Wheelabrator Corporation v. Fogle

• Decision Date: 27 August 1970
• Docket Number: Civ. A. No. 15360.
• Citation: 317 F. Supp. 633
• Parties: WHEELABRATOR CORPORATION v. James W. FOGLE and Southern Steel Shot, Inc.
• Court: U.S. District Court — Western District of Louisiana

317 F. Supp. 633

WHEELABRATOR CORPORATION v. James W. FOGLE and Southern Steel Shot, Inc.

Civ. A. No. 15360.

United States District Court, W. D. Louisiana, Shreveport Division.

August 27, 1970.

John T. Guyton, Thomas J. Wyatt, Hargrove, Guyton, Van Hook & Ramey, Shreveport, La., Richard Roob, Palmer & Serles, New York City, for plaintiff.

Pike Hall, Jr., Wilkinson, Woods, Carmody & Hall, Shreveport, La., Thomas J. Macpeak, Sughrue, Rothwell, Mion, Zinn & Macpeak, Washington, D. C., for defendants.

OPINION

DAWKINS, Chief Judge.

In this diversity action Wheelabrator Corporation ("Wheelabrator"), a Delaware corporation with its principal place of business in Indiana, seeks injunctive relief against James W. Fogle, a domiciliary of Caddo Parish, Louisiana, and Southern Steel Shot, Inc., a Louisiana corporation not yet actually doing business.

Plaintiff primarily seeks to restrain Fogle, a former employee, from using or disclosing what it alleges are trade secrets and confidential processes. Plaintiff also seeks to restrain Fogle from violating the non-competition clause of his employment contract¹ which provided that Fogle would not work for a competitor for one year after leaving Wheelabrator. The one-year period ended June 1, 1970, so that question is now moot. It would serve no purpose for this Court to interpret and apply Louisiana law, as it must, to this moot question especially in light of the limited and less than well-settled jurisprudence.²

The sole question that remains³ therefore is whether Wheelabrator is entitled to injunctive relief against Fogle and the defendant corporation restraining the disclosure and/or use of Wheelabrator's alleged trade secrets.

Wheelabrator is a large corporation with its principal plant and manufacturing facilities located in Mishawaka, Indiana. The company manufactures steel shot and grit and the blast cleaning machines in which these abrasives are used. Wheelabrator has been in the business of manufacturing blast cleaning machines for about fifty years, formerly marketing a chilled iron shot for use in the machines. In 1952, it began production of steel shot and now has about a 35 per cent share of the market in the United States. Wheelabrator also has licensees or affiliates in England, France, and Japan and is planning another in India.

Fogle is a forty-seven year old, largely self-educated engineer with undisputed keen mechanical ability. He began working part-time when he was ten years old and later left high school to work full-time due to his family's financial condition. He entered the Navy in 1940 and achieved the grade of Chief Torpedoman. In the interim between his discharge from the Navy in 1948 and his employment at Wheelabrator, Fogle was employed by several firms engaged in the foundry business. Although none of these firms manufactured steel shot, during his tenure with these companies he had experience in all the major steps involved in manufacturing steel shot. During this time he also studied mechanical engineering by correspondence courses.

Upon entering the employ of Wheelabrator in 1957 as an engineer, he signed a contract which reads in part:

"I further agree that I will respect the trade secrets, confidential procedures, data and drawings imparted to me or acquired by me during my employment as the special and exclusive property of WHEELABRATOR CORPORATION and that I will not divulge the same to any other person without the permission of a duly authorized representative of WHEELABRATOR CORPORATION; that I will promptly return all drawings, sketches and written data in my possession upon termination, for any cause, of my employment with WHEELABRATOR CORPORATION; * * *"

Fogle remained in plaintiff's employ until he resigned effective June 1, 1969. During the twelve years at Wheelabrator, he was steadily advanced in position, serving finally as director of product development. His duties included work both in connection with the manufacture of steel shot and grit and the machines in which they are employed.

Fogle left Wheelabrator with the idea of forming his own business. Four months after leaving plaintiff's employ defendant moved to Shreveport, Louisiana, and there in October, 1969, as sole incorporator formed the corporate defendant, Southern Steel Shot, Inc. Fogle is president of that corporation and upon issuance of stock will own fifty per cent.⁴ The acknowledged purpose of Southern Steel Shot, Inc., is the manufacture of steel shot for use as abrasives. The operations, however, have not yet passed beyond the planning stage. Fogle has interested three persons to invest small sums and has applied to the Small Business Administration for a loan. Further organizational steps have ceased due to pendency of this suit.

In January, 1970, plaintiff filed its petition for a preliminary and permanent injunction against Fogle and Southern Steel Shot, Inc. The entire case was tried before this Court in camera⁵ to protect the plaintiff in its contention that the testimony would necessarily disclose its trade secrets. Further, in order to preserve the alleged secrets the records were sealed, to be opened only by the Court or upon Court order.

The alleged secret processes and equipment all relate to the manufacture of steel shot (and to a lesser extent steel grit which defendant claims he does not presently intend to manufacture).⁶ The manufacture of steel shot is not a trade secret; several firms engage in this activity. The basic process, as to which knowledge is in the public domain,⁷ consists of forcing a stream of pressurized water through a stream of molten steel resulting in the formation of small pellets of steel. These small pellets are used in a manner roughly analogous to the use of sand in the well-known sand blasting process.

Plaintiff does not attempt to restrain defendant from manufacturing steel shot but does attempt to restrain the use or disclosure of specific processes and machinery which it alleges it developed and are trade secrets. These developments are claimed to have involved considerable expense and now give Wheelabrator a competitive advantage over other shot manufacturers.

The techniques and machinery relate to the following aspects of the steel shot (and grit) manufacturing process, all of which Fogle has knowledge:

1. The shot removal process

2. The shot drying process

3. The heat treating (hardening and tempering) process

4. The separation process

5. The screening process

6. The packaging process.

Fogle acknowledges that he intends to employ a variation⁸ of the shot removal process that Wheelabrator uses and that he does not intend to use the packaging process at all.⁹ His testimony with respect to the other processes indicates the exact machinery and processes have not yet been determined. With his innate engineering skill plus his other experience we are convinced that Fogle can and will develop processes of his own especially in light of his relatively limited financial resources. To underline his ability, it should be noted that he has designed and obtained a number of valuable patents while working for plaintiff which have become its property.

With the exception of the packaging process, each of the alleged trade secrets involves modifications or adaptations of commercial equipment available on the open market to the shot manufacturing process.

In determining the protections given trade secrets, this Court's first inquiry, under Erie, is of Louisiana law on the subject. Louisiana has no statutory provisions dealing with trade secrets¹⁰ and there is little jurisprudence.¹¹ That trade secrets are a protectable interest in Louisiana under some circumstances seems clear. Yet, the paucity of Louisiana jurisprudence provides us little guidance here. The Court therefore is called upon to assume the task of making an Erie-educated guess as to Louisiana's law of trade secrecy.¹²

The threshold inquiry is to determine whether the claimed processes and machinery are in fact "technical trade secrets." The Restatement definition has been cited and quoted with approval and provides a measure of guidance here.¹³

"A trade secret may consist of any formula, pattern, device or compilation of information which is used in one's business and which gives him an opportunity to obtain an advantage over competitors who do not know or use it. It may be a formula for a chemical compound, a process of manufacturing, treating or preserving materials, a machine or other device or a list of customers."

Dealing with the question of the elements of trade secrets and the burden of proof, Judge Hunter summarized:¹⁴

"Plaintiff has the burden of proving each of the several distinct elements necessary to prove a violation of its trade secrets. The courts in the Fifth Circuit and elsewhere have defined three separate elements that plaintiff must establish in order to prevail on a charge of misappropriation of trade secrets.

"Judge Cecil, in Kinnear-Weed Corp. v. Humble Oil and Refining Company, 150 F.Supp. 143 (Texas Beaumont Division, 1956), affirmed 259 F.2d 398, 5 C.A., 1958, listed the essential elements as follows * * *

"`The essential elements of a cause of action for breach of confidence are

(i) possession by the plaintiff of knowledge or information which is not generally known,

(ii) communication of this knowledge or information by the plaintiff to the defendant under an express or implied agreement limiting its use or disclosure by the defendant, and

(iii) use or disclosure by the defendant of the knowledge or information so obtained in violation of the confidence, to the injury of the plaintiff.'"

Clearly, the interest that is entitled to protection must be knowledge or information gained as a result of a confidential relationship. While trade secrets will be protected where a confidential relationship exists even in the absence of a contractual agreement to that effect,¹⁵ a contractual agreement without more does not...