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K-Tronik N.A., Inc. v. Vossloh-Schwabe Matsushita

06-0729 (U.S. Dist. Ct. D. N.J. 2006) (Unpublished)

CONTRACTS; CONFIDENTIALITY — A court analyzes various claims arising from the alleged use of confidential information by one party to a failed business relationship.

A corporation engaged in the business of manufacturing, distributing, and selling ballasts sued a corporation engaged in the business of manufacturing, distributing, and selling lighting product components. The alleged claim arose from the parties’ attempt to develop a business relationship and to engage in a series of transactions.

The components corporation approached the ballast corporation to discuss the possibility of entering into a business relationship in which the ballast corporation would manufacture private label ballasts for the components corporation to sell along with the other light components that the components corporation already offered to its customers. The components corporation prepared and submitted a proposal outlining the terms and conditions of a possible agreement. The ballast corporation made a presentation to the components corporation regarding the products it could produce for them. The presentation included confidential and proprietary information, such as product specifications and technical information. The ballast corporation also provided the components corporation with samples of its ballasts and detailed literature that included confidential and proprietary information. Shortly thereafter, the components corporation advised the ballast corporation that it would not continue negotiating the prospective relationship due to internal issues such as corporate reorganization.

Later, the components corporation resolved its internal issues and sought to revive its discussions with the ballast corporation. The components corporation advised the ballast corporation that it sought to enter the ballast market in the United States but needed the ballast corporation to act as its partner because it lacked the necessary resources.

The ballast corporation sent the components corporation pricing and other information, including confidential information about the ballasts in question. The components corporation contacted the ballast corporation reasserting its interest in continuing the negotiations and requested a product portfolio for certain ballasts. The ballast corporation provided the requested information.

The components corporation then sent another email requesting further information and product samples, and suggesting a meeting date. The ballast corporation sent the requested items. The components corporation continued to request information and samples in this manner, and the ballast corporation continued to fulfill the components corporation’s requests, until the components corporation emailed the ballast corporation to advise it that it would be developing ballasts on its own and would not need the ballast corporation’s assistance in manufacturing any ballasts.

The ballast corporation responded by requesting that the components corporation return all confidential and proprietary information, including the product samples it provided. The components corporation agreed not to utilize any such confidential and proprietary information, to return the product samples, and to delete all email messages and documents concerning discussions between the parties.

In preparation for a trade show, the components corporation released promotions showing that they had created ballasts for the U.S. market. From those promotions, and from the components corporation’ exhibit at the trade show, the ballast corporation concluded that the components corporation had utilized the ballast corporation’s confidential and proprietary information to develop their new products. The ballast corporation’s ensuing complaint listed the following claims: Count 1 - conversion and pirating of confidential, proprietary information; Count 2 - unfair competition; Count 3 - unjust enrichment; Count 4 - fraud; Count 5 - negligent misrepresentation; Count 6 - breach of contract; Count 7 - breach of the implied covenant of good faith and fair dealing; and Count 8 - promissory estoppel. The components corporation moved to dismiss the complaint.

As to Count 1, the District Court explained that in order to succeed on a claim for conversion, the ballast corporation needed to establish that it was deprived of its property by the act of another assuming an unauthorized dominion and control over it. Moreover, the tort of conversion relates to interference with tangible rather than intangible property. The ballast corporation alleged that a number of items were supplied to the components corporation. The Court found that among those items, only two were tangible property. One of those items was returned. Thus, the only tangible item provided to the components corporation over which the components corporation still exercised control was a ballast sample. The Court concluded that because the ballast corporation alleged that its potted ballast samples were provided to the components corporation only for use in evaluating the viability of a potential business relationship, and that the evaluation of any such relationship had completed, and that the components corporation retained possession of the potted ballast samples despite the ballast corporation’s request that it be returned, the ballast corporation sufficiently pled a claim for conversion with respect to the potted ballast samples. The other items were not tangible property. Thus, the Court concluded that the other items could not be the subject of a conversion claim. Therefore, the components corporation’s motion to dismiss Count 1 was denied as to the potted ballast samples but was granted as to all other items the ballast corporation allegedly supplied to the components corporation.

As to Count 4, the District Court explained that the five elements of common law fraud are: (1) a material misrepresentation of a presently existing or past fact; (2) knowledge or belief by the defendant of its falsity; (3) an intention that the other person rely on it; (4) reasonable reliance thereon by the other person; and (5) resulting damages. Further, claims of fraud must be pled with particularity, by pleading the date, place or time of the fraud, or through alternative means of injecting precision and some measure of substantiation into the claimant’s allegations of fraud. Here, the components corporation argued that the ballast corporation failed to plead this count with particularity, claiming that the ballast corporation failed to identify and describe which of the purported communications or statements made by the components corporation constituted the alleged misrepresentations and what alleged communications were allegedly false. On the contrary, the Court found that the ballast corporation not only identified the allegedly false communications, it quoted those communications, cited the day they were made, who made them, and how it relied on them. Thus, the Court concluded that in quoting various communications between the parties and noting the alleged dates and circumstances of each communication, the ballast corporation pled each element of its fraud claim with sufficient particularity. Accordingly, The components corporation’s motion to dismiss Count 4 was denied.

In respect of Count 6, the components corporation argued that the ballast corporation’s claim for breach of contract must fail because the alleged contract failed to satisfy the statute of frauds. The ballast corporation argued that the alleged contract satisfied the statute of frauds despite the absence of a formal written contract. Specifically, the ballast corporation argued that the series of communications between the parties was sufficient to meet the statute of frauds requirement. The Court, however, found that those writings failed to show that there was ever any meeting of the minds. The Court found that the communications were merely proposals that served as a starting point from which the parties began a series of negotiations; that the requests to send information and samples gave no indication that the parties came to an agreement; and that following the communications, the components corporation was unaware of the price they would be charged. The Court reasoned that those writing showed that there was never a meeting of the minds and that the components corporation had not finished examining the product to their satisfaction; thus, the communications could not satisfy the statute of frauds. Based on those alleged communications, the Court concluded that the ballast corporation’s contention that there was a prior oral agreement was inconsistent with other allegations in the complaint. As such, the components corporation’ motion to dismiss Count 6 was granted.

As to Count 7, the Court explained that in the absence of a contract, there can be no breach of an implied covenant of good faith and fair dealing. Because the ballast corporation’s allegations failed to support a claim for breach of contract, the ballast corporation’s claim for breach of the implied covenant of good faith and fair dealing was also dismissed.

Lastly, in respect of Count 8, the Court explained that there are four elements to the doctrine of promissory estoppel: (1) a clear and definite promise; (2) made with the expectation that the promisee will rely upon it; (3) reasonable reliance upon the promise; and (4) which results in definite and substantial detriment. Because none of the alleged writings made a clear and definite promise, the Court concluded that the ballast corporation could not satisfy the first element in its promissory estoppel claim. Accordingly, the components corporation’s motion to dismiss Count 8 was granted.


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