Eaton Corp. Loses Misconduct Appeal 9-0

, The Litigation Daily

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Sue Reisinger writes for Corporate Counsel, an American Lawyer affiliate.

The Mississippi Supreme Court ruled against the Eaton Corporation Thursday and let stand a trial judge’s severe sanctions against the company for legal misconduct. The unanimous decision wasn’t even close.

The Cleveland Plain Dealer called it “a stunning defeat for Cleveland’s biggest corporation.” The company did not immediately respond to calls seeking comment.

And a Mississippi lawyer’s blog put it this way: “Eaton Corp. got shut out today at the Mississippi Supreme Court: 9-0.”

Eaton, a power management company, had filed a $1 billion suit against competitor Frisby Aerospace in Hinds County Circuit Court in Jackson, Mississippi. The suit claimed that six Eaton engineers who worked at a plant in Jackson left the company to join Frisby and took trade secrets with them.

Frisby denied the charges, filed counterclaims against Eaton and sued Eaton in a North Carolina court for antitrust violations.

The trial court had found that Eaton’s misconduct included paying off a star witness, lying about the payoff during discovery and hiring a secret outside counsel to influence the then-sitting judge through ex-parte communications. The lower court levied discovery sanctions worth $1.5 million and dismissed Eaton’s case against Frisby.

The saga of how the company’s actions kept digging it deeper and deeper into a legal hole was the subject of a Corporate Counsel cover story in September 2012.

Emails and other evidence implicated several in-house counsel with knowledge of the wrongdoing, including executive vice president and general counsel Mark McGuire. The company subsequently dismissed Victor Leo, its in-house chief litigation lawyer, and senior counsel Sharon O’Flaherty.

O’Flaherty has filed a wrongful termination suit against Eaton, claiming the company made her a scapegoat in the case.

The state Supreme Court said all of the issues raised by Eaton on appeal, including that the trial court abused its discretion in dismissing the case, were without merit. “And we find no abuse of discretion in the trial court's ultimate decision to right the wrong by issuing the most severe sanction at its disposal," the opinion states.

To substantiate its decision, the court’s 41-page opinion [PDF] quoted at length from the trial court’s details of Eaton’s misconduct.

Frisby attorney Eric Sitarchuk, from the Philadelphia office of Morgan, Lewis & Bockius, said Friday, “We are of course very pleased with the court’s ruling.” He declined further comment due to pending litigation.

Also pending before the Mississippi Supreme Court is Eaton’s quest to replace the Hinds County Circuit judge overseeing Frisby's countersuit, Jeffrey Weill Sr. And a shareholder suit filed in Cleveland, claiming Eaton mishandled its initial lawsuit against Frisby and cost investors $1 billion, remains pending.

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