Purnell Incorporated, William B. Purnell v. Thyssen Industrie, Ag Henschel

Temporary injunction dissolved and Opinion filed October 19, 1995
(Emu-t of Appeals
For The
ifl'irst Eistrirt of (52va
NO. 01-95-00125-CV
PURNELL, INCORPORATED, WILLIAM B. PURNELL, RELIANCE MACHINE
WORKS, INC., AND DEVENDRA DESAI, INDIVIDUALLY AND DOING BUSINESS
AS RELIANCE INDUSTRIES, Appellants
VI
THYSSEN INDUSTRIE AG HENSCHEL AND HENSCHEL ‘MIXERS AMERICA, INC.,
Appellees
On Appeal from the 127th District Court
Harris County, Texas
Trial Court Cause No. 94-37875
OPINION ON MOTION FOR REHEARING
We grant appellants’ motion for rehearing. We withdraw our opinion on
motion for rehearing of June 6, 1995, and substitute this one in its stead.
In this accelerated appeal, appellants, Purnell, Inc., William Purnell,
Reliance Machine Works, Inc., and Devendra Desai, individually and doing business as
R.I.S. and Reliance Industries (collectively, the defendants), appeal the trial court’s order
granting the temporary injunction requested by appellees, Thyssen Industrie AG Henschel
(Thyssen) and Henschel Mixers America, Inc. (Henschel Mixers) (collectively, the
plaintiffs). We affirm in part and reverse in part.
Background
In 1973, William Purnell owned Pumell, Inc. (old Pumell), a company that
marketed a variety of products for various manufacturers. The company specialized in
products relating to the plastics industry. In 1976, William Purnell was approached by
Thyssen, a German corporation. Thyssen manufactured a line of high-speed dry solids
mixers under the name "Henschel" and was looking for a United States distributor for
these products. Old Pumell became the United States representative for Thyssen.
In about 1985, William Pumell changed his company’s name to Pumell
International, Inc. William Purnell and John Giles were the primary shareholders of the
company. In 1989, William Pumell promoted Giles to president of the company, and
kept the title of CEO.
In the mid-1980’s, William Pumellvasked Thyssen to design a horizontal
mixer. When Thyssen did not do so, old Purnell designed a horizontal mixer. In the late
1980’s, old Purnell began producing and marketing its own mixer, in addition to marketing
Thyssen’s line of mixers. w -
Thyssen and old Purnell designed, engineered, and usually assembled their
mixers, but did not machine the mixer parts. Instead, they contracted with a limited
number of machine shops to perform this function. In 1987, Desai, through his
companies Reliance Machine Works and Reliance Industries (collectively, Reliance),
became one of the machinists who performed such work for Thyssen and old Purnell.
Customarily, Thyssen and old Purnell would provide a drawing of the part to be built.
Occasionally, if no drawing was available, they would provide Desai with a worn part and
Desai would either repair the part or measure it and build a replacement. Over the years,
discretion in granting the temporary injunction because the evidence did not show that
immediate and irreparable harm would occur without immediate temporary injunctive
relief. The trial court found that the defendants were distributing "advertising materials
that are either copied from or are deceptively similar to the advertisements and brochures
of Plaintiffs" and enjoined them from "distributing, displaying or in anyway [sic] using
advertising or marketing or technical information, that is the same [as] or deceptively
similar to Plaintiffs’." The plaintiffs assert that the defendants’ advertising brochure
contained a "duplication of a picture of a Henschel mixer," and a reproduction of a data
table from the Henschel brochure "with identical model designations and a reprint of a
conversion error which appeared in the [Henschel] brochure." The defendants assert that
their brochure differed significantly from the Henschel brochure. We agree.
First, the cover of the Henschel brochure contains a frontal-view photograph
of a mixer; the Pumell brochure contains a profile drawing ofa mixer. Second, the format
of the two brochures is different. Third, although the data tables in both brochures
contain a similar conversion error, the other figures in the data tables are not uniformly
identical. Fourth, based on the parties’ exhibits, it appears that both brochures follow a
general format utilized by other manufacturers of similar machines. In short, the Purnel]
brochure is not the same as or deceptively similar to the Henschel brochure. We sustain
that portion of point of error two that relates to the issue of advertising materials.
-11-
H 4 ‘f‘ aw"
- n..._ _ _...- _mflm
...JW'V’M; .
In light of our disposition of these points of error, we need not address the
remaining points. We reverse the trial court’s judgment and order the temporary
injunction dissolved.
[SI Michol O’Connor
MICHOL O’CONNOR
Justice
Chief Justice Oliver-Parrott and Justice Taft also sitting.
Do not publish. TEX. R. App. P. 90.
Judgment rendered and opinion delivered 1
True Copy Attest: '
Mérgi'e Thompson
Clerk of Court
-12-
Desai made components and spare parts, and even assembled entire mixers. Most of the
drawings given to Desai contained no proprietary stamp or label. A few of the drawings
contained a proprietary stamp written in German; however, Desai did not understand
German.
In 1991, Wflliam Purnell and Giles allowed Thyssen to purchase shares in
old Purnell. The board of directors consisted of William Purnell, Giles, and a Thyssen
representative. Before purchasing an interest in the company, Thyssen agreed to an
employment contract with William Purnell. Not long after that, however, William Purnell,
Giles, and Thyssen had a falling out and old Purnell underwent a "corporate divorce." By
the terms of the settlement agreement: (1) William Purnell executed a noncompete
agreementlg (2) old Purnell agreed not to use the name "Pumell," "Pumell International,
Inc., or any modification or permutation of the. name, and agreed- not to use the
company’s logo; and (3) William Purnell agreed not to use the name "Purnell
International, Inc." and agreed not to use the company’s logo. The agreement did not
impose any restriction regarding trade secrets or confidential information.
William Pumell’s affiliation with the company he founded ended in
September 1993. However, in February 1993, while he was still CEO of old Purnell,
William Purnell incorporated Purnell, Inc. (new Pumel], Inc.). Desai was listed as one of
the directors of new Pumell, Inc. After the corporate divorce, old Purnell changed its
name to Henschel Mixers America. Giles remained as president of Henschel Mixers.
In March 1993 (shortly before the corporate divorce), Giles asked Desai to
sign a confidentiality agreement. Desai refused to sign because he feared it would affect
his business with other customers, but, according to the plaintiffs, he assured Giles that he
1 The noncompete agreement was for a period of six months, and expired in
November 1993.
would not compete with the company as long as it continued to serve the market. Even
after Desai refused to sign the confidentiality agreement, old Purnell and later Henschel
Mixers continued to supply Desai with drawings, specifications, and parts for their mixers.
After the corporate divorce, William Purnell had an "informal relationship"
with Desai to market mixers and mixer parts (including replacement parts for Henschel
mixers) made by Reliance. The mixers bore the name "Purnell." In May 1994, new
Purnell, Inc. exhibited a mixer at a trade show in Chicago. The mixer, an FM-600, was
built by Desai. A promotional brochure distributed by new Purnell, Inc. provided in part:
The name PURNELL has been associated with mixing
technology for decades, and [is] known as an innovator of
engineering advances for two generations. This new line of
mixers introduces advances in construction, supported by an
after-sale program heretofore not available in the industry.
The brochure featured a drawing of a high-speed mixer bearing the name-"Purnell," and
reflected that the company had a product line of 14 different mixers. At a trade show in
Houston later that year, new Purnell, Inc. again displayed the FM-600, as well as three
other mixers, some of which were only partially completed.
Thyssen and Henschel Mixers filed suit against William Purnell, new
Purnell, Inc., Desai, and Reliance for misappropriation of trade secrets, unfair
competition, conversion, unjust enrichment, breach of contract, promissory estoppel,
tortious interference with business relationships, breach of fiduciary duty, and civil
conspiracy; the plaintiffs also sought injunctive relief. The plaintiffs asserted that the
defendants promoted, marketed and sold high-speed mixers that were made using trade
secrets and confidential information belonging to Thyssen and Henschel Mixers. Further,
they asserted the defendants used brochures that were confusingly similar to Henschel
Mixer’s brochure. Plaintiffs specifically asserted Desai used plaintiffs’ technology and
design drawings that he had obtained over the years in the course of a confidential
relationship with the plaintiffs to build high-speed mixers that were essentially identical to
those made by the plaintiffs.
The trial court granted the plaintiffs’ application for temporary injunction.
The trial court found:
1. Defendants have and intend to continue to (a)
manufacture, advertise, display or sell industrial dry solid
chemical mixers and their specialized parts, that were created
from the trade secrets of Plaintiffs, and (b) distribute
advertising materials that are either copied from or are
deceptively similar to the advertisements and brochures of
Plaintiffs;
2. Plaintiffs will probably be awarded a recovery in this cause
The trial court also found that the plaintiffs would be injured if the defendants’ conduct
was not enjoined because customers were being diverted from the plaintiffs as a result of
the defendants’ actions. The trial court enjoined the defendant from:
(a) Selling, manufacturing, delivering, displaying,
promoting or advertising the sale of industrial dry solid
chemical mixers or mixer parts which are the same [as] or
deceptively similar to the mixers or mixer parts manufactured
or sold by Plaintiffs or either of them;
(b) Selling, manufacturing, delivering, displaying,
promoting or advertising the sale of industrial dry solid
chemical mixer parts which are interchangeable with mixer
parts manufactured or sold by Plaintiffs or either of them (1)
which are not clearly identifiable as not Plaintifls and (2)
which are manufactured from information learned or acquired
from plaintiffs’ information as set out in (c)[;]
(c) Selling, manufacturing, delivering, displaying,
promoting or advertising the sale of industrial dry solid
chemical mixers or mixer parts that were created using
information defendants learned or acquired from Plaintiffs’
drawings, sketches, or other technology or know-how of
Plaintiffs. . . .
(d) Distributing, displaying or in anyway [sic] using
advertising and promotional materials, and marketing or
technical information, that is the same [as] or deceptively
similar to Plaintiffs”.
Standard of review
A temporary injunction is an extraordinary remedy and does not issue as a
matter of right. Walling v. Metcalfe, 863 S.W.2d 56, 57 (Tex.1993). To be entitled to a
temporary injunction, the applicant must plead a cause of action and show a probable
right of recovery and a probable injury in the interim. University of Texas Medical Sch. v.
Than, 834 S.W.2d 425, 428 (Tex. App.--H0uston [1st Dist] 1992, no writ); Texas Indus.
Gas v. Phoenix Metallurgical Corp., 828 S.W.2d 529, 532 (Tex. App.--Houston [1st Dist.]
1992, no writ). Probable injury includes the elements of imminent harm, irreparable
injury, and no adequate remedy at law. Than, 834 S.W.2d at 428. Damages are usually
an adequate remedy at law, and the requirement of‘ demonstrating an. interim injury is not
to be taken lightly. Walling, 863 S.W.2d at 57.
At the temporary injunction hearing, the only question before the trial court
is whether the applicant was entitled to an order to preserve the status quo pending trial
on the merits. Than, 834 S.W.2d at 428; Phoenix Metallurgical Corp, 828 S.W.2d at 532.
The status quo is defined as the last, actual, peaceable, noncontested status that preceded
the controversy. Than, 834 S.W.2d at 428.
A trial court may not issue a temporary injunction except to prevent a
threatened injury. Phoenix Metallurgical Corp, 828 S.W.2d at 532. The commission of
the act to be enjoined must be more than just speculative, and the injury that flows from
the act must be more than just conjectural. Id.
This court’s review is limited to whether the trial court clearly abused its
discretion in granting the order. Walling, 863 S.W.2d at 58; Than, 834 S.W.2d at 428.
We will not decide the merits of the underlying cause. Than, 834 S.W.2d at 428-29;
Kincaid School, Inc. v. McCarthy, 833 S.W.2d 226, 230 (Tex. App.--Houston [lst Dist.]
1992, no writ). We may not substitute our judgment for that of the trial court. Than, 834
S.W.2d at 429. We draw all legitimate inferences from the evidence in the light most
favorable to the trial court’s judgment. Rugen v. Interactive Bus. 55's., Inc., 864 S.W.2d
548, 551 (Tex. App.--Dallas 1993, no writ). We must determine whether the trial court’s
action was so arbitrary that it exceeded the bounds of reasonable discretion. Than, 834
S.W.2d at 429. The trial court abuses its discretion when it misapplies the law or when it
concludes the applicant has a probable right of recovery and that conclusion is not
supported by the evidence. Id.
Trade secrets: the mixers and mixer parts
In their first point of error, the defendants assert the trial court abused its
discretion in granting the temporary injunction because the evidence did not show a
probable right of recovery. Specifically, the defendants assert (1) no trade secrets or
confidential information were shown to exist, (2)” there was no confidential or fiduciary
relationship between the defendants and plaintiffs, and (3) plaintiffs’ common-law claims
based on trade dress were unfounded.
The trial court found that the defendants were making and selling mixers
and mixer parts "that were created from the trade secrets of Plaintiffs." The defendants
argue that because the plaintiffs distributed mixers, parts, and drawings to "suppliers,
fabricators, and customers," including Desai, without protecting the information from
disclosure, that information cannot constitute trade secrets. We agree with the
defendants.
A trade secret may consist of
any formula, pattern, device, or compilation of information
which is used in one’s business, and which gives him an
opportunity to obtain an advantage over competitors who do
not know or use it. It may be a formula for a chemical
compound, a process of manufacturing, treating or preserving
materials, a pattern for a machine or other device, or a list of
customers.
Hyde Corp. v. Hujj'ines, 314 S.W.2d 763, 776 (Tex. 1958) (quoting 4 RESTATEMENT or
Tours § 757 cmt. b (1939)); Rugen, 864 S.W.2d at 552; Avera v. Clark Moulding, 791
S.W.2d 144, 145 (Tex. App.--Dallas 1990, no writ); American Precision Vibrator Co. v.
National Air Vibrator Co., 764 S.W.2d 274, 276 (Tex. App.--Houston [1st Dist.] 1988, no
writ). "It is self-evident that the subject matter of a trade secret must be secret."
Luccous v. J.C. Ifinley Co., 376 S.W.2d 336, 338 (Tex. 1964). Before something can be
termed a "trade secret," there must be a substantial element of secrecy. American
Precision Vibrator, 764 S.W.2d at 276.
The owner of a secret must do something to protect himself.
He will lose his secret by its disclosure unless it is done in some
manner by which he creates a duty and places .it on the other
party not to further disclose or use it in violation of that duty.
Furr’s, Inc. v. United Speciality Advertising Co., 385 S.W.2d 456, 459 (Tex. App.--E1Paso
1964, writ ref’d n.r.e.) (emphasis added). Further,
it stands to reason that the confidence reposed in the other
person must, in some way, be manifest -- if not‘ by words,
then by the acts of the parties or the whole picture of their
relationship. Confidential relationship is a two-way street: if
the disclosure is made in confidence, the "disclosee" should be
aware that the secret is being revealed to him on the condition
he is under a duty to so keep it.
Id. at 459-60.
Here, the plaintiffs provided Desai with hundreds of drawings and designs
of their mixers and mixer parts over a six-year period. Similar drawings and designs were
distributed to other machine shops as well. Few of the hundreds of drawings provided to
Desai contained any kind of proprietary stamp or label. Most of the few drawings
containing proprietary information contained information written in German, a language
-3-
Desai does not understand. Before March 1993, the plaintiffs never suggested to Desai
that they considered this information confidential. The plaintiffs do not know for certain
what or how many drawings they gave to Desai over the years, and are not certain if Desai
returned all the drawings to them. On occasion, the plaintiffs gave Desai a part and asked
him to repair or reproduce it and to provide drawings for the part; no one ever suggested
to Desai that the drawings he created for the plaintiffs were confidential. There is
evidence that, on at least one occasion, the plaintiffs gave Desai a computer diskette that
contained design details, but that contained no information identifying the diskette as
belonging to or coming from the plaintiffs.
In March 1993, Giles asked Desai to sign a confidentiality agreement; Desai
refused to sign. Even after Desai refused to sign the agreement, however, the plaintiffs
continued to send him designs and drawings. Thus, there was never an express agreement
between the plaintiffs and Desai to keep the information secret. The plaintiffs assert that
although he refused to sign the confidentiality agreement, Desai orally agreed not to
compete with them, but the existence of this oral agreement does not change the fact that
the plaintiffs continued to give unlabeled drawings to Desai even though he specifically
refused to sign a confidentiality agreement.
We conclude that, based on the record developed at the temporary
injunction hearing, the plaintiffs did not establish a probable right to recovery. This
record reflects that, even if their designs and drawings were, at one time, trade secrets,
the plaintiffs did nothing to protect these secrets. Nothing in the relationship between
Desai and the plaintiffs suggests that the plaintiffs did anything before March 1993 to
impose a duty on Desai to keep their information secret, and they continued to provide
him with drawings and designs even after he refused to sign a confidentiality agreement.
Because of the manner in which the plaintiffs disseminated the information at issue to
Desai, that information cannot be considered "substantially secret." In the absence of a
substantial element of secrecy, there can be no trade secret. See American Precision
Vibrator, 764 S.W.2d at 276. The plaintiffs had no trade secrets for the trial court to
protect; the trial court therefore abused its discretion in entering the order of temporary
injunction.
The plaintiffs also assert that William Purnell’s knowledge of the industry
and of Henschel Mixer’s customers’ specific mixing problems, gained from his years of
experience working for old Pumell, constitutes a trade secret obtained in the course of a
confidential relationship. We disagree. In the corporate divorce, the parties bargained
for a six-month period in which Pumell would not compete with the plaintiffs. The parties
could have but did not make any agreement regarding any trade secrets or other
information they considered confidential.
A former employee may use the general knowledge, skills, and experience
acquired during his employment to compete with A former employer and even do business
with the former employer’s customers, provided that competition is fairly and evenly
conducted. Auto Wax Co. v. Byrd, 599 S.W.2d 110, 112 (Tex. App.--Dallas 1980, no
writ). Nothing in this record suggests that the "confidential information" about which the
plaintiffs complain is anything other than general knowledge William Purnell acquired
during tenure with old Purnell. He may use this knowledge of the mixing industry to
compete against Henschel Mixers. In fact, we do not understand how he could compete
in the dry solids mixer business without relying on the know-how he acquired in his many
years with old Parnell.
We sustain point of error one.
Immediate and Irreparable harm: the brochures
In point of error two, the defendants assert that the trial court abused its
-10-