Bodemer v. Swanel Beverage, Inc.
884 F. Supp. 2d 717, 34 I.E.R. Cas. (BNA) 252, 2012 WL 3138097 (2012)
Rule of Law:
Under Indiana law, a confidentiality agreement that is overly broad and lacks durational or geographic limitations is treated as a covenant not to compete and is unenforceable if it unreasonably restricts the employee's ability to work. Additionally, undefined contract terms are given their plain and ordinary meaning.
Facts:
- Swanel Beverage is a corporation that sells soft drinks and energy drinks, including a product called 'Banzai Energy Blast,' which is designed to compete with Red Bull.
- William Bodemer was a high-level manager at Swanel who was involved in sales, marketing, and product development for over a decade.
- During his employment, Bodemer signed an agreement containing both non-compete and confidentiality provisions.
- In November 2008, while still employed, Bodemer incorporated a competing business called Innovative Beverage, Inc.
- Bodemer resigned from Swanel in February 2009 and immediately began operating his new business, selling a competing energy drink called 'BAM'.
- Swanel did not know the specific chemical formula for its own 'Banzai' drink because that formula was controlled by a third-party 'flavor house.'
- Bodemer successfully convinced Kam's, a retail client located in Champaign, Illinois, to switch its business from Swanel to Innovative.
- Kam's is located 110 statute miles (driving miles) from Swanel's headquarters, but would be within 100 miles if measured by 'nautical miles' (sea/air navigation units).
Procedural Posture:
- Bodemer and Innovative Beverage filed a complaint in the U.S. District Court for the Northern District of Indiana seeking a declaratory judgment that they did not violate the non-compete agreement or IUTSA.
- Swanel Beverage filed counterclaims in the same court alleging breach of the confidentiality agreement and violation of the Indiana Uniform Trade Secrets Act.
- Bodemer and Innovative Beverage moved for summary judgment on their own declaratory judgment claims and on Swanel's counterclaims.
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Issue:
1. Do Swanel's customer lists, pricing structures, and flavor house identities constitute protectable trade secrets under the Indiana Uniform Trade Secrets Act (IUTSA)? 2. Is a confidentiality agreement enforceable if it lacks geographic or temporal limitations and covers all business information? 3. Does a location 110 statute miles away violate a restrictive covenant prohibiting solicitation within 100 miles?
Opinions:
Majority - Judge Moody
1. Yes, in part, and No, in part. The court determined that genuine issues of fact exist regarding whether the customer lists, pricing, and flavor house identity are trade secrets because they are not readily ascertainable and derive economic value from secrecy. However, the specific chemical formula for the drink is not a trade secret owned by Swanel because Swanel admitted it does not actually know the formula. 2. No, the confidentiality agreement is unenforceable. The court reasoned that the provision was essentially a non-compete in disguise because it prohibited the disclosure of all business information forever, without any geographic or time limits. Under Indiana law, such broad restraints on trade are viewed with skepticism. Because it would effectively prevent Bodemer from working in the industry anywhere in the world, it was unreasonable. The court refused to 'blue pencil' (rewrite) the contract to make it reasonable. 3. No, Bodemer did not violate the 100-mile non-compete restriction. The court held that when a contract uses the term 'miles' without definition, it refers to the plain meaning of the word, which is the statute mile (5,280 feet), not the nautical mile. Since the client was 110 statute miles away, the solicitation fell outside the prohibited geographic radius.
Analysis:
This decision is significant for its strict interpretation of restrictive covenants in employment contracts. It clarifies that employers cannot use broad confidentiality agreements to bypass the strict requirements imposed on non-compete agreements; if a confidentiality clause acts to prevent employment, it must have reasonable time and geography limits. Furthermore, the case reinforces the contract law principle that undefined terms are interpreted by their common usage (statute miles vs. nautical miles), preventing parties from retroactively applying favorable technical definitions. Finally, it distinguishes between 'trade secrets' (protectable) and general skill/knowledge (not protectable), emphasizing that an employer cannot claim trade secret protection for information it does not possess, such as a formula held by a vendor.
