Lydall, Inc. v. Ruschmeyer
919 A.2d 421, 282 Conn. 209, 25 I.E.R. Cas. (BNA) 1633 (2007)
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Rule of Law:
An employee's use of insider knowledge to formulate a non-competitive management buyout plan does not constitute a prohibited 'use' of a trade secret under the Connecticut Uniform Trade Secrets Act (CUTSA), but the disclosure of a specific, non-public component of a company's strategic plan can constitute an independent act of misappropriation.
Facts:
- Walter A. Ruschmeyer, as Chief Financial Officer of Lydall, Inc., signed employment agreements containing confidentiality and 'best efforts' clauses.
- Ruschmeyer was instrumental in preparing Lydall's comprehensive five-year strategic business plan.
- Following a negative performance review in early 2003, Ruschmeyer became angry with the company's management.
- While still employed, Ruschmeyer secretly met with an attorney and investment bankers to formulate a plan (the 'Hoover plan') for a management buyout and restructuring of Lydall.
- During this period, Ruschmeyer sent his advisors 'talking points' documents containing information about Lydall's business, including its strategy to use its OEM surgical product line to 'maximize cash generation' in a declining market.
- Ruschmeyer told Lydall's general counsel that if angered enough, he would take over the company.
- After Lydall terminated his employment in April 2003, Ruschmeyer and his advisors continued to develop the Hoover plan.
- Lydall discovered the plan in July 2003 when a letter from Ruschmeyer's attorney detailing the strategy was mistakenly delivered to Lydall's offices.
Procedural Posture:
- Lydall, Inc. sued its former CFO, Walter A. Ruschmeyer, in a Connecticut trial court.
- The complaint alleged breach of contract, violation of the Connecticut Uniform Trade Secrets Act (CUTSA), and violation of the Connecticut Unfair Trade Practices Act (CUTPA).
- Following a bench trial, the trial court found in favor of Lydall on all counts.
- The trial court issued a permanent injunction preventing Ruschmeyer from using or disclosing Lydall's confidential information and trade secrets.
- After a subsequent damages hearing, the trial court awarded Lydall compensatory damages, punitive damages, and attorney's fees.
- The trial court also issued an injunction barring Ruschmeyer from filing an indemnification action against Lydall in Delaware.
- Ruschmeyer appealed the trial court's judgment and subsequent orders to the Appellate Court of Connecticut.
- The Supreme Court of Connecticut transferred the appeal to itself prior to a decision by the Appellate Court.
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Issue:
Does an employee misappropriate a trade secret under the Connecticut Uniform Trade Secrets Act (CUTSA) by disclosing a single component of a strategic business plan, even if the employee's broader plan to purchase the company does not constitute a prohibited 'use' of the plan as a whole?
Opinions:
Majority - Palmer, J.
Yes. An employee misappropriates a trade secret by disclosing a specific component of a strategic business plan, even if the employee's broader plan to purchase the company does not violate trade secret laws. The court reasoned that CUTSA's prohibition on the 'use' of a trade secret is primarily aimed at preventing unfair competition. An employee's plan to purchase a publicly traded company from its shareholders is not a competitive use, as it seeks to offer shareholders a fair return on their investment, not deprive the company of a competitive advantage. However, the court found that individual components of a strategic plan can be trade secrets in their own right. Ruschmeyer’s disclosure of Lydall’s specific, non-public plan to use its OEM product line for cash generation was a misappropriation because that information had independent economic value and was not publicly known or the only sensible business approach. While this single disclosure violated CUTSA and breached his employment contract, the broader plan did not. Therefore, the trial court's sweeping injunction against disclosing any part of the strategic plan, including publicly available information, was overly broad and void for vagueness.
Analysis:
This decision refines the definition of 'misappropriation' under CUTSA by distinguishing between competitive and non-competitive uses of insider knowledge. It establishes that planning a management buyout is not, in itself, a prohibited 'use' of a trade secret, thereby protecting a common feature of corporate governance. The ruling also underscores the importance of a granular analysis in trade secret litigation, requiring courts to assess whether individual pieces of information are truly secret, rather than assuming an entire business plan is protected. This limits a company's ability to broadly label all internal strategic information as a trade secret and makes it more difficult to obtain sweeping injunctions that restrict former employees from using publicly known information.
