SciGrip, Inc. v. Osae ( 2020 )

IN THE SUPREME COURT OF NORTH CAROLINA
No. 139A18
Filed 28 February 2019
SCIGRIP, INC. f/k/a IPS STRUCTURAL ADHESIVES HOLDINGS, INC. and IPS
INTERMEDIATE HOLDINGS CORPORATION
v.
SAMUEL B. OSAE and SCOTT BADER, INC.
Appeal pursuant to N.C.G.S. § 7A-27(a)(3) from an interlocutory order entered
on 16 January 2018 by Special Superior Court Judge for Complex Business Cases
Michael L. Robinson in Superior Court, Durham County, after the case was
designated a mandatory complex business case by the Chief Justice under N.C.G.S.
§ 45.4(b). Heard in the Supreme Court on 28 August 2019.
Wyrick Robbins Yates & Ponton LLP, by K. Edward Greene, Benjamin
Thompson, and J. Blakely Kiefer, for plaintiff-appellants.
Mast, Mast, Johnson, Wells & Trimyer, by George B. Mast, Charles D. Mast,
Clint Mast, and Lily Van Patten, for defendant-appellee Samuel B. Osae.
Ogletree, Deakins, Nash, Smoak & Stewart, P.C., by Philip J. Strach and
Brodie D. Erwin, for defendant-appellee Scott Bader, Inc.
ERVIN, Justice.
This case involves a dispute between plaintiff SciGrip, Inc. (formerly known as
IPS Structural Adhesives Holdings, Inc.), a wholly-owned subsidiary of plaintiff IPS
Intermediate Holdings Corporation (collectively, SciGrip); defendant Samuel Osae, a
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Opinion of the Court
chemist formerly employed by SciGrip; and defendant Scott Bader, Inc., by which Mr.
Osae became employed after his departure from SciGrip’s employment. SciGrip and
Scott Bader were competitors in the development, manufacture, and sale of structural
methyl methacrylate adhesives used in the marine and other industries for the
purpose of bonding metals, composites, and plastics. As will be discussed in greater
detail below, the issues before us in this case involve whether the trial court correctly
decided the parties’ summary judgment motions relating to the claims asserted in
SciGrip’s amended complaint for misappropriation of trade secrets, unfair and
deceptive trade practices, breach of contract, and punitive damages and Mr. Osae’s
motions to exclude the testimony of two expert witnesses proffered by SciGrip. After
careful consideration of the parties’ challenges to the trial court’s order in light of the
record evidence, we conclude that the challenged trial court order should be affirmed.
I. Factual Background
A. Substantive Facts
In July 2000, SciGrip, a corporation involved in the formulation, manufacture,
and sale of structural adhesives, hired Mr. Osae as an Application and Development
Manager responsible for formulating structural methyl methacrylate adhesives. Mr.
Osae served as the sole formula chemist in SciGrip’s Durham office and as the person
within the company with principal responsibility for formulating structural methyl
methacrylate adhesives.
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At the time that he entered into its employment, Mr. Osae signed a Proprietary
Information and Inventions Agreement in which he agreed to refrain from disclosing
any of SciGrip’s proprietary information to any person or entity at any time during
or after his employment with SciGrip.1 In addition, Mr. Osae assigned all of the
intellectual property rights and trade secrets that he learned or developed during his
employment to SciGrip. On 21 December 2006 and 4 January 2008, respectively, Mr.
Osae signed two Nonqualified Stock Option Agreements in which he agreed to
maintain the confidentiality of all non-public information in his possession relating
to SciGrip and to refrain from working for a competitor after leaving SciGrip’s
employment for periods of two years and one year, respectively.
Subsequently, Mr. Osae entered into discussions with Scott Bader about the
possibility that Mr. Osae would work for Scott Bader in connection with its efforts to
develop a structural methyl methacrylate adhesive product to be known as
Crestabond. At the time that he met with Scott Bader representatives, Mr. Osae
stated that he was dissatisfied with the recognition that he had received at SciGrip,
1According to the Proprietary Information and Inventions Agreement, “proprietary
information” is defined as “any information, technical or nontechnical, that derives
independent economic value, actual or potential, from not being known to the public or other
persons outside [SciGrip] who can obtain economic value from its disclosure or use, and
includes information of [SciGrip], its customers, suppliers, licensors, licensees, distributors
and other persons and entities with whom [SciGrip] does business,” including, but not limited
to, any “formulas, developmental or experimental work, methods, techniques, processes,
customer lists, business plans, marketing plans, pricing information, and financial
information.”
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that he wanted to leave SciGrip’s employment, and that he could assist Scott Bader
in developing structural methyl methacrylate adhesives.
On 27 August 2008, Mr. Osae resigned from his employment at SciGrip to take
a position with Scott Bader as a senior applications chemist. At the time that he left
SciGrip’s employment, Mr. Osae executed a termination certificate in which he
agreed to maintain the confidentiality of SciGrip’s proprietary information. While
employed with Scott Bader, Mr. Osae remained a North Carolina resident, travelling
to the United Kingdom and, after 2009, to Ohio for the purpose of performing any
necessary laboratory work. In October 2008, John Reeves, who served as SciGrip’s
president, encountered Mr. Osae at a trade show, where Mr. Osae told Mr. Reeves
that he had joined Scott Bader and was involved in the development of structural
methyl methacrylate adhesives.
On 12 November 2008, SciGrip filed a complaint in Superior Court, Durham
County, against Mr. Osae and Scott Bader in which it alleged that defendants had
misappropriated SciGrip’s trade secrets; engaged in unfair and deceptive trade
practices; and sought to enforce the provisions of the Proprietary Information and
Inventions Agreement and the Nonqualified Stock Options Agreements that Mr.
Osae had executed during his employment with SciGrip. See IPS Structural
Adhesives Holdings, Inc. v. Osae, 2018 NCBC 10, 2018 WL 632950. On 15 December
2008, the parties agreed to the entry of a consent order for the purpose of resolving
the issues that were in dispute between them. According to the consent order, which
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utilized the definition of confidential information contained in the Proprietary
Information and Inventions Agreement, Mr. Osae was prohibited from disclosing, and
Scott Bader was prohibited from using, any of SciGrip’s protected information. On
the other hand, the consent order allowed Mr. Osae to continue working for Scott
Bader on the condition that he perform all of his laboratory work in the United
Kingdom until 1 January 2010. Finally, the consent order prohibited Scott Bader
from introducing new products that competed with those offered by SciGrip until
September 2009.
After the entry of the consent order, Mr. Osae developed several Crestabond
formulations for Scott Bader. In April 2009, Scott Bader began preparing a patent
application relating to these newly developed formulations. In February 2010, Scott
Bader filed an application for the issuance of a European patent relating to its
Crestabond formulations that was published on 1 September 2011. Scott Bader’s
patent application disclosed the components used in the newly formulated
Crestabond products.
After it became concerned about the work that Mr. Osae had been performing
for Scott Bader, SciGrip hired Chemir Analytical Services to perform a deformulation
analysis of a sample of a new Scott Bader product in order to identify the components
utilized in that product and to determine how much of each component was present
in it. On 28 April 2011, Chemir provided a report to SciGrip that identified some of
the chemicals and materials that had been used in the new Scott Bader product
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without providing a complete identification of all of the materials that the product
contained. Although the Chemir report did not indicate that any of SciGrip’s
propriety materials had been included in the new Scott Bader product, the report did
express concerns about “what [Mr. Osae] was doing.”
In June 2011, while he was still employed by Scott Bader, Mr. Osae formed a
new structural methyl methacrylate adhesive company named Engineered Bonding
Solutions, LLC. On 26 August 2011, Mr. Osae resigned from his employment with
Scott Bader and moved to Florida, where he became Vice President of Technology at
Engineered Bonding. However, Mr. Osae continued to be a North Carolina resident
through at least 15 December 2014. After becoming associated with Engineered
Bonding, Mr. Osae served as the sole formulator and developer of the company’s
structural methyl methacrylate adhesives product, which was known as Acralock.
On 24 September 2012, Engineered Bonding filed a provisional patent application
with the United States Patent and Trademark Office relating to an Acralock product,
with this application having been published on 21 June 2016.
At approximately the same time that Scott Bader’s European patent was
published in September 2012, SciGrip began discussions with an entity that was
interested in acquiring SciGrip. During the course of these discussions, a
representative from the potential acquiring company expressed concern about
whether Mr. Osae had disclosed SciGrip’s product formulations and indicated that
the publication of Scott Bader’s European patent application would have a material,
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negative effect upon SciGrip’s value. SciGrip had not been aware of Scott Bader’s
European patent application until the date of this conversation. Ultimately, the
potential acquiring entity decided to refrain from acquiring SciGrip.
B. Procedural History
On 3 May 2013, SciGrip filed a complaint in the Superior Court, Durham
County, in which it asserted claims against Mr. Osae for breach of contract,
misappropriation of trade secrets, and unfair and deceptive trade practices. On 1
December 2014, SciGrip filed an amended complaint that asserted claims against
both Mr. Osae and Scott Bader. Ultimately, SciGrip asserted claims for (1)
misappropriation of trade secrets against both defendants; (2) breach of contract
against both defendants for violating the consent order during Mr. Osae’s
employment with Scott Bader; (3) breach of contract against Mr. Osae for violating
the consent order during his employment with Engineered Bonding; (4) unfair and
deceptive trade practices against both defendants; and (5) claims for punitive
damages against both defendants. Mr. Osae and Scott Bader filed answers to
SciGrip’s amended complaint on 5 January 2015 and 12 March 2015, respectively, in
which they denied the material allegations of the amended complaint and asserted
various affirmative defenses.
On 31 May 2017, SciGrip filed a motion seeking summary judgment with
respect to the issue of liability relating to each of the claims that it had asserted
against both defendants aside from its claim for punitive damages. On the same date,
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Mr. Osae filed a motion seeking summary judgment in its favor with respect to
SciGrip’s claims for misappropriation of trade secrets claim, unfair and deceptive
trade practices, and punitive damages, and Scott Bader filed a motion seeking
summary judgment in its favor with respect to each of the claims that SciGrip had
asserted against it in the amended complaint. In addition, Mr. Osae filed a motion
seeking to have the testimony of two of SciGrip’s experts, Michael Paschall and
Edward Petrie, excluded from the evidentiary record. A hearing was held before the
trial court for the purpose of considering the parties’ motions on 28 September 2017.
On 16 January 2018, the trial court entered a sealed order deciding the issues
raised by the parties’ motions.2 With respect to SciGrip’s misappropriation of trade
secrets claim, the trial court noted that this Court had not yet decided which choice
of law test should be applied in connection with misappropriation of trade secret
claim: (1) the lex loci delicti test (lex loci test), which requires the use of the law of
the state “where the injury or harm was sustained or suffered,” Harco Nat’l Ins. Co.
v. Grant Thornton LLP, 206 N.C. App. 687, 695, 698 S.E.2d 719, 724 (2010) (quoting
16 Am. Jur. 2d Conflict of Laws § 109 (2009)), or (2) the “most significant relationship
test,” a multi-factor test which requires the use of the law of the state with the most
significant ties to the parties and the facts at issue in the case in question. Acting in
reliance upon the Business Court’s earlier decision in Window World of Baton Rouge,
2 A redacted version of the same order was filed on 30 January 2018.
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LLC v. Window World, Inc., 2017 NCBC 58, 2017 WL 2979142, the trial court elected
to apply the lex loci test in identifying the law applicable to SciGrip’s
misappropriation of trade secrets claim in this case and focused its analysis upon the
place at which “the tortious act of misappropriation and use of the trade secret
occurred,” quoting Domtar AI Inc. v. J.D. Irving, Ltd., 43 F. Supp. 3d 635, 641
(E.D.N.C. 2014). In view of the fact that SciGrip did not argue that Mr. Osae had
wrongfully acquired the disputed information in North Carolina, the fact that the
patent application in which SciGrip’s proprietary information had allegedly been
disclosed by Scott Bader had been filed in Europe, and the fact that Mr. Osae’s
laboratory work for Scott Bader had been performed in England or Ohio rather than
North Carolina, the trial court concluded that SciGrip had failed to demonstrate that
Mr. Osae and Scott Bader had misappropriated SciGrip’s trade secrets in North
Carolina and that summary judgment should be entered in favor of Mr. Osae and
Scott Bader with respect to this claim. Similarly, the trial court noted that any
purported evidence of misappropriation that might have occurred during Mr. Osae’s
employment with Engineered Bonding involved actions that occurred outside of
North Carolina. As a result, the trial court entered summary judgment in favor of
both defendants with respect to SciGrip’s misappropriation of trade secrets claim.
In addressing SciGrip’s breach of contract claims, the trial court noted that the
parties agreed that the claims in question were governed by North Carolina law.
According to the trial court, the relevant provisions of the consent order protected
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legitimate business interests and were, for that reason, valid and enforceable.
Similarly, the trial court held that, since the consent order prohibited any use of
SciGrip’s confidential information in any manner, SciGrip was not required to show
that an intentional breach of contract had occurred. In addition, the trial court
determined that the record reflected the existence of genuine issues of material fact
concerning the date upon which SciGrip had learned that Mr. Osae and Scott Bader
had breached their obligations under the consent order, with this dispute being
sufficient to preclude an award of summary judgment in favor of SciGrip and against
Scott Bader on statute of limitations grounds. Finally, the trial court concluded that,
since the record contained undisputed evidence tending to show that certain
components used in Crestabond products were unknown to the general public prior
to the publication of the European patent application, SciGrip was entitled to the
entry of summary judgment in its favor against Mr. Osae for breaching the provisions
of the consent order in connection with the development of Crestabond products.
Similarly, in addressing SciGrip’s breach of contract claim against Mr. Osae
relating to events that occurred after he left Scott Bader to join Engineered Bonding,
the trial court concluded that certain components upon which SciGrip’s claim was
based were either publicly known prior to the filing of Scott Bader’s European patent
application or had not been used in Engineered Bondings’ Acralock product, but that
the record did not permit a conclusive determination as to the extent to which another
component upon which SciGrip’s claim was based was equivalent to a component
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used in the Acralock product. As a result, the trial court refused to grant summary
judgment in favor of either party with respect to the breach of contract claim that
SciGrip asserted against Mr. Osae based upon his alleged conduct following his
departure from Scott Bader for Engineered Bonding.
Moreover, given that it had already granted summary judgment in Mr. Osae
and Scott Bader’s favor with respect to SciGrip’s trade secrets claim, given that
SciGrip’s unfair and deceptive trade practices claim rested upon its misappropriation
of trade secrets claim, and given that SciGrip had failed to assert that the breach of
contract in which Scott Bader and Mr. Osae had allegedly engaged involved any
substantial aggravating circumstances, the trial court granted summary judgment in
favor of Scott Bader and Mr. Osae with respect to SciGrip’s unfair and deceptive trade
practices claim.
In addition, given that SciGrip’s only surviving claims sounded in breach of
contract; that punitive damages may not be awarded for breach of contract in the
absence of an identifiable tort, citing Cash v. State Farm Mut. Auto Ins. Co., 137 N.C.
App. 192, 200, 528 S.E.2d 372, 377 (2000) (stating that, “in order to sustain a claim
for punitive damages, there must be an identifiable tort which is accompanied by or
partakes of some element of aggravation”); and that SciGrip had failed to forecast any
evidence tending to show the occurrence of such a tort, the trial court concluded that
SciGrip’s punitive damages claim did not retain any viability. As a result, the trial
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court entered summary judgment in favor of Scott Bader and Mr. Osae with respect
to SciGrip’s request for punitive damages.
Finally, the trial court determined that the expert testimony proffered by Mr.
Paschall and Mr. Petrie on behalf of SciGrip only related to SciGrip’s
misappropriation of trade secrets and unfair and deceptive trade practices claims and
had no bearing upon its surviving breach of contract claims. In view of the fact that
SciGrip’s misappropriation of trade secrets and unfair and deceptive trade practices
claims had been dismissed for other reasons, the trial court determined that Mr.
Osae’s motions to exclude the testimony of Mr. Paschall and Mr. Petrie on behalf of
SciGrip had been rendered moot. SciGrip and Mr. Osae noted appeals to this Court
from the trial court’s order. In addition, SciGrip filed a conditional petition seeking
the issuance of a writ of certiorari on 3 July 2018 in which it requested that this Court
“treat and accept its appeal of the Order and Opinion on Motion for Summary
Judgment [and] Motions to Exclude . . . entered in the above-captioned case” in the
event that this Court concluded that no substantial rights of SciGrip were affected by
the trial court’s decision. On 26 October 2018, this Court allowed SciGrip’s
conditional petition for writ of certiorari.
II. Substantive Legal Analysis
A. Standard of Review
According to well-established North Carolina law, summary judgment “shall
be rendered forthwith if the pleadings, depositions, answers to interrogatories, and
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admissions on file, together with the affidavits, if any, show that there is no genuine
issue as to any material fact and that any party is entitled to judgment as a matter
of law.” N.C.G.S. § 1A-1, Rule 56(c). An appellate court reviews a trial court’s
decision* to grant or deny a motion for summary judgment de novo. See Meinck v.
City of Gastonia, 371 N.C. 497, 502, 819 S.E.2d 353, 357 (2018). A trial court’s ruling
concerning the admissibility of expert’s testimony “will not be reversed on appeal
absent a showing of abuse of discretion.” State v. McGrady, 368 N.C. 880, 893, 787
S.E.2d 1, 11 (2016) (citing Howerton v. Arai Helmet, Ltd., 358 N.C. 440, 458, 597
S.E.2d 674, 686 (2004), superseded by statute, N.C.G.S. § 8C-1, Rule 702, 2011 N.C.
Sess. Laws 283). “A trial court’s rulings on relevancy are technically not
discretionary, though we accord them great deference on appeal.” State v. Lane, 365
N.C 7, 27, 707 S.E.2d 210, 223 (2011).
B. SciGrip’s Claims
In seeking relief from the challenged trial court orders, SciGrip contends that
the trial court erred by: (1) applying the lex loci test rather than the most significant
relationship test in evaluating the merits of its misappropriation of trade secrets
claim; (2) granting summary judgment in favor of Scott Bader and Mr. Osae with
respect to its misappropriation of trade secrets claim based upon a misapplication of
the lex loci test; (3) granting summary judgment in favor of Scott Bader and Mr. Osae
with respect to its unfair and deceptive trade practices claim given the existence of
evidence tending to show the existence of the necessary aggravating circumstances;
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(4) granting summary judgment in favor of Scott Bader and Mr. Osae with respect to
its punitive damages claim given that the record contained sufficient evidence to
show that those two parties engaged in sufficiently aggravated or malicious behavior;
(5) concluding that one of the components upon which its breach of contract claims
rested had been made public prior to the publication of Scott Bader’s European patent
application; (6) denying as moot Mr. Osae’s motions to exclude the testimony of Mr.
Paschall and Mr. Petrie given that their testimony was relevant to other claims; and
(7) denying SciGrip’s motion for summary judgment with respect to its breach of
contract claim against Mr. Osae arising from his work for Engineered Bonding on the
grounds that one of the components upon which SciGrip’s claim relied had not been
shown to be equivalent to one of the components used in SciGrip’s proprietary
products. We will examine the validity of each of SciGrip’s challenges to the trial
court’s order in the order in which SciGrip has presented them before the Court.
1. Misappropriation of Trade Secrets
a. Choice of Law
As an initial matter, SciGrip argues that the trial court erred by entering
summary judgment in favor of Scott Bader and Mr. Osae with respect to its
misappropriation of trade secrets claim on the grounds that the trial court should
have utilized the most significant relationship test, rather than the lex loci test, in
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making this determination.3 In support of this contention, SciGrip directs our
attention to numerous decisions of the Court of Appeals and from courts in other
jurisdictions which utilize the most significant relationship test rather than the lex
loci test in deciding multistate commercial cases. According to SciGrip, these
decisions tend to prefer the use of the most significant relationship test on the
grounds that it avoids rigidity and makes it possible to use “a more flexible approach
which would allow the court in each case to inquire which state has the most
significant relationship with the events constituting the alleged tort and with the
parties.” Santana, Inc. v. Levi Strauss and Co., 674 F.2d 269, 272 (4th Cir. 1982). In
addition, SciGrip asserts that the trial court’s reliance upon Window World was
misplaced given that it relied upon a decision of this Court in a products liability case
rather than a case in which the court was called upon to decide issues arising from
commercial relations involving entities located in and events occurring in multiple
jurisdictions.
Mr. Osae responds that, under the conflict of laws principles traditionally
utilized in this jurisdiction, the lex loci test has been deemed applicable in dealing
with claims that affect the substantial rights of the parties, citing Harco Nat’l Ins.
3The trial court deemed the choice of law issue in this case dispositive on the grounds
that, since “the undisputed evidence demonstrates that the alleged misappropriation
occurred outside the State of North Carolina,” “[SciGrip] cannot bring a claim under the
North Carolina [Trade Secrets Protection Act].” In view of the fact that none of the parties
have challenged the validity of this portion of the trial court’s analysis on appeal, we assume,
without deciding, that it is correct.
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Co., 206 N.C. App. at 692, 698 S.E.2d at 722. In addition, Mr. Osae asserts that the
federal courts sitting in this and other states have tended to apply the lex loci test in
determining whether particular misappropriation of trade secrets claims are
encompassed within the ambit of the North Carolina Trade Secrets Protection Act,
citing Domtar Al Inc., 43 F. Supp. 3d at 641, Chattery Int’l Inc. v. JoLida, Inc., No.
WDQ-10-2236, 2012 U.S. Dist. WL 1454158 (D. Md. Apr. 2 2012), and 3A Composites
USA, Inc. v. United Indus., Inc., No. 5:14-CV-5147, 2015 U.S. Dist. WL 5437119 (W.D.
Ark. Sept. 15 2015). Mr. Osae argues that, when taken in their entirety, these cases
demonstrate that, under North Carolina law, the ultimate issue for choice of law
purposes is the location at which the act of misappropriation occurred rather than
the location at which the defendant obtained the information that he or she
misappropriated. In the same vein, Scott Bader emphasizes that misappropriation
of trade secrets claims sound in tort and that North Carolina precedent unequivocally
calls for the use of the lex loci test to decide conflict of laws issues arising in tort cases.
According to the lex loci test, the substantive law of the state “where the injury
or harm was sustained or suffered,” which is, ordinarily, “the state where the last
event necessary to make the actor liable or the last event required to constitute the
tort takes place,” applies. Harco Nat’l Ins. Co., 206 N.C. App. at 695, 698 S.E.2d at
724 (quoting 16 Am. Jur. 2d Conflict of Laws § 109 (2009)). The most significant
relationship test, on the other hand, provides for the use of the substantive law of the
state with the most significant relationship to the claim in question, with that
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determination to be made on the basis of an evaluation of “(a) the place where the
injury occurred; (b) the place where the conduct giving rise to the injury occurred; (c)
the domicile, residence, nationality, place of incorporation and place of business of
the parties; [and] (d) the place where the relationship, if any, between the parties is
centered.” Henry v. Henry, 291 N.C. 156, 163–64, 229 S.E.2d 158, 163 (1979) (quoting
Restatement, Conflict of Laws 2d, § 145). We agree with the trial court that the
proper choice of law rule for use in connection with our evaluation of SciGrip’s
misappropriation of trade secrets claim is the lex loci test.
As the trial court noted, this Court’s jurisprudence favors the use of the lex loci
test in cases involving tort or tort-like claims. See, e.g., Boudreau v. Baughman, 322
N.C. 331, 335–36, 368 S.E.2d 849, 853–54 (1988) (noting that “[o]ur traditional
conflict of laws rule is that matters affecting the substantial rights of the parties are
determined by lex loci,” with this Court having “consistent[ly] adhere[d]” to the lex
loci test in tort actions” and with there being “no reason to abandon this well-settled
rule at this time”); Braxton v. Anco Electric, Inc., 330 N.C. 124, 126–27, 409 S.E.2d
914, 915 (1991) (stating that “[w]e do not hesitate in holding that as to the tort law
controlling the rights of the litigants in the lawsuit . . . the long-established doctrine
of lex loci delicti commissi applies”); see also GYBE v. GYBE, 130 N.C. App. 585, 587–
88, 503 S.E.2d 434, 435 (1998) (noting that a “review of North Carolina caselaw
reveals a steadfast adherence by our courts to the traditional application of the lex
loci delicti doctrine” in matters affecting the substantive rights of the parties).
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Consistent with our traditional approach, a number of federal district courts have
applied the lex loci test when assessing North Carolina trade secrets
misappropriation claims. For example, a federal district court held in Domtar AI Inc.
that “North Carolina’s choice of law rules call for the application of the lex loci delicti
(or ‘law of the place of the wrong’) test to determine which law should apply to claims
for misappropriation of trade secrets,” with “the lex loci [in trade secrets cases being]
where the actual misappropriation and use of the trade secret occurs” rather than the
place at which the defendant obtained the relevant information. Domtar AI Inc., 43
F. Supp. 3d at 641 (citing Merck & Co. Inc. v. Lyon, 941 F. Supp. 1443, 1456 n.3
(M.D.N.C. 1996), and Salsbury Laboratories, Inc. v. Merieux Laboratories, Inc., 735
F. Supp. 1555, 1568 (M.D. Ga. 1989), aff’d as modified, 908 F.2d 706 (11th Cir. 1990)).
Similarly, in 3A Composites USA, 2015 U.S. Dist. WL 5437119 at *1, a federal district
court concluded that a North Carolina court “would have applied the lex loci delicti
rule to determine which state’s laws govern all of [the North Carolina employer’s]
claims other than breach of contract,” including the plaintiff’s misappropriation of
trade secrets claim, id. at *3–4 (citing United Dominion Indus., Inc. v. Overhead Door
Corp., 762 F. Supp. 126, 129 (W.D.N.C. 1991) (predicting that this Court “would apply
the traditional lex loci rule rather than the most significant relationship test” in a
deceptive trade practices case); Martinez v. Nat’l Union Fire Ins. Co., 911 F. Supp. 2d
331, 338 (E.D.N.C. 2012) (noting that this Court “has affirmed the continuing
validity” of the lex loci test in deceptive trade practices cases); and Domtar AI Inc., 43
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F. Supp. 3d at 641 (applying lex loci test to a misappropriation of trade secrets claim)).
As a result, the weight of this Court’s decisions and those of federal courts predicting
how this Court would address misappropriation of trade secrets claims tends to
support the application of the lex loci test, rather than the most significant
relationship test, in the misappropriation of trade secrets context.
The result suggested by the weight of authority is supported by more practical
considerations. In rejecting the Second Restatement approach to conflict of laws
issues, of which the most significant relationship test is an example, in Boudreau, we
stated that the lex loci test “is an objective and convenient approach which continues
to afford certainty, uniformity, and predictability of outcome in choice of law
decisions.” Boudreau, 322 N.C. at 336, 368 S.E.2d at 854. Although we cannot
disagree with SciGrip’s contention that use of the most significant relationship test
would provide North Carolina courts with greater flexibility in identifying the state
whose law should apply in any particular instance, that increased flexibility is
achieved at the cost of introducing significant uncertainties into the process of
identifying the state whose law should apply, which we do not believe would be
beneficial. Moreover, while the application of the lex loci test can be difficult in some
circumstances, including cases involving events that occur in and entities associated
with multiple jurisdictions, those difficulties pale in comparison with the lack of
certainty inherent in the application of a totality of the circumstances test such as
the most significant relationship test. As a result, we hold that the trial court did not
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err by determining that the appropriate choice of law test for use in misappropriation
of trade secrets cases is the lex loci test.
b. Application of the Lex Loci Test
Secondly, SciGrip argues that, even if the lex loci test, rather than the most
significant relationship test, should be utilized in identifying the state whose law
should be deemed controlling in this case, a proper application of the lex loci test
compels the conclusion that North Carolina is the state in which the last act
necessary to establish its claim occurred. According to SciGrip, the last act giving
rise to its misappropriation of trade secrets claim was not the development work that
Mr. Osae performed for Scott Bader in the United Kingdom and Ohio or the filing of
Scott Bader’s European patent application. Instead, SciGrip argues that the last act
in this case was, for lex loci purposes, the “acquisition, disclosure or use” of another’s
trade secret without the owner’s consent, citing N.C.G.S. § 66-152(1), which SciGrip
contends occurred when Scott Bader and Mr. Osae violated the consent order, which
had been entered by a North Carolina court.4 In addition, SciGrip argues that, unlike
the situation that existed in cases such as Domtar AI Inc., 3A Composites, and
Chattery, in which the defendant-employees had each relocated to another state in
order to work for a competitor, Mr. Osae remained a resident of North Carolina
4 SciGrip does not appear to contend that Mr. Osae performed any act of
misappropriation in North Carolina during the time that he was employed by Engineered
Bonding and has not, for that apparent reason, argued that, under the lex loci test, there is
any basis for finding that North Carolina law applies to that portion of its claim against Mr.
Osae.
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throughout the period during which the misappropriation of SciGrip’s trade secrets
allegedly occurred. SciGrip further argues that, since its principal place of business
is located in North Carolina, the ultimate injury caused by the alleged misconduct of
Scott Bader and Mr. Osae occurred in this jurisdiction, citing Verona v. U.S. Bancorp,
No. 7:09-CV-057-BR, 2011 WL 1252935 (E.D.N.C. Mar. 29, 2011) (holding that the
place of the injury in a defamation case was the state in which the defamatory
statement was published); and Harco, 206 N.C. App. at 697, 698 S.E.2d at 725–26
(stating that the location of the plaintiff’s place of business “may be useful for
determining the place of plaintiff’s injury in those rare cases where, even after a
rigorous analysis, the place of injury is difficult or impossible to discern”). In
SciGrip’s view, a decision to apply the law of another jurisdiction would frustrate the
purpose of the North Carolina Trade Secrets Protection Act, which it asserts is
intended to protect the trade, commerce, and residents of North Carolina. Finally,
SciGrip asserts that, even if North Carolina law does not apply in this instance, the
trial court should have applied the law of the applicable state rather than simply
dismissing its claim, citing Charnock v. Taylor, 223 N.C. 360, 362, 26 S.E.2d 911, 913
(1943) (stating that, “[i]f under the lex loci [test] there [is] a right of action, comity
permits it to be prosecuted in another jurisdiction”).
Mr. Osae, on the other hand, argues that, while North Carolina law governs
SciGrip’s breach of contract claim, the mere fact that North Carolina law applies to
that claim does not render North Carolina law applicable to any other claim, citing
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Domtar AI Inc., 43 F. Supp. 3d at 641–42. In addition, Mr. Osae argues that the
plaintiff’s principal place of business is not determinative for choice of law purposes
under the lex loci test, with the identification of the relevant state instead being
dependent upon the place at which the use and disclosure of the misappropriation of
the proprietary information occurred instead, citing id.; Harco Nat’l Ins. Co., 206 N.C.
App. at 697, 698 S.E.2d at 725–26 (declining to create a bright line rule for purposes
of the lex loci test that a plaintiff’s injury is suffered at its principal place of business);
and United Dominion Indus., 762 F. Supp. at 129–31 (rejecting an argument
advanced in the context of an unfair and deceptive practices case that, for purposes
of the lex loci test, the location of the corporation’s “pocketbook” should determine the
location at which the offending conduct occurred), and with any unlawful use or
disclosure of SciGrip’s information having occurred in the United Kingdom, Ohio, or
Florida rather than in North Carolina. Mr. Osae criticizes SciGrip’s reliance upon
decisions in defamation cases, which he contends are not analogous to cases involving
misappropriation of trade secrets claims. Finally, Mr. Osae responds to SciGrip’s
public policy discussion by arguing that the trial court acted reasonably by declining
to extend the scope of the North Carolina Trade Secrets Protection Act to the United
Kingdom, Ohio, and Florida.
In addition to echoing a number of the arguments advanced by Mr. Osae, Scott
Bader asserts that the fact that Mr. Osae continued to own property and reside in
North Carolina during his period of employment with Scott Bader and Engineered
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Bonding did not tend to show that he had impermissibly used or disclosed SciGrip’s
confidential information in North Carolina. Instead, Scott Bader argues that the only
work that Mr. Osae did for Scott Bader in North Carolina involved sales rather than
product formulation. In Scott Bader’s view, SciGrip’s contention that Mr. Osae
possessed and used his company-issued laptop computer and laboratory books to
formulate adhesives in North Carolina lacks any support in the record evidence.
Scott Bader contends that any breach of the consent order that either Scott Bader or
Mr. Osae may have committed did not convert SciGrip’s breach of contract claim into
a misappropriation of trade secrets claim. Finally, Scott Bader argues that SciGrip’s
failure to request the trial court to consider a misappropriation of trade secrets claim
on any theory other than as a violation of the North Carolina Trade Secrets Protection
Act precludes it from asserting such a claim under the law of any other jurisdiction,
citing Leonard v. Johns-Manville Sales Corp., 309 N.C. 91, 95, 305 S.E.2d 528, 531
(1983) (stating that “[t]he party seeking to have the law of a foreign jurisdiction apply
has the burden of bringing such law to the attention of the court”).
Having determined that the lex loci test, rather than the most significant
relationship test, should be utilized to determine whether North Carolina law applies
to SciGrip’s misappropriation of trade secrets claim, we have no hesitation in
concluding that North Carolina law does not apply to this claim. Our conclusion to
this effect rests upon the fact that all of the evidence tends to show that any
misappropriation of SciGrip’s trade secrets in which Mr. Osae and Scott Bader may
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have engaged occurred outside North Carolina and the fact that such a determination
is consistent with the applicable decisions of courts applying North Carolina law. See
Domtar AI Inc., 43 F. Supp. 3d at 641; Harco Nat’l Ins. Co., 206 N.C. App. at 692, 698
S.E.2d at 722. As a result, the North Carolina Trade Secrets Protection Act does not
provide a source of liability given the facts of this case.
SciGrip’s arguments fail to persuade us to reach a different conclusion. First,
SciGrip urges us to conclude that the fact that Mr. Osae continued to reside in North
Carolina and that he might have brought his laptop computer and laboratory
notebook to North Carolina on his trips home suggests that he impermissibly used
SciGrip’s proprietary information in North Carolina while working for Scott Bader.
However, the factual basis upon which this aspect of SciGrip’s argument rests is
simply insufficient to permit an inference that any misappropriation of SciGrip’s
trade secrets occurred in North Carolina. Secondly, the fact that Scott Bader’s
European patent application was published worldwide, including in North Carolina,
does not suffice to render North Carolina law applicable to this law. On the contrary,
acceptance of this logic would make the law of every jurisdiction in the United States
or, perhaps, the entire world applicable to SciGrip’s misappropriation of trade secrets
claim. Similarly, the fact that the record contains sufficient evidence to permit a
determination that Scott Bader and Mr. Osae violated a North Carolina consent order
does not somehow render the North Carolina Trade Secrets Protection Act applicable
to its misappropriation of trade secrets claim given that different choice of law rules
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govern tort or tort-like actions and breach of contract claims. As a result, the trial
court did not err by determining that North Carolina law did not apply to SciGrip’s
misappropriation of trade secrets claim.5
Although SciGrip argues, in the alternative, that the trial court should have
applied the law of the jurisdiction in which the last act necessary to support its
misappropriation of trade secrets claim occurred rather than granting summary
judgment in favor of Scott Bader and Mr. Osae with respect to that claim, that
argument is equally unavailing. At the time that SciGrip filed its amended complaint
in this case, it had ample knowledge of the basic facts underlying its misappropriation
of trade secrets claim. Instead of seeking relief under the law of another relevant
jurisdiction, SciGrip asserted a claim under the North Carolina Trade Secrets
Protection Act. Having pled and argued its claim in this manner before the trial
court, SciGrip is not entitled to seek relief from the trial court’s summary judgment
order on the grounds that the trial court should have evaluated the validity of
5 In addition to the arguments discussed in the text, Scott Bader has also argued that
SciGrip waived any claim for misappropriation of trade secrets that it might have otherwise
had when it disclosed its allegedly proprietary information in public filings and in open court
during the litigation of this case, citing Krawiec v. Manly, 370 N.C. 602, 611, 811 S.E.2d 542,
549 (2018) and Glaxo, Inc. v. Novopharm Ltd., 931 F. Supp. 1280, 1301–02 (E.D.N.C. 1996),
aff’d, 110 F.3d 1562 (Fed. Cir. 1997); that SciGrip’s misappropriation of trade secrets claim
was barred by the statute of limitations and rested upon inadmissible hearsay; and that
SciGrip’s misappropriation of trade secrets claim was barred by the economic loss rule. In
view of our decision to affirm the trial court’s decision to grant summary judgment in favor
of Scott Bader and Mr. Osae with respect to SciGrip’s misappropriation of trade secrets claim
on the grounds discussed in the text of this opinion, we need not address these additional
arguments any further in this opinion.
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SciGrip’s misappropriation of trade secrets claim on the basis of a different legal
theory. As a result, for all of these reasons, the trial court did not err by granting
summary judgment in favor of Scott Bader and Mr. Osae with respect to SciGrip’s
misappropriation of trade secrets claim.
2. Unfair and Deceptive Trade Practices Claim
SciGrip contends that the trial court erred by granting summary judgment in
favor of Scott Bader and Mr. Osae with respect to its unfair and deceptive trade
practices claim on the grounds that SciGrip had, in fact, forecast evidence tending to
show the existence of the aggravating circumstances needed to support that claim.6
We do not find this argument persuasive.
“In order to establish a prima facie claim for unfair trade practices, a plaintiff
must show: (1) defendant committed an unfair or deceptive act or practice, (2) the
action in question was in or affecting commerce, and (3) the act proximately caused
injury to the plaintiff.” Dalton v. Camp, 353 N.C. 647, 656, 548 S.E.2d 704, 711 (2001)
(citing Spartan Leasing Inc. v. Pollard, 101 N.C. App. 450, 460–61, 400 S.E.2d 476,
482 (1991)). As a general proposition, unfairness or “deception either in the formation
of the contract or in the circumstances of its breach” may establish the existence of
6 In addition, SciGrip argued that its unfair and deceptive trade practices claim rested
upon its misappropriation of trade secrets claim and that the trial court had erred by
dismissing that claim. Having held that the trial court properly dismissed SciGrip’s
misappropriation of trade secrets claim, we need not address this aspect of SciGrip’s
challenge to the dismissal of its unfair and deceptive trade practices claim any further in this
opinion.
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substantial aggravating circumstances sufficient to support an unfair and deceptive
trade practices claim. Bartolomeo v. S.B. Thomas, Inc., 889 F.2d 530, 535 (4th Cir.
1989) (citing United Roasters, Inc. v. Colgate-Palmolive Co., 649 F.2d 985, 992 (4th
Cir. 1981)). Moreover, in some circumstances, a continuous transaction may
constitute an unfair or deceptive act in addition to a breach of contract. See Garlock
v. Henson, 112 N.C. App. 243, 246, 435 S.E.2d 114, 116 (1993). In the event that the
same act or transaction supports a claim for both breach of contract and unfair or
deceptive trade practices, “damages may be recovered either for the breach of
contract, or for violation of [N.C.G.S. § 75-1.1].” Id. (quoting Marshall v. Miller, 47
N.C. App. 530, 542, 268 S.E.2d 97, 103 (1980), modified and aff’d, 302 N.C. 539, 276
S.E.2d 397 (1981)).
According to SciGrip, the breaches of contract committed by Scott Bader and
Mr. Osae constituted such “immoral, unethical, oppressive, unscrupulous, or
substantially injurious” conduct as to establish the substantial aggravating
circumstances needed to support the maintenance of an unfair and deceptive trade
practices claim in the present context, particularly given that the conduct in question
resulted in significant damage to SciGrip and reflected a complete failure on the part
of Scott Bader and Mr. Osae to comply with the consent order, quoting Process
Components, Inc v. Baltimore Aircoil Co., 89 N.C. App. 649, 654, 366 S.E.2d 907, 911,
aff’d per curiam, 323 N.C. 620, 374 S.E.2d 116 (1988). On the other hand, Mr. Osae
and Scott Bader assert that SciGrip failed to argue that their alleged breaches of
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contract constituted substantial aggravating circumstances before the trial court and
that, even if such an argument had been advanced, the trial court properly found that
SciGrip’s breach of contract claim, standing alone, did not suffice to support the
maintenance of an unfair and deceptive trade practices claim, citing Mitchell v.
Linville, 148 N.C. App. 71, 74–75, 557 S.E.2d 620, 623 (2001) (holding that an
intentional breach of contract claim cannot, in and of itself, provide the basis for an
unfair and deceptive trade practices claim), and Griffith v. Glen Wood Co., 184 N.C.
App. 206, 217, 646 S.E.2d 550, 558 (2007) (holding that a plaintiff had to show both
a breach of contract and the presence of substantial aggravating circumstance in
order to support its unfair and deceptive trade practices claim). In addition, Mr. Osae
argues that, even if SciGrip had forecast sufficient evidence to show the existence of
the necessary substantial aggravating circumstances, it failed to prove that it had
sustained an actual injury proximately caused by the conduct of Scott Bader and Mr.
Osae.
Assuming, without in any way deciding, that SciGrip has properly preserved
its “substantial aggravating circumstances” argument for purposes of appellate
review, we are not persuaded that the record contains sufficient evidence to show that
the necessary substantial aggravating circumstances existed. In essence, the
evidence that SciGrip relies upon in support of its argument for the existence of the
necessary substantial aggravating circumstances amounts to nothing more than an
assertion that Mr. Osae and Scott Bader intentionally breached the consent order
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while knowing of its existence. As the Court of Appeals correctly held in Mitchell,
such an intentional breach of contract, standing alone, simply does not suffice to
support the assertion of an unfair and deceptive trade practices claim. As a result,
we conclude that the trial court did not err by granting summary judgment in favor
of Scott Bader and Mr. Osae with respect to SciGrip’s unfair and deceptive trade
practices claim.
3. Punitive Damages
SciGrip contends that the trial court erred by granting summary judgment in
favor of Scott Bader and Mr. Osae with respect to its punitive damages claim. Once
again, we are not persuaded by SciGrip’s argument.7
In seeking to persuade us of the merits of its challenge to the trial court’s
decision with respect to this issue, SciGrip argues that the conduct of both Scott
Bader and Mr. Osae at the time that they breached their obligations under the
consent order was sufficiently egregious to merit an award of punitive damages, citing
Cash, 137 N.C. App. at 200–01, 528 S.E.2d 377), and Oakeson v. TBM Consulting
Crp., Inc., 2009 NCBC 23, ¶52, 2009 WL 464558, *9 (stating that, “when a breach of
contract claim reflects potential fraud or deceit, or other aggravated or malicious
7 In addition to the argument discussed in the text of this opinion, SciGrip argues that
the trial court erred by granting summary judgment in favor of Scott Bader and Mr. Osae
with respect to its misappropriation of trade secrets and unfair and deceptive trade practices
claims, either of which would suffice to support a punitive damages award. In view of our
decision to affirm the trial court’s order with respect to these two claims, we need not address
this aspect of SciGrip’s argument any further.
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behavior, a claim for punitive damages may lie”). According to SciGrip, Mr. Osae was
angry at SciGrip because he believed that he had been treated unfairly and
inadequately compensated for his work, with his decision to utilize SciGrip’s
proprietary information in violation of the consent order while in Scott Bader’s
employment and to attempt to conceal the nature of his activities by backdating his
laboratory notebooks reflecting his high degree of personal animosity against his
former employer. Moreover, SciGrip asserts that Mr. Osae acted maliciously when
he provided Scott Bader with photographs of SciGrip’s equipment and its customer
lists and when he formed Engineered Bonding to compete with SciGrip using
SciGrip’s proprietary information. Similarly, SciGrip contends that Scott Bader’s
conduct in soliciting, accepting, using, and disclosing SciGrip’s confidential
information in violation of the consent order constituted aggravating conduct
sufficient to support an award of punitive damages.
Mr. Osae argues that punitive damages may not be awarded for a breach of
contract in the absence of a separate, identifiable tort and an allegation that the
defendant engaged in aggravated or malicious behavior, citing Cash, 137 N.C. App.
at 200, 528 S.E.2d at 277 (stating that “[p]unitive damages are not allowed [for
breaches of contract] even when the breach is wil[l]ful[l], malicious or oppressive”).
Similarly, Scott Bader points out that N.C.G.S. § 1D-15(d) specifically states that
“[p]unitive damages shall not be awarded against a person solely for breach of
contract.” N.C.G.S. § 1D-15(d).
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According to well-established North Carolina law, punitive damages may not
be awarded based upon the breach of a contract in the absence of the commission of
an identifiable tort. Newton v. Standard Fire Ins. Co., 291 N.C. 105, 111, 229 S.E.2d
297, 301 (1976) (stating that, even though “North Carolina follows the general rule
that punitive or exemplary damages are not allowed for breach of contract, with the
exception of a contract to marry,” “where there is an identifiable tort even though the
tort also constitutes, or accompanies, a breach of contract, the tort itself may give rise
to a claim for punitive damages”) (citing Oestreicher v. Stores, 290 N.C. 118, 134–35,
225 S.E.2d 797, 808 (1976)). SciGrip has not forecast sufficient evidence to establish
that Scott Bader and Mr. Osae committed a separate tort at the time that they
allegedly breached their contractual obligations under the consent order. Instead, as
we noted in our discussion of SciGrip’s challenge to the trial court’s decision to grant
summary judgment in favor of Scott Bader and Mr. Osae with respect to SciGrip’s
unfair and deceptive trade practices claim, the evidence upon which SciGrip relies in
support of its challenge to the trial court’s decision to grant summary judgment in
favor of Mr. Osae and Scott Bader with respect to SciGrip’s punitive damages claim
consists of little more than a contention that Mr. Osae and Scott Bader intentionally
breached the consent judgment. No matter how deplorable such an act may be, an
intentional breach of contract does not constitute a separate tort. As a result, the
trial court did not err by granting summary judgment in favor of Scott Bader and Mr.
Osae with respect to SciGri’s punitive damages claim.
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4. Confidentiality of Information
SciGrip contends that the trial court erred by finding in favor of Scott Bader
and Mr. Osae with respect to the issue of whether one of the components underlying
SciGrip’s breach of contract claim against Scott Bader and Mr. Osae arising from Mr.
Osae’s employment with Scott Bader was, in fact, proprietary information. Once
again, we are not persuaded that SciGrip’s contention has merit.
In support of this contention, SciGrip argues that the trial court’s decision
rested upon an erroneous determination that the fact that the relevant component
was equivalent to another, publicly known component, meant that the relevant
component was publicly known as well. SciGrip asserts that it is undisputed that,
prior to the publication of Scott Bader’s European patent application, the fact that
the relevant component was equivalent to the publicly known component was not
publicly known. At the very least, SciGrip contends that a genuine issue of material
fact exists with respect to this issue sufficient to preclude summary judgment.
Mr. Osae, on the other hand, contends that the fact that the record contains
evidence tending to show that another entity discussed the use of the relevant
component as a replacement for the publicly known component provides ample
support for the trial court’s decision. In addition, Mr. Osae argues that SciGrip lacks
the ability to demonstrate that the relevant component possesses any independent
economic value given that SciGrip has not attempted to sell the product and given
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that there is no other evidence tending to show that the relevant component has any
independent economic value.
A careful review of the record demonstrates that the undisputed evidence
establishes that the interchangeability of the two components was publicly known in
that at least one other industry participant had discussed using the relevant
component for the same purpose as the publicly known component. More specifically,
the record contains undisputed evidence tending to show that the prior substance,
which was chemically equivalent to the substance upon which SciGrip’s claim rests,
had been publicly disclosed in a number of prior patents. In addition, the record
reflects that a sales representative for the company selling both the earlier and
discontinued substance had stated that the new substance was intended to be used
as a replacement for the earlier one. As a result, we agree with the trial court’s
conclusion that there is no genuine issue of material fact concerning the extent to
which the relevant component was publicly known prior to the time at which Scott
Bader and Mr. Osae used it in Scott Bader’s Crestabond products.
5. Admissibility of Expert Testimony
Next, SciGrip contends that the trial court erred by denying Mr. Osae’s motions
to exclude the testimony of two of its expert witnesses on the grounds that the motion
in question had been rendered moot. The trial court reached this conclusion on the
grounds that the testimony offered by Mr. Petrie and Mr. Paschall was only relevant
to SciGrip’s misappropriation of trade secrets claim and had no bearing upon its
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claims for breach of contract. We are unable to agree with SciGrip’s argument
concerning the expert testimony that it sought to elicit from Mr. Paschall and Mr.
Petrie.
According to SciGrip, the testimony of Mr. Petrie concerning the extent to
which Mr. Osae had the ability to independently develop adhesive products and
whether the composition of one of the components used in Engineered Bonding’s
United States patent application was readily ascertainable through reverse
engineering was relevant to SciGrip’s claim against Mr. Osae for breaching the
consent order during his employment with Engineered Bonding. Mr. Osae, on the
other hand, argues that Mr. Petrie’s testimony did not express any opinion concerning
the extent, if any, to which Mr. Osae violated the consent order during his period of
employment with Engineered Bonding.
Similarly, SciGrip argues that the testimony of Mr. Paschall, which addressed
the amount of damages that SciGrip sustained as the result of the misappropriation
of its trade secrets, was also relevant to SciGrip’s claim for breach of contract relating
to the period of time during which Mr. Osae worked for Engineered Bonding. More
specifically, SciGrip argues that it has been unable to ascertain the full extent of the
loss that it sustained as a result of Mr. Osae’s breach of the consent order during his
association with Engineered Bonding and that Mr. Paschall’s testimony contains
information directly relevant to this issue, citing Potter v. Hileman Labs., Inc., 150
N.C. App. 326, 336, 564 S.E.2d 259, 266 (2002) (holding that, in a case in which one
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party allegedly profited from the violation of a consent order relating to the use of the
other party’s confidential information, a trial court could appropriately consider the
profits earned by the breaching party in determining the amount of damages that the
plaintiff was entitled to recover). In response, Mr. Osae asserts that any opinion that
Mr. Paschall might express concerning the amount by which Engineered Bonding has
been unjustly enriched as the result of Mr. Osae’s breach of the consent order during
the time that he was employed by Engineered Bonding has no bearing upon the
amount of damages that SciGrip would be entitled to recover as the result of any
breach of contract that occurred during that time, particularly given that Engineered
Bonding is not a party to this case and that Mr. Paschall did not render an opinion
concerning the extent to which Mr. Osae might have been personally enriched.
Although the parties have discussed this issue as if it involved issues relating
to the admissibility of expert testimony, their arguments focus upon the relevance of
the challenged evidence rather than upon whether the challenged evidence satisfied
the requirements for the admission of expert testimony set out in our recent decision
in State v. McGrady, 368 N.C. 880, 787 S.E.2d 1 (2016). As a result, the ultimate
question for our consideration with respect to this issue is whether the proffered
evidence had “any tendency to make the existence of any fact that is of consequence
to the determination of the action more probable or less probable than it would be
without the evidence.” N.C.G.S. § 8C-1, Rule 401.
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The expert testimony of Mr. Petrie was proffered for the purpose of
determining whether the allegedly proprietary information upon which SciGrip’s
misappropriation of trade secrets claim rested was commonly known to SciGrip’s
competitors prior to its disclosure, the potential value of the allegedly proprietary
information, and the extent to which Scott Bader and Mr. Osae had misappropriated
SciGrip’s trade secrets. Although some of the information contained in Mr. Petrie’s
expert testimony touches upon information relevant to SciGrip’s breach of contract
claims, the opinions that Mr. Petrie expressed concerning whether the information in
question constituted a trade secret has no bearing upon the validity of SciGrip’s
breach of contract claim, which is governed by the provisions of the consent judgment
rather than by the statutory definition of a trade secret contained in N.C.G.S § 66-
152(3). As a result, the trial court did not err by determining that Mr. Petrie’s
testimony related to SciGrip’s misappropriation of trade secrets, rather than its
breach of contract, claim.
The expert testimony of Mr. Paschall was proffered for the purpose of
determining the amount of damages that SciGrip was entitled to recover as the result
of the misappropriation of its trade secrets. A successful plaintiff in a
misappropriation of trade secrets action pursuant to N.C.G.S. § 66-154(b)—similar to
a claim sounding in quasi-contract or resting upon an implied contract, in which the
plaintiff’s claim “is not based on a promise but is imposed by law to prevent an unjust
enrichment,” see Booe v. Shadrick, 322 N.C. 567, 570, 369 S.E.2d 554, 555–56
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(1988)—is entitled to a recovery that considers the amount by which the wrongdoer
has been unjustly enriched. However, since “[a]n action for unjust enrichment is
quasi-contractual in nature,” it “may not be brought in the face of an express
contract.” Acorn Structures, Inc. v. Swantz, 846 F.2d 923, 926 (4th Cir. 1988) (citing
In re Virginia Block Co., 16 B.R. 771, 774 (W.D. Va. 1982)). For that reason, “[i]f
there is a contract between the parties[,] the contract governs the claim and the law
will not imply a contract.” Booe, 322 N.C. at 570, 369 S.E.2d at 156 (citing Vetco
Concrete Co. v. Troy Lumber Co., 256 N.C. 709, 124 S.E.2d 905 (1962)). In view of the
fact that the consent order constituted an express contract,8 evidence tending to show
that Engineered Bonding was unjustly enriched as the result of Mr. Osae’s conduct
is simply not relevant to SciGrip’s breach of contract claim given that the consent
order here, unlike the contract at issue in Potter, does not contain a provision
authorizing the trial court to “determine the appropriate remedy” for any violation of
its provisions. Potter, 150 N.C. App. at 334, 564 S.E.2d at 265. As a result, the trial
court did not err by determining that Mr. Osae’s motions to exclude the testimony of
Mr. Petrie and Mr. Paschall should be denied on mootness grounds.
8 Although Scott Bader contested the enforceability of the consent order at trial, the
issue of whether the consent order constitutes a valid and enforceable contract is no longer
in dispute between the parties.
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6. Breach of Contract Claim Arising From
Mr. Osae’s Work for Engineered Bonding
Finally, SciGrip argues that the trial court erred by failing to grant summary
judgment in its favor with respect to its breach of contract claim against Mr. Osae
relating to the work that he performed after becoming associated with Engineered
Bonding. In support of this contention, SciGrip argues that Mr. Osae violated the
consent order in developing Engineered Bonding’s Acralock product because he used
a component that was equivalent to one in which SciGrip had proprietary rights in
the course of developing that product. Mr. Osae, on the other hand, denies SciGrip’s
contention that the two components are equivalent, so that the use of the component
incorporated in Engineered Bonding products did not constitute a misappropriation
of proprietary information.
After carefully reviewing the evidence forecast by the parties, we agree with
the trial court’s determination that the record reflects the existence of a genuine issue
of material fact concerning whether the component that Mr. Osae used in formulating
Engineered Bonding’s Acralock product is equivalent to the proprietary component
incorporated into SciGrip’s products. Among other things, the record reflects that
both components are still on the market and that neither has completely replaced the
other. In addition, the record contains evidence tending to show that the two
components are not equivalent and that SciGrip spent considerable time and effort
determining that the product that it claims to constitute protected information could
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be used as a substitute for the product disclosed in Engineered Bonding’s United
States patent application. As a result, the trial court did not err by denying SciGrip’s
motion for summary judgment in its favor with respect to the claim that Mr. Osae
violated the consent order while associated with Engineered Bonding.
C. Mr. Osae’s Claim
In his own challenge to the trial court’s order, Mr. Osae argues that the trial
court erred by allowing summary judgment in favor of SciGrip with respect to its
breach of contract claim against Mr. Osae predicated upon Mr. Osae’s actions during
his employment with Scott Bader.9 We did not find Mr. Osae’s contention persuasive.
9 Mr. Osae contends that the trial court’s decision to grant summary judgment in
SciGrip’s favor with respect to the breach of contact claim that SciGrip asserted against him
based upon the conduct in which he engaged during his employment with Scott Bader is
immediately appealable because that portion of the trial court’s order affects a substantial
right. More specifically, Mr. Osae contends that, unless the relevant portion of the trial
court’s order is immediately appealable, there is a risk that there will be inconsistent verdicts
concerning his liability and that of Scott Bader with respect to the same claim, citing Hamby
v. Profile Prods., L.L.C., 361 N.C. 630, 634, 652 S.E.2d 231, 234 (2007) (stating that “a
substantial right is affected if the trial court’s order granting summary judgment to some,
but not all, defendants creates the possibility of separate trials involving the same issues
which could lead to inconsistent verdicts”). In response, SciGrip argues that there are no
overlapping factual issues between SciGrip’s breach of contract claim against Mr. Osae
relating to the work which he performed while employed by Scott Bader and SciGrip’s breach
of contract claim against Scott Bader given that the only issue that remains to be decided
with respect to SciGrip’s breach of contract claim against Scott Bader involves the question
of whether that claim is time-barred. However, even though SciGrip has correctly described
the reason for the trial court’s refusal to grant summary judgment in SciGrip’s favor with
respect to its breach of contract claim against Scott Bader, SciGrip will have to prove its
entire case against Scott Bader when this case is called for trial rather than being able to
limit its proof to the issue of whether the applicable statute of limitations has expired. As a
result, in light of the fact that there is at least some risk of an inconsistent verdict with
respect to SciGrip’s breach of contract claims against Mr. Oase and Scott Bader, we hold that
Mr. Osae is entitled to seek appellate review of the relevant portion of the trial court’s order
despite the interlocutory character of that order.
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According to Mr. Osae, the record reveals the existence of a genuine issue of
material fact concerning the extent, if any, to which certain components upon which
SciGrip’s claim rests, and upon which the trial court’s decision to grant summary
judgment in favor of SciGrip with respect to this claim rested, constituted
economically valuable information at the time that the alleged breach of contract
occurred. More specifically, Mr. Osae contends that the record contains conflicting
evidence concerning the extent to which the allegedly confidential components have
commercial value as a result of their secrecy. In support of this argument, Mr. Osae
asserts that SciGrip and its technical experts admitted during their depositions that
the relevant components lacked any standalone commercial value; that SciGrip
admitted that the value of the relevant components hinged upon their combination
with other substances rather than their independent worth; and that, even when the
components are combined with other ingredients to create a successful product, the
value of the product hinges upon their trade names rather than the inherent value of
the relevant components, considered generically.
Secondly, Mr. Osae contends that there is a genuine issue of material fact as
to whether the relevant components were publicly known or were known by persons
outside of SciGrip who could obtain economic value from their use prior to the
performance of his own work for Scott Bader. More specifically, Mr. Osae asserts that
the use of one of the relevant components had been disclosed in other patents prior
to its use by Mr. Osae while working at Scott Bader; that the use of the specific
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chemicals contained in the relevant components had been disclosed in their generic
form in prior patents as well; that the manufacturer of each of the specific trade name
chemicals used in the relevant components had disclosed their use and benefits to at
least three of SciGrip’s competitors; and that, according to a chemical expert proffered
by Mr. Osae, the relevant components were “obvious combinations” of chemicals that
any skilled chemist in the industry would have either been aware of or been able to
develop.
SciGrip, on the other hand, contends that the relevant components were
subject to protection under the consent order regardless of whether they were publicly
known or had independent economic value. Instead, SciGrip asserts that the mere
fact that Mr. Osae developed these components while employed by SciGrip and then
disclosed them while working for Scott Bader constituted a violation of the terms of
the consent order. In addition, SciGrip argues that the relevant components were not
known outside of SciGrip prior to the time when Mr. Osae used and disclosed them
in connection with the development of the Crestabond products given that a mere
reference to certain components in other patent applications does not mean that
SciGrip’s unique combination of the relevant components was publicly known or
known by persons outside of SciGrip who could otherwise obtain economic value from
their use, citing, among other decisions, citing Rivendell Forest Prods., Ltd. v.
Georgia-Pacific Corp., 28 F.3d 1042, 1045 (10th Cir. 1994) (holding that a trade secret
“can consist of a combination of elements which are in the public domain”).
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Similarly, SciGrip argues that the existence of the same raw materials in
different components does not make the components chemically equivalent or
indicate that the significance of one of the components is publicly known. Moreover,
SciGrip contends that the fact that a manufacturer’s disclosure of the potential use
and benefits of the raw materials that it supplies does not render the components
that SciGrip has created using those materials non-confidential. In the same vein,
SciGrip argues that the “obviousness” of the chemical combinations involved in the
relevant components is a patent law concept that has no basis in trade secrets law,
citing Basic Am., Inc. v. Shatila, 992 P.2d 175, 183 (Idaho 1993) (holding that
“obviousness” is a patent law concept not relevant to the Idaho Trade Secrets Act).
Finally, SciGrip contends that the components at issue in this case derived both
actual and potential independent economic value from not being known prior to their
disclosure in Scott Bader’s European patent application given that one of the relevant
components has a unique structure and the other is superior to comparable products
on the market.
A careful review of the record shows that the undisputed evidence tends to
demonstrate that the relevant components have both potential and actual economic
value by virtue of the fact that the resulting products have superior properties and
performance compared to the comparable products available in the market, with this
superiority being demonstrated by the fact that SciGrip won two new customers as a
result of the development of the products in question and the fact that Scott Bader
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was interested in using those components in its own products. In addition, we agree
with SciGrip that the proper inquiry for purposes of determining whether the
relevant components are entitled to protected status is whether those components,
considered in their totality rather than on the basis of a separate evaluation of each
of the individual raw materials from which they are made, constitute confidential
information. When viewed in that light, the blended materials upon which SciGrip’s
claim rests clearly constitute proprietary information as that term is used in the
consent judgment. Thus, we hold that the trial court properly determined that, at
the time that Mr. Osae disclosed the relevant components in the European patent
application, he breached the consent order. As a result, the trial court did not err by
entering summary judgment in SciGrip’s favor with respect to its claim that Mr. Osae
breached the consent order during the time that he was employed by Scott Bader.
III. Conclusion
Thus, for all of these reasons, we conclude that the trial court did not err by
granting summary judgement in favor of Scott Bader and Mr. Osae with respect to
SciGrip’s claims for misappropriation of trade secrets, unfair and deceptive trade
practices, and punitive damages; entering summary judgment in SciGrip’s favor with
respect to its claim for breach of contract against Mr. Osae for violating the consent
judgment during his period of employment with Scott Bader; refusing to grant
summary judgment in favor of SciGrip or Mr. Osae with respect to SciGrip’s claim for
breach of contract against Mr. Osae for violating the consent judgment during his
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period of employment with Engineered Bonding; and denying Mr. Osae’s motion to
preclude the admission of certain expert testimony proffered on behalf of SciGrip on
mootness grounds. As a result, the challenged trial court order is affirmed.
AFFIRMED.
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