The Court had considered CDC's claims in a prior decision, finding that its claims of breach of fiduciary duty were preempted by the Utah Uniform Trade Secret Act, and reversing the trial court's grant of summary judgment to Tradesman, in part, by allowing its claim under the UTSA to go to trial. The case went to trial, and CDC prevailed.
The CDC case is an example of the perils associated with trying to be secretive about starting a competing entity while working for an employer. While CDC's breach of fiduciary duty claims never went to trial, it appears that the jury relied heavily on the actions of CDC's former employee (Carsey) while he remained employed with CDC to ultimately infer that he had taken CDC's bid information and used it to underbid CDC on behalf of Tradesman after he left his employment with CDC. Indeed, the jury apparently found in favor of CDC largely on the perception of wrongdoing, as there was little, if any, actual evidence provided by CDC that Tradesman and its former employee actually took or utilized CDC's information.
The facts, as recited by the Court of Appeals, were as follows:
CDC, a concrete repair and coatings company, had a contract to perform concrete repair and restoration work for Kennecott. As part of that arrangement, CDC entered into an agreement to be Kennecott's preferred provider. The agreement was confidential, and included rates CDC charges for work, pricing information for hourly employees and charges for equipment. Paul Carsey worked for CDC as an employee, as part of his duties he regularly delivered sealed envelopes that contained confidential information. Carsey, however, never signed a confidentiality agreement with CDC. He gave two weeks notice to Ralph Midgley, CDC’s co-owner, explaining that he was, "burned out" and "tired of" working at Kennecott. Carsey told Midgely of his plan to earn a living by buying, refurbishing, and selling houses instead. Carsey, however, had already become a co-owner and director of a new competing company, Tradesmen, with Kenneth Allen.
Mr. Allen was a subcontractor for Kennecott who acted as the project supervisor overseeing CDC’s work there. In this role, Allen received CDC’s invoices for its projects and verified that its rates conformed to those specified in CDC’s PPA. Consequently, Allen received and had access to CDC’s pricing information.
In 2005, Kennecott opened a competitive bid process
on a project. CDC and Tradesman bid on the the project. Casey, still employed by CDC, developed
CDC’s bid with Midgley and assessed the equipment needs and the amount of
time and labor that would be required to complete the project. Midgley believed both CDC’s PPA and its final bid were
confidential, and he shared CDC’s labor and equipment
estimates with only Carsey and Kennecott. Midgley
kept the details of CDC’s bid in his locked office. At the same time, Carsey and Allen were in frequent telephone
contact when the two companies were formulating their bids.
According to a partner at Tradesmen, Carsey gave Allen input
on the numbers for Tradesmen’s bid the night before bids were
due.
CDC, Tradesmen, and another company submitted bids for the Project. CDC’s bid was the highest at $179,729.32, Tradesmen’s was the second highest at $141,575.00, and a third company’s was the lowest. On January 23, 2006, Kennecott awarded the Project to Tradesmen. Dan Larsen, who had replaced Allen as the supervisor at Kennecott, informed Midgley that Tradesmen won the contract because it was the lowest competent bidder‛ owing to the fact that Carsey worked there. Until this point, Midgley did not know Carsey was involved with Tradesmen.
At trial, CDC argued that Tradesmen inappropriately used Carsey’s knowledge of CDC’s estimates and Allen’s familiarity with CDC’s pricing information to formulate Tradesmen’s lower bid for the project. In contrast, Tradesmen argued it did not misappropriate the bid information because it had no access to CDC’s actual bid and because Carsey’s general knowledge about estimating labor and equipment needs for projects is not a trade secret. The jury agreed with CDC and awarded it $161,974 from Allen, $171,974 from Carsey, and $982,455 from Tradesmen.
The Court of appeals found that the bid information compiled by Carsey and Midgley was a trade secret under the UTSA. First, it found that such information was not generally known to the public and derived independent economic value. Second, it found that the information was subject to efforts to keep it secret.
The CDC case is a great reminder that employees and others who are planning to start a competing business need to do so with the advice of counsel. It is not enough that an employee has not signed a noncompete agreement. Employees who utlize confidential or proprietary information, work on their own business while being paid by their employer or take other steps to violate the duty of loyalty owed to their employer are at significant risk of being sued when they leave and form or work for a competing entity.
For more information about Utah misappropriation claims, breach of fiduciary claims or non-compte claims, contact one of our Utah trial lawyers at (801) 758-7604, or contact us online at utahtrialawyers.net.
For more information about Utah misappropriation claims, breach of fiduciary claims or non-compte claims, contact one of our Utah trial lawyers at (801) 758-7604, or contact us online at utahtrialawyers.net.
