Jim Hawk Truck-Trailers of Sioux Falls, Inc. v. Crossroads Trailer Sales & Service, Inc. et al

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UNITED STATES DISTRICT COURT
DISTRICT OF SOUTH DAKOTA
SOUTHERN DIVISION
JIM HAWK TRUCK-TRAILERS OF
SIOUX FALLS, INC.,
Plaintiff,
vs.
CROSSROADS TRAILER SALES &
SERVICE, INC., ALVIN SCHOLTEN,
MARK SNEVE, MICHAEL FALOR,
DAVID JENSEN, TRACY THOMPSON,
NICK BIG EAGLE, CHAZ KOHORST,1
TAYLOR LARSON, and DEREK FALOR,
Defendants.
4:20-CV-04058-KES
ORDER GRANTING IN PART AND
DENYING IN PART DEFENDANTS’
MOTION FOR SUMMARY JUDGMENT
FACTUAL BACKGROUND
Pending before the court is defendants’ summary judgment motion.
Docket 121. This case arises from a group of former Jim Hawk Trailers of Sioux
Falls, Inc. (Jim Hawk) employees moving to Crossroads Trailer Sales and
Service Inc. (Crossroads), and what these individual employees as well as
Crossroads did throughout the transfer process. See Docket 1. The below table
summarizes Jim Hawk’s surviving claims against the various defendants up to
this point.2
1 Chaz Kohorst’s name is spelled inconsistently throughout the docket.
Compare, e.g., Docket 121, with Docket 157. In his employment application to
Crossroads, he spelled his name “Kohorst,” and thus the court assumes that is
the correct spelling. See Docket 124-52 at 1.
2 The court previously dismissed several claims (Tortious Interference With
Business Relations, Unjust Enrichment, Unfair Competition, Civil Conspiracy )
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Claim
Number Claim Defendant(s)
1
Misappropriation of
Trade Secrets Under the
Defend Trade Secrets Act
(18 U.S.C. § 1836)
Crossroads, Alvin Scholten, Mike Falor,
Mark Sneve, Dave Jensen, Tracy
Thompson, and Derek Falor
2
Misappropriation of
Trade Secrets Under
South Dakota’s Uniform
Trade Secrets Act (SDCL
§ 37-29-1)
Crossroads, Alvin Scholten, Mike Falor,
Mark Sneve, Dave Jensen, Tracy
Thompson, and Derek Falor
3 Breach of Duty of Loyalty
Alvin Scholten, Mike Falor, Mark Sneve,
Dave Jensen, Tracy Thompson, Derek
Falor, Nick Big Eagle, Chaz Kohorst,
and Taylor Larson
4
Tortious Interference
With Business Relations
Crossroads, Alvin Scholten, Mike Falor,
Mark Sneve, Dave Jensen, Tracy
Thompson, and Derek Falor
5
Tortious Interference
With Employment
Relationships
Crossroads, Alvin Scholten
6 Civil Conspiracy
Crossroads, Alvin Scholten, Mike Falor,
Mark Sneve, Dave Jensen, Tracy
Thompson, and Derek Falor
7 Unjust Enrichment
Crossroads, Alvin Scholten, Mike Falor,
Mark Sneve, Dave Jensen, Tracy
Thompson, and Derek Falor
8 Unfair Competition
Crossroads, Alvin Scholten, Mike Falor,
Mark Sneve, Dave Jensen, Tracy
Thompson, and Derek Falor
9 Defamation Alvin Scholten
against the mechanic defendants (Nick Big Eagle, Chaz Kohorst, and Taylor
Larson). See Docket 78 at 15.
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The court recites a broad overview of the facts in the light most favorable
to the non-moving party, Jim Hawk.
Jim Hawk is a Sioux Falls trailer dealer and business that sells semi-
truck trailers, parts, and service. See Docket 166 at 2. Crossroads is a trailer
business in Sioux Falls. See Docket 157-19 at 6-7. Crossroad’s president is
Mark Habben, and its vice president is Brian Johnson. See id. at 194, 211.
Alvin Scholten began working at Jim Hawk in 2004 as a trailer salesman
and eventually took over as the general manager of Jim Hawk in 2015. See
Docket 157-16 at 4-5. Jim Hawk fired Scholten in December 2019. See id. at
19. Soon after, Scholten began talking with Crossroads about potential
employment, and joined Crossroads in January 2020. See id. at 22, 24. Prior to
officially joining Crossroads, Scholten talked to Jim Hawk employees Mike
Falor, Tracy Thompson, and Dave Jensen about the potential for them to work
at Crossroads. See id. at 24. At some point, Scholten also talked to Jim Hawk
employee Derek Falor, Mike Falor’s son, about the possibility of Derek Falor
joining Crossroads. See id. at 28; Docket 157-13 at 5.
Eventually, Mike Falor, Tracy Thompson, and Dave Jensen all left Jim
Hawk and officially started working at Crossroads on March 16, 2020. See
Docket 157-13 at 23-24; Docket 157-14 at 49; Docket 157-18 at 39.
Crossroads also hired three Jim Hawk mechanics, Nick Big Eagle, Chaz
Kohorst, and Taylor Larson, who all started working at Crossroads on March
16, 2020. See Docket 133 ¶ 234; Docket 160 at 46.
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Other than Scholten, the individual defendants left Jim Hawk without
giving Jim Hawk advance notice of their departure. See Docket 157-38 at 18;
Docket 157-13 at 26; Docket 157-12 at 13; See Docket 157-16 at 19 (showing
Jim Hawk fired Scholten). All of them were at-will employees. See Docket 157-
33 at 47.
Broadly speaking, Jim Hawk alleges the individual defendants took trade
secret information and gave it to Crossroads, improperly directed Jim Hawk
customers to Crossroads while still working for Jim Hawk, or improperly
interfered with Jim Hawk’s employees, all to the benefit of Crossroads and the
detriment of Jim Hawk. See Docket 159 at 8-11. Jim Hawk further alleges that
Crossroads improperly took trade secret information and improperly interfered
with Jim Hawk’s customers and employees. See id. Jim Hawk additionally
alleges Scholten defamed it by telling its employees that its parts department
might be sold or closed, and that the employees’ jobs might be at risk. See id.
at 85.
Defendants move for summary judgment in all claims against them. See
Docket 121. The court discusses each claim and supplements the factual
accounts for the relevant claims.
LEGAL STANDARD
Summary judgment is appropriate if “the movant shows that there is no
genuine dispute as to any material fact and the movant is entitled to judgment
as a matter of law.” Fed. R. Civ. P. 56(a). The moving party can meet its burden
by presenting evidence that there is no dispute of material fact or that the
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nonmoving party has not presented evidence to support an element of its case
on which it bears the ultimate burden of proof. Celotex Corp. v. Catrett, 477
U.S. 317, 322-23 (1986). The moving party must inform the court of the basis
for its motion and also identify the portions of the record that show there is no
genuine issue in dispute. Hartnagel v. Norman, 953 F.2d 394, 395 (8th Cir.
1992) (citation omitted).
To avoid summary judgment, “[t]he nonmoving party may not ‘rest on
mere allegations or denials, but must demonstrate on the record the existence
of specific facts which create a genuine issue for trial.’ ” Mosley v. City of
Northwoods, 415 F.3d 908, 910 (8th Cir. 2005) (quoting Krenik v. Cnty. of Le
Sueur, 47 F.3d 953, 957 (8th Cir. 1995)). Summary judgment “must be denied
if on the record then before it the court determines that there will be sufficient
evidence for a jury to return a verdict in favor of the nonmoving party.” Krenik
47 F.3d at 957. It is precluded if there is a genuine dispute of fact that could
affect the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
247-48 (1986). When considering a summary judgment motion, the court views
the facts and the inferences drawn from such facts “in the light most favorable
to the party opposing the motion.” Matsushita Elec. Indus. Co. v. Zenith Radio
Corp., 475 U.S. 574, 587-88 (1986) (quoting United States v. Diebold, Inc., 369
U.S. 654, 655 (1962)).
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DISCUSSION
I. Misappropriation of Trade Secrets
A. Factual Background
Viewing the record in the light most favorable to Jim Hawk, the record
shows the following additional facts relevant to the disposition of Jim Hawk’s
trade secret claims:
After Jim Hawk fired Scholten, Scholten took and gave Crossroads a Jim
Hawk General Ledger Balance sheet through October 2019 that contained
information on profits, losses to date, net income, loss, the value held in the
company, and Jim Hawk’s retained earnings, expenses, and inventories. See
Docket 157-16 at 35; Docket 153 at 20. Scholten also took Jim Hawk’s most
recent profit and loss statement, which showed Jim Hawk’s net profit for each
department every month for the year to date. See Docket 157-16 at 16.
Additionally, he took a single-spaced, 14 ½ page customer list containing
customers’ names, addresses, contact person, trailer type information, and
other information, from Jim Hawk and brought it to his Crossroad’s office. See
id. at 16, 18, 50-64.
Mark Sneve started working at Jim Hawk in 1984, and eventually
became a service manager. See Docket 157-17 at 5-6. Because of his position,
Sneve knew Jim Hawk’s pricing information, customer preferences, cost of
services, and financial information including profit margins. See, e.g., Docket
153 ¶¶ 39-42; Docket 157-17 at 8-9. Sneve left Jim Hawk to work for
Crossroads, in a similar position to what he did at Jim Hawk. See Docket 157-
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17 at 6, 9, 24, 29. Sneve stated that he wanted to “put Jim Hawk out of
business” and “take all the business from Jim Hawk.” Docket 157-37 at 6.
Additionally, Sneve intentionally misrepresented to multiple Jim Hawk
employees that he was retiring, when in reality he knew he was going to work
for Crossroads. See Docket 157-38 at 8; Docket 157-22 at 31; Docket 157-36
at 4.
Derek Falor started working at Jim Hawk in 2018. Docket 157-12 at 4.
He left Jim Hawk on March 13, 2020 and started working in Operations at
Crossroads on March 16, 2020. See id. at 16. While leaving Jim Hawk, he took
a USB thumb drive containing Jim Hawk customer information. See id. at 18.
Derek Falor testified that he did not access the thumb drive after leaving Jim
Hawk, and further testified that he did not share any of the thumb drive
contents with anyone at Crossroads. See id. The thumb drive also contains a
document that has the Crossroads label and has information for a company
called “Ace Towing, Inc.” See Docket 157-10 at 1. Additionally, Derek Falor
testified that he saved the information because he “wanted access” to it later
on. Docket 157-12 at 18.
Mike Falor, Jensen, and Thompson left Jim Hawk on March 12, 2020
and officially started working at Crossroads on March 16, 2020. See Docket
157-13 at 5, 26; Docket 157-14 at 40, 49; Docket 157-18 at 32, 34, 38-39.
Mike Falor forwarded a credit application from a vendor, a customer list, and
pricing information to his personal email while employed at Jim Hawk. Docket
157-13 at 41-42, 75-82, 102-151. Mark Habben testified on behalf of
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Crossroads that Mike Falor forwarded the credit application to Crossroads
because Mike Falor sought to “replicate the business” he did at Jim Hawk
when he arrived at Crossroads. See Docket 157-19 at 29. Mike Falor also
texted vendor information, which was unavailable to the public, to Mark
Habben. See Docket 157-13 at 27, 33, 48-72; Docket 153 at 22.
Jensen sent over a vendor list and customer information to Crossroads.
See Docket 157-14 at 35, 39-40, 49, 59-60, 65, 74-80; Docket 153 at 22.
Thompson forwarded numerous things from his Jim Hawk email to his
personal email, including several customer lists with financial and profit
information, a link to a document including his own sales totals, and several
history reports including customer names and profit information. See, e.g.,
Docket 153 at 23-25; Docket 157-3; Docket 157-4; Docket 157-5; Docket 157-
7; Docket 157-8; Docket 157-9; Docket 157-18 at 28-30; Docket 157-54.
Thompson asked Curt Westphal, a Jim Hawk employee, to send Thompson’s
customer lists to Thompson so that Thompson could “take [them] with [him]” to
Crossroads. Docket 157-25 at 28.
All of these individual defendants signed an acknowledgment form
indicating that they had received and understood Jim Hawk’s employee
handbook. See Docket 153 at 16. This handbook directs employees to “not
discuss the corporation’s confidential business with anyone who does not work
for [Jim Hawk].” Docket 157-56 at 2. It further provides that “giving
confidential or proprietary information to competitors or other organizations…”
is grounds for “immediate dismissal without warning[.]” Docket 157-57 at 2.
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Crossroads received an email from Derek Falor with the subject line
“Pricing comparison Tectran/Goodyear.” See Docket 157-19 at 35. This email
included comparisons between what Jim Hawk can purchase items for
compared to what it would cost to purchase it through another supplier, Great
Dane. See id. at 191-93. In response to this email, Crossroads said, “Thanks,
Derek. Are all/most of the prices from Hawk purchased through Vipar?” See id.
at 36. Crossroads has a handbook for all of its employees to sign, similar to
Jim Hawk. See Docket 157-19 at 11. Crossroads admitted that it would violate
Crossroads’s policy if one of its own employees sent this kind of information to
a competitor. See id. at 11, 75 (listing price lists and financial information,
among other items, to be confidential information not to be disclosed).
Disclosing this kind of information subjects a Crossroads employee to
disciplinary action, including termination. See id. Crossroads received many
more customer lists and other information from the individual defendants. See,
e.g., Docket 157-19 at 153 (customer list), 196-204 (same); 157-13 at 37
(specific part orders for certain customer); Docket 157-14 at 49 (customer list),
59-60 (vendor list); 74-80 (customer list).
Jim Hawk took several steps to protect its confidential information. For
example, it required all employees to sign a handbook that expressly directs
employees to “not discuss the corporation’s confidential business with anyone
who does not work for us.” Docket 157-56 at 2; see also Docket 157-58 at 4
(defining company-protected information to include “development of policies,
procedures or other internal business-related confidential communications, as
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well as upcoming product releases and financial information and products
sold []” (emphasis added)); Docket 153 at 16 (noting Jim Hawk requires all
employees to review, acknowledge, and abide by handbook). Jim Hawk also
limits access to information about pricing, profitability, and customer lists to
employees who need the information. See Docket 157-33 at 43 (discussing
mechanics lack of access to pricing information). Additionally, Jim Hawk
requires employees to have password protected phones, and it locks physical
file cabinets with documents containing confidential information. See id. at 44.
Jim Hawk further talked to its employees about not disclosing confidential
information to competitors on a “daily basis.” See id. at 17; 44 (“[E]veryone in
the company basically I’ve had these conversations [about maintaining
confidentiality of sensitive information] with in one way or another.”).
Jim Hawk’s customer and vendor lists took significant time and effort to
create. For example, many Jim Hawk employees (including some of the
individual defendants) testified that while at Jim Hawk, they acquired new
customers by either cold calling them or driving around to look for trucking
companies. See Docket 157-14 at 7 (Jensen explained “[he] would drive and go
find the trucking companies.”), 11 (Jensen explained “[he] would have to go out
and call on [new customers], earn their business.”); Docket 157-18 at 10
(Thompson explained that he visited between 50-75 customers a week, in part
to solicit potential business); Docket 157-25 at 5 (Curt Westphal, a then-Jim
Hawk sales manager, explained that he would “drive around and keep [his]
eyes open and go in and cold call on customers[.]”); Docket 157-22 at 4-5 (Bill
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Forsling, a Jim Hawk salesman, described his previous and current practice of
cold-calling potential customers). Similarly, Jim Hawk’s corporate
representative testified that its vendor relationships “take years to get in
place[,]” and that “everything [Jim Hawk] do[es] takes a long time to set up and
procure the relationships of vendors[.]” Docket 157-33 at 22.
None of the individual defendants signed a confidentiality or non-
disclosure agreement. See Docket 157-33 at 16-17.
B. Legal Background
Congress passed the Defend Trade Secrets Act of 2016 (DTSA) that
allows an owner of a trade secret to sue a defendant for misappropriating a
trade secret if such secret is “related to a product or service used in, or
intended for use in, interstate or foreign commerce.” 18 U.S.C. § 1836(b)(1);
CMI Roadbuilding, Inc. v. Iowa Parts, Inc., 920 F.3d 560, 564 (8th Cir. 2019).
Similarly, South Dakota’s Uniform Trade Secrets Act provides a private cause
of action for misappropriation of a trade secret. See SDCL § 37-29-3.
The court analyzes these two trade secret claims together. See, e.g.,
Ahern Rentals, Inc. v. EquipmentShare.com Inc., No. 22-1399 slip op. at 9 (8th
Cir. Feb. 7, 2023); MPAY Inc. v. Erie Custom Computer Applications, Inc., 970
F.3d 1010, 1016-17 (8th Cir. 2020). Both statutes require a two-step inquiry:
first, the court must decide whether Jim Hawk has a protectable trade secret,
and second, if so, the court must decide whether any of the defendants
misappropriated the trade secrets. See id.; Daktronics, Inc. v. McAfee, 599
N.W.2d 358, 361 (S.D. 1999).
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C. Is there a protectable trade secret?
“Without a proven trade secret, there can be no action for
misappropriation, even if defendants’ actions were wrongful.” Daktronics, 599
N.W.2d at 361 (citation omitted). Under federal law, the existence of a trade
secret is a question of fact. See Life Spine, Inc. v. Aegis Spine, Inc., 8 F.4th 531,
540 (8th Cir. 2021). Under South Dakota law, the existence of a trade secret is
a mixed question of law and fact. Aqreva, LLC v. Eide Bailly, LLP, 950 N.W.2d
774, 789 (S.D. 2020). Specifically, whether the alleged secret constitutes
“information, including a formula, pattern, computation, program, device,
method, technique or process” is a question of law. See id. (citation omitted).
But determining whether the alleged secret derives independent economic
value that is not generally known and cannot be readily ascertainable, and
whether its holder took reasonable efforts to maintain its secrecy is a question
of fact. See id. SDCL § 37-29-1(4). Because defendants do not contest whether
the alleged secrets constitute “information,” the remaining questions are
questions of fact.
1. Generally Known or Readily Ascertainable?
While “[i]nformation that is public knowledge or that is generally known
in an industry cannot be a trade secret[,]” a trade secret must also not be
readily ascertainable. Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1002 (1984);
18 U.S.C. § 1839 (3)(B); SDCL § 37-29-1 (4)(i). Information cannot be a trade
secret if it is generally known within an industry even if not known to the
public at large. See Daktronics, Inc., 599 N.W.2d at 362.
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a. Customer and Vendor Lists
Defendants argue that the customer lists, vendor lists, and contact
information are all generally known or readily ascertainable. See Docket 132 at
29-30. They argue that Jim Hawk’s customers are readily ascertainable
because someone could “simply view[] the trucks and trailers that appear
outside one of [Jim Hawk’s] branch’s place of business.” Id. at 30. But this
argument fails for several reasons. First, Jim Hawk testified that some of the
trailers do not have the identity of the customers’ label on the trailers, and
thus there is already a dispute about whether this identification method is
viable. See Docket 157-33 at 12-13. Second, even if every trailer had the
identity of the customers clearly marked, at the very least a jury could find that
to not be readily ascertainable, because that would require significant time and
resources to sit outside one of Jim Hawk’s locations and record each and every
trailer that passed by.
Defendants also point to Polk Reports, which “show the trailers that were
sold in a particular county in the state.” Id. at 13. But the record is unclear
whether these reports identify the manufacturer or the dealer that sold the
trailer. See id. And even if the Polk Reports did identify the dealer that sold the
trailer, this information would only show that individual trailer, and not all the
various parts or services that the customer may have purchased from Jim
Hawk. See, e.g., id. at 9 (describing the various aspects of Jim Hawk’s
business). Similarly, although defendants cite the industry-trade associations
such as the South Dakota Truckers Association, Jim Hawk III stated in his
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declaration that those lists of customers and potential vendors do not specify
precisely the identities of Jim Hawk’s customers. Docket 166 at 13-14.
Multiple Jim Hawk employees (including some of the individual
defendants) testified that while at Jim Hawk, they acquired new customers by
either cold calling them or driving around to look for trucking companies.
Jensen testified that “[he] would drive and go find the trucking companies,”
and would “have to go out and call on [new customers], [to] earn their
business.” See Docket 157-14 at 7, 11. Thompson explained that he visited on
average between 50-75 customers a week, in part to solicit potential business.
See Docket 157-18 at 10. Curt Westphal, a then-Jim Hawk sales manager,
testified that he “dr[ove] around and ke[pt] [his] eyes open and [went] in and
cold call[ed] on customers[.]”). Docket 157-25 at 5. Bill Forsling, a Jim Hawk
salesman, also confirmed that he still cold-calls customers to solicit more
business. See Docket 157-22 at 4-5. Similarly, Jim Hawk’s corporate
representative testified that its vendor relationships “take years to get in
place[,]” and that “everything [Jim Hawk] do[es] takes a long time to set up and
procure the relationships of vendors[.]” Docket 157-33 at 22.
Viewing the facts in the light most favorable to Jim Hawk, there is a
genuine dispute about whether Jim Hawk’s customer lists are readily
ascertainable.
Although the Eighth Circuit observed in Fox Sports Net North, L.L.C. v.
Minnesota Twins Partnership, 319 F.3d 329, 335-36 (8th Cir. 2003) that
“knowledge of industry contact people does not rise to the level of trade
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secret[,]” it did so because the information in that case was “readily
ascertainable within [the] trade.” (emphasis added). Here, Jim Hawk focuses on
actual lists rather than mere knowledge, and as discussed above, the
compilation of the lists required significant effort and thus there is a dispute
over whether the lists are readily ascertainable.
Similarly in Hecny Transp., Inc. v. Chu, 430 F.3d 402, 404 (7th Cir.
2005), the plaintiff conceded that its customers’ identities were not confidential
information. Here, Jim Hawk has put forth sufficient evidence for the jury to
find otherwise, and thus Hecny provides little support for defendants’ motion.
Finally, this case differs from Harley Automative Group, Inc. v. AP Supply,
Inc., No. Civ. 12-1100, 2013 WL 6801221 (D. Minn. Dec. 23, 2013). In Harley,
the court observed that in Minnesota, customer lists have “generally not been
considered to be trade secrets.” Id. at *7. The court held that the customer lists
at issue did not constitute a trade secret because, among other reasons, “the
record establishe[d] that [the Plaintiff] purchase[d] information” on “a publicly
available source,” and that plaintiff’s employees “used the internet to find
information[.]” Id. at *8. Here, as discussed above, the record contains evidence
which, viewed in the light most favorable to Jim Hawk, suggests that
defendants did not merely gain customer information from online sources.
Rather, it suggests that Jim Hawk employees spent considerable time and
effort to cultivate its list, given that multiple individuals testified that they
acquired new customers by cold calling potential customers and physically
visiting them. See, e.g., Docket 157-25 at 5; Docket 157-22 at 4.
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Given the amount of time and effort that it would take to cold-call each of
the customers, collect their information, and compile it into a list, there is a
genuine dispute over whether Jim Hawk’s customer lists are a trade secret.
Thus, summary judgment on this issue is denied.
b. Customer Preferences and Pricing Information
Next, defendants argue that Jim Hawk’s claims about specific customer
preferences and pricing information for customers cannot constitute a trade
secret because “any reasonably diligent competitor in the industry may merely
ask a customer about their purchasing preferences.” Docket 132 at 31-33. But
the Eighth Circuit has rejected this argument, stating that “[t]he fact that
information can be ultimately discerned by others—whether through
independent investigation, accidental discovery, or reverse engineering—does
not make it unprotectable.” AvidAir Helicopter Supply, Inc. v. Rolls-Royce Corp.,
663 F.3d 966, 973 (8th Cir. 2011). Instead, the relevant inquiry is whether
acquiring this information “would require a substantial investment of time,
effort, and energy.” Id.
Here, while it is certainly true that a competitor may ask a customer
about the customer’s preferences, Jim Hawk III declared that customers do not
“readily provide” this information. Docket 153 at 15. And furthermore, even if
one customer may agree to provide this kind of information, the compilation of
many customers all in one place is materially different from one individual
customer theoretically disclosing their preferences. See Kreisler Drug Co., Inc.
Missouri Cvs Pharmacy, LLC v. Naber, No. 14-01050-CV-W, 2016 WL 5844145,
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at *7 (W.D. Mo. Oct. 4, 2016) (distinguishing between information and lists of
compiled information). Indeed, “[c]ompilations are specifically contemplated in
the UTSA definition of a trade secret, and the fact that some or even most of
the information was publicly available is not dispositive . . . .” AvidAir
Helicopter, 663 F.3d at 972. Compilations derive their value not from the
secretive information they contain, but the competitive advantage that they give
by saving valuable time and resources. See id.
Jim Hawk has submitted sufficient evidence in the record to show a
genuine dispute of fact on whether the customer lists containing pricing
information are a trade secret. One of the lists, for example, contains well over
125 customers with specific information about the purchase history of each
listed customer. See Docket 157-4. While a competitor could theoretically
contact each of these customers separately and inquire about the pricing at
which Jim Hawk provides its products and services, a jury could find that such
a method shows the compiled information is not “readily ascertainable” given
the significant amount of time it would take to compile. See AvidAir Helicopter,
663 F.3d at 972.
Defendants further argue that even if Jim Hawk’s information on pricing
and customer preferences at some point can be considered a trade secret, the
information “typically becomes stale and loses its economic value within a
matter of months.” See Docket 132 at 32. As an initial observation, viewing the
evidence in the light most favorable to Jim Hawk, at least a few then-employees
of Jim Hawk forwarded customer orders and pricing information to Crossroads,
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and then placed orders for such customers on behalf of Crossroads, in real
time. See Docket 157-14 at 44; Docket 157-46 at 32. Thus, the information
was not stale at that point.
Furthermore, the mere passage of time does not automatically render
trade secret information stale. See Hallmark Cards, Inc. v. Monitor Clipper
Partners, LLC, 758 F.3d 1051, 1057 (8th Cir. 2014) (finding passage of four
years alone did not deprive information of its economic value). Here, defendants
suggest that COVID-19 caused significant disruptions in Jim Hawk’s pricing
methodology. See Docket 132 at 33. But the court finds a genuine dispute of
fact about whether the pricing information is stale, because Jim Hawk III
declared that “[e]ven older pricing information can provide an economic benefit
to a competitor[,]” because “any pricing information that demonstrates a
percentage discount being given to a customer from market price, or any
pricing information that shows the percentage markup made by [Jim Hawk] on
the sale of a product, would provide a competitor with the opportunity to
undercut [Jim Hawk] in a sale.” Docket 153 at 15. In short, there is a genuine
dispute about whether Jim Hawk’s price compilations constitute a trade secret.
c. Financial Information
Finally, defendants argue that Jim Hawk’s financial information is too
general and “lacks the specificity necessary to qualify as a trade secret.” Docket
132 at 34. The Eighth Circuit has recognized that “merely general categories of
information” are insufficient to be a trade secret. See Luigino’s, Inc. v. Peterson,
317 F.3d 909, 912 (8th Cir. 2003). But Jim Hawk’s claims about its financial
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information are not merely general. Instead, Jim Hawk claims that combining
vendor pricing and the amount of money generated from sales helps reveal its
profitability. See Docket 159 at 30. This information on profitability, Jim Hawk
argues, provides a competitive advantage because “the competitor would then
be able to ascertain the price range that [Jim Hawk] may offer to a customer
based on its profitability.” Id. The record, when viewed in the light most
favorable to Jim Hawk, shows that some of the defendants forwarded financial
information including the amount from which Jim Hawk acquired certain parts
from vendors, and how much Jim Hawk sold such parts to customers. See
Docket 157-3 at 2-5 (customer list and pricing information); Docket 157-4
(same); Docket 157-5 at 2-17 (same), Docket 157-6 (same); Docket 157-7
(same); Docket 157-8 (same); Docket 157-9 (same); Docket 157-46 (vendor list
and pricing); Docket 157-18 at 103-104 (vendor pricing information). Thus,
there is a material dispute about the importance of this financial information
and whether it constitutes a trade secret.
2. Reasonable Efforts to Maintain Secrecy?
Both the South Dakota and federal statute require that the party alleging
a trade secret violation took reasonable efforts to maintain secrecy. See SDCL
§ 37-29-1 (i); 18 U.S.C. § 1839(3)(A). “Reasonable efforts to maintain secrecy
need not be overly extravagant, and absolute secrecy is not required.” AvidAir
Helicopter, 663 F.3d at 974. Defendants argue that Jim Hawk failed to take
reasonable efforts to maintain secrecy of the above-mentioned information,
because Jim Hawk did not require any of the individual defendants to sign a
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confidentiality or non-disclosure agreement. See Docket 132 at 36; Docket 157-
33 at 16.
But Jim Hawk has submitted sufficient evidence to dispute whether it
acted reasonably in maintaining the secrecy of its information. For example, it
required all employees to sign a handbook that expressly directs employees to
“not discuss the corporation’s confidential business with anyone who does not
work for us.” Docket 157-56 at 2; see also Docket 157-58 at 4 (defining
company-protected information to include “development of policies, procedures
or other internal business-related confidential communications, as well as
upcoming product releases and financial information and products sold”);
Docket 153 at 16 (noting Jim Hawk requires all employees to review,
acknowledge, and abide by handbook). Jim Hawk also limits access to
information about pricing, profitability, and customer lists to employees who
need the information. See Docket 157-33 at 43 (discussing mechanics lack of
access to pricing information). Additionally, Jim Hawk requires employees to
have password protected phones, and it locks physical file cabinets with
documents containing confidential information. See id. at 44. These measures
create a genuine dispute about whether Jim Hawk took reasonable efforts to
protect its secrets.
The cases defendants cite do not alter the court’s analysis. Defendants
cite Farmers Edge Inc. v. Farmobile, LLC, 970 F.3d 1027, 1033 (8th Cir. 2020),
but unlike in this case, the plaintiff in Famers Edge “shared the information
with a third-party contractor without a confidentiality agreement and without
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other policies or practices for safeguarding secrets.” As discussed above, the
record indicates several policies Jim Hawk had in place to safeguard its
secrets, and thus Farmers Edge is distinguishable. Similarly, CDI Energy
Services v. West River Pumps, Inc., 567 F.3d 398, 402 (8th Cir. 2009) simply
found that because the record “show[ed] little effort by [plaintiff] to conceal data
as trade secrets,” the district court did not clearly err in denying plaintiff’s
preliminary injunction. Here, viewing the record in the light most favorable to
Jim Hawk, the record shows it engaged in more than a “little effort” given the
protocols and policies it had in place. And Electro-Craft Corp. v. Controlled
Motion Inc., 332 N.W.2d 890, 902-03 (Minn. 1983) differs from this case,
because the plaintiffs in Electro-Craft “treated its information as if it were not a
secret” by, among other things, giving many informal tours to vendors and
customers in its facilities, hosting an “open house” and inviting the public to
“observe manufacturing processes.” Here, Jim Hawk has submitted sufficient
evidence that it took greater precautions than the plaintiffs in Electro-Craft.
The strongest case defendants cite is Incase Inc. v. Timex Corp., 488 F.3d
46, 53 (1st Cir. 2007), which held that the mere fact that the plaintiff “kept its
work . . . private from the world is not sufficient” to show it took reasonable
steps to protect the trade secret. Instead, the court held that there “must be
affirmative steps to preserve the secrecy of the information as against the party
against whom the misappropriation claim is made.” Id. In Incase, the plaintiff,
Incase, had begun working with the defendant, Timex on manufacturing watch
holders for retailers. See id. at 50. While Incase worked with Timex, Incase had
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given Timex access to Incase’s design for price flags. See id. at 52. Timex,
unbeknownst to Incase, relied on drawings of the price flags and ultimately
produced different watch holders. See id. at 51.
The court found that Incase had failed to take reasonable steps to protect
its trade secret of the price flag because, among other factors, Incase had
“never articulated” to Timex that the price flag designs were confidential. See
id. at 53. Here, although the record does not contain evidence that Jim Hawk
labeled any of the relevant documents as confidential, Jim Hawk has shown
sufficient evidence that it talked to its employees about not disclosing
confidential information to competitors on a “daily basis.” See Docket 157-33 at
17; 44 (“[E]veryone in the company basically I’ve had these conversations
[about maintaining confidentiality of sensitive information] with in one way or
another.”). Furthermore, the steps Jim Hawk took went beyond merely
protecting the information from the general public: for example, even certain
employees did not have access to pricing information on parts. See id. at 44.
Rather, only people who needed to have access to the pricing information
within the company were allowed to view the information. Id. Thus, although
the facts of Incase are similar to the facts here, the court finds that there is
sufficient evidence in the record to present a genuine dispute over Jim Hawk’s
reasonableness in its actions to protect its trade secrets.
In short, there are genuine disputes of a material fact regarding whether
Jim Hawk had trade secrets, and whether Jim Hawk took reasonable steps to
protect such secrets.
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D. Did Defendants Misappropriate?
18 U.S.C. § 1839 (5) defines misappropriation as:
(A) acquisition of a trade secret of another by a person
who knows or has reason to know that the trade secret
was acquired by improper means; or
(B) disclosure or use of a trade secret of another without
express or implied consent by a person who--
(i) used improper means to acquire knowledge of
the trade secret;
(ii) at the time of disclosure or use, knew or had
reason to know that the knowledge of the trade
secret was--
(I) derived from or through a person who
had used improper means to acquire the
trade secret;
(II) acquired under circumstances giving
rise to a duty to maintain the secrecy of the
trade secret or limit the use of the trade
secret; or
(III) derived from or through a person who
owed a duty to the person seeking relief to
maintain the secrecy of the trade secret or
limit the use of the trade secret; or
(iii) before a material change of the position of the
person, knew or had reason to know that--
(I) the trade secret was a trade secret; and
(II) knowledge of the trade secret had been
acquired by accident or mistake[.]
“Improper means” includes “theft, bribery, misrepresentation, breach or
inducement of a breach of a duty to maintain secrecy, or espionage through
electronic or other means[.]” 18 U.S.C. § 1839(6). South Dakota defines
misappropriation nearly identically. See SDCL § 37-29-1.
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Jim Hawk alleges in its complaint that defendants Crossroads, Scholten,
Falor, Sneve, Jensen, Thompson, and Derek Falor misappropriated trade
secrets by disclosing or using a trade secret without express or implied consent
by a person who at the time of disclosure or use knew or had reason to know
that the knowledge the trade secret was acquired under circumstances giving
rise to a duty to maintain the secrecy of the trade secret or limit the use of the
trade secret. See Docket 1 ¶¶ 77-78. In other words, Jim Hawk alleges these
defendants misappropriated trade secrets under 18 U.S.C. § 1839 (B)(ii)(II).
1. Alvin Scholten
Scholten argues that he did not misappropriate anything because
although he sent Crossroads a customer list after Jim Hawk fired him,
Scholten sent the list to “avoid duplicating customer calls with Crossroads’
other outside salesman[,]” rather than to “identify new customer targets[.]” See
Docket 132 at 39.
As an initial matter, viewing the record in the light most favorable to Jim
Hawk, Scholten sent Crossroads more than just a customer list. For example,
Scholten took a Jim Hawk General Ledger Balance sheet through October 2019
that contained information on profits, losses to date, net income, loss, the
value held in the company, and Jim Hawk’s retained earnings, expenses, and
inventories. See Docket 157-16 at 35; Docket 153 at 20. And he took Jim
Hawk’s most recent profit and loss statement, which showed Jim Hawk’s net
profit for each department every month for the year to date. See Docket 157-16
at 16. Thus, these additional documents alone show a genuine dispute of
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material fact about whether Scholten misappropriated trade secrets to
Crossroads.
Furthermore, even if the court focuses only on the customer list Scholten
sent, it is unclear why Scholten’s motive for sending the list would require the
court to grant summary judgment in his favor. Under both the federal and
South Dakota state trade secret statutes, an individual misappropriates if he
discloses
a trade secret of another without express or implied consent by a person
who—at the time of disclosure. . . knew or had reason to know that the
knowledge of the trade secret was—acquired under circumstances giving
rise to a duty to maintain the secrecy of the trade secret or limit the use
of the trade secret[.]
18 U.S.C. § 1839; see SDCL § 37-29-1 (substantially similar definition).
This definition does not require the defendant to disclose a trade secret
for a nefarious purpose. If the individual “knew or had reason to know that the
knowledge of the trade secret was . . . acquired under circumstances giving rise
to a duty to maintain the secrecy of the trade secret,” the individual cannot
escape liability by simply arguing that he gave away the trade secret for a
benign reason. See 18 U.S.C. § 1839(5). It is immaterial whether Scholten sent
over the customer list for the purpose of addressing commissions or for the
purpose of benefitting Crossroads.
Here, the record contains a genuine dispute about whether Scholten
knew or had reason to know that the trade secret was acquired under
circumstances giving rise to a duty to maintain the secrecy of the trade secret
because he signed an acknowledgment form indicating that he received and
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understood Jim Hawk’s employee handbook. See Docket 157-16 at 14-15. This
handbook directs employees to “not discuss the corporation’s confidential
business with anyone who does not work for [Jim Hawk].” Docket 157-56 at 2.
Furthermore, the handbook provides that “giving confidential or proprietary
information to competitors or other organizations…” is grounds for “immediate
dismissal without warning.” See Docket 157-57 at 2. Thus, the record provides
sufficient evidence for a jury to conclude that Scholten knew or had reason to
know that he had a duty to maintain this information as a trade secret, and it
does not matter that he disclosed such trade secrets for purportedly innocent
reasons.
Even if an individual can only misappropriate if he does so with the
purpose of benefitting a competitor, Scholten testified during his deposition
that he accessed the list of Jim Hawk’s customers “for the benefit of
Crossroads[.]” Docket 157-16 at 35. Thus, there is a genuine dispute about
Scholten’s purpose for sending the customer list.
In short, there is sufficient evidence in the record to show a genuine
dispute about whether Scholten misappropriated trade secrets. The court
denies Scholten’s motion for summary judgment on Jim Hawk’s claims of
federal and South Dakota trade secret violations.
2. Mark Sneve
Sneve argues that Jim Hawk cannot demonstrate that he “took any
company information with him when he resigned from his employment.”
Docket 132 at 38. But the record, viewed in the light most favorable to Jim
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Hawk, shows that there is a genuine dispute of fact about whether Sneve took
any of Jim Hawk’s trade secrets. In fact, Jim Hawk has pointed to multiple
sources in the record that suggest that Sneve knows of and is aware of Jim
Hawk’s pricing information, customer preferences, cost of services, and
financial information including profit margins. See, e.g., Docket 153 ¶¶ 39-42;
Docket 157-17 at 8-9.
Sneve testified in his deposition that he did not share any of this
information with anyone at Crossroads. Docket 157-17 at 9. But the record
contains sufficient facts such that a jury could find otherwise. For example,
Sneve’s position at Crossroads is similar to what he did at Jim Hawk. See id. at
29. Sneve stated at one point that he wanted to “put [Jim Hawk] out of
business” and “take all the business from [Jim Hawk].” Docket 157-37 at 6.
Additionally, the record shows that Sneve intentionally misrepresented to
multiple Jim Hawk employees that he was retiring, when in reality he was
going to work for Crossroads. See Docket 157-38 at 7-8; Docket 157-22 at 31;
Docket 157-36 at 4. These facts, when viewed in the light most favorable to Jim
Hawk, show a genuine dispute of fact about whether Sneve shared insider
information: a jury could discredit Sneve’s testimony that he did not share
secret information, and instead conclude that given his ill-will and
misrepresentations to Jim Hawk, Sneve did in fact share Jim Hawk’s secret
information with Crossroads. Ultimately, witness credibility is a jury’s province,
not the court’s. See Torgerson v. City of Rochester, 643 F.3d 1031, 1042 (8th
Cir. 2011).
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Finally, Sneve also knew or had reason to know that he had a duty to
maintain the secrecy of this trade secret given that he also signed the employee
handbook containing the above-mentioned provisions relating to Jim Hawk’s
directions on maintaining confidentiality. See Docket 157-17 at 10-11. Thus,
the court denies Sneve’s motion for summary judgment on Jim Hawk’s federal
and state trade secret claims.
3. Derek Falor
Derek Falor argues that the only evidence of him taking anything from
Jim Hawk is a USB thumb drive containing customer information. Docket 132
at 38. But he argues that this action alone is insufficient because “there is no
evidence that he used this information in his employment at Crossroads or that
he otherwise shared this information with Crossroads’ representatives.” Id.
Viewing the record in the light most favorable to Jim Hawk, there is a
genuine dispute as to whether Falor did in fact share the thumb drive’s
contents. For example, although Derek Falor testified that he did not access
the thumb drive after leaving Jim Hawk or share the documents on the thumb
drive with anyone, he also testified that he saved the information because he
“wanted access” to it later on. Docket 157-12 at 18. Furthermore, the thumb
drive contains a document that has the Crossroads label on it. See Docket 157-
10 at 1. Viewing this evidence in the light most favorable to Jim Hawk, it is
reasonable to infer that, Derek Falor accessed the flash drive after leaving Jim
Hawk given the uploaded Crossroads document, despite his testimony to the
contrary.
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Derek Falor also knew or had reason to know that he had a duty to
maintain the secrecy of this trade secret because he signed the employee
handbook containing the above-mentioned provisions relating to Jim Hawk’s
directions on maintaining confidentiality. See Docket 153 at 16; Docket 157-12
at 6.
Thus, there is a genuine dispute over whether Derek Falor
misappropriated trade secrets by accessing and sharing the thumb drive’s
contents with Crossroads, and the court denies his summary judgment motion
on the federal and South Dakota trade secret claims.
4. Michael Falor, Dave Jensen, and Tracy Thompson
Michael Falor, Jensen, and Thompson argue that Jim Hawk “cannot
establish that [they] acquired alleged trade secrets through improper means.”
Docket 132 at 39. They further argue that “any of [Jim Hawk’s] information
that was in their possession after the resignations was acquired in the normal
course of their employment.” Id.
As an initial matter, Jim Hawk need not prove these individuals used
“improper means” to succeed on its misappropriation of a trade secret claim.
Under 18 U.S.C. § 1839, an individual can misappropriate a trade secret if he
discloses, without the consent of the trade secret’s holder, the trade secret after
“us[ing] improper means to acquire knowledge of the trade secret[,]” or the
individual, at the time of disclosure, knew or had reason to know that the
knowledge of the trade secret was “acquired under circumstances giving rise to
a duty to maintain the secrecy of the trade secret[.]” See 18 U.S.C. § 1839(B).
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Thus, these defendants’ focus on whether they used improper means to acquire
the trade secrets is misplaced.
Furthermore, the record contains sufficient evidence to show a genuine
dispute as to whether each of the defendants knew or had reason to know they
had a duty to maintain the information as secret. Each of these defendants,
like the others, signed and acknowledged the employee handbook containing
directives on confidentiality. See Docket 157-13 at 13-14; Docket 157-14 at 19-
20; Docket 157-18 at 14. Thus, the court now turns to whether the record,
viewed in the light most favorable to Jim Hawk, shows that the three
individuals disclosed any trade secrets.
Starting with Mike Falor, the record shows that he forwarded several
pieces of information, including a credit application from a vendor, a customer
list, and pricing information to his personal email while employed at Jim Hawk.
See Docket 157-13 at 41-42, 75-82, 102-151. Mark Habben testified on behalf
of Crossroads that Mike Falor forwarded the credit application because Mike
Falor sought to “replicate the business” he was doing at Jim Hawk after he
arrived at Crossroads. See Docket 157-19 at 29. Mike Falor also texted publicly
unavailable vendor information to Mark Habben. See Docket 157-13 at 27, 48-
72; Docket 153 ¶ 123. Viewing this evidence in the light most favorable to Jim
Hawk, there is a genuine dispute of fact over whether Mike Falor
misappropriated trade secret information. The court denies Mike Falor’s motion
for summary judgment on Jim Hawk’s federal and South Dakota trade secret
claims.
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The record shows Jensen sent trade secret information to Crossroads.
For example, Jensen sent Jim Hawk’s vendor list and customer information to
Crossroads. See Docket 157-14 at 35, 39-40, 49, 59-60, 65, 74-80; Docket 153
at 22. Thus, the court finds a genuine dispute of material fact as to whether
Jensen misappropriated trade secret information. The court denies Jensen’s
motion for summary judgment on the trade secret claims.
Finally, with respect to Thompson, Thompson forwarded numerous
things from his Jim Hawk email to his personal email, including several
customer lists with financial and profit information, a link to a document
including his own sales totals, and several history reports including customer
names and profit information. See, e.g., Docket 153 at 23-25; Docket 157-3;
Docket 157-4 Docket 157-5; Docket 157-7; Docket 157-8; Docket 157-9;
Docket 157-18 at 28-30; Docket 157-54. Curt Westphal, a Jim Hawk employee,
testified that Thompson asked Westphal to send Thompson’s customer lists to
Thompson so that Thompson could “take [them] with [him]” to Crossroads.
Docket 157-25 at 28. Thus, it is a reasonable inference for the fact finder to
conclude that Thompson misappropriated trade secrets by giving Crossroads
access to the items he sent to his personal email. The court thus denies
Thompson’s summary judgment motion on Jim Hawk’s trade secret claims.
5. Crossroads
Crossroads argues that there is no specific evidence that it
misappropriated any of Jim Hawk’s trade secret information because “much of
the information alleged to be at trade secret in this case was readily available to
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Crossroads as a member within the industry.” Docket 132 at 38. But this
argument appears to be an argument for why the information Crossroads
received was not a trade secret, not whether they misappropriated trade secret
information. And as discussed above, there is a genuine dispute over whether
the information Crossroads received constitutes a trade secret.
Furthermore, the record contains sufficient evidence that, when viewed
in the light most favorable to Jim Hawk, indicates there is a genuine dispute
over whether Crossroads misappropriated Jim Hawk’s trade secrets.
Specifically, there is a genuine dispute over whether Crossroads used Jim
Hawk’s trade secret when it knew, or had reason to know, that the trade secret
was acquired under circumstances giving rise to a duty to maintain the secrecy
of the trade secret or limit the use of the trade secret. See 18 U.S.C. § 1839
(B)(ii). For example, during the Crossroads deposition, Crossroads admitted to
receiving an email from Derek Falor with the subject line “Pricing comparison
Tectran/Goodyear.” See Docket 157-19 at 35. This email included an
attachment that provided comparisons between what Jim Hawk can purchase
items for compared to what it would cost to purchase it through a supplier. See
id. at 191-93. In response to this email, Crossroads said, “Thanks, Derek. Are
all/most of the prices from Hawk purchased through Vipar?” See id. at 36.
Crossroads’s own handbook acknowledges that it would violate Crossroads’s
policy if one of its own employees sent this kind of information to a competitor.
See id. at 75 (listing price lists and financial information, among other items, to
be confidential information not to be disclosed). In fact, Crossroads instructs
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that disclosing this kind of information subjects an employee to disciplinary
action, including termination. See id.
Thus, viewing this evidence in the light most favorable to Jim Hawk,
Crossroads knew that Derek Falor had just given it inside information about
prices that Jim Hawk was able to acquire certain parts for, which affects
profitability. See id. at 36 (“The cheaper you buy [parts], the more opportunity
to you have to sell [them] for less and/or maximize your profit.”). The record
contains sufficient evidence that there is a genuine dispute over whether
Crossroads knew or had reason to know that Derek Falor acquired this
information while owing a duty to Jim Hawk to keep it secret. The court denies
Crossroads’s motion for summary judgment on Jim Hawk’s trade secret claims.
II. Jim Hawk’s Tort Claims
Because this court has supplemental jurisdiction over Jim Hawk’s state-
law tort claims, it applies South Dakota law to such claims. See Emmenegger v.
Bull Mouse Tube Co., 324 F.3d 616, 624 n.9 (8th Cir. 2003). Defendants argue
that Jim Hawk’s common law claims are displaced by South Dakota’s Unfirom
Trade Secret Act (UTSA). See Docket 132 at 40. Jim Hawk argues that its tort
claims are independent of its trade secret claims and thus are not displaced.
See Docket 159 at 46-48. Further, it argues that even if its common law claims
are based on defendants giving away secret information, the court should not
grant summary judgment at this stage because the information could
otherwise be confidential, and not a trade secret—and thus provide a basis for
tort claims. See id. at 48-50.
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The UTSA seeks to “make uniform the law . . . among states enacting [the
UTSA].” SDCL § 37-29-8. The UTSA provides in relevant part:
(a) Except as provided in subsection (b), this chapter displaces
conflicting tort, restitutionary, and other law of this state
providing civil remedies for misappropriation of a trade
secret.
(b) This chapter does not affect . . . [o]ther civil remedies that
are not based upon misappropriation of a trade secret . . . .
§ 37-29-7. Essentially, the UTSA “prevents a plaintiff from merely restating
their trade secret claims as separate tort claims.” Weins v. Sporleder (Weins II),
605 N.W.2d 488, 491 (S.D. 2000). When analyzing a claim under the UTSA,
“the issue is not what label the plaintiff puts on their claims.” Id. Instead, the
court should “look beyond the label to the facts being asserted in support of
the claims.” Id.
In Weins II, a manufacturer of livestock feed products sued a competitor
for misappropriation of trade secrets and various tort claims. 605 N.W.2d at
489. On the case’s first appeal, the South Dakota Supreme Court determined
that the information in question was not a trade secret and that even if it was a
trade secret, there was no misappropriation. Id. Thus, the court held that the
trial court erred when it denied defendants’ motion for judgment
notwithstanding the verdict. Id. at 489-90. On the second appeal, the South
Dakota Supreme Court held that once plaintiffs’ trade secret misappropriation
claim failed as a matter of law, plaintiffs could not then seek recovery under
their tort claims because they “ar[o]se[] out of the alleged misappropriation of a
trade secret” and thus were displaced by the UTSA. Id. at 492 (emphasis
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added). The Supreme Court held that to have permitted recovery on the tort
claims after denying judgment for the plaintiff under the UTSA would have
rendered the displacement provision of the UTSA “meaningless.” Id. But where
a cause of action amounts to something more than or “apart from” the
misappropriation of a trade secret, the court should allow that cause of action
to proceed. Id. Indeed, the Court specifically noted that “[t]here may be other
cases where a trade secret misappropriation is alleged and there is a further
factual basis for fraud and deceit claims apart from the trade secret claim.” Id.
(emphasis added).
In Mortgage Specialists, Inc. v. Davey, the New Hampshire Supreme
Court cited to Weins II in support of its holding that the UTSA “preempts
claims that are based upon the unauthorized use of information, regardless of
whether that information meets the statutory definition of a trade secret.” 904
A.2d 652, 776-77 (N.H. 2006). There, the court found that the majority of
courts analyzing the issue have found that the UTSA preempts claims arising
out of the unauthorized use of information, even if that information does not
ultimately meet the definition of a trade secret. Id. at 778; see also Hecny
Transp., Inc. v. Chu, 430 F.3d 402, 404-05 (7th Cir. 2005) (“The dominant view
is that claims are foreclosed only when they rest on the conduct that is said to
misappropriate trade secrets.”) This approach is precisely what this court took
in its previous order dismissing some of the defendants’ tort claims. See Docket
78 at 8-9 (“Thus, to the extent the tort claims arise out of the alleged
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misappropriation of confidential or trade secret information, the tort claims are
displaced by the UTSA.”).
The court rejects Jim Hawk’s argument that the displacement analysis
depends on whether the information defendants allegedly misappropriated were
in fact trade secrets. Rather, the displacement analysis hinges on whether the
tort claims are grounded in the same facts as the trade secret claims. See
Mortgage Specialists, 153 N.H. at 780. Thus, the court must evaluate whether
Jim Hawk’s tort claims involve independent factual allegations, apart from
disclosing confidential information.
Secondly, defendants argue that even if Jim Hawk’s tort claims are not
displaced, they fail as a matter of law. See Docket 132 at 44, 53, 55, 64-66.
Thus, for the tort claims that survive a displacement analysis, the court must
further determine whether they nonetheless fail as a matter of law.
A. Tortious Interference with a Contract or Business Relationship
Claim
Viewing the record in the light most favorable to Jim Hawk, the following
evidence is relevant:
Shortly after Jim Hawk fired Scholten in December 2019, Scholten met
with Crossroads for three hours and texted Mike Falor that Crossroads was
“very interested in [Mike Falor], Dave, and Tracy and Mark Sneve as a package
deal.” See Docket 157-16 at 19; Docket 157-40 at 43. Derek Falor, after
observing Scholten’s behavior, said that he thought Scholten was “turning to
vengeance.” See Docket 157-45 at 2. A few months later, Scholten also texted
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Mike Falor, “I will go after [Jim Hawk’s] big customers, Van Wyk, K&J, Old
Dominion, Smith, Western Provision, Bennett.” Docket 157-41 at 31 (cleaned
up). Scholten said that he “wanted to put Jim Hawk out of business.” Docket
157-37 at 6.
In January 2020, Mark Habben texted Thompson that Crossroads would
“take care” of “all the whole team.” See Docket 157-46 at 11. In March 2020,
Michael Falor texted Brian Johnson that Sneve had just resigned from Jim
Hawk by stating, “The sneve (sic) bomb just dropped!” Docket 157-43 at 16.
Johnson responded, “I was looking for the fireball!” Id. Further, because Sneve
had represented to Jim Hawk that he planned on retiring despite already
accepting a job at Crossroads, Johnson sarcastically texted Scholten, “I wonder
how Mark likes retirement.” See Docket 157-41 at 68; Docket 157-15 at 15
(Johnson acknowledging he knew Mark was not actually retiring).
Scholten texted Jensen, who was still employed with Jim Hawk at the
time, encouraging Jensen to call Smith Trucking the next day. See Docket 157-
42 at 9. That next day, Jensen replied:
I had a good talk with both Craig and Brian at Smith trucking this
morning. Everything is good to go! Brian is going to hold off on sending any
more purchase orders over until Thursday. He said he just pulled their last
trailer out of Jim Hawk’s yard and he will reach out to crossroads for future
service work.
Id. at 22 (emphasis added). Scholten then texted Habben, “Smith Trucking just
called me and they will be bringing a trailer in for repairs tomorrow morning.”
Id. at 40. Prior to these conversations, Crossroads had never provided service
work to Smith Trucking. See Docket 157-19 at 57.
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Mike Falor and Sneve, the two of them (along with Derek Falor) also met
with Smith Trucking while employed at Jim Hawk. See Docket 157-13 at 9, 11,
35, 41; Docket 157-13 at 26 (showing Mike Falor left Jim Hawk on March 12,
2020); Docket 157-17 at 6, 24 (showing Sneve left Jim Hawk on March 4,
2020). In February 2020, Smith Trucking began purchasing trailers from
Crossroads, even though Smith had previously only ordered parts from
Crossroads. See Docket 157-19 at 57. Mike Falor then texted Habben, “Mark,
Congratulations on the Smith deal. So very happy!” Docket 157-46 at 37. Mike
Falor similarly texted Scholten, “Crossroads got the Smith deal . . . Going to be
a mushroom cloud from the south. Now that’s teamwork!” Docket 157-41 at
29-30.
Jensen texted Habben and said that he “might as well” place an order
through Crossroads given the “transition coming and the lead time on the
straps.” See Docket 157-19 at 30; Docket 157-46 at 33. Thompson similarly
texted Habben and said that he was “quoting out a job but [] hoping to actually
do it through [C]rossroads.” Docket 157-46 at 33. Habben responded to
Thompson and assisted Thompson with this transaction. See Docket 157-43 at
8-9. And Curt Westphal, Jim Hawk’s vice president of distribution, testified
that the week before Jensen and Thompson left, they stopped putting in
customer stock orders, despite them normally doing so. See Docket 157-25 at
5, 28. At the time Jensen and Thompson placed orders with current-Jim Hawk
customers through Crossroads, they were still employed with Jim Hawk. See
Docket 157-46 at 33 (showing actions occurred in February 2020); Docket 157-
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14 at 41 (showing Jensen left Jim Hawk on March 12, 2020); Docket 157-18 at
32 (showing Thompson left on March 12, 2020).
Additionally, Thompson, Jensen, and Derek Falor3 all testified they had
forwarded calls from their Jim Hawk phone to their personal cell phones once
they left Jim Hawk. See Docket 157-14 at 50 (Jensen); Docket 157-18 at 35-36
(Thompson); Docket 157-12 at 14 (Derek Falor).
Under South Dakota law, to succeed on a claim of tortious interference
with a contract or business relationship claim, the plaintiff must prove:
1. the existence of a valid business relationship or
expectancy;
2. knowledge by the interferer of the relationship or
expectancy;
3. an intentional and unjustified act of interference on
the part of the interferer;
4. proof that the interference caused the harm
sustained; and,
5. damage to the party whose relationship or
expectancy was disrupted.
Landstrom v. Shaver, 561 N.W.2d 1, 16 (S.D.1997) (quoting Tibke v. McDougall,
479 N.W.2d 898, 908 (S.D.1992)); see also Hohn v. Spurgeon, 513 F.3d 827,
829 (8th Cir. 2008).
This claim requires a plaintiff to prove that there is “a ‘triangle’—a
plaintiff, an identifiable third party who wished to deal with the plaintiff, and
the defendant who interfered with the plaintiff and the third party.” Landstrom,
561 N.W.2d at 16. Here, Jim Hawk alleges that its customers, both current and
3 Derek Falor also attended the meeting between Michael Falor, Sneve, and
Smith Trucking, that resulted in Smith Trucking shifting its trailer business to
Crossroads. See Docket 157-13 at 9, 11, 35; Docket 157-41 at 29-30.
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prospective, were third-parties, and that defendants unjustifiably and
intentionally interfered with the relationship between Jim Hawk’s customers
and Jim Hawk. See Docket 159 at 47. Because the displacement analysis
hinges on specific facts as applied to each defendant, the court conducts this
analysis for each defendant separately.
1. Crossroads
Jim Hawk’s tortious interference claim against Crossroads depends in
part on the same factual allegations of Crossroads receiving confidential
information. See, e.g., Docket 159 at 55-56 (describing evidence that individual
defendants took Jim Hawk customer information and forwarded it to
Crossroads, which Crossroads then used to set up customer accounts). But
Jim Hawk also alleges facts that are fully independent of any alleged trade
secret violation. For example, Jim Hawk alleges that Crossroads interfered with
Jim Hawk’s customers by intentionally hiring a large number of Jim Hawk’s
employees at the same time and thus harming Jim Hawk’s ability to serve its
customers. See id. at 60-61. Thus, to the extent that Jim Hawk’s tortious
interference claim against Crossroads is supported by more than the mere
misuse of Jim Hawk’s customer information, it is not displaced.
The court now considers whether, as a matter of law, Jim Hawk’s claim
against Crossroads fails. Crossroads argues that Jim Hawk cannot prove the
third element of tortious interference; namely that it cannot establish an
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intentional and improper4 act of interference. See Docket 132 at 45-47; Docket
173 at 15. Crossroads argues that it was entitled to pursue business
relationships with customers and vendors who had existing relationships with
Jim Hawk. See Docket 132 at 47. Crossroads further stresses that it is not
improper for it to recruit new employees, especially given that those employees
are at-will. See id. at 46.
To determine whether a defendant acted improperly, South Dakota law
considers the elements from the Restatement (Second) of Torts § 767. See
Gruhlke v. Sioux Empire Federal Credit Union, Inc., 756 N.W.2d 399, 408 (S.D.
2008). These factors include:
the nature of the actor’s conduct, (b) the actor’s motive,
(c) the interests of the other with which the actor’s
conduct interferes, (d) the interests sought to be
advanced by the actor, (e) the societal interests in
protecting the freedom of action of the actor and the
contractual interests of the other, (f) the proximity or
remoteness of the actor’s conduct to the interference,
and (g) the relations between the parties.
Restatement (Second) of Torts § 767. “What constitutes improper interference
will depend on the particular facts of each case with considerations of the
[factors in the Restatement].” Gruhlke, 756 N.W.2d at 408.
As an initial matter, Crossroads appears to concede that it interfered
with Jim Hawk’s relationships with customers. See Docket 132 at 46-47
(disputing only whether Crossroads improperly interfered). In determining
4 The South Dakota Supreme Court replaced the term “unjustified” with the
word “improper” to align with the Restatement’s language. See Gruhlke v. Sioux
Empire Federal Credit Union, Inc., 756 N.W.2d 399, 409 (S.D. 2008).
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whether Crossroads acted improperly, the court considers Crossroad’s motive
in recruiting Jim Hawk’s customers and employees. See Restatement (Second)
of Torts § 767. While motivation of personal and financial gain is generally not
enough to be improper, motivation “to injure another or to vent one’s ill will on
[Jim Hawk] serves no socially useful purpose” and “is almost certain to be held
improper.” See Janvrin v. Continental Resources, Inc., 934 F.3d 845, 851 (8th
Cir. 2019) (citing Restatement (Second) of Torts § 767 cmt. d.). Furthermore,
“ ‘self interest is not a defense where a party’s conduct is improper.’ ” Brown v.
Hanson, 798 N.W.2d 422, 430 (S.D. 2011) (quoting Table Steaks v. First
Premier Bank, N.A., 650 N.W.2d 829, 837 (S.D. 2002)).
Here, Jim Hawk can point to sufficient facts in the record that, when
viewed in the light most favorable to Jim Hawk, suggest Crossroads was
motivated to injure Jim Hawk. In January 2020, Mark Habben texted Tracy
Thompson that Crossroads would “take care” of “all the whole team.” See
Docket 157-46 at 11. In March 2020, Michael Falor texted Brian Johnson that
Mark Sneve had just resigned from Jim Hawk by stating, “The [S]neve bomb
just dropped!” Docket 157-43 at 16. Johnson responded, “I was looking for the
fireball!” Id. Further, because Sneve had represented to Jim Hawk that he
planned on retiring despite already accepting a job at Crossroads, Johnson
sarcastically texted Scholten, “I wonder how Mark likes retirement.” See Docket
157-41 at 68; Docket 157-15 at 15 (Johnson acknowledging he knew Mark was
not actually retiring). These statements by Crossroad’s agents show a material
dispute over whether Crossroads acted with an improper purpose in targeting
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and hiring many of Jim Hawk’s employees. The court denies Crossroads’s
motion for summary judgment on this claim.
2. Alvin Scholten, Mike Falor, Mark Sneve, Dave Jensen,
Tracy Thompson, Derek Falor
Starting with Alvin Scholten, although Jim Hawk points to evidence that
Scholten shared secret information with Crossroads as a basis for its tortious
interference of a business relationship, Jim Hawk also relies on other evidence
as well. See Docket 159 at 55-58. For example, Jim Hawk alleges that Scholten
intentionally diverted one of Jim Hawk’s top customers, Smith Trucking, away
from Jim Hawk. See id. at 57. Scholten texted Jensen, who was still employed
with Jim Hawk at the time, encouraging Jensen to call Smith Trucking the next
day. See Docket 157-42 at 9; Docket 157-14 at 41. That next day, Jensen
replied:
I had a good talk with both Craig and Brian at Smith
trucking this morning. Everything is good to go! Brian
is going to hold off on sending any more purchase orders
over until Thursday. He said he just pulled their last
trailer out of Jim Hawk’s yard and he will reach out to
crossroads for future service work.
Id. at 22. Scholten then texted Habben, “Smith Trucking just called me and
they will be bringing a trailer in for repairs tomorrow morning.” Id. at 40. Prior
to these conversations, Crossroads had never provided service work to Smith
Trucking. See Docket 157-19 at 56. Scholten’s alleged actions here do not
involve sharing confidential information with Crossroads, and thus to the
extent Jim Hawk’s tortious interference claim against Scholten is grounded in
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actions independent of Scholten sharing confidential information, it is not
displaced.
Jim Hawk’s tortious interference with a business relationship claim
against Scholten also survives summary judgment. Similar to Crossroads,
there is a genuine dispute about whether Scholten acted improperly. As
discussed above, motivation “to injure another or to vent one’s ill will on [Jim
Hawk] serves no socially useful purpose” and “is almost certain to be held
improper.” See Janvrin, 934 F.3d at 851. Jim Hawk fired Scholten in December
2019. See Docket 157-16 at 19. Shortly after, Scholten met with Crossroads for
three hours and texted Mike Falor that Crossroads was “very interested in
[Mike Falor], Dave, and Tracy and Mark Sneve as a package deal.” Docket 157-
40 at 43. Derek Falor, after observing Scholten’s behavior, said that he thought
Scholten was “turning to vengeance.” See Docket 157-45 at 2. A few months
later, Scholten also texted Mike Falor, “I will go after [Jim Hawk’s] big
customers, Van Wyk, K&J, Old Dominion, Smith, Western Provision, Bennett.”
Docket 157-41 at 31. Scholten said that he “wanted to put Jim Hawk out of
business.” Docket 157-37 at 6. Viewing the record in the light most favorable to
Jim Hawk, Scholten had ill-will towards Jim Hawk, and thus there is a genuine
dispute over whether Scholten acted improperly for purposes of Jim Hawk’s
tortious interference with a business relationship claim. Scholten’s motion for
summary judgment on this claim is denied.
Mike Falor, Sneve, and Derek Falor also met with Smith Trucking while
employed at Jim Hawk. See Docket 157-13 at 9, 11, 35. In February 2020,
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Smith Trucking began purchasing trailers from Crossroads, even though Smith
had previously only ordered parts from Crossroads. See Docket 157-19 at 57.
Mike Falor then texted Habben, “Mark, Congratulations on the Smith deal. So
very happy!” Docket 157-46 at 37. Mike Falor texted Scholten, “Crossroads got
the Smith deal . . . Going to be a mushroom cloud from the south. Now that’s
teamwork!” Docket 157-41 at 29-30. These actions did not involve Mike Falor
or Sneve sending confidential information to Crossroads. Thus, Jim Hawk’s
tortious interference claim with a business relationship against Mike Falor and
Sneve are not displaced.
Similarly, Jim Hawk’s tortious interference with a business relationship
claims against Dave Jensen, Tracy Thompson, and Derek Falor are, in part,
separate from any allegation that they shared confidential information with
Crossroads. For example, Jim Hawk alleges that Dave Jensen and Tracy
Thompson placed orders with Crossroads for Jim Hawk customers while Dave
Jensen was still employed with Jim Hawk. See Docket 159 at 54-55. Jim Hawk
also alleges that Jensen, Thompson, and Derek Falor forwarded their Jim
Hawk phone numbers to either their new Crossroads phone numbers or
personal numbers so that they would continue to receive calls from Jim Hawk
customers even after leaving Jim Hawk. See id. at 56.
Jensen texted Habben and said that he “might as well” place an order
through Crossroads given the “transition coming and the lead time on the
straps.” See Docket 157-19 at 30; Docket 157-46 at 33. Thompson similarly
texted Habben and said that he was “quoting out a job but [] hoping to actually
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do it through [C]rossroads.” Docket 157-46 at 33. And Curt Westphal, Jim
Hawk’s vice president of distribution, testified that the week before Jensen and
Thompson left, they stopped putting in customer stock orders, despite them
normally doing so. See Docket 157-25 at 5, 28. With regard to forwarding
phones, Thompson, Jensen, and Derek Falor all testified they had forwarded
calls from their Jim Hawk phone to their personal cell phones. See Docket 157-
14 at 50 (Jensen); Docket 157-18 at 35-36 (Thompson); Docket 157-12 at 14
(Derek Falor). Because these claims are separate from claims that they shared
confidential information, they are not displaced.
There is also a genuine dispute over whether Mike Falor, Sneve, Jensen,
Thompson, and Derek Falor acted improperly given the “nature of [their]
conduct” and the “proximity . . . of [their] conduct to the interference.”
Restatement (Second) of Torts § 767 cmt. d. When Mike Falor and Sneve met
with Smith Trucking, they were still employed by Jim Hawk. See Docket 157-
13 at 41 (showing that meeting with Smith happened in late February 2020);
Docket id. at 26 (showing Mike Falor left Jim Hawk on March 12, 2020);
Docket 157-17 at 6, 24 (showing Sneve left Jim Hawk on March 4, 2020).
Viewing the record in the light most favorable to Jim Hawk, this meeting
resulted in them diverting business away from Jim Hawk to Crossroads. See,
e.g., Docket 157-41 at 29-30. At the time Jensen and Thompson placed orders
with current-Jim Hawk customers through Crossroads, they were still
employed with Jim Hawk. See Docket 157-46 at 33 (showing actions occurred
in February 2020); Docket 157-14 at 41 (showing Jensen left Jim Hawk on
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March 12, 2020); Docket 157-18 at 32 (showing Thompson left on March 12,
2020). Their actions directly benefitted Crossroads at the expense of Jim Hawk.
Similarly, when Jensen, Thompson, and Derek Falor forwarded calls from their
Jim Hawk cell phone number to their personal numbers, they directly usurped
calls that customers would have made to Jim Hawk and re-directed them to
Crossroads. These actions are sufficient to show a dispute over whether they
acted improperly. Thus, to the extent that Jim Hawk’s tortious interference
with a business relationship claims against Sneve, Mike Falor, Thompson,
Jensen, and Derek Falor are grounded in facts that are not solely about them
sharing confidential information with Crossroads, the court denies Crossroad’s
summary judgment motion on such claims.
B. Tortious Interference with Jim Hawk’s Employee Relationships
After hiring Alvin Scholten, Crossroads hired eight then-Jim Hawk
employees: Mike Falor, Tracy Thompson, Dave Jensen, Derek Falor, Mark
Sneve, Nick Big Eagle, Caz Kohorst, and Taylor Larson. See Docket 157-19 at
8. After hiring so many of Jim Hawk’s employees, Habben emailed Johnson,
“[Jim Hawk’s] whole team except Bill [Forsling] would be gone, Ouch.” Docket
124-33 at 1.
After Scholten joined Crossroads, Scholten continued to communicate
with then-Jim Hawk employees. For example, Thompson testified that while he
was still employed with Jim Hawk, Scholten told him that Jim Hawk may be
closing or selling the parts and service department and that his position may
be eliminated. See Docket 157-18 at 22. But Scholten admitted that he knew
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the parts department employees, such as Thompson, would maintain their
positions regardless of whether Jim Hawk sold the department. See Docket
157-16 at 24. Scholten also told then-Jim Hawk employees, Mike Falor and
Jensen, that Jim Hawk was going to shut down or sell the parts department.
See id. at 25; Docket 157-13 at 15-16. Michael Falor had not known about this
news, and subsequently texted Scholten that he was “ready” to leave Jim
Hawk. See Docket 157-13 at 15-16; Docket 157-40 at 71.
Under South Dakota law, a plaintiff is liable for interfering with an
employee’s relationship with his employer if there was in fact an employee-
employer relationship, the plaintiff knew of this relationship, intentionally and
improperly interfered with the relationship, the interference caused harm, and
the employer suffered damages. See Setliff v. Akins, 616 N.W.2d 878, 889 (S.D.
2000); see also Gruhlke., 756 N.W.2d at 409. An employee’s status as being at-
will does not foreclose a plaintiff from bringing forth this claim. See Mueller v.
Cedar Shore Resort, Inc., 643 N.W.2d 56, 68 n. 9 (S.D. 2002).5
Here, the same displacement analysis as discussed above will be applied
to Jim Hawk’s claim of tortious interference with its employee relationships.
Jim Hawk argues Crossroads improperly interfered by coordinating and
5 This claim is grounded in the same tort as tortious interference with a
business relationship, because the South Dakota Supreme Court has
recognized that an employer-employee relationship counts as a business
relationship. Mueller, 643. N.W. 2d at 68 n.9. For clarity sake, however, the
court separates these first two causes of action because the first claim centers
on defendants’ alleged interference with Jim Hawk’s customers, while the
second focuses on defendants’ alleged interference with Jim Hawk’s employees.
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planning a mass exodus of then-Jim Hawk employees. See Docket 159 at 63.
Jim Hawk also argues that Scholten improperly attempted to recruit then-Jim
Hawk employees by giving them false information suggesting that Jim Hawk
would be selling or shutting down its parts department. See id. at 64. Because
none of these claims rely on allegations that Scholten or Crossroads gave away
or used confidential information, Jim Hawk’s claim of tortious interference with
employment relations is not displaced.
Crossroads and Scholten argue that Crossroads was entitled to compete,
and thus cannot establish that they acted improperly. See Docket 132 at 54-
55. Starting with Crossroads, Habben described the impact of Crossroads
hiring many of Jim Hawk’s then-employees at the same time by stating, “[Jim
Hawk’s] whole team except Bill [Forsling] would be gone, Ouch.” Docket 124-33
at 1. This message, along with the record as outlined above, when viewed in the
light most favorable to Jim Hawk, indicates that Crossroads acted with a
purpose to harm Jim Hawk. See supra at 43. The court finds there is a genuine
dispute as to whether Crossroads acted improperly in recruiting Jim Hawk’s
then-employees, and thus denies Crossroads’s motion for summary judgment
on this claim.
Jim Hawk’s claim against Scholten also survives. Thompson testified that
while he was still employed with Jim Hawk, Scholten told him that Jim Hawk
may be closing or selling the parts and service department and that his
position may be eliminated. See Docket 157-18 at 22. But Scholten admitted
that he knew the parts department employees, such as Thompson, would
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maintain their positions regardless of whether Jim Hawk sold the department.
See Docket 157-16 at 24. Scholten also told then-Jim Hawk employees, Mike
Falor and Jensen, that Jim Hawk was going to shut down or sell the parts
department. See id. at 25; Docket 157-13 at 15-16. Michael Falor had not
known about this news, and subsequently texted Scholten that he was “ready”
to leave Jim Hawk. See Docket 157-13 at 15-16; Docket 157-40 at 71.
Additionally, as discussed above, the court finds that there is a dispute about
whether Scholten acted with an improper purpose because viewing the record
in the light most favorable to Jim Hawk, Scholten acted with the intent to harm
Jim Hawk. See supra at 44-45.
Scholten cites Cenveo Corp. v. Southern Graphic Systems, Inc., 784
F.Supp. 2d 1130, 1140 (D. Minn. 2011) in support of its argument that an
employee is entitled to assist a new employer in crafting offers for employees at
his previous employer. See Docket 132 at 54-55. But unlike in Cenveo, where
an employee only helped his current employer to develop a package to entire a
former co-worker at his previous employer to leave the former employer, the
record, as discussed above, contains evidence of Scholten misleading Jim
Hawk employees and doing so for the purpose of harming Jim Hawk. See
Cenveo, 784 F.Supp. 2d at 1140. Summary judgment is denied on Jim Hawk’s
claim against Scholten for tortious interference of employment relations.
C. Breach of Duty of Loyalty
Viewing the record in the light most favorable to Jim Hawk, in addition to
the above-mentioned findings, the following facts are relevant:
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Before March 2020, Nicholas Big Eagle, Kohorst, and Larson all worked
for Jim Hawk as mechanics. See Docket 153 at 8-9. Nicholas Big Eagle testified
that he specialized in the wreck crew, and that he had more experience than
many of the mechanics at Jim Hawk. See Docket 157-32 at 8. Timothy Big
Eagle explained that Nicholas Big Eagle, “[knew] the process [of wrecks] . . .
and [] is specialized,” and that a new hire would “definitely not know anything”
about how to do work similar to that done by Nicholas Big Eagle. See Docket
157-38 at 18. Kohorst testified that he had worked as a trailer mechanic for
Jim Hawk for approximately four years. See Docket 157-23 at 4-5. And Larson
served as a maintenance tech, which required certain skills. Docket 157-36 at
15.
While several of the mechanic defendants testified Jim Hawk’s shop was
not busy at times, Timothy Big Eagle, one of Jim Hawk’s mechanics who
became a service manager, testified that the shop had a “steady” stream of
work. See Docket 157-32 at 16; Docket 157-36 at 19; Docket 157-38 at 4, 7.
Once Nicholas Big Eagle, Kohorst, and Larson left for Crossroads, Jim Hawk
had to “turn[] quite a few customers away” because they “didn’t have the
personnel to do the work.” See id. at 7. This time was “hectic,” and Jim Hawk
had “a heck of a time trying to keep up.” See id. at 18. Jim Hawk only had five
remaining full-time mechanics to work in eight bays, when a wreck required at
least two mechanics. See id.
Kohorst put in his two weeks’ notice on March 12, 2020, but he had
already told Crosswords he could start on March 16, 2020. See Docket 157-23
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at 19-20. Larson and Nicholas Big Eagle planned to leave together on March
11, 2020 without giving Jim Hawk advance notice, and also agreed to pick up
Kohorst’s toolbox that morning. See Docket 157-36 at 9. On March 11,
Nicholas Big Eagle and Larson arrived at Jim Hawk’s garage early in the
morning to load their toolboxes and to also avoid seeing any Jim Hawk
employees. See id. at 10.
Under South Dakota law, “[a]n employee who has any business to
transact on the employee’s own account, similar to that entrusted to the
employee by the employer, shall always give the employer the preference.”
SDCL § 60-2-13. The South Dakota Supreme Court set forth the legal
principles surrounding an employee’s duty of loyalty in Akins, 616 N.W.2d.
878. In Akins, Dr. Setliff alleged that Dr. Akins, a former doctor in Dr. Setliff’s
clinic, breached his duty of loyalty and other claims, after Dr. Akins left his
employment with Dr. Setliff without warning and opened his own competing
medical office. Id. at 884. Dr. Setliff alleged that Dr. Akins breached his duty of
loyalty by using for his own benefit information he learned from Dr. Setliff,
conducting business activities for his own benefit while in the employ of Dr.
Setliff, taking advantage of Dr. Setliff’s business opportunities, secretly
communicating with and soliciting and/or hiring Dr. Setliff’s employees while
still employed by Dr. Setliff, and secretly communicating with or soliciting Dr.
Setliff’s patients while still employed by Dr. Setliff. Id. at 887.
Breach of duty of loyalty claims are “extremely fact-sensitive.” Id. at 886.
Such factual inquiry would determine whether an employee acted contrary to
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his employer’s interests while so employed. Id. The South Dakota Supreme
Court recognized that while it is permissible for an employee to make
arrangements for new employment with a competitor while still employed, an
employee cannot solicit customers for a rival business or do similar acts that
directly compete with the employer’s business while still employed. Id. The
South Dakota Supreme Court observed that it is the nature of the employee’s
preparations while employed by the employer that are significant in
determining whether a breach has occurred. Id. Because a question of fact
existed, the South Dakota Supreme Court reversed the trial court’s grant of
summary judgment that was in favor of Dr. Akins. Id. at 886-87.
In Setliff v. Stewart, which involved the same underlying facts as Akins,
the South Dakota Supreme Court expanded its duty of loyalty analysis. 694
N.W.2d 859, 863, 867 (S.D. 2005). The court stated that an employee is not
only permitted to make arrangements for new employment, but also “to make
arrangements to compete in some cases.” Id. at 867. The Supreme Court
observed that the employee’s preparations to compete with an employer are
significant in determining whether the duty of loyalty has been breached. Id.
The South Supreme Court considered many factors in Akins and
Stewart. While still employed, Dr. Akins and Stewart established a competing
business and allegedly solicited patients and fellow employees to follow them at
their rival business. Akins, 616 N.W.2d at 883-84; Stewart, 694 N.W.2d at 864.
Dr. Akins was subject to an employment contract and held a position of trust
or confidence within the clinic and was a crucial employee. Akins, 616 N.W.2d
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at 885; Stewart, 694 N.W.2d at 869. He left his employment without providing
notice and misled Dr. Setliff just a week earlier while discussing their future
relationship. Stewart, 694 N.W.2d at 869-70. The departure of Dr. Akins was
harmful to Dr. Setliff’s business. Id. Because analysis of the breach of duty of
loyalty claim is “extremely fact-intensive,” no single fact is dispositive. See
Akins, 616 N.W.2d at 886.
1. Scholten
Scholten argues that he cannot be liable for breach of duty of loyalty
because the actions that Jim Hawk relies on to prove this claim are ones he
took after Jim Hawk fired him. See Docket 132 at 56-57. He argues that an
employee’s duty of loyalty ends once his employment ends. See id. at 57. Jim
Hawk argues that “[t]here are exceptions to the expiration of a fiduciary duty of
loyalty where . . . a trusted employee takes confidential or trade secret
information learned during the course of the employment relationship and uses
it in a manner adverse to the employer.” See Docket 159 at 68. In support, Jim
Hawk cites T-N-T Motorsports, Inc. v. Hennessey Motorsports, Inc., 965 S.W.2d
18, 22 (Tex. App. 1998) and In re TXCO Resources, Inc., 475 B.R. 781, 818
(W.D. Tex. 2012).
Scholten correctly states that generally, an employee’s duty of loyalty
ends once his employment ends. See Akins, 616 N.W.2d at 886 (“It is clear,
however, that the employee owes a duty of loyalty to the employer, and the
employee must not, while employed, act contrary to the employer’s interests.”);
see also Beef Products, Inc. v. Hesse, 2019 WL 6037424 at *4 (D.S.D. Nov. 14,
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2019) (“While employed, an employee cannot act contrary to his employer’s
interests.” (emphasis added)). And although both cases that Jim Hawk cites
discuss an exception to this general rule, the court need not—and cannot—
decide whether this exception applies in this case, because the facts upon
which Jim Hawk relies for this claim revolve around Scholten allegedly sharing
confidential information with Crossroads. See Docket 159 at 69 (“[Scholten
breached his] duty of loyalty to [Jim Hawk] to maintain its confidential and
proprietary information and not to disclose it.”). In fact, the two cases that Jim
Hawk cites discuss the duty of loyalty in the context of whether the defendants
misappropriated a trade secret. See T-N-T Motorsports, 965 S.W.2d at 22; In re
TXCO Resources, 475 B.R. at 818. Thus, summary judgment is granted in favor
of Scholten on Jim Hawk’s claim against Scholten for breach of the duty of
loyalty because it is displaced by its trade secret claims.
2. Mike Falor, Mark Sneve, Derek Falor, Dave Jensen, Tracy
Thompson
Mike Falor, Sneve, Jensen, Thompson, and Derek Falor all make various
arguments about why they did not breach their duty of loyalty. Docket 132 at
57-62. Starting with Mike Falor, Sneve, and Derek Falor, as mentioned above,
these individuals met with Smith Trucking, one of Jim Hawk’s largest
customers, while employed at Jim Hawk. See Docket 157-13 at 9, 11, 35;
Docket 157-41 at 31 (indicating Smith to be one of Jim Hawk’s top customers).
After this meeting, Smith Trucking began purchasing trailers from Crossroads,
even though Smith had previously only ordered parts from Crossroads. See
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Docket 157-19 at 56. Mike Falor then texted Habben, “Mark, Congratulations
on the Smith deal. So very happy!” Docket 157-46 at 37. Mike Falor similarly
texted Scholten, “Crossroads got the Smith deal . . . Going to be a mushroom
cloud from the south. Now that’s teamwork!” Docket 157-41 at 29-30. Mark
Habben confirmed the centrality of these individuals’ roles in recruiting Smith
by telling Mike Falor, “Thanks! It was all you guys! This is going to be a good
thing for all us.” Docket 157-46 at 37 (emphasis added).
In the light most favorable to Jim Hawk, Mike Falor, Sneve and Derek
Falor met with a Smith employee and convinced it to purchase trailers through
Crossroads rather than Jim Hawk. For the same reasons as stated above, Jim
Hawk’s trade secret claims do not displace its breach of duty of loyalty claim
against Mike Falor, Sneve, and Derek Falor because these facts do not involve
them providing confidential information to Crossroads.6 And a plaintiff can rely
on the same conduct to provide a basis for a breach of duty of loyalty claim as
it does for a tortious interference claim. See West Plains, L.L.C. v. Retzlaff Grain
Co. Inc., 870 F.3d 774, 786 (8th Cir. 2017). Further, there is a material dispute
over whether these defendants actively competed with Crossroads rather than
merely prepared for future competition. The court denies summary judgment to
Mike Falor, Sneve and Derek Falor.
6 Some of Jim Hawk’s allegations against Derek Falor are displaced by its trade
secret claims because Jim Hawk argues that Derek Falor breached his duty of
loyalty by taking confidential information from Jim Hawk. See Docket 159 at
69-70. But because Jim Hawk alleges other facts independent of confidential
information, Jim Hawk’s breach of duty of loyalty claim is not completely
displaced.
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With respect to Jensen and Thompson as recounted above, Jensen
texted Habben and said that he “might as well” place an order through
Crossroads given the “transition coming and the lead time on the straps.” See
Docket 157-19 at 30; Docket 157-46 at 33. Thompson similarly texted Habben
and said that he was “quoting out a job but [] hoping to actually do it through
[C]rossroads.” Docket 157-46 at 33. And Curt Westphal, Jim Hawk’s vice
president of distribution, testified that the week before Jensen and Thompson
left, they stopped putting in customer stock orders, despite them normally
doing so. See Docket 157-25 at 5, 28.
These actions do not involve the individual defendants sharing
confidential information with Crossroads, and thus Jim Hawk’s trade secret
claims do not displace its breach of duty of loyalty claims for Thompson and
Jensen. Additionally, viewing the record in the light most favorable to Jim
Hawk, there is a genuine dispute over whether Thompson and Jensen
impermissibly crossed the line past merely preparing for competition. Indeed,
when Thompson and Jensen ordered parts for Crossroads while still at Jim
Hawk, they committed a textbook example of a breach of duty of loyalty. See,
e.g., West Plains, 870 F.3d at 786 (noting improper conduct to include “forming
one’s own competing business while still working for the employer.”); Eaton
Corp. v. Giere, 971 F.2d 136, 141 (8th Cir. 1992) (“[A]n employee owes his
employer a duty of loyalty which prohibits him from . . . otherwise competing
with his employer, while he is still employed.”). Thompson and Jensen directly
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diverted business from Jim Hawk to Crossroads. Summary judgment is
inappropriate for this situation.
In summary, viewing the record in the light most favorable to Jim Hawk,
there is a genuine dispute about whether each of these individuals (Mike Falor,
Sneve, Derek Falor, Jensen, and Thompson) crossed the line from merely
preparing for future employment with Crossroads to directly competing with
Jim Hawk’s then-existing customers. The court denies summary judgment on
these claims.
3. Nicholas Big Eagle, Chaz Kohorst, Taylor Larson
Nicholas Big Eagle, Kohorst, and Larson argue that as at-will employees,
they had the right to seek employment with Crossroads. See Docket 132 at 62.
They further argue that “[a] decision by employees, particularly non-managerial
employees, to leave their employer as a group is not a breach of the duty of
loyalty.” Id. Jim Hawk argues, however, that these defendants failed to give Jim
Hawk any notice of their departure, and thus there is a material dispute over
whether Nicholas Big Eagle, Kohorst, and Taylor breached their duty of loyalty
to Jim Hawk. See Docket 159 at 80-81.
As an initial matter, as the court previously stated, Jim Hawk’s breach of
duty of loyalty claims against Nicholas Big Eagle, Kohorst, and Taylor are not
displaced to the extent its claims rely on allegations unrelated to the disclosure
of confidential information. See Docket 78 at 11. Turning to the claims’ merits,
the South Dakota Supreme Court’s decision in Stewart drives the court’s
analysis for these defendants. See 694 N.W.2d at 869. In Stewart, the court
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noted that “consistent with the highly fact intensive nature of the duty of
loyalty inquiry,” an employee’s failure to disclose their intent to resign may—
but not necessarily—constitute a breach of their duty of loyalty. See id. Indeed,
an employee’s duty to notify his employer turns, in part, on the harm it would
cause to the employer. See id. In Stewart, the court noted that the defendant
employee was a “crucial employee” and thus the employee’s “abrupt departure
with no notice resulted in general ‘chaos’[.]” Id. The court further noted that a
week before the employee left, he had “effectively misled” the plaintiff-employer.
Id. at 870. As a result, the court upheld the jury’s determination that the
defendant employee had breached his duty of loyalty. See id.
The facts surrounding Nicholas Big Eagle, Kohorst, and Larson are
similar to Stewart. First, viewing the record in the light most favorable to Jim
Hawk, the record shows that all three mechanics were important to Jim Hawk’s
ability to service its customer orders. For example, Nicholas Big Eagle testified
in deposition that he was part of the wreck crew, which did more specialized
work than routine maintenance. See Docket 157-32 at 8. He further testified
that he had more experience than many of the mechanics at Jim Hawk. See id.
at 12. Timothy Big Eagle concurred, saying that Nicholas Big Eagle, “[knew] the
process [of wrecks] . . . and [] is speclialized,” and that a new hire would
“definitely not know anything” about how to do the kind of work done by
Nicholas Big Eagle. See Docket 157-38 at 18. Kohorst testified that he had
worked as a trailer mechanic for Jim Hawk for approximately four years. See
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Docket 157-23 at 5. And Larson served as a maintenance tech, which required
certain skills. Docket 157-36 at 15.
Although several of the mechanic defendants testified the shop was not
busy at times, Timothy Big Eagle, one of Jim Hawk’s mechanics who became a
service manager, testified that the shop had a “steady” stream of work to do.
See Docket 157-32 at 16; Docket 157-36 at 19; Docket 157-38 at 4, 7. After
Nicholas Big Eagle, Kohorst, and Larson resigned, Jim Hawk had to “turn[]
quite a few customers away” because they “didn’t have the personnel to do the
work.” See id. at 7. In fact, after they left, Timothy Big Eagle testified that the
shop was “hectic,” and he had “a heck of a time trying to keep up.” See id. at
18. Jim Hawk was left short-staffed given it only had five remaining fulltime
mechanics to work in eight bays, when a wreck required at least two
mechanics. See id.
Second, Kohorst affirmatively misrepresented to Timothy Big Eagle that
he was putting in his two weeks’ notice on March 12, 2020, when he had
already told Crosswords he could start on March 16, 2020. See Docket 157-23
at 19-20. And although the court is unaware of any affirmative
misrepresentations that Nicholas Big Eagle or Larson made to Jim Hawk about
their continued employment, the record suggests that at the very least they
knew that they were going to leave at the same time. Taylor Larson admitted
that he and Nicolas Big Eagle had planned to leave on March 11, 2020, and
that they had also agreed to pick up Kohorst’s toolbox that morning. See
Docket 157-36 at 9. They further agreed not to give Jim Hawk any notice of
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their plan to leave. See id. And in addition to Kohorst providing misleading
information about when he would leave, neither Nicholas Big Eagle nor Larson
told Jim Hawk about their intention to leave, despite knowing they would be
leaving at the same time. See Docket 157-23 at 19-20 (showing Kohorst
providing two weeks’ notice despite knowing he would begin working at
competitor sooner); Docket 157-32 at 32 (showing Nicholas Big Eagle failed to
give advance notice to Jim Hawk); Docket 157-36 at 9 (showing Larson failed to
give advance notice to Jim Hawk). In fact, Nicholas Big Eagle and Larson
arrived at Jim Hawk’s garage early in the morning to load their toolboxes and
to also avoid seeing any Jim Hawk employees. See Docket 157-36 at 10.
These facts are similar to those in Stewart, because in both instances,
the employees had important positions and their failure to give notice caused
significant havoc. See Stewart, 694 N.W.2d at 869; Docket 157-38 at 18.
Additionally, both cases involved situations where the employees either misled
their employers about their intentions of when they would leave the company,
or purposefully kept their intentions secret knowing that multiple co-workers
would also be leaving at the same time. See Stewart, 694 N.W.2d at 869;
Docket 157-36 at 9; Docket 157-32 at 32.
Nicholas Big Eagle, Kohorst, and Larson cite Ozburn-Hessey Logistics,
LLC v. 721 Logistics, LLC, 13 F. Supp. 3d 465, 481 (E.D. Penn. 2014) for the
proposition that employees who know that their mass resignation would
“cripple” the plaintiff-employer, alone, is not sufficient to establish a breach of
their duty of loyalty. See Docket 132 at 62. This case does not alter the court’s
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analysis. First, the court applies South Dakota substantive law, and here, the
South Dakota Supreme Court’s decision in Stewart allows for a plaintiff
employer to succeed on a breach of duty of loyalty claim against individual
employees who fail to give notice of their departure, depending on the specific
facts. See Stewart, 694 N.W.2d at 869. Furthermore, unlike in Ozburn-Hessey,
where the court noted that the individual defendants “worked diligently to
assist with the transition,” there is no such evidence in this case. 13 F. Supp.
3d at 481. Thus, the court finds Ozburn-Hessey distinguishable.
Because deciding whether an employee breached his duty of loyalty is a
highly fact-intensive inquiry, and because the record, when viewed in the light
most favorable to Jim Hawk, contains significant questions about how much
harm the mechanic defendants caused to Jim Hawk by collectively resigning
without providing Jim Hawk any notice, summary judgment is inappropriate.
The court denies mechanic defendants’ motion on Jim Hawk’s breach of duty of
loyalty claims.
D. Unfair Competition
Crossroads, Scholten, Michael Falor, Sneve, Jensen, Thompson, and
Derek Falor argue that Jim Hawk’s unfair competition claim duplicates its
other tort claims of tortious interference with a business relationship, tortious
interference with an employee relationship, and breach of the duty of loyalty.
See Docket 132 at 63-64. Thus, these defendants argue the court must dismiss
them. See id. at 64.
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Under South Dakota law, “[t]he tort of unfair competition does not have
specific elements.” Akins, 616 N.W.2d at 887. Rather, “it describes a general
category of torts which courts recognize for the protection of commercial
interests.” Id. (citations omitted). “[D]amages for unfair competition results
from satisfying the elements of an underlying tort.” Id. at 887-88. South
Dakota law recognizes that tortious interference with a business relationship,
tortious interference with an employment relationship,7 and breach of duty of
loyalty can provide a basis for an unfair competition claim. See id. at 888;
Raven Industries, Inc. v. Lee, 783 N.W.2d 844, 851 (S.D. 2010) (allowing
tortious interference with employment relationship claim to form basis for
unfair competition claim). In Akins, the South Dakota Supreme Court found
summary judgment inappropriate when the record showed a genuine issue of
material fact about whether the Defendant had breached his duty of loyalty to
the plaintiff which resulted in unfair competition. See Akins, 616 N.W.2d at
888. Because the unfair competition claims largely rely on the same facts as
the above-named torts, and because the above-named torts survive the
displacement analysis, so too do Jim Hawk’s unfair competition claims.
Turning to the claims’ merits, the court finds genuine disputes of fact
over whether Crossroads, Scholten, Thompson, Jensen, Michael Falor, and
Derek Falor tortiously interfered with Jim Hawk’s customers. There are
7 As noted above, tortious interference with an employee relationship resides
within a tortious interference with a business relationship under South Dakota
law. See Mueller, 643 N.W. 2d at 68 n.9.
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genuine disputes of fact over whether Crossroads and Scholten tortiously
interfered with Jim Hawk’s employees and whether all individual defendants
except Scholten breached their duty of loyalty to Jim Hawk. Thus, summary
judgment on Jim Hawk’s unfair competition claims against each defendant is
denied to the extent such claims are grounded in the above-named
independent torts. The court, however, finds that Jim Hawk’s unfair
competition claims are “coterminous with and subsumed” within these torts.
See Venture Commc’ns Coop., Inc v. James Valley Coop. Tel. Co., 492 F. Supp.
3d 946, 964 (D.S.D. 2020). Thus, defendants are entitled to summary
judgment on Jim Hawk’s unfair competition claims to the extent they seek to
assert separate causes of action beyond their tort claims.
E. Civil Conspiracy
All defendants argue that the court must dismiss the civil conspiracy
claims because all of Jim Hawk’s common law tort claims against them fail,
and thus Jim Hawk cannot establish the necessary underlying tort required for
a civil conspiracy claim. See Docket 173 at 23. “A civil conspiracy is,
fundamentally, an agreement to commit a tort.” Yankton Cnty. v. McAllister,
977 N.W.2d 327, 341 (S.D. 2022) (citation omitted). To prove a prima facie case
of civil conspiracy, the plaintiff must show
(1) two or more persons;
(2) an object to be accomplished;
(3) a meeting of the minds on the object or course of
action to be taken;
(4) the commission of one or more unlawful overt acts;
and
(5) damages as the proximate result of the conspiracy.
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Stewart, 694 N.W.2d at 866-67. Civil conspiracy is “not an independent cause
of action, but is ‘sustainable only after an underlying tort claim has been
established.’ ” Kirlin v. Halverson, 758 N.W.2d 436, 455 (S.D. 2008) (citations
omitted).
Defendants argue only that Jim Hawk’s civil conspiracy claims fail
because the underlying tort claims against them fail. See Docket 132 at 64-65;
Docket 173 at 23. Defendants do not argue that there is no genuine dispute of
material fact as to any of the elements of civil conspiracy. As discussed above,
each defendant faces at least one surviving underlying tort claim. And because
each of the defendants faces an underlying tort that is not displaced, the civil
conspiracy claim also survives a displacement analysis. Thus, the court denies
summary judgment for each defendant on civil conspiracy.
F. Unjust Enrichment
“Unjust enrichment occurs ‘when one confers a benefit upon another
who accepts or acquiesces in that benefit, making it inequitable to retain that
benefit without paying.’ ” Hofeldt v. Mehling, 658 N.W.2d 783, 788 (S.D. 2003)
(citation omitted). “A party alleging unjust enrichment must show that the
other party both received and knew he was receiving a benefit. Additionally, it
must be inequitable to allow the enriched party to retain the benefit without
paying for it.” Huston v. Martin, 919 N.W.2d 356, 366 (S.D. 2018).
Unjust enrichment is an equitable remedy, and “[a]n essential element to
equitable relief is the lack of an adequate remedy at law.” Rindal v. Sohler, 658
N.W.2d 769, 772 (S.D. 2003). Before addressing the claim’s merits, the court
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must first determine this element. See Paweltzki v. Paweltzki, 964 N.W.2d 756,
769 (S.D. 2021) (describing this inquiry as the “initial question”). If there is an
adequate remedy of law available, the court must dismiss the unjust
enrichment claims. See Rindal, 658 N.W.2d at 772-73.
Tort claims provide an adequate remedy at law. See Paweltzki, 964
N.W.2d at 769. In Paweltzki, two individuals brought a claim of unjust
enrichment against another. See id. at 768. The two individuals brought claims
of breach of contract, breach of fiduciary duty, civil theft, and conversion. See
id. at 769. A jury heard the case and declined to provide them relief on these
claims. See id. The trial court similarly denied them relief on their equitable
claim of unjust enrichment. See id. at 764. The individuals appealed the trial
court’s denial of equitable relief, and the South Dakota Supreme Court
affirmed, reasoning that their breach of contract, breach of fiduciary duty, civil
theft, and conversion claims provided an adequate remedy for them. See id. at
764, 769. The Court continued that “the fact that the jury found [the two
individuals] did not prove their legal claims does not afford [the two individuals]
a second bite of the apple to seek equitable relief for the exact same conduct.”
Id. at 769.
The reasoning in Paweltzki applies equally in this case. Although breach
of contract is not alleged here, Paweltzki’s holding did not hinge on the
presence of a breach of contract claim: there were other tort claims that
provided the two individuals an adequate remedy at law even absent the
breach of contract claim. See id. Thus, regardless of whether Jim Hawk
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succeeds on its various claims of tortious interference of a business
relationship, tortious interference of an employee relationship, breach of duty
of loyalty, or unfair competition, it has an adequate remedy at law. See SDCL
§§ 21-3-1 (providing general measure of damages for tort claims). Because Jim
Hawk has an adequate remedy at law for each defendant, the court grants
defendants’ motion for summary judgment on Jim Haw’s unjust enrichment
claims against all defendants.
G. Defamation
Viewing the facts in the light most favorable to Jim Hawk, the following
additional facts are relevant to this claim:
Jim Hawk III told Scholten about the potential sale of the parts
department, but said that the parts department employees would keep their
jobs even if Jim Hawk sold the parts department. See Docket 166 ¶¶ 83-86.
Scholten knew that the employees in the parts department would keep their
jobs. See Docket 157-16 at 24. By November 2019, Jim Hawk was no longer
actively discussing the sale of the parts department, which Scholten knew. See
Docket 166 at ¶¶ 87-88; Docket 157-33 at 29. In January 2020, Clinton Carter
a vice president of parts and aftermarket at Jim Hawk, testified that Carter told
Michael Falor that the sale was on the “back burner.” See Docket 157-24 at 19-
20.
After Jim Hawk fired Scholten, Scholten then told Thompson, Michael
Falor, and Dave Jensen that Jim Hawk would potentially sell or close the parts
department. See Docket 157-16 at 24-25; Docket 157-13 at 16. Thompson
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testified that Scholten told Mike Falor, who then told Thompson, that
Thompson’s position would “likely end or become owned by a different
company.” Docket 157-18 at 22. Scholten denied telling Thompson that
Thompson would lose his job. Docket 157-16 at 24-25
Scholten argues that Jim Hawk’s defamation claim fails as a matter of
law because Scholten’s statements were either true or incapable of being true
or false and thus an unactionable prediction. See Docket 132 at 66-67. Thus,
Scholten urges the court to grant summary judgment on Jim Hawk’s
defamation claim. Id. Jim Hawk argues summary judgment is inappropriate
because the record shows a genuine dispute over whether Scholten’s
statements were in fact true. See Docket 159 at 85.
Under South Dakota law, a person can defame another by libel or
slander. See SDCL § 20-11-2; Paint Brush Corp., Parts Brush Div. v. Neu, 599
N.W.2d 384, 398 (S.D. 1999). As relevant here, South Dakota provides that
slander is a
[F]alse and unprivileged publication . . . which [] [t]ends
directly to injure him in respect to his office, profession,
trade, or business, either by imputing to him general
disqualification in those respects which the office or
other occupation peculiarly requires, or by imputing
something with reference to his office, profession, trade,
or business that has a natural tendency to lessen its
profit[.]
SDCL § 20-11-4. Although the First Amendment protects “pure” opinions,
opinions may still be actionable if it “impl[ies] a false assertion of fact.” See
Milkovich v. Lorain J. Co., 497 U.S. 1, 18-19 (1990) (rejecting assertion that
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First Amendment categorically protects all opinions). “Whether a statement
implies [an objective fact] is a question for the jury.” See Paint Brush, 599
N.W.2d at 397; see also Lundell Mfg. v. Am. Broad. Co., 98 F.3d 351, 358 (8th
Cir. 1996) (noting that whether an opinion falsely asserts a fact is a question
for the jury).
Even if a jury finds a statement to assert a fact, the question remains
whether such an assertion is true. See SDCL § 20-11-2 (defining slander as a
false publication); Guilford v. Nw. Pub. Serv., 581 N.W. 2d 178, 180 (S.D. 1998).
“The truth of a defamatory statement is measured by the ordinary implication
of the words at the time the statement was made . . . .” Guilford, 581 N.W.2d at
180. (citation omitted).
Here, Jim Hawk’s defamation claim against Scholten does not rely on
any allegations that Scholten shared confidential information with Crossroads,
and thus it survives the displacement analysis. A reasonable jury could find
that Scholten’s statements asserted a fact because there is a genuine dispute
about whether Scholten told Thompson, Michael Falor, or Dave Jensen that
they might lose their job. After Jim Hawk fired Scholten, Scholten then told
Thompson, Michael Falor, and Dave Jensen that Jim Hawk would potentially
sell or close the parts department. See Docket 157-16 at 24-25; Docket 157-13
at 16. Scholten testified that he did not tell Thompson that Thompson would
lose Thompson’s job, and Michael Falor similarly testified that Scholten did not
say whether anyone in the parts department would lose their jobs. See Docket
157-13 at 15-16; Docket 157-16 at 24-25. But Thompson testified that
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Scholten told Mike Falor, who then told Thompson, that Thompson’s position
would “likely end or become owned by a different company.” Docket 157-18 at
22. A reasonable jury could find that Scholten’s statement about the potential
to lose one’s job is a statement of fact. Further, even if Scholten only said that
the parts department would be sold or would close, a reasonable jury could
find that such a statement impliedly asserts the employees could lose their job.
Viewing the evidence in the light most favorable to Jim Hawk, a genuine
dispute exists about whether Scholten told anyone that they would lose their
job and whether that asserts an objective fact. The court will next consider
whether there is a dispute over whether Scholten’s statements were true.
Turning to the record, Jim Hawk III told Scholten about the potential
sale of the parts department. See Docket 166 ¶ 84. Jim Hawk III also told
Scholten that the parts department employees would keep their jobs even if
Jim Hawk sold the parts department. See id. ¶ 86. Scholten was aware that the
employees in the parts department would keep their jobs. Docket 157-16 at 24.
According to Jim Hawk III, discussions about whether the sale would actually
go through had stopped by November 2019, and Jim Hawk III informed
Scholten about this new development prior to Scholten leaving Jim Hawk. See
Docket 166 at ¶¶ 87-88; Docket 157-33 at 29. In January 2020, Clinton Carter
a vice president of parts and aftermarket at Jim Hawk, testified that Carter told
Michael Falor that the sale was on the “back burner.” See Docket 157-24 at 19-
20.
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The court finds a material dispute exists about the truthfulness of
whether Jim Hawk really was going to sell its parts department. Further, if a
jury concluded Scholten’s statements asserted that Thompson, Michael Falor,
or Jensen might lose their jobs, the record shows at the very least a genuine
dispute over whether that is true.
In summary, genuine disputes exist regarding Scholten’s statements—
whether he made certain statements, what those statements asserted, if
anything, and whether such assertions were true. These questions are for the
jury to decide. The court denies Scholten’s motion for summary judgment on
Jim Hawk’s defamation claim.
CONCLUSION
A genuine dispute of material fact exists regarding whether Crossroads,
Scholten, Mike Falor, Sneve, Jensen, Thompson, and Derek Falor
misappropriated trade secrets. The court denies these defendants’ motion for
summary judgment on the federal and state law trade secret claims.
The only tort claim that fails a displacement analysis is Jim Hawk’s
breach of duty of loyalty claim against Scholten. Thus, the court grants
Scholten’s motion for summary judgment on Jim Hawk’s duty of loyalty claim
against Scholten. All remaining tort claims survive a displacement analysis.
Genuine disputes of material fact exist in all remaining claims except for
Jim Hawk’s unjust enrichment claims against Crossroads, Scholten, Mike
Falor, Sneve, Jensen, Thompson, and Derek Falor. Thus, the court grants
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defendants’ motion for summary judgment on Jim Hawk’s unjust enrichment
claims against Crossroads, Scholten, Mike Falor, Sneve, Jensen, Thompson,
and Derek Falor. The court denies all remaining motions for summary
judgment because it finds a genuine dispute of material fact exists in all
remaining claims.
Thus, it is ORDERED:
(1) that the defendants’ motion for summary judgment (Docket 121) is
granted in part and denied in part;
(2) that Crossroads’s, Scholten’s, Mike Falor’s, Sneve’s, Jensen’s,
Thompson’s, and Derek Falor’s motions for summary judgment on Jim Hawk’s
claim under 18 U.S.C. § 1836 and SDCL § 37-29-1 are DENIED;
(3) that Crossroads’s, Scholten’s, Mike Falor’s, Sneve’s, Jensen’s,
Thompson’s, and Derek Falor’s motions for summary judgment on Jim Hawk’s
claim of tortious interference with business relations is DENIED;
(4) that Crossroads’s, Scholten’s, Mike Falor’s, Sneve’s, Jensen’s.
Thompson’s, and Derek Falor’s motions for summary judgment on Jim Hawk’s
claim of tortious interference with employment relations is DENIED;
(5) that Scholten’s motion for summary judgment on Jim Hawk’s claim of
breach of duty of loyalty is GRANTED;
(6) that Mike Falor’s, Sneve’s, Jensen’s, Thompson’s, Derek Falor’s,
Nicholas Big Eagle’s, Kohorst’s, and Larson’s motions for summary judgment
on Jim Hawk’s claim of breach of duty of loyalty is DENIED;
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(7) that Crossroads’s, Scholten’s, Mike Falor’s, Sneve’s, Jensen’s,
Thompson’s, and Derek Falor’s motions for summary judgment on Jim Hawk’s
claim of unfair competition is DENIED;
(8) that Crossroads’s, Scholten’s, Mike Falor’s, Sneve’s, Jensen’s,
Thompson’s, and Derek Falor’s motions for summary judgment on Jim Hawk’s
claim of civil conspiracy is DENIED;
(9) that Crossroads’s, Scholten’s, Mike Falor’s, Sneve’s, Jensen’s,
Thompson’s, and Derek Falor’s motions for summary judgment on Jim Hawk’s
claim of unjust enrichment is GRANTED; and
(10) that Scholten’s motion for summary judgment on Jim Hawk’s
defamation claim is DENIED.
Dated February 8, 2023.
BY THE COURT:
/s/ Karen E. Schreier
KAREN E. SCHREIER
UNITED STATES DISTRICT JUDGE
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