LLC v. Steven Gould et al. (2015)

MEMORANDUM OF DECISION

This action came before the court by writ, summons and complaint returnable to the court on July 23, 2013.   The plaintiff, Precision Auto of Eastford, LLC, brought a three-count action against the defendants, Motive Industries, LLC (Motive), Steven Gould, and Benjamin Dudek, alleging violations of the Connecticut Uniform Trade Secrets Act (CUTSA) and the Connecticut Unfair Trade Practices Act (CUTPA).   In addition, the complaint alleges Dudek violated his duty of good faith and fair dealing.   The matter was tried to the court on October 29, October 31, and November 7, 2014.   Posttrial briefs and reply briefs were filed through January 9, 2015.   The plaintiff was represented by attorney Edward Taimin, and the defendant was represented by attorney Elisa Pensavalle.

The plaintiff is the assignee of a claim originally owned by Precision Auto Parts Reproductions, Inc. (Reproductions), operated by David Eichner.   In 1999, Gould and Eichner began discussing ways to create a joint venture to develop, manufacture, and distribute quality exhaust systems for the 1964 1/2–1973 line of Ford Mustangs.¹  In 1999, Reproductions entered into an agreement with Motive, a single member LLC owned and operated by Gould.²

Each organization agreed to perform specific functions.   Reproductions purchased a Huth tube bending machine and the necessary tooling and other equipment to manufacture and bend exhaust systems in early 2000.   Reproductions also purchased the materials needed to create jigs.   Motive was responsible for purchasing all of the raw material necessary to manufacture the exhaust systems, such as steel tubing, mufflers, brackets, flanges, and tailpipes.

In short, Reproductions agreed to manufacture custom automotive exhaust components for the 1964 1/2–1973 Ford Mustang, as well as for the 1967–1972 Chevrolet Chevelle, and sell them to Motive who was responsible for providing the raw material and then promoting, cataloging, warehousing, and selling the finished exhaust systems to retailers and the general public.

Initially, Reproductions supplied Motive with exhaust systems for a couple of Mustang models.   Motive determined which exhaust systems to produce, based on production numbers of Mustangs during various years.

The development process generally involved locating and acquiring OEM components so they could be duplicated, and creating a fixture, known as a jig.   The jig was made by welding together pieces of iron onto which the original exhaust pipe, and subsequent copies, would rest at various contact points to insure and test duplicability.   After the jig was created, a bend card was prepared to record information regarding the specific angles, depths, and compressions of the bends in the exhaust pipes.   The bend card was used by the machine operator when the exhaust pipe was created from raw stock.   By 2005, Reproductions' product line included exhaust systems for the entire line of 1964 1/2–1973 Ford Mustangs and 1967–1972 Chevrolet Chevelles and utilized approximately 182 bend cards.

Reproductions ran its business from Eichner's garage until 2003, when operations were moved to an industrial building located on Tuckie Road in Windham, Connecticut.   Motive also had its operations in the same building.   From 2003 to 2009, Reproductions sold its exhaust systems to Motive from the Tuckie Road location.³  The two businesses were separated by a wall with a common door between them.   The parties exchanged orders and exhaust systems through the common door which was generally open.   In 2004, Reproductions hired Benjamin Dudek and over time trained him to manufacture the exhaust systems.   Dudek was a certified welder and had prior experience creating and welding jig fixtures.

In September 2009, the relationship between Motive and Reproductions began to deteriorate.   Reproductions announced its decision to relocate the business and intention to implement a price increase.   In response, Motive offered to buy Reproductions' exhaust business for $125,000.   Reproductions countered for $225,000.   The counter offer was rejected.   Thereafter, the common door was generally shut, and Eichner removed the bend cards from the facility and brought them in as needed.

In February 2010, after Reproductions announced a 20 percent price increase, Gould, who felt confident that he had built up enough of an inventory to avoid an interruption in sales, informed Eichner that Motive would no longer purchase exhaust systems from Reproductions.⁴  Reproductions stopped manufacturing exhausts and did not resume until the spring of 2011.   The plaintiff currently manufactures exhaust systems and has its own catalog identical to that of Motive.

In November of 2009, Gould, unbeknownst to Eichner, purchased his own Huth tube bending machine, the same make machine Reproductions used to manufacture exhaust components.   He also purchased the Huth Card Program CD (Huth CD), which contained bend information for all vehicle makes and models on the open market, hired an employee, Richard Strenkowski, and set out to replicate the product line that Reproductions had been supplying to Motive.⁵  Neither Gould nor Strenkowski had prior experience manufacturing exhaust systems or using a tube bending machine.   However by April 2010, they were successful in replicating 10 to 20 percent of the product line for the 1964 1/2–1973 Mustang.   Gould and Strenkowski used Motive's existing inventory (which Gould had increased prior to the separation) and the Huth CD, and purchased or borrowed original factory exhaust systems in order to make all the necessary exhaust systems and fixtures in the Motive product line over several months.⁶

In April 2010, Dudek, whose employment had been terminated by Reproductions, was hired by Motive to redevelop the remaining items of Motive's product line.   Dudek assisted in setting up the manufacturing area at Tuckie Road. In April 2010, Motive also hired an employee named Tyler Potz to assist in welding exhaust components.   Potz worked between thirty to forty hours per week and had experience working in manufacturing exhaust systems while previously employed by Reproductions.

Motive relied on fewer bend cards and jigs than Reproductions.   The Motive exhaust systems were modified to use interchangeable intermediate pipes, tailpipes, and mufflers.   With the assistance of Strenkowski and Dudek, approximately thirty-seven jigs were fabricated in order to test the exhaust products in Motive's catalogue.   Not all of the products in Motive's catalogue have been redeveloped—some items are no longer produced by Motive.

In the fall of 2010, Eichner attended a car show and spoke to Motive's customers who, he testified, informed him that Motive was continuing to supply them with the same line of exhaust systems that Reproductions had previously supplied to Motive.   Eichner came to believe that the defendants must have misappropriated his bend cards and fixture information.   Eichner testified:

At first I was upset, like I'd been ripped off.   I know the time that I spent over the years trying to get this system, again, to be a problem free product.   It took a lot of time, and it just didn't add up for him to be doing business as usual without that same time investment.

At trial, the plaintiff's expert, Roland Corsi, testified that in order to successfully manufacture custom exhaust systems, it is necessary to test fit the exhaust system in the specific make and model of the vehicle for which it was intended to be certain that it fits.⁷  Corsi testified that the Huth CD was intended for repair facilities where the car is present and modifications can be made as the exhaust system is being created.   Corsi testified it would take years, not months, to locate all of the original factory exhaust systems necessary to replicate the 1964 1/2–1973 Mustang product line.   In summary, Corsi argued that it was impossible for Motive to redevelop the exhaust line without first obtaining original factory exhaust systems or access to the original vehicles, a process that would take considerable time, and therefore, the defendant must have misappropriated the plaintiff's bend cards.

William T. Gore, the defendant's expert witness, opined that the plaintiff's bend cards would not be of use to the defendant in redeveloping the exhaust line at issue and that creating new bend cards would be easier.⁸  Gore compared the sample bend cards provided by Eichner during his deposition on October 10, 2014, against the corresponding bend cards that were provided by Motive and determined that there were substantial differences between Reproductions' and Motive's bend cards.⁹  These differences, and the difference in the amount of wear, use, and maintenance between the Huth machines, rendered Reproductions' bend cards useless to Motive.¹⁰  Without substantial modifications, Reproductions' bend cards could not produce the same results for Motive.

Gore also inspected Motive's facility and the equipment Motive used to manufacture its catalogue of exhaust products.   Gore selected a random bend card supplied by Reproductions and directed Dudek to bend the exhaust component on Motive's Huth tube bender.   The finished pipe failed to fit Motive's corresponding jig in multiple ways.   Errors included length of the pipe, the location and degree of the bends, and the angle of termination of the pipe.   In short, the parties' bend cards were unique to their respective Huth machines and the wear, tolerances, and characteristics associated with each machine.   While Gore had no hands on experience manufacturing reproduction exhaust systems, he was an experienced machinist, familiar with the Huth product, and his analysis and evaluation was persuasive and compelling.

I

DISCUSSION

As noted above, the plaintiff, Precision Auto of Eastford, LLC, brought a three-count action against the defendants, alleging violations of the Connecticut Uniform Trade Secrets Act (CUTSA), the Connecticut Unfair Trade Practices Act (CUTPA), and a count alleging Dudek violated his duty of good faith and fair dealing.

A

CUTSA

CUTSA is Connecticut's version of the Uniform Trade Secrets Act and is codified at General Statutes § 35–50 et seq.   Under General Statutes § 35–52(a), “[a]ctual or threatened misappropriation may be enjoined upon application to any court of competent jurisdiction.”  “A plaintiff must prove a misappropriation, whether existing or potential, to obtain an injunction under CUTSA.”   ACG, Inc. v. Baillargeon, Superior Court, judicial district of Hartford, Docket No. CV–10–601844–S (March 9, 2011, Prescott, J.).   “ ‘Misappropriation’ is defined by General Statutes Section 35–51(b) as (1) [a]cquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means;  or (2) disclosure or use of the trade secret of another without express or implied consent by a person who (A) used improper means to acquire knowledge of the trade secret;  or (B) at the time of disclosure or use, knew or had reason to know that his knowledge of the trade secret was (i) derived from or through a person who had utilized improper means to acquire it;  (ii) acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use ․ or (iii) derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use;  or (C) before a material change of his position, knew or had reason to know that was a trade secret and that knowledge of it had been acquired by accident or mistake.   Under CUTSA, therefore, proof of misappropriation requires proof of the existence of a ‘trade secret.’  “ (Footnote omitted;  internal quotation marks omitted.)  Id.

“The term ‘trade secret’ is a term of art that is defined by § 35–51(d) as information, including a formula, pattern, compilation, program, device, method, technique, process, drawing, cost data or customer list that:  (1) [d]erives 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 (2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.”  (Internal quotation marks omitted.)  Id.

General Statutes § 35–56 is entitled “Limitation of Action for Misappropriation,” and provides in relevant part:  “No action for misappropriation shall be brought but within three years from the date the misappropriation is discovered or by the exercise of reasonable diligence should have been discovered.”

B

CUTPA

General Statutes § 42–110a et seq. set forth Connecticut's Unfair Trade Practice Act (CUTPA).   Section 42–110g(a) provides in relevant part:  Any person who suffers any ascertainable loss of money or property, real or personal, as a result of the use or employment of a method, act or practice prohibited by section 42–110b may bring an action ․ to recover actual damages.   In the case of Ulbrich v. Groth, 310 Conn. 375, 409–10, 78 A.3d 76 (2013), our Supreme Court set forth the standards that govern CUTPA claims:  “It is well settled that in determining whether a practice violates CUTPA we have adopted the criteria set out in the cigarette rule by the [F]ederal [T]rade [C]ommission for determining when a practice is unfair:  (1) [W]hether the practice, without necessarily having been previously considered unlawful, offends public policy as it has been established by statutes, the common-law, or otherwise—in other words, it is within at least the penumbra of some common law, statutory, or other established concept of unfairness;  (2) whether it is immoral, unethical, oppressive, or unscrupulous;  (3) whether it causes substantial injury to consumers, [competitors or other business persons] ․ All three criteria do not need to be satisfied to support a finding of unfairness.   A practice may be unfair because of the degree to which it meets one of the criteria or because to a lesser extent it meets all three ․ Thus a violation of CUTPA may be established by showing either an actual deceptive practice ․ or a practice amounting to a violation of public policy ․ In order to enforce this prohibition, CUTPA provides a private cause of action to [a]ny person who suffers any ascertainable loss of money or property, real or personal, as a result of the use or employment of a [prohibited] method, act or practice ․”

C

Breach of Good Faith and Fair Dealing

In the case of Landry v. Spitz, 102 Conn.App. 34, 925 A.2d 334 (2007), the court set forth the well-worn standards regarding the covenant of good faith and fair dealing.  “To constitute a breach of [the implied covenant of good faith and fair dealing], the acts by which the defendant allegedly impedes the plaintiff's right to receive benefits that he or she reasonably expected to receive under the contract must have been taken in bad faith.”  (Emphasis omitted;  internal quotation marks omitted.)  Id., 42.  “Bad faith in general implies both actual or constructive fraud, or a design to mislead or deceive another ․ by some interested or sinister motive.”  Id., 42–43.

All three counts are supported, contends the plaintiff, by facts establishing that the defendants, Motive and Gould, misappropriated Reproductions' trade secrets, that is bend cards and welding fixtures by inappropriate means, and did so in violation of public policy.   Further, the plaintiff contends that Dudek had a duty and obligation to protect the bend cards and welding fixtures from misappropriation by Gould/Motive and that Dudek was an active participant in the misappropriation of Reproductions' bend cards and welding fixture information as it is reasonable to conclude that Dudek actively participated in the fraud with Gould by permitting him to enter Reproductions' side of the building for purposes of copying the bend card information and whatever information was necessary to reproduce the welding fixtures.

The court does not view the evidence in the same light.   Rather, the facts establish that Motive put forth a substantial effort and expended considerable time redeveloping the manufacturing process necessary to produce its own line of exhaust components and systems.   Gould took the time to carefully restructure and reorganize his business operations to bring the manufacturing component in house and purchase all the necessary equipment to do so.   Gould and Motive took the necessary steps to acquire and redevelop the bend cards and jig fixtures needed to produce the line of exhaust systems in Motive's catalogue.   This process was initiated by Gould and Strenkowski, who together put in over eighty hours a week for many months to initiate the redevelopment of Motive's line of exhaust components.   Two other employees were eventually brought on to assist, Dudek and Potz, who both had substantial experience in producing and developing exhaust components.

The fact that Motive was able to achieve its results in a substantially shorter period of time than Reproductions and Eichner, that it did not take years as argued by Corsi, is certainly attributable to the extra manpower Motive enlisted to complete the task, but most importantly, by the fact that Motive had a substantial inventory of the very components and systems it needed to produce.   Years earlier, Reproductions and Eichner were compelled to gather over time original exhaust systems and/or access to original vehicles.   On the other hand, Gould had in his inventory readily available OEM comparable products that had already been test fit.   Accordingly, Motive did not have to spend years and years searching for samples because it had almost everything it needed already.   Further, Motive embarked on a steady path of redeveloping its product line.   Reproductions took longer to develop its product line since it was developing and producing manufactured product at the same time.   Systems and components were developed as they became available and as they were needed.

The redevelopment process was also streamlined utilizing Gould's knowledge of his product line and Strenkowski's ability to create machinery to speed up and produce more product more efficiently.   Gould was able to cut down significantly in the amount of bend cards and jigs Motive required by utilizing the similarity between systems that were identical in every sense except for the diameter of the pipe used.   Systems that were two inches and two and one-quarter inches did not require separate jig fixtures, and bend information varied slightly.   Gould demonstrated with the use of his catalog that the single exhaust pipes located in the front of his catalog are the components that make up the exhaust systems in the remainder of his catalog.   Not all the items in Motive's catalog had to be redeveloped, and Motive does not currently produce all the items in its catalog.

In conclusion, the plaintiff has failed to meet its burden with respect to all three of its causes of action, and as such, the plaintiff's request for damages and/or an injunction pursuant to each cause of action is denied.

THE COURT

CALMAR, J.

FOOTNOTES

FN1. Competitors of Reproductions and Motive include SMR, Metal Technologies, Waldrons, and Fasco..  FN1. Competitors of Reproductions and Motive include SMR, Metal Technologies, Waldrons, and Fasco.

FN2. Eichner and Gould were childhood friends..  FN2. Eichner and Gould were childhood friends.

FN3. Motive represented 100 percent of Reproduction's exhaust business..  FN3. Motive represented 100 percent of Reproduction's exhaust business.

FN4. At the time, net profit to Reproductions from the exhaust business was approximately $40,000 per year..  FN4. At the time, net profit to Reproductions from the exhaust business was approximately $40,000 per year.

FN5. The Huth machine was installed in a garage owned by Strenkowski's father..  FN5. The Huth machine was installed in a garage owned by Strenkowski's father.

FN6. Gould denies stealing, reproducing, copying, or misappropriating the confidential bend card information owned by Reproductions.   Gould testified that, on one occasion, without Eichner's permission, he used his iPhone to take a picture of a single bend card for the 1967–1972 Chevrolet Chevelle in order to confirm the correct cards were turned over in the event of a sale..  FN6. Gould denies stealing, reproducing, copying, or misappropriating the confidential bend card information owned by Reproductions.   Gould testified that, on one occasion, without Eichner's permission, he used his iPhone to take a picture of a single bend card for the 1967–1972 Chevrolet Chevelle in order to confirm the correct cards were turned over in the event of a sale.

FN7. Corsi owned Corsi Custom Exhaust and Auto Restoration located in New Milford, Connecticut.   Corsi was trained in automotive repair and the manufacture of custom exhaust systems..  FN7. Corsi owned Corsi Custom Exhaust and Auto Restoration located in New Milford, Connecticut.   Corsi was trained in automotive repair and the manufacture of custom exhaust systems.

FN8. Gore worked in the automotive industry as a machinist, assistant parts manager, and tire and wheel distributor.   His experience working on automobiles was limited to work done on his own vehicles.   Gore is currently in the lift business..  FN8. Gore worked in the automotive industry as a machinist, assistant parts manager, and tire and wheel distributor.   His experience working on automobiles was limited to work done on his own vehicles.   Gore is currently in the lift business.

FN9. Gore inspected Motive's Huth machine, but not the machine used by Reproductions..  FN9. Gore inspected Motive's Huth machine, but not the machine used by Reproductions.

FN10. Corsi recommended that the bushing component of Reproductions' tube bender be replaced because the bushings get worn out over time, changing the bend degree on the tube bender.   If the bend is off by even one degree it can change the shape of the exhaust component and cause it not to fit properly into a jig..  FN10. Corsi recommended that the bushing component of Reproductions' tube bender be replaced because the bushings get worn out over time, changing the bend degree on the tube bender.   If the bend is off by even one degree it can change the shape of the exhaust component and cause it not to fit properly into a jig.

Calmar, Harry E., J.