Lionel And MTH Making Progress In Trade Secrets Case By Erol Gurcan
It’s been about 2 months since I have written anything substantive about the Lionel MTH Trade secrets case or about the status of Lionel’s bankruptcy. That’s because there was little going on in the proceedings during this period of time. As you may recall, on August 13, MTH filed an appeal concerning Judge Lifland’s August 2 rulings in favor of Lionel. On August 2, Judge Lifland ruled that any future trial (the Bankruptcy Code 502(c) damages estimation hearing) in the trade secrets case would be held before him, instead of in the Federal District Court in Detroit Michigan, and granted a fifth extension of time to Lionel to file an exclusive bankruptcy plan with the court. MTH had opposed Lionel’s motion for exclusivity and proposed three alternative plans which were rebuffed by Judge Lifland.
Click on the link below to read on
Since there was little going on in court, the logical assumption was that both parties attorneys were continuing to discuss settlement in the trade secrets (involving the alleged theft of design plans for locomotives) the and/or separate patent infringement (involving microprocessor synchronized smoke) lawsuits. Legal papers filed by MTH’s attorneys on October 5 now reveal that my assumption was correct.
MTH’s legal papers state "…the parties have made substantial progress in settling their disputes." Most significantly, the document states, "…this court has already been informed by the parties in a chambers conference that the amount of MTH’s claims in this case was resolved in early July 2007…" Thus, it appears the parties have at least agreed on a settlement amount as damages for the alleged misappropriation of blueprints in the trade secrets case, but not in the separate patent infringement lawsuit. The legal papers do not mention the patent infringement case at all.
MTH’s legal papers claim a full settlement has not occurred in the trade secrets case since there are other issues that have not been resolved. The issue or issues that are holding up a possible settlement are not specified, but appear to deal with technology. Although not specified, MTH’s position is that "in the settlement negotiations, Lionel is holding out a provision that will effectively give Lionel a legal advantage over MTH with regard to future use of certain technologies. In other words, Lionel wants to use the bankruptcy process to obtain a competitive advantage against MTH after it emerges from bankruptcy." MTH’s attorneys have asked the court not to let this happen. I’m sure Lionel’s position would be to the contrary. (I have attempted to quote from MTH’s legal documents as much as possible to avoid any potential misinterpretation in what was written since the lawsuit and subject of settlement fosters a lot of emotion from some three rail enthusiasts who favor one company over the other).
Both parties were in Federal DISTRICT COURT on October 12th (since MTH appealed to this court on August 13) for a settlement conference. The two model train rivals are also due back in bankruptcy court on Tuesday, October 16. Lionel’s attorneys have made another motion, its sixth, to extend its time to file a bankruptcy reorganization plan for an exclusive period of time. In other words, no other parties, including MTH, can propose their own bankruptcy plan to the court during this exclusive period of time. MTH has filed papers opposing this motion. Its is expected the court will grant this motion. I also hope the court will set a trial date and schedule in the trade secrets case if it is not settled by then. Lionel has been in bankruptcy since November 15, 2004, a period of almost three years. Its time for this case to be settled or tried in the near future.
Stay tuned.
Erol Gurcan
Erol B. Gurcan, an O Gauge industry legal expert, is a regular contributor to OGaugeWatch.com
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- Bankruptcy Court Grants Lionel 7th Extension: MTH Motion to Extend TRO Granted by Erol Gurcan
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5 Responses to “Lionel And MTH Making Progress In Trade Secrets Case By Erol Gurcan”
If Mike Wolf wants to bargain, rather than fight in court — it’s his company to do with as he pleases of course.
However, legally, there won’t be much bite to stealing trade secrets in the train industry if he doesn’t pursue a legal win.
Posted by: David L Pearce | Oct 15, 2007 at 10:06 PM
With a weak to non-existent technical case for trade secret theft (making toy trains is a trade secret?) and the prospect of a trial before a judge who does not appear to buy into MTH’s version of reality, a settlement may be better financially and less humiliating than being totally defeated in court.
Posted by: Neil Blumberg | Oct 16, 2007 at 7:21 AM
I doubt the case is that weak. They won once, and the jury did have machinists on board.
Even further, there was a very real cover up at lionel, destroyed email/documentation. A judge worth his salt would bend the case to MTH on the merits of that evidence alone.
Finally, it’s doubtful that J.C. would be settling if he thought he could win in front of a judge.
Posted by: David L Pearce | Oct 19, 2007 at 10:17 AM
“They won once, and the jury did have machinists on board.”
A machinist isn’t a scientist or knowledgeable about intellectual property. Such individuals are routinely excluded from such trials.
I’ve reviewed many of the documents publicly available and am absolutely convinced there were no trade secrets at stake, and that MTH’s claims of financial damages due to Korea Brass’s access to their plans are completely without merit.
The absence of evidence is not the same as a coverup. These were plans used in Korea, and Lionel may have had little to no control over those plans. Guilt by association is allowed in civil trials, but smart judges can tell when a snow job is being offered, as in MTH’s case.
Lionel will settle if the costs are reasonable and time in bankruptcy can be shortened. Otherwise, I have no doubt they are confident they can prevail before Judge Lifland in demonstrating their lack of liability for MTH’s self-inflicted market woes.
Posted by: Neil | Oct 19, 2007 at 11:41 AM
From the OGRR Forum and Keith Levine:
For all intents and purposes, the greatest model train litigation saga in history is finally over!!!
According to a court document filed yesterday, Oct. 23, “Lionel and MTH have entered into the MTH Settlement Agreement, which resolves all MTH Claims, including the Patent Infringement Claim discussed below, and all pending litigation between the parties. The effectiveness of the MTH Settlement Agreement is contingent on the effectiveness of the Plan.”
The “Plan” referred to is Lionel’s Plan of Reorganization. While nothing in life is certain–except death and taxes–the realization of Lionel’s Plan of Reorganization is highly likely. The terms of the settlement are and will remain confidential. The settlement was actually reached on Oct. 12.
The relevant sections of the court document state as follows:
“(d) Appeal of Estimation Order; Second Mediation;
Settlement
On August 13, 2007, MTH filed a notice of appeal with respect to the Estimation Order. The appeal was docketed in the United States District Court for the Southern District of New York on September 10, 2007 and assigned to the Honorable Richard M. Berman with case number 07-Civ-7946 (RMB).
On September 25, 2007, MTH sent a letter to Judge Berman requesting a settlement conference with Judge Berman or a magistrate judge. By endorsement of the letter on September 27, 2007, Judge Berman ordered that the parties meet with Magistrate Judge Gabriel W. Gorenstein to discuss settlement. The parties submitted confidential mediation statements to Judge Gorenstein on October 9th and met with Judge Gorenstein on October 12, 2007, at which time they were able to reach agreement on the terms of a settlement. As a result, Lionel and MTH have entered into the MTH Settlement Agreement, which resolves all MTH Claims, including the Patent Infringement Claim discussed below, and all pending litigation between the parties. The effectiveness of the MTH Settlement Agreement is contingent on the effectiveness of the Plan.
The settlement of the MTH Claims satisfies one of the conditions precedent to confirmation of the Plan and, by resolving the largest contingent and disputed claim against the Debtors, will facilitate satisfaction of another condition - raising sufficient New Debt/Equity Investment to finance the Debtors’ exit from chapter 11. With the resolution of the MTH Claims, the Debtors believe that they will be able to raise sufficient New Debt/Equity Investment to satisfy all Claims against the Debtors. However, if such financing cannot be raised and the Plan is not confirmed, the MTH Settlement Agreement will not become effective.”
“N. Settlement with MTH.
Lionel has entered into the MTH Settlement Agreement, which resolves the MTH Claims and any other claims by MTH against Lionel arising on or prior to the effective date of the MTH Settlement Agreement in exchange for the MTH Settlement Claim. The MTH Settlement Agreement will become effective upon the satisfaction of the following conditions (assuming that the representations and warranties made by each party in the MTH Settlement Agreement are true and correct on such date): (i) entry of the Confirmation Order, (ii) satisfaction of all conditions to effectiveness of the Plan, and (iii) approval of the MTH Settlement Agreement. The Debtors are seeking approval of the MTH Settlement Agreement in connection with confirmation of the Plan and therefore, the Confirmation Order will provide for the approval of the MTH Settlement Agreement.
As a result of the settlement, all litigation pending prior to and during the Debtors’ Chapter 11 Cases between Lionel and MTH will be dismissed.
By agreement of Lionel and MTH, the MTH Settlement Agreement and its terms are confidential. The Debtors will, however, file a copy of the MTH Settlement Agreement (under seal) as part of the Plan Supplement. The Debtors believe that the settlement is fair and reasonable and that it is in the best interests of all parties in interest to settle the MTH Claims under the terms of the MTH Settlement Agreement.”
For those wish to read the actual court document, it may be viewed at http://www.kccllc.net/lionel. It’s Court Docket #0711.
Cheers–and Hooray!
Keith
Posted by: Neil | Oct 24, 2007 at 3:54 PM