Fourth DCA Blocks Disclosure of Trade Secrets in Products Liability Case

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In the Niagara case, the Fourth DCA held that the circuit court departed from the essential requirements of law when it ordered a product designer to disclose its trade secrets where the party requesting disclosure failed to present evidence to establish that production of the privileged information was reasonably necessary.

The decision reminds us that pursuant to Fla. Stat. § 90.506, trade secrets are generally privileged from disclosure, and improper order piercing this privilege and requiring disclosure may cause irreparable harm to the disclosing party and others. Therefore, when a party asserts trade-secrets privilege, the court must conduct a 2-step inquiry. First, the court must determine if the documents are in fact trade secrets. Second, if the documents are deemed trade secrets, the burden shifts to the requesting party to show that the disclosure is reasonably necessary.

In this case, the trial court erred in ordering production of documents because step two of the inquiry was not properly met. While the subject product was destroyed and the documents were disclosed in a prior lawsuit, it was not enough for counsel for the requesting party to merely argue this at the evidentiary hearing on the objections to the production. The requesting party failed to show any testimony or evidence to support the conclusion that disclosure was necessary, and thus, the trial court did not have a sufficient basis to order disclosure.

It should be noted that the decision does not stand for the proposition that destruction of a product is never a sufficient basis to warrant disclosure of privileged documents. In fact, the opinion explains that this may be the case, but a party must present evidence or testimony to support that conclusion.

Additionally, the appellate court noted that it did not hold that a requesting party must always present evidence. The failure to do so may simply mean risking being unable to overcome the testimony or evidence of the objecting party.

The facts leading to the above analysis were as follows. The plaintiff had hired a plumbing company to fix a tankless water heater he had purchased and was having some problems. While an employee of the plumbing company repaired the water heater, it exploded and injured the plaintiff.

The plaintiff then filed a lawsuit against the retailer that sold him the product (Rheem) and the company that designed it (Niagara) for negligence and strict liability against both. During this litigation, under a protective order limiting who could view disclosed documents, the court required the defendants to disclose what they described as “confidential and highly confidential documents, including [the designer’s] trade secrets relating to the manufacturing and testing of the subject tankless water heater.” The documents were not presented to the jury, and were later returned to the designer of the product.

Following the resolution of the initial lawsuit, the plaintiff filed a new lawsuit against several other parties, including one called Guardian American Properties, LLC (Guardian) and the plumbing repair company, H20 Plumbing Services, Inc (H2O). The Rheem and Niagara were not parties to this second lawsuit. Regardless, during this second litigation, Guardian sought production of the confidential records produced in the first litigation. Rheem and Niagara both objected.

The only witness who testified at the evidentiary hearing on the objections was Niagara’s owner, who claimed that production of the trade secrets would be devastating to his company. Guardian and H2O relied only upon the arguments of counsel and did not produce any evidence.

The trial court found that the documents sought were indeed trade secrets, but there was reasonable necessity for production of some items because there was testimony that the product failed and there was no ability to test the subject heater. Given this finding, Rheem and Niagara petitioned the appellate court for a writ of certiorari.

The Fourth DCA explained that a party cannot obtain trade-secrets information without establishing a reasonable necessity for the disclosure. The requesting party failed produce any evidence to overcome the testimony of the owner of Niagara and failed to establish why they needed the documents in the first place. Therefore, because the trial court found that the requesting party established a reasonable necessity to breach the privilege despite the requesting party failing to present any evidence, the trial court departed from the essential requirements of the law.

Citation: Niagara Industries, Inc., et. al. v. Giaquinto Electric, LLC, et. al., 42 Fla. L. Weekly D2576a (Fla. 4th DCA Dec. 6, 2017)

(This post was prepared by Karina D. Rodrigues, Esq. For more information, please contact Karina at kdr@kulaw.com or 954-522-6601).