Tri-Tron Intern. v. Velto

• Decision Date: 28 October 1975
• Docket Number: No. 74--1725,TRI-TRON,74--1725
• Citation: 188 USPQ 177,525 F.2d 432
• Parties: INTERNATIONAL, a Montana Corporation, Plaintiff-Appellee, v. A. A. VELTO and William Wurz, etc., et al., Defendants-Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 432

525 F.2d 432

188 U.S.P.Q. 177

TRI-TRON INTERNATIONAL, a Montana Corporation, Plaintiff-Appellee, v. A. A. VELTO and William Wurz, etc., et al., Defendants-Appellants.

No. 74--1725.

United States Court of Appeals Ninth Circuit.

Oct. 28, 1975.

Sidney W. Jones, Ontario, Cal. (argued), of Jones & Tuckerman, Billings, Mont., for defendants-appellants.

Dale F. Galles (argued), of Harwood, Galles & Gunderson, Billings, Mont., for plaintiff-appellee.

OPINION

Before KOELSCH and KILKENNY, Circuit Judges, and EAST, ^* District Judge.

KILKENNY, Circuit Judge:

Appellants Velto and Wurz appeal from a judgment entered against them and George Doerner, in a nonjury trial in which they were charged, among other things, with improper use of a trade secret and with engaging in a civil conspiracy to improperly utilize the secret.

Factual Background

A brief summary of the facts follows:

By 1967, the appellee, and its predecessor, had developed a device, the purpose of which was to remove scaling from water pipes by an electro-chemical process. Starting in 1968, Velto and Doerner distributed the device in California under contract with appellee using the trade name, DM Associates (DM). From that time until August, 1970, while DM was acting as a distributor for appellee, the parties were negotiating on the subject of DM purchasing appellee's enterprise. In August, 1970, when it appeared that the parties were about to close the transaction, a schematic diagram of appellee's device was given to Doerner and Velto to facilitate their financial negotiations with their banker. Only once in the past had such a diagram been made available. That was in connection with the sale of one of appellee's units to the City of Los Angeles, the city requiring such a diagram for inspection before purchase. Rigid restrictions were placed upon the use of these diagrams.

Some time before these negotiations, Doerner discussed deficiencies in appellee's unit with appellant Wurz. Late in 1970, Wurz, under the assumed name of Holiday Engineering commenced manufacturing a unit similar in design to appellee's under the trade name Aqua Zap. Prior to March, 1971, some of these units were purchased by DM.

In the meantime, commencing in May, 1970, appellants and Doerner were discussing the formation of a corporation to be named Anti-Pollution Technology (Anti-Poll), the corporation to consolidate the interests of Holiday Engineering and DM. In September, 1971, the partnership of Velto and Doerner was dissolved, Doerner continuing as sole operator under DM. At the same time, Velto and Wurz formed a corporation, Holiday engineering, Inc. (Holiday), which immediately commenced the manufacture of a water treatment device similar to Aqua Zap, but under the new name of ScaleGon. While Wurz was manufacturing Aqua Zap, a printed circuit board prepared by him was submitted by Doerner and Velto to appellee as an improvement to its device. Even at this time there was no disclosure to appellee that DM was developing a competing device in cooperation with Wurz. The printed circuit board submitted to appellee was rejected. Substantial evidence was offered that it would be very difficult to reproduce appellee's device without a schematic diagram and that the units produced by Wurz and appellee's unit used essentially the same components and had the same electrical input and output as appellee's device.

The Proceedings Below

The appellee's claims as outlined in the pre-trial order are three in number: (1) a claim that appellants Velto and Doerner breached a distributorship agreement. The district court found against appellee on this claim. (2) a claim that appellants and Doerner individually and through firms or associates known as Holiday, Anti-Poll and DM wilfully, maliciously, deceptively, and oppressively appropriated the appellee's trade secret, to the latter's general damage and actual damage in the sum of $100,000.00 and punitive damages, and (3) a claim that appellants Wurz, Velto and Doerner, individually and through the business firms and associates mentioned in claim two conspired to and did begin the manufacture and sale of a water treater called Aqua Zap using the trade secrets, specification sheets and other promotional material belonging to appellee, and did palm off and represent the Aqua Zap water treater as appellants' own product, all to appellee's actual damage in the sum of $100,000.00, and punitive damages.

The district court found in favor of the appellee on the last two claims. On the second claim, it awarded appellee actual damages in the sum of $35,000.00, and punitive damages in the sum of $75,000.00. On the third claim, it awarded appellee actual damages in the sum of $25,000.00 and punitive damages in the sum of $50,000.00. The action of the trial court in dismissing the counterclaim of appellants against Doerner and awarding the latter a judgment against appellants in the sum of $750.00 is not before us.

Second Claim

We summarize appellants' principal contentions under this claim as follows:

(1) that appellee failed to prove the elements of the trade secret and, likewise, failed to prove that appellants acting in concert unlawfully utilized the secret, if any, and

(2) that appellee failed to prove damages, either actual or punitive.

Trade Secret

Our review of the record convinces us that the district court correctly found that the appellee had a trade secret developed by experimentation and testing from time to time, consisting of an electronic water treating device designed to prevent formation of scales in water pipes and water systems and to remove therefrom scales already formed. The evidence clearly establishes that the successful operation of appellee's device is the result of the application of an electric pulse and voltage to the water flowing through the pipe to which the device is attached, with the result being accomplished by electro-chemical means.

The record is clear that in the latter part of 1970, the individual appellants and Doerner, through DM and Holiday, began the manufacture and marketing of a water treating device similar to that produced and marketed by appellee, and that such device was marketed under the name of Aqua Zap. This device was developed by appellant Wurz and was produced and sold as a consequence of the contacts of appellants and Doerner with the appellee and as a result of the alleged shortcomings of appellee's device conveyed by Doerner to appellant Wurz and the latter's personal examination of the device. It is clearly established that several of these information revealing 'contacts' by appellants and Doerner with appellee occurred during the course of the negotiations between the parties for the sale of appellee's corporation to appellants and Doerner. It was during these negotiations, both in person and by letter and telephone, that appellee, as an inducement to sell, encouraged by appellants and Doerner, divulged to them information relating to its product, not otherwise generally known to the public or to any of appellee's competitors. The record fully supports the district court's findings on these issues.

Additionally, the district court, under its conclusions found that appellee possessed a protectible trade secret and that such secret was obtained by appellants and Doerner by the abuse of appellee's confidence in them during the negotiations to sell. The court further found that they wrongfully appropriated appellee's trade secret to their own use and were liable in damages in the sums above mentioned for the wrongful appropriation and use of appellee's trade secret. In addition to the award of damages on the second claim, the court also granted injunctive relief, which it found necessary to create an adequate remedy.

Even if we were persuaded by appellants' argument on the facts, which we are not, we would be bound by the command of Rule 52(a), F.R.Civ.P, that if the findings of the trial court are not clearly erroneous, we must affirm. Pachmayr Gun Works, Inc. v. Olin Mathieson Chemical Corp., 502 F.2d 802, 807 (C.A.9 1974); W. S. Shamban & Co. v. Commerce & Industry Ins. Co., 475 F.2d 34, 36 (C.A.9 1973). We find nothing erroneous, let alone clearly erroneous, in the findings.

The fact that the district court intermingled some of its findings of fact with its conclusions of law is of no significance. We look at a finding or a conclusion in its true light, regardless of the label that the district court may have placed on it. 9 Wright & Miller, Federal Practice & Procedure, § 2579; Gulf King Shrimp Co. v. Wirtz, 407 F.2d 508, 515 (C.A.5 1969); Featherstone v. Barash, 345 F.2d 246, 251 (C.A.10 1965); Benrose Fabrics Corp. v. Rosenstein, 183 F.2d 355 (C.A.7 1950). In other words, the findings are sufficient if they permit a clear understanding of the basis for the decision of the trial court, irrespective of their mere form or arrangement.

It is argued that the district court misapplied the relevant law to the controlling facts. We disagree. Because there is an absence of Montana law on the subject of trade secrets, the district court quite properly turned to the Restatement of the Law, Torts, § 757(a), (b), (c), ¹ and interpreted it consistent with K--2 Ski Co. v. Head Ski Co., 506 F.2d 471, 473 (C.A.9 1974). There is substantial evidence in the record that appellants and Doerner were individually and collectively in violation of subdivisions (a), (b), and (c) of § 757.

The courts in California, where much of the action took place, have adopted and rely upon § 757 as the law of that state. Uribe v. Howie, 19 Cal.App.3d 194, 96 Cal.Rptr. 493, 501 (1971); By-Buk Co. v. Printed Cellophane Tape Co., 163 Cal.App.2d 157, 329 P.2d 147 (1958). Consequently, there is no choice of law problem and the general common law and § 757 of the Restatement should apply. K--2 Ski Co., 506 F.2d at 473. The latter case is also authority for the statement that there are two common law...