In re Wilson

• Decision Date: 23 May 2000
• Docket Number: No. 1:98CV01019,6:90CV00206.,A-94-6010W,B-93-50034 C-11W,1:98CV01019
• Citation: 248 BR 745
• Court: U.S. District Court — Middle District of North Carolina
• Parties: In re Jon S. WILSON, Debtor. Cook Group Incorporated, Wilson-Cook Medical Inc., Cook Incorporated, Vance Products Incorporated, and Sabin Corporation, Plaintiffs, v. Jon S. Wilson, Defendant. Wilson-Cook Medical Inc., Plaintiff, v. Wiltek Medical Inc., Defendant.

248 B.R. 745 (2000)

In re Jon S. WILSON, Debtor.

Cook Group Incorporated, Wilson-Cook Medical Inc., Cook Incorporated, Vance Products Incorporated, and Sabin Corporation, Plaintiffs, v. Jon S. Wilson, Defendant.

Wilson-Cook Medical Inc., Plaintiff, v. Wiltek Medical Inc., Defendant.

Nos. 1:98CV01019, B-93-50034 C-11W, A-94-6010W, 6:90CV00206.

United States District Court, M.D. North Carolina.

May 23, 2000.

Jim W. Phillips, Jr., Greensboro, NC, William B. Sullivan, Winston-Salem, NC, Aaron J. Kramer, Chicago, IL, for plaintiff.

Charles M. Ivey, III, Greensboro, NC, James R. Fox, Winston-Salem, NC, for defendant.

MEMORANDUM OPINION

TILLEY, Chief Judge.

This appeal is from the United States Bankruptcy Court for the Middle District of North Carolina. Plaintiffs Cook Group Inc., Wilson-Cook Medical, Inc., Cook Inc., Vance Products Inc., and Sabin Corp. (collectively "Cook") appeal the orders entered on July 2, 1998, May 7, 1998, and December 8, 1997 by the bankruptcy court. Specifically, Cook appeals the bankruptcy court's decision to vacate its earlier holding that Defendants Wiltek Medical, Inc. ("Wiltek") and Jon S. Wilson were in contempt between May 22, 1995, and December 8, 1997, for using Cook's Trade Secrets 5, 6, and 8 in violation of an injunction entered by the bankruptcy court on May 22, 1995. For the reasons stated below, the decision of the bankruptcy court is partially VACATED and the case is REMANDED to the bankruptcy court for findings consistent with this Memorandum Opinion.¹

I.

The factual background and procedural history to this dispute are long and convoluted. A detailed discussion is found in the bankruptcy court's Memorandum Opinion of May 22, 1995, the bankruptcy court's Second Memorandum Opinion of December 8, 1997, and the bankruptcy court's Amendment to Second Memorandum Opinion of May 7, 1998. An overview follows.

The bankruptcy court, in its Memorandum Opinion of May 22, 1995, found that Wiltek had misappropriated nine of Cook's trade secrets and awarded compensatory and punitive damages to Cook. The bankruptcy court also enjoined Wiltek from using these nine trade secrets, as long as they remained trade secrets. At a later time, the court entered an order that allowed Cook to conduct one surprise inspection of Wiltek's manufacturing facilities in order to ensure compliance with the injunction.

Cook conducted this inspection on October 1, 1997, and thereafter alleged that Wiltek was using five of the processes that earlier had been declared by the bankruptcy court to be trade secrets. Cook filed a Motion for Entry of Rule or Order to Show Cause in which it requested that the bankruptcy court determine whether Wiltek was in contempt of the court's May 22, 1995, Order and Injunction. Specifically, Cook alleged the continuing misappropriation of five of Cook's trade secrets, including Trade Secrets 5, 6, and 8. The bankruptcy court held several hearings on the matter, and on December 8, 1997, the court entered a Second Memorandum Opinion. In this opinion, the court found that Wiltek had misappropriated Cook's Trade Secrets 5, 6, and 8. Ten days after this opinion was entered, Wiltek filed an Emergency Motion for Stay and Reconsideration.

After several hearings and a period of discovery, the opinion was amended and vacated in part by the bankruptcy court in its May 7, 1998, Order and Amendment to the Second Memorandum Opinion. The court found that Trade Secrets 5, 6, and 8 were no longer trade secrets because the processes were "readily available in the public domain," and thus, Wiltek was not in contempt.

II.

Four issues are on appeal.² Cook first maintains that the bankruptcy court erred in granting the Defendants' Motion for Reconsideration. The remaining three issues concern whether the bankruptcy court erred in its finding that Trade Secrets 5, 6, and 8 are no longer trade secrets.

In reviewing the bankruptcy court's decision, legal conclusions are subject to plenary review. See Butler v. David Shaw, Inc., 72 F.3d 437, 441 (4th Cir.1996). This Court is bound by the bankruptcy court's findings of fact that are not clearly erroneous. See Fed.R.Civ.P. 52(a) ("Findings of fact, whether based on oral or documentary evidence, shall not be set aside unless clearly erroneous . . ."); Multi-Channel TV Cable Co. v. Charlottesville Quality Cable Corp., 65 F.3d 1113, 1121-22 (4th Cir.1995) ("On appeal from a bench trial, we may only set aside findings of fact if they are clearly erroneous. . . ."). Under Rule 52 of the Federal Rules of Civil Procedure, the clearly erroneous standard governs even where the findings of fact are based on documentary evidence. See Nalle v. First Nat'l Bank, 412 F.2d 881, 884 (4th Cir.1969).

Under the "clearly erroneous" standard, "`a finding is `clearly erroneous' when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed.'" Miller v. Mercy Hosp., Inc., 720 F.2d 356, 361 (4th Cir.1983) (quoting United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 92 L.Ed. 746 (1948)). This "conviction of mistake may properly be based upon a conclusion that, without regard to what the `actual' facts may be, the findings under review were induced by an erroneous view of the controlling legal standard, or are not supported by substantial evidence, or were made without properly taking into account substantial evidence to the contrary or are against the clear weight of the evidence considered as a whole." Id. (citations omitted).

III.

Cook argues that the bankruptcy court erred in granting the motion for reconsideration based on newly discovered evidence. Cook argues that because this evidence was available to Wiltek and could have been discovered before the initial hearing, the evidence should not have been considered in deciding whether to grant the motion for reconsideration. (Pls.' Mem.Supp. Appeal Defs.' Contempt Concerning Cook's Misappropriated Trade Secrets 5, 6 and 8 at 23-24.) See Boryan v. United States, 884 F.2d 767, 771 (4th Cir. 1989) ("Evidence that is available to a party prior to entry of judgment . . . is not a basis for granting a motion for reconsideration as a matter of law.").

The bankruptcy court, however, based its decision to reconsider on the need to prevent manifest injustice and not on the basis of newly discovered evidence. (Amendment to Second Mem.Op. at 7 ("The court is convinced that under the circumstances shown by the defendants, the Second Memorandum Opinion and Order of December 8, 1997, would result in manifest injustice if not modified as provided herein.").) The Fourth Circuit was presented with similar facts in EEOC v. Lockheed Martin Corp., 116 F.3d 110 (4th Cir.1997). In that case, it was argued that reconsideration had been improperly based on newly discovered, previously unavailable evidence, when in fact, the evidence was previously available. See id. at 112. The Fourth Circuit observed that the lower court "specifically clarified in its order . . . that `new evidence' was not the basis for its order granting the Rule 59(e) motion." Id. The court noted that a court could grant a Rule 59(e) motion in its discretion based on the need to prevent manifest injustice. See id. Thus, as in Lockheed Martin, the bankruptcy court could consider the previously available evidence because the court granted the motion for reconsideration based on the need to prevent manifest injustice.

There is some dispute as to whether the motion for reconsideration was granted under Rule 59 or Rule 60, but regardless of the basis for granting the motion, the bankruptcy court's decision is reviewed for abuse of discretion. Compare Lockheed Martin, 116 F.3d at 112 ("We review an order granting a Rule 59(e) motion under an abuse of discretion standard." (citation omitted)), with Aliff v. Joy Mfg. Co., 914 F.2d 39, 44 (4th Cir. 1990) ("The disposition of motions under Rule 60(b) is ordinarily a matter within the discretion of the District Court which will not be disturbed on appeal absent a showing of abuse of that discretion." (citation omitted)).

The bankruptcy court noted that the proceedings leading up to the Second Memorandum Opinion were abbreviated. (Amendment to Second Mem.Op. at 6.) Specifically, the court noted that the hearing was held less than one month after the show cause motion was filed, there were no formal pleadings, there was little time for discovery, the hearing was limited to one day, and the process was "handled in a very expedited and somewhat summary fashion." (Id.) The court further noted that it was rejecting the "plaintiffs' argument that the defendants did not exercise due diligence in their presentation at the hearing on November 10, 1997 . . . and finding that under the circumstances presented, the defendants . . . are not barred from offering the additional evidence." (Id. at 8.) Based on these findings regarding the abbreviated proceeding, this Court finds that the bankruptcy court did not abuse its discretion in considering the evidence discovered after the initial hearing.

IV.

Cook next argues that the bankruptcy court erred in vacating its Second Memorandum Opinion by finding that Cook's Trade Secrets 5, 6, and 8 were in the public domain. (Pls.' Mem.Supp. Appeal Defs.' Contempt Concerning Cook's Misappropriated Trade Secrets 5, 6 and 8 at 33-38.) The bankruptcy court's application of law is reviewed de novo.

As one commentator recently noted, very few cases have been decided in which the North Carolina Trade Secrets Protection Act has been implicated. See David P. Hathaway, Comment, Is the North Carolina Trade Secrets Protection Act Itself a Secret, and Is the Act Worth Protecting?, 77 N.C.L.Rev. 2149, 2151 & n. 23 (1999). Thus, it is not surprising that the North Carolina courts have never faced a situation like the one in this case.³ Typically, trade secrets cases involve a...