An investor in shares of Eaton Corporation (NYSE:ETN) filed a lawsuit against certain directors and officers of Eaton Corp. over alleged breaches of fiduciary duties.
According to the complaint the plaintiff alleges that the conduct of the defendants has resulted in the company having to unnecessarily forfeit the recovery of valuable corporate assets due to sanctions related to a lawsuit initiated as a result of the theft of trade secrets estimated to have a value to the company of up to $1billion.

Eaton Corporation is a diversified power management company. Eaton Corporation reported stable annual Total Revenue over the past four years ranging from $11.873billion to $15.376billion. Back in 2002 six Eaton Corp employees left the company to join competitor Frisby Aerospace – now known as Triumph Actuation System. The plaintiff claims that without authorization, these employees wrongfully took thousands of pages of documents containing trade secrets and proprietary information relating to hydraulic pumps, motors and other products developed by Eaton Cor. The plaintiff says those documents were subsequently altered with Frisby Aerospace’s own proprietary marking and used in the design of equipment for Frisby Aerospace. The plaintiff alleges Frisby Aerospace unjustly benefited from the use of this proprietary information in competing with Eaton Corp for the business of companies such as Airbus and Boeing. Eaton Corp, so the lawsuit, has suffered a substantial loss as a result of the misappropriation and use of these materials and Eaton estimated in a 2004 position paper that its annual sales volume attributable to the affected products to be $150million. Eaton then valued the stolen intellectual property as being substantially in excess of $200million. The alleged theft of theses trade secrets have resulted in Federal Criminal charges being filed and pursued against the six former Eaton employees.

Then on July 9, 2004 Eaton Corp filed a lawsuit against Frisby Aerospace and the former Eaton Corp. employees alleging theft and conspiracy. Consecutively Eaton Corporation received between 2004 and late 2006 a series of unfavorable rulings from the judge presiding over the trade secret litigation. In one instance, so the plaintiff, the judge found that Eaton Corp had lied in discovery as to whether it had improperly paid a lay witness to testify on its behalf.
In late 2006 Eaton Corp. then retained an attorney to work on behalf of the company. As it turned out, so the plaintiff, the attorney did not enter an appearance in the litigation and his involvement was kept secret from Frisby Aerospace and its counsel. Nevertheless, so the plaintiff, this attorney became involved on behalf of Eaton Corp and the judge’s rulings turned in favor of Eaton.

Later the secret involvement in the trade secret litigation, became publicly known in November 2007 and caused a criminal investigation for improper ex parte communications in another case presided over the very same judge. As part of that investigation, it was claimed that the attorney had been specifically retained to improperly influence the same judge. By late January 2008, so the plaintiff, it was publicly reported that the investigation into the relationship between this attorney and judge was being widened to encompass possible improprieties in the lawsuit by Eaton Corp against Frisby Aerospace. The judge then eventually recused himself from that litigation and a new judge was assigned. The new judge determined and ruled that Eaton Corp had retained the attorney to improperly influence the former presiding judge. The new judge also determined that certain officers, Eaton Corp’s vice-president and chief counsel, general counsel and executive vice president, and vice-president and chief counsel each knew of the involvement of this attorney and that his purpose was to improperly influence the former presiding judge.

The plaintiff now claims that certain officers of Eaton directly participated in the attorney’s improper contracts with the former presiding judge and certain directors either consciously knew of the certain officers’ improper involvement of the attorney and failed to stop it, or they knowingly abdicated their fiduciary duties, and in particular their duty to actively monitor, supervise and control those certain officers. The result, so the plaintiff, of the breach of duty by certain officers and directors of Eaton Corp was a judicial sanction of more than $1.5million and the dismissal, with prejudice, of the lawsuit by Eaton Corp against Frisby Aerospace and thus forfeiture of a corporate asset in the form valued in some estimated up to $1billion.