Loparex, LLC v. Mpi Release Techs., LLC

• Decision Date: 21 March 2012
• Docket Number: No. 94S00–1109–CQ–546.,94S00–1109–CQ–546.
• Citation: 162 Lab.Cas. P 61236,964 N.E.2d 806,33 IER Cases 1364
• Parties: LOPAREX, LLC, Plaintiff/Counter–Defendant, v. MPI RELEASE TECHNOLOGIES, LLC, Gerald Kerber, and Stephen Odders, Defendants/Counter–Plaintiffs.
• Court: Indiana Supreme Court

162 Lab.Cas. P 61,236

33 IER Cases 1364

964 N.E.2d 806

LOPAREX, LLC, Plaintiff/Counter–Defendant,

v.MPI RELEASE TECHNOLOGIES, LLC, Gerald Kerber, and Stephen Odders, Defendants/Counter–Plaintiffs.

No. 94S00–1109–CQ–546.

Supreme Court of Indiana.

March 21, 2012.

Craig W. Wiley, Michael W. Padgett, Indianapolis, IN, Robin K. Vinson, Raleigh, NC, Charles W. Pautsch, Milwaukee, WI, Attorneys for Plaintiff/Counter–Defendant.

Donald E. Knebel, Lynn C. Tyler, Aaron M. Staser, Jennifer L. Schuster, Indianapolis, IN, Attorneys for Defendants/Counter–Plaintiffs.

SHEPARD, Chief Justice.

Just over a century ago, in Wabash Railroad Co. v. Young, this Court held that Indiana's Blacklisting Statute violated the constitutional Single Subject requirement. We therefore held the statute did not provide a cause of action to individuals who voluntarily leave their employment. Since then, the people have revised this constitutional requirement, and our standards for its application have evolved, casting continued reliance on Young into doubt.

The vitality of Young and other questions related to the scope of the Blacklisting Statute are now before us by virtue of a certified question from the U.S. District Court for the Southern District of Indiana. Pursuant to Indiana Appellate Rule 64, Judge Jane Magnus–Stinson has certified the following questions:

1. Is Wabash Railroad Co. v. Young, 162 Ind. 102, 69 N.E. 1003 (1904), still good law, such that individuals who voluntarily leave employment are precluded from pursuing a claim under Indiana's Blacklisting Statute?

2. In an action brought under Indiana's Blacklisting Statute, are attorney fees incurred in defending an unsuccessful claim against a former employee or in prosecuting a claim by a former employee recoverable as compensatory damages?

3. Is an unsuccessful suit to protect alleged trade secrets, within which a former employer seeks to preclude any competitive employment of a former employee by pursuing permanent injunctive relief and in settlement negotiations, a basis for recovery under Indiana's Blacklisting Statute?

We respond as follows: (1) Young is no longer good law and individuals who voluntarily leave employment are not barred from making a claim under Indiana's Blacklisting Statute; (2) attorney fees are not an element of compensatory damages under the Blacklisting Statute; and (3) an employer's suit against a former employee to protect trade secrets is not a basis for recovery under the Blacklisting Statute.

Background

Stephan Odders and Gerald Kerber ¹ are former employees of Loparex, LLC, a corporation in the “release liner” industry.² During their employment, Odders and Kerber gained in-depth knowledge of Loparex's sales practices, strategies, and client information, as well as technical information about its formulas, production processes, and proprietary machinery.

Loparex fired Odders in September 2008. Odders was then subject to a one-year noncompetition agreement forbidding him from soliciting Loparex customers or working for a competitor within certain territorial limits. Loparex alleges that during that one year, Odders met on multiple occasions with representatives of MPI Release Technologies, LLC,³ a competitor in the release liner industry. Loparex alleges these meetings were inconsistent with the restrictions of its noncompetition agreement. Odders began a new job with MPI in September 2009.

Kerber resigned from Loparex in September 2009 and immediately began employment with MPI, though he was also subject to a similar one-year agreement. Loparex alleges that Kerber took notebooks and digital memory devices with him. Loparex apparently believed these items contained trade secrets, although that does not appear to have been confirmed.

In October 2009, Loparex sued Kerber in Illinois state court, seeking injunctive relief under the Illinois Trade Secrets Act and damages resulting from Kerber's breach of the noncompetition agreement. Loparex dismissed that suit and re-filed in the U.S. District Court for the Southern District of Indiana in November 2009. This time, Loparex included claims against Odders but still sought both injunctive relief and damages. At the same time, Loparex sought to enjoin MPI from employing Kerber and Odders, a request later withdrawn. On several occasions, Loparex apparently offered to dismiss its suit if MPI agreed to terminate the employment of Kerber and Odders. Loparex had sent cease and desist letters to Kerber and Odders before filing its lawsuits.

In April 2010, Kerber and Odders filed amended answers and counterclaims accusing Loparex of blacklisting in violation of Indiana law. The counterclaims seek damages including, among other things, the attorney fees Kerber and Odders incurred in defending themselves against Loparex's litigation. Judge Magnus–Stinson certified these questions to us in September 2011, after she denied Loparex's motions to dismiss the counterclaims and granted summary judgment to Kerber and Odders on Loparex's claims.

Indiana's Blacklisting Statute

The relevant portion of the Blacklisting Statute, a provision creating a cause of action for damages resulting from a former employer engaging in blacklisting, provides:

If any railway company or any other company, partnership, limited liability company, or corporation in this state shall authorize, allow or permit any of its or their agents to black-list any discharged employees, or attempt by words or writing, or any other means whatever, to prevent such discharged employee, or any employee who may have voluntarily left said company's service, from obtaining employment with any other person, or company, said company shall be liable to such employee in such sum as will fully compensate him, to which may be added exemplary damages.

Ind.Code § 22–5–3–2 (2007).

Like other states' blacklisting statutes, Indiana's was enacted around the turn of the twentieth century. Compare Act of March 9, 1889, § 2, 1889 Ind. Acts 315 with Act of April 17, 1915, § 1, 1915 Iowa Acts 359, 359–60 (“An act providing punishment for making false charges concerning the honesty of employes [sic]”) (codified as amended at Iowa Code Ann. § 730.2 (West 2003)), and Act of March 12, 1897, § 1, 1897 Kan. Sess. Laws 322 (“An act to prevent blacklisting by employers of labor, providing penalties therefor, and for the recovery of damages”) (codified as amended at Kan. Stat. Ann. § 44–117 et seq. (2000)).

This period was one of “legal ferment” in our country, as the number of workers in organized labor unions nation-wide had swelled from perhaps 26,000 in the 1830s to over 700,000 by the mid–1880s. Janet Currie & Joseph Ferrie, The Law and Labor Strife in the United States. 1881–1894. 60 J. Econ. Hist. 42 (2000). As states shifted from viewing organized labor movements as criminal conspiracies to legislative acknowledgement of unions, both unions and employers “actively lobbied state governments to have the rules of the bargaining game changed in their favor.” Id. at 43–44. These rules frequently changed only after violent clashes between the two sides and the government, resulting in loss of life, property, and industrial productivity. Id. at 43.

Under pressure from employers and industries to ease losses resulting from organized strikes, courts increasingly issued injunctions barring strikes or ordering workers back to work. Id. at 45. At the same time, unions pushed legislatures to regulate work hours, repeal statutes criminalizing strikes, and—most importantly to the questions here—control the conduct of employers “by banning blacklisting of workers who joined unions or went on strike.” Id. at 44–45. Indiana's Blacklisting Statute, as is readily apparent from its language, was enacted with a particular eye toward the conduct of railroad companies, though it operates to control the conduct of all employers. See Ind.Code § 22–5–3–2.

Over the course of the twentieth century, blacklisting practices have been challenged in different contexts beyond the industrial unions. See, e.g., Radovich v. Nat'l Football League, 352 U.S. 445, 77 S.Ct. 390, 1 L.Ed.2d 456 (1957) (former player for non-NFL team claimed NFL leadership and teams conspired to blacklist him from becoming player-coach in different league); see also Note, “ Political” Blacklisting in the Motion Picture Industry: A Sherman Act Violation, 74 Yale L.J. 567 (1965) (discussing “Hollywood Ten” and “Waldorf Declaration” in context of federal labor laws). In recent years, as in this case, blacklisting suits have shifted to the arena of noncompetition and trade secrets. See Lemaster v. Spartan Tool, LLC, 2009 WL 700240 (S.D.Ind. Mar. 16, 2009); Bridgestone/Firestone Inc. v. Lockhart, 5 F.Supp.2d 667 (S.D.Ind.1998); Baker v. Tremco Inc., 890 N.E.2d 73 (Ind.Ct.App.2008), aff'd in part, vacated in part, 917 N.E.2d 650 (Ind.2009); Burk v. Heritage Food Serv. Equip., Inc., 737 N.E.2d 803 (Ind.Ct.App.2000).

The scope of conduct prohibited by the Indiana Blacklisting Statute is a discussion we leave for our response to the third certified question.

I. Is the Holding of Young Still Valid?

The text of the Blacklisting Statute provides a cause of action to discharged employees and “any employee who may have voluntarily left said company's service.” Ind.Code § 22–5–3–2. In 1904, this Court encountered an employee who voluntarily left his employment and then sued when his former employer allegedly blacklisted him by telling other railroad companies—when asked for a reference—that the employee “was a ‘labor agitator’ ... connected with the Order of Railroad Telegraphers of North America.” Young, 162 Ind. at 104, 69 N.E. at 1005. We held that the portion of the Blacklisting Statute extending protection to employees who were not “discharged” ran afoul of the Indiana Constitution and effectively excised it from the statute. Id. at 104–05, 69 N.E. at 1004–05.

At the time of the Young decision, Article 4, Section 19 of our Constitution s...