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Palin Mfg. Co. v. Water Technology

OPINION FILED JANUARY 14, 1982.

PALIN MANUFACTURING COMPANY, INC., PLAINTIFF-APPELLEE,

v.

WATER TECHNOLOGY, INC., ET AL., DEFENDANTS-APPELLANTS.



APPEAL from the Circuit Court of Cook County; the Hon. RICHARD L. CURRY, Judge, presiding.

JUSTICE LORENZ DELIVERED THE OPINION OF THE COURT:

Rehearing denied March 4, 1982.

Defendants Water Technology (Water Tech) and A. Allen Morr (Morr) appeal from that portion of a trial court's order which permanently enjoins them from manufacturing, marketing or selling the "sludge separator device" of plaintiff, Palin Manufacturing Company, Inc. (Palin), or any device utilizing Palin's design features and engineering characteristics. This order followed a hearing on Palin's verified complaint for injunctive and other relief which alleges that defendants have misappropriated Palin's trade secrets. In addition to the granting of injunctive relief, the trial court imposed a constructive trust upon the gross profits received by defendants resulting from the sale of Palin's device. Further proof was ordered by the court with regard to damages sustained by Palin, along with attorney fees.

Defendants raise the following issues on appeal: (1) the injunction violates section 3-1 of the Injunction Act (Ill. Rev. Stat. 1979, ch. 69, par. 3-1 et seq.) because it (a) contains no reasons for its issuance, (b) fails to describe the enjoined acts in specific detail, and (c) refers to another document when describing the prohibited acts; (2) the injunction is invalid since it is not limited to the time required to "reverse engineer" Palin's product; (3) the trial court erred in failing to consider the relative hardships upon the parties when it issued the injunction; (4) the injunction contains no finding, and the hearing produced no evidence, of irreparable harm to Palin justifying the restrictions against defendants; (5) the trial court's failure to join Pangburn, an indispensable party, renders the injunction void; (6) the trial court's refusal to rule on Pangburn's motion for a change of venue renders the injunction void (Pangburn was joined as a party defendant during the hearing and subsequently dismissed from the case); (7) Palin failed to prove that its drawings or sludge separator device were trade secrets; and (8) the trial court erred in finding a fiduciary duty owed by Morr to Turnquist.

The following testimony was adduced at the hearing and is pertinent to our decision.

Sanfred Turnquist, the president of Palin, testified that his company developed and marketed paint sludge removal equipment. In 1976, Palin installed a prototype paint sludge separator, which was designed to remove paint sludge from water, in the General Motors (GM) plant in Janesville, Wisconsin. GM had a problem at the Janesville plant with the removal of paint overspray accumulated during the process of painting vehicles. This overspray was collected in water wash booths by a ventilation system. GM needed a device that would separate the live paint from the water in the wash booths, in order to facilitate the paint's efficient disposal. Palin's device, which attempted to achieve this purpose, was developed by Turnquist over a period of three years at a cost of about $100,000. However, initial testing of Palin's prototype unit proved unsuccessful in solving GM's problem. The chemicals employed in Palin's prototype unit to "detactify" or kill the paint were ineffective, and live paint clogged GM's sewer system.

In April of 1977, Turnquist met Warren Pangburn, a sales representative from Detrex Chemical Company. Pangburn had been attempting to sell GM his company's chemicals for use in detactifying the live paint accumulated in the spray booths. Robert Radtke, GM's superintendent of maintenance encouraged Pangburn to work with Turnquist to try to eliminate this problem. Although Pangburn's chemicals were more successful than those previously used with Palin's device, they, too, did not kill all the paint.

Subsequently, Turnquist decided to hire Pangburn as a technical sales representative to market Palin's device for a 10% commission. Pangburn left Palin's employ in November of 1977 after Turnquist rejected his request to be paid a straight salary. According to Turnquist, Pangburn was helpful to him during their relationship because he "had a rapport with many employees at General Motors." But Turnquist stated that Pangburn had no part in designing Palin's sludge separator device.

Radtke introduced Morr, the president of Water Tech, to Turnquist in the fall of 1977. Water Tech marketed an electrostatic treater unit that detactified paint. Morr and Turnquist agreed to install one of these units on the same booth at GM where Palin's prototype was being tested. The electrostatic unit proved to be highly successful, so the two decided to submit a "joint marketing quotation" to GM for the products. The quote, submitted on November 4, 1977, listed Palin's device along with Water Tech's electrostatic treater. Pangburn delivered the quote, along with two or three drawings of Palin's device, to GM.

In December of 1979, Turnquist learned that Water Tech was advertising for the sale of a sludge separator device in a trade magazine. This device had many of the same characteristics as Palin's equipment. Subsequently, GM purchased one of Water Tech's sludge separator devices. Although Palin had not been actively marketing its device elsewhere, GM bought its prototype unit. However, Palin did not sell GM any other device.

According to Turnquist, defendants misappropriated two drawings of Palin's sludge separator device and utilized them in producing their own sludge separator. These drawings, Turnquist claims, constitute trade secrets.

On cross-examination, Turnquist admitted that the drawings in question were not marked confidential, and that he never told Radke or GM that the information on the drawings was confidential. In fact, he failed to mark any written materials or advise anyone that his developments constituted trade secrets or were to be considered confidential information. Turnquist admittedly tested the sludge separator device at GM in an effort to later sell it the equipment. He and the GM employees had a "free run" of the plant during the testing period. Turnquist never challenged the security employed at the GM plant, but had no reason to doubt its adequacy.

Allen Morr testified as an adverse witness. The testing of his company's equipment in conjunction with Palin's device at GM ran for 90 days — from October 10, 1977, to January 10, 1978. On various occasions during this 90-day period, Morr met with both Pangburn and a patent attorney to discuss the patenting and marketing of a sludge separator device. On January 11, 1978, one day after the testing period expired, Morr wrote GM a letter quoting for purchase Water Tech's electrostatic water treaters. The letter stated that the purchase was "not contingent upon the use of automatic filtering equipment, such as that manufactured by Palin Manufacturing Company."

Morr further stated that one had to fill out a temporary visitor's pass, sign a registration form and state one's business before entering the GM plant. In order to view the inside of Palin's sludge separator, it was necessary to climb a ladder. The functional parts of the device were ...


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