Infinity Products, Inc. v. Quandt
| Citation | 810 N.E.2d 1028 |
| Decision Date | 29 June 2004 |
| Docket Number | No. 29S02-0305-CV-226.,29S02-0305-CV-226. |
| Parties | INFINITY PRODUCTS, INC., Appellant (Plaintiff below), v. Herbert QUANDT and Fabri-Tech, Inc., Appellees (Defendants below). |
| Court | Supreme Court of Indiana |
Arend J. Abel, Ronald G. Sentman, Indianapolis, IN, Attorneys for Appellant.
Karl Mulvaney, Nana Quay-Smith, Indianapolis, IN, Attorneys for Appellee Herbert Quandt.
Grover Davis, Indianapolis, IN, William Harrington, Danville, IN, Attorneys for Appellee Fabri-Tech.
ON PETITION TO TRANSFER FROM THE INDIANA COURT OF APPEALS, NO. 29A02-0105-CV-280.
Four days after T.E. Scott, Inc. fired Herbert Quandt, he began working for Fabri-Tech doing the same sort of work. Infinity Products, T.E. Scott's successor, eventually sued Quandt and Fabri-Tech alleging that Quandt used stolen trade secrets to lure Infinity customers to Fabri-Tech. The trial court held that Quandt was liable for misappropriating and converting Infinity's trade secrets and that Fabri-Tech was not.
We first address whether Fabri-Tech was directly liable under Indiana's Trade Secrets Act ("the Act"). Second, we examine whether Fabri-Tech can be vicariously liable under the Act through the doctrine of respondeat superior.
In 1985, T.E. Scott, a manufacturer of webbing and strapping products, hired Quandt to develop its original equipment manufacturer ("OEM") division. The process of developing new products includes identifying finished consumer products like car seats or baby swings that incorporate webbing or straps. An OEM salesperson then contacts the consumer product manufacturer and negotiates a price quote for the webbing or strap. Pricing requires the OEM salesperson to determine the production cost of the webbing or strap through an internal quotation process, prepare a price summary, and then negotiate a final price with the consumer product manufacturer. All internal pricing and cost analysis documentation is confidential.
Quandt enjoyed ten successful years as an OEM salesperson for T.E. Scott. In 1995, T.E. Scott entered into negotiations to sell its OEM division. Linda Scott, the former controller for T.E. Scott, formed Infinity Products to purchase the OEM division. The sales agreement provided that Infinity would acquire all of T.E. Scott's trade secrets relating to the OEM division. Linda Scott required employees of T.E. Scott desiring to work for Infinity to complete an application process. Quandt refused to complete an application and indicated that Infinity would not be able to afford his services.
During negotiation of the sales agreement, fellow employees suspected Quandt of copying customer-specific documents and removing them from the office. The documents included contact information for T.E. Scott's customers, manufacturing costs, and price summaries. Quandt kept all information relevant to pricing and costing in three-ring binders in his office. The information was confidential, and T.E. Scott used locked offices, locked file cabinets, and computer passwords to secure it. Quandt knew that all customer-specific information was confidential.
On October 5, 1995, four days before the sale was complete, T.E. Scott fired Quandt. Quandt packed up his office and took several boxes and file folders to his car before leaving. As he left, Quandt told T.E. Scott employee Paul Seitzinger, Tr. at 637. Linda Scott reported that customer-specific information was missing from several files after Quandt left.
The next day, Quandt contacted Don Menchhofer, the president and chief executive officer of Fabri-Tech Inc., to seek a sales position. Menchhofer had never met Quandt, but he immediately granted him an interview. The two did not discuss T.E. Scott's customers, but Quandt indicated that he had built a million dollar book of business for T.E. Scott. Quandt correctly indicated that he was not bound by any non-compete agreement with Infinity or T.E. Scott. Menchhofer hired Quandt that same day, paying a base salary of $40,000 per year, plus $1,000 for the first $100,000 in sales and four percent on all additional sales. Fabri-Tech did not provide Quandt with an existing customer list, so Quandt had to generate business from new customers.
On October 9, 1995, T.E. Scott effectuated the sale of the OEM division to Infinity. All of T.E. Scott's OEM customers thus became Infinity's customers.
On that same day, Quandt began working for Fabri-Tech. That morning, Quandt phoned five of Infinity's newly-acquired customers and informed them that he was with Fabri-Tech. During the following weeks, Quandt quoted prices of existing products now produced by Infinity and sold to these customers without the benefit of Fabri-Tech's internal cost analysis. See exhibits 14-21; Tr. at 312. Many of Quandt's quotes were mere pennies less than the price quoted by T.E. Scott for the identical product. See id. Subsequent to Quandt's telephone calls, five companies stopped ordering from Infinity and began ordering from Fabri-Tech. In total, Fabri-Tech received orders for seven products previously manufactured by Infinity.
In October 1996, Infinity sued Quandt and Fabri-Tech alleging misappropriation of trade secrets and conversion. Fabri-Tech answered and filed a counterclaim asserting that the misappropriated information did not constitute a trade secret and that it had no knowledge of the misappropriated information. In 1999, the trial court held that Infinity had a protectable interest in the trade secrets transferred to it from T.E. Scott. The parties tried the case to the bench in March 2000, and the court found in relevant part as follows:
The Court also draws the reasonable, perhaps inescapable, inference from Quandt's behavior and the disappearance of documents from his office at the time of his departure, the absence, inconsistency and incompleteness of costing records of Fabri-Tech for the disputed items, and the fact that Fabri-Tech undercut Infinity's prices by just enough to secure sales of the disputed items, that Quandt took product pricing and costing information on his departure and that he used it to Infinity's detriment.
Appellant's App. at 35-36. The trial court also found that:
The trial court calculated Infinity's losses based on two years of projected profits for seven products as follows:
Compensatory damages totaled $215,166.79. The trial court also awarded Infinity exemplary damages of $430,333.58 and attorney fees of $117,752.87. As noted above, these damages were assessed against Quandt alone.
Quandt appealed the damages calculation, but the Court of Appeals affirmed. Infinity appealed the determination that Fabri-Tech had no liability. On this point the Court of Appeals reversed, on the basis of respondeat superior, without addressing whether Fabri-Tech might have direct liability under the Act. Infinity Products, Inc. v. Quandt, 775 N.E.2d 1144 (Ind.Ct.App.2002). We granted transfer.
Infinity first contends that the trial court erred in finding that Fabri-Tech was not directly liable for misappropriation under Indiana's Trade Secrets Act.1 At Infinity's request, the trial court entered special findings and conclusions pursuant to Trial Rule 52, so the standard of review is two-tiered:
[W]e determine whether the evidence supports the trial court's findings, and we determine whether the findings support the judgment. We will not disturb the trial court's findings or judgment unless they are clearly erroneous. Findings of fact are clearly erroneous when the record lacks any reasonable inference from the evidence to support them, and the trial court's judgment is clearly erroneous if it is unsupported by the findings and the conclusions which rely upon those findings. In determining whether the findings or judgment are clearly erroneous, we consider only the evidence favorable to the judgment and all reasonable inferences to be drawn therefrom.
Bussing v. Ind. Dept. of Transportation, 779 N.E.2d 98, 102 (Ind.Ct.App.2002) (citations omitted), trans. denied. Because Infinity appeals from a negative judgment, it must:
demonstrate that the trial court's judgment is contrary to law. A judgment is contrary to law only if the evidence in the record, along with all reasonable inferences, is without conflict and leads unerringly to a conclusion opposite that reached by the trial court. In conducting our review, we cannot reweigh the evidence or judge the credibility of any witness, and must affirm the trial court's decision if the record contains any supporting evidence or inferences.
DiMizio v. Romo, 756 N.E.2d 1018, 1021 (Ind.Ct.App.2001) (citations omitted), trans. denied.
The analysis of Infinity's direct claim against Fabri-Tech begins with Indiana Code Section 24-2-3-2, which defines a "trade secret" as:
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Table of Cases
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