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Ram Tool & Supply Co., Inc. v. HD Supply Construction Supply, Ltd.

Court of Appeals of Tennessee, Nashville

August 19, 2014

RAM TOOL & SUPPLY CO., INC. ET AL.
v.
HD SUPPLY CONSTRUCTION SUPPLY, LTD. d/b/a WHITE CAP CONSTRUCTION SUPPLY, ROBERT MAPLES AND TIM PRUITT

Session Date May 20, 2014

Direct Appeal from the Circuit Court for Davidson County No. 13C822 Joseph Binkley, Jr., Judge

Joseph F. Welborn, Jason W. Callen, D. Gil Schuette, Nashville, Tennessee, for the appellant, Ram Tool & Supply Co., Inc.

John W. Smith T, Birmingham, Alabama; Thor Y. Urness, Edmund S. Sauer, Kristi M. Wilcox, Nashville, Tennessee, for the appellees, White Cap Construction Supply and Robert Maples

William S. Rutchow, Jennifer S. Rusie, Nashville, Tennessee, for the appellee, Tim Pruitt

Alan E. Highers, P.J., W.S., delivered the opinion of the Court, in which David R. Farmer, J., and J. Steven Stafford, J., joined.

OPINION

ALAN E. HIGHERS, P.J., W.S.

I. Facts & Procedural History[1]

Ram Tool & Supply Co., Inc. ("Ram Tool") and HD Construction Supply, Ltd., d/b/a White Cap Construction Supply ("White Cap") are competitors in the specialized commercial construction supply industry. Ram Tool is a family-owned company based in Birmingham, Alabama, and it has locations throughout the southeast, including a Nashville location which opened in 1992. White Cap is the country's largest company in the specialized commercial construction supply industry, with over one hundred thirty branch locations nationwide. In 2010, White Cap decided to open a branch office in Nashville.

Robert Maples is a recruiter for White Cap. In July of 2010, Mr. Maples contacted Tim Pruitt, an at-will employee[2] at Ram Tool's Nashville location, to gauge Mr. Pruitt's interest in coming to work for White Cap. Mr. Pruitt indicated that he was interested in working for White Cap and he and Mr. Maples engaged in several conversations.

Mr. Pruitt was selected to serve as branch manager for White Cap's Nashville location upon its future opening. While still employed by Ram Tool, Mr. Pruitt worked with Robert Maples to establish the Nashville branch. Specifically, Mr. Pruitt spoke with Ram Tool at-will employees Len Maruk, Bill Peach, Jon Morrisey and David Mears[3] and asked them whether they were interested in a "better opportunity"; eventually, while still employed by Ram Tool, Mr. Pruitt indicated to these employees that he "thought they could go to White Cap[.]" Mr. Pruitt helped to arrange two dinner meetings in the fall of 2010 attended by himself and fellow Ram Tool employees Bill Peach, Jon Morrisey, Len Maruk and by White Cap representatives, including recruiter Tim Maples. Maples, however, also contacted Maruk, Peach and Morrissey, outside the presence of Pruitt, to discuss employment with White Cap.

White Cap prepared a pro forma regarding a branch in Nashville. The pro forma summary stated:

We have the opportunity to hire 3 key account manage[r]s and the lead inside salesperson from the RAM Tool location in Nashville, TN. This location for RAM currently has annual revenue of approximately $15 million. These three account managers represent about 40% of this business.

On December 9, 2010, Nashville branch Ram Tool employees Bill Peach, Jon Morrisey and Len Maruk received letters offering employment at White Cap. David Mears received a similar letter offering employment at White Cap dated December 13, 2010. The unsigned letters indicated that they were sent by Tim Pruitt as White Cap branch manager; Mr. Pruitt was still employed by Ram Tool.[4]

On December 30, 2010, Tim Pruitt, Bill Peach, Jon Morrisey, Len Maruk and David Mears resigned from Ram Tool. Prior to or around the time of his exit from Ram Tool, Pruitt sent Maples information regarding Ram Tool's Nashville branch and its employees including the inventory, vehicles, and personnel White Cap would need to open its Nashville branch. Pruitt, along with Peach and Morrissey, also sent Maples a list of their best customers along with revenues generated by those customers. On December 31, 2010, White Cap Vice President Paul Radomski sent an internal e-mail to several White Cap employees, including Maples, which stated in part:

We dropped the bomb on RAM Tool in Nashville yesterday afternoon. All 5 candidates walked in and resigned. They all start on Monday.
Bob Maples did an outstanding job coordinating all of this and keeping it quite [sic] all this time. RAM Tool was caught completely off guard.

Pruitt, Peach, Morrisey, Maruk and Mears went to work for White Cap at its Nashville location when it opened on January 3, 2011.

On January 14, 2011, Ram Tool filed a "Verified Complaint for Injunctive and Other Relief" ("Verified Complaint") in the Jefferson County, Alabama, Circuit Court against White Cap, Maples, Mears, Pruitt and Maruk. Ram Tool alleged conversion of confidential customer information, breach of fiduciary duties, unfair competition, and violation of the Alabama Trade Secrets Act ("ATSA"). Specifically, it claimed that Defendants Pruitt, Maruk and Mears had access to confidential and proprietary information and trade secrets including the identity of Ram Tools's customers, sales, salaries, benefits, inventory, and approach to inventory control. It alleged that Maruk had improperly accessed the computer of a Ram Tool branch manager in order to compile a complete list of items in Ram Tool's Nashville warehouse and that he had sent the list to Pruitt, who sent the list to Maples. It further alleged that Pruitt had sent to Maples the compensation scale for Ram Tool sales personnel, a description of Ram Tool's truck fleet and their use, a list of every employee in Ram Tool's Nashville branch as well as his or her job description and salary. The Verified Complaint claimed that White Cap was "using the confidential information of Ram Tool to aggressively pursue Ram Tool customers" and that it was "using the confidential information improperly obtained from Ram Tool to solicit and make offers to Ram Tool employees in various parts of the Ram Tool footprint."

It further claimed, regarding the breach of fiduciary duty claim, that Mears, Pruitt and Maruk had breached such duty by "(a) misappropriating Ram Tool's business records and furnishing those records to White Cap Construction Supply before their resignation from Ram Tool; and (b) while still employed with Ram Tool, arranging for the solicitation (through the use of the purloined Ram Tool secret records) of Ram Tool customers and/or prospects." Ram Tool contended that "Mears, Pruitt and Maruk also breached their fiduciary duties to Ram Tool by making secret plans with others, while they were still employed by Ram Tool, to deprive Ram Tool of its records, clients, and trade secrets." Ram Tool claimed that White Cap and Maples had encouraged Mears, Pruitt and Maruk to breach their fiduciary duties owed to Ram Tool and that they had acted in concert with Mears, Pruitt and Maruk in the breaches. Ram Tool sought to restrain and enjoin the defendants from soliciting Ram Tool customers and employees and from using Ram Tool information and it sought the return of Ram Tool's confidential information.

After the case was removed to the United States District Court for the Northern District of Alabama, Ram Tool filed its "First Amended Complaint" on February 11, 2011. In the complaint, Ram Tool added a claim for intentional interference with business relations, it provided further specific factual allegations to support its previously-asserted claims, and beyond its request for injunctive relief, it sought monetary damages against the defendants.

With regard to its claim for breach of fiduciary duties, Ram Tool alleged that Mears, [5] Pruitt and Maruk "breached their fiduciary duties and obligations to Ram Tool by, among other things: (a) misappropriating Ram Tool's business records and furnishing those records to White Cap Construction Supply before their resignation from Ram Tool; and (b) while still employed with Ram Tool, arranging for the solicitation (through the use of the purloined Ram Tool trade secret records) of Ram Tool customers and/or prospects." It further alleged that Mears, Pruitt and Maruk had breached their fiduciary duties by "making secret plans with others, while they were still employed by Ram Tool, to deprive Ram Tool of its records, clients, and trade secrets[, ]" and that White Cap and Maples had encouraged them to do so and had acted in concert therewith.

Following an evidentiary hearing, the federal court in Alabama issued a Memorandum Opinion, on March 21, 2011, dismissing Maples, Pruitt and Maruk for lack of personal jurisdiction. It further denied Ram Tool's motion for a preliminary injunction because it found Ram Tool had failed to meet its burden to establish a substantial likelihood of success on the merits or that irreparable injury would be suffered unless the injunction issued. Specifically, the federal court found no substantial likelihood of success as to the ATSA claim because it found that Ram Tool had failed to keep its "top" customer list confidential and that it had failed to establish that White Cap had actually used Ram Tool's inventory list.

On March 30, 2011, Ram Tool filed a Complaint in the Davidson County Chancery Court against Robert Maples and former Ram Tool employees Tim Pruitt, Leonard Maruk, Bill Peach, Tim McMaster and John Morrissey. The Complaint asserted the following claims:

(a) Conversion of Plaintiff's confidential customer and proprietary business information by Tim Pruitt, Leonard Maruk, Bill Peach, Tim McMaster, and John Morrissey acting in concert with White Cap and Robert Maples;
(b) Breach of fiduciary duties that Tim Pruitt, Leonard Maruk, Bill Peach, Tim McMaster, and John Morrissey owed to the Plaintiff during their employment with Ram Tool, and White Cap's and Robert Maples' inducement of those breaches;
(c) Violation of the Tennessee Trade Secrets Act;
(d) Intentional interference with Plaintiff's business relations; and
(e) Conspiracy among the Defendants to harm Plaintiff.

The Complaint made factual allegations, in part, as follows:

During their employment with Ram Tool, Defendants Pruitt, Maruk, Peach, McMaster and Morrissey had access to confidential and proprietary information and trade secrets, including the identity of Ram Tool's customers, Ram Tool's sales, salaries, and benefits, the actual inventory of Ram Tool branches, Ram Tool's proprietary system for inventory control developed at a substantial cost to Ram Tool, Ram Tool's preferred vendor list, Ram Tool's customer list and other non-public information vital to the conduct of Ram Tool's business. Ram Tool's computer screens stress the confidential nature of this information every time its employees turn on their computers. The Ram Tool Employee Handbook stresses the confidential nature of these items. The Defendants signed acknowledgments of receiving, reading and understanding these policies.
The success of any entity in the supply business depends largely on the management of its inventory. Ram Tool has for its four decades of existence invested countless dollars in building systems, algorithms and other management tools, making it as efficient as possible in the area of inventory. This investment is important to make sure that the goods needed by a customer are available and also to insure that there is not excessive stock in the warehouse. The investment by Ram Tool in the systems developed by these efforts is proprietary and kept confidential from many employees and is not available in the general marketplace.
Upon information and belief, the Defendants conspired to leave Ram Tool in early August 2010. An e-mail exchange between Defendants Maruk and Pruitt on August 11, 2010 indicates that they were putting their conspiracy plan together.
In the over 40 years of existence, Ram Tool has developed a management tool called a "Multiperiod Report." This document is a device by which outside salesmen are managed. It includes customer assignments, sales, gross profit margin and other confidential information. On September 16, 2010, Defendant Maruk provided the Multiperiod Report to Bill Peach. Defendant Maruk would have no reason to have this report in his job at Ram Tool.
On October 26, 2010, Defendant Maruk sent to Defendant[s] Pruitt and Bill Peach . . . an email . . . . [with an attached] list of Ram Tool's preferred vendors with the name of the company, their contact name, their phone number, cost figures, and the type of items they sell. This list has been compiled over a number of years at a great expense to Ram Tool and is confidential and proprietary.
On or about October 26, 2010, Defendant Maruk pulled together a complete customer list of Ram Tool's customers and their jobsites in the Nashville market, sorted by outside salesmen. Mr. Maruk would not have access nor need of this information in his job at Ram Tool.
In October 2010, Defendant Maruk compiled and placed on his desk top computer at Ram Tool a complete detailed list of every sale that had occurred in Ram Tool's Nashville Branch in 2010 back to July 1. This list includes the customer's name, jobsite, what they bought, how much they paid for it and the date of sale. In his job at Ram Tool, Maruk would neither have need for nor access to this information.
Defendant Maruk kept on his computer files at Ram Tool sales summaries by salesman for Ram Tool branches including Pensacola, Austin and Nashville. . . . In his job at Ram Tool, Defendant Maruk would have neither access to nor need for this information.
On November 1, 2010, Defendant Pruitt received an e-mail from Defendant Maples that included as an attachment the compensation scale for a branch like Ram Tool's in Nashville. The document is titled "Confidential -Commission Plan for W.C." It appears to be a document to be used to hire Ram Tool salesmen. . . . One day later, Maruk e-mailed to Pruitt detailed and proprietary information of all Nashville Ram Tool salesmen that included sales and profitability. With this information, Pruitt and Maples could determine how much White Cap would pay anyone White Cap took from Ram Tool.
On December 1, 2010, Defendant Maruk sent an e-mail to Defendant Pruitt[.] . . . Attached to Maruk's e-mail was a 44-page detailed description of items in Ram Tool's Nashville warehouse. This information is confidential and proprietary and a trade secret and can be used to set up a warehouse anywhere in the country. To obtain this information, Maruk improperly accessed data from the computer of the Ram Tool branch manager. He was in no way authorized to do this.
Later in the day on December 1, Defendant Pruitt forwarded the information from Defendant Maruk to Defendant Maples at White Cap. Maples forwarded this detailed and confidential inventory list to two executives at White Cap - Paul Radomski and Craig McCurdy, who was in charge of stocking White Cap's Nashville branch. . . .
On December 1, 2010, Defendant Pruitt sent to Defendant Maples at White Cap via e-mail a description of Ram Tool's truck fleet and their use.
On December 1, 2010, Defendant Pruitt delivered to Defendant Maples via e-mail a list of every employee in Ram Tool's Nashville branch as well as their job description and salary at Ram Tool. A document entitled Sheet 1 also included a column called "Proposed, " which appears to be the amount Defendant Pruitt believed it ...

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