Seagate Technology, LLC v. Western Digital Corporation, Sining Mao

854 N.W.2d 750, 39 I.E.R. Cas. (BNA) 345, 2014 Minn. LEXIS 537, 2014 WL 5012807
CourtSupreme Court of Minnesota
DecidedOctober 8, 2014
DocketA12-1944
StatusPublished
Cited by26 cases

This text of 854 N.W.2d 750 (Seagate Technology, LLC v. Western Digital Corporation, Sining Mao) is published on Counsel Stack Legal Research, covering Supreme Court of Minnesota primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Seagate Technology, LLC v. Western Digital Corporation, Sining Mao, 854 N.W.2d 750, 39 I.E.R. Cas. (BNA) 345, 2014 Minn. LEXIS 537, 2014 WL 5012807 (Mich. 2014).

Opinions

OPINION

ANDERSON, Justice.

An arbitrator issued an award against appellants Sining Mao, Western Digital Corporation, and Western Digital Technologies, Inc., in an amount exceeding $500 million. The award was vacated in part by the district court and then reinstated by the court of appeals. Mao and the Western Digital entities now separately seek review of the reinstatement decision. Mao and Western Digital argue that the arbitrator’s punitive sanctions, which precluded any evidence or defense and en[754]*754tered a judgment of liability on certain claims, must be vacated under Minn.Stat. § 572.19, subd. 1(3)-(4) (2010),1 because the arbitrator exceeded his authority by issuing these sanctions and substantially prejudiced Mao and Western Digital by refusing to hear evidence material to the controversy. Because we conclude that the arbitrator did not exceed his authority or refuse to hear material evidence as required for vacatur under Minn.Stat. § 572.19, subd. 1(3)-(4), we affirm the decision of the court of appeals reinstating the arbitration award in full.

The arbitration agreement at issue arose out of an employment contract between Mao and his former employer, respondent Seagate Technology, LLC. Sea-gate designs and manufactures hard disk drives for computers. In his role as senior director for advanced head concepts at Seagate, Mao worked on technology that involves incorporating tunneling magneto-resistance (TMR) into read heads,2 which, if done successfully, would allow for vastly improved storage capacity on hard disk drives.

When Mao began working for Seagate, he signed an employment agreement stating, among other requirements, that if he left Seagate, he would preserve the confidentiality of all trade secrets, return all company documents, and not solicit any current Seagate employees for other employment using unfair or deceptive means. The employment agreement also contained the following arbitration clause:

Arbitration: Except as stated below, I agree that any dispute or controversy arising out of or relating to any interpretation, construction, performance or breach of this Agreement, shall be settled by arbitration to be held in Henne-pin County, Minnesota, in accordance with the rules then in effect of the American Arbitration Association. The arbitrator may grant injunctions or other relief in such dispute or controversy. The decision of the arbitrator shall be final, conclusive and binding on the parties to the arbitration. Judgment may be entered on the arbitrator’s decision in any court having jurisdiction. The Company and I shall each pay one-half of the costs and expenses of such arbitration, and each of us shall separately pay our counsel fees and expenses.

Mao left Seagate in September 2006 and joined Seagate’s competitor, Western Digital Corporation, in October 2006. After Mao joined Western Digital, Seagate commenced a district court action seeking in-junctive relief to prevent the disclosure of Seagate’s trade secrets and later amended its claim to allege actual misappropriation of trade secrets. Seagate’s primary allegation, in essence, was that Mao stole Sea-gate’s trade secrets and confidential information regarding TMR technology and provided it to Western Digital, which [755]*755Western Digital then used to design and manufacture a TMR read head. Specifically, Seagate made: (1) claims against Mao and Western Digital for the misappropriation of eight trade secrets; (2) claims against Mao for breach of contract, breach of fiduciary duty, and breach of loyalty; and (3) a claim against Western Digital for tortious interference with contract.

Western Digital invoked the arbitration clause of the employment agreement, and the district court stayed the lawsuit pending arbitration. Before the arbitration hearing began, Seagate brought a motion for sanctions against Western Digital and Mao based on alleged fabrication of evidence.3 The fabrication related to documents submitted by Western Digital and Mao, which were intended to prove that three of Seagate’s claimed trade secrets, referred to as Trade Secrets 4-6, had been publicly disclosed before Mao left Seagate. Seagate alleged that Mao had inserted additional PowerPoint slides containing information on Trade Secrets 4-6 into his copy of a presentation that he had given at a conference while employed by Seagate to make it appear as if this information had been presented in public, and therefore did not qualify as trade secrets.

In the motion for sanctions based on fabrication, Seagate requested “a sanction commensurate with the severity of the misconduct.” Specifically, Seagate requested an order precluding Western Digital and Mao “from presenting any defense to the trade secret misappropriation claims asserted against them, including barring [Western Digital and Mao] from (1) disputing the validity and misappropriation of any of Seagate’s eight asserted trade secrets, and (2) disputing Western Digital’s use of Seagate’s eight asserted trade secrets.” Seagate also requested compensation for “the costs and attorneys’ fees it was forced to incur to investigate and expose the document fabrication and to bring this motion to remedy it.” Western Digital and Mao responded by requesting sanctions against Seagate to “compensate the Claimants for the unnecessary fees and costs incurred in defending against Sea-gate’s frivolous charges.” Western Digital and Mao also asked the arbitrator to defer consideration of the sanctions motions until after the arbitrator had heard evidence “in the context of the full arbitration hearing,” and the arbitrator granted this latter request.

The arbitration hearing was held over 34 days in 2011. The arbitrator found in favor of Mao and Western Digital with respect to claims arising Out of Trade Secrets 1-3 and 7-8, concluding that Seagate had failed to prove that the information reflected in these claims met the definition of a trade secret.4 Trade Secrets 4-6 were addressed separately, as the arbitrator first reviewed the motion for sanctions based on fabrication • and determined that Mao fabricated the disputed slides for the purpose of litigation while working at Western Digital. The arbitrator stated: “The fabrications were obvious. There is no question that Western Digital had to know of the fabrications and yet continued to represent to the Arbitrator that Dr. Mao did in fact insert the disputed slides ... at the time of the conferences.” The arbitrator concluded that “Dr. Mao’s fabrication of evidence and Western Digital’s complicity by submitting the obviously fabricated evidence to the Arbitrator is an [756]*756egregious form of litigation misconduct and warrants severe sanctions.” The arbitrator then cited Harris Trust & Savings Bank v. Ali, 100 Ill.App.3d 1, 55 Ill.Dec. 186, 425 N.E.2d 1359, 1366 (1981), which states that “[w]hen evidence is ... fabricated, a presumption arises that the cause of action or the defense it was intended to support is without substantial foundation.” (citation omitted) (internal quotation marks omitted). The arbitrator imposed the following sanctions against Western Digital and Mao:

a) Preclusion of any evidence or defense by Western Digital and Dr. Mao disputing the validity of Seagate’s asserted trade secrets 4, 5, and 6;
b) Preclusion of any evidence or defense by Western Digital and Dr. Mao regarding misappropriation by Western Digital and Dr.

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Cite This Page — Counsel Stack

Bluebook (online)
854 N.W.2d 750, 39 I.E.R. Cas. (BNA) 345, 2014 Minn. LEXIS 537, 2014 WL 5012807, Counsel Stack Legal Research, https://law.counselstack.com/opinion/seagate-technology-llc-v-western-digital-corporation-sining-mao-minn-2014.