Eaton Aerospace Trade Secrets Criminal Case Has Seven of Twelve Counts Dismissed

The Mississippi Clarion Ledger is reporting that 7 of 12 criminal charges brought against five former Eaton Aerospace employees have been dismissed and that federal prosecutors intend to appeal that decision.

Federal District Court Judge Barbour threw out the first five counts of the latest indictment, saying the charges were unconstitutionally vague. The charges were one count of conspiracy to defraud the United States, two counts of theft of trade secrets and two counts of wire fraud.
He also threw out two counts involving theft of trade secrets, saying they were barred by the statute of limitations.

The remaining charges in the indictment allege the men defrauded Eaton by scheming to "steal, take and carry away proprietary information" and then using that information "to compete against Eaton for government and commercial contracts."

The indictment alleges the former Eaton employees had access to a variety of confidential information, as well as other information constituting trade secrets, that belonged to the company.

"In July 2001, the defendants approached Frisby regarding employment with Frisby," the indictment says.

"It was an object of the conspiracy that the defendants would and did leave their employment at Eaton and take engineering jobs at Frisby, where they would and did compete directly against Eaton for aerospace contracts for hydraulic pumps and motors."

The indictment further alleges the defendants conspired to enrich themselves while at Frisby through salaries and business by using property stolen from Eaton. Also, they attempted to recruit others, including engineers, to participate in and work for Frisby and to continue to acquire Eaton technology from former and present Eaton employees, according to the indictment.

In addition to the criminal charges, Eaton - a Fortune 100 business - filed a $350 million lawsuit against the former employees and Frisby, accusing them of stealing trade secrets.

Trade Secrets in Our Backyard

From the Winston-Salem Journal, a story concerning five engineers employed with Frisby Aerospace (now known as Triumph Actuation Systems), based in Clemmons, NC, who were indicted in federal court in Mississippi on allegations of stealing trade secrets from Eaton Corp.

The investigation of the company remains open, according to a spokeswoman for the FBI's office in Jackson, Mississippi.

According to the story, the engineers have been the focus of an FBI investigation into whether they stole patented designs from Eaton. That investigation culminated in 2004 when federal agents raided Frisby.

In the words of the Journal:

According to the affidavit of a federal agent, Frisby hired five former Eaton engineers and a former computer specialist at Eaton between 2001 and 2002. Before 2002, Frisby was unable to compete with larger engineering companies, such as Eaton, and was not in the business of designing and manufacturing aviation hydraulic pumps, the affidavit says.

Those employees had worked at a division of Eaton in Mississippi. Eaton, a Fortune 500 company based in Cleveland, Ohio, employs about 56,000 people.

Federal agents raided Frisby after receiving information that employees at Frisby were using computer-assisted design drawings that had been stolen from Eaton, the affidavit says. Computer-assisted design software helps create new products quickly, precisely and economically.

A civil case filed in Hinds County Circuit Court in 2004 names Bergstrom's clients as defendants. That lawsuit, which is pending, contains many of the same allegations included in the affidavit.
___________________________

Oh, and by the way, Merry Christmas from us here at the Trade Secrets Blog!

Judge from Eaton Aerospace Trade Secrets Case to Plead Guilty to Lying to FBI in Unrelated Scruggs Attorney Fee Case

We have reported about the Eaton Aerospace trade secrets matter before: http://wombletradesecrets.blogspot.com/2009/01/federal-indictments-in-eaton-aerospace.html. That report was about the criminal indictments of the former employees. But there was a civil case between Eaton Aerospace and Frisby, too.

In the civil case, the trade secrets allegedly misappropriated and at issue relate to hydraulic pumps and motors for military and commercial aerospace applications. The five former employees -- Rodney Case, Kevin Clark, Mike Fulton, Douglas Murphy and James Ward -- are co-defendants with Frisby (now known as Triumph Actuation Systems).

The judge assigned to the case was Judge Bobby DeLaughter. Judge DeLaughter's former boss and mentor is a Mississippi attorney named Ed Peters, an attorney who formerly represented Eaton as local counsel in the trade secrets case. Well, Judge DeLaughter is allegedly pleading guilty to lying to the FBI in an investigation of his judicial conduct in an unrelated case. DeLaughter has apparently admitted to lying to an FBI agent investigating a legal fees dispute lawsuit he was assigned to involving former mega-attorney attorney Dickie Scruggs. Peters is alleged to have played a key role in the Scruggs' rulings from Judge DeLaughter. Here is a copy of the indictment of DeLaughter: http://letterofapology.com/wp-content/uploads/2009/02/010609-delaughter-indictment.pdf.

We note that Frisby's attorneys maintain rulings from DeLaughter began going in Eaton's favor when Peters became one of Eaton's attorneys - but we've not reviewed any reliable evidence that substantiates this allegation. If Frisby attorneys can prove DeLaughter was improperly influenced by Peters and Eaton knew about it, Eaton's lawsuit and previous rulings made by DeLaughter could be reviewed and/or overturned. What's clear is that DeLaughter's plea is making a mess of things down in Mississippi.

Eaton attorneys and officials have said the company hasn't done anything wrong. They said if Peters did anything improper, it was without the company's knowledge. Peters has not been charged with any criminal wrongdoing, but he voluntarily relinquished his law licenses.

What ultimate impact Judge DeLaughter's guilty plea with have on this civil misappropriation case can only wait to be seen. We'll report back.

AUTHOR'S NOTE ON REVISION TO TEXT OF THIS BLOG POST:

We inadvertently reported that the indictments against the five former Eaton Aerospace employees had been "thrown out" by the federal judge assigned to the matter. This was incorrect. The five indictments have not been thrown out. See: http://www.clarionledger.com/article/20090804/NEWS/90804014/Miss.+trade+secrets+trial+postponed United States District Judge Barbour has continued the trial date in this matter, noting: "The court enters this order based on the court's finding that this case is so unusual and complex due to the nature of the prosecution, the number of defendants, and the volume of discovery that it is unreasonable to expect adequate preparation for pretrial proceedings or for the trial itself within the time limits established by the Speedy Trial Act." Our apologies for the error - although some of the indictments were originally dismissed, a number of the indictments stand and trial of these matters looks likely.

Federal Indictments in Eaton Aerospace-Frisby Trade Secrets Case

From the Jackson (MS) Clarion-Ledger a story that follows up on our earlier postings (going back to 2006) here, here, here and here concerning the Eaton Aerospace-Frisby trade secrets case.

A third criminal indictment has now been filed against five former Eaton Aerospace engineers on charges of conspiracy to defraud the United States and possession of trade secrets.

According to the story, the trial of Rodney Case, Kevin Clark, Mike Fulton, Douglas Murphy and James Ward had been set for April 13 on a conspiracy-to-defraud charge. The new indictment, however, may affect that date.

In April 2008, Mississippi federal judge William Barbour Jr. threw out the majority of the charges in the old indictment, saying the charges of one count of conspiracy to defraud the United States, two counts of theft of trade secrets and two counts of wire fraud were unconstitutionally vague.

He also tossed out two other counts involving theft of trade secrets, saying they were barred by the statute of limitations. The Fifth Circuit denied the government’s appeal.

Not surprisingly, the lawyer for the defendants is contending the new indictment is nothing but an attempted end-run around that earlier ruling.

The Clarion-Ledger states that the five engineers initially were accused of stealing secrets from Mississippi Eaton Aerospace and of taking them to Frisby Aerospace in Clemmons, North Carolina, where they started working in January 2002. (Frisby now is known as Triumph Actuation Systems.)

Mississippi Trade Secrets Mess

Mississippi state courts are in an unholy uproar over a bribery scandal relating to one of the state's top plaintiff's lawyers, Dickie Scruggs, and claims of payoffs to state judges. (The New York Times had a lengthy recent -- and eye-opening -- article on the scandal.)

Now, from the Jackson Clarion-Ledger, comes the fall-out in the trade secrets world. The issue concerns a Special Master appointed in a case in which Eaton Corp. sued North Carolina-based Jeffry Frisby and other former Eaton employees, alleging they stole trade secrets and took them to their new jobs in North Carolina. A federal grand jury later indicted the employees on the same accusations. (Our story on that case, from Christmas Day 2006, can be found here.)

In any event, figures tangential to the roaring scandal, former District Attorney Ed Peters and his "protégé," presiding trial judge Bobby DeLaughter, are spilling over into the Eaton case. The claim is that Peters, working on behalf of Eaton, secretly interceded with his pal Judge DeLaughter to get one Larry Latham appointed as Special Master in the Eaton case in place of previously-appointed Special Master. (Special Masters, of course, can be important in trade secrets cases where even the lawyers don't necessarily get to see all the evidence.)

Latham, upon learning of all this, promptly resigned as Special Master.

Frisby's attorneys said they learned of Peters' possible involvement in aiding Eaton in the case last year when he inadvertently e-mailed one of their secretaries. Eaton's lawyers say this was the first they heard of it.

According to Matt Steffey, a professor at the Mississippi College School of Law, the fact that "Peters was allegedly aiding Eaton at the same time he was helping to get a special master - and yet concealing his involvement - is troubling." In most jurisdictions, one-on-one conversations with a judge about a case -- lawyers call them ex parte communications -- are prohibited under the rules of ethics.

All in all, it's another black eye for the system of justice in Mississippi.

Game Over and Lights Out on Eaton v. Frisby Trade Secrets Case

We’ve had tons of posts on this case going back as far as 2006. In this recent one from last June, we discussed the discovery sanctions against Eaton, the plaintiff in this trade secrets case concerning former employees who went to work for a rival company, Frisby.

Now comes word that the judge has dismissed the whole case, with prejudice, on account of misconduct by plaintiff’s counsel.

According to the Jackson Clarion-Ledger, the Mississippi state court judge found that plaintiff and its counsel tried to influence the then-trial judge (since imprisoned) through a particular counsel hired for that purpose.

According to the article, Eaton will take up the matter on appeal. Its spokesman said "we in no way asked Ed Peters to try to influence Judge DeLaughter or any other judge," adding that "Eaton is a value-based organization...We're very disappointed in the decision."

Criminal Trial for Former Eaton Aerospace Employees is Delayed

We reported on the Eaton Aerospace criminal trade secrets trial back in May: http://wombletradesecrets.blogspot.com/2008/05/eaton-aerospace-trade-secrets-criminal.html#links.

Now the ClarionLedger.com is reporting the scheduled trial of five former Eaton Aerospace employees accused of stealing trade secrets from the Jackson company for aerospace contracts has been delayed.

The trial had been scheduled in U.S. District Court in Jackson.But federal prosecutors’ appeal of a judge’s decision to dismiss seven of 12 federal charges delayed the start of the trial.

U.S. District Judge William Barbour Jr. said the trial will be delayed until the 5th U.S. Circuit Court of Appeals in New Orleans rules on the appeal.

Eaton ex-employees Rodney Case, Kevin Clark, Mike Fulton, Douglas Murphy and James Ward were accused of stealing secrets from Eaton and taking them to Frisby Aerospace in Clemmons, N.C., where they started working in January 2002.

Frisby now is known as Triumph Actuation Systems.Eaton designs, tests and manufactures aerospace hydraulic fluid applications for commercial and military use.

In April, Barbour threw out the first five counts of the latest indictment, saying the charges were unconstitutionally vague. The charges were one count of conspiracy to defraud the United States, two counts of theft of trade secrets and two counts of wire fraud.

He also threw out two counts involving theft of trade secrets, saying they were barred by the statute of limitations.

Criminal Theft of Eaton Aerospace Trade Secrets Charges Stand - No Dismissal

The Clarion-Ledger is reporting that a federal judge has refused to dismiss two pending criminal charges five former Eaton Aerospace engineers are facing after they were victorious in getting others thrown out.

"All motions to dismiss were denied," said Assistant U.S. Attorney John Dowdy, who heads the criminal division of the Southern District of Mississippi.

And once a civil case involving the former employees is done, the criminal trial will be held, Dowdy said.

In a seven-page order issued March 31, U.S. District Judge William Barbour Jr. allowed to stand the latest indictment of two counts of possession of trade secrets and one count of conspiracy to defraud the United States.

Barbour's decision includes many references to the dismissed charges but does not say why he is allowing the other charges to stand.

No trial date is set for Rodney Case, Kevin Clark, Mike Fulton, Douglas Murphy and James Ward.

In 2008, Barbour threw out most of the charges from a 2006 indictment of the former engineers, saying the charges of conspiracy to defraud the United States, two counts of theft of trade secrets and two counts of wire fraud were unconstitutionally vague.

Barbour also threw out two other counts involving theft of trade secrets, saying they were barred by the statute of limitations. That left only the remaining counts of conspiracy to defraud.
The 5th Circuit U.S. Court of Appeals upheld Barbour's decision.

In January 2009, the U.S. Attorney's Office in Jackson filed a new indictment changing the theft charge to possession of trade secrets. The indictment also included the conspiracy count.

The five engineers initially were accused of stealing secrets from Jackson-based Eaton Aerospace and of taking them to Frisby Aerospace in Clemmons, N.C., where they started working in January 2002. Frisby now is known as Triumph Actuation Systems.

Ed Blackmon Jr., of Canton, an attorney for the defense, has called the 2009 indictment a backhanded method by prosecutors to recapture dismissed charges.

We'll keep reporting on this one.

DeLaughter Bribery/Influence Evidence May Impact Eaton Aerospace Trade Secrets Misappropriation Case

We've reported about the crazy ups-and-downs of this Eaton Aerospace employee defection case before: http://wombletradesecrets.blogspot.com/2009/07/judge-from-eaton-aerospace-trade.html.

Forbes is now reporting that U.S. District Judge Glen H. Davidson in north Mississippi ruled Monday the secret grand jury testimony and other materials can be handed over to U.S. District Judge William H. Barbour, in the southern district of Mississippi, and Hinds County Circuit Judge Swan Yerger. The latter judge, Judge Yerger, is the civil trial judge assigned to the Eaton Aerospace misappropriation of trade secrets case that involves numerous former Eaton Aerospace employees and their new employer.

You'll recall that the former employees and their new employer are suggesting that Eaton's retention of Ed Peters, a Mississippi attorney who formerly worked with Judge DeLaughter and was one of his close friends, was made to improperly influence Judge DeLaughter's rulings. Eaton, of course, vigorously denies their retention of Mr. Peters was for any improper purpose.

"It's what Ed Peters has said," Frisby attorney Ed Blackmon said Tuesday. "The statements by Ed Peters were taken as credible by the government because they intended to use those in the DeLaughter trial."

Eaton spokesman Don McGrath said Tuesday the company welcomes the ruling about Peters' grand jury testimony to clarify the relationship of Peters and DeLaughter.

"We in no way hired him to influence Judge Delaughter or any other judge on Eaton's behalf," McGrath said. "We feel that our case is very strong, and I think the government's case is very strong."

We'll keep a continuing eye and ear on this one.

Discovery Sanctions Against Eaton Aerospace Upheld in Never Ending Trade Secrets Case

ClarionLedger.com is reporting that Eaton Aerospace has failed to convince the Mississippi Supreme Court to overturn the $1.5 million sanction issued against it and its attorneys for discovery abuses.

We've covered this case extensively, for example: http://wombletradesecrets.blogspot.com/2010/04/criminal-theft-of-eaton-aerospace-trade.html; http://wombletradesecrets.blogspot.com/2009/01/federal-indictments-in-eaton-aerospace.html.

For the second time in four months, a Mississippi Supreme Court has upheld Hinds County Circuit Judge Swan Yerger's order imposing sanctions in the civil case Eaton Corp. v. Frisby Aerospace against Eaton Aerospace and some of its attorneys for discovery abuses.

On June 12, 2008, Yerger ordered $1,560,642.83 in sanctions against Eaton Corp. and some of the attorneys who were involved in the case for intentionally not providing records.

Yerger set a Jan. 27, 2010, deadline for the defendants to pay but delayed the deadline until a ruling was made on Eaton's Supreme Court appeal.

In March, the state's high court denied Eaton's appeal. Another panel of the court recently turned down Eaton's request for reconsideration.

This is a massive discovery sanction as far as discovery sanctions go.

Eaton-Frisby Trade Secrets Summary

Offered without comment, a long story from the Cleveland Plain Dealer concerning one of the strangest trade secrets cases ever, with North Carolina ties to boot.