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Fred's Stores of Mississippi Inc. v. M & H Drugs Inc.

September 10, 1998

FRED'S STORES OF MISSISSIPPI, INC. AND FRED'S, INC.
v.
M & H DRUGS, INC. AND FRED'S STORES OF MISSISSIPPI, INC. AND FRED'S, INC.
v.
M & H DRUGS, INC.



The opinion of the court was delivered by: Pittman, Presiding Justice, For The Court

DATE OF JUDGMENT: 5/20/96

TRIAL JUDGE: HON. R. KENNETH COLEMAN

COURT FROM WHICH APPEALED: CIRCUIT COURT OF LAFAYETTE COUNTY

NATURE OF THE CASE: CIVIL - TORTS - OTHER THAN PERSONAL INJURY AND PROPERTY DAMAGE

DISPOSITION AFFIRMED IN PART; REVERSED AND RENDERED IN PART - 9/10/98

EN BANC.

¶1. M & H Drugs, Inc. (hereinafter "Super D"), the plaintiff in this case is the parent corporation of the Super D store in Oxford, Mississippi. Erik Broome (hereinafter "Broome") was the manager and a pharmacist at Super D. Part of Broome's job was to supervise the creation and maintenance of a master customer list known within the store as an I.R.S. list (hereinafter "I.R.S. list"). The creation of the I.R.S. list was a service provided by Super D to its customers. Super D routinely printed the I.R.S. list on December 31 of each year.

Primarily, the list was used around tax time each year when customers would inquire as to their total expenditures on prescription medication for the year. The list contained the patient's last name, first name, phone number, street address, city, state, zipcode, number of prescriptions filled that year, and a dollar amount of the money spent at Super D on prescriptions for the year. There was no policy or procedure for keeping the list after it was no longer needed, or the information became outdated. One pharmacist, Terry Klepzig testified that when the information became outdated or the list was no longer needed for the tax year, he would throw the list away in the dumpster.

The list was kept in the pharmacy area in a filing cabinet when it was not being used. At times of the year when the list was used frequently, it was kept in an accordion folder on the pharmacy counter near the cash register. The pharmacy of the Super D was located in the back left corner of the building. There was a gate without a locking device at the entrance of the pharmacy platform. Access to the pharmacy was limited to pharmacists, pharmacy technicians, pharmacy students in internships, stock persons, and when absolutely necessary a counter person.

¶2. In the summer of 1991, Fred's Stores of Mississippi, Inc. (hereinafter "Fred's") was involved in opening a store in Oxford. In late May of 1991, Broome was contacted by Leland McDivitt, a representative of Fred's, concerning becoming the manager for the new Fred's pharmacy. Broome and McDivitt had a face to face meeting concerning employment with Fred's on May 29, 1991. On May 30, 1991, Broome accepted Fred's offer of employment. On June 6, 1991, Broome gave notice to Super D that he would be leaving and going to work for Fred's.

Broome continued to work for Super D throughout the month of June, but was assigned to stores other than the Oxford store. On June 24, 1991, Broome returned to the Oxford store to retrieve some personal belongings. At that time, he also picked up the I.R.S. list from the counter and took it. Broome planned to send a letter to some of his customers letting them know that he would now be working at Fred's. He planned to do this mailing out of his own pocket. Broome did not think his taking of the list would be any "big deal" because it was after April 15 and the list was not used very often after that date.

¶3. Broome started work for Fred's on July 2, 1991. Broome had two or three conversations with McDivitt between June 6, 1991 and until July 1, 1991. On July 8, 1991, Broome had a telephone conversation with McDivitt. McDivitt wanted to set up a meeting between Broome and Mr. Casey, who was vice president of pharmacy operations at Fred's. McDivitt also asked Broome if he had any former customers that he would like to contact, and if so to bring that to Casey's attention. On July 11, 1991, Broome went to Memphis to Fred's headquarters to meet with Casey. At that meeting, Casey asked Broome if he had a list of the customers that he wanted to contact. Broome had the I.R.S. list with him in a manila envelope. Casey asked Broome to draft a letter to the physicians in Oxford and one to his customers announcing his new position with Fred's and explaining benefits of shopping at Fred's. Casey showed Broome some sample letters. When Broome was done drafting his letters, Casey asked if Broome would leave the list and a sample of his signature at headquarters so that Fred's could mail out the letters. Broome understood that no letters would be mailed out bearing his signature without his approval. Broome had highlighted 100-120 names on the list to which he intended to mail letters. Using the list that Broome had provided, Fred's subsequently mailed out letters to 954 customers. Casey testified that Fred's used two criteria to determine to whom to send the letters. The criteria were that the customer had an Oxford zipcode and that the customer had spent over $100 during the year on prescription drugs at Super D. However, Casey admitted at trial that the criteria were not followed and therefore, it was possible that more than 954 letters were mailed. Bruce Greer, whose responsibility it was to record the number of letters mailed from Fred's each day, testified that on July 24, 1991 (the day the letter from Broome was mailed), 1242 letters were mailed from Fred's.

¶4. Around July 15, 1991, two weeks after Broome went to work for Fred's and a week after he had delivered the customer list for use in Fred's mailing, supervisors at Super D realized the list was missing. Either Terry Klepzig or Charles Strong with Super D called Broome and asked if he had accidentally taken the list. Broome said that he had not taken the list. At trial, he explained that his answer was truthful because he had not accidentally taken the list, but instead had taken it on purpose. Broome testified that he told Casey about the inquiry from Fred's and Casey told Broome not to worry about it. Casey testified that he and Broome never had a conversation about the inquiry. He testified that he returned the list to Broome on July 18, 1991 when he was in Oxford. Casey testified that the next time he saw the list was on opening day at the new Fred's, which was July 26, 1991. Casey said that Broome told him that he had had an inquiry from Super D concerning the list that day, and that he wanted Casey to take the list back to Memphis so that he could honestly say he did not have the list. Casey testified that at that point he had "deep concern" about whether the list belonged to Broome. Casey put the list in his brief case and returned to Memphis. Upon arriving at Fred's headquarters in Memphis, Casey met with his supervisor, Gary Hendron. Casey told Hendron what Broome had related to him, and Hendron instructed Casey to "shred the list". On Monday morning, July 29, 1991, Casey checked the data base created for the mailing. He found that it had been erased.

STATEMENT OF THE CASE

¶5. M & H Drugs, Inc. filed a lawsuit against Fred's of Mississippi, Inc. on August 19, 1991. M & H Drugs later dismissed Broome without prejudice. M & H Drugs also joined Fred's, Inc.

¶6. Trial was set for October, 1993. However, the parties entered into discussions for Fred's acquisition of the Super D drugstores. Settlement talks were unsuccessful and trial was reset for May 13, 1996. Following a jury trial, a Lafayette County Circuit Court Jury found for Super D and awarded actual compensatory damages of $56,750. Following the punitive phase, exemplary damages of $300,000 were awarded as well. Final judgment was entered and attorneys' fees and expenses were awarded in the amount of $72,042.48. Interest on the compensatory award was set at 8% from October 26, 1992. Eight percent interest was also applied to the award of attorneys' fees and expenses.

¶7. This case comes to the Court as a consolidated case with Cause No. 96-CA-00633. However, the two appeals arise from the trial of one lawsuit. Final judgment was entered in this case on May 20, 1996. Fred's filed a Notice of Appeal on June 11, 1996 stating four grounds for appeal. Thereafter, on June 17, 1996, the trial court ruled on Fred's post-trial motions. Fred's then filed a second Notice of Appeal stating the same grounds for appeal and adding to those grounds the denial of all post trial motions.

¶8. Fred's appeals from the trial court and assigns the following as error:

I.

THIS COURT SHOULD REVERSE AND RENDER JUDGMENT FOR THE DEFENSE ON ALL CLAIMS BECAUSE THE PLAINTIFF'S PROOF WAS INSUFFICIENT.

A. The plaintiff alleged the defendants induced Mr. Erik Broome, a former pharmacist of the Super D in Oxford, to steal a list of names and addresses of Super D customers, which list the plaintiff alleged was a trade secret. All of the plaintiff's claims were preempted by the Uniform Trade Secrets Act, § 75-26-1, et seq, Miss. Code Ann. (1972).

B. As a matter of law, the plaintiff failed to prove the list was a trade secret.

C. Mr. Broome testified at trial that he took the list on his own, without any involvement of the defendants. The lower court should have granted the defense motions for judgment as a matter of law, that the defendants did not induce Mr. Broome to take the list.

D. No customer on the list testified he shopped at Fred's instead of Super D because he received such a letter. The plaintiff's proof of proximate cause was insufficient.

E. The plaintiff's proof of damages was insufficient. Among other things, the plaintiff did not prove loss of net profits.

II. THE CASE SHOULD BE REMANDED FOR NEW TRIAL ON COMPENSATORY AND PUNITIVE DAMAGES, EVEN IF THE COURT HOLDS PLAINTIFF'S EVIDENCE WAS SUFFICIENT.

A. The lower court allowed the plaintiff to withhold the most important piece of evidence in the trial from discovery, under claim of confidentiality. The lower court then admitted the evidence and allowed the plaintiff to publish the evidence to the jury, in effect waiving the claim of confidentiality. Was this "trial by ambush" proper?

B. The lower court allowed the plaintiff to prove statements made by the defendants during settlement Discussions. The statements were not made to plaintiff at any other time or circumstance. Did these rulings violate MRE 408 and require a new trial?

C. Was it reversible error to instruct the jury by repeated abstract statements of law, which failed to instruct the jury correctly?

D. Regardless of the measure of damages, is the corporation required to prove its damages by the best evidence? Does the best evidence include the corporation's own financial statements for relevant periods before and after the alleged tort? Is it proper to deny all discovery of the corporation's financial statements for relevant times?

E. The compensatory and punitive damages awards were against the overwhelming weight of the evidence.

III. IF THE CASE IS NEITHER REVERSED AND RENDERED, NOR REMANDED FOR NEW TRIAL, THE CASE SHOULD BE REMANDED FOR RE-TAXATION OF POST-JUDGMENT INTEREST ON THE COMPENSATORY AWARD AT 8% COMMENCING ON A DATE THREE AND ONE-HALF YEARS BEFORE THE FINAL JUDGMENT WAS ENTERED.

DISCUSSION OF LAW

I. THIS COURT SHOULD REVERSE AND RENDER JUDGMENT FOR THE DEFENSE ON ALL CLAIMS BECAUSE THE PLAINTIFF'S PROOF WAS INSUFFICIENT.

A. The plaintiff alleged the Defendants induced Mr. Erik Broome, a former pharmacist of the Super D in Oxford, to steal a list of names and addresses of Super D customers, which list the plaintiff alleged was a trade secret. All of plaintiff's claims were preempted by the Uniform Trade Secrets Act, § 75-26-1, et seq. Miss. Code Ann. (1972).

¶9. Super D filed its second amended complaint in this case on October 26, 1992. Super D alleged unfair competition, misappropriation of a trade secret, intentional interference with a business relationship, intentional interference with a lawful trade, and intentional interference with a business interest. All of the causes of action had as a central theme Fred's alleged role in the theft or use of the I.R.S. list. According to Fred's, shortly after the complaint was filed, Fred's moved for partial summary judgment, contending among other things, the plaintiff's state law claims were preempted by the Mississippi Uniform Trade Secrets Act. This motion was denied. However, this motion is not included in the record on appeal.

¶10. Fred's argues that all of Super D's claims other than misappropriation of a trade secret are preempted by the Mississippi Uniform Trade Secrets Act. Miss. Code Ann. § 75-26-15 (1991). That section states: (1) Except as provided in subsection (2), this chapter displaces conflicting tort, restitutionary and other law of this state providing civil remedies for misappropriation of a trade secret.

(2) This chapter does not affect: (a) Contractual remedies, whether or not based upon misappropriation of a trade secret;

(b) Other civil remedies that are not based upon misappropriation of a trade secret; or

(c) Criminal remedies, whether or not based upon misappropriation of a trade secret.

Miss. Code Ann. § 75-26-15 (1991).

Fred's argues that Super D's interference and other claims were preempted because they were all based on misappropriation of the I.R.S. list, which Super D claimed was a trade secret.

¶11. There is no Mississippi case law concerning the Uniform Trade Secrets Act. Fred's cites several cases from other jurisdictions that have held the Uniform Trade Secrets Act preempts all state law claims based upon the misappropriation of a trade secret. The court in Smithfield Ham and Products Co., Inc. v. Portion Pac, Inc., 905 F.Supp. 346, 348 (E.D. Va. 1995), held that "[i]n order to survive summary judgment, therefore, a plaintiff must be able to show that the distinct theories of relief sought are supported by facts unrelated to the misappropriation of the trade secret." Smithfield Ham, 905 F.Supp. at 348-49. Other federal courts have concluded that the preemption provision is intended to preclude only those common law claims that are premised entirely on a claim for the misappropriation of a trade secret. See Coulter Corp. v. Leinert, 869 F.Supp.732, 734 (E.D. Mo. 1994)("[T]he issue becomes whether allegations of trade secret misappropriation alone comprise the underlying wrong; if so, the cause of action is barred."); Micro Display Systems, Inc. v. Axtel, Inc., 699 F.Supp. 202, 205 (D.Minn. 1988)("To the extent a cause of action exists in the commercial area not dependent on trade secrets, that cause of action continues to exist."); Hutchison v. KFC Corp., 809 F.Supp. 68, 71-72 (D.Nev. 1992)(preempting "duplicative" claims for unjust enrichment and unfair competition under the UTSA, but considering the merits of alleged tortious interference claim).

¶12. Super D argues that based upon Subsection 2(a) of Miss. Code Ann. § 75-26-15 (1991), its other claims for relief are not preempted because those other claims are not based upon misappropriation of a trade secret. Therefore, it contends that the other claims are not "conflicting" within the meaning of the Act. Super D argues that each of its other claims involves facts and theories at least partially different from those involved in the pure trade secret claim. In Micro Display Systems, supra, the defendants moved for partial summary judgment on the ground that the plaintiff's claims were nothing more than a series of tort claims, disguised under various headings, for the misappropriation of trade secrets, and as such they were displaced by the Minnesota Uniform Trade Secrets Act. Id. at 204. The pertinent section of the Minnesota statute is identical to Mississippi's. That court said: Only that law which conflicts with the MUTSA is displaced.

Conflicting law is that law dealing exclusively with trade secrets. To the extent a cause of action exists in the commercial area not dependent on trade secrets, that cause continues to exist. For example, in Rehabilitation Specialists, causes of action were allowed to be brought simultaneously for breach of a duty of loyalty and unfair competition, as well as for trade secrets. In that case the first two causes of action had as their underlying wrong the soliciting of customers and employees by the defendant while still employed by the plaintiff. The MUTSA claim was based on the misappropriation of the plaintiff's policy and procedures manual. The common law and statutory counts, therefore, ...


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