ANSYS v. Computational

2011 DNH 025

• Court: District Court, D. New Hampshire
• Decided: February 10, 2011
• Docket: 09-CV-284-SM
• Status: Published

Opinion

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.

2 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

3 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

4 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.

5 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

6 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.

7 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.

8 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)

9 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.”

10 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

11 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

12 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.