Cemen Tech v. Three D Industries, L.L.C.

• Decision Date: 02 May 2008
• Docket Number: No. 03-1869.,03-1869.
• Parties: CEMEN TECH, INC., an Iowa Corporation, Appellant, v. THREE D INDUSTRIES, L.L.C., an Iowa Limited Liability Company, Dean Longnecker, Daniel E. Jones, Bradley J. Luhrs, James Yelton, Scott Longnecker, Mark Dorman, Daniel Pothast, and David Enos, Appellees.
• Court: Iowa Supreme Court

753 N.W.2d 1

CEMEN TECH, INC., an Iowa Corporation, Appellant, v. THREE D INDUSTRIES, L.L.C., an Iowa Limited Liability Company, Dean Longnecker, Daniel E. Jones, Bradley J. Luhrs, James Yelton, Scott Longnecker, Mark Dorman, Daniel Pothast, and David Enos, Appellees.

No. 03-1869.

Supreme Court of Iowa.

May 2, 2008.

Rehearing Denied July 24, 2008.

William B. Serangeli and CeCelia Ibson Wagner of Smith, Schneider, Stiles & Serangeli, P.C., Des Moines, for appellant.

F. Richard Lyford and Joan M. Fletcher of Dickinson, Mackaman, Tyler & Hagen, P.C., Des Moines, for appellees Three D. Industries, L.L.C., Dean Longnecker, Daniel E. Jones, Scott Longnecker, James Yelton, Mark Dorman, Daniel Pothast, and David Enos.

John P. Roehrick and Curtis J. Krull, Des Moines, for appellee Bradley J. Luhrs.

LARSON, Justice.

When the defendants in this case began to manufacture a cement mixer similar to one manufactured by Cemen Tech (CTI), CTI sued them, alleging breach of contract, misappropriation of trade secrets, unfair competition, and breach of fiduciary duty. The district court granted the defendants' motion for summary judgment on virtually all of the plaintiff's claims, and the plaintiff appealed. We affirm in part, reverse in part, and remand for further proceedings.

I. Facts and Prior Proceedings.

CTI is a manufacturer of mobile volumetric concrete mixers — machines designed to mix concrete components at job sites. Defendants Dean Longnecker and David Enos, through their business, Three D Company, L.L.C., were interested in purchasing CTI and, on October 25, 1999, sent a letter of intent to CTI requesting information regarding the business. After a number of letters of intent and nondisclosure and confidentiality agreements, CTI provided Longnecker and Enos with business information, including organizational charts; employee handbooks; a strategic plan; and information on customer deposits, assets, accounts payable, accounts receivable, financial statements, and lists of customers and suppliers.

By the spring of 2001, it became clear that Longnecker and Enos were not going to purchase CTI. On June 5, 2001, CTI terminated Three D Company, L.L.C.'s latest letter of intent. Discussions continued, however, between the parties regarding the possible purchase of a portion of CTI's business—its "sludge" division. On September 6, 2001, Longnecker and Enos, through an entity they called "Clarke Industries, L.L.C.," submitted a letter of intent to CTI to purchase the sludge division. CTI apparently ignored it.

In July 2001 Brad Luhrs, an employee of CTI, contacted Longnecker about the possibility of leaving CTI and going to work with Longnecker and Enos to start their own mobile mixer business. By the end of 2001, Dan Jones, Brad Luhrs, Mark Dorman, Dan Pothast, and Scott Longnecker resigned from CTI and began working for Three D Industries developing mobile volumetric concrete mixers in direct competition with CTI.

In January 2002 the defendants exhibited a prototype cement mixer at the World of Concrete show closely resembling CTI's mixer. CTI sued Three D Industries, L.L.C. and eight individual defendants for breach of contract, misappropriation of trade secrets, unfair competition, breach of fiduciary duty, and tortious interference with contract. Defendants Dean Longnecker and Scott Longnecker filed defamation counterclaims against CTI. All defendants moved for summary judgment on CTI's claims. The district court granted the defendants' motion for summary judgment in part and denied it in part, and CTI appealed. Dean Longnecker and Scott Longnecker dismissed their defamation counterclaim without prejudice. CTI dismissed, without prejudice, all of its claims remaining after the district court's ruling on the defendants' summary judgment motion. The issues remaining before this court are those raised by CTI in its appeal from the district court's summary judgment ruling.

II. Standard of Review.

Review of a ruling on a motion for summary judgment is for correction of errors at law. Iowa R.App. P. 6.4; Clinkscales v. Nelson Sec., Inc., 697 N.W.2d 836, 840-41 (Iowa 2005). Summary judgment is proper only if "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Iowa R. Civ. P. 1.981(3). A question of fact exists "if reasonable minds can differ on how the issue should be resolved." Walker v. Gribble, 689 N.W.2d 104, 108 (Iowa 2004). In reviewing the district court's ruling, the evidence presented must be viewed in the "light most favorable to the party opposing the motion for summary judgment." Kelly v. Iowa Mut. Ins. Co., 620 N.W.2d 637, 641 (Iowa 2000); Gen. Car & Truck Leasing Sys., Inc. v. Lane & Waterman, 557 N.W.2d 274, 276 (Iowa 1996). However, the opposing party "may not rest upon the mere allegations of his pleading but must set forth specific facts showing the existence of a genuine issue for trial." Hlubek v. Pelecky, 701 N.W.2d 93, 95 (Iowa 2005); see also Iowa R. Civ. P. 1.981(5). Speculation is insufficient to create a genuine issue of material fact. Hlubek, 701 N.W.2d at 96.

III. The Contract Claims.

In count I of CTI's petition, it alleged that Dean Longnecker and Enos breached a contractual nondisclosure agreement dated October 25, 1999, which provided that any information disclosed in the course of the negotiation process would be used solely to evaluate the possible purchase of CTI and would remain confidential. The district court concluded as a matter of law that the October 25, 1999 nondisclosure agreement had been superseded by a January 6, 2000 confidentiality agreement, and we agree. The January 6, 2000 agreement stated: "This Agreement comprises the entire agreement and supersedes all prior understandings and representations (oral or written) between the parties concerning the subject matter of this Agreement." In fact, Gary Ruble, president of CTI, stated it was his understanding that the January 6, 2000 confidentiality agreement had superseded the October 25, 1999 nondisclosure agreement. The district court properly entered summary judgment on this count.

In count II, CTI contends that Dean Longnecker, Enos, and Three D Industries breached a letter of intent dated January 15, 2001. The district court concluded that Enos had not signed the agreement and that Longnecker signed only in a representative capacity (on behalf of Three D Company, L.L.C.). Further, Three D Industries, L.L.C., the entity sued by CTI, was not a party to the agreement.

We agree with the district court that Enos cannot be held liable for breach of the January 15, 2001 letter of intent because he did not sign it. While Longnecker signed this letter of intent, he did so as a representative of Three D Company, L.L.C and not in his individual capacity. Of course, "[c]entral to corporate law is the concept a corporation is an entity separate from its owners." Briggs Transp. Co. v. Starr Sales Co., 262 N.W.2d 805, 809 (Iowa 1978). Because Longnecker entered into the letter of intent only as a representative of Three D Company, L.L.C., he cannot be held personally liable for any breach committed by the corporation.

Finally, the January 15, 2001 letter of intent was signed by Longnecker as a representative of Three D Company, L.L.C. However, CTI did not bring this breach-of-contract claim against Three D Company, L.L.C.; rather, it brought it against Three D Industries, L.L.C. It is true, as CTI points out, that Longnecker and Enos created a number of corporations at different times, referring to them as Three D Holding Company, Three D Industries, L.L.C., Three D Company, and Three D Industries. While that complicates the facts of this case, it does not change our analysis of this issue. Three D Company, L.L.C. and Three D Industries, L.L.C. were created as separate and distinct entities and must be treated as such. Just as individuals cannot be held liable on a contract to which they were not parties, neither can a corporation. The district court appropriately granted Three D Industries' motion for summary judgment on count II of the petition.

Alternatively, CTI argues we can "pierce the corporal veil" to hold Longnecker and Enos individually liable on the letter of intent because any corporations named were merely their alter egos. The requirements for doing so, however, are substantial:

The burden is on the party seeking to pierce the corporate veil to show the exceptional circumstances required. Factors that would support such a finding include (1) the corporation is undercapitalized; (2) it lacks separate books; (3) its finances are not kept separate from individual finances, or individual obligations are paid by the corporation; (4) the corporation is used to promote fraud or illegality; (5) corporate formalities are not followed; and (6) the corporation is a mere sham.

In re Marriage of Ballstaedt, 606 N.W.2d 345, 349 (Iowa 2000) (citations omitted). CTI showed no evidence to generate a genuine issue of fact to support its piercing-the-veil argument. We affirm the district court's grant of summary judgment on the plaintiff's breach-of-contract claims.

IV. The Claim of Misappropriation of Trade Secrets.

The principal issue in this case is whether CTI generated a genuine issue of material fact on its claim that the defendants misappropriated CTI's trade secrets, including information regarding the construction of its machines and general information about their manufacture and sale. CTI contends that Three D, Dean Longnecker, Enos, five former CTI employees, and James Yelton (a former CTI customer) wrongfully obtained CTI's trade secrets and used them to form a competing business.

A. Legal Principles. Iowa Code chapter 550 (2001) is Iowa's version of the Uniform Trade Secrets Act. This chapter provides that...