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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. I grew up on a farm and live in the county and it's interesting that the big industrial farmers like Jeff Shoaf don't live next to their industrial operations...

  2. So that none are misinformed by my posting wihtout a non de plume here, please allow me to state that I am NOT an Indiana licensed attorney, although I am an Indiana resident approved to practice law and represent clients in Indiana's fed court of Nth Dist and before the 7th circuit. I remain licensed in KS, since 1996, no discipline. This must be clarified since the IN court records will reveal that I did sit for and pass the Indiana bar last February. Yet be not confused by the fact that I was so allowed to be tested .... I am not, to be clear in the service of my duty to be absolutely candid about this, I AM NOT a member of the Indiana bar, and might never be so licensed given my unrepented from errors of thought documented in this opinion, at fn2, which likely supports Mr Smith's initial post in this thread: http://caselaw.findlaw.com/us-7th-circuit/1592921.html

  3. When I served the State of Kansas as Deputy AG over Consumer Protection & Antitrust for four years, supervising 20 special agents and assistant attorneys general (back before the IBLE denied me the right to practice law in Indiana for not having the right stuff and pretty much crushed my legal career) we had a saying around the office: Resist the lure of the ring!!! It was a take off on Tolkiem, the idea that absolute power (I signed investigative subpoenas as a judge would in many other contexts, no need to show probable cause)could corrupt absolutely. We feared that we would overreach constitutional limits if not reminded, over and over, to be mindful to not do so. Our approach in so challenging one another was Madisonian, as the following quotes from the Father of our Constitution reveal: The essence of Government is power; and power, lodged as it must be in human hands, will ever be liable to abuse. We are right to take alarm at the first experiment upon our liberties. I believe there are more instances of the abridgement of freedom of the people by gradual and silent encroachments by those in power than by violent and sudden usurpations. Liberty may be endangered by the abuse of liberty, but also by the abuse of power. All men having power ought to be mistrusted. -- James Madison, Federalist Papers and other sources: http://www.constitution.org/jm/jm_quotes.htm RESIST THE LURE OF THE RING ALL YE WITH POLITICAL OR JUDICIAL POWER!

  4. My dear Mr Smith, I respect your opinions and much enjoy your posts here. We do differ on our view of the benefits and viability of the American Experiment in Ordered Liberty. While I do agree that it could be better, and that your points in criticism are well taken, Utopia does indeed mean nowhere. I think Madison, Jefferson, Adams and company got it about as good as it gets in a fallen post-Enlightenment social order. That said, a constitution only protects the citizens if it is followed. We currently have a bevy of public officials and judicial agents who believe that their subjectivism, their personal ideology, their elitist fears and concerns and cause celebs trump the constitutions of our forefathers. This is most troubling. More to follow in the next post on that subject.

  5. Yep I am not Bryan Brown. Bryan you appear to be a bigger believer in the Constitution than I am. Were I still a big believer then I might be using my real name like you. Personally, I am no longer a fan of secularism. I favor the confessional state. In religious mattes, it seems to me that social diversity is chaos and conflict, while uniformity is order and peace.... secularism has been imposed by America on other nations now by force and that has not exactly worked out very well.... I think the American historical experiment with disestablishmentarianism is withering on the vine before our eyes..... Since I do not know if that is OK for an officially licensed lawyer to say, I keep the nom de plume.

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