Court Opinion

ID: 9755809
Source: CourtListenerOpinion
Date Created: 2023-08-28 20:51:34.006491+00
Date Added: 2024-06-11T09:56:06.036599
License: Public Domain

Wendell L. Griffen, Judge, dissenting. I agree with the majority that the chancellor did not err in determining that City Slickers’ customer fist did not constitute a trade secret and that the February 1, 2000 confidentiality agreement is a covenant not to compete masquerading as a confidentiality and nondisclosure agreement. However, I dissent because I believe the chancellor erred in finding that there was no substantial likelihood that appellant could establish that the detailed information specific to City Slickers contained in the Little Rock Launch 2000 marketing plan and in the business plan were not trade secrets, and in finding that City Slickers had no legitimate business interest in customers in the Little Rock service area. The Little Rock Launch handbook in this case provided a detailed plan for penetrating the Litde Rock market, including a schedule of when and through what venues, at what time, and for what duration, appellant would advertise through television, radio, and print media, and the cost of such advertising. The handbook further describes distinct “tactics” for its public relations campaign, identifying on which specific dates and times and to which specific radio, television, and newspaper personalities it will offer on-site oil changes to promote its business. Finally, it described the contents of its press kits, a public relations time fine, and its budget for the Little Rock launch. Appellant Goodman testified that the Little Rock launch information was very valuable to City Slickers because it allows a competitor to anticipate what the company was going to do, and informs competitors what the company is willing to spend in the market. He also testified that there were only four copies of the Little Rock launch handbook and that appellee never returned his copy. The separate business plan in this case was prepared to explain the company’s operations to potential investors, and contained a confidentiality and nondisclosure agreement. This plan generally explained the company’s operation, fisted some of its more prominent customers, and declared City Slickers’ intent within the next twelve months to expand into four additional markets, including Litde Rock. The plan provided an industry overview, a financial summary and company overview of City Slickers, which includes its staff, a general customer profile, identifies its competition, and its general approach for its long-range marketing campaign, including a fist of fifty-one metropolitan markets it intends to penetrate. The plan also included a customer reference fist, a clipping from the Memphis Business Journal highlighting the company, and a magazine article from the National Oil & Lube News containing results of the 1999 Mobile Lube Survey. This survey contains such information on 110 mobile lube operations, as the average costs of operation. City Slickers did not participate in this survey. The business plan also contained statements of explanations and assumptions, pricing information, and a statement of the “corporate financials.” The explanations and assumptions section includes information such as the price per oil change, overhead costs, operating expenses, corporate expenses, and a balance sheet indicating accounts receivable, and costs to service equipment and vehicles. The pricing information fists the service provided, the type of vehicle, the type of oil to be used, the price for different types of vehicles and the price of extra oil. The statement of corporate financials contains actual information for 1998-99, and projected information for 2000-02, concerning the company’s revenues, costs of sales including gross profit margin, operating expenses, inventory, accounts payable, and net loss. This information was provided on a monthly basis. Appellee also had access to the company’s corporate income statement,- supporting financials for new markets, projected cash flow, balance sheets, and vehicle service information. Our supreme court has held that information such as price modeling, customer profit margins, logistics, future plans, and specific marketing strategies are protected under the Trade Secrets Act. See Cardinal Freight Carriers, Inc. v. J.B. Hunt Transp. Serv., 336 Ark. 143, 987 S.W.2d 642 (1999). Moreover, an examination of the above information and an application of the Safaro factors, as noted by the majority, weigh in favor of finding that the above information likely constituted trade secrets. First, Goodman testified that it took the company two years to compile its business plan, at an expense of $10,000 to $12,000. Second, City Slickers took numerous reasonable measures to insure the secrecy of its information. The company placed control numbers on the plans and on the back of the nondisclosure agreements. Further, the company defined confidential information to include precisely the type of information it supplied to appellee; it had appellee sign three separate nondisclosure statements; it took measures to limit the unauthorized use, copying or removal of confidential information by not only its employees, but also its potential investors and their employees; it used control numbers and limited the number of copies available. Finally, it disclosed confidential information to those only at the general manager position or higher. Closely related to the steps taken to insure secrecy of the information is the question of whether the information contained in the handbook and business plan was readily ascertainable and/or could be properly acquired or duplicated by others. Appellee argues that the information contained in the handbook and business plan is not protected under the Trade Secrets Act because he did not need the information in the handbook and business plan to start an on-site oil changing operation. However, the test for determining whether information constitutes a trade secret is not a “but-for” test. That is, the issue is not whether appellee could have started his business but for the information appellants provided him. The issue is whether appellee’s new employment will inevitably lead him to rely on the plaintiff s trade secrets. See Cardinal Freight, 336 Ark. at 152, 987 S.W.2d at 646. See also Bendinger v. Marshalltown Trowell Co., 338 Ark. 410, 994 S.W.2d 468 (1999). The majority failed to address this issue, but the inevitable disclosure inquiry is a factual inquiry that may include consideration of the similarity of the employee’s new job to the position he held with his former employer and consideration of whether or not he exhibited a lack of compunction about using his former employer’s proprietary information to gain an unfair tactical advantage. See Bendinger, 338 Ark. at 421-23, 994 S.W.2d at 474-75; Cardinal Freight, 336 Ark. at 152-53, 987 S.W.2d at 646-47. The inevitable disclosure principle seems squarely applicable here, as it is difficult to conceive of how appellee, with no prior experience in the automotive oil changing industry, could operate an on-site oil changing facility cfter a mere six weeks of training without misappropriating the information provided by City Slickers. The majority maintains that the information in the subject documents can be ascertained without utilizing City Slickers’ documents because the business plan uses statistics from public surveys and studies; because its customer profiles and competition figures are easily ascertainable from phone books and surveys; and because its marketing campaign in the business plan does not include the Little Rock market. However, the detailed information relating specifically to City Slickers and the Little Rock marketing plan contained in the business plan and handbook is not easily ascertainable. Further, although information regarding the existence and operation of an on-site oil changing business may be found on the Internet and in trade publications, the detailed information regarding City Slickers’ methods of operation, in particular, is not. Moreover, the examples of information available on related Internet pages offered by appellee in his brief do not provide the level of detail found in appellants’ business plan and Little Rock launch handbook. Even appellants’ own Internet page, by which it provides on-line quotes, is not published. Finally, although anyone can call a radio or television station or newspaper and receive an estimate on how much air time will cost, the advertising plan, formulated at considerable expense to City Slickers, has obviously been designed to reach the company’s target audience. Further, appellee’s position with appellant is virtually identical to his current position. Goodman testified that appellee’s job was to “start up” and manage the business in the Little Rock area, which is precisely what appellee is now attempting to do on his own. Appel-lee demonstrated no compunction about using the confidential information to create an unfair advantage for himself. The same day that appellee resigned, he used his knowledge of City Slickers’ pricing structure, contacted one of City Slickers’ potential customers, and offered to match any quote the customer had already been given. Goodman testified that when appellee resigned, appellee told him that he intended to open his own oil-changing operation and compete with Goodman in the Little Rock market. Finally, appel-lee either informed or misinformed a Little Rock customer that City Slickers’ entry into the Little Rock area would be delayed. The majority attempts to distinguish Cardinal Freight because it involved specific customers, whereas appellee and City Slickers are essentially competing for new customers. The majority also maintains that Douglas has not actually misappropriated any information. It is true that some of the information in Cardinal Freight related to specific customers, such as the profit margin and marketing plans for specific customers, but that case also involved general information regarding the employer’s method of doing business and its marketing program. Moreover, it is the nature of the information that is dispositive, not the nature or duration of the customer/employer relationship. It is also true that there is no proof in the record that appellee has misappropriated any confidential information. However, a court may enjoin the threat of misappropriation under the Trade Secrets Act. See Ark. Code Ann. § 4-75-604; Cardinal Freight, supra. Based on the above authorities, I would hold the chancellor erred in determining that there was no substantial likelihood that appellant would be able to show that the information contained in the Little Rock Launch 2000 and in the business plan constituted trade secrets. I also believe the chancellor erred in finding that appellant did not have a legitimate business interest in customers in the Little Rock area. A legitimate business interest arises when an employer provides special training or makes available trade secrets, confidential business information or customer lists, if the associate can use that information to gain an unfair advantage. See Duffner v. Alberty, 19 Ark. App. 137, 139-40, 718 S.W.2d 111, 112 (1986). As noted above, City Slickers expended considerable time and resources to develop plans to enter the Little Rock market, including the cost of hiring, training, and supporting Douglas as he began developing that market. Specifically, the evidence showed that a competitor’s knowledge of City Slickers’ overhead costs could be critical information in placing a bid to a potential customer, because such knowledge would allow a competitor to have a good estimate of how much City Slickers could bid per vehicle, which would allow a competitor to match or beat City Slickers’ bid. In sum, it appears that appellee approached Goodman seeking employment and stayed with the company long enough to determine that Little Rock was a seemingly untapped market for an on-site oil changing business. Armed with the knowledge gleaned from two years’ worth of research explaining how to advertise and start such a business in that specific, untapped market, and how to build a customer base, appellee obtained a private investor and attempted to open his own business. While appellee did not need such information to start such a business, there is ample proof in the record suggesting that he would be able to use the information to an unfair advantage. Appellee maintains that he only intended to match City Slickers’ price, not to undercut it. It is precisely this pivotal issue that appellee and the majority misapprehend in this case: the same factors that enabled appellee to match appellants’ price support a finding that he violated the Trade Secrets Act. That is, Douglas was able to match City Slickers’ price only because that information was made available to him as an employee of City Slickers, and only after he signed a confidentiality agreement. Unfortunately, the majority opinion sanctions that conduct as permissible under the Arkansas Trade Secrets Act. For the above-noted reasons, I respectfully dissent. Judge PITTMAN has authorized me to state that he joins this opinion.