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HEXACOMB CORP. v. GTW ENTERPRISES

October 28, 1993

HEXACOMB CORPORATON, Plaintiff,
v.
GTW ENTERPRISES, INC. and GEORGE T. WROBLEWSKI, SR., Defendants.



The opinion of the court was delivered by: WAYNE R. ANDERSEN

 This matter has come for hearing before the Court, Honorable Wayne R. Andersen, District Judge, presiding, upon the motion of Plaintiff, Hexacomb Corporation, for a Preliminary Injunction. In its motion and supporting and related memoranda, Hexacomb complained that the Defendants GTW Enterprises, Inc. ("GTW") and George T. Wroblewski, Sr. ("George Sr."), misappropriated Hexacomb's trade secrets in Hexacomb's continuous-feed CHS machines and breached their fiduciary obligations to Hexacomb. Further, Hexacomb contends that unless a preliminary injunction issues, it will suffer permanent and irreparable damage for which it has no adequate remedy at law. The following order constitutes this Court's findings of facts and conclusions of law pursuant to Rule 52(b) of the Federal Rules of Civil Procedure and this Court's reasons pursuant to Rule 65 of the Federal Rules of Civil Procedure. The Court held a hearing from July 26, 1993 to August 12, 1993 and heard the testimony of ten witnesses and reviewed the submissions and exhibits of the parties. The Court also considered the supplemental submissions and deposition of George Sr. taken after his employment agreements were located as a result of a diligent search. The issues having been duly heard and a decision having been duly rendered, the Court makes the following findings of fact and conclusions of law:

 I. FACTUAL BACKGROUND

 Hexacomb Corporation and its predecessors in interest (collectively referred to as "Hexacomb") have been engaged in the design, manufacture and sale of honeycomb paper products for use in packaging, material handling, and structural applications. One of the honeycomb packaging products manufactured by Hexacomb is a double-faced sandwich panel made of a paper honeycomb core and upper and lower facing sheets. (Hearing, pp. 17-20). The paper honeycomb core is made on a continuous-feed CHS machine designed and manufactured by Hexacomb which allows for the uninterrupted production of a continuous sheet of core material. (Hearing, pp. 28-30).

 The continuous-feed CHS machine is a large and complicated machine which is seventy to eighty feet long, about twelve feet tall, and ten feet across. It uses six rolls of paper that are five feet long and about three feet in diameter. (Hearing, p. 32). The only part known to the public and to customers of Hexacomb, the finished product, gives no clue as to how the CHS machine is designed or works. (Hearing, pp. 85-90).

 The Defendants have not shown that any other party has a continuous-feed CHS machine. The various features of Hexacomb's CHS machine allow Hexacomb to produce core material at a rate at least five times faster than any existing machines and twice as fast as the proposed modernized machine which Mr. Burgess, one of Defendants' witnesses, said he was prepared to manufacture. The resulting core, being continuous, avoids the problems of non-continuous core such as sold by some of Hexacomb's competitors. (Hearing, pp. 30-31). Hexacomb has expended at least approximately $ 4 million and over ten years to design, engineer and manufacture its CHS machines. (Hearing, pp. 164, 218). Each Hexacomb CHS machine produces about 7 to 8 million dollars of core per year. (Hearing, p. 205).

 From 1972 to May 7, 1992, George T.W. Wroblewski, Sr. ("George Sr.") was employed by Hexacomb and its predecessor companies. In 1972, George Sr. joined Celadyn Corporation ("Celadyn"), formerly Lancaster Research & Development Corporation ("Lancaster"), as a maintenance supervisor at its Michigan City, Indiana plant. At the time George Sr. joined Lancaster, it had already been purchased by Bell Fibre Products Corporation ("Bell Fibre") and its name was being changed from Lancaster to Celadyn Corporation. (Wroblewski Dep., pp. 134-135, Exh. 135; Luera Decl., P4).

 The Court finds that Exhibit QQ is the Employee Confidential Information and Invention Agreement signed by George Sr. on July 24, 1972 with Lancaster Research and Development. George Sr. admitted that the signature on the employment application and Exhibit QQ "looks like" his signature and that he has no reason to believe that the signature is not his. He also said that the date, July 21, 1972, is about the time he started working for Lancaster/Celadyn. (Wroblewski Dep., pp. 246-249, 256). The date is the same on the letter confirming Bell Fibre's offer and George Sr.'s acceptance of employment. (Wroblewski Dep., Exh. 135). Because Exhibit QQ was signed at the same time as George Sr. began his employment, there is no question of adequate consideration. In exchange for signing, George Sr. was given the job.

 In September 1976, Bell sold Lancaster/Celadyn to Hexcel and the Michigan City plant was then run by Hexcel. George Sr. "had the same job" as maintenance supervisor and the same responsibilities as he had with Lancaster/Celadyn. In fact, George Sr. does not remember any change in his job. (Wroblewski Dep., pp. 252, 255, 257, 265-266). George Sr. got the same benefits and kept his seniority as part of the acquisition. (Wroblewski Dep., pp. 265-266). The Court finds that Exhibit SS is the Hexcel employee confidentiality agreement signed by George Sr. on September 1, 1976. The first paragraph of that Agreement specifically states that it applied not only to Hexcel but also "to its successors and assigns . . ."

 George Sr. again admitted that the signature on Exhibit SS "looks like" his. (Wroblewski Dep., pp. 255-258). The date, September 1, 1976, is the same as that on George Sr.'s Hexcel employment application. (Wroblewski Dep., Exh. 133, Doc. No. 100389). Thus, there was adequate consideration because George Sr. continued his employment with Hexcel for three and a half years.

 George Sr. kept the same job with the same responsibilities as he had with Hexcel. (Wroblewski Dep., pp. 261, 268-269). George Sr. did not even fill out an employment application with Hexacomb and in his words: "I think it just automatically became the same job." (Wroblewski Dep., p. 269). He again kept his seniority after the acquisition. (Wroblewski Dep., p. 267). Once again, the whole plant was acquired and everyone kept their jobs--only the paychecks came from a different source. (Wroblewski Dep., p. 259).

 After Hexacomb acquired the Michigan City plant, George Sr. began work on improving the CHS machines for Hexacomb. (Wroblewski Dep., pp. 270-274). In February 1982, Hexacomb's Michigan City plant was closed and its operations consolidated into Hexacomb's existing operations at its University Park, Illinois plant. All of the Michigan City employees including George Sr. were offered positions at University Park. (Wroblewski Dep., p. 277). George Sr., however, did not at first accept the offer of employment because he did not want to make the long trip to University Park. (Wroblewski Decl., p. 276).

 George Sr. returned to Hexacomb in December 1982, eight months later. George Sr. again had the same position of maintenance supervisor including the same duties and responsibilities. (Wroblewski Dep., pp. 278-279). This Court finds that George Sr.'s substantially continuous employment by Hexacomb and its predecessors-in-interest entitle Hexacomb to enforce the employment agreements of Exhibits QQ, RR, and SS against George Sr.

 In December, 1992, International Honeycomb, as it was then known, changed its name to Hexacomb Corporation, the named Plaintiff. Prior to his employment with Hexacomb and its predecessors in interest, George Sr. had no knowledge or experience with honeycomb paper products or the machines used to make such products. (TRO Hearing, pp. 78-79; Hearing, p. 361-363).

 As the maintenance supervisor and machine builder for Hexacomb, George Sr. was responsible for: (a) ensuring that the machines were kept in working order, (b) repairing the machines if broken, and (c) designing and building various machines including CHS machines. He was the custodian of all the drawings and sketches relating to the design, manufacture and operation of Hexacomb's machines including the CHS machines.

 There was evidence of various security measures taken by Hexacomb to keep its CHS machines confidential. These included the employee handbook received by all employees, including George Sr., which outlined Hexacomb's policy regarding visitors and cameras. (Hearing, pp. 350-351; Exhibit J). Hexacomb also sent out memos regarding confidentiality including a May 8, 1991 memo pertaining to the need to maintain product and process confidentiality during plant tours by visitors which George Sr. admitted he received and read. (Exhibits D and E; Hearing pp. 355-357, 660-661). Hexacomb's policy requiring visitors to sign a pass and agree to maintain in confidence all confidential and proprietary information divulged or exposed during the visit was sporadically enforced but did not result in outsiders learning how the CHS machines worked.

 As a security measure, a full set of drawings of the CHS machines were not prepared so they could not fall into the wrong hands. (Hearing pp. 109-110). There was evidence also presented by both Manuel Luera and Reuben Carder that they had conversations with George Sr. regarding the confidentiality of Hexacomb's continuous-feed CHS machines and that Mr. Carder testified that George Sr. instructed him to cover up CHS machines so that they could not be seen by visitors. (Hearing, pp. 409, 644-645, 659-662). On occasion, barriers have also been placed around the CHS machines to prevent visitors from viewing them. (Hearing, pp. 644-645, 658-660, and 669).

 On April 28, 1992, George Sr. submitted his resignation and on May 5 and 7, 1992, William Renick, Hexacomb's vice president of operations, conducted two exit interviews with George Sr. In the exit interviews, Mr. Renick warned George Sr. that Hexacomb did not want him to manufacture CHS machines for anyone without Hexacomb's explicit authorization since he had learned about the CHS machines while employed by Hexacomb and the CHS machines were proprietary to Hexacomb. George Sr. admits that he received such a warning. (Hearing, pp. 368, 394-395). George Sr. also admitted that he learned all he knows about CHS machines as a result of his employment with Hexacomb. (TRO Hearing, pp. 78-79; Hearing, pp. 361-363).

 In January, 1993, Mr. Renick and James Siegel of Hexacomb met with George Sr. to again warn him of the confidential nature of the CHS machines and not to make CHS machines. (Hearing, pp. 394-395). Notwithstanding Hexacomb's repeated warnings, the Defendants built a CHS machine which they sold and shipped in May, 1993 to Damage Prevention Products, Inc. ("Damage Prevention"), a company located in California. A second CHS machine was built for American Honeycomb Corporation ("American Honeycomb"). American Honeycomb is a newly formed company which included former Hexacomb employees, Rick Gillette and David McCarthy.

 II. A PRELIMINARY INJUNCTION IS WARRANTED TO HALT DEFENDANTS' MISAPPROPRIATION OF HEXACOMB'S CHS MACHINE AND TO PROTECT HEXACOMB'S TRADE SECRETS

 This Court has personal jurisdiction over the parties and jurisdiction over this action pursuant to 28 U.S.C. Section 1332(a). Venue is proper in this District. Hexacomb is entitled to a preliminary injunction if it can demonstrate that: 1) there is "some" likelihood of success on the merits; 2) there is no adequate remedy at law and irreparable harm; 3) the balance of hardships weighs in Hexacomb's favor; and 4) issuance of the ...


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