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Here’s What Happened:
Brothers Richard and Kevin Gates and Chao Chen founded Elmagin Capital LLC. The core business was to develop trading strategies for wholesale electricity markets. Chao decided to leave the company and the Gates brothers bought him out. In exchange, Chao signed a Non-Disclosure and Non-Competition Agreement (NDA). Chao agreed not to work in a competing business for one year.
One year later, Chao opened a new business for trading in the wholesale electricity market. Chao developed trading strategies for his new business.
Elmagin sued Chao for trade secret misappropriation. A jury found that Chao didn’t use any of Elmagin’s trade secrets. The jury also found that Elmagin brought the suit in bad faith. Under both the Defend Trade Secrets Act and the state law of Pennsylvania, Chao can ask for attorneys’ fees upon a finding of bad faith. The judge treated the jury’s finding of bad faith as an advisory determination and declined to award attorneys’ fees. The judge also denied Elmagin’s motions for judgment as a matter of law and a new trial. Both sides appealed.
The Third Circuit Court of Appeals affirmed the lower court on everything. The Court agreed with the trial judge that an award of attorneys’ fees is an equitable remedy and so, a litigant is not entitled to a Seventh Amendment jury trial on the issue. Chao argued that the distinction shouldn’t exist when interpreting modern trade secret misappropriation law. The Court didn’t buy it. “Regardless of the age of trade secret law, attorneys’ fees claims were available at law in English courts in the 1700s and were decided by the judge.”
WHY YOU SHOULD KNOW THIS: Elmagin was lucky in this case that the issue of misappropriation wasn’t clear cut enough for the judge to find bad faith. This case gives a company something to consider when a departing employee is allegedly using trade secrets. Make sure the former employee is actually using the trade secrets before filing suit.
This case is non-precedential which means it won’t be relied on in future cases.
Case Information: Elmagin Cap., LLC v. Chen, No. 22-2739, 2024 WL 2845535, at *1 (3d Cir. Mar. 21, 2024)(not precedential); 18 U.S.C. § 1836(b)(3)(D); 12 Pa. Cons. Stat. § 5305(1).