Eaton's trade

FBI and Defense Department agents fanned out across four central North Carolina suburbs before the sun crept over the horizon on a freezing January morning in 2004.

Their mission: To question engineers from a nearby aircraft parts company who had left Eaton Aerospace in Jackson, Miss., two years earlier. The government and Eaton wanted to know if the men had taken valuable military and commercial trade secrets on their way out the door.

As investigators knocked at the homes of six engineers on the outskirts of Winston-Salem, N.C., fellow agents descended on Frisby Aerospace a few miles away. Equipped with a rough floor plan of the engineering department supplied by a whistleblower, they knew just where to go.

When the agents were finished, their haul from the plant, detailed later in court documents, included parts specifications and computer drawings from Eaton for airliner and private jets, and for some of the military's most sensitive projects, such as the F-35 Joint Strike Fighter and the F-22 Raptor stealth jet.

Hydraulic pumps and motors for aircraft like these had long been Eaton's domain, helping drive the company to billions in worldwide revenues. Now Frisby, with a tenth of Eaton's annual sales, had penetrated the tight circle of U.S. manufacturers supplying hydraulic parts.

The ensuing rivalry between the two companies set them on a collision course that has spawned an eight-years-and-running lawsuit in Mississippi with hundreds of millions of dollars at stake and a criminal case, torn apart careers, veered into a probe of judicial corruption and led to the dismissal of two top lawyers at Eaton headquarters in Cleveland.

This is the story of those eight years, told through pages of emails, sworn testimony, law firm records, FBI reports, court documents and interviews with some of the key players. Those key players do not include current Eaton officials, who declined to be interviewed for this report. But Eaton executives have emphasized that they simply want their day in court, to make their case.

This is the story of why, more than eight years in, that day still has not come.

Whistleblower Milan Georgeff, the ex-Frisby employee whose account of pilfered documents sparked the FBI raid, is stunned by the turn of events.

"It's just hard to believe that these guys could have blown this," Georgeff said in a recent phone call from his home in California. "It was an open and shut case."

Georgeff was a 57-year-old design engineer at Frisby headquarters in Clemmons, N.C., when five of Eaton's top engineers arrived from Mississippi in January 2002.

Four years earlier, Frisby had been acquired by the Triumph Group aerospace conglomerate. The new engineers, followed by a sixth a few months later, were going to ramp up Frisby's hydraulic pump and motor business so it could grab a bigger slice of that market.

Georgeff said he did a good job at Frisby and had no overriding problems until the day he questioned an assignment to copy a drawing provided by supervisor Douglas Murphy, one of the engineers who left Eaton.

Georgeff, who had worked years before at Vickers Inc. -- a company that Eaton later purchased -- said the "v" code on the blueprint was like codes he used to see at his old job.

He suspected the design had been taken from Eaton Aerospace and said he refused to copy it.

"He didn't say a word to me," Georgeff said of Murphy. "He just looked at me kind of funny and walked away."

Cliff Johnson, who represents Murphy and the other engineers, had another explanation for the drawing.

Murphy was testing Georgeff's proficiency against several other employees because of questions about the quality and speed of Georgeff's work, Johnson said. Murphy used commonly available Eaton drawings to insure they would not be familiar to anyone and would be a fair basis for comparison, Johnson said.

Within weeks of the encounter, Georgeff said, Frisby gave him an unfavorable job review and forced him out. Frisby said in court documents that Georgeff chose to resign after being put on probation for low productivity, errors and difficulty completing assignments.

Georgeff relocated to California, where he said he continued to mull over his suspicions.

"It was really troubling me," he said. "It was just one of those things I couldn't be quiet about."

By November 2002, Georgeff had decided to act. He looked up Eaton Aerospace on the Internet to find someone to talk to, locating a manager in human resources. Spidery drawings of a motor piston and wear pad soon arrived from Georgeff on a fax machine at the Eaton plant in Jackson.

The response came quickly.

Inside of two months, prominent Mississippi lawyer Michael Allred was on a plane to California to interview Georgeff on Eaton's behalf. A couple months after that, Eaton lawyers took a report on the two-day Georgeff debriefing to the U.S. attorney's office in Jackson and the FBI.

The raid at the plant and at the engineers' homes in North Carolina was a shocking setback for the crew that had parachuted into Frisby with big expectations.

The engineers, most in their late 30s, had worked together at Eaton's Jackson, Miss., plant when it was owned by Maumee-headquartered Aeroquip-Vickers, which Eaton acquired in 1999.

The engineers chafed under the bureaucracy of working for their giant new owner, and didn't like Eaton's decision to replace local supervisors with managers from other plants, Johnson said.

Frisby looked like a good option. It had recently purchased Honeywell International's pump and motors business. There was a chance to get in on the ground floor, to build a second-tier aerospace manufacturer into an industry powerhouse.

Murphy was a 48-year-old design and analysis technician for Sikorsky and Comanche helicopter projects at Eaton when he made the move to Frisby. James Ward, 36, was engineering manager and Michael Fulton, 38, was senior project engineer on the Sikorsky program. Kevin Clark, 37, managed the Jackson plant's engineering laboratory. Rodney Case, 37, was a senior engineer. And Billy Grayson, 37, who followed four months later, was a lead engineer.

The men brought to Frisby an entire "engineering department in a box," Ward said, according to the government's case.

Frisby over the next few years landed several hydraulics contracts. But the biggest plum -- the contract the company won in the summer of 2004 -- was short-lived.

Frisby learned at the end of June 2004 that it had been chosen by Boeing to supply the hydraulic pumps and motors for the most ballyhooed commercial plane in years, the Dreamliner passenger jet. Including replacement sales and service, the contract was valued at $1 billion.

Eaton also submitted a bid, and lost.

On July 1, 2004, Eaton said, it gave Boeing a copy of the FBI application for a search warrant. Eight days later in Hinds County, Miss., Eaton sued the engineers and Frisby, its Triumph Group parent company, and Frisby President Jeffrey Frisby, on trade secret theft, conspiracy, fraud and other claims.

Boeing withdrew its hydraulics work from Frisby. By fall of that year, Boeing announced that the Dreamliner's hydraulic subsystem work would be supplied by Cleveland's Parker-Hannifin Corp.

Just what was taken from Eaton Aerospace and whether any of it was a trade secret has been fiercely contested in the sprawling Eaton-Frisby litigation.

Eaton officials would not go into details of the legal battle during a June meeting at The Plain Dealer, saying lawsuits continue, and key court documents are off limits to the public. But they said they were exasperated that no jury has heard what they called overwhelming evidence that the engineers stole vital trade secrets.

In a court filing, Eaton said the engineers took the "keys to the kingdom" -- everything they needed to create designs almost identical to Eaton's most state-of-the-art hydraulics work.

The engineers left the Jackson factory with all or most of a computer database of designs, drawings and specifications, Eaton said in court papers, as well as customer names and buying habits.

Eaton said in court documents that the illegal activity allowed Frisby to use Eaton confidential information to win contracts to supply gun drive motors for the F-15 and F-35 fighter jets, and a winch motor for the C-17, a military transport plane.

FBI agents had identified seven computers and four servers with "pertinent data." One computer file was titled "Vickers Crap." Several internal Frisby emails described the engineers as the "Taliban 5" and talked about "produc(ing) the greatest damage to the enemy."

The emails were in a 2-inch-thick binder filled with exhibits and other court records that Eaton Chairman and Chief Executive Office Alexander Cutler and company attorneys provided in June.

Johnson, the engineers' lawyer, said the emails weren't sinister. Taliban was the name that Eaton employees themselves branded the defecting engineers, he said, while the reference to damage was "locker room" bravado.

Neither Johnson, nor attorneys for Frisby nor the engineers dispute that the engineers had some Eaton material after they started working at Frisby.

The engineers were inexperienced in changing jobs and left without making sure they returned everything they received while working at Eaton Aerospace, Johnson said. Some of them inadvertently packaged up and took Eaton paper and electronic files when they moved to North Carolina, he said.

"I was mentally exhausted when I left Eaton," engineer James Ward testified in a deposition. "I had no evil designs. That just wasn't the context in which my leaving Vickers was in."

Johnson said anything the engineers took out of the Eaton plant was material they had permission to remove, such as data they occasionally consulted on their home computers. None of it was classified, he said. None of it was a trade secret.

"The fact that it went into an F-35 does not change the fundamental fact that it was basic, well-known technology," Johnson said.

Parts and processes that the government said were unique -- a type of bronze plating, crimping and electroplating techniques -- were in the public domain and known throughout the industry, Johnson said.

"How the cup-holder goes into a cockpit or how the landing wheels are pushed open by an actuator may not be matters of national security," he said.

"The motor business was fleshed out in the 40s, 50s and 60s. This isn't nanotechnology or smart bombs. I could go on eBay and buy an Eaton pump."

Technical workers typically bring "know-how" to new jobs, a body of smarts that is "why I hired you," Law Professor Craig Nard said.

"That's always something that employees can take with them," said Nard, who directs Case Western Reserve University's Center for Law, Technology and the Arts.

The smarts can include the ability to "reverse engineer" products -- tear them apart and figure out how a competitor made them. It's completely legal.

But other information is supposed to be exclusive to its owner and private.

Woven into trade secrets is the idea of fairness and honesty in business competition: If your design or product or formula gives you an advantage over rivals -- and you've kept it under wraps -- then you should have a right to prevent others from taking it, experts said.

Trade secret disputes most often involve employees -- current or former -- making them a tricky blend of intellectual property and employment law, said Jacqueline Lipton, recently a law professor at Case Western.

The god of trade secrets companies is Coca-Cola because it has managed to keep its recipe confidential for so long, said Elizabeth Rowe, director of the intellectual property law program at the University of Florida in Gainesville.

The soft drink's flavoring ingredients have the three musts of a trade secret: They are secret, they provide economic value or a competitive advantage over others in the field, and the company has taken "reasonable measures" to protect their disclosure.

Those "reasonable measures" often include confidentiality pacts, such as the termination agreements that the engineers signed -- and that Eaton said in court documents they violated.

The Eaton termination agreement declares that the employee has returned all Eaton Aerospace property, including "technical data (stored in hard copy or computer generated), all copies Software designed or developed for Eaton Aerospace (regardless of version) and that this software has been properly removed from any computers at home or at any off-site location."

Johnson said the engineers complied with all "enforceable" pacts, adding, "There would be issues at trial about the nature of some of these agreements and the circumstances in which they were entered into."

Companies from the largest to the smallest rely on trade secrets protected by confidentiality terms to make their businesses run, Rowe said.

Trade secret theft is on the rise, she said, possibly because workers nowadays frequently switch jobs and don't feel as loyal to bosses as before. It doesn't hurt that megabytes of computer data can be pocketed with a memory stick.

Frisby said in a court document that one of Eaton's goals in suing the engineers was to "make an example" of them "for the purpose of discouraging any other Eaton employee who might prefer to leave Eaton to go to work for a competitor."

Rowe said trade secret claims are one of the biggest employee-enforcement tools in a company's control. Even claims that are defeated can have interim benefits such as court injunctions that prevent a former employee from working for a competitor, she said.

"There are a lot of reasons (for filing a claim) aside from the strong merits of the secret itself," Rowe said.

Companies tend to be "over-inclusive" in what they consider to be a trade secret after it's been lost, she said.

In December 2006, when the U.S. attorney's office in Jackson, Miss., indicted Case, Clark, Fulton, Murphy and Ward, it said the engineers took "trade secrets consisting of technology related to the design, specifications, manufacture and sale of military and commercial aviation hydraulics." Grayson was not criminally charged.

A judge threw out 41/2 of 5 counts of the indictment, saying Eaton's "purported limitation of the generic word 'trade secret' was so broad as to be meaningless." All that remained was part of a charge of conspiracy among the defendants.

Prosecutors regrouped several times, ultimately pinpointing a half dozen alleged secrets. One was a computer program used to calculate new pump or motor dimensions that Eaton said was developed over years of trial and error, according to the government's final indictment in January 2009. Another was a database with Eaton-designed pump and motor parts, the government said.

But the claims haven't gone to a jury.

Greg Davis, confirmed this spring as U.S. attorney for south Mississippi, dropped the conspiracy and trade secret charges with prejudice, meaning they can never be refiled. His office didn't explain why.

The initial U.S. attorney on the criminal investigation is dead. Another U.S. attorney who took over the case is on extended leave and could not be reached. Still another declined to comment.

Meanwhile, the trades secrets lawsuit against Frisby in Hinds County Circuit Court in Jackson was derailed, too, when the case erupted into scandal. It wasn't the first time Georgeff set things in motion.

Georgeff said he didn't become a whistleblower to make money. But he didn't want to lose money either.

And he was nervous about getting blackballed in an industry dominated by a few players -- nervous enough to use the alias "Fred Johnson" when he first contacted Eaton. Georgeff said Allred, the attorney representing Eaton who interviewed him in California, said the design engineer would eventually have to reveal his identity to make his claims credible.

Georgeff and Eaton worked out an agreement that guaranteed him a job as an engineer in aeronautical hydraulics until age 65 if he became unemployed because of his role as a whistleblower or for any other reason, according to a copy of the agreement. It was a deal worth potentially $380,000, by Georgeff's calculation. A judge later found the consulting agreement with Georgeff was improper or unethical or illegal.

In exchange for the employment guarantee, Georgeff had pledged to cooperate with Eaton "in producing genuine and authentic documents and reporting candid and truthful information about the industrial espionage and theft of trade secret information... ," the contract states.

Frisby said in court records that it only learned about the Georgeff agreement when it surfaced in a wrongful discharge lawsuit that the design engineer filed against Frisby in North Carolina.

Frisby said Eaton had failed to disclose the agreement in the lawsuit in Mississippi even though Frisby specifically asked if such an arrangement existed.

Eaton said it didn't try to hide its consulting agreement with Georgeff, but also considered it should be protected from disclosure by attorney-client privilege. Eaton said in court records that Allred recommended that the Georgeff agreement be turned over to Frisby lawyers in the North Carolina litigation.

However, the Hinds County court handling Eaton's lawsuit sanctioned Eaton and several of its lawyers $1.5 million for discovery violations related to the Georgeff deal.

Frisby seized on the contract's revelation, saying in a court motion that it was evidence that Eaton had "seduced and paid off Georgeff to provide exaggerated and false testimony."

Abruptly, the long fight over trade secrets was put to the side. Hinds County Circuit Court Judge Bobby DeLaughter was now focused on Eaton's contract with Georgeff.

Jack Dunbar, working with DeLaughter as a court official known as a special master, concluded that Eaton and its attorneys had committed intentional violations by not disclosing the plan.

At that point, the lawsuit took another turn that ushered in new consequences for Eaton.

Looking to strengthen Eaton's legal team, Allred emailed in-house Eaton lawyers in Cleveland to report that he had contacted "the closest possible associate" to Judge DeLaughter. It was a seasoned Jackson lawyer named Ed Peters.

What was already a legal clash with a whiff of intrigue now began to unfold like a John Grisham novel.

Peters, who had been DeLaughter's former boss when the two were working as Hinds County prosecutors, later admitted to the FBI that he worked behind the scenes on behalf of Eaton, and believed he had influence over the judge for his client.

Frisby told the court that the secrecy and improper communication between Peters and DeLaughter continued for months. At one point, faxing DeLaughter's secretary about an important scheduling order in the Eaton-Frisby lawsuit, Peters referred to it cryptically as the "unusable name case."

Frisby complained that several of DeLaughter's key rulings had Peters' fingerprints on them, including the judge's decision to abruptly remove Dunbar.

"It is indisputable that Peters knew that Dunbar was to be replaced before it happened," Frisby said in a motion.

Then DeLaughter himself was off the Eaton case, swept into a federal investigation into whether Peters worked covertly to influence DeLaughter in a separate lawsuit not related to Eaton or Frisby.

The Eaton lawsuit got a new judge, Swan Yerger, and a new emphasis -- scrutiny of Eaton's lawyers on whether they knew about Peters' actions in the lawsuit. Yerger concluded Eaton and its lawyers had committed a "fraud upon the court."

Yerger's sanction, issued a few days before Christmas in 2010, was the "civil death penalty": Dismissal of the entire Eaton lawsuit, with prejudice. Left in place was a Frisby counterclaim against Eaton.

Yerger didn't get into whether the engineers even took Eaton's intellectual property. Instead, he sanctioned Eaton for either encouraging or standing by "with blind eyes" to the improper contacts between Peters and DeLaughter.

Eaton vehemently denied that it knew about efforts to improperly influence the judge. Regarding Yerger's dismissal that recited a number of facts the judge said were red flags, Eaton said, "Some of those 'facts' are just wrong, others are taken out of context, and still others do not have the legal significance he attributes to them."

Eaton immediately appealed the lawsuit dismissal to the Mississippi Supreme Court.

The trade secrets case has now spawned new claims and counterclaims in Mississippi, North Carolina, California and Ohio.

Frisby alleges in Hinds County Circuit Court that Eaton tried to cripple it as a competitor based on false and misleading information. In North Carolina, Frisby sued Eaton for supposedly conspiring to monopolize the hydraulics market. Eaton struck back, saying it's been damaged by rampant trade secrets theft.

A shareholders' suit in Cuyahoga County alleges Eaton, its directors and officers either participated in misconduct in the trade secrets lawsuit or ignored red flags. As a result, Eaton unnecessarily forfeited a chance to recover damages valued at up to $1 billion, the shareholders' suit says.

As the cases wind through the judicial system, millions of dollars in legal fees are being spent by both sides and legal pleadings have mushroomed.

And court filings keep coming. At the end of June, Frisby argued in a new motion that Eaton lawyers gave false testimony and provided completely false affidavits about what they knew about Peters' involvement, and also failed to produce evidence either intentionally or by allowing its destruction.

Hinds County Circuit Judge Jeff Weill Sr., overseeing Frisby's counterclaim in the 2004 lawsuit, continues to review Eaton emails and handwritten lawyers' notes in his chambers.

Eaton CEO Cutler said recently in a sworn statement that the company had failed in its duty to turn over documents in the Hinds County lawsuit. Cutler said he ordered the dismissal of Vic Leo, vice president and chief litigation counsel, and Sharon O'Flaherty, litigation counsel, over the lapse.

Weill's ruling on Frisby's claims of more pervasive misdeeds by attorneys representing Eaton could come within weeks.

The churn of litigation keeps playing out for some of the key figures in the Eaton-Frisby feud.

The five engineers, after nearly six years on paid suspension, returned to their desks at Frisby on June 4 when the government dropped criminal charges against them, though Eaton is still pursuing them for monetary damages.

Milan Georgeff, whose recollection of a drawing code triggered the FBI raid on Frisby, thought he would be retired but is still working at 68 as a design engineer .

Ed Peters, the Eaton lawyer whose clandestine involvement diverted the lawsuit, hasn't been seen around Jackson, Miss., in two years.

Plain Dealer news researcher Jo Ellen Corrigan contributed to this story.

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