Two Mid-Missouri companies are fending off a lawsuit from a Kansas City business that alleges the companies stole trade secrets.
Kansas City-based Gateway Packaging sued the parent company of Meta-based Diamond Pet Foods and Jefferson City-based Morris Converting on March 6 for allegedly stealing trade secrets used to manufacturer Costco dog food bags. The suit alleges the companies did this by hiring two former employees with knowledge of manufacturing processes used to make the bags.
Gateway manufactures flexible packaging products sold throughout the United States at a Kansas City factory. Cincinnati-based package manufacturer ProAmpac acquired Gateway on Wednesday.
Morris Converting, Gateway's direct competitor, makes flexible packaging and bags sold throughout the United States at its Jefferson City factory on Algoa Road. Schell & Kampeter manufactures pet foods under the Diamond Pet Foods name at its headquarters in Meta and at three other plants.
Prior to 2013, Diamond purchased most of its flexible packaging material from Morris, and it was used to package Kirkland brand dog food for Costco. The suit claims Diamond began exploring other packaging options with Gateway because the 40-pound dog food bags made by Morris were prone to puncturing and spilling when bumped into by shopping carts.
"Costco requested bags that would be more puncture-resistant, less likely to break open and more durable," according to a complaint filed March 6 in the U.S. District Court for the Western District of Missouri.
In the suit, Gateway alleges two former Gateway employees used proprietary information to help Morris develop a competing bag in 2017, just weeks after they left Gateway.
"Defendants acted willfully and maliciously in misappropriating Gateway's trade secrets for their own personal gain," the suit says.
Gateway said, in 2014 it began a two-year process of developing the new bags. The company needed to create a bag with an outer nylon shell and inner paper lining that looked good but also could be used on nine lines at four Diamond plants. Research costs for the project totaled at least $2 million.
During the development process, Gateway employees Greg Below and Joseph Fiore were copied on internal emails on which the specifications for the new bag were shared, the suit states.
Below began working at Gateway as a business development manager of sales in August 2012. Fiore began working as vice president of sales and marketing in April 2013. Both signed non-disclosure agreements at the beginning of their tenures that forbid them from disclosing trade secrets during their time at the company and for two years after their employment ended.
On Nov. 23, 2016, Below, then a business development manager of sales at Gateway, improperly shared a specification sheet with the materials used to manufacture the new bag with Diamond's Andy Kampeter, Gateway alleges. The email contained no text but had a subject line with "Kirkland bag spec sheet." One week later, Below emailed the same spec sheet again to Kampeter, the suit says.
Gateway said Diamond knew the information it received was confidential and not intended to be shared with third parties.
"It would be atypical for a Gateway employee to share a technical data sheet outside the company, and there was not a legitimate reason to do so in this situation," Gateway says in the suit.
As Gateway's relationship with Diamond and Costco blossomed, the company said, it became critical to its business. Gateway revenues from its relationship with Diamond increased from $400,000 in 2014 to $4.6 million in 2015 and to $8 million in 2016. In January 2018, Diamond told Gateway it would end the relationship March 1.
Fiore stopped working for Gateway in late 2016. Below left Gateway on March 6, 2017.
Fiore now serves as vice president of sales and marketing for Morris Converting parent Morris Packaging. Below serves as Morris Packaging's national account manager. The suit alleges within weeks of the departures of Fiore and Below, Diamond began working with Morris to produce similar bags for use by Costco.
"It would've been impossible for Below and Fiore to have viably functioned in their respective new jobs at Morris without using Gateway's trade secrets and confidential information that they obtained while employed at Gateway," the suit states. "Morris could not have so quickly engineered and produced this bag without the aid of Below and the trade secrets he learned at Gateway."
Kent Lowry, an attorney at Jefferson City law firm Armstrong Teasdale, filed a motion to dismiss the case April 3. Lowry said the information available to make the bag was well known in the pet food industry.
"We do not believe this case has any merit," Lowry said. "The technique of making the bag was commonly known."
Jim Morris, Morris Packaging owner and president, did not respond to multiple calls seeking comment.
Lowry wrote in Diamond's motion to dismiss that despite the length of the 35-page complaint, it fails to identify specific trade secrets divulged by Fiore and Below.
Lowry said it would be improper for him to comment on why Fiore and Below left Gateway. The complaint alleges Diamond conspired with Morris Converting to convince Fiore and Below to leave their jobs at Gateway. In Diamond's motion to dismiss, Lowry said, if true, those actions would be illegal.
"There are simply no facts to suggest that Diamond had any reason to conspire to break the law in order to shift its business back to Morris, let alone any facts demonstrating that Diamond took any steps in furtherance of such a conspiracy," Lowry wrote.
The suit names Diamond parent Schell & Kampeter, Morris Packaging, Morris Converting, Fiore and Below as defendants. Gateway estimated the loss of the Diamond contract cost the company $7.8 million in annual sales.
Gateway asked the court to award it at least $9.8 million in actual damages plus $9.8 million in damages for unjust enrichment on the part of the defendants, and exemplary damages in the amount of twice the sum awarded to Gateway. The complaint also asks the court to impose a royalty on all past and present sales of the bags.
A trial is set for October 2019.