FALL 2008

Trade Secrets

 

Course No. 9200-704 (and 804)-801

ID No. 16545

MW 3:00 - 4:30 p.m.
Room L-134
Professor Jay Dratler, Jr.
Room 231D (IP Alcove)
(330) 972-7972
dratler@uakron.edu
Copyright © 2000, 2002, 2003, 2006, 2008   Jay Dratler, Jr.   For permission, see CMI.

Rice Researchers, Inc. v. Hiter

512 So. 2d 1259 (Miss. 1987)

Robertson, J.  [*1261]

I.

Today's appeal involves us in a charge of stealing rice.  The alleged thief is not an ordinary thief, but a renowned and respected pioneer in the development of high quality and highly successful rice strains, who left his employer's service and was then accused of taking with him that which was not his.  

* * *

II.

A.

On September 10, 1984, Rice Researchers Inc. (hereafter "RRI"), a California corporation, filed in the Chancery Court of the First Judicial District of Bolivar County, Mississippi, an application for a Temporary Restraining Order, Preliminary Injunction, Permanent Injunction, and Appointment of Receiver.  Named as Defendants were two Bolivar County farmers, Richard B. Hiter (hereafter "Hiter") and Loyd H. Canady (hereafter "Canady").  RRI alleged that Hiter and Canady, acting in concert with RRI's former research director, Arthur Hughes Williams (hereafter "Williams"), had wrongfully misappropriated and were then growing proprietary varieties of rice owned by RRI, including Kokuho Rose, a high quality strain of rice produced through costly genetic research.  RRI sought to enjoin Hiter and Canady from harvesting, transferring and otherwise exploiting and profiting from Kokuho Rose rice and other rice then being grown in certain rice fields located east of Benoit, Mississippi.

* * * [*1262] * * *

The trial court first issued a temporary restraining order but, after trial, dissolved it and enjoined the plaintiff
and those in concert with the plaintiff
from prosecuting any smilar claim.]

[T]his lawsuit boils down to a rather simple dispute.  Rice Researchers, Inc. (RRI) claims that Arthur Hughes Williams stole protected varieties of rice seed from RRI and later planted these on the E. M. Barry Place near Benoit, Mississippi, planning to sell rice harvested from such planting.  Williams, on the other hand, admits planting seed rice on the Barry Place but says he did not steal it.   Williams contends that such rice was obtained via hand-harvesting another rice field and rice abandoned by RRI upon the closing of its research operation in Mississippi at the end of 1982.  The [trial court] found for Williams, and RRI appeals.  Because this simple suit should not be dispatched so simply, we will review the facts in more detail.  

* * * [*1263] * * *

[William was a renowned rice breeder.  He had developed "a highly successful, high quality rice" known as "Kokuho Rose" rice.  He and an independent company, Koda Farms, had jointly owned the new rice, but in January 1968, Williams transferred all of his right, title and interest in the rice to RRI, the plaintiff in this lawsuit.  RRI then entered into a joint venture agreement with two third parties—Pacific International Rice Mills, Inc. (PIRMI) and Nomura and Company (Nomura) to produce and market the rice.

Williams later entered two employment agreements with RRI and served as RRI's Research Director.  Both agreements required Williams not to disclose matters affecting or relating to RRI's business.  Both of them also provided that all ideas, improvements or other developments conceived by Williams within the scope of RRI's business would be the exclusive property of RRI.

Later PIRMI and Nomura became co-owners of RRI and (although they then co-owned it) entered into a second joint venture agreement with RRI substantially the same as the first.  Koda Farms retained the trademark "Kokuho Rose" for rice but licensed it exclusively to Nomura for marketing purposes.  In 1980, Williams moved from RRI's California research station to its newly-established Mississippi research station at RRI's request.  Effective year-end 1982, he resigned from RRI due to a disagreement with RRI's corporate decision to sell PIMRI to Comet Rice Mills.]

Only after Williams severed his relationship with RRI did the seeds so planted germinate into the present controversy.(1)  RRI's version of the story is that Williams, acting in concert with Hiter and Cannady, the two Bolivar County rice farmers, grew protected varieties of rice on the E. M. Barry place in 1984.  Specifically, RRI alleges that Williams grew Kokuho Rose rice and a particular strain of rice designated by the number 75-30-1.  RRI alleges that these strains of rice were protected varieties owned by RRI and that Williams stole and planted them.

* * * [*1264] * * *

III.

A.

A word about our scope of review.  Where—as here—a trial judge sits without a jury, this Court will not disturb his factual determinations where there may be found in the record substantial supporting evidence.  This is true whether the findings relate to matters of evidentiary fact or ultimate fact.

* * * [*1265] * * *

B.

* * *

[Although casting a baleful eye on the lower court's wholesale adoption of the defendant's proposed findings of fact, after a review of applicable law the court decided: "In our view, the matter of whether a trial court may adopt verbatim, in whole or in part, the findings of fact and conclusions of law of a party is within the court's sound discretion."  It reiterated, however, that a party's adopted findings are entitled to a lower level of deference.] * * * [*1266]

IV.

Our sensitivity to the possibility of error heightened, we confront RRI's primary assignment of error, namely that the Chancery Court erred in finding that Williams stole no RRI rice and, conversely, that what rice Williams had and had planted in 1984 he came by honestly.  

* * *  The heart of RRI's claim that Williams wrongfully obtained protected varieties of rice is that Williams and his son, Barton, came to California in a van and took Kokuho Rose rice from the storage bins maintained by the Latter Day Saints, a contract grower for Rice Researchers in California.  Williams admits that he and his son traveled to California in May, 1983, and that they obtained rice.  Williams' son, Barton, substantiates this testimony.  However, Williams' testimony and Barton's was that Dr. Pope [Williams' successor as RRI's Research Director] gave them bags of rice to take back to Mississippi, and that they did nothing.  Also substantiating Williams' and Barton's story is the testimony of a witness, Sandy Cervantes, who rode with them in the van back from California.  Cervantes testified that there were bags of rice placed in the wells of the van and that there was a mattress in the back of the van.  Further, Dr. Pope, when asked if he saw whether rice was in the van, testified that he did not see whether rice was in it.  Based on this testimony, the Chancery Court's gross conclusion that Williams did not steal any RRI rice is within the evidence and will not be disturbed.

Next, what was grown on the Barry Place.  RRI argues that, to the extent the Chancery Court found that no genetic materials [*1267] obtained by Williams from RRI were planted on the Barry Place, the Court was manifestly wrong.  RRI points to two instances of testimony supporting its view.  First, RRI contends that neither Williams nor any of the other Defendants accounted for the fact that Williams had in his possession as of October, 1983, one thousand bushels of Kokuho Rose, and that Williams called [a third party dryer] on October 13, 1983, and requested him to dry a variety of rice known as M-1301, which RRI contends is a designation for Kokuho Rose.  Additionally, RRI argues that the Chancery Court totally disregarded the uncontradicted testimony of Williams himself, corroborated by his 1983 field nursery book, that he grew a substantial quantity of Kokuho Rose on his twenty acre tract in 1983 and also grew many other varieties of rice on that same tract in 1983, which he allegedly admitted he acquired from his former employer, RRI.  

However, evidence was presented establishing that Williams legitimately obtained the rice planted on the Barry Place.  Richard Hiter, one of the Defendants, testified that the source of the rice planted on the Barry tract was from hand-harvested rice and rice abandoned by RRI when it closed its Mississippi Research facility.  Williams' testimony was the same.  Barton's testimony supports Williams' version as well.  Again the Chancery Court's gross conclusion was within the evidence.  

RRI argues that the Chancery Court's ultimate fact issue of abandonment was manifestly wrong and contrary to the great weight of the competent evidence.  RRI's view of the evidence includes the fact that RRI was forced to resort to litigation in March, 1983, to prevent Williams, its former research director, from surreptitiously acquiring RRI's proprietary varieties by covert business contacts with a third party; the fact that RRI had every legal right to keep any amount of rice it chose to keep in storage at the storage bins of B & J Services, Inc., in Cleveland, Mississippi, in 1983; that RRI never failed to retain title to the rice stored in those bins; that at or about the time that Williams announced his intention to quit as research director of RRI in 1982, he was directed to immediately make arrangements to ship RRI's entire inventory of California medium grain seed, Kokuho Rose, and other varieties, to California; that thereafter Dr. Pope was instructed to go to Mississippi in the early part of 1983 to take inventory and physical possession of all of RRI's materials, equipment and notes and to establish that status of RRI's various projects under Williams' direction, for the purpose of securing its materials; that after Williams quit as research director, he began pilfering rice samples from the B & J Services storage facilities and had complete access to anything stored at those facilities until his actions were brought to the attention of RRI and he was stopped on instructions of RRI; and that on both occasions in January and April, 1983, when Dr. Pope was at the research station site in Mississippi, no seed stock or other property of RRI was knowingly left at the site.  

Intent to abandon along with an external act or omission to act manifesting such intent are the crucial factors in determining whether one has abandoned property. Determining such intent involves resolution of what is essentially a question of fact, albeit a rather intangible and subjective one. . . . Bunge Corp. v. Agri-Trans. Corp., 542 F. Supp. 961, 969 (N.D.Miss.1982) aff'd. in part, vac. in part, Agri-Trans. Corp. v. Gladders Barge Line Co., Inc., 721 F.2d 1005 (5th Cir.1983) (whether sunken wreck has been abandoned is question of fact).  Direct evidence of an intent to abandon property or property rights is not required, for intent may be inferred from all of the circumstances.  Such intent, [*1268] however, must be proven by full and clear evidence.

Determining whether RRI abandoned rice after closing its Mississippi research facility was essentially a question of fact. As such, this Court must determine whether, based on substantial evidence, the Chancery Court was manifestly wrong in finding that RRI did indeed abandon such rice. The record contains substantial, conflicting testimony.  Since credibility choices necessarily must be made en route to resolution of this question, we are ill equipped—and disposed—to engage in de novo consideration of the point.  We hold that a matter of law, the rice left behind by RRI when it closed down its Mississippi operations was abandoned.  

* * *

V.

A.

RRI asserts that Williams made an unlawful and improper disclosure of trade secrets and confidential matters and information owned by his former employer and as such should not have been permitted to profit from his own wrongdoing.  RRI claims that the evidence in the record clearly establishes Williams' improper disclosure of trade secrets.  For example, RRI contends that Williams' contact with Japan Foods Corporation in December, 1982, [in which Williams sought help in marketing Kokuho Rose rice,] indicated improper disclosure of trade secrets. Also, there was evidence that Williams removed samples of RRI's seed rice stored at B & J Services warehouse.  Additionally, RRI contends that evidence showed that Williams solicited Bolivar County rice farmers in 1984 to grow Kokuho Rose rice.  

Williams, on the other hand, argues that because he rightfully had possession of the rice planted on the Barry Place, he became free to do whatever he wanted with that rice, so long as he did not unfairly compete with RRI.  Williams argues that because Koda Farms owns the trademark to Kokuho Rose, there is no way that he can compete with RRI or the joint venture of which RRI is a part.  

* * * Trade secrets are property and rights therein are protected. * * * [*1269] * * *  Certainly, while Williams was an officer and director of RRI, he occupied a trust relationship and owed a fiduciary duty to the corporation. This duty carries with it the obligation to return any private property of the corporation after termination of employment.   Furthermore, this duty carries with it the obligation not to disclose or impinge upon any of the secret processes or business secrets of his former employer.

Labels and linguistics aside, our question is whether Williams disclosed any RRI owned formula or other like information to third parties.  When Williams and the others acquired the rice planted on the Barry place, they become free to do with it as they chose, so long as they did not unfairly compete with RRI.  Implicated here are fact questions and we have before us a record reflecting substantially conflicting evidence.  We decline to disturb the Chancery Court's gross resolution of the matter.  

B.

During RRI's case-in-chief at the trial on the merits, Williams was questioned about the paragraph in his employment contract with RRI labeled "Nondisclosure Of Information Concerning Business."   The lower court made a bench ruling in which it recognized that RRI was not trying to have the subject employment agreements construed as covenants not to compete, reasoning that there was nothing in RRI's prayer for relief seeking to restrain Williams from any type of competition, provided Williams did not use what RRI contended was material belonging to it.  

In Williams' June 6, 1973, employment contract with RRI, Williams agreed that he would not
    "divulge, disclose, or communicate to anyone any information of any kind, nature or description concerning any matters affecting or relating to the business of employer, including . . . the names of any of its customers, . . . any seeds, samples, models or analyses relating to employer's products or processes, or any other information of, about, or concerning the business of employer, its manner of operation, its plans, processes, or other data of any kind, nature, or description. . . ." .
In the findings of fact regarding this matter, the Chancery Court held as follows:
    "As to barring Hughes [sic] from employing his skills as a plant breeder, if the employment contracts are construed to be covenants not to compete, they are void because unlimited as to time or geographic area, with no economic justification for such a restriction because of the protection afforded RRI under the trademark."
RRI argues that the Court's ruling made during the trial and, apparently, its subsequent finding of fact regarding the employment contracts, were errors because the particular employment provision in issue was clearly not a covenant not to compete.  

Certainly a corporation has the right to contract to prevent disclosure of information so long as such agreement is not overreaching.  Indeed, such an agreement cannot be challenged as an unreasonable restraint of trade. . . .  RRI had every right to enter in such an agreement with Williams.  

However, the important question in our appellate setting is whether there is overwhelming evidence in the record supporting the allegation that Williams disclosed any type of information protected by such agreement to a third party.  Further, an even more fundamental question is whether Williams had lawful possession of the rice in controversy.  For if Williams had rightful possession of the rice, then he had nothing of RRI and it would be impossible for him to disclose any such information as a result of obtaining the rice.  

The Chancery Court appears to have been correct in focusing on the fundamental[*1270] question of whether the rice was wrongfully taken, for the question of disclosure of trade secrets pursuant to the contractual provision is not reached until it be shown Williams wrongfully acquired the property, or there was substantial evidence otherwise indicating that he disclosed trade secrets to third parties.  Suffice it to say that the evidence supports neither of these contingencies.  

VI.

RRI finally complains of the Chancery Court's awarding of damages upon dissolution of the preliminary injunction.  These damages were assessed by reference to Defendants' attorneys fees and litigation expenses incurred in resisting the action and obtaining dissolution of the preliminary injunction.  

RRI argues that the gravamen of this civil action was title to and ownership of certain rice varieties.  As such, any other equitable relief in the form of injunctions flowed from and was dependent upon that issue of ownership, and the efforts of the Defendants' attorneys in defending the suit on its merits were addressed to that issue.  Accordingly, the Defendants were not entitled to an award of attorneys fees for dissolution of the injunction, or so RRI argues. * * *

* * *

If the relief sought is for an injunction alone, attorneys fees for dissolution must be allowed.  However, where the prayer for injunction is ancillary to the main relief sought and the entire case is heard finally, and not separately on any preliminary motion to dissolve, attorneys fees should not be allowed. But, where the entire relief sought is controlled by the injunction, attorneys [*1271] fees are allowable, even though there is no preliminary motion to dissolve the injunction and the injunction is not dissolved until the final hearing on the merits.

All of this, upon reflection, only confuses the distinction between rights and remedies.  RRI says the suit was about a matter of primary right, viz. title to and ownership of certain rice varieties.  Williams and the other Defendants say the suit was for injunctive relief.  Both are right.   Properly understood, the rule is that, where injunctive relief is the primary remedy sought, fees and expense award follow dissolution of preliminary injunctive relief.  And this is so wholly without regard to the nature of the primary right.  The assignment of error is denied.  

Affirmed.

Walker, C.J., Roy Noble Lee, P.J.; Hawkins, P.J.; Dan M. Lee, Prather, Sullivan, Anderson and Griffin, JJ., concur.

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Footnote


1.   [court's footnote 2]  Shortly after Williams' termination of employment with RRI, RRI filed a claim against him in the Chancery Court of the Second Judicial District of Bolivar County, Mississippi.  This lawsuit was a charge by RRI that Williams had attempted to purchase Kokuho Rose seed in March, 1983.  The suit was ultimately dismissed in consideration for which Williams transferred, quitclaimed and delivered to RRI all of his right, title and interest in approximately 11,440 bushels of long grain rice and medium grain rice, including Kokuho Rose type seed.

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