Smith v. Dravo Corp

Brief Fact Summary.

Safeway Containers (Plaintiff) had disclosed its secret design to Dravo Corp. (Defendant) for them to appraise it, later alleging that the Defendant had unlawfully misappropriated the secret design.

Synopsis of Rule of Law.

A confidential relationship may be implied without an express promise of trust.

Facts.

Smith specially designed, built, sold, and leased steel freight containers of a uniform size, which greatly assisted the ship and shore handling and transportation of cargoes.  At his death, Dravo Corp. (Defendant) showed an interest in buying some of the containers and possibly Smith’s entire business, known as Safeway Containers (Safeway) (Plaintiff).  As agreed during negotiations for the sale of the business, Plaintiff provided Defendant with its patent applications, blue prints, and other confidential information.  Defendant ultimately rejected Plaintiff’s offer, but began building containers that were different from Smith’s containers only in that they were narrower by four inches.  As a result, Plaintiff’s containers became obsolete because they could not be used interchangeably with Defendant’s.  Plaintiff sued, alleging that Defendant had breached its confidential relationship of trust and used the information obtained to its own advantage and to Plaintiff’s detriment.  Defendant, in its defense, successfully claimed that Plaintiff had not obtained an express promise of trust and that the information conveyed was not secret since transactions were at arm’s length.  Plaintiff appealed.

Issue.

May a confidential relationship be implied without an express promise of trust?

Held.

(Lindley, J.)  Yes.  A confidential relationship may be implied without an express promise of trust.  Regardless of certain other disclosures of information, Plaintiff’s information regarding how to design its containers remained a trade secret.  There could be no question that Defendant knew and understood that the information was being disclosed for the limited purpose of evaluating the business for possible purchase.  Plaintiff trusted Defendant that the information therefore transmitted was to be accepted subject to that limitation.  Defendant fraudulently abused the trust placed in it since it did not start construction of its containers until after it had access to Smith’s plans.  Reversed.

Discussion.

This court did not focus on the existence of a trade secret as a starting point for the litigation.  Other courts have held that the question is not whether there was a confidential relationship but rather whether there was a trade secret to be misappropriated.  Some cases rely upon whether a party had “reason to know†that a confidential relationship existed when the disclosure occurred.