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IN THE COURT OF APPEALS 12/17/96 OF THE STATE OF MISSISSIPPI
NO. 94-CA-00384 COA

FRIDGAMERICA, INC., NORMAN PITTS, EARLENE SCARBOROUGH, AND EARL E. SCHNEIDER, JR. APPELLANTS v. MID-SOUTH INDUSTRIES, INC. D/B/A THERMO-KOOL APPELLEE

THIS OPINION IS NOT DESIGNATED FOR PUBLICATION AND MAY NOT BE CITED, PURSUANT TO M.R.A.P. 35-B

TRIAL JUDGE: HON. SHANNON S. CLARK COURT FROM WHICH APPEALED: JONES COUNTY CHANCERY COURT ATTORNEYS FOR APPELLANTS: CAREY R. VARNADO HAROLD W. MELVIN ATTORNEY FOR APPELLEES: THOMAS T. BUCHANAN NATURE OF THE CASE: MISAPPROPRIATION OF A TRADE SECRET TRIAL COURT DISPOSITION: TRIAL COURT FOUND THE APPELLANTS MISAPPROPRIATED TRADE SECRETS OF THERMO-KOOL MANDATE ISSUED: 6/10/97

BEFORE FRAISER, C.J., KING, AND PAYNE, JJ. FRAISER, C.J., FOR THE COURT:

Plaintiff, Mid-South Industries d/b/a Thermo-Kool (Thermo-Kool), sued three of its former employees, Norman Pitts, Earlene Scarborough, Earl Schneider, and FridgAmerica, a company the three formed after leaving Thermo-Kool's employ, seeking injunctive relief and damages on the basis of alleged misappropriation of trade secrets in conjunction with the setting up and operation of their new business. In a bifurcated trial, the chancery court found FridgAmerica, Pitts, Scarborough, and Schneider liable for the misappropriation of trade secrets belonging to Thermo-Kool, and ThermoKool was awarded $20,000 in actual damages and $10,000 in attorney's fees. FridgAmerica, Pitts, Scarborough, and Schneider appeal from the judgment of the chancery court alleging that the amount of damages awarded is not supported by substantial evidence. Schneider individually complains that he may not be held jointly and severally liable for a tort in which he took no part. Also, Thermo-Kool cross appeals claiming that the chancery court applied an improper measure of damages for the misappropriation of a trade secret. After examining the relevant precedent, we conclude, as a matter of law, that the chancery court applied an improper measure of damages for the tortious misappropriation of a trade secret. Therefore, we do not reach the question of whether the chancellor's award of damages is supported by substantial evidence but reverse and remand this case for a computation of damages consistent with the criteria announced herein. Further, Schneider's counsel failed to preserve his alleged error in the trial court, and we will not hold the court in error on an issue not raised before it. I. FACTS Thermo-Kool is an installer and manufacturer of "walk-in" refrigeration units. Pitts, Scarborough, and Schneider (collectively the former employees) were employees of Thermo-Kool prior to June of 1993. They departed from their employment at Thermo-Kool to form FridgAmerica, a corporation in direct competition with Thermo-Kool. The former employees misappropriated, among other things, the Kool-Cad computer program for drawing "walk-in" refrigerator units and the drawings generated by this program. On September 25, 1990, Thermo-Kool filed a complaint alleging that the former employees misappropriated trade secrets. The chancery court ordered a bifurcated trial. In the liability phase of the trial, the chancery court held that the Kool-Cad menu, symbols library, and pregenerated drawings were trade secrets that had been misappropriated by the former employees. On appeal, none of the parties dispute that Kool-Cad is indeed a trade secret. Before the second phase of the trial, the chancery court made a pre-trial determination of the measure of damages. The chancery court found the only proper measure of damages to be the fair market value of the property wrongfully taken and/or the increase in the amount of profits resulting from the use of the property wrongfully taken for the amount of time it reasonably would have taken the defendants to have reproduced the properties by independent means. Based on the above articulated

measure of damages the chancery court awarded Thermo-Kool $20,000 in actual damages and $10, 000 in litigation costs. With no dispute as to the chancery court's findings of liability, the central issue on appeal is one of damages. Appellants Fridgamerica, Pitts, and Scarborough argue that the chancery court applied the proper measure of damages; however, they maintain that there was not sufficient evidence to support the court's finding of $20,000 in actual damages and that litigation costs were not recoverable because punitive damages are not allowable in trade secrets cases. Thermo-Kool cross appeals arguing that the chancery court applied an improper measurement of damages. Thermo-Kool argues that the proper measurement of damages includes the cost of bringing Fridgamerica and its employees to justice, loss of profits to Thermo-Kool, the profits earned by Fridgamerica, the advantage gained by Fridgamerica in beginning manufacturing, the in-house cost of litigating this suit, punitive damages, court costs, and attorney's fees. II. DISCUSSION

A. THE MEASURE OF DAMAGES FOR THE COMMON LAW TORT OF MISAPPROPRIATION OF A TRADE SECRET

This is a case of first and last impression in this jurisdiction. The question of what damages are available to a successful plaintiff in an action for the common law misappropriation of a trade secret is as yet unresolved under the common law. Had this tortious misappropriation occurred a month later the measure of damages would be controlled by the Mississippi Uniform Trade Secrets Act at section 75-26-1 et seq. of the Mississippi Code. The Mississippi Uniform Trade Secrets Act provides that the proper measure of damages for the misappropriation of a trade secret includes the actual loss caused by the misappropriation, any unjust enrichment caused by the appropriation, a reasonable royalty, exemplary, damages and attorney's fees. Miss. Code Ann.

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