Opinion
No. 2-253 / 01-1386
Filed October 16, 2002
Appeal from the Iowa District Court for Polk County, Arthur E. Gamble, Judge.
The plaintiffs appeal from the district court's ruling denying their motion for new trial following a jury verdict in favor of the defendants in the plaintiffs' action for violation of the Trade Secrets Act and misappropriation of confidential information. AFFIRMED.
Kathryn S. Barnhill and Cynthia A. Miller of Barnhill Associates, P.C., West Des Moines, for appellants.
Kenneth R. Munro of Bradshaw, Fowler, Proctor Fairgrave, P.C., Des Moines, for appellees.
Heard by Huitink, P.J., and Zimmer and Miller, JJ.
The plaintiffs appeal from the district court's ruling denying their motion for new trial following a jury verdict in favor of the defendants in the plaintiffs' action for violation of the Trade Secrets Act and misappropriation of confidential information. The plaintiffs argue (1) the evidence is legally insufficient as a matter of law to support a finding in favor of the defendants, and (2) the district court erred in submitting jury instruction number fifteen. We affirm.
I. BACKGROUND FACTS.
Kenyon Landon, Inc., d/b/a/ Allegra Print Imaging (Allegra) is a small commercial printer that primarily services other businesses. John and Carolyn O'Hara are the owners of Allegra. These parties will collectively be referred to as the plaintiffs.
The Business Letter is also a small commercial printer. Its president is Jerry Johnson. Joel Schwery and Kenneth Chebuhar are former employees of Allegra who went to work for the Business Letter shortly after leaving Allegra. These parties will collectively be referred to as the defendants.
Allegra hired Chebuhar in March 1994 as a press operator. Chebuhar resigned and terminated his employment with Allegra in August 1997. He commenced employment at the Business Letter on September 29, 1997, as a press operator. Allegra hired Schwery as a sales person on April 1, 1996. Schwery terminated his employment with Allegra at the end of September 1997, and commenced employment with the Business Letter as a sales person on October 1 or 2, 1997.
The plaintiffs filed suit. They ultimately voluntarily reduced their claims to the following: violation of the Trade Secrets Act and misappropriation of confidential information. The jury returned a verdict in favor of all defendants.
The plaintiffs filed a motion for new trial pursuant to Iowa Rule of Civil Procedure 1.1004(6) and (8). They alleged there was insufficient evidence to sustain a verdict for the defendants on both counts. They also maintained that they were entitled to a new trial based on an adverse ruling involving jury instruction number fifteen that materially affected their substantial rights. The district court overruled the plaintiffs' motion, and the plaintiffs appeal.
II. SCOPE OF REVIEW.
How we review the denial of a motion for new trial depends on the grounds asserted in the motion and ruled on by the trial court. Weyerhaeuser Co. v. Thermogas Co., 620 N.W.2d 819, 823 (Iowa 2000). When the motion and ruling are based on discretionary grounds our review is for an abuse of discretion. Id. When the motion and ruling are based on a claim the trial court erred on issues of law our review is for correction of errors of law. Id.
If a verdict is not sustained by sufficient evidence it may be set aside and a new trial granted. Shepherd Components, Inc. v. Brice Petrides-Donahue Assocs., Inc., 473 N.W.2d 612, 618 (Iowa 1991). The trial court has wide discretion in deciding whether a new trial should be granted on such grounds, id., and our review is therefore for an abuse of discretion.
We review jury instructions for the correction of errors of law. Cato v. Am. Suzuki Motor Corp., 622 N.W.2d 486, 492 (Iowa 2001).
III. TRADE SECRETS AND CONFIDENTIAL INFORMATION.
The plaintiffs contend that, as a matter of law, the evidence is legally insufficient to support a finding in favor of the defendants on the plaintiffs' claims that the defendants violated the Trade Secrets Act and misappropriated confidential information. They assert the defendants failed to present sufficient evidence to refute the plaintiffs' evidence on each element of the trade secrets claim. They also assert the defendants failed to present sufficient evidence that Allegra's materials were not confidential and that the Business Letter and Johnson did not receive benefits from the confidential information.
Iowa Code section 550.3(1) (1997) provides that "[t]he owner of a trade secret may petition the district court to enjoin an actual or threatened misappropriation." Section 550.4(1) provides that "an owner of a trade secret is entitled to recover damages for the misappropriation." Section 550.2(4) defines a trade secret as information, including but not limited to a formula, pattern, compilation, program, device, method, technique, or process that is both of the following:
a. Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by a person able to obtain economic value from its disclosure or use.
b. Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
Section 550.2(3) defines misappropriation as doing any of the following:
a. Acquisition of a trade secret by a person who knows that the trade secret is acquired by improper means.
b. Disclosure or use of a trade secret by a person who uses improper means to acquire the trade secret.
c. Disclosure or use of a trade secret by a person who at the time of disclosure or use, knows that the trade secret is derived from or through a person who had utilized improper means to acquire the trade secret.
d. Disclosure or use of a trade secret by a person who at the time of disclosure or use knows that the trade secret is acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use.
e. Disclosure or use of a trade secret by a person who at the time of disclosure or use knows that the trade secret is derived from or through a person who owes a duty to maintain the trade secret's secrecy or limit its use.
f. Disclosure or use of a trade secret by a person who, before a material change in the person's position, knows that the information is a trade secret and that the trade secret has been acquired by accident or mistake.
"Improper means" is defined as "theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage, including but not limited to espionage through an electronic device." Iowa Code § 550.2(1).
Jury instruction number eleven sets forth the elements the plaintiffs had to prove to prevail on their trade secrets claim, as follows:
(1) The customer lists, pricing structure, sales system, and/or operations manual are trade secrets.
(2) The Defendants misappropriated the trade secrets.
(3) The misappropriation of the trade secrets was a proximate cause of damage to the plaintiffs.
(4) The nature and extent of damage.
A district court may grant a new trial if the jury's verdict is not supported by sufficient evidence. Iowa R.Civ.P. 1.1004(6).
Jury instruction number fourteen delineates the elements of the claim of misappropriation of confidential information that the plaintiffs had to prove, as follows:
1. The Plaintiffs possessed confidential information.
2. The Defendants used or communicated information confidentially given to Schwery and/or Chebuhar by the Plaintiffs.
3. Such confidential information was communicated to Schwery and/or Chebuhar during the course of their employment with Plaintiffs only for the use of Plaintiffs.
4. Defendants communicated, used, or disclosed said confidential information in competition with or to the injury of the Plaintiffs.
5. Defendants obtained benefits from such use or disclosure.
6. The misappropriation of confidential information was a proximate cause of damage to the plaintiffs.
We conclude the jury had sufficient evidence to find both that the plaintiffs had not proved misappropriation of trade secrets and had not proved that any of their claimed damages had been proximately caused by the alleged misappropriation of those secrets. First, there is subtantial evidence that Schwery and Chebuhar did not misappropriate customer lists, price rates and quotes, franchised materials, sales methods, and business procedures of Allegra. There is evidence that Schwery had visited his former Allegra customers by virtue of his recollection of who they were. See Lemmon v. Hendrickson, 559 N.W.2d 278, 281 (Iowa 1997) (finding it permissible that the attainment of customers by former employee from former employer for employee's new business was due to recollection of customers' needs). There is evidence that Schwery did not have information regarding the pricing, marketing strategies, and similar things, when he left Allegra. Chebuhar testified that he did not remove hard copies of anything, such as computer disks, programs, and things of that nature, from Allegra when he quit, and he did not disclose anything to anyone at the Business Letter as to how Allegra did things, who their customers were, or what their stock was. He testified he had no memory of how much stock each Allegra customer had, what kind of die they used, and what specific invoice price was printed or sent out when he left Allegra, and no one at the Business Letter asked him how Allegra operated its business.
Former Allegra customers testified that they left Allegra and gave their business to the Business Letter for reasons unrelated to the departures of Schwery and Chebuhar. Mark Culbertson testified that he was not happy with the quality of the jobs done by Allegra. Kathy Anderson testified that she no longer placed orders with Allegra after unprofessional dealings with Mr. O'Hara. Kim Eaton testified that she stopped using Allegra after several incidents where Mr. O'Hara was very rude when jobs were not done correctly.
Based on this evidence, we additionally conclude that there is sufficient evidence to support the jury's verdict on the confidential information claim. There is substantial evidence that the defendants did not use or communicate confidential information given to Schwery and/or Chebuhar by the plaintiffs, the defendants did not communicate, use, or disclose such information in competition with or to the injury of the plaintiff, and the alleged misappropriation was not a proximate cause of damage to the plaintiffs.
The essence of the plaintiffs' position is that they were entitled to judgment on one or both of their claims. There was, however, conflicting evidence on several elements of each of their two claims thus generating issues for the jury to decide. The trial court did not abuse its discretion in denying the plaintiffs' motion for new trial on this ground.
IV. JURY INSTRUCTION.
The plaintiffs maintain that the district court erred in submitting jury instruction number fifteen. They objected to the instruction at trial, stating that the case upon which the instruction was based does not pertain to the present case.
The plaintiffs have failed to comply with Iowa Rule of Appellate Procedure 6.14(1)( f)'s requirements that they state how the issue was preserved for review, with references to the places in the record where the issue was raised and decided. We have chosen, however, to search the record to satisfy ourselves that error was preserved and address the merits of the issue rather than deeming the issue waived.
Jury instruction number fifteen was submitted as follows, with the disputed language italicized:
You must determine whether the Defendants acquired the information through a confidential relationship. An employee has a confidential relationship to his employer and owes the employer a duty of undivided and unselfish loyalty to act solely for the benefit of the employer and avoid conflicts of interest. A former employee's duty includes the duty not to disclose information the former employer desires to keep confidential or secret and make reasonable efforts to maintain as confidential even if the information is not "trade secrets" under the Iowa Code. An employee is entitled to take with him his aptitude, skill, dexterity, manual and mental ability and such other general knowledge obtained in the course of employment. Unless it is otherwise agreed, an employee has no duty not to compete with his former employer. The employee is entitled to use general information concerning the method of business of his former employer and the names of customers retained in his memory, if not acquired in violation of his duty as an agent. However, an employee shall not use or disclose confidential information acquired in the course of employment for his own benefit or that of a competitor to the detriment of his former employer, even in the absence of a contract to that effect.
The district court relied on the Lemmon case in including the disputed language.
In Lemmon, a former employee of Lemmon began a business, Revenge Pest Control, similar to Lemmon's. Lemmon, 559 N.W.2d at 279. Lemmon alleged that Revenge impermissibly used his customer list to solicit new business. Lemmon, 559 N.W.2d at 280. The former employee testified that he remembered the names of some former customers and solicited them based on his recollection. Id. Our supreme court noted that the attainment of some of Lemmon's customers was merely a product of utilizing the former employee's recollection. Id. at 281. The court favorably quoted the following language:
Unless it is otherwise agreed, after the termination of the agency, the agent:
(a) has no duty not to compete with the principal;
(b) has a duty to the principal not to use or to disclose to third persons, on its own account or on account of others, in competition with the principal . . . trade secrets, written lists of names or other similar confidential matters given to him only for the principal's use or acquired by the agent in violation of duty. The agent is entitled to use general information concerning the method of business of the principal and the names of the customers retained in his memory, if not acquired in violation of his duty as an agent. . . .Id. at 280-81 (quoting Restatement (Second) of Agency § 396 at 223 (1958)). We conclude the district court did not err in including the disputed language in the jury instruction. Based on Lemmon, the jury instruction was a correct statement of the law. Accordingly, the court did not err in denying the plaintiffs' motion for new trial as to this issue.
V. CONCLUSION.
We affirm the trial court's ruling denying the plaintiffs' motion for new trial.