Cudahy Company v. American Laboratories, Inc.

• Decision Date: 08 June 1970
• Docket Number: Civ. 03014.
• Citation: Cudahy Company v. American Laboratories, Inc., 313 F.Supp. 1339 (D. Neb. 1970)
• Parties: CUDAHY COMPANY, Plaintiff, v. AMERICAN LABORATORIES, INC., Jack E. Jackson, William E. Phalen and Frank R. West, Defendants.
• Court: U.S. District Court — District of Nebraska

313 F. Supp. 1339

CUDAHY COMPANY, Plaintiff, v. AMERICAN LABORATORIES, INC., Jack E. Jackson, William E. Phalen and Frank R. West, Defendants.

Civ. 03014.

United States District Court, D. Nebraska.

June 8, 1970.

COPYRIGHT MATERIAL OMITTED

William Sawtell, Jr., and Joseph Polack, of Morsman, Fike, Sawtell & Davis, Omaha, Neb., for plaintiff.

Lyle E. Strom, and C. L. Robinson, of Fitzgerald, Brown, Leahy, McGill & Strom, Omaha, Neb., for defendants.

MEMORANDUM AND ORDER

RICHARD E. ROBINSON, Chief Judge.

This matter was tried to the Court commencing on April 27, 1970. Diversity jurisdiction is established. After trial the Court directed the parties to file post-trial briefs addressing themselves to the issue of whether or not plaintiff established any grounds for relief by way of an injunction or for damages. Should the Court find a basis for relief the parties would then, at a later date, address themselves to the remedial matters. The Court is now ready to announce its decision as to whether plaintiff has established a right to relief. In so doing it announces its findings of fact and conclusions of law on that issue.

The case arises out of the activities of certain employees of the plaintiff both during and after their employment. The remaining defendants, other than Phalen and Jackson, the employees in question, are either the recipients of their alleged misconduct American Laboratories Incorporated or the one who allegedly induced West these defendant-employees to commit such misconduct. These employees made plans and eventually succeeded in setting up a business which is now in direct competition with plaintiff. Plaintiff's allegations generally center on claims of unfair business practices and breach of a fiduciary duty owed to their employer by Jackson and Phalen both during and after their employment.

More specifically plaintiff contends that plant designs, procedures and techniques utilized in American Laboratories processing of animal by-products for pharmaceutical purposes, data on profits and costs of production, and detailed customer lists taken from plaintiff, are trade secrets and entitled to protection. Plaintiff also claims solicitation of employees and customers and failure to apprise plaintiff of certain facts and business opportunities which were breaches of their duties of loyalty to their employer while still in plaintiff's employ.

At the outset it should be noted that Nebraska law is controlling. However, this state's highest court has not passed directly on almost all of the issues here raised. There is also a lack of any meaningful dicta available to this Court in attempting to course decisions in the fields in question within the state. This Court has therefore followed the rule that in the absence of instructive decisions or considered dicta by Nebraska Courts on the points in question, the Court may consider any other materials persuasively indicating the course of decisions within the state. Cooney v. Moomaw, 109 F.Supp. 448 D.Neb.1953. It is also generally the rule that in the absence of state law a federal court should make use of all available data on the questions involved, including restatements and treatises and where appropriate may assume state law will follow the majority rule. Glassman Construction Company v. Fidelity & Casualty Co. of New York, 123 U.S.App.D.C. 1, 356 F.2d 340 1966.

Addressing itself to the matter of trade secrets, the Court is faced with the initial problem of determining what constitutes a trade secret. The definition and criteria utilized in many cases and which is generally considered to be the favored approach to determine if a trade secret is entitled to protection has been stated by the Eighth Circuit as follows:

"This court recognized and approved the general rule that a trade secret consists 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. See also, Restatement, Torts § 757. The essential elements of a cause of action for appropriation of a trade secret are 1 existence of a trade secret 2 acquisition of the secret as a result of a confidential relationship, and 3 unauthorized use of the secret. * * * This protection given to trade secrets is a shield, sanctioned by the courts, for the preservation of trust in confidential relationships; it is not a sword to be used by employers to retain employees by the threat of rendering them substantially unemployable in the field of their experience should they decide to resign. This shield is not a substitute for an agreement by the employee not to compete with his employer after the termination of employment." E. W. Bliss Co. v. Struthers-Dunn, Inc., 408 F.2d 1108, 1112 8th Cir. 1969.

Section 757 of the Restatement of Torts mentioned by the Circuit Court contains the following factors to be considered when determining what constitutes a trade secret:

"1 the extent to which the information is known outside of his business; 2 the extent to which it is known by employees and others involved in his business; 3 the extent of meaures taken by him to guard the secrecy of the information; 4 the value of the information to him and to his competitors; 5 the amount of effort or money expended by him in developing the information; 6 the ease or difficulty with which the information could be properly acquired or duplicated by others."

Plaintiff's claim of trade secrets may be broken down into three areas; data on profits and costs of production; customer information; and plant design and production process techniques. Taking the matter of recorded data on profits and production first, it is easily disposed of because of plaintiff's failure to carry its burden of showing any unauthorized acquisition of any recorded data even if it were considered to be a trade secret. Defendants categorically deny ever taking or using any of this data or turning over any recorded financial statement or cost figures to Mr. West's accountant or to anybody else to aid in the formation of the new business. If it is plaintiff's contention the defendants did not utilize these printed documents but rather the knowledge gained from defendant Jackson's constant exposure to this type of information then that claim also must fail because it is not a trade secret. E. W. Bliss Company v. Struthers-Dunn, Inc., supra; Venn v. Goedert, 319 F.2d 812, 815 8th Cir. 1963. A review of the position analysis of Mr. Jackson, done for Cudahy's benefit, clearly indicates that Mr. Jackson has a wealth of knowledge and expertise in the production and marketing of Cudahy's pharmaceutical products. Plaintiff's attempt to tie the skill and experience of Mr. Jackson to documented data thereby hoping to gain the classification of that data as a trade secret is simply not well founded. Such general data would be common knowledge to anyone of Mr. Jackson's experience and would not be peculiar to Cudahy. As previously stated the status given trade secrets is not to be used as a sword to prevent employees from rendering their services, based on knowledge and experience, to somebody other than that one employer. That is exactly what plaintiff would accomplish if its claim of trade secret as to these items were successful.

The matter of attempting to classify the two customer lists as trade secrets is also not convincing. Regardless of who compiles the list, it is the character of the formula or list involved that is determinative as to its classification as a trade secret. Any customer list must be of a specific and particular value to the employer. Van Products Co. v. General Welding & Fabricating Co., 419 Pa. 248, 213 A.2d 765 1965; Restatement, Torts § 757 Comment b. The actual value of these lists to Cudahy is not great. The evidence would reveal that it is not the processor who is able to actively recruit more customers that will be successful but rather the one who is able to satisfy by the quality and quantity of his product and one who has the ability to produce a product suitable to the particular needs of the customer. To be classified as a trade secret the Restatement would also give consideration to the measure of care taken to protect the list as well as the accessibility of the list to plaintiff's own employees. There is no evidence presented to indicate that these lists were secretly held or that any substantial precautions were taken to protect them from disclosure. See Space Aero Products Co. v. R. E. Darling Co., 238 Md. 93, 208 A.2d 74 1965. There were no precautions against these lists leaving the premises nor were they protected so as only to be accessible to certain employees. In fact a previous employee had taken similar lists with him when he left. The Restatement also would consider whether the list could be easily acquired or duplicated by others in the same trade or business. As far as the "East Book" lists of eastern customers of Cudahy and one of the lists in question, certain witnesses who were in the same field testified that a review of this list indicated that most of the names on the list were known by them to be customers in the industry. Plaintiff also attempts to show, by the use of marketing consultants, the value of such a compilation and the time and effort expended in its preparation. While that is a factor to be considered the evidence is that time and effort would be by a novice in the field. Mr. Jackson, or anyone else with his general background in the field, would be able to reduce that cost and effort considerably. With regard to the general customer list, even if it were a trade secret, there is no evidence of any unauthorized use. The list was turned over to defendants' counsel almost immediately and never used in the business. Even a review of the "East Book", when compared with the sales of American Laboratories would indicate no striking resemblance. In fact...