Infinity Products, Inc. v. Quandt

• Decision Date: 27 September 2002
• Docket Number: No. 29A02-0105-CV-280.,29A02-0105-CV-280.
• Citation: 775 N.E.2d 1144
• Parties: INFINITY PRODUCTS, INC., Appellant-Plaintiff, v. Herbert QUANDT and Fabri-Tech, Inc., Appellees-Defendants.
• Court: Indiana Appellate Court

775 N.E.2d 1144

INFINITY PRODUCTS, INC., Appellant-Plaintiff, v. Herbert QUANDT and Fabri-Tech, Inc., Appellees-Defendants.

No. 29A02-0105-CV-280.

Court of Appeals of Indiana.

September 27, 2002.

Arend J. Abel, Ronald G. Sentman, Leagre Chandler & Millard, Indianapolis, IN, Attorneys for Appellant.

Karl L. Mulvaney, Nana Quay-Smith, Bingham McHale, Grover Davis, McClure McClure & Davis, Indianapolis, IN, William O. Harrington, Danville, IN, Attorneys for Appellees.

OPINION

NAJAM, Judge.

STATEMENT OF THE CASE

In October 1996, Infinity Products, Inc. ("Infinity") sued Herbert Quandt ("Quandt") and Fabri-Tech, Inc. ("Fabri-Tech"), alleging misappropriation of trade secrets and conversion. Quandt and Fabri-Tech filed counterclaims. Following a bench trial, the court entered judgment against Quandt in the amount of $1,017,937.04. The court later reduced the judgment to $763,253.24. The court did not find Fabri-Tech liable.

Infinity presents two issues for our review, which we consolidate and restate as:

1. Whether the trial court erred when it failed to hold Fabri-Tech vicariously or, in the alternative, primarily liable for misappropriation of trade secrets and conversion.

Fabri-Tech and Quandt cross appeal and present the following issues for our review:

2. Whether, assuming Fabri-Tech is liable for lost profits, it can also be held liable for punitive damages.

3. Whether the trial court's calculation of damages was erroneous.

We affirm in part, reverse in part, and remand for further proceedings.¹

FACTS AND PROCEDURAL HISTORY

Infinity and Fabri-Tech both manufacture webbing and strapping products in their Original Equipment Manufacturer ("OEM") divisions. These products include straps for high chairs, strollers, and toys. Infinity and Fabri-Tech are direct competitors. Linda Scott owns Infinity, and Infinity purchased the railroad and OEM divisions of T.E. Scott, Inc. ("T.E.Scott") in October of 1995.

Quandt began working for T.E. Scott between 1984 and 1985. In 1991, Quandt developed T.E. Scott's second OEM division and became T.E. Scott's primary contact for OEM customers. Quandt found customers by visiting K-Mart and Wal-Mart stores to discover which companies made products that required webbing or strapping components. He would then look up the telephone numbers of those companies in the Thomas Register or Dun & Bradstreet, call the numbers listed, and ask to speak with the companies' purchasing agents. Quandt would ask the purchasing agents to send him either a specification sheet or a sample product. T.E Scott would then develop a cost summary to prepare a quote for the customer. Cost summaries include information about labor costs, material costs, and markup. According to Quandt and Linda Scott, it is important for companies to prepare cost summaries before quoting a price, so that they do not sell products at a loss or alienate customers by providing a quote that is too high.

T.E. Scott, Infinity, and Fabri-Tech all used similar procedures to prepare cost summaries. It usually took between three and four days to complete a cost summary, and a quote was rarely, if ever, issued without completing a cost summary. While Linda Scott was a controller at T.E. Scott, she never issued a quote without preparing a cost summary. T.E. Scott kept cost summaries, blueprints, requests for quotes, and quotes in customer files for between five and seven years. Quandt knew what prices T.E. Scott charged its customers for particular products, and he kept that information and customer contact information in three-ring binders, boxes, and file folders in his office.

T.E. Scott considered customer and pricing information confidential. A password was required to access computers that contained that information, the front door of T.E. Scott was locked, and a receptionist controlled access to the building. Quandt knew that customer and pricing information was considered confidential. All T.E. Scott employees, including Quandt, signed an employee handbook that included the following paragraph:

Like physical assets, information is also a valuable Company resource. This includes information such as financial, operating, employee, customer, strategic, technological, or any other information produced or acquired through Company activities. Any unauthorized use of Company information is strictly forbidden. Those who, by the nature of their duties, possess or monitor confidential information hold a special position of trust. They have an important responsibility to maintain confidence. This means confidential information should not be discussed with family, friends, business or social acquaintances. Nor should it be discussed with other employees unless they have a clear right and need to know.

(Emphasis added). When Infinity purchased T.E. Scott's railroad and OEM divisions, it acquired T.E. Scott's customer and pricing information in the sale.

In June 1995, T.E. Scott circulated an internal memorandum to each of its employees regarding Infinity's purchase of the railroad and OEM divisions. Employees were informed that they could transfer to the T.E. Scott facility, which was being relocated to Rockville, or they could apply for employment with Infinity. Quandt did not apply for employment with Infinity and told Scott that she probably "could not afford" to hire him.

Before the sale, in August and September of 1995, some of Quandt's fellow employees noticed changes in his behavior. Quandt began carrying his briefcase in and out of the building during the day, despite the fact that he had previously carried his briefcase only when he arrived in the morning and left in the afternoon. Quandt also began making more frequent trips to the copy machine. Further, Quandt made trips from the building to his car while carrying a booster seat box. The booster seat remained in Quandt's office. Although Quandt told some of his co-workers that he planned to give the booster seat as a gift, the booster seat and box were still in Quandt's office after he left.

T.E. Scott terminated Quandt on October 5, 1995. After Quandt learned of his termination, he took several folders from his office and put them in his car. Linda Scott was present when Quandt was fired, but she was not then employed at T.E. Scott. She asked Mike Bassett and Paul Pierson, T.E. Scott employees, to monitor Quandt while he removed items from his office. Bassett and Pierson monitored Quandt intermittently. Paul Seitzinger, another T.E. Scott employee, talked with Quandt in the parking lot after Quandt had been terminated. Quandt stated to him, "I built this company up. And as quickly as I built this company up, I can tear it down."

After Quandt left, Linda Scott observed several changes in his office. His desk drawers were empty; his Rolodex, which had been about three-quarters full, contained only a few cards; of his seven filing cabinet drawers which had been full, only three and one-half to four of them were still full; boxes that had been full were now empty; and his three-ring binders that had been full were now empty. Scott also found that many documents were missing from T.E. Scott's files, including requests for quotes, quotes, prints, samples, and cost summaries. In response to a document request in unrelated litigation, Quandt produced a list of T.E. Scott's top ten pet goods customers and top eight OEM customers, as well as a document listing names of T.E. Scott customers and individual data for their total sales, total amount of shipped orders, costs of goods, profit amount, product returns, and restocking charges.

Quandt called Don Menchhofer, president of Fabri-Tech, on October 6, 1995, to inquire about employment opportunities. Although the two men had not met or spoken to each other before that day, they met for lunch and then toured Fabri-Tech's factory. During their meeting Quandt and Menchhofer discussed, among other things, business with Little Tikes, one of T.E. Scott's biggest customers. Menchhofer asked Quandt whether he was restricted by a non-compete agreement, and Quandt replied that he was not. At the conclusion of the meeting, Menchhofer agreed to hire Quandt.

Menchhofer hired Quandt to develop new customers for Fabri-Tech. Quandt was given no existing customers or sales leads. Quandt discussed with Menchhofer the possibility of sending a mailing to the customers he had developed while at T.E. Scott. Menchhofer did not permit Quandt to send a mailing, but he did give Quandt permission to telephone those customers.

On his first day at work, October 9, 1995, Quandt, using a direct dial number not available in either the Thomas Register or Dun & Bradstreet, telephoned the purchasing agent for Little Tikes. That same day, Quandt also contacted purchasing agents for Gleason, Old Dominion, Smart Products, and Tecla, all former T.E. Scott customers that had become Infinity customers.

All of the customers that Quandt contacted shifted some of their business from Infinity to Fabri-Tech. Quandt quoted prices to customers that were slightly lower than the prices quoted by Infinity. In some cases, the prices were lower by fractions of a cent. Fabri-Tech sometimes provided quotes without completing a cost summary. And of the cost summaries that were completed, some showed markups inconsistent with the prices Fabri-Tech actually quoted to Infinity's customers.

Menchhofer has been involved in preparing bids for Infinity's former customers. And as a general practice, either Menchhofer or his son sign off or in some way acknowledge a quote before it is sent to a customer for about ninety percent of all quotes. About ten percent of the time, their approval is unnecessary to provide a quote.

Infinity filed suit against Quandt and Fabri-Tech, alleging a violation of the Indiana Uniform Trade Secrets Act ("IUTSA"), interference with prospective business advantage, and interference with contractual relations. Infinity also sought treble...