Opinion
No. 59896-1-I.
July 21, 2008.
Appeal from a judgment of the Superior Court for King County, No. 05-2-36694-0, Douglass A. North, J., entered April 2, 2007.
Affirmed by unpublished opinion per Grosse, J., concurred in by Dwyer, A.C.J., and Agid, J.
Mere effort, even that of a uniquely situated or qualified person, does not necessarily transform an idea such as a business plan into a legally protectable trade secret. Here, where the plan is based upon information either publicly available or obtainable with relative ease and its formulation could be duplicated through proper means, it is not a protectable trade secret. Thus, Evan McMullen's trade secret claim fails. Further, finding McMullen's claims regarding the validity and enforceability of the parties' loan agreement and breach of fiduciary duties without merit and due process satisfied, we affirm the trial court.
FACTS
In 2000, the Lihue Plantation Corporation (LPC), decided to sell its ageing sugar mill equipment on two parcels of land it owned on the Hawaiian Island of Kauai. LPC required, as a condition of the equipment's sale, the buyer to post a performance bond to cover environmental contingencies. The equipment was old, dating from 1935 to 1954, but still in working condition. However, dismantling and moving it would likely cause, inter alia, serious asbestos contamination to the already environmentally degraded lands. The requested bond price was high and exceeded that of the equipment. In 2001, LPC began advertising the equipment's sale with Aaron Equipment.
In March 2004, Evan McMullen, the sole owner of Cosmopolitan Imports LLC, a company that deals in the trade of exotic items worldwide, including rare cars and pieces of art (hereinafter McMullen), began putting together a business plan to buy and eventually profit from the resale of these sugar mills. McMullen learned that the two parcels of land on which the mills were situated (totaling approximately 30 acres) were also for sale by LPC, but unlike the mill equipment, their sale had not been widely advertised. McMullen's plan was, in short, to purchase the lands and equipment together, posting the requested bond, and then selling the sugar mill equipment to the right buyer. The proceeds from that sale would then be used to clean up the lands to meet applicable environmental regulatory standards in order to resell the properties for a sizeable profit. McMullen believed that he was particularly well situated to make this business plan come to fruition due to his business contacts throughout the world. McMullen signed a Letter of Intent on August 2, 2004 with LPC, securing a purchase option for $2 million on the two real estate properties and the sugar mill equipment. That same day, Al Monjazeb and McMullen created a new company, Pacific Funds, LLC (Pacific) and executed the Limited Liability Company Agreement of Pacific Funds, LLC (LLC Agreement). Monjazeb owns and operates several car dealerships and had purchased cars from McMullen in the past. With their joint venture, they intended to "engage in the acquisition, development and management of real property" relating to the old sugar mill properties on Kauai.
Per the parties' LLC Agreement, both had a 50 percent interest in Pacific but Monjazeb was named the company's manager. Monjazeb agreed to provide the initial $200,000 refundable earnest money deposit for the purchase of the real property and equipment and McMullen contributed the Letter of Intent to the newly formed company. The LLC Agreement included a dispute resolution clause that provided for the prevailing party in any dispute arising out of that agreement to recover reasonable attorney fees and costs.
McMullen, allegedly with Monjazeb's consent, entered into a purchase and sale agreement on December 28, 2004, to buy the properties and sugar mill equipment from LPC on behalf of Pacific. Monjazeb contends that McMullen entered into this contract without his consent and further that McMullen violated the LLC Agreement (Article 5.1.10) as only Monjazeb, as Pacific's manager, had authority to enter into contracts on behalf of Pacific.
On December 29, 2006, McMullen and Monjazeb executed the Agreement Regarding Assignment of Limited Liability Company Units and Loan Arrangement (Loan Agreement). McMullen signed the document drafted by Monjazeb's attorney with minimal review. The real estate contract McMullen entered into on December 28 required payment of $50,000 within 24 hours to hold open the purchase option. McMullen claims Monjazeb had previously agreed to front this money but then refused to do so unless McMullen signed the Loan Agreement. On the other hand, Monjazeb contends that McMullen entering into the real estate and sale agreement amounted to conversion of the $200,000 refundable earnest money deposit into an initial payment which was now subject to forfeiture unless he immediately funded the entire purchase price of approximately $1.37 million. Faced with losing his $200,000 investment, Monjazeb reluctantly agreed to so fund the entire purchase, provided McMullen sign the Loan Agreement.
In the Loan Agreement, McMullen agreed to surrender immediately his entire share of Pacific in exchange for Monjazeb's conditional promise to loan him $700,000 in order for McMullen to buy back a 49 percent share of Pacific. As a condition of Monjazeb's making the loan, McMullen agreed to furnish three particular real property deeds of trust as security by January 10, 2005.
Pacific closed the real estate deal and purchased the real property and sugar mill equipment from LPC around the middle of January 2005. Shortly thereafter, having not received the agreed upon collateral, Monjazeb declined to loan McMullen the $700,000. As sole owner of Pacific, Monjazeb then proceeded to develop the properties and sell the sugar mill equipment for a profit.
McMullen filed suit in King County Superior Court alleging, inter alia, Monjazeb misappropriated his trade secret (the business plan), breach of contract, and breach of fiduciary duties. All of McMullen's claims were eventually dismissed in a series of summary judgment orders. Additionally, the trial court entered a discovery sanction against McMullen under CR 37. McMullen timely appeals all such adverse rulings by the trial court. Further, in two separate rulings, the trial court denied Monjazeb's motion for attorney fees and costs. Monjazeb timely cross-appeals those orders.
ANALYSIS
Misappropriation of a Trade Secret In 1981, Washington adopted the Uniform Trade Secrets Act (UTSA), to codify the basic principles of common law trade secret protection. Under the UTSA, a plaintiff may sue for damages or other relief for the misappropriation of trade secrets. RCW 19.108.010(4) defines a "[t]rade secret" as
Chapter 19.108 RCW (effective January 1, 1982); Boeing Co. v. Sierracin Corp., 108 Wn.2d 38, 46, 738 P.2d 665 (1987).
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.
Further, in pertinent part, RCW 19.108.010(2)(b) defines "[m]isappropriation" as the:
Disclosure or use of a trade secret of another without express or implied consent by a person who:
(ii) At the time of disclosure or use, knew or had reason to know that his or her knowledge of the trade secret was . . . (B) acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use. . . .
Thus, an action for misappropriation of a trade secret requires a plaintiff to establish both (1) that they possessed a protectable trade secret and (2) that the defendant misappropriated it. McMullen has failed to demonstrate either.
McMullen bears the burden of demonstrating his business plan is a protectable trade secret. Determining whether or not McMullen's business plan constitutes a trade secret is a factual inquiry. A business plan may be a trade secret even though it includes or is primarily based on publicly available information. However, where another may duplicate the plan or derive something similar through proper means using the same public or easily ascertainable information, the plan is not a legally protectable trade secret.
Boeing Co., 108 Wn.2d at 49; Precision Moulding Frame v. Simpson Door Co., 77 Wn. App. 20, 25, 888 P.2d 1239 (1995).
Ed Nowogroski Ins., Inc. v. Rucker, 137 Wn.2d 427, 436, 971 P.2d 936 (1999).
See Precision Moulding, 77 Wn. App. at 25.
McMullen compares his business plan to a compilation that is largely composed of unprotected publicly available information that, in its entirety, is a protectable trade secret because (1) not all of its information was readily ascertainable or available elsewhere in the public domain, and (2) its value was largely derived from the efforts and contributions made in creating it. McMullen contends he was in a unique position to add value to otherwise publicly available information because of his unique talents and worldwide contacts as a dealer in rare items, including cars and works of art. Mere effort, however, even when provided by a uniquely qualified individual, does not necessarily transform a compilation or some other resulting product derived from publicly available information and privately known (but relatively easily ascertainable) knowledge (such as potential buyers for the old sugar mill equipment), into a protectable trade secret. A trade secret is only such if it is not "'readily ascertainable by proper means from . . . other source[s].'" In other words, when the underlying information is in the public domain and the end product of the information is unoriginal or may be independently created through proper means, even after much effort, there is no trade secret. Here, while McMullen has demonstrated that he took reasonable efforts to keep his business plan secret, he failed to present evidence that it was not "readily ascertainable by proper means" as is required under RCW 19.108.010(4).
See Ed Nowogroski Ins., 137 Wn.2d at 442; Boeing Co., 108 Wn.2d at 49-50.
Boeing Co., 108 Wn.2d at 49-50 (quoting RCW 19.108.010(a)); see also Machen, Inc. v. Aircraft Design, Inc., 65 Wn. App. 319, 327, 828 P.2d 73 (1992); Buffets, Inc. v. Klinke, 73 F.3d 965 (9th Cir. 1996).
Further, even if it we were to decide that the business plan was a legally protectable trade secret (which we do not), Monjazeb did not misappropriate it. Rather, to the extent that he acted in accordance with the (largely intangible) business plan, he did so pursuant to the parties' Loan Agreement.
Discovery Sanctions
During discovery, the trial court imposed sanctions against McMullen for failure to provide truthful answers and admit certain facts as requested. We review a trial court's decision to impose discovery sanctions for an abuse of discretion. Here, we find no such abuse.
Mayer v. Sto Indus., Inc., 156 Wn.2d 677, 684, 132 P.3d 115 (2006).
Due Process
We do not agree with McMullen's claims that he was denied due process as the trial court decided only those issues properly before it. Moreover, those issues are dispositive of his action.
A total of eighteen orders entered by the trial court are on appeal before this court:
1. Order Denying Plaintiffs' Motion for Leave to File Second Amended Complaint (Aug. 11, 2006).
2. Order Granting Defendants' Motion for Partial Summary Judgment re: Misappropriation of Trade Secrets (Aug. 11, 2006).
3. Order Granting in Part, Denying in Part, Defendants' Motion to Strike Portions of Evan McMullen and Iain Levie's Declarations (Aug. 11, 2006).
4. Order Granting Defendants' Motion for Reimbursement of Fees and Costs (Sept. 20, 2006).
5. Order Ruling upon Cross-Motions for Partial Summary Judgment and Motion to Strike Regarding Enforceability of December 29, 2004 Assignment and Loan Agreement (Nov. 1, 2006).
6. Order on Defendants' Motions for Partial Summary Judgment Regarding: (1) McMullen's Claims Based Upon Alleged Failure to Loan, (2) McMullen's Claims for Commission Compensation, (3) Securities Fraud, and (4) Plaintiffs' Alleged Damages (Dec. 28, 2006).
7. Order Denying Plaintiffs' Motion for Reconsideration (Dec. 28, 2006).
8. Order Granting in Part Defendants' Motion to Strike Portions of Evan McMullen, Iain Levie, Patrick Paden, and Victoria Pond's Declarations (orally entered at Dec. 28, 2006 hearing).
9. Order Denying Plaintiff's Motion for Summary Judgment Establishing an Objective Standard by which Monjazeb's Dissatisfaction should be Measured (orally entered at Dec. 28, 2006 hearing).
10. Order of Transfer of Case to Kent Case Assignment Area (Jan. 2, 2007).
11. Order Denying Plaintiffs' Motion to Reconsider Dismissal of Plaintiffs' Securities Fraud Claim (Jan. 17, 2007).
12. Order Denying Plaintiffs' Motion for Reconsideration of Summary Judgment Order on Claims Based on Monjazeb's Failure to Loan (Feb. 2, 2007).
13. Order Granting Defendants' Motion to Enforce KCLR 26(b) and Compel Plaintiffs to Provide Damages Information and Produce Iain Levie for Deposition (Feb. 9, 2007).
14. Order Granting in Part Defendants' Motion for Protective Order (Feb. 16, 2007).
15. Order Granting Defendants' Motion to Narrow Counterclaims (Feb. 16, 2007).
16. Order imposing $500.00 in terms upon Evan McMullen (Feb 28, 2007).
17. Order Denying Plaintiffs' Motion to Compel Alternative Dispute Resolution (May 10, 2007).
18. Order Largely Denying Defendants' Motion for Award of Attorney's Fees and Costs (June 12, 2007).
For instance, McMullen moved for summary judgment on the limited issue of whether the Loan Agreement was supported by valid consideration. Monjazeb responded that it was supported for consideration and cross-motioned for summary judgment declaring the Loan Agreement valid and enforceable. After a hearing, the trial court ruled that it was indeed a valid and enforceable contract. McMullen contends he was deprived of the opportunity to brief and argue that the Loan Agreement was invalid for reasons other than for want of consideration, such as fraud. But, McMullen should have raised any affirmative defenses, including fraud or duress, in his answer to Monjazeb's December 2005 pleading (answer and counterclaims) specifically requesting the court enter declaratory judgment finding the Loan Agreement was "a valid, binding and enforceable contract." In any event, McMullen did raise and brief these arguments in response to one of Monjazeb's summary judgment motions. Moreover, based on the record before us, we can say that none of them were meritorious.
See CR 8(c).
Consideration
McMullen contends the Loan Agreement is void for want of consideration. Again, we disagree.
McMullen argues Monjazeb's promise to loan him $700,000 was an illusory promise. "An 'illusory promise' is a purported promise that actually promises nothing because it leaves to the speaker the choice of performance or nonperformance." A bargained for promise, however, is not necessarily rendered illusory or otherwise defective as consideration when conditioned upon a satisfaction clause or other preconditions to performance. Under the Loan Agreement, Monjazeb's discretion in determining whether to loan McMullen the $700,000 was not so completely broad or unfettered so as to make it an illusory promise. Moreover, whether Monjazeb properly exercised his discretion in declining to make the loan was not even a ripe question.
Interchange Assocs. v. Interchange, Inc., 16 Wn. App. 359, 360, 557 P.2d 357 (1976); see Sandeman v. Sayres, 50 Wn.2d 539, 314 P.2d 428 (1957).
Interchange Assocs., 16 Wn. App at 360-61.
See Omni Group, Inc. v. Seattle-First Nat'l Bank, 32 Wn. App. 22, 645 P.2d 727 (1982).
Central to the Loan Agreement is the express condition that McMullen provide Monjazeb with three specific real property deeds of trust as security for the loan. While McMullen clearly expended a great deal of effort in bringing the business plan to fruition, he had contributed minimal capital to Pacific while Monjazeb fully funded the purchase of LPC's equipment and properties, contributing approximately $1.37 million. Monjazeb provided adequate consideration to support the Loan Agreement by promising to fund the entire purchase price of the sugar mill equipment and properties (totaling approximately $1.37 million), including the $50,000 due immediately. It is immaterial that this money went to LPC rather than to McMullen as Monjazeb's promise to make these payments to LPC constituted a bargained for promise given in exchange for McMullen's promise to immediately assign and convey his half interest in Pacific to Monjazeb.
See Alexander Alexander, Inc. v. Wohlman, 19 Wn. App. 670, 578 P.2d 530 (1978).
McMullen also argues there was no consideration because Monjazeb had a preexisting duty to fund the entire acquisition of the sugar mill equipment and real properties, including posting the performance bond. McMullen has failed, however, to provide any proof of this preexisting duty. Rather, the parties' LLC Agreement contains language that suggests the contrary. Article 8 of the LLC Agreement provides that (besides an initial capital contribution of $100) "[n]o additional [C]apital [C]ontributions shall be required of the Members" and that any "additional Capital Contributions . . . shall be determined by all of the Members."
McMullen's only citations to the record in support of this contention are to his own declarations submitted to the trial court.
(Alteration in original.)
Breach of Fiduciary Duties
McMullen's arguments regarding Monjazeb's decision on whether to make the loan and whether it is subject to an objective standard serves only to obscure the undisputed and dispositive fact that McMullen was unable to satisfy the Loan Agreement's express condition that he provide Monjazeb with the three specific deeds of trust. Monjazeb had no obligation whatsoever (regardless of his subjective satisfaction with the collateral's value) prior to receiving the specified collateral. Paragraph five of the Loan Agreement provides:
Conditions to Loan. Monjazeb shall be obligated to extend the Loan if, and only if, the following conditions are satisfied:
a. Monjazeb's approval of the form of the Promissory Note and Deeds of Trust, which approval shall not be unreasonably withheld.
b. Monjazeb's approval of the character and condition of the three (3) parcels of property identified in Exhibit A securing the Promissory Note, McMullen's equity therein, and the status of the title as evidenced by title insurance commitments for the same. Monjazeb's approval of the foregoing shall be subject to his sole subjective determination.
c. If Monjazeb does not approve the above by January 10, 2005, Monjazeb shall have no obligation to extend the Loan and McMullen shall have no right to re-acquire any Membership Interest in the Company. . . .
Both parties agree that the January 10, 2005 deadline was extended, though the length of this extension is unclear and disputable. Regardless, at no time was McMullen able to perform and provide the necessary collateral. Nor, was there a modification of the Loan Agreement's terms as there was no consideration to support the modification. There is simply no implied obligation here that Monjazeb consider whether alternative collateral offered by McMullen was adequate. A contracting party does not breach his implied duty of good faith by refusing to change the terms of a contract.
Badgett v. Sec. State Bank, 116 Wn.2d 563, 569-71, 807 P.2d 356 (1991).
McMullen's contention that Monjazeb breached his fiduciary duties by "duping" McMullen into signing the Loan Agreement is also baseless. While it is true that members of an LLC are mutual fiduciaries, nothing prohibits them from entering into contractual business agreements with each other. Nor, under the circumstances, was it reasonable for McMullen to rely on any representations made by Monjazeb as his fiduciary that would excuse McMullen from the general duty to read a contract before signing it. The Loan Agreement was only three pages long and its terms are quite clear and straightforward, and lacking in legalese, small text or footnotes, or any other devices meant to obscure its terms. Further, McMullen initialed each page of the Loan Agreement at the time of its execution.
See Nat'l Bank of Wash. v. Equity Inves., 81 Wn.2d 886, 913, 506 P.2d 20 (1973).
Attorney Fees
Generally, a prevailing party is not entitled to attorney fees and costs unless there is an applicable statute, contractual clause, or equitable grounds for providing such an award. Monjazeb contends he is entitled to attorney fees and costs per the parties' LLC Agreement and by statute. RCW 4.84.330 provides for such an award in any action that is "on a contract . . . where such contract . . . specifically provides that attorney's fees and costs . . . shall be awarded . . . to the prevailing party." "'[A]n action is on a contract if the action arose out of the contract and if the contract is central to the dispute.'" Whether or not to grant such an award is not discretionary under RCW 4.84.330. The LLC Agreement contains a clause entitled "Dispute Resolution" (Article 15.2) and provides:
CPL, L.L.C. v. Conley, 110 Wn. App. 786, 797, 40 P.3d 679 (2002).
See CR 54(d); RCW 4.84.330.
Conley, 110 Wn. App. at 797(quoting Seattle-First Nat'l Bank v. Wash. Ins. Guar. Ass'n, 116 Wn.2d 398, 413, 804 P.2d 1263 (1991)).
See Singleton v. Frost, 108 Wn.2d 723, 727, 742 P.2d 1224 (1987).
If any dispute arises in regard to the rights and obligations of the parties under this Agreement, said dispute shall first be submitted to a mutually agreed upon mediator. . . . Except where injunctive relief is being sought, submission of the dispute for binding arbitration shall be the only recourse available to the parties for final dispute resolution. Should a dispute be submitted for binding arbitration or to a court for injunctive relief, the prevailing party in such proceeding shall be entitled to an award for their reasonable attorney's fees and arbitration or court related costs.
(Emphasis added.)
Monjazeb argues that most of McMullen's claims arise from the LLC
Agreement. However, the trial court found and we agree that McMullen's claims arise primarily from the Loan Agreement. The Loan Agreement does not contain any provision or language providing for an award of attorney fees and costs. Further, if the dispute centered on the LLC Agreement, then arbitration would have been the proper venue to determine these claims. The trial court recognized that some portion of McMullen's claims may have arisen from the LLC Agreement and provided Monjazeb with an opportunity to provide documentation of work performed on McMullen's request for rescission of the LLC Agreement. However, Monjazeb failed to provide any such documentation. Because the trial court correctly found the primary subject matter of this litigation arose from the parties' Loan Agreement and not the LLC Agreement, its refusal to award attorney fees and costs was proper.
See Wagner v. Foote, 128 Wn.2d 408, 416, 908 P.2d 884 (1996) (internal citations omitted) ("Washington follows the American rule concerning attorneys' fees and litigation expenses. The American rule states fees and expenses are not recoverable absent specific statutory authority, contractual provision, or recognized grounds in equity. CR 54(d) authorizes a prevailing party to recover certain costs as provided in [chapter] 4.84 [RCW] or any other applicable statute.").
For the above reasons, we affirm all of the trial court's appealed and cross-appealed orders.
WE CONCUR: