Hydro-Tech Corp. v. Sundstrand Corp., HYDRO-TECH

• Decision Date: 02 April 1982
• Docket Number: HYDRO-TECH,No. 80-1409,80-1409
• Citation: 673 F.2d 1171
• Parties: 1982-1 Trade Cases 64,646 CORPORATION, a Colorado corporation, and Hasan F. Onal, Plaintiffs-Appellants, v. SUNDSTRAND CORPORATION, a Delaware corporation, Defendant-Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1171

673 F.2d 1171

1982-1 Trade Cases 64,646

HYDRO-TECH CORPORATION, a Colorado corporation, and Hasan F.

Onal, Plaintiffs-Appellants, v. SUNDSTRAND CORPORATION, a Delaware corporation, Defendant-Appellee.

No. 80-1409.

United States Court of Appeals, Tenth Circuit.

April 2, 1982.

John F. Head, Denver, Colo. (Teryl R. Gorrell, Denver, Colo., with him on the brief), of Head, Moye, Carver & Ray, Denver, Colo., for plaintiffs-appellants.

David M. Ebel, Denver, Colo. (Robert H. Harry and Glenn W. Merrick, Denver, Colo., with him on the brief), of Davis, Graham & Stubbs, Denver, Colo., for defendant-appellee.

Before SETH, Chief Judge, and McWILLIAMS and PECK, ^* Circuit Judges.

McWILLIAMS, Circuit Judge.

The issue in this appeal is whether a lawsuit, brought without probable cause and for an anticompetitive purpose, can form the basis for a claim under the antitrust laws of the United States. In resolving this matter, we have undertaken a balancing of the first amendment right to petition the courts against the interests to be protected under the antitrust laws. For the reasons set forth below, we conclude that the prosecution of a lawsuit, albeit without probable cause and for an anticompetitive purpose, is actively protected by the first amendment and therefore immune from attack under the antitrust laws.

Hydro-Tech, a Colorado corporation, and one of its employees, Hasan F. Onal, brought an antitrust action in the United States District Court for the District of Colorado against Sundstrand, a Delaware corporation doing business in Colorado. Hydro-Tech's complaint set forth two claims for relief. The first claim for relief was based upon alleged violations of the Sherman Act, 15 U.S.C. §§ 1, 2 (1976), and Hydro-Tech sought treble damages pursuant to 15 U.S.C. § 15 (1976). ¹ Jurisdiction was based on 15 U.S.C. § 15 (1976) and 28 U.S.C. § 1337 (1976). The second claim for relief was based upon alleged violations of Colorado laws relating to malicious prosecution and abuse of process, jurisdiction for such claim existing by virtue of the doctrine of pendent jurisdiction. As indicated, the gravamen of the instant complaint was that the defendant Sundstrand had violated these federal and state laws by previously prosecuting a civil lawsuit against Hydro-Tech and Onal, which lawsuit was allegedly filed without probable cause and for an anticompetitive purpose.

Pursuant to Fed.R.Civ.P. 12(b)(6), Sundstrand, the defendant, filed a motion to dismiss the antitrust claim on the ground that it failed to state a claim upon which relief could be granted. After extensive briefing, the district court granted the defendant's motion to dismiss the antitrust claim, and then, in accord with such dismissal, dismissed the second claim, based on Colorado laws relating to malicious prosecution and abuse of process, for lack of federal jurisdiction. ² Judgment dismissing Hydro-Tech's complaint and causes of action was duly entered and it is from such judgment that Hydro-Tech appeals. We affirm, although our approach to the matter is somewhat different from that taken by the district court.

I. The Prior Litigation

From the allegations contained in the first claim for relief, we learn the following: Sundstrand has been involved in the centrifugal pump business since about 1960, a centrifugal pump being defined as a pump having an impeller turning in excess of 7,200 rounds per minute. Hasan F. Onal, one of the two antitrust plaintiffs, for a considerable number of years has been a designer of centrifugal pumps. Onal formed a company known as Hydro Jet, for which he designed and built several technologically-advanced centrifugal pumps.

In 1974, Sundstrand purchased the assets, including patents and patent applications, of Hydro Jet, and employed Onal under a written employment contract. In October, 1975, Onal terminated his employment with Sundstrand and began working as a part-time consultant with Worthington Pump, Inc. At about the same time, Onal formed a new corporation known as Hydro-Tech, which was formed for the purpose of developing, manufacturing, and marketing pumps designed by Onal, who, after forming Hydro-Tech, accepted employment with it. Notwithstanding his departure from Sundstrand, Onal entered into a consulting agreement with Sundstrand wherein he agreed to provide his former employer with consulting services over a three-year period. That contract has since been terminated.

After incorporating Hydro-Tech, Onal, as an employee of that company, designed two pumps, the HT 4682 and the Hyperflow. In January, 1978, the Husky Oil Company made a request to a number of pump manufacturers, including Sundstrand and Hydro-Tech, for bids on a petro-chemical pump. In response to such request, Hydro-Tech submitted the Hyperflow pump to Husky Oil. Sundstrand, and six other pump companies, also submitted bids, but Hydro-Tech was awarded the contract. The HT 4682 pump was designed to meet the specifications of Republic Geothermal. Republic Geothermal cancelled its order, however, and Hydro-Tech sought to develop other customers for the HT 4682 pump. As a part of its promotion efforts, Hydro-Tech printed a brochure that was distributed industry-wide. Sundstrand protested to Hydro-Tech about the distribution of the brochure, claiming that Hydro-Tech, in promoting its new pump, was infringing on patents owned by Sundstrand. Hydro-Tech responded to such protest by denying that there was any infringement.

In October, 1978, Sundstrand commenced a diversity action in the United States District Court for the District of Colorado against Hydro-Tech and Onal, alleging misappropriation of trade secrets, confidential information, and "know how" in breach of contractual and fiduciary obligations, and asserting that such action constituted unfair competition. That case was tried to the Honorable Sherman G. Finesilver, Judge of the United States District Court for the District of Colorado. A copy of Judge Finesilver's memorandum opinion and order was attached to Hydro-Tech's complaint. Judge Finesilver, in the misappropriation of trade secrets case, the prosecution of which forms the basis for the present antitrust action, generally found for Hydro-Tech and Onal, although he did find that Onal was guilty of a technical breach of a covenant not to compete and, further, he ordered Hydro-Tech to return certain documents to Sundstrand. Although the judge held that Sundstrand was not entitled to any injunctive relief, he did retain jurisdiction of the entire matter to consider at some future date whether Sundstrand was entitled to any money damages and to consider Hydro-Tech's counter claim. ³

II. The Present Antitrust Action

Hydro-Tech bases its present antitrust claim against Sundstrand on the action previously brought by Sundstrand against Hydro-Tech for misappropriation of trade secrets. In its first claim for relief in the present case, Hydro-Tech alleged that Sundstrand instituted the earlier action between the parties for the purpose of eliminating competition and perpetuating Sundstrand's monopoly in the centrifugal pump business, and that the earlier action was instituted "without probable cause."

Concerning damages, Hydro-Tech alleged that it had expended the sum of $37,547.13 in defending the earlier action brought against it by Sundstrand, and also that as a result of the earlier action, it had been forced out of business and that Onal had been compelled to find other employment. Accordingly, Hydro-Tech and Onal each asked for actual damages in the sum of $10,000,000, which sum should be trebled, and they also sought punitive damages in the sum of $10,000,000.

The district judge in the antitrust case, by coincidence or otherwise, was Judge Finesilver, the judge who heard the earlier misappropriation of trade secrets suit brought by Sundstrand against Hydro-Tech. Be that as it may, the trial judge in the present proceeding dismissed Hydro-Tech's first claim on the ground that it failed to state a claim upon which relief could be granted. More specifically, in his memorandum opinion the trial judge held that Sundstrand's misappropriation of trade secrets action against Hydro-Tech could not form the basis for an antitrust action by Hydro-Tech against Sundstrand, citing Eastern R. R. Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127, 81 S.Ct. 523, 5 L.Ed.2d 464 (1961); United Mine Workers v. Pennington, 381 U.S. 657, 85 S.Ct. 1585, 14 L.Ed.2d 626 (1965); California Motor Transport Co. v. Trucking Unlimited, 404 U.S. 508, 92 S.Ct. 609, 30 L.Ed.2d 642 (1972); and Vendo Co. v. Lektro-Vend Corp., 433 U.S. 623, 97 S.Ct. 2881, 53 L.Ed.2d 1009 (1977). We note that these cases set forth the general rule, known as the Noerr-Pennington doctrine, that attempts to influence the government, including petitions to the courts, are exempt from attack under the Sherman Act.

Recognizing that Noerr-Pennington, and their progeny also enunciated a so-called "sham exception" to the general rule, the district judge expressed doubt that the allegations in the first claim of Hydro-Tech's complaint were sufficient to bring it within the sham exception, citing Semke v. Enid Auto. Dealers Ass'n, 456 F.2d 1361, 1366-67 (10th Cir. 1972), where we indicated that the term "sham" connoted "fraud, corruption or misuse of the state processes." The trial judge, however, went on to hold, and we believe this to be his real holding, that, even granting that Sundstrand's earlier lawsuit against Hydro-Tech was a sham, a single sham suit of this nature could not form the basis for Hydro-Tech's antitrust claim against Sundstrand. ⁴

In this Court, Hydro-Tech argues that: (1) "a single sham lawsuit brought for the purpose of directly interfering with the business of a competitor is actionable under the Sherman Act"; and (2) "a suit brought without probable cause and for the purpose of directly interfering with the business of a competitor meets the...