Nagel Precision Inc. v. RnD Engineering, LLC (In re RnD Engineering, LLC)

Citations: 546 B.R. 738; 2016 Bankr. LEXIS 630Docket: Case No. 14-58049 (Jointly Administered); Adversary Proceeding No. 15-4189-PJS

Court: United States Bankruptcy Court, E.D. Michigan; March 1, 2016; Us Bankruptcy; United States Bankruptcy Court

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Nagel Precision Inc. initiated an adversary proceeding against Richalin Digue and his company, RnD Engineering, LLC, following Digue's departure as a project manager at Nagel to establish a competing business. Nagel accused Digue and RnD of misappropriating trade secrets, tortious interference with business relationships, breach of fiduciary duty, and other wrongful acts. Prior to trial in state court, both defendants filed for Chapter 11 bankruptcy, prompting the consolidation of Nagel’s claims, the defendants’ objections, and Nagel’s request to declare its claims nondischargeable.

The court ruled in favor of Nagel, allowing a claim of $564,503.16 against both Digue and RnD. Additionally, it determined that Nagel's claim against Digue is nondischargeable. Jurisdiction rests with the United States District Court for the Eastern District of Michigan, which referred the case to the Bankruptcy Court. The proceedings regarding claim allowance and nondischargeability are defined as core proceedings under 28 U.S.C. 157. All parties consented to the bankruptcy court's authority to issue a final judgment, aligning with precedents that confirm the constitutionality of such adjudications. 

Nagel's initial state court suit, filed on June 12, 2013, included claims of misappropriation of trade secrets under the Michigan Uniform Trade Secrets Act, intentional interference with business relations, breach of fiduciary duty, and unjust enrichment.

The complaint filed sought a monetary judgment of $2,132,889.03 against Digue and RnD, alongside a permanent injunction against their use of misappropriated trade secrets. The State Court Case, which involved extensive discovery and litigation, was set for trial in December 2014 but was stayed due to Digue and RnD filing for Chapter 11 bankruptcy on November 20, 2014. Following this, a joint administration order for the cases was entered on December 22, 2014. Nagel filed a proof of claim for the same amount in both bankruptcy cases on January 2, 2015, and subsequently initiated an adversary proceeding on February 27, 2015, mirroring the four counts from the State Court Case while seeking a determination that the claims against Digue were nondischargeable under Bankruptcy Code sections 523(a)(2) and (6). 

On May 14, 2015, the Debtors objected to Nagel’s claims, which were later adjudicated within the Adversary Proceeding by agreement of the parties. The trial commenced on September 16, 2015, lasting nine days, during which Nagel presented four witnesses, including its project manager and an expert witness, and entered numerous exhibits into evidence. The Debtors called three witnesses and introduced their own exhibits. Closing arguments were heard on November 20, 2015, with post-trial briefs filed on December 28, 2015. 

The Court's findings of fact indicate that Nagel, a Delaware corporation based in Ann Arbor, Michigan, specializes in designing and manufacturing superfinishing machines, notably tape finishing machines used to polish automotive parts. The superfinishing process enhances the durability and performance of components, with only a few companies globally operating in this niche market, including Nagel and RnD. Digue, who initially joined Nagel as an electrical engineer in 1997, had previously acknowledged receipt of the company's employee handbook.

The acknowledgment from Digue indicated his agreement to the Company’s rules, regulations, and conditions. The employee handbook outlined conduct deemed inappropriate, including the failure to maintain confidentiality regarding company, customer, or client information. During his initial employment, Digue did not sign a non-disclosure or non-compete agreement. After leaving Nagel in 1999 to work elsewhere, Digue was invited back in 2004, opting to return as an independent contractor rather than an employee to maintain independence. He requested that payments for his services be made to his LLC, which Nagel accepted without inquiry.

While Digue had a desk, office, laptop, and business cards akin to employees, he received no health benefits or life insurance and was not asked to acknowledge the employee handbook upon his return. Digue worked in this capacity until 2007, when he requested the project manager position vacated by Keshavan. Project managers at Nagel handle marketing, customer interactions, and managing the sales process from RFQs to delivery. Despite lacking sales experience, Digue was appointed as a project manager while remaining an independent contractor, unlike Nagel’s other project managers.

Digue resigned on November 18, 2011, providing two weeks' notice, and left on December 2, 2011, taking only his laptop. Nagel did not conduct an exit interview due to his independent contractor status. Keshavan resumed Digue's project management responsibilities following his departure, and Digue provided a list of ongoing projects to him.

Digue was employed full-time at Nagel from February 2004 until December 2011, earning substantial compensation that totaled over $1.2 million during that period, paid to his LLC, Richalin Digue, LLC. Despite his full-time commitment to Nagel, Digue secretly operated a competing business, RnD Engineering, which he had been planning to expand since he filed a certificate of assumed name with the state of Michigan in 2006. Digue's expansion efforts included soliciting business from Nagel's customers, evidenced by an exploratory email sent from his Nagel account to a customer, Saint-Gobain, in October 2010. He obtained business cards identifying himself as RnD's manager without disclosing these activities to Nagel. Digue's actions raised concerns about conflicts of interest and undisclosed business operations while he was still engaged with Nagel.

On May 12, 2011, Digue emailed an Excel spreadsheet from his Nagel account to his RnD account, containing approximately 1,200 entries of contact information for over 200 individuals related to Nagel's marketing and sales. The file, originally created by Keshavan and later updated by Digue, included details about existing and potential customers, but Digue did not seek permission to transfer this data. Concurrently, Digue began soliciting business from Nagel's customers. He traveled to Mexico in March 2011 for a presentation intended to promote Nagel products, for which he invoiced Nagel and received payment. Following this, on May 4, 2011, GKN Celaya requested a quote for two polishing machines from Digue, who did not record the RFQ in Nagel’s log. Instead, on June 22, 2011, he submitted a quote to GKN on behalf of RnD, using Nagel’s format and terminology but on RnD's letterhead. This quote was successful, leading to a purchase order from GKN to RnD for $691,460. Digue did not inform Nagel about the RFQ or subsequent order. To access the purchase order, Digue requested and received supplier codes from GKN, which were originally assigned to Nagel. In September 2011, Digue was alerted to an outstanding invoice owed to Nagel by GKN Driveline, highlighting the complications arising from his actions.

Digue discovered that an unpaid invoice was due to a change in supplier codes from Nagel to RnD, which he had requested. On September 9, 2011, GKN Driveline informed Digue that he needed to submit an invoice from RnD for payment processing. Instead of notifying Nagel, Digue created a fictitious RnD invoice for $20,975.00 and submitted it to GKN on September 30, 2011. GKN processed this invoice, paying RnD on November 15, 2011, after which RnD deposited the funds without informing Nagel. Digue arranged for RnD to reimburse Nagel on December 15, 2011, using a cashier’s check that obscured RnD’s involvement by referencing a GKN purchase order. This tactic concealed Digue's manipulation of supplier codes and the fact that RnD had retained Nagel’s funds for a month.

During this period, while employed full-time by Nagel, Digue solicited additional work for RnD from Nagel’s customers, including TRW Automotive. He invoiced Nagel for a business trip related to this solicitation, which Nagel paid. Digue submitted a quote from RnD for a project to TRW, without notifying Nagel. He also submitted competing quotes for the same machinery to various customers, including Linamar Engicom and Linamar ILSA, consistently favoring RnD with lower prices while keeping Nagel unaware of these activities.

Digue failed to inform Nagel about submitting a competing proposal for RnD that underbid Nagel’s proposal. He repeatedly received RFQs directed to Nagel, concealed them, and submitted RnD proposals in response. Throughout 2011, Digue submitted multiple proposals for RnD to GKN Driveline and Linamar while employed by Nagel, with some proposals leading to successful purchase orders for RnD. Digue used Nagel's proposal texts and images of Nagel machines in his RnD submissions. Upon his departure, he informed some clients about his transition to Keshavan but not those he solicited for RnD, including GKN Celaya and Parker, effectively diverting business until his last day at Nagel. 

On November 25, 2011, he emailed ThyssenKrupp with his new RnD contact information and inquired about VW prototypes, receiving a prompt response regarding the potential for RnD's involvement. Concurrently, Digue was formalizing RnD's business, changing his company name to RnD Engineering, LLC, and signing a 39-month lease for business premises on November 17, 2011, just as he announced his resignation to Nagel. He sought financing for RnD, applying for a line of credit from First Independence Bank, claiming confirmed orders worth over $1.18 million from clients in Mexico, all obtained through his efforts while at Nagel. Digue also projected substantial sales growth for RnD through 2013, based on quotes he had submitted to Nagel customers.

Digue sought an engineer for RnD, as he lacked mechanical engineering expertise. In autumn 2011, he approached Dan Smarch, a mechanical engineer at Nagel, who declined the offer. Subsequently, Digue hired Evans, a former Nagel employee laid off at that time, in October 2011, without disclosing his ongoing full-time employment with Nagel. Initially, Evans worked from home before becoming a full-time employee at RnD by Christmas. RnD's first project was a deburring machine, followed by the development of a superfinishing tape machine, initiated around late 2011 or early 2012 in response to a purchase order from GKN Celaya received on October 4, 2011. The specifics of the design process and the extent of reliance on Nagel’s designs are unclear, but Digue provided direction and a Nagel assembly drawing for the tape management arm, which Evans modified to enhance efficiency. During the initial months, Digue managed sales, targeting both Nagel customers and new clients. In April 2012, RnD hired Steve Kocsis as a sales manager to expand its customer base, successfully securing new clients while still bidding on projects from Nagel’s customers. By spring 2013, Nagel became concerned about Digue’s actions to divert business to RnD. Investigations revealed that Digue misled Nagel’s customers about their ongoing business in superfinishing machines. An email in May 2013 indicated that GKN Celaya had been misinformed about Nagel's status and was directed to purchase equipment through Digue, prompting a visit from Nagel’s Keshavan to address these issues. After Keshavan's meeting, GKN Celaya expressed gratitude for Nagel's support in resolving the situation regarding the alleged fraudulent activities.

Keshavan observed significant confusion among employees at GKN Alamance regarding Nagel's operations, necessitating a clarifying email to inform them that Nagel remained active in the superfinishing business and was not affiliated with Digue. This confusion extended to Nagel's customers, highlighted by an email from ThyssenKrupp mistakenly directed to Digue's former address, which led to Keshavan receiving an inquiry about an "open PO" that Nagel did not recognize. It became evident that Digue had substantially diverted work from Nagel, creating serious issues that were more extensive than initially understood, yet Nagel still lacks a comprehensive grasp of the overall confusion caused.

Both Nagel and RnD continue to operate, though there is no information on their current business sizes or financial status, as no profit and loss statements or balance sheets were submitted as evidence. However, it is noted that RnD generated approximately $4.6 million in sales from 2011 to June 2015, with around $4.3 million originating from ten Nagel customers.

The document outlines multiple legal issues: the first being whether Nagel has a valid claim against the Debtors, which encompasses Nagel's liability theories and the Debtors' objections. If an allowed claim is found, the second issue is the claim's amount in the bankruptcy cases. The third issue pertains to whether Nagel's claim against Digue is exempt from discharge under 523(a) of the Bankruptcy Code, and the final issue is Nagel's entitlement to injunctive relief.

Count I of Nagel's complaint alleges misappropriation of trade secrets under the Michigan Uniform Trade Secrets Act (MUTSA). A “trade secret” is defined as information that has independent economic value and is subject to reasonable efforts to maintain its secrecy. Misappropriation occurs through improper acquisition or unauthorized disclosure. Nagel claims two types of trade secrets were misappropriated: its unique three-element design for superfinishing machines and its customer sales process. The Debtors contest the classification of these as trade secrets and deny any misappropriation. The Court will evaluate these claims separately, starting with the three-element design explained by Nagel's expert witness, Kucklick, a seasoned mechanical engineer.

Hess was a company specializing in heavy machinery design and manufacturing for OEMs and tier one suppliers, with a peak workforce of 500 employees. After selling Hess in 1998, Kuckliek became president and owner of IMT Consulting, Inc., providing consulting and expert witness services in heavy machinery-related matters. During the trial, the Court qualified Kuckliek as an expert in mechanical engineering, focusing on the design, marketing, and manufacturing of machine tools, as well as trade secrets in the industry. Kuckliek's report was admitted into evidence, and he testified that Nagel's equipment incorporates three design elements that collectively form a trade secret: a one-sided design, a one-way clutch, and a tape actuation mechanism linked to workpiece movement. While he did not assert that any single element is a trade secret, he maintained that their unique combination qualifies as such under the Michigan Uniform Trade Secrets Act (MUTSA). The case hinges on whether the information meets the criteria of a trade secret, specifically that it must be secret and not readily ascertainable. Citing legal precedents, Kuckliek argued that Nagel's design is not generally known or easily obtainable, supporting his claim by stating that he could not find any images or information online that would allow someone to reverse engineer the design.

Kucklick's testimony indicated a lack of sufficient publicly available information regarding a specific three-element design. He conducted a patent search but did not identify the design in any patent and stated that his opinion was based on his extensive but undocumented searches. Kucklick did not investigate the context of the design's creation, assumed ownership by Nagel without verification, and acknowledged the absence of detailed records of his searches. He also failed to consult with Nagel's customers or competitors to determine the general knowledge of the design. His uncertainty was evident when he admitted he could not confirm the basis of his conclusions regarding the design's confidentiality.

In contrast, Eby, a qualified expert with a Ph.D. in engineering mechanics, testified that none of the three design elements constituted a trade secret, asserting they were publicly available. Eby analyzed each element individually and highlighted that while patents disclosed individual elements, none encompassed all three. He referenced a trade article from Nagel's website that included a photograph of part of a machine, although he could not ascertain specific details about the design from the image. Eby's report and testimony were admitted into evidence, further supporting the argument that the design was not a trade secret.

Eby identified videos showing a one-sided design but acknowledged they do not include all three components of the three-element design. He also admitted to not finding any video demonstrating the operation of a Nagel superfinishing machine. Eby referred to two assembly drawings of a Nagel tape finishing arm, which he understood were provided to RnD by Linamar, noting that these drawings depict a one-sided plate design, a one-way clutch, and a mechanical linkage. However, he lacked firsthand knowledge of how RnD or Digue acquired these drawings and did not inquire with Linamar or other Nagel customers about their dissemination practices.

Testimonies from Keshavan and McNamara revealed that Nagel project managers have access to assembly drawings, while only mechanical engineers have access to all mechanical drawings. Keshavan stated that Nagel provides customers with basic assembly drawings upon shipping machines, rather than detailed designs for machine construction. McNamara indicated that Nagel's three-element design originated from Nagel Germany but did not clarify the relationship between the two entities. He estimated that since adopting the design in 2003, Nagel sold approximately 70 machines featuring this design to around 30 companies.

Under MUTSA 445.1902(d)(1), a trade secret must derive independent economic value from its secrecy, providing a competitive advantage. Kucklick's report claimed that Nagel's design information holds independent potential and economic value, particularly for a start-up like RnD, as it enables rapid machine design and sales. However, Kucklick did not provide a detailed analysis to support this assertion.

Kucklick, during cross-examination, admitted he did not consult with Nagel's customers or competitors, nor did he review any records or understand the costs incurred by Nagel in developing its trade secrets. Keshavan and McNamara testified about the value of Nagel's three-element design. Keshavan described Nagel's archived drawings as "extremely valuable," particularly because customers often buy duplicate machines. McNamara presented a chart claiming Nagel's net profits from super-finishing machines amounted to $2,347,697.75 from January 1, 2010, to May 31, 2015, asserting this as evidence of the design's value; however, he did not clarify how these profits were linked to the secrecy of the design or its competitive value.

Under Michigan's Uniform Trade Secrets Act (MUTSA), a trade secret must be subject to reasonable efforts to maintain its secrecy. The district court outlined that such efforts could include express agreements, confidential disclosures, or security precautions. Nagel relied on the testimonies of Kucklick, Keshavan, and McNamara to demonstrate reasonable efforts to maintain secrecy. Kucklick’s report concluded that Nagel had taken reasonable measures, but it lacked details on specific efforts, citing only a declaration from Smarch, who did not testify at trial, about sending only assembly drawings. Kucklick acknowledged that Nagel does not require employees or contractors to sign non-disclosure agreements (NDAs), contrasting this with his own company, Hess, which mandates NDAs for employees to protect trade secrets.

Keshavan claimed an expectation of confidentiality among Nagel's employees and customers but could not specify what information was considered confidential. He generically categorized all information received by a customer as confidential.

McNamara and Keshavan both acknowledged that Nagel treats all information as confidential, without distinguishing between trade secrets and other confidential data. New employees are informed about the importance of confidentiality upon hiring. However, they provided minimal evidence of a shared expectation of confidentiality among employees, vendors, and customers, and even less proof of Nagel's efforts to maintain the secrecy of its proprietary design. No written policies were presented regarding access to information, either internally or externally. 

The only specific measures mentioned include storing quotes on a password-protected server, marking quotes as "confidential," and restricting access to electronic files to authorized users. McNamara noted that access to electronic files is terminated when an employee leaves, and that visitors must sign in and are not given unrestricted access. Marketing materials contain only generic information. Additionally, Nagel safeguards its machines at trade shows from close inspection or photography. 

McNamara estimated that he and other employees spend a combined total of about 55% of their time on protecting confidential information, with Nagel investing approximately $1.2 million since January 2011 in these efforts. However, he did not detail how this money was spent or what specific actions were taken to protect confidentiality. Keshavan indicated that assembly drawings provided to customers are typically not publicly disseminated, but he was unsure if customers are required to sign nondisclosure agreements prior to receiving these drawings.

Keshavan testified that Nagel does not provide drawings to customers re-tooling machines with competitors, although customers can request old assembly drawings for a fee. There was no evidence indicating whether Nagel has ever requested the return of drawings or if it has returned any to customers post-retooling. The record lacks clarity on Nagel's efforts to protect the secrecy of its drawings once shared with customers. Keshavan and McNamara acknowledged that no measures were taken to prevent Digue or his associates from disclosing information about the three-element design. They confirmed that Digue was never asked to sign a non-disclosure agreement (NDA) during his employment or as an independent contractor at various times, and there was no confidentiality requirement upon his departure from Nagel. Furthermore, Nagel did not mandate NDAs for employees at any time until after the dispute with Digue arose in 2013, and even then, only for new hires. While Nagel presented evidence supporting its claim that the three-element design qualifies as a trade secret under the Michigan Uniform Trade Secrets Act (MUTSA), there was conflicting evidence regarding whether the design is truly secret. Kucklick, Keshavan, and McNamara claimed it is a secret, while Eby and Digue contested this. Additionally, although Nagel established that the design has historically been valuable for selling machines, the evidence regarding its current value stemming from secrecy lacked probative strength. Kucklick's assertion that competitors would find value in the design was circular, and there was no evidence indicating that any Nagel competitor could benefit from the design to enhance market share or sales.

Nagel's case is undermined by a lack of evidence demonstrating that its measures to maintain the secrecy of its three-element design were reasonable. The Court disregards Kucklick’s assertion of reasonableness due to conflicting testimony from Digue, Keshavan, and McNamara. Digue reported that from 2004 to 2011, he was never asked to sign a non-disclosure agreement or informed of any confidentiality policies, and his testimony went unchallenged. Keshavan and McNamara indicated that, despite Nagel's stated expectations for confidentiality, very few actual measures were implemented to protect the design. Notably, Nagel had not required any employee or independent contractor to sign a non-compete agreement or non-disclosure agreement until 2013, and there is no record of even one instance where confidentiality was enforced prior to that year. Although Nagel presented two non-disclosure agreements, these were initiated by customers rather than Nagel itself. There is also no documented company policy for confidentiality during trade shows where designs were displayed. The only evidence of efforts to maintain confidentiality includes a vague reference in the employee handbook regarding inappropriate conduct and a visitor sign-in sheet, which only applies to visitors and lacks enforcement evidence.

Nagel did not implement adequate security measures to protect its three-element design, making the information accessible to employees, customers, and competitors without any confidentiality agreements or discussions regarding secrecy with Digue. As a result, Nagel's expectation of confidentiality is deemed unreasonable, and the design does not qualify as a trade secret under the Michigan Uniform Trade Secrets Act (MUTSA). Consequently, the court finds no need to address issues of misappropriation or unauthorized use. 

Regarding Nagel’s sales process, described in broad terms by Kucklick, it includes various customer-related information such as correspondence, contact lists, pricing, and historical purchases. While Keshavan and McNamara provided more specific insights, including the individualized nature of customer lists maintained by project managers in Microsoft Outlook, there remains uncertainty about whether such sales information qualifies as a trade secret under MUTSA. Although Keshavan asserted that the sales process is not widely known outside of Nagel, the court refrains from concluding on its status as a trade secret, as Nagel has not demonstrated the necessary attributes for protection under MUTSA. The potential value of the sales process to competitors is acknowledged, with McNamara citing significant profits from 2010 to 2015, exceeding $2.3 million.

Keshavan testified that he maintained Nagel's customer list on a password-protected server but did not detail any other measures taken to ensure its secrecy. After leaving Nagel in 2007, he returned the customer list and was unaware of who accessed it afterward. McNamara acknowledged that non-disclosure agreements for employees and contractors were not implemented until after a dispute with Digue in 2013, when the importance of written agreements was recognized. Kucklick stated that Nagel takes reasonable steps to protect its sales process information but provided no specifics. His report claimed Nagel's efforts to safeguard customer information were reasonable but lacked explanation.

Nagel's MUTSA claim regarding its sales process depends on Kucklick's testimony, which the Debtors contest, arguing they did not need expert testimony from Eby to challenge Kucklick's assertions. The Debtors assert that Kucklick's testimony lacks a solid foundation per Federal Rule of Evidence 702, which requires expert opinions to be based on sufficient facts and reliable methodologies. The court’s role is to assess the reliability of the expert’s opinion rather than its accuracy, ensuring that the testimony is based on sound factual underpinnings. Expert testimony is deemed unnecessary if the jury can easily derive the information from common sense or logic.

An expert witness relying primarily on experience must detail how that experience informs their conclusion, justify its sufficiency, and demonstrate its reliable application to the facts, as established in Antioch Co. Litigation Trust v. Morgan. The court scrutinized Kucklick’s qualifications and found his opinions lacked a solid foundation. Kucklick’s reliance on trial documents was overly broad, with only four of 62 documents being non-trial materials, including a patent and an article. He failed to investigate the public availability of Nagel's customer lists and could not explain the measures taken to maintain the secrecy of Nagel’s sales process, citing only password protection of servers. Kucklick's dismissive comparison of non-disclosure agreements between his company and Nagel was deemed unconvincing. Although the Debtors did not present their own expert testimony to counter Kucklick, the court found his conclusions about Nagel's sales process to be unsubstantiated and lacking in foundation. Consequently, Kucklick’s testimony would be weighed alongside other evidence but not accepted at face value. Nagel’s claims regarding the secrecy of its sales process were similarly weak, relying on conclusory statements and lacking demonstrable efforts to maintain confidentiality.

Nagel did not require non-disclosure agreements from its employees, including Digue, nor did it discuss confidentiality regarding its sales process with him during his tenure or upon his departure. There was no exit interview, and no requests were made for Digue to return company property or information, indicating a lack of effort to protect its purportedly confidential information. Consequently, the court concluded that Nagel's sales process did not meet the criteria for a trade secret under the Michigan Uniform Trade Secrets Act (MUTSA), and thus there was no need to address claims of misappropriation.

In Count II of Nagel’s complaint, it alleges that the Debtors intentionally interfered with its business relationships with several customers by failing to inform Nagel of requests for quotes, redirecting those requests to RnD, providing quotes on behalf of RnD, accepting orders for RnD, and misleading customers regarding Nagel’s business status. To establish intentional interference under Michigan law, a plaintiff must demonstrate the existence of a valid business relationship, the defendant's knowledge of this relationship, intentional interference with malice and without justification, and resulting damages. Additionally, if the defendant's actions are motivated by legitimate business reasons, they cannot be deemed malicious or unjustified.

The Debtors argue that Nagel's claim is preempted by MUTSA, referencing a section that displaces conflicting tort laws related to trade secret misappropriation. However, Nagel contends that another section of MUTSA allows for civil remedies not based on trade secret misappropriation. The court noted a lack of Michigan case law on this issue but referenced a federal court case indicating that claims must be evaluated based on whether they are solely linked to trade secret misappropriation. If they are, such claims may be dismissed.

In Bliss, the court determined that the plaintiffs' claims for tortious interference with a contractual relationship and unfair competition were not pre-empted by the Michigan Uniform Trade Secrets Act (MUTSA) because the claims included allegations beyond misappropriation, specifically that the defendant created market confusion. Conversely, the plaintiffs' conversion claim was pre-empted, as it was solely based on the defendant's unauthorized use of trade secrets, meaning that removing the trade secret allegations would nullify the conversion claim.

In a similar analysis, the court found that Nagel's claim for intentional interference with business relationships is not pre-empted by MUTSA, as it relies on distinct facts unrelated to trade secret misappropriation. Nagel's allegations include Digue's failure to inform him of requests for quotes (RFQs), diverting RFQs to RnD, misleading customers about Nagel's services, and underbidding Nagel’s proposals. These claims do not depend on the existence of trade secrets.

To establish intentional interference, Nagel demonstrated valid business relationships with several customers and a reasonable expectation of continued business. Digue, aware of these relationships as Nagel's project manager, engaged in conduct that undermined Nagel's business both before and after his resignation on December 2, 2011. Evidence showed that while still employed, Digue built a competing business for RnD, failed to log RFQs received at Nagel, and directed responses to RnD, thereby subverting Nagel's interests.

Digue engaged in unethical business practices by having quotes issued under his company, RnD, that underbid quotes he issued for Nagel in response to requests for quotes (RFQs) from clients Linamar ILSA, Linamar Engicom, and ThyssenKrupp. This conduct, which began before December 2, 2011, interfered with Nagel’s business relationships and expectations. Digue acted with malice and without justification, fully aware that his actions undermined Nagel's interests. While being compensated as a project manager for Nagel, he concealed his actions and motivations, which were not rooted in legitimate business development but rather in an intent to siphon business from Nagel to RnD. Digue offered two defenses: an unclear reference to legal advice and his classification as an independent contractor. Both defenses were dismissed; the former lacked specifics or corroboration, and the latter did not absolve him of responsibility for intentional interference. Digue's demeanor during testimony suggested he understood the wrongful nature of his conduct, as he could not justify why he did not wait until after leaving Nagel to pursue these opportunities. Post his departure on December 2, 2011, evidence confirms that Nagel maintained valid customer relationships and expected further work.

Customers did not leave Nagel solely due to Digue's departure, and Digue maintained knowledge of Nagel's business relationships. However, there is no evidence that he interfered with those relationships after leaving the company. Testimony revealed that Nagel found no proof Digue accessed its systems or confidential information post-departure. By April 2012, Digue had begun working with Kocsis to solicit business from non-Nagel customers, and while RnD competed with Nagel for business, this competition did not constitute interference, as Nagel had not required a non-competition agreement from Digue. Digue was therefore legally allowed to utilize his skills and knowledge to compete after his employment ended.

Nagel did demonstrate damages resulting from Digue's actions prior to December 2, 2011, specifically losing orders from several customers due to Digue secretly submitting proposals on behalf of RnD while employed at Nagel. This established a claim for intentional interference with Nagel’s business relationships based on Digue's conduct before his departure, but not after. 

Furthermore, Count III of Nagel's complaint asserted that Digue, as an agent of Nagel, had a fiduciary duty to act in Nagel's best interests. Nagel claimed Digue breached this duty by concealing RnD's existence, soliciting business for RnD, diverting requests for quotes (RFQs) and orders, and misleading customers about Nagel's services. In Michigan, an agent is defined as someone authorized to act on behalf of another, emphasizing the responsibility to represent the principal's interests faithfully.

An agent is responsible for managing contractual obligations between their principal and third parties, including the ability to modify, accept performance, or terminate these obligations. Agents owe fiduciary duties to their principals, which include good faith, loyalty, care, skill, diligence, and adherence to the principal's instructions. Agents cannot act in a dual capacity that creates a conflict of interest without fully disclosing relevant facts to their principal. While employees may prepare to compete with their employer without breaching loyalty, they cannot engage in actual competition during their employment.

In a legal dispute, the court finds that a claim for breach of fiduciary duty is not preempted by the Michigan Uniform Trade Secrets Act (MUTSA), as it is based on actions beyond mere trade secret misappropriation. Specific allegations against an individual named Digue include concealing business activities, soliciting clients from his employer Nagel, diverting requests for quotes, and misleading customers about Nagel's operations. The court notes that even if trade secret claims were removed, the wrongful conduct alleged would still support a breach of fiduciary duty claim.

The court also addresses the nature of Digue's relationship with Nagel, emphasizing that simply labeling him as a project manager or independent contractor does not inherently establish a fiduciary duty. The determination of whether a fiduciary duty exists requires a thorough understanding of the relationship's specifics, which lacks a formal contract or documented rights and obligations. Testimonies from witnesses serve as the primary evidence to clarify the nature of this relationship.

Nagel presented three witnesses—Keshavan, McNamara, and Kucklick—who were supportive but lacked direct involvement in the agreement between Nagel and Digue. None had participated in or were present during the agreement's formation, and their testimonies were based solely on their perceptions of the relationship. Keshavan described the general role of a project manager but lacked knowledge of Digue’s specific agreement. McNamara confirmed Digue's status as an independent contractor and noted similarities in how Nagel treats independent contractors and employees, yet admitted to limited understanding of Digue's business entity, Richalin Digue, LLC, assuming it was for tax purposes without seeking clarification. Kucklick's testimony echoed the previous witnesses' statements but he had not communicated with anyone at Nagel or Digue. 

Digue himself was called as an adverse witness and recounted discussions with Jim Saule and Heidi Boehsler upon returning to Nagel in 2004, where he expressed his desire to remain independent and agreed that no written agreements would be established, nor was he required to adhere to Nagel’s employee handbook. He confirmed his role involved promoting, marketing, and selling Nagel superfinishing machines, logging RFQs, preparing quotes, and following up on orders, working over 40 hours weekly from 2007 to 2011, earning approximately $150,000 annually. Digue acknowledged he acted as Nagel's representative, submitting proposals on Nagel’s letterhead and identified his duties clearly, despite the absence of a written agreement detailing them. There was no significant factual dispute regarding his responsibilities as a project manager.

Digue had access to Nagel's customer list, quotes, marketing materials, and drawings, which created a duty of loyalty to Nagel while he was employed and compensated by them. Despite the lack of a written agreement and his status as an independent contractor, Digue owed Nagel a fiduciary duty of good faith and loyalty. Evidence shows Digue understood this duty but breached it by failing to disclose his efforts to divert business from Nagel to his own venture, RnD. He did not log all RFQs into Nagel’s database, issued competing quotes, and underbid Nagel’s quotes, indicating intentional concealment of his conduct. Consequently, Nagel has established a claim against Digue for breach of fiduciary duty, limited to actions before December 2, 2011, when Digue ceased working for Nagel.

Additionally, Count IV of Nagel’s complaint asserts unjust enrichment, alleging that Digue and RnD benefited from sales that should have been attributed to Nagel, resulting in inequity. To succeed in an unjust enrichment claim, Nagel must demonstrate that Digue received a benefit from them and that it is inequitable for Digue to retain it. The evidence indicates Digue secretly built RnD while being compensated by Nagel, successfully diverting business and generating financial gains at Nagel’s expense. Thus, it is inequitable for Digue to keep these benefits. However, Nagel does not have an allowed claim against the Debtors for misappropriation of trade secrets under the Michigan Uniform Trade Secrets Act.

Nagel has an allowed claim for intentional interference with business relationships and breach of fiduciary duty, entitled to recover unjust enrichment gained by the Debtors. The assessment of Nagel’s damages relies on witness testimonies, primarily from Keshavan and McNamara. Keshavan noted a decline in requests for quotes (RFQs) and orders for superfinishing machines from 2011 to 2013, attributing this to competition from the Debtors; however, he lacked access to Nagel's financial data and could not quantify the damages accurately. McNamara, as the finance director, provided a detailed account but also admitted he was not a damages expert. He created a Damages Chart, admitted as a summary under Federal Rule of Evidence 1006, indicating total damages of $1,870,635.00, excluding attorney fees. The damages breakdown includes:

1. $469,500.00 for lost profits from orders received by RnD linked to quotes made before December 2, 2011.
2. $64,350.00 for potential orders regarding projects quoted before the same date.
3. $724,075.00 for orders from previous customers responding to quotes made after December 2, 2011.
4. $385,000.00 for lost business opportunities and damaged goodwill.
5. $155,065.00 for payments made to Digue in 2011 under the faithless servant doctrine.
6. $72,645.00 for unjust enrichment from additional orders due to misappropriation of trade secrets.

The first category reflects lost profits from five purchase orders issued to RnD while Digue was still employed at Nagel, with one notable order for machines from GKN Celaya, leading to an estimated loss of $245,000.00 for Nagel.

McNamara assessed profit margins for multiple purchase orders related to machines sold by Nagel, estimating a 33% margin based on past sales to GKN Celaya. For a deburring machine ordered by Linamar Engi-com for $191,450, Digue admitted to submitting a competing quote on behalf of RnD without informing Nagel, resulting in an estimated lost profit of $41,000 for Nagel at a 20% margin. For a tape finishing machine ordered by GKN Alamance for $229,955, Digue also submitted a quote to RnD, leading to an estimated lost profit of $87,500 for Nagel. Another tape finishing machine for Linamar ILSA, priced at $299,900, similarly had Digue submit a proposal using Nagel’s materials, resulting in an estimated loss of $90,000 for Nagel. The final order involved tooling for Parker, amounting to $23,707, where McNamara estimated damages of $6,000 based on Nagel’s average profit for tooling, despite lacking direct evidence of a quote or purchase order. The Debtors contested the compensability of these damages, arguing that Nagel competes with other manufacturers and that there was no certainty it would have secured the orders.

Nagel's claim for damages was challenged by the Debtors, who argued that Nagel did not provide expert testimony and relied on McNamara, who lacked expertise in damages or accounting. They contended that McNamara's profit estimates were unfounded, exceeding Nagel's previous profits from similar sales. The Court, however, rejected the Debtors' arguments, affirming that a plaintiff can recover damages that directly result from a defendant's breach, but not speculative or uncertain damages. The Court noted that while certainty in damage estimates is ideal, it can be relaxed when the fact of damage is established and only the extent remains in question. It acknowledged that Nagel doesn't need to prove guaranteed outcomes for purchase orders but must demonstrate it is more likely than not that it would have secured them. Testimonies from Keshavan and McNamara convinced the Court that Digue's actions prevented Nagel from obtaining these orders. The absence of expert testimony was deemed irrelevant because non-expert evidence sufficed to establish damages. Evidence indicated that Digue submitted proposals to five of Nagel's customers while employed there and successfully diverted business to RnD. McNamara's estimates of lost profits were found generally consistent with Nagel's historical profits, providing a sufficient foundation for damages. Nagel proved it suffered damages of $469,500 attributable to Digue's wrongful actions, including intentional interference with business relationships and breach of fiduciary duty. Additionally, the second section of the Damages Chart, totaling $64,350 for potential purchase orders, was noted; however, McNamara admitted he had not seen any purchase orders for those specific machines.

McNamara testified that he was unaware if any potential orders were given to RnD and included them in the Damages Chart due to Nagel's historical success in securing approximately 50% of purchase orders from its customers. He estimated that if Nagel had the chance to quote on five projects, it would likely have secured at least two orders, leading to a damages estimate of $64,350.00, which he halved to reflect Nagel's success rate. However, the Debtors contested this claim, and the Court concurred, noting that the damages in this section were based on speculation rather than actual purchase orders. McNamara's assertion of a 50% success rate lacked probative value in light of his acknowledgment of Nagel's competition in the superfinishing machine market and his ignorance of sales figures and market share. Unlike the first section of the Damages Chart, which had strong evidentiary support due to documented purchase orders to RnD, the second section lacked evidence of any actual orders being issued, making the estimated damages unsubstantiated.

Nagel lacks evidence from its customers to demonstrate that the absence of purchase orders for machines was influenced by Digue’s actions. McNamara’s vague testimony regarding Nagel’s success rate, coupled with his unfamiliarity with the market, fails to substantiate claims for damages, which are deemed speculative. The third section of the Damages Chart, totaling $724,075.00, reflects orders RnD received after Digue’s resignation, and Nagel does not argue these were linked to Digue’s previous quotes. Although Nagel seeks compensation for these amounts, it lacks a sound legal basis for recovery. The court previously ruled that Nagel did not establish a trade secret claim under the Uniform Trade Secrets Act (MUTSA), which would have supported its case. The remaining claims in Nagel’s complaint—intentional interference with business relationships, breach of fiduciary duty, and unjust enrichment—were also unproven. Digue’s fiduciary duty ended upon his departure on December 2, 2011, allowing the Debtors to compete freely thereafter. Consequently, any purchase orders acquired by RnD post-departure cannot be attributed to wrongful acts against Nagel. Thus, Nagel is not entitled to damages from this section. The fourth section of the Damages Chart, accounting for $385,000.00 in "lost business opportunities and damaged goodwill," is based on McNamara's assessment of a decline in requests for quotes (RFQs) in 2011 and 2012, which he attributes to the Debtors’ misleading tactics. His methodology compares quote data from different years to infer potential losses, although this inference lacks direct evidence linking the decline to the Debtors’ conduct.

McNamara estimated that Nagel should have quoted on 13 additional projects in 2011 and 2012, likely securing purchase orders for seven of them, resulting in a potential profit of $55,000 per order, totaling $385,000. However, McNamara attributed this loss to Digue’s unfair competition, yet admitted he could not definitively link the drop in Nagel's quotes to Digue's actions, acknowledging external factors like economic conditions and competition could also be responsible. He conceded that his profit estimate did not account for Nagel’s costs in producing the machines, leading to the conclusion that Nagel failed to demonstrate the fourth section of damages with sufficient evidence, rendering McNamara’s estimate speculative and inadmissible.

The fifth section of the Damages Chart claims $155,065 for payments made to Digue in 2011, associated with the "faithless servant doctrine." Although no specific trial testimony addressed this amount, it is undisputed that Nagel made these payments during 2011, coinciding with Digue’s actionable conduct of intentional interference and breach of fiduciary duty. The key legal issue is whether Michigan's faithless servant doctrine applies, which allows for forfeiture of compensation due to fraud, misconduct, or gross neglect by an officer, as established in Michigan case law.

The rule regarding the "faithless servant" is rooted in agency law and has been applied by Michigan courts beyond corporate officers. In a notable case, an executor forfeited compensation due to excessive manipulation of estate affairs, making loss determination impossible. In Tooling Manufacturing Tech. Ass’n v. Tyler, an insurance agent misappropriated over $700,000 in commissions by diverting inflated payments to a corporation he formed after notifying his employer of his departure. The trial court dismissed several claims but found the agent had wrongfully taken the commissions, affirming the principle that an agent forfeits compensation for misconduct or gross mismanagement.

Michigan courts uphold that disloyalty to a principal negates an agent's right to compensation for services not properly performed. The faithless agent rule applies when an agent engages in misconduct, leading to a forfeiture of related compensation. In a specific case, Digue was found to have secretly established a competing business while employed as a project manager, acting with malice and breaching his fiduciary duty. These findings justify the application of the faithless servant doctrine under Michigan law, leading to the inclusion of all payments made by Nagel to RnD for Digue's services in 2011 as damages. Evidence indicated Digue was planning his competitive venture as early as October 2010, with actions taken in May 2011 to implement those plans.

Digue submitted a proposal on behalf of RnD to GKN Celaya, leading to RnD's first purchase order in July 2011. After diverting a request for quotation (RFQ), Digue was no longer employed by Nagel but was instead acting independently. Nagel's records indicate that from May 4 to December 2, 2011, it paid RnD $95,003.16 for Digue's work, which constitutes damages recoverable under the faithless servant doctrine. Additionally, a claim of $72,645.00 for unjust enrichment from additional orders received by RnD due to alleged misappropriation of Nagel's trade secrets was presented, based on testimony from McNamara. However, the court determined that Nagel failed to establish a compensable claim, as it did not prove misappropriation under the Michigan Uniform Trade Secrets Act (MUTSA). Furthermore, McNamara's estimation of damages lacked sufficient support and was deemed speculative. The court allowed only the claims in the first and fifth sections of the Damages Chart, totaling $564,503.16, for intentional interference with business relationships and breach of fiduciary duty, respectively. Nagel's request for attorney fees, based solely on MUTSA, was denied because the court found no grounds for awarding fees under state law claims, as each party typically bears its own attorney costs unless specified by statute or contract, as reinforced by the Supreme Court's ruling in Baker Botts L.L.P. v. ASARCO LLC.

Nagel's request for attorney fees was denied as no relevant statute or contract was identified. He filed identical claims in two bankruptcy cases against the Debtors, based on wrongful actions by Digue that diverted business from Nagel to RnD. The court found no evidence to distinguish between Digue's and RnD's conduct, concluding both were unjustly enriched. Under Michigan law, this warranted joint and several liability, resulting in a claim awarded to Nagel for $564,503.16 against both Debtors. 

In Count V of Nagel's complaint, he sought a determination that his claim against Digue was nondischargeable under § 523(a)(2)(A) of the Bankruptcy Code, which addresses debts obtained through false pretenses, false representations, or actual fraud. Each ground for nondischargeability requires proof of positive fraud. False representation involves a material misrepresentation made knowingly and with intent to deceive, while failure to disclose a material fact may also constitute fraud. The court noted that actual fraud involves deceptive schemes intended to cheat another party. Nagel argued that his claim against Digue fell under all three categories of § 523(a)(2)(A), asserting that the circumstances were more aligned with false pretenses or actual fraud than with a specific misrepresentation.

Digue engaged in a series of deceptive actions over an extended period to mislead and defraud Nagel. He failed to log RFQs, submitted proposals for RnD using Nagel's materials, misled customers into believing they were receiving Nagel machines, and issued competing quotes that undercut Nagel's bids. Digue also manipulated Nagel’s supplier codes, created a fictitious invoice, wrongfully held funds belonging to Nagel, and concealed his actions while still receiving compensation from Nagel as a project manager. His intent to deceive is evident, leading to proximate damages for Nagel amounting to $564,503.16, which Digue incurred through false pretenses. Nagel's claims against Digue are asserted to be nondischargeable under sections 523(a)(2)(A) for fraud and 523(a)(4) for embezzlement, though the latter fails because Nagel did not entrust property to Digue. Additionally, Count VII alleges nondischargeability under 523(a)(6) for willful and malicious injury, but details of this claim were not fully articulated in the excerpt.

Nondischargeability under 11 U.S.C. § 523(a)(6) requires (1) an intent to cause harm or belief that harm is substantially certain to result, and (2) the absence of just cause or excuse. The Supreme Court in Kawaauhau v. Geiger broadened this understanding to include both intent and the belief in certain harm. Malice is defined as a wrongful act done intentionally without justification, per Tinker v. Colwell. The court found that Digue acted with malice by intentionally diverting Nagel’s business to his own company, RnD, while still employed by Nagel. Digue solicited Nagel’s customers for RnD, submitted competing bids, and built a secret business at Nagel's expense, all without credible justification. Consequently, Nagel's claim against Digue is deemed nondischargeable under § 523(a)(6) due to his malicious actions.

Additionally, Nagel seeks a permanent injunction against the Debtors, prohibiting them from using or disclosing Nagel's trade secrets and requiring them to return any related documentation. However, Nagel's request is based on the Michigan Uniform Trade Secrets Act (MUTSA), which requires proof of actual or threatened misappropriation of trade secrets. The court determined that Nagel's design and sales process do not qualify as trade secrets under MUTSA, leading to the conclusion that Nagel failed to demonstrate the necessary misappropriation for injunctive relief.

The Court has denied Nagel's request for injunctive relief, concluding that although Nagel sincerely believes its three-element design for superfinishing machines and its marketing process are trade secrets, it has failed to take reasonable steps to protect this information. Despite having sold these machines for years without a documented policy for confidentiality, Nagel did not require employees or contractors to sign non-disclosure agreements until after the dispute with Digue arose. 

Digue, who has successfully marketed and sold machines both at Nagel and later at RnD, was found to have acted unethically by building his own competing business while still employed at Nagel. Although he had no non-compete agreement, his actions of secretly competing while receiving compensation from Nagel caused significant damage to the company. Consequently, the Court ruled that Digue and the Debtors are liable for this damage, which is deemed non-dischargeable in bankruptcy due to the nature of their misconduct.

The Court also addressed an oral motion for judgment by the Debtors, which it construed under Rule 52(c), determining that Nagel provided sufficient evidence to overcome this motion. The extensive evidentiary record allowed the Court to make necessary findings to resolve the issues presented in the adversary proceeding.

Extraneous or irrelevant facts in the record are not included in the Court's opinion, although they were considered. The Court's findings are not supported by specific citations unless deemed useful. Exhibits, such as exhibit 4, may contain multiple documents, meaning citations to an exhibit refer to the included documents but do not imply exclusivity. The timeline of RnD's superfinishing machine development and its relation to Nagel's alleged trade secret is deemed irrelevant to the Court's decision. Testimony from Eby regarding other patents and documents claiming to disclose all three design elements was objected to by Nagel because Eby did not reference them in his report or supplement it as required by Federal Rules of Civil Procedure. The Court upheld Nagel's objection, excluding Eby's testimony and the contested documents, as the Debtors failed to prove that their omission was substantially justified or harmless. Eby also stated he was not asked to opine on the reasonableness of Nagel's secrecy efforts. Digue's testimony about Nagel's presence at trade shows in 2008 and 2010 contradicted McNamara's views, detailing how machines were displayed and interacted with by visitors. Finally, Nagel's argument regarding the admissibility of its new non-disclosure agreement policy under FRE 407 was rejected, as the rule applies to subsequent measures that lessen the likelihood of prior harm, not to prove the inadequacy of past policies.

The rule prohibits admitting evidence to establish negligence, culpable conduct, defective products or designs, or the need for warnings or inspections. However, evidence of subsequent measures is permissible to demonstrate the feasibility of precautionary measures. In this case, evidence regarding Nagel's policy change on non-disclosure agreements is presented not to establish Nagel's culpability but to support Nagel's claim that its measures were insufficient under the Michigan Uniform Trade Secrets Act (MUTSA). Nagel's objection under Federal Rule of Evidence 407 is overruled. Michigan courts generally do not classify customer lists developed by employees as trade secrets, as indicated in McKesson Medical-Surgical Inc. v. Micro Bio-Medics, Inc. Such lists may be protectable under non-disclosure agreements but not as trade secrets. Testimony indicated that no opinion was sought on whether Nagel’s sales process was a trade secret. The Giasson Aerospace court referenced decisions outside the Sixth Circuit and emphasized that MUTSA aims for uniformity in trade secret law among states. 

Nagel cannot claim attorney's fees under the Bankruptcy Code due to a lack of statutory basis for fees in a Section 523 action. At a pretrial conference, Digue contested the sufficiency of Nagel’s complaint regarding nondischargeable debts, but the court found the complaint adequately pled all types of debts under Section 523(a)(2)(A). Notably, debts related to fraud or defalcation while in a fiduciary capacity are nondischargeable under Section 523(a)(4), but Nagel did not plead these theories despite alleging a breach of fiduciary duty under Michigan law. The definition of fiduciary for purposes of Section 523(a)(4) is based on federal law, which the Sixth Circuit restricts to pre-existing fiduciary relationships and express or technical trusts. Nagel's complaint did not assert nondischargeability based on fraud or defalcation, and even if it had, evidence did not support the existence of an express trust as required by the Sixth Circuit.