Lakoda, Inc. v. OMH Proscreen USA, Inc.
| Decision Date | 08 September 2016 |
| Docket Number | 32616-1-III |
| Court | Washington Court of Appeals |
| Parties | LAKODA, INC., a Washington corporation, Respondent, v. OMH PROSCREEN USA, INC., a Washington corporation; BRAD HILMOE, a married individual; JOHN O'CONNELL, a married individual; OMH INNOVATIONS, INC., a foreign corporation, Appellants. OMH PROSCREEN USA, INC., a Washington corporation, Third-Party Plaintiff, v. DALE AMES and DODIE AMES, husband and wife, and the marital community comprised thereof, Third-Party Defendants. |
UNPUBLISHED OPINION
OMH Proscreen USA, Inc. and its codefendants in the trial below appeal the results of a 9-day jury trial at the conclusion of which the jury awarded a total of $250, 002 in damages to Lakoda, Inc., for breach of contract, tortious interference with a business expectancy, and misappropriation of trade secrets. The trial court awarded an additional $231, 441 in attorney fees. The defendants challenge the trial court's exclusion of evidence they contend was critical to their defense and counterclaims, the admissibility and sufficiency of Lakoda's evidence of damages, and the trial court's award of attorney fees.
We find no error or abuse of discretion and affirm.
Lakoda is a self-described "contract manufacturer." 1 Report of Proceedings (RP) (May 6, 2014) at 66. It acts as an intermediary between businesses that need a product manufactured and factories that can deliver an acceptable product at an acceptable price. As middle man, Lakoda identifies a factory capable of producing the desired product, obtains a price, marks it up, and then offers the product to the manufacturing customer at the marked-up price. To protect itself from customers who might try to go around it and contract directly with the factory once the manufacturing operation has been established, Lakoda has a vendor nondisclosure agreement that it requires customers to sign before arranging manufacturing services.
Among areas of the world in which Lakoda has established expertise and manufacturing contacts is China. Its manufacturing contacts in China at times relevant to this dispute included the Longfei factory in Changzhou, and Geng Min, an engineer and the owner of a business called Tomorrow Product Development, or TPD. Virtually all references to Geng Min during trial were as "Peter" or "Peter G " his nickname, which we will use, intending no disrespect.
In March 2010, Dale Ames, Lakoda's owner, met Brad Hilmoe an officer and owner of OMH or its affiliates[1] on a flight to San Francisco. Both men's ultimate destination was China. OMH was in the business of selling soil screening equipment and at the time was having some of its soil screeners manufactured at a factory in Yantai. The products were not being made to Mr. Hilmoe's satisfaction.
Ex. 5, at 1 (emphasis added).
The agreement provided that a receiving party would not disclose a disclosing party's confidential information without consent, that it would take measures to protect confidential information, and that it "[would] not use, or permit others to use, Confidential Information for any purpose other than evaluation and performing its obligations under any customer/supplier relationship between the parties resulting therefrom." Id. Mr. Ames signed the agreement on behalf of Lakoda, Inc., and Mr. O'Connell signed on behalf of OMH. The parties then orally agreed that Lakoda would undertake to identify a new manufacturing source in China for OMH's products.
OMH provided Lakoda with target pricing for the screeners, some idea of the quantity to be produced, and OMH's screener designs. Armed with this information, Mr. Ames contacted Peter, who worked with the Longfei factory to arrive at a quote for producing the screeners.
Lakoda began to source parts necessary for the production of the screeners at Longfei and manufacturing began. For almost a year, OMH accepted Lakoda quotes, provided Lakoda with purchase orders, and Lakoda invoiced OMH at the marked-up price it had quoted.
In October 2010, OMH hired an employee in China to monitor quality control at Longfei. His name was Wang Fuliang, but most witnesses at the trial referred to him by his nickname, "Jack." Through Jack and through his own time spent in Changzhou, Mr. Hilmoe began to receive information about how Longfei was faring under the manufacturing relationship. He learned Longfei's management was disgruntled about slow payment and the price it was receiving for the screeners. The information Mr. Hilmoe received led to a dispute between OMH and Lakoda over whether Lakoda was taking a bigger markup than had been agreed, leaving Longfei with too little to make the manufacturing relationship worthwhile. Facing threats from Longfei that it would cease manufacturing the screeners, OMH "cut [Lakoda] out of the picture" in April 2011 and began purchasing screeners directly from Longfei. 1 RP (May 6, 2014) at 137-38.
Lakoda filed suit against OMH and Mr. Hilmoe shortly thereafter, alleging breach of contract; breach of the implied covenant of good faith and fair dealing; violation of Washington's Uniform Trade Secrets Act, chapter 19.108 RCW; and tortious interference with a business expectancy. Lakoda accused OMH of using its confidential information (the identity of the Longfei factory and the screener manufacturing capability it had developed) in violation of the nondisclosure agreement.[2]
In answering the complaint, OMH counterclaimed, alleging Lakoda had failed to protect its proprietary designs in violation of the nondisclosure agreement and had violated an alleged oral agreement that Lakoda's markup of Longfei's price would be limited to 10 percent. According to OMH, Peter or Lakoda misled Longfei about the volume of screeners OMH would purchase, leading Longfei to quote a price at which it could not make money.
OMH also claimed Lakoda did not obtain a nondisclosure agreement from Longfei until February 2011, two months after Longfei registered OMH's designs in China, in Longfei's name. OMH contended Longfei alone could manufacture OMH's screeners in China and as a result, when Longfei refused to continue manufacturing unless it was paid more, OMH "was forced to renegotiate the terms of the manufacturing agreement" with Longfei. Clerk's Papers (CP) at 61 (emphasis added). According to Mr. Hilmoe, "OMH had no recourse against the [Longfei] factory." CP at 208. Finally, OMH alleged Longfei sold OMH's designs to two Canadians, Viorel Mazilescu and Gerald Clancy, who began selling "knock-off screeners in competition with OMH. CP at 191. It accused Mr. Ames of being complicit in that misappropriation of its designs.
In pretrial rulings, the court held that a document that appeared to be written in Chinese and that OMH represented was Longfei's "registration" in China of its drawings was inadmissible. It reserved ruling on whether testimony about the registration would be admitted.
When OMH sought to elicit testimony about the registration during trial, the court sustained an objection to its relevance. OMH renewed its effort to offer the evidence after Lakoda allegedly "opened the door" by inquiring into what measures OMH had taken to protect its designs in the United States and Canada. The court again held that testimony about the alleged Chinese registration was not relevant.
Also during trial, the court excluded a portion of testimony from Gerald Clancy's perpetuation deposition about a videoclip, as well as the videoclip itself, which OMH offered as evidence during the deposition. The court rejected OMH's argument that Mr. Clancy's limited testimony about the videoclip was relevant or sufficient.
A halftime motion by OMH on several claims was denied.
After a week and a half of trial, the jury returned a special verdict in favor of Lakoda on every claim and counterclaim. It awarded $ 1 in damages on the tortious interference claim, $1 in damages for misappropriation of trade secrets, and $250, 000 for breach of contract. Lakoda contended, and the trial court agreed, that the three claims overlapped and that the $1 verdicts merely reflected the jury's compliance with the court's instruction not to duplicate damages.
The court thereafter granted Lakoda's motion for an award of attorney fees on its trade secret claim, finding reasonable attorney fees of $231, 441.
OMH appeals.
OMH assigns error to (1) the trial court's exclusion of evidence that Longfei registered its designs in China,...
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