ohio. We wanted Millie with us but she could not move to Toledo at this time, for personal reasons. She did not care to remain at Basic pending my resignation.

" * * *w P

"Berman manufactures in a 4 story plant, with modern offices, laboratory and complete facilities at Toledo. We are properly financed, equipped and staffed. The Toledo location is ideal with superior trucking availability for prompt shipments. It offers better accessibility of containers, certain raw materials and services that were often remote to the Des Moines area of chemical manufacturing.

"This marks my 25th year of private label chemical manufacturing to our trade. Thanks to many of you, each of my 3 steps during these years has been up the ladder. * * *

"You know that I realize how important it is to private label customers that should you change source of supply, the product physical and performance constants remain identical to those purchased from me in the past. That is my personal guarantee to you in purchases from Berman. * * *

"Should you decide to place business with us at Berman, using your past catalogue, you can order as you have been. Berman product numbers are the reverse of the first 3 IBM NUMBERS of catalogues past. Products etc. will be identical along with your labels and other details except for the phosphate replacement product.

" * * *ls

"We are prepared to ship about 98% of the product variety shipped you in the past years prices are the same service and attention to detail will be proven better. New catalogues, information sheets, product literature will be sent as soon as printed.

" * * *pre

"To celebrate my new affiliation and expanding of Berman Chemicals * * *.

" * * *bra

"The regular Representatives who have been with us the past years, have chosen to stay with us and represent Berman. * * *

"My family and I plan to move to Toledo from Des Moines as soon as practical. * * *

"Have known most of the executive people at my new affiliation for about 20 years. * * * They are all standing by to serve Berman Customers.

"Sincerely,

Berman Chemicals Incorporated

/s/ Richard E. Benson"

Shortly after the above letter was mailed Benson sent out a Berman catalogue which plaintiff claims was for all practical purposes, a copy of plaintiff's catalogue. Plaintiff, in support of its contention, points to the following similarities: (1) although the correct corporate name of Berman is Berman Chemical Company, the cover of the Berman catalogue denominated Berman as "B erman C hemicals I ncorporated," thus copying plaintiff's long-used corporate symbol "BCI"; (2) identical formats; (3) deceptively similar product names and descriptions; (4) identical product prices; (5) identical product...