STATE OF MINNESOTA
IN COURT OF APPEALS
Heller Investments, Inc., a Delaware corporation,
Filed July 28, 1998
Washington County District Court
File No. C5-95-3136
Thomas L. Kimer, Sidney J. Spaeth, Karen E. Wilson, Faegre & Benson, LLP, 2200 Norwest Center, 90 South Seventh Street, Minneapolis, MN 55402 (for Heller Investments)
Thomas E. Harms, Dawn M. Knutson, Hessian, McKasy & Soderberg, P.A., 4700 IDS Center, 80 South Eighth Street, Minneapolis, MN 55402 (for K-Sun Corporation)
Considered and decided by Peterson, Presiding Judge, Amundson, Judge, and Shumaker, Judge.
Appellants Heller Investments, Inc. and Kroy, Inc. appeal from the determination of a jury and the trial court that they willfully and maliciously misappropriated respondent K-Sun Corporation's trade secrets. We affirm.
Appellant Kroy, Inc., a competitor of K-Sun, thought that the machine K-Sun was planning to distribute in North America violated a Kroy patent, and Kroy sought an opinion from its patent attorney. The attorney stated that the machine violated a Kroy patent and recommended that Kroy determine its potential damages by ascertaining the number of machines expected to be sold. The attorney suggested that patent infringement litigation would cost between $500,000 and $800,000.
While Kroy was considering its options, William Morro, who was Kroy's board chairman and the managing director of Heller Investments, Inc., Kroy's 85% shareholder, offered to K-Sun's president, Michael Kasun, the job of the presidency of Kroy. Kasun declined the offer but said that K-Sun would be interested in acquiring Kroy by merger. Morro was also interested in a merger but told Kasun that he would need business information about K-Sun. Kasun was concerned that Kroy not be given access to confidential business information and Heller and K-Sun entered into a confidentiality agreement to allay Kasun's concern. K-Sun thereafter provided to Heller its confidential business information relating to K-Sun and to the Epson product line. The information included marketing plans and sales projections for the labeling machine that allegedly infringed the Kroy patent, although the machine was not identified by name.
During the merger discussions, Morro's assistant sent the confidential K-Sun file to a Kroy executive in violation of the confidentiality agreement. K-Sun was not immediately aware of the breach and continued to negotiate toward a merger by sending a merger proposal to Heller. Heller and Kroy found the proposal unacceptable but did not tell K-Sun. Rather, they continued discussions and continued to obtain various business information from K-Sun. Eventually Kroy informed K-Sun that there would be no merger and that there would be a patent infringement lawsuit as to one of K-Sun's products. Kroy's board adopted the strategy of threatening patent litigation in an effort to acquire the Epson labeling machine that K-Sun was distributing in North America.
In face of the litigation threat, Epson declined to honor its hold harmless agreement with K-Sun. K-Sun and Epson settled their contract disputes and K-Sun sued Heller and Kroy for damages. At trial, the jury heard evidence as to K-Sun's damages, including K-Sun's out-of-product expenditures, projected sales, and anticipated profits. The jury also heard evidence of Kroy's projections of sales of the Epson machine in dispute. The jury found that Heller and Kroy had misappropriated K-Sun's trade secrets and awarded damages to K-Sun in the sum of $580,000 as against Heller and $290,000 as against Kroy. In an advisory capacity, the jury also found that the actions of Kroy and Heller were willful and malicious.
The trial court awarded exemplary damages in the sum of $870,000 and attorney fees of $153,771.75. The trial court then vacated the awards of exemplary damages and attorney fees because the parties had not had an opportunity to present evidence on those issues. The trial court then held an evidentiary hearing, adopted the jury's finding that respondents' conduct was willful and malicious, adopted the jury's award of exemplary damages, and awarded reduced attorney fees. Heller and Kroy appeal, challenging the sufficiency of the evidence to sustain the verdict and the trial court's findings, and alleging various errors.
We are required to view the evidence in a light most favorable to the verdict. B.F. Goodrich Co. v. Mesabi Tire Co., 430 N.W.2d 180, 182 (Minn. 1988). A jury verdict must stand unless it is manifestly contrary to the evidence. ZumBerge v. Northern States Power Co., 481 N.W.2d 103, 110 (Minn. App. 1992). A trial court's findings must be upheld unless they are clearly erroneous and its conclusions sustained unless they constitute legal error. Citizens State Bank of Hayfield v. Leth, 450 N.W.2d 923, 925 (Minn. App. 1990). The facts set forth above represent an abbreviated statement of evidence adduced at trial that supports the jury's verdict and the trial court's findings and conclusions. Particularly important in this action was the issue of credibility. There is little material dispute about most of the dispositive facts. The appellants admit that there occurred a breach of the confidentiality agreement between Heller and K-Sun. It is the interpretation of the facts that implicates substantial credibility issues. The jury and the trial court, having had the opportunity to assess the credibility of the witnesses, obviously believed K-Sun's interpretation of the facts, namely, that Heller and Kroy, through their high-level executives, purposely misappropriated K-Sun's confidential business information. On credibility issues, we defer to the triers of fact. Hunt v. Regents of Univ. of Minnesota, 460 N.W.2d 28, 37 (Minn. 1990). The evidence is sufficient to support the verdict and the findings.
Appellants contend that the evidence fails to establish that respondent had a protectable trade secret, arguing that trade secret status is restricted to formulas, patterns, blueprints, manufacturing specifications and the like. The law, however, is not so restrictive. Business information can be the subject of trade secrets. See Radisson Hotels Intern., Inc. v. Western Hotel Co., 931 F. Supp. 638, 643 (D. Minn. 1996) (denying motion to dismiss claim based on misappropriation of "marketing strategy and information"); Bloom v. Hennepin County, 783 F. Supp. 418, 439 (D. Minn. 1992) (medical treatment procedure). Minn. Stat. § 325C.01, subdivision 5 (1996), of the Uniform Trade Secrets Act, includes "information," "program," "technique," and "process" in the definition of "trade secret." The evidence establishes that K-Sun developed a marketing program that contained product-line information and development and sales strategies.
Business information qualifies as a trade secret if (1) it is not generally known or readily ascertainable, (2) derives economic value from the secrecy, and (3) reasonable efforts are used to maintain the secrecy. Electro-Craft Corp. v. Controlled Motion, 332 N.W.2d 890, 898-99 (Minn. 1983). The evidence supports inferences of all three elements. The information included sales strategies, plans, and programs that K-Sun created especially for the marketing of the Epson products. The information in that form and detail was not generally available or readily ascertainable. That economic value was derived from the secrecy is borne out by the fact that it was precisely this kind of information Kroy needed to evaluate the damages potential of the patent infringement litigation, and once Kroy obtained the information, it threatened litigation in order to obtain the disputed machine. Finally, K-Sun acted reasonably to maintain secrecy by requiring a confidentiality agreement from Heller and marking its documents and files as confidential.
Appellants argue that even if K-Sun had protectable trade secrets, appellants did not misappropriate them.
* * * disclosure or use of a trade secret of another without express or implied consent of a person who * * * at the time of disclosure or use, 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 * * * .
Minn. Stat. § 325C.01, subd. 3(ii)(B)(II) (1996); Aries Information Sys., Inc. v. Pacific Management Sys. Corp., 366 N.W.2d 366, 369 (Minn. App. 1985), review denied (Minn. June 27, 1985).
The evidence supports the determination that Heller disclosed and Kroy used K-Sun's confidential information in violation of the known duty to keep the information confidential. Furthermore, since such disclosure and use occurred as a result of a breach of a duty to maintain secrecy, the misappropriation occurred through improper means. Electro-Craft Corp., 332 N.W.2d at 903 (citing Minn. Stat. § 325C.01, subd. 3).
Appellant Heller contends that the jury found that Heller's conduct did not cause damages to K-Sun because of two answers on the special verdict form:
1. Did Heller Investments, Inc. breach its contract with plaintiff K-Sun Corporation?
2. Did K-Sun Corporation suffer any damages as a direct result of the actions of Heller Investments, Inc.?
In later special verdict answers, however, the jury found that Heller had misappropriated K-Sun's trade secrets, that Heller's actions were willful and malicious, and that K-Sun suffered damages of $580,000 specifically attributable to Heller. If one reads only the first two answers of the special verdict, Heller's argument is correct. But a reading of the entire verdict negates that argument. Although the verdict form could have been more clearly phrased, in context the answers are consistent. It is apparent that the jury found that Heller caused $580,000 in damages to K-Sun by its willful and malicious misappropriation of trade secrets. Courts must reconcile apparently inconsistent answers on special verdicts if it is possible to do so. Hanks v. Hubbard Broadcasting, Inc., 493 N.W.2d 302, 309 (Minn. App. 1992), review denied (Minn. Feb. 12, 1993). It is possible in this case.
Appellants argue that the damages awarded by the jury are unsupported by the evidence and are speculative. The amount of damages is a fact question. Snyder v. City of Minneapolis, 441 N.W.2d 781, 789 (Minn. 1989). The evidence contains testimony about K-Sun's out-of-pocket losses and K-Sun's and Kroy's respective projections and estimates of future sales revenues. The estimates and projections were based, in part, on the past actual sales experiences of the companies. These experiences provide a reasonable factual basis for predictions as to future performance and prevent the predictions from falling into the abyss of speculation. Damages cannot be a product of speculation or mere guess. Snyder, 441 N.W.2d at 789. They can, however, be supported by reasonable estimates based in fact. Crittenden v. Whippoorwill Ranch Campground, Inc., 406 N.W.2d 624, 628 (Minn. App. 1987). Damages need not be proved with certainty. Id.
Appellants contend that it was error for the trial court to have awarded exemplary damages. Minn. Stat. § 325C.03(b) (1996) provides that "if willful and malicious misappropriation exists, the court may award exemplary damages in an amount not exceeding twice any award * * * " of compensatory damages. In its advisory capacity, the jury found the conduct of Heller and Kroy to have been willful and malicious. The trial court agreed and rejected the appellants' argument that Kroy was acting in good faith to determine how to proceed to protect its legitimate patent interests. The evidence supports the view that high-level executives of appellants deliberately engaged in a scheme to obtain relatively definitive confidential business information about K-Sun, its products, and its relationship with Epson, and its marketing potential to use to the economic disadvantage of K-Sun. Coupled with the fact that the scheme was carried out through a breach of an express confidentiality agreement, this evidence satisfies the requirement that conduct be both willful and malicious to support an award of exemplary damages. See Zawels v. Edutronics, 520 N.W.2d 520, 524 (Minn. App. 1994); Aries Information Sys., Inc., 366 N.W.2d at 367.
We find no reversible error in the evidentiary rulings or jury instructions. Nor do we agree that the trial court allowed K-Sun to present an unjust enrichment claim after the court had dismissed that claim. The court merely employed the definition of unjust enrichment which is part of the trade secrets act; it did not allow a separate claim on that theory. See Minn. Stat. § 325C.03.