In a 56-page opinion, the U.S. Court of Appeals for the Second Circuit sent a long-pending trade secrets case, Jasco Tools, Inc. v. Dana Corporation, Appeal No. 08-2762-bk, back to the lower court for further proceedings because of the bankruptcy court's "flawed application of well established summary judgment principles." (Slip Op. at 32.) In the case, Jasco alleged that Dana had conspired, among other things, with former Jasco employees to steal and use Jasco trade secrets. While the case was pending, Dana filed for bankruptcy. Jasco subsequently filed a proof of claim against Dana's estate. (Slip Op. at 12.)

The bankruptcy court allowed Dana Corporation ("Dana") to move for summary judgment through an objection to disallow the claim of Jasco as a creditor (the "Objection"). Where the court first erred was by ordering that the parties would file their statements of undisputed material facts (Rule 7056-1 statements) simultaneously. (Slip Op. at 32.) Then, as Law 360 discusses, the bankruptcy court erred by refusing to allow Jasco to complete discovery, particularly deposition discovery, of Dana employees. Although the case had a long history, the Second Circuit concluded that, in this case, under Fed. R. Civ. P. 56(f), the bankruptcy court should have allowed Jasco to complete the additional discovery it sought.

Substantively, the Second Circuit found that, "even without discovery of additional evidence, the record as it stands was sufficient to preclude the entry of summary judgment dismissing and expunging the Jasco claim." (Slip Op. at 38.) After reviewing the "well established summary judgment principles" referenced earlier in the opinion, the Second Circuit concluded that the "principles were not properly applied." (Slip Op. at 41.) Limiting its discussion to Jasco's claim of conspiracy to misappropriate trade secrets, the Second Circuit carefully and painstakingly analyzed applicable law as well as the direct and circumstantial evidence relating to Jasco's claim, concluding that there were sufficient disputed issues of material fact on the conspiracy to misappropriate trade secrets claim that the case should have proceeded to a jury.

One interesting aspect of the Second Circuit's analysis, which otherwise is worth reading for the facts, was its discussion of Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574 (1986) as applied to trade secret conspiracy claims. (Slip Op. at 53-55.) Dana cited Matsushita for the principle that "conduct that is consistent with permissible competition as well as with illegal conspiracy does not, without more, support even an inference of conspiracy." 475 U.S. at 597 n.21. The Second Circuit rejected the application of this theory because (1) Matsushita involved antitrust claims, not claims of trade secret misappropriation; (2) Matsushita involved a situation where the actions were "economically senseless parallel actions by persons competing with each other," whereas in this case, the parties were acting collaboratively in a manner that was supported by an obvious pecuniary motive; and (3) even though the Supreme Court in Matsushita made it clear that "mere proof of conduct that is as consistent with permissible competition as with illegal conspiracy, 'without more'" will not support a inference of conspiracy, the facts in this case supplied the necessary "more."