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Rycoline Products, Inc. v. Walsh

August 15, 2000

RYCOLINE PRODUCTS, INC., PLAINTIFF-APPELLANT,
AND
SUN GRAPHIC, INC., PLAINTIFF,
V.
MICHAEL WALSH, STEVEN PAULOSKI, BERNARD BUSH, AND ERIC BERLINER, INDIVIDUALLY AND AS EMPLOYEES, SHAREHOLDERS, OFFICERS, AND/OR DIRECTORS OF C & W UNLIMITED, DEFENDANTS-RESPONDENTS,
AND
C & W UNLIMITED, A CORPORATION, AND CARL KAISER, INDIVIDUALLY AND AS AN EMPLOYEE OF C & W UNLIMITED, DEFENDANTS/THIRD-PARTY PLAINTIFFS-RESPONDENTS,
V.
NORMAN J. NICHOL, THIRD-PARTY DEFENDANT



Before Judges Kimmelman, Ciancia and Arnold.

The opinion of the court was delivered by: Arnold, J.A.D.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued April 11, 2000

On appeal from the Superior Court of New Jersey, Law Division, Middlesex County.

Plaintiff Rycoline Products, Inc. (Rycoline) manufactures chemical products for use in the printing industry. It appeals from certain pretrial rulings and from an order entered after the presentation of plaintiff's case dismissing its claims pursuant to R. 4:37-2(b).*fn1 Defendant C&W Unlimited (C&W) is a competitor of Rycoline and is owned and operated by defendants Michael Walsh and Eric Berliner.

Defendant Karl Kaiser began his employment with Rycoline in 1976 and by 1995 held the position of East Coast District Manager. Testimony introduced at trial indicated that he was responsible for the local manufacturing facility as well as for manufacturing chemical products according to the proper formula and within Rycoline's quality control guidelines. In October 1985, Kaiser executed a "confidentiality agreement" with Rycoline. It provided that he would not disclose certain information that was deemed "confidential" by Rycoline.

Pursuant to this agreement, Kaiser agreed not to reveal to others "during and after my employment . . . so long as any such information may remain confidential, secret or otherwise wholly or partially protectable" plaintiff's "formulas, processes, methods, manufacturing techniques, discoveries, mixes, compounds" or other such matter including "production or sales activities." Kaiser had not, however, entered into either a restrictive covenant not to compete or a formal written employment agreement with Rycoline.

In 1995, defendants Steven Pauloski and Bernard Bush were members of the sales staff of Rycoline's East Coast District. Other members of the sales staff included Morton Altholz and Frank Kreppel.

In April and May 1995, Kaiser, Pauloski, and Bush left their employment with Rycoline and began working for C&W. Shortly thereafter, C&W began to manufacture a product called Safe 200 that is similar to one manufactured by plaintiff known as ACFS 276. Both ACFS 276 and Safe 200 are so-called fountain solutions which are admittedly inferior to a product called Anchor MXEH manufactured by a third company, Anchor Lithkemko, (Anchor) which is not a party to this litigation. There is no patent on Anchor MXEH. It is protected only as a trade secret.

Evidence introduced at trial established that Rycoline tried to discover the formula for Anchor MXEH through "reverse engineering," i.e., by analysis of MXEH. They hired chemists, set up a laboratory and spent somewhere between nine hundred thousand and one million dollars in 1993 and 1994 in an effort to discover the formula for Anchor MXEH. Despite this effort, Rycoline could not discover the formula for MXEH. But, as a result of this reverse engineering effort, they did develop ACFS 276. While a better product than what Rycoline had been selling, it still was concededly not as good as Anchor MXEH. For example, ACFS 276 only worked about 70% of the time. Nevertheless, it was a successful product. Evidence was introduced that ACFS 276 was manufactured in Rycoline's plant in Clifton at a time when Kaiser was the East Coast district manager. Evidence was also introduced that Kaiser may have had access to a hard copy of the formula for ACFS 276.

However, no evidence was introduced of any effort by C&W and Walsh to reverse engineer Anchor MXEH. They did produce a product called SAFE in 1991, SAFE 100 shortly thereafter and SAFE 200 in April 1993. Significantly, in April 1995, there was a big change in SAFE 200 when Kaiser resigned from Rycoline and was hired by C&W. Within just eight days after Kaiser began his employment at C&W, C&W began purchasing chemicals found in Rycoline's product ACFS 276. Several months later, C&W formulated SAFE 200T which included a three-part buffering system as well as a two-part synthetic gum/natural gum system, like the systems found in Rycoline's ACFS 276. By July 1995, Walsh had formulated SAFE 300, which included a so-called three-part acid buffering system found in ACFS 276.

This case has an extensive procedural history. By the time of trial, the only issues remaining to be resolved concerned Rycoline's claim for employee piracy against C&W, Walsh, Berliner, and Kaiser; Rycoline's claim against those same defendants for the misappropriation of plaintiff's trade secret concerning ACFS 276; Rycoline's claim against Kaiser for alleged breach of his confidentiality agreement with Rycoline and his duty of loyalty to Rycoline; and conspiracy claims relating to those three claims. Following the presentation of plaintiff's case, the trial judge dismissed those claims pursuant to R. 4:37-2(b). Plaintiff appeals.

In addition, Rycoline appeals the following rulings by the trial judge: (1) barring the admission into evidence of certain testimony and excluding evidence of other alleged prior wrongful conduct of C&W and Walsh; (2) the denial of Rycoline's motion to amend its complaint to add claims for negligent hiring and supervision and for breach of the Racketeer Influenced and Corrupt Organizations Act (RICO Act) 18 U.S.C.A. §§ 1961 to 1968, as well as its New Jersey counterpart ("New Jersey RICO Act") N.J.S.A. 2C:41-1 to -6.2; (3) refusing to allow Rycoline to file a brief in opposition to defendants' motion to dismiss its claim for industrial sabotage/product tampering; (4) dismissing Rycoline's claim under 15 U.S.C.A. 1125(a) the Lanham Act, 15 U.S.C.A. §§ 1051-1127 (Lanham Act), and refusing to permit Rycoline to amend its Lanham Act claim. Furthermore, Rycoline contends that the trial judge erred, when in the course of granting the involuntary dismissal of its claims, he commented that plaintiff's salesmen were dissatisfied with plaintiff's compensation plan for them. Finally, plaintiff requests that, if the case is remanded for a new trial, it be assigned to a different judge.

Specifically, Rycoline raises the following points on appeal:

A. RYCOLINE PRESENTED SUFFICIENT EVIDENCE AT TRIAL TO EASILY SURVIVE DISMISSAL UNDER R. 4:37-2(b)

i. Standards For Dismissal Under R. 4:37-2(b)

ii. Rycoline Presented Sufficient Evidence At Trial To Permit The Jury To Find That Defendants Had Induced Kaiser To Breach His Duties of Loyalty To Rycoline, Had Illegally Raided Rycoline's Sales Force, And Had Tortiously Interfered With Rycoline's Employee Relations

iii. Rycoline Presented Sufficient Evidence To Establish That Rycoline's Formula For ACFS 276 Was Protected By New Jersey Law Against ...


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