In a decision that confirms arbitrators’ broad discretion to not only fashion remedies, but also fashion sanctions, the Minnesota Court of Appeals held that an arbitrator did not exceed his power by issuing a severe sanction: denying one party the right to defend against certain claims after finding that party had fabricated evidence relating to those claims.  Seagate Technology, LLC v. Western Digital Corp., __N.W.2d __, 2013 WL 3779231 (Minn. Ct. App. July 22, 2013).

The case involved Seagate’s claims that one of its former employees had taken multiple trade secrets to a competitor, Western Digital Corporation.  The arbitrator found that after the employee went to Western Digital, he had added slides to old PowerPoint files he had created at Seagate in order to falsely suggest that three of the trade secrets at issue had been publicly disclosed during his time at Seagate.  Because the arbitrator concluded that Western Digital was complicit in the fabrication of evidence, the arbitrator determined that “severe sanctions” were in order.  The arbitrator precluded Western Digital and the employee from presenting any defense to Seagate’s claims about those three trade secrets and entered judgment against them for misappropriation and use of the trade secrets.  As a result of that judgment on the three trade secrets, and his conclusion that the employee breached his employment contract, the arbitrator awarded Seagate $634 million (including $109 million in interest).

Not surprisingly, given the size of the award, Western Digital moved to vacate it.  The district court granted the motion and vacated critical aspects of the arbitration award based on its finding that the arbitrator did not have authority to impose such a severe sanction, and ordered a rehearing by a different arbitrator.  In a rare move, the Court of Appeals accepted an interlocutory appeal from the district court order and reversed.

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Tags: Western Digital