A consultant of a company entered into a consulting agreement with a competitor. The scope of his consultancy of the first company involved dairy-permeate processing systems and the second involved lactose-processing systems. The Court of Appeals of Minnesota found that these businesses were sufficiently distinct such that disclosure of information regarding one business would not violate the non-compete agreement prohibiting the disclosure of information regarding the other.  The Court also drew a distinction between confidential information and trade secrets. See RELCO, LLC v. A. Kent Keller, No. A13–1633, 2014 WL 2921895 (Minn. Ct. App. June 30, 2014). 

Background

Keller and RELCO entered into a consulting agreement in 2000 whereby Keller, an expert in designing and manufacturing systems and equipment for factories, would assist RELCO in establishing itself in the markets of both lactose-processing systems and dairy permeate-processing systems. The consulting agreement was accompanied by a non-compete and a non-disclosure agreement, prohibiting the disclosure of confidential information. Even though RELCO’s business involved both dairy-permeate and lactose-processing systems, both the non-compete and non-disclosure agreements defined RELCO’s business as limited to the business of dairy-permeate systems. The consulting agreement also came with an asset purchase agreement under which Keller would sell RELCO Whey Systems. The parties agreed that the dairy-permeate and lactose-processing systems were “two separate and distinct systems for processing milk by-products.”

In late 2009, two employees left RELCO and went to work for Custom Fabricating and Repair, Inc. (“CFR”), which shortly thereafter created a wholly-owned subsidiary Cheese Systems, Inc. (“CSI”), a direct competitor to RELCO. In December 2010, Keller entered into a consulting agreement with CSI specifically on lactose-processing systems.

The Action

RELCO commenced suit, claiming, inter alia, misappropriation of trade secrets and confidential information and breach of contract.

In its misappropriation claim, RELCO first argued that Keller improperly shared information related to mass-balance sheets. The Court rejected the “conclusory” statements of RELCO and its expert and granted summary judgment in Keller’s favor because RELCO submitted no evidence that the mass-balance sheets constituted protected trade secret information. In fact, RELCO had initially purchased the mass-data sheets from Keller. RELCO then argued that Keller misappropriated trade secrets by disclosing Whey System’s files. However, the Court found no evidence that Keller had disclosed the files that he retained.

In its breach of contract claim, RELCO argued that the non-compete agreement at issue was ambiguous such that the Court should look to the parties’ intent. The Court rejected that argument and enforced the contract on its terms. Unfortunately for RELCO, the non-compete was limited to the business of dairy-permeate systems whereas Keller’s consultancy with CSI related to lactose-processing systems. The Court declined to adopt a broader interpretation of “competitive” or “business” that would include lactose-processing systems.

RELCO also prohibited the disclosure of confidential information in its non-disclosure agreement with Keller.  Although the Court recognized the principle that trade secrets and confidential information are not synonymous, it did not find any wrongful use of confidential information here. In RELCO’s agreement with Keller, “confidential information” was also limited to that information which was related to RELCO’s “business” of dairy-permeate systems. Thus, because Keller was not retained by CSI to work on dairy-permeate systems, he had not improperly disclosed confidential information by disclosing information about lactose-processing systems.

The Court, thus, affirmed the trial court’s grant of summary judgment in favor of Keller on both RELCO’s misappropriation of trade secrets and confidential information claim and its breach of contract claim.

Takeaways

Employers seeking to protect their competitive advantage should take care to craft broad non-compete agreements that are sufficiently tailored to their business. The express provisions in a non-disclosure and non-compete agreement matter. If the definition of information or business is limited, a court will not necessarily expand its meaning to include all types of information and competitive behavior, not included within the agreement.