Centrol, Inc. v. Morrow

• Decision Date: 10 September 1992
• Docket Number: No. 17417,17417
• Citation: 489 N.W.2d 890
• Parties: 1992-2 Trade Cases 69,922 CENTROL, INC., of South Dakota, Plaintiff and Appellee, v. Kevin MORROW, Keith Parker, Lynn Maass, Agronomics, Inc., Crop Pro, Inc., Crop Patrol, Inc., Agritech, Inc., Pro AG, Inc., John Doe and XYZ Company, Defendants and Appellants.
• Court: South Dakota Supreme Court

Page 890

489 N.W.2d 890

1992-2 Trade Cases 69,922

CENTROL, INC., of South Dakota, Plaintiff and Appellee, v. Kevin MORROW, Keith Parker, Lynn Maass, Agronomics, Inc. Crop Pro, Inc., Crop Patrol, Inc., Agritech, Inc. Pro AG, Inc., John Doe and XYZ Company Defendants and Appellants.

No. 17417.

Supreme Court of South Dakota.

Argued Dec. 2, 1991.

Decided Aug. 5, 1992.

Rehearing Denied Sept. 10, 1992.

Edward F. Fox, St. Paul, Minn., Thomas F. Burns, Watertown, co-counsel for plaintiff and appellee.

William E. Coester, Milbank, for defendants and appellants.

SABERS, Justice.

Defendants challenge the non-competition and non-disclosure provisions of their employment contracts and damages awarded for breach of same.

FACTS

Centrol, Inc. of South Dakota (Centrol) is a South Dakota cooperative consisting of member cooperatives. It provides customized soil and crop consulting services to farmers through employees known as "crop consultants." These crop consultants develop a wide variety of valuable and confidential information. To protect this information and customer good will, Centrol required its crop consultants to execute employment agreements with non-competition and non-disclosure provisions restricting competition with Centrol in Centrol's Area of Primary Responsibility (APR) for a period of one year.

Prior to September 6, 1989, Kevin Morrow, Lynn Maass and Keith Parker (Defendants) were employed by Centrol as crop consultants. Defendants simultaneously resigned from Centrol on September 6, 1989. For a period of approximately five months prior to that date, they regularly disparaged Centrol to their customers and informed them of their intent to form competing companies. Before resigning from Centrol, they solicited Centrol's customers for their own advantage. Defendants also used Centrol's confidential and proprietary business records, customer lists, revenue reports, financial statements and patron survey forms to obtain bank financing to start and run their competing businesses. They continued to use this information in the operation of their businesses after resigning. Prior to resigning, Defendants consulted with Bill Platz, a former Centrol employee who had evaded Centrol's non-competition agreement and court injunction by use of third party proxies. This consultation with Platz was to obtain the same legal counsel in hopes of using a similar evasion strategy. As part of this strategy, Defendants each formed separate corporations after September 6, 1989.

Defendants were three of only seven crop consultants employed by Centrol. They agreed to simultaneously resign without notice to Centrol and, in fact, affirmatively misled Centrol as to their intention to stay. Their departure from Centrol came at a critical time--when consulting contracts were about to be renewed for the following crop year. This reduced Centrol's consultant staff by nearly one half. Immediately following their resignations, Defendants obtained consulting contracts with the majority of their prior customers.

On September 28, 1989, Centrol sued them claiming breach of non-disclosure and non-competition agreements, misappropriation of trade secrets, breach of fiduciary duties, conversion, and for punitive damages. On the same date, Centrol also filed a motion seeking a temporary injunction to restrain Defendants from directly or indirectly competing with it, from using Centrol's confidential business information/trade secrets and from contacting any former Centrol customers obtained through breach of the agreements.

On October 13, 1989, the trial court granted Centrol's motion and enjoined Defendants from continuing any competition. Upon issuance of this order, Defendants transferred all of their stock in the competing businesses to either the corporations or to their spouses. This resulted in the spouses being the sole shareholders, officers and directors of these corporations. These women had no knowledge or experience in the crop consulting business and were employed full time in jobs unrelated to these corporations. Following these transfers, the Defendants, through their spouses and the corporations, continued to service customers in violation of the preliminary injunction. In supplemental proceedings, on October 30, 1989, the court found these stock transfers and related activities to be transparent attempts to evade the preliminary injunction. The court found Defendants in contempt of its first injunction, ordered them to obey the mandates of the preliminary injunction and warned them that any further such activity would result in sanctions.

Despite the Preliminary Injunction of October 13 and the Supplemental Order for Preliminary Injunction of October 30, Defendants continued to provide soil testing, crop consulting and other related services. They attempted to conceal this misconduct by providing false and incomplete responses to discovery requests by Centrol.

The case was tried to the court and a judgment was entered in favor of Centrol. The court awarded Centrol compensatory damages of $201,073.76; punitive damages of $91,848.18; attorneys fees of $156,054.88 and permanent injunctive relief. ¹

Defendants claim the court erred in:

(1) concluding that the non-competition and non-disclosure agreements were valid (2) awarding compensatory and punitive damages for misappropriation of trade secrets,

(3) determining the amount of

(a) compensatory damages,

(b) punitive damages, and

(c) attorney fees,

(4) holding them jointly and severally liable,

(5) issuing the preliminary injunction, supplemental preliminary injunction and permanent injunction, and

(6) denying their pretrial motion for a jury trial.

1. VALIDITY OF NON-COMPETITION AND NON-DISCLOSURE

AGREEMENTS.

Defendants claim the court erred in concluding that the non-competition and non-disclosure agreements were supported by consideration and valid under SDCL 53-9-11. Conclusions of law are reviewed de novo to determine if there is a mistake of law and "are given no deference by this court on appeal." Permann v. Dept. of Labor, Unemp. Ins. D., 411 N.W.2d 113, 117 (S.D.1987).

The enforceability of non-competition agreements is governed by SDCL 53-9-11, which provides:

An employee may agree with an employer at the time of employment or at any time during his employment not to engage directly or indirectly in the same business or profession as that of his employer for any period not exceeding two years from the date of termination of the agreement and not to solicit existing customers of the employer within a specified county, city or other specified area for any period not exceeding two years from the date of termination of the agreement, if the employer continues to carry on a like business therein.

(emphasis added). These non-competition agreements were executed after Defendants began working for Centrol, were limited to a period of one year following termination and to the APR. Defendants do not challenge the time restriction, but claim that the agreements fail for lack of consideration and that the APR does not meet the "specified area" requirement of SDCL 53-9-11 as it is incapable of determination from the agreements.

In American Rim & Brake, Inc. v. Zoellner, 382 N.W.2d 421 (S.D.1986), this court upheld a non-competition agreement. The agreement in American met the time and area restrictions of SDCL 53-9-11. In American, the employees argued that the court must also find the non-competition agreement reasonable before it could be enforced. We rejected that argument stating:

SDCL 53-9-11 allows employers and employees to make exactly the kind of agreement entered into between American and defendants, without a further showing of reasonableness.

Id. at 424. The Defendants argue that the APR is undefined and undefinable and outside the statutory language of SDCL 53-9-11 and the American exception to reasonableness. The trial court found that the APR was not only defined and known to Defendants, but that Defendants themselves participated in the preparation of maps used to define it.

As noted above, the non-competition agreements were executed after Defendants began working for Centrol. These agreements were updated versions of similar agreements between Defendants and Centrol, Inc. of Webster. ² In American, we held that the signing of new non-competition agreements while already employed did not fail for lack of consideration in light of SDCL 53-8-7. ³ Id. at 424.

Defendants make no specific argument nor cite any authority contesting the validity of the non-disclosure portion of the agreements. "[A]n issue or argument not briefed and supported by authority is considered abandoned." Drier v. Great American Ins. Co., 409 N.W.2d 357, 361 (S.D.1987); see also Shaffer v. Honeywell, Inc., 249 N.W.2d 251, 258 (S.D.1976). Since the duration, area and consideration are valid under SDCL 53-8-7 and 53-9-11, the court's conclusion that the non-competition and non-disclosure agreements were valid was not error.

2. AWARD OF DAMAGES.

Defendants claim the court erred in concluding that they misappropriated Centrol's trade secrets in violation of the Uniform Trade Secrets Act (Act), SDCL 37-29-1 to 37-29-11, and in awarding damages for such violation. As stated above, conclusions of law are reviewed de novo. Permann, 411 N.W.2d at 117. However, the court's findings of fact must support the conclusions of law. Knodel v. Bd. of Cty. Com'rs., etc., 269 N.W.2d 386, 390 (S.D.1978); Kirkeby v. Renaas, 85 S.D. 515, 519, 186 N.W.2d 513, 516 (1971).

SDCL 37-29-1(4) provides:

'Trade secret' means information, including a formula, pattern, compilation, program, device, method, technique or process, that:

(i) Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and

(ii) Is the subject of efforts that are...