UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF INDIANA

HAMMOND DIVISION

APEX COLORS, INC., )

Plaintiff, )

)

v. ) CAUSE NO.: 2:14-CV-273-PRC

)

CHEMWORLD INTERNATIONAL LIMITED, )

INC., CHEMWORLD INTERNATIONAL )

LIMITED, LLC, ATUL MODI, and MANOJ )

MODI, )

Defendants. )

_____________________________________ )

)

APEX COLORS, INC., )

Plaintiff, )

)

v. )

)

PAUL BYKOWSKI, )

Defendant. )

_________________________________________ )

)

CHEMWORLD INTERNATIONAL LIMITED, )

INC., CHEMWORLD INTERNATIONAL )

LIMITED, LLC, ATUL MODI, MANOJ MODI, )

and PAUL BYKOWSKI, )

Counterclaimants, )

)

v. )

)

APEX COLORS, INC., )

Counterclaim Defendant. )

OPINION AND ORDER

This matter is before the Court on Defendants’ Motion for Rule 11 Sanctions [DE 165], filed

by Defendants Chemworld International Limited, Inc., Chemworld International Limited, LLC, Atul

Modi, and Manoj Modi on January 27, 2015, and on Defendants’ Supplemental Motion for Rule 11
Sanctions [DE 176], filed by the same Defendants on February 11, 2015. Both motions are fully

briefed and ripe for ruling.

On August 5, 2014, Plaintiff Apex Colors, Inc. filed a Complaint against Defendants

Chemworld International Limited, Inc., Chemworld International Limited, LLC, Atul Modi, and

Manoj Modi. The Complaint alleged claims of civil conspiracy to misappropriate Plaintiff’s property

(Count I), civil conspiracy to tortiously interfere with Plaintiff’s prospective economic advantage

(Count II), and misappropriation of Plaintiff’s trade secrets in violation of the Indiana Trade Secrets

Act (Count III). On November 21, 2014, Judge Kent Lindquist filed a recommendation that the

reference for the Adversary Complaint in Paul Bykowski’s bankruptcy proceeding be withdrawn,

and on December 12, 2015, the Adversary Complaint was transferred to District Court with the

cause number 2:14cv456. On December 18, 2014, the Court consolidated cause number 2:14cv456

with the instant cause of action for all purposes. On April 8, 2015, Plaintiff filed an Amended

Complaint with leave of Court, adding Bykowski as a named Defendant in this action and adding

claims of unfair competition (Count IV) and federal trademark infringement (Count V).

In the instant motions for Rule 11 sanctions, filed on January 27, 2015, and February 11,

2015, the Chemworld Defendants seek sanctions related to the allegations in the original Complaint.

Federal Rule of Civil Procedure 11(b) provides:

(b) Representations to the Court. By presenting to the court a pleading, written

motion, or other paper--whether by signing, filing, submitting, or later advocating

it--an attorney or unrepresented party certifies that to the best of the person’s

knowledge, information, and belief, formed after an inquiry reasonable under the

circumstances:

(1) it is not being presented for any improper purpose, such as to harass,

cause unnecessary delay, or needlessly increase the cost of litigation;

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(2) the claims, defenses, and other legal contentions are warranted by

existing law or by a nonfrivolous argument for extending, modifying, or

reversing existing law or for establishing new law;

(3) the factual contentions have evidentiary support or, if specifically so

identified, will likely have evidentiary support after a reasonable opportunity

for further investigation or discovery; and

(4) the denials of factual contentions are warranted on the evidence or, if

specifically so identified, are reasonably based on belief or a lack of

information.

Fed. R. Civ. P. 11(b).

The Rule further provides sanctions for a violation of Rule 11(b):

(c) Sanctions.

(1) In General. If, after notice and a reasonable opportunity to respond, the

court determines that Rule 11(b) has been violated, the court may impose an

appropriate sanction on any attorney, law firm, or party that violated the rule

or is responsible for the violation. Absent exceptional circumstances, a law

firm must be held jointly responsible for a violation committed by its partner,

associate, or employee.

(2) Motion for Sanctions. A motion for sanctions must be made separately

from any other motion and must describe the specific conduct that allegedly

violates Rule 11(b). The motion must be served under Rule 5, but it must not

be filed or be presented to the court if the challenged paper, claim, defense,

contention, or denial is withdrawn or appropriately corrected within 21 days

after service or within another time the court sets. If warranted, the court may

award to the prevailing party the reasonable expenses, including attorney’s

fees, incurred for the motion.

(3) On the Court’s Initiative. On its own, the court may order an attorney,

law firm, or party to show cause why conduct specifically described in the

order has not violated Rule 11(b).

Fed. R. Civ. P. 11(c).

The Court may impose sanctions under Rule 11(c) for “submissions that are filed for an

improper purpose or without reasonable investigation of the facts and law necessary to support their

claims.” Senese v. Chi. Area I.B. of T. Pension Fund, 237 F.3d 819, 823-24 (7th Cir. 2001) (citing

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Fed. R. Civ. P. 11(b), (c); Fries v. Helsper, 146 F.3d 452, 458 (7th Cir. 1998); Mars Steel Corp. v.

Cont’l Bank N.A., 880 F.2d 928, 932-33 (7th Cir. 1989) (en banc)); Nat’l Wrecking Co. v. Int’l Bhd.

of Teamsters, Local 731, 990 F.2d 957, 963 (7th Cir. 1993); see also Cuna Mut. Ins. Soc’y v. Office

and Prof’l Emps. Int’l Union, Local 39, 443 F.3d 556, 561 (7th Cir. 2006) (recognizing that Rule

11(c) “allows courts to impose sanctions on a party if the requirements of Rule 11(b) are not met”). 

In determining whether Rule 11 sanctions are warranted, the Court must “undertake an

objective inquiry into whether the party or his counsel should have known that his position was

groundless.” Cuna, 443 F.3d at 560 (quoting CNPA v. Chicago Web Printing Pressmen’s Union No.

7, 821 F.2d 390, 397 (7th Cir. 1987)). As Rule 11 is an objective test, the Seventh Circuit Court of

Appeals has repeatedly observed that an “empty head but a pure heart is no defense,” U.S. Bank

Nat’l Ass’n, N.D. v. Sullivan-Moore, 406 F.3d 465, 470 (7th Cir. 2005) (quoting Chambers v. Am.

Trans Air, Inc., 17 F.3d 998, 1006 (7th Cir. 1994)), and that Rule 11 “requires counsel to read and

consider before litigating,” id. (quoting Thornton v. Wahl, 787 F.2d 1151, 1154 (7th Cir. 1986)).

The burden is on the movant to show that Rule 11 sanctions are appropriate. Signature Retail

Servs., Inc. v. Darnell, No. 12 C 7657, 2013 WL 1767716, at *2 (N.D. Ill. Apr. 24, 2013) (citing

Packaging Supplies, Inc. v. Harley-Davidson, Inc., No. 08C400, 2011 WL 5373975, at *6 (N.D. Ill.

2011) (referencing the “‘high burden of showing that Rule 11 sanctions are warranted’”) (quoting

Lundeen v. Minemyer, No. 09 C 3820, 2010 WL 5418896, at *3 (N.D. Ill. 2010))). The Seventh

Circuit Court of Appeals has recognized that “‘[w]hile the Rule 11 sanction serves an important

purpose, it is a tool that must be used with utmost care and caution.’” Id. (quoting Fed. Deposit Ins.

Corp. v. Tekfen Const. and Installation Co., Inc., 847 F.2d 440, 444 (7th Cir.1988)).

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A. Motion for Rule 11 Sanctions (docket entry 165)

In this motion, the Chemworld Defendants argue that allegations in Paragraphs 1, 2, 24, 25,

27, 28, 41, and 55 are frivolous and without a reasonable legal or factual foundation because (a)

Bykowski has no covenant not to compete following his resignation; (b) information that originates

with Bykowski is not Apex’s “Confidential Information”; (c) Bykowski does not “wrongfully

possess” Apex’s assets when the asset, information, formula, lot number, product identifier, or

supplier was “originated by” Bykowski or brought with him in 2001; and (d) Bykowski can sell to

any customer or prospective customer “developed or identified by Employee.”

1. Background 

a. Relevant provisions of Bykowski’s Employment Agreement

Section 2 of Bykowski’s Employment Agreement is titled “Nondisclosure and

Noncompetition.” (Compl. Ex. 2). Paragraph 2(a) defines “Confidential Information”:

Confidential Information. “Confidential Information” means any trade secrets or

information known to Employee as a result of his employment with Employer, at any

time before or from and after the date of this Agreement (not including information

originated by Employee) of a secret, proprietary or confidential nature relating to

Employer, products, business policies and operations, including, without limitation,

all methods, formula, forecasts, customer requirements, processes, products,

marketing strategies, data, improvements, product development, financing, strategies,

price lists, commission schedules, forecasts [sic], prospective customer lists,

marketing programs and accounting systems, unless such information is in the public

domain to such an extent as to be readily available to competitors. . . . Confidential

Information shall include the work product of Employee developed as a part or in

furtherance of, or during the working hours of, Employees’s employment with

Employer and shall not include all customers and prospective customers developed

or identified by Employee. All Confidential Information provided to Employee . .

. , except that information which the Employee brings with him, shall be held and

protected by Employee with the strictest confidentiality, and Employee shall take all

reasonable steps to protect the confidentiality of the Confidential Information

provided to Employee, and, except as required by law, court order or any

governmental authority, Employee shall not, whether during or after employment

cause or allow any of the Confidential Information to be disclosed, delivered,

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transferred, or otherwise be made known to any person or entity not expressly

authorized by Employer to receive or be made aware of the same. The term

“Confidential Information” does not include information which (I) becomes

generally available to the public other than as a result of a disclosure by Employee

or its agents and affiliates, (ii) was available to Employee on a non-confidential basis

prior to its disclosure to Employee by Employer its representatives, or, (iii) becomes

available to Employee on a non-confidential basis from a source other than Employer

or its representatives, provided such source is not bound by a confidentiality

agreement with Employer or its representatives.

(Compl. Ex. 2) (emphasis added).

Paragraph 2(b) provides: 

Limitation on Use: All Confidential Information of Employer . . . which Employee

receives or of which Employee becomes knowledgeable shall be utilized by

Employee for the singular purpose of carrying out Employee’s duties and

undertakings on behalf of Employer. Employee shall diligently protect and maintain

the confidentiality of the Confidential Information. In no event shall Employee,

whether during or after employment, copy any Confidential Information, except as

needed, nor utilize any Confidential Information in a manner so as to compete with

Employer, or to aid or further the competition of any other person or entity with

Employer, or to otherwise disclose or dispose thereof for personal gain or for any

reason injurious to the interest of Employer during the term hereof. The limitation

on use of the Confidential Information by Employee shall extend during the period

subsequent to employment during which Employee may be bound by the

Noncompetition provision set forth herein at Section 2(c). Upon termination of

Employee’s employment for any reason, Employee shall immediately turn over to

Employer all books, records, price lists, customer lists and other material relating to

Employee’s employment or to the business of Employer.

(Compl. Ex. 2) (emphasis added).

Paragraph 2(c) addresses Noncompetition:

Noncompetition. Employee covenants and agrees that he/she will not, at any time

during the term of employment with Employer and for a period of two (2) years

thereafter if Employee is terminated with Cause, directly or indirectly (through one

or more intermediaries) engage in, or have any interest in any person, firm,

corporation, partnership or business . . . which engages in, any activity which is the

same as, similar to or competitive with any activity in which Employer is currently

or is then engaged in . . . .

Id. (emphasis added).

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Finally, Paragraph 2(d) is titled “Nonemployment; Noninducement”:

Nonemployment; Noninducement. Employee agrees during the Term of his

Agreement and for two (2) years immediately following termination not to solicit or

directly offer inducements, for any reason, any suppliers, customers, sales

representatives, dealers or distributors, agents, employees, consultants or other

persons or concerns dealing with or in some way associated with Employer (whether

or not through contacts with Employee) to terminate such association with Employer,

or to become associated with Employee in any business which competes with

employer or which Employee is prohibited from engaging in, assisting or having an

interest in under this Agreement.

Id. (emphasis added).

b. Relevant provisions of the Complaint

Defendants specifically identify the allegations in Paragraph 1 of the Complaint that “the

Defendants are utilizing Apex’s confidential and valuable information, assets and trade secrets for

their own personal economic gain in concert with Apex’s former President Paul Bykowski

(“Bykowski”) while he was an employee and owed a fiduciary duty to Apex . . . .” (Compl. ¶ 1).

Paragraph 2 of the Complaint alleges: “Apex brings this action to determine liability of

Chemworld, Chemworld LLC, Atul and Manoj in the misappropriation and use of Apex’s property

and the intentional interference with Apex’s business expectancy as part of a civil conspiracy with

non-party Paul Bykowski (“Bykowski”).” (Compl. ¶ 2).

Paragraph 24 alleges: “Under the Employment Agreement, Bykowski agreed that all

Confidential Information belonging to Apex would be held and protected by Bykowski with the

‘strictest confidentiality.’ (See Exhibit A, ¶ 2(a)).”

Paragraph 25 alleges: “Further, Bykowski agreed that ‘[in] no event shall Employee, whether

during or after employment, copy any Confidential Information . . . not [sic] nor utilize any

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Confidential Information in a manner so as to compete with Employer, or to aid or further the

competition of any other person or entity with Employer . . .’” (citing Exhibit A, ¶ 2(b)).

Paragraph 27 alleges: “With regard to non-competition, Bykowski agreed that he would ‘not,

at any time during the term of the employment with Employer . . . directly or indirectly (through one

or more intermediaries) engage in . . . any activity which is the same as, similar to or competitive

with any activity in which Employer is currently or then engaged in . . .’ (See Exhibit A, ¶ 2(c)).”

Paragraph 28 alleges: “Bykowski also agreed to not solicit or induce any customers,

suppliers or sales representatives following his termination for a period of two years. (See Exhibit

A, ¶ 2(d)).”

Paragraph 41 alleges: “Apex obtained notice of Bykowski’s and Chemworld/Chemworld

LLC’s deliberate and wrongful competition and misappropriation of Apex’s assets on May 21, 2013

when Apex received a Purchase Order at the Portage, Indiana laboratory seeking to purchase a

product which the customer identified as CHEMWORLD SB104/[APEX] SB104 and assumed to

be the same product.”

Paragraph 55, which is contained within Count I, alleges: “As alleged above, Bykowski,

Chemworld, Chemworld LLC, Atul and Manoj knowingly worked together in a scheme to convert

and misappropriate Apex’s assets, trade secrets and materials described hereinabove for their own

use . . . .” In subparagraphs a through p, Plaintiff then alleges twenty-one categories of such “assets,

trade secrets, and materials.”

2. Analysis

Defendants first argue that, in Paragraph 24 of the Complaint, Plaintiff’s assertion that “all

Confidential Information belonging to Apex would be held and protected by Bykowski with the

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‘strictest confidentiality’” intentionally fails to disclose that the definition of “Confidential

Information” excludes “information originated by Employee.” (Compl., Ex. 2, ¶ 2(a). Defendants

also argue that Plaintiff further intentionally failed to reveal that “Confidential Information”

excludes “all customers and prospective customers developed or identified by Employee” and that

Bykowski was under no obligation to protect “that information which the Employee brings with

him.” Id.

Defendants similarly argue that, in Paragraph 25 of the Complaint, Plaintiff alleges that

Bykowski agreed not to copy or utilize “Confidential Information” to compete with Plaintiff but that

Plaintiff again does not plead the exclusions to the definition of “Confidential Information” for

information originated by Bykowski and customers and prospective customers developed or

identified by Bykowski. 

First, Plaintiff attached a full copy of the Employment Agreement to the Complaint; nothing

was hidden. Second, Defendants are correct that information originated by Bykowski or customers

or prospective customers developed or identified by Bykowski is excluded from the definition of

“Confidential Information.” However, Defendants fail to recognize that the definition of

“Confidential Information” includes “the work product of [Bykowski] developed as a part of or in

furtherance of, or during the working hours of, Employee’s employment with Employer.” (Compl.,

Ex. 2, ¶ 2(a)). In addition, there are factual disputes, as evidenced by the testimony at the

preliminary injunction hearing, about what information and materials Bykowski brought with him

that fall into the exceptions to the definition of “Confidential Information.”

Next, Defendants criticize Plaintiff’s use of ellipses in paragraph 27 of the Complaint to omit

language from the noncompete clause in paragraph 2(c) of the Employment Agreement regarding

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the period after Bykowski’s termination, specifically that the covenant was that Bykowski “will not,

at any time during the term of employment with Employer and for a period of two (2) years

thereafter if Employee is terminated with Cause” engage in competitive activity. (Compl., Ex. 2, ¶

2(c)). However, Paragraph 27 of the Complaint addresses only Bykowski’s agreement not to

compete during Bykowski’s employment. The omission of the language regarding competition after

the termination of Bykowski’s employment is a separate issue and its omission from Paragraph 27

is not sanctionable. Moreover, evidence was admitted during the preliminary injunction hearing that

Bykowski competed with Plaintiff while still an employee.

In Paragraph 28, Plaintiff addresses that later time period after the termination of his

employment, alleging, consistent with the terms of Paragraph 2(d) (“Nonemployment;

Noninducement”) of the Employment Agreement that Bykowski “agreed to not solicit or induce any

customers, suppliers or sales representatives following his termination for a period of two years.”

(Compl. ¶ 28). Defendants argue that Paragraph 28 is nevertheless misleading first because

Bykowski was not “terminated” and second because, even if Bykowski was terminated, the

Employment Agreement only prohibits Bykowski from soliciting customers, suppliers, or sales

representatives to participate in activities “which Employee is prohibited from engaging in, assisting

or having any interest under this Agreement.”

First, Defendants are correct that Bykowski resigned from Apex and that he was not

terminated by Apex. However, in Section 4 of the Employment Agreement, titled “Termination,”

the word “terminate” does not mean only the cessation of Bykowski’s employment by Apex. Rather,

in two separate paragraphs, the word is also used to describe the ending of Bykowski’s employment

by Bykowski: (1) “Employee may terminate this Agreement at any time upon thirty (30) days’ prior

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written notice to Employer;” and (2) “Upon the termination of this Agreement by Employee, or by

Employer due to death or Disability of Employee or for other Cause . . . .” (Compl., Ex. 2, ¶ 4(a).

Second, Defendants omit language from Paragraph 2(d) of the Employment Agreement when

they assert that the Employment Agreement only prohibits Bykowski from soliciting customers,

suppliers, or sales representatives to participate in activities “which Employee is prohibited from

engaging in, assisting or having any interest in under this Agreement.” Immediately preceding the

quoted portion of ¶ 2(d) is the additional prohibition on becoming “associated with Employee in any

business which competes with Employer.” (Compl., Ex. 2, ¶ 2(d)).

As for Paragraph 41, Defendants object to the description of Defendants’ actions as

“deliberate and wrongful competition and misappropriation of Apex’s assets.” (Compl. ¶ 41). Again,

there are disputes of fact as well as arguments regarding the interpretation of the Employment

Agreement that render Plaintiff’s allegations regarding Defendants’ “deliberate and wrongful

competition and misappropriation” not sanctionable.

Finally, Defendants note that, in Paragraph 55 of the Complaint, Plaintiff attempts to

delineate the “Confidential Information” that Bykowski is allegedly “converting” or

“misappropriating” through the twenty-one categories in subparagraphs (a) through (p). Defendants

argue that Plaintiff should be sanctioned for failure to identify which of the items are exceptions to

the definition of “Confidential Information” because they were “originated” by Bykowski or brought

with Bykowski to Apex. However, Defendants themselves do not identify which items should be

omitted from the list as exclusions. Moreover, the fact that some specific items within a given

category may be exceptions does not make the entire category frivolous.

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Defendants make assertions in the motion that Plaintiff’s use of non-party subpoenas directed

to Defendants’ customers is indicative of Plaintiff’s desire “[to] harass defendants and obtain market

information to which it has no legal claim in order to utilize the same in an anti-competitive

scheme.” (Def. Mot. ¶ 21). However, the subpoenas were issued to obtain information pertaining 

to the allegations of Defendants’ alleged misappropriation and use of Plaintiff’s trade secrets.

Plaintiff notes that documents and emails Plaintiff received in response to those subpoenas were not

provided by Defendants in their responses to Plaintiff’s discovery requests. Defendants have not

shown that the Complaint was brought with an improper purpose.

Defendants similarly assert that Plaintiff’s action to subpoena and then hold in contempt

Craig Weadon “leads to the inescapable conclusion that Apex has the ulterior purpose of harassing,

intimidating, discrediting and ‘black-balling’ anyone engaged in legitimate competition with

Apex.”(Def. Mot. ¶ 22). The Court disagrees. The subpoena issued to Weadon was for the purpose

of obtaining information relevant to Apex’s claims, and Weadon failed to respond.

Defendants have not met their burden of showing that the identified portions of the

Complaint are frivolous, legally unreasonable, without factual foundation, or for an improper

purpose. The evidence at the preliminary injunction hearing, although the motion for preliminary

injunction was denied, demonstrated the significant factual disputes raised by the Complaint. Having

made an objective inquiry based on Defendants’ arguments and the evidence heard at the

preliminary injunction hearing, the Court cannot say that Plaintiff or its counsel should have known

that its position was groundless. Plaintiff was within the parameters of Rule 11 when it filed the

Complaint. The Court denies Defendants’ Motion for Rule 11 Sanctions.

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B. Supplemental Motion for Rule 11 Sanctions (docket entry 176)

In this supplemental motion, Defendants argue that Plaintiff should be sanctioned for

alleging that the formulations, product standards, and instructions for the products known as

“MegaSpecks” and “MegaSpecks Ultra” were trade secrets that Bykowski and the Chemworld

Defendants allegedly misappropriated. 

The Chemworld Defendants do not specifically identify those portions of the Complaint that

are allegedly frivolous. However, in Count I, Plaintiff alleges that Bykowski and the Chemworld

Defendants worked together in a scheme to convert and misappropriate Plaintiff’s “assets, trade

secrets and materials,” including, but not limited to, “Powder dye standards, color standards and

their equivalent working standards, for all products including, but not limited to, MegaSpecks and

MegaSpecks Ultra, tested by Apex for procurement of inventory through either Apex, or Finos,

LLC,” “Documents regarding the suppliers, manufacturing, grinding, sieving and processing of

MegaSpecks and MegaSpecks Ultra,” “All marketing records for all products referenced herein,”

“All chip books, samples, manuals, marketing materials and display items for . . . MegaSpecks and

MegaSpecks Ultra,” and “All historic sales records for all customers, including products sold (dyes,

MegaSpecks and MegaSpecks Ultra. . . .), quantity, price, date of sales, and certifications sent.”

(Compl. ¶¶ 55(a), (b), (c), (f), and (I)). 

Defendants argue that the allegations in the Complaint related to MegaSpecks and

MegaSpecks Ultra are frivolous based on verified statements made by Shyam Zalani, Plaintiff’s sole

director and shareholder, in the Verified Complaint for Dissolution of Finos, LLC in the Delaware

Court of Chancery on December 14, 2011, as well as in the Amended Verified Complaint for

Dissolution filed on November 20, 2012, in that court.

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First, Defendants note that, in the Amended Verified Complaint for Dissolution, Plaintiff

admitted that Finos “utilized” the formulation of “MegaSpecks.” Defendants argue that Plaintiff

disclosed its trade secret to other members of Finos, LLC without the benefit of a non-disclosure

agreement to preserve the secrecy of the formulation of “MegaSpecks.” Plaintiff responds that

Plaintiff, with fifty percent ownership in Finos, disclosed the formulation of “MegaSpecks” to Finos,

the company that marketed and distributed the product, and did not disclose the formulation to a

competitor or the public at large. Plaintiff responds that it had a right to mange Finos’ affairs and

that the other members of Finos owed Plaintiff a fiduciary duty of loyalty and care not to engage in

self-dealing, citing CSH Theaters, LLC v. Nederlander of San Francisco Associates, 2015 WL

1839684, at *11 (Del. Ch. Ct. Apr. 21, 2015). Plaintiff contends that it did not need a confidentiality

agreement with the other members of Finos who received the “MegaSpecks” formula because they

owed a fiduciary duty to Apex. Defendants do not provide a legal response to this argument in their

reply brief. Without deciding that issue, the Court finds that Defendants have not met their burden

of demonstrating that Plaintiff’s claim related to “MegaSpecks” was brought for an improper

purpose, was not warranted by existing law or by a nonfrivolous argument for extending, modifying,

or reversing existing law, or did not have evidentiary support.

Second, Defendants note that, in the same pleading in the Delaware Court of Chancery,

Plaintiff admitted that Plaintiff did not know how to formulate “MegaSpecks Ultra” and that the

formulation for “MegaSpecks Ultra” was known only to the Boggesses. Defendants argue that the

formulation for “MegaSpecks Ultra” cannot be a protectable trade secret of Plaintiff’s if Plaintiff

did not know its formulation in the first place. However, Plaintiff clarifies in its response brief that

it is not alleging that the formulation of “MegaSpecks Ultra” is one of its trade secrets. Rather,

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Plaintiff alleges that Defendants misappropriated “MegaSpecks Ultra” powder dye standards, color

standards, as well as documents regarding suppliers, manufacturing, grinding, sieving and

processing of chip books, samples, manuals, marketing materials, display items, and historic sales

records. Section 2(f) of the Finos settlement agreement gave Plaintiff “the right to retain and use

those assets of Finos that it has in its possession or control.” Notably, Defendants do not address

their motion based on “MegaSpecks Ultra” in their reply brief. Defendants have not shown that

Plaintiff’s allegations regarding “MegaSpecks Ultra” are sanctionable.

The Court finds that Defendants have not demonstrated that Plaintiff or Plaintiff’s attorneys

violated Rule 11(b) by including allegations in the Amended Complaint regarding “MegaSpecks”

and “MegaSpecks Ultra.” The Court denies Defendants’ Supplemental Motion for Rule 11

Sanctions.

CONCLUSION

Based on the foregoing, the Court hereby DENIES Defendants’ Motion for Rule 11

Sanctions [DE 165] and DENIES Defendants’ Supplemental Motion for Rule 11 Sanctions [DE

176].

So ORDERED this 9th day of September, 2015.

s/ Paul R. Cherry 

MAGISTRATE JUDGE PAUL R. CHERRY

UNITED STATES DISTRICT COURT

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