Eaton Corp. v. Appliance Valves Co.

• Decision Date: 03 May 1984
• Docket Number: No. L 81-42.,L 81-42.
• Citation: 634 F. Supp. 974
• Parties: EATON CORPORATION, Plaintiff, v. APPLIANCE VALVES COMPANY; Thomas Krzewina, an individual; William R. Donahue, Jr., an individual; David F. Miller; Design and Manufacturing Corp., Defendants.
• Court: U.S. District Court — Northern District of Indiana

634 F. Supp. 974

EATON CORPORATION, Plaintiff, v. APPLIANCE VALVES COMPANY; Thomas Krzewina, an individual; William R. Donahue, Jr., an individual; David F. Miller; Design and Manufacturing Corp., Defendants.

No. L 81-42.

United States District Court, N.D. Indiana, Hammond Division, at Lafayette.

May 3, 1984.

Christopher B. Fagan, Cleveland, Ohio, John F. Bodle, James V. McGlone, Lafayette, Ind., for plaintiff.

David M. Mattingly, James H. Dobson, Indianapolis, Ind., Edward N. Kalamaros, South Bend, Ind., Joseph T. Bumbleburg, Ball Eggleston Bumbleburg & McBride, Lafayette, Ind., Peter D. Shaw, Connersville, Ind., for defendants.

MEMORANDUM AND ORDER

ALLEN SHARP, Chief Judge.

This action is premised upon counts of alleged misappropriation of trade secrets and confidential information, alleged breach of contract not to disclose trade secrets and confidential information, alleged breach of fiduciary duty, alleged conspiracy to misappropriate trade secrets and confidential information, alleged interference with contractual relations, alleged patent infringement and alleged unfair competition. Jurisdiction of this court is predicated upon diversity of citizenship, 28 U.S.C. § 1332(a)(1) and original jurisdiction with respect to patent claims, 28 U.S.C. § 1338. The law of the forum, Indiana, is determinative of the substantive non-patent issues raised in this matter. Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). This case was tried on liability issues before the court sitting without a jury on October 22, 23 and 24, 1984. Because of the complexity of this case, this court chose not to adhere strictly to the Seventh Circuit Judicial Council Resolution of October 4, 1984 requiring the submission of post-trial briefs within ten (10) days of the bench trial. The excellent post-trial briefs in this action were submitted and exchanged on March 21 and 22, 1985. Final oral argument in this matter was held April 22, 1985 in Lafayette, Indiana. This memorandum and order constitutes this court's findings of fact and conclusions of law for purposes of Fed.R.Civ.P. 52(c).

I.

The original complaint filed by plaintiff, Eaton Corporation (Eaton), against defendants, Appliance Valve Corporation (AVC), Thomas Krzewina (Krzewina), and William R. Donahue (Donahue), asserted three causes of action: misappropriation of trade secrets, breach of contract not to disclose trade secrets and conspiracy to misappropriate trade secrets. The complaint also contained a request for injunctive relief.

After this lawsuit was filed and before trial on the preliminary injunction, Eaton filed its application for patent 4,387,878 (878 patent) dated July 13, 1981. Eaton's development of the patent in the patent office occurred during the time period as it was proceeding with this suit.

The preliminary injunction claim was tried on September 24, 1981. This court entered its Findings of Fact and Conclusions of Law on November 25, 1981, see Eaton Corporation v. Appliance Valves Corporation, 526 F.Supp. 1172 (N.D.Ind. 1981) denying Eaton's request for injunctive relief. Eaton appealed this order to the United States Court of Appeals for the Seventh Circuit. The Seventh Circuit affirmed this court's order on July 22, 1982 by unpublished order, 688 F.2d 842.

After filing a motion for leave on October 12, 1982 and being granted leave on February 1, 1983, Eaton filed its Amended Complaint on February 28, 1983. In this complaint Eaton makes claim against David Miller (Miller) and Design and Manufacturing Corporation (D & M). The Amended Complaint realleges misappropriation of trade secrets (although it adds confidential information to trade secrets) and breach of contract not to disclose trade secrets as against AVC, Krzewina and Donahue. Eaton's third cause of action against AVC, Krzewina and Donahue is breach of fiduciary duty of loyalty and fidelity. Miller and D & M are added to Eaton's allegation of conspiracy to misappropriate trade secrets. Finally, Eaton alleges unfair competition against all defendants, interference with contracts against Miller and D & M and conspiracy to breach fiduciary duty of loyalty and fidelity against all defendants.

D & M and Miller's answers to the Amended Complaint includes the statute of limitations defense. Eaton agrees that the non-patent allegations against D & M and Miller in the Amended Complaint sound in tort.

On June 14, 1983 Patent 878 was issued. Following Eaton's notice of infringement, AVC immediately modified its produce so that there would be no question of alleged infringement. However, Eaton sought leave for its Second Amended Complaint on June 29, 1983, and filed its Second Amended Complaint on August 17, 1983 adding an additional cause of action alleging patent infringement against AVC and D & M.

Eaton is an Ohio corporation with over 1,800 employees in its control assemblies division. In 1963 Eaton became involved in the valve business when it acquired Dole Valve Company. That company manufactured water inlet valves for manufacturers of dishwashers, clothes washers and automatic ice makers. Eaton continued the Dole business and, at the time of the suit, dominated the original equipment market in water inlet valves for dishwashers, supplying all the major manufacturers—General Electric, Whirlpool, Westinghouse, Design and Manufacturing and others—in the United States. Singer, another manufacturer of water inlet valves, had in the past supplied some dishwasher valves for original equipment, but today sells such valves only in the after-market for replacement purposes, and also sells valves in the original equipment market for clothes washers and ice makers. Horton, the only other manufacturer of water inlet valves for dishwashers, sells exclusively in the after-market for replacement purposes. Currently AVC is the only original equipment manufacturer of water inlet valves for dishwashers, other than Eaton.

Donahue graduated from Geneva High School in Illinois and holds bachelors and masters degrees from the University of Illinois. Both degrees are in mechanical engineering. He worked during summers, while attending the university, doing consulting work for Helstro Corporation. One summer was spent consulting for a company designing a dishwasher. Prior to being employed by Dole Valve Company (then a part of Eaton) in October 1964, Donahue worked for Rough Rider Corporation which produced equipment for the printing industry. Donahue resigned from Eaton in September 1977 and returned to Eaton in September 1979. In the two years away from Eaton he organized Donahue Manufacturing and Engineering Company. That Company developed automatic assembly equipment and a bolt drilling machine, and consulted on other equipment. While with Donahue Manufacturing he developed an in-line water filter, and he designed a single solenoid ice maker valve and initiated preliminary design of a water inlet valve. Donahue returned to Eaton because his company was not producing enough income to support his family. In his first employment at Eaton, he was Product Engineering Manager for Water Valves and on his return was Chief Engineer for Appliances. He resigned his position at Eaton a second time in November 1980.

Krzewina is a graduate of Technical High School in Milwaukee and attended night engineering courses at Marquette and Wisconsin Universities for twelve years. Prior to employment by Eaton in May 1969, Krzewina was employed by Harnischfeger Corporation as a designer/draftsman for traveling and overhead cranes, at Allstate Design and Development Corporation, as a design draftsman for various products, and at Hotpoint Corporation, where he worked on the design and development of dishwashers, disposals and water heaters. While at Hotpoint he was the inventor of four U.S. patents—one for a coupling and vent valves for dishwashers, one for an additive dispenser for dishwashers, and two for rack designs for dishwashers. Krzewina was employed by Eaton at its Control Division located at Carol Stream, Illinois in May 1969 as Sales Engineer. In this capacity with Eaton, he called on the major appliance manufacturers: Frigidaire, Westinghouse, Hobart, D & M, Waste King, and Whirlpool. On October 1, 1979, he became Product Manager for appliance inlet valves. He resigned from Eaton in November 1980.

AVC is an Indiana corporation organized by Donahue and Krzewina, after leaving the employment of Eaton, for the purpose of manufacturing water inlet valves. It operates in a building Lafayette, Indiana, leased from D & M, a large manufacturer of dishwashers sold under various private labels. From 1958 to September 15, 1981, Miller was Director of Purchasing for D & M until his retirement in 1981.

While employed at Eaton, Donahue and Krzewina manifested an interest in owning and managing their own business. They discussed their need for financing with two independent businessmen in Indianapolis in November 1979. Also present at this meeting was Pat Palmer, Krzewina's Supervisor at Eaton. This meeting ended with no interest being shown in the venture.

Subsequent to the Indianapolis meeting, Sam Regenstrief of D & M expressed a desire to talk with Krzewina and Donahue. Donahue submitted a cost estimate by himself based upon his general knowledge of the industry, and more specifically, from his cost calculations prepared while with Donahue Manufacturing. Miller evaluated this estimate and did a cost check by requesting quotes from a coil supplier and from an injection molder concerning the major parts of the valve which he was purchasing from Eaton. To request those quotes, Miller obtained parts from D & M inventory and the drawing of the body and guide tube from D & M's engineering files. These drawings were not preserved when they were returned.

The meeting with D & M representatives occurred in Florida, and the expenses of Krzewina's and Donahue's trip were purportedly paid for by D & M, at...