Adcor Indus., Inc. v. Beretta U.S.A. Corp.

250 Md.App. 135

248 A.3d 1137

ADCOR INDUSTRIES, INC., et al.

v.BERETTA U.S.A. CORP.

No. 0118, Sept. Term, 2019

Court of Special Appeals of Maryland.

April 1, 2021

Argued by: Thomas M. Donnelly (Kristin C. Tracy, Law Offices of Thomas M. Donnelly, LLC, Baltimore, MD, H. Briggs Bedigian, Jon S. Stefanuca, Lauren M. Bell, Gilman & Bedigian, LLC, Timonium, MD), all on the brief, for Appellant.

Argued by: T. Sky Woodward (Marc A. Nardone, John Parker Sweeney, Bradley, Arant, Boult, Cummings, LLP, on the brief), Washington, D.C., for Appellee.

Panel: Wells, Gould, James R. Eyler, Senior Judge, Specially Assigned, JJ.

Gould, J.

The ability of businesses to exchange information, particularly confidential and proprietary information, is a critical component of a functioning, free-market based economy. Such information often includes financial data and records, business plans, marketing plans, budgets, technical data, formulas, and the like. To facilitate the sharing of information, it is common for parties to enter into an agreement known as a nondisclosure agreement or an NDA. Among other things, NDAs generally limit the disclosure of the sensitive information to a defined circle of people and specify its permitted uses.

This case involves the fallout when the recipient of the information—the receiving party under the NDA—decided not to proceed with the contemplated transaction with the disclosing party, and then breached the NDA by failing to return all of the information it had received. The jury found the receiving party liable to the disclosing party in the amount of $20 million in compensatory damages. The trial judge, however, found that the evidence did not support the jury's finding of damages, and reduced the judgment from $20 million to $1.

The disclosing party appealed, and presents us with a single question:

Did the trial court err by improperly granting Appellee's Motion for Judgment Notwithstanding the Verdict, vacating the jury's damages award in favor of Appellants and entering judgment in the amount of one dollar?

We answer that question in the negative and affirm the judgment of the circuit court.

BACKGROUND

Appellants Adcor Industries, Inc. and Adcor Defense, Inc. (together, "Adcor") are Baltimore-based Maryland corporations in the business of designing and manufacturing bottling components, aerospace parts, and firearms. Adcor was founded in 1989 by Demetrios ("Jimmy") Stavrakis when he was 23 years old. Adcor's foray into the firearms manufacturing business began when it was hired by Colt Manufacturing to produce a component to the M-16 rifle.

From that experience, Adcor concluded that it had the know-how and experience to build a better firearm that could be used by police and the military. Adcor spent the next several years, and incurred $12 million in research and development costs, building an AR-15 platform rifle known as the "Adcor B.E.A.R."¹ The Adcor B.E.A.R. went to market in or about 2012.

Appellee Beretta U.S.A. Corporation ("Beretta") is a Maryland company that designs, manufactures, and sells firearms, shooting gear, accessories, bags, luggage, holsters, optics, and apparel. In 2012, Beretta was looking to enter the market for the AR-15, the most popular semi-automatic rifle in the United States. Beretta could have invested the time and money necessary to reverse engineer and design its own AR-15-style product, but it was looking for a shortcut into the market. That's where Adcor came into the picture. Beretta's idea was to combine Adcor's technical and manufacturing know-how with Beretta's marketing expertise to roll out a Beretta-branded but jointly-developed product that would be called the BRX-15.

To explore the potential for such a venture and to protect its proprietary information, Adcor required Beretta to sign a nondisclosure agreement (the "NDA"). Section 2 of the NDA prohibited Beretta from disclosing Adcor's confidential information, and required Beretta to return the information upon Adcor's written request. Section 3 of the NDA stated:

The Covenantor [Beretta] acknowledges that a breach of Section 2 will irreparably and continually damage Adcor or other appropriate Adcor Affiliate and that money damages in the event of such a breach may not be adequate to remedy such a breach and that such damages may be difficult to ascertain. Consequently, the Covenantor agrees that, in the event the Covenantor breaches or threatens to breach any of the provisions of Section 2, the appropriate Adcor Entity shall be entitled to (i) injunctive relief to enforce such provisions and specific performance of such provisions and (ii) money damages. Nothing in this Agreement, however, shall be construed to prohibit the appropriate Adcor [Entity] or its Affiliates from also pursuing any other remedy (whether, at its option, in conjunction with or in lieu of any one or more of the aforementioned remedies), the parties having agreed that all remedies shall be cumulative and supplementary. As part of its money damages for the period of time during which the Covenantor breaches [Section] 2 the appropriate Adcor Entity shall be entitled to recover the amount of fees, compensation, or other remuneration earned by the Covenantor as the result of any breach of [Section] 2.

During the two-year period in which the parties explored a possible joint venture, Adcor disclosed to Beretta substantial confidential or proprietary information, including Adcor's entire Technical Data Package ("TDP"). Adcor considered its TDP and the other disclosed information to be valuable—indeed, Adcor likened its TDP to a "secret sauce" that made its product unique.² Adcor protected its confidential and proprietary information by, among other things, requiring its employees to sign confidentiality agreements and storing its proprietary information on secure computer servers.

In addition to sharing its confidential and proprietary information, Adcor manufactured prototypes for the BRX-15 in 2014. Beretta filed three marketing applications with the Bureau of Alcohol, Tobacco, Firearms and Explosives (the "ATF") for the BRX-15.³ During this time, Adcor believed that it was moving forward with Beretta to co-develop and manufacture the BRX-15.

Adcor's belief turned out to be wishful thinking. In October 2014, Beretta sent a letter to Adcor stating:

It is with regret that I must inform you that Beretta USA will be removing the equipment we recently purchased from your facility.

We have enjoyed working with you over the course of the last several years and regret that we were unable to form a mutually acceptable partnership on the AR platform. Now, due to changing dynamics in the market place, the desire to keep our workforce gainfully employed in the Accokeek facility, and our upcoming move to Tennessee, we intend to machine Pico and A300 Outlander parts in house.

In addition, we wanted to provide you with formal feedback on your quotes for the BRX-15 upper and lower receivers. We were able to obtain superior pricing on comparable products in the magnitude of 50% less. Our attempts to negotiate with you have been unsuccessful and therefore we must source these parts elsewhere to remain competitive in the marketplace.

In the next several days we will be sending a technical crew to your facility to disconnect the machines and pack up the items that we purchased under our recent agreement, as well as the A300 fixtures and tooling that were delivered to you from MPC. Minimal support will be required by your staff.

Thank you again for all of your hard work and support of our company, and best wishes for your continued success.

Adcor was blindsided by this letter. With the relationship now at its end, Adcor demanded that Beretta return its confidential and proprietary information as required by the NDA. In a subsequent telephone conversation between Mr. Stavrakis and Beretta's chief operating officer, Jeff Cooper, Mr. Stavrakis indicated that Adcor might sue Beretta.

Beretta made efforts to comply with Adcor's demands by gathering, segregating, and returning information, but Beretta admitted that it retained at least one copy of Adcor's proprietary information.⁴ Several Beretta witnesses testified that they weren't told to delete, destroy, or return any of Adcor's confidential materials. Beretta admits that "not all Beretta employees followed the collection protocol fully or recalled being instructed to destroy Adcor information."

After concluding that the market for AR-15 "platform" was saturated, Beretta eventually decided not to continue with the BRX-15 project. Beretta never received any revenue from the BRX-15.

In 2015, Adcor filed a 17-count complaint against Beretta, alleging breach of contract, misappropriation of trade secrets, unjust enrichment, violation of the NDA, and other related counts. The complaint underwent numerous amendments. Ultimately, the operative complaint became the Sixth Amended Complaint. The Sixth Amended Complaint contained 16 counts, generally described as follows:

• Count I – Breach of Contract – Beretta breached a contract to develop, manufacture, market, and/or sell an AR-15 rifle together with Adcor;

• Count II – Detrimental Reliance – Adcor detrimentally relied upon Beretta's clear and definite promise to co-develop, manufacture, market, and/or sell an AR-15 rifle with Adcor;

• Count III – Quantum Meruit – In connection with its expectation that it would co-develop, manufacture, market, and/or sell an AR-15 rifle with Beretta, Adcor provided valuable services, technical data, model drawings, vendor lists, prices, troubleshooting, and expertise to Beretta and received nothing from Beretta in return;

• Count IV – Breach of Partnership Agreement – Beretta breached a partnership agreement to design, manufacture, assemble, market and sell an AR-15 rifle with Adcor; • Count V – Violation of Duty of Partnership – Beretta breached its duty as a partner of Adcor to design, manufacture, assemble, market and sell an AR-15 rifle with

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