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MPC Containment Systems, Ltd. v. Moreland

July 23, 2008

MPC CONTAINMENT SYSTEMS, LTD., AND MPC CONTAINMENT SYSTEMS LLC, PLAINTIFFS,
v.
JOHN E. MORELAND, LAWRENCE MORELAND, AND MORELAND INTERNATIONAL LTD., DEFENDANTS.



The opinion of the court was delivered by: Marvin E. Aspen, District Judge

REDACTED

MEMORANDUM OPINION AND ORDER

Presently before us is John E. Moreland's ("John"), Lawrence Moreland's ("Lawrence"), and Moreland International, Ltd.'s ("MIL") (collectively the "Defendants") Motion for Summary Judgment. Defendants argue that all eight remaining counts of MPC Containment Systems, Ltd.'s and MPC Containment Systems LLC (collectively "MPC") Second Amended Complaint fail as a matter of law. For the reasons set forth below, we grant in part and deny in part their motion.

SUMMARY OF FACTS

This lawsuit involves two corporations, MPC, a Delaware corporation, and MIL, an Illinois corporation. (Def. Facts ¶¶ 1, 2). John began working for MPC in 1979 in a consultant capacity. (John Decl. ¶ 5).*fn1 In 1985, John became an Executive Vice President of MPC. (Pl. Facts ¶ 4).*fn2 John was also the founder and sole shareholder and CEO of MIL. (Def. Facts ¶¶ 2, 3). Lawrence, John's son, also worked at MPC from 1984 to 1997, and afterwards as an independent contractor at various times, including from 2000 to 2005. (Pl. Facts ¶ 10; Pl. Resp. Def. Facts ¶ 23; Def. Facts ¶ 23). In 1998, Lawrence began working at MIL as its sole employee until October 2005. (Pl. Facts ¶¶ 4, 9; Def. Facts ¶ 23).

Among other things, both MPC and MIL manufacture fuel and water flexible storage tanks in sizes up to 200,000 gallons. (Pl. Facts ¶ 2; Def. Facts ¶ 7).*fn3 These tanks are large fabricated bags made from polyurethane and nylon industrial fabric and can be used to hold fuel for vehicles and airplanes in combat regions. (Pl. Facts ¶ 3). This case stems from John's affiliation with both companies, which both supply these tanks to the U.S. Air Force.

In 2000, MPC decided to bid on a five-year Air Force contract for the manufacture of 20,000 ("20K") and 50,000 ("50K") gallon tanks. (Id. ¶ 11). At this time, John had significant responsibility over all aspects of MPC's tank business, including overseeing technical matters. In August 2000, while in the development phase, John hired James Ford ("Ford") as an independent contractor to perform a finite element analysis ("FEA") analysis using his proprietary program to develop the equilibrium shape of the tank and to determine the maximum fabric stress of the tank. (Ford Decl. ¶ 3; Def. Facts Exs. CCC & EEE). In addition, in January 2001, MPC hired Thomas Adduci ("Adduci").*fn4 MPC's final 20K tank design utilized rounded corners, which overcame some of the structural problems associated with square corners. (Reicin Decl. ¶ 9).*fn5 MPC was awarded the contract on February 23, 2001. (Reicin Decl. ¶ 2).

On April 4, 2001, MPC asked Ford to perform additional tests on the 20K tanks, to sign a confidentiality agreement, and to assign all proprietary rights for his work to MPC. (Pl. Facts ¶ 15, Ex. 11; Ford Decl. ¶ 5). Ford refused to sign this agreement, and Reicin told him that he could disregard it. (Def. Facts Ex. KK).*fn6 On May 12, 2001, John instructed Ford to "proceed with detailed pattern drawings for the complete tank assembly." (Pl. Facts ¶ 19). Ford created these patterns, but the parties dispute his role in creating the sizes and shapes that would have to be cut out of the fabric. (Adduci Decl. ¶ 6; Ford. Decl. ¶ 7). In addition, the parties dispute whether Ford's pattern included other elements of the tank design, such as the seaming and seaming allowances, which MPC's claims were corrected by Adduci and John. (Pl. Facts ¶ 21; Adduci Decl. ¶ 7; John 30(b)(6) Dep. at 64; Def. Resp. Pl. Facts ¶ 21).

In 2002, MPC began designing a 200,000 gallon ("200K")*fn7 tank based on its 20K design. (Adduci Decl. ¶ 8). In June 2002, Adduci, with John's guidance, created drawings and elevations of MPC's 200K tank. (Pl. Facts ¶ 24). The designs were based on "derivatives of what Mr. Ford did" for the 20K tank, and Ford is listed as the designer on the panel drawings. (Adduci Dep. at 17-18; Reicin Dep. at 160; Ford Decl. Ex. M). In December 2002, MPC asked Ford to review the fabric stress of this design, and in January 2003, he provided a FEA model, indicating that the 200K corners were derived from the original 20K corners and that MPC should increase the size and number of panels. (Pl. Facts ¶¶ 25, 26, Ex. 22).

In February 2003, MPC filed a patent on its 50K tank design listing John, Ford, and Reicin as joint inventors. (Id. ¶ 27 & Ex. 23). The patent application stated that "tanks of other capacities may be easily fashioned by employing the same end dimensions and adjusting the length of the respective panels." (Def. Facts Ex. I at MIL003040). Ford refused to sign the patent unless either he was listed as the sole inventor or the patent rights of each inventor were limited to that person's specific contribution. (Ford Decl. ¶ 11). However, MPC then filed a modified patent application on November 20, 2003, which listed only Reicin and John as inventors. (Def. Facts Ex. I). This patent issued on May 8, 2007. (Id.).

In September 2003, John began working from his home office in Crete, Illinois, with MPC's approval.*fn8 (Pl. Resp. Def. Facts ¶ 19). However, John still came to MPC's Chicago and Michigan facilities for various meetings. (Reicin Decl. ¶ 21). Also, while John maintained customer files on his home computer, he would receive additional materials and information from MPC via email, telephone, and hard copy. (Pl. Resp. Def. Facts ¶ 21; Berman Dep. at 152-54). John claims that he could not access MPC's computer system remotely from his home office, but Reicin testified that even though John worked from home, he "had full and unrestricted access to all of MPC's computer systems, including any passwords he may have needed to access MPC's network." (Reicin Decl. ¶ 4).

In October 2003, MPC learned that the Air Force*fn9 was soliciting bids for 200K tanks. (Pl. Facts ¶ 28). MPC sent John and another employee to attend the 2003 Defense Energy Supply Center trade show in San Antonio, Texas to meet with military buyers. (Id.). There, John met Chief Joseph Mangum ("Mangum"), an Air Force representative involved in the selection of a tank provider, and John told Mangum that he was working as a consultant for MPC. (Id. ¶¶ 28, 29; Mangum Dep. at 128). In addition, John spoke with Colonel Vance of the U.S. Army about the military's problems with leaky tanks and fittings. (John 30(b)(6) Dep. at 87). Lawrence also met Mangum at this trade show. (Def. Facts Ex. XX at 47, 51; Mangum Dep. at 15).

On November 4, 2003, John emailed Ford indicating that MIL had been asked to submit a cost proposal to the Air Force for a 200K tank and asking Ford to review the cost and time it would take MIL to develop a new corner pattern. (Pl. Facts Ex. 24; Def. Facts ¶ 27). John explained that a new corner pattern was needed to "overcome potential downstream harassment obstacles," but also indicated that if Ford owned the 20K corner design, then he should just "review [that 20K] corner design to work with wider fabric." (Id.). Ultimately, MIL turned down the offer to supply 20 200K tanks to the Air Force because it did not have the facilities to build the tanks and a larger order would have been required to cover the start up costs. (Def. Facts ¶ 27; Lawrence Dep. at 46-47; John 30(b)(6) Dep. at 232).

The Air Force ended up awarding this contract for 20 200K tanks to MPC in early 2004, which eventually evolved into a contract for 80 tanks. (Pl. Facts ¶¶ 33, 34).*fn10 MIL supplied MPC with the hardware for these 80 200K tanks. (Id. ¶ 33; Pl. Resp. Def. Facts ¶ 30).

MPC leased a large indoor golfing facility in Kalamazoo, Michigan in late 2004 for the manufacturing and testing of these tanks. (Id. ¶ 38). MPC hired Lawrence to run the Kalamazoo facility as an independent contractor.*fn11 (Id. ¶ 39; Def. Resp. Pl. Facts ¶ 41). By September 20, 2004, MPC had manufactured its first 200K tank and invited Air Force representatives, including Peter Huber ("Huber"), to view the testing. (Pl. Facts ¶ 40 & Ex. 31). Huber's report and testimony indicate that he believed that MPC was "subcontracting Moreland Internationals, or the services of John and Lawrence" and that John had retired from MPC. (Id. Ex. ¶ 31; Huber Dep. at 51). However, he also testified that he believed that the facility and testing was being "subcontracted by [MIL] through MPC." (Huber Dep. at 53). In his report, Huber credited John and Lawrence for "many of the new ideas" and innovations of the design. (Pl. Facts Ex. 31).

MPC shipped 24 200K tanks to the Air Force from September 28 through October 30, 2004. (Id. ¶ 43). However, after MPC had shipped about 40 tanks, some tanks began to leak, and shipments were stopped in order to correct these problems. (Def. Facts ¶ 33; Pl. Resp. Def. Facts ¶ 33). Even with these issues, Mangum testified that MPC's fuel bladders were "head and shoulders better than the current bladders we had in the field." (Mangum Dep. at 59).

In December 2004, MPC put together a team of specialists to develop solutions to the leakage problems, which included John, Lawrence, George Fay, and Hector Hernandez ("Hernandez"). (Pl. Facts Ex. 35 at MIL-001941). From January through May 2005, additional testing and improvements were made to MPC's tanks. (Pl. Facts ¶¶ 46-49).*fn12

In August 2005, the Air Force received emergency funding to purchase additional 200K tanks and had until September 30, 2005 to allocate this funding. (Id. ¶ 56). Mangum was directed to buy fuel bladders from "two or more manufacturers," and thus "no one company was going to get the entire order." (Mangum Dep. at 71, 152). The Air Force approached at least four different manufacturers, including MIL, MPC, GTA, and Dunlop, regarding this order. (Id. at 68, 90).

The Air Force ultimately received bids from at least three companies: MIL, MPC, and Dunlop. (Mangum Dep. at 90; Shrum Dep. at 42). Despite multiple bidders, MPC claims that only it and MIL were able to fulfill this contract because of the other bidders' issues, such as with the contract warranty provision. However, Mangum testified that two other manufacturers, GTA and AM Fuel, were "not ruled out," and that if MIL had not been able to supply tanks those orders would not have gone to MPC. (Pl. Facts ¶ 56; Mangum Dep. at 72, 92).

John and Mangum discussed the potential for MIL to manufacture these 200K tanks, and on August 22, 2005, MIL bid for the contract. (Pl. Facts ¶¶ 58, 59). MIL's price was higher than MPC's 2004 price, and included additional money for the first tank to help pay for MIL's start up costs. (Def. Facts ¶ 49; Shrum Dep. at 56). As of September 28, 2005, Mangum had chosen MIL to supply 64 tanks, but John had not informed MPC that MIL was pursuing this contract. (Pl. Facts ¶¶ 60, 61). On October 6, 2005, the Air Force ordered an additional 36 tanks from MIL. (Def. Facts ¶ 54).

MPC began negotiating for this contract in August 2005 and submitted a bid on September 28, 2005. (Reicin Decl. ¶ 24; Pl. Facts ¶ 62). John contributed to these negotiations on behalf of MPC. (Id. ¶ 5; John Dep. at 161). During this time, however, he did not mention that he was working on a proposal for MIL to supply the Air Force with 200K tanks. (Id. at 162). After negotiations regarding the warranty provisions, MPC received purchase orders for 52 tanks in November 2005. (Pl. Facts ¶ 67; Def. Facts Ex. III). John resigned from MPC, effective October 1, 2005, and Lawrence stopped working with MPC in the Kalamazoo facility in mid-September 2005. (Lawrence Decl. ¶ 14).

On October 3, 2005, John sent an email to Ford discussing corner pattern details, attaching photographs of competitors' tanks, and stating that "Larry feels that using this corner pattern approch [sic], should be enough of a difference to illustrate that it is a new corner detail for MIL that is esthetically pleasing to the eye as well as being extremely functional." (Pl. Facts Ex. 50). MPC claims that this email is evidence that MIL's corner design derived from MPC's design. (Id. ¶ 71). On October 8, 2005, John sent Ford drawings for MIL's 200K tank, which MPC claims are similar to MPC's drawings. (Id. ¶ 72; Def. Resp. Pl. Facts ¶ 72).

On November 22, 2005, John emailed Ford and discussed having a dinner to "talk about corner geometry options and a defense plan." (Pl. Facts Ex. 52). In response to Ford's questions regarding John's design, John referenced Ford's 20K tanks and stated that his "objective is it to have a slightly different corner pattern and avoid conflict of being accused of having made a direct copy of someone else's corner design." (Id. Ex. 53 at MIL-233). He also asked Ford whether one of his suggestions was "enough of a change to say that we did not do an exact corner copy" and attached drawings of Ford's prior corner design for MPC. (Id. ¶ 76 & Ex. 53 at MIL-233). MIL denies that it used John's options from this correspondence and claims that Ford actually designed an entirely new corner design. (Def. Resp. Pl. Facts ¶ 77; Def. Facts ¶ 13). MPC claims that any changes Ford made were "only cosmetic . . . to create the impression that they were designing the Moreland tank afresh." (Pl. Resp. Def. Facts ¶ 13).

After filing this case on December 9, 2005, MPC filed an amended complaint on June 19, 2006, alleging: (1) copyright infringement of MPC's drawing "Soft Shell Tank - Access Manway & Gauge Port" ("Count I"); (2) copyright infringement of MPC's drawing "Soft Shell Tank - Access Manway Discharge Assembly" ("Count II"); violation of the Lanham Act, 16 U.S.C. § 1125(a) ("Count III"); (4) violation of the Computer Fraud and Abuse Act ("CFAA"), 18 U.S.C. § 1030 ("Count IV"); (5) violation of Illinois Uniform Deceptive Trade Practices Act ("UDTPA"), 815 ILCS 510/2; (6) violation of the Illinois Trade Secrets Act ("ITSA"), 765 ILCS 1065/1 ("Count VI"); (7) breach of fiduciary duty ("Count VII"); and (8) tortious interference with prospective economic advantage ("Count VIII"). On August 10, 2006, we granted Defendants' motion to dismiss Count III. On January 2, 2008, MPC filed a second amended complaint, and on April 17, 2008, we granted in part and denied in part MPC's motion to strike Defendants' affirmative defenses.

STANDARD OF REVIEW

Summary judgment is proper when "there is no genuine issue as to any material fact and the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56. A genuine issue for trial exists when "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510 (1986). This standard places the initial burden on the moving party to identify "those portions of the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, which it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2553 (1986) (internal quotations omitted).

Once the moving party meets this burden of production, the nonmoving party "may not rest upon the mere allegations or denials of the adverse party's pleading" but rather "must set forth specific facts showing that there is a genuine issue [of material fact] for trial." Fed. R. Civ. P. 56(e). In deciding whether summary judgment is appropriate, we must accept the nonmoving party's evidence as true and draw all inferences in that party's favor. See Anderson,477 U.S. at 255.

ANALYSIS

Defendants argue that they are entitled to summary judgment on all remaining eight counts. We address each count below.

I. Trade Secret Misappropriation (Count VI)

In order to prove misappropriation of trade secrets under ITSA, a plaintiff must demonstrate three factors: "that the information at issue was a trade secret, that it was misappropriated, and that it was used in the defendant's business." Learning Curve Toys, Inc. v. Playwood Toys, Inc., 342 F.3d 714, 721 (7th Cir. 2003). Defendants argue that MPC has failed to show that: (1) the information at ...


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