Frisby response motion dismiss - NMissCommentor

UNITED STATES DISTRICT COURT 

MIDDLE DISTRICT OF NORTH CAROLINA 

CIVIL ACTION NO: 1:11-CV-79 

TRIUMPH ACTUATION SYSTEMS, 

LLC, f/k/a FRISBY AEROSPACE 

v. 

EATON’S RESPONSE TO MOTION TO DISMISS COUNTERCLAIMS 

August 19, 2011 

Plaintiff, 

EATON CORPORATION; AEROQUIP- 

VICKERS, INC.; EATON 

HYDRAULICS, INC.; and EATON 

AEROSPACE, LLC 

Defendants. 

James T. Williams, Jr. 

Reid L. Phillips 

Clinton R. Pinyan 

BROOKS, PIERCE, MCLENDON, 

HUMPHREY & LEONARD, LLP 

2000 Renaissance Plaza 

Post Office Box 26000 

Greensboro, North Carolina 27420 

Telephone: (336) 373-8850 

Facsimile: (336) 378-1001 

Attorneys for Defendants 

Case 1:11-cv-00079-WO -PTS Document 26 Filed 08/19/11 Page 1 of 25

TABLE OF CONTENTS 

TABLE OF AUTHORITIES ..............................................................................................ii 

INTRODUCTION AND STATEMENT OF THE MATTER BEFORE THE COURT .... 1 

STATEMENT OF FACTS.................................................................................................. 2 

QUESTIONS PRESENTED ............................................................................................... 5 

ARGUMENT ...................................................................................................................... 5 

I. THE COURT SHOULD DENY THE MOTION TO DISMISS BECAUSE 

THERE ARE SUBSTANTIAL QUESTIONS OF FACT ABOUT WHETHER, AND 

TO WHAT EXTENT, THE DEFENSE OF RES JUDICATA APPLIES. ..................... 6 

A. There Are Substantial Questions of Fact as to Whether Eaton Received a Full 

and Fair Opportunity to Litigate Its Claims in the Mississippi State Court......... 6 

B. The Motion to Dismiss Should Be Denied Because Eaton Has Alleged Claims 

After the Filing of the Mississippi Trade Secrets Litigation.............................. 13 

II. THE COURT SHOULD NOT DISMISS THE COUNTERCLAIMS AS 

DUPLICATIVE, IN LIGHT OF THE FACT THAT FRISBY ITSELF HAS FILED 

THE SAME CLAIMS IN FOUR SEPARATE LAWSUITS........................................ 16 

CONCLUSION ................................................................................................................. 20 


TABLE OF AUTHORITIES 

Cases 

Barrett v. Jones, Funderburg, Sessums, Peterson & Lee, LLC, 27 So.3d 363 

(Miss. 2009) ................................................................................................................... 12 

Bogard v. Cook, 586 F.2d 399 (5th Cir. 1978).................................................................... 8 

Brooks v. Arthur, 626 F.3d 194 (4th Cir. 2010).................................................................. 6 

Bucklew v. State, 209 So.2d 916 (Miss. 1968) ................................................................. 12 

Cellar Door Prods., Inc. v. Kay, 897 F.2d 1375 (6th Cir. 1990) ....................................... 13 

Clorox Co. v. Winthrop, 836 F. Supp. 983 (E.D.N.Y. 1993)............................................ 13 

Curcio v. Hartford Fin. Serv. Group, 472 F. Supp.2d 239 (D. Conn. 2007)..................... 18 

EMC Mortgage Corp. v. Carmichael, 17 So.3d 1087 (Miss. 2009).................................... 8 

Groesch v. City of Springfield, 635 F.3d 1020 (7th Cir. 2011) ........................................ 14 

Handy v. Shaw, Bransford, Veilleux & Roth, 325 F.3d 346 (D.C. Cir. 2003) ................. 18 

Harkins Amusement Enters., Inc. v. Harry Nace Co., 890 F.2d 181 (9th Cir. 1989) ....... 13 

Holland v. Kohn, 12 Fed. Appx. 160 (4th Cir. 2001) ......................................................... 8 

Intermedics, Inc. v. Ventritex, Inc., 804 F. Supp. 35 (N.D. Cal. 1992) ............................ 14 

Junction Solutions, LLC v. MBS Dev., Inc., No. 06 C 1632, 2007 WL 4233995 

(N.D. Ill. Nov. 21, 1997)................................................................................................ 14 

Kremer v. Chemical Constr. Corp., 456 U.S. 461 (1982) ................................................6-7 

Lawlor v. National Screen Serv. Corp., 349 U.S. 322 (1955)........................................... 13 

Lee v. Winston, 717 F.2d 888 (4th Cir. 1983) .................................................................6-7 

Lorusso v. United States, No. 94-11713-NG, 1995 WL 606009 

(D. Mass. July 21, 1995)................................................................................................ 19 

Manning v. City of Auburn, 953 F.2d 1355 (11th Cir. 1992) ........................................... 14 

Marcum v. Mississippi Valley Gas Co., 672 So.2d 730 (Miss. 1996)................................ 8 

Melvin v. State, 48 So.2d 856 (Miss. 1950)...................................................................... 12 

Mississippi Employment Sec. Comm'n v. Philadelphia Mun. Separate Sch. Dist., 

437 So.2d 388 (Miss. 1983)............................................................................................. 8 

Montana v. United States, 440 U.S. 147 (1979).................................................................. 7 

Morgan v. Covington Twp., F.3d , 2011 WL 3276012 (3rd Cir. Aug. 2, 2011).... 14 

Pleming v. Universal-Rundle Corp., 142 F.3d 1354 (11th Cir. 1998) .............................. 14 

Q Int'l Courier, Inc. v. Smoak, 441 F.3d 214 (4th Cir. 2006) ............................................. 6 

Remington Arms Co. v. Alliant Techsystems, Inc., No. 1:03-cv-1051, 

2004 WL 444574 (M.D.N.C. Feb. 25, 2004) ................................................................ 18 

Richmond, Fredericksburg & Potomac R. Co. v. Forst, 4 F.3d 244 (4th Cir. 1993) ...... 2, 6 

Save Power Ltd. v. Syntek Fin. Corp., 121 F.3d 947 (5th Cir. 1997)............................... 18 

Serlin v. Arthur Anderson & Co., 3 F.3d 221 (7th Cir. 1993) .......................................... 16 

Stanton v. D.C. Ct. of App., 127 F.3d 72 (D.C. Cir. 1997)............................................... 13 

Winston v. Lee, 470 U.S. 753 (1985).................................................................................. 7 

ii 


Young-Henderson v. Spartanburg Area Mental Health Ctr., 945 F.2d 770 

(4th Cir. 1991)................................................................................................................ 14 

Statutes 

28 U.S.C. § 1738 ................................................................................................................. 6 

Rules 

Fed. R. Civ. P. 8................................................................................................................... 5 

Fed. R. Civ. P. 12............................................................................................................... 19 

Local Rule 7.2..................................................................................................................................2 

Treatises and Other Sources 

Restatement (2d) of Judgments § 24 ................................................................................. 13 

Charles Alan Wright and Arthur R. Miller, 5B Federal Practice & Procedure § 1357 

(3d ed. 2004) ................................................................................................................ 19 

iii 


INTRODUCTION AND STATEMENT OF 

THE MATTER BEFORE THE COURT 

The counterclaims of Eaton Corporation and its related companies (“Eaton”) arise 

from a theft of trade secrets by Frisby Aerospace, Inc, now known as Triumph Actuation 

Systems, LLC (“Frisby”). The scope of that theft was uncovered in large part by a search 

warrant issued by this Court, and led to the indictment of five of Eaton’s former 

engineers in the Southern District of Mississippi and their prosecution in cases that are 

still pending to this day, notwithstanding seventeen motions to dismiss. (Case Nos. 

3:06-cr-210 and 3:09-cr-6 (S.D. Miss.).) 

Eaton filed civil claims in Mississippi state court related to these thefts. 

Unfortunately, the merits of Eaton’s affirmative claims have never been evaluated by any 

court or ultimate trier of fact. Instead, in a procedurally flawed decision, which is 

currently on appeal, the Mississippi state court dismissed those claims as a sanction. 

The dismissal prompted Frisby, over the course of 26 days, to file claims in four 

separate lawsuits alleging that Eaton engaged in sham and abusive litigation to gain a 

competitive advantage over Frisby. This assertion of sham and abusive litigation is 

outrageous in light of Frisby’s unclean hands as a result of its massive theft of trade 

secrets, which led not only to Eaton’s seeking redress in a civil action but also resulted in 

the pending criminal charges against Frisby’s engineers. Eaton responded to these claims 

with defenses and counterclaims that will demonstrate that Frisby’s allegations are 

patently untrue and that Eaton had, and still has, meritorious trade secret and related 

claims. 


Frisby has moved to dismiss those counterclaims, alleging both that they are res 

judicata and that they are duplicative of counterclaims made in response to Frisby’s own 

duplicative claims. The Court should deny the motion to dismiss. There is (at a 

minimum) a material question of fact whether Eaton received a full and fair opportunity 

to litigate its claims in Mississippi, in light of serious procedural due process problems. 

The factual issues are more difficult to resolve at this stage because many of the relevant 

state court records are still under seal, preventing the Court from reviewing the 

procedural irregularities in Mississippi. Also, Eaton’s counterclaims allege that Frisby 

has committed continuing wrongs that are not subject to res judicata. Finally, as Frisby 

has caused the filing of four separate lawsuits, it is in no position to invoke any rule 

against duplicative litigation. 

STATEMENT OF FACTS 

Rather than responding to Frisby’s uncited and largely irrelevant “statement of 

facts,” 1 Eaton will limit its statement to the facts pertinent to the issues before the Court, 

with the understanding of the Court that most of Frisby’s statement of facts is disputed. 

1 The “statement of facts” in Frisby’s brief does not meet the requirements of this 

Court’s rules and the standards of a motion to dismiss under Rule 12(b)(6). Contrary to 

this Court’s rules, Frisby’s “statement of facts” contains scant “reference[s] to a part of 

the official record in this case,” much less a reference supporting “[e]ach statement of 

fact.” LR 7.2. As discussed later, Frisby can prevail on its motion to dismiss only if the 

res judicata defense “clearly appears on the face of the” counterclaims, Richmond, 

Fredericksburg & Potomac R. Co. v. Forst, 4 F.3d 244, 250 (4 th Cir. 1993), but the 

“facts” set out in Frisby’s brief do not appear in the counterclaims and thus cannot be 

considered on this motion to dismiss. Further, many of Frisby’s allegations are irrelevant 

to the limited res judicata issues presented and appear to have been offered for their 

(continued) 

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In May 2003, the U.S. Attorney’s office for the Southern District of Mississippi 

and the Federal Bureau of Investigation began investigating the theft of trade secrets by 

engineers that Frisby had recruited to leave Eaton. (Docket 14, at 42 (( 70).) In January 

2004, Magistrate Judge Sharp of this Court approved a search warrant that yielded 

thousands of Eaton documents in Frisby’s possession at its Clemmons, North Carolina 

facility, and led to many admissions by the engineers. (Id. ( 70-78).) 

On July 9, 2004, Eaton filed a complaint in Mississippi state court against Frisby 

and related individuals and entities, including Billy Grayson, James Ward, Kevin Clark, 

Michael Fulton, Rodney Case and Doug Murphy (“the Engineers”) asserting claims for, 

among other things, misappropriation of trade secrets, unfair competition, fraud and 

tortious interference with contract. (Docket 22-1.) The case was assigned to Hinds 

County Circuit Judge Bobby DeLaughter. (See Docket 22-5, at 2.) On September 29, 

2004, Frisby filed an answer and counterclaims, including counterclaims alleging that 

Eaton was engaging in sham and abusive litigation. (See Ex. 1).) 

On December 20, 2006, five of the Engineers were indicted, and those criminal 

charges are still pending in the Southern District of Mississippi. The indictments have 

been repeatedly reviewed and evaluated by the court and have survived seventeen 

separate motions to dismiss. (Case Nos. 3:06-cr-210 and 3:09-cr-6 (S.D. Miss.).) 

prejudicial effect. For example, Frisby talks at length about alleged discovery violations 

regarding Milan Georgeoff (Br. at 4-5), although the December 22, 2010 order at issue 

expressly found that those issues “are not relevant to the issue of sanctions and/or 

dismissal before the Court” (Docket 22-5 at 10). 

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In December 2006, with the case still in the early stages of discovery, Eaton 

retained Ed Peters, the former Hinds County District Attorney, as well as two other 

Mississippi attorneys -- Fred Banks and Rueben Anderson of Phelps Dunbar, both of 

whom are former Mississippi Supreme Court Justices -- to represent Eaton in the case. 

On January 4, 2008, Judge DeLaughter recused himself from Eaton's case, and 

Hinds County Chief Circuit Judge Swan Yerger then assigned the case to himself. (See 

Docket 22-5 at 3.) Three weeks later, on January 24, 2008, Frisby and the Engineers 

filed a motion requesting that the court allow them to initiate an inquiry on whether Ed 

Peters engaged in improper ex parte communications with Judge DeLaughter concerning 

Eaton’s case. (See id.) The court acquiesced to the request and, on March 7, 2008, it 

entered an order staying discovery, noting its intent to conduct an inquiry into alleged ex 

parte communications between Peters and DeLaughter. (See id. at 4.) 

At the close of the inquiry, almost three years later, on December 22, 2010, Judge 

Yerger dismissed Eaton’s case as a sanction. (See id.) He did so based on a finding that 

he had rendered -- 18-months previously -- that Eaton knew or should have known that 

its local counsel Ed Peters had improper ex parte communications with Judge 

DeLaughter. (See id. at 12.) He held no evidentiary hearing before levying this sanction. 

(See id. at 7.) It is this December 22 ruling that Frisby claims precludes the 

counterclaims in this case. 

Eaton promptly appealed the December 22 ruling. Soon after that, within a span 

of 26 days, Frisby filed: (1) proposed amended counterclaims in the pending Mississippi 

- 4 - 


state court action (Ex. 2); (2) a second, separate Mississippi state court action under 42 

U.S.C. § 1983 (Ex. 3), which has subsequently been removed; (3) a third, separate 

Mississippi state court action alleging various state law and Lanham Act claims (Ex. 4); 

and (4) this fourth, separate federal antitrust action in North Carolina. All four sets of 

Frisby’s claims are based on the same facts. 

During the course of all of this pending litigation since July of 2004, Eaton alleges 

that Frisby has continued to engage in trade secrets violations (Docket 14, at 44-45 

( 88-92), and continued related acts of conversion (id. at 51 ( 122-25)), tortious 

interference (id. at 52 ( 129)) and unfair competition (id. ( 132-25). 

QUESTIONS PRESENTED 

Should A Motion To Dismiss Be Granted On The Affirmative Defense Of Res 

Judicata When (A) There Are Substantial Questions Of Fact About Whether 

Eaton Had A Full And Fair Opportunity To Litigate Its Case And (B) Eaton 

Has Alleged Violations Subsequent To The Complaint Filed In The Prior 

Litigation? 

Should A Motion To Dismiss Be Granted On The Grounds That Eaton First 

Filed These Counterclaims Elsewhere, When Frisby Has Filed The Same 

Claims In Four Separate Lawsuits? 

ARGUMENT 

Frisby has a high burden to prevail on a motion to dismiss based on res judicata. 

Res judicata is an affirmative defense. Fed. R. Civ. P. 8(c)(1). “A motion under 

Rule 12(b)(6) is intended to test the legal adequacy of the [counterclaims], and not to 

address the merits of any affirmative defenses. In the limited circumstances where the 

allegations of the [counterclaims] give rise to an affirmative defense, the defense may be 

raised under Rule 12(b)(6), but only if it clearly appears on the face of the 

- 5 - 


[counterclaims].” Richmond, Fredericksburg & Potomac R. Co. v. Forst, 4 F.3d 244, 250 

(4 th Cir. 1993) (refusing to grant motion to dismiss based on res judicata). Frisby bears 

the burden to prove the defense of res judicata. Q Int’l Courier, Inc. v. Smoak, 441 F.3d 

214, 219 (4 th Cir. 2006). In ruling on a 12(b)(6) motion based on res judicata, the Court 

must accept the claims’ factual allegations as true. Brooks v. Arthur, 626 F.3d 194, 200 

(4 th Cir. 2010). While the Court may take judicial notice of prior proceedings, it may not 

do so if there are disputed issues of fact. Id.; Q Int’l, 441 F.3d at 216. Here, substantial 

questions of fact indicate that Frisby’s motion to dismiss should be denied. 

I. THE COURT SHOULD DENY THE MOTION TO DISMISS 

BECAUSE THERE ARE SUBSTANTIAL QUESTIONS OF FACT ABOUT 

WHETHER, AND TO WHAT EXTENT, THE DEFENSE OF RES JUDICATA 

APPLIES. 

A. There Are Substantial Questions of Fact as to Whether Eaton Received 

a Full and Fair Opportunity to Litigate Its Claims in the Mississippi 

State Court. 

Frisby’s brief is silent as to two related, significant areas of factual dispute that 

cannot be resolved on the face of the counterclaims. 

First, the full faith and credit statute, 28 U.S.C. § 1738, provides for federal courts 

to give preclusive effect to state court judgments. But there is a crucial prerequisite to the 

application of that statute: The Court is not to give preclusive effect if the claimant did 

not have a “full and fair opportunity” to litigate the claim in state court. Kremer v. 

Chemical Constr. Corp., 456 U.S. 461, 480-81 (1982); Lee v. Winston, 717 F.2d 888, 894 

(4 th Cir. 1983), aff’d, 470 U.S. 753 (1985). “Redetermination of issues is warranted if 

there is reason to doubt the quality, extensiveness, or fairness of procedures followed in 

- 6 - 


prior litigation.” Kremer, 456 U.S. at 481; Montana v. United States, 440 U.S. 147, 164 

n. 11 (1979). “The State must . . . satisfy the applicable requirements of the Due Process 

Clause. A State may not grant preclusive effect in its own courts to a constitutionally 

infirm judgment, and other state and federal courts are not required to accord full faith 

and credit to such a judgment.” Kremer, 456 U.S. at 482; see Lee, 717 F.2d at 894. 

In Lee v. Winston, the Fourth Circuit declined to give full faith and credit to a 

state court ruling that it found failed to allow for a “full and fair opportunity” to litigate 

the issues, even if the ruling otherwise met all of the other requirements for preclusive 

effect. 717 F.2d at 895 (“Assuming . . . without deciding, that the state court order here 

. . . would ordinarily be given preclusive effect by Virginia courts, we nevertheless 

decline to give it such effect in this case. Under § 1738, we are required to give state 

proceedings full faith and credit only if – all other state law predicates for issue 

preclusion being present – those proceedings satisfy the minimum procedural due process 

requirements of the fourteenth amendment.”). The Lee Court did so following full 

development of a record on what occurred during the state court proceeding, so that the 

Lee Court could make findings on whether there had been a full and fair opportunity to 

litigate. See id. at 896-99 (denial of continuance deprived party of full and fair 

opportunity to litigate); Winston v. Lee, 470 U.S. 753, 758 n.3 (1985) (in Supreme Court, 

party did not dispute that there had been no full and fair opportunity to litigate). Where a 

party raises a factual issue regarding whether it had a “full and fair opportunity” to 

litigate, such an issue precludes summary judgment, much less dismissal pursuant to 

- 7 - 


Rule 12(b)(6). See, e.g., Holland v. Kohn, 12 Fed. Appx. 160, 166-67 (4 th Cir. 2001) 

(reversing district court’s preclusion determination and refusing to find preclusion from 

dismissal order entered as discovery sanction). 

Second, Mississippi law incorporates similar principles precluding res judicata 

when the party against whom preclusion is sought has not been given a fair chance to 

present its case. EMC Mortgage Corp. v. Carmichael, 17 So.3d 1087, 1091 (Miss. 2009) 

(applying Kremer, supra). Moreover, Mississippi courts are particularly reluctant to 

prevent the full litigation of factual disputes: 

[T]he doctrine of collateral estoppel must never be seen as anything other 

than an unusual exception to the general rule that all fact questions should 

be litigated fully in each case. . . . Where there is room for suspicion 

regarding the reliability of those first fact findings, collateral estoppel 

should never be applied. 

Mississippi Employment Sec. Comm’n v. Philadelphia Mun. Separate Sch. Dist., 437 

So.2d 388, 397 (Miss. 1983); Marcum v. Mississippi Valley Gas Co., 672 So.2d 730, 733 

(Miss. 1996); see also Bogard v. Cook, 586 F.2d 399, 408 (5 th Cir. 1978) (“Principles of 

res judicata are not ironclad.”). 

Here, the Court cannot decide that Eaton’s claims are barred by res judicata, as a 

matter of law on the pleadings, because there is a factual dispute about whether Eaton had 

a full and fair opportunity to litigate the matters in the Mississippi trade secret litigation. 

In its counterclaims, Eaton affirmatively raises the issue that Eaton was denied due 

process in the Mississippi lawsuit, so that res judicata should not apply. (Docket 14, at 

- 8 - 


30 ( 2).) With Eaton having raised that factual question, Frisby is not in a position to 

prevail on its motion to dismiss. 

Even if Frisby were to argue – contrary to the law – that the Court can weigh the 

facts at this stage, the Court is not in a position to do so. Determining that Eaton failed to 

receive due process will require review of the Mississippi court’s actions at several points 

over a period of years. Furthermore, many of the documents necessary to that review are 

not on the public record, but instead are under seal. On September 22, 2009, the 

Mississippi court entered an order designating the vast majority of the documents related 

to the “ex parte investigation” as “restricted,” and hence sealed. (Ex. 5.) Those 

documents have remained under seal, pending further review to determine which 

documents may be unsealed. (Ex. 6 & 7.) 2 The Mississippi court still may unseal those 

records or permit this Court to review them under seal. It has done that to permit the use 

of the documents in the criminal proceedings that still remain pending against five of 

plaintiff’s engineers. (See Ex. 5 & 8.) But it has not yet done so to permit disclosure 

here. On this record, without proof of the procedural fairness of the December 22 

rulings, the motion to dismiss should be denied. 3 

2 Although the Special Master has made a recommendation about the documents to 

remain under seal – which recommendation is itself under seal – the Court has not yet 

ruled on the recommendation and unsealed any documents. 

3 It cannot be said that the public record is so clear as to justify dismissal of the 

counterclaim on the pleadings under Rule 12(b)(6). Moreover, this Court should not opt 

to convert the motion to dismiss to a motion to summary judgment and, if it does, 

pursuant to Rule 56(d), Eaton requests that, at a minimum, the Court defer ruling until the 

(continued) 

- 9 - 


Furthermore, the December 22 order itself displays significant procedural 

deficiencies. The opinion reveals that Frisby first alleged “improprieties regarding the 

relationship of then-Judge DeLaughter and Ed Peters on January 24, 2008.” (Docket 

22-5 at 3.) On March 7, 2008, the court announced its “intent to conduct an inquiry into 

alleged ex parte communications between Peters and DeLaughter.” (Id. at 4.) 

On June 19, 2009, the inquiry into the alleged ex parte contacts was still ongoing: 

• The parties were in the process of written discovery and document 

production. 

• The first deposition of any substantive witness had yet to be taken. 

• Frisby had not yet filed the motion to dismiss that gave rise to the 

December 22 order. 

Yet, on June 19, 2009, the Court entered an order that it subsequently characterized as 

finding as a fact that Eaton “either knew or reasonably should have known of the ongoing 

fraud perpetrated by Peters.” (Id. at 5.) That June 19, 2009 order forms much of the 

“factual” predicate for the December 22 order; the December 22 order says that, “[i]n this 

Court’s opinion, the clear language from the June 19, 2009, Opinion/Order, as cited 

above, supports the premise that the Court has already made that determination” whether 

the alleged ex parte contacts occurred and whether they constitute a fraud. (Id. at 12 

(emphasis added).) Moreover, that June 19, 2009 order is itself under seal so that the 

Court cannot review the basis for the determination that Eaton should have known of 

parties can approach the Mississippi court to authorize this Court to review the relevant 

portions of the record. 

- 10 - 


Peters’ actions. (Ex. 9.) But it is clear from the meager public record that this purported 

“factual” finding was made before any facts had actually been developed. 

In addition, the slim record that is available to this Court reveals that the 

Mississippi court proceeded to use the basis for this pre-discovery finding of “fact” to 

dismiss all of Eaton’s claims without providing Eaton with an opportunity for an 

evidentiary hearing. The December 22 order candidly reveals that Eaton repeatedly 

demanded and was denied an evidentiary hearing concerning the charges against it: “The 

Plaintiffs have continued to make requests for an evidentiary hearing before this judge, 

despite the Court’s repeated rulings that such a hearing was unnecessary and not in the 

interest of judicial economy.” (Docket 22-5 at 7.) 

And, not only did the Mississippi court refuse to conduct an evidentiary hearing to 

resolve disputed issues of fact, but the court stated that it was acting on the basis of 

documents that, to this day, the parties have never seen. In its December 22 order, the 

Court approved the Special Master’s Report and Recommendation of November 25, 

2009, another document which remains under seal. In so doing, the Court declared: 

After due consideration, the Court finds that the November 25, 2009 Report 

and Recommendation of the Special Master is hereby accepted as findings 

of fact, only as it relates to the Special Master’s findings at the various 

depositions. This ruling particularly includes the deposition summaries and 

observations of credibility made by the Special Master regarding the 

witnesses, either in the report or in the attached summaries. 

(Id. at 8 (emphasis added).) No deposition summaries were attached to the report and 

recommendation served upon the parties, nor do they otherwise appear on the Circuit 

- 11 - 


Court’s docket. (Ex. 10.) Certainly, it would be irregular to apply res judicata on the 

basis of factual findings not known even to the parties, much less to this Court. 

Where allegations are made on the serious charges that a party has attempted to 

corrupt the administration of justice, Mississippi courts have required heightened 

procedural protections, rather than lessened ones. Reported decisions have treated such 

inquiries as criminal contempt proceedings, entitling the accused to all the protections 

provided in such cases. See, e.g., Bucklew v. State, 209 So.2d 916, 917 (Miss. 1968); 

Melvin v. State, 48 So.2d 856 (Miss. 1950), suggestion of error overruled, 49 So.2d 837 

(Miss. 1951). These procedures are not an antiquated artifact. In April of 2008, the 

Mississippi state court -- although it did not institute a criminal contempt proceeding -- 

still employed similar procedures in a civil context to investigate allegations of judicial 

bribery. To resolve the matter, the court held a full evidentiary hearing. Barrett v. Jones, 

Funderburg, Sessums, Peterson & Lee, LLC, 27 So.3d 363, 367-68 (Miss. 2009). 

The December 22 rulings display none of these safeguards. The Mississippi court 

made the crucial factual findings of alleged wrongdoing on June 19, 2009, over five 

months before Frisby ever filed its motion to dismiss on these subjects, while 

document discovery was still ongoing on the facts, and before any substantive 

witness depositions were taken. The court admitted that it had denied Eaton the 

opportunity to present testimony to the finder of fact. Eaton never had the opportunity to 

respond to the deposition summaries, which it still has never seen. And these are just the 

procedural irregularities apparent on the face of the order itself; Eaton submits that it will 

- 12 - 


demonstrate several other irregularities in the sealed portion of the record. In Eaton’s 

estimation, all of these procedural flaws establish that Eaton was not provided with a fair 

opportunity to litigate the issues. Certainly – at a minimum – they reveal substantial 

factual questions that cannot be resolved in this motion to dismiss on this record. 

B. The Motion to Dismiss Should Be Denied Because Eaton Has Alleged 

Claims After the Filing of the Mississippi Trade Secrets Litigation. 

The motion to dismiss also should be denied because Eaton has alleged claims 

following the filing of the Mississippi trade secrets litigation. Res judicata applies only 

as to complaints that allege the “same cause of action,” and therefore does not bar claims 

arising from conduct that occurred following the prior litigation. See Lawlor v. National 

Screen Serv. Corp., 349 U.S. 322, 327-328 (1955). “That both suits involved ‘essentially 

the same course of wrongful conduct’ is not decisive.” Id. at 327. 

Therefore, even if conduct was set in motion before the prior action, the 

continuation of the wrong gives rise to a different cause of action, for res judicata 

purposes. This is true regardless of “whether the defendants’ conduct be regarded as a 

series of individual torts or as one continuing tort.” Id. at 328 Thus, res judicata does not 

bar new claims arising from a continuing wrong, such as continuing abatable nuisance, 

see id. at 327-28, continuing antitrust conspiracy or other antitrust violations, id. at 328; 

Cellar Door Prods., Inc. v. Kay, 897 F.2d 1375, 1377-78 (6 th Cir. 1990); Harkins 

Amusement Enters., Inc. v. Harry Nace Co., 890 F.2d 181, 183 (9 th Cir. 1989); Clorox 

Co. v. Winthrop, 836 F. Supp. 983, 994 (E.D.N.Y. 1993); Restatement (2d) of Judgments 

§ 24, ill. 12, continuing application of unconstitutional regulations, Stanton v. D.C. Ct. of 

- 13 - 


App., 127 F.3d 72, 78-79 (D.C. Cir. 1997), or continuing pay discrimination, Groesch v. 

City of Springfield, 635 F.3d 1020, 1029-30 (7 th Cir. 2011). Under these principles, the 

continued misappropriation and use of trade secrets (even the same trade secrets at issue 

in the former action) may give rise to a new cause of action that is not barred by res 

judicata. See, e.g., Junction Solutions, LLC v. MBS Dev., Inc., No. 06 C 1632, 2007 WL 

4233995 (N.D. Ill. Nov. 21, 1997); Intermedics, Inc. v. Ventritex, Inc., 804 F. Supp. 35 

(N.D. Cal. 1992). Intermedics stressed that it requires a “systematic comparison of the 

facts” to determine whether the subsequent actions are sufficiently related to the prior 

actions to be barred by res judicata, making it difficult to decide on summary judgment, 

much less a motion to dismiss. See 804 F. Supp. at 43. 

Moreover, every federal circuit court to have considered the issue has decided that 

res judicata bars only those claims “in existence at the time the original complaint is filed 

or claims actually asserted by supplemental pleadings or otherwise in earlier action.” 

Manning v. City of Auburn, 953 F.2d 1355, 1360 (11 th Cir. 1992); 4 see Morgan v. 

Covington Twp., F.3d , 2011 WL 3276012, at *4-*5 (3 rd Cir. Aug. 2, 2011) (“Five 

other Courts of Appeals have already adopted a bright-line rule that res judicata does not 

apply to events post-dating the filing of the initial complaint. . . . We see no reason to 

part with our sister Circuit Courts.”) (citing cases); Young-Henderson v. Spartanburg 

Area Mental Health Ctr., 945 F.2d 770, 774 (4 th Cir. 1991) (expressing doubt that res 

4 For a claim to be “otherwise” raised, it must be formally raised by supplemental 

or amended pleading or inclusion in a pretrial order. Pleming v. Universal-Rundle Corp., 

142 F.3d 1354, 1358 (11 th Cir. 1998). 

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judicata “was intended to preclude claims that could not have been brought at the time 

the first complaint was filed”). Mississippi has adopted no decisions rejecting that rule. 

Here, Eaton filed its original complaint in the Mississippi courts on July 9, 2004. 

(Docket 22-1.) Eaton never amended or supplemented that complaint. (See Ex. 10.) 

Thus, at most, res judicata might bar only those claims as of July 9, 2004. 

In its Counterclaims in this case, Eaton has alleged substantial trade secret 

violations and other state law claims following July 9, 2004. Eaton has alleged that, after 

the initial complaint, Frisby has used the significant number of trade secrets violations to 

maintain existing business in the aerospace industry and unlawfully compete for new 

business in that arena. (Docket 14 at 44-45 ( 78, 89-90).) The sole reason Frisby was 

able to so quickly compete with other aerospace manufacturers for potential aerospace 

business is because the engineers it hired from Eaton illegally took a large number of 

trade secrets with them when they joined Frisby. (Id. at 40-41 ( 67-69).) 

In 2002 and 2003, Frisby won three aerospace hydraulic motor contracts based on 

its use of stolen Eaton trade secrets. (Id. at 39 ( 55).) Eaton alleged, on information and 

belief, that Frisby continues to service those contracts to this day, including providing 

parts and components based upon Eaton trade secrets to those customers. (See id. at 45 

( 89-90).) Frisby further continues to use Eaton’s trade secrets to compete for new 

business in the aerospace industry. (See id. ( 91).) Moreover, Eaton has asserted related 

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causes of action for Frisby’s conversion (id. at 51 ( 122-25)), tortious interference (id. at 

52 ( 129)), and unfair competition (id. ( 132)) occurring after the initial complaint. 5 

Even if res judicata applied to the claims as of the date of the original July 9, 2004 

complaint (which it does not), it would not bar the “continuing” claims. Accordingly, 

Eaton has stated valid claims for relief, and the motion to dismiss should be denied. 

II. THE COURT SHOULD NOT DISMISS THE COUNTERCLAIMS AS 

DUPLICATIVE, IN LIGHT OF THE FACT THAT FRISBY ITSELF HAS FILED 

THE SAME CLAIMS IN FOUR SEPARATE LAWSUITS. 

Frisby further argues that, even if Eaton’s Counterclaims are not barred by res 

judicata, the Court still should dismiss the Counterclaims under the first-filed rule, 

because those Counterclaims are similar to ones that Eaton filed in two similar lawsuits 

that were then pending in Mississippi federal court. (Br. at 14-15.) That argument is 

made with no apparent sense of irony although, if accepted, it would be a reason for 

dismissing Frisby’s Complaint, more so than Eaton’s Counterclaims. 

Frisby cites Serlin v. Arthur Anderson & Co., 3 F.3d 221 (7 th Cir. 1993), for the 

proposition that a federal court has the power to manage its docket to dismiss a suit 

“whenever it is duplicative of a parallel action already pending in another federal court.” 

(Br. at 14.) But this action is duplicative of the Mississippi federal actions – not because 

Eaton chose to litigate here – but because Frisby filed a duplicative complaint in this 

Court. 

5 In the event that the allegations in the Counterclaims are insufficiently detailed, 

Eaton should be allowed leave to amend the pleadings. 

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On September 29, 2004, Frisby first filed counterclaims against Eaton in the 

Mississippi trade secret litigation based on allegations that Eaton was abusing that 

litigation for competitive purposes. (Ex. 1). On January 6, 2011, Frisby filed a motion 

for leave to amend the counterclaims to add state law claims and a claim under 42 U.S.C. 

§ 1983 based on the same allegations raised in this Court. (Ex. 2). 6 

Notwithstanding those claims made in the original case, on January 28, 2011, 

Frisby filed two separate new actions in Mississippi state court making identical 

allegations to its Complaint here. In the first, Frisby asserts that these facts give rise to 

42 U.S.C. § 1983 claims. (Ex. 3.) Following removal, this case is pending in federal 

court, where Frisby later filed an amended complaint. (Ex. 12.) In the second (filed 

immediately after the first), Frisby asserted that these allegations also give rise to claims 

for unfair competition, torious interference, abuse of process, malicious prosecution, 

defamation, civil conspiracy and North Carolina unfair trade practice and Lanham Act 

violations. (Ex. 4.) After a detour to federal court, this second case is pending separately 

in Mississippi state court. 7 Along with the prior counterclaims in the original case, this 

brought Frisby to three separate lawsuits making the same claims. 

6 The Mississippi state court granted the motion to amend the counterclaims and, 

on March 21, 2011, Frisby filed supplemented and amended counterclaims. (Ex. 11.) 

7 This second simultaneous complaint was filed in what Frisby has acknowledged 

was an effort to split its federal and state law causes of action. But Frisby included the 

Lanham Act claim in its second complaint. So, Eaton removed that complaint as well. 

Frisby then filed an amended complaint to eliminate the Lanham Act claim (Ex. 13), and 

moved to remand that case because it had “inadvertently included” the Lanham Act claim 

(continued) 

- 17 - 


Unsatisfied, Frisby filed a fourth lawsuit. On February 1, 2011, Frisby filed this 

federal antitrust action in this Court based on the same set of allegations. 

A second suit (or, here, fourth suit) is duplicative, even if the causes of action are 

different, if it arises out of the same transaction or series of transactions as the first 

lawsuit. Remington Arms Co. v. Alliant Techsystems, Inc., No. 1:03-cv-1051, 2004 WL 

444574, at *2 (M.D.N.C. Feb. 25, 2004); Handy v. Shaw, Bransford, Veilleux & Roth, 

325 F.3d 346, 349-50 (D.C. Cir. 2003); Save Power Ltd. v. Syntek Fin. Corp., 121 F.3d 

947, 950-51 (5 th Cir. 1997); Curcio v. Hartford Fin. Serv. Group, 472 F. Supp.2d 239, 

243 (D. Conn. 2007). A cursory examination of Frisby’s pleadings in the four cases 

demonstrates that Frisby’s claims in this case arise out of the same transactions alleged in 

the Mississippi state court counterclaims, the separate Mississippi state court action and 

the Mississippi federal case. Indeed, Frisby itself has acknowledged that “the substance” 

of its claims in the three Mississippi actions is “very similar.” (Ex. 14 at 7.) That is 

plainly true of this action as well. 

Frisby’s abusive actions in filing a duplicative fourth complaint here led Eaton to 

file its counterclaims in both Mississippi and North Carolina. Frisby cannot take 

advantage of its own duplicative pleading to claim that Eaton’s counterclaims – and only 

Eaton’s counterclaims – should be dismissed. None of the cases that Frisby cites on 

deference to first-filed litigation – and no cases of which Eaton is aware – support the 

(Ex. 14 at 1) and had intended to split its claims “so that the [second complaint] could not 

be removed to federal court” (id. at 7). On August 16, 2011, the Court remanded that 

case. (Ex. 15.) 

- 18 - 


notion that the Court should dismiss only one party’s claims in deference to first-filed 

litigation, while allowing the other party’s duplicative claims to proceed in both courts 

(or, here, all three courts in four separate cases). 

This principle is particularly apt in this case, where fact discovery will be exactly 

the same, regardless of whether the counterclaims are dismissed. Here, Eaton’s defenses 

and counterclaims almost entirely overlap: Frisby claims that Eaton engaged in sham 

litigation, and both Eaton’s defenses and counterclaims will demonstrate that is patently 

untrue and that Eaton had, and still has, meritorious trade secret and related claims. The 

parties will undertake the same fact discovery on the nature of Eaton’s trade secret and 

related claims, whether or not the counterclaims remain in the case. This court has the 

discretion to postpone deciding the motion to dismiss until later in the proceedings. 

Charles Alan Wright and Arthur R. Miller, 5B Federal Practice & Procedure § 1357, at 

731 (3d ed. 2004); see Fed. R. Civ. P. 12(a)(4)(A) (contemplating that, upon Rule 12 

motion, court may “postpone[] its disposition until trial”). 8 In the event that the Court 

does not simply deny the motion to dismiss, it should permit the parties to proceed with 

discovery on the issues that will be in the case regardless, while postponing its ruling on 

this motion. 

8 Postponement of a ruling is appropriate here also, where the issues are currently 

on appeal in Mississippi and a decision may inform this Court’s decision about whether 

and to what extent the counterclaims are precluded. See, e.g., Lorusso v. United States, 

No. 94-11713-NG, 1995 WL 606009, at *2 (D. Mass. July 21, 1995). 

- 19 - 


In short, Frisby has chosen to litigate in multiple courts, and Eaton is permitted to 

defend itself and file compulsory counterclaims in every court in which Frisby has filed 

its claims. Eaton is fully prepared to litigate the case that Frisby chose to file in this 

Court. 

CONCLUSION 

The motion to dismiss the counterclaims should be denied. 

Respectfully submitted, this the 19 th day of August, 2011. 

OF COUNSEL: 

BROOKS, PIERCE, MCLENDON, 

HUMPHREY & LEONARD, LLP 

2000 Renaissance Plaza 

Post Office Box 26000 

Greensboro, North Carolina 27420 

Telephone: (336) 373-8850 

Facsimile: (336) 378-1001 

/s/ James T. Williams, Jr. 

James T. Williams, Jr. (N.C. State Bar No. 4758) 

jwilliams@brookspierce.com 

Reid L. Phillips (N.C. State Bar No. 7968) 

rphillips@brookspierce.com 

Clinton R. Pinyan (N.C. State Bar. No. 22260) 

cpinyan@brookspierce.com 

Attorneys for Defendants 

- 20 - 


CERTIFICATE OF SERVICE 

I hereby certify that, on August 19, 2011, I electronically filed the foregoing 

document with the Clerk of the Court using the CM/ECF system, which will send 

notification of such filing to the following: 

J. Donald Cowan, Jr. (don.cowan@elliswinters.com) 

Jonathan D. Sasser (jon.sasser@elliswinters.com) 

Curtis J. Shipley (curtis_shipley@elliswinters.com) 

Counsel for Plaintiff 

Respectfully Submitted, 

/s/ Clinton R. Pinyan 

Clinton R. Pinyan

Frisby response motion dismiss - NMissCommentor

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