PLC Trenching Co., LLC v. Newton et al

Filing 119

MEMORANDUM-DECISION AND ORDER granting in part and denying in part # 95 Plaintiff's Motion for an order of civil contempt and the imposition of sanctions, attorney's fees and costs against Defendants as set forth within the decision and order. Signed by Judge Glenn T. Suddaby on 4/6/12. (lmw)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF NEW YORK
__________________________________________
PLC TRENCHING CO., LLC,
Plaintiff,

6:11-CV-0515
(GTS/DEP)

v.
GARY NEWTON, JR.; CABLE SYS.
INSTALLATION LLC; and CABLE SYS.
INSTALLATIONS CORP.,
Defendants.
__________________________________________
APPEARANCES:

OF COUNSEL:

SCHNADER HARRISON SEGAL & LEWIS LLP
Counsel for Plaintiff
140 Broadway, Suite 3100
New York, NY 10005

CYNTHIA A. MURRAY, ESQ.
THEODORE L. HECHT, ESQ.

BOND, SCHOENECK & KING PLLC
Counsel for Defendant Gary Newton, Jr.
350 Linden Oaks, Suite 310
Rochester, NY 14625

BRIAN LAUDADIO, ESQ.
GREGORY J. MCDONALD, ESQ.

FRENCH, ALCOTT PLLC
Counsel for Defendant Gary Newton, Jr.
300 South State Street
Syracuse, NY 13202

DANIEL J. FRENCH, ESQ.

HISCOCK & BARCLAY
Counsel for Defendant Gary Newton, Jr.
One Park Place
300 South State Street
Syracuse, NY 13202

GABRIEL M. NUGENT, ESQ.

LeCLAIR RYAN
Counsel for Corporate Defendants
290 Linden Oaks, Suite 310
Rochester, NY 14625

ANDREW P. ZAPPIA, ESQ.
WENDELL W. HARRIS, ESQ.
MICHAEL J. CROSNICKER, ESQ.

HON. GLENN T. SUDDABY, United States District Judge
MEMORANDUM-DECISION and ORDER
Currently before the Court, in this misappropriation-of-trade-secrets action, is a motion,
filed by PLC Trenching Co., LLC (“Plaintiff”) against Gary Newton, Jr., Cable System
Installation LLC, and Cable System Installations Corp. (“Defendants”), for an order of civil
contempt and the imposition of sanctions, attorney’s fees and costs against Defendants. (Dkt.
No. 95.) For the reasons set forth below, Plaintiff’s motion is granted in part and denied in part.
I.

RELEVANT BACKGROUND
Because the parties have demonstrated, in their motion papers and at the Order-to-Show-

Cause Hearing dated March 26, 2012 (“Order-to-Show-Cause Hearing”), an adequate
understanding of the claims, facts and procedural history of this case, the Court will not recite
that information in this Decision and Order, which is intended primarily for the review of the
parties.
II.

GOVERNING LEGAL STANDARD
Again, because the parties have demonstrated, in their motion papers, an adequate

understanding of the legal standard governing a motion for civil contempt, the Court will not
recite that standard in this Decision and Order, which is (again) intended primarily for the review
of the parties.
III.

ANALYSIS
A.

Defendants’ Use of a Fourth Set of Cup Cutter Segments

Plaintiff argues that Defendants violated the Court’s Temporary Restraining Order issued
on May 10, 2011 (“TRO”), by failing to turn over a fourth set of cup cutter segments to Plaintiff
until December 28, 2011, and by using the fourth set of cup cutter segments after the issuance of
2

(and in violation of) the TRO. (Dkt. No. 95, Attach. 13, at 10-16, 22-24 [Plf.’s Memo. of Law].)
As a result, Plaintiff requests that the Court issue sanctions against Defendants in the amount of
$750,000 (resulting from the ability to excavate approximately 100,000 feet of trench at a profit
of approximately $7.50 per foot of trench–resulting from an estimated 100% profit on the unit
price of $7.50 per foot of trench–multiplied by a 100% production benefit), in addition to
attorney’s fees incurred by Plaintiff for having to file and argue its motion. (Dkt. No. 95, Attach.
13, at 26-27; Dkt. No. 95, Attach. 1, at ¶ 33 [Decl. of Lopata].)
In their papers, and at the Order-to-Show-Cause Hearing, Defendants admit that they
used a fourth set of cup cutter segments at its Webberville, Texas, work site after the Court
issued the TRO, but argue that the use was inadvertent and limited to that site. (See, e.g., Dkt.
No. 106, at 9-10 [Defs.’ Opp. Memo. of Law]; Dkt. No. 115 [Defs.’ Suppl. Letter-Brief].) As for
the amount of sanctions requested by Plaintiff, in their post-hearing papers, Defendants argue
that Plaintiff overestimates the financial benefit derived by Defendants from their use of the
fourth set of cup cutters at Webberville, asserting that the financial benefit was only $50,000
(resulting from the ability to excavate at most 80,000 feet of trench at a profit of approximately
$1.25 per foot of trench–resulting from an estimated 20% profit on the unit price of $6.28 per
foot of trench–multiplied by at most a 50% production benefit). (Dkt. No. 115 [Defs.’ Suppl.
Letter-Brief]; Dkt. No. 116 [Decl. of Singh]; Dkt. No. 117 [Second Decl. of O’Donnell].)1 As
for the attorney’s fees requested by Plaintiff, at the Order-to-Show-Cause Hearing and in their

1

Moreover, Defendants argue that any such award of sanctions should (1) be
limited to direct injury suffered by Plaintiff (and not expanded to any benefit derived by
Defendants), and (2) offset any future damage award given to Plaintiff on its trade secret
misappropriation claim. (Dkt. No. 115 [Defs.’ Suppl. Letter-Brief].)
3

post-hearing papers, Defendants do not contest attorney’s fees to the extent they relate to
Plaintiff having to file and argue this aspect of its motion; however, Defendants do contest
attorney’s fees as they relate to the remaining three aspects of Plaintiff’s motion (i.e., spoliation
of evidence, the forensic computer examination, and the failure to pay for site-inspection costs).
(Dkt. No. 115 [Defs.’ Suppl. Letter-Brief].)
In its post-hearing papers, Plaintiff argues that Defendants’ late-blossoming evidence of
the financial benefit derived by them from their use of the fourth set of cup cutters at
Webberville should be given little, if any, weight, because that evidence (1) has deprived
Plaintiff of an opportunity to cross-examine Defendants’ declarants at the Order-to-Show-Cause
Hearing, and (2) is uncorroborated by any documentary evidence (e.g., job reports, contracts or
company records). (Dkt. No. 118 [Plf.’s Suppl. Letter-Brief].)
After carefully considering the matter (including the parties’ motion papers and their
arguments at the Order-to-Show-Cause Hearing), the Court agrees that sanctions and an award of
attorney’s fees are warranted, for the reasons stated by Plaintiff in its motion papers. (See, e.g.,
Dkt. No. 95, Attach. 13, at 10-16, 22-24, 26-27 [Plf.’s Memo. of Law].) As for the amount of
the sanctions, the Court finds that sanctions in the amount of $406,800 are warranted,2 to be paid
as follows: (1) sanctions in the amount of $20,340, to be paid by Defendant Newton to Plaintiff;3

2

The Court calculates the amount of sanctions as follows: 80,000 feet of trench at a
profit of $5.65 per foot of trench (resulting from a 90% profit on the unit price of $6.28 per foot
of trench), multiplied by a 90% production benefit. This calculation draws from the what the
Court finds to be the most reasonable aspects of the evidence adduced by the parties.
3

The Court finds that, based on all the evidence adduced thus far in this case, it is
entirely reasonable to make Defendant Newton personally liable for 5% of the total sanctions
awarded to Plaintiff. For example, Defendant Newton adduced affidavits in this action stating
that, in addition to receiving an annual salary from Defendant CSI, he received “incentive
4

and (2) sanctions in the remaining amount of $386,460, to be paid by the two corporate
Defendants (jointly and severally) to Plaintiff. As for the amount of attorney’s fees, the Court
finds that reasonable attorney’s fees and costs are warranted in an amount to be shown by
Plaintiff within thirty days (and approved by the Court), to be thereafter paid by the three
Defendants (jointly and severally) to Plaintiff, for having to file and argue this aspect of its
motion.
The Court notes that it declines Defendants’ offer to submit to the Court, for in camera
review, “a bid sheet and estimate sheet for the Webberville job, which provides details on the
estimates [of a unit price $6.28 per foot of trench and a profit margin of 20%].” (Dkt. No. 116,
at ¶¶ 5, 18 [Decl. of Singh].) Setting aside the fact that the relative lack of utility of the bid sheet
and estimate sheet in determining the actual profit margin (e.g., as compared to job reports,
trenching logs, company financial records, etc.), the time to submit that information was when
Defendants submitted their post-hearing letter-brief, or ideally before the Order-to-Show-Cause
Hearing (so that Plaintiff could cross-examined Defendants’ declarants). Furthermore,
Defendants have not shown cause as to why the allegedly “highly confidential” information in
those documents could not have been redacted. (Id.)

compensation” in a certain percentage of a project’s total budget for completing the project
either on-time, or early, and under budget. (Dkt. No. 27, at ¶ 21 [First Decl. of Newton, stating,
“I was made an offer of employment by CSI after our meeting and additional discussions
regarding salary, incentives, benefits and possible other team members to work with me.”]; Dkt.
No. 60, at ¶ 4 [Second Decl. of Newton, stating that, “for projects completed on time and budget,
I would receive an incentive compensation of 0.005% of the total budget, and for projects
completed early and under budget by 20%, I would receive an incentive compensation that
would be set on a per-project basis.”].) Moreover, Plaintiff has adduced evidence that Defendant
Newton’s annual adjusted salary at Defendant CSI is between $100,000 and $150,000. (Dkt. No.
8, at ¶ 32 [Decl. of Critelli]; Dkt. No. 49, Attach. 1-2 [Exs. 1-2 to Decl. of Lopata].)
5

The Court notes also that the above-described award of sanctions represents what it finds
to be the direct injury suffered by Plaintiff, which has been placed at a comparative disadvantage
by its “primary competitor” in the marketplace. (See, e.g., Dkt. No. 8, at ¶¶ 20, 22-24, 36 [Decl.
of Critelli]; Dkt. No. 80, at 19 [attaching page “69” of Tr. of Prelim. Injunct. Hrg.].) In the
alternative, the above-described award of sanctions represents what is necessary to secure future
compliance with the Court’s Preliminary Injunction in this action.
Finally, the Court notes that the above-described sanctions shall be paid forthwith. The
issue of the credit requested by Defendant (Dkt. No. 115, at 3-4) will be revisited when a final
Judgment is issued, should that issue arise at that time.
B.

Spoliation of Evidence

Plaintiff argues that Defendants violated the Court’s Preliminary Injunction dated
December 12, 2011 (“Preliminary Injunction”), when they removed plows from the “screen”
laying boxes and auger mechanisms from the “select fill” laying boxes. (Dkt. No. 95, Attach. 13
at 16-17, 21-22 [Plf.’s Memo. of Law].) In their pre-hearing papers, and at the Order-to-ShowCause Hearing, Defendants argue that the removal of the plows and auger mechanisms from the
laying boxes was Defendants’ effort to avoid infringement and comply with the Preliminary
Injunction. (Dkt. No. 106, at 16-19 [Defs.’ Opp. Memo. of Law].) Moreover, in their posthearing letter-brief, Defendants argues as follows: (1) one of the photographs relied on by
Plaintiff in support of its argument on this issue does not depict a laying box used by Defendants
after April 2011, but simply a spare part; and (2) Plaintiff should be required to advise
Defendants of what features in Defendants’ laying boxes embody Plaintiff’s trade secrets (so that
Defendants can remove them), rather than permitted to seize the laying boxes in their entirety.
(Dkt. No. 115 [Defs.’ Suppl. Letter-Brief.)
6

After carefully considering the matter (including the parties’ motion papers and their
arguments at the Order-to-Show-Cause Hearing), the Court agrees that Defendants wilfully
violated the Preliminary Injunction in this regard, for the reasons stated by Plaintiff in its motion
papers. (See, e.g., Dkt. No. 95, Attach. 13, at 16-17, 21-22 [Plf.’s Memo. of Law]; Dkt. No. 95,
Attach. 1, at ¶¶ 24-25, 30 [Decl. of Lopata]; Dkt. No. 80, at 64-65 [attaching pages “114” and
“115” of Tr. of Prelim. Injunct. Hrg.].) The Court notes that the Preliminary Injunction clearly
ordered, in pertinent part, “that Defendants shall return all copies of digital computer files,
physical and other representational or intellectual embodiments of Plainitff’s patents, trade
secrets and proprietary information (including, but not limited to, information regarding cup
cutter segments, laying boxes and dozer track modifications for the Rivard trencher) obtained
from Plaintiff and in Defendants’ possession.” (Dkt. No. 72, at 24 [Preliminary Injunction]
[emphasis added].) The Court notes also that, while an injunction requiring Defendants to forfeit
the laying boxes in their entirety may appear strict, it is entirely necessary and appropriate given
(1) Plaintiff’s need to retain the secrecy and confidentiality of certain information regarding its
laying boxes, and (2) Defendants’ incorrigible conduct thus far.
While the Court finds that monetary sanctions for this violation are not necessary at this
time, the Court finds that attorney’s fees and costs are warranted in an amount to be shown by
Plaintiff within thirty days (and approved by the Court), to be thereafter paid by three
Defendants (jointly and severally) to Plaintiff, for having to file and argue this aspect of its
motion.
In addition, all three Defendants are ordered to do the following: (1) not adjust, alter,
disassemble, remove any portion of, conceal any portion of and/or destroy any portion of any of
their laying boxes that represent, embody and/or infringe on Plaintiff’s patents, trade secrets,
7

and/or proprietary information; (2) immediately deliver (at Defendants’ expense) any such
laying boxes in their entirety to Plaintiff; and (3) permit Plaintiff to monitor Defendants’
compliance with this directive (at Defendants’ expense) by inspecting any and all of Defendants’
laying boxes on an announced or unannounced basis, and confiscating any laying boxes found by
Plaintiff to not be in compliance with this directive.
Finally, to ensure that the enforcement of the preliminary injunction remains fair and
reasonable at all times, Plaintiff is directed to advise the Court in writing, within thirty days, as
to whether it consents (and, if not, why it does not consent) to a process in which it shall (1)
remove and retain the offending portions of the laying boxes, and (2) return the unoffending
portions to Defendants (at Defendants’ expense) within thirty days of Plaintiff’s receipt of the
laying boxes.
C.

Forensic Computer Examination

Plaintiff argues that Defendants have violated the Court’s Preliminary Injunction by
impeding it from conducting a forensic computer examination. (Dkt. No. 95, Attach. 13, at 1819, 24-25 [Plf.’s Memo. of Law].) In their pre-hearing papers, and at the Order-to-Show-Cause
Hearing, Defendants argue that they are prepared to allow Plaintiff to conduct a forensic
examination of its computer systems subject to a protective order prohibiting Plaintiff’s
employees from exposure to, and review of, materials relating to Defendants’ bidding
information, personnel files, and commercially competitive information. (Dkt. No. 106, at 12-16
[Defs.’ Opp. Memo. of Law].) In response, at the Order-to-Show-Cause Hearing, Plaintiff (1)
did not object to Defendant’s proposed protective order, and (2) agreed that it did not seek access
to the materials relating to Defendants’ bidding information, personnel files, and commercially
competitive information. Following the Order-to-Show-Cause Hearing, Defendants advised the
8

Court as follows:
[O]n March 26, 2012, CSI counsel advised PLC counsel that PLC’s
vender could begin the process of imaging CSI’s computer files the
week of April 2, 2012. Discussions are proceeding to coordinate that
forensic review. Defendants and PLC have not yet reached agreement
on a protective order, but CSI does not want any delay in the imaging
process, so that imaging will commence while the parties attempt to
reach agreement on protective order terms.
(Dkt. No. 115 [Defs.’ Suppl. Letter-Brief].)
After carefully considering the matter (including the parties’ motion papers and their
arguments at the Order-to-Show-Cause Hearing), the Court denies without prejudice Plaintiff’s
motion to the extent that it seeks monetary sanctions and/or attorney’s fees with regard to the
above-described forensic computer examination. Instead, the Court (1) deems as withdrawn
without prejudice Defendants’ letter-motion of March 23, 2012, requesting the entry of a
Protective Order (Dkt. No. 110), and (2) orders Defendants to work in good-faith with Plaintiff
toward the end of expeditiously arranging the forensic computer examination in question.
D.

Defendants’ Refusal to Pay Plaintiff’s Site-Inspection Costs

Plaintiff argues that Defendants have violated the Preliminary Injunction by refusing to
reimburse Plaintiff for the costs it incurred for conducting periodic inspections at Defendants’
project sites. (Dkt. No. 95, Attach. 13, at 17-18 [Plf.’s Memo. of Law].) In their pre-hearing
papers, and at the Order-to-Show-Cause Hearing, Defendants (1) conceded that they do not
dispute some of the costs in question, and (2) argue that they are prepared to reimburse Plaintiff
for the other (disputed) costs once they receive further documentation regarding those costs.
(Dkt. No. 106, at 21-23 [Defs.’ Opp. Memo. of Law].) Following the Order-to-Show-Cause
Hearing, Defendants advised the Court that they have effectively withdrawn their dispute
regarding certain of Plaintiff’s costs, and have paid the full amount requested by Plaintiff. (Dkt.
9

No. 115 [Defs.’ Suppl. Letter-Brief].)
After carefully considering the matter (including the parties’ motion papers and their
arguments at the Order-to-Show-Cause Hearing), the Court agrees that Defendants wilfully
violated the Preliminary Injunction in this regard, for the reasons stated by Plaintiff in its motion
papers. (See, e.g., Dkt. No. 95, Attach. 13, at 17-18, 25-27 [Plf.’s Memo. of Law]; Dkt. No. 95,
Attach. 1, at ¶ 32 [Decl. of Lopata].)
While the Court finds that monetary sanctions for this violation are not necessary at this
time, the Court finds that attorney’s fees and costs are warranted in an amount to be shown by
Plaintiff within thirty days (and approved by the Court), to be thereafter paid by the three
Defendants (jointly and severally) to Plaintiff, for having to file and argue this aspect of its
motion. In addition, the two corporate Defendants are ordered to (1) pay all future undisputed
costs immediately, and (2) work in good faith with Plaintiff to expeditiously and amicably
resolve any such future disputed costs.
ACCORDINGLY, it is
ORDERED that Plaintiff’s motion for an order of civil contempt and the imposition of
sanctions, attorney’s fees and costs against Defendants (Dkt. No. 95) is GRANTED in part and
DENIED in part, in the following respects:
(1)

Defendant Newton shall pay TWENTY THOUSAND THREE HUNDRED
FORTY DOLLARS ($20,340) in sanctions to Plaintiff;

(2)

The two corporate Defendants (on a joint-and-several-liability basis) shall pay
THREE HUNDRED EIGHTY-SIX THOUSAND FOUR HUNDRED SIXTY
DOLLARS ($386,460) in sanctions to Plaintiff;

10

(3)

All three Defendants shall do the following: (i) not adjust, alter, disassemble,
remove any portion of, conceal any portion of and/or destroy any portion of any
of their laying boxes that represent, embody and/or infringe on Plaintiff’s patents,
trade secrets, and/or proprietary information; (ii) immediately deliver (at
Defendants’ expense) any such laying boxes in their entirety to Plaintiff; and (iii)
permit Plaintiff to monitor Defendants’ compliance with this directive (at
Defendants’ expense) by inspecting any and all of Defendants’ laying boxes on an
announced or unannounced basis, and confiscating any laying boxes found by
Plaintiff to not be in compliance with this directive;

(4)

Plaintiff shall advise the Court in writing, within THIRTY (30) DAYS of the
date of this Decision and Order, as to whether Plaintiff consents (and, if not, why
it does not consent) to a process in which it shall (1) remove and retain the
offending portions of the laying boxes discussed above in this Decision and
Order, and (2) return the unoffending portions to Defendants (at Defendants’
expense) within thirty days of Plaintiff’s receipt of the laying boxes;

(5)

The Clerk of the Court shall amend the docket sheet to reflect that Defendants’
letter-motion of March 23, 2012, requesting the entry of a Protective Order (Dkt.
No. 110), has been WITHDRAWN without prejudice by Defendants;

(6)

Defendants shall work in good-faith with Plaintiff toward the end of expeditiously
arranging the forensic computer examination discussed above in this Decision and
Order;

(7)

All three Defendants (on a joint-and-several-liability basis) shall (i) immediately
pay all future undisputed costs of site inspections by Plaintiff, and (ii) work in
11

good faith with Plaintiff to expeditiously and amicably resolve any such future
disputed costs;
(8)

All three Defendants (on a joint-and-several-liability basis) shall pay Plaintiff’s
reasonable attorney’s fees and costs associated with filing and arguing those
aspects of its motion regarding the fourth set of cup cutter segments, spoliation of
evidence, and the failure to pay for site-inspection costs; and

(9)

Plaintiff shall, within THIRTY (30) DAYS of the date of this Decision and
Order, submit contemporaneous time records and documentation identifying and
supporting the amount of attorney’s fees and costs it has so incurred due to having
to file and argue those aspects of its motion regarding the fourth set of cup cutter
segments, spoliation of evidence, and the failure to pay for site-inspection costs.

Dated: April 6, 2012
Syracuse, New York

12