Scr-Tech LLC v. Evonik Energy Services LLC

SCR-Tech LLC v. Evonik Energy Services LLC, 2012 NCBC 43.
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
COUNTY OF MECKLENBURG 08 CVS 16632

SCR-TECH LLC, )
)
Plaintiff, )
)
ORDER ON
v. )
) DEFENDANTS’ JOINT MOTION TO
PREVENT PLAINTIFF’S
EVONIK ENERGY SERVICES LLC, )
EVONIK ENERGY SERVICES ) DISCLOSURE OF DEFENDANTS’
CONFIDENTIAL INFORMATION
GMBH, EVONIK STEAG GMBH, )
HANS-ULRICH HARTENSTEIN, and ) TO PLAINTIFF’S EXPERT
JAMES E. STAUDT, PH.D., CFA
BRIGITTE HARTENSTEIN, )
)
Defendants. )
)
{1} THIS MATTER is before the court on Defendants’ Joint Motion to
Prevent Plaintiff’s Disclosure of Defendants’ Confidential Information to Plaintiff’s
Expert James E. Staudt, Ph.D., CFA (“Motion”), pursuant to Section 8 of the
Stipulated Protective Order. Prior to a final ruling, for the reasons stated below,
the court requests Plaintiff SCR-Tech LLC (“SCR-Tech”) to supplement the record
by providing additional information regarding connections of James E. Staudt,
Ph.D. (“Dr. Staudt”) to Defendant Evonik Steag GmbH’s (“Steag”) competitors in
the selective catalytic reduction (“SCR”) services industry, including an indication of
whether Dr. Staudt intends to accept future non-litigation consulting engagements
in the SCR industry. The court will then rule on the Motion.
King & Spalding LLP by Timothy G. Barber and Antonio E. Lewis for
Plaintiff SCR-Tech LLC.

Bryan Cave LLP by Mark Vasco and Benjamin F. Sidbury for Defendants
STEAG Energy Services GmbH f/k/a Evonik Energy Services GmbH and
STEAG GmbH f/k/a Evonik STEAG GmbH.

K&L Gates LLP by Beverly A. Carroll and Daniel V. Mumford for Defendants
STEAG Energy Services LLC f/k/a Evonik Energy Services LLC, Hans-Ulrich
Hartenstein, and Brigitte Hartenstein.

Gale, Judge.
I. PROCEDURAL HISTORY

{2} On April 11, 2012, Dr. Staudt signed the Declaration and Agreement
attached to the Parties’ Stipulated Protective Order. SCR-Tech’s counsel then
notified defense counsel of SCR-Tech’s intent to disclose Defendants’ Confidential
Information as defined by the Protective Order to Dr. Staudt. Defendants objected,
contending that Dr. Staudt is employed in the same industry as the Parties and
that the Stipulated Protective Order, Section 8 (“Section 8”), entitles Defendants to
challenge the intended document disclosure.
{3} On May 30, 2012, Defendants filed this Motion. The Motion has been
fully briefed.

II. FACTS

{4} A more complete statement of the facts and claims of this litigation
may be found in the court’s July 22, 2011 Order on Defendants’ Joint Motion for
Summary Judgment on the Non-Existence of Trade Secrets or Confidential
Information.
{5} On February 6, 2012, the court entered the Stipulated Protective
Order by consent. Section 8 provides that any Party may invoke the court’s
assistance to resolve disputes about the disclosure of Confidential Information to
“any expert with current or prior employment within the industry in which the
parties compete.” (Stipulated Protective Order § 8.) The Stipulated Protective
Order does not define the term “industry.”
{6} Dr. Staudt is the principal owner of Andover Technology Partners
(“ATP”), a consulting firm that advises government agencies and private entities in
the air pollution control industry, including some companies that manufacture SCR
catalysts. (Aff. of James E. Staudt, Ph.D. (“Staudt Aff.”) ¶¶ 1, 2, 9.) Dr. Staudt has
consulted for SCR-Tech and for its former parent company, Catalytica. (Staudt Aff.
¶¶ 3, 4.) Dr. Staudt’s primary clients are government agencies and neither he nor
ATP plans to start a business providing SCR services. (Staudt Aff. ¶¶ 13, 14.)
III. DISCUSSION

{7} The Motion presents two issues: (1) whether Dr. Staudt is employed
within the same “industry” within the meaning of the Protective Order; and if so, (2)
whether Dr. Staudt is sufficiently independent from SCR-Tech and Steag’s other
competitors to be permitted access to Defendants’ Confidential Information.

A. Dr. Staudt Is Within the Same Industry as the Parties.
{8} Defendants contend that Dr. Staudt is engaged within the same
industry as the Parties because Dr. Staudt has consulted for SCR-Tech and other
companies that provide SCR services. SCR-Tech contends that Dr. Staudt is not
engaged within the same industry because he has never worked within the
narrower SCR regeneration field.
{9} The court concludes that, for purposes of Section 8, the “industry” is
the broader SCR services industry in which SCR-Tech and Steag operate and in
which Dr. Staudt is involved. Accordingly, the court also concludes that
Defendants’ challenge is properly made pursuant to Section 8.
{10} The North Carolina Court of Appeals demarcated a difference between
“competition” and “industry” by stating, “[w]e define ‘competition’ as entailing more
than mutual existence in a common industry or marketplace; rather, it requires an
endeavor among business entities to seek out similar commercial transactions with
a similar clientele.” McKinnon v. CV Indus., Inc., __ N.C.App. __, __, 713 S.E.2d
495, 501 (2011). The McKinnon court found that the parties were in the furniture
industry but were not competitors. Id.
{11} According to its website, Steag provides general SCR services,
including manufacturing and regenerating SCR catalysts and installing,
maintaining, and managing SCR systems. http://www.steag.us/ (follow “SCR
Services” hyperlink). According to the CoaLogix/SCR-Tech website, SCR-Tech
offers SCR management as well, but its primary service is the SCR regeneration
technology at issue in this case. http://www.coalogix.com/ (follow “About CoaLogix”
hyperlink).
{12} The court concludes that SCR regeneration is properly viewed as a
subset of the broader SCR services industry. The CoaLogix/SCR-Tech website touts
SCR regeneration as a “compelling economic alternative to purchasing a new
catalyst,” indicating that SCR catalyst regeneration services compete with SCR
catalyst manufacturing services. Id.
{13} Dr. Staudt has provided consulting services to Steag’s competitors
within the SCR services industry, including BASF, Johnson Matthey, and SCR-
Tech. (Staudt Aff. ¶¶ 3, 4, 6−9.) Dr. Staudt and ATP advise government agencies,
energy companies, technology providers, and investors in air pollution control
technology. (Staudt Aff. ¶ 1.) http://www.andovertechnology.com/home.html (follow
“Clients/Case Studies” hyperlink). Consulting for government agencies comprises
over half of ATP’s total business. (Staudt Aff. ¶ 14.) The consulting services that
Dr. Staudt and ATP provide cover a range of air pollutants. Clearly, SCR systems
are not Dr. Staudt’s only field of expertise or even his dominant area of expertise.
http://www.andovertechnology.com/services/technology-suppliers.html.
{14} The court must now determine whether Dr. Staudt’s connections to
SCR-Tech and Steag’s other competitors constitute a sufficiently high risk of
disclosure of Defendants’ Confidential Information to Steag’s competitors to justify
preventing SCR-Tech from disclosing Defendants’ Confidential Information to him.

B. Dr. Staudt’s Independence from Steag’s Competitors.
{15} North Carolina’s courts have not established a standard for balancing
opposing parties’ interests that are impacted by the disclosure of sensitive trade
information to an expert with prior or ongoing involvement with the producing
party’s competitors. Federal courts have addressed the issue.
{16} The United States District Court for the District of Colorado faced this
issue in Digital Equip. Corp. v. MicroTech., Inc., 142 F.R.D. 488, 491 (D. Col. 1992).
The Digital court used a five-factor test to determine that, although the receiving
party’s expert had consulted for the receiving party, he was sufficiently independent
for the court to allow disclosure of the producing party’s confidential information,
subject to an agreement between the expert and the receiving party to forego all
future non-litigation engagements. Id. The five factors included: (1) the expert’s
affiliation with the receiving party; (2) the extent of regular employment,
consultation, or association with the receiving party; (3) present involvement in the
receiving party's competitive decisions; (4) the potential for future involvement of
the expert in the receiving party’s competitive decisions; and (5) if the expert’s
involvement is deemed beyond the point of independent, the expert’s willingness to
curtail or forego future involvement with the receiving party. Id.
{17} In BASF Corp. v. United States, the Court of International Trade
applied the Digital factors when examining the expert’s connections to the
producing party’s third-party competitor. 28 C.I.T. 414, 321 F. Supp. 2d 1373 (Ct.
Int’l Trade 2004). The court concluded that the expert was not sufficiently
independent from that third-party competitor. Id. The United States District Court
for the District of South Carolina used the Digital factors to prevent disclosure of
confidential information to the receiving party’s expert based on the expert’s
ongoing involvement with both the receiving party and the producing party’s third-
party competitors. In re: Sensormatic Elecs. Corp., v. The Tag Co. LLC, 2008 U.S.
Dist. LEXIS 5312, (D.S.C. Jan. 24, 2008).
{18} Each of those courts examined the receiving party’s expert’s
“independence” from the producing party’s competitors. The obvious goal for a court
is to balance one litigant’s right to retain experts having relevant specialized
knowledge with protection of the other litigant’s sensitive competitive information
and valuable trade secrets.
{19} When confidential information is shared with an expert having
specialized knowledge of an industry, a higher risk of disclosure necessarily exists if
the expert has ongoing activities within the industry. To grant too broad of a
protection for the producing party could foreclose litigants from retaining experts of
sufficient expertise. To grant too narrow a protection, on the other hand, would
unnecessarily endanger the producing party’s sensitive information and valuable
trade secrets.
{20} The balance must be made from case to case. The mere fact that an
expert has provided consulting services to a producing party’s competitors should
not alone generally foreclose the receiving party from retaining that expert. But, if
the expert’s services to a competitor constitute a dominant or significant portion of
the expert’s business, the risk of disclosure is heightened and may justify some
agreed-to or court-imposed limitation beyond the signed undertakings of a
protective order. In determining whether to disqualify an expert from disclosures or
imposing other limitations, a court should have a record upon which it can consider
all the Digital factors and their indications as to whether the expert is independent
from all of the producing party’s competitors.
{21} The court does not believe it currently has a record to address all five
of the Digital factors, although the record allows an assessment of some of those
factors as related to Dr. Staudt’s independence from SCR-Tech.
{22} Dr. Staudt has only had limited, rather than ongoing, engagements
with SCR-Tech, all of which occurred five or more years ago. Dr. Staudt provided
market analyses to SCR-Tech’s former parent company on two occasions, once in
2003 and again in 2006. (Staudt Aff. ¶ 3.) He also licensed SCR catalyst
management software to SCR-Tech on two occasions, once in 2005 and again in
2007. (Pl.’s Resp. Br. 7.) Thus, the first and second Digital factors are implicated
only minimally, as these engagements indicate a limited outside consultant
relationship with the receiving party that ceased five years ago. Dr. Staudt does
not appear to be involved with SCR-Tech’s competitive decision-making, nor is there
any indication that SCR-Tech and Dr. Staudt are presently engaged, and so the
third Digital factor of present involvement in the receiving party’s competitive
decision-making is not implicated. Dr. Staudt would be clearly independent from
SCR-Tech if he covenants to forego all future non-litigation consulting engagements
with SCR-Tech related to SCR services. Such a covenant would eliminate concerns
relating to the fourth and final Digital factors of future involvement with the
receiving party. If Dr. Staudt does not wish to make that covenant, the court will
make its determination of Dr. Staudt’s independence from SCR-Tech based on the
present record.
{23} There is not adequate information for the court to assess Dr. Staudt’s
independence from Steag’s other competitors. Therefore, the court requests SCR-
Tech to supplement the record with further information regarding Dr. Staudt’s
independence from Steag’s third-party competitors, utilizing the Digital factors.
Those competitors include Johnson Matthey, BASF, and any other company that
competes with Steag in providing SCR services.
{24} SCR-Tech should submit its supplement no later than September 5,
2012. Defendants may respond within twenty days. The court will then issue its
final ruling.
IT IS SO ORDERED, this 6th day of August, 2012.