Wisconsin High Court Affirms High Summary Judgment Bar to Trade Secret Misappropriation Claims

by Seyfarth Shaw LLP

A recent decision from the Supreme Court of Wisconsin affirmed a trial court’s grant of summary judgment in favor of a defendant accused of conspiring to misappropriate its competitor’s trade secrets. By a 4-3 decision in North Highland Inc. v. Jefferson Machine & Tool Inc., 2017 WI 75 (July 6, 2017), the Court found that plaintiff North Highland, Inc. (“North Highland”) had failed to present sufficient evidence of misappropriation or conspiracy to proceed beyond the summary judgment stage, prompting a notably sharp exchange with dissenting Chief Justice Patience D. Roggensack and a second dissent by two other justices.

Highland is a Wisconsin-based manufacturer of industrial products. One of the companies it distributed its products to was Bay Plastics, Inc., owned by Frederick Wells. Prior to 2011, Wells decided to form a separate company to manufacture the products which Bay Plastics sold, including some of the products which it purchased from North Highland. Wells formed Jefferson Machine & Tool Inc. (“Jefferson Machine”) along with Dwain Trewyn—Wells owned 75% of Jefferson Machine and Trewyn owned the remaining 25%. At the time of Jefferson Machine’s formation, Trewyn was employed by North Highland in sales. Trewyn did not have a non-competition agreement with North Highland, but also did not inform North Highland that he would also be working at Jefferson Machine.

When Tyson Foods issued a request for quotes to several vendors for 3,000 trolleys to be used in one of its plants, North Highland was on the list of approved bidders receiving the request while Jefferson Machine was not. The employee responsible for preparing North Highland’s bid was Trewyn. Less than three weeks after the request was issued, Trewyn obtained approval from Tyson to submit a bid on behalf of Jefferson Machine as well, even though it had not been on the approved bidder list. Trewyn was also responsible, along with Wells, for preparing Jefferson Machine’s bid. Trewyn did not disclose to North Highland that he was preparing bids on behalf of both North Highland and Jefferson Machine for the same Tyson Foods request. Despite not having initially been an approved bidder, Jefferson Machine submitted a lower bid than North Highland and was awarded the Tyson Foods contract. After North Highland discovered the circumstances behind its lost bid, it terminated Trewyn and threatened to seek injunctive relief against Jefferson Machine, which resulted in Tyson Foods cancelling the contract and awarding it to neither company.

North Highland filed suit against Trewyn, Bay Plastics, Wells, and Jefferson Machine for breach of contract, breach of fiduciary duty, conspiracy, tortious interference, and misappropriation of trade secrets under Wisconsin state law. While it settled its claims against Trewyn and its claims against Bay Plastics were dismissed, North Highland proceeded on its claims against Wells as an individual for civil conspiracy to breach Trewyn’s fiduciary duties to North Highland, as well as its claim that Wells had misappropriated North Highland’s trade secrets—in this, its confidential bid information on the Tyson Foods project—in violation of the Wisconsin Trade Secrets Act.. Wis. Stat. §  134.90. The trial court entered summary judgment in favor of defendants on those counts, finding that North Highland failed to present evidence sufficient to defeat a motion for summary judgment. The Court of Appeals affirmed, although its unpublished opinion focused on the issue of whether North Highland’s bid constituted a trade secret under Wisconsin law, finding that it did not. North Highland, Inc. v. Jefferson Mach. & Tool. Inc., No. 2015AP643, ¶ 25, unpublished slip op. (Wis. Ct. App. Apr. 28, 2016).

In affirming the Court of Appeals’ decision, the majority first noted that it was doing so on different grounds, and specifically without reaching the question of whether or not a bid would qualify as a trade secret under the circumstances presented. 2017 WI 75, ¶ 4, n. 4. Instead, the majority focused on whether or not North Highland had presented sufficient evidence of its claims to survive a motion for summary judgment. In finding that North Highland had not done so, the Court placed considerable emphasis on the fact that both defendants Trewyn and Wells had testified that, even though Wells was aware of Trewyn’s involvement in setting the bid amounts for both North Highland and Jefferson Machine, Trewyn had not disclosed the amount of North Highland’s bid to Wells. Id. at ¶¶ 11-13. While acknowledging the considerable circumstantial evidence suggesting collusion between Trewyn and Wells in formulating Jefferson Machine’s bid, the majority found that such evidence was insufficient in light of “unrebutted deposition testimony” from Wells and Trewyn:

North Highland contends that the evidence submitted to the circuit court on summary judgment is sufficient to allow a reasonable inference that Wells conspired with Trewyn….Based on this evidence of Wells and Trewyn’s working relationship at Jefferson Machine, an inference may be drawn that Trewyn shared his knowledge of the Tyson bid with Wells. However, the unrebutted deposition testimony supports the opposite conclusion. There is no evidence of the formation and operation of a conspiracy….As set forth more fully above, Trewyn similarly testified that Wells had no knowledge Trewyn was bidding on the Tyson project for North Highland. He stated that he did not discuss his work on the Tyson project with Wells and that he did not tell Wells that he submitted a bid for North Highland.

Id. at ¶¶ 30-32.

Because North Highland had not submitted any evidence in opposition to summary judgment rebutting that deposition testimony, the majority found that it had failed to meet its burden of showing that there was some basis for a jury to find that there was either a conspiracy or that Wells had misappropriated North Highland’s confidential information.

Chief Justice Roggensack dissented from the majority’s decision in strong terms, finding that the circumstances of the bidding process on their own created a sufficient factual question that should have been submitted to the jury while nothing that “[e]vidence of misappropriation of trade secret information does not have to be direct evidence. Circumstance evidence must also be considered…” Id. at ¶  109. The dissent’s claims of what that circumstantial evidence showed, however, prompted a rebuke from the majority accusing the dissent of “misinform[ing]” those who read it, “cherry-pick[ing]” certain parts of the record, and “creat[ing] its own facts.” Id. at ¶ 42, n. 12. A separate dissent by Justice Bradley agreed that the case should have been submitted to the jury, while discussing at length the conclusion that a bid could constitute a trade secret under Wisconsin state law.

Conclusions and Take Aways

On their face, the undisputed facts underlying the majority’s decision would appear to create more than enough circumstantial evidence to defeat a summary judgment motion and submit North Highland’s claims of misappropriation to a jury. The same individual (Trewyn) created the bids submitted by two bidders for the same job—his employer and the side company which he did not tell his employer about. Trewyn’s and Wells’ testimony that the former did not tell the latter about the amount of North Highland’s bid, and the Supreme Court of Wisconsin’s emphasis on that testimony as “unrebutted”—seems to be an instance of a defendant testifying “I did not do what I am accused of doing,” and a court finding that self-serving testimony to be dispositive in favor of the defendant. Direct evidence of misappropriation of trade secrets, wherein a defendant flatly admits to misappropriation or where documentary evidence exists of same, is understandably rare.

Regardless, parties seeking to prove misappropriation claims under Wisconsin law are now on notice as to the importance of finding some direct evidence of misappropriation in defeating a motion for summary judgment. Expedited discovery—especially the imaging of electronic devices in cases where parties may delete evidence of the sharing of trade secrets among defendants—will continue to be of particular importance in misappropriation actions. While the Court’s decision does not offer binding precedent on the issue of whether or not a bid can constitute a trade secret under Wisconsin state law, three dissenting justices found that such information could qualify as a trade secret while the majority refused to address the issue either way.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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