Stargate Software Intern., Inc. v. Rumph

• Decision Date: 26 February 1997
• Docket Number: A96A2391,Nos. A96A2390,s. A96A2390
• Citation: 482 S.E.2d 498,224 Ga.App. 873
• Parties: , RICO Bus.Disp.Guide 9239, 97 FCDR 1020 STARGATE SOFTWARE INTERNATIONAL, INC. v. RUMPH et al. ORION CEM, INC. et al. v. STARGATE SOFTWARE INTERNATIONAL, INC.
• Court: Georgia Court of Appeals

Page 498

482 S.E.2d 498

224 Ga.App. 873, RICO Bus.Disp.Guide 9239,

97 FCDR 1020

STARGATE SOFTWARE INTERNATIONAL, INC. v. RUMPH et al.

ORION CEM, INC. et al. v. STARGATE SOFTWARE INTERNATIONAL, INC.

Nos. A96A2390, A96A2391.

Court of Appeals of Georgia.

Feb. 26, 1997.

Gerry, Friend & Sapronov, William D. Friend, Mari Myer, Atlanta, for appellant.

Knapp & Street, Halsey G. Knapp, Jr., Lisa E. Chang, Atlanta, for appellees.

BEASLEY, Judge.

Stargate sued Orion, its President Rumph, and former Stargate employees McDougall, Igwebuike, Jonkers, and Haberle, alleging nine specific counts: tortious interference with Stargate's employment contracts (naming Orion and Rumph as liable on this count); tortious interference with Stargate's contracts with Rayonier (Orion and Rumph); breach of employment contracts (McDougall, Igwebuike, Jonkers, and Haberle); violations of the Georgia Trade Secrets Act (Orion, Rumph, McDougall, Igwebuike, and Jonkers); conversion (Orion, Rumph, and McDougall); computer theft (Orion, Rumph, and McDougall); computer trespass (Orion, Rumph, and McDougall); RICO (Orion, Rumph, and McDougall); fraud (Orion and Rumph). Stargate also sought injunctive relief (Orion) and attorney fees under OCGA § 13-6-11 (all defendants).

The court granted Orion and Rumph summary judgment on the counts of tortious interference with Stargate's employment contracts, violations of the Georgia Trade Secrets Act, RICO, and attorney fees. It also granted Orion summary judgment as to the claim for injunctive relief, but Stargate has not appealed that ruling. The court denied Orion and Rumph summary judgment on the counts of tortious interference with Stargate's contracts with Rayonier, conversion, computer theft and trespass, and fraud. In Case No. A96A2390, Stargate appeals the grant of partial summary judgment to Orion and Rumph. In Case No. A96A2391, Orion and Rumph appeal the denial of summary judgment on the remaining grounds. The motion for summary judgment dealt only with Orion and Rumph. No other defendants are party to this appeal.

The evidence and all inferences and conclusions arising therefrom must be construed most favorably toward Stargate, the party opposing the motion. Garmon v. Warehouse Groceries, etc., 207 Ga.App. 89, 91(1), 427 S.E.2d 308 (1993).

Stargate contracted with paper producer Rayonier on a number of projects to develop software to control industrial operations. In the course of performance, Stargate ran into difficulties, the nature of which is disputed but agreed by all to be at least somewhat financial. Rayonier was Stargate's only customer. At Rayonier's request, Stargate discussed with Orion, another service provider with which Rayonier had an ongoing relationship, the possibility of Stargate receiving financial assistance from Orion, but no action was taken. Rayonier then gave Stargate an ultimatum: either allow Orion to provide assistance on the project such that Stargate worked through Orion, or face cessation of payments by Rayonier. Rayonier would not allow Stargate to continue the project alone. In mid-December 1994 Smith, Stargate's Chief Executive Officer, began negotiating with Rumph, Orion's President, for the formation of a joint venture to complete the project.

Stargate and Orion never executed a joint venture agreement. ¹ During a meeting on December 28, Rumph produced a handwritten, unsigned "eight-point plan" that indicated the focus of discussions to that date. One of those points was that Orion would hire Stargate's employees for continuation of the project. Smith and Rumph met again the next day, and Smith was to draft language for a proposed agreement.

Also on December 29, Orion sent letters to Rayonier proposing its completion of the projects with no mention of Stargate and without disclosing this to Smith. During the period Stargate and Orion were negotiating, Orion met with Stargate employee McDougall, also without disclosing this to Smith. At some point in the last week of December, Smith suggested to Stargate's employees that they become Orion employees and continue working on the Rayonier project at Stargate's offices.

At Smith and Rumph's next meeting on January 5, 1995, Stargate presented a draft "system implementation agreement" that Orion would not accept in that form. Rumph and Smith did agree on separate transactions for Orion to rent Stargate's Atlanta office for the month of January and for Orion to purchase certain computer equipment that had been used in Stargate's programming efforts. Stargate owned other computers Orion did not buy.

After the meeting of January 5, Smith left the Atlanta area, returning to Stargate's offices January 20. He discovered that all computers, not merely those sold to Orion, had been removed from the offices along with certain records and reported this as a theft to the police. Smith averred that at least one computer that had not been sold to Orion, that used by former employee Jonkers who was hired by Orion, had not been recovered or returned. Jonkers testified he took a computer from Stargate when he began working for Orion and continued to use it in Orion's employ. There was also evidence Igwebuike had taken a Stargate machine in his capacity as an Orion employee to be able to work on the projects.

Case No. A96A2390

1. Stargate contends the court erred in granting summary judgment on the claim of tortious interference with employment contracts. The court ruled Orion and Rumph could not be liable because Orion was not a stranger to those contracts due to Stargate's encouraging its employees to work for Orion. ²

" 'To establish a cause of action for tortious interference with existing and prospective contractual relations, a claimant must show that the defendant (1) acted improperly and without privilege, (2) purposely and with malice with the intent to injure, (3) induced a third party or parties not to enter into or continue a business relationship with the plaintiff, and (4) for which the plaintiff suffered some financial injury.... The term malicious or maliciously means any unauthorized interference or any interference without justification or excuse.' " (Citation omitted.) Green v. Johnston Realty, 212 Ga.App. 656, 659-660(4), 442 S.E.2d 843 (1994).

Stargate's claim was based on the theory that Orion and Rumph induced Stargate employees to breach their contracts with Stargate. Smith testified he told Stargate employees to work for Orion on the project only because he understood an agreement would eventually be reached between Stargate and Orion. Smith's expectation in this regard has no effect. As he told Stargate's employees they should become Orion employees, any interference with their status as Stargate employees by Orion or Rumph was privileged and, as a matter of law, proper. Summary judgment as to this claim was correct.

2. Stargate contends the court erred in granting Orion and Rumph summary judgment on its claim of misappropriation of trade secrets. OCGA § 10-1-763(a). The term "trade secret" can apply to data or a program, OCGA § 10-1-761(4), both of which Stargate claims were its trade secrets. A trade secret must also be "the subject of efforts that are reasonable under the circumstances to maintain its secrecy." OCGA § 10-1-761(4)(B). Stargate asserts the software and documents it had prepared for the Rayonier projects were trade secrets and that Orion and Rumph misappropriated them through the work of former Stargate employees Orion hired and by taking computer software and program documentation.

Orion and Rumph respond that Stargate's claims to possess trade secrets are not cognizable under the statute because Stargate did not take reasonable efforts to maintain the confidentiality of the information allegedly misappropriated. See Smith v. Mid-State Nurses, 261 Ga. 208, 209, 403 S.E.2d 789 (1991). Stargate contends it had employees sign agreements that included confidentiality provisions, but it put only its agreement with McDougall in the record to the trial court; the other employees signed different form agreements. Stargate argues these agreements, together with other measures such as password protection on its computer network, were reasonable efforts to protect confidentiality.

Even with such agreements, the efforts were not reasonable. Requiring employees to sign confidentiality agreements may, in some circumstances, be "sufficient to constitute a reasonable step to maintain the secrecy of information alleged to have been misappropriated," Equifax Svcs. v. Examination Mgmt. Svcs., 216 Ga.App. 35, 40(2), 453 S.E.2d 488 (1994), but that does not obtain here. Stargate did not simply suggest its employees work for Orion and see them go to a competitor, it told them to work for Orion on the continuing Rayonier projects. Transferring the employees with such a charge necessarily gave Orion access to trade secrets. When telling its former employees to work for Orion, Stargate gave no instructions as to confidentiality of documentation on the projects. As a matter of law, given the circumstances, Stargate's efforts were not reasonable to maintain secrecy of any trade secrets concerning the Rayonier projects.

Stargate argues that even if Orion and Rumph properly acquired trade secrets from Stargate's employees, they still misappropriated secrets by disclosing computer source code to Rayonier and IBM, another Rayonier vendor. Stargate contends that this was done without its permission and with knowledge Stargate considered source code a trade secret, and that Orion and Rumph acquired the source code in circumstances giving rise to a duty to maintain secrecy. See OCGA § 10-1-761(2)(B)(ii)(II). There is evidence Orion and Rumph knew that Stargate's intention was to deliver only object code to Rayonier, not source code, but Stargate points to no evidence that Orion or Rumph actually provided source code to Rayonier or any other person. There is evidence that portions of the source...