Advanced Fluid Sys., Inc. v. Huber

• Decision Date: 30 April 2020
• Docket Number: Nos. 19-1722,19-1752,s. 19-1722
• Citation: 958 F.3d 168
• Parties: ADVANCED FLUID SYSTEMS, INC. v. Kevin HUBER ; INSYSMA (Integrated Systems and Machinery, LLC) ; Livingston & Haven LLC; Clifton B. Vann, IV; Thomas Aufiero Livingston & Haven, LLC; Clifton B. Vann, IV; Thomas Aufiero, Appellants in No. 19-1722 Kevin Huber ; INSYSMA, Appellants in No. 19-1752
• Court: U.S. Court of Appeals — Third Circuit

958 F.3d 168

ADVANCED FLUID SYSTEMS, INC.

v. Kevin HUBER ; INSYSMA (Integrated Systems and Machinery, LLC) ; Livingston & Haven LLC; Clifton B. Vann, IV; Thomas AufieroLivingston & Haven, LLC; Clifton B. Vann, IV; Thomas Aufiero, Appellants in No. 19-1722Kevin Huber ; INSYSMA, Appellants in No. 19-1752

Nos. 19-1722

19-1752

United States Court of Appeals, Third Circuit.

Argued January 15, 2020

Filed: April 30, 2020

Ronald L. Hicks, Jr. [ARGUED], Carolyn B. McGee, Porter Wright Morris & Arthur, 6 PPG Place – 3rd Fl., Pittsburgh, PA 15222, Counsel for Appellants Livingston & Haven, LLC; Clifton B. Vann, IV; Thomas Aufiero

Jonathan Z. Cohen, Conrad O'Brien, 1500 Market Street, West Tower, Ste. 3900, Philadelphia, PA 19102, Counsel for Appellants Kevin Huber and INSYSMA (Integrated Systems and Machinery, LLC)

David G. Concannon, 200 Eagle Road – Ste. 116, Wayne, PA 19087, Zahra R. Dean, Robert J. LaRocca [ARGUED], Kohn Swift & Graf, 1600 Market Street – Ste. 2500, Philadelphia, PA 19103, Counsel for Appellee

Before: JORDAN, GREENAWAY, JR., and KRAUSE, Circuit Judges.

OPINION OF THE COURT

JORDAN, Circuit Judge.

This sorry story of disloyalty and deception piled upon deception resulted in verdicts against the wrongdoers. They're not happy about that, but, when the tale is told, it's clear that the result is entirely justified. In brief summary, Kevin Huber stole confidential information from his employer Advanced Fluid Systems, Inc. ("AFS"), first for the benefit of an AFS competitor, Livingston & Haven, LLC ("Livingston"), with whom Huber wanted to ingratiate himself, and then, in another twist of deceit, for a company he created, Integrated Systems and Machinery, LLC ("INSYSMA"; together with Huber, the "Huber Parties"), to compete against both AFS and Livingston. When the facts began to come to light, AFS brought suit against the Huber Parties and Livingston, as well as Livingston employees Clifton B. Vann IV and Thomas Aufiero (together with Livingston, the "Livingston Parties"), alleging various claims under federal and state law, including principally trade secret misappropriation claims under the Pennsylvania Uniform Trade Secrets Act (the "Trade Secrets Act" or the "Act"). There was one other defendant, Orbital Sciences Corporation ("Orbital"), the company from which AFS, Livingston, and INSYSMA were all trying to get business. AFS settled with Orbital before trial, and it is not one of the Appellants here. All of the other defendants are.

On summary judgment, the District Court held as a matter of law that the Huber Parties were liable under the Trade Secrets Act for misappropriating AFS's trade secrets. Then, following a bench trial, the Court held the Livingston Parties jointly and severally liable with the Huber Parties for that misappropriation, and it held all Appellants except Aufiero and INSYSMA liable for breach of fiduciary duty or aiding and abetting that breach. As remedies for the tortious conduct, the Court awarded compensatory damages from all Appellants, exemplary damages under the Act from Huber, and, based on the breach of fiduciary duty, punitive damages from all Appellants except INSYSMA and Aufiero.¹

Appellants bring a host of issues to us. Their central argument, however, is that AFS's claim for trade secrets misappropriation must fail because AFS does not "own" the purported trade secrets at issue. Beyond their core grievance, Appellants also attack the District Court's rulings that the claimed trade secrets are actually protectable under the Trade Secrets Act, that the Livingston Parties were not prejudiced by their counsel's conduct at and following the trial, and that the damages awards were warranted. In a thorough opinion, the District Court properly rejected Appellants’ ownership argument on the ground that the Act only requires that a plaintiff lawfully possess the trade secrets it wishes to vindicate. In similarly persuasive decisions, the Court dismissed Appellants’ various remaining challenges as inconsistent with the record, untimely, legally deficient, or some combination thereof. We agree with all of those conclusions and will affirm the Court's rulings and judgment in their entirety.

I. BACKGROUND ²

A. Factual Background

"AFS distributes, manufactures, and installs hydraulic components and hydraulic systems" that use pressurized fluids to move heavy machinery for complex operations and engineering projects.

Advanced Fluid Sys., Inc. v. Huber , 295 F. Supp. 3d 467, 470 (M.D. Pa. 2018) (hereinafter, " Post-Trial Op. "). Huber was employed at AFS as a full-time sales engineer between November 2006 and October 2012. Livingston is a competitor of AFS's and designs, assembles, and installs hydraulic fluid systems. Vann is the chief executive officer of Livingston's holding company and Livingston's president. Aufiero worked at AFS from 1989 through January 2011, when he left to become a regional sales manager at Livingston.

In September 2009, AFS entered into a three-year contract with the Virginia Commonwealth Space Flight Authority (the "Space Flight Authority" or the "Authority") to build, install, and maintain a hydraulic system for the NASA rocket launch facility on Wallops Island, Virginia. From that island, Orbital launches its Antares rocket, employing the hydraulic system designed and installed by AFS. The Antares rocket services and supplies the International Space Station. Huber was intimately involved in the development of the Wallops Island hydraulic system, eventually becoming its "de facto project manager[.]" Id. at 473.

AFS supplied the Space Flight Authority with a comprehensive package of engineering drawings generated during the design and installation of the hydraulic system. Pursuant to the contract (the "Agreement") between AFS and the Authority, all materials generated during performance of the Agreement were to be deemed "work for hire" and the "exclusive property" of the Authority. Advanced Fluid Sys., Inc. v. Huber , No. 1:13-CV-3087, 2017 WL 2445303, at *2 (M.D. Pa. June 6, 2017) (hereinafter, " Summary Judgment Op. "). All drawings that AFS delivered to the Authority pursuant to the Agreement included an AFS title block with a confidentiality stamp. In tension with the ownership stipulation in the Agreement, the confidentiality stamp read: "This drawing discloses propriety and confidential data of Advanced Fluid Systems, Inc., and may not be used disclosed or released, in whole or in part, for any purpose outside the authorized recipient, without signed authorization, and must be returned upon request." Post-Trial Op. , 295 F. Supp. 3d at 484.

In September of 2012, the Space Flight Authority experienced financial difficulty. As a result, Orbital acquired control of the launch system, including the hydraulic system that AFS had designed and manufactured. AFS did not execute a non-disclosure agreement with Orbital, but Orbital maintained a practice of only disclosing AFS's drawings on a need-to-know basis.

Around this same time, Huber, while still working for AFS, began communicating with the Livingston Parties about the Wallops Island hydraulic system. He claimed that Orbital was unhappy with AFS and was seeking new vendors to service the system. He also took affirmative steps to help the Livingston Parties familiarize themselves with the system and, more generally, with Orbital's operations on Wallops Island. He arranged tours and began sending the Livingston Parties various confidential AFS internal documents and engineering drawings. To communicate with Huber, the Livingston Parties created a commercial Dropbox folder, installed a virtual private network on Huber's AFS laptop, and provided him with a Livingston email address.

Orbital did eventually seek bids with respect to two aspects of the hydraulic system: a "gripper arms replacement" project and a "cylinder upgrade" project. Regarding the gripper arms contract, Huber, while still employed by AFS, worked closely with the Livingston Parties to prepare a bid. At the same time, he was also playing a key role in the bid presented by AFS, which he succeeded in inflating by over $130,000 to ensure that Livingston's bid was more competitive. Not surprisingly, Livingston was awarded the gripper arms contract. During the ensuing design process, Livingston's team relied extensively on confidential engineering drawings that AFS had created and Huber stole.

As to the cylinder upgrade project, Huber again stacked the deck against AFS by failing to disclose key information about what Orbital was looking for, encouraging AFS to submit a bid only for Orbital's non-preferred option, and by working with the Livingston Parties to develop a proposal based on confidential AFS documents that, again, he had provided.

In October 2012, Huber's penchant for deceit led to another twist. Unbeknownst to Livingston or AFS, he formed his own business entity, INSYSMA, intending to submit a competing bid for the cylinder upgrade contract. That same month, he downloaded nearly 98 gigabytes of AFS's proprietary files to an external hard drive, including its engineering drawings, bills of materials, and other documents for the hydraulic system, documents pertaining to AFS's gripper arms quote, and all of its pending and past project files dating back to 1993. He then tendered his notice of resignation to AFS.

Following his resignation, Huber continued to work with Livingston on its gripper arms design and its cylinder assembly bids, sharing with the Livingston team many of the files he had taken from AFS. Livingston's preparatory efforts and eventual bids relied heavily on drawings generated by AFS in the design of the Wallops Island hydraulic system, as well as other insider knowledge gathered from Huber. Eventually, and to the Livingston Parties’ great surprise, Orbital awarded the cylinder contract to neither AFS nor Livingston but to INSYSMA.

B. Procedural History

"AFS commenced this action on December 24, 2013, initially naming Huber, [INSYSM...