Chemetall GMBH v. ZR Energy, Inc.

Chemetall GMBH (plaintiff) purchased the assets of Morton International (Morton) pursuant to an asset-purchase agreement (APA). Three years later, an employee of Morton, Joseph Fraval, left Morton and started a new business, Zr Energy, Inc. (defendant), which competed in the same industry as the business Chemetall had acquired from Morton. During his employment with Morton, Fraval signed a trade-secret agreement (TSA) with Morton that included a covenant not to disclose Morton’s confidential business information. The TSA expressly “inure[d] to the benefit of [Morton’s] successors and assigns.” The APA with Chemetall required Morton to keep confidential and to not use any information pertaining to the acquired assets, and it required Morton to bind its employees to the same obligation. The APA, however, did not specifically include Fraval’s TSA on its list of acquired assets, and it specifically stated that Chemetall did not assume obligations relating to Morton’s employees, including employment agreements. Chemetall sued for breach of the TSA by Fraval and alleged that Chemetall had a right to enforce the TSA as a result of the asset purchase. The district court denied Fraval’s pretrial motion to dismiss the breach-of-contract claim and allowed evidence at trial relating to whether the parties had intended for the APA to include Fraval’s nondisclosure obligations under the TSA. The jury ruled in Chemetall’s favor. Fraval moved for judgment as a matter of law, contending that the APA provision that Chemetall did not assume any obligation relating to Morton’s employees indicated an intent to exclude from the APA all of Morton’s confidentiality rights under the TSA, which Fraval had entered into as an employee. The district court denied the motion, and Fraval appealed.