Olson v. Nieman's, Ltd.

• Citation: 579 N.W.2d 299
• Decision Date: 28 May 1998
• Docket Number: No. 96-1787,96-1787
• Parties: Andrew H. OLSON, Appellee, v. NIEMAN'S, LTD., Appellant.
• Court: United States State Supreme Court of Iowa

Page 299

579 N.W.2d 299

Andrew H. OLSON, Appellee, v. NIEMAN'S, LTD., Appellant.

No. 96-1787.

Supreme Court of Iowa.

May 28, 1998.

Rehearing Denied July 13, 1998.

Gene R. La Suer, Kent A. Herink, and Debra Rectenbaugh Pettit of Davis, Brown, Koehn, Shors & Roberts, P.C., Des Moines, for appellant.

Edmund J. Sease, Daniel J. Cosgrove, Heidi Sease Nebel, and Jeffrey D. Harty of Zarley, McKee, Thomte, Voorhees & Sease, Des Moines, for appellee.

Considered by McGIVERIN, C.J., and LARSON, CARTER, LAVORATO, and ANDREASEN, JJ.

LAVORATO, Justice.

A jury awarded Andrew H. Olson $650,000 against Nieman's, Ltd. (Nieman) for the company's alleged misappropriation of Olson's idea, which Olson claims was a trade secret. Nieman appealed and Olson cross-appealed. On the appeal, Nieman raises issues regarding the district court's (1) refusal to extend an expert disclosure deadline, (2) admission of expert testimony on the patentability of Olson's idea, and (3) admission of expert testimony on damages. Nieman also contends insufficient evidence supported the jury's verdict for Olson on his breach-of-contract and misappropriation-of-trade-secret claims.

On the cross-appeal, Olson raises issues regarding the district court's (1) refusal to award him exemplary damages and attorney fees, (2) submission of a supplemental special interrogatory regarding allocation of the damages award among Olson's three theories of action, and (3) setting aside a verdict on his misappropriation-of-intellectual-property claim.

We affirm on the appeal and cross-appeal.

I. Facts.

Olson developed an idea for "breakaway hazard lights." He envisioned a device that would activate flashing lights on a trailer if the trailer disengaged from the transporting vehicle.

In May 1992 Olson built a prototype of the breakaway hazard lights. He also drew a schematic diagram showing how the device would work. Olson then contacted Nieman to see if the company was interested in his idea. Olson and Nieman agreed in writing that Olson would disclose his schematic drawing to Nieman and Nieman would keep "all technical information related to the design and use" of the device confidential.

Nieman sought out an independent electrical engineer, Dale Sloan, to incorporate the device into its existing system and provided Sloan with the schematic drawing so he could do so. Sloan agreed to keep the schematic drawing confidential.

Sloan thought that Olson's device did not function properly with Nieman's breakaway braking system. Sloan believed, however, he could develop a device that would work with the Nieman system.

Nieman and Olson failed to reach an agreement regarding Olson's compensation for his device. In October 1992 Nieman wrote Olson telling him that "[w]e have found it necessary to decline working with you due to your requirements financially."

A month later at a trade show, Nieman demonstrated and distributed literature describing Sloan's implementation of Olson's idea. The demonstration model malfunctioned and Nieman ceased to display it.

In December, via a confidentiality agreement, Olson agreed to disclose his idea to Tekonsha, a Nieman competitor. After receiving the confidentiality agreement and Olson's idea, Tekonsha informed Olson that Nieman had been using a flasher system employing "the exact idea which you have disclosed." Following a telephone conversation with a Tekonsha employee, Olson learned of Nieman's display at the trade show a month earlier.

II. Proceedings.

Once he learned Nieman had publicly displayed the device, Olson filed suit against Nieman. The suit alleged breach of contract, conversion of intellectual property, wrongful misappropriation of trade secrets pursuant to Iowa Code chapter 550 (1993), and common-law misappropriation of intellectual property.

The district court set a February 6, 1996 deadline for Nieman to disclose any expert witnesses. In April 1996 Nieman moved to extend the expert witness disclosure deadline. Nieman sought to include an additional patent expert, Laramie E. Asken.

The district court denied the motion because it found no good cause for the late disclosure, noting that Nieman had been in contact with Asken since June 1994. The court also noted that such a late filing would prejudice Olson.

The case proceeded to trial during which the district court, over Nieman's objections, admitted testimony from two of Olson's experts. One expert testified about the patentability of Olson's idea. The other testified about damages Olson allegedly suffered because of Nieman's disclosure of Olson's device.

Olson displayed his device to the jury. The device worked as he said it would.

The district court overruled Nieman's motion for directed verdict at the close of Olson's evidence and again at the close of all the evidence. The court then submitted three theories of recovery: breach of contract, misappropriation of a trade secret, and misappropriation of intellectual property. The jury answered interrogatories, finding that Olson proved all three theories. The jury also answered a special interrogatory, finding that Nieman's misappropriation of Olson's trade secret was "willful and malicious." In addition, the jury answered an interrogatory, finding the damages to be $650,000.

Over Olson's objection, the district court then submitted a supplemental special interrogatory that would allow the jury to allocate the $650,000 among Olson's three theories. The jury apportioned all of the $650,000 to Olson's misappropriation-of-trade-secret claim.

Nieman then moved for a judgment notwithstanding the verdict or, in the alternative, for new trial. Later, the court overruled Nieman's motions. The court, however, did set aside the verdict for misappropriation of intellectual property, concluding that such a theory "is not recognized as a viable cause of action in Iowa."

In addition, the court denied Olson's motion for exemplary damages and attorney fees pursuant to Iowa Code sections 554.4(2) and 550.6(3).

Nieman appealed and Olson cross-appealed.

III. Issues on Appeal.

A. Failure to extend expert disclosure deadline. Nieman first contends the district court abused its discretion by refusing

to extend the time in which it could disclose its expert witness on patentability, Laramie E. Asken. Nieman argues that it had good cause to disclose Asken two months after the disclosure deadline because of the complexity and time consuming nature of patent searches and because of the issue's vital importance to Olson's damages claim. Nieman insists that Olson would have suffered no prejudice from the late disclosure because Nieman had claimed the existence of prior art in its original expert witness disclosure.

On August 24, 1995, the district court entered a pretrial conference scheduling order pursuant to Iowa Rule of Civil Procedure 136, setting the following deadlines for disclosure of expert witnesses: Olson's by January 2, 1996; and Nieman's by February 6, 1996. In addition, the order set March 15, 1996, as the deadline for discovery and May 29, 1996, as the trial date. Counsel for both parties participated in the pretrial conference.

One month before this order, Nieman filed a designation of expert witnesses listing three experts. Asken was not among them. Nieman also noted, "Defendant will supplement this list of expert witnesses, as may, from time to time, be required." Nieman's request to include Asken as an expert witness was not, however, filed until April 9, 1996, two months past the February 6, 1996 disclosure deadline.

Iowa Rule of Civil Procedure 136(b)(3) allows a district court to enter a scheduling order setting time limits for completing discovery. Iowa Rule of Civil Procedure 138 mandates that

[a]fter any conference held pursuant to R.C.P. 136, an order shall be entered reciting the action taken. This order shall control the subsequent course of the action unless modified by a subsequent order.

Iowa Rule of Civil Procedure 136(e) provides that if a party or a party's attorney fails to obey a scheduling or pretrial order, the court on its own initiative "may make such orders with regard thereto as are just."

The district court was well within its broad discretion to deny Nieman's request to extend the expert disclosure deadline. See Sullivan v. Chicago & Northwestern Transp. Co., 326 N.W.2d 320, 324 (Iowa 1982) (holding that imposition of discovery sanctions is discretionary and will not be disturbed unless there has been an abuse of discretion). We say this because Nieman violated the pretrial order on disclosure of experts, and the district court gave cogent reasons for the denial:

It is clear from the record that Defendant's counsel and Asken had been in contact for a substantial period of time going back at least to June 23, 1994. Contacts between counsel and Asken continued in cumulative fashion, i.e. Asken's opinion modified as the quantum of material researched by him expanded. The nature and extent of his present position appears based upon this expanded data.

The pretrial conference order fixed a discovery deadline of March 15, 1996. Both parties' counsel acknowledged additional discovery would be required in regard to Asken's qualifications, conclusions and basis therefor. Asken resides in Washington, D.C. Travel arrangements would be necessitated and travel time involved. This case is (and has since August 24, 1995) been set for trial on May 29, 1996. As demonstrated by numerous amendatory addenda, Asken's testimony has become progressively detailed. Plaintiff contends the post-deadline inclusion of Asken would be prejudicial as well as untimely. Having reviewed the various affidavits, the Court concurs.

The Court concludes no good cause has been shown for failure to adhere to the disclosure of expert witness deadline of February 6, 1996, as well as the established discovery deadline of March 15, 1996.

Contrary to Nieman's contention, Iowa Rule of Civil Procedure 125(c) provides...