United Wild Rice, Inc. v. Nelson

Citations: 313 N.W.2d 628; 1982 Minn. LEXIS 1429Docket: 52010, 81-309

Court: Supreme Court of Minnesota; January 5, 1982; Minnesota; State Supreme Court

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An appeal was made by Clifton Nelson against two orders from the Ninth Judicial District Court concerning a permanent injunction issued against him. The first order, dated October 20, 1980, barred Nelson from manufacturing, buying, or selling wild rice or related products until July 6, 1981, and from disseminating false reports about United Wild Rice, Inc. The second order, dated February 9, 1981, denied Nelson's request for amended findings or a new trial. The court found that Nelson engaged in unfair competition and deceptive trade practices under Minnesota and federal law. 

Nelson, a notable figure in the wild rice industry with over 25 years of experience, was a founder and former general manager of United Wild Rice, Inc. He sold his processing plant to United in 1975 under a Limited Covenant Not to Compete lasting three years, during which he complied with its terms. After a brief tenure as interim general manager in 1979, Nelson left United and established Northland Wild Rice, Inc., which entered into a joint venture that directly competed with United by soliciting customers and offering lower prices. United filed a complaint citing violations of the covenant and alleging unfair competition, leading to the temporary injunction against Nelson and his new venture. The court issued a $50,000 bond requirement for United to secure the injunction. The Supreme Court of Minnesota ultimately reversed the district court's decision.

Nelson filed a counterclaim against United, alleging anti-trust violations and requested the trial be bifurcated into two stages: one for a permanent injunction and the other for damages and counterclaims. The court granted this motion. The first stage resulted in a permanent injunction against Nelson, prohibiting him from manufacturing, buying, or selling wild rice until July 6, 1981, and from disseminating false information about United. The injunction was based on findings of unfair and deceptive trade practices by Nelson and the expiration of a Limited Covenant Not to Compete in 1979. The second stage of the trial is pending. Following the first stage, Nelson sought amended findings or a new trial but subsequently filed a notice of appeal before the trial court ruled on his motions. The appellate court ordered a remand for a decision on the post-trial motions, which were ultimately denied. Nelson is appealing the denial of these motions and the trial court's findings and order.

Regarding unfair competition, the excerpt outlines two bases for such claims: tortious interference with contractual relationships and improper use of trade secrets. United alleged tortious interference, asserting that Nelson interfered with contracts involving three employees. However, the court found that United did not prove Nelson's interference with any existing contracts. For employees Judy Wahl and Larry Carstens, there was no evidence that Nelson's actions constituted interference. Additionally, regarding Tony Sciullo, who left United under less favorable conditions and joined Northland shortly thereafter, there was no evidence that Nelson induced him to leave. Without proof of interference, the tortious interference claim could not succeed.

One who intentionally and improperly interferes with another's prospective contractual relations is liable for resulting pecuniary harm, as stated in Restatement (Second) of Torts, Section 766B. This liability applies unless the interference is justified by competition, which is favored by law. A competitor’s actions are not deemed improper if they do not involve wrongful means, do not create an unlawful restraint of trade, and are intended to advance the competitor's interests. In this case, Nelson's solicitation of United's potential customers is evaluated against these standards. It was determined that his actions, which related to the buying and selling of wild rice, fell within competitive practices and were not improper, as he did not employ wrongful means and did not create an unlawful restraint of trade. Although Nelson aimed to improve his own position while undermining United’s, such mixed motives are common among former employees.

Additionally, United claimed that Nelson misappropriated trade secrets and confidential information to its detriment, alleging that he used details regarding its financial condition, customer habits, contract terms, and pricing. However, the court noted that mere competitive advantage from this information is insufficient for an injunction. The test for determining whether information is confidential or a trade secret requires that the information is not generally known, provides a competitive advantage, was acquired at the employer's expense, and was intended to remain confidential.

The statutory definition of "trade secret" encompasses information that derives economic value from not being generally known and is subject to reasonable efforts to maintain its secrecy, as outlined in Minn.Stat. 325C.01(5) (1980). This definition is consistent with previous legal interpretations. United, a cooperative of rice farmers, classifies certain information as "confidential," yet this information is accessible to all members and discussed openly, undermining its confidentiality. Consequently, United has not made reasonable efforts to keep the information secret, which affects its ability to impose restrictions on competition among members.

The trial court found that United's actions violated the Uniform Trade Practices Act and the Unfair Trade Practices Affecting Producers of Agricultural Products. However, the court did not specify the exact provisions violated. Relevant statutes prohibit false or misleading statements that disparage another's goods or services. Unlike defamation, there is no presumption of falsity in these trade practices; the burden of proof lies with the plaintiff to demonstrate that the statements made were false. United failed to meet this burden, as evidenced by letters and oral statements from Nelson that did not conclusively prove misleading reports, including a letter about declining prices in the wild rice industry.

Clifton Nelson will serve as the CEO of NORTHLAND WILD RICE, INC., which will operate the exclusive sales for Ramy Seed Co. in Mankato, MN, with offices in Grand Rapids and Deer River. The company plans to offer quick cook wild rice at a projected price of $5.29 per pound, available 60-90 days after order, leveraging city utilities for quality and cost savings. Although the letter is critical of United, a Minnesota cooperative for wild rice farmers, the court found that United did not demonstrate that the statements made were false or misleading, placing the burden of proof on United. Consequently, the district court's order was reversed. Additionally, there were procedural issues with the appellant's appeal process, as they misunderstood the court's prehearing order regarding the appeal and failed to address the trial court's order denying their post-trial motion. The respondent’s motion to strike irrelevant materials from the appellant's brief was denied, and both parties were allowed to submit supplemental briefs for consideration.