WisBar News: Majority Downs Trade Secret, Fiduciary Duty Claims Related to Contract Bid:

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  • WisBar News
    August
    01
    2017

    Majority Downs Trade Secret, Fiduciary Duty Claims Related to Contract Bid

    Joe Forward

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    Confidential

    Aug. 1, 2017 – The state supreme court recently ruled (4-3) that a manufacturer failed to present sufficient evidence on its conspiracy to breach a fiduciary duty and trade secret misappropriation claims relating to an employee working for two companies.

    Dwain Trewyn worked in sales at North Highland Inc., a manufacturing company, when Frederick Wells approached him to start a new company. Wells owned Bay Plastics, which distributed plastic parts purchased from vendors, including North Highland.

    Together they formed Jefferson Machine & Tool Inc. But Trewyn only had a 25 percent stake, and he continued working for North Highland.

    Trewyn was working for both companies when both companies submitted bids on a manufacturing project for Tyson Foods, Inc., to make 3,000 trolley assemblies. Trewyn was involved in both bids. Jefferson Machine & Tool won the contract, but it was canceled after North Highland threatened an injunction. Both companies were out.

    North Highland subsequently filed a lawsuit alleging that Trewyn breached a fiduciary duty and that Wells conspired with him to breach Trewyn’s fiduciary duty. North Highland also claimed that the defendants misappropriated trade secrets, namely its bid.

    Trewyn settled with North Highland but North Highland pursued its claims against Wells. The circuit court entered summary judgment in favor of Wells, and an appeals court affirmed per curiam, concluding North Highland did not present sufficient facts.

    In North Highland Inc. v. Jefferson Machine & Tool Inc., 2017 WI 75 (July 6, 2017), a 4-3 majority ruled that the case cannot proceed beyond summary judgment because North Highland did not show that genuine issues of material fact are still in dispute.

    The majority explained that North Highland had the burden to put forth specific facts showing a genuine issue for trial on conspiracy and failed to do that.

    “North Highland cannot sustain this burden because it points to no evidence that Wells was aware that Trewyn formulated both Jefferson Machine’s and North Highland’s bid on the Tyson project,” wrote Justice Ann Walsh Bradley.

    Joe ForwardJoe Forward, Saint Louis Univ. School of Law 2010, is a legal writer for the State Bar of Wisconsin, Madison. He can be reached by email or by phone at (608) 250-6161.

    “If Wells was not aware that Trewyn had allegedly breached his fiduciary duty to North Highland, Wells could not take overt acts in furtherance of the conspiracy.”

    Wells had testified that he did not know Trewyn was bidding on the Tyson Foods project for North Highland, or that Trewyn was bidding on the Tyson Foods project for Jefferson Machine & Tool because he was not involved in the bidding process.

    “Without any contradictory evidence in the record, North Highland’s allegation that Wells and Trewyn conspired to breach a fiduciary duty claim is speculative at best,” wrote Bradley, noting speculation is insufficient to create a genuine issue of material fact.

    North Highland confronted the same problem on its misrepresentation of trade secret claim. The company had claimed that its confidential bid was a trade secret under Wisconsin’s Uniform Trade Secrets Act, Wis. Stat. section 134.90.

    The majority explained that North Highland had the burden to establish that the confidential bid amount constituted a trade secret, under the facts.

    “[W]e need not wade into the discussion of whether a bid amount constitutes a trade secret, and, if so, under what circumstances,” Justice A.W. Bradley wrote.

    “Even if North Highland could present evidence that its bid amount constitutes ‘information’ as that term is used in [the statute], it has not provided sufficient evidence demonstrating misappropriation.”

    The majority said the record failed to show that Wells knew of, disclosed, or used the North Highland bid. Wells had repeatedly testified that he did not know Trewyn was bidding for North Highland, and Trewyn also testified he did not disclose that to Wells.

    “Consequently, both of North Highland’s claims fail to survive Wells' summary judgment motion,” Justice A.W. Bradley wrote for a four-justice majority.

    Dissents

    Chief Justice Patience Roggensack dissented, concluding Wells and his company had the burden to show sufficient undisputed facts that North Highland’s bid did not meet the definition of a trade secret and that they did not obtain and use the bid information.

    Roggensack said they failed to do that. “Accordingly, I conclude that summary judgment was improperly granted dismissing North Highland’s claim for trade secret misappropriation against Wells and Jefferson Machine.”

    The chief justice pointed to testimony suggesting Wells knew that Trewyn was bidding on the Tyson Foods project for Jefferson Machine and was actively involved.

    She highlighted other testimony suggesting Wells knew Trewyn was still working for North Highland while Trewyn was bidding on the Tyson Foods project, and that Wells considered North Highland a competitor without a non-compete against Trewyn.

    Roggensack noted that the supreme court “has not considered whether a bid may be found to be a trade secret since Wisconsin enacted the Uniform Trade Secrets Act.”

    But other states with it have ruled that bids for prospective work do qualify as trade secrets, she noted, and they make that determination as a question of fact.

    Wells and Jefferson Machine & Tool did not establish a prima facie defense that the North Highland bid was not a trade secret, she said, or that it was not misappropriated. She would have remanded for a jury to make those determinations of fact at trial.

    Roggensack did not address the conspiracy-related claims but noted that a reversal would abrogate the court of appeals decision and all claims would be available for trial.

    Justice Rebecca Bradley also dissented, in a separate opinion joined by Justice Daniel Kelly. She concluded that a confidential bid can be a trade secret and a jury should decide whether Wells violated trade secret law, based on the disputed facts.

    Justice R. Bradley would also remand for a jury trial on the conspiracy-related fiduciary duty claims, “because the circuit court previously determined that material issues of disputed facts exist with respect to those claims.”