Court Opinion

ID: 2663247
Source: CourtListenerOpinion
Date Created: 2014-04-03 18:51:34.174724+00
Date Added: 2024-06-11T12:34:37.259710
License: Public Domain

UNPUBLISHED

                   UNITED STATES COURT OF APPEALS
                       FOR THE FOURTH CIRCUIT

                             No. 12-1260

E.I. DUPONT DE NEMOURS & COMPANY,

                Plaintiff - Appellee,

          v.

KOLON INDUSTRIES, INC.,

                Defendant - Appellant,

          and

KOLON USA, INC.,

                Defendant,

          v.

ARAMID FIBER SYSTEMS, LLC,

                Third Party Defendant.

                             No. 12-2070

E.I. DUPONT DE NEMOURS & COMPANY,

                Plaintiff - Appellee,

          v.

KOLON INDUSTRIES, INC.,

                Defendant - Appellant,

          and
KOLON USA, INC.,

                Defendant,

           v.

ARAMID FIBER SYSTEMS, LLC,

                Third Party Defendant.

Appeals from the United States District Court for the Eastern
District of Virginia, at Richmond.    Robert E. Payne, Senior
District Judge. (3:09-cv-00058-REP)

Argued:   May 17, 2013                   Decided:   April 3, 2014

Before SHEDD and DIAZ, Circuit Judges, and DAVIS, Senior Circuit
Judge.

Vacated and remanded with instructions by unpublished per curiam
opinion. Judge Shedd wrote a separate opinion concurring in the
judgment.

ARGUED: Paul D. Clement, BANCROFT, PLLC, Washington, D.C., for
Appellant.   Adam Howard Charnes, KILPATRICK TOWNSEND & STOCKTON
LLP, Winston-Salem, North Carolina, for Appellee.      ON BRIEF:
Stephen B. Kinnaird, Jeff G. Randall, Igor V. Timofeyev, PAUL
HASTINGS LLP, Washington, D.C.; Jeffrey M. Harris, BANCROFT,
PLLC, Washington, D.C., for Appellant. Raymond M. Ripple, Donna
L. Goodman, E.I. DUPONT DE NEMOURS AND COMPANY, Wilmington,
Delaware; Brian C. Riopelle, Rodney A. Satterwhite, MCGUIREWOODS
LLP, Richmond, Virginia; Richard D. Dietz, Thurston H. Webb,
KILPATRICK   TOWNSEND  &   STOCKTON  LLP,  Winston-Salem,  North
Carolina; Michael J. Songer, Stephen M. Byers, CROWELL & MORING
LLP, Washington, D.C., for Appellee.

Unpublished opinions are not binding precedent in this circuit.

                                 2
PER CURIAM:

       “Absent fundamental error, we are loath to overturn a jury

verdict in a civil case. Jury trials are expensive, in time and

resources, both for the litigating parties and for society as a

whole.” Terra Firma Investments (GP) 2 Ltd. v. Citigroup Inc.,

716 F.3d 296, 298 (2d Cir. 2013). We are constrained to find

such a fundamental error in this diversity action.

       Appellee E.I. DuPont De Nemours & Co. (DuPont) sued Kolon

Industries,         Inc.     (Kolon),     under         the    Virginia           Uniform    Trade

Secrets Act (the “VUTSA”), Va. Code § 59.1-336. After a seven-

week       trial,   the    jury    returned         a   verdict        finding       that    Kolon

willfully       and     maliciously       misappropriated                   149    DuPont    trade

secrets and awarded DuPont $919.9 million in damages.

       Kolon has timely appealed, raising a host of issues, urging

us    to    enter     judgment     in    its    favor         as   a    matter       of   law    or,

alternatively, to order a new trial. Having carefully considered

the    record       before    us   and    the       arguments          of    counsel,       we   are

persuaded      that     the    district        court     abused        its        discretion,    to

Kolon’s prejudice, when it granted one of DuPont’s pre-trial

motions       in    limine     and      thereby         excluded            relevant      evidence

material to Kolon’s defense. Accordingly, we vacate the judgment

and remand with instructions.

       DuPont is a well-known chemical company that has, for more

than       thirty    years,    produced        “Kevlar,”           a   high-strength         para-

                                                3
aramid fiber that is five times stronger than steel. Kevlar is

used in ballistics, bullet-resistant armor, and automotive and

industrial products. Kevlar is made through a highly complex

chemical process that results in a dough-like polymer being spun

at high speed until it becomes a fiber. DuPont maintains that

Kevlar’s production process is a “well-guarded secret.” DuPont

Br. 3. All DuPont employees working on Kevlar are required to

sign a confidentiality agreement. Additionally, DuPont requires

all visitors to the Kevlar plant to be pre-approved, and to sign

a confidentiality agreement before entering.

       Kolon        is    a    South     Korean         corporation     that      has    produced

synthetic fibers, including nylon and polyester, for decades.

Kolon engaged in pilot projects for the development of para-

aramid       pulp    and       fiber     products        in    the   1980s     and      1990s.   It

suspended its para-aramid research in the mid 1990s during the

Asian    financial            crisis     but    resumed        in    2000.   In    2005,    Kolon

marketed a para-aramid fiber under the name “Heracron.”

       In 2006, Kolon sought out five former DuPont employees to

work    as    consultants           to   improve         its   para-aramid        manufacturing

technology          and       to   assist      in   resolving         quality     issues     with

Heracron.      According           to    Kolon,     the       consultants      “assured     Kolon

they were not sharing confidential DuPont information,” Kolon

Br. 3, but the jury was entitled to find, to the contrary, that

Kolon willfully and knowingly acquired from one or more of the

                                                    4
consultants a myriad of DuPont trade secrets concerning Kevlar,

involving     both     technical      and   business/marketing            confidential

information.

        DuPont learned of Kolon’s alleged strategy of collecting

and utilizing its trade secrets when Kolon began consulting with

Michael    Mitchell,     a   former     employee       of   DuPont.     Mitchell     had

extensive knowledge of both the technical and business trade

secrets relating to Kevlar. Kolon contacted Mitchell in 2007 and

flew him to Korea to meet with Kolon to discuss certain aspects

of   Kevlar   manufacturing.       After        his   initial     visit    with   Kolon

representatives in Korea, Mitchell continued to communicate with

Kolon    about    Kevlar’s      manufacturing          process.    In     addition    to

Mitchell, Kolon obtained confidential information from several

other former DuPont employees.

        In 2008, the FBI opened an investigation into Mitchell and

his relationship with Kolon. After a search warrant was executed

at his home, Mitchell agreed to cooperate with the FBI. Through

Mitchell and others, the FBI obtained compelling evidence of

Kolon’s misconduct. (On August 21, 2012, a federal grand jury in

the Eastern District of Virginia indicted Kolon and five of its

executives       for    theft    of     trade         secrets,    conspiracy,        and

obstruction of justice. See United States v. Kolon Indus., Inc.,

No: 3:12-CR-137 (E.D. Va.)).

                                            5
       In    February       2009,        DuPont     sued     Kolon     for    substantial

damages,     alleging,        among      other     theories,       misappropriation      of

trade       secrets        under     the      VUTSA.        Kolon     filed     antitrust

counterclaims against DuPont. In due course, the district court

granted DuPont’s motion under Federal Rule of Civil Procedure

12(b)(6) and dismissed the counterclaims for failure to state a

claim upon which relief could be granted. After we reversed the

dismissal of the counterclaims and remanded, see E.I. du Pont de

Nemours & Co. v. Kolon Indus., Inc., 637 F.3d 435 (4th Cir.

2011), the district court proceeded to trial separately on the

trade secret claims.

       Critical to several of its theories of defense to DuPont’s

misappropriation           claims,    Kolon       intended    to    introduce    evidence

that    tended      to    suggest     that    a    number     of    the    alleged    trade

secrets      put    at     issue    by    DuPont     involved       publicly    available

information.        Specifically,         Kolon    theorized        that   DuPont     itself

had    disclosed      or    otherwise       failed     to    keep    confidential      such

information in the course of intellectual property litigation in

which it was engaged during the 1980s with its then primary

competitor, AkzoNobel. One such case had been litigated in the

Eastern District of Virginia (“the Akzo litigation”); DuPont was

represented by the same law firm representing it in this case.

       As the commencement of the trade secrets trial approached,

DuPont      filed     a    motion     in     limine    “to     Preclude       Kolon    from

                                              6
Presenting Evidence or Argument at Trial Concerning the Akzo

Litigations,” arguing that such evidence was not relevant and

that permitting the jury to consider any such evidence would

cause confusion and delay, to DuPont’s prejudice. See Fed. R.

Evid.    401,     403.       The   district        court   agreed      with    DuPont       and

granted the motion in a summary order, concluding, in part, that

“Kolon    ha[d]       produced      no     evidence    that     any    particular        trade

secret,   much        less    a    trade    secret     that     is    at    issue   in    this

litigation, was disclosed in the litigation between [DuPont] and

Akzo, N.V.” J.A. 1918.

      The case proceeded to trial before a jury over the course

of   seven   weeks.          The   jury     deliberated       for     two    days     and    on

September       14,    2011,       returned     a     verdict    finding       that      Kolon

willfully and maliciously misappropriated all the trade secrets

put in issue by DuPont. The jury found that Kolon’s misdeeds

resulted in a benefit to itself worth $919.9 million and awarded

that amount in damages to DuPont. Following the verdict, the

district court enjoined Kolon from para-aramid fiber production

for twenty years. The district court denied Kolon’s motion for a

new trial and its renewed motion for judgment as a matter of law

on January 27, 2012. Kolon filed this timely appeal on August

31, 2012. We stayed the district court’s injunction pending our

consideration of the merits of the appeal.

                                               7
     Meanwhile, Kolon’s antitrust counterclaims were dismissed

on summary judgment. We affirm the judgment in favor of DuPont

on   the    antitrust         counterclaims         in    an    opinion       filed   today

together with this opinion. Kolon Indus., Inc. v. E.I. duPont de

Nemours & Co., --- F.3d --- (4th Cir. 2014).

     On    appeal   from       the    trade       secrets      verdict   in    this   case,

Kolon     challenges      a    host    of     the    district       court’s      pre-trial

orders,    trial    decisions,         and    post-trial         rulings. *     We    reject

summarily Kolon’s contention that it should be awarded judgment

as a matter of law, but we find that a new trial is warranted.

In light of our remand for a new trial, we need not and do not

address the remaining procedural and evidentiary issues raised

by Kolon, as those issues may or may not arise upon remand and,

in any event, may arise in a decidedly different posture.

     Kolon argues that the district court abused its discretion

in   excluding      all       evidence       and     any       mention    of    the     Akzo

litigation.    Kolon      maintains         that    the     excluded     evidence      would

have tended to demonstrate that “[a]t least 42 of the trade

secrets DuPont has asserted . . . involve information that was

wholly or partially disclosed during the [prior] litigation.”

     *
       Kolon also challenges in this appeal, as it does in                              its
appeal of the district court’s summary judgment as to                                   its
antitrust counterclaims, the district court judge’s denial                               of
its motion for recusal. We reject that challenge here for                               the
reasons stated in the companion opinion. See infra pp. 15-16.

                                              8
Kolon Br. 37. Kolon further asserts that the district court’s

exclusion of that evidence severely limited its ability to put

on    a    meaningful        defense      because      it   prohibited        Kolon    from

establishing that one or more of the 42 alleged trade secrets

cannot meet the elements of a protectable trade secret.

       DuPont responds that the district court did not abuse its

discretion       in    excluding    all     Akzo    litigation     evidence          because

Kolon failed to demonstrate that any of the trade secrets at

issue in this case were disclosed in the Akzo litigation. We

agree with Kolon.

       Upon its review of DuPont’s motion in limine, the district

court concluded that Kolon failed to produce any evidence that

“any particular trade secret, much less a trade secret that is

at    issue      in   this    litigation,        was    disclosed”       in    the    prior

litigation;       that      Kolon   did    not   establish     that      two    documents

contained in the publicly-available Joint Appendix in the appeal

of the prior litigation contained any trade secrets; and that

the evidence from the Akzo litigation was therefore irrelevant,

and       even   if    marginally      relevant,        its   relevance        would     be

significantly outweighed by jury confusion and delay. J.A. 1918-

1919.

       We review a district court’s evidentiary rulings for abuse

of discretion and “will only overturn an evidentiary ruling that

is    arbitrary       and    irrational.”     U.S.     ex   rel.   Ubl    v.    IIF    Data

                                             9
Solutions, 650 F.3d 445, 453 (4th Cir.), cert. denied, 132 S.

Ct. 526 (2011).

       Under Virginia law, a “trade secret” is defined as:

       information, including but not limited to, a formula,
       pattern,   compilation,    program,  device,  method,
       technique, or process, that:

       1. Derives independent economic value, actual or
       potential, from not being generally known to, and not
       being readily ascertainable by proper means by, other
       persons who can obtain economic value from its
       disclosure or use, and

       2. Is the subject of efforts that are reasonable under
       the circumstances to maintain its secrecy.

Va. Code § 59.1-336 (2013).

       Under the Federal Rules of Evidence, evidence is relevant

if it has a tendency to make a fact of consequence to the action

more or less probable than it would be without the evidence.

Fed. R. Evid. 401. We are persuaded that, under this inclusive

standard, Kolon provided the district court with a sufficient

number   of   examples   of   how   information    disclosed    in     the   Akzo

litigation contained details of the Kevlar production process

that   were   strikingly      similar    to   aspects   of   several    of    the

alleged trade secrets in this case.

       The district court’s conclusion that “Kolon has produced no

evidence that any particular trade secret, much less a trade

secret that is at issue in this litigation, was disclosed in the

litigation between the plaintiff and Akzo,” J.A. 1918, is simply

                                        10
too     stringent           a     standard          for      admissibility.             Under       the

circumstances         of        this    case,      we    think     a    “strikingly          similar”

standard of relevance is enough.

       First,    Kolon           has       drawn    this     Court’s          attention       to    the

substantial          similarities             between      two        charts       illustrating      a

certain       aspect        of     the       para-aramid         production          process.       The

parties agree that one of the charts was used as an exhibit in

the    Akzo    litigation,             and    the    other       was    used       as   an    exhibit

depicting some of the alleged trade secrets at issue in this

suit.   We     conclude          that      Kolon     was    entitled          to   have      the   jury

consider its contentions, including its expert opinion evidence,

regarding the similarities and overlap between what is depicted

in the two documents.

       Second, in its opposition to DuPont’s motion in limine,

Kolon provided the district court with a chart comparing seven

alleged       trade         secrets          concerning          the     production           process

contained       in     an        expert       witness      report        in    this       case     with

descriptions of, and citations to, those same details of the

production process that were disclosed in a trial exhibit in the

Akzo    litigation.             See    J.A.    6260-6261.         Kolon       explained       in    its

opposition      memorandum             that       this     chart       represented         only    the

preliminary       results             of    its     review       of     the    Akzo       litigation

evidence for the potential disclosure of all or part of alleged

trade secrets in this case. We hold that Kolon was not required

                                                    11
to establish, as the district court seemingly demanded, that

evidence derived from the Akzo litigation amounted to an actual

trade    secret     at        issue    in     this             case.   Rather,    to    show       the

relevance     of    the        evidence,         Kolon           simply    needed      to    make    a

plausible showing that, either directly or circumstantially, one

or more elements of DuPont’s misappropriation claims, e.g., the

reasonableness of its efforts to maintain confidentiality, was

less likely true. Equivalently, Kolon simply needed to make a

plausible showing that, either directly or circumstantially, one

or more elements of its defenses, either to liability or to the

quantum of damages, e.g., the reasonableness of its asserted

belief that its consultants were not disclosing trade secrets,

was more likely true than not true.

      This   last-mentioned             point             is    particularly      salient         here

because    one     of    Kolon’s       consultants               had    served    as    an    expert

witness    for     DuPont       in    the    Akzo          litigation.      While      there      were

myriad infirmities and deficiencies in that witness’s testimony,

and his credibility is surely open to serious question, Kolon

was     nonetheless       entitled          to       put        on   its   case   through         that

witness,     who        was     himself          a        DuPont       witness    in    the       Akzo

litigation.      The     district       court’s             wholesale      preclusion        of     any

mention of the Akzo litigation made that impossible.

      With reluctance, we hold that the district court abused its

discretion and acted arbitrarily in excluding, on the wholesale

                                                     12
basis that it did, as irrelevant or insufficiently probative,

evidence derived from the Akzo litigation. The usefulness of

pre-trial in limine motions in streamlining trial generally and

in   fostering   the      orderliness          of     evidentiary     presentations       of

complicated issues cannot be doubted. On the other hand, a court

is often wise to await the unfolding of evidence before the jury

before   undertaking          to   make     definitive        rulings    on    the   likely

probative value of disputed evidence. Kolon has demonstrated on

appeal that evidence from the prior litigation over DuPont’s

Kevlar program was not irrelevant as a matter of law and that

the probative value of that potential evidence exceeded the bare

minimum the district court seemed to ascribe to it. “Weighing

probative value against unfair prejudice under [Rule] 403 means

probative value with respect to a material fact if the evidence

is   believed,   not     the       degree      the    court   finds     it    believable.”

Bowden   v.   McKenna,         600     F.2d         282,   284–85     (1st    Cir.     1979)

(footnote and citation omitted).

      Although     it    is    true,      as   DuPont      contends,     that    the    mere

“presence [of confidential information] in [a federal court’s]

public files, in and of itself, did not make the information

contained in the document ‘generally known’ for purposes of the

[UTSA],” Hoechst Diafoil Co. v. Nan Ya Plastics Corp., 174 F.3d

411, 419 (4th Cir. 1999) (last brackets in original), we also

emphasized    in        that       very     case       that    “whether        [ostensibly

                                               13
confidential information] remains a trade secret” “is a fact-

intensive question to be resolved upon trial.” Id.

      To be sure, there is little doubt as to the possibility of

juror    confusion    and      perhaps      delay      arising      from    attention      to

other    litigation       in   a    trial    having      the    complexity        this    one

surely did. Nevertheless, under Federal Rule of Evidence 403,

exclusion on that basis is only proper when the probative value

of the evidence is substantially outweighed by the danger of

confusion of the issues or misleading the jury. That standard is

not   satisfied     on    this      record.      At    bottom,      the    potential      for

confusion and delay does not outweigh, much less substantially

outweigh, the probative value (as to both liability and damages)

of the excluded evidence. When a district court conducts a Rule

403 balancing exercise, ordinarily it should “give the evidence

its     maximum     reasonable        probative         force       and     its    minimum

reasonable prejudicial value.” Deters v. Equifax Credit Info.

Servs., Inc., 202 F.3d 1262, 1274 (10th Cir. 2000) (citations

omitted). The district court did not do so in this instance.

      We   hasten    to    add     that     we   are    not    to    be    understood      to

suggest    that   anything         Kolon    labels     as   derived        from   the    Akzo

litigation must be admitted on the retrial. We are persuaded,

however, that the blanket exclusion of such evidence seriously

prejudiced Kolon’s ability to present its case to the jury. The

district court is free on remand to determine in a more nuanced

                                            14
and    particularized         manner       what     evidence            offered   by    Kolon     or

DuPont should be admitted.

                                *      *       *        *          *

       As   set    forth   in       detail    in       the       majority    opinion         in   the

companion       case    filed       together       with          this    opinion,      see    Kolon

Indus., Inc. v. E.I. duPont de Nemours & Co., --- F.3d ---, ---

(4th    Cir.      2014),   we       decline       to    countenance          Kolon’s       belated

disqualification        motion       under     28      U.S.C.          § 455(b)(2).       Although

Kolon has sought to justify its dilatoriness by suggesting that

it needed to ascertain the extent of the district judge’s actual

participation in the Akzo litigation before filing a recusal

motion, the factual and legal basis for its eleventh hour motion

for disqualification was the fact that the district court judge

was a partner in a law firm representing DuPont in the earlier

litigation. This was a fact known to Kolon from the first days

after DuPont’s complaint was filed and served in this case. In

any    event,     for   the     very    reasons         set        forth    in    the     majority

opinion in the companion opinion, we hold that Kolon’s motion

was untimely.

       That said, we think it prudent to direct, pursuant to our

supervisory       powers   under       28     U.S.C.         §    2106,    that     all    further

proceedings on remand be conducted before a different district

judge. Accordingly, for the reasons set forth, we vacate the

judgment and remand this case to the Chief Judge of the Eastern

                                              15
District of Virginia, whom we direct, in the exercise of this

Court's supervisory powers, to reassign it to another judge, who

shall conduct further proceedings in a manner not inconsistent

with this opinion.

                          VACATED AND REMANDED WITH INSTRUCTIONS

                               16
SHEDD, Circuit Judge, concurring in the judgment:

      For   the   reasons    stated   in   my   separate    opinion   in   Kolon

Industries, Inc. v. E.I. DuPont de Nemours & Co., No. 12-1587, I

would find that the district judge was recused from this case

under 28 U.S.C. § 455(b)(2) no later than July 2011, prior to

the trade secrets trial.            I therefore concur in the judgment

vacating the jury verdict and remanding for further proceedings.

I   likewise   concur   in    the   portion     of   the   judgment   requiring

reassignment to another judge.

                                      17