Bradshaw v. Alpha Packaging, Inc.

Citations: 379 S.W.3d 536; 2010 Ark. App. 659; 2010 Ark. App. LEXIS 703Docket: No. CA 09-1141

Court: Court of Appeals of Arkansas; October 6, 2010; Arkansas; State Appellate Court

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Alpha Packaging Inc. sued six former employees, including Luke Bradshaw, for misappropriation of trade secrets, conversion, breach of contract, violation of the Arkansas Deceptive Trade Practices Act, fraud, and unjust enrichment. After a trial, the jury awarded Alpha $185,000 in compensatory damages and $7,500 in punitive damages. The appellants sought a judgment notwithstanding the verdict (JNOV) or, alternatively, a new trial, claiming the verdict lacked substantial evidence and contesting the admission of an exhibit. Their requests were denied, and the court affirmed the jury's verdict.

Alpha Packaging, based in Northwest Arkansas, operated a division named Edge Marketing, focused on point-of-purchase design and sales, employing Bradshaw and three others. These employees signed a confidentiality agreement prohibiting the use and disclosure of Alpha's trade secrets. Despite generating revenue and projecting further success, the employees planned to leave to start their own firm, A.W. Bravis Agency, while still employed at Edge. After receiving resignation letters effective May 31, 2007, Alpha's president, Michael Stec, terminated their employment upon suspecting they had misused company resources. Evidence revealed the employees had secured Novus Products, an Edge client, as a financial backer for their new venture while still working for Edge.

Prior to resigning, several employees forwarded all Edge cell phones to Bravis phones and deleted critical information from their computers, including customer artwork, invoices, and price quotes. It was discovered that one of Edge's cameras was missing, and the employees left the office disorganized, with expensive posters and banners unaccounted for. Although the employees denied taking the camera or leaving the office in disarray, they claimed to have left back-up disks, which were found to contain outdated information. Evidence revealed that the employees had retrieved a business plan prepared by Luke Bradshaw for their new venture, containing sensitive sales data from Edge, which they presented to Novus to secure financing. By June 2007, the employees began invoicing clients, including those previously associated with Edge.

In response, Stec attempted to recruit new personnel for Edge but found it unfeasible due to the loss of data. Subsequently, Alpha filed a lawsuit against Bravis, Novus, and the four employees for various claims, including misappropriation of trade secrets and fraud. The jury awarded Alpha $185,000 in compensatory damages and $7,500 in punitive damages, which the circuit court upheld despite the appellants' motion for a judgment notwithstanding the verdict (JNOV) or a new trial. The appellants argued that Alpha's claims lacked substantial evidence; however, the court determined there was enough evidence to support a verdict for misappropriation of trade secrets, as defined under Arkansas law, which acknowledges the value of information not generally known or readily ascertainable and subject to reasonable efforts to maintain its secrecy.

Arkansas law identifies six factors to determine if information qualifies as a trade secret: 1) external knowledge of the information; 2) internal knowledge among employees; 3) measures taken to protect secrecy; 4) the value of the information to the holder and competitors; 5) resources invested in developing the information; and 6) the ease of acquisition by others. In the present case, appellants argue that Alpha's information does not qualify as a trade secret, but the court disagrees, stating that customer lists and account information can be protected under certain circumstances. The jury could reasonably find that Edge’s customer, pricing, and profit data in the Bravis business plan met the criteria for trade secrets, as it held independent economic value and was not readily ascertainable by competitors, evident from testimonies indicating the potential harm to the business if such information was disclosed. Alpha implemented reasonable measures for secrecy, including confidentiality agreements and document security, and the agreements explicitly defined customer lists and pricing data as trade secrets. While appellants claim Alpha's customer list lacks depth and was developed quickly, these points do not negate its status as a trade secret; the appropriated information was substantial, containing critical customer data. Lastly, the prior relationships of certain employees with Edge customers are noted but do not undermine the case for trade secret protection.

Employees maintained relationships with Edge’s customers and improperly disclosed project, pricing, and profit information belonging to Alpha. Although appellants contended that Alpha could not claim its customer and pricing information as a trade secret due to sending monthly statements with necessary details for commission verification, the jury found substantial evidence of trade secret theft. Thus, the court affirmed the jury's liability finding. 

Regarding damages, Alpha presented an exhibit detailing various claims, including unjust enrichment invoices, unpaid customer invoices, and costs associated with employee actions during their transition to a new company. Alpha's counsel clarified that jurors were not expected to sum the figures but to use the exhibit to inform their verdict. Appellants argued the exhibit was speculative and confusing, but the court noted that the jury's general verdict did not reveal their reasoning. The figures were based on trial testimony, supporting the notion that damages need not be exact as long as some loss is reasonably established. The court upheld the admissibility of the exhibit.

Additionally, the jury did not award damages for employees' counterclaims for unpaid wages. Directed verdicts were granted to Bravis and Novus on Alpha’s breach of confidentiality claim, and Novus also received a directed verdict on the fraud count. Appellants challenged the confidentiality agreements' validity, arguing they lacked consideration since they were signed post-employment; however, the agreements stated they were in consideration of employment, and continued employment can suffice as consideration for new contracts.