Gen. Water Techs. Inc. v. Van Zweden
| Decision Date | 14 July 2022 |
| Docket Number | 20200414-CA |
| Citation | 515 P.3d 956 |
| Parties | GENERAL WATER TECHNOLOGIES INC., Appellee, v. Nathan Van ZWEDEN, Dave Rotzler, and Med Water Systems LLC, Appellants. |
| Court | Utah Court of Appeals |
Troy L. Booher, Dick J. Baldwin, Taylor Webb, Bruce M. Pritchett Jr., Jonathan R. Rudd, and Dusten L. Heugly, Attorneys for Appellants
Sean N. Egan, Attorney for Appellee
1
Opinion
¶1 To establish a trade secret misappropriation claim, the plaintiff must show that the defendant misappropriated information that meets the definition of a trade secret under the Utah Uniform Trade Secrets Act (the UUTSA). See Utah Code Ann. § 13-24-2(4) (LexisNexis 2013). Whether information qualifies as a trade secret is ultimately a question for the fact finder. See USA Power, LLC v. PacifiCorp , 2016 UT 20, ¶ 46, 372 P.3d 629. In this case, a jury found Appellants Nathan Van Zweden and Dave Rotzler liable for misappropriating two purported trade secrets held by General Water Technologies Inc.: (1) the design of a water filtration system and (2) pricing-related information. We hold that there was sufficient evidence to support the jury's determination as to the design secret, but not the pricing secret. Therefore, we affirm in part and reverse in part.
¶2 General Water Technologies Inc. (Gen Water) and Med Water Systems LLC (Med Water) are two Utah-based companies that each supply medical-grade water filtration systems to healthcare facilities throughout the country. Van Zweden and Rotzler are former employees of Gen Water who left for Med Water in late 2014 and 2015, respectively. Following their departures, Gen Water learned that one of its largest clients had decided to switch providers to Med Water. Gen Water then sued Van Zweden, Rotzler, and Med Water for trade secret misappropriation. After a jury found Van Zweden and Rotzler liable, the district court enjoined them from using Gen Water's trade secrets.
¶3 Gen Water produces and sells water filtration systems for use in medical laboratories. The machine at issue in this case produces Type I grade reagent water—water suitable for use in medical analyzers. As one of Gen Water's salesmen, Van Zweden traveled the country marketing the machine to various healthcare facilities. And although Rotzler had originally been hired as a part-time accountant, Gen Water later trained him to assemble its machines and install them at customers’ facilities. Together, Van Zweden and Rotzler's experience at Gen Water gave them "a leg up" once they left the company for Med Water and began competing for potential clients.
¶4 One of Gen Water's larger clients, Mayo Clinic, had purchased "a little over [twenty]" of Gen Water's machines for its "locations in Wisconsin and Minnesota." Mayo Clinic had also contracted Gen Water to provide maintenance services on the purchased machines for an annual fee. Shortly before the contract term had run, however, Van Zweden began corresponding with Mayo Clinic's representatives—this time on Med Water's behalf. He indicated that Med Water could provide the same maintenance services but at a significant discount. Mayo Clinic subsequently notified Gen Water of its intention not to renew the contract, then signed with Med Water.
¶5 Gen Water discovered the correspondence and promptly filed suit against Van Zweden, Rotzler, and Med Water, requesting damages and an injunction under the UUTSA. The gist of the allegations was that Med Water had consistently underbid Gen Water to potential clients and that it did so by relying on information that Van Zweden and Rotzler had acquired while working for Gen Water. This included Gen Water's "confidential and proprietary pricing and bid strategy information." Gen Water also alleged that the defendants were marketing a water filtration system that was "nearly identical" to Gen Water's machine.
¶6 A lengthy discovery period ensued. But several years into the litigation, Gen Water had yet to disclose a computation of its damages. The defendants therefore moved to exclude all evidence of Gen Water's damages for untimely disclosure—a request granted by the district court. Gen Water could therefore pursue only injunctive relief. See InnoSys, Inc. v. Mercer , 2015 UT 80, ¶ 34, 364 P.3d 1013 ().
¶7 The defendants later took issue with Gen Water's description of its trade secrets and, less than one month before trial, moved to exclude "evidence of [Gen Water's] unspecified trade secrets." By that point, Gen Water had seemingly clarified that there were two alleged trade secrets: (1) "its filtration system" and (2) "its pricing information, its strategies for maintaining and soliciting current and prospective customers including pricing and bidding information." Even so, the defendants argued that Gen Water had not timely disclosed "any witness or any document that would specifically identify what exactly [its] trade secrets" were. They also complained about Gen Water's lack of "specificity as to what is secret about its pricing, and ... what is secret about its purification/filtration system." Gen Water opposed the motion and, by the time the defendants filed their reply memorandum, eight days remained before trial. The defendants separately objected to Gen Water's pretrial disclosures, arguing, similarly, that "[n]ot a single one of [Gen Water's] witnesses was ever disclosed as testifying at trial about specifically identified trade secrets."
¶8 These issues were addressed on the first day of trial, after yet another nondisclosure issue arose. Gen Water had arrived with a model of its water filtration system, which it intended to use as a demonstrative exhibit. The defendants objected on the basis that it, too, had not been disclosed. Gen Water countered that the nondisclosure was harmless, in part, because the defendants could just as easily "bring in their own machine" for demonstrative purposes. The district court ruled,
¶9 The court then addressed the defendants’ prior nondisclosure objections. The court added that, "to the extent there are going to be objections to specific testimony based on specific nondisclosure," it would reserve ruling on those objections until they were raised at trial.
¶10 But the defendants raised no such objection to the evidence Gen Water actually presented at trial. On day two of trial, they did ask the court to exclude two potential witnesses identified for the first time in Gen Water's pretrial disclosures. See Utah R. Civ. P. 26(a)(5)(A)(i) (). Gen Water indicated that it had not intended to call either individual as a witness, so the court excluded them. Gen Water then presented significant witness testimony and physical evidence during its case-in-chief, with no further nondisclosure objections by the defendants. At one point, for instance, Gen Water moved to admit a set of computer-aided drawings of its water filtration system. When the court asked the defendants if they had any objections to its admission, the defendants said, "No objection."
¶11 At trial, Gen Water's trade secrets were defined in the jury instructions as follows: (1) "the design of [the] water purification machine" (the design secret) and (2) "pricing and bidding information" (the pricing secret). As witnesses, Gen Water called several of its representatives to testify, including one of its technicians, its management consultant, and a billing specialist.
¶12 The technician and consultant testified about the design secret. Collectively, they testified that Gen Water was formed in 2001 and, at that time, had primarily distributed a German company's product. Although Gen Water had toyed with developing its own machine for several years, it began seriously doing so in 2008, after the German company raised its prices. Gen Water then hired an inventor to build a prototype based on "some drawings" of what it envisioned its design would look like, using "half of an SG box"—the German company's product—"just to get the idea." The inventor's prototype was not to Gen Water's satisfaction, and the working relationship ended after the inventor was unable to resolve its issues. Gen Water continued to develop the product on its own, working, at times, through "trial and error." In total, it took "approximately two years" before Gen Water's machine was ready to be sold.
¶13 The final product consisted of a "head" and a "reservoir." It housed a "seven-step [filtration] process" for producing Type I water and was "largely assembled" using component parts "from third party suppliers." The technician and consultant both pointed to various parts of Gen Water's demonstrative exhibit while testifying. And when discussing the internal components of the machine, Gen Water's witnesses opened the demonstrative exhibit using an ordinary Phillips-head screwdriver.
¶14 The technician and consultant identified at least two ways in which Gen Water's machine was preferable to competitors’ systems. First, its internal components were arranged to optimize the size of the machine. As the technician testified, Later, when challenged by defense counsel regarding whether the machine's individual components were trade secrets, the technician...
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