Eaton loses appeal, Mississippi Supreme Court says lower court within bounds to throw out multimillion-dollar lawsuit
Eaton Corp. loses appeal to reinstate its lawsuit against competitor Frisby Aerospace in a unanimous decision by the Mississippi Supreme Court. (Mort Tucker Photography)
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on November 21, 2013 at 3:55 PM, updated November 23, 2013 at 6:42 AM
CLEVELAND, Ohio -- The Mississippi Supreme Court this afternoon declined a request by Eaton Corp. to reinstate its trade secrets lawsuit against rival Frisby Aerospace.
The unanimous decision by the justices is a stunning defeat for Cleveland's biggest corporation, which had sued Frisby and six of its engineers in 2004. The ruling upholds a lower court's decision that Eaton knew about and sanctioned secret communications between one of its lawyers and the initial judge overseeing the lawsuit.
Eaton's complaint had at stake hundreds of millions of dollars -- perhaps as much as a billion dollars, the value of a contract the two companies vied for to provide aerospace parts for Boeing's 787 Dreamliner.
The Mississippi Supreme Court rejected Eaton's argument that the Hinds County Circuit Court in Jackson, Miss., abused its discretion by throwing out Eaton's lawsuit in 2010. A countersuit by Frisby that claims Eaton sued to destabilize Frisby in the aerospace business continues in Hinds County.
The unanimous decision by the justices is a stunning defeat for Cleveland's biggest corporation, which had sued Frisby and six of its engineers in 2004. The ruling upholds a lower court's decision that Eaton knew about and sanctioned secret communications between one of its lawyers and the initial judge overseeing the lawsuit.
Eaton's complaint had at stake hundreds of millions of dollars -- perhaps as much as a billion dollars, the value of a contract the two companies vied for to provide aerospace parts for Boeing's 787 Dreamliner.
The Mississippi Supreme Court rejected Eaton's argument that the Hinds County Circuit Court in Jackson, Miss., abused its discretion by throwing out Eaton's lawsuit in 2010. A countersuit by Frisby that claims Eaton sued to destabilize Frisby in the aerospace business continues in Hinds County.
The justices said they supported the lower court's decision to issue the most severe sanction possible in a civil case -- dismissing a lawsuit with prejudice, meaning it can't be refiled -- because of misconduct by Eaton that the high court said hurt not only Frisby but the integrity of the legal proceedings.
"This looks like the end of the line for Eaton," said Andrew Pollis, a Case Western Reserve University professor of law who has followed the case.
Pollis said he doubted an appeal would work because the U.S. Supreme Court doesn't wade into questions of state law. Eaton raised an argument that its due process rights were violated -- a federal issue that could fall under the purview of the nation's highest court. But the chances that it would take up the case are very low, Pollis said.
A spokesman for Eaton said he would check to see if the company wanted to comment.
Frisby lawyer Alan Perry said "It's a good day for justice in Mississippi." He declined further comment.
Eaton alleged in its lawsuit that six of its former engineers who took jobs at Frisby left Eaton's Jackson, Miss., plant with reams of proprietary information that they gave to their new employer. The data included trade secrets for making aerospace pumps and motors, Eaton said.
Frisby attorneys were soon on the offensive, with claims that one of Eaton's lawyers in Mississippi, Ed Peters, worked covertly to influence the initial judge in the case, Bobby DeLaughter. The two men were close, like father and son, Peters said in a later FBI inquiry into their ties.
The Mississippi Supreme Court, in a 41-page decision written by Justice Randy Pierce, said of the contact between Peters and DeLaughter, "We find the evidence here clearly and convincingly shows that Eaton, through its officers, knew that Peters had engaged in improper ex part communication with Judge DeLaughter on Eaton's behalf to advance Eaton's interests in this lawsuit."
The court also upheld a $1.5 million sanction imposed on Eaton before the lawsuit was dismissed, for failing to disclose a payment arrangement with a key witness.
That witness, Milan Georgeff, had sparked the Eaton-Frisby fight by faxing several engineering drawings to Eaton that Georgeff said Frisby engineers were using. Largely on the basis of that evidence, FBI agents raided a Frisby plant in Clemmons, N.C., hauling off boxes of computer files and documents.
Frisby and the engineers said the men inadvertently packed up the records when they left Eaton, and that they contained garden-variety information, not trade secrets.
Pierce wrote that trial courts have wide discretion in issuing sanctions. Citing earlier case law, he said the Mississippi Supreme Court affirms lower court decisions "unless there is a definite and firm conviction that the court below committed a clear error of judgment in the conclusion it reached upon weighing of relevant factors."
Eaton had said that its rights were trampled on in many ways, including that it never got a fair hearing and was hamstrung by rulings that prevented it from presenting a substantial part of its evidence.
"This issue is without merit," Pierce wrote. "And we find no abuse of discretion in the trial court's ultimate decision to right the wrong by issuing the most severe sanction at its disposal."
Though the question of the dismissal of the trade-secrets case may never be raised in another court, Eaton and Frisby have plenty of litigation ahead of them.
Still pending before the Mississippi Supreme Court is a bid by Eaton to replace the Hinds County Circuit Court judge overseeing Frisby's countersuit, Jeff Weill Sr.
Shareholders have sued Eaton in a case in Cuyahoga County, claiming it botched the handling of its initial lawsuit against Frisby, hurting investors.
And a top in-house attorney fired by Eaton this year -- as the company attempted to explain why it had not turned over emails that Weill said should have been produced -- has sued Eaton for wrongful dismissal. Sharon O'Flaherty claims in her suit hat she was made a scapegoat in the power management company's scramble to extricate itself from its widening problems in Mississippi.
Peters was the Hinds County district attorney and DeLaughter was one of his assistants in 1994 when they helped convict Byron de la Beckwith for the 1963 murder of civil rights leader Medgar Evers. The case was made into a movie called "Ghosts of Mississippi," with Alec Baldwin playing DeLaughter.
DeLaughter pleaded guilty in 2009 to lying to federal agents in connection with a separate case in which prosecutors said he had secret talks with Peters. He was sentenced to 18 months in prison. Peters, who gave prosecutors information in that case, surrendered his law license and hasn't been seen in Jackson in several years.
"This looks like the end of the line for Eaton," said Andrew Pollis, a Case Western Reserve University professor of law who has followed the case.
Pollis said he doubted an appeal would work because the U.S. Supreme Court doesn't wade into questions of state law. Eaton raised an argument that its due process rights were violated -- a federal issue that could fall under the purview of the nation's highest court. But the chances that it would take up the case are very low, Pollis said.
A spokesman for Eaton said he would check to see if the company wanted to comment.
Frisby lawyer Alan Perry said "It's a good day for justice in Mississippi." He declined further comment.
Eaton alleged in its lawsuit that six of its former engineers who took jobs at Frisby left Eaton's Jackson, Miss., plant with reams of proprietary information that they gave to their new employer. The data included trade secrets for making aerospace pumps and motors, Eaton said.
Frisby attorneys were soon on the offensive, with claims that one of Eaton's lawyers in Mississippi, Ed Peters, worked covertly to influence the initial judge in the case, Bobby DeLaughter. The two men were close, like father and son, Peters said in a later FBI inquiry into their ties.
The Mississippi Supreme Court, in a 41-page decision written by Justice Randy Pierce, said of the contact between Peters and DeLaughter, "We find the evidence here clearly and convincingly shows that Eaton, through its officers, knew that Peters had engaged in improper ex part communication with Judge DeLaughter on Eaton's behalf to advance Eaton's interests in this lawsuit."
The court also upheld a $1.5 million sanction imposed on Eaton before the lawsuit was dismissed, for failing to disclose a payment arrangement with a key witness.
That witness, Milan Georgeff, had sparked the Eaton-Frisby fight by faxing several engineering drawings to Eaton that Georgeff said Frisby engineers were using. Largely on the basis of that evidence, FBI agents raided a Frisby plant in Clemmons, N.C., hauling off boxes of computer files and documents.
Frisby and the engineers said the men inadvertently packed up the records when they left Eaton, and that they contained garden-variety information, not trade secrets.
Pierce wrote that trial courts have wide discretion in issuing sanctions. Citing earlier case law, he said the Mississippi Supreme Court affirms lower court decisions "unless there is a definite and firm conviction that the court below committed a clear error of judgment in the conclusion it reached upon weighing of relevant factors."
Eaton had said that its rights were trampled on in many ways, including that it never got a fair hearing and was hamstrung by rulings that prevented it from presenting a substantial part of its evidence.
"This issue is without merit," Pierce wrote. "And we find no abuse of discretion in the trial court's ultimate decision to right the wrong by issuing the most severe sanction at its disposal."
Though the question of the dismissal of the trade-secrets case may never be raised in another court, Eaton and Frisby have plenty of litigation ahead of them.
Still pending before the Mississippi Supreme Court is a bid by Eaton to replace the Hinds County Circuit Court judge overseeing Frisby's countersuit, Jeff Weill Sr.
Shareholders have sued Eaton in a case in Cuyahoga County, claiming it botched the handling of its initial lawsuit against Frisby, hurting investors.
And a top in-house attorney fired by Eaton this year -- as the company attempted to explain why it had not turned over emails that Weill said should have been produced -- has sued Eaton for wrongful dismissal. Sharon O'Flaherty claims in her suit hat she was made a scapegoat in the power management company's scramble to extricate itself from its widening problems in Mississippi.
Peters was the Hinds County district attorney and DeLaughter was one of his assistants in 1994 when they helped convict Byron de la Beckwith for the 1963 murder of civil rights leader Medgar Evers. The case was made into a movie called "Ghosts of Mississippi," with Alec Baldwin playing DeLaughter.
DeLaughter pleaded guilty in 2009 to lying to federal agents in connection with a separate case in which prosecutors said he had secret talks with Peters. He was sentenced to 18 months in prison. Peters, who gave prosecutors information in that case, surrendered his law license and hasn't been seen in Jackson in several years.
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