ANSYS v . Computational 09-CV-284-SM 2/10/11
UNITED STATES DISTRICT COURT
DISTRICT OF NEW HAMPSHIRE
ANSYS, Inc.,
Plaintiff
v. Civil N o . 09-cv-284-SM
Opinion N o . 2011 DNH 025
Computational Dynamics North America,
Limited, d/b/a CD-adapco, and
Doru A . Caraeni, Ph.D.,
Defendants
O R D E R
After one of ANSYS’s highly skilled physicists left to work
for its primary competitor, Computational Dynamics North America
(“CDNA”), ANSYS brought this suit seeking to enforce its former
employee’s covenant not to compete. It also sought damages from
both the former employee and CDNA for misappropriation of trade
secrets. Failing to obtain temporary injunctive relief from this
court, or the court of appeals, ANSYS decided to withdraw its
claims against both defendants and has moved the court to dismiss
all pending claims, with prejudice. Defendants object, at least
in part, and move the court to condition dismissal of ANSYS’s
claims on the payment of costs and attorney’s fees, totaling
nearly $200,000.
For the reasons discussed below, ANSYS’s motion for
voluntary dismissal with prejudice is granted. Defendants’
motion is denied to the extent it seeks an award of attorney’s
fees. ANSYS’s request for an award of reasonable costs is
referred to the Clerk of Court in the first instance.
Background
For approximately seven years, Dr. Doru Caraeni worked for
ANSYS, developing code for software used in computational fluid
dynamics simulations. In May of 2009, not long after his wife
left ANSYS’s employ, Caraeni resigned his own position and went
to work for its largest competitor, CDNA. But, just days before
leaving ANSYS, he accessed (and apparently downloaded) several
highly secret documents that ANSYS had prepared, including a
“strategic, technical comparison” of how its software product
compared to CDNA’s product. See Transcript of Hearing on CDNA’s
Request for Fees at 2 3 . Those documents also described the
“architecture and functionality” of ANSYS’s software. Id. at 2 2 .
Not surprisingly, ANSYS was troubled both by the fact that
Caraeni decided to download those materials - materials he did
not need to access to perform his job at ANSYS - and by the
timing of that decision. Caraeni’s conduct was suspicious under
the circumstances (and never adequately explained), and ANSYS was
understandably concerned.
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Three months later, ANSYS filed this suit against CDNA and
Caraeni, seeking preliminary and permanent injunctive relief, as
well as compensatory damages. Specifically, ANSYS advanced the
following five claims: breach of contract (covenant not to
compete) against Caraeni; breach of contract (non-disclosure)
against Caraeni; intentional interference with contractual
relations against CDNA; misappropriation of trade secrets against
Caraeni and CDNA; and unfair trade practices against CDNA.
This court denied ANSYS’s request for preliminary injunctive
relief and that decision was affirmed on appeal. ANSYS, Inc. v .
Computational Dynamics N . Am., Ltd., 595 F.3d 75 (1st Cir. 2010).
Litigation of the merits proceeded, and the parties quickly
became involved in ongoing disputes over the timing, scope, and
direction of discovery. Accordingly, in an effort to provide
some guidance to counsel (and to contain at least some of the
costs being borne by their clients), the court established a
tiered discovery process, focusing first on ANSYS’s trade secrets
claims, while leaving discovery on the breach of contract (i.e.,
covenant not to compete) and other claims for a later date.
A status conference was held on July 2 9 , 2010, to
discuss continuing difficulties between the parties in
moving discovery along in a reasonable fashion.
Central to plaintiff’s case is its assertion that Dr.
Doru Caraeni, and through him, CDNA, misappropriated
its trade secrets. Defendants were to provide
discovery related to Dr. Caraeni’s work for CDNA and
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plaintiff was to expertly analyze that material to
determine whether, in good faith, a misappropriation
claim should continue to be pursued. Presumably,
plaintiff has in mind specific trade secrets it thinks
have been misappropriated, as well as some reason to
believe they were misappropriated, and a qualified
expert should be able to discern from Dr. Caraeni’s
work whether a specific misappropriation claim is
plausible.
The court is not inclined to hold regular discovery
hearings at which every conceivable construction of
language supporting or precluding disclosure must be
refereed. Accordingly, the following orders are
entered:
1. Discovery related to any claim other than the
misappropriation of trade secrets claim is stayed
until further order of the court.
2. Defendants will produce, on a rolling basis and by
August 3 0 , 2010, all work product created by Dr.
Caraeni, including (for example) limited, spliced
sections of code that Caraeni has developed for
CDNA since he started working there. Defendants
will also produce summary descriptions of the
projects (i.e., work-focused activity) Dr. Caraeni
worked on in a manner sufficient to permit an
ANSYS expert to fairly evaluate Dr. Caraeni’s work
product relative to ANSYS’ trade secrets claim.
3. Plaintiff will advise defendants no later than
October 2 9 , 2010, whether it will pursue or drop
the misappropriation of trade secrets claim.
Discovery Order (Aug. 4 , 2010) (document n o . 63) at 1-2. As the
court had previously noted, the point of staged discovery was
fairly straight-forward: “Should ANSYS’s expert conclude that its
claims against CDNA and/or Caraeni lack merit, ANSYS can bow out
gracefully. I f , on the other hand, ANSYS believes it has a good
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faith basis to pursue those claims, it can then decide how it
wishes to proceed.” Order (April 2 , 2010) (document no 51) at 4 .
Defendants then set about gathering the information
identified above for submission to plaintiff’s expert. While it
is unclear whether defendants complied with the court’s order to
provide relevant discovery on a “rolling basis,” that point is
not terribly important now. The relevant facts are as follows.
Shortly before CDNA says it planned to turn over the majority of
relevant discovery, ANSYS notified defendants of its decision to
voluntarily dismiss its claims against both CDNA and Caraeni.
Defendants cried foul, claiming ANSYS had acted in bad faith and
had unreasonably drawn out this litigation simply to force
defendants to incur substantial attorney’s fees. Specifically,
defendants assert that “ANSYS did not have a good faith basis in
maintaining the misappropriation lawsuit beyond the appeal to the
First Circuit.” Defendant’s memorandum (document n o . 65-1) at 1 .
See also Id. at 11 (“ANSYS prolonged the misappropriation claim
in bad faith after the appeal to the First Circuit.”). They now
seek nearly $200,000 in costs and attorney’s fees - a figure they
say represents merely a portion of their total expenses in this
case, and an amount attributable only to post-appeal discovery
and motions practice.
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Governing Legal Principles
In support of their request for attorney’s fees, defendants
invoke provisions of New Hampshire’s Uniform Trade Secrets Act,
N.H. Rev. Stat. Ann. (“RSA”) 350-B:4, as well as New Hampshire
common law. See Defendants’ memorandum (document n o . 65-1) at 8 .
See also Transcript of Hearing on CDNA’s Request for Fees at 37
(“The request for attorney’s fees is brought under the Uniform
Trade Secrets Act. We are saying, your Honor, that this claim
was made or prolonged in bad faith.”). That statute provides, in
relevant part, that the “court may award reasonable attorney’s
fee to the prevailing party when . . . a claim of
misappropriation is made in bad faith.” RSA 350-B:4 I (emphasis
supplied).
Although the statute does not specifically define what it
means to pursue a misappropriation claim in “bad faith,” the
phrase has a well-accepted meaning in New Hampshire’s common law:
A party pursues a claim in bad faith if the claim is
frivolous. A frivolous claim lacks any reasonable
basis in the facts provable by evidence, or any
reasonable claim in the law as it i s , or as it might
arguably be held to b e .
Kukene v . Genualdo, 145 N.H. 1 , 3 (2000) (citations and internal
punctuation omitted). See also Pugliese v . Northwood Planning
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Bd., 119 N.H. 743, 752 (1979) (equating “bad faith” with
“obstinate, unjust, vexatious, wanton, or oppressive conduct”).
S o , to prevail on their request for an award of attorney’s
fees, defendants must first demonstrate that this is one of those
rare cases in which such an award is warranted. And, consistent
with their theory of recovery, they must show that ANSYS acted in
bad faith when it continued to pursue its trade secrets claim
after the court of appeals affirmed this court’s denial of
ANSYS’s request for injunctive relief.
If they can show that ANSYS acted in bad faith, defendants
must then also establish the reasonableness of: (1) the time
billed by their attorneys for various tasks related to this case;
and (2) the rates charged for those legal services.1 See, e.g.,
McCabe v . Arcidy, 138 N.H. 2 0 , 29 (1993) (noting that relevant
factors for the court to weigh when considering a fee award are:
the nature, novelty, and difficulty of the litigation; the
attorney’s skill and reputation in the area; the amount of time
1
ANSYS does not contest the reasonableness of the rates
charged by CDNA’s counsel (and those rates seem comfortably
within the range customarily charged in this district). But
ANSYS does contest the reasonableness of the time spent on the
discovery tasks described. The total amount sought by CDNA does
seem rather high. CDNA does not offer much by way of
justification for the time spent, but denial of the motion
renders the point moot.
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he or she reasonably devoted to the matter; the customary fees in
the area; the extent to which the attorney prevailed; and the
benefit thereby bestowed on his or her clients). See also Coutin
v . Young & Rubicam Puerto Rico, Inc., 124 F.3d 331, 337 (1st Cir.
1997)(noting that, in this circuit, the “starting point in
constructing a fee award” is the “lodestar method,” by which “the
number of hours reasonably expended on the litigation [are]
multiplied by a reasonable hourly rate.”)(citation and internal
punctuation omitted).
Discussion
That ANSYS was unable to demonstrate entitlement to
temporary injunctive relief on its contract claim (i.e.,
Caraeni’s one-year noncompetition agreement) does not compel the
conclusion that its trade secret misappropriation claim was
brought in bad faith. Even if ANSYS had sought, but failed to
obtain, temporary injunctive relief on its trade secrets claim,
that fact alone would not necessarily compel the conclusion that
the claim was frivolous or that ANSYS acted in bad faith. As the
New Hampshire Supreme Court has observed:
[A] denial of a preliminary injunction is not by itself
a determination that the underlying case is frivolous.
Although a party seeking an injunction must show that
it would likely succeed on the merits, injunctive
relief is an equitable remedy, requiring the trial
court to consider the circumstances of the case and
balance the harm to each party if relief were granted.
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A preliminary injunction is a provisional remedy that
preserves the status quo pending a final determination
of the case on the merits. A denial of a preliminary
injunction based on the failure to show a likelihood of
success should not constitute a judgment that the
underlying claim is frivolous, foreclosing a trial.
Therefore, the defendant’s contention that the denial
of the preliminary injunction gave the plaintiffs
notice that their evidence was inadequate and that it
would be in bad faith for them to proceed on the same
evidence is without merit.
Kukene, 145 N.H. at 4 (citations and internal punctuation
omitted).
Nevertheless, in support of their motion for attorney’s
fees, defendants assert that:
It is now clear that ANSYS never had any good faith
basis for pursuing this lawsuit, and was instead
counting on being permitted to rummage through, in
fishing-expedition style, all of CDNA’s code and
electronic data, including the work of multiple
individuals, tying up and distracting CDNA from its
business, before ANSYS would be required to support its
case. When it was not allowed to do so and was forced
to face the reality of how it would have to support its
claims without any real evidence of misappropriation,
it decided to quit.
Defendants’ memorandum at 4 . As evidence of ANSYS’s “objective
bad faith” in “prolong[ing] the misappropriation claim . . . .
after the appeal to the First Circuit,” defendant’s memorandum at
1 1 , defendants point to the following:
(1) ANSYS has made and failed to prove similar
allegations on a prior occasion in state court; (2)
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despite a duty to do so and a year having passed since
the lawsuit was filed, ANSYS has repeatedly failed to
identify with particularity the trade secrets that it
alleges are at issue; (3) the information cited by
ANSYS as its trade secrets during the preliminary
injunction stage were merely general principles of
physics that are publically available; (4) ANSYS
claimed that it was unable to identify its own trade
secrets until defendants first identified their trade
secrets, which strongly indicates that ANSYS did not
file the lawsuit with a specific set of trade secrets
that it believed to be at risk; (5) ANSYS has yet to
allege any actual use or misuse of its trade secrets by
either defendant; (6) ANSYS withdrew its claims on the
eve o f , and without review o f , the production it
claimed it needed; and (7) ANSYS prolonged the
misappropriation claim for six months after the First
Circuit denied ANSYS’ appeal, but ANSYS now claims that
its misappropriation claim was not really the main
reason it filed suit.
Id. at 11-12. According to defendants, “This is sufficient
objective evidence of ANSYS’ bad faith to award attorneys’ fees
and costs to defendants under New Hampshire law.”
Id. at 1 2 .
The court disagrees.
First, it probably bears noting that, when reviewing this
court’s denial of ANSYS’s motion for preliminary injunctive
relief, the court of appeals observed that, “[w]hile we think
this case is close, we cannot say the court abused its
discretion.” ANSYS, Inc. v . Computational Dynamics N . Am. Ltd.,
595 F.3d at 7 8 . That observation suggests that had the court of
appeals been applying a less deferential standard of review, it
might well have granted ANSYS’s motion, the merits being “close.”
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Next, defendants’ reference to state court litigation
involving the same parties from more than 10 years ago is hardly
evidence of ANSYS’s bad faith in this case. That is particularly
true since the earlier dispute between the parties was resolved
against ANSYS because, unlike in this case, it had failed to
obtain a covenant not to compete from an employee that left its
ranks and went to work for CDNA.
As to defendants’ claim that “despite a duty to do so and a
year having passed since the lawsuit was filed, ANSYS has
repeatedly failed to identify with particularity the trade
secrets that it alleges are at issue,” the facts of this case
suggest otherwise. While ANSYS acknowledges that it was unable
to specifically identify which (if any) trade secrets Caraeni had
misappropriated until it had reviewed the work he had done for
CDNA (an entirely understandable position), it did specifically
identify: (1) the unusual and suspicious behavior that Caraeni
engaged in prior to his departure for CDNA; and (2) the type of
trade secrets which Caraeni had access to and might have shared
with CDNA. See Plaintiff’s memorandum (document n o . 72) at 6-7.
At issue here was not a simple customer list, or a fabrication
formula, or mechanical plans, but highly complicated and
sophisticated mathematical formulations used in complex software
programs, and a perhaps useful technical comparison between the
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products competing — the types of “secrets” that only a highly
trained and sophisticated expert could recognize as having been
used or incorporated in the competitor’s program (or n o t ) .
Little more need be said on this issue. It is sufficient to
note that when stripped of hyperbole, defendants’ memorandum
provides little support for their request for attorney’s fees and
defendants have failed to demonstrate that ANSYS acted in bad
faith in pursuing its misappropriation claims. In fact, a
plausible reading of the record evidence suggests that, after due
consideration, ANSYS determined, perhaps even reluctantly, that
the costs of pursuing its claims in terms of money, distraction,
and effort - claims that, under the circumstances, would be
difficult to prove notwithstanding their merit - were simply too
great. ANSYS did not pursue frivolous claims lacking any
reasonable basis in fact or law.
Conclusion
For the foregoing reasons, as well as those set forth in
ANSYS’s memorandum (document n o . 7 2 ) , the court declines to
exercise its discretion to award fees in this case and
defendants’ motion for attorney’s fees (document n o . 65) is
denied. CDNA’s request for reimbursement of costs reasonably
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incurred during the course of this litigation is referred to the
Clerk of Court. See Local Rule 54.1 (“Bill of Costs”).
Plaintiff’s motion for voluntary dismissal with prejudice
(document n o . 64) is granted. The Clerk of Court shall enter
judgment in accordance with this order and close the case.
SO ORDERED.
February 1 0 , 2011
cc: Cameron G. Shilling, Esq.
Cathryn E . Vaughn, Esq.
Elizabeth K. Rattigan, Esq.
Geoffrey J. Vitt, Esq.
Michael A . Schlanger, Esq.
Shelli L. Calland, Esq.
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