Dur-A-Flex, Inc. v. Dy

321 A.3d 295

349 Conn. 513

DUR-A-FLEX, INC.

v.Samet DY

(SC 20821), (SC 20823)

Supreme Court of Connecticut.

Argued September 6, 2023

Officially Released July 2, 2024^*

Michael D. Blumberg, with whom, on the brief, was Lawrence G. Rosenthal, Hartford, for the appellant in SC 20821 and the appellee-cross appellant in SC 20823 (plaintiff).

Proloy K. Das, Hartford, with whom were Jonathan M. Shapiro and on the brief, Lorey R. Leddy, Hartford, and Julie A. Lavoie, Hartford, for the appellants-cross appellees in SC 20823 (defendant ProRez Performance Resins and Coatings, LLC, et al.).

Daniel J. Krisch, with whom were Jennifer A. Pedevillano, New Haven, and, on the brief, Joseph G. Fortner, Jr., Hartford, for the appellee in SC 20821 (defendant Indue Sales and Services, Inc.).

Jonathan M. Shapiro, for the appellees in SC 20821 (defendant Engineering Coatings, Inc., et al.).

Jeffrey O. McDonald, Simsbury, for the appellee in SC 20821 (defendant Merrifield Paint Company, Inc.).

Robinson, C. J., and McDonald, D’Auria, Mullins, Ecker, Alexander and Elgo, Js.

ALEXANDER, J.

₅₂₄These appeals ¹ arise from a dispute over whether the defendants² misappropriated the trade secrets of the plaintiff, Dur-A-Flex, Inc., in violation of the Connecticut Uniform Trade Secrets Act (CUTSA), General Statutes § 35-50 et seq. After a bench trial, the trial court rendered judgment for the plaintiff on certain of its claims and for several defendants on other claims. ₅₂₅The plaintiff appeals from the judgment in favor of the defendants Indue Sales and Services, Inc. (Indue), Christopher Krone, Engineered Coatings, Inc. (ECI), and Merrifield Paint Company, Inc. (Merrifield). The defendants Steven Lipman, Durafloor Industrial Flooring & Coating, Inc. (Durafloor), and ProRez Performance Resins and Coatings, LLC (ProRez), appeal from the judgment against them in favor of the plaintiff. In turn, the plaintiff cross appeals, challenging a number of adverse rulings. We conclude that the trial court incorrectly determined that the plaintiff was not required to prove that Lipman and, through him, Durafloor and ProRez, had knowledge of the plaintiff’s trade secrets and used that knowledge in order to establish the elements of misappropriation under General Statutes § 35-51 (b) (2) (B) (iii). The case must therefore be remanded for a new trial limited to that issue. We further conclude that the trial court applied an incorrect standard when it crafted the monetary and injunctive relief as to Lipman, Durafloor, and ProRez. If the trial court determines on remand that those defendants had knowledge of and used the plaintiff’s trade secrets, it must then apply the correct standard. Finally, we conclude that the trial court incorrectly determined that the noncompete agreement between the plaintiff and the named defendant, Samet Dy (Samet), was unenforceable because continued employment can never constitute consideration for a noncompete agreement. The judgment as to the breach of the noncompete agreement claim must therefore be reversed, and the trial court must determine on remand whether there was sufficient consideration for the noncompete agreement and, if so, whether Samet breached the agreement. We affirm the judgment of the trial court in all other respects.

The record reveals the following facts that the trial court reasonably could have found. The plaintiff is engaged in the business of developing, manufacturing ₅₂₆and selling commercial and industrial flooring systems and polymer component materials. Soon after the plaintiff hired Samet as a research chemist in 2004, he began work on the development of a product known as Poly-Crete. Poly-Crete is sold in three components: a resin, a hardener, and an aggregate. The components are mixed on site, rolled or troweled into place, and then left to cure. In 2011, Samet entered into a "Noncompetition, Nonsolicitation and Confidentiality Agreement" (noncompete agreement) with the plaintiff that prohibited him from performing any services for any company that competes with the plaintiff for a period of twenty-four months from the last day of his employment with the plaintiff and from using any of the plaintiff’s confidential or proprietary business information or trade secrets.

Lipman started working as a chemist for the plaintiff in 2003. In 2010, the plaintiff terminated his employment. Lipman subsequently created his own company, Durafloor, which installs flooring systems.

On January 2, 2013, Samet resigned from his employment with the plaintiff. Unbeknownst to the plaintiff, prior to the effective date of his resignation, Samet had filed articles of incorporation for the defendant A&E ProCoat, LLC (A&E). Samet also had constructed a laboratory in his garage, in which he developed formulas for flooring systems. To assist him in these endeavors, Samet hired his nephew, the defendant Auttdomm Dy (Josh), in August, 2012.

Immediately upon resigning from the plaintiff, Samet contacted Krone, ECI’s vice president. ECI, a floor installation company, was a longtime customer of the plaintiff. Samet provided ECI with sample flooring products, which it agreed to test in the field in exchange for an open-ended discount on future purchases of one of the products, below the price that it was paying for similar products made by the plaintiff. All of the ₅₂₇products that ECI tested for Samet and A&E had significant problems.

In August, 2013, Tom Scanlan, the president of Indue, flew from Wisconsin, where Indue’s corporate headquarters are located, to Connecticut to meet with Samet. Indue is in the business of installing a cementitious urethane flooring system known as Indu-Crete. Indue did not manufacture its own resin and hardener at the time but was interested in doing so because its supplier was about to discontinue those products. Following the visit from Scanlan, Samet executed a contract with Indue to act as a consultant for a fee of $10,000 per month.

On September 6, 2013, Samet and Josh began work on the Indu-Crete products and on a product known as ProKrete for A&E. In October, 2013, Indue received a resin formula from Samet. At some point, Durafloor began using ProKrete for some of its projects.

In February, 2014, Samet and A&E started producing products on the premises of Merrifield, a paint manufacturing company located in Rocky Hill. Merrifield did not charge rent to A&E for the use of the space. In November, 2014, Samet transferred A&E to Lipman, who renamed it A&E ProCoat North America, LLC, and, ultimately, ProRez. Lipman continued to pay Samet out of ProRez’ earnings.

After learning of Samet’s activities, the plaintiff brought this action, claiming that Samet had breached the noncompete agreement and his common-law duty of confidentiality; Samet, A&E, Josh, Lipman, Durafloor, ProRez, Merrifield, Krone, ECI, and Indue had misappropriated the plaintiff’s trade secrets in violation of CUTSA; Samet, A&E, Josh, Lipman, and Merrifield had engaged in malicious misappropriation; and A&E, Josh, Lipman, Durafloor, ProRez, Merrifield, Krone, and ECI had engaged in civil conspiracy.

₅₂₈The bench trial was conducted in three phases: phase one, in which the trial court determined the scope of the plaintiff’s trade secrets; phase two, in which the court determined whether any trade secrets had been misappropriated; and phase three, in which the court determined damages and remedies. In phase one, the court concluded that the formulas for the resin and hardeners that the plaintiff used in the manufacture of Poly-Crete and a number of other products and processes, including a "polyaspartic-imine resin" floor coating, were trade secrets. The court also concluded that the noncompete agreement was unenforceable because Samet had not received any consideration in exchange for it.³

In phase two, the trial court concluded that Samet, A&E, Josh, Lipman, Durafloor, and ProRez had misappropriated the plaintiff’s Poly-Crete formula to create ProKrete and its polyaspartic technology to create a product known as ProSpartic. With respect to the plaintiff’s CUTSA claims against Indue, Krone, ECI, and Merrifield, the court concluded that they did not misappropriate the plaintiff’s trade secrets and rendered judgment in their favor.⁴ The court further concluded that it could not maintain jurisdiction over Indue, Krone, ECI, and Merrifield for purposes of granting injunctive relief because they had not engaged in any wrongful conduct. The court subsequently granted Krone and ECI’s motion for attorney’s fees pursuant to General Statutes § 35-54 on the ground that the plaintiff had brought its claims against them in bad faith.

In phase three, the trial court concluded that the defendants who had misappropriated the plaintiff’s ₅₂₉trade secrets must disgorge the money that they wrongfully gained as the result of the misappropriation and enjoined those defendants from manufacturing the products that they had developed using the trade secrets until the trade secrets ceased to exist.

During the course of the litigation, the trial court also granted the motion for summary judgment filed by Lipman, Durafloor, ProRez, Krone, ECI, and Merrifield on the plaintiff’s claims of civil conspiracy, concluding that the claims were preempted by CUTSA. In addition, the court limited the testimony of the plaintiff’s expert witness and sanctioned the plaintiff for spoliating certain evidence. These appeals and cross appeal followed.

I

THE PLAINTIFF’S CLAIMS ON APPEAL

A

The plaintiff first claims that the trial court incorrectly determined that Indue, Krone, ECI, and Merrifield did not misappropriate the plaintiff’s trade secrets in violation of CUTSA. We disagree.

The following additional facts are relevant to this claim. In its phase two memorandum of decision, the trial court found that all cementitious urethane floor coatings have the same three components: a resin containing polyols, a hardener, and an aggregate. In addition, the products contain...