Maine v. Standard & Poor's Corp.
| Decision Date | 19 November 1990 |
| Docket Number | No. 89-3725,89-3725 |
| Parties | Unpublished Disposition NOTICE: Seventh Circuit Rule 53(b)(2) states unpublished orders shall not be cited or used as precedent except to support a claim of res judicata, collateral estoppel or law of the case in any federal court within the circuit. Robert MAINE; Leon M. Schochet; and J. William Holland, d/b/a Clermont Company, Plaintiff-Appellants, v. STANDARD & POOR'S CORPORATION, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Before WOOD, Jr, and MANION, Circuit Judges and ESCHBACH, Senior Circuit Judge.
ORDERThree partners and their partnership, Clermont Company, (together, "Clermont") appeal from a summary judgment against them in this diversity case arising under New York law. In the District Court, Clermont sought a declaration that it has a property interest in (1) its idea for an investment fund based on the Standard & Poor's 100 stock index and/or (2) its "unique understanding" of why such an investment fund is worthwhile. As to the first claim, the District Court concluded that Clermont waived any argument it might have and that, in any event, it had failed to rebut the defendant's affidavits. As to the second claim, the District Court concluded that Clermont's "understanding" is not legally protectable. The District Court stated its conclusions in well reasoned Memorandum Orders of September 1, 1989 and November 16, 1989, which are attached to this Order as Appendices A and B, respectively. For the reasons stated in the Memorandum Orders, we affirm.
A further point remains. The defendant-appellee Standard & Poor's Corporation ("S & P") contends that Clermont's appeal is frivolous and has moved for sanctions pursuant to Fed.R.App.P. 38. Sanctions are appropriate if "the appeal was prosecuted with no reasonable expectation of altering the district court's judgment and for purposes of delay or harassment or out of sheer obstinacy." Rosenburg v. Lincoln American Life Insurance Co., 883 F.2d 1328, 1340 (7th Cir.1989), quoting Reid v. United States, 715 F.2d 1148, 1155 (7th Cir.1983). Although we disagree with Clermont's position, it is plausible and honestly presented. S & P's motion for sanctions is denied.
v.
STANDARD & POOR'S CORPORATION, a corporation, Defendant.
Plaintiffs Robert F. Maine, Leon M. Schochet, and J. William Holland, all citizens of Illinois, brought this diversity action against Standard & Poor's Corporation ("S & P"), a corporation organized under the laws of New York with its principal place of business in New York City. Plaintiffs' two-count complaint seeks a declaration of confidentiality and proprietary interest in an investment idea (Count I) and damages for tortious interference with contract (Count II). 1 Defendant has moved for summary judgment on both counts.
S & P is a financial services company that compiles and maintains stock indexes known as the "S & P 100 Index" and the "S & P 500 Index." In early 1987 plaintiffs developed a proposal for a closed-end investment fund with a portfolio identical to the S & P 100 index and formed a partnership for the purpose of implementing their idea. On April 20, 1987, plaintiffs met in New York with representatives of S & P to obtain a license for the use of its index. Plaintiffs disclosed orally the details of their idea and provided S & P with a written submission entitled "Confidential Preliminary Memorandum For Discussion" that outlined plaintiffs' proposed fund.
The parties dispute the results of the meeting. Plaintiffs contend that S & P orally agreed to grant plaintiffs a license and also to maintain the confidentiality of their idea. The only matter left unresolved was plaintiffs' request for an exclusive license; S & P indicated that this might be available if S & P were to act as the fund's investment advisor, but that arrangement would require board approval by S & P's parent company.
S & P contends that it informed plaintiffs that it had been considering for some time the concept of a closed-end fund based on the S & P indexes. S & P told plaintiffs that it was currently in the process of deciding whether S & P should participate in the investment management business and, until that determination was finalized, no decision regarding licensing could be made. Further, defendant contends that S & P made no agreement regarding the confidentiality of plaintiffs' idea.
In May or June of 1987, plaintiffs presented their proposal to Bear Stearns & Co. Bear Stearns rejected the idea and informed plaintiffs that they had already considered a closed-end fund based on the S & P indexes and concluded that it was not marketable.
Plaintiffs then approached The Chicago Corporation ("TCC") for help in obtaining a license from S & P. Plaintiffs felt that TCC would be more successful due to the personal contacts its partners had at S & P. In August of 1987, plaintiffs executed an agreement with TCC whereby plaintiffs assigned to TCC the right to operate such a fund in return for 20% of the revenues generated. TCC agreed to maintain the proposal's confidentiality and return all right, title, and interest to plaintiffs if TCC could not obtain a license from S & P within one year. In September of 1987, TCC executed a waiver agreement purporting to "release S & P from any and all obligation to hold confidential any of the ideas provided to S & P by representatives of the [Clermont] Partnership heretofore in connection with a closed-end investment fund or otherwise and hereby release S & P from any and all liability associated therewith."
In count I of plaintiffs' complaint they allege that the information provided to S & P is "confidential business information in which The initial question, ignored by both parties, is which state's law applies to this claim. We first look to Illinois choice of law rules. Klaxon Co. v. Stentor Electric Manufacturing Co., 313 U.S. 487, 496-97 (1941). In actions of this nature, Illinois applies the law of the state "where the alleged wrong was committed or the benefit was obtained." Goldberg v. Medtronic, Inc., 686 F.2d 1219, 1225 (7th Cir.1982). S & P is based in New York. Presumably, any use or disclosure of plaintiffs' idea will occur in that state. (We note also that the idea was presented to S & P in New York). Lacking any contrary analysis from the parties, we will apply New York law here. See Goldberg, 686 F.2d at 1225 ().
plaintiff has a protectible business interest," therefore plaintiffs are "entitled to a declaratory judgment that the contents of the memorandum are confidential and that plaintiffs have superior rights as against defendant to such a closed-end investment fund." Defendant contends that plaintiffs' idea for a fund based on the S & P index is neither secret nor novel, and thus not entitled to legal protection. 2
Under New York law, intangible concepts not subject to patents or copyrights may still obtain legal protection in some circumstances. Protection may arise from an idea's status as a trade secret. See Lehman v. Dow Jones & Co., Inc., 783 F.2d 285, 297-98 (2nd Cir.1986). New York, like most states, follows the Restatement definition of trade secret:
A trade secret may consist of any formula, pattern, device or compilation of information which is used in one's business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it. ... It differs from other secret information in a business ... in that it is not simply information as to single or ephemeral events in the conduct of the business.... A trade secret is a process or device for continuous use in the operation of the business.
Restatement of Torts Sec. 757 comment b (1939); Lehman, 783 F.2d at 297-98. Trade secrets are actionable if the defendant's "disclosure or use constitutes a breach of confidence reposed in him by the other in disclosing the secret to him." Restatement of Torts Sec. 757.
Ideas that do not qualify as trade secrets may still acquire legal protection through various contractual and equitable principles referred to collectively as "the law of ideas." See Lehman, 783 F.2d at 299; M. Nimmer, Nimmer on Copyright, ch. 16 (1988). Regardless of the specific theory, two prerequisites must be met to prevail under this doctrine. First, there must be the requisite legal relationship between the parties. This may take the form of an express contract, contract implied-in-fact, contract implied-in-law to prevent unjust enrichment, or a fiduciary relationship. See Vantage Point, Inc. v. Parker Bros., Inc., 529 F.Supp. 1204, 1216 (E.D.N.Y.1981), aff'd, 697 F.2d 301 (2nd Cir.1982); M. Nimmer, supra, Sec. 16.01, at 16-4.
Second, the idea at issue must be sufficiently novel and concrete to be protectible as a property right. See Ferber v. Sterndent Corp., 51 N.Y.2d 782, ----, 433 N.Y.S.2d 85, 86, 412 N.E.2d 1311, 1312 (1980); Educational Sales Programs, Inc. v. Dreyfus Corporation, 317 N.Y.S.2d 840, 843-45 (N.Y.Sup.Ct.1970). Although early decisions suggested that this requirement may be inappropriate when the parties have an express agreement regarding confidentiality, see, e.g., Krisel v. Duran, 258 F.Supp. 845, 860 & n. 59 (S.D.N.Y.1966), recent decisions have consistently taken the position that the lack of novelty is fatal to any action seeking recovery for the misappropriation of an idea, including those based on express contracts. See, e.g., Murray v. National Broadcasting Co., Inc., 844 F.2d 988, 993-94 (2nd Cir.1988), cert. denied, 109 S.Ct. 391 (1988); ...
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