Enterprise Leasing Co. of Phoenix v. Ehmke

• Decision Date: 02 December 1999
• Docket Number: No. 1 CA-CV 99-0046.,1 CA-CV 99-0046.
• Citation: Enterprise Leasing Co. of Phoenix v. Ehmke, 197 Ar iz. 144, 3 P. 3d 1064 (Ariz. App. 1999)
• Parties: ENTERPRISE LEASING COMPANY OF PHOENIX, a Nevada corporation, Plaintiff-Appellant, v. Rich EHMKE, a single man, Defendant-Appellee.
• Court: Arizona Court of Appeals

3 P.3d 1064

197 Ariz. 144

ENTERPRISE LEASING COMPANY OF PHOENIX, a Nevada corporation, Plaintiff-Appellant, v. Rich EHMKE, a single man, Defendant-Appellee.

No. -0046.

Court of Appeals of Arizona, Division 1, Department C.

December 2, 1999.

Review Denied May 23, 2000.

DeConcini McDonald Yetwin & Lacy, P.C. by Jeffrey R. Simmons, Phoenix, for the Plaintiff-Appellant.

Gregory W. Dawson, Phoenix, for the Defendant-Appellee.

OPINION

EHRLICH, Judge.

¶ 1 This appeal arises out of the denial of a permanent injunction against a company's former employee from misappropriating trade secrets. We agree with Enterprise Leasing Company of Phoenix ("Enterprise") that the trial court erred in finding that the Enterprise financial records and other documents at issue were no longer trade secrets, if they had been, and, thus, that they are not entitled to protection from disclosure by Rich Ehmke, Enterprise's former employee. We conclude instead that the documents constitute proprietary and confidential information and should be afforded trade-secret protection. As such, Ehmke must be enjoined from the disclosure and use of these documents. We therefore reverse the trial court's denial of a permanent injunction, and we remand the case for entry of appropriate relief.

FACTUAL AND PROCEDURAL HISTORY

¶ 2 Ehmke worked for Enterprise in Maricopa County from January 22, 1996, until he was terminated eight months later. As a senior-level manager, Ehmke had access to substantial and proprietary confidential corporate business and financial information concerning Enterprise's market strategy, training methods, and internal financial and operations data. Given his exposure to such information, Ehmke's employment agreement contained a nondisclosure provision, as well as a covenant not to compete. The agreement stated in relevant part that Ehmke:

will not at any time . . . take, disclose, misappropriate or misuse any marketing plans, client list, name, file, book, record, or account or other information or confidential data used at or in any of the businesses managed or owned by [Enterprise]. [He] agrees that any . . . trade secrets developed by [him] during the course of [his] employment . . . become the exclusive property of [Enterprise].

¶ 3 Nonetheless, upon Ehmke's termination, Enterprise discovered that he had absconded with 45 confidential documents comprising Enterprise's strategic plans, programs, methods and approaches. According to Thomas McKinley, Vice President and General Manager of Enterprise, 35 of these documents contained proprietary and confidential information which, if disclosed, would be advantageous to competitors.¹ Enterprise demanded that Ehmke return these documents immediately. Instead, Ehmke only returned photocopies of the documents, claiming that he had destroyed the originals.²

¶ 4 Shortly thereafter, Ehmke formed a rental-car consulting firm in Phoenix. In this manner, he blatantly competed with Enterprise, indeed soliciting Enterprise customers and employees with the intent to recruit them for his new business.

¶ 5 On December 17, 1996, the trial court granted Enterprise's motion for a temporary restraining order against Ehmke, prohibiting him from soliciting Enterprise customers and employees, divulging trade secrets and otherwise engaging in direct competition with Enterprise.

¶ 6 Not for a year did the trial court conduct a preliminary injunction hearing. Then it found that, not only had Ehmke enjoyed access to confidential business and financial information, but that he had later successfully used this information to compete against Enterprise in Maricopa County.³ On April 2, 1997, the court granted a preliminary injunction to bar Ehmke from continuing and future breaches of his employment agreement.

¶ 7 In July 1997, undeterred by the preliminary injunction, Ehmke became Vice President of the Western United States for Premier Car Rental ("Premier"), a subsidiary of Budget Rent-A-Car ("Budget") and a direct competitor of Enterprise. In this position, he supervised Premier's Arizona branch offices, including those in the Phoenix area. When it became aware of Ehmke's position, Enterprise subpoenaed those of its documents Ehmke had disclosed to Premier.

¶ 8 In February 1998, Enterprise sought a permanent injunction against Ehmke. During the trial, Ehmke admitted that he knowingly had contravened the preliminary injunction by accepting employment with Premier and disclosing to it confidential documents.⁴ He also conceded that he had instituted procedures similar to those at Enterprise, and he further acknowledged that he had prepared and distributed documents similar to ones he had drafted at Enterprise. Ehmke claimed, however, that these documents did not qualify as protectable trade secrets because they were common knowledge and not kept secret by Enterprise. Enterprise countered that the documents did indeed contain trade secrets and other confidential material about its operations and referral sources. McKinley related that, aside from some changes in graphic art, Ehmke's documents bore a strong resemblance to Enterprise's materials to the extent that they were not identical.

¶ 9 The trial court concluded simply "that the [Enterprise] forms do not constitute a trade secret" and denied the permanent injunction. It subsequently denied Enterprise's motion for reconsideration and entered judgment in favor of Ehmke.

¶ 10 The dispositive issue on appeal is whether the Enterprise documents are trade secrets and thus entitled to protection according to the nondisclosure provision in the employment agreement. Two sets of documents are in question: The first concerns Enterprise's internal financial information. The second, the Enterprise Rent-a-Car Customer Service Worksheet ("Worksheet"), encompasses general business principles involved in the operation of a successful car-rental branch office.⁵

DISCUSSION

¶ 11 While we are bound by the trial court's findings of fact unless they are clearly erroneous, Lee Dev. Co. v. Papp, 166 Ariz. 471, 475, 803 P.2d 464, 468 (App.1990), we review questions of law de novo. Scottsdale Princess Partnership v. Maricopa County, 185 Ariz. 368, 372, 916 P.2d 1084, 1088 (App.1995). Thus, we are not constrained by the legal conclusions from facts found or inferred in the judgment of the trial court nor by findings of the trial court in questions of law or mixed questions of law and fact. Huskie v. Ames Bros. Motor & Supply Co., 139 Ariz. 396, 401, 678 P.2d 977, 982 (App.1984).

¶ 12 This case presents questions involving the interpretation and application of the trade-secret statute. Trade-secret law is traditionally within the realm of state law. See Aronson v. Quick Point Pencil Co., 440 U.S. 257, 265-66, 99 S.Ct. 1096, 59 L.Ed.2d 296 (1979). Like the majority of states, Arizona has adopted the Uniform Trade Secrets Act ("UTSA"), which codifies the basic principles of common-law trade-secret protection, to govern the resolution of trade-secret issues. UNIF. TRADE SECRETS ACT §§ 1-11 (1985), reprinted in Paul Goldstein et al., AGREEMENTS ON UNFAIR COMPETITION, TRADEMARK, COPYRIGHT AND PATENT 16 (1994). In addition, Arizona also recognizes the Restatement of Torts in the absence of controlling authority. See Chanay v. Chittenden, 115 Ariz. 32, 38-39, 563 P.2d 287, 293-94 (1977); Wright v. Palmer, 11 Ariz.App. 292, 294, 464 P.2d 363, 365 (1970).

¶ 13 Trade-secret law is unusual to the extent that it provides protection to the owner of a trade secret, but only while the information and knowledge remains a secret. See Ruth E. Leistensnider, Comment, Trade Secret Misappropriation: What is the Proper Length of an Injunction After Public Disclosure?, 51 ALBANY L.REV. 271, 272 (1987). The threshold determination whether to protect information as a trade secret therefore depends upon the nature of the information and the circumstances surrounding its secrecy and the maintenance thereof. B.C. Ziegler and Co. v. Ehren, 141 Wis.2d 19, 414 N.W.2d 48 (1987).

¶ 14 By definition, a trade secret is not simply information as to single or ephemeral business events. See Roger M. Milgrim, MILGRIM ON TRADE SECRETS § 1.01[1] 1-18 (1999). Rather, a trade secret may consist of a compilation of information that is continuously used or has the potential to be used in one's business and that gives one an opportunity to obtain an advantage over competitors who do not know of or use it. See ARIZ.REV.STAT. ANN. ("A.R.S") § 44-401(4)(a); RESTATEMENT OF TORTS § 757 cmt. b (1939). The Arizona Trade Secrets Act defines "trade secret" as follows:

(4) "Trade secret" means information, including a formula, pattern, compilation, program, device, method, technique or process, that both:

(a) 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.

(b) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

A.R.S. § 44-401. This rather expansive definition emphasizes the secrecy of the alleged trade secret, as well as the competitive advantage afforded by it. See Bruce T. Atkins, Trading Secrets in the Information Age: Can Trade Secret Law Survive the Internet?, 1996 U. ILL. L.REV. 1151, 1156; Avtec Systems, Inc. v. Peiffer, 21 F.3d 568, 575 (4th Cir.1994).⁶

¶ 15 Because the hallmark of a trade secret obviously is its secrecy, not only must the subject-matter of the trade secret be secret, it must be of such a nature that it would not occur to persons in the trade or business. Wright, 11 Ariz.App. at 295, 464 P.2d at 366; see A.R.S. § 44-401(4)(a). Accordingly, matters that are public knowledge are not safeguarded as trade secrets. See Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 475, 94 S.Ct. 1879, 40 L.Ed.2d 315 (1974); Metallurgical Industries Inc. v. Fourtek, Inc., 790 F.2d 1195, 1199 (5th...