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Caudill Seed and Warehouse Co., Inc. v. Jarrow Formulas, Inc.

United States District Court, W.D. Kentucky, Louisville Division

September 29, 2017

CAUDILL SEED & WAREHOUSE COMPANY, INC. d/b/a CAUDILL SEED COMPANY PLAINTIFF
v.
JARROW FORMULAS, INC. DEFENDANT

          MEMORANDUM OPINION

          Charles R. Simpson III, Senior Judge.

         This matter is before the court for consideration of a number of motions:

DN 190 - Caudill Seed's Omnibus Discovery Motion to Compel, Strike and for Leave to Disclose a Rebuttal Expert
DN 219 - Caudill Seed's Motion for Pretrial Conference to Set Trial Date
DN 224 - Jarrow Formulas' Motion for Leave to Supplement Expert Report of Dr. West
DN 227 - Jarrow Formulas' Motion for Leave to File Motion for Partial Summary Judgment
DN 228 - Caudill Seed's Motion to Strike Expert West
DN 229 - Jarrow Formulas' Motion for Leave to File Surreply to Motion for Pretrial Conference to Set Trial Date
DN 247 - Jarrow Formulas' Motion for Oral Argument of Summary Judgment Motions

         I. Introduction

         There is one claim remaining in this action - a claim under the Kentucky Uniform Trade Secrets Act, KRS 365.880-900 (“KUTSA”). (DN 89, p. 19 (“…Caudill's only remaining claim proceeds under KUTSA for misappropriation of trade secrets based upon Jarrow [Formulas Inc.]'s alleged independent wrongful conduct.”)).

         It is clearly established in Kentucky that in order to demonstrate a violation of KUTSA, a plaintiff must show that: (1) it has a trade secret; and (2) the defendant misappropriated the trade secret. Alph Kaufman, Inc. v. Cornerstone Industries Corporation, No. 2014-CA-001790-MR, 2017 WL 943972, *11 (Ky.App. March 10, 2017), citing Auto Channel, Inc. v. Speedvision Network, LLC, 144 F.Supp.2d 784, 788 (W.D.Ky. 2001); Community Ties of America, Inc. v. NDT Care Services, LLC, No. 3:12-CV-00429-CRS, 2015 WL 520960, slip op. at 10 (W.D.Ky. Feb. 9, 2015).

A trade secret is information that derives independent economic value “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 is the “subject of efforts that are reasonable under the circumstances to maintain its secrecy.” KRS 365.880(4)…Breaking this down further, to be considered a trade secret under the KUTSA, the information at issue must (1) have independent economic value; (2) not be generally known or readily ascertainable by proper means; and (3) be the subject of reasonable efforts to maintain its secrecy. Id.; BDT Products, Inc. v. Lexmark Int'l, Inc., 274 F.Supp.2d 880, 890 (E.D.Ky. 2003). “Whether a particular type of information constitutes a trade secret is a question of fact.” Fastenal Co. v. Crawford, 609 F.Supp.2d 672 (E.D.Ky. 2009).

Id. KRS 365.880(2)(b)(2)(c) provides:

“Misappropriation” means use of a trade secret of another without express or implied consent by a person who…at the time of disclosure or use, knew or had reason to know that his knowledge of the trade secret was…derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use…

         The definition of “misappropriation” also includes “acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means.” KRS 365.880(2)(a). KRS 365.884(1) provides for damages for misappropriation of trade secrets which “may include both the actual loss caused by misappropriation and the unjust enrichment caused by misappropriation that is not taken into account in computing actual loss.”

         The sum total of this case is a claim for misappropriation of Caudill Seed and Warehouse Company, Inc.'s (“Caudill Seed” or “Caudill”) trade secrets by Jarrow Formulas, Inc. (“Jarrow Formulas” or “Jarrow”). Much of the discussion in the motions presently before the court ventures far afield of the claim in this case. The court will try to bring the parties' focus back to the issue before us for trial.

         II. Caudill Seed's Omnibus Discovery Motion to Compel, Strike, and for Leave to Disclose a Rebuttal Expert (DN 190)

         We will address the issues raised in the motion seriatim, and include issues raised in related motions where appropriate.

A. Report of Dr. Leslie West (DN 100-11), Supplements to Report (DNs 190, 228), Motions to Strike (DNs 190; 228), and Motion for Leave to File Motion for Partial Summary Judgment (DN 238)

         The above-cited matters are interrelated.

         In October, 2014 the time for disclosure of expert witnesses and reports expired. Caudill Seed did not designate an expert witness with respect to any issues of liability. Jarrow Formulas produced the report of Dr. Leslie West purportedly as a “rebuttal expert.” The disclosure was found to be timely, but the designation raised some questions which were addressed by the court. Judge John G. Heyburn, II was then presiding in the case. He held a telephonic motion conference on the record on October 24, 2014 to address, among other matters, the motion of Caudill Seed to exclude the expert reports of West and of Kean Ashurst, the former employee of Caudill who admittedly took materials from it upon leaving his employment. The transcript of that conference was made part of the record (DN 113).

         Counsel for Jarrow indicated that West was an independent third-party expert witness offered “to rebut [Caudill Seed's] case-in-chief.” (DN 113, p. 6).[1] The court noted, however:

I guess my first reaction to this whole thing was that I'm not sure that an expert on what's a trade secret is even appropriate. People like, let's say, Ashurst can testify about, let's say, particular items of information or technology or whatever it is that could be a trade secret and can testify from their own personal knowledge of what it is and how important it is and that sort of thing. But the term “trade secret” is a legal definition. I'm not sure that we need an expert to give an opinion about what it is…From what little I know, Ashurst fits that model perfectly. He's a person who apparently has actual knowledge of the supposed trade secrets. He could testify about his actual knowledge but couldn't give an opinion about whether it is actually a trade secret. That's going to be something, if the case was tried, that would be part of the jury instructions, and you take his testimony and make the argument. I suppose it could be decided as a legal matter if the facts are absolutely clear. There could be a directed verdict on whether a particular thing is a trade secret or not, I suppose. I don't know enough about the case to know whether that is likely or possible. My initial skepticism is that, again, the litigation over what's a trade secret should be about people who have knowledge of what's going on here testifying about that and then the lawyers making the argument and that sort of thing rather than certainly not experts giving an opinion that this is a trade secret. There could be other opinions they might have, I don't know what they would be, not on that issue.

         (DN 113, pp. 7-8). Counsel then indicated that he misspoke, and explained:

Your Honor, that it's routine in cases of this nature where you are dealing with technical subject matter to have a technical expert give opinion testimony as to what the trade secret is that's been identified and whether or not that information was confidential or not or whether it was disclosed in the public domain.

         The following exchange further suggested the proposed scope of West's testimony. Jarrow Formulas' counsel stated:

…[O]ne of the key trade secrets at issue in this case is the production of what they call an activated formula. It's basically a broccoli supplement where they take broccoli powder and they combine it with a particular enzyme they called myrosinase and something else called calcium ascorbate. The idea is when you inject that into your gut, the myrosinase gets converted into sulforophane, which is a chemical that is believed to have an anticancer effect and otherwise be healthy for you. So that's one of the key trade secrets at issue in this case, whether or not this is actually - this formual is confidential.

         The court then asked:

         “So West and Ashurst are going to say this has been around for a long time and other people knew how to do this?” Counsel for Jarrow responded:

Yes, West for example, is going to say “Hey, back in the early 2000s, I, in fact, developed this, ” which he did. So he's partly fact and partly expert. He worked for Kraft Foods. He filed a patent application. It was published. It disclosed the same activated formula. That's what he's going to say.

(DN 113, p. 13). The court noted that “That's not really expert testimony. That's just his testimony, ” (Id.), to which Jarrow's counsel responded:

That's right, Your Honor. In that regard, it would be fact testimony. I have personally been in situations where attorneys have argued that if someone testifies about something technical and they sound like an expert, they are an expert. There are other parts of his testimony where - that's why we named him as an expert as well - there are other parts of his testimony where he does not have firsthand knowledge, where he might go look at - for example, the next trade secret is the process of de-oiling broccoli seed using supercritical food extraction. Basically, when you make these broccoli supplements, the broccoli has a lot of oil in it, and you need to get the oil out of it, and so they use a process called supercritical food extraction to take the oil out of the broccoli. What Mr. West will testify to, Your Honor, is that this process of supercritical food extraction was in the public domain, it was known, and he's going to point to where it was in the public domain, where it was known, and thereby establish that it was not confidential.

Id. The exchange continued discussing another process, the process of spray drying myrosinase.

         The court asked Caudill Seed's counsel whether there were employees of Caudill who could rebut West's assertions that the various principles and processes were in the public domain and not confidential, to which he replied “Yes.” Id. The exchange between the court and counsel for Caudill included the following:

The Court: I guess it's sort of true that in order to prove Caudill's case, they need to show that these compounds or enzymes are confidential in some way or another, not in the public domain. Of course, I assume that ...

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