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MIDLAND-ROSS CORP. v. YOKANA

July 22, 1960

MIDLAND-ROSS CORPORATION, Plaintiff,
v.
Lucian D. YOKANA and Sterling Extruder Corp., Defendants



The opinion of the court was delivered by: WORTENDYKE

This Court has jurisdiction of the parties and of the subject matter of this action by virtue of the provisions of 28 U.S.C. 1332(a)(1). Plaintiff is a corporation of the State of Ohio and the defendants are respectively a citizen of and a corporation organized under the laws of the State of New Jersey.

At the pretrial conference in this case on April 28, 1960, leave was granted to the plaintiff (Midland-Ross) to file an amended complaint in which it is alleged, and I find from the evidence hereinafter referred to, that on March 5, 1958, plaintiff acquired the assets of Hartig Engine and Machine Co. (Hartig), a New Jersey corporation, which had been engaged in the designing, manufacturing and selling of plastic extruding machines at a place of business in the latter State. Plaintiff has since continued the operation of that business. In the year 1952 the defendant Yokana entered the employ of Hartig, and continued in the employ of the plaintiff after the latter's acquisition of the assets and business of his former employer. Yokana terminated this relationship by his resignation, which took effect on January 6, 1959. From the outset of his employment by Hartig, Yokana handled its sales and its correspondence, and generally served as an assistant to Edward Greene, its president and principal stockholder. Yokana played an important role in the business activity of Hartig, and was confidently relied upon by Greene. Yokana bore the title of vice-president of Hartig, but when that company was acquired by Midland-Ross, his title was changed to sales engineer. When he joined Hartig, his salary was $ 8,250, but at the time of the acquisition of the business by the plaintiff, it had increased to $ 15,750 annually. By reason of the nature and pursuant to the duties of his employment, both by Hartig and thereafter by the plaintiff, Yokana necessarily became intimately familiar with all of the phases of the business, including its production and sales aspects, and had access to all records, drawings, and other similar material relating to the business, its products and operations.

During 1958, the year in which Hartig was acquired by Midland-Ross, Yokana made up his mind to terminate his employment and to enter into a business on his own account similar in character to that in which he was engaged as an employee of Hartig and of the plaintiff. In seeking financing for the corporation which he contemplated forming for the purpose of conducting his own business, Yokana applied to and succeeded in arranging with persons in control of one of Hartig's corporate customers for their financial participation in his projected enterprise. The terms of the agreement between Yokana and the Messrs. Moss, whose participation was thus secured, were embodied in written form and executed as a contract on January 6, 1959.

 Although he attended a sales meeting of plaintiff's Hartig Extruders Division on December 31, 1958, at which a price increase for its products was proposed, Yokana made no mention of his intention to resign, but immediately following that meeting delivered to Mr. Greene his letter of resignation, by its terms to become effective January 6, 1959.

 On January 9, 1959, Yokana caused the defendant corporation, Sterling, to be incorporated in the State of New Jersey. He and the nominees of the persons who had agreed to finance the business of the corporation became its principal stockholders. That company immediately entered into the production and sale of plastic extruders generally similar to those produced by the plaintiff; but before the company was actually formed Yokana had procured orders for the purchase from Sterling of such plastic extruders, and had placed orders with various suppliers, including several who were supplying the plaintiff, for parts which Yokana's new company would require in filling its orders for extruders.

 During the course of his employment, originally by Hartig and subsequently by plaintiff, and appropriately to his duties therein, Yokana had obtained and used in his sales efforts, production and other drawings and blue prints made and used by his employer, together with customer lists and pricing data compiled and developed in the conduct of the business. Many of these drawings and other documents, which Yokana had a right to possess and use in the performance of his employment duties, were kept by him at his home, as well as at his place of business, and after he terminated his employment relationship, he retained many of these documents, or copies thereof which he had made or caused to be made. In his sales efforts in behalf of defendant Sterling, as well as in his and its placement of orders with suppliers and subcontractors for extruder parts, Yokana made use of the graphic and documentary material which he had obtained during, and retained after termination of his employment relationship with the plaintiff and its predecessor.

 Plaintiff alleges that, by the expenditure of large sums of money and much effort, it and its predecessor had developed new and distinctive designs of plastic extrusion machines and parts thereof, together with dies and accessories for the same, and had accumulated and used in its business a large body of confidential business information or trade secrets pertaining to its products. These included detailed engineering drawings and specifications therefor, sources of supply of parts used in the manufacture thereof, lists of customers and potential customers, and cost and pricing data and sales and pricing policies and programs. Plaintiff charges that, through his employment relationship with plaintiff and its predecessor, Yokana occupied a fiduciary position of trust and confidence, and by reason thereof had access to and acquired knowledge and possession of documents embodying the confidential information and trade secrets of the plaintiff and its predecessor. It is accordingly alleged that Yokana violated his fiduciary obligations to plaintiff and that, with a malicious purpose and intent to injure the plaintiff, he commenced a program for the manufacture and sale of plastic extruding machines in competition with the plaintiff, by the wrongful use of the confidential information and trade secrets which he had acquired in his former employment relationship. Plaintiff complains also that, upon terminating his employment with the plaintiff, Yokana wrongfully retained in his possession and failed to surrender the various documents, blue prints, and other data the which reference has been made.

 With respect to the defendant Sterling, plaintiff alleges that Yokana caused that corporation to be organized in furtherance of his breach of his obligations to the plaintiff, and that he and Sterling conspired to appropriate plaintiff's property and business through Sterling's use of such materials, with knowledge of Yokana's wrong and the source of the material made available to it by him. Sterling and Yokana are charged with having secured profits and having been unjustly enriched by the wrongful acts complained of, to the irreparable damage of the plaintiff.

 Plaintiff seeks preliminary and final injunctive relief against each of the defendants in the form of a restraint against both of them and those controlled by each of them from further manufacture and/or sale of plastic extruding machines, parts thereof, and dies and accessories therefor, which embody, in whole or in material part, designs or dimensions derived by defendants from drawings or blue prints of drawings of the plaintiff, and from disclosure to others of drawings or other confidential information or trade secrets of the plaintiff, or the use thereof in the manufacture, sale or offering for sale of such products. In addition to the injunctive relief which the plaintiff seeks in this action, it prays for an accounting of profits, compensatory and punitive damages, costs and other appropriate relief.

 The substance of the defense offered by the defendants is to be found in the following contentions: (1) Yokana was not in a fiduciary position of trust and confidence during his employment by plaintiff and its predecessor; (2) neither plaintiff nor its predecessor had any confidential information or trade secrets which Yokana could have acquired; (3) the documents of which Yokana came into possession through his said employment, and which he admits retaining, and of which he concededly made and used copies, did not embody confidential information or trade secrets. At the pretrial conference, the defenses were more succinctly summarized as a denial (1) that defendant was in a fiduciary relationship with the plaintiff, and (2) of the existence of any of plaintiff's trade secrets involved in the manufacture of the machines sold by the defendants.

 Defendants include in their answer to the amended complaint a counterclaim charging the plaintiff with unfair competition with Sterling by means of certain alleged misrepresentations set forth in the original complaint; but with this counterclaim I am not presently concerned.

 Pursuant to due notice, plaintiff moved in the cause for a preliminary injunction in accordance with the prayers of the amended complaint, and upon the return of the notice of that motion oral testimony and documentary evidence was presented upon issues raised by the amended complaint and the answer thereto. In accordance with the request of the plaintiff, and in the absence of any objection on the part of the defendants, I shall treat the hearing upon the motion for preliminary injunction as a hearing upon the prayer for final injunctive relief.

 There is no contradiction in the proofs of the following facts:

 (1) Yokana was a trusted employee of plaintiff and ...


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