The U.S. Court of Appeals for the Eighth Circuit recently affirmed a district court’s grant of summary judgment in favor of a trade secret plaintiff on the issue of liability, while also upholding a jury verdict denying the plaintiff damages for lack of proximate cause. PFS Distribution Co. v. Raduechel, Case Nos. 08-1701, -1789 (8th Cir., July 28, 2009) (Riley, J.).
The plaintiff, Pilgrim’s Pride Corp., a poultry company, and its subsidiary PFS Distribution Co. sued two former long-time managers for misappropriation of trade secrets. These managers were responsible for the operation of a PFS distribution center in Iowa and had access to confidential financial information, including customer sales and PFS financial information. After Pilgrim’s Pride acquired the PFS distribution center, it attempted to renegotiate the managers’ compensation agreements. The managers formed a competing company while still employed by PFS and then ultimately resigned, taking two of PFS’s largest poultry customers to the competing company.
On summary judgment, the district court held that the former managers were liable for trade secret misappropriation and granted the plaintiffs a preliminary injunction. Thereafter, the defendants’ company ceased operations, but the former customers who defected to the competing company did not return to plaintiffs as customers.
The district court left the issues of causation and damages for the jury. The jury returned a verdict in favor of the defendants, finding that the defendants’ misappropriation of trade secrets was not a proximate cause of damage to plaintiff. PFS appealed.
The Eighth Circuit affirmed, holding that a reasonable jury could have concluded that the defendants’ misconduct did not proximately cause PFS to lose the defecting customers. Multiple witnesses testified that the defecting customers were dissatisfied with PFS’s services and quality and as a result, were planning on leaving PFS regardless of the formation of defendants’ new company. The court concluded that “the jury’s proximate cause finding was not a miscarriage of justice, and the district court did not abuse its discretion in denying PFS’s motion for a new trial.”
Practice Note: When evaluating the recoverable damages in a potential trade secret misappropriation claim based upon the departure of a customer, it is prudent to investigate whether the plaintiff can prove that but for the alleged breach, the defecting customer would not have left.