Kdh Elec. Sys., Inc. v. Curtis Tech. Ltd.
| Citation | 826 F.Supp.2d 782 |
| Decision Date | 04 November 2011 |
| Docket Number | Civil Action No. 08–2201. |
| Parties | KDH ELECTRONIC SYSTEMS, INC., et al. v. CURTIS TECHNOLOGY LTD., et al. |
| Court | U.S. District Court — Eastern District of Pennsylvania |
OPINION TEXT STARTS HERE
Joseph Miller, Thomas S. Biemer, Dilworth Paxson L.L.P., Philadelphia, PA, for KDH Electronic Systems, Inc., et al.
Craig W. Hillwig, Robert J. LaRocca, Kohn Swift & Graf, P.C., Philadelphia, PA, David W. Kenna, Kenneth R. Lange, Michael R. Koblenz, Mound Cotton Wollan & Greengrass, New York, NY, for Curtis Technology Ltd., et al.
This action involves a contract dispute over the development of a sonar system called the T–3. Over two years after the initiation of this litigation, the defendants/counterclaim plaintiffs, Curtis Technology Ltd. (“CTL”) and its CEO, Dr. Thomas Curtis, filed nineteen counterclaims against KDH Electronics, Inc. (“KDHE”), KDH Defense Systems, Inc. (“KDHD”), David Herbener, Edwin Knell, Channel Technologies Inc., and Channel Technologies Group.1 The counterclaims include claims for breach of contract, fraudulent inducement to contract, unjust enrichment, tortious interference with contract, commercial disparagement, violation of the Lanham Act, fraudulent and negligent misrepresentation, violation of the Pennsylvania Uniform Trade Secrets Act, unfair competition, conversion, conspiracy, and failure to include “flow down” clauses pursuant to the federal regulations.
The counterclaim defendants move to dismiss for lack of personal jurisdiction over the Channel Counterclaim Defendants and for failure to state a claim. Counterclaim Defs.' Mot. to Dismiss Pls.' Counterclaims (“MTD”). The Court denies the motion to dismiss for lack of personal jurisdiction without prejudice and grants the motion to dismiss for failure to state a claim in part and denies it in part.
I. Procedural BackgroundA. Complaint and Consent Orders
KDHE and KDHD (the “KDH entities” or “plaintiffs”) filed their complaint against CTL, Dr. Thomas Curtis, and Michael Curtis on May 12, 2008. The plaintiffs alleged breach of a Teaming Agreement entered into in April 2006, which outlined the roles played by each party in the design, testing, and manufacture of the T–3 sonar system. The plaintiffs requested, among other relief, a preliminary injunction ordering the defendants to turn over all engineering and programming specifications for the T–3 system.
After the filing of the complaint, the parties entered into two consent orders in June and August 2008 designed to provide the information needed for design, redesign, testing and manufacturing of the T–3 system to the KDH entities.
B. The Court's Decisions
On December 23, 2008, this Court issued a memorandum and order finding that KDH owned the T–3 system and the “Curtis Deliverables,” as defined in the Teaming Agreement.2 Mem. & Order, Dec. 23, 2008, 2008 WL 5381367 (hereinafter “Dec. 2008 Decision”) (ECF No. 41) at 9, 11. On March 3, 2009, 2009 WL 564417, after considering the parties' briefs, the Court issued a memorandum and order finding that the Defense Federal Acquisition Regulations did not impact the Court's Dec. 2008 Decision. Finally, on March 19, 2010, 2010 WL 1047807 the Court granted the defendants' motion to dismiss for lack of personal jurisdiction over defendant Michael Curtis, and denied the motion as to Dr. Thomas Curtis. C. Voluntary Dismissal Request and Counterclaims
Following the Court's decisions, the plaintiffs filed a motion for voluntary dismissal without prejudice in May 2010. After retaining new counsel, the defendants opposed the motion and requested leave to file counterclaims, which the Court granted. Thus, over two years after the initiation of this case, the defendants/counterclaim plaintiffs filed their counterclaims on October 15, 2010, bringing four new parties into the litigation. Both sides have switched counsel since the beginning of the litigation.
II. Factual Background 3A. Agreements Between CTL and KDHE
Dr. Thomas Curtis, a distinguished British sonar scientist, is the CEO of CTL, a company that sells high-tech processing modules for sonar, radar, and telecommunications applications. In 2005 and 2006, CTL and KDHE entered into a series of three agreements regarding the T–3, a sonar system for detecting underwater threats: (1) the Confidentiality Agreement, which provided for non-disclosure of Curtis's intellectual property; (2) the Consulting Agreement, which provided payments to CTL in exchange for consulting services to KDHE; and (3) the Teaming Agreement, for joint development and production of the T3 system. Counterclaim ¶¶ 14, 18, 23–24, 34.
The Teaming Agreement, which contained an integration clause, restricted the parties from disclosing confidential information about the T–3 product except to accomplish the purposes of the agreement. In addition, the agreement prohibited CTL from working with others to compete with the T–3 system. Lastly, it required KDHE to make its best efforts to select CTL as the subcontractor to perform work required under any prime contracts awarded to KDHE. Id. Ex. D §§ 4, 7, 8, 9, 20.
When entering these agreements, CTL relied upon representations that KDHE made to the U.S. Department of Defense regarding its qualifications for developing sonar systems, as well as market projections provided by KDHE President/CEO David Herbener. Id. ¶¶ 20, 27–29.
B. Orders from Oceanscan
In August 2006, months after KDHE and CTL signed the Teaming Agreement, Oceanscan, Ltd. approached CTL, seeking a supply of CTL's sonar head modules for a project involving sonar systems. CTL obtained a waiver from David Herbener of the restrictive covenant provision in the Teaming Agreement for work with Oceanscan. Herbener suggested that CTL negotiate directly with Oceanscan and that CTL include a 10 percent mark-up on prices to pass on to KDH.4 CTL then accepted two formal purchase orders from Oceanscan for sonar head modules. Counterclaim ¶¶ 47–49.
Later, however, KDH issued a formal letter to CTL, demanding, under threat of litigation, that it stop working with Oceanscan. As a result, CTL informed Oceanscan that it could not deliver on the purchase orders and lost potential revenue and profits from the Oceanscan module sales. Id. ¶¶ 56, 66–70.
C. Development of the T–3 System
The Teaming Agreement divided responsibilities for the production of the T–3 system between CTL and KDHE. KDHE was in charge of project management, sales and marketing efforts, systems integration, and the design and software for the topside or “above water” portion of the T–3. CTL handled the “below water” sonar...
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