Ice Corp. v. Hamilton Sundstrand Corp.

ICE CORPORATION, Plaintiff,

v.HAMILTON SUNDSTRAND CORPORATION and RATIER-FIGEAC, S.A.S, Defendants.

Case No. 05-4135-JAR

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF KANSAS

Dated: February 13, 2012

MEMORANDUM AND ORDER

This case is before the Court on remand from the Tenth Circuit Court of Appeals for determination of a punitive damages award under K.S.A. § 60-3702 against Defendant Ratier-Figeac, S.A.S. Under the mandate, the Court must either apply the $5 million cap to the punitive damages award in this case and reduce the $9,590,600 award accordingly, or find that the profitability of Defendant Ratier-Figeac's misconduct exceeds or is expected to exceed $5 million and confirm the original award. The parties have briefed the issue and the Court is prepared to preliminarily rule. However, because neither party presented the Court with sufficient evidence on the calculation of Defendant's profitability, the Court will order the parties to supplement the record. After reviewing the parties' supplemental filings, the Court will set the matter for hearing only if necessary.

I. Background

A. District Court Proceedings

Airbus Military ("Airbus") is developing a military transport aircraft called the A400M. On July 24, 2003, Ratier-Figeac, S.A. ("Ratier") and Airbus entered into an agreement for Ratier to manufacture and supply the propeller system for the A400M. Eventually, ICE and Ratier entered into a Memorandum of Understanding ("MOU") that provided ICE would design the deicing controller for the propeller system. Due to changes in the design specification after the MOU was executed, but before the parties entered into a Master Terms Agreement or Purchase Agreement, the parties participated in new price negotiations that ultimately were fruitless. Ratier reopened the bidding process for the deicing controller and chose Artus to replace ICE as the deicing controller supplier for the A400M project.

This case was tried to a jury beginning on February 10, 2009 on various claims asserted by Plaintiff under Kansas law, including misappropriation of trade secrets pursuant to the Kansas Uniform Trade Secrets Act ("KUTSA"). On March 9, 2009, the jury returned its verdicts. Against Ratier, the jury found liability for misappropriation of three specific trade secrets, finding that Ratier provided Artus with three of ICE's trade secrets. It awarded Plaintiff $4,795,300 in compensatory damages, the full amount of lost profits damages sought. These lost profits were based on the projected sales of deicing controllers and spare parts to be sold by Ratier to Airbus, less ICE's costs. The jury also found that the misappropriation was willful and/or malicious, and rendered an advisory punitive damages award in the amount of $10,000,000.

The Court considered the jury's punitive damages award as advisory and conducted aseparate hearing on the amount of punitive damages under the bifurcated procedure set forth in K.S.A. § 60-3702(a).¹ In its pre-hearing brief, Defendant argued that punitive damages in this case must be capped at $5 million under K.S.A. § 60-3702(e) unless the Court made a finding that the profitability of Ratier's misconduct exceeded $5 million under § 60-3702(f). Plaintiff argued that punitive damages should be governed by the KUTSA, which provides that "[i]f willful and malicious misappropriation exists, the court may award exemplary damages in an amount not exceeding twice any award made under subsection (a)."² Plaintiff argued in the alternative that even if the cap in § 60-3702 applied, the Court could make a finding under § 60-3702(f) that Ratier's profitability exceeded $5 million.

The Court ruled that the KUTSA cap applied and issued findings of fact and conclusions of law on the amount of punitive damages that should be awarded against both defendants. The Court found that $9,590,600 in punitive damages against Ratier should be imposed after evaluating the statutory factors under K.S.A. § 60-3702(b). Again, in its post-trial motions, Ratier argued that the Court applied the wrong statutory damages cap. Plaintiff argued that it would be entitled to a larger punitive damages award than that awarded by the Court under § 60-3702 based on the "tens of millions of euros for sales of the propeller assembly for the first 180 aircraft, of which the deicing controller is a necessary and critical part."³ Plaintiff argued that Defendants "are expected to realize profits on OEM sales of between $85,000,000 and$139,500,000."⁴ The Court again found that the KUTSA cap applied and did not reach Plaintiff's alternative argument that the profitability of Ratier's misconduct exceeded $5 million.

B. Appeal

On appeal, Defendant argued that this Court erred by applying the KUTSA damages cap in K.S.A. § 60-3322 instead of the cap in the general punitive damages statute. The Tenth Circuit agreed with Defendant.⁵ The court held that § 60-3702 governs the punitive damages inquiry in this case, including the cap, and acknowledged that this Court did not make a finding on Plaintiff's alternative argument that § 60-3702 (f) justifies a punitive damages award over $5 million because Ratier is expected to realize profits of between $85 and $139.5 million on the entire propeller project. The court explained that to award punitive damages over the $5 million cap in § 60-3702(e), this Court must make a finding that "the profitability of the defendant's misconduct exceeds or is expected to exceed" the $5 million cap.⁶ The Tenth Circuit remanded this case, directing this Court

to apply § 60-3702 and to consider whether the $5 million cap under § 60-3072(e) or the larger cap under § 60-3702(f) applies. We note that to apply subsection (f), the court must find that the profitability of Ratier's misconduct—not profitability from the entire project—exceeds or is expected to exceed $5 million.⁷

So before the Court on remand is a narrow question: does the profitability of Ratier's misappropriation of ICE's trade secrets exceed $5 million?

II. Discussion

The Court conducted a telephonic status conference on October 24, 2011, to establish a briefing schedule on the remand issue and left open whether a further hearing would be necessary. Having now reviewed the parties' briefs, the Court finds that it is able to rule on the legal issues presented by the parties in their briefs and that oral argument would not materially assist that endeavor. The Court is also able to determine the appropriate measure of Defendant's profitability from its misconduct, as set forth in detail below. But because neither party has presented evidence to the Court that would allow it to properly calculate the amount of Defendant's profitability from the misconduct, the Court will direct the parties to further supplement the record.

Ratier has also moved for leave to file a surreply on the basis that Plaintiff raised new evidence and new arguments in the reply. "[I]f the court relies on new materials or new arguments in a reply brief, it may not forbid the nonmovant from responding to those new materials."⁸ Because the Court need not rely on any of Plaintiff's new evidence or arguments submitted with the reply in order to render its decision, the motion for leave to file surreply is denied as moot.

A. Burden of Proof

Under K.S.A. § 60-3702(f), the Court must find that the profitability of Ratier's misconduct exceeds or is expected to exceed $5 million in order for a punitive damages award to exceed the $5 million cap. Plaintiff contends that a burden-shifting framework applies in determining profitability under K.S.A. § 60-3702(f), citing cases applying such a framework indetermining a defendant's profitability as unjust enrichment damages, which are compensatory. Under this approach, the plaintiff bears the initial burden of showing the defendant's sales and the defendant has the burden of showing any portion of those sales that should not be attributable to the misappropriation of trade secrets, and to show expenses.⁹ The rationale for this rule is that the defendant is in exclusive possession of the data that allows for apportionment of net profits, which often frustrates a plaintiff's ability to prove the amount of sales that are not attributable to the misconduct.¹⁰ This principle is also explained in the commentary to the Restatement (Third) of Unfair Competition § 45, in describing restitutionary relief in a trade secrets case by measuring the defendant's gain.¹¹

Plaintiff cites no authority for the proposition that this burden-shifting approach should apply in determining profitability under the Kansas punitive damages statute. K.S.A. § 60-3702(c) squarely places a clear and convincing burden of proof on the Plaintiff to show entitlement to punitive damages, but the statute is silent with respect to the burden of proof on amount. The burden of presenting evidence about mitigating factors under § 60-3702(b), such as the defendant's financial condition, rests with the mitigating party.¹² But the issue before thisCourt on remand does not require reconsideration of the size of the punitive damages award.

None of the Kansas cases that consider the "profitability of the defendant's misconduct" under § 60-3702(f) apply the burden-shifting framework utilized in the cases on compensatory damages cited by Plaintiff.¹³ The Kansas Supreme Court has previously considered whether the trial court, in determining profitability under the punitive damages statute, improperly shifted the burden of proof by providing the defendant an opportunity to prove that a sum below the compensatory damages amount should be the measure of profit.¹⁴ The court found that the trial court did not improperly place the burden of proof on the defendant by merely affording him an opportunity to introduce evidence on the issue.¹⁵ Here, the Court applies the plain language of the statute, which requires it to make a factual finding that the profitability of Defendant's misconduct exceeds $5...