All West Pet Supply v. Hill's Pet Products

840 F. Supp. 1433

ALL WEST PET SUPPLY COMPANY, a/k/a West Denver Feed Company, Plaintiff, v. HILL'S PET PRODUCTS DIVISION, COLGATE-PALMOLIVE COMPANY, and Veterinary Companies of America, Inc., Defendants.

HILL'S PET PRODUCTS DIVISION, COLGATE-PALMOLIVE COMPANY, Counterclaim Plaintiff, v. ALL WEST PET SUPPLY COMPANY, Counterclaim Defendant.

Civ. A. No. 92-1174-DES.

United States District Court, D. Kansas.

December 29, 1993.

COPYRIGHT MATERIAL OMITTED

Ronald D. Heck, Heck & Sheppeard, P.A., Topeka, KS, Paul J. Hanley and Phyllis M. Ain, Durham & Baron, P.C., Denver, CO, for All West Pet Supply Co. aka West Denver Feed Co.

Steven K. Morse, Hill's Pet Nutrition, Inc., Topeka, KS and Jeffrey F. Reiman, Reiman & Associates, P.C., Denver, CO, for Hill's Pet Products Div., Colgate-Palmolive Co. and Veterinary Companies of America, Inc.

MEMORANDUM AND ORDER

SAFFELS, Senior District Judge.

This matter is before the court on the motion of Hill's Pet Products Division, Colgate-Palmolive Company ("Hill's"); and Veterinary Companies of America, Inc. ("VCA") (hereinafter "the defendants") for summary judgment on each of the five claims asserted by All West Pet Supply Company ("All West"), and the motion of counterclaim plaintiff Hill's for summary judgment against All West on its first and second counterclaims (Doc. 81).

Nature of the Case

All West brings this diversity suit against Hill's and VCA, both of which are divisions of Colgate-Palmolive Company. All West, a former Hill's distributor, alleges that Hill's breached a provision of its distributorship agreement that required Hill's to maintain the confidentiality of certain customer information provided by All West to Hill's on a periodic basis pursuant to the agreement. All West also alleges that the defendants' use of the information amounts to a violation of the Kansas Uniform Trade Secrets Act.¹

Hill's has filed a counterclaim against All West for the amount due Hill's for pet food products sold and delivered to All West.² All West has stipulated that it failed to pay Hill's for these products.³

By stipulation of the parties, Kansas law governs the legal issues in this litigation.

Jurisdiction and Venue

The court has diversity jurisdiction over this matter pursuant to 28 U.S.C. § 1332(a)(1), (c)(1). Venue is proper in this district under 28 U.S.C. § 1391(a)(1)-(3), (c). There are no disputes between the parties as to either jurisdiction or venue.

Summary Judgment Standards

Under Fed.R.Civ.P. 56, the court is compelled to render summary judgment on behalf of a moving party if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. Essentially, the inquiry as to whether an issue is genuine is "whether the evidence presents a sufficient disagreement to require submission to the jury or whether it is so one-sided that one party must prevail as a matter of law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52, 106 S.Ct. 2505, 2511-2512, 91 L.Ed.2d 202 (1986). An issue of fact is genuine if the evidence is sufficient for a reasonable jury to return a verdict for the nonmoving party. Id. at 248, 106 S.Ct. at 2510. This inquiry necessarily implicates the substantive evidentiary standard of proof that would apply at trial. Id. at 252, 106 S.Ct. at 2512.

The moving party has the burden of showing the absence of a genuine issue of material fact. This burden "may be discharged by `showing' — that is, pointing out to the district court — that there is an absence of evidence to support the nonmoving party's case." Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986). In opposing a properly supported motion for summary judgment, a party "may not rest on mere allegations or denials of his pleading, but must set forth specific facts showing that there is a genuine issue for trial." Anderson, 477 U.S. at 256, 106 S.Ct. at 2514. The nonmoving party must go beyond the pleadings and designate specific facts, by affidavits, depositions, answers to interrogatories, and admissions on file, showing that there is a genuine issue for trial. Celotex Corp., 477 U.S. at 323, 106 S.Ct. at 2552. The mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment. Anderson, 477 U.S. at 256, 106 S.Ct. at 2514.

The court must consider factual inferences tending to show triable issues in the light most favorable to the existence of those issues. United States v. O'Block, 788 F.2d 1433, 1435 (10th Cir.1986). The court must also consider the record in the light most favorable to the party opposing the motion. Bee v. Greaves, 744 F.2d 1387, 1396 (10th Cir.1984), cert. denied, 469 U.S. 1214, 105 S.Ct. 1187, 84 L.Ed.2d 334 (1985). However, a mere scintilla of evidence in favor of the nonmoving party is insufficient to create a genuine issue of material fact. Anderson, 477 U.S. at 252, 106 S.Ct. at 2512.

Facts

For purposes of resolving the defendants' motion for summary judgment, the court makes the following findings of fact.

Hill's is a manufacturer of specialty pet food products. All West was a nonexclusive distributor of Hill's products in a defined geographic area in the Rocky Mountain region. All West's distributorship with Hill's was memorialized in a series of annually renewable written agreements, the most recent of which was for a one-year term ending March 31, 1992.⁴

Pursuant to the distributorship agreement, All West provided certain information to Hill's regarding All West's retail accounts and other customers, including not only names and addresses, but also the specific purchases made by each customer of Hill's pet products. The information submitted to Hill's was integrated into its Retail Sales Management System, a computer database of information used for marketing purposes. Under the terms of the agreement describing the obligations of Hill's, "retail sales agreement describing the obligations of Hill's, "retail sales management system information provided to Hill's ... shall be held in strictest confidence and shall not be discussed with, or provided to, any other distributor regardless of their relationship to Hill's."

All West contends that Hill's misused customer information provided by All West, both before and after the distributorship agreement expired. All West did not lose any sales as a result of Hill's alleged misuse of such information in 1990. Hill's contends that the names and addresses of All West's customers were readily ascertainable through commercially and publicly available information and that All West did not maintain its customer information in secrecy.

By letter dated February 28, 1992, Hill's informed All West of its intent not to renew the distributorship agreement after its expiration on March 31, 1992. At the time the agreement expired, All West had purchased and received a substantial amount of Hill's products on open account, for which payment had not been made. All West admits that it has not paid Hill's $516,517.09 for these products.

Discussion

1. Trade Secret. Hill's first argues that the information All West provided under the distributorship agreement does not amount to a trade secret as a matter of law, primarily because All West cannot satisfy the requirement that reasonable efforts were made to maintain the secrecy of the information. If the information does not constitute a trade secret as a matter of law, All West cannot prevail on its claims that the defendants misappropriated a trade secret, whether or not the defendants actually misused the information in question.

Kansas has adopted the Uniform Trade Secrets Act. See K.S.A. 60-3320 et seq. It defines "trade secret" as follows:

(4) "Trade secret" means information, including a formula, pattern, compilation, program, device, method, technique, or process, that:

(i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and

(ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

In an action claiming unauthorized use of a trade secret, the threshold inquiry is whether or not there was a trade secret to be misappropriated. Koch Engineering Co., Inc. v. Faulconer, 227 Kan. 813, 610 P.2d 1094, 1104 (1980). The existence of a trade secret under the Uniform Trade Secrets Act is a question of fact for determination by the trier of fact. See Network Telecommunications, Inc. v. Boor-Crepeau, 790 P.2d 901, 902 (Colo.App.1990); see also Defiance Button Machine Co. v. C & C Metal Products Corp., 759 F.2d 1053, 1063 (2d Cir.) (secrecy is a basic element of the factual inquiry) (quoting 1 R. Milgram, Milgram on Trade Secrets § 2.03, at 2-32 to 2-33 (1984)), cert. denied, 474 U.S. 844, 106 S.Ct. 131, 88 L.Ed.2d 108 (1985); Kodekey Electronics, Inc. v. Mechanex Corp., 486 F.2d 449, 454 n. 4, 455 (10th Cir.1973) (what constitutes a trade secret is a question of fact for the court) (quoting Callman, Unfair Competition, Trademarks and Monopolies § 53.3, at 390 (3d ed. Supp.1973)); Public Systems, Inc. v. Towry, 587 So.2d 969, 972 (Ala.1991) (same). But cf. B.C. Ziegler and Co. v. Ehren, 141 Wis.2d 19, 414 N.W.2d 48, 51 (1987) (whether trade secret exists under common law is a mixed question of fact and law).

Customer lists and other customer information may constitute a trade secret. E.g., Zoecon Industries v. American Stockman Tag Co., 713 F.2d 1174, 1179 (5th Cir. 1983); Defiance Button Machine Co., 759 F.2d at 1063; Koch Engineering, 610 P.2d at 1107; B.C. Ziegler and Co. v. Ehren, 414 N.W.2d at 52; cf. Gillis Associated Industries, Inc. v. Cari-All, Inc., 206...