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Responsible Fluid Power, Inc. v. Altec Industries, Inc.

United States District Court, D. South Dakota, Southern Division

October 4, 2016

RESPONSIBLE FLUID POWER, INC, Plaintiff,
v.
ALTEC INDUSTRIES, INC, Defendant.

          ORDER DENYING IN PART AND GRANTING IN PART MOTION FOR SUMMARY JUDGMENT

          KAREN E. SCHREIER, UNITED STATES DISTRICT JUDGE

         Plaintiff, Responsible Fluid Power (RFP), filed a complaint against defendant, Altec Industries, Inc., alleging trade secret misappropriation, promissory estoppel, breach of contract, fraud and deceit, negligent misrepresentation, and tortious interference with business relationship. Docket 1. Altec filed a counterclaim against RFP for repayment of a debt. Docket 13. Altec moves for summary judgment on all claims. Docket 27. RFP opposes the summary judgment motion. Docket 31.

         BACKGROUND

         The facts, viewed in the light most favorable to RFP, the non-moving party, are as follows:

         Altec is a corporation that manufactures products such as aerial devices, cranes, digger derricks, and shippers for use in the electrical utility, telecommunications, lights and signs, and contractor markets. RFP is a South Dakota corporation that manufactures hydraulic reservoirs (or tanks) for Altec, and Altec would incorporate RFP's tanks into certain Altec products.

         Specifically, the tanks were predominantly used in Altec's digger derricks. Donald Haacke, the owner of RFP is not a professional engineer and has no vocational or post high school training in engineering. RFP never employed an engineer, but it did consult with an engineer named Jim Vlaanderen. Originally, RFP was located in Des Moines, Iowa. Haacke testified that he moved the business from Des Moines to Sioux Falls because: (1) he is originally from South Dakota and wanted to move back home; (2) the State of South Dakota promised him financial assistance; and (3) he was able to purchase a similar size facility in South Dakota for a much lower cost than his facility in Des Moines.

         When RFP and Altec began negotiating the price Altec would pay for RFP's newly designed tanks, RFP was concerned about its profitability. To alleviate RFP's concerns, Altec promised that it would purchase tanks from RFP at higher margins in the future if RFP initially supplied tanks at lower margins. Altec also promised that RFP would get all of the business generated from customers needing replacement parts for the tanks.[1] RFP accepted these terms and began designing hydraulic reservoir tanks for Altec. The tanks previously provided to Altec by Innovative Fluid Handling (IFH) were built using six pieces of steel welded together using a butt weld. RFP then designed a tank built with three pieces of steel using a lap joint weld.[2] In 2010, RFP successfully developed a two-piece design and began manufacturing and selling this two-piece design to Altec.

         The hydraulic reservoir manufactured by RFP is a steel box with a filtration system and a return filter. Altec provided RFP with specific dimensions that RFP had to comply with when designing the tanks.[3] The specific dimensions were Altec's sole contribution to the design of the tank. Except for the specific dimensions, RFP designed the tanks in their entirety. RFP contends that the process in which it builds these two-piece tanks is subject to trade secret protection. RFP provided the drawings of the tanks to Altec so that Altec could ensure that the tanks were the proper dimensions for inclusion in the overall design of the digger derrick.

         In the summer of 2011, Altec instituted a new cleanliness standard for its hydraulic tanks. Shortly thereafter, Altec internally began a standardization process wherein it evaluated its current tank suppliers and made improvements in the design of its tanks, including changes to the filtration system and consolidation of part numbers. As part of the 2011 tank evaluation project, Altec provided drawings of a sixty-gallon tank to various tank manufacturers so the manufacturers could bid on the production of the sixty-gallon tank. After evaluating the tank suppliers in 2011, Ryan Hulleman recommended that Altec switch to IFH or Hegelson, to take over production of the sixty-gallon tank from RFP. Altec ultimately chose IFH. In 2013, RFP closed its doors.

         Over the years, Haacke requested price increases from Altec and understood that by requesting higher prices, Altec would seek out quotes from other manufacturers. In the past, RFP had purchased parts from Zinga and sold them to Altec at a marked-up price. Eventually, Altec began purchasing the parts directly from Zinga. At times, Altec asked RFP to expedite orders and RFP would fill these expedited orders using its other customers' parts.

         During the course of RFP and Altec's business relationship, RFP purchased filtration systems and other equipment from MP Filtri for use in the manufacture of hydraulic tanks. MP Filtri was Altec's designated filtration supplier. RFP failed to pay MP Filtri for all or some of the equipment that it purchased and used in tanks that it sold to Altec. RFP states that the amount, if any, it owes to MP Filtri is unknown.

         LEGAL STANDARD

         Summary judgment on all or part of a claim is appropriate when the movant “shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a); see also In re Craig, 144 F.3d 593, 595 (8th Cir. 1998). The moving party can meet its burden by presenting evidence that there is no dispute of material fact or that the nonmoving party has not presented evidence to support an element of its case on which it bears the ultimate burden of proof. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). Once the moving party has met this burden, “[t]he nonmoving party may not ‘rest on mere allegations or denials, but must demonstrate on the record the existence of specific facts which create a genuine issue for trial.' ” Mosley v. City of Northwoods, 415 F.3d 908, 910 (8th Cir. 2005) (quoting Krenik v. Cty. of Le Sueur, 47 F.3d 953, 957 (8th Cir. 1995)). “Further, ‘the mere existence of some alleged factual dispute between the parties is not sufficient by itself to deny summary judgment. . . . Instead, the dispute must be outcome determinative under prevailing law.' ” Id. (quoting Get Away Club, Inc. v. Coleman, 969 F.2d 664, 666 (8th Cir. 1992)). The facts, and inferences drawn from those facts, are “viewed in the light most favorable to the party opposing the motion” for summary judgment. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (quoting United States v. Diebold, Inc., 369 U.S. 654, 655 (1962)).

         DISCUSSION

         I. Trade Secret Misappropriation Claim

         RFP alleges misappropriation of a trade secret against Altec. RFP bears the burden of first establishing the existence of a trade secret and then must establish misappropriation. SDCL § 37-29-1(4) defines trade secret as:

         Information, including a formula, pattern, compilation, program, device, method, technique or process that:

(i) 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
(ii) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

SDCL § 37-29-1(4).

         In Weins v. Sporlender, 569 N.W.2d 16, 20 (S.D. 1997), the South Dakota Supreme Court concluded that the existence of a trade secret is a mixed question of law and fact. The legal question is “whether the information in question could constitute a trade secret under the first part of the definition of trade secret” under the statute. Id. Generally, a trade secret does not include “a marketing concept or new product idea submitted by one party to another.” Daktronics Inc. v. McAfee, 599 N.W.2d 358, 361 (S.D. 1999) (quoting Hudson Hotels Corp. v. Choice Hotels Int'l, 995 F.2d 1173, 1176 (2d Cir. 1993)). “Simple possession of a non-novel idea or concept without more is generally, as a matter of law, insufficient to establish a trade secret.” Id. (quoting Frink America Inc. v. Champion Road Machinery Ltd., 48 F.Supp.2d 198, 206 (N.D.N.Y. 1999).

         The remaining two parts of SDCL § 37-29-1(4)(i)-(ii) involve questions of fact. Daktronics, 599 N.W.2d at 361. “A court may determine a question of fact by summary judgment if it appears to involve no genuine issues of material fact and the claim fails as a matter of law.” Id. at 362. Therefore, the court should evaluate if there are issues of material fact regarding whether the information can derive economic value and is generally known or easily ascertainable and whether the information was subject to efforts to maintain its secrecy. SDCL § 37-29-1(4)(i)-(ii).

         A. The process of building the two and three-piece tank falls within the definition of a trade secret as defined in SDCL § 37-29-1(4).

         The initial question is whether RFP's process of manufacturing the tanks falls within the definition of a trade secret under South Dakota law. Construing the facts in the light most favorable to RFP, this court determines that the process by which the tanks are manufactured qualifies as a trade secret pursuant to SDCL § 37-29-1(4). In Paint Brush Corp. v. Neu, 599 N.W.2d 384, 390 (S.D. 1999), the South Dakota Supreme Court reversed the trial court's grant of summary judgment on whether a process for manufacturing brushes was a trade secret. The president of Paint Brush Corporation (PBC) described in his affidavit a unique process by which PBC measured the necessary volume of filaments for each brush. Id. The court concluded that the process the president described fit the definition of a trade secret. Id. Similarly, Haacke ...


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