Attorneys for Appellant Attorneys for Appellee Herbert Quandt
Arend J. Abel Karl Mulvaney
Ronald G. Sentman Nana Quay-Smith
Indianapolis, Indiana Indianapolis, Indiana
Attorneys For Appellee Fabri-Tech
Appeal from the Hamilton Superior Court, No. 29D01-9610-CP-539
The Honorable Steven R. Nation, Judge
On Petition To Transfer from the Indiana Court of Appeals, No. 29A02-0105-CV-280
June 29, 2004
We first address whether Fabri-Tech was directly liable under Indianas Trade Secrets Act
("the Act"). Second, we examine whether Fabri-Tech can be vicariously liable under
the Act through the doctrine of respondeat superior.
Quandt enjoyed ten successful years as an OEM salesperson for T.E. Scott.
In 1995, T.E. Scott entered into negotiations to sell its OEM division.
Linda Scott, the former controller for T.E. Scott, formed Infinity Products to purchase
the OEM division. The sales agreement provided that Infinity would acquire all
of T.E. Scotts trade secrets relating to the OEM division. Linda Scott
required employees of T.E. Scott desiring to work for Infinity to complete an
application process. Quandt refused to complete an application and indicated that Infinity
would not be able to afford his services.
During negotiation of the sales agreement, fellow employees suspected Quandt of copying customer-specific
documents and removing them from the office. The documents included contact information
for T.E. Scotts customers, manufacturing costs, and price summaries. Quandt kept all
information relevant to pricing and costing in three-ring binders in his office.
The information was confidential, and T.E. Scott used locked offices, locked file cabinets,
and computer passwords to secure it. Quandt knew that all customer-specific information
On October 5, 1995, four days before the sale was complete, T.E. Scott
fired Quandt. Quandt packed up his office and took several
boxes and file folders to his car before leaving. As he left,
Quandt told T.E. Scott employee Paul Seitzinger, I built this company up.
And as quickly as I built this company up, I can tear it
down. Tr. at 637. Linda Scott reported that customer-specific information was
missing from several files after Quandt left.
The next day, Quandt contacted Don Menchhofer, the president and chief executive officer
of Fabri-Tech Inc., to seek a sales position. Menchhofer had never met
Quandt, but he immediately granted him an interview. The two did not
discuss T.E. Scotts customers, but Quandt indicated that he had built a million
dollar book of business for T.E. Scott. Quandt correctly indicated that he
was not bound by any non-compete agreement with Infinity or T.E. Scott.
Menchhofer hired Quandt that same day, paying a base salary of $40,000 per
year, plus $1,000 for the first $100,000 in sales and four percent on
all additional sales. Fabri-Tech did not provide Quandt with an existing customer
list, so Quandt had to generate business from new customers.
On October 9, 1995, T.E. Scott effectuated the sale of the OEM division
to Infinity. All of T.E. Scotts OEM customers thus became Infinitys customers.
On that same day, Quandt began working for Fabri-Tech. That morning, Quandt
phoned five of Infinitys newly-acquired customers and informed them that he was with
Fabri-Tech. During the following weeks, Quandt quoted prices of existing products
now produced by Infinity and sold to these customers without the benefit of
Fabri-Techs internal cost analysis. See exhibits 14-21; Tr. at 312. Many
of Quandts quotes were mere pennies less than the price quoted by T.E.
Scott for the identical product. See id. Subsequent to Quandts telephone
calls, five companies stopped ordering from Infinity and began ordering from Fabri-Tech.
In total, Fabri-Tech received orders for seven products previously manufactured by Infinity.
In October 1996, Infinity sued Quandt and Fabri-Tech alleging misappropriation of trade secrets
and conversion. Fabri-Tech answered and filed a counterclaim asserting that the misappropriated
information did not constitute a trade secret and that it had no knowledge
of the misappropriated information. In 1999, the trial court held that Infinity
had a protectable interest in the trade secrets transferred to it from T.E.
Scott. The parties tried the case to the bench in March 2000,
and the court found in relevant part as follows:
The Court also draws the reasonable, perhaps inescapable, inference from Quandts behavior and the disappearance of documents from his office at the time of his departure, the absence, inconsistency and incompleteness of costing records of Fabri-Tech for the disputed items, and the fact that Fabri-Tech undercut Infinity's prices by just enough to secure sales of the disputed items, that Quandt took product pricing and costing information on his departure and that he used it to Infinity's detriment.
Appellants App. at 35-36. The trial court also found that:
The Plaintiff presented circumstantial evidence to the Court that Fabri-Tech may have or should have known of the misappropriation and use of trade secrets. The Court finds, though, that there was insufficient evidence to find that Fabri-Tech, through its sales representative, misappropriated Infinity's trade secrets and improperly obtained Infinity's customers and sales, and Fabri-Tech's costing personnel assisted in that effort.
That further, there was insufficient evidence presented to show that Fabri-Tech should be held liable under the doctrine of respondeat superior.
Id. at 40.
The trial court calculated Infinitys losses based on two years of projected profits for seven products as follows:
(1) Little Tikes Annie Swing Product: $84,894.60;
(2) Little Tikes Product No. 884637000: $12,455.50;
(3) Little Tikes Product No. 884309200: $19,943.48;
(4) Little Tikes Product No. 88434409200: $30,794.50;
(5) Gleason Product No. 860: $33,253.19;
(6) Old Dominion Product No.(s) 15200 & 15201: $10,529.40;
(7) Smart Products Product No. 7011: $23,296.12.
Compensatory damages totaled $215,166.79. The trial court also awarded Infinity exemplary damages of $430,333.58 and attorney fees of $117,752.87. As noted above, these damages were assessed against Quandt alone.
Quandt appealed the damages calculation, but the Court of Appeals affirmed. Infinity
appealed the determination that Fabri-Tech had no liability. On this point the
Court of Appeals reversed, on the basis of respondeat superior, without addressing whether
Fabri-Tech might have direct liability under the Act. Infinity Products, Inc. v.
Quandt, 775 N.E.2d 1144 (Ind. Ct. App. 2002). We granted transfer.
The Act defines misappropriation in relevant part as the acquisition of a trade
secret of another by a person who knows or has reason to know
that the trade secret was acquired by improper means. Id. Finally,
improper means is defined as theft, bribery, misrepresentation, breach or inducement of a
breach of a duty to maintain secrecy, or espionage through electronic or other
In addition to injunctive relief, a complainant may recover damages for the actual
loss caused by misappropriation. A complainant also may recover for the unjust
enrichment caused by misappropriation that is not taken into account in computing damages
for actual loss. Ind. Code Ann. § 24-2-3-4(a) (West 1995). Additionally,
for willful or malicious misappropriation, the court may award exemplary damages in an
amount not exceeding twice any award[.] Ind. Code Ann. § 24-2-3-4(c).
The trial court found that Quandt misappropriated Infinitys trade secrets when he used
Infinitys customer lists, pricing, labor rates, overhead costs, suppliers, designs, blueprints, and specific
needs of customers. Appellants App. at 38-39; see Amoco Prod. Co. v.
Laird, 622 N.E.2d 912 (Ind. 1993) (for a discussion of trade secrets).
It found insufficient evidence to support Infinitys claim that Fabri-Tech was also liable
under the Act because it knew or should have known of Quandts misappropriation.
The record reveals that Quandt acquired all of the misappropriated information before seeking
employment with Fabri-Tech. Before his dismissal from T.E. Scott, Quandt had never
met Menchhofer. During Quandts initial interview with Menchhofer, the two discussed Quandts
success as a salesperson, his experience in the OEM industry, and his connections
with potential customers. Menchhofer asked Quandt if he was bound by a
non-compete agreement to which Quandt responded in the negative. Fabri-Tech then hired
Quandt for the purpose of soliciting new customers for its OEM division.
At trial, Menchhofer indicated that he was aware that Quandt contacted Infinitys customers.
Indeed, during his first morning on the job, Quandt contacted several of
Infinitys customers and informed them that he was now working for Fabri-Tech.
Fabri-Techs phone records indicate that Quandt used the buyer's direct numbers of Infinitys
customers. In subsequent calls, Quandt quoted prices for existing products currently produced
by Infinity to Infinitys customers without completing Fabri-Techs pricing procedure. Five of
Infinitys customers placed orders with Fabri-Tech during the following months. Appellants App.
While Quandts disregard of Fabri-Techs pricing procedure is suspicious, the state of the
evidence was such that the trial court could respectably regard it as inadequate
to demonstrate that Fabri-Tech knew or should have known of the misappropriation.
As Quandt was not prevented from contacting Infinitys customers, Fabri-Tech was not prevented
from authorizing him to do so. There is no evidence indicating that
Fabri-Tech instructed Quandt to use trade secrets to lure Infinity customers away.
Based on these facts, neither the trial courts findings nor judgment is erroneous.
The courts judgment is not contrary to law, and we affirm the
trial court on this issue.
This debate turns in the first instance on the scope of the act
as adopted by the General Assembly in 1982. The legislature has left
us some direction on this point.
Indianas statute is based on the Uniform Trade Secrets Act and we are
one of some forty states that have adopted it. The legislature announced
its purpose in adopting the uniform act and provided some guidance on its
general construction: This chapter shall be applied and construed to effectuate its
general purpose to make uniform the law with respect to the subject matter
of this chapter among states enacting the provisions of this chapter. Ind.
§ 24-2-3-1(b) (West 1995). The General Assembly has also told us: The chapter displaces all conflicting law of this state pertaining to the misappropriation of trade secrets, except contract and criminal law. Ind. Code Ann. § 24-2-3-1(c). Our legislatures statement about displacement of conflicting law is somewhat stronger than the one contained in the uniform act as it existed at the time the General Assembly acted. See footnote And the commentary to the uniform act made plain then, as it does now, that the act was designed to cover duties imposed by law, as opposed to duties that arise from agreements, for example.See footnote Illinois courts, following similar provisions in that states law, have held that common law remedies are supplanted by the act. See, e.g., Pope v. Alberto-Culver Co., 296 Ill. App.3d 512, 694 N.E.2d 615 (1998); AutoMed Technologies, Inc. v. Eller, 160 F.Supp.2d. 915 (N.D. Ill. 2001). See footnote
As Infinity correctly points out, respondeat superior is a common law doctrine under
which liability is imposed by law upon the master for acts done by
the servant, regardless of the masters complicity in the acts. Indeed, it
may impose liability even when the master directed the servant to the contrary.
Appellants Br. at 22.See footnote Surely, this doctrine must be thought of
as conflicting with the uniform acts requirements that a claimant demonstrate that the
defendant knows or has reason to know that the trade secret at issue
was acquired by improper means. Ind. Code Ann. § 24-2-3-2 (West 1988).See footnote
It is thus displaced by the provisions of the uniform act.
Of course, the uniform act affords fulsome avenues of relief for persons who
believe that secrets belonging to them have wrongly been misappropriated. It supplies
a remedy for money damages under a standard of proof that is, at
first blush, less onerous that the common law usually requires. It also
authorizes injunctive relief both to shut down actual misappropriation and to thwart threatened
misappropriation. Ind. Code Ann. § 24-2-3-3. And it authorizes the award
of attorneys fees upon conditions more liberal than most parts of our code.
Ind. Code Ann. § 24-2-3-5.
We conclude that the trial court correctly held that Fabri-Tech could not be
held liable absent the proof of scienter required by the uniform act.
Sullivan and Boehm, JJ., concur.
Dickson, J., dissents with separate opinion in which Rucker, J., concurs.
The majority opinion acknowledges that the legislature's purpose in adopting the Uniform Trade
Secrets Act (UTSA) was "to make uniform the law with respect to the
subject matter of this chapter among states enacting the provisions of this chapter."
Majority opinion at 9,
quoting Ind. Code § 24-2-3-1(b). By
holding that the Uniform Act displaced the common law principle of respondeat superior
liability, however, the majority creates a lack of uniformity. As noted by
our Court of Appeals, two other jurisdictions, applying nearly identical trade secret statutes,
have held that an employer may be vicariously liable for its employee's misappropriation
of trade secrets. Infinity Products, Inc. v. Quandt, 775 N.E.2d 1144, 1153
(Ind. Ct. App. 2002), citing Newport News Indus. v. Dynamic Testing, Inc., 130
F. Supp 2d 745, 751 (E.D.Va. 2001) (permitting respondeat superior liability for violation
of Virginia Uniform Trade Secrets Act); Hagen v. Burmeister & Assoc., Inc., 633
N.W.2d 497, 504 (Minn. 2001) (applying unpublished Minnesota Court of Appeals holding that
employer can, as a matter of law, be vicariously liable for an employee's
UTSA violation). Cf. Sheltry v. Unum Life Ins. Co. of America, 247
F. Supp 2d 169, 181 (D.Conn. 2003) (permitting vicarious liability claim against insurance
company for broker's violation of Connecticut's Unfair Trade Practices Act); Chanay v.
Chittenden, 563 P.2d 287, 293-94 (Ariz. 1977) (permitting claim of vicarious liability of
insurance company for unfair trade practices
1 of its general agent).
The time-honored common law principle of an employer's respondeat superior liability for the acts of an employee done in the scope of employment is not "conflicting law of this state pertaining to the misappropriation of trade secrets." Ind. Code § 24-2-3-1(c). The Uniform Act's requirement that a claimant demonstrate the wrongdoer's scienter does not "conflict" with the imposition of vicarious liability of the wrongdoer's employer. To the contrary, the risk of such liability serves as an incentive for employers to discourage their employees from using misappropriated trade secrets. The doctrine of respondeat superior thus does not conflict with, but rather fosters, the purposes of the act.
The majority avers that the Uniform Act "affords fulsome avenues of relief," but
in reality, the relief is meager indeed when as here it is limited
to the assets of the individual employee wrong-doer, and the employer who benefits
from an employee's misappropriation is immunized from its customary common law responsibility for
the wrongful acts of its employees.
Sword v. NKC Hospitals, Inc., 714
N.E.2d 142, 148 (Ind. 1999).
I would reverse the trial court and find that Fabri-Tech can be held
vicariously liable for Quandt's misappropriations done in the scope of employment.
Rucker, J., concurs.
Respondeat superior is not an independent conflicting tort, civil claim, or remedy.
Rather, it is a legal precept that presupposes the existence of an underlying
claim and assesses liability not because of the act giving rise to the
claim but because of a certain status. Thus, one cannot bring a
claim of respondeat superior, instead one simply relies on this theory as a
vehicle for imposing on the principal liability for the underlying wrongful acts of
Virginia had adopted the uniform acts displacement provisions as written (conflicting tort, restitutionary
and other law
providing civil remedies for misappropriation of a trade secret). As
we observed above, this language was rejected by our legislature in favor of
a broader displacement.