In re RnD Eng'g, LLC

• Decision Date: 01 March 2016
• Docket Number: Case No. 14–58049 (Jointly Administered),Adversary Proceeding No. 15–4189–PJS
• Citation: 546 B.R. 738
• Parties: In re: RnD Engineering, LLC, et al.
• Court: U.S. Bankruptcy Court — Eastern District of Michigan

546 B.R. 738

In re: RnD Engineering, LLC, et al.,¹

Case No. 14–58049 (Jointly Administered)

Adversary Proceeding No. 15–4189–PJS

United States Bankruptcy Court, E.D. Michigan, Southern Division.

Signed March 01, 2016

Salvatore A. Barbatano, Birmingham, MI, John Richard Gehring, Ann Arbor, MI, for Plaintiff.

Charles D. Bullock, Ernest Hassan, Stevenson & Bullock, P.L.C., Elliot G. Crowder, Southfield, MI, Catherine T. Dobrowitsky, Troy, MI, for Defendants.

OPINION AFTER TRIAL (1) ALLOWING CLAIMS; (2) DETERMINING NONDISCHARGEABLE DEBT; AND (3) DENYING INJUNCTIVE RELIEF

Phillip J. Shefferly, United States Bankruptcy Judge

Introduction

Nagel Precision Inc. ("Nagel") designs and manufactures machines used in the automotive and other industries. Nagel brought this adversary proceeding against two Chapter 11 debtors, one of them an individual, Richalin Digue ("Digue"), and the other a company owned by Digue, known as RnD Engineering, LLC ("RnD"). All of Nagel's claims against them arise from the fact that Digue at one time worked as a project manager for Nagel, but now owns his own business, RnD, that directly competes with Nagel. It took Nagel some time to learn about Digue's competing business, but when it did, Nagel sued Digue and RnD in state court, claiming that they had misappropriated Nagel's trade secrets, tortiously interfered with Nagel's business relationships, breached fiduciary duties owed to Nagel, and otherwise engaged in wrongful conduct to the detriment of Nagel.

Just before the start of trial in the state court, Digue and RnD ("Debtors") each filed a Chapter 11 petition. Nagel's claims against the Debtors, the Debtors' objections to those claims, and Nagel's request to except its claims from Digue's discharge, were all tried together in this adversary proceeding. For the reasons set forth in this opinion, the Court allows Nagel a claim against Digue in the amount of $564,503.16, and a claim against RnD in the amount of $564,503.16. Further, the Court holds that Nagel's allowed claim against Digue is nondischargeable in Digue's case.

Jurisdiction

The United States District Court for the Eastern District of Michigan has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. § 1334(a)and (b). Pursuant to 28 U.S.C. § 157(a), each district court is authorized to refer to the bankruptcy judges for the district any and all proceedings arising under Title 11 or arising in or related to a case under Title 11. The District Court for the Eastern District of Michigan has referred this adversary proceeding to the Bankruptcy Court for the Eastern District of Michigan by Local District Court Rule 83.50(a). Pursuant to 28 U.S.C. § 157(b)(2)(B), the allowance or disallowance of Nagel's claims against the Debtors is a core proceeding. Pursuant to 28 U.S.C. § 157(b)(2)(I), the determination as to whether Nagel's claims are nondischargeable in Digue's case is also a core proceeding. Neither the allowance of Nagel's claims nor the determination of nondischargeability of Nagel's claims against Digue are the type of proceeding addressed by the United States Supreme Court in Stern v. Marshall, 564 U.S. 462, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011)that implicates concerns over this Court's constitutional authority to adjudicate such proceedings. Further, all of the parties to this adversary proceeding have expressly consented in writing to the Court entering a final order or judgment in this adversary proceeding. See Wellness Int'l Network, Ltd. v. Sharif, ––– U.S. ––––, 135 S.Ct. 1932, 1944, 191 L.Ed.2d 911 (2015)(holding that "allowing Article I adjudicators to decide claims submitted to them by consent does not offend the separation of powers so long as Article III courts retain supervisory authority over the process"). The Court concludes that it has both the statutory jurisdiction and the constitutional authority to enter a final judgment and order with respect to all matters at issue in this adversary proceeding.

Procedural History

On June 12, 2013, Nagel filed suit against Digue and RnD in the Washtenaw County Circuit Court in the State of Michigan ("State Court Case"). The complaint in the State Court Case contained four counts: count I alleged misappropriation of trade secrets in violation of the Michigan Uniform Trade Secrets Act, Michigan Compiled Laws Annotated § 445.1901 et seq. ("MUTSA"); count II alleged intentional interference with business relations; count III alleged breach of fiduciary duty; and count IV alleged unjust enrichment. The complaint sought a money judgment of $2,132,889.03 against both Digue and RnD, and a permanent injunction prohibiting Digue and RnD from using the misappropriated trade secrets. The parties took extensive discovery and vigorously litigated the State Court Case. The State Court Case was scheduled for trial in December, 2014. The trial was stayed when Digue and RnD filed their Chapter 11 petitions on November 20, 2014.

On December 22, 2014, the Court entered an order directing the joint administration of the two Chapter 11 cases. On January 2, 2015, Nagel filed a proof of claim in the amount of $2,132,889.03 in each bankruptcy case. On February 27, 2015, Nagel filed this adversary proceeding ("Adversary Proceeding"). Nagel's complaint in the Adversary Proceeding contains the same four counts set forth by Nagel in its complaint in the State Court Case, and likewise seeks both monetary and injunctive relief. In addition, Nagel's complaint in the Adversary Proceeding seeks a determination that Nagel's claims against Digue are nondischargeable under § 523(a)(2), (4) and (6) of the Bankruptcy Code.

On May 14, 2015, the Debtors filed objections to Nagel's proofs of claims in both bankruptcy cases. After conferring with the parties, and based on the parties' express agreement, the Court entered an order providing for the Debtors' objections to Nagel's proofs of claims to also be adjudicated as part of the Adversary Proceeding.

On September 16, 2015, the trial began. The trial took nine days. Nagel called four witnesses: Sanjai Keshavan ("Keshavan"), a project manager at Nagel; Digue; Frederick C. Kucklick ("Kucklick"), an expert witness; and Thomas McNamara ("McNamara"), the director of human resources and financing at Nagel. The Court received into evidence Nagel's exhibits 1–12, 14–23, 26–46, 48–60, 63–66, 68–74, 76–78, 80, 82–85, 88–91, 94–95, 97, 108–109, 112, 122, 124, 138–139, 146, 149–151, 154, 157–161, 163, 165–167, and 178–183.²

The Debtors called three witnesses: Melville Evans ("Evans"), a former employee of Nagel who also performed services for RnD; David Eby ("Eby"), an expert witness; and Digue. The Court received into evidence the Debtors' exhibits A–B, D, F–T, V, W–Y, AA, CC, KK, and MM. On November 20, 2015, the Court heard closing arguments. On December 23, 2015, the parties filed post-trial briefs. This opinion represents the Court's findings of fact and conclusions of law under Fed. R. Bankr.P. 7052.

Facts

The Court makes the following findings of fact from the record made at the trial.³

Nagel is a Delaware corporation with its principal place of business in Ann Arbor, Michigan. Nagel designs and manufactures various types of machines for automotive and other industries. The controversy in this case centers on what are known as superfinishing machines. Superfinishing is a type of sanding process that removes abrasions and creates a super smooth, polished surface on a part. The superfinishing process significantly improves the life and performance of the part. Superfinishing is a niche market, with only a handful of companies globally, including Nagel and RnD, that design and build these machines. Nagel's customers typically are original equipment manufacturers ("OEMs") and tier one suppliers that build transmissions and camshafts.

The specific type of superfinishing machine at issue in this case is referred to as a tape finishing machine. The function of a tape finishing machine is to polish the outside surface of a work piece (for example, an automotive part such as a camshaft) by advancing abrasive tape to present unused tape to the work surface while the work piece is turned. This advancement of the abrasive tape is also known in the industry as indexing or actuation. The pressure, frequency and amplitude of the oscillation of the work piece, as well as the indexing of the tape, are carefully controlled to ensure even polishing.

Digue is a native of Cameroon who studied electrical and computer engineering after coming to the United States in 1992. Nagel first hired Digue as an electrical engineer in 1997. When he started work at Nagel, Digue signed an acknowledgment that he received a copy of Nagel's employee handbook (ex. 1). The acknowledgment stated that he would "agree to the Company's rules, regulations and conditions." The employee handbook described various types of conduct that Nagel "considers inappropriate," including "failing to maintain the confidentiality of Nagel, customer, or client information." Consistent with its treatment of its other employees at the time, Nagel did not ask Digue to sign a non-disclosure agreement or a non-compete agreement. Digue worked at Nagel as an electrical engineer until 1999, but then left to work for various other companies during the next several years.

In 2004, Nagel contacted Digue to see if he was interested in coming back as an electrical engineer. Digue decided to come back to Nagel, but in a somewhat different relationship. Although Digue had previously been an employee during his first stint at Nagel, Digue now requested that he be treated as an independent contractor. Digue made this request because he wished to "remain independent." Digue requested that the checks issued by Nagel for his services now be made payable to "Richalin Digue, LLC," a limited liability company that Digue formed on February 17, 2004 (ex. 4).⁴ No one at Nagel asked Digue why he wanted to be paid in this way, but Nagel agreed to do so.

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