Wanke Industrial, Commercial, Residential Inc. v. Scott Keck et al.

37-2008-00097163
October 1, 2008
State Court
California
California State Court of Appeal for the Fourth Appellate District, Division One

Plaintiff Wanke Industrial is a waterproofing systems installation company in Southern California, former employer of defendants Scott Keck and Jacob Bozarth, who left the company in order to form their own competing waterproofing company, WP solutions. While Bozarth was not named in the proceeding, Wanke filed a complaint against Keck and WP Solutions in 2008 for breach of confidentiality and misappropriation of Wanke trade secret information. The complaint pointed specifically to the significant amount of time, effort and money Wanke had spent in the “acquisition, development, compilation, and maintenance” of confidential customer business, and product information, including

The identity of Wanke’s existing and prospective customers, the objectives of each customer, the strategies developed for each customer, the identities of key personnel at those customers, the special needs and characteristics of Wanke’s existing and
potential customers, and the histories and account balances of existing customers. (Opinion 3-4).

After the former employees responded in cross-compliant against Wanke for unpaid compensation, both parties entered into a mutual release settlement agreement. In this stipulation WP Solutions et al agreed to pay Wanke $38,000.00 in damages, and to a stipulated injunction including a liquidated damages provision. In pertinent part, the stipulated injunction prohibited Keck, Bozarth, and WP solutions from contacting or soliciting any “person, entity, project owner, or representative on Wanke’s attached customer list for the purpose of gaining any business” (Op. 5) for five years, and from performing any work for named customers that solicited WP contracts for 18 months. Wanke subsequently filed an order to show cause in May 2010 seeking to find Keck and WP Solutions in violation of the agreement on eleven occasions.

On Wanke’s motion to enforce the settlement agreement, the trial court determined that although WP Solutions had violated the terms, the agreement itself was invalid “to the extent that it prohibited defendants from soliciting an entity merely because the entity appeared on the customer list attached to the stipulated injunction.” Simply, the trial court determined that Wanke failed to put forth evidence of the existence of a trade secret within the names and identifying information of it’s customers. Although the trial court acknowledged the potential existence of a trade secret within certain customer lists of information, the court emphasized that CA Bus. and Prof. Code §16606 recognizes the right of an employer to bar a former employee from soliciting existing customers of the employer if the employee is utilizing trade secret information to solicit those customers. However, the statute also will void any contract that subsequently restrains any former employee from engaging in an otherwise lawful profession or trade. (CA Bus. Prof. §16602.5). As such, the trial court determined that the stipulated injunction was overbroad and thereby “acquitted” the defendants on eleven counts. In addition, the court further modified the scope of the existing stipulated settlement to be within the bounds of the California unfair competition law. The trial court subsequently examined one count of a specific Wanke customer “AV Builders: Saratoga West” and determined Keck and/or Bozarth to have “obtained or undertaken” their employment contracts while employed by Wanke. Defendants objected on the grounds that the names and general information of perspective customers in their industry was not trade secret material, but the trial court entered an order awarding Wanke $58,000.00 in liquidated damages according to the stipulated injunction, and $8600 in attorney fees.

On appeal, Keck and WP solutions objected on two grounds: (1) in the awarding of attorneys fees to Wanke as a prevailing party, namely because as the trial court determined the stipulated injunction to have been invalid, and therein could not be in contempt of an invalid injunction; and (2) that the liquidated damages award was improper because Keck nor WP Solutions misappropriated Wanke trade secret information or committed any act constituting tortious unfair competition. Wanke followed with a cross-motion and a petition for writ of mandate, both asserting that the trial court erred in determining that the aforementioned stipulated injunction was invalid and unenforceable.

Upon review, the Appellate court fashioned its reasoning by first invoking the double jeopardy clause of the Fifth Amendment to the US Constitution to preclude Wanke’s writ of mandate to retry Keck and WP on the contempt charges. Interestingly, the court in dicta purposefully points to precedent to alleviate any concern of utilizing double jeopardy in a civil matter, first by citing the Dixon court’s determination that the double jeopardy clause applies to “nonsummary criminal contempt prosecutions.” (Op. 15). Further, the court notes the distinction between civil and criminal contempt, namely that civil contempt is and “remedial and for the benefit of the complainant,” and that the contempt at issue was not a forward looking remedy, but a procedure used to punish past conduct in violation of a court order. (citing Int'l Union v. Bagwell, 512 U.S. 821, 827 (U.S. 1994). As such, court determined that the Wanke matter was transformed into a criminal contempt proceeding “between the public and the defendant.” (citing In re Nolan W., 45 Cal.4th 1217, 1236-1237 Sup. Ct. CA 2009). Further, the alleged contempt in violating the stipulated injunction took place outside of judicial proceedings, and therein were deemed nonsummary in nature. As the opinion crafts the Wanke proceedings to fit within the bounds of double jeopardy application, Judge Aaron determined that the lower court validly found that Wanke failed to establish the violation of a valid court order, and therefore their evidence was previously factually insufficient to hold Keck and WP in contempt. This was deemed a sufficient acquittal on a nonsummary contempt claim for the appellate court to deny reexamination of the issue on double jeopardy grounds.

Notwithstanding this determination, the Appellate court concluded that the trial court in fact erred by invalidating the stipulated injunction and denying Wanke’s initial motion to enforce the settlement agreement. The Court reasoned that one could not conclude that the aforementioned stipulated injunction did not protect Wanke’s trade secrets on its face. Merely because the particular trade secret information related to the customers listed and annexed to the agreement did not, for this court, invalidate the existence of trade secret information. Thus, without a proper showing that language in the stipulated injunction actually does not protect Wanke trade secrets, the trial court erred in assuming an unlawful business restraint. Judge Aaron therein reversed and remanded the Wanke matter for further proceedings, while affirming the lower court’s prior order to enforce the settlement agreement as to Saratoga West.

Commercial, Residential Inc., Wanke Industrial
Scott Keck et al.
Other state statute

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