Miltope Corporation ("Miltope") is a manufacturer of a variety of defense industry and nondefense industry electrical and technical products. One of its defense-industry products is a SPORT computer,1
designed for field use by personnel of the United States Army. In 1995, Miltope and the United States Army entered into a contract pursuant to which the Army agreed to purchase up to $80,000,000
worth of SPORT computers over a five-year period.
In September 1998, approximately three years after Miltope and the Army had executed their contract, Jefferson Daniel Kaylor, Jr., the plaintiff in the underlying action, accepted employment with Miltope. When he accepted employment with Miltope, Kaylor was aware that Miltope had entered into a contract to provide SPORT computers to the Army. Kaylor contends that his employment contract guaranteed him a two percent commission on each SPORT computer sold to the Army during the period of his employment. Miltope denies that contention; it states that Kaylor was not guaranteed under his employment contract any commission on the sale of SPORT computers to the Army.
On December 31, 1999, Kaylor resigned his employment with Miltope. On May 16, 2000, he sued Miltope, alleging breach of contract, fraudulent misrepresentation, fraudulent suppression, and fraudulent deceit. All four claims are based on his contention that he was entitled, under his employment contract with Miltope, to a two percent commission on SPORT computers sold by Miltope to the Army.
During discovery, Kaylor demanded of Miltope discovery of, among other documents, the following documents:
(1) "all file(s) referencing bookings or orders received by [Miltope] since October 19, 1998"2;
(2) "all documents which relate, refer to or reflect meetings of Miltope's Board of Directors, division reviews or the equivalent between October 28, 1998 and the present, including, but not limited to all meeting minutes, notes and materials presented during such meetings"; and
(3) "all documents which relate, refer to or reflect projected and actual gross and net margins and profits for Miltope regarding the SPORT and ICE Integration Programs since negotiations for those accounts began."3
Miltope objected to those production requests. Following a hearing, the trial court ordered Miltope to produce the requested documents; however, the trial court entered a protective order limiting the uses and dissemination that Kaylor and his attorneys could make of the documents. The trial court ordered that the dissemination of information identified as confidential or protected be restricted to (1) the court, (2) those to whom the court ordered disclosure and those to whom the parties agreed there should be disclosure, (3) counsel of record, (4) staff of counsel of record for purposes of trial preparation who likewise agreed to be bound by the order, (5) expert witnesses who were not employees of either party and who likewise agreed to be bound by the order, (6) the parties and those employed by the parties to assist in the litigation who likewise agreed to be bound by the order, (7) deponents, witnesses, and potential witnesses who likewise agreed to be bound by the order, (8) jurors, (9) persons attending the trial, and (10) court reporters for the deposition and the trial. The trial court further ordered that the confidential or protected information was to be used "solely for the purposes of this litigation, not for any business, commercial, or other purpose," and that Kaylor's attorneys were to be the custodians of the confidential
documents and were to return them to Miltope when the litigation was over.
Miltope produced copies of all orders by the Army for SPORT computers from October 19, 1998, to December 31, 2000. Miltope also produced redacted portions of the meeting minutes of its board of directors in which the board referred to or mentioned Kaylor or his employment. Miltope produced no documents responsive to Kaylor's request for documents relating to its "actual gross and net margins and profits" resulting from the sale of the SPORT computers to the Army.
Miltope moved the trial court to reconsider the portions of its order that required it to produce (1) all orders Miltope received from October 19, 1998, through December 31, 2000 (other than the Army's orders for the SPORT computers, which had already been produced); (2) minutes of all board of directors' meetings from October 19, 1998, through December 31, 2000 (other than those portions that related to or mentioned Kaylor, which had already been produced); and (3) financial information regarding Miltope's gross and net profit margins on the purchase of SPORT computers by the Army. The trial court denied Miltope's motion, and this petition for the writ of mandamus followed.
A writ of mandamus is an extraordinary remedy requiring a showing that there is: "(1) a clear legal right in the petitioner to the order sought; (2) an imperative duty upon the respondent to perform, accompanied by a refusal to do so; (3) the lack of another adequate remedy; and (4) properly invoked jurisdiction of the court." Ex parteAlfab, Inc., 586 So.2d 889, 891 (Ala. 1991). Discovery matters are within the sound discretion of the trial court, and this Court will not reverse a trial court's rulings on a discovery issue unless the trial court has clearly abused its discretion. Home Ins. Co. v. Rice, 585 So.2d 859
(Ala. 1991).
Rule 26(b), Ala.R.Civ.P., defines the scope of discovery as follows: "Parties may obtain discovery regarding any matter, not privileged, which is relevant to the subject matter involved in the pending action." Even material that would be inadmissible at trial is discoverable, provided that the material "appears reasonably calculated to lead to the discovery of admissible evidence." Id. In determining whether the information sought by a party "appears reasonably calculated to lead to the discovery of admissible evidence," a court must consider the nature of the plaintiff's claim and whether, in light of the claim, the plaintiff has demonstrated a particularized need for the discovery being sought. See Exparte First Nat'l Bank of Pulaski, 730 So.2d 1160, 1162 (Ala. 1999).
Miltope argues that the trial court's order requiring it to produce orders from its customers other than the Army for products other than SPORT computers is overly broad, because it requires Miltope to produce evidence not reasonably calculated to lead to the discovery of admissible evidence. Kaylor seeks damages for Miltope's alleged failure to pay him a two percent commission on SPORT-computer orders placed by the Army during the period he was employed by Miltope. He does not, by his own admission, contend that he is entitled to any commission on Miltope's sales of SPORT computers to any other customers or on sales of any other product. Thus, if Kaylor's complaint asserted only a breach-of-contract claim, the documents Kaylor has requested would be irrelevant to that claim.
Kaylor points out, however, that he has also asserted fraud claims, and he argues that, if produced, the documents relating to the Amry's purchase of other
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Miltope Corporation ("Miltope") is a manufacturer of a variety of defense industry and nondefense industry electrical and technical products. One of its defense-industry products is a SPORT computer,1
designed for field use by personnel of the United States Army. In 1995, Miltope and the United States Army entered into a contract pursuant to which the Army agreed to purchase up to $80,000,000
worth of SPORT computers over a five-year period.
In September 1998, approximately three years after Miltope and the Army had executed their contract, Jefferson Daniel Kaylor, Jr., the plaintiff in the underlying action, accepted employment with Miltope. When he accepted employment with Miltope, Kaylor was aware that Miltope had entered into a contract to provide SPORT computers to the Army. Kaylor contends that his employment contract guaranteed him a two percent commission on each SPORT computer sold to the Army during the period of his employment. Miltope denies that contention; it states that Kaylor was not guaranteed under his employment contract any commission on the sale of SPORT computers to the Army.
On December 31, 1999, Kaylor resigned his employment with Miltope. On May 16, 2000, he sued Miltope, alleging breach of contract, fraudulent misrepresentation, fraudulent suppression, and fraudulent deceit. All four claims are based on his contention that he was entitled, under his employment contract with Miltope, to a two percent commission on SPORT computers sold by Miltope to the Army.
During discovery, Kaylor demanded of Miltope discovery of, among other documents, the following documents:
(1) "all file(s) referencing bookings or orders received by [Miltope] since October 19, 1998"2;
(2) "all documents which relate, refer to or reflect meetings of Miltope's Board of Directors, division reviews or the equivalent between October 28, 1998 and the present, including, but not limited to all meeting minutes, notes and materials presented during such meetings"; and
(3) "all documents which relate, refer to or reflect projected and actual gross and net margins and profits for Miltope regarding the SPORT and ICE Integration Programs since negotiations for those accounts began."3
Miltope objected to those production requests. Following a hearing, the trial court ordered Miltope to produce the requested documents; however, the trial court entered a protective order limiting the uses and dissemination that Kaylor and his attorneys could make of the documents. The trial court ordered that the dissemination of information identified as confidential or protected be restricted to (1) the court, (2) those to whom the court ordered disclosure and those to whom the parties agreed there should be disclosure, (3) counsel of record, (4) staff of counsel of record for purposes of trial preparation who likewise agreed to be bound by the order, (5) expert witnesses who were not employees of either party and who likewise agreed to be bound by the order, (6) the parties and those employed by the parties to assist in the litigation who likewise agreed to be bound by the order, (7) deponents, witnesses, and potential witnesses who likewise agreed to be bound by the order, (8) jurors, (9) persons attending the trial, and (10) court reporters for the deposition and the trial. The trial court further ordered that the confidential or protected information was to be used "solely for the purposes of this litigation, not for any business, commercial, or other purpose," and that Kaylor's attorneys were to be the custodians of the confidential
documents and were to return them to Miltope when the litigation was over.
Miltope produced copies of all orders by the Army for SPORT computers from October 19, 1998, to December 31, 2000. Miltope also produced redacted portions of the meeting minutes of its board of directors in which the board referred to or mentioned Kaylor or his employment. Miltope produced no documents responsive to Kaylor's request for documents relating to its "actual gross and net margins and profits" resulting from the sale of the SPORT computers to the Army.
Miltope moved the trial court to reconsider the portions of its order that required it to produce (1) all orders Miltope received from October 19, 1998, through December 31, 2000 (other than the Army's orders for the SPORT computers, which had already been produced); (2) minutes of all board of directors' meetings from October 19, 1998, through December 31, 2000 (other than those portions that related to or mentioned Kaylor, which had already been produced); and (3) financial information regarding Miltope's gross and net profit margins on the purchase of SPORT computers by the Army. The trial court denied Miltope's motion, and this petition for the writ of mandamus followed.
A writ of mandamus is an extraordinary remedy requiring a showing that there is: "(1) a clear legal right in the petitioner to the order sought; (2) an imperative duty upon the respondent to perform, accompanied by a refusal to do so; (3) the lack of another adequate remedy; and (4) properly invoked jurisdiction of the court." Ex parteAlfab, Inc., 586 So.2d 889, 891 (Ala. 1991). Discovery matters are within the sound discretion of the trial court, and this Court will not reverse a trial court's rulings on a discovery issue unless the trial court has clearly abused its discretion. Home Ins. Co. v. Rice, 585 So.2d 859
(Ala. 1991).
Rule 26(b), Ala.R.Civ.P., defines the scope of discovery as follows: "Parties may obtain discovery regarding any matter, not privileged, which is relevant to the subject matter involved in the pending action." Even material that would be inadmissible at trial is discoverable, provided that the material "appears reasonably calculated to lead to the discovery of admissible evidence." Id. In determining whether the information sought by a party "appears reasonably calculated to lead to the discovery of admissible evidence," a court must consider the nature of the plaintiff's claim and whether, in light of the claim, the plaintiff has demonstrated a particularized need for the discovery being sought. See Exparte First Nat'l Bank of Pulaski, 730 So.2d 1160, 1162 (Ala. 1999).
Miltope argues that the trial court's order requiring it to produce orders from its customers other than the Army for products other than SPORT computers is overly broad, because it requires Miltope to produce evidence not reasonably calculated to lead to the discovery of admissible evidence. Kaylor seeks damages for Miltope's alleged failure to pay him a two percent commission on SPORT-computer orders placed by the Army during the period he was employed by Miltope. He does not, by his own admission, contend that he is entitled to any commission on Miltope's sales of SPORT computers to any other customers or on sales of any other product. Thus, if Kaylor's complaint asserted only a breach-of-contract claim, the documents Kaylor has requested would be irrelevant to that claim.
Kaylor points out, however, that he has also asserted fraud claims, and he argues that, if produced, the documents relating to the Amry's purchase of other
products or other customers' purchases of SPORT computers could lead to his discovery of a pattern of behavior by Miltope in which it fraudulently misrepresented to its employees, or suppressed, information concerning commissions to which they were entitled. "`[E]vidence of prior similar acts is admissible to show fraud, scheme, motive, or intent.'" Exparte Clarke, 582 So.2d 1064, 1068 (Ala. 1991), quoting Pugh v. SouthernLife Health Ins. Co., 544 So.2d 143, 145 (Ala. 1988).
Miltope counters that, even if the production requests are "reasonably calculated to lead to the discovery of admissible evidence," the trial court should have denied Kaylor's motions to compel because, it says, the documents contain sensitive, confidential material and if they are released Miltope's competitors could gain a commercial advantage. More specifically, Miltope argues that Kaylor is now employed by one of its competitors and that even releasing the information to Kaylor will give his employer a commercial advantage over Miltope.
The Alabama Rules of Evidence provide that trade secrets are, in some cases, privileged and not admissible at trial.4 It is Miltope's responsibility to show that the "matter inquired about does indeed constitute a trade secret and that [Miltope] would be injured by disclosure." Charles W. Gamble, McElroy's Alabama Evidence § 361.02(4) (5th ed. 1996).
The information Miltope seeks to avoid disclosing qualifies as a trade secret. Section 8-27-2(1), Ala. Code 1975, states that a "trade secret" is information that:
"a. Is used or intended for use in a trade or business;
"b. Is included or embodied in a formula, pattern, compilation, computer software, drawing, device, method, technique, or process;
"c. Is not publicly known and is not generally known in the trade or business of the person asserting that it is a trade secret;
"d. Cannot be readily ascertained or derived from publicly available information;
"e. Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy; and
"f. Has significant economic value."
We find that the orders received by Miltope and the minutes of the board constitute trade secrets. Both are used in business; both are embodied in a compilation; neither is publicly known; neither can be readily ascertained from public knowledge; both were secreted from the public; and both have economic value.
The danger of entrusting Kaylor with Miltope's trade secrets is that doing so could harm Miltope and there may be no sanction sufficient to protect Miltope in the event Kaylor fails to abide by the terms of the protective order; there also may be no system of monitoring what Kaylor or his current employer, a business in competition with Miltope, do with the information they would be able to glean from this expansive discovery. The Ohio Court of Appeals noted: "If a trial court orders the discovery of trade secrets and such are disclosed, the party resisting discovery will
have no adequate remedy on appeal. The proverbial bell cannot be unrung and an appeal after final judgment on the merits will not rectify the damage." Gibson-Myers Assocs. v. Pearce, (No. 19358, Oct. 27, 1999) (Ohio Ct. App. 1999) (unpublished).5 Trade secrets should receive greater protection from discovery because they "derive economic value from being generally unknown and not readily ascertainable by the public." Nester v. Lima Mem'l Hosp., 139 Ohio App.3d 883, 888,745 N.E.2d 1153, 1157 (2000) (Walters, J., dissenting). "Once the information becomes available through the discovery process, a subsequent appeal, even if successful, cannot restore the valuable secretive nature."Id. Disclosure of a trade secret could cause "irreparable harm." Binkleyv. Allen, (No. 2000-CA-00160, Feb. 5, 2001) (Ohio Ct. App. 2001) (unpublished).6 Although the trial court's protective order contains some safeguards, the probable dispersion of the trade secrets is practically unlimited, and the safeguards are clearly inadequate. We conclude that the trial court abused its discretion in compelling Miltope to produce the requested documents, because of the risk of harm to Miltope caused by disclosure of its trade secrets.7
Miltope also argues that the minutes of its board of directors' meetings include trade secrets and, thus, that the trial court erred in compelling it to produce those minutes. We find Miltope's argument persuasive. The trial court's protective order does not adequately safeguard the confidentiality of the minutes. Thus, we conclude that the trial court abused its discretion in compelling Miltope to produce the requested minutes of its board of directors.
Miltope's final argument is that the trial court erred in ordering it to reveal what it says is trade-secret information concerning its gross and net profit on the SPORT-computer account. Miltope argues that Kaylor "is simply seeking pre-trial discovery on the issue of wealth," citing Exparte Hsu, 707 So.2d 223 (Ala. 1997), for the proposition that "`evidence of a defendant's wealth is highly prejudicial and, therefore, inadmissible [during trial.]'" Id. at 225, quoting Southern Life Health Ins. Co. v. Whitman, 358 So.2d 1025, 1026 (Ala. 1978). However, the question presented here is not whether the material is admissible, but whether it is discoverable. See Rule 26(b)(1), Ala.R.Civ.P. Moreover, Kaylor points out that Miltope "has a great number of customers, and Kaylor would be unable to ascertain information regarding Miltope's overall wealth or net worth based simply upon figures relating to [the] SPORT [program]." Kaylor argues, instead, that the information could reveal Miltope's motives,
if any, for failing to pay Kaylor the commission he claims he is owed. Miltope, however, has met its burden of showing that the trial court abused its discretion in ordering Miltope to produce the requested documents because of the irreparable harm the disclosure of its trade secrets could do to Miltope.
PETITION GRANTED; WRIT ISSUED.
Houston, Brown, Woodall, and Stuart, JJ., concur.
Lyons and Harwood, JJ., concur in the result.
Moore, C.J., and Johnstone, J., dissent.