Babcock Power Inc. et al v. Kapsalis

Filing 633

MEMORANDUM OPINION by Senior Judge Charles R. Simpson, III on 3/6/2019 - For the reasons stated in the Memorandum Opinion, the motion to amend will be granted in part and denied in part by separate order. A modified Permanent Injunction will be entered in accordance with this opinion. cc: Counsel (KD)

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF KENTUCKY
AT LOUISVILLE
BABCOCK POWER, INC., et al.

v.

PLAINTIFFS

CIVIL ACTION NO. 3:13CV-717-CRS

STEPHEN T. KAPSALIS, et al.

DEFENDANTS

MEMORANDUM OPINION
This matter is before the court on motion of the plaintiffs, Babcock Power, Inc. and Vogt
Power International, Inc. (collectively “Babcock”), to alter and amend the Permanent Injunction
entered by the court on December 17, 2018 (DN 611, filed in redacted form). Babcock has also
filed motions for leave to seal its motion to alter and amend (DN 612) and to seal its reply (DN
624).
First, we take up Babcock’s filing of redacted briefs and its motions for leave to file
unredacted versions under seal. The motions to seal contain no particularity or justification
whatsoever for filing redacted briefs in the public record. On that basis alone, the motions for leave
to seal can and will be denied.
Further, Babcock has quoted and then redacted passages from two documents. The court
has found that both of these purported “CONFIDENTIAL” or “FOR ATTORNEY’S EYES
ONLY” documents were previously ordered unsealed by the magistrate judge. See DNs 254-2;
386; 326-23; 387, so there is simply no argument to be made for sealing Babcock’s briefs on the
basis that they contain quotes from these documents. Babcock’s motions for leave to seal will be
denied.

Next we address the plaintiff’s motion to alter and amend the Permanent Injunction (DN
611).
The court ordered that the defendant, Stephen T. Kapsalis, “is PERMANENTLY
RESTRAINED from using or disclosing Babcock Power, Inc. and Vogt Power, Inc.’s trade secret
information consisting of its strategic plans and schematic and mechanical drawings.” DN 608,
PageID #41049. Babcock has noted, and the court agrees, that Kapsalis should also be required to
return all copies of trade secret information consisting of schematic and mechanical drawings and
strategic plans that are in Kapsalis’ possession, custody, and control.1 The injunction will be
modified to reflect this addition.
The court also stated in the injunction that it “does not apply to categories of information
which were not found by the jury to constitute misappropriated trade secrets, as the confidentiality
clause of the employment agreement in issue expired by its own terms on April 11, 2018, the fiveyear anniversary of Kapsalis’ termination of his employment with the plaintiffs.” Id.
Babcock seeks to amend the injunction to (1) permanently restrain Kapsalis from “using
disclosing, misusing, or further converting the Plaintiffs’ confidential, proprietary or trade secret
information, including but not limited to, strategic plans, schematics and mechanical drawings,
customer/contact lists, calculation sheets, and CAD standards;” (2) require Kapsalis to return all
copies of Babcock’s confidential, proprietary and trade secret information relating to “schematics,

1

There has been no mention of the balance of hardships. As noted in E.I. Dupont de Nemours and Co. v.
Kolon Industries, Inc., 894 F.Supp.2d 691, 706 (E.D.Va. 2012), the VUTSA (the Virginia Uniform Trade
Secrets Act, identical in language to the KUTSA) provides that “actual…misappropriation may be enjoined,”
preserving the equitable principle that issuance of an injunction is discretionary with the court. However,
Kapsalis has not argued against entry of the permanent injunction with respect to the two categories of
trade secrets found by the jury to have been misappropriated by him. We therefore conclude that the
balance of equities in this regard is a non-issue and the public interest will suffer no adverse effects by entry
of injunctive relief with respect to the two categories of trade secrets.

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diagrams, and strategic planning documents, contact lists, calculation sheets, and CAD Standards”2
that are in Kapsalis’ possession, custody, and control; and (3) identify under penalty of perjury “all
individuals and organizations” to whom Kapsalis “disclosed, forwarded, communicated in any
manner, directly or indirectly, Babcock’s confidential, proprietary, or trade secret materials and
information…” DN 611-1.
In its opening brief, Babcock focused on what it referred to as “the employment contract”
between the parties entitled “Employee Obligations to Babcock Power and Former Employers,” a
document which does not have an intrinsic expiration date. While this document was admitted in
the case, it is not the document which was the subject of the claimed breach. Indeed, the offer
letter from Babcock to Kapsalis refers to them as separate documents to be executed by Kapsalis.
DN 254-2, p. 3, PageID #28480.
The jury was instructed to state whether it
Believe[s] from the evidence that it is more likely true than not true that the
defendant, Stephen T. Kapsalis, breached the Employee Non-Disclosure, NonSolicitation, Non-Competition and Assignment Agreement (the “Agreement”) with
Babcock Power, Inc. and Vogt Power International, Inc.

DN 604, Page 2, PageID #41038. The instructions explained that to find a breach of contract, it
must have been proven that Kapsalis breached the confidentiality portion of the Agreement. The
confidentiality clause of the Agreement states:
1. Confidentiality. During the term of my employment with the Company
and for a period of five (5) years thereafter, I will not divulge to anyone or
use for my own benefit or for the benefit of any third party any confidential
information of the Company, its customers or suppliers, or any information
received in confidence from third parties by the Company (including
The plaintiffs’ terminology in the tendered injunction is imprecise and problematic in a number of
respects. First, they seek to restrain and seek the return of materials “as it relates to” or “relating to”
schematics, diagrams, etc. Second, the listing of items subject to return does not mirror the categories
which were addressed by the jury. The court will order injunctive relief with reference to the same
categories found by the jury and will not extend the order to “related” items.
2

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without limitation, all technical designs and specifications, trade secrets,
manufacturing
techniques,
financial
data
and
marketing
strategies)(collectively, the “Confidential Information”) learned by me as
a result of any task assigned me or work performed by me for or on behalf
of the Company unless (a) any such Confidential Information becomes
generally available to the public other than as a result of disclosure by me
or (b) I am requested or required (by oral question, interrogatories, requests
for information or documents, subpoena, civil investigative demand or
similar process) to disclose any such Confidential Information, in which
case I will (i) promptly notify the Company of such request or requirement,
so that the Company may seek an appropriate protective order, and (ii)
cooperate with the Company, at its expense, in seeking such an order.
Immediately upon termination of my employment, I shall deliver to the
Company all Confidential Information (and all copies thereof).
DN 326-23, p. 2, PageID #32874.
The jury was instructed to address this paragraph when considering the claim for breach of
contract. There are clearly two obligations in issue in the paragraph. There is a restrictive
obligation to refrain from using or divulging confidential information while employed and for five
years thereafter. There is also an affirmative obligation to deliver all confidential information to
Babcock immediately upon termination of employment. Thus the jury necessarily found from the
evidence that Kapsalis breached this term by either using or divulging confidential information or
by failing to deliver all confidential information, or both.
The breach of contract claim is grounded in Kentucky common law. The jury awarded
Babcock damages for the breach, defined in the instructions to “include the natural and proximate
consequences of the breach and damages reasonably supposed to have been within the
contemplation of the parties at the time the contract was made.” DN 603, p. 14, PageID #41027.
Kapsalis was prohibited by the contract from using or divulging confidential information for a
period of five years. That period has now expired. Babcock has not shown entitlement to a
permanent injunction against Kapsalis’ disclosure or use of confidential information beyond the
misappropriated trade secrets governed by statute. Babcock cannot improve its situation beyond
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that which would have existed had there been no breach. Having been compensated for the breach,
Kapsalis cannot impose further confidentiality obligations on Kapsalis concerning information
which was not found by the jury to constitute trade secrets.
We do agree with Babcock, however, that Kapsalis should be ordered to return confidential
information within his possession, custody, and control. We are persuaded by the logic espoused
in Uniroyal Goodrich Tire Co. v. Hudson, 873 F.Supp. 1037, 1043-44 (E.D.Mich. 1994), even
though factually not precisely on point. In that case, there was a non-disclosure/non-use provision
which contained no time limitation and a non-compete provision which was limited to two years.
The court rejected defendant’s argument that the two-year limitation in the non-compete clause
modified the non-disclosure/non-use provision. Importantly, and in contrast to the case before us,
the clauses in question in the Uniroyal case were in separate numbered paragraphs in the
agreement. The court stated in Uniroyal that
Each paragraph of the 1991 Agreement imposes a separate and distinct obligation
on the signatory, and, accordingly, must be read separately. The obligation in ¶ 6
to not work for a competitor for a period of two years from leaving UGTC does
not, in any way, lessen or ease a signatory’s obligation under any other paragraph.
Thus, the two year term in ¶ 6 does not modify a signatory’s duty under ¶ 1, to
never reveal Information without UGTC’s consent, to mean that the signatory can
reveal Information after two years.

Uniroyal, 873 F.Supp. at 1044.
The proper outcome is slightly less clear in the case at bar, where the sentence requiring
the delivery of confidential information is contained in and concludes a single paragraph which
also requires that confidential information not be disclosed for a period of five years after
termination of employment. We find, though, that the concluding sentence requires the signatory
to deliver confidential information to Babcock immediately upon termination of employment
which establishes a separate and distinct obligation from the preceding sentence concerning
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maintenance of confidentiality. Thus we conclude that the expiration of the five-year period of
confidentiality does not limit the requirement that the company’s confidential information be
surrendered. An order requiring Kapsalis to return all items in his possession in the five categories
found by the jury to constitute confidential information is necessary to satisfy the expectations of
the contracting parties that Kapsalis would return such information immediately upon his
termination.
We will therefore modify the injunction to require that Kapsalis deliver to Babcock all
confidential information consisting of CAD Standards, Calculation Sheets, Customer/Contacts
Lists, Schematic and Mechanical Drawings, and Strategic Plans in his possession, custody, and
control.
The final amendment sought by Babcock is an order requiring Kapsalis to “identify under
penalty of perjury all individuals and organizations that he disclosed, forwarded, communicated
in any manner, directly or indirectly, Plaintiffs’ confidential, proprietary, or trade secret materials
and information to.” DN 611-1, p. 2, PageID #41063. In support of this request, Babcock cites
only the DuPont case (cited infra.), quoting the final sentence therein: “Further, it is appropriate
to grant DuPont the traditional relief of an injunction that requires the return of all purloined secrets
under conditions that allow verification thereof.” 894 F.Supp.2d at 721.
There is nothing in the DuPont case to provide insight into appropriate “conditions that
allow verification thereof.” What is clear, however, is that what is to be verified here is the return
to Babcock of all five categories of materials, and copies thereof, that are in Kapsalis’ possession,
custody, and control. A statement under penalty of perjury that he has complied with the order
would, of course be appropriate. However, the additional information sought by Babcock would
not, in any way, verify Kapsalis’ compliance with the order that he surrender the items. Discovery

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has closed in this case. Kapsalis was deposed and was examined at length during the two-week
jury trial. Verdicts were returned and damages were awarded to Babcock on its claims. The court
will not reopen discovery post-trial to afford Babcock the opportunity to probe ancillary concerns
beyond his compliance with the injunctive relief ordered herein. This proposed amendment to the
injunction will be denied.
For the reasons set forth hereinabove, the motion to amend will be granted in part and
denied in part by separate order. A modified Permanent Injunction will be entered in accordance
with this opinion.
March 6, 2019

IT IS SO ORDERED.

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