Opinion
No. CV 03-0827087 S
November 2, 2004
MEMORANDUM OF DECISION
This is an injunction action brought by the plaintiff, Lydall, Inc. (hereinafter also "Lydall") seeking to enjoin the defendant, Walter A. Ruschmeyer (hereinafter also "Ruschmeyer") from using or disclosing trade secrets and confidential information of Lydall. The action was brought by Complaint dated July 18, 2003 with a return date of August 12, 2003. It is a trial to the Court hearings of which commenced on December 18, 2003 and covered thirteen days of trial ending on April 15, 2004. Following the receipt of transcripts, the parties filed briefs and reply briefs the last of which were filed on August 30, 2004.
FACTS
Lydall is a multi-national corporation organized and existing under the laws of the State of Delaware with its world headquarters located in the town of Manchester, Connecticut. It has operations throughout the United States as well as in France and Germany. Lydall designs and manufactures specialty engineered air and liquid filtration media, automotive thermal and acoustical bafflers, passive and active industrial thermal and insulating solutions and certain medical filtration and bioprocessing components. It is a highly complex company.
Ruschmeyer, who resides in South Glastonbury, Connecticut, was until his termination by Lydall on April 16, 2003, Executive Vice President — Finance and Administration and Chief Financial Officer ("CFO").
On March 16, 2000, Ruschmeyer executed two agreements with Lydall. The first entitled "Lydall Employment Agreement" (Plaintiff's Exhibits 1 and A) contains, inter-alia, the following provisions: CT Page 16300-g
1. `The term "confidential information" as used in this Agreement includes all business information and records which relate to Lydall and which are not known to the public generally, including, but not limited to, technical notebook records, technical reports, patent applications, machine equipment, computer software, models, process and product designs, including any drawings and descriptions, unwritten knowledge and know-how, operating instructions, training manuals, production and development processes, production or other schedules, customer data, customer buying records, product sales records, sales requests, territory listings, market analyses, plans including marketing plans, long-range plans, salary information, contracts, supplier lists, product costs, policy statements, policy procedures, policy manuals, flow charts, computer printouts, program listings, reproductions and correspondence.' (Emphasis added.)
. . .
5. I will not, directly or indirectly, during or at any time after the period of my employment by Lydall, use for myself or others, or disclose to others, any confidential information, no matter how such information becomes known to me, unless I first obtain Lydall's written consent.
. . .
6. When I leave Lydall's employ, or at any other time upon request by Lydall, I will promptly deliver to Lydall all documents and records, including but not limited to those listed under the definition of confidential information, which are in my possession or under my control and which pertain to Lydall, any of its activities, or any of my activities while in the course of my employment and all copies thereof. I will not retain or deliver to any others copies of these documents or records.
. . .
10. I represent and agree that I have and will assume CT Page 16300-h no obligations to others inconsistent with any of my obligations to Lydall under this Agreement.
Ruschmeyer also executed on the same date an "Employment Agreement" with Lydall (Plaintiff's Exhibit 2). Pursuant to paragraph 14.5 of same, "Propriety Information and Inventions" terms of the Lydall Employment Agreement were incorporated by reference into the Employment Agreement, and Ruschmeyer agreed to continue to be bound by the terms of the Lydall Employment Agreement. The Employment Agreement bound Ruschmeyer, inter-alia, to the following terms:
2. Duties. . . . During the Employment Period, the Executive will devote his full business time and attention and best efforts to the affairs of the Company [Lydall] and its subsidiaries and his duties as Executive Vice President — Finance and Administration, Chief Financial Officer of the Company . . .
14.4 No Disparagement. The Executive shall not during the period of his employment with the Company, nor during the two-year period beginning on the date of termination of his employment for any reason, disparage the Company or any of its subsidiaries or affiliates or any of their shareholders, directors, officers, employees or agents. The Executive agrees that the terms of this Section 14.4 shall survive the term of this Agreement and the termination of the Executive's employment.
. . .
14.13 Right to Injunctive and Equitable Relief. The Executive's obligations under Section 14.4 are of a special and unique character, which gives them a peculiar value . . . Therefore the Executive expressly agrees that the Company shall be entitled to injunctive and other equitable relief without bond or other security in the event of such breach in addition to any other rights or remedies which the Company may possess or be entitled to pursue.
In 2001 Lydall commenced a five-year strategic planning process which was repeated in 2002 and resulted in a five-year strategic CT Page 16300-i plan which was presented to Lydall's Board of Directors at its October 24, 2002 meeting which presentation was made by Ruschmeyer as well as Christopher Skomorowski (hereinafter also "Skomorowski") who was then Chief Executive Officer as well as other individuals. The Board of Directors ultimately approved the five-year plan.
When it became apparent to Ruschmeyer that his employment was to be terminated, he started to develop a plan which became the "Hoover Plan." This plan was designed when completed to initiate a hostile takeover of Lydall.
Further facts will be described as appropriate.
STANDARD OF REVIEW
The Connecticut Trade Secrets Act which Ruschmeyer is accused of violating is set forth as follows:
Sec. 35-51. Definitions. As used in this chapter, unless the context requires otherwise:
(a) "Improper means" includes theft, bribery, misrepresentation, breach or inducement of a breach of duty to maintain secrecy, or espionage through electronic or other means, including searching through trash.
(b) "Misappropriation" means: (1) Acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means; or (2) disclosure or use of a trade secret of another without express or implied consent by a person who (A) used improper means to acquire knowledge of the trade secret; or (B) at the time of disclosure or use, knew or had reason to know that his knowledge of the trade secret was (i) derived from or through a person who had utilized improper means to acquire it; (ii) acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use, including but not limited to disclosures made under section 1-210, sections 31-40j to 31-40p, inclusive, and subsection (c) of section 12-62; or (iii) derived from or though a person who owed a duty to the person seeking relief CT Page 16300-j to maintain its secrecy or limit its use; or (C) before a material change of his position, knew or had reason to know that it was a trade secret and that knowledge of it had been acquired by accident or mistake.
(c) "Person" means a natural person, corporation, limited liability company, business trust, estate, trust, partnership, association, joint venture, government, governmental subdivision or agency, or any other legal or commercial entity.
(d) Notwithstanding the provisions of sections 1-210, 31-40j to 31-40p, inclusive, and subsection (c) of section 12-62," trade secret" means information, including a formula, pattern, compilation, program, device, method, technique, process, drawing, cost data or customer list that: (1) Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and (2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
Emphasis added.
It is well-settled law in Connecticut that in the event of a violation of a statute, it is not necessary to find that the plaintiff does not have an adequate remedy at law and will suffer irreparable harm. In Conservation Commission v. Price, 193 Conn. 414, 429 (1984), the court stated: "This case is to be considered differently from a common law action for injunctive relief where allegations and proof of irreparable harm for lack of an adequate remedy are required . . . `The rationale underlying [the] rule that the complainant is relieved of his burden of proving irreparable harm and no adequate remedy at law is that the enactment of the statute by implication assumes that no adequate alternative remedy exists and that the injury was irreparable, that is, the legislation was needed or else it would not have been enacted.'" See Marco Venditti et al. v. Roberto Giansiracusa et al., Docket No. CV 03-0825283 S, Superior Court, J.D. of Hartford, November 6, 2003 (Rittenband, J.T.R.) ( 35 Conn. L. Rptr. 741). CT Page 16300-k
In Elm City Cheese Co. v. Federico, 251 Conn. 59, 75 (October 1999), the Connecticut Supreme Court supported "the trial court's finding that the business plan as a whole merits trade secret protection." It must, however, be a business that is unique for the Supreme Court also stated: "We conclude, therefore, in light of the unique combination of the components at issue, that the aforementioned individual components, viewed in conjunction with each other, can be considered a trade secret under the specific circumstances of this case."
This Court bases much of its decision on the credibility of the witnesses; namely their demeanor on the witness stand, their ability to recall certain events, the consistency or inconsistency of their statements or testimony, the manner in which they responded to questions on cross-examination as well as direct examination, the conflict of their testimony with other testimony and the other evidence in the case, including the exhibits, and the overall reliability of their testimony.
In addition it should be noted that this Court will base some of its decision on circumstantial evidence. As judges consistently instruct jurors, circumstantial evidence is to be treated equally with direct evidence.
C.G.S. § 35-52 entitled " Injunctive relief" states in pertinent part that "(a) Actual or threatened misappropriation may be enjoined upon application to any court of competent jurisdiction."
C.G.S. § 35-53 entitled " Damages, Punitive damages for willful and malicious misappropriation" states in pertinent part:
(a) In addition to or in lieu of injunctive relief, a complainant may recover damages for the actual loss caused by misappropriation. A complainant also may recover for the unjust enrichment caused by misappropriation that is not taken into account in computing damages for actual loss.
(b) In any action brought pursuant to subsection (a) of this section, if the court finds willful and malicious misappropriation, the court may award punitive damages in an amount not exceeding twice any award made under subsection (a) and may award reasonable attorneys fees to the prevailing party.
CT Page 16300-l
ISSUES A. DID THE DEFENDANT, RUSCHMEYER, VIOLATE THE CONNECTICUT TRADE SECRETS ACT?
The short answer to this question is Yes.
1. Specific Violations
The pertinent parts of C.G.S. § 35-51 that apply to the defendant are as follows:
(a) "Improper means" includes . . . breach . . . of duty to maintain secrecy . . .
(b) "Misappropriation" means . . . (2) disclosure or use of a trade secret of another without express or implied consent by a person who . . . (B) at the time of disclosure or use, knew or had reason to know that his knowledge of the trade secret was . . . (ii) acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use . . . (Emphasis added.)
(c) . . . "trade secret" means information, including a formula, pattern, compilation, program, device, method, technique, process, drawing, cost data or customer list that: (1) Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and (2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. (Emphasis added.)
In reviewing the above terms of the Connecticut Trade Secrets Act, it is clear that the language in paragraphs (a) and (b) apply to Ruschmeyer. The Lydall Employee Agreement described above defines confidential information as including all business information and records which relate to Lydall and which are not known to the public generally. In paragraph 5 of that Agreement Ruschmeyer states, "I will not directly or indirectly, during or at any time after the period of my employment by Lydall, use CT Page 16300-m for myself or others, or disclose to others, any confidential information, no matter how such information becomes known to me, unless I first obtain Lydall's written consent." (Emphasis added.)
Therefore, Ruschmeyer had a duty to maintain secrecy of Lydall's information not known to the public generally. See Paragraph (a).
There is no evidence before this Court that Ruschmeyer ever obtained written consent of Lydall to disclose or use trade secrets or confidential information.
The evidence clearly shows that Ruschmeyer disclosed and/or used trade secrets. See Paragraph (b). The specific disclosures and uses will be set fort hereafter.
Ruschmeyer has admitted that the Lydall strategic plan and the elements thereof were and are confidential and were and are not to be disclosed to the public or used by him other than within Lydall.
Much of the information contained in the five-year strategic plan presented to Lydall's Board of Directors was treated as confidential within the company. See the testimony of former CEO Skomorowski who testified on December 18, 2003 that the information pertaining to the fourth quarter of 2002 and the years 2003 through 2006 was and is confidential. (TT 12/18/03, page 63.)
TT refers to Trial Transcript which is followed by the date and the page number(s).
It is true that there was testimony from Skomorowski and, in particular, Roger Widmann (hereinafter also "Widmann"), the Chair of the Board of Directors, that several of the items in the comprehensive plan had been disclosed to the public through various conference calls with stockholders, SEC filings, news releases, etc., but they also testified that many of the specific items in the five-year strategic plan remained confidential. Ruschmeyer conceded that the strategic plan is confidential and that he was to maintain its confidentiality including the specific items that make up the comprehensive or strategic plan particularly as to outsiders, competitors and customers. TT 3/25/04, pages 18 and 31. Also see TT 4/13/04, page 112.
The terms comprehensive plan and strategic plan as used herein are interchangeable and refer to the same plan.
Ruschmeyer participated in the preparation of and/or was aware CT Page 16300-n of all elements of the five-year strategic plan. He, therefore, meets the condition of subsection (b) of C.G.S. § 35-51 that "at the time of disclosure or use, (he) knew or had reason to know that his knowledge of the trade secret was acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use." Accordingly, subparagraphs (a) and (b) of C.G.S. § 35-51 apply to Ruschmeyer. Ruschmeyer admitted in testimony on April 14, 2004 that the company's strategic plan has not been revealed even in investor conference calls. He stated that "The comprehensive plan has never been disclosed anywhere as a single comprehensive plan." TT 4/14/04, pages 60-62. Ruschmeyer also admitted that Lydall "is not transparent" even to "institutions and its insiders who understand the company's story." See Exhibit 17 at WR00029.
In order to qualify as a trade secret under subsection (d) of C.G.S. § 35-51, the secret "(2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy." Skomorowski testified on December 13, 2003 that the only three people that actually worked to prepare the strategic plan were Ruschmeyer, himself and Hui Jing who headed up the Financial Planning and Analysis Group in Management. It was obviously disclosed to the members of the Board of Directors in October 2002. Skomorowski testified that its distribution within the company is limited, that Hui Jing maintains this plan on her computer and that it is password protected which he described as "it means that only an individual who has the password can get access to it" and that the only people who have the password were Hui Jing, Ruschmeyer and Skomorowski. He further testified that this document contains projection information that is not publicly disclosed. See TT 12/18/03, pages 63-64. Further, the documents constituting the strategic plan, Plaintiff's Exhibits 3 through 7, are marked confidential and have been presented only to the Board of Directors and kept under lock and key by Skomorowski. This Court concludes that the comprehensive plan and the elements therein comply with Section (2) of subsection (d) of C.G.S. § 35-51 in that it is and has been the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
This brings us to subparagraph (d), Section (1) which states that in order to qualify as a trade secret the information "Derives independent economic value, actual or potential, not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from CT Page 16300-o its disclosure or use . . ." For that, we shall look at specific elements of the strategic plan which were and are confidential and which have been used or disclosed and derive economic value by persons who can obtain economic value from its disclosure or use.
1. Gross Margins of [TEXT BLACKED OUT]
Editor's Note: The bracketed message "[TEXT BLACKED OUT]" has been entered to replace those portions of the original opinion that have been expunged by the court.
Ruschmeyer, in February 2003, had a discussion with his personal attorney, Stephen Curley (hereinafter also "Curley"), a mergers and acquisitions lawyer (TT 3/25/04, pages 52-54). While still employed by Lydall, Ruschmeyer prepared a document entitled [TEXT BLACKED OUT] and sent them to Attorney Curley on March 30, 2003 for review and comment. See Exhibit 14. Exhibit 14 states, inter alia, that [TEXT BLACKED OUT] Skomorowski testified on January 8, 2004 that "the only gross margins we talked about were for the company in total. When it comes to segment reporting, [TEXT BLACKED OUT]" TT 1/8/04, page 151. In order to state [TEXT BLACKED OUT] Ruschmeyer would have to know what the gross margins were for various segments of Lydall. He would have to know the gross margin of th[TEXT BLACKED OUT] which among other things [TEXT BLACKED OUT]. See TT 12/18/03, page 32. When the Court asked Skomorowski the following question, he answered in the affirmative: "But when you say, gross margins [TEXT BLACKED OUT]. There was testimony here, [TEXT BLACKED OUT], and I [TEXT BLACKED OUT] — But to give out confidential information, as to gross margins, — the testimony was, [TEXT BLACKED OUT] and that's why it was confidential." (TT 3/24/04, page 32.) It is clear to this Court that Ruschmeyer did or would disclose these margins to Curley and/or potential investors. It is also clear that he used this information in preparing [TEXT BLACKED OUT] which he sent to an outsider, Attorney Curley. This information meets the test of independent economic value, actual or potential, not generally known and not readily ascertainable by proper means potentially being revealed to other persons, [TEXT BLACKED OUT], who can obtain economic value from its disclosure or use and, therefore, meets paragraph (1) of subsection (d) of C.G.S. § 35-51. Accordingly, this Court concludes that Ruschmeyer used and/or disclosed a trade secret.
In Plaintiff's Exhibit 16, which is an e-mail dated April 8, 2003 from Ruschmeyer to Curley, while Ruschmeyer was still employed by Lydall, [TEXT BLACKED OUT] On page WR00025, under the heading [TEXT BLACKED OUT] Ruschmeyer states in pertinent part, "[TEXT BLACKED OUT]. It would be attractive to a large U.S. parts CT Page 16300-p company that is seeking to expand its product offering at accretive margins or an overseas (probably European) manufacturer of non-competing products that seeks a foothold in the U.S." (Emphasis added.) Although there has been public disclosure of the entire company's gross margins [TEXT BLACKED OUT] Ruschmeyer not only disclosed this information information to a third party, namely Curley, but clearly used the information [TEXT BLACKED OUT] to prepare his Talking Points. As stated above, this information would be valuable to a competitor [TEXT BLACKED OUT]. This alone demonstrates that Ruschmeyer violated the Connecticut Trade Secrets Act.
Also [TEXT BLACKED OUT] Ruschmeyer on the same page of Plaintiff's Exhibit 16 stated in pertinent part, ". . . the business should be worth [TEXT BLACKED OUT]. This [TEXT BLACKED OUT] Lydall did not disclose the purchase orders or sales for the years 2004 and 2005, but obviously Ruschmeyer knew what they were. This was a disclosure of confidential information and the use of confidential information in preparing his Talking Points. The evaluation of the business [TEXT BLACKED OUT] as well as the [TEXT BLACKED OUT] and would be of economic value to Lydall's competitors.
Ruschmeyer claims that there was no misappropriation because Lydall has conceded that Ruschmeyer's buyout plan is fundamentally different from Lydall's strategic plan. Ruschmeyer's brief quotes Skomorowski as stating that the buyout plan is fundamentally different from its strategic plan [TEXT BLACKED OUT] but overlooks Skomorowski's testimony on January 9, 2004, TT 116, in which Skomorowski says that he believes that [TEXT BLACKED OUT]. The court agrees with Skomorowski. In order to decide to sell [TEXT BLACKED OUT] Ruschmeyer had to analyze aspects of those businesses such as the profit margins. Knowing that the profit margins were high, Ruschmeyer obviously concluded [TEXT BLACKED OUT] could be sold for a considerable amount of money. His plan was to sell off these segments of Lydall to obtain the financing needed to finance the buyout and/or the remainder of Lydall's operations. Ruschmeyer would have to have known the inner workings including profit margins [TEXT BLACKED OUT], i.e., trade secrets, in order to formulate the Hoover Plan [TEXT BLACKED OUT].
The disclosure and use of this information by Ruschmeyer is a misappropriation of trade secrets and is another violation of the Trade Secrets Act. CT Page 16300-q
2. Lydall's strategic plan presented to the Board of Directors as described above is contained in Plaintiff's Exhibits 3, 4, 5, 6, and 7. Exhibit 3 gives [TEXT BLACKED OUT] inclusive as well as the [TEXT BLACKED OUT] For example, the financial outlook for [TEXT BLACKED OUT] shows the [TEXT BLACKED OUT] well known to Ruschmeyer as the CFO when preparing his talking points as described above. Exhibit 4 contains a memorandum to the Board of Directors from Skomorowski dated October 14, 2002 entitled [TEXT BLACKED OUT].
A clear violation of the Connecticut Trade Secrets Act by Ruschmeyer involves [TEXT BLACKED OUT] Plaintiff's Exhibit 6 at page 10 refers to [TEXT BLACKED OUT].
As to the 2003-2006 Strategic Plan, it is clear that Ruschmeyer utilized part of the Strategic Plan, namely Plaintiff's Exhibit 6 at page 10 in preparing ( thus using) the Talking Points in Plaintiff's Exhibit 16 to Curley. The Strategic Plan, [TEXT BLACKED OUT] and the Talking Points at page WR00026 states: [TEXT BLACKED OUT].
In Plaintiff's Exhibit 6, page 10, it states under [TEXT BLACKED OUT] and the Hoover Plan states [TEXT BLACKED OUT].
Also, under [TEXT BLACKED OUT].
On page 7 of Exhibit 6 entitled [TEXT BLACKED OUT] and in the Hoover Plan on page WR00026 it states, [TEXT BLACKED OUT].
In addition Ruschmeyer was in frequent communication with [TEXT BLACKED OUT], an investment banker who consulted with him on the Hoover Plan at a meeting on March 20, 2003 at his mother's home in Greenwich, Connecticut. On April 30, 2003, [TEXT BLACKED OUT] sent an e-mail to Ruschmeyer (Plaintiff's Exhibit 18) in which she commented that as to Lydall [TEXT BLACKED OUT]. Page WR00041. Where else could she have obtained this information other than from Ruschmeyer? This information was not public and was disclosed to an outsider and used by Ruschmeyer to inform someone with whom he was working to develop the Hoover Plan. It was based upon a trade secret [TEXT BLACKED OUT] and was of economic advantage to Lydall, its competitors and customers. It was a disclosure and use of a trade secret by Ruschmeyer.
As stated above, the Strategic Plan, as admitted by Ruschmeyer, CT Page 16300-r was and is confidential. As has been shown, efforts were made to protect the confidentiality by putting it on a computer with only a few people in possession of the password. This information as described in Plaintiff's Exhibit 6 is clearly of economic value to Lydall and not being generally known or readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use. Lydall's competitors in this field as well as suppliers and customers would be able to obtain economic value from its disclosure to them, and certainly the use of it in Ruschmeyer's Hoover Plan is of economic value. Accordingly, all of this is additional violations by Ruschmeyer of the Connecticut Trade Secrets Act.
From the totality of the evidence, this Court finds that there were/are many other violations by Ruschmeyer of the Connecticut Trade Secrets Act, but it would take many more pages of this decision to describe them all or even most of them. Suffice it to say that the above evidence abundantly demonstrates that Ruschmeyer has violated the Connecticut Trade Secrets Act by disclosing and/or using individual elements of Lydall's Strategic Plan. For this reason alone, an injunction should issue.
B. DOES LYDALL'S FIVE-YEAR STRATEGIC PLAN AS A WHOLE MERIT TRADE SECRET PROTECTION?
The short answer to this question is Yes.
Ruschmeyer testified that the Comprehensive or Strategic Plan has never been disclosed as a single comprehensive plan, that only elements of it have been disclosed. TT 4/14/04, pages 60-62. From the totality of the evidence, this Court concludes that Ruschmeyer disclosed and/or used sufficient elements of Lydall's Strategic/Comprehensive Plan so as to have disclosed and used the Strategic/Comprehensive Plan as a whole. As the Connecticut Supreme Court stated in Elm City Cheese Co. v. Federico, 251 Conn. 59, 76 (October 1999): "We conclude, therefore, in light of the unique combination of the components at issue, that the aforementioned individual components, viewed in conjunction with each other, can be considered a trade secret under the specific circumstances of this case." As in Elm City Cheese Co. v. Federico, supra, the Supreme Court upheld the trial court's finding that Elm City's business operations were a protectable trade secret even though each and every component is not necessarily a trade secret in and of itself. Id. 73. That is exactly the case here. Lydall's Strategic/Comprehensive Plan as a CT Page 16300-s whole is a trade secret. It is certainly confidential, it is not readily ascertainable by proper means, it is of economic value to Lydall and would be of economic value to competitors and reasonable efforts as described above have been taken to maintain its secrecy. The Strategic/Comprehensive Plan complies with the requirements of C.G.S. § 35-51 and is a trade secret.
Ruschmeyer claims that Lydall's strategic plan as a whole does not have economic value [TEXT BLACKED OUT]. It is clear that the proposals as to what will be done by Lydall in the years beyond 2003, such as the strategies aforementioned, are part of the strategic plan and for the reasons above mentioned, the plan as a whole is of economic value to customers and competitors. The information described above [TEXT BLACKED OUT] alone would be of economic value to customers and/or competitors and is of economic value to Lydall.
In accordance with the holding in Elm City Cheese Co. v. Federico, supra, the question is then whether the Strategic/Comprehensive Plan is unique.
The evidence has proven that Lydall designs and manufactures specialty engineered air and liquid filtration media, automotive thermal and acoustical barriers, passive and active industrial thermal and insulating solutions and certain medical filtration and bioprocessing components. The Court has described the various units or segments of Lydall in describing Plaintiff's Exhibits 3 though 7 which constitute the Strategic/Comprehensive Plan. Ruschmeyer himself has admitted that Lydall is unique. In Plaintiff's Exhibit 16 entitled "Talking Points" in an e-mail to Curley, Ruschmeyer stated [TEXT BLACKED OUT]. Despite the [TEXT BLACKED OUT] (Emphasis added.) This Court concludes that Lydall is unique both from Ruschmeyer's opinions and the Court's own knowledge of Lydall gained from this trial.
The word unique may not be synonymous with "not transparent," "too complex" and "odd," but combined they are close enough for the Court to make a reasonable CT Page 16300-ae inference/conclusion that Ruschmeyer considered the company's plans and processes to be unique.
Ruschmeyer, in an attempt to distinguish the Lydall situation in this case from Elm City Cheese, supra, claims that Ruschmeyer's use of trade secrets or threatened use of trade secrets was not a potential harm to Lydall. However, Ruschmeyer overlooks the use of the [TEXT BLACKED OUT] being a potential harm to Lydall because of the information that could be provided [TEXT BLACKED OUT]. In this instance, it is more of a threatened disclosure of this information which the evidence shows Ruschmeyer has done and is likely to do even more in his disclosure to his attorney, his investment bankers including JW Childs Associates, LP [TEXT BLACKED OUT] the [TEXT BLACKED OUT]. This information has the potential to be passed [TEXT BLACKED OUT]. It is logical to conclude that Ruschmeyer either disclosed or would disclose such information to the investment bankers in order to convince them that the Hoover Plan [TEXT BLACKED OUT]. The evidence shows that Ruschmeyer disclosed it and/or potentially would disclose it for that purpose.
For example, in the deposition of Steven G. Segal who is the investment banker at JW Childs Associates, LP in Boston, dated CT Page 16300-t August 30, 2003, Segal stated the kind of information he would need from Ruschmeyer to proceed with the project. Here is the question to him and his answer as follows:
Q. What kinds of information would you need to know before you would be willing to pursue a deal like this that you don't know from Exhibit 1 and from your conversations with Mr. Ruschmeyer?
A. We would want things like [TEXT BLACKED OUT]. More than is typically provided to the public.
We would want [TEXT BLACKED OUT].
Q. Anything else that comes to mind?
A. You know, that's a pretty full list but it wouldn't be limited to that.
(Emphasis added.)
It is, therefore, clear as to the type of information, trade secrets, that Segal would have required in order to proceed further with the investment and/or financing. This deposition transcript contradicts the section in Ruschmeyer's original brief of July 22, 2004, page 11, in which it is stated: "And it is absolutely undisputed that Ruschmeyer would not have proceeded with Segal if Segal had insisted on the provision of confidential information with the Board's consent (4/13 Tr. at 21; 4/14 Tr at 13)." This adversely affects Ruschmeyer's credibility. (A review by the Court of those transcript citations do not reveal the statement in the brief just indicated.)
Obviously Ruschmeyer used [TEXT BLACKED OUT] order to develop the Hoover Plan and to explain it to the investment bankers either now or in the future. Whether Ruschmeyer's use and/or disclosure or threatened use and/or disclosure was designed to harm Lydall, the trade secret's owner, is irrelevant. Neither the Connecticut Trade Secrets Act nor the holding in Elm City Cheese Co. v. Federico, supra, requires proof of harm. However, [TEXT BLACKED OUT] is important in determining whether [TEXT BLACKED OUT] has economic value to Lydall, [TEXT BLACKED OUT]. It is clear to this Court that [TEXT BLACKED OUT]. That is hardly acting for the benefit of Lydall's stockholders. CT Page 16300-u
Lydall had more than a subjective fear. It had evidence that Ruschmeyer had used the profit margin information to show that [TEXT BLACKED OUT]. In order for the Hoover Plan to be successful, [TEXT BLACKED OUT] funds or loans in order to finance the Hoover Plan, and it had to show potential investors or lenders that [TEXT BLACKED OUT] sufficiently profitable to be able to finance the remainder of the Hoover Plan. The selling off [TEXT BLACKED OUT]. The conclusion that Ruschmeyer had to use or would have [TEXT BLACKED OUT] for the Hoover Plan to be successful, including obtaining the necessary financing, is inescapable. In order to successfully implement the Hoover Plan takeover in presentation to the Lydall Board of Directors [TEXT BLACKED OUT] to potential investors in order to convince the Board of Directors that it had adequate financing to succeed with the Hoover Plan. This is more than a subjective fear, it is based upon logical conclusions made from the evidence in this case. The citation by Ruschmeyer of Computer Sciences Corp v. Commuter Assoc. Int'l, Inc. is not persuasive because it differs from this case in that the information was based upon allegedly public information, and the use [TEXT BLACKED OUT] by Ruschmeyer was not based upon public information.
The fact that Ruschmeyer claims that Lydall has suffered no injury at this point is not a basis for denying injunctive relief. C.G.S. § 35-51s only criteria for suffering injury is the disclosure to ". . . other persons who can obtain economic value from its disclosure or use . . ." It is true that there is no evidence at this point that the [TEXT BLACKED OUT] but it is clear that there is a potential of disclosure to them which can, of course, obtain economic value as previously stated by [TEXT BLACKED OUT].
Moreover, the entire strategic plan for the remainder of 2004, 2005 and 2006 would show Lydall's future plans in detail and could be advantageous to competitors/customers as previously shown. The Court concludes that Ruschmeyer's use and disclosure of sufficient elements of the strategic plan constitutes use and disclosure of the strategic plan as a whole, and under the ruling in Elm City Cheese Co. v. Federico, supra, is a violation of the Connecticut Trade Secrets Act.
Ruschmeyer argues that he would require Segal to sign a confidentiality agreement and that one was enclosed with the letter from Curley to Segal. However, there is no evidence that Segal would sign it (he would need to use confidential information to persuade other investors and lenders), and that still doesn't give Ruschmeyer the right to describe trade secrets/confidential information to a third party.
Accordingly, this Court finds that by disclosing and/or utilizing most if not all of the Strategic/Comprehensive Plan, Ruschmeyer has violated and/or will violate the Connecticut Trade Secrets Act. For this additional reason, an injunction should CT Page 16300-v issue.
C. DID RUSCHMEYER VIOLATE THE CONFIDENTIALITY AGREEMENT WHICH IS PART OF THE LYDALL EMPLOYMENT AGREEMENT, PLAINTIFF'S EXHIBIT 1 AND INCORPORATED BY REFERENCE INTO THE EMPLOYMENT AGREEMENT, PLAINTIFF'S EXHIBIT 2?The short answer to this question is Yes.
Paragraph 1 of The Lydall Employment Agreement defines Confidential information and includes "all business information and records which relate to Lydall . . ." Paragraph 5 of the Lydall Employment Agreement states: "I will not, directly or indirectly, during or at any time after the period of my employment by Lydall, use for myself or others, or disclose to others, any confidential information, no matter how such information becomes known to me, unless I first obtain Lydall's written consent." The evidence clearly shows that Lydall never gave written consent to Ruschmeyer to use or disclose confidential information. The Trade Secrets described above are clearly confidential information, so there is no question that Ruschmeyer violated the terms of the Lydall Employment Agreement as to confidential information. Paragraph 14.13 of the "Lydall Employment Agreement" and the "Employment Agreement" states that Lydall is entitled to injunctive and other equitable relief.
The Court rejects Ruschmeyer's claim that be did not breach the Confidentiality Agreement as he has claimed on pages 41-42 of his July 22, 2004 brief for the same reasons it has rejected Ruschmeyer's claim that he has not violated the Connecticut Trade Secrets Act.
However, as for violation of the Confidentiality Agreement, in order for an injunction to issue, this Court must find that the plaintiff has no adequate remedy at law and unless an injunction is issued, the plaintiff will suffer irreparable harm.
This Court so finds. Money damages are clearly insufficient in this case to protect the trade secrets and confidential information of the plaintiff. Therefore, it does not have an adequate remedy at law.
As for the issue of irreparable harm, the Court has only to look at the intent of the defendant, Ruschmeyer. This intent as well as the danger of Ruschmeyer using and disclosing trade secrets and confidential information can be ascertained from Plaintiff's Exhibit 12 which is a letter from Curley to Steven G. Segal of JW Childs Associates, L.P. in Boston, Massachusetts, dated July 1, 2003. Curley, at that time, was acting as Ruschmeyer's attorney. In that letter, [TEXT BLACKED OUT] setting CT Page 16300-w forth the objectives and major milestones of the Hoover Plan. The letter was transmitted to investment bankers, [TEXT BLACKED OUT] a partner of Curley. The last paragraph of the letter is instructive: [TEXT BLACKED OUT]. (Emphasis added.) Not only does the evidence show that Ruschmeyer already used and disclosed confidential information of Lydall, but based upon his attorney's representation as described, he intended to do so again and in more detail. Since money damages are not adequate for Lydall and since further disclosure and use of confidential information of Lydall will be seriously detrimental to it, this Court finds that unless an injunction is used, the plaintiff, Lydall, will suffer irreparable harm. For this reason as well as the provisions of the Employment Agreement, an injunction should issue.
It should be noted that Curley mistakenly sent Ruschmeyer's copy of this letter to him at Lydall even though Ruschmeyer was terminated on April 16, 2003, approximately two and a half months before the date of the letter. It was received by Lydall accidentally and demonstrates the surreptitious nature of those planning the takeover.
D. HAS RUSCHMEYER COMMITTED WILFUL AND MALICIOUS MISAPPROPRIATION OF LYDALL'S TRADE SECRETS?
This Court has based part of its decisions as described above on the credibility of the witnesses and parties. The Court found Skomorowksi and Widmann to be candid and forthright in their testimony although not always accurate. Each conceded occasions where information previously confidential had been disclosed to the public. This Court found that Ruschmeyer was not as credible, candid and forthright. He is a brilliant professional in the field of finance but he does not suffer fools gladly. However, several of the excuses and statements he made in his testimony and in the written documents he authored were and are not credible. Several claims of admissions by Lydall witnesses are not accurate or taken out of context. In addition to the criteria for credibility described in STANDARD OF REVIEW aforementioned, particularly as to his demeanor on the witness stand, there are other factors that weaken his credibility. He planned part of the hostile takeover while he was still employed by Lydall, which was unethical as well as a violation of his commitment in Paragraph 2 of the Employment Agreement (TT Exhibit 2) which requires him to devote full time, attention and best efforts to his job as CFO and the affairs of Lydall. CT Page 16300-x
On March 20, 2003, Ruschmeyer met with Curley and investment bankers [TEXT BLACKED OUT] Ruschmeyer's mother's home in Greenwich, Connecticut. The purpose of the meeting was to discuss the Hoover Plan. TT 12/19/03, pages 110-13. Then, he lied to Skomorowski as to the purpose of his not being in the office on March 20, 2003. Skomorowski stated as follows: "He told me he was working on his mother's plumbing, either arranging a plumber or there was a plumbing issue back at the house, so he had to be there to work on it." Ruschmeyer did not tell Skomorowski that he was meeting with his lawyers and financial advisers to discuss a strategy for taking over Lydall. This all happened while Ruschmeyer was still employed by Lydall. TT 12/19/03, page 112-13. Then, on March 30, 2003, Ruschmeyer sent to Curley by email the first edition of Talking Points. Plaintiff's Exhibit 14. It is a reasonable inference to conclude that the Hoover Plan in preparation for a hostile takeover was discussed at the meeting in Greenwich and that Ruschmeyer discussed trade secrets and confidential information.
As has been previously discussed, a focal point of the case is the letter from Attorney Stephen C. Curley of the law firm of Minz Levin representing Ruschmeyer which letter is dated July 1, 2003 and is Plaintiff's Exhibit 12. The pertinent words are: [TEXT BLACKED OUT] his detailed description of the Company and his strategy to maximize its hidden value." Ruschmeyer in his initial brief states: "The term `insider' in the Curley letter simply refers to Ruschmeyer's abilities to run the company after the acquisition (3/26/04 Tr. at 154-55; 4/14/04 Tr. at 189)." (Page 29 of defendant's post-trial memorandum.) The claim that this information as to his strategy to maximize its hidden value and his detailed description of the Company cannot reasonably be considered an intent to divulge confidential information/trade secrets until after the acquisition. The references to the transcript are to the testimony of Ruschmeyer and Attorney Stephen C. Curley as to what the intent was of that letter, particularly from Curley because he is the author of the letter. However, what contradicts Ruschmeyer's argument and shows a lack of credibility in the testimony of Ruschmeyer and Curley on this issue is the fact that the letter is to Steven G. Segal of JW Childs Associates, LP. an investment banker. In order to convince Mr. Segal to provide the financing for the proposed acquisition, he would have to be convinced that the detailed description of the company and Ruschmeyer's strategy to maximize its hidden value is feasible. He has to be convinced prior to the acquisition, and in order for him to be convinced, Ruschmeyer CT Page 16300-y would have to in this meeting with Mr. Segal provide trade secrets and confidential information in order to convince him of the merits of the takeover plan. It is clear to this Court that a reasonable inference from the language in the letter is that Ruschmeyer would meet with Segal to convince him to provide investment financing or other financing for the takeover and to do so would be using trade secrets and confidential information and revealing same in order to persuade Mr. Segal to participate in implementing the takeover plan. For Ruschmeyer and Curley to say that the purpose of this meeting was to provide information that was not confidential or a trade secret or for what would be done only after the acquisition seriously diminishes the credibility of the position and testimony of Ruschmeyer and Curley.
Ruschmeyer claimed during his testimony that when he developed the Hoover Plan he would take it to the Board of Directors. However, in order for it to be a credible proposal, he had to show the availability of financing which would mean disclosing trade secrets and confidential information to third parties, whether investment bankers or financial institutions, in order to have a realistic possibility of obtaining adequate financing. The alternative to revealing trade secrets would be to approach the Board of Directors without the Hoover Plan's financing in place. Ruschmeyer testified that if he had done that, he would probably have been fired particularly in view of the fact that his plan would be to remove Skomorowski and install himself as Chief Executive Officer of Lydall; so it appeared to be impossible for him to make an adequate presentation to the Board of Directors without getting permission from the Board to release trade secrets and confidential information to potential financial institutions and investors. He believed that consent would not be granted and his position as CFO would be in danger. The alternative to this would be to make a hostile takeover which would mean making a tender offer to the Company's stockholders. However, this would be more difficult in Lydall's case because [TEXT BLACKED OUT]. It appears, however, that the only way he could do either would be to utilize trade secrets and confidential information to make his case to financial institutions in order to make a credible proposal to the Board of Directors or use trade secrets and confidential information in order to make a hostile takeover notwithstanding the disadvantage of such a method [TEXT BLACKED OUT]. In any event he still had no right to use or reveal trade secrets or confidential information. This is why he kept the Hoover Plan secret because of his use of CT Page 16300-z trade secrets and confidential information without the consent of Lydall or its Board of Directors. Defendant's brief refers to the stockholders as the owners of Lydall. While that may be ultimately true, it does not give an employee such as Ruschmeyer the right to approach those owners using trade secrets and confidential information. He, instead, had to work with the members of the Board of Directors who, of course, included people who would be replaced by his proposal. Perhaps, he could have fashioned a proposal that would have managed to keep Skomorowski and others in management, maybe under Ruschmeyer, if he could get the Board to seriously accept his proposal. However, this would not be probable unless the Board was willing to waive Ruschmeyer's use of trade secrets and confidential information. He did not know the possibility of such a waiver, but he, nevertheless utilized and disclosed trade secrets and confidential information to produce the Hoover Plan which was a violation of the Trade Secrets Act and the Confidential Agreement he had signed.
Further, Ruschmeyer was reckless in disclosing information to employees as hereinafter set forth.
As evidence of Ruschmeyer's willful and malicious misappropriation, Ruschmeyer received, in January 2003, [TEXT BLACKED OUT] review by the Chairman of the Board of Directors, Roger Widmann. In essence it accused Ruschmeyer of dealing with employees in a demeaning manner, making inappropriate comments which had resulted in serious morale problems, and he was, in effect, put on probation to correct his manner of operation with employees, etc. He did not correct these problems in the view of Widmann and Skomorowski, and on April 10, 2003, Ruschmeyer was suspended from employment but not terminated. This was based in part on information received by Skomorowski. On December 19, 2003, Skomorowski testified without objection as follows:
On the morning of April 10th I had a discussion with our Vice President of Human Relations regarding a conversation she had with our general counsel . . . who indicated that earlier in the week, Mr. Ruschmeyer was in general counsel's office. He was very angry. He was upset. Didn't like what was going on and basically said to her that, you know, if they piss me off enough, I'm going to take over this company and I've got the means to do it.
CT Page 16300-aa
The Court does not consider this as a "flip remark" as claimed by Ruschmeyer. On or about April 10, 2003, Ruschmeyer had already consulted with his attorney and investment bankers concerning a buyout of the company and had drafted his Talking Points in regard thereto. (Plaintiff's Exhibit 14.)
This belies his claim that he was only looking out for the stockholders. It shows his motive was revenge based upon a hurt ego. Of course, all employees have a duty to the stockholders to make the company as profitable as possible, but that duty should be performed within the company according to company rules and that duty is hardly performed (especially after he was terminated as an employee) by attempting to mount a secret hostile takeover by violating the Connecticut Trade Secrets Act and breaking one's written obligation not to use confidential information or disclose it to outside parties thereby risking competitors and customers learning secrets that will give them an economic advantage over Lydall. The Court, therefore, rejects the claim that Ruschmeyer's development of the Hoover Plan as part of a hostile takeover of Lydall was in the performance of his alleged duty to maximize stockholder value. The Court rejects defendant's claim that he was planning a buyout solely for the purpose of fulfilling his responsibility to the stockholders.
Skomorowski then testified that the general counsel came into his office and told him and one of the directors of the company, a Mr. Freeman, that he, Ruschmeyer, was angry, he was upset and
Basically said, that, you know, if they make me mad enough, I'm . . . pissed off enough, I think is the word she used, I'm going to take over the company. She also revealed . . . that Mr. Ruschmeyer indicated to her that the Board had not been happy with her performance. They want to terminate her. Had actually instructed Mr. Ruschmeyer to terminate her in January of 2003. He had been saving her job and that, you know, when he took over the company, she would become a part of the team because Tom Smith, who Mr. Ruschmeyer recruited from Carrier Corporations, his former employer, liked Mary, . . . that the Director of Financial Planning and Analysis liked Mary, and then a gentleman by the name of Steve Thompson, who Walt had known from his Carrier days as well, United Technologies days, liked her, and she would become part of the team going forward.
Id. 101-02.
Skomorowski further testified that Ruschmeyer was suspended on CT Page 16300-ab April 10, 2003 for basically three reasons:
1. He hadn't cured the inappropriate behavior that he spoke with Mr. Widmann about in mid-January; two, the — again, the inappropriate comments to general counsel, Mary Tremblay about the, you know, discussions at the Board level — discussions he had mentioned at the Board level, saying that many Board members weren't happy with her performance and they wanted her fired . . . And three, the comments with respect to taking over the company. We wanted some time to investigate those.
In these comments and in his Talking Points in which he criticized the Company, he violated Paragraph 14.4 of the Employment Agreement (TT Exhibit 2) in which he agreed not to disparage the Company, its subsidiaries, affiliates, shareholders, directors, officers, employees or agents.
Id. 103-04.
Skomorowski further testified that his investigation revealed that Tom Smith, Chief Accounting Officer and Comptroller of the corporation who worked directly for Ruschmeyer said, "that on several occasions Walt in a rant, would come into his office and say those types of comments . . . That, you know, if they make me angry enough, I'll take over the company or something to that effect. Had to do with taking over the company . . . Steve Thompson, who was our Vice President of Investor Relations indicated that when Walt was recruiting him to join him, he said this might be potentially a company that we could do MBO with or something." MBO stands for "management buyout." Id. 104-05.
The Court believes Skomorowski's testimony and believes that Ruschmeyer did make these statements. These statements prove to this Court that Ruschmeyer's actions were wilful and malicious.
E. DID THE DEFENDANT VIOLATE THE CONNECTICUT UNFAIR TRADE PRACTICES ACT ("CUTPA") (CGS § 42a-110a et seq.)?
This Court finds that Ruschmeyer engaged in unfair and deceptive acts or practices in his conduct in attempting a takeover of Lydall. The Court has already concluded that Ruschmeyer acted unethically. Further, his violations of the Connecticut Trade Secrets Act are sufficient to conclude that he has offended public policy. He has also caused substantial injury to Lydall which could be considered a competitor in this case, or a business. Therefore, the requirement that he must have engaged in unfair or deceptive acts or practices in his conduct has been met under the ruling of Web Press Services Corp. v. New London Motors, Inc., 205 Conn. 479, 482 (1987). The only remaining CT Page 16300-ac question is whether the plaintiff has suffered an ascertainable loss. "Under CUTPA, there is no need to allege or prove the amount of the ascertainable loss." Hinchliffe v. American Motors Corp., 184 Conn. 607, 614 (1981). CUTPA is a remedial statute which is to be liberally construed in favor of those whom the Legislature intended to benefit in this case a competitor or other business. Id. 615, footnote 4. Additionally, Hinchliffe, supra, holds that under CUTPA to obtain an equitable remedy at common law, a party need not prove actual damages in every case. Accordingly, this Court finds that Ruschmeyer has violated CUTPA. A remedy for such violation(s) shall be determined at a hearing to be scheduled as noted hereafter. The parties may submit a brief on the issue of CUTPA to be filed one week prior to such scheduled hearing, with a copy to this Court at its chambers at 100 Washington Street, Hartford, CT 06106.
CONCLUSION
This Court finds by clear and convincing evidence as well as by a preponderance of the evidence as follows: Ruschmeyer has disclosed and used Lydall trade secrets and intends to do so. There is imminent danger of his further use and disclosure of Lydall's trade secrets. Therefore, under C.G.S. § 35-52 the defendant, Ruschmeyer, is permanently enjoined from the use and disclosure of Lydall's trade secrets for a period of three years. Trade Secrets constitute the Strategic Plan as a whole, and those parts of' the Plan not yet disclosed to the public.
Further evidence of this is the statement by Segal in his deposition (Plaintiff's Exhibit 25 at page 105) which reads as follows:
Q. Could you have looked at Lydall from the outside based upon the universe of publicly available information to the extent that's known to you and recognize the opportunity that the Hoover Plan represents without Ruschmeyer?
A. No.
(Emphasis added.)
See Elm City Co. v. Federico, supra, which states that each component of the plan is entitled to protection. CT Page 16300-af 251 Conn. at 95.
In addition, the Court finds that there is a substantial threat of impending and irreparable harm if an injunction is not issued, and Lydall is entitled to an injunction under the provisions of the Employment Agreement. The Court finds that Lydall has no adequate remedy at law and will suffer irreparable harm if an injunction is not granted. The defendant, Ruschmeyer, therefore is permanently enjoined from using and disclosing any confidential information as described in his "Employment Agreement" with Lydall and the "Lydall Employment Agreement." (Plaintiff's Exhibits 1, 1a and 2.) This injunction shall be co-existent with the injunction as to trade secrets for a period of three years.
As for damages, punitive damages and attorneys fees, this Court will hold a hearing on said issues, and counsel are instructed to contact Jeanne Hayes at Caseflow for a hearing date at which CT Page 16300-ad evidence may be presented to this Court on these issues.
The Court would like to thank Attorneys David J. Elliot and Jonathan Tropp, representing the plaintiff and Attorneys Thomas Murtaugh and Jennifer Rubin representing the defendant for their courtesy, competence and professionalism during this trial and in preparation of the briefs submitted.
Under orders of Booth, J. and this Court, this decision will be under seal and not available to the public. The portions of this decision to be sealed will be redacted on a copy hereof for the purpose of protecting the trade secrets and confidential information of the plaintiff; and for the reasons stated in the orders of Booth, J and this Court, with said redacted copy available to the public.
All Memoranda/Briefs and Trial Transcript Excerpts submitted by the parties remain under seal as per orders of Booth, J. and this Court until further order of the Court.
Rittenband, JTR.