Synergetics, Inc. v. Hurst

• Decision Date: 05 February 2007
• Docket Number: No. 06-1146.,06-1146.
• Citation: 477 F.3d 949
• Parties: SYNERGETICS, INC., Appellee, v. Charles Richard HURST, Jr.; Michael McGowan, Appellants.
• Court: U.S. Court of Appeals — Eighth Circuit

477 F.3d 949

SYNERGETICS, INC., Appellee, v. Charles Richard HURST, Jr.; Michael McGowan, Appellants.

No. 06-1146.

United States Court of Appeals, Eighth Circuit.

Submitted: October 18, 2006.

Filed: February 5, 2007.

Patrick N. Mehan, Sr., argued, Clayton, Mo, for appellant.

Rudolph A. Telscher, Jr., argued, St. Louis, MO (Matthew L. Cutler, Kara R. Yancey and Douglas R. Wilner, on the brief), for appellee.

Before MELLOY, BENTON, and SHEPHERD, Circuit Judges.

SHEPHERD, Circuit Judge.

Synergetics, Inc., a company that designs, manufactures, and sells ophthalmic equipment used in eye surgeries, sued former employees Appellants Charles Richard Hurst, Jr. and Michael McGowan for (1) trade secret misappropriation, (2) breach of contract, (3) intentional interference with business relationships, and (4) breach of fiduciary duty. A jury found for Synergetics and awarded compensatory and punitive damages. The district court¹ entered judgment consistent with the jury's findings, enjoined Hurst and McGowan from using or disclosing Synergetics' trade secrets for two years, required Hurst and McGowan to destroy the misappropriated information and products developed from that information, and denied the motion for remittitur and proposed judgment. On appeal, Hurst and McGowan argue that the district court should have granted their (1) motion in limine to exclude the testimony and reports of a Synergetics' expert witness, (2) motion for summary judgment or motion for judgment as a matter of law, and (3) proposed judgment and motion for remittitur. We affirm.

I.

Because the jury ruled in Synergetics' favor on all four claims, we provide the following recitation of facts in the light most favorable to the jury's verdict, giving all reasonable inferences to Synergetics. See Goss Int'l Corp. v. Man Roland Druckmaschinen Aktiengesellschaft, 434 F.3d 1081, 1084 (8th Cir.), cert. denied, ___ 126 U.S. ___, 126 S.Ct. 2363, 165 L.Ed.2d 280 (2006).

Synergetics specializes in the sale of precision instruments and disposable laser probes used during vitreoretinal procedures, which are surgeries performed at the back of the eye typically involving the re-attachment of the retina. Synergetics was formed in 1992 by Gregg Scheller, who had previously worked as a mechanical and design engineer for other ophthalmic instrument manufacturers. Scheller hired Christopher Lumpkin to work as an engineer developing prototypes. Lumpkin later left Synergetics as an employee and moved to Colorado, but he maintained a consulting arrangement with Synergetics. Through this arrangement, Lumpkin continued to develop products for Synergetics on a part-time basis and continued to work at Synergetics' Missouri plant one week per month. Synergetics also employed Michael Auld as head of research and development.

In the vitreoretinal industry, there are four major laser manufacturers. Of the four, Iridex (also referred to in the record as Iris) employed a technology that prevented the use of competitors' laser probes on its lasers. Because of its high quality, the Iridex laser is the laser most widely used by hospitals and doctors. After almost four years of research and development, Synergetics began marketing an adapter/connector system that allowed the connection of Synergetics' laser probes to Iridex lasers as well as to other laser brands. Thus, Synergetics became the only company, other than Iridex, that provided laser probes that could be used on Iridex lasers. Auld was the direct inventor of this adapter/connector system.

In 2000, Synergetics hired Hurst and McGowan to fill high-level sales positions with the company. Hurst was responsible for management of personnel and accounts in the southern and western United States. McGowan handled personnel and accounts in the eastern United States. Through these positions, Hurst and McGowan had access to confidential sales, marketing, research, and development information, and they were members of Synergetics' Presidential Advisory Council, the company's most strategic committee. On February 5, 2001, Hurst and McGowan entered into separate, but identical, confidentiality agreements with Synergetics, in which each agreed that — while employed or after the termination of their employments — they would not "disclose or use in any manner whatsoever, any of the Confidential Information" acquired during their employment with Synergetics. The agreements further provide that Hurst and McGowan must return all company materials such as records, files, and photographic materials upon termination of their employment.

While still employed by Synergetics, Hurst and McGowan decided to form a competing company. In furtherance of this plan, they hired Lumpkin to build a competing adapter/connector system for the Iridex laser. By using spare parts from Synergetics, Lumpkin was able to do this in six hours. While maintaining their employment with Synergetics, Hurst and McGowan: (1) entered into a confidentiality agreement with Peregrine Surgical, Ltd., one of the manufacturers used by Synergetics, enabling Hurst and McGowan to enter into discussions with Peregrine Surgical concerning production of competitive items, (2) contacted Synergetics' customers to discuss the formation of the new company, and (3) constructed prototypes of products for testing and evaluation. Hurst and McGowan did not reveal these plans and actions to Synergetics, realizing that to do so would jeopardize their employment. Due to poor job performance, however, Hurst resigned his employment in July 2002, and McGowan was terminated in September 2002. Two weeks after McGowan's termination, Hurst and McGowan incorporated their new company, Innovatech Surgical, Inc., with McGowan serving as president and Hurst serving as secretary. Innovatech sought to market and sell ophthalmic medical equipment, including a directional ophthalmic laser probe in direct competition with Synergetics' best-selling laser probe.

Because Lumpkin did not possess the necessary skills to create the design drawings required for production of the adapter/connector system and other competitive products, he contacted Synergetics' employee, Auld, to obtain help in creating design drawings for Innovatech following Hurst and McGowan's termination from Synergetics. Auld did this, in large part, by copying Synergetics' drawings. Such copies included specific, detailed measurements and tolerances. Hurst and McGowan were aware that Auld was still employed by Synergetics and that Auld was assisting Lumpkin in creating these drawings. As a result of these actions, only Synergetics, Innovatech, and Iridex had the technology and products to attach disposable laser probes to the Iridex laser unit.

On February 11, 2004, Synergetics filed suit against Hurst and McGowan in Missouri state court. The case was removed to the United States District Court on the basis of diversity jurisdiction. In September 2005, a jury trial was held, and the jury returned a verdict in favor of plaintiffs. The jury found, by a preponderance of the evidence, that (1) Hurst and McGowan had misappropriated Synergetics' trade secrets concerning pricing of products, product selections, sales data, prioritization of products, and technical information regarding the tolerances and torque of the adapter/connector system, (2) Synergetics suffered harm as a direct result of the misappropriation of the trade secrets, (3) either Hurst or McGowan intentionally interfered with Synergetics' business relationships with twenty-three separate businesses from which Synergetics suffered damages, (4) Hurst and McGowan breached their confidentiality agreements with Synergetics, and (5) Hurst and McGowan breached a fiduciary duty of loyalty while employed by Synergetics. The jury determined that Synergetics suffered actual damages in the amount of $1,759,165. The jury further awarded punitive damages against Hurst and McGowan in the amount of $293,194.16 per defendant. Following denial of Appellants' motion for remittitur and proposed judgment, the district court entered judgment against Hurst and McGowan in accordance with the jury's verdict and enjoined Hurst and McGowan from using or disclosing the trade secret information for two years.

II.

Appellants first assert that the district court erred in denying their motion in limine to exclude the expert testimony and report of Ronald Vollmar, a certified public accountant, financial analyst, and fraud examiner. Vollmar testified about the economic damages Synergetics suffered due to Appellants' actions. Appellants contend that Vollmar's testimony should not have been admitted because his opinions were based on an incorrect assumption regarding the number of suppliers in the relevant market.

Federal Rule of Evidence 702 provides that if expert testimony "will assist the trier of fact to understand the evidence or to determine a fact in issue," an expert may testify where "(1) the testimony is based upon sufficient facts or data, (2) the testimony is the product of reliable principles and methods, and (3) the witness has applied the principles and methods reliably to the facts of the case." See Fed.R.Evid. 702. Trial courts serve as gatekeepers to "ensure that any and all scientific testimony or evidence admitted is not only relevant, but reliable." See Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579, 589, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993); see also Kumho Tire Co. v. Carmichael, 526 U.S. 137, 141, 119 S.Ct. 1167, 143 L.Ed.2d 238 (1999) ("We conclude that Daubert's general holding — setting forth the trial judge's general `gatekeeping' obligation — applies not only to [expert] testimony based on `scientific' knowledge, but also to [expert] testimony based on `technical' and `other specialized' knowledge."). In exercising this gatekeeping function, the trial court must first make a "preliminary assessment of whether the reasoning or methodology underlying the testimony is...