Michels v. Dyna-Kote Industries, Inc., DYNA-KOTE

• Decision Date: 16 September 1986
• Docket Number: DYNA-KOTE,No. 06A01-8603-CV-71,06A01-8603-CV-71
• Citation: 497 N.E.2d 586
• Parties: Richard J. MICHELS, Appellant, v.INDUSTRIES, INC., and Shelley R. Remmel, Appellees.
• Court: Indiana Appellate Court

Page 586

497 N.E.2d 586

Richard J. MICHELS, Appellant, v. DYNA-KOTE INDUSTRIES, INC., and Shelley R. Remmel, Appellees.

No. 06A01-8603-CV-71.

Court of Appeals of Indiana First District.

Sept. 16, 1986.

Rehearing Denied Nov. 21, 1986.

Ronald A. Wright, Maribell G. Harlow, Harlow & Wright, P.C., Indianapolis, for appellant.

Lante K. Earnest, Dean T. Barnhard, Klineman, Rose, Wolf and Wallack, Indianapolis, for appellees.

NEAL, Judge.

STATEMENT OF THE CASE

Defendant-appellant, Richard J. Michels (Michels), appeals the decision of the Boone Circuit Court which granted a preliminary injunction in favor of plaintiff-appellee, Dyna-Kote Industries, Inc. (Dyna-Kote).

We reverse.

STATEMENT OF THE FACTS

When Michels was a sales representative for Diamond Kote in 1980, he was sent to train the employees of Frank G. Murphy (Murphy) in the application of its chemical products. Murphy had been trying to formulate and produce chemical products of his own in a separate business he had formed. When Murphy encountered problems with his chemical formulations, he asked Michels to "bail him out." Michels had experience in development of chemical formulas and had been in the rustproofing manufacturing business earlier in his career. Through negotiations over a period of time, Michels and Murphy formed Dyna-Kote. The company's product line included rustproof products, paint sealants, fabric guards, removers, and undercoat products to be sold in the automobile after-market. The company sold products under both the Dyna-Kote label and under private labels, and all products sold under the Dyna-Kote label were warranted.

Michels was hired as president, elected as a director, and became a shareholder. Michels' rights and duties are outlined in his two-year employment contract with Dyna-Kote, which he signed on October 28, 1981. The clauses relevant to this dispute are as follows:

"1. Michels is hereby employed as President, and shall be primarily responsible for product development and for quality control for the mixing of chemicals and chemical products by the Company.

* * *

5. ... Michels' principal duties shall be to supervise the mixing and blending of the various products offered by the Company, ...

6. Upon starting as an employee of the Company, Michels shall provide records for the Company of all formulas of the products made or blended by the Company, together with the instructions as to the proper methods of mixing and disbursing such products in order to assure quality control thereof."

When Michels started performing under his contract with Dyna-Kote, he reduced his formulas to commercial application. He then turned over to Murphy, a director, a written record of the formulas which were placed in a lock box at the bank. Thereafter, Dyna-Kote went into production using the formulas Michels brought to the company, and Michels supervised the mixing, batching, and blending of the formulas. At some point during the entire duration of Michels' employment with Dyna-Kote, there was evidence that one of the formulas was refined, and new formulas were developed, some of which were marketed.

As president, Michels had a confidentiality agreement drafted protecting the formulas and their mixing instructions, and he required many of his subordinates to sign the agreement. There was conflict in the evidence as to whether Michels himself had ever signed this agreement, but no finding was made by the trial court indicating that he had.

Michels continued in his capacity as president of Dyna-Kote well beyond his two-year contract of employment and without executing a new one. Without notice, Michels tendered a letter of resignation as president and director of Dyna-Kote on November 19, 1985. With Michels gone Following a hearing on Dyna-Kote's motion for a preliminary injunction, the trial court ordered the following:

Dyna-Kote alleges he took with him both the formulas and confidential customer information which constitute the company's trade secrets. Dyna-Kote claims it does not have adequate records to continue proper mixing of its upgraded and new products, which jeopardizes its warranties. It also seeks to prevent Michels, who was instrumental in developing customer relations for Dyna-Kote, from using this confidential information in soliciting business for himself after leaving Dyna-Kote.

"1. [Michels is] hereby ORDERED to disclose and otherwise turnover [sic] and deliver to Dyna-Kote all formulas, batching and blending instructions describing or in any way related to Dyna-Kote's present, former and contemplated products (including those developed but not marketed) and other such information as [he] may possess within seven days.

2. [Michels is] hereby ORDERED to not use this information in any way, directly or indirectly, or to divulge all or any part of this information to any person or entity other than Dyna-Kote and its duly authorized representatives.

3. [Michels is] hereby ORDERED to not contact any present Dyna-Kote private label customers ... for the purposes of marketing, merchandising, or sales of any products which directly or indirectly compete with Dyna-Kote's products."

ISSUE

Our determination of the following issue is dispositive of this cause:

Did the trial court abuse its discretion in granting a preliminary injunction?

DISCUSSION AND DECISION

To grant or deny a preliminary injunction is within the sound discretion of the trial court, and our review is limited to a determination of whether the trial court abused its discretion. Harvest Insurance Agency, Inc. v. Inter-Ocean Insurance Co. (1986), Ind., 492 N.E.2d 686; College Life Insurance Co. of America v. Austin (1984), Ind.App., 466 N.E.2d 738; Steenhoven v. College Life Insurance Co. of America (1984), Ind.App., 458 N.E.2d 661, 460 N.E.2d 973, trans. denied. In analyzing this determination, our review focuses on the trial court's findings of fact which must be made even in the absence of a specific request. Ind.Rules of Procedure, Trial Rule 52(A)(1). We look to the adequacy of these findings to determine whether they are sufficient to disclose and support the legal judgment reached and whether they are supported by evidence of probative value. Austin, supra; Steenhoven, 458 N.E.2d 661. The trial court's findings of fact will not be set aside unless they are clearly erroneous. See T.R. 52(A). If the trial court's findings are determined to be clearly erroneous, it follows then that we must conclude the trial court abused its discretion in ruling on the request for preliminary injunction. Austin, supra; Steenhoven, 458 N.E.2d 661.

When exercising its discretion in granting a preliminary injunction, the trial court must find that the party seeking injunctive relief had met its burden in showing each of the following particulars:

"(1) its remedies at law were inadequate, thus causing irreparable harm pending resolution of the substantive action; (2) it had at least a reasonable likelihood of success at trial by establishing a prima facie case; (3) its threatened injury outweighed the potential harm to appellant resulting from the granting of an injunction; and (4) the public interest would not be disserved."

Harvest Insurance Agency, supra at 688. See Austin, supra; Steenhoven, 458 N.E.2d 661.

Dyna-Kote originally sought injunctive relief under Indiana's Uniform Trade Secrets Act, IND.CODE 24-2-3, requesting that Michels turn over the formulas and mixing instructions to the company, and that Michels be prevented from using the company's confidential customer list information. Formulas and their mixing instructions can be properly classified as "trade secrets" under appropriate circumstances as defined under IND.CODE 24-2-3-2. Depending on the facts of the case, customer lists may also be interpreted under the Act as to be classified as trade secrets. See Kozuch v. Cra-mar Video Center, Inc. (1985), Ind.App., 478 N.E.2d 110, trans. denied, but cf. Steenhoven, 458 N.E.2d 661 and on rehearing, 460 N.E.2d 973, trans. denied. However, IND.CODE 24-2-3-1(c) also provides: "This chapter displaces all conflicting law of this state pertaining to the misappropriation of trade secrets, except contract law...." (Our emphasis.) In the case at bar, Michels' employment contract with Dyna-Kote governs the relationship of the parties and their respective interests in the formulas and customer lists.

Formulas

There is no dispute that Michels owned fully-developed chemical formulas for productive use prior to Dyna-Kote's formation. Michels was approached by Murphy, and was asked by Murphy to "bail him out" in his own attempt to develop marketable chemical formulas. Murphy and Michels conferred for several months planning the formation of Dyna-Kote, its employment structure, and Michels' employment contract.

In construing Michels' rights and duties under his contract, we interpret the contract in accordance with the intent of the parties at the time the contract was formed. Keystone Square Shopping Center Co. v. Marsh Supermarkets, Inc. (1984), Ind.App., 459 N.E.2d 420, trans. denied. The written contract is presumed to embody all prior negotiations and agreements between the parties. Id. We do not look outside an unambiguous contract, but to the extent an instrument is ambiguous we may consider the situation of the parties, their motives in dealing with each other, and the object sought to be accomplished in determining the intent of the parties. Torres v. Meyer Paving Co. (1981), Ind.App., 423 N.E.2d 692, trans. denied. Dyna-Kote alleges an ambiguity in that paragraph 6 of the contract quoted above imposes a continuing obligation on the part of Michels to furnish to the company any chemical formulas used or developed. Michels counters by arguing the provision requires him to disclose formulas to the company only "upon starting as an employee" and "in order to assure quality control."

To the extent there is an ambiguity in the contract, the intent of the...