Smart & Associates, LLC v. Independent Liquor (NZ) Ltd. et al

Filing 105

MEMORANDUM OPINION AND ORDER by Judge David J. Hale on 12/29/2016. For the reasons set forth above, Defendants' evidentiary objections (D.N. 98 ) are OVERRULED and Defendants' motion for summary judgment (D.N. 88 ) is GRANTED IN PART AND DENIED IN PART. The motion is DENIED as to those claims of breach of warranty and breach of the distribution agreement arising from Independent Liquor's delivery of the 8,587 cases of coagulated twistee shots to Smart Beverage. The motion is GRA NTED as to all other claims. Summary judgment has been granted as to Counts II, III, V, and VI of the amended complaint. Counts I and IV remain. This matter is REFERRED to Magistrate Judge Dave Whalin to conduct a status conference to finalize the remaining pretrial schedule. The parties' joint motion for a status conference (D.N. 104 ) is DENIED as moot. cc: Counsel; AH (CDR)

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF KENTUCKY
LOUISVILLE DIVISION
SMART & ASSOCIATES, LLC d/b/a
SMART BEVERAGE,

Plaintiff,

v.

Civil Action No. 3:10-cv-614-DJH-DW

INDEPENDENT LIQUOR (NZ) LTD., et al.,

Defendants.

* * * * *
MEMORANDUM OPINION AND ORDER
This lawsuit involves a business dispute between American and New Zealand companies
involved in the production, distribution, and sale of ready-to-drink alcoholic beverages known as
“twistee shots.” Plaintiff Smart Beverage Group was the exclusive North American importer and
distributor of twistee shots for over three years. Defendants include the producer of the twisteeshot brand, Independent Liquor (NZ); its holding company, Flavored Beverages Holding Group;
and the current exclusive American importer of twistee shots, Independent Distillers USA, a
wholly owned subsidiary of Independent Liquor.
The parties’ dispute began when Independent Liquor terminated its business relationship
with Smart Beverage in December 2009. Smart Beverage claims that prior to termination,
Defendants breached express and implied warranties, as well as the distribution agreement, when
Independent Liquor provided Smart Beverage with twistee shots that were either defective, out
of rotation, or “short-coded.”1

Smart Beverage also claims that Defendants breached two

confidentiality agreements entered into after Independent Liquor represented that it was
interested in pursuing a joint venture with Smart Beverage and therefore needed its proprietary
1

The term “short-coded” refers to product that contained a “Best Before” date of sale that was so
imminent that Smart Beverage allegedly was unable to resell the product upon its purchase from
Independent Liquor.
1

business information. Smart Beverage claims that Defendants took its proprietary, confidential
business information and used it to establish Independent Distillers USA to take over the role of
exclusive importer from Smart Beverage, in violation of Kentucky’s Uniform Trade Secrets Act
and the express provisions of both confidentiality agreements.
Defendants have filed a motion for summary judgment seeking dismissal of these
claims.2 Along with their motion for summary judgment, Defendants have filed objections to
certain evidence relied on by Smart Beverage in its opposition to the summary judgment
motion.3 Both the summary judgment motion and the objections are now fully briefed for
consideration by the Court.4
This case involves a complicated set of facts revolving around several different entities,
their past business transactions, and their attempted joint venture. The Court will begin by
discussing the facts relevant to the plaintiff’s claims, including the business relationship between
Smart Beverage and Independent Liquor, the various product-defect issues that form the basis of
the breach-of-warranty and breach-of-contract claims, and the sharing of confidential business
information that forms the basis of the misappropriation claims and breach-of-contract claims.
The section immediately following will address Defendants’ evidentiary objections. Finally, the
Court will assess each claim addressed by Defendants’ motion for summary judgment.

2

Docket No. 88.
D.N. 98.
4
By order entered September 29, 2015, the Court administratively remanded the summary
judgment motion pending resolution of Defendants’ objections to evidence offered by Plaintiff in
response to the motion. (D.N. 103) The Court’s order provided for the automatic reinstatement
of the summary judgment motion upon resolution of the objections to evidence. (Id., PageID #
2144) This memorandum addresses both the objections to evidence and the reinstated summary
judgment motion.
3

2

I. BACKGROUND
A. Business Relationship Between Smart Beverage and Independent Liquor
For three years beginning in 2003, Michael C. Smart worked for Independent Distillers
North America, then the United States subsidiary of Independent Liquor, as its vice president of
sales. He reported to General Manager Michael Howard.5 During this time, Independent Liquor
produced “twistee shots,” which are ready-to-drink, flavored alcoholic beverages in singleserving shot cups that contain vanilla cream alcohol on one side and flavored vodka on the other
side. Twistee shots were sold in four-packs and eight-packs with each package containing a
“Best Before” date stamp.
In November 2005, the CEO of Independent Liquor died unexpectedly, prompting
Independent Liquor to sell its U.S. subsidiary. Smart offered to buy the remaining unsold
inventory of twistees and “rattlesnakes” (another ready-to-drink, alcoholic beverage) if
Independent Liquor would make him its exclusive importer to North America for the next three
years.6 Independent Liquor agreed to this proposal, and the parties entered into a distribution
agreement that appointed Smart Beverage as the exclusive U.S. importer and “master distributor”
of twistees and rattlesnakes for three years.

7

Smart Beverage entered into a separate contract

with nonparty MHW Ltd. to act as its national distributor to receive product shipments from
Independent Liquor, maintain inventory, provide warehouse services, and take and fill orders
from Smart Beverage customers.
Subsequently, Flavored Beverages Holding Group became the parent company of
Independent Liquor.

About this time, the current CEO of Independent Liquor raised the

5

D.N. 91-3, PageID # 1515–18. Howard is now Smart Beverage’s expert witness.
D.N. 91-3, PageID # 1527; D.N. 91-6, PageID # 1530; D.N. 91-7, PageID # 1536.
7
D.N. 96-4.
6

3

possibility of a joint venture between Smart Beverage and Independent Liquor with the latter
purchasing a fifty percent ownership in Smart Beverage.8 On March 20, 2008, Smart Beverage
and Independent Liquor executed a confidentiality agreement to protect the exchange of business
information.9 The agreement afforded Independent Liquor access to certain business information
of Smart Beverage for the purpose of evaluating a potential joint venture with Smart Beverage or
acquiring ownership of Smart Beverage.10 The confidentiality agreement defined this business
information to include “all information, ideas and material, in tangible and intangible form,
formerly, now or hereinafter created, whether by or for the business, which is not generally
known to the public and which relates to the past, present or future business, financial condition
or standing, customers, suppliers, distributors, plans, hardware, software, or technology of the
business . . . .”11 Independent Liquor agreed not to use or disclose any confidential business
information it acquired without written consent or except as permitted under the written
agreement.12

The joint venture plans would ultimately be abandoned, and the sharing of

confidential business information forms the basis of some of the plaintiff’s claims discussed
below.
Prior to execution of the first confidentiality agreement, Smart gave a presentation in
New Zealand to the new management of Independent Liquor.

In his presentation, Smart

revealed Smart Beverage’s support network and ownership; its suppliers and products; their
terms of shipment; the purchase price that Smart Beverage paid for other ready-to-drink brands;
the retail target price point for twistee shots; a pricing analysis and profit statement for each of

8

D.N. 96-1, PageID # 1667–70.
D.N. 96-7, PageID # 1704–06.
10
Id.
11
Id. at PageID # 1720.
12
Id. at PageID # 1721.
9

4

the three tiers in the distribution chain; the national average retail pricing for twistee shots and
competing ready-to-drink beverages; Smart Beverage’s 2007 and 2008 sales results by
distributor, including the sales volume and dollar revenue for each distributor; its point-of-sale
merchandising displays for its product; a proposal for a new twistee 750 ml product; its street
sales team program and annual cost structure; its profit and loss statement for calendar year
2008; and profit and loss forecast for the years 2009 through 2012.13
After executing the confidentiality agreement, Smart Beverage provided Independent
Liquor with additional business information, including prices and incentives offered to Smart
Beverage’s wholesale distributors on both twistee shots and competing products that Smart
Beverage imported. Smart Beverage also supplied Independent Liquor with its sales history.14
In July 2008, Robin Campbell and Peter McHugh, of Independent Liquor, met with Smart to
discuss the possible joint venture.15 Smart Beverage subsequently provided financial records to
Independent Liquor’s accountants for an audit.16 These records included items such as cash on
hand, accounts payable, operating expenses and lines of credit for Smart Beverage.

In

September 2008, Campbell, Independent Liquor’s international business director, requested still
more business information as part of its due diligence.17 In response, Smart Beverage provided
information on its pricing structure, promotions, payment terms for wholesalers, overhead, and
budget details.18

Smart Beverage also identified its brokers and their fees per case; its

13

D.N. 89-11.
D.N. 96-7.
15
D.N. 96-10.
16
D.N. 96-2, PageID # 1676.
17
D.N. 96-11.
18
D.N. 96-12.
14

5

distributors; its pricing/discounts; its sales promotion budgets; and the fee structure for MHW,
Smart Beverage’s national distributor and warehouse operator.19
In fall 2008, McHugh and Smart exchanged drafts of a proposed employment agreement
prepared by McHugh, which Smart understood to set out the terms of his continued employment
upon the finalization of the companies’ joint venture.20 However, that December, Smart learned
that Independent Liquor had decided to postpone the joint venture for a year.21 Soon thereafter,
Independent Liquor e-mailed Smart to confirm a one-year extension of the distribution
agreement, with the assurance that the joint venture proposal would be reconsidered at the end of
a year.22
B. Issues Concerning Defective and Out-of-Rotation Twistee Shots
According to Smart, in spring 2009, Smart Beverage was notified by its wholesalers that
they had received defective twistee shots with coagulated cream.23 Smart maintains that he
notifed Independent Liquor of the coagulation problem within twenty-four hours of the notice.24
Leanne Byers, the export/import manager for Independent Liquor, arranged to have the suspect
twistee shots from the September 2008 production runs tested.25 Test results confirmed the
coagulation problem.26 Ultimately, it was determined that a total of 8,587 cases of defective
twistee shots had been shipped to Smart Beverage.27 Smart Beverage requested that Independent

19

Id.
D.N. 96-13.
21
D.N. 96-15.
22
D.N. 96-17.
23
D.N. 96-2, PageID # 1681–82.
24
D.N. 96-19, PageID # 1814.
25
Id. at PageID # 1818–19.
26
Id.
27
D.N. 96-23, PageID # 1878.
20

6

Liquor replace all 8,587 cases.28 Independent Liquor shipped to Smart Beverage 4,212 cases of
replacement twistee shots—4,375 cases fewer than the 8,587 total defective cases.29 Smart
Beverage claims that as a result, it was forced to issue credits to certain of its customers for the
value of the defective product received.30

Independent Liquor maintains that while Smart

Beverage may have issued such credits, it was Independent Liquor, not Smart Beverage, that
ultimately honored the credits.
In September 2009, Smart Beverage agreed to accept 1,136 cases of “short-coded”
twistee shots that were nearing their stated “Best Before” date. Independent Liquor and Smart
Beverage agreed that the 1,136 cases would equate to 852 cases of replacement stock. Smart
Beverage maintains that by the time the short-coded product reached its warehouses in the U.S.,
only 60 days remained before the expiration of the “Best Before” date, which made the 1,136
cases “virtually useless.”31
During this same time period, Smart Beverage received from Independent Liquor twistee
shots that were “out of proper rotation.”32 In other words, the product was coded with a “Best
Before” date that was earlier than the “Best Before” date of other twistee products already
offered for sale on the market. According to Smart Beverage, its clients refused to accept the
out-of-rotation product.33

Smart Beverage requested that its warehouse, Western Carriers,

investigate the situation. According to Smart, Western Carriers assured Smart Beverage that the

28

D.N. 96-24, PageID # 1885.
Id.
30
D.N. 96-25.
31
D.N. 96-3, PageID # 1685–86.
32
D.N. 96, PageID # 1632.
33
D.N. 96-2, PageID # 1677–78.
29

7

warehouse had consistently followed its first-in, first-out policy in filling twistee-shot orders so
that any out-of-rotation stock was not due to problems at the warehouse.34
According to Smart Beverage, these product-related issues caused the company to fall
behind on its payments to Independent Liquor. Due to the delay in payment, Leanne Byers
notified Smart in mid-October 2009 that Independent Liquor would be taking a credit against the
replacement product it owed Smart Beverage to account for adverse fluctuation of the exchange
rate between the American and New Zealand currencies that occurred during the time that Smart
Beverage’s account was overdue.35

Independent Liquor’s CFO, Peter McHugh, later

acknowledged that he was unaware of any prior currency exchange rate loss being imposed on a
distributor such as Smart Beverage.36

The former CFO and current general manager of

Independent Liquor, Julian Davidson, likewise acknowledged that no such prior offset had ever
been imposed by Independent Liquor due to foreign currency exchange rate fluctuations.37 The
distribution agreement provided for payment in U.S. currency, and contained no provision
referring to offsets or allowances for foreign currency exchange-rate fluctuations.38

Smart

Beverage maintains that it always paid Independent Liquor invoices in U.S. dollars and that
invoices were always stated in terms of U.S. currency.
C. Abandonment of Joint Venture Plans Between Smart Beverage and Flavored Beverages
Holding Group
In August 2009, Flavored Beverages Holding Group hired consultant Bruce Herman to
do a “route-to-market assessment” for Independent Liquor’s products in the U.S. Peter Murphy
of Flavored Beverages e-mailed Smart that same month to advise him of Herman’s role in
34

D.N. 96-2, PageID # 1679–80.
D.N. 96-33, PageID # 1920.
36
D.N. 96-7, PageID # 1716–17.
37
D.N. 96-35, PageID # 1924.
38
D.N. 96-4, PageID # 1692.
35

8

identifying business opportunities to grow Flavored Beverages Holding Group’s U.S. business.39
Herman contacted Smart directly to introduce himself and to request business information on
Smart Beverage’s sales, pricing, distribution, and promotions.40
Smart responded by requesting that Flavored Beverages and Herman enter into a
confidentiality agreement before any further business information was disclosed.41

Smart

followed up with a proposed confidentiality agreement. Nick Montague, the CFO of Flavored
Beverages, executed this second confidentiality agreement on September 7, 2009.42 Thereafter,
Smart began to provide Herman with various business documents, including purchase and
shipping history for Smart Beverage and Independent Liquor; Smart Beverage’s purchase history
for products; Smart Beverage’s shipment history to its wholesalers; its twistee-shots price
structure with profit margins by customer; its account history for the prior year; and an analysis
of the company’s strengths, weaknesses, opportunities, and threats prepared by Smart himself.43
Herman later acknowledged that the information he requested from Smart was
“confidential” and that he would not himself have provided such information to a competitor. 44
In October 2009, Herman asked Smart to provide price structures for new Independent Liquor
products that the company wanted to introduce based on Smart Beverage’s pricing with its
current customers on existing products. Smart provided the information.45 After receiving it,
Herman made a presentation in November 2009 to Peter Murphy of Flavored Beverages.46 The
presentation included 123 pages of information obtained in part from Smart and Smart Beverage.
39

D.N. 96-27, PageID # 1900.
D.N. 96-28, PageID # 1902.
41
D.N. 96-29.
42
D.N. 96-30; D.N. 96-31.
43
D.N. 96-24, PageID # 1881–82.
44
Id. at PageID # 1882.
45
D.N. 96-35.
46
D.N. 96-36.
40

9

This information included price structures for the ready-to-drink market; importer, wholesaler,
and retail and distributor price structures; and estimated profits in the distribution chain.47
Ultimately, Herman recommended that Flavored Beverages abandon the joint venture proposal
and instead establish its own subsidiary to import and market twistee shots and other
Independent Liquor products to the United States.48
The Flavored Beverages Board of Directors agreed that Smart Beverage would be
terminated as the exclusive U.S. importer and distributor for twistee shots and Independent
Liquor products. Independent Liquor incorporated its own subsidiary, Independent Distillers
USA, and hired Herman to run the new company in the United States.49 Herman later met with
Smart to advise him that Independent Liquor was terminating its exclusive importer relationship
with Smart Beverage and would operate its own company, Independent Distillers USA, to import
and distribute twistee shots.
Herman and Independent Distillers USA immediately began to contact beverage
wholesalers and distributors that previously had business relationships with Smart Beverage.50
Smart does not know, however, what Herman said to any of the prior Smart Beverage
distributors that he contacted.51

Smart Beverage now alleges that Independent Liquor,

Independent Distillers USA, and Flavored Beverages made improper use of Smart Beverage’s
proprietary, confidential business information in order to immediately enter the U.S. market as
an importer/distributor without having to expend the time or money ordinarily associated with
the development of a new market.

47

Id.
D.N. 96-24, PageID # 1883–84
49
Id.
50
D.N. 96-3, PageID # 1689; D.N. 96-24, PageID # 1886.
51
Id.
48

10

Smart Beverage made its final payment to Independent Liquor in March 2010.52 Smart
Beverage offset its final payment to Independent Liquor by $124,687.50, an amount that Smart
Beverage alleges represents the cost of the approximately 4,300 replacement cases of twistee
shots that Independent Liquor refused to provide Smart Beverage. These circumstances led to
both the present lawsuit and the pending motion for summary judgment.
II. EVIDENTIARY OBJECTIONS
Before the Court takes up each of the claims of the amended complaint, it must address
Defendants’ objections to the evidence relied on by Smart Beverage in opposition to summary
judgment.53 Defendants object to paragraphs 5, 8, 9, 11, 12, 13, 14, 15, 16, and 17 of the
declaration of Michael Smart.54 They also object to the expert report of Michael Howard and his
opinions.55 Finally, they object to exhibits 5, 10, 13, 14, 16, 18, 19, 20, 22, and 23 of the
opposition. Defendants repeatedly object on grounds of lack of personal knowledge, failure to
comply with authentication rules, hearsay, and relevance. Because the Court concludes that the
objections are without merit, they will be overruled.
A. Personal Knowledge
An affidavit offered to support or oppose a motion for summary judgment “must be made
on personal knowledge [and] set out facts that would be admissible in evidence.” Fed. R. Civ. P.
56(c)(4).

An affidavit that merely sets forth conclusions or opinions without reliance on

admissible supporting facts is insufficient to satisfy the requirements of the Rule. Buescher v.
Baldwin Wallace Univ., 86 F. Supp. 3d 789, 800 (N.D. Ohio 2015). Further, an affidavit that is
based merely upon the “belief” of an affiant is not equivalent to an affidavit made upon personal
52

D.N. 96-39.
D.N. 98.
54
D.N. 96-19.
55
D.N. 96-38.
53

11

knowledge. Avery v. Norfolk & Western R.R. Co., 52 F.R.D. 356, 359 (N.D. Ohio 1971). Such
an affidavit will not be adequate to create a genuine issue of material fact. Id.; Cf. Hooks v.
Hooks, 771 F.2d 935, 946 (6th Cir. 1985) (finding opposing affidavit to satisfy the requirements
of Rule 56 to the extent it was based on personal knowledge).
When an affidavit is not based on admissible facts or personal knowledge, the affidavit
may properly be stricken along with all attached exhibits. See Ondo v. City of Cleveland, 795
F.3d 597, 604–05 (6th Cir. 2015). Affidavits that are based upon hearsay likewise fail to satisfy
the requirements of Rule 56. See State Farm Mut. Life Assurance Co. of Am. v. Deer Creek
Park, 612 F.2d 259, 264 (6th Cir. 1988). Such deficient affidavits offered in violation of the
Rule may properly be ignored in determining whether a genuine issue of material fact sufficient
to require trial exists. Id.
Rule 602 imposes similar requirements in a trial setting. A witness is prohibited from
testifying to a matter unless the witness is able to establish personal knowledge of the matter.
Evidence will be inadmissible “if in the proper exercise of the trial court’s discretion it finds that
the witness could not have actually perceived or observed that which he testifies to.” M.B.A.F.B.
Federal Credit Union v. Cumis Ins. Soc., Inc., 681 F.2d 930, 933 (4th Cir. 1982).
When a witness has direct knowledge of normal company procedures in a specific
situation, the witness will be considered to have personal knowledge of such procedures even if
the witness was not directly involved in their application. See United States v. Thompson, 559
F.2d 552, 554 (9th Cir. 1977). On the other hand, a witness would not be competent to testify
about documents that he or she had never seen before, such as statements in a competitor’s
internal correspondence that the witness had not previously seen. See In re Folding Carton
Antitrust Litig., 83 F.R.D. 132, 135 (N.D. Ill. 1979).

12

B. Authentication
Authentication is governed by Rule 901 of the Federal Rules of Evidence. The proponent
must produce evidence “sufficient to support a finding that the item is what the deponent claims
it is.” Fed. R. Evid. 901(a). Testimony of a witness with knowledge, testimony of an expert
witness, distinctive characteristics of the item at issue taken together with the circumstances, and
opinion testimony that identifies the unique characteristics of the item at issue are examples of
sufficient evidence. Fed. R. Evid. 901(b)(1)–(5). Evidence that a particular public record was
recorded or filed as required by law or is from an office where such items are required to be kept
also is sufficient. Fed. R. Evid. 901(b)(7).
C. Hearsay
Hearsay is defined by Rule 801(c) to be an out-of-court statement that a party offers into
evidence to prove the truth of the matter asserted in the statement. Rule 802 provides that
hearsay will not be admitted unless the Federal Rules of Evidence, a federal statute, or other
rules of the U.S. Supreme Court provide otherwise. For purposes of the hearsay rule, a statement
is an oral or written assertion or nonverbal conduct intended as an assertion. United States v.
Nezzi, 492 F. Supp. 464, 468 (E.D. Ky. 1980). The hearsay rule does not exclude extrajudicial
statements that are not offered to prove the truth or falsity of the contents, but merely to show
that such out-of-court statements were made. United States v. Gibson, 675 F.2d 825, 833–34
(6th Cir. 1982).
There are numerous exceptions to the hearsay rule. See United States v. Williams, 571
F.2d 344, 350 (6th Cir. 1978). For example, under the provisions of Rule 803(6), records of a
regularly conducted activity made at or near the time by someone with knowledge that are kept
in the course of a regularly conducted activity of a business, where the making of the record was

13

a regular practice, will not be excluded if these conditions are shown by the testimony of the
record custodian or another qualified witness or by certification that complies with Rule 902.
When the parties stipulate that a particular piece of evidence is an authentic business
record subject to Rule 803(6), no independent verification of the authenticity of the signatures is
required. See United States v. Renfro, 600 F.2d 55, 59 (6th Cir. 1979). When the record
custodian or other qualified witness testifies to the requirements of Rule 803(6), the witness need
not have personal knowledge of the particular evidence that is contained within the record itself.
United States v. Reese, 568 F.2d 1246, 1252 (6th Cir. 1977).
D. Relevance
Pursuant to Rule 401, evidence is relevant when it has any tendency to make a fact more
or less probable than it would be without the evidence.

Relevant evidence is generally

admissible. See Fed. R. Evid. 402. Only when the danger of unfair prejudice, confusion, undue
delay, or waste of time outweighs the probative value of the evidence will such evidence be
subject to exclusion under Rule 403.
Relevance is the initial hurdle to admissibility. United States v. Marino, 568 F.2d 1120,
1123 (6th Cir. 1981). It is noteworthy that “heavy reliance is placed on the discretion of the trial
judge” when applying Rule 401. Rhodes v. Michelin Tire Inc., 542 F. Supp. 60, 62 (E.D. Ky.
1982). The same broad discretion applies to the application of Rule 403 in weighing the
probative value of evidence. In re Beverly Hills Fire Litig., 695 F.2d 207, 217–18 (6th Cir.
1982); see also United States v. Brady, 595 F.3d 359, 361 (6th Cir. 1979); United States v.
Reynolds, 762 F.2d 489, 494 (6th Cir. 1985).

14

1. Objections to Smart Beverage’s Deposition Transcripts and the Declaration of Michael
Smart
With these basic principles in mind, the Court turns to Defendants’ objections.
Defendants first claim that Smart Beverage has not properly authenticated the deposition
transcripts cited in opposition to the motion for summary judgment.56 The Court disagrees.
Defendants cite no specific authority for the argument that a separate declaration of counsel is
necessary. At most, Defendants make a passing citation to Fed. R. Evid. 901. Smart Beverage,
in contrast, cites Alexander v. Caresource, 576 F.3d 551, 560 (6th Cir. 2009), which states that
“to authenticate a deposition excerpt, a party should include the cover sheet . . . and the court
reporter certificate.” Id. at 560 (citing Orr v. Bank of Am. N.P. & S.A., 285 F.3d 764, 774 (9th
Cir. 2002)). Smart Beverage has satisfied these requirements. The objection will be overruled.
Defendants object to paragraphs 5, 8, 9, 11, 12, 13, 14, 15, 16, and 17 of the declaration
of Michael Smart, which was included as exhibit 19 to Smart Beverage’s response brief. The
first is a hearsay objection to the portion of paragraph 5 where Smart avers that Smart Beverage
was notified by wholesale customers that some twistee-shot products were defective due to
coagulation. But this statement is not offered to establish the truth of its contents—i.e., that the
twistee shots had coagulated—rather, it is included to establish that Smart received notice of the
defect. The Court therefore concludes that no violation of Rule 802 is established. See United
States v. Bello, No. 3:11-CR-00127-JHM, 2013 WL 2285974, at *5 (W.D. Ky. May 23, 2013).
In their objection to paragraph 8 of the declaration, Defendants assert that Smart lacked
personal knowledge of the MHW inventory of Smart Beverage’s twistee shots, which showed
that 4,021 of the 8,587 cases of defective product remained at MHW’s warehouse.

This

statement also is challenged as being hearsay and lacking in authentication. The Court once
56

See, e.g., D.N. 96-1–96-3; 96-24.
15

again is compelled to reject these objections. Smart is the individual who directly requested that
MHW take the inventory discussed in paragraph 8.

He therefore obviously had personal

knowledge of his own request. Defendants offer no explanation for their belief that the inventory
results are inauthentic. The inventory results appear to have been printed upon a Western Wine
and Warehouse receipt that includes a customer number, date, product description, inventory
code, and lot number.57 These unique circumstances would appear to rebut any claim that the
warehouse receipt is not authentic. See Fed. R. Evid. 901(b)(4).
The handwritten notes that appear on the warehouse receipt, however, would potentially
run afoul of Rule 901 if Smart Beverage is unable to introduce admissible evidence as to the
circumstances surrounding the creation of these notes on the receipt. But Smart’s electronic
correspondence with Leanne Byers of Independent Liquor provides a context for these
notations.58 This is enough for the Court to deny the objection without prejudice to Defendants
to renew the same at trial depending upon further development of the evidence. As for the
hearsay objection, the Court again agrees that the business-records exception of Rule 803(6)
applies; thus, the objection will also be overruled.
The Court rejects Defendants’ objections to paragraph 9 of Smart’s declaration. This
paragraph indicates that 8,587 cases of twistee shots were unsaleable so that once the remaining
number of cases in the warehouse (some 4,021 cases) were identified as unsaleable, Smart
Beverage was compelled to destroy such cases. Defendants again object based upon lack of
personal knowledge and hearsay. Their primary objection, however, appears to be the use of the
term “unsaleable,” which Defendants contend is conclusory.

The Court rejects this

characterization as it fails to consider the full context of the evidence, which includes the
57
58

D.N. 96-19, PageID # 1829.
D.N. 96-20, PageID # 1848–56.
16

exchange of e-mails between Smart and Byers in which Byers acknowledges the coagulation
problem with the 8,587 cases of defective product.59 Defendants may elect to dispute the nature
and extent of the coagulation problems, but their apparent disagreement with Smart Beverage is
not a basis to exclude the contents of paragraphs 8 or 9. Defendants will have the opportunity to
persuade the jury that the 8,587 cases of twistee shots were not unsaleable and that Smart
Beverage was not forced to destroy them.
Defendants’ objection to paragraph 11 of the declaration relates to Smart’s statement that
the seven-day notice provision of the distribution agreement was not enforced by Independent
Liquor, and in any event, was impractical given Smart Beverage’s reliance upon MHW to
receive, store, and distribute Independent Liquor’s products. Defendants initially object on
grounds of relevance. The objection is a curious one given that Defendants argue that lack of
adequate notice is one basis of several on which to grant them summary judgment. It is therefore
difficult to conclude that the contents of paragraph 11 are irrelevant, or that Smart has no
personal knowledge that the seven-day notice provisions were not enforced. Had the provisions
been enforced, presumably Smart would have been one of the first individuals outside of
Independent Liquor to be aware of such enforcement. Thus, no violation of Rule 401 or 602
appears on the face of the record. The objections to paragraph 11 will be overruled.
The Court also overrules the lack-of-authentication, hearsay, and lack-of-personalknowledge objections to paragraph 12 of the Smart declaration. In this paragraph, Smart avers
that approximately 4,566 cases of defective twistee shots were shipped to Smart Beverage’s
wholesalers based on the e-mail correspondence with Independent Liquor, which indicated that
8,587 cases of defective product were shipped to Smart Beverage, less the results of the MWH

59

D.N. 96-19, PageID # 1821.
17

warehouse inventory that showed 4,021 such cases remaining in the warehouse in May of 2009.
Defendants renew their \objections based on lack of authentication, hearsay, and lack of personal
knowledge. The reasons for rejecting these arguments as to the preceding paragraphs of the
declaration apply with equal force here. The documents from which these numbers are taken
appear admissible, including the MHW warehouse receipt with the proviso that the handwritten
notes thereon may be subject to further scrutiny at a later date absent further explanation of their
origin. Otherwise, no additional discussion is necessary, and the objections to paragraph 12 will
be overruled for the same reasons stated above.
Paragraphs 13 and 14 of the Smart declaration address the “out-of-rotation” problem with
Independent Liquor products shipped to Smart Beverage in late 2008, with a “Best Before” date
prior to the “Best Before” dates on other Independent Liquor twistee-shot products already
offered for sale. Smart, in paragraph 13 of his declaration, indicates that this out-of-rotation
problem led Smart Beverage clients to refuse to accept the twistee shots with the earlier “Best
Before” date. Paragraph 14 continues that as a result of these events involving the out-ofrotation product and the defective coagulated product, MHW destroyed approximately 8,709
cases of twistee shots shipped to it by Independent Liquor as being unsaleable. As before,
Defendants base their objections on lack of personal knowledge, hearsay, and lack of foundation.
These objections are not well taken. For example, the record can reasonably be read to indicate
that Smart had personal knowledge of the out-of-rotation problem based on his own inspection of
the storage warehouse in mid-2009, after he became aware that customers were rejecting the outof-rotation product.60 Such circumstances satisfy Rule 602 and its requirement of personal
knowledge. Likewise, no basis exists to challenge the personal knowledge of Smart with respect

60

D.N. 96-2, PageID # 1679–80.
18

to the destruction of the out-of-rotation twistee shots in August 2010, given that Smart testified
that he was the individual who ordered the destruction.61 The Court also concludes that although
Defendants object based upon Rule 802 and its prohibition against the introduction of hearsay
Defendants do not specify which statement they believe violates the hearsay rule. Accordingly,
the objections to paragraphs 13, 14, and 15 are overruled.
Defendants object to paragraph 16 citing lack of personal knowledge, lack of
authentication, and arguing that it relies upon hearsay. In paragraph 16, Smart identifies the cost
per case of the 8,709 cases that were allegedly destroyed—a total of $280,342.50—in relation to
the sale price for each case of $48, for a total sale price of $418,332. The difference represents a
potential lost profit of $137,689.50 due to the destruction plus the original $280,342.50 payment
for the 8,709 cases. Defendants insist that Smart had no personal knowledge of the cost per case,
their sales price, or the lost profit due to the alleged destruction of the cases. But this argument
is unpersuasive. First, Smart operated Smart Beverage himself out of his home. He therefore
had personal daily involvement in the operation of the business and was not merely a passive
investor. It would hardly be remarkable that the sole owner of a business might know what he
paid for the products he sells or the price for which he sells them. Calculation of the difference
is merely a mathematical matter. While Defendants disagree with the need for the number of
twistee-shot cases destroyed, there is no basis under the cited rules to exclude Smart’s testimony
based upon a lack of personal knowledge, hearsay, or lack of authentication. And Defendants
once again fail to identify the hearsay statement that Smart allegedly relied on in paragraph 16 to
calculate his cost, sales price, and lost profit.

61

D.N. 99-3, PageID # 2130–33; D.N. 99-4, PageID # 2136.
19

Relevance under Rule 401 is the basis for the final objection to paragraph 17. Defendants
argue, in effect, that the issuance of credits by Smart Beverage for defective or out-of-rotation
products is unrelated to the question of damages because only upon honoring such credits would
Smart Beverage be out of pocket any money. That logic does not render issuance of the credits
irrelevant. It simply sets up the legal argument that Smart Beverage’s proof of damages fails to
the extent it relies solely upon the issuance of credits rather than the act of honoring them.
Accordingly, there is no Rule 401 violation with respect to paragraph 17. Again, the objections
will be overruled.
2. Objections to Michael Howard’s Expert Witness Report
Defendants also object to the expert witness report of Michael Howard found at exhibit
38 to Smart Beverage’s opposition. Howard is Smart’s former supervisor, as well as the CEO of
Prairie Creek Beverages, LLC, with 25 years of experience in the sale and marketing of alcoholic
beverages within and outside the United States.62 Based on his experience and his review of the
amended complaint, along with his personal knowledge of Smart Beverage and the market for
twistee shots, Howard concludes initially in his expert report that Defendants are not “true brand
owners” of twistee shots. Rather, they are “co-packers” given the absence of the type of market
support that is standard in the industry for a true brand owner to provide. 63 Howard concludes
that Smart Beverage would never disclose detailed financials without a specific confidentiality
agreement, as it is not standard practice to disclose such proprietary information. Co-packers, in
Howard’s view, do not ordinarily receive detailed information concerning “pricing, incentives,
budget, overhead and distributor-related payment terms.”64 Howard concludes that the type of

62

D.N. 96-38.
Id., PageID # 2021.
64
Id.
63

20

information disclosed by Smart Beverage to Defendants “is the heart of Smart Beverage’s place
in the U.S. spirits business.”
Because Defendants were not true brand owners, Howard concludes, they would not
otherwise have available information on market pricing and programming. Unlike a brand
producer, Defendants were not involved in these areas of Smart Beverage’s business.65
Ultimately, Howard concludes that Smart Beverage provided proprietary information to
Defendants, which is not the standard in the U.S. market.66 In Howard’s view, this proprietary
information provided a competitive advantage to Defendants.
Defendants now seek to exclude Howard’s expert report in its entirety based upon the
requirements of Fed. R. Evid. 702, as well as Daubert v. Merrell Dow Pharmaceuticals, Inc.,
509 U.S. 579, 597 (1993) and Kumho Tire Co. v. Carmichael, 526 U.S. 137, 147–48 (1999).
Defendants argue that Howard’s opinions are inadmissible because he did not have a sufficient
factual basis upon which to render such opinions. They point out that Howard did not review
any deposition testimony, written discovery responses, or the full provisions of the distribution
agreement. In their view, the expert report is little more than a series of conclusions on the
ultimate legal issue that, absent adequate factual support, are unhelpful and do not preclude
summary judgment.
Howard’s testimony appears relevant only to Counts V and VI of the complaint, which
state the plaintiff’s claims for breach of the confidentiality agreements and the misappropriation
of trade secrets.67

Given the Court’s decision to grant Defendants’ motion for summary

65

Id. at PageID # 2022.
Id.
67
See id.
66

21

judgment on these claims, infra Part IV.E., consideration of Defendants’ objections to Howard’s
opinion testimony is unnecessary at this stage.68
3. Objections to Smart Beverage’s Other Exhibits
The final set of objections involves the exhibits that accompany Smart Beverage’s
opposition to the summary judgment motion.69 Defendants object to exhibits 5, 10, 13, 14, 16,
18, 19, 20, 22, and 23. Again, the objections are based largely on a supposed lack of relevance
under Rule 401, lack of adequate foundation under Rule 602, and lack of authentication under
Rule 901. The Court has previously discussed the standards that apply to all three of these
Rules. Given the nature of the objections and the evidence involved, an extended discussion of
the details of each objection is neither necessary nor helpful.
The Court will overrule Defendants’ objection to exhibit 5 to Smart Beverage’s
opposition. The exhibit is an unexecuted letter agreement between Smart and MHW setting
forth the details of the warehousing and distribution agreement between the two companies. As
Smart Beverage points out, it is undisputed that MHW provided both warehousing and
distribution services to Smart Beverage during the course of its distribution agreement with
Defendants. Smart has so testified, and the letter agreement merely reflects such testimony. The
topic of the letter is undoubtedly relevant.
The authenticity of the letter does not appear to be in question, given that the document
was generated on MHW letterhead. Further, following the amendment to Rule 56 in 2010, no
“unequivocal requirement [exists] that documents submitted in support of a summary judgment
motion must be authenticated.” Abbott v. Elwood Staffing Servs., Inc., 44 F. Supp. 3d 1125,

68

If Howard’s opinion testimony is offered by Plaintiff at a later time in support of the remaining
claims, the Court will consider any objections separately.
69
D.N. 96.
22

1134 (N.D. Ala. 2014) (discussing Alexander v. CareSource, 576 F.3d 551, 558–59 (6th Cir.
2009)). The proponent of the challenged evidence may cite to materials in the record (e.g.,
depositions, documents, electronically stored information, affidavits, or declarations) that will
satisfy such objection, and only if the evidence cannot be presented in an admissible form,
despite reference to such other matters in evidence, will it be subject to exclusion. Id. at 1134
(citing Fed. R. Civ. P. 56, advisory committee’s note). Because Defendants have not established
that the letter agreement cannot be admitted as presented when considered along with the other
anticipated evidence at trial, this objection will be overruled.
The Court will also overrule Defendants’ lack-of-foundation objections as to exhibits 10,
18, 20, 22, and 23. These objections call into question the need for personal knowledge of a
witness under Rule 602. Because each of the cited objections involves a document, rather than
the testimony of a witness, Rule 602 does not appear to be applicable. Defendants cite no
decision which would support a contrary view. So long as Smart Beverage is able to produce an
individual such as Smart who has personal knowledge of each of the documents, the rule will be
satisfied to permit introducing each of the documents at issue into evidence. Such testimony
would also satisfy Rule 901. Because it appears that Smart was directly involved in either the
creation or the exchange of each of the documents identified by the above exhibit numbers, and
therefore will be able to testify by personal knowledge concerning the circumstances of their
creation or exchange, the objections to the cited exhibits will be overruled.70

70

The ruling of the Court is not based on Smart Beverage’s argument that Rule 602 has no
application to documents. Only if Rule 602 is read in isolation, without consideration of Rule
901, would such a position potentially apply. Rule 602, however, must be considered in
conjunction with Rule 901 when a party raises an objection to a document based on lack of
authentication and inadequate foundation.
23

The Court likewise overrules Defendants’ objections to exhibits 13, 14, 16, and 19.
These exhibits all involve the joint venture proposal that Defendants explored with Smart
Beverage prior to terminating Smart Beverage’s exclusive importer relationship. Defendants
appear to claim that because no joint venture was ever formalized, the documents are irrelevant
under Rule 401. The Court cannot accept this reasoning. Smart Beverage’s trade-secrets claim
largely depends upon understanding the parties’ relationship and why Smart Beverage provided
Defendants with all of the business information that it did. Without the introduction of the
challenged documents, the jury simply would not understand the situation. The mere fact that a
joint venture arrangement was never consummated is not determinative.

Accordingly, the

objections based on Rule 401 will be overruled.
III. SUMMARY JUDGMENT STANDARD
Summary judgment is proper “if the movant shows that there is no genuine dispute as to
any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P.
56(a). In evaluating a motion for summary judgment, first, “a party seeking summary judgment .
. . bears the initial responsibility of informing the district court of the basis for its motion[ ] and
identifying those portions of [the record] which it believes demonstrate the absence of a genuine
issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 232 (1986) (internal citations
omitted); see also LaPointe v. United Autoworkers Local 600, 8 F.3d 376, 378 (6th Cir. 1993).
The movant may do so by merely showing that the nonmoving party lacks evidence to support an
essential element of its case for which it has the burden of proof. See Celotex Corp., 477 U.S. at
323. To survive summary judgment, it must do more than raise some doubt as to the existence of
a fact; the nonmoving party must produce evidence that would be sufficient to require

24

submission of the issue to the jury. Lucas v. Leaseway Multi Transp. Serv., Inc., 738 F. Supp.
214, 217 (E.D. Mich. 1990).
IV. DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT
The Court will begin by examining the breach-of-warranty claims found in Counts I–III
of the amended complaint, followed by the claim in Count IV for breach of contract in relation to
the distribution agreement.71

The Court will then consider the breach of contract claims

concerning the confidentiality agreements found in Count V and the misappropriation claim
found in Count VI.72 For the reasons set forth below, the Court will deny Defendants’ motion as
to those claims of breach of warranty and breach of the distribution agreement arising from
Independent Liquor’s delivery of the 8,587 cases of coagulated twistee shots to Smart Beverage.
The Court will grant Defendants’ motion as to all other claims.
A. Breach of Express Warranty
Count I of the amended complaint alleges that Defendants created an express warranty
under the terms of the distribution agreement. This express warranty obligated Defendants to
“supply product of marketable quality to Smart Beverage” and further provided that any product
not of marketable quality could be “returned for credit.”73

Smart Beverage claims that

Defendants violated this express warranty when they shipped 8,587 cases of defective twistee
shots to Smart Beverage and then refused to issue full credit for the unsaleable product, thereby
causing Smart Beverage to incur lost profits, storage fees, and the expense of destroying the
unsaleable, defective twistee shots.

71

D.N. 70, PageID # 756–59.
Id., PageID # 759–62.
73
D.N. 89-10, PageID # 1315.
72

25

Kentucky law provides that a seller may create an express warranty through (a) an
affirmation of fact or promise to the buyer that relates to the goods sold and becomes part of the
basis of the bargain; (b) any description of the goods that is part of the basis of the bargain; or (c)
any sample or model that is made part of the basis of the bargain. Ky. Rev. Stat. § 355.2313(1)(a)–(c). Here, however, the parties’ arguments do not focus on the existence of an express
warranty or anyone’s reliance upon it. The April 28, 2006 distribution agreement states in
paragraph 7 that “[Independent Liquor] will at all times supply product of marketable quality to
Smart Beverage. Any product not of marketable quality will be returned for credit, provided
notification is made to [Independent Liquor] within seven days of receipt of goods.”74
Thus, the vital question is not whether an express warranty was created by the provisions
of the distribution agreement, but what, if any, damages have been established to create a
genuine issue of material fact. Damages for breach of warranty are established by Kentucky
statutes, which provide that where a buyer has accepted goods and given notice of a breach of
warranty, he may recover as damages “the loss resulting in the ordinary course of events from
the seller’s breach as determined in any manner which is reasonable.” Ky. Rev. Stat. § 355.2714(1). “The measure of damages for breach of warranty is the difference at the time and place
of acceptance between the value of the goods accepted and the value they would have had if they
had been as warranted, unless special circumstances show approximate damages of a different
amount.” Ky. Rev. Stat. § 355.2-714(2); see Dillon v. Cobra Power Corp., 560 F.3d 591, 600
(6th Cir. 2009) (applying Ky. Rev. Stat. § 355.2-714(2)); Sudamax Industria E Commercio De
Sigaros, Ltda v. Butts & Ashes, Inc., No. 1:05-CV-60-M, 2007 WL 1035144, at *3 (W.D. Ky.
Mar. 29, 2007) (applying Ky. Rev. Stat. § 355.2-714(1)).

74

D.N. 89-10, PageID # 1315.
26

When evaluating damages and whether genuine issues of material fact have been raised,
the Court must consider Kentucky law, which speaks directly to the nature of proof required.
Brundige v. Sherwin-Williams Co., 551 S.W.2d 268, 270 (Ky. Ct. App. 1977), was an action for
lost profits brought by a former employee of the defendant who had been wrongfully enjoined by
his former employer from operating a new retail paint store. The Kentucky Court of Appeals
explained that “the uncertainty which prevents a recovery is uncertainty as to the fact of damage
and not as to its amount and that where it is certain that damage has resulted, mere uncertainty as
to the amount will not preclude the right of recovery.” Id. (quotations omitted). Accordingly,
while damages may not be determined by sheer speculation or guesswork, “it will be enough if
the evidence shows the extent of damages as a matter of just and reasonable inference, although
the result may only be an approximate one.” Id. (citing Flame Coal Co. v. United Mineworkers,
303 F.2d 39 (6th Cir. 1962)); see also Gill v. Burress, 382 SW.3d 57, 63–64 (Ky. Ct. App. 2012)
(“[A]ll recoverable damages are subject to some uncertainties and contingencies, but it is
generally held that the uncertainty which prevents a recovery is uncertainty as to the fact of
damage and not as to the amount. Where it is reasonably certain that damage has resulted, mere
uncertainty as to the amount does not preclude one’s right to recovery or prevent a jury decision
awarding damages.”).
Defendants contend that judgment must be entered in their favor on this claim due to the
failure of Smart Beverage to adequately establish damages. Most of the cases of supposedly
defective twistee shots, according to Defendants, were actually sold by Smart Beverage to its
wholesale distributors. Smart Beverage has never been able to quantify how many of the
allegedly defective 8,587 cases were sold; nor has Smart Beverage ever identified the actual
number of cases that it was unable to sell. Defendants insist that the proof on these two items is

27

so lacking that any award of damages would be based upon sheer speculation. They point out
that while Smart Beverage now claims that it was compelled to issue $168,000 worth of credits
to its wholesale clients to compensate them for the coagulated twistees, Smart Beverage
conceded that it never honored these credits. Defendants view this concession as absolutely
negating the possibility of any damages, particularly where it was Independent Distillers USA
that honored Smart Beverage’s credits.
Defendants also address the offset that they imposed upon Smart Beverage for fluctuation
in the currency exchange rate. They insist that the offset was legitimate and only occurred due to
Smart Beverage’s undisputed delay in paying eight invoices that totaled some $861,000.
Because of this delay, along with fluctuations in the currency exchange rate between the U.S.
and New Zealand dollars, Defendants received $268,505 less than would have been paid at the
exchange rate as it existed when payment was due. Such fluctuations in currency values,
Defendants argue, were an entirely foreseeable consequence of Smart Beverage’s delay.
Defendants conclude that the value of the offset combined with the credits paid by Independent
Distillers USA negates any possible damages.
Smart Beverage argues that a genuine issue of material fact exists regarding the damages
incurred due to the 8,587 cases of coagulated twistee shots. Smart Beverage argues that it is not
required to calculate its damages with mathematical precision in order to establish a triable issue
of fact; rather, it need only show a reasonable basis for its approximate damages for the matter to
be put before a jury. Because Independent Liquor replaced only 4,212 cases of the 8,587 cases
of spoiled product, simple math establishes that 4,375 cases were not replaced. Further, as of
May 2009, MHW confirmed that at least 4,021 cases remained in its warehouses. Calculation of

28

damages therefore is mostly a matter of numerical calculations and credibility determinations by
the finder of fact.
Smart Beverage calculates that given the average sale price per case of twistees of $48
less the average cost per case of $32.50, it lost $15.50 of profit per unsold case of defective
twistee shots, as well as the original purchase cost of the unreplaced, unsold cases. The mere
fact that the parties disagree over the exact number of such cases confirms in Smart Beverage’s
view the existence of a genuine issue of material fact that precludes entry of summary judgment
for Defendants on the breach of express warranty claim contained in Count I of the amended
complaint.
After careful consideration of the record and arguments, the Court concludes that the
uncertainty that exists in the present case does not run to the existence of damages flowing from
the 8,587 cases of defective twistee shots delivered to Smart Beverage, but rather to the existence
of lost profits, a question on which the parties have provided conflicting proof. This conclusion
is confirmed at least in part by a concession in Defendants’ reply, which appears to acknowledge
that certain distributors were refunded in either cash or replacement product by Smart
Beverage.75 These distributors identified by Defendants include Ollinger, RNDCKY, Lipman
Bros., and Beverage Control.

Smart Beverage therefore appears to have at least partially

honored its issued credits or made cash payment to the named distributors above. In either event,
the Court simply cannot say that no genuine issue of material fact exists as to the amount of
damages that Smart Beverage incurred based on its receipt of the 8,587 cases of coagulated
twistee shots. The question is one for the jury.

75

D.N. 97, PageID # 2063.
29

B. Implied Warranty of Merchantability
The next claim to be considered is Smart Beverage’s claim for breach of implied
warranty of merchantability under Ky. Rev. Stat. § 355.2-314, contained in Count II of the
amended complaint.76 Smart Beverage alleges that Defendants breached this implied warranty
of merchantability in two ways: first, by shipping 8,587 cases of coagulated twistee shots, and
second, by shipping cases of twistee shots that were out of proper rotation. Smart Beverage
maintains that it suffered lost profits, storage fees, and the cost of destroying the unsaleable cases
as a result of these events.
Defendants take the same position with regard to Count II of the amended complaint as
they did with regard to Count I: they argue that Smart Beverage has failed to produce sufficient
proof that it suffered any damages. Defendants further note that Smart Beverage never provided
notice to Independent Liquor of a problem with out-of-rotation stock.

Consequently,

Independent Liquor had no opportunity to reclaim the stock in an effort to mitigate its losses by
attempting to resell the out-of-rotation stock in another, more accepting market. Because Smart
Beverage did not give notice of its rejection within a reasonable time after delivery, Defendants
claim that (1) they lost the opportunity to cure and (2) Smart Beverage’s actions constituted an
acceptance under Ky. Rev. Stat. §§ 355.2-605(1)(a) and 355.2-606(1)(c).
Defendants also maintain, based on paragraph 4.3 of the distribution agreement, that
Smart Beverage failed to establish that the 7,500 cases of twistees at issue became out of rotation
prior to the time they left the docks in New Zealand. The distribution agreement expressly
provides that the risk of loss passes to Smart Beverage at the time the goods are delivered free on
board to the vessel for shipment from the wharf of departure. Defendants insist that Smart

76

D.N. 70, PageID # 756–57.
30

Beverage failed to submit proof from which a reasonable jury could find that the rotation
problem arose prior to the risk of loss passing to Smart Beverage. Thus, Defendants maintain
that they are entitled to summary judgment on the warranty-of-merchantability claim based on
the out-of-rotation stock.
All sales contracts between a merchant of goods of that kind and the purchaser in
Kentucky carry an implied warranty of merchantability regarding the goods sold. Ky. Rev. Stat.
§ 355.2-314(1). Unless an implied warranty is excluded or modified by the parties, the warranty
exists by operation of law that goods shall be merchantable. Id.
To be merchantable, goods are required to (a) pass without objection in the trade under
the contract description; (b) be of fair average quality within the description in the case of
fungible goods; (c) be fit for the ordinary purposes for which such goods are used; (d) run within
the variations permitted by the agreement; (e) be adequately contained, packaged, and labeled as
the agreement may require; and (f) conform to the promises or acclamations of fact made on the
container or label. Ky. Rev. Stat. § 355.2-314(2)(a)–(f). An implied warranty may also be
created by the parties’ course of dealing or by usage of trade. See Ky. Rev. Stat. § 355.2-314(3).
A violation of the implied-warranty provisions of § 355.2-314 does not require a plaintiff
to establish reliance, as liability for breach arises automatically by operation of law. Overstreet
v. Norden Laboratories, Inc., 669 F.2d 1286, 1289 (6th Cir. 1982). Nonetheless, privity of
contract must exist between the parties in order for one to successfully rely upon the implied
warranty of merchantability. Levin v. Trex Co., Inc., No. 3:10-CV-692-CRS, 2012 WL 7832713,
at *1–2 (W.D. Ky. Mar. 5, 2012) (“We hold that without a direct buyer-seller relationship,
plaintiff’s claim for breach of implied warranty against defendant fails as a matter of law.”);
Roberts v. Solideal Tire, Inc., No. 06-14-DLB, 2007 WL 2990536, at *2 (E.D. Ky. Oct. 10,

31

2007) (finding privity required for breach of warranty, breach of implied warranty, and breach of
implied warranty of fitness for a particular purpose).
The language of the express warranty contained in paragraph 7 of the distribution
agreement does not exclude or modify any implied warranty of merchantability that might arise
under Ky. Rev. Stat. § 355.2-314(1), nor is its language inconsistent with the provisions of the
statute. To the contrary, the language directly parallels the purpose of § 355.2-314 to the extent
that it requires Defendants to “supply product of marketable quality to Smart Beverage.” This
language seems to expressly incorporate into the parties’ contract the statutory requirement that
the twistee shots be of fair and average quality within the contract description.
The Court concludes that Defendants are entitled to summary judgment as to Smart
Beverage’s claim concerning the 7,500 cases of out-of-rotation stock. Smart Beverage accepted
this stock without objection. Consequently, Independent Liquor was never given pre-litigation
notice by Smart Beverage of any possible issue with this stock that would afford Independent
Liquor the opportunity to mitigate its damages. Once goods are accepted, Ky. Rev. Stat. §
355.2-601(1) dictates that the buyer “must pay at the contract rate for any goods accepted.”
Acceptance of goods by the buyer precludes their rejection, and if made with knowledge of the
nonconformity, cannot be revoked, though acceptance does not impair the buyer’s ability to
pursue other statutory remedies. See Ky. Rev. Stat. § 355.2-607(2).
Defendants are entitled to summary judgment based on the express language of the
distribution agreement itself. Paragraph 4.3 states:
Risk in the products shall pass to Smart Beverage at the time they are
delivered free on board the vessel for shipment from the wharf of
departure unless the goods are shipped on a CIF77 basis in which case risk

77

Cost, insurance, and freight.
32

shall pass upon arrival at the wharf in the USA. Title to the goods will
pass on payment.78
This language reveals that Smart Beverage, not Defendants, bore the risk that it would receive
out-of-rotation stock once the 7,500 cases of twistee shots were loaded onboard the shipping
vessel in New Zealand. The only proof submitted by Smart Beverage with respect to whether
the goods were out of rotation at a particular time is found in the communications from Western
Carriers, which advised Smart that the warehouse followed its first-in-first-out policy with
respect to distribution of the product. This evidence does not satisfy Smart Beverage’s burden to
establish that the out-of-rotation problem arose prior to the time that Smart Beverage
contractually assumed the risk of loss. Put differently, the assurance of Western Carriers that it
did not get the stock out of rotation does not permit Smart Beverage to avoid the very risk it
contractually assumed by operation of paragraph 4.3 of the distribution agreement. Absent any
proof, direct or circumstantial, that the rotation problem arose prior to shipment from the dock of
departure, Smart Beverage is precluded as a matter of law under the express terms of the parties’
distribution agreement from any recovery on this particular aspect of its suit.79
Nothing in the applicable statutes prevents a contracting party from consciously assuming
the risk of a particular contingency. See generally Teco Coal Corp. v. Orlando Utils. Comm’n,
No. 6:07-CV-444-KKC, 2010 WL 8750622, at *9 (E.D. Ky. Sept. 17, 2010) (discussing a
seller’s assumption of the risk in the context of a claim of commercial impracticability arising
under Ky. Rev. Stat. § 355.2-615); see also Cohen v. Northridge Farms, Inc., 712 F. Supp. 1265,
1270–71 (E.D. Ky. Mar. 29, 1989) (noting that it is possible for a party to a contract to assume
the risk of every chance occurrence). Such a provision shifts the risk of loss to the buyer
78

D.N. 89-10, PageID # 1314 (footnote added).
D.N. 96-2, PageID # 1679. Smart conceded upon questioning that he did not know when the
three containers of product got out of rotation.

79

33

irrespective of any express or implied warranties. See Roberts v. Lanigan Auto Sales, 405
S.W.3d 882, 884–85 (Ky. Ct. App. 2013) (discussing assumption of the risk in the context of “as
is” clauses under Ky. Rev. Stat. § 355.2-316). Indeed, the parties are afforded broad discretion
to enter into an agreement that provides for remedies in addition to, or in place of, those
available under the statute and may limit or alter the measure of damages recoverable. See Ky.
Rev. Stat. Ann. § 355.2-719(1)(a). Because Smart Beverage agreed to assume the risk of out-ofrotation stock once it was shipped from New Zealand, and because Smart Beverage offers no
proof that the stock came out of rotation prior to the time of such shipment, the provisions of the
distribution agreement preclude Smart Beverage as a matter of law from recovering any damages
allegedly related to the rotation problem with the 7,500 cases of twistee shots.
C. Implied Warranty of Fitness for a Particular Purpose
Defendants also seek summary judgment with respect to Count III of the amended
complaint. This count asserts a claim for breach of implied warranty of fitness for a particular
purpose under Ky. Rev. Stat. § 355.2-315. The statute provides that if a seller has reason to
know at the time of contracting of any particular purpose for which the goods are required, and
the buyer is relying on the skill or judgment of the seller to furnish suitable goods, then an
implied warranty that the goods shall be fit for that particular purpose arises unless it is excluded
or modified by the parties according to Ky. Rev. Stat. § 355.2-316.
The amended complaint alleges that the delivery of the 8,587 cases of coagulated twistee
shots violated the implied warranty of fitness for a particular purpose. Smart Beverage makes
the same allegation with respect to the 7,500 cases of out-of-rotation stock and as to the
previously mentioned “short-coded” stock with an impending “Best Before” date that prevented
its sale. Smart Beverage seeks to recover lost profits, expenses of destruction, and storage fees.

34

In their motion for summary judgment, Defendants argue that by its very language
§ 355.2-315 cannot apply. Twistee shots, Defendants explain, are fungible, branded, consumer
products that are not sold for any “particular purpose,” but rather are sold in their entirety for the
ordinary purpose for which such goods are intended—that is, to be consumed by adults as
alcoholic beverages. Accordingly, Defendants conclude that § 355.2-315 has no application to
the coagulated twistee shots, the out-of-rotation stock, or the short-coded stock—all of which
were sold for their ordinary purpose and for no other reason.
Smart Beverage counters that such arguments are misleading. It asserts that a twistee
shot is a dairy-based alcoholic beverage that is “highly specialized relative to other alcoholic
beverages.” Accordingly, the “particular purpose” within the meaning of § 355.2-315 was the
obligation of Defendants, as sellers, to provide a specialized product to customers and Smart
Beverage relied on Defendants’ expertise in this respect, to its detriment. At a minimum, Smart
Beverage concludes that there are material issues of fact due to the specialized nature of the
twistees, which fall within the statutory definition of § 355.2-315.
The Court disagrees. A plaintiff who seeks to recover under Ky. Rev. Stat. § 355.2-315
based upon a defect in a product must show more than that the product was used for its ordinary
purpose. See Dalton v. Animas Corp., 913 F. Supp. 2d 370, 378 (W.D. Ky. 2012) (finding claim
for breach of implied warranty of a fitness for a particular purpose failed where plaintiff showed
nothing more than that she used insulin pump for its ordinary purpose). Before a plaintiff may
recover under § 355.2-315, he or she must establish two general facts: first, that the seller was
aware at the time of the contract that the buyer had intended a particular purpose for the goods;
second, that the buyer relied on the skill or judgment of the seller to supply goods suitable for
that particular purpose. Travelers Prop. Cas. Co. of Am. v. Rapid Power Corp., No. 5:12-CV-

35

00038-R, 2013 WL 1898833, at *8 (W.D. Ky. May 3, 2013) (citing Price Bros. Co. v.
Philadelphia Gear Corp., 649 F.2d 416, 423 (6th Cir. 1981)).
The court applied these requirements in Bland v. Abbott Laboratories, Inc., No. 3:11-CV430-H, 2012 WL 32577 (W.D. Ky. Jan. 6, 2012). In Bland, parents of an infant claimed breach
of implied warranty of fitness for a particular purpose under § 355.2-315 following the recall of
Similac formula prompted by the discovery of dead beetles in boxes of finished product at the
production plant. Id. at *2. The district court granted summary judgment, explaining that the
plaintiffs used Similac for its ordinary purpose—feeding an infant. Bland, 2012 WL 32577, at
*2. (“Absent an allegation plaintiffs had a particular purpose that Abbott would have reason to
know, this claim must be dismissed.”) Therefore, their claim was for breach of warranty of
merchantability, not fitness for a particular purpose. Id.
The same reason that compelled dismissal in Bland applies to Smart Beverage’s claims in
Count III of its amended complaint. Nowhere does Smart Beverage allege a particular purpose
in its amended complaint, nor does Smart Beverage in its opposition to summary judgment
explain what particular purpose existed that would put its allegations within the purview of §
355.2-315. Nothing in the record indicates that the twistee shots sold by Defendants were to be
used for anything other than their ordinary purpose—consumption by adult beverage-drinkers.
Accordingly, Defendants are entitled to judgment as a matter of law on Count III of the amended
complaint given the failure of Smart Beverage to satisfy the requirements of the statute.
D. Breach of Contract
In Count IV of its amended complaint, Plaintiff alleges that Defendants breached the
distribution agreement by shipping 8,587 cases of defective, coagulated twistee shots and failing
to honor their contractual promise to fully refund or replace this unsaleable product after

36

receiving timely notice of the defect. Smart Beverage points to the distribution agreement
language that imposed an obligation on Defendants “at all times [to] supply product[s] of
marketable quality to [Smart Beverage].”80 Smart Beverage alleges that it provided proper
notice of the coagulation defect to Defendants, who, despite their contractual obligation to
provide full credit, only replaced fifty percent of the spoiled twistee shots. Smart Beverage
further alleges that Defendants provided no refund or replacement products for the out-ofrotation stock, which also was allegedly unmarketable.
The Court previously considered the breach-of-warranty claims of Smart Beverage as
they relate to the cases of coagulated twistee shots, concluding that genuine issues of material
fact exist. The Court reaches the same conclusion with respect to Smart Beverage’s breach-ofcontract claim.

Paragraph 7 of the distribution agreement required Defendants to provide

products of marketable quality. The coagulated twistee shots failed to satisfy this requirement.
Thus, as before, the focus of the parties’ dispute falls upon the appropriate measure of damages.
The Court therefore concludes that summary judgment is inappropriate on Smart Beverage’s
claim for breach of contract arising from the coagulated product shipped by Defendants.
Smart Beverage separately alleges in Count IV that Defendants breached the distribution
agreement by unilaterally imposing a currency exchange rate credit to offset the replacement
product owed to Smart Beverage. Smart Beverage maintains that the distribution agreement
provided no basis for the imposition of such a credit. The agreement instead provided in its
pricing and credit term: “Prices for goods supplied CIF $44.00 200ml and $29.00 100ml per case
as stated in the First Schedule. . . Pricing will be reviewed every six months. . . .”81 The first
schedule, Smart Beverage points out, expressly stated that payment was CIF prices and U.S.
80
81

D.N. 96-4, PageID # 1692.
D.N. 89-10, PageID # 1315.
37

dollars.82 Smart Beverage argues that based on this contractual language, Defendants’ unilateral
decision to impose the $124,687 currency exchange rate credit violated not only the express
language of the parties’ distribution agreement, but also their course of dealing as set forth in §§
355.1-303(1)(a) and (b).
In response, Defendants insist that the application of currency rate fluctuation offset was
appropriate. As a result of Smart Beverage’s delay in paying for the 4,375 cases, Defendants
explain, the value of the payment was reduced due to the weakening of the U.S. dollar against
the New Zealand dollar. Had Smart Beverage paid the eight outstanding invoices totaling
$861,770 within 90 days as required under the contract, Defendants would have received
$1,427,307 NZD. Instead, during the delay, currency fluctuations caused the value of the U.S.
dollar to drop and Defendants received only $931,960 NZD.
Defendants argue that this decline in the currency value of the dollar was a foreseeable
consequence of Smart Beverage’s delay in honoring its contractual payment obligations. Citing
Walther & CIE v. USTD & Guarantee, 397 F. Supp. 937 (M.D. Pa. 1975), they conclude that
their imposition of the currency exchange rate credit was not a violation of the contract and was
appropriate under the circumstances.

Alternatively, Defendants maintain that any potential

damages due Smart Beverage for breach of contract are more than offset by Defendants’ own
losses, given the credits honored by Independent Distillers USA that Smart Beverage issued but
did not itself honor and the exchange rate losses due to Smart Beverage’s belated payment of the
eight invoices.
As for the credit imposed by Defendants due to the fluctuation in the exchange rate
between the U.S. dollar and the New Zealand dollar, there appears to be no specific language in

82

D.N. 70, PageID # 759.
38

the contract that would permit Defendants to unilaterally impose such a credit to offset their
obligation to make good on the remaining 4,375 cases of coagulated twistee shots. The Court is
unable to determine from the record exactly how many of these 4,375 cases were sold by Smart
Beverage, and how many of these sales were later offset by credits that were both issued and
honored by Smart Beverage, as opposed to those credits that ultimately were honored by
Independent Distillers USA. Thus, genuine issues of material fact exist as to these questions.
Such issues preclude the Court from disposing of the breach-of-contract claim involving the
coagulated twistees as a matter of law to the extent that Defendants rely on a currency exchange
rate fluctuation offset to reduce their potential liability.
Defendants’ argument finds no support, however, in the contract language of the parties’
distribution agreement and inadequate support in Walther & Cie, which involved a settlement
agreement expressly conditioned in part on the timely delivery of a promissory note by an
American defendant to a German plaintiff. 397 F. Supp. at 940. The Walther & Cie court
concluded that the loss due to the fluctuation of the currency exchange rate due to late delivery
of the note was a form of damages that was not only reasonably foreseeable, but was itself within
the contemplation of the parties to the agreement. Id. at 945. Here, by contrast, it does not
appear that such an offset was within the contemplation of either party to the distribution
agreement, particularly given that Independent Liquor had never previously imposed such an
offset on any of its importers or distributors. Thus, the calculation of damages potentially due
Smart Beverage cannot be automatically reduced by the currency exchange rate fluctuation as
Defendants maintain. A jury will have to sort out this matter.
The Court reaches a different conclusion with respect to the “short-coded” product that
Smart Beverage knowingly accepted at a substantial discount as part of Defendants’ obligation to

39

replace the coagulated twistee shots. Smart Beverage agreed to receive 1,136 cases of shortcoded stock with the understanding that these cases would be the equivalent of 852 cases of
replacement stock for the defective twistees. In other words, Smart Beverage received an
additional 284 cases of twistee shots as part of its bargain for accepting product that it knew had
a closer “Best Before” date.
As Defendants correctly point out, Smart Beverage has presented no evidence that any of
the cases had passed their “Best Before” date when it knowingly entered into this bargain.
Likewise, Smart Beverage offers no evidence that Defendants unreasonably delayed shipping the
short-coded stock. And critically, Smart admitted during his deposition that Smart Beverage is
not seeking damages for the short-coded stock.83 Smart acknowledged that Smart Beverage
should have made additional efforts to market the short-coded stock more quickly.84 In other
words, the problem was not that the stock had an imminent expiration date, or “Best Before”
date, which Smart Beverage was well aware of, but that Smart Beverage failed to market
effectively the time-sensitive beverages. Because Smart Beverage knowingly received the shortcoded twistee shots, Defendants are entitled to summary judgment on Smart Beverage’s claims.
E. Breach of Confidentiality Agreements and Misappropriation of Trade Secrets
Counts V and VI of the amended complaint outline Smart Beverage’s claims that
Defendants violated the confidentiality agreements of March 2008 and September 2009, as well
as Kentucky’s Uniform Trade Secrets Act (UTSA), Ky. Rev. Stat. Ann. § 356.880, et seq.85
Smart Beverage claims that Defendants acted in the “guise” of evaluating its business for a
potential joint venture. This subterfuge led Smart Beverage to produce confidential business
83

D.N. 92-7, PageID # 1593 (responding “no” when asked if the short-coded stock is something
for which he was seeking damages).
84
D.N. 99-3, PageID # 2131.
85
D.N. 89-12; D.N. 90-5.
40

information, which the confidentiality agreements required to be used solely to evaluate Smart
Beverage’s potential as an acquisition, or a joint venture partner, of Defendants. Rather than
make such evaluation in good faith, Smart Beverage contends that Defendants took Smart
Beverage’s confidential business information concerning costs, pricing, profits, and sales history
and misused it to establish its own distribution company in the United States, Independent
Distillers USA, after abruptly terminating Smart Beverage’s relationship as exclusive importer
and distributor. Smart Beverage claims that as a result of the breach of the confidentiality
agreements, it suffered lost profits, storage fees, and expenses for the destruction of unsaleable
twistee shots.
In Count VI of the amended complaint, Smart Beverage contends that it provided
confidential information to Defendants, who were supposedly engaged in due diligence to
determine the possibility of a joint venture. As part of a “route-to-market” review, Smart
Beverage provided Bruce Herman with confidential business information that constituted trade
secrets within the meaning of § 1 of the UTSA, Ky. Rev. Stat. § 356.880(4). This information,
according to Smart Beverage, included financial records such as cash on hand, accounts
receivable and payable, price structures for customers, sales history of Independent Liquor
products as well as competitors’ products, and special incentive plans given by Smart Beverage
to its preferred customers.
Smart Beverage now insists that none of the above information was generally known, nor
was it readily ascertainable. Smart Beverage alleges that it derived economic benefit from this
business information and made reasonable efforts to protect it from unnecessary disclosure, such
as the execution of two confidentiality agreements with Defendants. Smart Beverage claims that
Defendants improperly used its trade secrets in a surreptitious effort to develop, incorporate, and

41

operate Independent Distillers USA. It maintains that this misappropriation of trade secrets
allowed Defendants to quickly and inexpensively take over Smart Beverage’s North America
market without having to expend the amount of time, money, and effort that would otherwise
have been required.
Defendants’ actions, according to Smart Beverage, constitute misappropriation in
violation of the UTSA, Ky. Rev. Stat. § 365.880(2)(a). Accordingly, Smart Beverage alleges
that it is entitled to recover damages under § 2 of the UTSA, Ky. Rev. Stat. § 365.884, as
measured by profits lost from its inability to continue to distribute twistee shots to its former
customers, along with damages for unjust enrichment that Defendants enjoyed as a result of their
misappropriation of trade secrets. Because this misappropriation was willful, Smart Beverage
asserts it is entitled also to recover exemplary damages under § 3 of the UTSA, Ky. Rev. Stat. §
365.884(2).
The UTSA, by operation of Ky. Rev. Stat. § 365.892, replaces all conflicting tort and
other state law that provides civil remedies for the misappropriation of a trade secret. The Act
does not, however, affect remedies agreed upon by parties to a contract, whether or not based on
the misappropriation of a trade secret. Ky. Rev. Stat. § 365.892(2)(a)–(b). The UTSA provides
a civil remedy for misappropriation of trade secrets, but only if the plaintiff first can show that
the information misappropriated qualifies as a trade secret under the statutory definition; and
second, that the defendant misappropriated such information. Id. Under § 365.880(4), a trade
secret is defined as information that derives independent economic value, either actual or
potential, from not being generally known or readily ascertainable by proper means to other
persons who could obtain economic value from its disclosure or use.

Ky. Rev. Stat. §

365.880(4)(a). Under the same subsection, the definition of trade secret also requires that the

42

owner of the trade secret make reasonable efforts under the circumstances to maintain its
secrecy.

Ky. Farm Bureau Mut. Ins. Co. v. Hopper, No. 2002 SC-0774-MR, 2003 WL

22415748, at *4 (Ky. Oct. 23, 2003); see also Autochannel v. Speedivision Network, LLC, 144 F.
Supp. 2d 784, 795 (W.D. Ky. 2001) (“To prevail under KUTSA, Plaintiffs must show both
misappropriation and that the information misappropriated qualifies as trade secrets under
KUTSA.”).
A failure in either respect will result in dismissal of the claim as a matter of law.
Autochannel, Inc., 144 F. Supp. 2d at 795. If the alleged trade secret is readily ascertainable
through proper means, irrespective of the efforts of the plaintiff to keep the information
confidential, then it does not satisfy the statutory definition. Id. (citing West. Med. Consultants,
Inc. v. Johnson, 80 F.3d 1331, 1337 (9th Cir. 1996) (holding that information compiled from
generally known and accessible sources does not qualify for protection under Oregon’s version
of the UTSA).
Further, a plaintiff who publishes or otherwise makes available information asserted to be
a trade secret, thereby making it readily ascertainable to many people through proper means, will
likewise fail to satisfy the two-part test under § 355.880(4). Id., 144 F. Supp. 2d at 795
(plaintiff’s promotional publications of concept for a cable channel dedicated to automotive
enthusiasts and wide distribution of pilot episodes transformed the allegedly protected trade
secrets into information readily ascertainable by the public removing it from the Kentucky
statutory definition of trade secret). The complete failure of a plaintiff to require the party
receiving disclosure to enter into a confidentiality agreement to protect the alleged trade secrets
has been held to be “one clear way to waive any trade secret protection that might exist.” BDT
Prods., Ltd. v. Lexmark Int’l, Inc., 274 F. Supp. 2d 880, 891 (E.D. Ky. 2003), aff’d 124 F. App’x.

43

329 (6th Cir. 2005) (plaintiff could not establish that information constituted a trade secret where
plaintiff disclosed all of its alleged trade secrets to defendant over the course of a year without
securing protection for the disclosure, thereby failing to take reasonable steps to maintain
secrecy). Waiver also occurs if the disclosing party enters into an agreement but places few or
no restrictions on the uses a third-party may make of the alleged trade secrets. Id.
Even when a plaintiff is able to establish the existence of a trade secret under Ky. Rev.
Stat. § 365.880(4), the plaintiff still must prove that the defendant misappropriated the trade
secret for its own beneficial use without the plaintiff’s express or implied consent. Id. at 893–94.
Information that is readily obtainable by proper means, such as a customer list that is known to
the industry, or that may be obtained through legitimate channels, such as from an internet search
or by calling on local businesses, is not a protected trade secret. ATC Dist. Group, Inc. v.
Whatever It Takes Transmissions & Parts, Inc., 402 F.3d 700, 714 (6th Cir. 2005); see also UBS
PaineWebber, Inc. v. Aiken, 197 F. Supp. 2d 436, 447 (W.D. N.C. 2002) (holding that brokerage
firm’s customer lists were not protected trade secrets despite efforts to keep them secret where
information in lists was readily ascertainable through independent means).
Whether a particular type of information constitutes a trade secret is a question of fact.
Fastenal Co. v. Crawford, 609 F. Supp. 2d 650, 671 (E.D. Ky. 2009) (citing KCH Servs., Inc. v.
Vanaire, Inc., No. 05-777-C, 2008 WL 4401391, at *2) (W.D. Ky. Sept. 24. 2008)). Business
information such as pricing and customer sales information may constitute a protected trade
secret under the UTSA where such information is not publicly known or otherwise ascertainable
by proper means. Id.; Cmty. Ties of Am., Inc. v. NDT Care Servs., LLC, No. 3:12-CV-00429CRS, 2015 WL 520960, at *11 (W.D. Ky. Feb. 6, 2015) (holding that plaintiff’s client files,
client list, and employee files were trade secrets where they were kept under “double lock and

44

key” and confidentiality agreements specifically required employees not to take or reveal such
information upon termination of their employment).
Finally, when applying the requirements of Ky. Rev. Stat. § 365.880, “no one factor is
determinative.” Id. Whether a party has made reasonable efforts to protect the confidentiality of
an alleged trade secret is a question of fact. Niemi v. NHK Spring Co. Ltd, No. 07-3536, 2008
WL 4273123, at *8 (6th Cir. Sept. 19, 2008).
To determine whether a defendant misappropriated a trade secret, the plaintiff must
provide evidence from which a reasonable jury could decide that Defendants obtained the
otherwise protected information by improper means or used it without consent. Autochannel,
Inc., 144 F. Supp. 2d at 796. The mere possession of an otherwise protected trade secret without
any use does not constitute misappropriation within the meaning of the UTSA. Vanwinkle v. HM
Ins. Grp., Inc., 72 F. Supp. 3d 723, 736–37 (E.D. Ky. 2014).
Examination of the extensive record persuades the Court that Defendants are entitled to
summary judgment in their favor on Smart Beverage’s claims for violation of the UTSA and for
breach of the two confidentiality agreements. Smart Beverage has failed to satisfy the statutory
elements of the UTSA in several material respects.

Smart Beverage has not produced

satisfactory proof that the great bulk of the information it disclosed falls within the definition of a
“trade secret” under § 365.880(4)(a). Most if not all of the confidential information concerning
Smart Beverage was either generally known or otherwise readily ascertainable by proper means.
Prior to the execution of the March 2008 confidentiality agreement, Michael Smart
traveled to New Zealand that same month and gave a presentation to the Defendants identifying
all of Smart Beverage’s customers and revealing Smart Beverage’s sales results that year by

45

volume, revenue, customer, and state.86 Consequently, the identities of its wholesale distributors
were fully disclosed prior to the execution of the initial confidentiality agreement. In fact, Smart
Beverage concedes that prior to March 2008 it publicly disclosed the identities of its distributors
on its website. Accordingly, this information was publicly available, and the subsequent efforts
of Independent Distillers USA to contact Smart Beverage’s former wholesale distributors did not
involve the misappropriation of a trade secret under § 365.880.
During the same March 2008 presentation, Smart also revealed detailed financial
information about the operations of Smart Beverage. For example, Smart Beverage provided its
profit and loss statement for 2008. The P&L statement contained an exact accounting of Smart
Beverage’s total income from sales and gross receipts, as well as its cost of goods sold and
resulting gross profit. The P&L statement also revealed the company’s expenses by category
(e.g., auto, bank charges, commissions, labor). And it used these items to calculate and reveal
total expenses and net income along with total earnings before interest and taxes.87 Smart also
provided the projected profits and losses for the next four years, 2009 through 2012. Contrary to
Smart Beverage’s arguments, this information was not a broad, generalized look at the U.S.
ready-to-drink beverage market.

Smart Beverage revealed its financials in detail prior to

entering any confidentiality agreement. Because the information was initially made available to
Defendants without restrictions, it does not meet the definition of a trade secret, and no
misappropriation could have occurred.
The Court likewise concludes that Defendants are entitled to summary judgment on
Smart Beverage’s claims for breach of the two confidentiality agreements. Smart Beverage has
failed to present proof from which a reasonable jury could find in its favor on those claims.
86
87

D.N. 92-3, PageID # 579; DN 89-11.
Id. at PageID # 1344.
46

Smart Beverage is left with merely the entry of Independent Distillers USA into the market as its
proof of violation of the agreements. However, prior to its involvement with Smart Beverage in
2006, Independent Liquor had for years imported and distributed ready-to-drink alcoholic
beverages in the United States. Independent Liquor was not a newcomer to the U.S. market.
Further, as Smart Beverage’s own wholesaler/distributor conceded, much of the information
such as profit margins in the distribution chain was generally known and subject to simple
mathematical determination.88 In other words, once one knows the cost of purchasing twistee
shots, the profit margin may be readily determined simply by walking through the facilities of
the distributors to determine the price charged while deducting the cost paid.89
The record does not contain substantial proof that Defendants disclosed or otherwise used
that information when they elected to terminate Smart Beverage’s exclusive importer/distributor
relationship and to resume directly importing and distributing twistees through their own
subsidiary.

Smart Beverage fails to offer sufficient evidence of any alleged misuse of

confidential business information by Defendants in the course of establishing Independent
Distillers USA. At most, it offers that Independent Distillers USA’s CEO contacted six former
wholesale distributors of Smart Beverage. But as noted above, the identities and locations of the
wholesale distributors were a matter of public record. Overall, there is insufficient proof to put
the matter before a jury.
V. CONCLUSION
For the reasons set forth above, Defendants’ evidentiary objections are OVERRULED
and Defendants’ motion for summary judgment is GRANTED IN PART AND DENIED IN
PART. The motion is DENIED as to those claims of breach of warranty and breach of the
88
89

D.N. 91-13, PageID # 1560.
Id.
47

distribution agreement arising from Independent Liquor’s delivery of the 8,587 cases of
coagulated twistee shots to Smart Beverage. The motion is GRANTED as to all other claims.
Summary judgment has been granted as to Counts II, III, V, and VI of the amended
complaint. Counts I and IV remain. This matter is hereby REFERRED to Magistrate Judge
Dave Whalin to conduct a status conference to finalize the remaining pretrial schedule. The
parties’ joint motion for a status conference (D.N. 104) is DENIED as moot.
December 29, 2016

David J. Hale, Judge
United States District Court

48