Responsible Fluid Power, Inc. v. Altec Industries, Inc.
Filing
37
ORDER granting in part and denying in part 27 Motion for Summary Judgment. Signed by U.S. District Judge Karen E. Schreier on 10/4/16. (SLW)
UNITED STATES DISTRICT COURT
DISTRICT OF SOUTH DAKOTA
SOUTHERN DIVISION
RESPONSIBLE FLUID POWER, INC,
4:14-CV-04041-KES
Plaintiff,
ORDER DENYING IN PART AND
GRANTING IN PART MOTION FOR
SUMMARY JUDGMENT
vs.
ALTEC INDUSTRIES, INC,
Defendant.
Plaintiff, Responsible Fluid Power (RFP), filed a complaint against
defendant, Altec Industries, Inc., alleging trade secret misappropriation,
promissory estoppel, breach of contract, fraud and deceit, negligent
misrepresentation, and tortious interference with business relationship. Docket
1. Altec filed a counterclaim against RFP for repayment of a debt. Docket 13.
Altec moves for summary judgment on all claims. Docket 27. RFP opposes the
summary judgment motion. Docket 31.
BACKGROUND
The facts, viewed in the light most favorable to RFP, the non-moving
party, are as follows:
Altec is a corporation that manufactures products such as aerial devices,
cranes, digger derricks, and shippers for use in the electrical utility,
telecommunications, lights and signs, and contractor markets. RFP is a South
Dakota corporation that manufactures hydraulic reservoirs (or tanks) for Altec,
and Altec would incorporate RFP’s tanks into certain Altec products.
Specifically, the tanks were predominantly used in Altec’s digger derricks.
Donald Haacke, the owner of RFP is not a professional engineer and has no
vocational or post high school training in engineering. RFP never employed an
engineer, but it did consult with an engineer named Jim Vlaanderen.
Originally, RFP was located in Des Moines, Iowa. Haacke testified that he
moved the business from Des Moines to Sioux Falls because: (1) he is originally
from South Dakota and wanted to move back home; (2) the State of South
Dakota promised him financial assistance; and (3) he was able to purchase a
similar size facility in South Dakota for a much lower cost than his facility in
Des Moines.
When RFP and Altec began negotiating the price Altec would pay for
RFP’s newly designed tanks, RFP was concerned about its profitability. To
alleviate RFP’s concerns, Altec promised that it would purchase tanks from
RFP at higher margins in the future if RFP initially supplied tanks at lower
margins. Altec also promised that RFP would get all of the business generated
from customers needing replacement parts for the tanks. 1 RFP accepted these
terms and began designing hydraulic reservoir tanks for Altec. The tanks
previously provided to Altec by Innovative Fluid Handling (IFH) were built using
six pieces of steel welded together using a butt weld. RFP then designed a tank
built with three pieces of steel using a lap joint weld. 2 In 2010, RFP
Altec denies that there was an agreement between Altec and RFP that Altec
was going to continue to use RFP for any set period of time. Docket 28 ¶ 50.
2 Altec states that the tank design was a collaborative effort between RFP and
Altec. Docket 28 ¶ 24.
1
2
successfully developed a two-piece design and began manufacturing and
selling this two-piece design to Altec.
The hydraulic reservoir manufactured by RFP is a steel box with a
filtration system and a return filter. Altec provided RFP with specific
dimensions that RFP had to comply with when designing the tanks. 3 The
specific dimensions were Altec’s sole contribution to the design of the tank.
Except for the specific dimensions, RFP designed the tanks in their entirety.
RFP contends that the process in which it builds these two-piece tanks is
subject to trade secret protection. RFP provided the drawings of the tanks to
Altec so that Altec could ensure that the tanks were the proper dimensions for
inclusion in the overall design of the digger derrick.
In the summer of 2011, Altec instituted a new cleanliness standard for
its hydraulic tanks. Shortly thereafter, Altec internally began a standardization
process wherein it evaluated its current tank suppliers and made
improvements in the design of its tanks, including changes to the filtration
system and consolidation of part numbers. As part of the 2011 tank evaluation
project, Altec provided drawings of a sixty-gallon tank to various tank
manufacturers so the manufacturers could bid on the production of the sixtygallon tank. After evaluating the tank suppliers in 2011, Ryan Hulleman
recommended that Altec switch to IFH or Hegelson, to take over production of
the sixty-gallon tank from RFP. Altec ultimately chose IFH. In 2013, RFP closed
its doors.
Altec contends that its engineers participated in the design of the tanks.
Docket 28 ¶ 20.
3
3
Over the years, Haacke requested price increases from Altec and
understood that by requesting higher prices, Altec would seek out quotes from
other manufacturers. In the past, RFP had purchased parts from Zinga and
sold them to Altec at a marked-up price. Eventually, Altec began purchasing
the parts directly from Zinga. At times, Altec asked RFP to expedite orders and
RFP would fill these expedited orders using its other customers’ parts.
During the course of RFP and Altec’s business relationship, RFP
purchased filtration systems and other equipment from MP Filtri for use in the
manufacture of hydraulic tanks. MP Filtri was Altec’s designated filtration
supplier. RFP failed to pay MP Filtri for all or some of the equipment that it
purchased and used in tanks that it sold to Altec. RFP states that the amount,
if any, it owes to MP Filtri is unknown.
LEGAL STANDARD
Summary judgment on all or part of a claim is appropriate when 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); see
also In re Craig, 144 F.3d 593, 595 (8th Cir. 1998). The moving party can meet
its burden by presenting evidence that there is no dispute of material fact or
that the nonmoving party has not presented evidence to support an element of
its case on which it bears the ultimate burden of proof. Celotex Corp. v. Catrett,
477 U.S. 317, 322-23 (1986). Once the moving party has met this burden,
“[t]he nonmoving party may not ‘rest on mere allegations or denials, but must
demonstrate on the record the existence of specific facts which create a
4
genuine issue for trial.’ ” Mosley v. City of Northwoods, 415 F.3d 908, 910 (8th
Cir. 2005) (quoting Krenik v. Cty. of Le Sueur, 47 F.3d 953, 957 (8th Cir.
1995)). “Further, ‘the mere existence of some alleged factual dispute between
the parties is not sufficient by itself to deny summary judgment. . . . Instead,
the dispute must be outcome determinative under prevailing law.’ ” Id. (quoting
Get Away Club, Inc. v. Coleman, 969 F.2d 664, 666 (8th Cir. 1992)). The facts,
and inferences drawn from those facts, are “viewed in the light most favorable
to the party opposing the motion” for summary judgment. Matsushita Elec.
Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (quoting United
States v. Diebold, Inc., 369 U.S. 654, 655 (1962)).
DISCUSSION
I.
Trade Secret Misappropriation Claim
RFP alleges misappropriation of a trade secret against Altec. RFP bears the
burden of first establishing the existence of a trade secret and then must
establish misappropriation. SDCL § 37-29-1(4) defines trade secret as:
Information, including a formula, pattern, compilation, program,
device, method, technique or process that:
(i)
Derives independent economic value, actual or potential,
from not being generally known to, and not being readily
ascertainable by proper means by, other persons who can
obtain economic value from its disclosure or use; and
(ii)
Is the subject of efforts that are reasonable under the
circumstances to maintain its secrecy.
SDCL § 37-29-1(4).
In Weins v. Sporlender, 569 N.W.2d 16, 20 (S.D. 1997), the South Dakota
Supreme Court concluded that the existence of a trade secret is a mixed
5
question of law and fact. The legal question is “whether the information in
question could constitute a trade secret under the first part of the definition of
trade secret” under the statute. Id. Generally, a trade secret does not include “a
marketing concept or new product idea submitted by one party to another.”
Daktronics Inc. v. McAfee, 599 N.W.2d 358, 361 (S.D. 1999) (quoting Hudson
Hotels Corp. v. Choice Hotels Int’l, 995 F.2d 1173, 1176 (2d Cir. 1993)). “Simple
possession of a non-novel idea or concept without more is generally, as a
matter of law, insufficient to establish a trade secret.” Id. (quoting Frink
America Inc. v. Champion Road Machinery Ltd., 48 F.Supp.2d 198, 206
(N.D.N.Y. 1999).
The remaining two parts of SDCL § 37-29-1(4)(i)-(ii) involve questions of
fact. Daktronics, 599 N.W.2d at 361. “A court may determine a question of fact
by summary judgment if it appears to involve no genuine issues of material fact
and the claim fails as a matter of law.” Id. at 362. Therefore, the court should
evaluate if there are issues of material fact regarding whether the information
can derive economic value and is generally known or easily ascertainable and
whether the information was subject to efforts to maintain its secrecy. SDCL §
37-29-1(4)(i)-(ii).
A. The process of building the two and three-piece tank falls within
the definition of a trade secret as defined in SDCL § 37-29-1(4).
The initial question is whether RFP’s process of manufacturing the tanks
falls within the definition of a trade secret under South Dakota law. Construing
the facts in the light most favorable to RFP, this court determines that the
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process by which the tanks are manufactured qualifies as a trade secret
pursuant to SDCL § 37-29-1(4). In Paint Brush Corp. v. Neu, 599 N.W.2d 384,
390 (S.D. 1999), the South Dakota Supreme Court reversed the trial court’s
grant of summary judgment on whether a process for manufacturing brushes
was a trade secret. The president of Paint Brush Corporation (PBC) described
in his affidavit a unique process by which PBC measured the necessary volume
of filaments for each brush. Id. The court concluded that the process the
president described fit the definition of a trade secret. Id. Similarly, Haacke
testified that RFP developed a new way to bend the steel so that RFP only had
to weld two pieces together instead of six. Docket 33-1 at 18. This method
required less labor to build and created a more structurally sound tank. Id.
This process—including where to bend, where to weld, how to weld, and what
materials to use—constitutes a process or method that qualifies as a trade
secret.
B. There is a genuine issue of material fact regarding the level of
collaboration between Altec’s engineers and RFP.
Altec argues that because Altec’s engineers’ participated in the design of
the two or three-piece tank, RFP is prohibited from asserting that the two or
three-piece design is a trade secret. Docket 30 at 8. Altec does not clarify in its
motion whether it believes this fact negates elements (i), (ii), or both of the
trade secret definitions expressed in SDCL § 37-29-1(4). Therefore, the court
will analyze both.
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Altec asserts that there was significant back and forth between Altec’s
engineers and RFP when formulating the design for the two and three-piece
tanks, and that this collaboration prevents RFP from claiming that the design
was a trade secret. Docket 30 at 5. RFP states that the only information Altec
contributed to the design were the general dimensions of the tanks. Docket 31
at 10. Taking the facts in the light most favorable to the non-moving party, this
court finds that there is a dispute as to a material fact with regard to the
amount of collaboration between the two parties. RFP states that Altec only
provided the dimensions to the tanks and approved the design, but that RFP
“set out the number of metal pieces used, where bends and cuts were made,
weld locations, type of welds, filtration systems, drop tubes, location of the filler
breather, access cover design, filler flange design, how to cut, bend, and place
baffles, and mounting.” Docket 31 at 11. Based on these facts, there is a
dispute as to the level of collaboration between the two parties. This dispute is
a material fact because the amount of collaboration makes it more or less likely
that the two or three piece design is generally known within the industry. This
question goes directly to the element in SDCL § 37-29-1(4)(i), and it should
therefore be determined by a jury.
Similarly, the dispute as to the amount of collaboration is a material fact
as it relates to the “secrecy” element of the trade secret definition. SDCL § 3729-1(4)(ii). The amount of collaboration between the parties makes it more or
less likely that RFP took reasonable steps under the circumstances to maintain
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the secrecy of the tank design. Therefore, this is an issue that should be
decided by a jury.
C. There is a genuine dispute as to whether the process of creating a
two or three-piece tank is generally known within the industry.
The final two elements in SDCL § 37-29-1(4) are questions of fact. The
two elements ask whether the process “derives independent economic value . . .
from not being generally known” and whether the process is “the subject of
efforts that are reasonable under the circumstances to maintain its secrecy.”
Id. §§ (i)-(ii). “A court may determine a question of fact by summary judgment if
it appears to involve no genuine issues of material fact and the claim fails as a
matter of law.” Daktronics, 599 N.W.2d at 362.
Altec claims that the design of the tanks cannot be a trade secret
because the design was readily ascertainable through reverse engineering and
because some of the design was already in use within the industry. Docket 30
at 8. The court will consider whether RFP’s method is generally known within
the industry. In Daktronics, the South Dakota Supreme Court affirmed the
lower court’s grant of summary judgment after it found that defendants’
combination of a radar gun, console, and display to show baseball speeds was
not novel. Id. In its motion for summary judgment, Daktronics presented
undisputed evidence that the idea of displaying baseball speeds had been used
in several different locations in the past. Id. Therefore, the product was within
the general knowledge of the industry, actually already existed. Id.
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In the present case, Haacke testified that the process of designing a
hydraulic tank is very complicated and that RFP’s two or three-piece design
was the first of its kind. Docket 33-1 at12. Haacke also testified that the reason
RFP was able to manufacture the tanks using only two or three pieces was
because RFP developed a new way to bend the steel and weld the pieces
together. Id. at 10. In contrast to the evidence in Daktronics, Altec does not
present undisputed evidence that the two or three piece design for the tanks
was within the knowledge of the industry or already existed within the
industry. Altec presents testimonial evidence from RFP’s expert, Duane Wolf,
that the steel box and Z mounting bracket were not new designs. Docket 29-8
at 12-13. But he was unable to verify whether the two-tab baffle or the two or
three-piece designs were already known within the industry. Id. at 16. James
Vlaanderen, however, did testify that other manufacturers used a two or threepiece design. Docket 29-7 at 15-17.
Similar to the court’s evaluation in Paint Brush and construing the facts
in the light most favorable to the non-moving party, the court finds that there
is a dispute as to whether the design was already known within the industry.
Based on Haacke’s testimony, the two or three-piece design was not already in
use in the industry, and Altec did not present undisputed evidence to show
otherwise. Haacke also clarified that the trade secret at issue is the process by
which the tanks are manufactured and assembled. Therefore, while a person
may be able to observe that a tank only used two or three pieces, there is
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evidence that the process that makes that design possible cannot be observed
and cannot be reverse engineered.
D. There is a genuine issue of material fact as to whether RFP took
reasonable steps to maintain its secrecy.
Finally, Altec claims that RFP did not take reasonable steps to maintain
the secrecy of the design because RFP never sought an application for a patent
or trademark and RFP freely provided Altec with the drawings of the tanks.
Docket 30 at 11-12. RFP acknowledges that it did not pursue a patent or
trademark and that it disclosed the designs to Altec so that Altec could approve
them. Docket 31 at 15-16. When deciding whether there are issues of fact for
the jury to determine on the issue of secrecy, the court asks whether there is
evidence that RFP took affirmative steps to keep the design secret. See Weins v.
Sporleder, 569 N.W.2d 16, 23 (S.D. 1997) (finding that plaintiff never
introduced evidence of active measures taken to maintain privacy of the
product). The reasonableness of those steps is a question for the jury.
In Weins, the South Dakota Supreme Court found that the plaintiff had
not presented any evidence of active measures taken to maintain secrecy
because the plaintiff discussed the product with several people but never had
them sign confidentiality agreements and left the product in areas visible to
other people. 569 N.W.2d at 23. In contrast, RFP placed proprietary stamps on
its design drawings, the employee involved in the design of the tanks was
required to sign a non-disclosure agreement, the design drawings were kept on
a password-protected computer, and all employees signed non-compete
agreements. Docket 31 at 16-17. Therefore, in contrast to the plaintiff in Weins,
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RFP has presented substantial evidence of the affirmative actions it took to
protect the privacy of its designs, and the reasonableness of those actions shall
be determined by a jury.
In conclusion, the court denies Altec’s motion for summary judgment as
to the trade secret misappropriation claim.
II.
Promissory Estoppel/ Breach of Contract Claim
RFP alleges in its complaint claims for breach of contract and promissory
estoppel. Docket 1. To recover under a breach of contract, a plaintiff must
prove the existence of: (1) an enforceable contract; (2) a breach of the promise;
and (3) resulting damages. Bertelsen v. Allstate Ins. Co., 796 N.W.2d 685, 694
(S.D. 2011) (quoting Bowes Constr. v. S.D. Dep’t of Transp., 793 N.W.2d 36, 43
(S.D. 2010). Generally, whether or not a contract exists is a question of law.
Behrens v. Wedmore, 698 N.W.2d 555, 565 (S.D. 2005). But if in dispute, “ ‘the
existence and terms of a contract are questions for the fact finder.’ ” Id.
(quoting Morrisette v. Harrison Int’l Corp., 486 N.W.2d 424, 427 (Minn. 1992)).
Therefore, this court must decide, construing the facts in the light most
favorable to the non-moving party, whether a valid and enforceable contract
existed.
As an initial matter, the court determines which body of law governs the
contract dispute in this case. The first alleged contract deals with the sale of
hydraulic tanks and the second contract deals with the sale of replacement
parts for the tanks. Article 2 of the Uniform Commercial Code (UCC), codified
at SDCL § 57A-2, governs transactions in goods. City of Lennox v. Mitek Indus.,
12
Inc., 519 N.W.2d 330, 332 (S.D. 1994). Goods are defined as “all things
(including specially manufactured goods) which are movable at the time of
identification to the contract for sale.” SDCL § 57A-2-105(1). RFP argues that
Altec made two separate promises. First, RFP alleges that Altec promised to
purchase tanks from RFP at higher margins in the future if RFP supplied the
tanks at lower margins for a period of time. Docket 31 at 18. RFP also alleges
that Altec promised to purchase replacement parts exclusively from RFP.
Docket 33-1 at 61-62. Here, the tanks and the replacement parts to the tanks
are clearly movable at the time they were identified to the contract and fall
within the definition of goods.
The court must then analyze whether the parties entered into a contract. “A
contract for the sale of goods may be made in any manner sufficient to show
agreement, including conduct by both parties which recognizes the existence of
such a contract.” SDCL § 57A-2-204(1). A contract for sale can include “both a
present sale of goods and a contract to sell goods at a future time.” SDCL §
57A-2-106(1). Unless otherwise provided, a contract for the sale of goods for
500 dollars or more is not enforceable unless it is in writing. SDCL § 57A-2201.
As proof of the first promise, RFP points to a part of Haacke’s deposition
testimony as evidence that Altec did make a promise to RFP. Haacke testified at
his deposition that in 2001 or 2002 Tom Wilson, a former Altec employee,
promised Haacke that if RFP would initially sell Altec the tanks at a reduced
margin, Altec would pay more for the tanks at a later date. Docket 33-1 at 71.
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Haacke then stated that Altec never purchased the tanks at a higher margin.
Id. RFP also relies on Haacke’s testimony as evidence of Altec’s second promise.
Docket 31 at 18. Haacke testified that no written agreement existed in which
Altec agreed it would continue to use RFP to supply Zinga filters for
replacement parts, but he testified that Altec orally promised to use RFP for
replacement parts as long as RFP was in business and selling tanks to Altec.
Docket 33-1 at 61-62.
Altec maintains that there was never an agreement between Altec and
RFP that Altec would continue to use RFP forever or for any set period of time,
so RFP’s assertion that it agreed to sell Altec tanks at a lower price in
consideration for a future, higher price is false. Docket 30 at 13. Altec refers to
Donald Haacke’s deposition testimony as evidence that such a contract never
existed. Id. During Haacke’s deposition defendant asked whether there was
ever an expressed statement, either verbal or in writing, that Altec would
continue to do business with RFP for any duration of time, and Haacke replied
that there was not. Docket 29-2 at 9. Haacke simply stated that “every year
Altec would come up . . . and show us what kind of performance we were doing.
And we always looked really good based upon that they said they would
continue doing business with us.” Id. Altec argues that this testimony shows
that Altec never promised to continue to buy tanks from RFP for a set period of
time, but instead, Altec would do business with RFP as long as it made
financial sense. Docket 30 at 13.
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A. Altec’s oral promises to purchase higher priced tanks and
replacement filters, if found to have occurred, would be valid
contracts.
Altec argues that both oral promises violate the South Dakota Statute of
Frauds and is therefore unenforceable, but Altec never explains why these
promises violate SDCL § 53-8-2. Docket 35 at 11. Either way, SDCL § 53-8-2
does not apply to these contracts because they are contracts for the sale of
goods. Instead, the governing statute is SDCL § 57A-2-201, which requires a
contract for the sale of goods for 500 dollars or more to be in writing. Both
contracts are for the sale of goods for more than 500 dollars, so they fall under
the Statute of Frauds. But the doctrine of equitable estoppel or promissory
estoppel may be applied to prevent a party from asserting the Statute of
Frauds. Farmers Elevator Co. of Elk Point v. Lyle, 238 N.W.2d 290, 293 (S.D.
1976) (finding that equitable and promissory estoppel may prevent a party to
an oral agreement from invoking the Statute of Frauds); Jacobsen v.
Gulbransen, 623 N.W.2d 84, 90 (S.D. 2001). Here, plaintiffs do assert
promissory estoppel in its complaint, so at the summary judgment stage, the
lack of a writing does not vitiate the existence of a valid contract.
Finally, as discussed above, both parties rely on different interpretations
of Donald Haacke’s testimony to support their theory of the case. If a jury
found that Altec orally promised to purchase higher priced tanks and
replacement filters in the future in exchange for the sale of lower priced tanks
currently, they could be enforceable contracts. Whether or not Altec promised
it would later purchase higher priced tanks in exchange for lower priced tanks
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now and whether or not Altec promised to purchase replacement filters
exclusively from RFP are disputes of material facts that should be decided by a
jury. Therefore, after viewing the facts in a light most favorable to RFP, this
court finds as a matter of law that two enforceable contracts existed. Further,
the court finds that there is a genuine dispute of material fact as to the
existence and terms of the contract, which is to be left to a jury. Altec’s motion
for summary judgment as to RFP’s breach of contract claim is denied.
B. There is a genuine issue of material fact as to whether RFP
detrimentally relied on Altec’s promise.
Altec argues that no genuine issue of material fact exists regarding
RFP’s promissory estoppel claim because no promise was ever made and RFP
did not rely to its detriment on any promise made. The elements of promissory
estoppel are: (1) the detriment suffered in reliance must be substantial in an
economic sense; (2) the loss to the promise must have been foreseeable by the
promisor; and (3) the promisee must have reasonably relied on the promise
made. Canyon Lake Park L.L.C. v. Loftus Dental P.C., 700 N.W.2d 729, 739
(S.D. 2005). As discussed above, the court finds that there is a genuine issue of
material fact as to whether Altec made any promises to RFP. Therefore, the
court must determine if there is a genuine dispute of material fact about
whether RFP relied on the promise to its detriment.
Defendant argues that RFP did not rely on the promise to its detriment
because RFP moved its operation from Des Moines to Sioux Falls for reasons
other than any promise Altec allegedly made to RFP. Docket 30 at 14. As
evidence, defendant relies on Haacke’s deposition testimony where he explains
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that he moved to Sioux Falls because he is originally from South Dakota,
because the state gave him financial assistance, and because he was able to
purchase a similarly sized facility for less money. Docket 29-2 at 15. But RFP
alleges in its response that RFP detrimentally relied on Altec’s promise if it sold
Altec tanks at a significantly lower price Altec would pay more for tanks in the
future and that Altec would purchase a large number of replacement parts
from RFP. Docket 1 at 3-4; Docket 31 at 19. Plaintiff relies on Haacke’s
deposition testimony as evidence of this detrimental reliance. See Docket 33-1
at 61-62, 71.
Both parties rely on different parts of and interpretations of Donald
Haacke’s testimony, and therefore, this court finds that there is a genuine
dispute of material fact as to whether RFP relied to its detriment on Altec’s
promise. The final two elements of promissory estoppel—whether the reliance
was foreseeable and reasonable—are issues of fact to be determined by the
jury. Altec’s motion for summary judgment as to RFP’s promissory estoppel
claim is denied.
III.
Fraud/Deceit Claim
Plaintiff alleges that Altec committed fraud and deceit against RFP
because Altec told RFP it would continue to do business with RFP but “instead
planned to terminate its business once it had obtained the blueprints it needed
from RFP.” Docket 1 at 4. “One who willfully deceives another, with intent to
induce him to alter his position to his injury or risk, is liable for any damage
which he thereby suffers.” SDCL § 20-10-1. Deceit is “a promise made without
17
any intention of performing.” SDCL § 20-10-2. Questions of fraud and deceit
are generally questions of fact and as such are to be determined by the jury.
Paint Brush Corp. v. Neu, N.W.2d 384, 392 (S.D. 1999) (quoting Dede v.
Rushmore Nat’l Life Ins. Co., 470 N.W.2d 256, 259 (S.D. 1991). But summary
judgment is proper if plaintiff does not produce any evidence of deceitful intent
at the time the promise was made. Garrett v. Bankwest, Inc., 459 N.W.2d 833,
847 (S.D. 1990). When the connection between the defendant and the fraud
and deceit rests solely on conjecture, summary judgment is appropriate. Roper
v. Noel, 143 N.W. 130, 132 (S.D. 1913).
In Garrett, the South Dakota Supreme Court affirmed the trial court’s
grant of summary judgment where plaintiff produced no evidence to indicate
that defendant intended to deceive at the time redemption was discussed. 459
N.W.2d at 847-48. Plaintiff alleged that defendant agreed with plaintiff that
defendant would purchase a ranch from a third party and then lease the ranch
to plaintiff with an option to buy. Id. at 836. But the evidence in the record
showed that defendant and plaintiff discussed the option of purchasing the
ranch and that defendant did make an offer to purchase that was rejected by
the third party. Id. at 847. Therefore, plaintiff did not present evidence that
defendant ever intended to deceive plaintiff. Id.
Here, the only evidence RFP points to as proof of Altec’s intent to deceive
is a portion of Haacke’s deposition testimony. Docket 31 at 20. Haacke testified
that an Altec employee promised that Altec would purchase tanks at a high
price if RFP would initially sell Altec tanks at a lower price, and that Altec never
18
purchased tanks at a higher price. Docket 33-1 at 72. Assuming that Haacke’s
testimony is true—that an Altec employee promised to eventually purchase
higher priced tanks and Altec never did—there is no indication that Altec
intended not to follow through on its promise at the time of making the
promise. In fact, Haacke testified that this alleged promise took place in 2001
or 2002 and Altec did not decide to terminate its business relationship with
RFP until 2011. Id. at 71-73. Therefore, given the long business relationship,
RFP has not put forth evidence to show that Altec intended to deceive RFP in
2001 or 2002. This court finds that there is no genuine dispute as to any
material fact and summary judgment is granted to Altec on the fraud and
deceit claim.
IV.
Negligent Misrepresentation
The tort of negligent misrepresentation occurs when “in the course of
business or any other transaction in which an individual had a pecuniary
interest, he or she supplies false information for the guidance of others in their
business transactions, without exercising reasonable care in obtaining or
communicating the information.” Meyer v. Santema, 559 N.W.2d 251, 254 (S.D.
1997). “Generally, representations as to future events are not actionable and
false representations must be of past or existing facts.” Id. at 255. There is one
exception to the general rule that representations as to future events are not
actionable. “A misrepresentation as to a future event may be actionable where
the parties to the transaction are not on equal footing but where one has or is
in a position where he should have superior knowledge concerning the matters
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to which the misrepresentations relate.” Reitz v. Ampro Royalty Trust, 61
N.W.2d 201, 203 (S.D. 1953).
This particular event is an example of a representation of a future event.
RFP alleges that Altec misrepresented that it would purchase tanks at a higher
price in the future and that RFP would get all future business for replacement
parts. Docket 31 at 21. Therefore, in order for RFP to maintain its claim against
Altec, the court must find that the exception to the general rule against future
representations applies.
In Bayer v. PAL Newcomb Partners, 643 N.W.2d 409, 413 (S.D. 2002), the
South Dakota Supreme Court ruled that the plaintiff and defendant were on
equal footing, so the exception to the general future representations rule did
not apply. In Bayer, plaintiff purchased lots in a proposed development with
the intent to build on the lots and sell the homes. Id. at 410-11. The
development did not live up to expectations and plaintiff sued the developer. Id.
at 411. The plaintiff had built and managed real estate in the past and
understood the risks involved in starting a new development. Id. at 413.
Therefore, the court found that plaintiff was on the same footing as the
defendant. Id.
In contrast, in Aschoff v. Mobil Oil Corp., 261 N.W.2d 120, 124 (S.D.
1977), the South Dakota Supreme Court found that the exception did apply
because plaintiff was not on the same footing as defendant. Plaintiff executed a
contract to lease a service station and the service station did not perform as
well as expected. Id. at 123. Plaintiff had no prior knowledge or experience in
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the business and plaintiff relied heavily on the expertise of the defendant’s
employee as well as the complicated and technical presentation of the service
station’s projections that had been prepared by the employee. Id. at 123. Based
on that information, the court found that the exception applied because of the
large disparity in knowledge between defendant and plaintiff. Id. at 124.
Here, Haacke testified in his deposition that his entire work background
has been in fluid power, i.e. hydraulics. Docket 29-2 at 3. Prior to starting RFP,
Haacke worked at another hydraulics company called SunSource, and after
Haacke closed RFP he started a new job at another hydraulics company called
Dakota Fluid Power. Id. Despite this long history in the hydraulic industry, RFP
contends that Altec was on higher footing than Haacke because Altec knew
“whether it would purchase tanks from RFP at higher margins and whether it
would continue to go through RFP to procure replacement parts.” Docket 31 at
21.
RFP’s reasoning is flawed. The exception to the general rule regarding
future events is applied in situations similar to the situation in Aschoff—where
the plaintiff knows little or nothing about the subject matter and must rely on
the defendant as an expert. Aschoff, 261 N.W.2d at 124. That is not the
situation here. Haacke has spent his entire career in the hydraulics industry
and did not have to rely on Altec’s expertise. If the court were to accept RFP’s
argument that Altec was at an advantage because it knew whether or not it
would continue to do business with RFP, the exception would swallow the rule.
In any business discussion each party knows more than the other about their
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individual statuses and does their best to make future predictions based on
their present knowledge. But in the end, neither party can predict the future,
and for that reason, representations as to future events are not actionable. The
exception is meant to protect against a disparity as to knowledge of the
industry and not as to knowledge of the future performance of the parties.
In conclusion, the court finds as a matter of law that representations as
to future events are not actionable as a negligent misrepresentation claim and
no exception applies here. Therefore, summary judgment is granted to Altec on
the negligent misrepresentation claim.
V.
Tortious Interference
The elements of a claim of tortious interference with business
relationships or expectancy are: (1)the existences of a valid business
relationship or expectancy; (2) knowledge by the interferer of the relationship or
expectancy; (3) an intentional and unjustified act of interference on the part of
the interferer; (4) proof that the interference caused the harm sustained; and
(5) damage to the party whose relationship was disrupted. Tibke v. McDougall,
479 N.W.2d 898, 908 (S.D. 1992). RFP alleges two separate acts of tortious
interference. First, that Altec interfered with RFP’s other business relationships
by demanding that RFP fill Altec’s orders with inventory from other customers.
Docket 1 ¶ 38. Second, that Altec began purchasing replacement parts from
Zinga instead of purchasing the parts from RFP. Docket ¶ 40-41. To survive
summary judgment, RFP must show that it will be able to introduce sufficient
evidence in the record at trial to support all the elements of its claim. Lawrence
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Cnty. v. Miller, 786 N.W.2d 360, 367 (S.D. 2010); see also Tolle v. Lev, 804
N.W.2d 440, 446 (S.D. 2011).
In Tolle, the plaintiff and defendant both worked as guides for a
mountaineering school and the defendant served on the Board of Directors. Id.
at 442. At one point, the plaintiff and defendant had a dispute as to a cabin in
Montana and defendant emailed the board to disclose the nature of the dispute
and collect some necessary information. Id. Around the same time, the
mountaineering school asked plaintiff to return as a guide, but after learning of
the Montana cabin issue, the school revoked its offer. Id. The plaintiff then
commenced an action for tortious interference with a business relationship and
relied on emails between the defendant and the board to demonstrate that
defendant had the intent to interfere. Id. The court found that the emails did
not show that defendant intentionally tried to get plaintiff fired because the
content of the emails were limited to disclosure of the conflict and a request for
information. Id. at 446. Further, there was no evidence that defendant knew
that the board had asked the plaintiff to return as a guide. Id. Therefore, the
court granted summary judgment and the South Dakota Supreme Court
affirmed. Id.
Similar to the lack of evidence in Tolle, RFP has not introduced any
evidence to demonstrate intent. RFP bases its claim on evidence that Altec
would place a rush order and RFP would fill the rush order with other
customers’ parts. There is no indication that Altec ever intended or even
suggested that RFP use other customers’ parts. In fact, testimony from Haacke
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indicates that RFP made the decision on its own to use other customers’ parts
for Altec’s tanks. Docket 29-2 at 18. Therefore, the court grants Altec’s motion
for summary judgment on RFP’s first tortious interference claim.
RFP also contends that Altec began purchasing replacement parts
directly from Zinga with the intent to “get rid of [RFP]” and that such a move
was unjustified because Altec had previously promised that RFP would be the
sole provider of replacement parts to Altec’s customers. Docket 31 at 22. RFP
points to Haacke’s deposition testimony where Haacke testified that the
president of Zinga told him that Altec’s purchasing manager said that Altec was
trying to get rid of RFP. Docket 33-1 at 56. RFP relies on this inadmissible
hearsay testimony as proof that Altec intentionally interfered with RFP’s
business expectations. Docket 31 at 22. Hearsay within hearsay and
conclusory assertions are insufficient to establish a genuine issue of material
fact. Luther v. City of Winner, 674 N.W.2d 339, 345 (S.D. 2004). RFP does not
present any evidence other than Haacke’s testimony to demonstrate that Altec
intentionally interfered with RFP’s business relationship, and Haacke’s
testimony is inadmissible hearsay within hearsay. Therefore, this court finds
that there are no genuine issues of material fact as to RFP’s second tortious
interference claim and it grants Altec’s motion for summary judgment.
VI.
Counterclaim for Indemnification
Finally, Altec moves for summary judgment as to its counterclaim
against RFP for repayment of a debt. Altec argues that it is entitled to summary
judgment under either a contract theory or a theory of unjust enrichment.
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Altec claims that it is entitled to indemnification from RFP under a contract
theory because RFP agreed to certain terms and conditions that included an
indemnification clause. Docket 29-11 at 3-4. The indemnification clause
requires RFP to indemnify and defend Altec against allegations from suppliers
such as MP Filtri. Id. at 3-4. The terms and conditions that Altec submitted are
not signed by RFP or Haacke, but Altec also refers to Haacke’s deposition
testimony wherein he admits that he signed the terms and conditions
agreement. Docket 36-1 at 3-4. But Haacke states in an affidavit that he never
agreed to indemnify Altec. Docket 34 ¶ 16.
Because both parties rely on different parts of Haacke’s testimony and
the terms and conditions are not signed by RFP, there is a genuine issue of
material fact as to whether RFP agreed to the terms and conditions. Based on
this discrepancy in testimony, the court finds that there is a genuine issue of
material fact of whether RFP ever agreed to the terms and conditions of the
indemnification clause, so summary judgment is denied.
CONCLUSION
Whether Altec misappropriated trade secrets and promised RFP that it
would purchase tanks in the future is a question of fact to be decided by the
jury. But there is no genuine issue of material fact about whether Altec
intended to deceive RFP, negligently misrepresented its business intentions, or
intended to interfere with RFP’s business relationships. Finally, there is a
dispute as to whether RFP agreed to indemnify Altec against claims from MP
Filtri.
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Therefore, it is
ORDERED that Altec’s motion for summary judgment (Docket 27) is
denied in part and granted in part.
Dated October 4, 2016.
BY THE COURT:
/s/ Karen E. Schreier
KAREN E. SCHREIER
UNITED STATES DISTRICT JUDGE
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