Sunbelt Rentals v. Head & Engquist

• Decision Date: 18 October 2005
• Docket Number: No. COA04-862.,COA04-862.
• Court: North Carolina Supreme Court
• Parties: SUNBELT RENTALS, INC., Plaintiff-Appellee, v. HEAD & ENGQUIST EQUIPMENT, L.L.C., d/b/a H & E Hi-Lift, Robert Hepler, Douglas Kline, Michael Quinn, Gregg L. Christensen, Patrick C. Muldoon, Michele U. Dougherty, and Brian W. Pearsall, Defendant-Appellants.

620 S.E.2d 222

SUNBELT RENTALS, INC., Plaintiff-Appellee, v. HEAD & ENGQUIST EQUIPMENT, L.L.C., d/b/a H & E Hi-Lift, Robert Hepler, Douglas Kline, Michael Quinn, Gregg L. Christensen, Patrick C. Muldoon, Michele U. Dougherty, and Brian W. Pearsall, Defendant-Appellants.

No. COA04-862.

Court of Appeals of North Carolina.

October 18, 2005.

COPYRIGHT MATERIAL OMITTED

Appeal by defendants from an order dated 13 August 2003 by Judge Ben F. Tennille in Special Superior Court for Complex Business Cases. Heard in the Court of Appeals 3 March 2005.

Helms, Mulliss & Wicker, P.L.L.C., by E. Osborne Ayscue, Jr., Irving M. Brenner, Catherine E. Thompson and Paul M. Navarro, Charlotte, for defendant-appellants.

Parker, Poe, Adams & Bernstein, L.L.P., by Jack L. Cozort, William L. Rikard, Jr., Eric D. Welsh, Deborah L. Edney and Heather N. Oakley, Charlotte, for plaintiff-appellee.

BRYANT, Judge.

Head & Engquist Equipment, L.L.C., (d/b/a H & E Hi-Lift), Robert Hepler, Douglas Kline, Michael Quinn, Gregg L. Christensen, and Brian W. Pearsall, (collectively defendants) appeal from an Order and Opinion dated 13 August 2003 finding defendants jointly and severally liable to Sunbelt Rentals, Inc. (plaintiff) under the North Carolina Trade Secrets Protection Act (NCTSPA) and the N.C. Unfair and Deceptive Trade Practices Act (UDTPA). Plaintiff was awarded damages¹ in the amount of $16,200,000.00, plus pre- and post-judgment interest of eight percent.

Procedural History/Facts

This dispute arose between corporate parties who are competitors in the market for the rental of construction equipment, specifically aerial work platforms (AWP). The business of renting AWP equipment and the pricing of such equipment is extremely competitive. Sunbelt Rentals, Inc. (plaintiff) purchased BPS Equipment Rental and Sales (BPS) in June 2000. Former employees of BPS are named as individual defendants in this action: Robert Hepler (President), Douglas Kline (Vice President of Finance), Michael Quinn (Senior Manager), Gregg L. Christensen (Dallas Western Regional Manager) and Brian W. Pearsall (Charlotte Branch Manager).

In August 1999, Hepler and Kline learned via the internet that BPS was to be sold. Together, they developed an Aerial Equipment Specialists Plan (AES Plan) which included specific fleet mixes for each of the proposed branches to coincide with the local rental markets, including specific employee compensation rates which were "formulated by experience in each of the markets to maximize utilization." Hepler and Kline were unsuccessful in their attempt to sell the AES Plan. In November 1999, Hepler and Kline resigned from BPS and in December 1999 began working for H & E's Hi-Lift Division. Hepler was employed as President, while Kline was employed as Executive Vice President and Chief Financial Officer. Hepler and Kline, while performing in a similar capacity as they had at BPS, began to implement their AES Plan for H & E in seven southeastern cities including: Atlanta, Charlotte, Orlando, Dallas, Houston, Tampa/Fort Meyers, and Fort Lauderdale. A major concern of H & E in implementing the AES plan was the availability of the right personnel to "grow the business." By June 2000, former BPS branch managers in Atlanta, Charlotte, Tampa/Fort Meyers, and Orlando had been recruited and hired by H & E to perform similar duties within their respective geographical areas. H & E had no previous market presence in Atlanta, Charlotte, Orlando, Dallas, Houston, Tampa/Fort Meyers, or Fort Lauderdale. In each location, after the conversion of former BPS branch managers, a significant number of key BPS personnel², if not all, were employed by H & E.

On 14 July 2000 plaintiff filed this action asserting claims for: breach of fiduciary duty; aiding and abetting breach of fiduciary duty; tortious interference with prospective relations; violation of the North Carolina Trade Secrets Protection Act; violation of the North Carolina Unfair Trade Practices Act; and civil conspiracy. The case was assigned to the North Carolina Special Superior Court for Complex Business Cases.

In an Opinion and Order dated 10 July 2002, Judge Ben F. Tennille granted partial summary judgment dismissing the breach of fiduciary duty claims against all defendants. The claim of aiding and abetting breach of fiduciary duty against H & E was also dismissed. The remainder of the claims proceeded to trial before Judge Tennille. At the close of plaintiff's evidence, the trial court granted Patrick C. Muldoon and Michele U. Dougherty's Rule 41(b) motion to dismiss all claims against them. On 2 May 2003 Judge Tennille entered an Order and Opinion ruling the remaining defendants were jointly and severally liable for each of the remaining claims with the exception of tortious interference with prospective relations. The trial court awarded damages of $5,000,000, which it then trebled under N.C. Gen.Stat. § 75-16 (2003). By Order entered 31 July 2003, the trial court also awarded plaintiff's attorney's fees of $1,200,000.00 under N.C. Gen.Stat. § 75-16. On 13 August 2003 Judge Tennille entered a final judgment for $16,200,000.00 together with pre-judgment and post-judgment interest of eight percent. Defendants appeal³.

Defendants raise four issues on appeal: whether the trial court erred in (I) concluding plaintiff's compilation of business information constitutes a trade secret under N.C. Gen.Stat. § 66-152 (N.C. Trade Secrets Protection Act) and that defendants misappropriated trade secrets; (II) finding defendants violated N.C. Gen.Stat. § 75-1.1 (Unfair and Deceptive Trade Practices Act); (III) finding a proximate cause connection between plaintiff's lost profits and defendants' conduct in determining plaintiff's damages (and the trebling of such damages); and (IV) concluding plaintiff's claims of unlawful conduct were not barred by laches.

Standard of Review

Since this appeal involves a bench trial, findings of fact made by the trial court have the "force and effect of a jury verdict and are conclusive on appeal if there is evidence to support them[.]" Henderson County v. Osteen, 297 N.C. 113, 120, 254 S.E.2d 160, 165 (1979). Appellate review of the trial court's conclusions of law is de novo. McConnell v. McConnell, 151 N.C.App. 622, 626, 566 S.E.2d 801, 804 (2002).

We will consider the applicable findings and conclusions according to defendants' assignments of error. We note the extensive number of assignments of error which defendants do not argue. Therefore, we grant plaintiff's 21 October 2004 motion to exclude from consideration defendants' unargued assignments of error based on N.C. R.App. P. 28(b)(6) and deem those assignments of error abandoned.

I

Defendants first argue the trial court erred in concluding plaintiff's compilation of business information constitutes a trade secret under N.C. Gen.Stat. § 66-152 (N.C. Trade Secrets Protection Act).

A trade secret is business or technical information that "[d]erives independent actual or potential commercial value from not being generally known or readily ascertainable through independent development ... and [is] the subject of efforts that are reasonable under the circumstances to maintain its secrecy." N.C. Gen.Stat. § 66-152(3)(a)-(b) (2003). Factors to consider when determining whether an item is a trade secret are:

(1) the extent to which information is known outside the business; (2) the extent to which it is known to employees and others involved in the business; (3) the extent of measures taken to guard secrecy of the information; (4) the value of information to business and its competitors; (5) the amount of effort or money expended in developing the information; and (6) the ease or difficulty with which the information could properly be acquired or duplicated by others.

State ex rel. Utils. Comm'n v. MCI, 132 N.C.App. 625, 634, 514 S.E.2d 276, 282 (1999) (citation omitted). Applying these factors, our courts have found the following to constitute a trade secret: cost history information⁴; price lists⁵; and confidential customer lists, pricing formulas and bidding formulas⁶.

On the issue of whether plaintiff's compilation of business information constitutes a trade secret, defendants assign as error only the following four findings of fact:

(16) AWP managers and salespeople know, from experience or simply by asking their customers, what type of equipment is needed by the different types of contractors for particular jobs. For example, electrical contractors will often use smaller scissor lifts or push-around lifts that can fit through interior doorways, while glass manufacturers working on the outside of buildings need taller boom lifts which can range up to 120 feet in height. Knowledge of the company's customer base contributes to higher utilization of equipment and better selection of the "fleet mix" for a particular market. Such information allows a business to invest in certain machines that yield better rates and profits. A new market entrant has a significant advantage if it has access to that information. With such information, a new entrant can maximize its initial fleet investment with little risk, perhaps saving millions of dollars, and can accurately project an operating budget.

...

(23) In terms of price, historical prices have limited value. Prices are quoted and then negotiated between the outside sales representative and the customer or over the telephone with inside sales coordinators. While salesmen would like for prices to remain "confidential," they understand and expect that prices will become known in the market. Customers do not consider quoted prices to be confidential and often reveal price sheets and quoted prices of competitors to obtain more favorable terms. AWP rental companies occasionally quote good customers a fixed price for a job or period of time; these arrangements would constitute confidential information. "Sealed bids" or other formal bidding processes are...