eDiscovery: Eaton v. Frisby, discovery’s first Watergate scandal?

Between 1972 and 1974, a U.S. president fell from grace because of corruption and scandal emanating from an elaborate scheme to burglarize the Democratic Party's National Committee offices on June 17, 1972. But for the alert actions of a security guard, the scandal may never have seen the light of day and Richard Nixon would have ridden out the balance of his term without suffering this historical black mark.

One would think that falling from the lofty perch of the presidency for such conduct would provide an example for others that would certainly be cause for second thoughts before engaging in unrelated but analogous activities by other lawyers. Not so. The multimillion-dollar trade secrets action Eaton Corporation, et al. v. Jeffrey D. Frisby, et al., Civil Action 251-04-642, Circuit Court of Hinds County, Mississippi (1st Judicial District), is a case in point. In 2004, Eaton alleged that six of its former engineers had stolen trade secrets from the corporation and delivered them to Frisby Aerospace. Frisby is now called Triumph Actuation Systems.

Summary of facts. Alison Grant writing in The Plain Dealer (Cleveland, Ohio) has covered the case extensively. She lays out the chronology of the case: Eaton filed suit in 2004 against Frisby, et al. for "stealing information on hydraulic pumps, motors and other products." Frisby attempted to get the case dismissed in 2006, claiming that "Eaton failed to disclose information about a financial agreement between Eaton and a witness." The Hinds County, Mississippi circuit presiding judge in the case (Bobby DeLaughter) referred the matter to a special master, who determined that discovery answers were 'truly false' with "'intentional effort to mislead.'" This motivated Frisby to move for the second time to have the case dismissed. DeLaughter denied the motion but found that Eaton and its lawyers knew about the false testimony so he ordered monetary sanctions in an undetermined amount.

During the process, one Ed Peters became a member of the Eaton legal team. He had an interesting history as a former Hinds County district attorney and the boss of an assistant district attorney by the name of Bobby DeLaughter. In 2007, the circuit judge DeLaughter removed the special master three months before DeLaughter recused himself from the case. Judge Swan Yerger replaced DeLaughter. Allegedly, DeLaughter took this action because he had separate problems arising from accusations by federal agents that he had illegal contact with Peters, resulting in an 18-month sentence for DeLaughter and Peters being asked to surrender his law license.

Yerger reviewed DeLaughter's prior Eaton rulings for the period that Peters was on board, especially the discovery rulings. In 2010, Yerger ordered discovery sanctions against Eaton in the amount of $1.56 million, while at the same time investigating the influence that Peters may have had on DeLaughter. This resulted in Yerger's subsequent decision to dismiss Eaton's lawsuit because Eaton enabled Peters to "'play a fast and loose'" with the court. Yerger cited email correspondence indicating that Eaton was aware of the inappropriate actions of Peters. All of this was reflected in email correspondence that was withheld by Eaton's lawyers. The damning emails that were withheld ranged from March 20 to Oct. 16, 2007, wherein Peters effectively indicated that he was pushing DeLaughter for preference. Yerger's successor on the case, Judge Jeff Weill, offered Eaton an opportunity to suggest its own sanctions. This ranged between insisting there were no impropriety so no sanctions, and suggesting a specific penalty. Either way Easton loses because a claim of no impropriety will not fly and whatever is suggested by way of sanctions they will have to live with. How do you appeal a decision that you have suggested?

Not to be ignored is the fact that Eaton shareholders have filed an action for "'illegal conduct by officers, management, officers and the board'" that has cost the company $1 billion in property assets. It also appears that Vic Leo, vice president and chief litigation counsel, and litigation counsel Sharon O'Flaherty, are no longer employed by Eaton following the disclosure of the email embarrassment. Weill has ordered production of sworn statements detailing failure to produce the emails and who was responsible for the failure to do so. The next installment of the missing emails is to see what Judge Weill does in connection with imposition of sanctions for the failure to produce.

Complicating matter from Eaton's standpoint is the fact that the U.S. attorney for the Southern District of Mississippi has without explanation dismissed the case for theft and fraud against the engineers that has dragged on for six years, notwithstanding that an FBI investigation, a raid of the homes of the engineers and businesses, and evidence found on personal and work computers allegedly provided proof of evidence having been destroyed by the engineers. Eaton still insists that their case against the engineers is viable and expressed disappointment in the dismissal of charges by the U.S. attorney.

The dismissal of Eaton's lawsuit in 2010 because of the alleged improper conduct by its lawyers prevents pursuance of its claim that evidence of theft does exist in the case. Sue Reisinger, in her Corporate Counsel blog, notes that this is because of Eaton's having been "accused of paying off its star fact witness, lying about the payoff during discovery, and hiring a secret outside counsel to influenced the then-sitting judge in ex-parte communications." Eaton has appealed the dismissal to the Mississippi Supreme Court.

The counterclaim by Triumph Actuation Systems (Triumph Aerospace) and its engineers is ongoing in the Hinds County court where in April the facts concerning previously unproduced emails emerged. In North Carolina, the engineers have filed suit for antitrust and other violations. In both lawsuits, Frisby claims that the engineers that it hired from Eaton did not arrive with trade secrets.

So what does all this mean? First, while the scenario is incredible from the standpoint of how our system of justice can operate, the outrageous aspects are not restricted to Hinds County Mississippi. I am sure there are instances across the country that have not been uncovered and others that have been but nothing has been done about them because of the reverence that has customarily been accorded the bench. Second, while that reverence has been impacted in recent years, commencing with the decision by the U.S. Supreme Court in Bush v. Gore, the Eaton case indicates that there still are jurists who are willing to step up to the plate and take a stand when the injustice is patently apparent. And that action trumps any claim of right based on countervailing evidence of wrongdoing on the opposite side as alleged by Eaton in its counterclaim.

The message is loud and clear that, irrespective of the merits on the other side, if you want to use "dirty tricks" in eDiscovery, you had better be prepared to pay the ultimate penalty that includes having your lawsuit dismissed.