Red Valve, Inc. v. Titan Valve, Inc.
| Decision Date | 03 September 2019 |
| Docket Number | 18 CVS 1064 |
| Citation | 2019 NCBC 56 |
| Court | Superior Court of North Carolina |
| Parties | RED VALVE, INC.; and HILLENBRAND, INC., Plaintiffs, v. TITAN VALVE, INC.; BEN PAYNE; FABIAN AEDO ORTIZ; and JOHN DOES 1-10, Defendants. |
Nelson Mullins Riley & Scarborough LLP, by David N. Allen Benjamin S. Chesson, and Anna Majestro, for Plaintiffs Red Valve, Inc. and Hillenbrand, Inc.
Bell Davis & Pitt, P.A., by Edward B. Davis and Derek Bast for Defendants Titan Valve, Inc., Ben Payne, and Fabian Aedo Ortiz. [1]
1. THIS MATTER is before the Court upon Plaintiffs Red Valve, Inc. and Hillenbrand, Inc.'s ("Red Valve" or "Plaintiffs") (i) Verified Motion for Order to Show Cause (the "First Show Cause Motion") and (ii) Second Motion for Sanctions and Contempt (the "Second Sanctions Motion") in the above-captioned case.
2. In support of the Second Sanctions Motion, Plaintiffs offer compelling evidence that Defendants Titan Valve, Inc. ("Titan"), Ben Payne ("Payne"), and Fabian Aedo Ortiz ("Aedo") (collectively "Titan Defendants") have repeatedly violated the Court's orders concerning the nondisclosure and use of Plaintiffs' confidential, proprietary, and trade secret information, failed to timely return Plaintiffs' information and property consistent with the Court's orders, and intentionally abused the litigation process to gain a perceived litigation or business advantage. Among other things, the evidence shows that the Titan Defendants have repeatedly and continuously used copies of documents containing Plaintiffs' trade secrets and other confidential information which the Court specifically enjoined Defendants from using during the pendency of this litigation and which the Court ordered Defendants to return to Plaintiffs days after this litigation commenced some seventeen months ago.
3. As will be discussed in more detail below, and having considered the Second Sanctions Motion, the briefs in support of and in opposition to that Motion, the relevant materials associated with the Motion, and the arguments of counsel at the June 4, 2019 hearing on the Second Sanctions Motion (the "June 4 Hearing"), the Court concludes, in the exercise of its discretion, that the proper administration of justice requires the imposition of severe sanctions for the Titan Defendants' conduct. Thus, the Court hereby ENTERS the following FINDINGS OF FACT and CONCLUSIONS OF LAW, and ORDERS the relief set forth below. The Court further determines, for the reasons set forth below, that the First Show Cause Motion should be DENIED.
4. Plaintiffs initiated this action on March 14, 2018, asserting claims against the Titan Defendants as well as former defendant Greg Farris ("Farris"; together with the Titan Defendants, "Defendants"), [3] arising out of Defendants' alleged wrongful conduct in acquiring, possessing, and using Red Valve's alleged confidential, proprietary, and trade secret information in a competing valve manufacturing company that Defendants created shortly before Red Valve terminated Payne's and Aedo's Red Valve employment that same day.[4]
5. Contemporaneously with the filing of the Verified Complaint, Plaintiffs also filed a Notice of Designation, as well as a Motion for a Temporary Restraining Order (the "TRO Motion") and a Motion for Preliminary Injunction (the "P.I. Motion"). The TRO and P.I. Motions sought injunctive relief against all Defendants based on Plaintiffs' claims for misappropriation of trade secrets and against Aedo separately for breach of contract. The case was designated as a mandatory complex business case later on March 14, 2018 by the Chief Justice of the Supreme Court of North Carolina and assigned to the undersigned.
6. Promptly upon designation, the Court held a hearing on the TRO Motion (the "March 14 Hearing"), ex parte, at which Plaintiffs' counsel was in attendance and presented evidence and argument. At the conclusion of the March 14 Hearing, the Court entered a temporary restraining order (the "TRO"), which became effective that day.[5] See Red Valve, Inc. v. Titan Valve, Inc., 2018 NCBC LEXIS 139 (N.C. Super. Ct. Mar. 14, 2018). The TRO required Defendants to "return to Red Valve any and all Red Valve property in their possession, including any property containing Red Valve's Trade Secrets[6] or any other confidential and proprietary information of Red Valve" within three days. Id. at *7. The TRO also restrained and enjoined Defendants (i) "from directly or indirectly using, disclosing, relying on, or otherwise misappropriating Red Valve's Trade Secrets and other confidential information," id. at *5, and (ii) "from contacting any of Red Valve's current or known prospective customers identified in Red Valve's Trade Secrets," id. at *7.
7. On March 28, 2018, Plaintiffs filed a motion for expedited discovery (the "Expedited Discovery Motion") in preparation for an April 5, 2018 hearing on the P.I. Motion (the "April 5 Hearing"). The Court subsequently entered an Order on March 30, 2018 (the "Expedited Discovery Order") granting in part and denying in part the Expedited Discovery Motion. (Order Pls.' Mot. Expedited Disc. ], ECF No. 23.) The Expedited Discovery Order required Defendants to produce to Plaintiffs no later than April 3, 2018, among other things, (i) "all materials containing Red Valve's Trade Secrets, as defined in the Court's March 14, 2018 TRO" and (ii) "all documents describing all efforts undergone to create Titan Valve prior to March 14, 2018." The Expedited Discovery Order further required Defendants to "examine their email accounts (personal or otherwise)" and "return to Red Valve any and all Red Valve property in their possession, including any property containing Red Valve's Trade Secrets[, as defined in the TRO, ] or any other confidential and proprietary information of Red Valve" by no later than April 3, 2018.
8. On April 3, 2018, Defendants produced to Plaintiffs approximately 3, 215 files in a variety of formats, as well as twenty-one additional screenshots of certain text messages exchanged between the individual Defendants (the "April 3 Production"). Red Valve, Inc. v. Titan Valve, Inc., 2019 NCBC LEXIS 5, at *5 (N.C. Super. Ct. Jan. 11, 2019).
9. All parties that have appeared in this action were represented by counsel at the April 5 Hearing on Plaintiffs' P.I. Motion. With the parties' consent and for good cause shown, the Court, by Order dated April 5, 2018, extended the TRO until April 10, 2018. (Order Extending TRO, ECF No. 33.)
10. On April 10, 2018, the Court entered an Order and Opinion on Plaintiffs' P.I. Motion, as corrected on April 17, 2018 (the "P.I. Order"). See Red Valve, Inc. v. Titan Valve, Inc., 2018 NCBC LEXIS 41 (N.C. Super. Ct. Apr. 17, 2018). The Court found that Plaintiffs' evidence showed "Aedo had been using a Dropbox account connected to his Red Valve email address to store thousands of files, many of them containing Red Valve's confidential and proprietary information" and that "[m]uch of the confidential and propriety information stored in the Red Valve Dropbox account was contained in a subfolder labeled 'Titan.'" Id. at *11. The Dropbox account contained, among other things, (i) "information pertaining to Red Valve's current and prospective customers"; (ii) "Red Valve price factor sheets and Price Books"; (iii) "in the Titan subfolder, numerous Red Valve design drawings"; and (iv) "information related to in-house and [proprietary] manufacturing processes that are not in the public domain[.]" Id. at *11-12. Based in part on the existence of the Dropbox account (the "Dropbox Account"), the Court found that, together "[w]ith Farris, Aedo and Payne actively worked to launch Titan during their employment with Red Valve, and during that time, they also actively acquired and stored information relating to and constituting Red Valve's Customer Database, Price Data, [7] Design Documents, and Protectable Manufacturing Processes," which the Court preliminarily concluded were protectable trade secrets of Plaintiffs (the "Trade Secrets"). Id. at *33-34.
11. After noting that "Defendants' actual and threatened misappropriation of Plaintiffs' Trade Secrets, if not enjoined, [would] damage Plaintiffs' business, adversely impact Red Valve's market position, and dull its competitive advantage[, ]" id. at *38-39, the Court concluded that Plaintiffs had "demonstrated a likelihood of success on the merits of their claim for misappropriation of trade secrets[, ]"[8] id. at *36. The P.I. Order accordingly "RESTRAINED and ENJOINED [Defendants], during the pendency of this action, from using, disclosing, or distributing Plaintiffs' Customer Database, Price Data, Design Documents, and Protectable Manufacturing Processes[.]" Id. at *43 (emphasis added).
12. Additionally, pursuant to paragraph 85(b) of the P.I. Order, each Defendant was required, on or before April 19, 2018, to:
13. Upon Defendants' request, by Order dated April 17, 2018 (the "Order Clarifying P.I."), the Court deferred the deadline for Defendants' performance under paragraph 85(b) of...
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