Hydraulic Exchange and Repair, Inc. v. KM Specialty Pumps, Inc., 87A04-9705-CV-174

• Decision Date: 30 January 1998
• Docket Number: No. 87A04-9705-CV-174,87A04-9705-CV-174
• Citation: 690 N.E.2d 782
• Parties: HYDRAULIC EXCHANGE AND REPAIR, INC., and Paul Titzer, Appellants-Defendants, v. KM SPECIALTY PUMPS, INC., and KM Specialty Systems, Inc., Appellees-Plaintiffs.
• Court: Indiana Appellate Court

Page 782

690 N.E.2d 782

46 U.S.P.Q.2d 1291

HYDRAULIC EXCHANGE AND REPAIR, INC., and Paul Titzer Appellants-Defendants, v. KM SPECIALTY PUMPS, INC., and KM Specialty Systems, Inc. Appellees-Plaintiffs.

No. 87A04-9705-CV-174.

Court of Appeals of Indiana.

Jan. 30, 1998.

J. William Brunner, Boonville, for Appellants-Defendants.

Reed S. Schmitt, Scott M. Stratman, Frick Powell Whinrey Cravens & Schmitt, Evansville, for Appellees-Plaintiffs.

OPINION

NAJAM, Judge.

STATEMENT OF THE CASE

On March 5, 1997, KM Specialty Pumps, Inc., and KM Specialty Systems, Inc., (collectively "KM") filed its complaint against Hydraulic Exchange and Repair, Inc., ("HER") and Paul Titzer for Breach of Contract, Tortious Interference, Damages and Permanent Injunction. The following day, KM filed a Motion for Preliminary Injunction which sought to enjoin Titzer and HER from using KM's customer and pricing information or from contacting KM's customers. After a hearing, the trial court entered its Temporary Restraining Order and Order for Preliminary Injunction. HER now brings this interlocutory appeal pursuant to Indiana Appellate Rule 4(B)(3). ¹

We affirm in part, reverse in part and remand. ²

ISSUES PRESENTED ³

The parties present two issues on appeal that we restate as:

1. Whether the trial court erred when it determined that KM's customer and pricing information are a trade secret under the Indiana Uniform Trade Secrets Act. ⁴

2. Whether the preliminary injunction issued by the trial court is overbroad as it applies to HER.

FACTS

On July 1, 1994, C. Russell Welder, the owner of KM, purchased a lubrication business from Mine Tech, which was owned by Whitmore Manufacturing Company. Paul Titzer was one of three Mine Tech employees that KM had hired when it purchased the business. Titzer signed a Noncompetition Agreement on August 26, 1994, in which he agreed that both during and for a period of two years subsequent to his employment with KM: (1) he would not sell industrial pumps and lubrications for anyone other than KM in any county in which he had made sales or service calls on KM's behalf, and (2) he would not, either directly or indirectly, solicit any of KM's customers or accounts. The noncompetition agreement provided that an injunction would be the remedy in the case of breach.

Although KM acquired all of Mine Tech's customer information and records, KM's customer and pricing information is comprised of additional information, all of which is updated daily. KM considers its customer and pricing information to be confidential. Specifically, pricing information, the names of personal contacts at each customer location, and overhead information is unavailable from trade publications. In addition, although both its labor rate and overhead are included as part of KM's total bid to a customer, KM considers its labor rate and overhead information to be confidential.

While Titzer was employed with KM, he served as a sales representative in counties in southern and central Indiana, southern Illinois, and western and central Kentucky. In his capacity as a sales representative, Titzer was assigned both existing and potential clients of KM. Specifically, Titzer had contact with the following KM clients: Vulcan Materials, which was formerly known as Reed Crushed Stone, Four Star Fabricators, Black Beauty Coal Company and Solar Sources. Overall, Titzer had approximately seventy to eighty clients to which he sold lubricants, water pumps and lubricant related items. ⁵ In addition, KM supplied Titzer with customer lists that included: (1) the names of customers and prospective customers, (2) the names of individuals to contact at each customer location, and (3) past histories of each customer showing previous sales history. On August 4, 1995, Titzer orally resigned from his employment with KM.

In September of 1995, Titzer was hired by HER, whose business primarily consists of repairing hydraulic components. Approximately ten percent of HER's business involves lubrication work. HER has done lubrication work for Vulcan Materials, Black Beauty Coal Company, Solar Sources, Peabody Coal Company, Four Star Fabricators and Arch Minerals. Devon Allen, HER's owner, prepares and finalizes all bids for the business. Titzer is a sales representative for HER who calls on customers weekly. According to Allen, Titzer does not sell lubrication systems for HER.

On July 20, 1996, Jack Ellis, the vice president of KM, encountered Titzer during a routine customer call at Kindill Mining. Ellis discussed the noncompetition agreement that Titzer had signed with KM. Specifically, Ellis informed Titzer that the agreement extended for a period of two years, but Titzer replied that he would not turn down any work that came to him. In addition, Titzer had repeatedly contacted Tim Walthall, owner of Four Star Fabricators and customer of both KM and HER, approximately two to three months after Titzer had changed jobs. Titzer had contacted Four Star regarding a bid on a lubrication project.

Subsequently, KM filed its complaint and motion for a preliminary injunction against HER and Titzer. Following a hearing on KM's motion, the trial court entered a temporary restraining order and preliminary injunction that precluded HER and Titzer from: (1) offering for sale any industrial pumps or lubricant systems to any customer or client of KM, (2) inducing or attempting to induce any person to terminate an agreement with KM, (3) inducing or attempting to induce any employee of KM to work for or with Titzer or HER, and (4) using or disclosing any trade secret or other proprietary information or pricing information of KM.

DISCUSSION AND DECISION

Standard of Review

The issuance of a preliminary injunction is within the sound discretion of the trial court, and the scope of appellate review is limited to deciding whether there has been a clear abuse of discretion. Reilly v. Daly, 666 N.E.2d 439, 443 (Ind.Ct.App.1996), trans. denied. When determining whether or not to grant a preliminary injunction, the trial court is required to make special findings of fact and state its conclusions thereon. Ind. Trial Rule 52(A). When findings and conclusions are made, the reviewing court must determine if the trial court's findings support the judgment. Norlund v. Faust, 675 N.E.2d 1142, 1149 (Ind.Ct.App.1997), trans. denied. The trial court's judgment will be reversed only when clearly erroneous. Id. Findings of fact are clearly erroneous when the record lacks evidence or reasonable inferences from the evidence to support them. Id. We consider the evidence only in the light most favorable to the judgment and construe findings together liberally in favor of the judgment. Id.

The trial court's discretion to grant or deny preliminary injunctive relief is measured by several factors: (1) whether the plaintiff's remedies at law are inadequate thus causing irreparable harm pending the resolution of the substantive action if the injunction does not issue, (2) whether the plaintiff has demonstrated at least a reasonable likelihood of success at trial by establishing a prima facie case, (3) whether the threatened injury to the plaintiff outweighs the threatened harm the grant of the injunction may inflict on the defendant, and (4) whether, by the grant of the preliminary injunction, the public interest would be disserved. Reilly, 666 N.E.2d at 443. In order to grant a preliminary injunction, the moving party has the burden of showing, by a preponderance of the evidence, that the facts and circumstances entitle him to injunctive relief. Id. The power to issue a preliminary injunction should be used sparingly, and such relief should not be granted except in rare instances in which the law and facts are clearly within the moving party's favor. Id.

Issue One: Trade Secrets

HER maintains that the trial court improperly concluded that KM's customer and pricing information were trade secrets under the Indiana Uniform Trade Secrets Act ("IUTSA"). Specifically, HER asserts that KM's customer and pricing information is readily ascertainable by proper means. We disagree.

Under the Indiana Uniform Trade Secrets Act ("IUTSA"), either actual or threatened misappropriation of trade secrets may be enjoined. IND.CODE § 24-2-3-3. The IUTSA defines "trade secret" as:

[I]nformation, including a formula, pattern, compilation, program, device, method, technique, or process, that:

(1) 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

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

IND.CODE § 24-2-3-2. Thus, a protectable trade secret has four characteristics: (1) information, (2) which derives independent economic value, (3) is not generally known, or readily ascertainable by proper means by other persons who can obtain economic value from its disclosure or use, and (4) the subject of efforts reasonable under the circumstances to maintain its secrecy. Ackerman v. Kimball Intern,. Inc., 634 N.E.2d 778, 783 (Ind.Ct.App.1994) vacated in part, adopted in part, 652 N.E.2d 507 (Ind.1995).

In Amoco Production Co. v. Laird, 622 N.E.2d 912, 916 (Ind.1993), our supreme court acknowledged the difficulty of defining "trade secrets" under the IUTSA. After determining that the phrase "not being readily ascertainable" is ambiguous, the court held that "where the duplication or acquisition of alleged trade secret information requires a substantial investment of time, expense, or effort, such information may be found 'not being readily ascertainable' so as to qualify for protection under the Indiana Uniform Trade Secrets Act." Id. at 919. The court further held that " 'the effort of compiling useful information is, of itself, entitled to protection even if the information is otherwise generally...