Inevitable Disclosure Comes to South Carolina: Nucor Corp. v. John Bell and SeverCorr, LLC

Several posts on this blog have focused on the inevitable disclosure doctrine, which seeks to further erode an employee’s power to quit and work elsewhere.  Nucor v. Bell has produced two published decisions related to a trade secret battle waged against a former employee, who was not quite blameless.  However, I have come across an unreported decision from that case (2008) in which U.S. District Court Judge David Norton found that South Carolina would adopt the inevitable disclosure doctrine.  Judge Norton used the inevitable disclosure doctrine to grant injunctive relief against the former employee.  This case deserves our attention.

Facts

Nucor Corporation, plaintiff, is a steel manufacturer that owns and operates mills in 17 states, including a plant located in Berkeley County, South Carolina (“Nucor-Berkeley”). Nucor-Berkeley is a “mini-mill,” which converts scrap steel into various marketable steel products. Nucor is a publicly-traded corporation that in 2006 generated $14.75 billion in revenue and produced 22.4 million tons of steel. The Nucor-Berkeley mill produced 3.3 million tons of steel in 2006, approximately 180,000 tons of which were IF/ULC steel.

John Bell is a former employee of Nucor. He began working for Nucor in 1987 and became the melt-shop manager at Nucor-Berkeley in 1995. “During his time at Nucor-Berkeley, Bell was intimately involved in the development of processes for manufacturing Interstitial-Free/Ultra Low Carbon (IF/ULC) steel.” Nucor contended that acquiring the ability to manufacture IF/ULC steel represented a significant investment of time and money and involved extensive trial-and-error, all overseen by Bell.  Although others manufacture IF/ULC steel, Nucor contended that it acquired a competitive advantage because its method of producing IF/ULC steel in a mini-mill allows it to produce the steel less expensively. Nucor claimed that the processes it developed for producing IF/ULC steel in a mini-mill was a trade secret as defined in the South Carolina Trade Secrets Act (hereinafter “the SCTSA.” See S.C.Code Ann. § 39-8-20(5)(a)).

In 2004, Nucor promoted Bell to the position of General Manager of Steelmaking Technologies. In early 2006, Bell left Nucor to become SeverCorr’s Executive Vice-President and General Manager of Operations. In his new position, Bell is responsible for overseeing the construction and operation of SeverCorr’s mill, which is a “mini-mill.”

Bell had not signed a non-compete agreement, although he had signed confidentiality agreements.

And last but not least: Before he left Nucor, Bell downloaded various Nucor-related documents to the SanDisk thumb-drive device and later viewed those files on his SeverCorr laptop. The District Court found that contained Nucor-related documents, that Bell looked at those files on his  SeverCorr laptop, and that Bell committed spoliation in bad faith by discarding the device. Judge Norton also concluded that Bell and SeverCorr “spoliated evidence by continuing to use Bell’s SeverCorr laptop at a time they anticipated litigation and while the litigation was actually pending.”

Law

Nucor filed a motion for a preliminary injunction on May 10, 2007. Nucor asked that the court enjoin: (1) Bell from working for SeverCorr, (2) SeverCorr from manufacturing, or preparing to manufacture, IF/ULC steel by use of vacuum degasser and/or quench process, (3) SeverCorr from hiring employees of Nucor-Berkeley or any other Nucor sheet mill; and (4) defendants from using, disclosing, or otherwise misappropriating Nucor’s trade secrets and confidential information.

The court first determined that some of the processes for manufacturing IF/ULC steel in a mini-mill constituted a trade secret, although the court seemed less than certain on this point.  Second, the court concluded that Bell and SeverCorr had acquired certain of these trade secrets by downloading documents to a SanDisk and that these documents “likely qualify as acquisition [of trade secrets] by ‘improper means’” (See S.C. Code § 39-8-20(1)).

In addition, Nucor claimed Bell knew trade secrets and that his position with SeverCorr would require that Bell to “disclose or use its trade secrets to carry out the duties of his new position.”  The District Court noted that the “SCTSA provides for injunctive relief to prevent the ‘actual or threatened misappropriation’ of trade secrets.” The court also indicated that at least fifteen (15) of forty-two (42) states, which had trade secret statutes that permitted enjoining “threatened misappropriation of trade secrets,” had adopted and applied the inevitable disclosure doctrine.  Judge Norton concluded that despite South Carolina’s long history of disfavoring restraints on trade, the South Carolina Supreme Court would likely adopt the doctrine.

The court relied heavily on PepsiCo, Inc. v. Redmond, 54 F.3d 1262 (7th Cir. 1995), finding there to be 6 factors to consider in the application of the doctrine at the injunction stage.  In the end, Judge Norton concluded that South Carolina would “apply a narrow version of the inevitable disclosure doctrine.”  And the court indicated that the precise contours of the application of the doctrine would be left for future determination, but looked a Solomon-esque middle course.

Result:  The court refused to enjoin SeverCorr from developing IF/ULC steel and permitted Bell to continue his employment at SeverCorr.  However, the court barred “him from any involvement in manufacturing or preparing to manufacture IF/ULC steel.”  The court required Nucor post only a $500 security bond.

This case is rich in analysis.  The court makes efforts to locate a path that balances the interests of both all parties, which is somewhat comforting.  On the other hand, the mere fact that a de facto non-compete was enforced in restraint on trade is a clear indication of the trend toward employer power to control employees after termination. Also, this case demonstrates the potentially problematic consequences for employees who copy electronic files for future use.  There is no doubt that the fact that Bell had made copies of Nucor’s sensitive information motivated the court to take some action.

Write me if you want a copy of the decision.

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