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Treble Damages Assessed Against Equipment Rental Company, Executives for Misappropriating Trade Secrets, Unfair Competition
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April 30, 2007
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ConstructionWebLinks.com
Defendant Head & Engquist Equipment, LLC was an aerial lift equipment rental company. In late 1999, H&E hired executives from a competitor, BPS Equipment Rental and Sales. The executives, also named defendants, were aware that BPS was on the verge of being sold to plaintiff, Sunbelt Rentals, Inc. They proposed a business plan to Sunbelt, which did not accept it. After joining H&E, the executives implemented the business plan in seven markets where H&E had no prior market presence. In those markets, the executives began a concerted hiring program in which they recruited BPS employees, ultimately hiring most of BPS' key employees in a number of the markets.
BPS filed suit alleging breach of fiduciary duty, tortious interference with prospective economic relations, violation of North Carolina's Trade Secrets Protection Act, violation of North Carolina's Unfair Trade Practices Act and civil conspiracy.
After a bench trial, the trial judge found each of the defendants jointly and severally liable - including the remaining individual executives - for violating the trade secrets act, trade practices act and civil conspiracy. Damages of $5 million were awarded, which were trebled to $15 million, pursuant to North Carolina General Statutes §75-16. The court also awarded interest and attorney fees $1 million.
Defendants appealed. They argued that: 1.) Plaintiff's business information did not constitute a trade secret and, even if it did, disputed that defendants misappropriated any trade secrets; 2.) Defendants did not violate the trade secrets act; and 3.) Defendants' conduct did not proximately cause plaintiff's lost profits.
The Court of Appeals affirmed. Sunbelt Rentals, Inc. v. Head & Engquist Equipment, LLC, 620 S.E.2d 222 (N.C. Ct. App. 2005), review denied, 360 N.C. 296 (2006). It held that the information at issue - including equipment fleet mix, preferred customer pricing and budgetary information - was confidential because it was not generally known by outsiders, was only discreetly disclosed within the company, was guarded as secret, was competitively valuable, was developed at significant cost and was difficult to duplicate or acquire.
The court found that the confidential information was misappropriated because defendants realized a significant profit in markets where they previously had no presence. That, coupled with the fact that plaintiff experienced a simultaneous decline in profit in the same markets, constituted a prima facie showing of misappropriated trade secrets.
The court also concluded that defendants committed an unfair or deceptive trade act that affected commerce and that proximately caused injury to plaintiff. The court noted that defendants informed customers that BPS' name had changed to H&E without making any reference to Sunbelt. Further, defendants made a concerted effort to hire BPS branch managers and, in turn, used the branch managers to recruit BPS employees en masse. Employees leaving BPS forwarded their phones to H&E offices and altered BPS leases and pricing information by inserting H&E's name and information into the documents. While noting the importance of economic competition and giving employees the greatest freedom of job movement, the court found that the methods used were surreptitious and deceptive.
In considering proximate cause, the court noted that claims involving unfair or deceptive trade practices and unfair competition are neither wholly tortious nor wholly contractual. Accordingly, the plaintiff was required only to demonstrate damages to a reasonable certainty. Plaintiff's damage claim derived from its lost profits and its lost market share resulting from defendant's entry into markets where H&E previously had no market presence. The court accepted the damages as reasonably certain and found a sufficient link between defendants' deceptive and unfair conduct and the claimed damages.
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