E.I. DuPont De Nemours & Company v. Kolon Industries Incorporated , 564 F. App'x 710 ( 2014 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 12-1260
E.I. DUPONT DE NEMOURS & COMPANY,
Plaintiff - Appellee,
v.
KOLON INDUSTRIES, INC.,
Defendant - Appellant,
and
KOLON USA, INC.,
Defendant,
v.
ARAMID FIBER SYSTEMS, LLC,
Third Party Defendant.
No. 12-2070
E.I. DUPONT DE NEMOURS & COMPANY,
Plaintiff - Appellee,
v.
KOLON INDUSTRIES, INC.,
Defendant - Appellant,
and
KOLON USA, INC.,
Defendant,
v.
ARAMID FIBER SYSTEMS, LLC,
Third Party Defendant.
Appeals from the United States District Court for the Eastern
District of Virginia, at Richmond. Robert E. Payne, Senior
District Judge. (3:09-cv-00058-REP)
Argued: May 17, 2013 Decided: April 3, 2014
Before SHEDD and DIAZ, Circuit Judges, and DAVIS, Senior Circuit
Judge.
Vacated and remanded with instructions by unpublished per curiam
opinion. Judge Shedd wrote a separate opinion concurring in the
judgment.
ARGUED: Paul D. Clement, BANCROFT, PLLC, Washington, D.C., for
Appellant. Adam Howard Charnes, KILPATRICK TOWNSEND & STOCKTON
LLP, Winston-Salem, North Carolina, for Appellee. ON BRIEF:
Stephen B. Kinnaird, Jeff G. Randall, Igor V. Timofeyev, PAUL
HASTINGS LLP, Washington, D.C.; Jeffrey M. Harris, BANCROFT,
PLLC, Washington, D.C., for Appellant. Raymond M. Ripple, Donna
L. Goodman, E.I. DUPONT DE NEMOURS AND COMPANY, Wilmington,
Delaware; Brian C. Riopelle, Rodney A. Satterwhite, MCGUIREWOODS
LLP, Richmond, Virginia; Richard D. Dietz, Thurston H. Webb,
KILPATRICK TOWNSEND & STOCKTON LLP, Winston-Salem, North
Carolina; Michael J. Songer, Stephen M. Byers, CROWELL & MORING
LLP, Washington, D.C., for Appellee.
Unpublished opinions are not binding precedent in this circuit.
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PER CURIAM:
“Absent fundamental error, we are loath to overturn a jury
verdict in a civil case. Jury trials are expensive, in time and
resources, both for the litigating parties and for society as a
whole.” Terra Firma Investments (GP) 2 Ltd. v. Citigroup Inc.,
716 F.3d 296, 298 (2d Cir. 2013). We are constrained to find
such a fundamental error in this diversity action.
Appellee E.I. DuPont De Nemours & Co. (DuPont) sued Kolon
Industries, Inc. (Kolon), under the Virginia Uniform Trade
Secrets Act (the “VUTSA”), Va. Code § 59.1-336. After a seven-
week trial, the jury returned a verdict finding that Kolon
willfully and maliciously misappropriated 149 DuPont trade
secrets and awarded DuPont $919.9 million in damages.
Kolon has timely appealed, raising a host of issues, urging
us to enter judgment in its favor as a matter of law or,
alternatively, to order a new trial. Having carefully considered
the record before us and the arguments of counsel, we are
persuaded that the district court abused its discretion, to
Kolon’s prejudice, when it granted one of DuPont’s pre-trial
motions in limine and thereby excluded relevant evidence
material to Kolon’s defense. Accordingly, we vacate the judgment
and remand with instructions.
DuPont is a well-known chemical company that has, for more
than thirty years, produced “Kevlar,” a high-strength para-
3
aramid fiber that is five times stronger than steel. Kevlar is
used in ballistics, bullet-resistant armor, and automotive and
industrial products. Kevlar is made through a highly complex
chemical process that results in a dough-like polymer being spun
at high speed until it becomes a fiber. DuPont maintains that
Kevlar’s production process is a “well-guarded secret.” DuPont
Br. 3. All DuPont employees working on Kevlar are required to
sign a confidentiality agreement. Additionally, DuPont requires
all visitors to the Kevlar plant to be pre-approved, and to sign
a confidentiality agreement before entering.
Kolon is a South Korean corporation that has produced
synthetic fibers, including nylon and polyester, for decades.
Kolon engaged in pilot projects for the development of para-
aramid pulp and fiber products in the 1980s and 1990s. It
suspended its para-aramid research in the mid 1990s during the
Asian financial crisis but resumed in 2000. In 2005, Kolon
marketed a para-aramid fiber under the name “Heracron.”
In 2006, Kolon sought out five former DuPont employees to
work as consultants to improve its para-aramid manufacturing
technology and to assist in resolving quality issues with
Heracron. According to Kolon, the consultants “assured Kolon
they were not sharing confidential DuPont information,” Kolon
Br. 3, but the jury was entitled to find, to the contrary, that
Kolon willfully and knowingly acquired from one or more of the
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consultants a myriad of DuPont trade secrets concerning Kevlar,
involving both technical and business/marketing confidential
information.
DuPont learned of Kolon’s alleged strategy of collecting
and utilizing its trade secrets when Kolon began consulting with
Michael Mitchell, a former employee of DuPont. Mitchell had
extensive knowledge of both the technical and business trade
secrets relating to Kevlar. Kolon contacted Mitchell in 2007 and
flew him to Korea to meet with Kolon to discuss certain aspects
of Kevlar manufacturing. After his initial visit with Kolon
representatives in Korea, Mitchell continued to communicate with
Kolon about Kevlar’s manufacturing process. In addition to
Mitchell, Kolon obtained confidential information from several
other former DuPont employees.
In 2008, the FBI opened an investigation into Mitchell and
his relationship with Kolon. After a search warrant was executed
at his home, Mitchell agreed to cooperate with the FBI. Through
Mitchell and others, the FBI obtained compelling evidence of
Kolon’s misconduct. (On August 21, 2012, a federal grand jury in
the Eastern District of Virginia indicted Kolon and five of its
executives for theft of trade secrets, conspiracy, and
obstruction of justice. See United States v. Kolon Indus., Inc.,
No: 3:12-CR-137 (E.D. Va.)).
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In February 2009, DuPont sued Kolon for substantial
damages, alleging, among other theories, misappropriation of
trade secrets under the VUTSA. Kolon filed antitrust
counterclaims against DuPont. In due course, the district court
granted DuPont’s motion under Federal Rule of Civil Procedure
12(b)(6) and dismissed the counterclaims for failure to state a
claim upon which relief could be granted. After we reversed the
dismissal of the counterclaims and remanded, see E.I. du Pont de
Nemours & Co. v. Kolon Indus., Inc., 637 F.3d 435 (4th Cir.
2011), the district court proceeded to trial separately on the
trade secret claims.
Critical to several of its theories of defense to DuPont’s
misappropriation claims, Kolon intended to introduce evidence
that tended to suggest that a number of the alleged trade
secrets put at issue by DuPont involved publicly available
information. Specifically, Kolon theorized that DuPont itself
had disclosed or otherwise failed to keep confidential such
information in the course of intellectual property litigation in
which it was engaged during the 1980s with its then primary
competitor, AkzoNobel. One such case had been litigated in the
Eastern District of Virginia (“the Akzo litigation”); DuPont was
represented by the same law firm representing it in this case.
As the commencement of the trade secrets trial approached,
DuPont filed a motion in limine “to Preclude Kolon from
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Presenting Evidence or Argument at Trial Concerning the Akzo
Litigations,” arguing that such evidence was not relevant and
that permitting the jury to consider any such evidence would
cause confusion and delay, to DuPont’s prejudice. See Fed. R.
Evid. 401, 403. The district court agreed with DuPont and
granted the motion in a summary order, concluding, in part, that
“Kolon ha[d] produced no evidence that any particular trade
secret, much less a trade secret that is at issue in this
litigation, was disclosed in the litigation between [DuPont] and
Akzo, N.V.” J.A. 1918.
The case proceeded to trial before a jury over the course
of seven weeks. The jury deliberated for two days and on
September 14, 2011, returned a verdict finding that Kolon
willfully and maliciously misappropriated all the trade secrets
put in issue by DuPont. The jury found that Kolon’s misdeeds
resulted in a benefit to itself worth $919.9 million and awarded
that amount in damages to DuPont. Following the verdict, the
district court enjoined Kolon from para-aramid fiber production
for twenty years. The district court denied Kolon’s motion for a
new trial and its renewed motion for judgment as a matter of law
on January 27, 2012. Kolon filed this timely appeal on August
31, 2012. We stayed the district court’s injunction pending our
consideration of the merits of the appeal.
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Meanwhile, Kolon’s antitrust counterclaims were dismissed
on summary judgment. We affirm the judgment in favor of DuPont
on the antitrust counterclaims in an opinion filed today
together with this opinion. Kolon Indus., Inc. v. E.I. duPont de
Nemours & Co., --- F.3d --- (4th Cir. 2014).
On appeal from the trade secrets verdict in this case,
Kolon challenges a host of the district court’s pre-trial
orders, trial decisions, and post-trial rulings. * We reject
summarily Kolon’s contention that it should be awarded judgment
as a matter of law, but we find that a new trial is warranted.
In light of our remand for a new trial, we need not and do not
address the remaining procedural and evidentiary issues raised
by Kolon, as those issues may or may not arise upon remand and,
in any event, may arise in a decidedly different posture.
Kolon argues that the district court abused its discretion
in excluding all evidence and any mention of the Akzo
litigation. Kolon maintains that the excluded evidence would
have tended to demonstrate that “[a]t least 42 of the trade
secrets DuPont has asserted . . . involve information that was
wholly or partially disclosed during the [prior] litigation.”
*
Kolon also challenges in this appeal, as it does in its
appeal of the district court’s summary judgment as to its
antitrust counterclaims, the district court judge’s denial of
its motion for recusal. We reject that challenge here for the
reasons stated in the companion opinion. See infra pp. 15-16.
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Kolon Br. 37. Kolon further asserts that the district court’s
exclusion of that evidence severely limited its ability to put
on a meaningful defense because it prohibited Kolon from
establishing that one or more of the 42 alleged trade secrets
cannot meet the elements of a protectable trade secret.
DuPont responds that the district court did not abuse its
discretion in excluding all Akzo litigation evidence because
Kolon failed to demonstrate that any of the trade secrets at
issue in this case were disclosed in the Akzo litigation. We
agree with Kolon.
Upon its review of DuPont’s motion in limine, the district
court concluded that Kolon failed to produce any evidence that
“any particular trade secret, much less a trade secret that is
at issue in this litigation, was disclosed” in the prior
litigation; that Kolon did not establish that two documents
contained in the publicly-available Joint Appendix in the appeal
of the prior litigation contained any trade secrets; and that
the evidence from the Akzo litigation was therefore irrelevant,
and even if marginally relevant, its relevance would be
significantly outweighed by jury confusion and delay. J.A. 1918-
1919.
We review a district court’s evidentiary rulings for abuse
of discretion and “will only overturn an evidentiary ruling that
is arbitrary and irrational.” U.S. ex rel. Ubl v. IIF Data
9
Solutions, 650 F.3d 445, 453 (4th Cir.), cert. denied, 132 S.
Ct. 526 (2011).
Under Virginia law, a “trade secret” is defined as:
information, including but not limited to, a formula,
pattern, compilation, program, device, method,
technique, or process, that:
1. Derives independent economic value, actual or
potential, from not being generally known to, and not
being readily ascertainable by proper means by, other
persons who can obtain economic value from its
disclosure or use, and
2. Is the subject of efforts that are reasonable under
the circumstances to maintain its secrecy.
Va. Code § 59.1-336 (2013).
Under the Federal Rules of Evidence, evidence is relevant
if it has a tendency to make a fact of consequence to the action
more or less probable than it would be without the evidence.
Fed. R. Evid. 401. We are persuaded that, under this inclusive
standard, Kolon provided the district court with a sufficient
number of examples of how information disclosed in the Akzo
litigation contained details of the Kevlar production process
that were strikingly similar to aspects of several of the
alleged trade secrets in this case.
The district court’s conclusion that “Kolon has produced no
evidence that any particular trade secret, much less a trade
secret that is at issue in this litigation, was disclosed in the
litigation between the plaintiff and Akzo,” J.A. 1918, is simply
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too stringent a standard for admissibility. Under the
circumstances of this case, we think a “strikingly similar”
standard of relevance is enough.
First, Kolon has drawn this Court’s attention to the
substantial similarities between two charts illustrating a
certain aspect of the para-aramid production process. The
parties agree that one of the charts was used as an exhibit in
the Akzo litigation, and the other was used as an exhibit
depicting some of the alleged trade secrets at issue in this
suit. We conclude that Kolon was entitled to have the jury
consider its contentions, including its expert opinion evidence,
regarding the similarities and overlap between what is depicted
in the two documents.
Second, in its opposition to DuPont’s motion in limine,
Kolon provided the district court with a chart comparing seven
alleged trade secrets concerning the production process
contained in an expert witness report in this case with
descriptions of, and citations to, those same details of the
production process that were disclosed in a trial exhibit in the
Akzo litigation. See J.A. 6260-6261. Kolon explained in its
opposition memorandum that this chart represented only the
preliminary results of its review of the Akzo litigation
evidence for the potential disclosure of all or part of alleged
trade secrets in this case. We hold that Kolon was not required
11
to establish, as the district court seemingly demanded, that
evidence derived from the Akzo litigation amounted to an actual
trade secret at issue in this case. Rather, to show the
relevance of the evidence, Kolon simply needed to make a
plausible showing that, either directly or circumstantially, one
or more elements of DuPont’s misappropriation claims, e.g., the
reasonableness of its efforts to maintain confidentiality, was
less likely true. Equivalently, Kolon simply needed to make a
plausible showing that, either directly or circumstantially, one
or more elements of its defenses, either to liability or to the
quantum of damages, e.g., the reasonableness of its asserted
belief that its consultants were not disclosing trade secrets,
was more likely true than not true.
This last-mentioned point is particularly salient here
because one of Kolon’s consultants had served as an expert
witness for DuPont in the Akzo litigation. While there were
myriad infirmities and deficiencies in that witness’s testimony,
and his credibility is surely open to serious question, Kolon
was nonetheless entitled to put on its case through that
witness, who was himself a DuPont witness in the Akzo
litigation. The district court’s wholesale preclusion of any
mention of the Akzo litigation made that impossible.
With reluctance, we hold that the district court abused its
discretion and acted arbitrarily in excluding, on the wholesale
12
basis that it did, as irrelevant or insufficiently probative,
evidence derived from the Akzo litigation. The usefulness of
pre-trial in limine motions in streamlining trial generally and
in fostering the orderliness of evidentiary presentations of
complicated issues cannot be doubted. On the other hand, a court
is often wise to await the unfolding of evidence before the jury
before undertaking to make definitive rulings on the likely
probative value of disputed evidence. Kolon has demonstrated on
appeal that evidence from the prior litigation over DuPont’s
Kevlar program was not irrelevant as a matter of law and that
the probative value of that potential evidence exceeded the bare
minimum the district court seemed to ascribe to it. “Weighing
probative value against unfair prejudice under [Rule] 403 means
probative value with respect to a material fact if the evidence
is believed, not the degree the court finds it believable.”
Bowden v. McKenna, 600 F.2d 282, 284–85 (1st Cir. 1979)
(footnote and citation omitted).
Although it is true, as DuPont contends, that the mere
“presence [of confidential information] in [a federal court’s]
public files, in and of itself, did not make the information
contained in the document ‘generally known’ for purposes of the
[UTSA],” Hoechst Diafoil Co. v. Nan Ya Plastics Corp., 174 F.3d
411, 419 (4th Cir. 1999) (last brackets in original), we also
emphasized in that very case that “whether [ostensibly
13
confidential information] remains a trade secret” “is a fact-
intensive question to be resolved upon trial.” Id.To be sure, there is little doubt as to the possibility of
juror confusion and perhaps delay arising from attention to
other litigation in a trial having the complexity this one
surely did. Nevertheless, under Federal Rule of Evidence 403,
exclusion on that basis is only proper when the probative value
of the evidence is substantially outweighed by the danger of
confusion of the issues or misleading the jury. That standard is
not satisfied on this record. At bottom, the potential for
confusion and delay does not outweigh, much less substantially
outweigh, the probative value (as to both liability and damages)
of the excluded evidence. When a district court conducts a Rule
403 balancing exercise, ordinarily it should “give the evidence
its maximum reasonable probative force and its minimum
reasonable prejudicial value.” Deters v. Equifax Credit Info.
Servs., Inc., 202 F.3d 1262, 1274 (10th Cir. 2000) (citations
omitted). The district court did not do so in this instance.
We hasten to add that we are not to be understood to
suggest that anything Kolon labels as derived from the Akzo
litigation must be admitted on the retrial. We are persuaded,
however, that the blanket exclusion of such evidence seriously
prejudiced Kolon’s ability to present its case to the jury. The
district court is free on remand to determine in a more nuanced
14
and particularized manner what evidence offered by Kolon or
DuPont should be admitted.
* * * * *
As set forth in detail in the majority opinion in the
companion case filed together with this opinion, see Kolon
Indus., Inc. v. E.I. duPont de Nemours & Co., --- F.3d ---, ---
(4th Cir. 2014), we decline to countenance Kolon’s belated
disqualification motion under 28 U.S.C. § 455(b)(2). Although
Kolon has sought to justify its dilatoriness by suggesting that
it needed to ascertain the extent of the district judge’s actual
participation in the Akzo litigation before filing a recusal
motion, the factual and legal basis for its eleventh hour motion
for disqualification was the fact that the district court judge
was a partner in a law firm representing DuPont in the earlier
litigation. This was a fact known to Kolon from the first days
after DuPont’s complaint was filed and served in this case. In
any event, for the very reasons set forth in the majority
opinion in the companion opinion, we hold that Kolon’s motion
was untimely.
That said, we think it prudent to direct, pursuant to our
supervisory powers under 28 U.S.C. § 2106, that all further
proceedings on remand be conducted before a different district
judge. Accordingly, for the reasons set forth, we vacate the
judgment and remand this case to the Chief Judge of the Eastern
15
District of Virginia, whom we direct, in the exercise of this
Court's supervisory powers, to reassign it to another judge, who
shall conduct further proceedings in a manner not inconsistent
with this opinion.
VACATED AND REMANDED WITH INSTRUCTIONS
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SHEDD, Circuit Judge, concurring in the judgment:
For the reasons stated in my separate opinion in Kolon
Industries, Inc. v. E.I. DuPont de Nemours & Co., No. 12-1587, I
would find that the district judge was recused from this case
under 28 U.S.C. § 455(b)(2) no later than July 2011, prior to
the trade secrets trial. I therefore concur in the judgment
vacating the jury verdict and remanding for further proceedings.
I likewise concur in the portion of the judgment requiring
reassignment to another judge.
17