O.M.A. S.r.l. v. Simon DeYoung Corporation et al

Filing 107

Memorandum Opinion and Order accepting in part and rejecting in part report and recommendation 98 . The defendants' motion for partial summary judgment is granted as to Counts 2, 4, and 9, but is denied as to Counts 1 and 3. The plaintiff's motion for partial summary judgment is denied(related docs 73 & 74 ). Judge Lesley Wells(C,KA)

IN THE UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF OHIO
EASTERN DIVISION

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.
:
O.M.A., S.r.l.,
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Plaintiff, :
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-vs:
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SIMON DeYOUNG CORP., et al.,
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Defendants.
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CASE NO. 1:10 CV 00861

MEMORANDUM AND ORDER
ACCEPTING IN PART AND
REJECTING IN PART THE
MAGISTRATE JUDGE’S REPORT AND
RECOMMENDATION

UNITED STATES DISTRICT JUDGE LESLEY WELLS
This matter was referred to United States Magistrate Judge Kenneth S. McHargh
pursuant to Local Rule 72.2 for recommendations as to the defendants’ partial motion
for summary judgment and the plaintiff’s partial motion for summary judgment. The
Magistrate Judge recommended that the defendants’ motion be granted and that the
plaintiff’s motion be denied. For the reasons that follow, the recommendations of the
Magistrate Judge are accepted in part. The defendants’ motion for partial summary
judgment is granted as to counts 2, 4, and 9, but will be otherwise denied. The plaintiff’s
motion will be denied.

I. Background
The plaintiff O.M.A, S.r.l. (“OMA”), an Italian firm, is the designer and
manufacturer of the OMA 240 FRC Braiding Machine, a machine that braids wire and
other products. (Doc. 44, ¶¶4-5). Defendant Simon DeYoung Company (“SDC”) builds a
complementary product known as a “carrier,” which holds spools of braiding filament
used in braiding machines like OMA’s. (Doc. 78, ¶¶12, 28). Defendant Simon DeYoung
is the CEO of SDC. (Doc. 78, ¶3). In the late nineteen-eighties, the two companies
entered into a business relationship, bringing their products together as a “complete
package.” (Doc. 77, p. 2; Doc. 21, ¶5). OMA invested in SDC by executing a Stock
Purchase Agreement; the parties executed a Sales Agency Agreement; and they
entered into a number of License Agreements. (Doc. 21, ¶6). The parties agreed that
SDC would act as OMA’s exclusive sales agent, and because the parties were to have
access to one another’s confidential information, they agreed that each party would
“preserve the confidentiality of such information and not disclose information to any
other person or entity.” (Doc. 44, Ex. B, p. 16). SDC was provided with one of OMA’s
Type 240 Braiding Machines, which was housed in SDC’s warehouse. (Doc. 77-6, p.
178; Doc. 77- 5, p. 211). SDC was also given access to spare machine parts, manuals,
and other confidential documents about OMA’s braiding machine. (Doc. 77-6, pp. 17879, 187-88, 205; Doc. 77-5, pp. 115-16).
OMA maintains that its braiding machine contains trade secrets “which include
the highly proprietary design and manufacturing specifications, combination of
components, techniques, and processes used to manufacture and operate the OMA
240 FRC braiding machine.” (Doc. 77, p. 3). OMA states that it has taken appropriate
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and reasonable measures to safeguard its trade secrets, and that it was only through
the parties’ business relationship that the defendants had access to them. (Doc. 77, pp.
3-4). The defendants do not dispute that “OMA has trade secret rights in the design,
configuration, materials, and methods of production of the OMA Type 240 braiding
machine.” (Doc. 84, p. 6).
Many years after the parties began their relationship, Mr. DeYoung and SDC
formed another entity, defendant Ohio Braiding Machinery, LLC (“OBM”), without the
knowledge of OMA. (Doc. 77-5, pp. 130-33). Through this company, the defendants
designed and manufactured a braiding machine, which, the plaintiff maintains,
incorporates the confidential and proprietary information and trade secrets embodied in
OMA’s 240 FRC braiding machine. OMA contends that this information was obtained by
the defendants as a result of the parties’ business relationship.
The plaintiff brought this suit in nine counts, alleging (1) breach of contract in
relation to the Licensing Agreement; (2) breach of contract as to the Sales Agency
agreement; (3) misappropriation of trade secrets; (4) conversion; (5) breach of fiduciary
duty; (6) false advertising; (7) misrepresentation; (8) tortious interference; and (9) unjust
enrichment.
The defendants seek partial summary judgment on counts 1-4, and 9. The
plaintiffs seek partial summary judgment on counts 3, 5, and 9. On referral, the
Magistrate Judge recommended granting the defendants’ motion and denying the
plaintiff’s. The plaintiff has filed objections and the defendant has responded. On de
novo review, the Court concludes that the plaintiff’s objections are meritorious in part.
Therefore, the recommendation that the defendants’ motion be granted as to counts 1
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and 3 is not adopted by the Court. The Magistrate Judge’s recommendations are
otherwise accepted.

II. Applicable Standards
This Court makes “a de novo determination of those portions of the report or
specified proposed findings or recommendations to which objection is made and may
accept, reject, or modify, in whole or in part, the findings or recommendations made by
the Magistrate Judge.” Local Rule 72.3(b). The failure by either party to file specific
objections constitutes a waiver of the right to appeal the magistrate's recommendations.
Thomas v. Arn, 474 U.S. 140, 155 (1985); Howard v. Sec'y of Health & Human Servs.,
932 F.2d 505, 508–09 (6th Cir.1991). “The objections must be clear enough to enable
the district court to discern those issues that are dispositive and contentious.” Miller v.
Currie, 50 F.3d 373, 380 (6th Cir.1995). “The filing of vague, general, or conclusory
objections does not meet the requirement of specific objections and is tantamount to a
complete failure to object.” Cole v. Yukins, 7 F. App'x. 354, 356 (6th Cir.2001) (citing
Miller, 50 F.3d at 380).
Summary judgment is warranted "if the pleadings, the discovery and disclosure
materials on file, and any affidavits show that there is no genuine issue as to any
material fact and that the movant is entitled to judgment as a matter of law."
Fed.R.Civ.P. 56(c). "In deciding a motion for summary judgment, this court views the
factual evidence and draws all reasonable inferences in favor of the nonmoving party."
McLean v. 988011 Ontario, Ltd., 224 F.3d 797, 800 (6th Cir. 2000) (citing Northland Ins.
Co. v. Guardsman Prods., Inc., 141 F.3d 612, 616 (6th Cir. 1998)).
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III. Discussion
A. The Defendants’ Motion for Partial Summary Judgment
Counts 1 & 3
The plaintiff’s claims of breach of confidentiality (count 1) and trade secret
misappropriation (count 3) are both premised on the allegation that the defendants
incorporated the plaintiff’s trade secrets and proprietary information into the defendants’
braiding machine. The Magistrate Judge employed the same reasoning in determining
that summary judgment was appropriate as to each claim. Therefore, for present
purposes, Counts 1 and 3 will be addressed together.
Count 1 of the amended complaint specifically alleges that the defendants
breached the licensing agreement by disclosing OMA’s “confidential information and
technology and trade secrets for purposes of the development, manufacture, and
marketing of the OBM Knock-Off Machine.” (Doc. 44, ¶58). Count 3 alleges that the
defendants, being “aware of the confidential and proprietary nature of Plaintiff’s trade
secrets, have misappropriated and unlawfully used Plaintiff’s trade secrets – through
improper means – to design, manufacture, and market the OBM Knock-Off Machine.
(Doc. 44, ¶70).
In discovery, the defendants sought specifics as to the trade secrets and
proprietary information that were improperly disclosed. The plaintiff informed the
defendants that the plaintiff’s
trade secrets and other confidential and proprietary information were
misappropriated and stolen by the Defendants from Plaintiff in their entirety when

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the Defendants decided to copy Plaintiff’s machine and information and then
design, manufacture, and market the OBM Knock -Off Machine.
(Doc. 75, p. 6). The plaintiffs also explained that
OMA considers the entire OMA Type 240 braiding machine itself, as well as its
underlying concepts, designs, developments, engineering, component sizing,
material selection, and every other tangible and intangible element and process
of such machine, proprietary. Furthermore, OMA considers its design strategies,
procedures, machine testing processes, function, and development and
improvements over time proprietary. . . . The entire machine along with each and
every concept, component, and process are considered proprietary.
(Doc. 75, p. 7).
Based on these responses, the defendants concluded that the plaintiff’s claims of
misappropriation and improper use of confidential information are limited to the
defendants having incorporated “the entirety of the technology of the OMA machine into
the OBM 240-H machine.” (Doc. 75, p. 9). The defendants accordingly argued that with
the plaintiff’s claim framed so broadly, summary judgment was appropriate because the
defendants’ evidence showed that the two machines were materially different. The
defendants provided the declaration of Mr. DeYoung which cited a number of specific
differences, such as the configuration of the track systems, the construction of the horn
gears, the type of bearings used, and others. (Doc. 75, passim). Because of these
numerous differences, the defendants argued that no rational jury could conclude that
they misappropriated the OMA machine in its entirety.
The plaintiff responded in opposition but offered no specific evidence to rebut the
existence or materiality of the differences cited by the defendant. Instead, the plaintiff
provided an expert report with the more general conclusion that the defendants’
machine was “definitely a knock-off copy of the OMA braiding machine (Type 240).” The

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plaintiff further offered a document that summarizes the features of the OMA machine
that the plaintiff claims are trade secrets or are confidential and proprietary, both
individually and in combination. (Doc. 65-2). This document, entitled “Summary Listing
of OMA SRL’s Trade Secrets,” compares the components of the OMA machine with
those of the OBM machine, and it indicates that of the components of the OMA machine
that are listed, most are the same as those utilized in the OBM machine. The plaintiff
also claimed that Mr. DeYoung admitted in deposition that he surreptitiously created
OBM, LLC in 2009 without telling OMA, SDC’s minority shareholder. (Doc. 80, p. 6).
The plaintiff also stated that Mr. DeYoung admitted that he had secretly been working
on the so-called “knock-off machine” for years unbeknownst to OMA. (Doc. 80, p. 6).
The Magistrate Judge considered the defendant’s motion on referral and advised
that it be granted as to Counts 1 and 3. The Magistrate Judge’s recommendation was
premised on the view that the plaintiff’s breach of confidentiality and misappropriation
claims were limited to the question whether the defendant had incorporated “the entirety
of the technology of the OMA machine into the OBM 240-H machine.” (Doc. 98, p. 12).
The Magistrate Judge concluded that the defendants met their initial burden on
summary judgment by pointing out that the OBM 240-H machine is different from the
OMA machine in a number of material respects. Because the plaintiff did not provide
evidence that questioned the existence or materiality of the specific differences asserted
by the defendant, the Magistrate Judge concluded that the plaintiff had not met its
burden to show that the material facts are in dispute. Since it was undisputed that the
machines were materially different, the Magistrate Judge concluded that no rational jury
could find that the plaintiff’s trade secrets and confidential information were
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misappropriated in their entirety. The Magistrate Judge accordingly recommended that
summary judgment be granted as to Counts 1 and 3. (See Doc. 98, pp. 15- 25).
The Court respectfully disagrees with this analysis. The analysis operates on the
assumption that the various differences cited by the defendants are material to the
disposition of the plaintiff’s claims. On summary judgment, it is the moving party’s
burden to demonstrate that there is no genuine issue of material fact and that the
movant is entitled to judgment as a matter of law. See Fed. R. Civ. P. 56(c). A fact is
material when it “affect[s] the outcome of the suit under the governing [substantive] law.”
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). In this instance, the
defendants do not reference the substantive law. They only offer the unsupported
conclusion that the differences between the two machines foreclose the need for a trial.
Mr. DeYoung, who built the defendants’ machine, is certainly qualified to point out the
various differences between the two machines, but the materiality of those differences is
a legal question to be answered with reference to the underlying law. The defendants
ask the Court to take them at their word that the differences are material, without
consideration of any guiding legal principle. The Court declines this invitation and
concludes that the defendants have not met their burden on summary judgment.
Further, although the defendants generally take issue with the broadness of the
plaintiff’s claim that its trade secrets and other proprietary and confidential information
were stolen “in their entirety,” the plaintiff’s position is recognized under Ohio law.
Subject to other requirements not relevant here, Ohio law defines a “trade secret” as
“information, including the whole or any portion or phase of any scientific or technical
information, design, process, procedure, formula, pattern, compilation, program, device,
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method, technique, or improvement . . . .” Ohio Rev. Code § 1333.61 (emphasis
added). Moreover, there appears to be some flexibility as to whether a machine “as a
whole” is a trade secret. One Ohio court recognized that a machine “as a whole” may
be unique even though “certain components of the design [are] readily ascertainable.”
Columbus Steel Castings Co. v. Alliance Castings Co., L.L.C., 2011-Ohio-6826 (Ohio
Ct. App. Dec. 30, 2011). A machine may be protected “in its entirety” even though
particular elements of the machine are not protected. In light of this authority and in the
absence of any authority to support the defendants’ position that the differences
between the two machines are dispositive of the plaintiff’s claims, the Court is not
persuaded that the defendants are entitled to judgment as a matter of law.
Furthermore, while the burden technically has not shifted to the plaintiff, the
Court observes that the plaintiff has produced evidence by which a reasonable fact
finder could find for it on this issue. The determination whether information constitutes a
trade secret “is a highly fact-specific inquiry.” DeBoer Structures Inc. v. Shaffer Tent &
Awning Co., 233 F.Supp.2d 934, 948 (S.D. Ohio 2002). In this instance, the defendants
do not dispute that the plaintiff “has trade secret rights in the design, configuration,
materials, and methods of production of the OMA Type 240-H braiding machine.” (Doc.
84, p. 6). The plaintiff provides evidence to show that the defendants did incorporate the
plaintiff’s trade secrets into their machine. The plaintiff's expert, who took
measurements of the dimensions of the internal components of the defendant's braiding
machine using a precision micrometer, opined that the OBM machine is a “knock-off
copy,” and he noted a “close duplication of nearly all the essential internal machine
component nominal dimensions of the OBM machine . . . when compared to the OMA
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machine component dimensions.” The Magistrate Judge correctly observed that this
expert opinion supports the conclusion that the defendants reverse engineered the
plaintiff’s machine. If it were so proven at trial, the act of reverse engineering the
plaintiff’s machine would amount to a violation of the parties’ confidentiality agreement
and/or a misappropriation of trade secrets.
In addition, the plaintiff’s Summary Listing of Trade Secrets provides a detailed
list of purported trade secrets contained in the OMA machine along with their analogues
contained in the defendants’ machine. This also supports the conclusion that the
defendants violated the confidentiality agreement and misappropriated the plaintiff’s
trade secrets.
For these reasons, the Court respectfully declines to accept the Magistrate
Judge’s recommendation as to Counts 1 and 3 of the amended complaint. As to Counts
1 and 3, summary judgment accordingly will be denied.
Count 2
In Count 2 of the Amended Complaint, the plaintiff alleges that the defendants
are in breach of the “Cessation of Use” terms of the Sales Agency Agreement. This part
of the agreement requires that the defendants “cease manufacturing and/or
incorporating into a product manufactured by Simon DeYoung, the track system
manufactured by OMA, or any product that would be considered a development and/or
improvement to said track system.”
The Magistrate Judge concluded that summary judgment was appropriate as to
this claim because the plaintiff failed to provide any evidence that the defendants had
manufactured or incorporated OMA’s track system into a Simon DeYoung product. The
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Magistrate Judge also noted that, according to the defendants, “the 1991 Sales
Agreement terminated in 1996, [ ] OMA began to use a new track system in 1998, and
[ ] the track system used in the OBM machine is completely distinct from the track
system used in the relevant period governed by the Sales Agreement.” (Doc. 98, p. 26).
The plaintiff objects to this recommendation by arguing that there is evidence that the
defendants “contributed to the manufacture of a braiding machine that could easily be
observed to have incorporated confidential information which [the defendants]
specifically acknowledged they received from OMA.”
This objection is overruled. The plaintiff fails to provide any evidence by which a
jury could conclude that the defendants violated the specific provision relating to OMA’s
track system. “Where there is not sufficient evidence for a jury to return a verdict for the
non-moving party, summary judgment should be granted.” Matsushita Electrical
Industrial Co., Ltd. v. Zenith Radio Corporation, 475 U.S. 574, 587 (1986). Summary
judgment accordingly will be granted as to this count.
Counts 4 & 9
The Magistrate Judge recommended granting the defendants’ motion as to
counts 4 and 9, because those claims are preempted by Ohio statute. Because the
plaintiff does not object to this conclusion, the recommendation will be accepted.

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B. The Plaintiff’s Partial Motion for Summary Judgment
The plaintiff moved for partial summary judgment on Counts 3, 5, and 9.1 The
Magistrate Judge recommended denying the motion. The plaintiff objects only with
respect to Count 5, breach of fiduciary duty. The plaintiff argues that as CEO and
majority shareholder of SDC, Mr. DeYoung owed the plaintiff the highest duty of good
faith, loyalty, honesty and fairness. The plaintiff maintains that that duty was breached
when Mr. DeYoung engaged in self-dealing, misuse of corporate resources, stealing
business opportunities, and failing to disclose activities that would adversely affect the
plaintiff’s business, among other things.
To prove breach of fiduciary duty, the plaintiff must demonstrate (1) the existence
of a duty arising from a fiduciary relationship; (2) failure to observe the duty; and (3) an
injury arising proximately therefrom. Evans v. Chambers Funeral Homes, Cuyahoga
App. 89900, 2008-Ohio-3554. A “fiduciary” has been defined as a “person having a
duty, created by his undertaking, to act primarily for the benefit of another in matters
connected with his undertaking.” Strock v. Pressnell (1998), 38 Ohio St. 3d 207. As
noted by the Magistrate Judge, when the party moving for summary judgment would
bear the burden of proof at trial, the movant “must present evidence that would entitle
[it] to a directed verdict if that evidence were not controverted at trial.” (Doc. 98, p. 35).
In making its motion, the plaintiff argued that Mr. DeYoung breached his fiduciary
duty to OMA by establishing OBM, a separate corporation, to manufacture and sell the

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As discussed above, the facts are in dispute in relation to Count 3, and the Court
has accepted the Magistrate Judge's recommendation that Count 9 is preempted
by Ohio law. Therefore, the plaintiff's motion for summary judgment as to each of
these counts is denied.

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“knock off” machines, and providing OBM with SDC’s employees, equipment, and
funding in order to create the “knock off” machine. (Doc. 77, pp. 17-18). The Magistrate
Judge concluded that the facts are in dispute as to whether Mr. DeYoung breached his
duty to the plaintiff, since the defendants provided countervailing evidence that when he
created OBM, Mr. DeYoung was acting in the best interests of SDC and, by extension,
OMA.
In the Court’s view, the Magistrate Judge correctly concluded that the facts are in
dispute on this issue. According to the defendants, the formation of OBM
(a) shielded SDC from potential legal liabilities associated with the operation of
braiding machines; (b) . . . it shielded SDC from potential financial losses should
the new business under OBM not succeed; and (c) it provided SDC with a new
source of revenue from the sale of machine components to OBM should the new
business succeed.
(Doc. 81, p. 7). In support of the third justification, Mr. DeYoung provides evidence that
OBM pays SDC $10,000 for each machine sold in exchange for using SDC’s services.
(Doc. 83, ¶8). Mr. DeYoung also noted that he was motivated to create OBM because
he expected losses in revenue to SDC after the termination of the 2005 license
agreement between OMA and SDC. There is evidence that SDC’s sales revenue from
selling services and components to OBM made up for lost revenue from OMA.
According to SDC’s accountant, SDC’s revenue from OBM rose to nearly $600,000 in
the year 2012. As noted by the defendant, a majority shareholder must act in good faith,
“with a single eye to the best interests of the corporation.” Crosby v. Beam, 47 Ohio St.
3d 105, 109 (1989). Based on the above-cited evidence, a rational jury could conclude
that Mr. DeYoung did so. Therefore, because the facts are disputed on this issue, the

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Court accepts the Magistrate Judge’s recommendation that the plaintiff’s motion for
partial summary judgment be denied.

III. Conclusion
For the reasons stated above, the Magistrate Judge’s recommendations are
accepted in part and rejected in part. The defendants’ motion for partial summary
judgment is granted as to Counts 2, 4, and 9, but is denied as to Counts 1 and 3. The
plaintiff’s motion for partial summary judgment is denied.

IT IS SO ORDERED.
/s/ Lesley Wells
UNITED STATES DISTRICT JUDGE
Date: 14 February 2014

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