Caudill Seed & Warehouse Co. v. Jarrow Formulas, Inc.

CAUDILL SEED AND WAREHOUSE COMPANY, INC. PLAINTIFF v. JARROW FORMULAS, INC. DEFENDANT

CIVIL ACTION NO. 3:13-CV-82-CRS

UNITED STATES DISTRICT COURT WESTERN DISTRICT OF KENTUCKY AT LOUISVILLE

March 5, 2021

MEMORANDUM OPINION AND ORDER

This matter is before the court on motion of the plaintiff, Caudill Seed and Warehouse Company, Inc. ("Caudill Seed"), for an award of exemplary damages, prejudgment interest, attorney's fees, and for entry of final judgment. DNs 464, 564.

This action was tried to a jury over a 3 ½ week period and resulted in a verdict in favor of Caudill Seed, a damage award totaling $2,427,605.00, and a finding of willful and malicious misappropriation of trade secrets by the defendant, Jarrow Formulas, Inc. ("Jarrow Formulas") under the Kentucky Uniform Trade Secrets Act ("KUTSA"), KRS 365.880, et seq. More particularly, the jury found that Caudill Seed possessed a trade secret with respect to research and development, the specific process for spray-drying myrosinase, vendor information, customer information, the laboratory notebook and hard drive. The jury found misappropriation of research and development, the specific process for spray-drying myrosinase, vendor and customer information, but not the laboratory notebook and hard drive. The jury awarded damages and found willful and malicious misappropriation only with respect to Caudill Seed's research and development. The Court overruled Jarrow Formulas' motion for judgment as a matter of law challenging the verdicts and damage award. DNs 530, 531.

The Court is now asked to award exemplary damages pursuant to KRS 365.884 and attorneys' fees pursuant to KRS 365.886 and to enter final judgment in favor of Caudill Seed.

I. General Background

Caudill Seed is a 65-year-old family-owned business located in Louisville, Kentucky which produces and supplies agricultural products including seeds, sprouts, and the like to commercial producers and distributors. It also sells ingredients for nutritional supplements, food and cosmetics, and sells some of its own nutritional supplements.

From 2002 until his resignation on May 2, 2011, Kean Ashurst ("Ashurst") was employed by Caudill Seed, holding a number of positions during that time. Pertinent to this litigation was his employment as Director of Research at Caudill Seed, with the responsibility for research and development of new products and processes in the area of the extraction, isolation, and development of compounds from broccoli seed including glucoraphanin, the myrosinase enzyme, and the production of sulforaphane. In that role, Ashurst had access to, worked with, and maintained as proprietary and confidential the body of research, data and information related to the development, production and marketing of broccoli seed extract and other related products. Caudill Seed engaged in research and development related to seed and seed sprout production as well as processes for extracting, isolating and developing compounds from those products before, during, and after the period of Ashurst's employment with Caudill Seed. A significant body of research and development relating to seeds and seed extraction processes had been developed by Caudill Seed prior to Ashurst's arrival at Caudill Seed and was available to and utilized by Ashurst in his work for Caudill Seed.

During the years of his employment at Caudill Seed, Ashurst maintained crucial notes and formulas in stenographer's notebooks, a composition notebook (referred to herein as the "lab notebook"), and on an external computer hard drive. He carefully guarded these items as they were the principal repositories for his task lists, thought processes and research results in his work for Caudill Seed. He kept the laboratory in which he worked locked and generally inaccessible to anyone other than his staff. The steno pads were locked in a file cabinet and the lab notebook and hard drive were either kept with Ashurst or were locked in the laboratory. To Caudill Seed's great regret, it entrusted most of the memorialization of its science solely to Ashurst. Ashurst was also privy to information concerning Caudill Seed's vendors, customers, pricing structures, information essential to the successful and profitable production and sale of its products.

Broccoli extract proved to be valuable to Caudill Seed. Due to its high concentration of glucoraphanin, the consumption of which is thought to have positive health effects in humans, it was sought after by nutritional supplement manufacturers, and specifically Jarrow Formulas. Preceding his departure from Caudill Seed, Ashurst was working to develop a process to produce a glucoraphanin product that offered better release of sulforaphane, the beneficial compound yielded in the human body from the ingestion of glucoraphanin-rich material. The ability to produce a higher sulforaphane yield has been referred to in this litigation as an "activated formula." Prior to Ashurst's resignation, Caudill Seed was preparing for commercial production of an activated formula broccoli extract product.

Jarrow Formulas was formerly a customer of Caudill Seed that purchased bulk quantities of Broccoraphanin, Caudill Seed's broccoli extract powder which Jarrow Formulas used in formulating its BroccoMax and other nutritional supplement products. Caudill Seed marketed its own broccoli extract nutritional supplement, Vitalica, and so competed with Jarrow Formulas inthis aspect of its business. Jarrow Formulas was Caudill Seed's largest bulk purchaser of Broccoraphanin until Jarrow Formulas decided to cut out the middleman and become a broccoli extract manufacturer in 2011.

Jarrow Formulas had never before engaged in research and development or manufacturing of broccoli extract and in 2011 it had no scientists on staff capable of doing it. Jarrow Formulas was interested in producing an activated formula of its BroccoMax and other products. To that end, and in order to itself become a manufacturer of broccoli extract, it hired Ashurst away from Caudill Seed. The process of negotiation and transition began before Ashurst left Caudill Seed. Ashurst signed a consulting agreement with Jarrow Formulas the day before his resignation. When he left, the lab notebook and external hard drive containing Caudill Seed's critical formulas and research data disappeared. With its Director of Research gone and its laboratory in disarray, Caudill Seed was forced to essentially reverse engineer its own processes with the assistance of the testing facilities with which it worked. It took many months to get its house back in order, not in insignificant part due to the fact that it had permitted Ashurst to maintain and control all of its most critical information. Caudill Seed also discovered that Ashurst provided numerous documents containing Caudill Seed's confidential and proprietary information in response to requests from Jarrow Formulas employees and agents. Ashurst acknowledged providing Caudill Seed documents to Jarrow Formulas.

Despite having no research and development of its own or any experience in the area of broccoli extract production, Jarrow Formulas created a successful manufacturing process and began producing a profitable activated formula mere months after hiring Ashurst as its consultant. Ashurst admitted that it was Jarrow Formulas' intention to "beat Caudill Seed to the punch" in bringing to market an activated formula broccoli extract product. Jarrow Formulas admitted andit was further proven at trial that Ashurst provided numerous confidential and proprietary Caudill Seed documents to Jarrow Formulas at Jarrow Formulas' request. Jarrow Formulas accomplished its goal of becoming a broccoli seed extract manufacturer and bringing an activated formula broccoli product to commercial production in four months' time. It subsequently succeeded in patenting its process for producing its activated formula.

II. The Jury Verdict

The jury found that Caudill Seed possessed certain trade secrets, that Jarrow Formulas misappropriated some of those trade secrets, that Jarrow Formulas acted willfully and maliciously, and awarded $2,427,605.00 for Caudill Seed's actual loss and Jarrow Formulas' unjust enrichment. The only trade secret for which the jury awarded damages and found willful misappropriation was Trade Secret 1 which was described for the jury as Caudill Seed's research and development related to dietary supplements, broccoli plant material (including seeds and sprouts), and the many years of trial and error research and compilation and analysis of data and technical information related to: (a) the chemical compounds at issue in this case, including glucoraphanin (also known as sulforaphane glucosinolate), myrosinase and sulforaphane; (b) the concentration, isolation and testing of those chemical compounds in broccoli plant material (including seeds and sprouts); (c) the extraction of those chemical compounds from broccoli plant material; and (d) the viable and nonviable processes for producing nutritional supplements, ingredients or other consumer goods derived from broccoli plant material and containing those chemical compounds. Caudill Seed is claiming trade secret protection for its entire body of knowledge developed over the course of many years. DN 432, Jury Instructions, p. 5.

III. Preliminary Matters

A. The Connecticut Action

As noted in our earlier Memorandum Opinion, the Court is aware of a lawsuit filed in Connecticut against Jarrow Formulas seeking redress for Jarrow Formulas' alleged failure to pay its legal bills from its trial counsel's representation in this case. Jarrow Formulas has counterclaimed against its former counsel that they failed to adequately defend Jarrow Formulas' interests in the misappropriation action.

Counsel make repeated references to filings in the Connecticut action, seeking to bolster their respective positions concerning exemplary damages and attorneys' fees matters under consideration here. This...