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Raven Industries, Inc. v. Lee

June 16, 2010

RAVEN INDUSTRIES, INC., PLAINTIFF AND APPELLEE,
v.
CLARK LEE AND INTEGRA PLASTICS, INC., DEFENDANTS AND APPELLANTS.



APPEAL FROM THE CIRCUIT COURT OF THE SECOND JUDICIAL CIRCUIT MINNEHAHA COUNTY, SOUTH DAKOTA, HONORABLE KATHLEEN K. CALDWELL Judge.

The opinion of the court was delivered by: Gilbertson, Chief Justice

CONSIDERED ON BRIEFS ON MAY 24, 2010

[¶1.] Raven Industries (Raven) sued Integra Plastics, Inc. (Integra), a business competitor, and Clark Lee (Lee), a former employee of Raven, by complaint for injunctive relief, tortious interference with contract, and unfair competition. Raven alleged that Lee unfairly competed with Raven by using alleged secret, confidential, or proprietary information that he was contractually obligated not to disclose. Raven's complaint sought only injunctive relief. A bench trial was held and the circuit court entered findings of fact, conclusions of law, and a permanent injunction in Raven's favor. Integra and Lee appeal.

FACTS

[¶2.] Raven is a string-reinforced plastic film manufacturer in Sioux Falls, South Dakota. Integra is a manufacturing company in Madison, South Dakota. Lee was an engineer at Raven from 1991 until February 2006 when he was fired. In 1991, Lee signed an "Agreement for Execution by Employees of Raven Industries, Inc. Relating to Inventions, Secret Processes, Trademarks, Trade Names, Character Names and Other Similar Matters" (Proprietary Rights Agreement).*fn1 After being fired, Lee signed a "Severance Package/Agreement" (Severance Agreement). The Proprietary Rights Agreement and Severance Agreement will now collectively be referred to as the "non-disclosure agreements." In the Severance Agreement, Lee agreed not to "[u]se or disclose to any third party any confidential or proprietary Company information or any confidential or proprietary knowledge about the Company obtained by [Lee] during the course of [Lee's] employment, including without limitation the terms and conditions of this Agreement." Lee commenced employment with Integra in February 2006 after he was fired by Raven.

[¶3.] At Raven, Lee was on the engineering team that originally built Raven's string-reinforced plastic line (Line) in 1993.*fn2 Lee was initially responsible for operating the Line and modifying it to improve product quality. Raven experienced many problems with the Line after production began. Lee, as the lead engineer, worked to develop solutions to these problems. As a result, Lee was intimately familiar with the assembly and operation of Raven's Line. In sum, it took over thirteen years to perfect Raven's Line.

[¶4.] At Integra, Lee was the director of business development and worked to develop a manufacturing line to produce string-reinforced plastic film almost identical to Raven's. Although Integra considered building a production line for this product before Lee was hired, it did not. Once Integra employed Lee, Lee contacted an equipment manufacturer that built a component of Raven's Line to have the same modified component made for Integra. The modifications Lee requested were unique to Raven's Line and were not used by any other manufacturer in the industry. Within one month of receiving the necessary equipment, Integra was able to produce a product that was commercially comparable to Raven's.

[¶5.] Raven filed suit against Integra and Lee for injunctive relief, tortious interference with contract, and unfair competition. Raven alleged that Integra and Lee unfairly competed against Raven by using secret, confidential, or proprietary information -- that Lee was contractually obligated not to disclose -- to produce a product for Integra commercially comparable to Raven's. Raven's complaint sought only injunctive relief. A nine-day bench trial was held, and the circuit court found for Raven on all three claims. The circuit court subsequently entered findings of fact, conclusions of law, and a permanent injunction prohibiting Integra from operating its line for two years.

[¶6.] Integra and Lee appeal, raising the following issues:*fn3

1. Whether the circuit court erred in concluding that the Uniform Trade Secrets Act did not preempt Raven's tort claims.

2. Whether the circuit court erred in concluding that Raven and Lee's non-disclosure agreements were enforceable.

3. Whether the circuit court erred in concluding that Integra engaged in unfair competition.

4. Whether the circuit court erred in granting the ...


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