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Appeals court: Civil RICO claims not preempted

Jennifer Nelson
January 1, 2008
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The Indiana Uniform Trade Secrets Act does not preempt a civil Racketeer Influenced and Corrupt Organizations claim, the Indiana Court of Appeals ruled today.

In an issue of first impression, the court was asked to decide in AGS Capital Corp., Inc., et al. v. Product Action International, LLC, No. 49A02-0702-CV-176, whether civil provisions for treble damages based on certain criminal acts are covered by the Indiana Uniform Trade Secrets Act (IUTSA).

AGS Capital Corp., which owned Fast Tek Group and Superior Metal Technologies, was a direct competitor with Product Action International, which is in the business of quality control and most of whose customers are automotive industry manufacturers and suppliers. In order to gain an economic edge over Product Action, AGS owners Alan Symons and Scott Weaver decided to hire for Fast Tek employees of Product Action in order to gain access to confidential information in how Product Action operated. The company hired Anthony Roark and Chan Chanthaphone away from Product Action, and the two brought along confidential information regarding Product Action's systems, methods, and customer information. The company also had the secretary of Superior Metal contact Product Action to get a price quote sent to the company; Fast Tek used that information to set its prices.

Fast Tek copied the Product Action documents and replaced Product Action's name with their own.

Product Action filed a verified complaint for preliminary injunction, permanent injunction, and damages against AGS, Fast Tek, Superior Metal, Symons, Weaver, Roark, and Chanthaphone in May 2006. Product Action hired a consultant in computer forensics to perform discovery on Fast Tek's computers. The discovery returned numerous documents showing Fast Tek converted Product Action's documents to say "Fast Tek."

The trial court ruled Fast Tek and AGS are alter egos, making AGS liable for Fast Tek's actions; the defendants violated the IUTSA, which entitled Product Action to injunctive relief; and Product Action proved the defendants violated Indiana's civil RICO statute. The preliminary injunction ordered AGS, Symons, Weaver, Fast Tek, Roark, Chanthaphone, and all the company's agents and employees from contacting or soliciting new business from certain entities for two years, and they are all enjoined from participating in the business of Fast Tek in any form for a year. The injunction also ordered the computer consultant to expunge any information from the computers that was taken from Product Action. Product Action was required to post a $2,000 bond.

AGS appealed, arguing several issues, including the IUTSA preempts Product Action's claims under the state's RICO statute, the preliminary injunction was overbroad, and the bond posted by Product Action was unreasonably low.

The Indiana Court of Appeals ruled civil RICO actions are not preempted under the IUTSA. Indiana's RICO statute allows for a civil remedy for criminal activity. The IUTSA preemption provision refers to areas of law as a whole as opposed to the national Uniform Trade Secrets Act, which deals in terms of remedies provided. Because of this, the IUTSA preemption provision exempts criminal law and its concomitant criminal remedies, Judge L. Mark Bailey wrote. The court believes permitting a RICO claim along with an IUTSA claim provides for greater protection for the integrity of Indiana businesses.

"Because the RICO statute was designed to address the more sinister forms of corruption and criminal activity, the preemption provision of IUTSA should not prohibit RICO from fulfilling its purpose where the form of corruption involves the systematic acquisition of economically valuable information through the artifice of competitors' employees in order to gain an unlawful economic advantage in the marketplace," Judge Bailey wrote.

The appellate court also affirmed most of the trial court's earlier ruling, including the preliminary injunction and amount of bond posted, except for the barring of participation of AGS and its employees in the business of Fast Tek for one year and the length of time AGS may not solicit customers or business from entities listed in Product Action's Exhibit A in the preliminary injunction hearing. The provision goes far beyond what is reasonably necessary to protect Product Action's interests, he wrote. The court concluded prohibiting the participation of AGS, Symons, and Weaver in the operation of Fast Tek for a year is overbroad.

The court also remanded the trial court to revise its two-year ban on contacting customers to be effective until there is a final adjudication on the merits.

The Court of Appeals also overturned the grant of attorney's fees to Product Action because there is no judgment or settlement by the parties yet and the prevailing party is yet to be determined.

In a separate opinion, Judge Nancy Vaidik concurred in part and dissented in part regarding the majority's conclusions regarding the duration of the preliminary injunction and whether the bond is unreasonably low.

Judge Vaidik wrote no one argued that the injunction should be made longer regarding how long AGS can't contact certain companies, so she believes the two years imposed by the trial court isn't unreasonable.

Also, she wrote the $2,000 bond is unreasonably low and was an abuse of discretion by the trial court. She would remand for a new determination of an appropriate preliminary injunction bond.
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  1. KUDOS to the Indiana Supreme Court for realizing that some bureacracies need to go to the stake. Recall what RWR said: "No government ever voluntarily reduces itself in size. Government programs, once launched, never disappear. Actually, a government bureau is the nearest thing to eternal life we'll ever see on this earth!" NOW ... what next to this rare and inspiring chopping block? Well, the Commission on Gender and Race (but not religion!?!) is way overdue. And some other Board's could be cut with a positive for State and the reputation of the Indiana judiciary.

  2. During a visit where an informant with police wears audio and video, does the video necessary have to show hand to hand transaction of money and narcotics?

  3. I will agree with that as soon as law schools stop lying to prospective students about salaries and employment opportunities in the legal profession. There is no defense to the fraudulent numbers first year salaries they post to mislead people into going to law school.

  4. The sad thing is that no fish were thrown overboard The "greenhorn" who had never fished before those 5 days was interrogated for over 4 hours by 5 officers until his statement was illicited, "I don't want to go to prison....." The truth is that these fish were measured frozen off shore and thawed on shore. The FWC (state) officer did not know fish shrink, so the only reason that these fish could be bigger was a swap. There is no difference between a 19 1/2 fish or 19 3/4 fish, short fish is short fish, the ticket was written. In addition the FWC officer testified at trial, he does not measure fish in accordance with federal law. There was a document prepared by the FWC expert that said yes, fish shrink and if these had been measured correctly they averaged over 20 inches (offshore frozen). This was a smoke and mirror prosecution.

  5. I love this, Dave! Many congrats to you! We've come a long way from studying for the bar together! :)

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