Venn v. Goedert

• Decision Date: 17 July 1963
• Docket Number: No. 17206.,17206.
• Parties: Ruth L. VENN, d/b/a Swanson Cookie Co., and John B. Norman, d/b/a Norman Cookie Co., Appellants, v. Andrew M. GOEDERT, Willmar Cookie Company, Inc., and Willmar Cookie Sales, Inc., Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

319 F.2d 812 (1963)

Ruth L. VENN, d/b/a Swanson Cookie Co., and John B. Norman, d/b/a Norman Cookie Co., Appellants, v. Andrew M. GOEDERT, Willmar Cookie Company, Inc., and Willmar Cookie Sales, Inc., Appellees.

No. 17206.

United States Court of Appeals Eighth Circuit.

July 17, 1963.

Melvin I. Orenstein, Minneapolis, Minn., Richard J. FitzGerald, Vennum, Newhall, Ackman & Goetz, Minneapolis, Minn., on the brief, for appellants.

Frank J. Warner, Minneapolis, Minn., H. Leight Ronning, Willmar, Minn., and Carl K. Lifson, Minneapolis, Minn., on the brief, for appellees.

Before VOGEL, VAN OOSTERHOUT and RIDGE, Circuit Judges.

VAN OOSTERHOUT, Circuit Judge.

Plaintiff Ruth L. Venn, d/b/a Swanson Cookie Co., sole owner of the cookie franchise operation here involved, brings this action for damages and injunctive relief against defendants based upon breach of contract, appropriation of trade secrets, and unfair competition. The principal defendant is Andrew M. Goedert. He controls the corporate defendants and their rights and liabilities are based upon those of Goedert. Plaintiff Norman, the new franchisee for the territory formerly assigned to defendants, seeks relief for damage to him as franchisee similar to that claimed by the plaintiff Venn.

Goedert with Fox, who subsequently sold and assigned all of his rights to Goedert, obtained a franchise in 1953 from the Swanson Cookie Co. to bake and sell soft home-style cookies under an Archway label in Minnesota and the Dakotas. By virtue of a written contract between the parties, plaintiff supplied the defendants with cookie recipes and techniques in producing, packaging and selling the cookies, which information was supplemented from time to time by confidential bulletins. The contract provided that such information was to be confidential, that a specified royalty was to be paid, that either party could terminate on 60 days notice, and that defendants' right to use the recipes and techniques "shall cease immediately upon the termination of this Agreement, and that the Baker will not use or claim the right to use any of the said properties of the Company after the cancellation or termination of this Agreement for any reason whatsoever."

Goedert was the first franchisee in the territory assigned to him. He developed the territory at his own expense into a substantial business. Plaintiff, believing that defendants were violating their contract by producing and selling cookies, nuts, candies, and other items not covered by the franchise, served a 60 day notice terminating the franchise, effective May 23, 1960. The validity of the termination is not here questioned. Royalties up to termination date were paid.

Defendants continued to make and sell the type of soft cookies previously produced under the franchise, such as ice box, oatmeal, fruit and honey, peanut butter and molasses cookies. Defendants denied that the recipes and techniques supplied them are secret and also denied using the recipes and techniques after termination. Defendants likewise denied the guilt of unfair competition.

The case was tried to the court. A well-considered memorandum opinion is reported at 206 F.Supp. 361. Findings of fact and conclusions of law were made. Final judgment of dismissal was entered. This timely appeal is from such judgment and from the court's refusal to grant plaintiffs' motion to amend findings of fact, conclusions and judgment entry. Jurisdiction, based upon diversity of citizenship, is established.

Plaintiffs insist that they are entitled to a reversal for the following reasons:

1. Erroneous finding that their recipes and techniques were not secret.

2. Erroneous finding that defendants did not use trade secrets after franchise termination.

3. Erroneous finding that defendants were not guilty of unfair competition.

The issues here raised are largely fact issues. As we have frequently stated, we do not try cases de novo. In a nonjury case, this court will not set aside findings of fact of the trial court unless there is no substantial evidence to support them, unless they are against the clear weight of the evidence, or unless they are induced by an erroneous view of the law. Anthony v. Louisiana & Arkansas Ry. Co., 8 Cir., 316 F.2d 858, 861; Neely v. Boland Mfg. Co., 8 Cir., 274 F.2d 195, 201.

The parties agree that the contract and activity giving rise to this cause of action are Minnesota transactions and that the law of Minnesota controls. We accept the view of the trial court upon doubtful questions with respect to the law of its state unless convinced that its determination is based upon a clear misconception or misapplication of local law. Jennings v. McCall Corp., 8 Cir., 320 F.2d 64; National Bank of Eastern Arkansas v. General Mills, Inc., 8 Cir., 283 F.2d 574, 576-577.

We hold that the dismissal of all of plaintiffs' claims was based upon fact findings supported by substantial evidence and was not induced by any erroneous view of Minnesota law.

Extensive testimony was offered by both sides at the trial. The facts and applicable law are adequately set out in the trial court's opinion. We have fully and carefully examined the record. A detailed discussion of the voluminous and conflicting evidence will serve little purpose. Like the trial court, we are impressed with the testimony of Mr. Vander Voort, who had spent his lifetime in the baking industry and had served for 28 years as head of the baking school at the Dunwoody Institute in Minneapolis, and had written technical articles in baking periodicals.

We shall first consider errors 1 and 2 which relate to plaintiffs' claims based upon breach of contract and appropriation of trade secrets. We agree with plaintiffs' contention that under Minnesota law, the essential elements of a cause of action for appropriation of trade secrets are (1) existence of a trade secret, (2) acquisition of the secret as a result of a confidential relationship, and (3) use of the trade secret by the party to whom the secret was disclosed. See Larx Co. v. Nicol, 224 Minn. 1, 28 N.W. 2d 705; Radium Remedies Co. v. Weiss, 173 Minn. 342, 217 N.W. 339; Chamber of Commerce v. Wells, 100 Minn. 205, 111 N.W. 157. Such appears to be the law generally. Sandlin v. Johnson, 8 Cir., 141 F.2d 660; Restatement, Torts, § 757.

In order to prevail, the burden is upon the plaintiffs to establish each of the elements above stated. It is clear that defendants acquired the recipes and techniques as a result of a confidential relationship. It would appear from the court's opinion that it determined that the recipes and techniques were not secret. There is substantial evidence to the effect that there is no such thing as a secret cookie recipe and that any recipe could be substantially duplicated by a skilled baker. Such evidence would be entirely adequate to support a finding that the recipes were not secret with respect to an outsider. However, the rule appears to be otherwise in situations where the parties have among themselves treated the disclosure as secret and confidential. In the Larx case, the Minnesota court states:

"It is clear that, even though a secret process not protected by patent or copyright be subject to analysis or discovery by others, and, even though others not bound by contract or confidential relationship may legitimately establish or analyze the ingredients comprising the same, the owner thereof may nevertheless protect his property rights therein against one lawfully bound by contract not to disclose, publish, or use such formula or process, and in equity may enjoin him from doing so in violation thereof." 28 N.W.2d 705, 713.

See IV Restatement, Torts, § 757, p. 7.

We would be reluctant to affirm solely upon the basis of the finding that the recipes under the circumstances here...