Dubuque Injection Service Company, plaintiff/counterclaim defendant-appellant/cross-appellee v. Steven J. Kress, defendant/counterclaim plaintiff-appellee/cross-appellant. ------------------------------------------------------ Dubuque Injection Service Company v. Bk Diesel Service, Inc. defendant/cross-appellant.
16-0399
| Iowa Ct. App. | Jun 21, 2017Background
- DIS (three equal shareholders: Steven Kress, Doug Hefel, Randy Hefel) operated a diesel-injection business; Steven managed day-to-day operations and received substantial salary and personal purchases recorded in company records.
- A bookkeeping error in 2010 caused excess salary withdrawals; Doug and Randy removed Steven as an officer/director at a Dec. 12, 2011 shareholder meeting but asked him to continue managing the business; they later offered to sell their shares to Steven.
- Doug filed personal bankruptcy in 2010; Steven learned details he considered unfavorable and, citing mistrust, removed company records and sought financing for a new building; Steven later formed BK Diesel Service and DIS sued Steven and BK for trade-secret misappropriation, fiduciary breach, and tortious interference.
- At trial, the district court admitted limited evidence about Doug’s bankruptcy, instructed the jury on ratification, and excluded admission of protective orders re: confidential materials; the jury found for defendants on all claims.
- DIS moved for a new trial arguing (1) improper admission of nonparty bankruptcy evidence, (2) erroneous ratification instruction, and (3) exclusion of protective orders; Steven cross-appealed an evidentiary ruling admitting a DIS audit-trail (QuickBooks) document.
- The court of appeals affirmed: it held limited bankruptcy evidence was admissible to explain Steven’s state of mind, the ratification instruction was supported by evidence, exclusion of protective orders was within discretion, and admission of the audit-trail was not prejudicial.
Issues
| Issue | Plaintiff's Argument (DIS) | Defendant's Argument (Kress) | Held |
|---|---|---|---|
| Admission of nonparty bankruptcy evidence | Evidence irrelevant and unfairly prejudicial; should be excluded | Evidence relevant to Kress’s motive and explanation for removing records and seeking financing | Affirmed — limited bankruptcy evidence admissible; probative to explain conduct and not unduly prejudicial |
| Ratification jury instruction | Ratification cannot justify intentional misconduct; officers’ knowledge not imputable; no post-act ratification evidence | Ratification can apply where principal had knowledge and failed to repudiate; sufficient evidence of acquiescence | Affirmed — sufficient evidence to submit ratification; instruction proper and not reversible error |
| Admission of protective orders (trade-secret claim) | Protective orders show parties treated disclosed materials as confidential, supporting trade-secret status | Orders do not adjudicate confidentiality or identify specific trade secrets; admission would improperly signal judicial endorsement | Affirmed — court did not abuse discretion in excluding protective orders as minimally probative and potentially misleading |
| Admission of DIS audit-trail (QuickBooks) document (cross-appeal) | Document lacked proper business-record foundation; entries possibly backdated, prejudiced Kress’s unpaid-wages counterclaim | Document admissible as business record; other evidence showed timing, so any error was harmless | Affirmed — admission not prejudicial; other testimony made admission cumulative and harmless |
Key Cases Cited
- Quad City Bank & Trust v. Jim Kircher & Associates, P.C., 804 N.W.2d 83 (Iowa 2011) (motion-in-limine preservation principles and when an in-limine ruling constitutes an evidentiary ruling)
- State v. Alberts, 722 N.W.2d 402 (Iowa 2006) (error preserved on motion in limine only if objection renewed at trial unless court’s ruling was final)
- Ellwood v. Mid States Commodities, Inc., 404 N.W.2d 174 (Iowa 1987) (ratification instruction applied where plaintiff had knowledge and failed to stop unauthorized trading)
- Regal Ins. Co. v. Summit Guar. Corp., 324 N.W.2d 697 (Iowa 1982) (knowledge of officers/directors imputed to corporation absent officer acting against corporate interest)
- Anita Valley, Inc. v. Bingley, 279 N.W.2d 37 (Iowa 1979) (acts done solely for individual benefit cannot be ratified by the principal)
- Pillsbury Co. v. Ward, 250 N.W.2d 35 (Iowa 1977) (failure to repudiate an unauthorized act within a reasonable time may constitute ratification)