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Poet, LLC v. Nelson Engineering, Inc.

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

June 6, 2019




         Plaintiffs, POET, LLC, POET Research, Inc., and POET Plant Management (collectively, "POET"), brought this action for injunctive relief and damages against two of its former employees, Jerry Baker (Baker) and Kevin Howes (Howes), and the businesses the men joined some time after they left POET, Nelson Engineering, Inc. (NEI) and Homeland Energy Solutions, LLC (Homeland) (collectively, the "Defendants"). Baker and NEI counterclaimed against POET, seeking declaratory relief and damages. Pursuant to Federal Rule of Civil Procedure 56, POET (doc. 80), Baker and NEI (doc, 79), and Howes and Homeland (doc. 91) all move for summary judgment on various claims. The parties also filed a No. of additional motions.

         At a hearing on May 31, 2019, the Court heard argument on the motions. Appearing on behalf of POET were Tara Norgard, Alexandra Olson, Jamie Hendrickson, Sander Morehead and Marty Jackley. Mitchell Peterson and Shane Eden appeared on behalf of Baker and NEI. Representing Howes and Homeland were Alexander Johnson and Tyler Haigh.


         POET commenced this lawsuit against Baker and NEI after learning NEI was marketing a process called Hydrolysis Utilization ("HU") to address the volume drop and additional headspace in fermentors caused by the release of carbon dioxide. POET later amended its complaint to add Howes and Homeland as defendants. POET claims that Baker and Howes misappropriated trade secrets and confidential information, including but not limited to POET's Delayed Dilution ("DD") technology, and used those to develop HU Which POET contends is exactly the same as POET's DD.

         POET alleges that (1) all Defendants violated the Defend Trade Secrets Act, 18 U.S.C. § 1831 et seq.; (2) all Defendants violated the South Dakota Uniform Trade Secret Act, SDCL 37-29, the Iowa Uniform Trade Secret Act, IA Code 550.2-.4, and the Minnesota Uniform Trade Secret Act, Minn. Stat. 325C.01-.03; (3) Baker breached a confidentiality agreement with POET; (4) Baker breached a duty of loyalty to POET; (5) NEI tortiously interfered with the confidentiality agreements between POET and Baker and Howes; (6) Howes breached a confidentiality and a non-compete agreement with POET; (7) Howes breached a duty of loyalty to POET; (8) Homeland tortiously interfered with the confidentiality agreement between Howes and POET. (Doc. 45.)

         Defendants Baker and NEI filed an amended counterclaim against POET for defamation, tortious interference with business relationships, tortious interference with NEI's contractual rights with Glacial Lakes Energy, and declaratory relief. (Doc. 21.)

         POET moves for summary judgment on the breach of contract claims against Baker and Howes and the tortious interference claims against NEI and Homeland. POET also requests summary' judgment on Baker and NEI's counterclaim alleging that POET tortiously interfered with NEI's contract with Glacial Lakes. Energy. Baker and NEI do not object to summary judgment in favor of POET on the counterclaim for tortious interference with the Glacial Lakes Energy contract.

         Baker and NEI move for summary judgment on POET's misappropriation of trade secrets claims under both federal and state law. Baker requests summary judgment on POET's breach of contract and breach of duty of loyalty claims against him. NEI asks for summary judgment on POET's claim that it tortiously interfered with Baker's contract with POET.

         Howes moves for summary judgment on the portion of POET's breach of contract claim alleging he breached a noncompete agreement. Howes and Homeland also ask for summary judgment on POET's claim that Homeland was unjustly enriched.


         I. Baker and NEI's motion for summary judgment on POET's misappropriation of trade secrets claims under both federal and state law is denied.

         Baker and NEI argue that POET has failed to sufficiently describe what the trade secret is as a matter of law. POET asserts that their trade secret is a process of combined elements, that they have sufficiently described it and, at a minimum, there is a fact dispute about whether a trade secret exists, together with other factual disputes on material issues. Viewing the record in the light most favorable to POET, for the reasons stated at the hearing on May 31, the Court finds that fact questions exist and that Baker and NEI are not entitled to summary judgment on the misappropriation of trade secrets claims.

         II. Is the Issue Whether a Trade Secret Exists a Question of Law for the Court?

         At the hearing, the Court cited AvidAir Helicopter Supply, Inc. v. Rolls-Royce Corp., 663 F.3d 966, 972 (8th Cir. 2011). There, the Eighth Circuit stated, "Though the existence of a trade secret is a fact-intensive inquiry, it is ultimately a question of law determined by the court." Id. at 971 (citing Steve Silvern Ins., Inc. v. Goshert, 873 N.E.2d 165, 179 (Ind.Ct.App.2007); Lyn-Flex West, Inc. v. Dieckhaus, 24 S.W.3d 693, 698 (Mo.Ct.App.1999)). In a 2014 decision, the Eighth Circuit reviewed the issue "whether the jury correctly found that Hallmark's PowerPoint presentations constituted trade secrets under Missouri law." Hallmark Cards, Inc. v. Monitor Clipper Partners, LLC, 758 F.3d 1051, .1056 (8th Cir. 2014). Later, in 2015, the Indiana Court of Appeals acknowledged that there is tension between "who is to determine whether information is a trade secret," but the court determined it was not necessary to decide at that time "whether information constitutes a trade secret is a matter of law or a question of fact." Think Tank Software Development Corp, v. Chester, Inc., 30 N.E.3d 738, 746 (Ind.Ct.App. 2015).

         In Weins v. Sporleder, 569 N.W.2d 16 (S.D. 1997), the South Dakota Supreme Court held that it is a question of law whether a trade secret is "information, including a formula, pattern, compilation, program, device, method, technique or process." Id. at 20 (citing SDCL 37-29-1(4)). The court held that the remaining subsections of the South Dakota Trade Secrets Act are questions of fact. Id.

         After the Court cited these cases, the parties requested time to research and brief: 1) whether it is for the court or the jury to decide if a trade secret exists, and 2) if the court is to make a preliminary decision if a trade secret exists before submitting that issue to the jury for purposes of closing the court or records during trial, whether a lower burden or standard of proof applies to the Court's decision on that issue.

         After receiving the written argument and authority from the parties, the Court will decide before the July 15 hearing whether the existence of a trade secret is a question of law for the Court or a question of fact for the jury, or a mixed question as is the case at least under South Dakota law. See Weins, supra.

         There are two reasons for a trade secret determination by the Court. The Court has to make a preliminary trade secret determination on the court closure question. If the Court determines that there is no trade secret, then there is no basis for closing the records or portions of the trial. It is for this purpose that the Court has suggested that possibly the Court should consider a lower burden of proof. The Court made this suggestion given the fact that "trade secrets partake of the nature of property, the value of which is completely destroyed by disclosure." In re Iowa Freedom of Info. Council, 724 F.2d 658, 664 (8th Cir. 1983). The information claimed to be a trade secret has to be preserved for appellate review, among other concerns, thus a lower standard for finding a trade secret for this purpose appears to be warranted. The briefing to be received from the parties will assist the Court in making this determination.

         The second reason for the Court to make a pretrial determination of whether or not a trade secret exists is for the purpose of determining what issues get submitted to the jury. If after receiving the requested briefing, the Court concludes that the existence of a trade secret is a law question, then the Court will hear evidence on that issue on July 15. If it is instead a jury question, then evidence on whether there is a trade secret will still be heard on July 15 with regard to the Court closure issue discussed above. If the trade secret issue is a mixed issue of law and fact, then on July 15 the Court will hear evidence on the law issue with the two factual issues to be presented to the jury if the Court finds for POET on the law issue.

         III. POET's Breach of Contract Claims ...

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