Castor Oil Creates Courtroom Drama

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Trade secrets. Clandestine meetings. Wired money transfers. Downloading confidential data. Those arent scenes from a spy thriller, but instead part of court document allegations in a Pennsylvania case involving a castor oil and derivatives distributor, two former employees, and an India-based exporter of castor oil and derivatives.

In February 2007, Jacob Stern and Sons Inc. – parent company of castor oil and derivatives distributor Acme-Hardesty in Blue Bell, Pa. – filed suit against two former employees and its former supplier Jayant Oils and Derivatives Ltd., Mumbai, India, alleging breach of contract, misappropriation of trade secrets, breach of duty of loyalty, interference with existing and prospective business advantage, unfair competition and civil conspiracy.

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On May 21, 2008, a jury in Montgomery County, Pa., found in favor of Jacob Stern and Acme-Hardesty, awarding $7 million in damages — $4.6 million against Jayant, and $1.2 million apiece against former Acme-Hardesty employees Adele Savaiano and Fred Hawco. Attorneys for each side disagree on whether Jayant can be held responsible for the entire $7 million award. After the jury trial concluded, the defense filed a post-trial motion to set aside or reduce the jury verdict amount.

Castor oil comes from castor beans fatty oil, which is extracted through pressing, then followed by solvent extraction. Castor oil and its derivatives are used as a raw material in chemicals used in the manufacturing of greases, lubricants and surfactants.

David Walton, an attorney with Cozen OConnor, in West Conshohocken, Pa., was co-counsel for Jacob Stern and Sons. Walton said the case had serious impacts on Acme-Hardestys business.

You have key employees leaving, secretly helping a competitor, and helping a supplier prepare to compete against you, Walton told Lube Report. They were having the rug pulled out from under them by the supplier, Jayant, which said they were going to stop supplying them and start competing against them. Then it turns out later that two of their key employees were hired by Jayant to start a competing company.

Jayant was represented by Michael Banks, an attorney with Morgan, Lewis and Bockius in Philadelphia. The defense contends that Jayant, together with Miss Saviano and Mr. Hawco, engaged in legitimate competition with Acme-Hardesty, and that they were entitled to do so, Banks told Lube Report. We dont believe there was any factual basis for the verdict in favor of Acme-Hardesty.

According to Banks, Jayant and JODL have gone ahead with their business plan. Early in the trial, the judge signed a special preliminary injunction that restricted the right of Jayant to sell to Acme-Hardestys customers. Right after the trial was over, the judge dissolved that injunction, giving Jayant the right to compete fully in the United States, which it has been doing, Banks said. Jayant is encouraged by that, and intends to sell its castor oil products in the United States now.

Banks said he filed the post-trial motion shortly after the jury decision, asking the judge to set aside or reduce the verdict amount. The case is now in a briefing process, according to Banks.

Ed Taylor of Sebris Busto James in Bellevue, Wash., is co-counsel representing Jacob Stern. Taylor said he doesnt believe his clients could have done anything further to prevent what happened. He said Acme-Hardesty had confidentiality agreements in place, which the two former employees had signed, and a computer system with appropriate password protections and security.

I think the reality is if people are bent on taking away information improperly and trying to use it, it happens at all kinds of different businesses and different industries, Taylor told Lube Report. I think the best way to prevent it is when courts do what this one did – send a message that its not OK.

According to Taylor, Jacob Stern and Acme-Hardesty have recovered from the lost supplier relationship with Jayant. For the products that Jayant sold to Stern, there are other providers of castor oils and castor oil derivatives, he said. Im sure there was some disruption at the outset while having to go through with getting approvals and so forth for new suppliers, with certain customers who have exacting specifications. The approval process required some time to publish that, but I think thats all well laid out now.

Thomas Rees of HighSwartz LLP in Norristown, Pa., represented Savaiano and Hawco. Our view is the damage awards were A) not supported by law, and B) excessive, Rees told Lube Report. Rees said he filed a brief Monday as part of the post-trial motion, which he said will be argued on Aug. 13.

An amended, verified civil action complaint filed in July 2007 alleged that, throughout the course of defendants employment, Jacob Stern, through Acme-Hardesty, made available to defendants confidential proprietary business information, including but not limited to, its customer and supplier lists, castor oil data shipping and distribution information, purchase data, pricing, sales data and other trade secret information and confidential information.

According to the complaint, in December 2006, Jacob Stern CEO Jonathan Atkatz spoke by phone with Jayant President Rajesh Kapadia. During the conversation, Kapadia abruptly informed Atkatz that Jayant would create its own office and sales organization in the United States. Kapadia denied at the time that any former employees of Acme-Hardesty were working with Jayant and denied that Jayant intended to hire any present or former Acme-Hardesty employees, the court documents alleged.

In January 2007, while visiting suppliers in India, Atkatz and Acme-Hardesty President Cindy Cox met with Abhay Udeshi, a former Jayant employee who was director of Jayant Agro Organics Ltd., a separate and distinct business entity from Jayant. During the meeting, the complaint states, Udeshi informed Atkatz and Cox that Jayant intended to distribute castor oil products directly into the U.S. market and showed them press articles indicating the intent.

According to court documents, Udeshi further informed Atkatz and Cox that Savaiano and Hawco met extensively with Jayants president and other Jayant representatives in Mumbai in July 2006, that he observed Savaiano in Mumbai during that time, and that Savaiano and Hawco intended to represent Jayants business interests in the United States.

The complaint stated that upon returning to the U.S., Atkatz and Cox initiated an investigation of the activities of Savaiano and Hawco during and after their employment. In the course of the investigation, they learned that in May 2006, Savaiano and Hawco, while still employed by Acme-Hardesty, met with Jayant and several key castor derivative customers. According to court documents, the meeting wasnt disclosed to Cox or Atkatz, as was required by Acme-Hardestys standard operating procedures.

The court documents indicated Savaiano and Hawco in or about March 2006 agreed to financial terms for their relationship with Jayant. At the time, Savaiano was purchasing products from Jayant on behalf of Acme-Hardesty, and Hawco was attempting to expand Acme-Hardestys market for castor oil derivatives.

Savaiano and Hawco never disclosed to Acme-Hardesty that they were negotiating terms under which they would leave and work for Jayant, or that they had agreed to financial terms to work for Jayant, Jacob Sterns court filing claims. Savaiano and Hawco each received initial $50,000 payments via wire transfer from Jayant in early June 2006, pursuant to consulting agreements signed with Jayant, according to court documents, while each was still employed by Acme-Hardesty.

Acme-Hardesty retained a computer forensics expert to analyze data from the laptop computer used by Savaiano during her employment with Acme-Hardesty, and to review data maintained on the Acme-Hardesty computer server, specifically e-mails to and from Hawco and Savaiano. The documents and information extracted from Savainos computer and the server not only confirmed, but provided additional detail regarding defendants secret meetings with Jayant and key customers of Acme-Hardesty, court documents alleged.

According to Jayants Web site, India is the largest exporter of castor oil, while the European Union is its largest importer. The site also said China, which used to be a net exporter of Castor Oil, has now turned a net importer as it concentrated on manufacturing value added castor oil derivatives in its country rather than exporting the castor oil. According to Jayant, Brazil has now become a net importer due to increase in its domestic consumption.

Related Topics

Additives    Castor Oil & Derivatives    Raw Materials