Contracts Materials Processing, Inc. v. Kataleuna GmbH Catalysts

Citations: 164 F. Supp. 2d 520; 2001 U.S. Dist. LEXIS 14577; 2001 WL 1091269Docket: AMD 98-147

Court: District Court, D. Maryland; September 18, 2001; Federal District Court

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Contract Materials Processing, Inc. (CMP) filed a damages action against KataLeuna GmbH Catalysts, Tricat Management GmbH, and Tricat Catalytic Products, alleging breach of contract, misappropriation, and conversion, with jurisdiction based on diversity of citizenship. KataLeuna counterclaimed against CMP, and the conversion claims were previously dismissed. The court is considering defendants' motion for partial summary judgment on CMP's remaining claims, alongside CMP's motion to file a surreply and defendants' motion to strike certain exhibits and declarations from CMP.

The court will not hold a hearing, as allowed under Local Rule 105.6, and after reviewing submissions, it intends to strike significant portions of CMP's summary judgment materials. The court recognizes that summary judgment is appropriate when no genuine issue of material fact exists and the moving party is entitled to judgment as a matter of law. A material fact affects the litigation's outcome under substantive law, and a party opposing a motion for summary judgment must establish the existence of such a fact. The court must consider facts favorably to the nonmoving party while also preventing unsupported claims from proceeding to trial. In reviewing the defendants' motion, the court will accept CMP's version of the facts as true wherever there is a disagreement.

Plaintiff CMP, a Maryland corporation specializing in chemical industry services, including petroleum refining additives, is involved in litigation concerning three contracts it signed with defendant KataLeuna, a German corporation in the same industry. Dr. Edwin Albers is CMP's president. KataLeuna was partially owned by the German government and managed by Dr. P. Kenerick Maher, the former Chairman, who also managed defendant Tricat, a German holding company that owned a subsidiary called TCP.

Maher initiated discussions with Albers in 1995 regarding the acquisition of CMP's fluidized cracking catalyst (FCC) additives technology, following a previous inquiry in 1993. On May 1, 1995, Maher, on behalf of TII, signed a Non-Disclosure Agreement with CMP to protect shared information. Subsequent meetings took place where Maher expressed his intention to use the technology to facilitate Tricat's negotiations with the German government for the privatization of a catalyst operation.

During these discussions, Albers indicated a willingness to sell the technology for $9 million, including deferred payments. By late May 1995, Maher had signed a preliminary agreement with the government and reiterated his interest in acquiring CMP's FCC additives business. A proposal sent by Maher on June 4, 1995, outlined that KataLeuna would acquire CMP's FCC technology, know-how, and related trade secrets, with an initial payment of $2 million and a performance-based final payment of up to $7 million. CMP was also to provide additional R&D support, and McDaniel, another key figure, was to join KataLeuna as Vice President and General Manager.

On June 23, 1995, Maher and Albers discussed the establishment of KataLeuna, which aimed to implement FCC additives technologies, with Maher stating an investment of over $16 million in a new plant, primarily backed by the German government. TII and Tricat were expected to secure over $10 million in additional funding. Maher clarified that KataLeuna, TII, and Tricat had not previously engaged in FCC additives business or possessed relevant technology. By fall 1995, CMP and KataLeuna executed three contracts concerning sales, research and development, and technology transfer, with Anilkumar Hoffberg drafting the agreements.

The first agreement was a three-year Sales Agency Agreement, appointing CMP as the exclusive U.S. sales agent for zeolites, with a monthly fee of $20,000 and additional commissions. This agreement included an integration clause. CMP also signed a Technology Transfer Agreement on October 27, 1995, transferring its FCC additives technologies to KataLeuna. In exchange, CMP received 5,000 shares of TII stock, $1.9 million at closing, and a potential supplemental payment based on gross margins from KataLeuna’s FCC additives operations. Although the agreement allowed for successors and assigns, it did not permit assignment by either party. CMP retained copies of the transferred technology.

Additionally, CMP entered a Research and Development Agreement, committing to further develop the transferred technology for a $400,000 compensation to Albers for one year of research, which also included an integration clause. A Tolling Agreement was established, where CMP would provide toll manufacturing services for a fixed fee, also containing an integration clause.

After the agreements were in place, CMP shared all technology-related information with KataLeuna. In October 1995, McDaniel left CMP for TII, taking CMP’s files with him, and became President and General Manager of KataLeuna's FCC additives division, Triadd. He was responsible for overseeing the technology transfer and controlled CMP’s research under the R&D Agreement, which also involved John McCauley as Director of Research and Development for FCC additives.

McCauley worked regularly in a laboratory on CMP's premises from April to October 1996 to assist KataLeuna in utilizing certain Technology. On April 11, 1997, TII informed CMP that KataLeuna's FCC additives division, Triadd, had been sold to TCP, with the Technology transferred from CMP to TCP without CMP's consent. Additionally, on April 24, 1997, several parties, including KataLeuna, entered into a Separation Agreement where Tricat relinquished its interest in KataLeuna, again without CMP's consent. CMP claims that KataLeuna is in default under multiple agreements and alleges misappropriation of the Technology, which KataLeuna denies, asserting that it has not used the Technology and owes no royalty payments. KataLeuna further contends that CMP breached the agreements by delivering non-performing Technology, leading to its abandonment. CMP has submitted declarations to oppose summary judgment, but the defendants have raised objections regarding their admissibility under Federal Rule of Civil Procedure 56(e). Defendants argue that Paul Richter's Declaration, submitted by CMP's lead counsel, constitutes improper testimony, as it combines the roles of advocate and witness, and includes hearsay, unauthenticated documents, and claims not based on personal knowledge. Specific paragraphs of the declaration are identified for striking due to these deficiencies.

Translations provided in Richter's Declaration are deemed equivalent to an interpreter's testimony and are inadmissible due to the lack of established qualifications of the translator, as required by Fed. R. Evid. 604. Richter's assertion of being "competent" is insufficient. Furthermore, he fails to include actual translations of the German documents, instead offering only his opinions and interpretations, leading to significant deficiencies. Therefore, the court grants the defendants' motion to strike paragraphs 2-5, 10, 11, 13-15, 19, 23-28, 32-34, and 35. 

Additionally, paragraphs 9, 17, 18, and 20 are stricken for lack of personal knowledge, as Richter does not explain how he obtained firsthand knowledge. Defendants also challenge paragraphs 21, 22, 29-31 regarding the July 1998 KataLeuna-CRI Reprivitization Agreement and the April 1997 Separation Agreement, asserting they lack relevance and merely reargue the issue of KataLeuna being the "real party in interest," which has already been ruled upon. CMP's request to defer ruling on these objections is denied due to failure to establish relevancy. Consequently, paragraphs 21, 22, 29-31 are also stricken.

Defendants' motion to strike Exhibits 1, 2, 5, 12, and 13 as inadmissible hearsay is considered, particularly concerning Exhibits 2, 5, 12, and 13. CMP claims these reports are admissible as party admissions under Fed. R. Evid. 801(d)(2)(D), but defendants argue the drafters were not employees or agents. It is noted that federal common law governs the determination of agency relationships, which will guide the analysis of these claims.

Factors relevant to determining whether a hired party is an "agent" include the skill required, the source of tools, work location, duration of the relationship, hiring party's rights to additional products, hired party's discretion on work hours, payment method, role in hiring assistants, relation of the work to the hiring party's business, hiring party's operational status, provision of employee benefits, and tax treatment of the hired party. The burden of proof lies with the proponent to establish agency status. CMP failed to demonstrate that audit report drafters were agents rather than independent contractors, nor did it prove that defendants adopted the report contents; thus, exhibits 2, 5, 12, and 13 will be struck. However, Exhibit 1, a memorandum from Jack Maher dated March 30, 1998, is admissible as it contains party admissions. 

Defendants also seek to strike parts of Dr. Edwin Albers' declaration concerning oral representations made before the Technology Transfer Agreement was signed. Specifically, Albers alleges that Maher restricted KataLeuna's rights regarding FCC additives technology and that counsel advised against including an integration clause without integrating all oral representations. Defendants argue these constitute inadmissible parol evidence, as Maryland law prohibits such evidence when a contract's terms are clear and unambiguous. The Technology Transfer Agreement explicitly states that CMP transferred all rights to the technology without restrictions, thus rendering the alleged oral representations inadmissible. Consequently, paragraphs 2, 8, 31, 38, and 44 of Albers' declaration will be stricken.

Defendants request the court to strike paragraphs 59-68 and associated exhibits concerning certain patent applications, arguing their irrelevance. CMP has not provided a valid rationale for their relevance, leading to the decision to strike these paragraphs. Additionally, defendants seek to strike paragraphs 12, 13, and 31 related to a 1995 Non-Disclosure Agreement (NDA) due to CMP's failure to produce it during discovery. CMP argues against this strike, asserting that defendants had access to the NDA. However, since CMP did not produce it, the court will bar CMP from introducing the NDA as evidence. CMP's reliance on the NDA to support its trade secrets claims is flawed, as it has not established that any trade secrets were disclosed under this agreement, nor explained its relevance to claims against KataLeuna, which was not a party to the NDA. The NDA was intended for confidentiality during negotiations and was replaced by subsequent agreements, leading to its exclusion.

Defendants also move to strike parts of Dr. Albers' declaration, citing conclusory allegations. Specifically, they challenge statements regarding the absence of an integration clause, CMP’s performance under agreements, and KataLeuna’s termination of the Technology Transfer Agreement, deeming them unsupported opinions. Consequently, these statements will be struck. Furthermore, Albers’ claims in paragraphs 3, 4, 5, and certain sentences in paragraph 6 are criticized for lacking factual support and containing legal conclusions. Albers’ assertion of CMP's full performance and compliance is unsupported, and the claims regarding KataLeuna's knowledge and agreement are unsubstantiated. As such, these portions will also be struck. The court will then proceed to analyze the motion for summary judgment, focusing first on the misappropriation claims, followed by breach of contract claims.

The Maryland Uniform Trade Secrets Act defines a trade secret as information that has economic value due to its secrecy and is subject to reasonable efforts to maintain that secrecy. Courts evaluate trade secret status based on six factors, including the extent of public knowledge, employee awareness, secrecy measures, development effort, and ease of acquisition by others. To establish a prima facie case of misappropriation, a plaintiff must provide evidence that the information qualifies as a trade secret and that reasonable measures were taken to protect its secrecy. 

In this case, CMP alleges that KataLeuna, TCP, and Tricat misappropriated its trade secrets related to Technology. However, CMP has not provided evidence that the Technology meets the trade secret definition, nor has it sufficiently described what constitutes the trade secrets. Consequently, there is insufficient basis for a jury to determine that the Technology is not generally known or ascertainable through proper means or that it derives independent economic value from its secrecy. 

Additionally, CMP's claims fail to demonstrate that it took reasonable steps to ensure the secrecy of the Technology, as no agreements prevent KataLeuna from disclosing the information, and the R&D Agreement only requires CMP to maintain confidentiality. Without evidence of reasonable secrecy efforts or improper acquisition by the defendants, CMP cannot claim the Technology as a trade secret under the Act. Furthermore, CMP has not substantiated its claim that KataLeuna improperly transferred the Technology to Tricat and TCP, lacking evidence of any improper transfer.

CMP voluntarily transferred all rights to the Technology, leading to the granting of defendants' summary judgment motion on counts V, VIII, and XII of the Amended Complaint. CMP alleges that KataLeuna breached the Sales Agency Agreement by not making six months of $20,000 payments, which is undisputed. KataLeuna admits default but claims justification due to CMP's alleged non-compliance with the agreement. Under Maryland law, the burden of proof lies with KataLeuna to demonstrate this justification, which it has not done sufficiently. Consequently, KataLeuna's request for summary judgment on Count II (its breach of the Sales Agency Agreement) is denied. Genuine issues of fact remain regarding the Sales Agency Agreement, leading to a denial of defendants' summary judgment motion on Counts III and X of their counterclaim. CMP acknowledges it failed to remit $18,507.40 from sales under the agreement, resulting in the granting of KataLeuna's motion for summary judgment on count IX of the counterclaim.

CMP claims KataLeuna breached the Technology Transfer Agreement by not making "Supplemental Payments" and by transferring the Technology to TCP without consent, allegedly constituting a material breach. CMP also claims that Tricat and TCP, as successors or assignees, are liable for breaches. However, CMP has not proven that the Technology generated a "Gross Margin" necessitating "Supplemental Payments," nor does it dispute that TCP did not achieve such a margin. CMP has not established any breaches regarding the failure to seek consent for the Technology assignment, as the agreement does not require such consent or restrict assignments. Additionally, CMP's assertion that KataLeuna breached the agreement by transferring the technology without transferring obligations lacks legal support.

Under Maryland law, parties can assign benefits from an agreement independently of the associated liabilities. Since CMP did not establish a breach of the Technology Transfer Agreement, Count IV of the Amended Complaint is dismissed. Similarly, CMP's breach claims against Tricat and TCP (Counts VII and XI) are also dismissed. In Count X, CMP alleges that Tricat is liable for KataLeuna's breaches, claiming Tricat dominated KataLeuna due to its 75% ownership from 1995 to early 1997, and suggests corporate boundaries should be overlooked due to inter-company financial transfers. However, CMP's arguments rely on inadmissible evidence, including an audit report and deposition testimony, failing to meet the rigorous standard for piercing the corporate veil, which requires clear and convincing evidence of fraud or inequity. Consequently, CMP's request to disregard Tricat’s corporate boundaries is denied. The court grants defendants' motion to strike several paragraphs from the Richter and Albers Declarations, as well as their motion for summary judgment on Counts II, IV, V, VII, VIII, XI, and XII of the Amended Complaint, and on Count IX of the counterclaim, while denying it for Count X. The order, issued on September 18, 2001, also allows CMP to file a surreply and directs the Clerk to transmit copies of the order to all counsel.

CMP's amended complaint includes 13 counts against various defendants for issues related to agreements and misappropriation of technology. The counts cover the following: 

1. Collection of amounts due under the Research and Development Agreement.
2. Collection of amounts due under the Sales Agency Agreement.
3. Damages based on bailment.
4. Breach of the Technology Transfer Agreement by KataLeuna.
5. Misappropriation and conversion of FCC additives technology by both KataLeuna and Tricat.
6. Liability of Tricat and TCP under the Technology Transfer Agreement and related misappropriation and conversion claims.

KataLeuna's counterclaim consists of eight counts, including breaches of the same agreements, unjust enrichment, conversion, and negligence. Notably, Counts VI, IX, and XIII from CMP's complaint were dismissed on August 11, 1999.

McDaniel, connected to both Tricat and KataLeuna, was involved in the technology transfer, while Richter's qualifications as an interpreter for German documents were challenged due to lack of sworn testimony and insufficient evidence of personal knowledge. Additionally, there were evidentiary disputes regarding the defendants' citation errors and objections to specific paragraphs in CMP's claims, which were stricken on other grounds. Lastly, the document references patent applications related to FCC additives, stressing a lack of substantiation for some claims made by Richter.

On December 22, 1997, TMG transferred its 74.8% share interest in KataLeuna to Martin Isink as Trustee for the BvS, resulting in BvS owning 100% of KataLeuna (25.2% directly and 74.8% through Isink). The court determined that BvS was properly bound by the action, allowing KataLeuna to be a proper party in interest, and denied CMP's Motion for Reconsideration. CMP argued that certain paragraphs contained relevant background information about BvS's involvement in several agreements and that BvS may be the real party in interest regarding KataLeuna's counterclaims. However, CMP failed to explain the relevance of its reliance on these representations. Defendants objected to multiple paragraphs as containing irrelevant information and inadmissible hearsay, although some objections became moot due to the striking of those paragraphs. CMP also claimed that KataLeuna engaged Audicon as an agent for an Audit Report, asserting that the contents were incorporated by defendants in a memorandum. However, CMP did not provide translations of the reports, limiting the court's ability to verify the claims. The Technology Transfer Agreement specifies that Maryland law governs its application, and it clearly states that the Seller will transfer all rights to the Buyer regarding the Technology.

The Technology Transfer Agreement stipulates that any future rights or research concerning the technology sold to KataLeuna will be accessible to KataLeuna without additional payment. It includes an unqualified "successors and assigns" clause. Albers' Declaration, which claims that the agreement could not include an integration clause, is inadmissible as hearsay. CMP asserts that certain paragraphs of Albers' Declaration and associated exhibits are central to its misappropriation and breach of contract claims but fails to clarify their relevance to these claims or to the defendants' counterclaims. The Non-Disclosure Agreement specifies that it only applies to information shared to facilitate discussions about a new business. CMP's argument that the technology consists of trade secrets is vague and lacks substantial evidence, relying instead on the assertion that valuable trade secrets are involved. CMP contends that the determination of what is "reasonable under the circumstances" must be resolved by a jury due to underlying disputed material facts. CMP attempts to demonstrate it took reasonable steps to maintain the secrecy of the technology through the Non-Disclosure Agreement, but this document was deemed irrelevant and not properly disclosed during discovery. CMP's reliance on oral representations was also rejected. Defendants challenge CMP's standing by questioning its retained interest in the technology, arguing that mere knowledge does not equate to ownership. CMP cites a Fourth Circuit case to support its position that ownership of a trade secret persists as long as it remains secret, allowing those with undisclosed knowledge to seek remedies for misappropriation.

Disclosure of a trade secret to parties without confidentiality obligations extinguishes the property right associated with that information, as established in Motor City Bagels, L.L.C. v. American Bagel Co. CMP's sale of Technology to KataLeuna without a confidentiality agreement has resulted in the loss of CMP's property rights, preventing it from asserting a claim regarding that Technology. Under the Sales Agency Agreement, CMP was to act as the exclusive North American sales and marketing agent for KataLeuna’s zeolites, receiving $240,000 annually for expenses over three years, paid monthly at $20,000. KataLeuna retained the right to verify the appropriate use of these funds and either party could terminate the agreement with 90 days' notice. CMP was responsible for various marketing and sales services, including technical support and payment collection. KataLeuna contends CMP breached the agreement by failing to provide itemized accounting, selling non-KataLeuna zeolites, and not remitting sales proceeds. Additionally, under the Technology Transfer Agreement, CMP was entitled to "Supplemental Payments" based on sales margins for FCC additives after September 1, 1997, and this agreement bound both parties and their successors. CMP claims KataLeuna breached this agreement by unilaterally terminating it, but has not provided admissible evidence to support this claim or to justify the $7.6 million in damages sought. The retroactive assignment of CMP Agreements back to KataLeuna by TCP nullified any potential assignment. In Maryland, damages for breach of contract are limited to restoring the non-breaching party to the position it would have occupied had the contract been fulfilled.