By Wayne D. Garris, Jr., J.D.
After a years-long “scorched-earth” legal battle with the multinational medical technologies firm, the employee’s failure to comply with a bankruptcy judge’s order resulted in the hefty fee award.
The Fifth Circuit affirmed a federal district court’s ruling that a former employee of Stryker Corporation will have to pay the company over $2 million in attorneys’ fees. After a jury entered a verdict in favor of Stryker in a state-law trade secrets claim, the employee filed for bankruptcy and later objected to the company’s claim for attorneys’ fees unrelated to the trade secrets claim under the Common Core doctrine. The court found that the employee’s repeated failure to comply with a bankruptcy judge’s order to identify specific time entries that he found objectionable was sanctionable and that the bankruptcy judge’s decision to strike the employee’s objection to the Common Core fees was an appropriate sanction (Ridgeway v. Stryker Corp., September 2, 2020, Oldham, A.).
The employee worked for a subsidiary of Stryker Corporation. The employer believed that the employee intended to use its confidential business information at his next job, so it sued the employee for breach of contract, breach of fiduciary duty, and misappropriation of trade secrets in violation of Michigan’s Uniform Trade Secrets Act (MUTSA).
Jury trial. A jury found in favor of the employer on all claims. Further, the jury found that the MUTSA violation was willful and malicious. Under the statue, a court may award attorneys’ fees to a prevailing party if the MUTSA violation was willful and malicious.
Bankruptcy proceedings. A district court in Michigan entered judgment in favor of the employer and gave it 14 days to request attorneys’ fees. Prior to the deadline, the employee filed a Chapter 11 bankruptcy petition in a federal district court in Louisiana. The automatic stay from the filing of the bankruptcy petition prevented the employer from making its attorneys’ fee request to the Michigan court.
The employer then filed a proof of claim for its attorneys’ fees totaling $2,272,369. The employer argued that under the Common Core doctrine it was entitled to fees related to all of its claims against the employee, not just the MUTSA claim. In December 2016, the employee filed an objection to the proof of claim arguing that the employer was not entitled to any attorneys’ fees, whether MUTSA related or not.
April 7 order. Several months later, the bankruptcy court held a scheduling conference to narrow the issues in dispute between the parties. On April 7, that court issued an order directing the employee to “file and serve on [the employers’] counsel a list of time entries in [the employers’] counsel’s billing statements that it contends are objectionable, specifying for each entry the debtor’s basis for claiming that the debtor should not be liable for the charges relating to the time entry, with a concluding summary of the total amounts for each objection category.”
In response to the order, the employee filed a supplemental objection to the proof of claim. However, the supplemental objection did not contain any discussion of the employer’s Common Core argument or a list of objectionable time entries as the April 7 order required.
Motion to strike. The employer moved to strike parts of the employee’s December 2016 objections based on his violation of the April 7 order. The bankruptcy court granted the motion noting that it had expected to receive a list of time entries with objections, including the Common Core objections. Because the employee did not identify specific time entries, the bankruptcy judge denied those objections.
The employee moved for reconsideration arguing that he had complied with the April 7 order. The bankruptcy court denied the motion. In July 2018, the bankruptcy court allowed the employer’s proof of claim, including the fees it claimed under the Common Core doctrine. The district court affirmed, and the employee appealed.
Arguments on appeal. The employee raised two arguments on appeal. First, that the Michigan jury, not the Louisiana bankruptcy judge, could award MUTSA attorneys’ fees. Second, that the lower courts erred in striking his common core objections.
Jury, not a judge. The court immediately dismissed the employee’s argument that only the jury could award attorneys’ fees as “border[ing] on frivolous.” Federal Rule of Civil Procedure 54(d) requires “[a] claim for attorney’s fees… [to be] made by motion unless the substantive law requires those fees to be proved at trial as an element of damages.” Here, the substantive law, the MUTSA, states that “the court may award reasonable attorney’s fees to the prevailing party.” Thus, the clear language of the statute permitted the judge to award attorneys’ fees.
Dryvit. The employee then argued that Dryvit Sys., Inc. v. Great Lakes Exteriors Inc., an unpublished Sixth Circuit decision, requires a prevailing party to present attorneys’ fees to a trier of fact before trial. The court explained that the employee mischaracterized Dryvit’s holding. The case required a party to plead attorneys’ fees when the claim for fees arises out of a “‘prevailing party’ contract clause.” Here, the fees were statutory, not contractual.
Common Core. The employee raised several objections to the application of the Common Core doctrine. The court found that because the bankruptcy court acted within its discretion when it struck the objections, it would only review the court’s decision on the motion to strike.
The bankruptcy court convened the April 6 conference, and issued the April 7 order, in an effort to narrow the issues for trial. The court identified three broad categories of billing entries to which the employee objected, and the order sought to have the employee explain the basis for each of objection, based on those categories, to expedite the case for the bankruptcy court.
Noncompliance. The employee didn’t comply with the order so the decision to strike the Common Core objections was effectively a sanction for noncompliance. Sanctions were appropriate here because the employee’s noncompliance was willful, the court stated. Even after the employer moved to strike, the employee chose not to correct the mistake, but simply argued that the order was unclear. Further, after the court granted the employee a hearing on his motion to reconsider, the employee again did not correct his mistake, but argued that he had already complied with the order.
The employee offered several rebuttals including that he did, in fact, comply with the April 7 order and that compliance with the order was impossible. The court rejected both arguments. First, it was not sufficient that the employee listed the MUTSA time entries to which he objected and then argued that it would be assumed he objected to all non-MUTSA time entries. Regarding impossibility, the court noted that just because the work of identifying each objectionable time entry would be onerous, that did not make that work impossible. Even if it was impossible, the employee should have raised that issue with the bankruptcy court.
Lesser sanctions. Lastly, the employee could not identify a lesser sanction that would have been more appropriate for his violation. The court concluded that the bankruptcy court’s choice of sanction was not an abuse of discretion and affirmed the district court.
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