United States District Court, D. South Dakota, Southern Division
ORDER DENYING IN PART AND GRANTING IN PART MOTION FOR
E. SCHREIER, UNITED STATES DISTRICT JUDGE
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
facts, viewed in the light most favorable to RFP, the
non-moving party, are as follows:
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
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.
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. 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. In 2010, RFP
successfully developed a two-piece design and began
manufacturing and selling this two-piece design to Altec.
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. 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.
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.
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.
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
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)).
Trade Secret Misappropriation Claim
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:
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).
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).
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 §
The process of building the two and three-piece tank falls
within the definition of a trade secret as defined in SDCL
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,