Nw Product, / X-res. v. Homax Products Inc., / X-app. ( 2013 )

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
NORTHWEST PRODUCT DESIGN No. 67278-9-1
GROUP, LLC, a Washington limited
liability corporation; TODD D. DIVISION ONE
ANDERSEN, an individual; MAC
CAMERON, an individual; JERRY
CHAMBERS, an individual; and ELLIS
MASSEY, an individual,
Appellants/
Cross Respondents, UNPUBLISHED OPINION
v.
HOMAX PRODUCTS, INC., a Delaware
corporation; RANDAL W. HANSON and
JANE DOE HANSON, husband and
wife, and the marital community thereof; o
o
ROSS CLAWSON and JANE DOE
CLAWSON, husband and wife, and the 2**
rn '
marital community thereof; LESTER
GREER, JR. and JANE DOE GREER,
husband and wife, and the marital 3» t/3pnL:
Z2L
community thereof; and WILFRED
zncn
HOFFMAN and JANE DOE HOFFMAN, —'o
en
husband and wife, and the marital o
community thereof,
Respondents/
Cross Appellants. FILED: March 11, 2013
Schindler, J. — Northwest Product Design Group, LLC, (NPDG) filed a lawsuit
against Homax Products, Inc., alleging violations of the Washington Uniform Trade
Secrets Act, chapter 19.108 RCW, and the Washington Consumer Protection Act
No. 67278-9-1/2
(CPA), chapter 19.86 RCW, breach of contract, fraud and misrepresentation, tortious
interference, unjust enrichment, and conversion. The trial court dismissed the CPA,
tortious interference, and the fraud and misrepresentation claims under CR 12(b)(6).
Following a two-week trial, the jury found Homax misappropriated trade secrets but that
NPDG did not prove it was entitled to damages. The trial court dismissed the claims for
conversion and unjust enrichment and entered a final judgment on the verdict. NPDG
appeals the order dismissing the claims for violation of the CPA and fraud and
misrepresentation, the order denying the motion to file an amended complaint to re
assert the CPA claim, and the court's decision to limit expert testimony on lost profit
damages. NPDG also argues substantial evidence does not support the verdict, and
the court abused its discretion by awarding Homax attorney fees under CR 11. We
affirm in all respects.
FACTS
Robert Cameron is an inventor and the president of Northwest Product Design
Group, LLC (NPDG). Homax Products, Inc., is a Delaware corporation that operates in
Bellingham, Washington. Homax develops, markets, and distributes products for the
home improvement industry. Ross Clawson is the president and Randal W. Hanson is
the chief financial officer of Homax.
In 1995, Cameron obtained a patent for a product he invented called the Sure-
Lock Crocodile Clip (Crocodile Clip). The Crocodile Clip is a three-inch device used to
secure a tarp. The Crocodile Clip has "jaw portions" on one end that grip the tarp sheet
fabric. On the other end is a slot, hole, or hook.1 The three-inch Crocodile Clip has a
1Attaching the clip to the tarp creates a fixture onto which one can tie a rope, strap webbing, or
hook a bungee cord.
No. 67278-9-1/3
slide that "closes the teeth and locks." To release, "[y]ou push the button on the top and
slide it back." The Cameron Group Acquisition Corporation (Cameron Group),
consisting of Cameron and other investors, owned the rights to the Crocodile Clip.
On March 17, 2000, the Cameron Group entered into an exclusive distribution
and licensing agreement with Homax. Under the terms of the agreement, Homax
owned the rights to the Crocodile Clip. Homax successfully marketed the Crocodile Clip
and paid over $100,000 in royalties to the Cameron Group for the sales of the clip.
In the late 1990s, Cameron's nephew Todd Andersen, and Cameron's son Mac
Cameron, together with Cameron, invented two other tarp clips: the Jaws Clip and the
Rhino Clip. An engineer in Everett built the prototypes for the Rhino Clip. Dragon/Tex
Industrial Company in Vancouver, British Columbia, worked with Andersen and Mac
Cameron on manufacturing the Rhino Clip.
The Rhino Clip is larger than the Crocodile Clip. Unlike the Crocodile Clip, the
Rhino Clip uses a threaded thumb screw instead of a sliding lock mechanism. The
Rhino Clip closes with a thumb screw that "you can unscrew . . . , you can spread it
open and take it all the way up to three-eighths to half-inch industrial tarp. But when
you tighten itdown it's positive, it's not going to come loose."
Andersen and Mac Cameron worked with a business in Mount Vernon, Parallel
Precision, to build the prototypes for the Jaws Clip. Like the Rhino Clip, the Jaws Clip
has a ring on the back so that "when you screw the ring on ... itcloses and clamps the
jaws down."
Sometime in 1999 or 2000, Robert Cameron contacted Homax about marketing
the Rhino Clip to Lowe's Home Improvement and other "big box" stores. Cameron
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provided Clawson and Hanson with information, drawings, and prototypes of the Rhino
Clip. Cameron said he also provided information about the Jaws Clip. According to
Cameron, Hanson discouraged him from contacting other distributors "as such
communications would harm the market for similar Homax products."
During the meetings with Clawson and Hanson in 2000, Cameron discussed
executing a confidentiality and nondisclosure agreement. Cameron testified that the
parties eventually agreed to the terms of a confidentiality agreement. Cameron and
Hanson signed the confidentiality agreement but Clawson did not. However, Cameron
said he had no concerns because he had previously worked with Clawson and Hanson.
In January 2001, Cameron sued the Cameron Group for breach of contract,
breach of fiduciary duty, failure to pay wages, unjust enrichment, and tortious
interference with business relationships.
Cameron and Charles Gravely formed NPDG. Cameron is the president of
NPDG. NPDG owns the rights to the Rhino Clip. Cameron, Andersen, Mac Cameron,
Ellis Massey, and Jerry Chambers formed the Jaws Partnership. The partnership owns
the rights to the Jaws Clip. Clawson and Hanson told Cameron that Homax would not
enter into any agreements with NPDG until after the litigation with the Cameron Group
was resolved.
Cameron and Gravely were involved in litigation with the Cameron Group from
2001 until 2003. From 2000 through 2003, Cameron marketed the Rhino Clip at small
stores and trade shows, sent dozens of Rhino Clips to potential buyers, and sold
thousands of the Rhino Clips through a Canadian distributor. On May 30, 2001,
Cameron filed a patent application for the Rhino Clip.
No. 67278-9-1/5
Homax began working on a modification of the Crocodile Clip in 2002 and
developed the Cinch Tite Clip. The Cinch Tite Clip uses a sliding mechanism like the
Crocodile Clip. The Cinch Tite Clip does not have a screw-down mechanism like the
Rhino Clip and the Jaws Clip.
After the litigation with the Cameron Group was resolved in August 2003,
Cameron contacted Homax. Hanson told Cameron that because another company was
in the process of acquiring the company, Homax could not enter into an agreement until
the acquisition was complete.
On March 2, 2004, Homax obtained a patent on the Cinch Tite Clip. Homax
never entered into a distribution or licensing agreement with Cameron for the Rhino Clip
or the Jaws Clip.2
On January 8, 2007, NPDG and the Jaws Partnership (collectively NPDG) filed a
complaint against Homax.3 NPDG claimed that the patent Homax obtained for the
Cinch Tite Clip contained protected information about the Rhino Clip and the Jaws Clip.
NPDG alleged Homax misappropriated trade secrets to obtain design and
manufacturing information for its own use and benefit, and to prevent NPDG from
marketing the competing tarp clips. The complaint asserts claims for (1) violation of the
CPA, (2) violation of the Uniform Trade Secrets Act, (3) fraud and misrepresentation, (4)
breach ofcontract, (5) unjust enrichment, (6) tortious interference with prospective
economic advantage, (7) common law conversion, and (8) unfair business practices.
Homax filed a motion to dismiss under CR 12(b)(6) for failure to state a claim
upon which relief can be granted. The trial court dismissed the claims for violation of
2NPDG obtained the patent for the Rhino Clip on December 17, 2008.
3NPDG filed an amended complaint on February 9, 2007. NPDG amended the complaint to
include an exhibit. The amended complaint otherwise does not differ from the original complaint.
5
No. 67278-9-1/6
the CPA, fraud and negligent misrepresentation, tortious interference, and unfair
business practices. The court denied the motion to dismiss the claims for violation of
the trade secret act, breach of contract, unjust enrichment, and conversion.
In July 2008, NPDG filed a motion to file a second amended complaint to re
assert a CPA claim on the grounds of newly discovered information. The court denied
the motion to file a second amended complaint. On February 26, 2009, the court
denied NPDG's motion to file a third amended complaint to allege an attempt to
monopolize in violation of RCW 19.86.040.
In February 2009, Homax notified NPDG that if NPDG continued to pursue the
claim for violation of the trade secrets act, it would request an award of attorney fees.
Homax cited the deposition testimony of Cameron that described "sending clips to
dozens of third parties" as early as 2001, as well as his admission that the patent
"published in 2002 disclosed to the public the Rhino Clip."
On April 9, 2009, Homax filed a motion for summary judgment dismissal ofthe
claims for violation of the trade secrets act, breach of contract, unjust enrichment, and
conversion. Homax argued the undisputed facts established that NPDG did not have a
claim for violation of the trade secrets act for the Rhino Clip. Homax pointed to
Cameron's admission that he widely distributed samples of the Rhino Clip to third
parties since January 2000, and filed the Rhino Clip patent application in May 2001.
Homax also argued that although there was no dispute the parties discussed entering
into an agreement to distribute and license the Rhino Clip, Hanson did not recall any
discussion about the Jaws Clip. Homax further asserted that the parties did not enter
into a binding confidentiality agreement.
No. 67278-9-1/7
In response to the motion for summary judgment, Cameron conceded NPDG did
not have a claim for violation of the trade secrets act with respect to the Rhino Clip.
"Upon careful review of Defendants' argument, Plaintiffs will not pursue a cause of
action under the [trade secrets act] with respect to the Rhino Clip for purposes of
summary judgment."
The court entered an order granting in part and denying in part the motion for
summary judgment. The court dismissed the Rhino Clip trade secret and conversion
claims, but denied summary judgment as to "all causes of action regarding the 'Jaws'
Clip."
The two-week jury trial began on February 9, 2011, on the claim that Homax
violated the trade secret act as to the Jaws Clip, breach of contract as to the Rhino Clip,
and unjust enrichment as to the Rhino Clip and the Jaws Clip. At the conclusion of
NPDG's case in chief, the court granted the motion for a directed verdict on the breach
of contract claim. The court also ruled that following jury deliberations, it would rule on
the equitable claims of conversion and unjust enrichment.
NPDG did not object to the jury instructions or the special verdict form. The court
instructed the jury that NPDG did not have any trade secrets to the Crocodile Clip and
that NPDG had no ownership rights in the Crocodile Clip. Jury Instruction No. 14
states:
There are no trade secrets concerning the Crocodile Clip, and the
Plaintiffs have no ownership rights in any aspect of the Crocodile Clip.
The public, including Defendant, is free to use publicly available
information regarding the Crocodile Clip that is readily ascertainable by
proper means, including from examination ofthe Crocodile Clip itself.
Evidence that Defendant knew of, or made use of the Crocodile
Clip or publicly available information concerning the same is therefore not
evidence that supports Plaintiffs' claims that Defendant misappropriated
No. 67278-9-1/8
the alleged Jaws Clip trade secrets and is therefore not to be considered
as proof of the Plaintiffs' Jaws Clip trade secret claims against Defendant.
The court also instructed the jury that NPDG did not have any trade secrets to
the Rhino Clip. "The public, including [Homax], is free to use publicly available
information regarding the Rhino Clip that is readily ascertainable by proper means,
including from examination ofthe Rhino Clip itself."4
In the special verdict form, the jury found that although Homax misappropriated
trade secrets, NPDG did not prove that it was entitled to damages for "misappropriation
of the Jaws Clip trade secret." Following the jury verdict, the court ruled NPDG was not
entitled to damages on the equitable claims of conversion or unjust enrichment. The
court entered findings of fact and conclusions of law.
Before entry of the final judgment, Homax filed a motion under CR 11 for an
award of attorney fees for defending against the meritless claims NPDG asserted as to
the Rhino Clip. The court awarded $4,500 to Homax.
ANALYSIS
NPDG appeals (1) the order granting the CR 12(b)(6) motion to dismiss the
claims for violation of the CPA and fraud and misrepresentation, (2) the order denying
the motion to file a second amended complaintto re-assert a CPA claim, (3) the court's
decision to limit Cameron's testimony on lost profit damages, (4) the juryverdict, (5)
4Jury Instruction No. 13 states:
There are no trade secrets concerning the Rhino Clip. The public, including the
Defendant, is free to use publicly available information regarding the Rhino Clip that is
readily ascertainable by proper means, including from examination ofthe Rhino Clip
itself.
Evidence that Defendant knew of, or made use of the Rhino Clip or publicly
available information concerning the same is therefore not evidence that supports
Plaintiffs' claims that Defendant misappropriated the alleged Jaws Clip trade secrets and
is therefore not to be considered as proof of the Plaintiffs' Jaws Clip trade secret claims
against Defendant.
8
No. 67278-9-1/9
dismissal of the equitable claims for conversion and unjust enrichment, (6) the order
granting attorney fees under CR 11, and (7) entry of judgment on the verdict. NPDG
seeks reversal and remand for a new trial.5
Motion to Dismiss
NPDG contends that the trial court erred in granting the CR 12(b)(6) motion to
dismiss the claims for violation of the CPA and fraud and misrepresentation. The
decision to dismiss claims under CR 12(b)(6) is a question of law that we review de
novo. San Juan County v. No New Gas Tax. 160 Wn.2d 141, 164, 157 P.3d 831(2007).
Dismissal for failure to state a claim upon which relief can be granted is
appropriate only where it appears, beyond a reasonable doubt, that no set offacts,
consistent with the complaint, would entitle the plaintiff to recovery. CR 12(b)(6);
Tenore v. AT&T Wireless Servs.. 136 Wn.2d 322, 329-30, 962 P.2d 104 (1998). We
presume the allegations in the complaint are true. Tenore, 136 Wn.2d at 330.
However, the court need not accept legal conclusions in the complaint as correct.
Haberman v. Wash. Pub. Power Supply Svs.. 109 Wn.2d 107, 120, 744 P.2d 1032, 750
P.2d 254 (1987). On a CR 12(b)(6) motion, the court must not consider testimony
outside the pleadings. Brown v. MacPherson's. Inc.. 86 Wn.2d 293, 297, 545 P.2d 13(1975).6
CPA Claim
The CPA prohibits "[u]nfair methods ofcompetition and unfair or deceptive acts
5Homax filed a cross appeal. But Homax did not address the cross appeal in the brief.
Accordingly, the cross appeal is abandoned. RAP 10.3(b) (on appeal, a party must state assignments of
error).
6Accordingly, we disregard NPDG's brief citations to declarations and trial testimony.
No. 67278-9-1/10
or practices in the conduct of any trade or commerce." RCW 19.86.020. To establish a
CPA violation, NPDG must prove that (1) Homax engaged in an unfair or deceptive act
or practice, (2) in trade or commerce, (3) that impacts the public interest, (4) resulting in
injury to business or property, and (5) a causal link between the unfair or deceptive
practice and the injury suffered. Hangman Ridge Training Stables, Inc. v. Safeco Title
Ins. Co.. 105 Wn.2d 778, 784-85, 719 P.2d 531 (1986). The failure to establish any of
these elements is fatal to a CPA claim. Hangman Ridge. 105 Wn.2d at 793. Whether
the allegations in the complaint give rise to a CPA claim is a question of law that we
review de novo. Leingang v. Pierce County Med. Bureau. Inc.. 131 Wn.2d 133, 150,
930 P.2d 288 (1997).
NPDG and Homax dispute whether the allegations in the complaint establish the
public interest element.7 The purpose of the CPA is to" 'protect the public.'" Michael v.
Mosguera-Lacv. 165 Wn.2d 595, 604, 200 P.3d 695 (2009) (quoting RCW 19.86.920).
The public interest element ofa CPA claim requires a finding that the allegations show
that Homax's unfair ordeception act injured the public interest.8 NPDG must show an
impact to public interest separate and apart from showing an unfair and deceptive act.
Holiday Resort Cmtv. Assoc, v. Echo Lake Assocs.. LLC 134 Wn. App. 210, 226, 135
P.3d 499 (2006).
Where a dispute is essentially private," 'it may be more difficult to show that the
public has an interest in the subject matter.'" Hangman Ridge. 105 Wn.2d at 794;
Mosguera-Lacv. 165 Wn.2d at 605 (quoting Hangman Ridge, 105 Wn.2d at 790).
7The parties do not dispute that the transaction was private, agreeing that the controlling factors
are those that apply to "essentially . . . private dispute[s].n Hangman Ridge. 105 Wn.2d at 790.
8In 2009, the legislature enacted RCW 19.86.093 codifying the test for establishing injury to the
public interest Laws of 2009, ch. 371, §2.
10
No. 67278-9-1/11
"Ordinarily, a breach of a private contract affecting no one but the parties to the contract
is not an act or practice affecting the public interest." Hangman Ridge. 105 Wn.2d at
790.
" '[l]t is the likelihood that additional plaintiffs have been or will be injured in
exactly the same fashion that changes a factual pattern from a private dispute to one
that affects the public interest.'" Mosguera-Lacv. 165 Wn.2d at 6049 (quoting Hangman
Ridge. 105 Wn.2d at 790). To establish an act or practice affects the public interest,
there must be a real and substantial potential for repetition," 'as opposed to a
hypothetical possibility ofan isolated unfair or deceptive act's being repeated.'"
Mosguera-Lacv. 165 Wn.2d at 604-05 (quoting Eastlake Constr. Co.. Inc. v. Hess. 102
Wn.2d 30, 52, 686 P.2d 465 (1984)).
In determining whether an alleged deceptive act or practice affects the public
interest, the courtevaluates four factors: (1) whether the alleged acts were committed
in the course of defendant's business; (2) whether the defendant advertised to the
public in general; (3) whether the defendant actively solicited this particular plaintiff,
indicating potential solicitation of others; and (4) whether the plaintiff and defendant
have unequal bargaining positions. Hangman Ridge, 105 Wn.2d at 790-91. These
factors are not exclusive, no one factor is dispositive, and it is not necessary that all be
present. Hangman Ridge. 105 Wn.2d at 791.
NPDG argues the allegations in the complaint establish an alleged act or practice
that affects the public interest. The complaint alleges that Homax "solicits ideas, trade
secrets and patent rights from individuals and entities;" that its "business depends on
solicitation ofthe public for ideas, trade secrets and patent rights;" that Homax
9(Alteration in original.)
11
No. 67278-9-1/12
advertises to the general public; and the parties "occupied unequal bargaining
positions."
But the complaint does not allege a causal connection between these conclusory
allegations and the alleged unfair and deceptive act or practice. To the contrary, the
complaint alleges Cameron contacted Homax based on their prior successful
agreement that allowed Homax to license and market the Crocodile Clip. The complaint
also states that Cameron "had no concern about confidentiality and disclosure as he
had previously worked with Homax, particularly with Hanson and Clawson."10 The
complaint asserts only that Homax solicited NPDG. Further, there are no allegations
that the alleged "representations and assurances" of Clawson and Hanson that Homax
was interested in "doing business" with NPDG in order to obtain trade secrets was part
of"a pattern or generalized course ofconduct" creating a "real and substantial potential
for repetition ofdefendant's conduct." Eifler v. Shuroard Capital Mgmt. Corp., 71 Wn.
App. 684, 697, 861 P.2d 1071 (1993).
The complaint also does not establish unequal bargaining power. As in
Hangman Ridge, the allegations show NPDG had a "history of business experience"
and were "not representative of bargainers subject to exploitation and unable to protect
themselves." Hangman Ridge, 105 Wn.2d at 794.
The complaint alleges that NPDG owns the rights to the Rhino Clip, and worked
with a Canadian company and an engineer in Everett to provide engineering drawings
and build a prototype for the Rhino Clip. The Jaws Partnership owns the rights to the
Jaws Clip and worked with a business in Mount Vernon to build prototypes. The
10 Sion-O-Lite Signs. Inc. v. DeLaurenti Florists. Inc.. 64 Wn. App. 553, 825 P.2d 714 (1992), is
distinguishable. In Sian-O-Lite. the evidence established routine solicitation of other businesses. Sign-O-
Lite, 64 Wn. App. at 563.
12
No. 67278-9-1/13
complaint also alleges NPDG employs a consultant, negotiated the terms of a
confidentiality agreement with Homax, and Cameron was involved in lengthy litigation
with the Cameron Group.
Even accepting the material allegations of the complaint as true, NPDG has not
pleaded sufficient facts to establish the public interest element of a CPA violation. The
trial court properly dismissed NPDG's CPA claim.
Fraud and Misrepresentation Claim
In order to state a claim for fraud and misrepresentation, NPDG must prove (1)
representation of an existing fact, (2) materiality, (3) falsity, (4) knowledge that the
statement is false, (5) intent that it should be acted on by the person to whom it is made,
(6) ignorance of its falsity, (7) reliance on the truth of the representation, (8) the right to
rely on it, and (9) damage. Adams v. King County. 164 Wn.2d 640, 662, 192 P.3d 891(2008). Insufficient proof on any one element is fatal. Beckendorf v. Beckendorf, 76
Wn.2d 457, 462, 457 P.2d 603 (1969). Under CR 9(b), "the circumstances constituting
fraud or mistake shall be stated with particularity." Adams, 164 Wn.2d at 662.
In order to state a claim, NPDG must assert Homax misrepresented an "existing
fact." Havens v.C&D Plastics. Inc.. 124 Wn.2d 158, 182, 876 P.2d 435 (1994). "A
promise offuture performance is not a representation ofan existing fact and will not
support a fraud claim." West Coast. Inc. v. Snohomish County. 112 Wn. App. 200, 206,
48 P.3d 997 (2002).
Where the fulfillment or satisfaction of the thing represented depends
upon a promised performance of a future act, or upon the occurrence of a
13
No. 67278-9-1/14
future event, or upon particular future use, or future requirements of the
representee, then the representation is not of an existing fact.
Nyguist v. Foster. 44 Wn.2d 465, 471, 268 P.2d 442 (1954). Consequently, statements
of future performance or potentially occurring events are not typically actionable under a
theory of fraud and misrepresentation.
NPDG relies on the exception in Markov v. ABC Transfer & Storage Co.. 76
Wn.2d 388, 457 P.2d 535 (1969), to argue the complaint states a claim for fraud. In
Markov, the court held that if a promise is made for the purpose of deception and with
no intention of performing, it is actionable. Markov. 76 Wn.2d at 396. NPDG also relies
on Beckendorf. In Beckendorf. the plaintiffs' son admitted promising he would allow his
parents to live on the ranch and enjoy the profits if they conveyed the ranch to him, but
did not intend to keep his promise. Beckendorf, 76 Wn.2d at 458, 463. The court held
the parents failed to establish the "vital element" of reliance because the evidence
showed they did not rely on their son's promise, and set aside the judgment for fraud.
Beckendorf. 76 Wn.2d at 463-64.
In the complaint, NPDG alleges Homax wrongfully obtained information about the
Rhino Clip and the Jaws Clip with the intent to deceive, and NPDG relied upon the
misrepresentations. While NPDG alleges Homax assured NPDG it would execute a
copy of the confidentiality agreement, other allegations in the complaint show NPDG did
not rely on that assurance. None of the other allegations amount to an affirmative
misrepresentation of an existing fact necessary to support a cause of action for fraud.
Motion to File Second Amended Complaint
NPDG contends the trial court erred in denying the motion to file a second
amended complaint to re-assert a CPA claim.
14
No. 67278-9-1/15
CR 15(a) permits a party to amend a pleading by leave of court, and leave shall
be freely given when justice so requires. The amendment of pleadings is left to the
sound discretion of the trial court, whose determination will be overturned on review
only for an abuse of that discretion. Herron v. Tribune Publ'g Co.. inc.. 108 Wn.2d 162,
165, 736 P.2d 249 (1987). Discretion is abused if it is manifestly unreasonable, or
exercised on untenable grounds, or for untenable reasons. State ex rel. Carroll v.
Junker. 79 Wn.2d 12, 26, 482 P.2d 775 (1971). In deciding whether to grant a motion to
amend, "the court may consider the probable merit or futility of the amendments
requested." Doyle v. Planned Parenthood of Seattle-King County. Inc., 31 Wn. App.
126, 131, 639 P.2d 240 (1982).
The proposed second amended complaint alleged newly discovered evidence
showing that from March 2000 until December 2005, Homax solicited the general public
by advertising on web sites. Homax argued there was no connection between the web
site advertising and the business relationship between the parties.
The trial court did not abuse its discretion in denying the motion to file the second
amended complaint to re-assert the CPA claim. The undisputed evidence showed
Cameron contacted Homax because of the previous successful distribution and
licensing agreement for the Crocodile Clip, and not advertising on the web site.
Lost Profits
NPDG contends the trial court erred in limiting expert testimony on lost profits.
Contrary to NPDG's characterization, the trial court ruling was much more limited.
NPDG identified Cameron as "an expert in clip marketing" and lost profit
damages. NPDG stated that Cameron would testify that "over time, ... the plaintiffs'
15
No. 67278-9-1/16
products would have gained market share from the defendants' products." NPDG
identified Michael R. Ruble as an "expert in damage calculation" who would testify about
"the quantitative damages suffered by the Plaintiffs as a result of being denied this
portion ofthe industry."11 NPDG also designated two charts as exhibits that calculated
damages of $1.5 million "based on Rhino/Jaws clips entering the market and being sold
by large retailers during 2002."
Homax filed a motion in limine arguing that Cameron was not qualified to testify
as to lost profit damages for the Jaws Clip, and his testimony was speculative. Homax
also filed a motion to exclude Ruble from testifying on lost profits and to exclude the two
charts as based on speculative assumptions. Homax cited Cameron's deposition
testimony that NPDG never marketed or sold any Jaws Clips and never placed a
product at the "big box" stores.
NPDG asserted that Cameron was qualified to testify on the market share, and
would testify at trial that "within five years [NPDG] would have sales thatwould equal
11 Ruble testified in his deposition that he did not have an opinion on market share and sales to
large retailers.
Q. Do you have an independent opinion as to whether plaintiffs are capable
of capturing 50 percent of Homax's clip sales?
[Plaintiffs' Counsel]: Objection, form.
A. Not my area of expertise. And Iwasn't asked to assess that.... My job
at this point is to evaluate the calculations, not whether it's appropriate to the damage
model.
q. .... Do you have an opinion as to how the damages analysis of page 2
ofExhibit 119 would change if it wasestablished that plaintiffs lacked the capability to sell
to large retailers?
[Plaintiffs' Counsel]: Objection, form.
A. I don't think I can answer that question, because I don't - again, I'm here
as an expert to verify how the spreadsheet was prepared, not dealing with the underlying
assumption or changes to those assumption^].
16
No. 67278-9-1/17
one-half ofthe existing sales ofthe Cinchtite [sic]."12
The court granted the motion to preclude Cameron from testifying as an expert
on the market share for the Jaws Clip. The court ruled that Cameron's testimony about
the market share for the Jaws Clip was speculative.
I think it is a proximate cause concern, and beyond that I think it's pretty
speculative. I don't know - without anything at all we would be asking the
fact finder to speculate as to what the profits would be if the plaintiff had
decided to market the clip. And that's just, as the court sees it, just too
speculative without any evidence at all of marketability or sales. I'm going
to grant the motion.
The trial court ruled that Cameron "can testify as to the advantages and
disadvantages and which clip is better and which one is more useful, all of those things
because he is certainly qualified to do that." The court also ruled that subject to proper
foundation and objections at trial, Cameron and Ruble could testify about damages and
NPDG could use the two charts.
Well, certainly ifthey're going to be, if they have a witness on the stand, I
will rule on the evidentiary aspects of this, but ifthey have a chart that they
want to come into court with, I can determine if something is going to the
jury or not. I don't want to limit each side from what they want to put on a
chart. Certainly they will have to have proper foundation for getting the
testimony in. So I don't want to be messing with their chart preparation at
this stage of the proceeding.
... I'm going to allow the plaintiff to establish, attempt to establish
the expertise of both of these gentlemen with regard to their expertise, and
I think I need to manage this by just entertaining objections to the
questions that are asked to determine whether or not the question falls
within the area that the foundation has been laid as to their expertise. I'm
12 NPDG asserted:
I'm also going to ask [Cameron] to testify about his views and opinions in regard to
whether if his company were in the market whether it could displace or take oversome of
the Homax business, and he is going to testify yes because of these features the Rhino
and even the Jaws when it comes on board would displace the Cinchtite [sic], that's the
current clip, or the earlier Crocodile Clip, to the tuneof about 20 percent a year up to five
years when itwould have half of the sales within the company.
17
No. 67278-9-1/18
not going to micromanage this. I'm going to handle this as an evidentiary
issue during the course of the trial.
NPDG did not call Ruble to testify at trial. Cameron testified that NPDG sold the
Rhino Clips in small stores in orders of "[ajnywhere from a box of fifty up to maybe a
thousand." NPDG also presented evidence about sales of the Cinch Tite Clip, gross
sales, and testimony about the number of Cinch Tite Clips sold by Homax. Cameron
testified that in his opinion, the Jaws Clip was worth $450,000.
Absent an abuse of discretion, we do not disturb on appeal a trial court's rulings
on motions in limine, the admissibility of evidence, and the admissibility and scope of
expert testimony. Hume v. Am. Disposal Co., 124 Wn.2d 656, 666, 880 P.2d 988(1994); Gammon v. Clark Equip. Co.. 38 Wn. App. 274, 286, 686 P.2d 1102 (1984). A
court abuses its discretion when its decision is manifestly unreasonable or based on
untenable grounds or reasons. Olver v. Fowler. 161 Wn.2d 655, 663, 168 P.3d 348(2007).
[T]he standard that the trial court must apply in deciding whether to
exercise its discretion has three parts: (1) is the witness qualified to testify
as an expert, (2) is the expert's theory based on a theory generally
accepted in the scientific community, and (3) would the testimony be
helpful to the fact finder?
Saldivarv.Momah. 145 Wn. App. 365, 397, 186 P.3d 1117 (2008).
Under the Uniform Trade Secrets Act, "a complainant may recover damages for
the actual loss caused by misappropriation," together with any additional damages
needed to compensate for unjust enrichment. RCW 19.108.030(1). Lost profits are a
"recoverable element" of actual damages. Eagle Group. Inc. v. Pullen, 114 Wn. App.
409, 421, 58 P.3d 292 (2002). Damages must be supported by evidence that provides
a reasonable basis for estimating the loss and does not amount to mere speculation or
18
No. 67278-9-1/19
conjecture. Shinn v. Thrust IV. Inc.. 56 Wn. App. 827, 840, 786 P.2d 285 (1990). In
other words, lost profit damages "must be susceptible of ascertainment in some manner
other than by mere speculation, conjecture, or surmise and by reference to some
definite standard, such as market value, established experience, or direct inference
from known circumstances." Gaasland Co.. Inc. v. Hvak Lumber & Millwork, Inc., 42
Wn.2d 705, 713, 257 P.2d 784 (1953).13
To recover lost profit damages, NPDG must prove lost profits with reasonable
certainty. Larsen v. Walton Plywood Co.. 65 Wn.2d 1,16, 390 P.2d 677 (1964). Lost
profits are recoverable as damages if contemplated by the parties at the time the
contract was made, are the proximate result of defendant's breach, and are proven with
reasonable certainty. Larsen, 65 Wn.2d at 15. Expert testimony may support lost
profits if based on "tangible evidence." Larsen. 65 Wn.2d at 19.
So long as [experts'] opinions afford a reasonable basis for inference,
there is departure from the realm of uncertainty and speculation. Expert
testimony alone is a sufficient basis for an award for loss of profits. .. .
Although expert testimony is a sufficient basis for an award of lost profits,
their opinions must be based upon tangible evidence rather than upon
speculation and hypothetical situations.
Larsen, 65Wn.2dat17, 19.
NPDG relies on No Ka Oi Corp. v. Nat'l 60 Minute Tune, Inc., 71 Wn. App. 844,
863 P.2d 79 (1993), to argue the court erred in limiting evidence of lost profit damages
for the Jaws Clip. In No Ka Oi. the expert testified about lost profits but did not base his
opinion on an analysis of similar businesses in the vicinity, or "local comparables." We
rejected the requirement that lost profit damages must always be based on "local
comparables" and held that" '[wjhere the fact is well established that profits would have
13 (Emphasis omitted) (internal quotation marks omitted).
19
No. 67278-9-1/20
been made and the difficulty in proving their amount is directly caused by the
defendant's breach, a greater liberality is permitted in making estimates and drawing
inferences.'" No Ka Oi. 71 Wn. App. at 851 (quoting Larsen, 65 Wn.2d at 17). But
here, unlike in No Ka Oi. the fact that profits would have been made for sales of the
Jaws Clip is speculative. Cameron admitted he never marketed or sold any of the Jaws
Clips and never filed a patent application for the Jaws Clip. The trial court did not abuse
its discretion in ruling that Cameron's testimony on the market share for sales of the
Jaws Clip and lost profit damages was speculative.
Jury Verdict
NPDG contends that after the jury found Homax misappropriated the Jaws Clip
trade secret, as a matter of law, NPDG was entitled to an award of damages under the
Uniform Trade Secrets Act. Neither the Uniform Trade Secrets Act nor the jury
instructions in this case support NPDG's argument.
Under the Uniform Trade Secrets Act, a plaintiff "may recover damages for the
actual loss caused by misappropriation," and "may recover for the unjust enrichment
caused by misappropriation that is not taken into account in computing damages for
actual loss." RCW 19.108.030(1).14
NPDG did not object to the jury instructions or the special verdict form. Under
the law of the case doctrine, if not objected to, the instructions given to the jury by the
trial court shall be treated as the applicable law. State v. Hickman, 135 Wn.2d 97, 102,
954 P.2d 900 (1998). Here, the jury instructions did not require the jury to award
damages upon finding Homax misappropriated the trade secret.
14 (Emphasesadded.)
20
No. 67278-9-1/21
Jury Instruction No. 4 sets forth NPDG's burden of proof on misappropriation of
trade secrets. Jury Instruction No. 4 states that in order to prove that Homax
misappropriated trade secrets as to the Jaws Clip, NPDG had the burden of proving
both that Homax misappropriated trade secrets, and that the misappropriation was the
proximate cause of damages. Jury Instruction No. 4 states:
On the claim of misappropriated trade secrets, [NPDG] has the
burden of proving each of the following propositions:
(1) That Plaintiffs [NPDG] had a trade secret in the Jaws clip;
(2) That Defendant Homax Products misappropriated Plaintiffs's
[sic] trade secrets; and
(3) That the Defendant misappropriation was a proximate cause of
damages to Plaintiffs; and
(4) That, as a result of the misappropriation, Defendant received
money or benefits that in justice and fairness belong to
Plaintiffs.
Ifyou find from your consideration of all the evidence that each of
these propositions has been proved, then your verdict should be for the
Plaintiffs. On the other hand, if you find that any of these propositions has
not been proved, your verdict should befor the Defendant.1151
15 Jury Instruction No. 7 defines "trade secret."
"Trade secret" means information, including a formula, pattern, compilation,
program, device, method, technique, or process that:
(a) Derives 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
(b) Is the subject of efforts that are reasonable under the circumstances
to maintain its secrecy.
Jury Instruction No. 8 defines "independent economic value."
Information has "independent economic value" ifit gives the owner of the
information a competitive advantage over others who do not know the information.
In determining whether information about the Jaws Clip derives "independent
economic value" from not being generally known or readily ascertainable, you may
consider, among other factors, the following:
(1) The value of the information to the Plaintiffs and their competitors.
(2) The amount of efforts or money that the plaintiff expended in developing the
information.
(3) The extent of measures that Plaintiffs took to guard the secrecy of the
information.
(4) The ease or difficulty of acquiring or duplicating the information by proper
means, such as independent design or reverse engineering.
(5) The degree to which third parties have placed the information in the public
domain or rendered the information readily ascertainable.
(6) The degree to which Plaintiffs have placed the information in the public
domain or rendered the information readily ascertainable.
21
No. 67278-9-1/22
Jury Instruction No. 18 further states:
A person who is liable for damages to another person's business is
not liable for any damages arising after the original event that are
proximately caused by failure of the injured person to exercise ordinary
care to avoid or minimize such new or increased damages[.]
Defendant has the burden to prove Plaintiffs' failure to exercise
ordinary care and the amount of damages, if any, that would have been
minimized or avoided.
The juryfound that Homax misappropriated trade secrets as to the Jaws Clip but
NPDG did not prove the misappropriation was the proximate cause of damages to
NPDG. The special verdict form states, in pertinent part:
1. Do you find the Plaintiffs have a trade secret in the Jaws
Clip?
YES:
NO:
2. Did Defendant misappropriate Plaintiffs' Jaws Clip trade
secret?
YES: X
NO:
3. Were Plaintiffs damaged by Defendant's misappropriation of
the Jaws Clip trade secret?
YES:
NO: X
If you answered YES, then go to Question No. 4. If you answered
NO, then sign and date the Jury Verdict Form and you are done.
4. If you have found Defendant to be liable to Plaintiffs, what
are the damages that Plaintiffs are entitled to recover from Defendant?
NPDG also contends substantial evidence does not support the jury's finding that
there were no damages. NPDG argues the jury should have relied on the evidence of
the sales figures for the Cinch Tite Clip, the manufacturing costs and sales figures for
the Rhino Clip, and the cost ofobtaining prototypes for the Jaws Clip tofind that NPDG
incurred damages from "lost business opportunities" and the costs ofdeveloping the
Jaws Clip.
22
No. 67278-9-1/23
Overturning a jury verdict is appropriate only if"it is clearly unsupported by
substantial evidence." Burnside v. Simpson Paper Co., 123 Wn.2d 93, 107-08, 864
P.2d 937 (1994). The substantial evidence test is met where there is sufficient evidence
to persuade a rational, fair-minded person of the truth of the premise. Winbun v. Moore,
143 Wn.2d 206, 213, 18 P.3d 576 (2001). In reviewing the evidence, the appellate
court cannot reweigh the evidence, draw its own inferences, or substitute its judgment
for that of the jury. Burnside. 123 Wn.2d at 108.
On appeal, the party seeking review has the burden to perfect the record so that
we have all relevant evidence before us. Bulzomi v. Dep't of Labor & Indus., 72 Wn.
App. 522, 525, 864 P.2d 996 (1994). Here, NPDG designated only limited portions of
the testimony at trial. But even the limited record on appeal shows substantial evidence
supports the jury's verdict.
Cameron admitted at trial that NPDG never sold or patented the Jaws Clip.
Q .... My question is you never sold a Jaws Clip; is that correct?
A Just made prototypes.
Q To this day in the year 2011 you have neversold a Jaws Clip; is
that correct?
A No. In 2004 we were stopped.
Q You were stopped in 2004 from selling Jaws Clips?
A Yes. My patent attorney when he saw that Homax had copied that
patent and did it in there that they put the, what do you call it, they
put the art out there, they had the art before we had a chance to file
priority is what it is.
Q Mr. Cameron, you have testified that the Jaws Clip was invented in
2001; is that correct?
A Correct.
Q So in 2001 you could have filed a patent application on the Jaws
Clip; is that correct?
A Didn't have the money.
Q In 2002 you could have filed a patent application on the Jaws Clip?
A Didn't have the money then. . . .
23
No. 67278-9-1/24
Q Mr. Cameron, on Friday you testified that you didn't file a patent
application for the Jaws Clip because you didn't have money to do
so; is that correct?
A Correct.
Q Did you have any investors give you money for the Jaws Clip?
A Correct.
Q Did a Mr. Massey give you money for the Jaws Clip?
A Absolutely.
Q .... So the date of this agreement per Mr. Massey's signature is
December 29, 2000; is that correct?
A Correct.
Q And Mr. Massey provided $10,000 in cash for the investment in the
Jaws Clip; is that correct?
A Correct. . . .
Q .... This agreement states that the Jaws Clip is to be patented and
prototyped. Do you see that, Mr. Cameron? I can point to it up
here, sort of in the middle of the paragraph it says to be patented
and prototyped?
A Correct.
Q Do you see the next sentence, Mr. Cameron, where it says Todd
Andersen and Mac Cameron agree to pay for patent and prototype
model?
A Correct.
Q That didn't happen, Mr. Cameron?
A Yes, it did.
Q You said there was never a patent filed.
A No, not the patent. But the prototype and all the other costs.
Q This agreement says that Mr. Andersen and Mr. Mac Cameron
agree to pay for a patent; is that correct?
A Correct.
Q And that didn't happen?
A No, not at that time.
Q But it's never happened, there's never been a Jaws patent
application filed; is that correct?
A No. We filed disclosures for the patent office.
Q You filed a disclosure with your patent attorney?
A Correct.
Q But you have never filed a patent application with the United States
Patent Office for the Jaws Clip?
A No. No.
Q Yet Friday you stated you had no money to do that; is that correct?
A Correct.
24
No. 67278-9-1/25
Q So you took on the responsibility of marketing the Jaws Clip and
promised Mr. Massey you would do that in return for the
investments; is that correct?
A Correct.
Q You haven't done that?
A Well, we have done marketing, we have done art, we have done
prototyping.
Q You have never offered the Jaws Clip for sale to a third party; is
that correct?
A Only Homax.
Q And you have never, sitting here today in 2011, sold the Jaws Clip;
is that correct?
A No. We haven't got it. We've got it prototyped and we have a
manufacturer.
Cameron also testified that NPDG has never sold a Rhino Clip to a "big box"
store.
Q You testified that you had a Mr. Heininger who had promised you
big box retail sales of Rhino Clips; is that correct?
A You bet.
Q And to this date in 2006, 2007, 2008, 2009, 2010, Mr. Heininger
has not achieved big box retail sales for you?
A .... I never responded to him.
We conclude substantial evidence supports the jury's finding that NPDG did not
prove it was entitled to damages.16
CR 11 Sanctions
NPDG argues the trial court abused its discretion in awarding the attorney fees
Homax incurred in defending against the Rhino Clip trade secret claim under CR 11.
Homax sought $57,120 in attorney fees. $5,490 in attorney fees for summary
judgment, and $51,630 in attorney fees for defending the breach of contract and unjust
enrichment claims at trial. The court awarded Homax $4,500 in attorney fees in
obtaining dismissal of the trade secret claims as to the Rhino Clip.
16 Because we conclude the jury verdict is supported by substantial evidence, the trial court did
not err in also ruling NPDG was not entitled to damages for its equitable claims for damages.
25
No. 67278-9-1/26
Under CR 11, the court may impose sanctions if pleadings are filed for an
improper purpose or without a basis in law or fact. Biggs v. Vail, 124 Wn.2d 193, 201,
876 P.2d 448 (1994). We review the trial court's CR 11 ruling for an abuse of
discretion. Wash. State Physicians Ins. Exch. & Ass'n v. Fisons Corp., 122 Wn.2d 299,
338,858P.2d 1054(1993).
The existence of a trade secret requires "efforts that are reasonable under the
circumstances to maintain its secrecy." RCW 19.108.010(4). Cameron testified at his
deposition that he widely distributed samples of the Rhino Clip, and in 2001, submitted
a patent application disclosing the features of the Rhino Clip. In opposition to summary
judgment, NPDG conceded it did not have a cause of action under the trade secrets act
with respect to the Rhino Clip. The trial court did not abuse its decision by awarding
Homax attorney fees under CR 11. See MacDonald v. Korum Ford, 80 Wn. App. 877,
885-88, 912 P.2d 1052 (1996) (CR 11 sanctions appropriate where counsel failed to
withdraw claims after it became clear following his client's deposition that claims lacked
legal or factual basis).
We affirm in all respects.
^J)^VrQa..L
WE CONCUR:
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26