The opinion
IN THE UNITED STATES DISTRICT COURT
. FOR THE DISTRICT OF OREGON .
"MEDFORD DIVISION | □
RUST-OLEUM CORPORATION, | Case No. 1:18-cv-01655-CL
Plaintiff,
v. OPINION & ORDER
NIC INDUSTRIES, INC,
. Defendant,
CLARKE, Magistrate Judge. .
Plaintiff Rust-Oleum Corporation (““Rust-Oleum”) brings this action against Defendant
‘NIC Industries, Inc. (“NIC”) for claims arising out of an Exclusive Sales Agreement (“Sales
Agreement”) and Mutual Settlement Agreement (“Settlement Agreement”). This case comes
before the Court on cross-motions for summary judginent. The Court held a telephonic oral
. argument hearing on September 19, 2023. For the reasons below, NIC’s motion (#199) is
GRANTED and Rust-Oleum’s motion (#202) is DENIED. .
. BACKGROUND □□
_ Rust-Oleum Corporation, a division of RPM International, manufactures its own line of
paints, stains, and coatings. NIC Industries manufactures powder coatings and ceramic polymer
‘coatings through its divisions, Prismatic Powders and Cerakote.
Page 1 OPINION & ORDER □
KiON HTA 1500 Polysilazane (“PSZ”) is a resin that was invented and patented by Dr.
Alexander Lukacs and Mr. Gary Knasiak in 2000. Defendant NIC began purchasing PSZ in early
2000 to incorporate with other ingredients in an effort to develop commercial coating products,
NIC spent years experimenting with PSZ confidentially and eventually found mixed success with
formulated clear coatings. During this time, PSZ’s commercial rights traded hands from Clariant
to AZ Electronics to EMD. EMD created the tradename “Durazane 1500.”
NIC for years has manufactured and sold its clear coating in a spray-on product called
Cerakote MC-156 Crystal Mirco Clear (“MC-156”). Hall Decl., ECF No. 200. MC-156 is
applied by professionals with commercialized spray equipment to protect surfaces from
corrosion. MC-156 derives its high performance from the active ingredient Durazane, which □
bonds better to metal and provides longer protection.
Tony Bender of the Avento Company contacted NIC in 2012 to discuss a potential new
use for MC-156. The parties executed a confidentiality agreement upon Mr. Bender’s request,
and he shared the following. An NIC customer had discovered that wiping MC-156 onto faded
automotive trim restored a new-like appearance. Avento and NIC spent the next several months
working on packaging, shipping, and regulatory issues for retail consumer sales. They called the
product “Wipe New.” The parties executed a Limited Exclusive Sales Agreement whereby NIC.
sold MC-156 to an Avento Company called Showroom for resale as Wipe New. Def. MSJ, ECF
No. 199, Ex. 6. The parties agreed to keep their relationship confidential and NIC agreed to not □
knowingly sell MC-156 to others for wipe-on use (“Covered Application”). NIC retained -
ownership of the proprietary rights and information to the MC-156 formula, and Showroom □ □
owned the Wipe New brand name. This agreement was replaced by a Limited Exclusive Sales -
Page 2 — OPINION & ORDER □□
_ Agreement between NIC and Wipe New LLC (“LLC”), adding terms for a minimum purchase
requirement. Def. MSJ, ECF No. 199, Ex. 8. □
Plaintiff Rust-Oleum began negotiations with LLC in September of 2014. Rust-Oleum
expressed interest in acquiring a license to the Wipe New brand name and rights to the Sales
Agreement with NIC. NIC’s identity was not disclosed to Rust-Oleum. It was during this period,
and in-part because of Rust-Oleum’s requests, that LLC executed a new Exclusive Sales
Agreement with NIC on September 4, 2015. Def. MSJ, ECF No. 199, Ex. 15 (“Sales
Agreement”). This agreement contained three changes: the name for MC-156 changed to AV-
945, the minimum annual purchase requirement was reduced, and the Covered Application was
narrowed to specific Wipe New products in the addendum. Rust-Oleum and LLC finalized the - □□
acquisition on November 30, 2015, by executing a Trademark and Technology Licerise □
Agreement. LLC assigned its rights and obligations under the Sales Agreement to Rust-Oleum
. the same day, forming a contractual relationship between Plaintiff Rust-Oleum and Defendant
NIC. Pl. MSJ, ECF No. 202. The Sales Agreement contains the following key provisions at issue □
in this case: .
_ 1, Grant of Exclusive Right to Purchase. NIC hereby agrees that
during the term of this Agreement...it will not sell or otherwise |
distribute the Product to any other persons or entities...which are
known or suspected by NIC to use the Product for use in the □
Covered Application. NIC shall retain the right to sell the Product
and all other NIC products to other purchasers...during the term of
this Agreement, provided that such purchasers are not actually
known by NIC to be engaged in the Covered Application as of the .
date of this Agreement. ... NIC will use commercially reasonable
efforts to track the end uses of the Product.
8.1 Representations and Warranties of NIC. NIC warrants that .
it owns the Product technology and has the right to sellthe
Products to Wipe New under the terms of this Agreement.
Page 3—- OPINION & ORDER .
_ 13.1 Confidentiality Regarding NIC Products. Wipe New
acknowledges and agrees that NIC is the owner of all proprietary .
"rights in NIC products, including but not limited to information
regarding the Product and the formulas, design or manufacture of
such products...and that such information constitutes trade secrets
of NIC. Wipe New is not granted any right to use, disclose,
duplicate (including but not limited to reverse engineering and/or
efforts to reverse engineer the Product) license, sell or reveal any
portion of the Confidential Information.
“Product” is defined as AV-945, “the moisture-curable silicon-based polymer used in Wipe New
products.” The “Covered Application” refers to the Product being used as “a wipe on application
for vehicle restoration, detailing, and general home use.”
NIC eventually disclosed its existence as the supplier of Wipe New’s formula; however,
- all times NIC declined to disclose Wipe New’s chemical composition. Rust-Oleum first
inquired about the composition prior to acquiring Wipe New. Rust-Oleum anticipated sales in
California and claimed disclosure was necessary to ensure compliance with certain.
_ environmental regulations. The parties addressed this concern by developing a second formula □
called California Compliant Wipe New. Rust-Oleum ran consumer tests and was satisfied that
California Compliant was comparable to the original. The second formula was also kept
confidential, but NIC’s assurances and Rust-Oleum’s tests provided enough inducement for
Rust-Oleum to proceed with the acquisition. Rust-Oleum maintains, however, that it did not
receive enough information:to adequately address the remaining regulatory issues posed by Rust-
_ Oleum’s retail plans. Pl. MSJ, ECF No. 202, Ex. 14, Rust-Oleum contends that without
disclosure of each ingredient, it was unable to comply with registration requirements in Australia □
and Japan and labeling regulations in the US. This in tum impacted Rust-Oleum’s volume
projections. Rust-Oleum asserts that NIC’s continued refusal to disclose Wipe New’s chemical
composition forced Rust-Oleum to conduct the following tests.
Page 4 ~ OPINION & ORDER
‘From 2014 to 2016 Rust-Oleum performed three rounds of Fourier Transform Infrared
Spectroscopy (“FTIR”) and Gas Chromatography Mass Spectrometry (“GCMS”). Pl.MSJ,ECF □
No. 202. FTIR and GCMS are techniques that utilize infrared rays and vaporization to identify
substances within a sample. The first few rounds were inconclusive according to Rust-Oleum.
Lead chemist, Dr. Haewon Uhm, Ph_D., testified to having independent familiarity with
Durazane which led her to the conclusion that Durazane and Wipe New share similar properties.
She claims to have incorporated a sample of Durazane from EMD into FTIR tests in March
2016, which conclusively established that Durazane was the secret ingredient in NIC’s Wipe
New formula. Rust-Oleum’s development team subsequently launched “Project Torpedo” with □
the objective of “develop[ing] a formulation that will perform equal to the current Wipe New
Original formulation.” Def. MSJ, ECF No. 199, Ex. 33. ‘ □
By late 2017, Rust-Oleum claimed it could no longer meet minimum purchase :
expectations. Rust-Oleum and NIC entered into the Mutual Settlement Agreement on November
27, 2017, ending their exclusive sales relationship. Def. MSJ, ECF No. 199, Ex. 38 (“Settlement
Agreement). The Settlement Agreement contained the following key provisions:
2. Mutual Release. Except for the obligations of the parties under □
this Release, each of the parties hereby releases, acquits, and.
forever discharges each other...from any and all claims, demands,
. claims for relief (whether in contract, tort, or equity),.costs,
damages, attorney fees, liability and expense of any nature, known
or unknown, suspected or unsuspected, in any matter related to, or
arising out of the Agreement through the effective date of this
Release.
3. Continuing Obligations of RO. Notwithstanding the
termination of the Agreement...RO will continue to remain
obligated with respect to Sections 6 (Restriction on Resale of the
Product), 9 (Intellectual Property), 11 (Disclaimer of Warranties;
Limitation of Liability), 12 (Indemnification; Insurance), and 13
(Confidentiality) of the Agreement. RO hereby represents and _
warrants to NIC that it has complied fully with each and every one
Page 5— OPINION & ORDER .
of such obligations up to and including the Effective Date of this
Release, and that RO will continue to comply fully with each and
every one of such obligations thereafter.
. In 2018, NIC learned Rust-Oleum was still selling Wipe New after its supply from NIC
should have been exhausted. NIC served Rust-Oleum with a Cease and Desist letter on August
24, 2018. Rust-Oleum filed this lawsuit on September 12, 2018.
Rust-Oleum filed contract and fraud claims, alleging NIC misrepresented proprietary
_ tights and exclusivity thereby fraudulently inducing Rust-Oleum’s assent to the Sales and
Settlement Agreements. NIC filed counterclaims for breach and trade secret violations arising
out of the reverse engineering and product duplication performed by Rust-Oleum. Both parties
move for summary judgment on all opposing claims.
LEGAL STANDARD □
Summary judgment shall be granted when the record shows that there is no genuine
dispute as to any material of fact and that the moving party is entitled to judgment as a matter of
law. Fed. R. Civ. P. 56(a); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986). The
moving party has the initial burden of showing that no genuine issue of material fact exists.
Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986); Devereaux v. Abbey, 263 F.3d 1070, 1076
(9th Cir. 2001) (en banc). The court cannot weigh the evidence or determine the truth but may
only determine whether there is a genuine issue of fact. Playboy Enters, Inc. vy. Welles, 279 F.3d
796, 800 (th Cir 2002). An issue of fact is genuine “it the evidence is such that a reasonable
jury could return a verdict for the nonmoving party.” Anderson, 477 U.S. at 248. .
When a properly supported motion for summary judgment is made, the burden shifts
the opposing party to set forth specific facts showing that there is a genuine issue for trial. Jd. at
250. Conclusory allegations, unsupported by factual material, are insufficient to defeat a motion
Page 6 — OPINION & ORDER
for summary judgment. Taylor v. List, 880 F.2d 1040, 1045 (9th Cir. 1989). Instead, the
opposing party must, by affidavit or as otherwise provided by Rule 56, designate specific facts
which show there is a genuine issue for trial. Devereaux, 263 F.3d at 1076. In assessing whether
a party has met its burden, the court views the evidence in the light most favorable to the non-
moving party. Allen v. City of Los Angeles, 66 F.3d 1052, 1056 (9th Cir. 1995). □
: SUMMARY
Defendant NIC moves for summary judgment on each of Plaintiff Rust-Oleum’s claims,
including fraud in the inducement, breach of contract, declaratory judgment, and breach of the
implied duty of good faith and fair dealing. Rust-Oleum moves for summary judgment on each
of NIC’s counterclaims, including breach of contract, misappropriation of trade secrets, and
fraud. .
NIC is entitled to summary judgment on all claims brought by Rust-Oleum for two
reasons. First, the Settlement Agreement, negotiated by sophisticated parties with counsel,
clearly provides that Rust-Oleum released NIC from “any and all claims...known or unknown
...arising out of the Agreement.” Second, the summary judgment record contains no facts to
support Rust-Oleum’s claims on the merits: there is no evidence NIC committed fraud in
connection with the Sales Agreement or Settlement Agreement. Rust-Oleum is not entitled to
summary judgment on al claims brought by NIC. There is no evidence to support Rust-Oletim’s □
_. allegations ‘of breach, unilateral mistake, or Sherman Act violations such that Rust-Oleum would
be entitled to judgement as a matter of law on NIC’s first counterclaim. NIC has demonstrated
genuine issues of fact with respect to the remaining claims.
Page 7— OPINION & ORDER |
The Court therefore rants summary judgment in favor of NIC on all claims brought by
Rust-Oleum and denies Rust-Oleum’s motion for summary judgment against NIC’s
counterclaims. - . .
"DISCUSSION
I. NIC’s motion for summary judgment on all claims brought by Rust-Oleum is
GRANTED. :
a. NIC is entitled to summary judgement because Rust-Oleum clearly released NIC
from “any and all claims...known or unknown” in the Settlement Agreement.
The release is unambiguous and includes fraud in the inducement.
Plaintiff Rust-Oleum and Defendant NIC dispute whether, as a matter of Jaw, the
Settlement Agreement’s general release bars Rust-Oleum from asserting a fraud in the
inducement claim. : □
A release is a contract through which a party agrees to abandon a claim or right. Lindgren
v. Berg, 307 Or. 659, 665 (1989); Glickman v. Weston, 140 Or. 117, 123 (1932). As such, they
“are a species of settlement agreement and... favored by the law.” Pioneer Res., LLC v. D.R.
Johnson Lumber Co., 187 Or. App. 341, 356 (2003). Courts apply the rules of contract
construction and interpretation when deciphering a release. Ristau v. Wescold, Inc., 318 Or. 383,
387 (1994). If the contract is unambiguous, it must be enforced according to its terms,
. Ambiguity is a question of law for the courts, found only where a contract is capable of more □
than one sensible, reasonable interpretation. Id.; Pioneer Res., 187 Or. App. at 361. If
ambiguous, a trier of fact must discern the intent of the parties. Ristau, 318 Or. at 387; OSEA v.
Rainier Sch. Dist. No. 13,311 Or. 188, 194 (1991). Summary judgment is appropriate where the
contract in question is unambiguous. Brown v. American Prop. Mgmt. Corp., 167 Or. App. 53,
61 (2000).
"Page 8— OPINION & ORDER . □
_ In Lindgren, the Oregon Supreme Court held that a release explicitly including claims for
fraud bars future fraud claims even where the release itself was induced by fraud. Lindgren, 307
Or. at 666. The court noted that where each party is represented by lawyers during negations and
drafting, the likelihood of misunderstanding between the parties is greatly reduced and
“undercuts plaintiffs’ argument that [defendant] fraudulently induced the release.” Id. at 665-66.
In Ristau, the Court decided whether an agreement releasing “any and all claims, known and
unknown?” precludes a fraudulent inducement claim when the agreements were executed
contemporaneously.! Ristau, 318 Or. at 387. The court held that “a general release from all
claims and demands is sufficient to bar a specific claim, unless the claim is excepted from the
release.” Jd. at 389. The Court rejected the contention that an unambiguous release “must include.
an explicit reference to fraud claims arising contemporaneously with the release.” Jd. at 388. The
Court-found further support for this point in the fact that the parties specifically excluded from
. the release certain obligations the parties intended to remain intact. Jd
In certain circumstances, courts in Oregon have held a release as void if the party was
fraudulently induced to enter the agreement. See Whitehead v. Montgomery Ward & Co, Ine.,
194 Or. 106 (1952); Teegarden v. State, 270 Or. App. 373 (2015); Kim v. Allstate Ins. Co., 102
Or. App. 529 (1990). “TI]f the evidence discloses that plaintiff was induced to enter into [the]
agreement by means of defendant's fraud or material misrepresentation, the transaction is
_ voidable as against defendant.” Whitehead, 194 Or. at 131-32. However, Whitehead involved an
employer fraudulently inducing its employee to release claims for workmen’s compensation. Jd.
' Rust-Oleum argues Ristaw is distinguishable from the oresent matter because the fraud alleged in Ristau arose from
a separate agreement executed concurrently with the release, rather than the release itself. The case however stands
for the proposition that an unambiguous, general release is sufficient to bar claims not explicitly included, .
particularly where counsel is present. The fact that Ristau concerned concurrently executed agreements is a □
distinction of no consequence here and does not undermine the case’s otherwise relevant reasoning.
Page 9— OPINION & ORDER
Kim, relying on Whitehead’s reasoning, involved a claims adjustor fraudulently inducing an
uninsured motorist to release claims arising from a collision. Kim, 102 Or. App. at 533.
Teegarden involved:an employer fraudulently inducing an employee to release claims arising out
of a hostile firing. Teegarden, 270 Or. App. 373.
Neither Whitehead nor Kim involves a plaintiff represented by counsel during the
_ execution of the release. The facts of Whitehead, Kim, and Teegarden include disenfranchised □
plaintiffs on the cusp of injustice, concerned with personal injury and employment disputes. By
contrast, the facts of Ristau and Lindgren include sophisticated parties, acting through counsel to
navigate complex acquisitions. Rust-Oleum and NIC are two sophisticated parties, Each
maintains a business that produces and sells nation-wide and engages in contracts and
acquisitions on a regular basis. Each was represented by attorneys during the negotiations, .
drafting, and signing of the Sales and Settlement Agreements. The facts of this case are thus
more similar to the facts of Ristaw and Lindgren, and the Settlement Agreement’s general release
is sufficient to bar a claim of fraud or fraud in the inducement.
Additionally, NIC and Rust-Oleum each intentionally carved out specific claims to be
excluded from the release. In Section 3,of the Settlement, the parties mutually consented to
continuing obligations for Rust-Oleum. As in Ristau, this carve out is further support that the □
parties intended to release all claims not specifically excluded.
The Court finds no genuine issue of material fact that Rust-Oleum’s claims were all
validly and intentionally released in the Settlement-Agreement. .
Page 10 - OPINION & ORDER .
yo.
b. NIC is further entitled to summary judgment on the merits of all claims brought
by Rust-Oleum, even without the release, because the record does not show that
. NIC committed fraud. :
Plairitiff Rust-Oleum released all claims in the Settlement Agreement. However, even if it
had not, Rust-Oleum’s claims would still fail on the merits for lack of evidence that Defendant
NIC committed any fraud in connection to the Sales Agreement or Settlement Agreement. .
Rust-Oleum claims it is entitled to avoid the Agreements under a fraud-in-the-
inducement theory, based on Defendant NIC’s alleged misrepresentations regarding its
proprietary rights and exclusivity.
A party can avoid a contract under a fraud-in-the-inducement theory by showing the □
other party “made a false representation of material fact and that the person to whom the
representation-was made was induced to enter the agreement in reliance on that
misrepresentation.” State v. Huttenbauer, 301 Or. App. 332, 344-45 (2019); see also Graves v.
_ Tulleners, 205 Or. App. 267, 277 (2006). Establishing such reliance requires proof of a causal □
relationship between the misrepresentation and the party’s assent. Gardner v. Meiling, 280 Or.
665, 671 (1977). The party alleging fraud has the burden of proving each element by clear and
convincing evidence. Conzelmann v. Nw. Poultry & Dairy Prods. Co., 190 Or. 332, 350 (1950).
_ & Proprietary Rights Issue .
_ Rust-Oleum claims NIC falsely represented itself as the owner of Durzane’s proprietary
rights, which induced Rust-Oleum’s assent to the Sales Agreement in reliance of such
ownership. Section 13.1 of the Sales Agreement states in relevant part:
Wipe New acknowledges and agrees that NIC is the owner of all .
proprietary rights in NIC products, including but not limited to
information regarding the Product and the formula, design or
manufacture of such products...and that such information
constitutes trade secrets of NIC. Wipe New is not granted any right
to use, disclose, duplicate (including but not limited reverse
Page 11 — OPINION & ORDER
\ □ . . □□
. engineering and/or efforts to reverse engineer the Product).. Lor
. reveal any portion of the Confidential Information.
Section 8.1 provides: □
NIC warrants that it owns the Product technology and has the right
to sell the Products to Wipe New under the terms of this
Agreement.
Rust-Oleum contends that by saying it owns “information regarding the Product andthe =
formula” as well as “the Product technology,” NIC was representing to Rust-Oleum it owned the
proprietary rights to Durazane specifically.
The Court disagrees. The language of the Agreement is clear and unambiguous. The
“Product” is defined as AV-945, “the moisture~curable silicon-based polymer used in Wipe New
products.” The word “Durazane” does not appear anywhere in the Sales, Agreement and nothing □
in the Sales Agreement indicates that NIC owns Durazane as a stand-alone product. The plain
meaning of the Sales Agreement therefore shows that NIC owns the finished, formulated product
called Wipe New, nothing more.
. Rust-Oleum attempts to deny such a clear understanding by arguing NIC’s statements
that it owned the “Product technology” are tantamount to NIC claiming it owned each
constituent ingredient. This is not a reasonable interpretation of the Sales Agreement. In any
industry, it is standard for a finished good to be the product of multiple component parts. Each
part is purchased through other manufacturers who each own the proprietary rights to that part.
Campbells doesn’t own each ingredient in its soups. Boeing doesn’t own each piece of a 747,
Clorox doesn’t own each chemical in its wipes and sprays. Here, ownership of the “product
technology” does not lead to the conclusion NIC owns each constituent ingredient. It just means □
NIC owns the combination of ingredients that together make Wipe New. There is no fraud in this
Page 12 - OPINION & ORDER
_ Statement. Rust-Oleum has not met its burden of demonstrating that any false representations
were made by NIC with respect to the Sales Agreement. .
A fraud claim also implicitly requires proof of a causal relationship; the party induced to
assent must have done so relying on the misrepresentation. Here, there is no evidence that when
the parties executed the Sales Agreement, Rust-Oleum did so because it believed NIC owned □□
Durazane based on NIC’s assurances. The record is void of any contemporaneous proof that □□
anyone at Rust-Oleum sought Wipe New for the specific purpose of simultaneously acquiring □
the rights to Durazane. Rust-Oleum has not met its burden in this respect either.
Furthermore, even if that were the case during the Sales Agreement, Rust-Oleum
discovered that NIC did not own Durazane prior to executing the Settlement Agreement and
nonetheless chose not to exclude fraud claims from the release. Between 2014 and 2016 Rust-
. Oleum performed three rounds of FTIR and GCMS, conclusively identifying Durazane by
March 2016. Rust-Oleum’s officers corresponded about the results via email.on September 27,
2017: “The reason everything has been so secretive is they really just buy this resin from
someone we could also buy this material from [and] at a much lower cost than buying through
NIC.” Def. MSJ, ECF No. 199, Ex. 35. Rust-Oleum executed the Settlement Agreement two
months later, in which it denied ever reverse engineering Wipe New: “RO...warrants to NIC that
it has complied fully witK each and every one of” its obligations not to duplicate, reverse
engineer, or otherwise violate NIC’s trade secrets. See Def. MSJ, ECF No. 199, Ex. 38. Rust-
Oleum, like NIC, had a full and fair opportunity to exclude claims from-the release. Had Rust-
Oleum truly been defrauded by NIC in the Sales Agreement as it claims, it is unclear why Rust-
~ Oleum and its legal counsel would release “any and all claims ... arising out of the [Sales]
Agreement.” .
Page 13 — OPINION & ORDER
Rust-Oleum has not met its burden of producing clear and convincing evidence that NIC □
fraudulently misrepresented itself as the owner of all proprietary rights to Durazane. Rust- °
Oleum’s fraud claim fails on the merits with respect to the Sales Agreement.
_ di. Covered Application Issue
Rust-Oleum also alleges fraud in connection to the Settlement Agreement. In relevant
part, Section | of the Sales Agreement provides:
NIC hereby agrees that during the term of this Agreement, except
as specifically provided herein, it will not sell or otherwise yo,
distribute the. Product to any other persons or entities, other than
Wipe New, which are known or suspected by NIC to use the ~
Product for use in the Covered Application. NIC shall retain the
right to sell the Product and all other NIC products to other
purchasers, distributors and third parties during the term of this
_ Agreement, provided that such purchasers are not‘actually known
__ by NIC to be engaged in the Covered Application as of the date of
this Agreement.... NIC does not and cannot make any
- representations or warranties concerning the end use of the
, Product. NIC will use commercially reasonable efforts to track the
end uses of the Product by its customers and will discontinue
immediately any sales of the Product to any customer if NIC -
learns, or has reason to believe, that such customer is or has the
intention of using the Product in the Covered Application. :
During settlement negotiations, NIC assured Rust-Oleum that it had complied with Section I of
the Sales Agreement and maintained exclusivity. Rust-Oleum claims to have since discovered
sales records that prove NIC sold products in contravention of the Covered Application and
otherwise failed to track end uses. Rust-Oleum contends NIC’s misrepresentations of compliance
induced Rust-Oleum’s assent to the Settlement Agreement. |
The summary judgement record does not support Rust-Oleum’s argument. The sales
records contain invoices reflecting NIC sold MC-156 to other companies before, during, and
after the Sales Agreement was operative. See Pl. MSJ, ECF No. 202, Exs. 25, 26, 27. NIC
distributing MC-156 is not the contested issue. A violation of Section | requires Rust-Oleum □□□ □
Page 14— OPINION & ORDER
show that NIC sold Wipe New (AV-945) to a third-party with the knowledge it would be used □□□
a wipe-on application during the two years the Sales Agreement was operative. NIC admits it
continued to sell MC-156, the formula for the Cerakote clear coating NIC has been producing
since the early 2000’s. Cerakote differs dramatically from Wipe New with respect to the Covered
Application; Cerakote requires trained professionals to spray on the product with commercial □
equipment. The Settlement Agreement explicitly permitted NIC to “retain the right to sell the
Product and all other NIC products to other purchasers...during the term of this Agreement,
provided that stich purchasers are not actually known by NIC to be engaged in the Covered”
Application.” This language unambiguously prohibits NIC from selling the Product, defined as
the formulated product for Wipe New, or other NIC products with the knowledge they willbe
- used as wipe-on applications. The record does not contain such sales.
Rust-Oleum’s fraud allegations also hinge on the second half of NIC’s obligation: NIC □
will use “commercially reasonable efforts” to track the end uses of the Product and discontinue °
"gales if the customer is using the Product in the Covered Application. Rust-Oleum deposed NIC
president Mr. Brian Hall to inquire about the invoices. See Pl. Memo., ECF No. 208, Exs. 7, 11, □
16. Some of thé invoices reflected NIC selling formulas to its customers, andsome ofthe. -
invoices reflected NIC acting asa distributor on EMD’: sales to EMD customers. Rust-Oleum
argues Mr. Hall’s inability to recall what each named customer did with the products sold is □
evidence that “NIC did nothing whatsoever to monitor and/or discontinue such sales and uses.”
Pl. MSJ, ECF No. 202. Rust-Oleum relies on these invoices and suggests that had NIC
conducted a “cursory search” of the companies’ websites, NIC would have been able to conclude □
that those customers were using MC-156 for wipe-on use. This claim is unsubstantiated, lacking
any evidence to show what the referenced websites looked like from 2015-2017.
Page 15 - OPINION & ORDER
NIC defends that although it could not say with certainty what each customer did with its □
materials, it could discern end use from the customer’s final product. Mr. Hall testified to
reviewing daily sales reports and having a general familiarity with NIC’s customers and
websites. Def. Memo., ECF No. 203, Exs. 5-6. He explained that monitored its products
through social media and stories submitted by customers detailing home use. Mr. Hall testified
that outside of one breach, for which NIC discontinued sales, neither “Rust-Oleum nor Wipe
New nor NIC could ever find” a competing product or use in the market. Ms. Ashley O’Donnell,
Rust-Oleum’s representative, was likewise unaware of an instance wherein NIC sold a product in
□□ .
the Covered Application. Def. Memo., ECF No. 203, Ex. 4. The adequacy of NIC’s monitoring
mechanisms is bolstered by the fact that NIC has caught as many breaches as Rust-Oleum. NIC
moreover is not obligated to track every sale containing a unit of Durazane. NIC acknowledged it
“does not and cannot make any representations or warranties concerning the end use of the
Product.” NIC is obliged only to use “commercially reasonable efforts” to track end use of AV-
945 and discontinue if it violates the Covered Application. NIC sells thousands of products to □
distributors and retailers all over the country, who in turn contact énumerable consumers. It’s
not “commercially reasonable” to expect NIC to track the end use of each customer. Given the ,
magnitude of NIC’s. business, the Court is satisfied that NIC’s monitoring was “commercially
reasonable.” NIC therefore did not commit fraud when it represented to Rust-Oleum that it
complied with its obligations under the Covered Application.
NIC is entitled to judgement as a matter of law on all claims brought by Rust-Oleum.
Rust-Oleum clearly and unambiguously released all claims in the Settlement Agreement. The
summary judgement record is further void of any facts to support Rust-Oleum’s claims onthe
Page 16 -OPINION & ORDER
merits, There is no genuine issue of fact that NIC did not commit fraud in connection to the Sales
Agreement and Settlement Agreement, as Rust-Oleum alleges. . □
I. _ Rust-Oleum’s motion for summary judgment on all counterclaims brought by NIC
is DENIED.
Plaintiff Rust-Oleum moves for summary judgment on each of Defendant NIC’s
counterclaims, including breach of contract, misappropriation of trade secrets, and fraud. Rust-
Oleum is not entitled to summary judgment on these claims for two reasons. First, there is no .
evidence to support Rust-Oleum’s allegations of breach, unilateral mistake, and Sherman Act
violations such that Rust-Oleum would be entitled to judgement as a matter of law. Second, NIC
has demonstrated genuine issues of fact with respect to the remaining claims.
a. Rust-Oleum is not entitled to summary judgment on NIC’s first counterclaim
(breach of contract) because the record does not support Rust-Oleum’s
allegations of unilateral mistake, breach, or Sherman Act violations.
Plaintiff Rust-Oleum moves for summary judgment on Defendant NIC’s breach of
contract claim, arguing it fails for three reasons: Rust-Oleum acted under a unilateral mistake,
NIC was the first to breach, and the Agreements are barred by the Sherman Act.
i. Unilateral Mistake and Breach
A party may avoid a contract based on a unilateral mistake by proving there was a
mistake that was basic and known to the other party, or that a reasonable person should have
known of the mistake, Gardner v. Meiling, 280 Or. 665, 674 (1977); G. E. Supply Corp. v.
Republic Cons. Corp., 201 Or. 690 (1954). The mistake must be a misapprehension of a material
fact basic to the agreement. Gardner, 280 Or. at 674.
The Sales Agreement states NIC owns “all proprietary rights” to its products. Rust-
Oleum claims it misinterpreted “all” to mean NIC owned Durazane and thus entered the Sales
Agreement under a false premise. Rust-Oleum maintains that Durazane’s ownership vias
Page 17--OPINION & ORDER
somehow fundamental to Rust-Oleum’s execution of the Sales Agreement. Therefore, because □
Rust-Oleum was mistaken, it claims it is entitled to avoid the Sales Agreement.
The Court is unpersuaded. It is unclear how the rights to Durazane could be fundamental
to the Sales Agreement when Durazane’s existence wasn’t known by Rust-Oleum until after
executing Sales Agreement. The Court is moreover unconvinced that Rust-Oleum was falsely
mislead by NIC as it claims. Such an allegation relies on findings the Court has already rejected:
there is no evidence NIC fraudulently misrepresented the propriety rights to Durazane. The plain
meaning of the Sales Agreement is clear and unambiguously provides that NIC owns the
formulated product, Wipe New. Rust-Oleum has not produced evidence that it operated under
any such mistake or that NIC knew Rust-Oleum was mistaken. Moreover, given the plain
meaning of the Agreement, its not reasonable for one to assume such a mistake occurred.
Rust-Oleum’s breach claim fails for similar reasons. There is no evidence in the record to
support a finding that NIC misrepresented Durazane’s ownership or that NIC violated the
Covered Application. Rust-Oleum therefore has not shown NIC breached the Sales Agreement
or Settlement Agreement first, thereby relieving Rust-Oleum of its obligations.
The summary judgment record cannot support a finding that Rust-Oleum entered the
agreement based on a unilateral mistake nor that NIC breached the contract first. Rust-Oleum is
not entitled to judgement as a matter of law on this claim.
ii, The Sherman Act
Rust-Oleum also claims that NIC’s breach of contract counterclaim fails as a matter of □
law under the Sherman Act. □ □
. Section | of the Sherman Act declares illegal “[elvery contract, combination in the form
of trust or otherwise, or conspiracy, in restraint of trade.” 15 U.S.C. § 1. The Supreme Court □□□
Page 18-OPINION & ORDER □□
interpreted Section 1 to “prohibit only unreasonable restraints of trade.” PES.Com, LLC v. Nat'l
Ass'n of Realtors, 32 F.Ath 824, 833 (9th Cir. 2022); see also NCAA v. Ba. of Regents of the.
Univ. of Okla., 468 U.S. 85, 98 (1984). Some restraints are deemed per se Violations and
presumed anticompetitive, while most restraints are subject to the fact-specific rule of reason.
□
PLS.Com, 32 F.Ath at 833.
Rust-Oleum argues that NIC’s breach of contract claim is based on an interpretation of .
Settlement Agreement so overly broad, it converts the Agreement into a per se unreasonable
restraint on trade. According to Rust-Oleum, NIC is seeking to enforce the Settlement
Agreement as an imperishable noncompete, prohibiting “Rust-Oleum from competing against it
in the automotive restoration and detailing market into perpetuity by prohibiting its-use of
Durazane.” Pl. Mot., ECF No. 202. Were Rust-Oleum’s characterization accurate, the Settlement
Agreement would potentially be an unreasonable restraint on trade. NIC’s breach claims are
contrarily quite confined, NIC accuses Rust-Oleum of violating their agreement not to reverse
engineer or duplicate Wipe New, and of disclosing confidential information. Def. Answer, EFC
No. 77. Section 3 of the Settlement Agreement, read in conjunction with the Sales Agreement, is
a standard agreement not to steal the other’s proprietary information and intellectual property.
Read plainly, Rust-Oleum is not permitted to steal the Wipe New formula. There is nothing
unreasonably restrictive about that arrangement. □
Rust-Oleum is not entitled to judgement as a matter of law on this claim.
b. Rust-Oleum is not entitled to summary judgment on NIC’s second counterclaim
(misappropriation of trade secrets) because NIC has raised sufficient questions
of fact regarding Wipe New as a trade secret and whether Rust-Oleum .
misappropriated it. = □
Page 19 — OPINION & ORDER .
Plaintiff Rust-Oleum claims it is entitled to summary judgement on Defendant NIC’s
counterclaim for misappropriation of trade secrets because Wipe New’s formula is not a trade
secret and Rust-Oleum’s actions do not constitute misappropriation.
“Trade secret” refers to information that derives independent economic value from not
being generally known to the public and is likewise subjected to reasonable efforts to maintain
its secrecy. ORS 646.461(4). Disclosure or use of a trade secret by a person who acquired the
knowledge through improper means and lacks consent is misappropriation. ORS 646.461(2).
Rust-Oleum alleges that information about the Wipe New formula, as well as its
particular application of Durazane, is publicly available and generally known in the industry.
Rust-Oleum points to EMD’s website wherein sample formulas are posted to instruct consumers
on Durazane’s uses. NIC argues in response that Wipe New’s formula and use of Durazane for
wipe-on application was not publicly known at the time the Sales Agreement was signed. NIC
highlights that Rust-Oleum has not produced evidence for the record that anyone sold a formula
for restorative use like Wipe New: NIC explains that the Durazane “starter formulas” publicly
available on EMD’s website are chemically different from Wipe New’s particular formula. NIC
further states that Rust-Oleum is precluded from disputing Wipe New is a trade secret based on |
its own acknowledgements in the Sales Agreement. In Section 13.1, Rust-Oleum warranted that
it understood Wipe New, the formula, and the design “constitute[] trade secrets of NIC.” NIC has
demonstrated a genuine issue of fact as to whether Wipe New is a trade secret.
Rust-Oleum also claims it could not have misappropriated because Wipe New is not a
trade secret and regardless, Rust-Oleum had a proper purpose in reverse engineering the product.
Rust-Oleum argues it was forced to reverse engineer in order to determine compliance with
various regulations. NIC responds by again pointing to the Sales Agreement. Section 13.1 also
Page 20 - OPINION & ORDER
obligated Rust-Oleum not to “disclose, duplicate [or] reverse engineer the Product.” Rust-Oleum
nonetheless launched “Operation Torpedo” with the objective of producing a Wipe New
duplicate and succeeded. NIC argues that reverse engineering was a direct violation of the Sales
Agreement and therefore, conclusively misappropriation. NIC has demonstrated a genuine issue
of fact as to whether Rust-Oleum misappropriated.
Rust-Oleum is therefore not entitled to summary judgment on NIC’s counterclaim for —
misappropriation of trade secrets. :
c. Rust-Oleum is not entitled to summary judgment on NIC’s third counterclaim
(fraud) because NIC has raised a genuine dispute regarding whether the claim
has a basis independent from the misappropriation claim.
Plaintiff Rust-Oleum claims Defendant NIC’s fraud counterclaim is preempted by the
Oregon Trade Secrets Act. The Oregon Trade Secrets Act supersedes conflicting tort law
providing civil remedies for misappropriation of a trade secret. ORS 646.473(1). It does not □
affect civil remedies not based on misappropriation of a trade secret. ORS 646.473(2). “Where
the essence of the claim relates-primarily to the alleged misappropriation of a trade secret, the
claim is displaced by the preemptive language of the Act.” Acrymed, inc. y. Convatec, 317 F.
Supp. 2d 1204, 1217 (D. Or. 2004).
NIC alleges Rust-Oleum committed fraud in connection to the Settlement Agreement by
representing it had not and would not reverse engineer Wipe New. Rust-Oleum executed the
‘Settlement Agreement knowing such representations were false. NIC claims it believed Rust-
Oleum would resume purchases once it exhausted its inventory. NIC claims it refrained from □
selling Wipe New to others and delayed reentry to the market in reliance on Rust-Oleum’s
representations. □
Page 2] — OPINION & ORDER .
Rust-Oleum claims that the essence of NIC’s fraud claim is misappropriation of trade
secrets. Rust-Oleum argues that without the misappropriation, there would be no damages and no
claim for fraud. Thus, because the claims are co-dependent, the fraud claim is preempted by the
OTSA.
□ NIC disagrees, arguing that misappropriation simply provides a motive for the allegations
contained in NIC’s Answer. NIC contends its fraud claim is based on Rust-Oleum’s
representations that it would resume purchases once its inventory was exhausted. NIC claims that
in reliance on this promise, NIC did not reenter the market until 2018. The claims □□□
independent, according to NIC, because NIC does not need to prove Rust-Oleum
misappropriated its trade secrets to prevail on the fraud claim. Thus, no preemption should apply.
NIC has raised a genuine dispute as to whether its fraud claim has an independent basis
from the alleged trade secret misappropriation. Rust-Oleum is not entitled to judgement as a
matter of law on NIC’s counterclaim for fraud.
. CONCLUSION |
For the above reasons, Defendant NIC’s motion for summary judgment (#199) is: □
GRANTED and Plaintiff Rust-Oleum’s motion for summary judgment (#202) is DENIED. NIC
is entitled to judgment as a matter of law on Rust-Oleum’s claims for fraud in the inducement,
breach of contract, declaratory judgment, and breach of the implied duty of good faith and fair
dealing.
The issues remaining for trial concern whether Rust-Oleum. breached the Agreements and
violated trade secrets law by reverse engineering and duplicating NIC’s Wipe New formula.
Rust-Oleum contends it “used. ..information EMD provided...entirely independent of NIC, to
develop separate Wipe New product formulations that Rust-Oleum referred to as the ‘Wipe New
Page 22 — OPINION & ORDER
Offset.” Rust-Oleum argues this absolves it of any contract or trade secret violations. Any
‘injunctive relief and corresponding damages resulting from such alleged violations will be~
‘determined at trial. ZZ
DATED this 23 day of _ October LE 053. fo
MARK D.CJARKE
United Statés Magistrate Judge
Page 23 — OPINION & ORDER