Opinion
CIVIL ACTION No. 98-2031-KHV
February 2, 2004
ORDER
On February 12, 1999, a jury awarded plaintiffs $155,236.00 in compensatory damages. That same day, the Court entered judgment in accordance with the jury verdict. On March 1, 1999, plaintiffs filed a motion for injunctive relief and their initial motion for attorney fees and exemplary damages. On April 30, 1999, the Court ordered a new trial and overruled as moot plaintiffs' motion for exemplary damages and attorney fees and their motion for injunctive relief. See Courtroom Minute Sheet (Doc. #614). At a new trial, the Court did not grant affirmative relief for any party. The parties appealed. On December 1, 2003, the Tenth Circuit remanded the case with instructions to reinstate the original jury verdict in favor of plaintiffs and to consider whether plaintiffs are entitled to injunctive relief. See Order And Judgment (Doc. #715); Biocore v. Khosrowshahi, 80 Fed. Appx. 619 (10th Cir. 2003). On December 16, 2003, the Court overruled plaintiff's request for injunctive relief. This matter is before the Court on Plaintiffs' [Renewed] Motion For Attorneys' Fees And Exemplary Damages (Doc. #717) filed December 15, 2003. For reasons stated below, plaintiffs' motion is sustained.
I. Defendant's Procedural Objections
Defendant argues that plaintiffs' request for exemplary damages and attorney fees should be overruled because (1) plaintiffs did not include those claims in the pretrial order, (2) the motion for attorney fees is untimely under Rule 54.2, Fed.R.Civ.P, and (3) the requests are beyond the scope of the Tenth Circuit mandate.
A. Waiver Of Claim For Exemplary Damages And Attorney Fees
Defendant argues that because the pretrial order did not specifically include plaintiffs' claim for exemplary damages and attorney fees, they are barred from seeking such relief at this time. Defendant concedes that in the initial and amended complaints, plaintiffs included claims for exemplary damages and attorney fees under the Kansas Uniform Trade Secrets Act ("KUTSA"). Although the pretrial order did not specifically include such claims, plaintiffs' factual contentions and legal theories included their claim that defendant violated state trade secret laws by misappropriating plaintiffs' trade secrets and that such conduct was "willful, wanton and malicious." Pretrial Order (Doc. #421) filed November 9, 1998 at 7. Liberally construing plaintiffs' factual contentions and legal theories, as outlined in the pretrial order, the Court finds that the pretrial order fairly includes plaintiffs' claim for exemplary damages and attorney fees under the KUTSA. See K.S.A. § 60-3322(b) (exemplary damages require finding of willful and malicious misappropriation); K.S.A. § 60-3323 (attorney fee award requires finding of willful and malicious misappropriation).
See K.S.A. § 60-3322(b) (exemplary damages); K.S.A. § 60-3323 (attorney fees).
Even if the Court did not so read the pretrial order, it would treat the pretrial order as being so amended because defendant did not object to trial of those claims. See Fed.R.Civ.P. 15(b) (when issues not raised by pleadings are tried by express or implied consent, they shall be treated as if they had been raised in pleadings); see also Koch v. Koch Indus., Inc., 203 F.3d 1202, 1235 (10th Cir. 2000) (implied consent where party introduces evidence on new issue or fails to object when other party introduces such evidence). Also, defendant did not object to the instructions or verdict questions which addressed whether defendant's conduct was willful and malicious. See Supplemental Transcript Of Trial (Doc. #680) at 575; see also Instructions to The Jury, No. 13 (plaintiffs claim defendant acted willfully and maliciously in disclosing information); Instruction No. 19 (if you find defendant liable, you must determine whether misappropriation was willful and malicious); Verdict (Doc. #574), Part A, Question 2 (do you find that defendant acted willfully and maliciously?); Supplemental Transcript Of Trial (Doc. #680) at 577 (explaining that purpose of instruction on willfulness and malice is to determine whether plaintiffs are entitled to exemplary damages under KUTSA). Finally, plaintiffs note that in closing argument, defense counsel informed the jury that a finding of willful and malicious misappropriation would allow plaintiffs to recover attorney fees and exemplary damages. In sum, defendant gave implied consent to the trial of the issues of exemplary damages and attorney fees. Accordingly, the Court treats the pretrial order as including such claims.See Fed.R.Civ.P. 15(b).
Inhis initial written objections to plaintiffs' proposed jury instructions, defendant did object that the pretrial order did not include a claim for exemplary damages. See Defendant Khosrowshahi's Objections To Plaintiffs' Proposed Jury Instructions (Doc. #539) filed January 21, 1999 at 6. At the instruction conference, however, defendant did not re-assert that objection. Also, defendant never objected to plaintiffs' claim for attorney fees on that ground.
The parties have not provided a transcript of closing arguments, but the Court generally agrees with plaintiffs' representation of what defense counsel stated in closing argument on the issue of willful and malicious misappropriation.
B. Compliance With Fed.R.Civ.P. 54
Defendant argues that plaintiffs' motionfor attorney fees was not timely preserved under Rule 54.2, Fed.R.Civ.P. Rule 54(d)(2)(B) provides that unless otherwise provided by statute or court order, a motion for attorney fees must be filed no later than 14 days after entry of judgment.
On February 12, 1999, the Court entered judgment in accordance with the jury verdict. On March 1, 1999, plaintiffs filed their initialmotion for attorney fees. Defendant contends that the motion was untimely because it was filed more than 14 days after the Court entered judgment. Defendant ignores the fact that he filed a motion for new trial and a motion for judgment as a matter of law. If a party files a post-judgment motion under Rule 50(b), 52(b) or 59, the 14-day deadline to file a motion for attorney fees does not begin to run until all suchmotions are resolved. 10 Moore's Federal Practice 3d § 54.151 [1] at 54-212 (3d ed. 2002); see Wevant v. Okst, 198 F.3d 311, 314-15 (2d Cir. 1999). Because the Court had not resolved defendant's post-trial motions as of March 1, 1999, plaintiffs' initial motion for attorney fees was timely.
In the alternative, defendant argues that plaintiffs' renewed motion for attorney fees — which they filed on December 15, 2003 — is untimely because it was filed more than a month after the Tenth Circuit issued its mandate in this case. The Court disagrees. Although the Tenth Circuit issued its decision on November 4, 2003, the mandate was not filed in this Court until December 1, 2003, exactly 14 days before plaintiffs filed their motion for attorney fees. In addition, because this Court has not yet entered judgment, the 14-day period to file a motion for attorney fees has not commenced.
C. Tenth Circuit Mandate
Defendant argues that plaintiffs' motion for exemplary damages and attorney fees is beyond the scope of the Tenth Circuit mandate. As stated above, on February 12, 1999, the Court entered judgment in accordance with the jury verdict. On March 1, 1999, plaintiffs filed their initial motion for exemplary damages and attorney fees. That same day, plaintiffs also filed a motion for injunctive relief. On April 30, 1999, the Court ordered a new trial and overruled as moot plaintiffs' motion for exemplary damages and attorney fees and their motion for injunctive relief. See Courtroom Minute Sheet (Doc. #614). After the Court ruled in favor of defendant on plaintiffs' KUTSA claim, the parties appealed.
The Tenth Circuit remanded this case with instructions to reinstate the original jury verdict in favor of plaintiffs and to consider whether plaintiffs are entitled to injunctive relief. See Order And Judgment (Doc. #715) filed December 1, 2003. As to plaintiffs' request for injunctive relief, the Tenth Circuit stated:
Biocore applied for injunctive relief in the district court to restrain the use or disclosure of Biocore's trade secrets, inter alia, III Aple. App. 1099-1103. The district court denied Biocore's motion for injunctive relief at the close of the first trial because it had granted a new trial on the question of whether Khosrowshahi had appropriated any of Biocore's trade secrets, II Aple. App. 411 (minute sheet denying injunctive relief as moot). Nor did the district court address the propriety of injunctive relief at the close of the second trial because there it found that Khosrowshahi had not appropriated any of Biocore's trade secrets. For the reasons detailed above, we reverse the grant of a new trial and direct that the district court reinstate the jury's verdict in favor of Biocore for $155,236.00. Consequently, the propriety of injunctive relief is no longer moot and should be considered by the district court on remand.Biocore, 80 Fed. Appx. 619, 630-31 (10th Cir. 2003). On appeal, plaintiffs' counsel apparently argued that this Court should have considered not only their request for injunctive relief but also their request for exemplary damages and attorney fees. See Defendant Khosrowshahi's Response And Supplementation In Opposition To Plaintiff's Renewed Motion For Attorneys Fees And Exemplary Damages (Doc. #720) filed December 30, 2003 at 4. The Tenth Circuit mandate, however, does not address whether this Court should consider plaintiffs' request for exemplary damages and attorney fees on remand.
The "mandate rule" requires a district court to strictly comply with the mandate rendered by the reviewing court. See Ute Indian Tribe of the Uintah Ouray Reservation v. State of Utah, 114 F.3d 1513, 1520-21 (10th Cir. 1997). cert. denied, 522 U.S. 1107 (1998). A deviation requires "exceptional circumstances," including (1) a dramatic change in controlling legal authority; (2) significant new evidence that was not earlier obtainable through due diligence but has since come to light; or (3) blatant error from the prior decision which would result in serious injustice if uncorrected. Grigsby v. Barnhart, 294 F.3d 1215, 1219 (10th Cir. 2002) (quotation and citation omitted).
"The trial court must implement both the letter and the spirit of the mandate, taking into account the appellate court's opinion and the circumstances it embraces." United States v. Moored, 38 F.3d 1419, 1421 (6th Cir. 1994) (cited in United States v. Kissick, 99 F.3d 1151, 1996 WL 603267, at *3 (10th Cir. Oct. 22, 1996)). The trial court "may consider those issues not decided expressly or impliedly by the appellate court or a previous trial court." Jones v. Lewis, 957 F.2d 260, 262 (6th Cir. 1992); Perkins v. Std. Oil Co. of Calif., 399 U.S. 222, 223 (1970) (mandate's failure to make explicit mention of attorney fees leaves matter open for consideration by district court). In determining "the letter and the spirit" of the mandate, the Court also considers whether the remand was of a general or limited nature:
[R]emands . . . can be either general or limited in scope. Limited remands explicitly outline the issues to be addressed by the District Court and create a narrow framework within which the District Court must operate. . . . General remands, in contrast, give the District Court authority to address all matters as long as remaining consistent with the remand.Allard Enters., Inc. v. Advanced Programming Res., Inc., 249 F.3d 564, 570 (6th Cir. 2001) (quotation and citation omitted)
Because this Court overruled plaintiffs' request for exemplary damages and attorney fees for the same reason as it overruled their request for injunctive relief (i.e. the issues were moot based on the new trial) and absent specific direction by the Tenth Circuit, the Court is compelled to address on the merits plaintiffs' motion for exemplary damages and attorney fees. Although the Tenth Circuit mandate is a "limited" remand, the Court interprets the entire mandate as a direction to reinstate the jury verdict and decide any requests which were pending at the time the Court granted a new trial — provided that those requests are consistent with the jury verdict. To date, neither this Court nor the Tenth Circuit has explicitly ruled on plaintiff's request for exemplary damages and attorney fees. To summarily deny the request as beyond the scope of the Tenth Circuit mandate would not be in the interest of justice and would be inconsistent with the spirit of the mandate. See United States v. Moore, 83 F.3d 1231, 1234 (10th Cir. 1996) (mandate rule is discretion-guiding rule subject to exception in interests of justice). Plaintiffs timely requested such relief and but for this Court's regrettable error in granting a new trial, it would have determined on the merits whether such relief was appropriate. For these reasons, the Court will consider the merits of plaintiffs' renewed motion for exemplary damages and attorney fees.
II. Exemplary Damages
Under the KUTSA, the Court may award exemplary damages upon a showing of willful and malicious misappropriation. See K.S.A. § 60-3322(b). The award of such damages is discretionary. The KUTSA provision is based on Section 3 of the Uniform Trade Secrets Act ("UTSA"). See Uniform Laws Annotated, Uniform Trade Secrets Act § 3. The commentary to Section 3 of the UTSA provides that the discretionary approach is based on the procedure used in federal patent law. See id., Comment (citing 35 U.S.C. § 284).
Under federal patent law, like the UTSA, the Court has discretion to award exemplary damages upon a showing of willful infringement. See Applied Med. Res., Corp. v. U.S. Surgical Corp., 967 F. Supp. 861, 863 (E.D. Va. 1997). Where a jury has already found willful infringement, however, that discretion is limited. See id. In such circumstances, a court may refuse to enhance damages only if it can do so without second guessing the jury or contradicting its findings. See id.; see also Jurgens v. CBK, Ltd., 80 F.3d 1566, 1572 (Fed. Cir. 1996).
In determining the amount of enhanced damages, the Court attempts to gauge in a qualitative fashion the egregiousness of the defendant's conduct. See Applied Med., 967 F. Supp. at 863. Courts generally consider the following factors:
(1) whether the infringer deliberately copied the ideas or design of another;
(2) whether the infringer, when he knew of the other's patent protection, investigated the scope of the patent and formed a good-faith belief that it was invalid or that it was not infringed;
(3) the infringer's behavior as a party to the litigation;
(4) defendant's size and financial condition;
(5) closeness of the case;
(6) duration of defendant's misconduct;
(7) remedial action by the defendant;
(8) defendant's motivation for harm; and
(9) whether defendant attempted to conceal its misconduct.Read Corp. v. Portec. Inc., 970 F.2d 816, 827 (Fed. Cir. 1992).
In this case, a jury found by clear and convincing evidence that defendant's misappropriation of trade secrets was both "willful and malicious." Verdict (Doc. #574), Part A, Question 2. Based on the jury verdict, the Court finds that exemplary damages are appropriate.
Although the Court has discretion to award exemplary damages up to two times the amount of compensatory damages, the Court finds that an award of $10,000.00 satisfies the purposes of the statutory provision. Several of the above factors weigh in favor of a high exemplary damage award, but other factors suggest that a much lower award is appropriate. First, although the jury found willfulness and malice by clear and convincing evidence, the issue was a close call. See Read, 970 F.2d at 827; Modine Mfg. Co. v. Alien Group. Inc., 917 F.2d 538, 543 (Fed. Cir. 1990) (award of zero enhanced damages upheld because willfulness issue was "sufficiently close onthe evidence" despite jury verdict that willful infringement had been shown by "clear and convincing evidence"),cert. denied, 500 U.S. 918(1991); Mercexchange, L.L.C. v. eBay. Inc., 275 F. Supp.2d 695, 720 (E.D. Va. 2003) (same). Indeed, as the parties are aware, the Court would have found in favor of defendant on this issue. See Biocore, Inc. v. Khosrowshahi, 96 F. Supp.2d 1221 (D. Kan. 1999). Second, Integra (defendant's employer) never made a bovine collagen product; it only considered such a product for a short period of time and dropped the project before trial commenced in this case. See Read, 970 F.2d at 827. Third, other than his normal salary from Integra, defendant did not receive any profits from the trade secret violation. See id. Finally, the limited evidence at trial as to defendant's financial condition suggests that defendant does not have a substantial net worth. See id.; Va. Panel Corp. v. MAC Panel Co., 133 F.3d 860, 867 (Fed. Cir. 1997) (enhanced damages by ten per cent based in part on fact that larger award could drive defendant out of business), cert. denied, 525 U.S. 815 (1998); Lightwave Techs., Inc. v. Corning Glass Works, 1991 WL 4737, 19 U.S.P.Q.2d 1838, 1849 (S.D.N.Y. 1991) (defendant could not withstand treble damages).
Plaintiffs have cited no evidence that defendant can pay a significant exemplary damage award. Defendant already faces a judgment in the amount of $155,236.00 for compensatory damages and up to $800,000.00 in attorney fees. Defendant also has incurred substantial legal costs on his own behalf. Based on all of these factors, an award of exemplary damages in the amount of $10,000.00 is appropriate. See Transclean Corp. v. Bridgewood Servs., Inc., 290 F.3d 1364, 1377 (Fed. Cir. 2002) (zero enhanced damages not abuse of discretion despite jury finding of willfulness): Va. Panel 133 F.3d at 866 (enhanced damages of ten per cent not abuse of discretion despite jury finding of willfulness).
III. Attorney Fees
Under the KUTSA, the Court may also award attorney fees upon a showing of willful and malicious misappropriation. See K.S.A. § 60-3323. Based on the jury verdict, the Court finds that an award of attorney fees is appropriate in this case. Defendant objects to any award of fees because plaintiffs did not provide sufficient documentation of the fees. Under D. Kan. Rule 54.2, plaintiffs were not required to file such documentation until 30 days after they filed their motion for attorney fees. On January 14, 2004, plaintiffs submitted a timely statement of their fees. The Court will determine the amount of fees after the parties have completed briefing on that issue.
IT IS THEREFORE ORDERED that Plaintiffs' Motion For Attorneys' Fees And Exemplary Damages (Doc. #717) filed December 15, 2003 be and hereby is SUSTAINED. The Court orders defendant Hamid Khosrowshahi to pay plaintiffs exemplary damages in the amount of $10,000.00. Plaintiffs are also entitled to attorney fees in an amount to be determined after the parties have fully briefed the issue.
IT IS FURTHER ORDERED that the Clerk is directed to enter judgment in favor of plaintiffs in the total amount of $165,236.00, which represents $155,236.00 in compensatory damages and $10,000.00 in exemplary damages under K.S.A. § 60-3322(b).