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

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

September 28, 2018



          Charles R. Simpson III, Senior Judge United States District Court

         This matter is before the court for consideration of two motions filed in this case - a motion by defendant Jarrow Formulas, Inc. for partial reconsideration of the court's September 29, 2017 memorandum opinion and order (DN 256), and a motion by Jarrow for sanctions for the purported failure of plaintiff Caudill Seed and Warehouse Company, Inc. to comply with the magistrate judge's discovery order (DN 259). We will address these motions seriatim.

         In this action, Caudill Seed accuses Jarrow of violating the Kentucky Uniform Trade Secrets Act (“KUTSA”), KRS 365.880 et seq. Kentucky Revised Statutes 365.880(4) defines “trade secret” as “information, including a formula, pattern, compilation, program, data, device, method, technique, or process, that…[d]erives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and [i]s the subject of efforts that are reasonable under the circumstances to maintain its secrecy.” Of course, misappropriation of such information may be established through proof that it was acquired by a person [including a corporation] who knows or has reason to know that the information was acquired by improper means (365.880(2)(a)), or by the use of the information by that person who, at the time of use, knew or had reason to know that his knowledge of the information was derived from or through another person who utilized improper means to acquire it or owed a duty to the party seeking relief to maintain the secrecy of the information (365.880(2)(b)(2)(a);(c)).

         By way of background, we draw from our October 29, 2015 Memorandum Opinion addressing the parties cross-motions for summary judgment (DN 145). We relate various facts, some alleged, some undisputed, so that the court's rulings on the present motions can be appreciated in context.

         Caudill Seed, a seed distribution company, produces and sells a broccoli seed extract which contains glucoraphanin, a nutritional supplement ingredient touted for various health benefits.[1] Glucoraphanin occurs naturally in broccoli seed. Caudill Seed developed its own process for extracting the glucloraphanin from the seed. Caudill Seed sold the broccoli seed extract to nutrition supplement producers such a Jarrow who used the extract in their nutritional products. At one time, Jarrow was Caudill Seed's largest purchaser of bulk broccoli seed extract.

         Caudill Seed employed Kean Ashurst as a researcher and nutritional supplement formulator from 2002 to 2011. His work focused on broccoli-based supplements. Prior to 2011 when Ashurst left Caudill Seed and went to work for Jarrow as a consultant, Jarrow purchased Caudill's broccoli seed extract and used it in several of its nutritional supplements including its product, BroccoMax. Since hiring Ashurst, Jarrow has been manufacturing its own broccoli seed extract for use in BroccoMax and other products. In other words, Jarrow cut out the middle man, becoming its own broccoli seed extract manufacturer. Under the guiding hand of its new consultant, Ashurst, Jarrow developed and brought to commercial production an “activated” broccoli seed extract in a period of four months. Ashurst possessed precise parameters of an “activated” formula in one to two months of beginning his work for Jarrow and began testing it.

         Jarrow contends that it did nothing wrong in hiring Ashurst away from Caudill Seed and developing its own manufacturing processes for an “activated” broccoli seed extract, as it contends that the market was fair game and all of the necessary information existed in the public domain at that time. Caudill Seed, on the other hand, contends that Jarrow, a company that had no experience, personnel, equipment, or facilities associated with extraction processes, for broccoli seed or otherwise, could not have produced a commercial-scale glucoraphanin ingredient within a few months without having received the benefit of “years of research and development, the compilations of technical data, the trial and error work, and Caudill Seed's negative know-how developed through years of expense and effort, and distilled by Caudill Seed into a turn-key product.[2] It claims that the information which afforded it the ability to successfully manufacture and market its extract was kept secret and in-house, and that it provided Caudill Seed a competitive advantage in the market.

         It is undisputed that Ashurst had access to all of Caudill Seed's research findings, processes, and broccoli supplement formulas. Indeed, his own efforts in the field yielded much of the research and development during his tenure there, and he jealously guarded the information. There is testimony that he recorded the information in a laboratory notebook and stored information on an external hard drive which he kept locked in his office or laboratory, or kept with him.

         Caudill Seed had been experimenting with “activated” formulas for glucoraphanin for at least three years before Ashurst left Caudill Seed. Apparently the motivation to produce an “activated” formula was in response to indications from a No. of scientific publications that the existing glucorapahin-based products did not effectively release in the human body. The “activated” formula focused on preservation and utilization of the enzyme, myrosinase, which is claimed to metabolize glucoraphanin in the body. Ashurst informed Caudill Seed that it had an “activated” product nearly ready for commercial production. It was at this point, in May 2011, that Ashurst left the company and went to Jarrow.

         There is some evidence that Ashurst was planning to leave Caudill Seed as early as 2010. There is testimony from both Ashurst and Jarrow Rogovin, the owner of Jarrow, that Jarrow was trying to “beat [Caudill Seed] to the punch” in producing an “activated” broccoli seed extract despite never having never before been such a producer. So Rogovin hired Ashurst to consult and turn Jarrow into a manufacturer of an “activated” broccoli seed ingredient, because, as in the words of Rogovin, “it takes a farmer to farm, ” and he was not a farmer. (DN 133-21, PageID #7085).

         Ashurst admits that in April 2011 Dallas Clouatre, a scientific consultant for Jarrow, asked for, and Ashurst provided, Caudill Seed's research file on its broccoli seed extract and “broccoli actives.” He admits to providing Jarrow a provisional patent application for Caudill Seed manufacturing processes which was not made public until 2012, as well as customer lists, summaries of product development plans and production costs. While there is apparently no dispute that the hard drive and notebook previously mentioned contained Caudill Seed research and development information, Ashurst denies having taken the notebook. The notebook was allegedly seen by Caudill Seed personnel immediately before his resignation and never thereafter.

         Ashurst did admit to taking the hard drive which he claims to have later returned. There is a dispute as to what was contained on the hard drive. There is evidence that the specific details of the Caudill Seed process which Ashurst had previously provided to FONA, Caudill Seed's manufacturing vendor, which Caudill Seed was able to retrieve, contained “very well-defined steps which talk about temperatures, quantities of material, volumes of extracting material. There was even reference to specific types of equipment that one would use. It was set up very much as a procedure to be followed…almost like a cookbook, if you will.” (DN 133-61, PageID #7502-7503). These observations were made by Dr. Leslie West, Jarrow's expert who also opined that (1) the process for producing deoiled broccoli seed powder by supercritical fluid extraction using carbon dioxide as a solvent, (2) the process for water extraction of myrosinase from broccoli and spray drying the extract to obtain myrosinase powder, (3) the concept of formulating nutritional supplements containing glucoraphanin, myrosinase, and ascorbic acid to catalyze the reaction between myrosinase and glucoraphanin, and (4) the process for producing sulforaphane from glucoraphanin using myrosinase were known or readily ascertainable by proper means based on information in the public domain.

         Jarrow began commercial production of an “activated” ingredient in September 2011, four months from the time it hired Ashurst. There is evidence that as early as June or July of 2011, Ashurst provided Valensa, an extraction facility, with all of the parameters for a supercritical fluid extraction, including time, temperature, pressure, unit volume, and preparation. There is testimony from an individual at Valensa that Ashurst was prepared with these precise parameters for testing on his first call to the facility. (DN 133-8, PageID #6955). Ashurst described his own actions in consulting for Jarrow as providing “the road map for producing…a glucoraphanin product.” (DN 133-1, PageID #6835).

         Rogovin acknowledged that it created its own broccoli seed extract using Ashurst's knowledge and experience and building on it. (DN 126-11, PageID #5754). Rogovin contends that Caudill Seed's processes were unnecessary to Jarrow's work and it did not rely on them. He stated that Caudill Seed's process for achieving “activated” glucoraphanin was unsuccessful and was abandoned by Ashurst for another unique ...

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