SI Handling Systems, Inc. v. Heisley

• Decision Date: 01 March 1984
• Docket Number: Civ. A. No. 83-1336.
• Citation: 581 F. Supp. 1553
• Parties: SI HANDLING SYSTEMS, INC. v. Michael E. HEISLEY, Heico Inc., Philip L. Bitely, Richard O. Dentner, Eagle Sheet Metal Mfg. Co., Inc., Thomas H. Hughes, Sy-Con Technology Inc., Russell H. Scheel, Stanley K. Gutekunst, Barry L. Ziegenfus, Frank V. Possinger.
• Court: U.S. District Court — Eastern District of Pennsylvania

581 F. Supp. 1553

SI HANDLING SYSTEMS, INC. v. Michael E. HEISLEY, Heico Inc., Philip L. Bitely, Richard O. Dentner, Eagle Sheet Metal Mfg. Co., Inc., Thomas H. Hughes, Sy-Con Technology Inc., Russell H. Scheel, Stanley K. Gutekunst, Barry L. Ziegenfus, Frank V. Possinger.

Civ. A. No. 83-1336.

United States District Court E.D. Pennsylvania.

March 1, 1984.

COPYRIGHT MATERIAL OMITTED

E. Jerome Brose, Charles Elliott, Thomas Elliott, Easton, Pa., for plaintiff.

Anthony Creato, Harold H. Cramer, Philadelphia, Pa., for defendants.

FINDINGS OF FACT AND CONCLUSIONS OF LAW ON APPLICATION FOR PRELIMINARY INJUNCTION ENJOINING DISCLOSURE AND USE OF TRADE SECRETS BY FORMER EMPLOYEES OF PLAINTIFF CORPORATION

TROUTMAN, Senior District Judge.

This matter comes before the Court on plaintiff's motion for preliminary injunction wherein it seeks to enjoin disclosure and use of trade secrets. The complaint was filed on March 21, 1983 and motion was filed October 18, 1983. Testimony commenced November 7, 1983 and, with some interruptions, consumed 25 days through closing arguments on February 2, 1984.

At the hearing on the motion the following facts were established. Plaintiff, SI Handling Systems, Inc. ("SI"), is a Pennsylvania corporation located in Easton, Pennsylvania. It was founded by its present chairman and chief executive officer, L. Jack Bradt, in 1958 to purchase certain assets of Safety Industries, Inc. At its inception SI employed four persons. Presently, it is a publicly-held corporation employing some 300 people with plant and offices of approximately 170,000 square feet. From its beginning SI's strategy has been to define unmet needs in the materials handling field, acquire or develop products which fill these needs and then, after the investment required to make them marketable, offer the products in the marketplace as unique solutions to customers' handling problems. Part of that process necessarily involved the large investment in time and money to obtain the necessary advances in technology required to give its products a competitive advantage. This competitive advantage is based on the proprietary nature and uniqueness of each of SI's products. SI's product line presently consists of four products: Switch-Cart, OrderMatic, ItemMatic and CARTRAC, the product which spawns this litigation.

There are three corporate and eight individual defendants. The eight individuals are former employees of SI and presently work for one or the other of the corporate defendants.

Defendant HEICO, Inc. ("HEICO"), formed in May, 1979 is a corporation located in Mendota, Illinois, and is the parent company of Sycon Technology, Inc. and Eagle Sheet Metal Manufacturing Co., Inc. It is, therefore, either the direct or ultimate employer of all the individual defendants. The company's products include a materials handling system being marketed under the name of ROBOTRAC, the division for which was formed in early 1983 and which division was manned by Scheel, Gutekunst, Ziegenfus and George Bartha, all employees.

Defendant Eagle Sheet Metal Manufacturing Co., Inc. ("Eagle") is an Illinois-based corporation engaged in the manufacture of sheet metal products, including computer furniture. It was acquired by HEICO in 1982.

Defendant Michael E. Heisley ("Heisley") is the Chairman of HEICO. Heisley went to work for SI in 1973 as Vice President, Automated Warehousing Systems. One year later he became President and Chief Operating Officer. He resigned from SI in 1978.

Defendant Richard O. Dentner ("Dentner") joined SI in 1970. He was verbally notified on April 19, 1982 of his termination of employment on May 9, 1982. After May 9, 1982, however, he was retained by SI for certain consulting work during the succeeding months. At the time of his departure from SI he was Vice President of Operations responsible for manufacturing, engineering and installation of the company's products. During his tenure there he was instrumental in developing and perfecting SI's manufacturing and installation techniques for CARTRAC. Dentner is now President of Eagle.

Defendant Philip L. Bitely ("Bitely") was employed by SI from October, 1972 to October, 1978. At the time of his resignation he was the chief financial officer of the company serving in the capacity of Vice President-Comptroller. He is now President of HEICO, Inc.

Defendant Russell Scheel ("Scheel") was employed by SI in 1974. He submitted his resignation to SI on February 22, 1983. At that time he held the position of Director, Systems Engineering responsible for interfacing with customers in the automotive industry. He is presently employed by HEICO in its ROBOTRAC division with marketing responsibilities for the automotive industry.

Defendant Stanley K. Gutekunst ("Gutekunst") began his employment with SI in 1976. He submitted his resignation to SI on February 22, 1983. At the time of his departure from the company he was Manager of Mechanical Engineering, having worked most of his time with the company in the areas of engineering and installation. Gutekunst is presently employed by HEICO, Inc. in its ROBOTRAC division.

Defendant Barry L. Ziegenfus ("Ziegenfus") commenced employment at SI on June 17, 1968 as a draftsman. He eventually became Manager, CARTRAC Design Engineering in which capacity he was responsible for the supervision of the people working in the CARTRAC department and for systems engineering. During his employ at SI he was in charge of the exchange of technology with SI's Japanese licensee, ISHIKAWAJIMA-HARIMA HEAVY INDUSTRIES CO., LTD. ("IHI") Obtaining this technology was important for the introduction of CARTRAC to the American automotive industry, IHI having already made some successful automotive installations in Japan. Ziegenfus resigned from SI on February 22, 1983 and on March 6, 1983 commenced employment with HEICO in its ROBOTRAC division.

Defendant Frank V. Possinger ("Possinger") was hired by SI in 1974. His employment was terminated in June, 1982 at which time he held the position of Manager, Cost Accounting and Cost Estimating, a function which involved the indexing of material cost for past and future SI projects including CARTRAC. He is presently employed by HEICO.

Defendant Thomas H. Hughes ("Hughes") commenced employment with SI in February, 1976 as the Manager of Field Sales. He advanced to the position of Vice President of Marketing. At the time of his resignation from SI on July 3, 1981 he was the Vice President, Process Control Systems. Presently he is employed by defendant Sycon Technology, Inc. ("Sycon"), a wholly-owned subsidiary of HEICO and a company which supplies control systems to HEICO.

SI competes in the materials handling industry. This industry comprises methods, mechanisms and systems to transport materials within a distribution or manufacturing environment. Fork lift trucks and conveyors are examples of mechanisms falling within the field of materials handling. One of SI's products is the CARTRAC system. This system involves the movement of a carrier (upon which the product to be moved is placed) by propulsion provided by the thrust imparted to a drive wheel by a spinning tube located between the tracks upon which the car rides. The drive wheel is adjustable such that by changing the angle acceleration and deceleration of the carrier can be controlled. Thereby, materials can be automatically moved from one work station to the next throughout a factory. The importance of carefully controlling this movement is seen in the interfacing of the system with robots, where precision starting and stopping is a must. Although the general principle governing propulsion of the system is not a new concept it is clear that the present state of the art of SI's CARTRAC represents unique advancements over competing, although not as precise, systems and would seem to be uniquely suited to the tasks required for a fully automated carrier system. This uniqueness is evidenced somewhat by the scarcity of competing companies in this form of materials handling.¹

CARTRAC was originally conceived and manufactured by a company in Sweden. In the late 1960's SI acquired the worldwide rights to CARTRAC from the Swedish company for the purchase price of 1.2 million dollars. Thereafter it began an intensive research and development effort to advance the product to a high level of sophistication, suitable for use in various applications. In doing so it incurred substantial expense in developing workable system operations for varied customers and uses. One example of this was a million dollar overrun incurred on a system to transport munitions at the Lone Star Arsenal. Together with its own development efforts SI sought out licensees who would design and manufacture CARTRAC in other parts of the world, obtaining, in the process, grant-backs of the licensee's developments. Its first licensee was IHI in Japan. The license agreement provided, inter alia, for the joint exchange of technology and technical assistance. In SI the person in charge of this exchange was Ziegenfus.

In the mid-1970s, when all individual defendants were SI employees, SI became aware of the introduction and use in the automotive industry of CARTRAC systems in Japan. IHI had successfully advanced the performance of the product to a point where it could be interfaced with robots with the precision required for automated manufacturing. SI undertook to obtain this advanced technology from its licensee and with it, to penetrate the U.S. automotive industry. Instrumental in these efforts were the individual defendants. After moderate success in selling systems to Chrysler², SI mounted a campaign to convince General Motors that CARTRAC could provide the automated system necessary for it to retool and meet the Japanese automotive challenge. Key in this effort were Scheel and Dentner. Scheel became the main contact with GM in the lengthy effort to pierce the corporate labyrinth of General Motors,...