Molon Motor & Coil Corp. v. Nidec Motor Corp.
| Decision Date | 30 November 2020 |
| Docket Number | No. 1:16-CV-03545,1:16-CV-03545 |
| Parties | MOLON MOTOR AND COIL CORPORATION, Plaintiff, v. NIDEC MOTOR CORPORATION, Defendant. |
| Court | U.S. District Court — Northern District of Illinois |
ORDER
Last year, the Court dismissed the remaining claims in this action, which were trade-secrets claims under federal and state law. 18 U.S.C. § 1836(b) (Defend Trade Secrets Act); 765 ILCS 1065 (Illinois Trade Secrets Act). See R. 64, 184.1 The target of the trade-secrets claims, Nidec Motor Corporation, has now moved for attorney's fees. For the reasons explained in this Opinion, the motion is granted in part and denied in part.
Molon Motor and Coil Corporation filed this case in March 2016, alleging that Nidec (and related entities) had infringed two of Molon's patents. See R. 1. Not until May 26, 2016, when filing its Second Amended Complaint, R. 18, did Molon allege that Nidec had misappropriated trade secrets in violation of the federal Defend Trade Secrets Act and the Illinois Trade Secrets Act. These claims arose, in large part, fromthe alleged misappropriation and disclosure of trade secrets by former Nidec employees Manish Desai and Jose Delgado. Sec. Am. Compl. ¶¶ 68, 72, 83; R. 64, Third Am. Compl. ¶¶ 67, 80. After Nidec filed a dismissal motion, Molon successfully asked for leave to amend the trade-secret claims to provide additional detail about the secrets. R. 63. In September 2016, Molon filed a Third Amended Complaint (which ended up being the final operative complaint), R. 64, which dropped conspiracy and tortious interference claims.
Manish Desai, Molon's Head of Quality Control, left Molon for Nidec in June 2013. Third Am. Compl. ¶ 58. Molon alleged that, before leaving, Desai copied onto an unauthorized thumb drive a "significant amount of files related to engineering and design, quality control protocols and data, and customer specific data for Molon Motors." Id. at 65. Molon alleged (incorrectly, as it turns out) that Jose Delgado, a quality control engineer, also had left for Nidec during the same year (2013). R. 205-5, Pl. Resp. Br., Exh. 5, Carlson Decl. ¶ 5; Sec. Am. Compl. ¶ 59. In reality, however, Delgado actually left Molon in 2010. R. 199, Def. Br. at 4. Molon removed any mention of Delgado from the Third Amended Complaint. See R. 205, Pl. Resp. Br. at 11.
In response to the new pleading, in October 2016, Nidec again moved to dismiss the trade-secrets claims. R. 67. The motion was denied. R. 81. By that point, the trade-secrets claims were the only remaining claims. The two counts of patent infringement (Counts 1 and 2), were defeated on summary judgment, R. 78, and dismissed on joint stipulation, R. 75, respectively.
In February 2019, Molon's then-attorney, John Petrsoric, requested leave to withdraw as counsel, citing reservations about the case, as well as personal issues. R. 205-1, Pl. Resp. Br., Exh. 1, Tr. of Proceedings 2/28/19 at 2:15-24; R. 155. The motion was granted in March 2019. R. 160. Previously, the Court had extended the fact discovery deadline from November 16 to December 21, 2018, in light of Petrsoric's personal circumstances. R. 151.
Molon retained new counsel and eventually moved to re-open discovery for two depositions: a 30(b)(6) deposition of Nidec, and a third-party deposition of Desai. R. 161, Pl.'s Mot. for Leave to Take Limited Discovery, ¶ 3. The Court denied the motion, noting this was "a paradigm case for holding a corporate litigant to its lawyer's alleged inaction." R. 173 at 2. Eventually, the Court dismissed the remaining claims, without foreclosing Nidec from seeking attorneys' fees for having to defend against the trade-secrets claims. R. 184. The Court cautioned Nidec to "have another very serious talk with your client before that motion is filed." R. 205-2, Pl. Resp. Br., Exh. 2, Tr. of Proceedings 7/1/19 at 5:14-15. Nidec decided to file the motion, to which the Court now turns.
The Illinois Trade Secrets Act allows a defendant to recover attorney's fees if "a claim of misappropriation is made in bad faith."2 765 ILCS 1065/5. But the Actdoes not explicitly define what constitutes "bad faith." The most pertinent Illinois decision on what bad faith means under the Act is Conxall Corp. v. Iconn Sys., LLC, 61 N.E.3d 1081 (Ill. App. Ct. 2016). In that case, by a 2-to-1 majority, the panel declined to adopt the two-part test established in California case law interpreting the Uniform Trade Secrets Act. Id. at 1088. Under the "California" standard, as Conxall labelled it, "bad faith" requires both "objective speciousness" and "subjective bad faith." SASCO v. Rosendin Elec., Inc., 207 Cal. App. 4th 837, 845 (2012). In other words, the movant must show not only that the plaintiff acted with a culpable state of mind (subjective bad faith) but must also show that the claims were objectively frivolous (objective speciousness).
Instead of that two-part test, the Conxall majority appeared to criticize the objective-frivolousness element, reasoning that the Act's text requires only "bad faith" and there is no textual anchor in the Act for requiring "objective speciousness." 61 N.E.3d at 1101. Conxall also noted that the Illinois Trade Secrets Act, although modeled on the Uniform Trade Secrets Act, did not adopt a drafters' comment that the California decision relied on. Id. The panel majority concluded that "bad faith" under the Act "should be given the preexisting definition of 'bad faith' of this state." Id at 1102.
Unfortunately, the Act's usage of "bad faith" actually had not been authoritatively interpreted by the Illinois Supreme Court. So Conxall turned to an Illinois Supreme Court decision, Krautsack v. Anderson, 861 N.E.2d 633, 648 (Ill. 2006), inwhich the state high court interpreted the Illinois Consumer Fraud Act. The Consumer Fraud Act authorizes fee-shifting to the prevailing party, but the Illinois Supreme Court interpreted the fee-shifting provision to require a finding of "bad faith" for a prevailing defendant to recover fees (whereas plaintiffs need not make that showing if they win). 861 N.E.2d at 646-47. The next question was how to define "bad faith."
On that question, Krautsack refused to limit bad faith to the confines of Illinois's general litigation-sanctions rule, namely, Illinois Supreme Court Rule 137. 861 N.E.2d at 648. Rule 137 requires that every signed filing have a reasonable basis in fact and in law, and also the filing must not be made for any improper purpose:
The signature of an attorney or party constitutes a certificate ... that to the best of his knowledge, information, and belief formed after reasonable inquiry it is well grounded in fact and is warranted by existing law or a good-faith argument ..., and that it is not interposed for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation ... .
Ill. S. Ct. R. 137. The Illinois Supreme Court reasoned that Rule 137 applies only to filings, but the Consumer Fraud Act's fee-shifting provision was not so confined. Id. So Krautsack held that, under the Consumer Fraud Act, it is possible to establish a plaintiff's bad faith by proving misconduct outside of the pleadings. Id.
Returning to Conxall and the Illinois Trade Secrets Act, the panel majority concluded that, like the Consumer Fraud Act, it is possible to show that a plaintiff acted in "bad faith" without satisfying Rule 137—which has both an objective ("reasonable inquiry" into the basis for the facts and the law) and a subjective ("improper purpose") requirement. 61 N.E.3d at 1103. Still, Conxall noted that Rule 137 and thecase law interpreting it will be useful guidance in deciding whether a plaintiff has acted in bad faith for purposes of the Illinois Trade Secrets Act. Id.
As a practical matter, in this case, it matters not whether the Act's "bad faith" standard requires more than just subjective culpability. Nidec argues that Molon brought trade-secret claims that had no reasonable basis in law or fact and that Molon acted with subjective bad faith to harass Nidec. Indeed, in most cases—including this one—fee applicants try to prove objective frivolousness anyway, because it is one of the most powerful forms of circumstantial evidence to prove subjective bad faith. Here, as explained next, the record evidence does show that Molon's trade-secret claims were both objectively frivolous and brought with subjective bad faith.
With this standard of bad faith in mind, it is time to examine the record evidence.
First, Nidec points to Molon's delay in even mentioning the trade-secret claims, let alone actually filing them as part of a lawsuit. Remember that Desai, who supposedly stole the trade secrets, left Molon in June 2013. Third Am. Compl. ¶ 58. Shortly after he left, Molon hired a forensic consultant, Christopher Tragasz, to examine the Molon hard drive that Desai used. R. 207-3, Tragasz Aff. ¶ 7.3 This is when Molon first became aware of alleged misappropriation, if Molon's interrogatory responses inthis case are to be believed. R. 207-2 at 18-19. Tragasz signed an affidavit, dated October 8, 2013, averring to his findings. See Tragasz Aff. The affidavit said that "documents potentially belonging to Molon were accessed in close proximity to Manish Desai's resignation on a removable device." Id. ¶ 13. Perhaps not surprisingly, this tepid conclusion did not result in Molon leaping into action. One year went by, then two. In March 2016, almost 2½ years after the forensic analysis, Molon sued Nidec—but for unrelated patent infringement, not on the trade secrets. See R. 1. It was not until May 2016 that Molon added the trade-secret claims to the case. See Sec. Am. Compl. ¶¶ 55-84.
The three-year delay in bringing the trade-secret claims raises a burning question: if Molon really had reason to believe that Desai potentially possessed trade...
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