Phillips v. Frey

• Decision Date: 11 May 1994
• Docket Number: No. 93-5162,93-5162
• Citation: 20 F.3d 623
• Parties: , 30 U.S.P.Q.2d 1755 W.C. PHILLIPS and Mary Phillips, d/b/a Ambusher, Inc., Plaintiffs-Appellees, v. Claude FREY, Jr., et al., Defendants, Claude Frey, Jr., Gary Arnold, and Buck-Pro, Inc., Defendants-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 623

20 F.3d 623

62 USLW 2772, 30 U.S.P.Q.2d 1755

W.C. PHILLIPS and Mary Phillips, d/b/a Ambusher, Inc. Plaintiffs-Appellees, v. Claude FREY, Jr., et al., Defendants Claude Frey, Jr., Gary Arnold, and Buck-Pro, Inc. Defendants-Appellants.

No. 93-5162.

United States Court of Appeals Fifth Circuit.

May 11, 1994.

Marvin C. Moos, Timothy P. Herron, Wetzel, Herron & Drucker, L.L.P., Houston, TX, for defendants-appellants.

Bruce A. Condit, Condit, Peek & Young, Texarkana, TX, for plaintiffs-appellees.

Appeal from the United States District Court for the Eastern District of Texas.

Before ALDISERT ^*, REYNALDO G. GARZA, and DUHE Circuit Judges.

REYNALDO G. GARZA, Circuit Judge:

This is an appeal from a jury verdict in a trade secret misappropriation case. The jury found that the defendants had misappropriated a trade secret connected with the manufacture and/or marketing of the plaintiffs' hunting stand. For the following reasons, we AFFIRM.

STATEMENT OF FACTS

Plaintiffs-appellees, W.C. Phillips and his wife Mary Phillips, are owners and operators of Ambusher, Inc. Ambusher's main line of business is the manufacture and distribution of single pole deer stands to be used by hunters. Ambusher's stand is collapsible and consists of four main parts: the upper seat section and three ladder pole sections that enable the seat to be elevated approximately fourteen feet above the ground. ¹ It has a unique design in that it has a single pole that a hunter can climb instead of having to climb the tree. For further safety and security, it locks to the tree from the ground before a hunter climbs into it.

W.C. Phillips began developing single pole tree stands in 1967. He worked on their design, off and on, for three years. He has developed a number of different models over the years culminating in the "V-Lok" tree stand which is the subject of this suit. ² Ambusher also sold accessories to be used with the deer stands, including a gun/bow rest, a camo blind, a camo awning, a security cable, and an ATV "Piggy Back Bar." Ambusher and Buck Pro, Inc. are the only manufacturers of single pole tree stands in the United States. Buck Pro's tree stand is an exact copy of appellees' "V-Lok" tree stand.

Defendant John Collins ³ was a customer who had bought products from appellees for a number of years. The events which form the basis of this suit began in the summer of 1990, when Collins and Phillips had a telephone conversation wherein Phillips mentioned his desire to sell the business, including all equipment, jigs, logos, and the spec book, for $140,000. ⁴ Two weeks after that initial telephone call, Collins called Phillips back to inform him that he and two associates, Claude Frey and Gary Arnold, were interested in purchasing the business and wanted some information to look at. Collins informed Phillips that coming up with his asking price would not present a problem since he had $50,000 in savings, that Arnold already had a metal fabricating ship, and that Frey owned land. These facts led Phillips to believe that the defendants were legitimate prospective purchasers of Ambusher, Inc.

A couple of weeks later, on July 6, 1990, Phillips sent some information for Collins and his two associates to look over. This package included both a financial statement, and an inventory of his equipment and tools by make and model. He also included a video tape. Phillips wrote that he had a specification book that is referred to each time a component is made that is kept up to date and put away for safekeeping. He also stated that he had made a videotape of the component manufacturing the previous year, adding "[w]ithout the specs this information is no secret, and if you and your associate would like to view this for a detailed insight of the manufacturing procedures, I can send a copy to you.... This tape does not cover recent developments and the V-Lok stand." Because he felt the tape did not make sense without the "spec. book," Phillips made a different tape on July 7, 1990 demonstrating Ambusher's manufacturing process for tree stands and accessories. The video tape gave appellants the knowledge necessary to manufacture tree stands, and was intended to bypass the spec book. Phillips did this in order to allow appellants to evaluate the business as prospective purchasers.

In the latter part of July 1990, Collins called to arrange a tour of appellees' shop in Texarkana. The tour lasted about three hours. During the tour, Phillips and his employee showed the defendants first hand how to manufacture the "V-Lok" deer stand.

Two weeks later, some time in August 1990, Collins and appellants returned to Texarkana for a second visit. Collins purchased seven V-Lok stands and returned to Louisiana. On September 10, 1990, Phillips sent a more recent financial statement and a copy of the current inventory.

Shortly thereafter, Collins informed Phillips that he and appellants were having problems securing financing. Collins then made a counteroffer for the business for $30,000 down, a $10 royalty per stand and that Phillips was to help set up shop in Wisner, Louisiana. On September 14, 1990, Phillips refused this counteroffer. On September 15, 1990, Phillips offered to sell the business for $45,000 down and $20,000 per year at 10% interest for seven years. On October 1, 1990, Collins informed Phillips that he and appellants would be unable to purchase the business.

Collins returned the information Phillips had sent him, except for the video. However, none of the information Collins sent to Frey or Arnold was returned. Moreover, it was later discovered that appellants never attempted to secure a loan for the purchase of Ambusher, despite having sufficient assets to do so.

By the end of March, 1991, appellants were manufacturing and marketing a tree stand known as the "BP91" under the name Buck-Pro, Inc. The tree stand and accessories were identical to plaintiffs' "V-Lok" tree stand and accessories. The plaintiffs filed an action against appellants and John Collins in district court alleging misappropriation of both the design of the product and Ambusher's manufacturing process; that the appellants deceived the Phillips into disclosing confidential trade secrets under the guise of purchasing the business. Appellants denied these allegations, stating that the BP91 deer stand was designed by permissible reverse engineering, and counterclaimed against appellees for malicious prosecution. The jury verdict awarded appellees $56,500.13 in actual damages, $75,000 in punitive damages, and $7,000 in attorneys' fees. The jury found against the appellants on the malicious prosecution claim. On the same day that the judgment was entered, the trial court signed a permanent injunction enjoining appellants from manufacturing, selling, or marketing deer stands and assorted accessories. Appellants have timely appealed.

DISCUSSION

The jury returned a verdict finding by a preponderance of the evidence that the defendants had misappropriated a trade secret of W.C. Phillips and Mary Phillips connected with the manufacture and/or marketing of a single pole V-Lok tree stand, T-Bar awning, or Piggy back bars for all terrain vehicles. ⁵

Trade secret misappropriation under Texas law is established by showing: (a) a trade secret existed; (b) the trade secret was acquired through a breach of a confidential relationship or discovered by improper means; and (c) use of the trade secret without authorization from the plaintiff. Taco Cabana Intern'l, Inc. v. Two Pesos, Inc., 932 F.2d 1113, 1123 (5th Cir.1991), affirmed, --- U.S. ----, 112 S.Ct. 2753, 120 L.Ed.2d 615 (1992); Hurst v. Hughes Tool Co., 634 F.2d 895, 896 (5th Cir.), cert. denied, 454 U.S. 829, 102 S.Ct. 123, 70 L.Ed.2d 105 (1981); Avera v. Clark Moulding, 791 S.W.2d 144, 145 (Tex.App.--Dallas 1990, no writ).

The decisive component of our review of this case is the fact that the defendants failed to move for a judgment as a matter of law at the close of the evidence or after the verdict was returned. See Fed.R.Civ.P. 50. Consequently, these objections are being raised for the first time on appeal, and our review is therefore extremely limited: "It is the unwavering rule in this Circuit that issues raised for the first time on appeal are reviewed only for plain error," and we will reverse "only if the judgment complained of results in a 'manifest miscarriage of justice.' " McCann v. Texas City Refining, Inc., 984 F.2d 667, 673 (5th Cir.1993) (quoting Coughlin v. Capitol Cement Co., 571 F.2d 290, 297 (5th Cir.1978)). Therefore, the appellants have waived the right to appeal the sufficiency of the evidence, and may only complain of the legality of the verdict, i.e., whether there is any evidence to support the jury verdict. ⁶ McCann, 984 F.2d at 673. Even if there is no evidence in the record supporting the verdict, this Court lacks the power to enter judgment for the appellant. Our appellate relief is limited to ordering a new trial. Id.

It is the appellants' contention that there was no evidence to support the jury's verdict or the permanent injunction. Appellants' first argument is that no "trade secrets" were disclosed. Appellants assert that they acquired no information deserving protection under the trade secrets law. Alternatively, appellants claim that the plaintiffs are barred as a matter of law because the Buck-Pro BP91 was built exclusively through the use of permissible reverse engineering, that the Phillips failed in their affirmative duty to take reasonable steps to protect their secret, and finally, that no confidential relationship existed between the parties. Consequently, the jury's finding of misappropriation of trade secrets amounts to a "miscarriage of justice." We will examine each of these concerns independently, closely scrutinizing the record for any evidence to support the jury's verdict.

(1) Did a Trade Secret Exist?

Primarily, appellants assert that the only trade secret...