South Dakota Supreme Court Decision

Posted on July 12, 2010 07:24 by Thomas J. Welk

Thomas J. Welk and Jason R. Sutton, of Boyce, Greenfield, Pashby, & Welk LLP, were recently successful in sustaining an injunction prohibiting a competing manufacturer from using a manufacturing line for a period of two years in Raven Industries, Inc. v. Clark Lee and Integra Plastics, Inc., 2010 SD 49 (S.D. June 16, 2010).  In this case, Raven brought suit against a former engineer for Raven named Lee, and a competitor named Integra, who hired Lee.  While at Raven, Lee signed two non-disclosure agreements.  After going to work at Integra, Lee replicated Raven’s unique manufacturing line.

Raven sued Lee for breach of the non-disclosure agreements.  Raven sued Integra for tortiously inducing breach of the non-disclosure agreements and for engaging in unfair competition.  Raven only sought injunctive relief.

There were a couple of noteworthy procedural issues in this case.  At the summary judgment stage, Lee and Integra argued that Raven’s claims were preempted the Uniform Trade Secrets Act.  Although the trial court denied summary judgment, it did not directly address this argument.  Lee and Integra never again raised the issue even though there was elaborate briefing and proposed findings of fact and conclusions of law for this nine-day court trial.  On a matter of first impression, the South Dakota Supreme Court held that the denial of summary judgment without any further argument on the issue was sufficient to preserve the issue for appeal.

The other interesting procedural aspect of the case related to Supreme Court’s jurisdiction.  Lee and Integra filed a timely notice of appeal of the original permanent injunction but failed to file a notice of appeal for a later, modified permanent injunction.  Raven argued that the modified permanent injunction became final, which mooted the appeal of the original permanent injunction.  The Supreme Court construed the original notice of appeal to include the modified notice of appeal so that it continued to have jurisdiction over the appeal.

From a substantive stand point, the noteworthy portion of the case relates to the enforceability of employer-employee non-disclosure agreements.  Under South Dakota law, non-disclosure agreements are enforceable even if the information does not rise to the level of a trade secret.  On a matter of first impression, the Court concluded that the employer must only engage in reasonable efforts to maintain the secrecy of its information at issue rather than have absolutely secrecy as argued by Lee and Integra.  Raven’s manufacturing line had been viewed by third parties but the trial court found that Raven’s polices as to confidentiality to be reasonable.

The two year period of time for the injunction was selected because the CEO for Integra testified that was the period of time required to replicate the manufacturing line without Lee.

Click here for the opinion

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