As Doug Kelley neared the end of his 14-year career as a lumber sales trader for Pelican, Bay Forest Products, Inc. (Pelican Bay or plaintiff)—the plaintiff in this case— he gave his son-in-law, Andrew Hotmer, a portion of his Pelican Bay customer list, along with other information about those customers and their business with Pelican Bay. Hotmer, with Kelley's assistance, parlayed that information into a timber sales job with one of Pelican Bay's competitors, Western Timber Products, Inc. (Western Timber). In that job, he used Kelley's customer information to make sales on behalf of Western Timber—something that, according to Pelican Bay, diminished its own sales and profits. That led to this lawsuit. Pelican Bay claims that, as a result of that course of events, Western Timber, its president, Seid, and Hotmer (collectively, defendants) have (1) misappropriated trade secrets belonging to Pelican Bay, in violation of ORS 646.461(2); and (2) intentionally interfered with Pelican Bay's economic relations. Defendants moved for summary judgment, and the trial court granted the motion, concluding that there was insufficient evidence to permit a reasonable factfinder to find in Pelican Bay's favor on certain elements of its claims. It then awarded attorney fees to defendants on the trade secrets claim, as allowed by ORS 646.467(1), concluding that Pelican Bay's claim of misappropriation was made in bad faith. We conclude that there are genuine issues of material fact on those claims and, accordingly, reverse and remand.
This case was hard fought in the trial court, and the summary judgment record contains conflicting evidence on a number of points. However, our standard of review, discussed below, requires us to view the facts in the light most favorable to Pelican Bay, the nonmoving party. We therefore state the facts accordingly.
Pelican Bay serves as a distributor between lumber mills and purchasers of their products. Kelley started working as a lumber sales trader for Pelican Bay in or around 2000. Kelley acted as an intermediary between lumber mills selling products and customers who desired to purchase those products. Kelley built rapport with customers, determined their product needs, and then located and sold them that product. He had done similar work before working for Pelican Bay but did not bring a customer base with him. Rather, Pelican Bay provided him with customer information and accounts serviced by former Pelican Bay traders. That customer information consisted of customer names, contact persons, product preferences, mill information, pricing, customer payment information, shipping preferences, and costs. Over the 14-year course of his employment with Pelican Bay, Kelley's customer base grew to include roughly 40 nationwide customers.
In 2007, Kelley signed an "Employee Acknowledgment" in which he agreed to abide by the policies contained in Pelican Bay's employee handbook. The handbook contained a "Confidentiality Policy" stating that plaintiff's confidential proprietary information, including plaintiff's customer list and "all information obtained by company employees during the course of their work," belonged to plaintiff and was not to be shared with third parties, "except as your job requires."
Notwithstanding that policy, and his written acknowledgment of it, Kelley attempted to sell his customer list to other Pelican Bay traders in 2013. Around the same time, Kelley also contacted a timber company in Idaho to inquire whether it was interested in hiring his daughter to take over his customer list.
As he approached his retirement from Pelican Bay, Kelley provided confidential customer information obtained during his employment with Pelican Bay to Hotmer, so that Hotmer could use that information to get hired by Western Timber. Additionally, Kelley agreed to train Hotmer on how to use the customer information to efficiently sell to plaintiff's customers. When Hotmer met with Western Timber for the first time about employment, Western Timber's president, Dan Seid, was interested in adding the customer list that Hotmer had acquired to its book of business. Hotmer later had a second meeting with Seid. Kelley attended that meeting by telephone and provided Seid with further details regarding his customer information from Pelican Bay. Subsequently, Western Timber hired Hotmer because of Hotmer's access to the customer information supplied by Kelley. Western Timber would not have hired Hotmer without possession of the customer information that Kelley supplied him.
Hotmer began working at Western Timber on May 20, 2014. His customer base consisted of the 20 customers obtained through the information provided by Kelley. That same day, while Kelley was still employed by Pelican Bay, Kelley began training Hotmer on how to use the customer list at Western Timber. Kelley provided Hotmer with customer and lumber mill information from plaintiff's customer list, "customer profiles," customer purchasing preferences, shipping preferences, payment habits, information regarding Pelican Bay's outstanding orders, and Pelican Bay's pricing. Kelley assisted Hotmer on sales calls and introduced Hotmer to customers on plaintiff's customer list.
Ten days after Hotmer started with Western Timber, Kelley retired from Pelican Bay. That same day, Kelley met with Hanson and two of Pelican Bay's employees to determine which of Pelican Bay's traders would take over the accounts that had been serviced by Kelley. Kelley did not disclose at that time that he had provided part of his customer list and other information to Hotmer for use at Western Timber.
Within a few days of Kelley's retirement, Pelican Bay learned that Hotmer and Kelley had been using information that Kelley obtained while working for Pelican Bay to lure customers to Western Timber. On June 5, 2014, plaintiff sent cease-and-desist letters to Western Timber, Hotmer, and Kelley, informing them that they had misappropriated Pelican Bay's confidential information, and that they should stop using it immediately. In response to the letter, Western Timber declined to discontinue its use of the information obtained through Kelley. It continued to employ Hotmer and use the customer list because Western Timber did not believe Kelley's confidentiality agreement "would hold up."
Pelican Bay sued, alleging three claims for relief against defendants: misappropriation of trade secrets, intentional interference with economic relations, and conversion.
On the conversion claim, defendants argued that, "because plaintiff does not own the information in Kelley's head, there can be no conversion of something plaintiff does not own." Defendants also argued that the conversion claim must fail because defendants have not seriously impaired or prevented plaintiff from using its confidential information to transact business because plaintiff still sells to the customers listed. With respect to the intentional interference with economic relations claim, defendants argued only that, under an Oregon District Court decision, IKON Office Solutions v. American Office, 178 F.Supp.2d 1154 (D. Or. 2001), aff'd, 61 F.Appx. 378 (9th Cir. 2003), the failure of the alleged trade secret claim necessarily meant that there was no liability for intentional interference with economic relations:
In response, Pelican Bay argued that there was evidence that the customer list and related information taken by Kelley and used by defendants qualified as trade secrets, as that term is defined in ORS 646.461(4). In addition, Pelican Bay argued that there was evidence that would support a finding that defendants had misappropriated Pelican Bay's trade secrets under the form of "misappropriation" described in ORS 646.461(2)(d). Pointing out that defendants' motion for summary judgment omitted subsection (d) from its block quotation of ORS 646.461(2), Pelican Bay asserted that, at a minimum, defendants' admission that they continued to use Pelican Bay's customer information after receiving Pelican Bay's cease-and-desist letters would support a finding of misappropriation as defined under ORS 646.461(2)(d)(C), which states that misappropriation occurs when there is "[d]isclosure or use of a trade secret of another without express or implied consent by a person, who at the time of disclosure or use, knew or had reason to know that the knowledge of the trade secret was * * * [d]erived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use." ORS 646.461(2)(d)(C) (emphasis added). Pelican Bay argued:
The trial court granted defendants' motion. In explaining its ruling, the court stated that the evidence demonstrated that there was a jury question "as to whether there is or isn't a trade secret," but that Pelican Bay had not produced evidence that would allow a finding that defendants "did anything for improper means." For that reason, the court concluded, all three claims against defendants failed as a matter of law. The court did not address explicitly Pelican Bay's theory that defendants' conduct violated ORS 646.461(2)(d)(C) because it had "used" Pelican's trade secrets when it "knew or had reason to know" that the information supplied by Kelley was "[d]erived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use." ORS 646.461(2)(d)(C).
Thereafter, defendants petitioned for attorney fees with respect to the trade secrets claim under ORS 646.467(1), asserting that they were entitled to fees under that provision on the ground that the claim had been asserted in "bad faith." Agreeing with defendants on that point, the trial court awarded defendants $37,425 in attorney fees. The court then entered a general judgment in favor of all defendants; the judgment included the fee award.
Pelican Bay appeals, seeking reversal of the general judgment and money award. It assigns error to the trial court's grant of defendants' motion for summary judgment on its claims for misappropriation of trade secrets and intentional interference with economic relations.
In response, defendants, in the main, urge us to affirm on an alternative ground: that Pelican Bay's evidence is insufficient to give rise to a factual dispute as to whether the information that Kelley took from Pelican Bay and provided to the defendants qualifies as a "trade secret" within the meaning of ORS 646.461(4). Their primary argument in that regard is that, in their view, this case is "nearly identical" to IKON Office Solutions, 178 F.Supp.2d 1154, a case in which the district court concluded that the evidence presented was insufficient to create a dispute of fact as to whether the customer lists and information at issue in that case constituted trade secrets for purposes of ORS 646.461(4). Addressing Pelican Bay's argument regarding misappropriation under ORS 646.461(2)(d)(C), defendants argue that there is no evidence to support a finding that they knew or should have known that. Kelley had an obligation to keep the information confidential
STANDARD OF REVIEW
We review the trial court's grant of summary judgment to determine whether there is no genuine issue of material fact and whether the moving party is entitled to judgment as a matter of law. ORCP 47 C. That standard is met when, "viewing the evidence in the record and all reasonable inferences that may be drawn from it in favor of the nonmoving party, no reasonable factfinder could return a verdict for the nonmoving party." Chapman v. Mayfield, 358 Or. 196, 204, 361 P.3d 566 (2015). The nonmoving party bears the burden "to produce evidence on any issue raised in the motion as to which the nonmoving party would have the burden of persuasion at trial." Id.
Given that the other rulings challenged in this appeal were predicated on the trial court's grant of summary judgment to defendants on Pelican Bay's trade secrets claim, the issue before us is whether the court erred in granting summary judgment on the trade secrets claim. As framed by the parties' arguments on appeal, resolution of that issue turns on whether Pelican Bay's evidence in opposition to summary judgment is sufficient to permit a reasonable factfinder to find (1) that the customer information that Kelley took from Pelican Bay constitutes a "trade secret" under ORS 646.461(4) and (2) that defendants engaged in conduct constituting "misappropriation" under ORS 646.461 (2)(d)(C).
We start with the question of whether Pelican Bay's evidence was sufficient to create a factual dispute as to whether the customer information taken and disseminated by Kelley constituted a trade secret. ORS 646.461(4) defines a "trade secret" as follows:
ORS 646.461(4). In Kaib's Roving R.PH. Agency, Inc. v. Smith, 237 Or.App. 96, 103, 239 P.3d 247 (2010), we elaborated on the meaning of "trade secret" and on the sort of evidence required to give rise to a factual dispute as to whether something is or is not a trade secret:
Id. Thus, under Kaib's Roving R.PH. Agency, Inc., the issue is whether the evidence presented by Pelican Bay, viewed in Pelican Bay's favor, establishes facts and circumstances that would permit a reasonable fact-finder to find "that the information derives economic value from not being generally known and is subject to reasonable efforts to maintain its secrecy." Id.
Here, the evidence presented by Pelican Bay meets that standard. First, the evidence would permit a finding that Pelican Bay made reasonable efforts to keep the information confidential. In 2007, Kelley signed an "Employee Acknowledgment" agreeing to abide by the policies contained in plaintiff's handbook, which contained a confidentiality agreement stating that plaintiff's confidential proprietary information, including its customer list, belonged to plaintiff and was not to be shared with third parties. Again, in 2013, after plaintiff learned that Kelley had been attempting to sell the customer information to other traders, plaintiff's president met with Kelley, reminded him of his confidentiality obligations and that the customer information was plaintiff's property, and presented him with a written agreement memorializing their conversation.
The evidence would also permit finding that the information is of the nature that derives economic value from being kept secret. Defendants admitted that the lumber sales business is competitive and that it takes many years to build up a quality book of business. Because of that fact, when Hotmer started working for Western Timber, it had Hotmer sign an agreement that said that the business he was bringing over from Pelican Bay, as well as any new business he acquired, was the property of Western Timber, and that Hotmer did not have authority to sell or transfer the customer information. The fact that Western Timber would not have hired Hotmer but for his access to Kelley's customer information from Pelican Bay also allows for the inference that that information is something that derives economic value from the fact that it is not generally available information.
Resisting that conclusion, defendants point our attention to evidence in the record that would allow a factfinder to reach a different determination regarding the nature of the information that Kelley took from Pelican Bay. As we have acknowledged, this case has been hard fought and the record evidences many factual disputes. But our task is to assess whether there is some evidence in the record that would permit a reasonable fact-finder to find that the information taken by Kelley was a trade secret. Because there is, it is for a jury to decide whether or not that information constitutes a trade secret under ORS 646.461(4). See generally Kaib's Roving R.PH. Agency, Inc., 237 Or. App. at 103, 239 P.3d 247. In a similar vein, defendants
Finally, defendants also argue that the information taken by Kelley cannot constitute a trade secret under ORS 646.461(4) because the undisputed facts show that Kelley took that information from Pelican Bay in his head, rather than in a tangible form. In their view, information taken by memory cannot, as a matter of law, constitute a trade secret.
The problem with that argument is that there is no textual support for it in ORS 646.461(4) or elsewhere in the Uniform Trade Secrets Act, ORS 646.461 to 646.475. See ORS 646.475(2) ("ORS 646.461 to 646.475 may be cited as the Uniform Trade Secrets Act."). Simply put, as the Washington Supreme Court and others have recognized in interpreting the Uniform Trade Secrets Act,
We next address whether the evidence was sufficient to permit a reasonable factfinder to find that defendants misappropriated Pelican Bay's trade secrets under ORS 646.461(2)(d)(C) by continuing to use the information after they received the cease-and-desist letters. Defendants appear to argue only that the evidence is insufficient to permit that finding because the letters did not use the words trade secrets. We reject that argument and otherwise conclude that Pelican Bay's evidence is sufficient to permit a reasonable factfinder to find that defendants "misappropriated" Pelican Bay's confidential customer information within the meaning of ORS 646.461(2)(d)(C).
ORS 646.461(2)(d)(C) defines "misappropriation" as follows:
Pelican Bay's evidence would permit a reasonable factfinder to find that defendants misappropriated its information in that manner.
Defendants assert that "Plaintiff presented no evidence that Defendants knew or had any reason to know, at the time that they acquired and used the customer information, that Plaintiff considered the customer information a trade secret, that the information had been wrongfully acquired, or that Kelley was violating his contractual obligations to Plaintiff in sharing it." (Emphasis in original.) That may be true. But the fact that defendants may not have been on notice at the time they initially used plaintiff's confidential information simply means that their initial use of the information would not constitute misappropriation. By its terms, however, ORS 646.461(2)(d)(C) provides that misappropriation occurs at any time a person uses a trade secret without the necessary consent when the person knows or should have known that the information was obtained from someone who had an obligation to keep it confidential; that is, whenever there is "[d]isclosure or use of a trade secret of another without express or implied consent by a person, who at the time of disclosure or use, knew or had reason to know that the knowledge of the trade secret was * * * [d]erived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use." ORS 646.461(2)(d)(C) (emphasis added). That means that once defendants were notified that Kelley had a duty of confidentiality to Pelican Bay, their subsequent use of Pelican Bay's confidential customer lists with that knowledge could have constituted misappropriation as defined by ORS 646.461(2)(d)(C)—or so a reasonable factfinder could find on this record. IMED Corp. v. Systems Engineering Associates Corp., 602 So.2d 344, 346-47 (Ala. 1992) (concluding, under Alabama Trade Secrets Act § 8-27-3, that "[i]t would require a tortured reading of the statute for us to conclude * * * that a person cannot be held liable unless he knew or should have known at the time he learned the trade secret that it had been misappropriated by the third person" and that "[t]he purpose underlying the Act would surely be thwarted if a person, although innocently acquiring a trade secret from a third person, could nonetheless disclose or use that trade secret with impunity after being placed on notice that the trade secret had been misappropriated," and observing that its interpretation of its state Act was consistent with section one of the Uniform Trade Secrets Act).
For those reasons, the trial court erred in granting summary judgment to defendants on Pelican Bay's trade secrets claim, and we must reverse as to that claim. As we have explained, the court's grant of summary judgment on the intentional interference with economic relations claim was predicated on the grant of summary judgment on the trade secrets claim; defendants have not argued that summary judgment on that claim would be warranted even if summary judgment on the trade secrets claim is not. Accordingly, having reversed the grant of summary judgment on the trade secrets claim, we also reverse the grant of summary judgment on the intentional interference claim. Finally, we must also reverse the award of attorney fees on the trade secret claim. Because we have reversed the trial court's grant of summary judgment on the trade secrets claim, defendants are no longer prevailing parties for purposes of ORS 646.467.
Reversed and remanded.