Rexnord Inc. v. Ferris

• Decision Date: 07 December 1981
• Docket Number: No. A8006-03115,A8006-03115
• Parties: REXNORD INC., a Wisconsin corporation, and Nordberg Manufacturing Company (S.A.) corporation, Appellants, v. Reginald J. FERRIS, Helser Machine Works, Inc., an Oregon corporation, and Reginald J. Ferris and W. Don Miller, doing business as Steton U. S. A., Respondents. ; CA 19104.
• Court: Oregon Court of Appeals

Page 619

637 P.2d 619

55 Or.App. 127

REXNORD INC., a Wisconsin corporation, and Nordberg Manufacturing Company (S.A.) corporation, Appellants, v. Reginald J. FERRIS, Helser Machine Works, Inc., an Oregon corporation, and Reginald J. Ferris and W. Don Miller, doing business as Steton U. S A., Respondents.

No. A8006-03115; CA 19104.

Court of Appeals of Oregon.

Argued and Submitted July 13, 1981.

Decided Dec. 7, 1981.

Malcolm E. Wheeler, Los Angeles, Cal., argued the cause for appellants. With him on the briefs were Hughes, Hubbard & Reed, Los Angeles, Cal., and Fredric A. Yerke, James N. Westwood, Miller, Nash, Yerke, Wiener & Hager, Portland.

William E. Hurley, Portland, argued the cause for respondents. On the brief were Michael B. Wallstein and Bernard, Hurley, Crawford & Kneeland, Portland.

Before GILLETTE, P. J., and ROBERTS and YOUNG, JJ.

YOUNG, Judge.

Rexnord, Inc. (Rexnord) and Nordberg Manufacturing Company (Nordberg) (plaintiffs), brought an action for misappropriation of trade secrets, breach of contract, unfair competition and conversion against defendants Reginald J. Ferris (Ferris), Helser Machine Works, Inc. (Helser) and Reginald J. Ferris and W. Don Miller as partners, doing business as Steton U.S.A. (Steton). Plaintiffs sought a permanent injunction and compensatory and punitive damages. The trial court permanently enjoined defendants and awarded compensatory damages, but denied punitive damages. Plaintiffs appeal, claiming that the scope of the injunction was too narrow and that the denial of punitive damages was error.

Rexnord, a Wisconsin corporation, designs, manufactures and sells machinery. Nordberg is a wholly owned South African subsidiary of Rexnord. One machine manufactured by plaintiffs is a rock crusher. Plaintiffs also manufactured and sold replacement parts for their crushers. The market in replacement parts was profitable and important to plaintiffs' business. Some replacement parts were manufactured by other unaffiliated companies pursuant to licensing agreements or contracts with plaintiffs.

The technical information needed to manufacture parts for plaintiffs' crushers appeared in detailed engineering drawings. The trial court found the detailed drawings to be trade secrets, and we agree. The drawings contained details of measurements, manufacturing tolerances, materials specifications, and other important information. Plaintiffs had maintained various safeguards to assure the continued confidentiality of that information. The safeguards included a procedure for recording all engineering drawings that left plaintiffs' possession. All drawings carried a legend "Property of Nordberg Manufacturing Company." All licensed manufacturers in possession of the drawings were required to sign a "confidentiality clause." Plaintiffs had been successful in guarding their trade secrets.

Defendant Ferris, a citizen of South Africa, resided there until 1978, when he moved to the United States. From 1954 to 1974, he was employed by Nordberg. During that employment, he was involved in recommending and designing changes for plaintiffs' crushers and had access to plaintiffs' blueprints, drawings and technical information. While in South Africa, Ferris acquired roughly 200 of plaintiffs' drawings and microfilms and began systematically copying them into a notebook for his own purposes. Ferris testified the drawings belonged to plaintiffs and that he had no right to them. The wrongful nature of his acquisition is clear.

In 1978, Ferris became an employe and officer of Balzer-Pacific Equipment Company (Balzer-Pacific), located in Portland, where he remained until August, 1979. He kept with him some original drawings and microfilms, together with his notebook with the copied drawings. During this employment, Ferris furnished traced copies of plaintiffs' original drawings to other fabricators, who then duplicated and manufactured crusher parts. Ferris used traced copies to prevent plaintiffs from detecting his possession of the original drawings.

In March, 1978, Ferris met defendant Miller, president of defendant Helser. After that meeting, Ferris, while still employed at Balzer-Pacific, assisted Helser in making parts for plaintiffs' crushers. In August, 1979, Ferris left Balzer-Pacific and, with Helser, formed the partnership, Steton, which began to use the misappropriated information to make or repair, or to enable others to make or repair, replacement parts for plaintiffs' crushers. ¹

In the spring of 1980, Ferris and John Allen, chairman of Balzer-Pacific, had a falling out. Ferris was concerned that Allen would disclose that Ferris had misappropriated and wrongfully used plaintiffs' trade secrets. In an effort to erase evidence of his transgressions, Ferris destroyed some of the drawings and microfilms. He did not, however, destroy drawings which he had made by tracing the original drawings or the data taken from the original drawings. One document not destroyed was a drawing that Ferris had made for Balzer-Pacific from an original drawing. Having retained a copy of that copied drawing, Balzer-Pacific delivered it to Rexnord in May, 1980.

Initially, plaintiffs were granted a temporary restraining order. On July 14, 1980, the trial court held an evidentiary hearing on plaintiffs' motion for a preliminary injunction. Later, the parties stipulated, and the trial court ordered, that the hearing on plaintiffs' preliminary injunction motion would also be treated as the hearing on the permanent injunction. Pursuant to the stipulation, the trial court granted a permanent injunction based on the following findings of fact, which we adopt:

"1. Plaintiffs' detailed engineering drawings for parts to their rock crushers were trade secrets.

"2. Defendants obtained plaintiffs' trade secrets by improper means.

"3. Defendants used plaintiffs' trade secrets without license.

"4. Defendants' use of plaintiffs' trade secrets constituted a breach of confidence."

The injunction enjoined defendants:

"1. from using, disclosing or disseminating, or attempting to use, disclose or disseminate, directly or indirectly, any trade secret of the plaintiffs;

"2. from copying, disseminating or using any detailed engineering drawings that were obtained, directly or indirectly, from plaintiffs;

"3. from manufacturing, causing to be manufactured, selling, attempting to sell, distributing or causing to be distributed, any parts for crushers manufactured by plaintiffs or for plaintiffs under license, utilizing or employing directly or indirectly any trade secret of plaintiffs.

" * * *

"4. to transfer, within 10 days of September 12, 1980, to the plaintiffs all originals and copies, whether made freehand, by photocopying, by tracing or otherwise, of any detailed engineering drawing, schematic, writing, pattern, casting, or other document or thing that any of the defendants made or had made by using any information of any kind taken from any such drawing that was obtained, directly or indirectly, from the plaintiffs."

The decree also provided that all remaining issues (that is, damages) would be reserved for further determination.

Plaintiffs present basically two issues on appeal: (1) whether the trial court erred by not permanently enjoining defendants from the manufacture, distribution or sale of any parts for plaintiffs' crushers, regardless of whether defendants did or did not use plaintiffs' trade secrets; and (2) whether the trial court erred in denying punitive damages.

The scope of the decree sought by plaintiffs would have forever barred defendants from making parts for plaintiffs' crushers, even by legitimate means. One legitimate means found by the trial court is a process known as reverse engineering, whereby a competitior's product is examined and tested for measurements, metal composition, and the like, and then duplicated. The trial court concluded that plaintiffs' crusher parts could be duplicated by defendants by the reverse engineering process without using the trade secrets. Accordingly, the trial court determined to be inappropriate the absolute ban sought by plaintiffs. Plaintiffs argue that McKinzie et al. v. Cline et al., 197 Or. 184, 252 P.2d 564 (1953), and Kamin v. Kuhnau et al., 232 Or. 139, 374 P.2d 912 (1962), are authority for the injunctive relief they seek. ² In those cases the trial court issued a permanent injunction prohibiting defendants from manufacturing the plaintiffs' products even by legitimate means, the effect being to foreclose the defendants from the plaintiffs' product market. ³ Injunctions lie within the sound discretion of the trial court. State Land Board v. Heuker, 25 Or.App. 137, 145, 548 P.2d 1323 (1976). In Hickman v. Six Dimen. Cust. Homes, 273 Or. 894, 898, 543 P.2d 1043 (1975), the court stated:

"Injunctive relief depends upon broad principles of equity and may, in the discretion of the court, be granted or denied in accordance with the justice and equity of the case. (Citation omitted.) Courts balance the equities between the parties in determining what, if any, relief to give." (Emphasis added.)

On balance, we find that the scope of the injunction was proper. See also, Aerosonic Corp. v. Trodyne Corp., 402 F.2d 223, 227 (5th Cir. 1968).

Punitive Damages

The parties stipulated that the evidence adduced at the hearing on the preliminary injunction would also serve as the evidence for a permanent injunction. The stipulation included the following language:

" * * * reserving for trial or other disposition at a later date any other issues in the case."

The decree granting the permanent injunction contained a concluding paragraph:

"It is further decreed that all remaining issues in this case, including the claim for damages and punitive damages, shall be reserved for further determination."

Later, at plaintiffs' request, the trial court, pursuant to ORS 18.125, ordered that the permanent injunction be a final decree and that the " * * *...