Barranco v. 3D Sys. Corp.
307 F. Supp. 3d 1075
D. Haw.2018Background
- Barranco sold two 3D-printing web domains (stereolithography.com and lasersintering.com) to 3D Systems in a 2011 Purchase and Sale Agreement (PSA) that included a five-year non‑compete and confidentiality covenants and provided upfront payment, royalties, and a buyout right.
- A jury found Barranco breached the PSA non‑compete; the court reserved equitable accounting to determine any disgorgement or restitution due 3D Systems under §6(f) of the PSA.
- Evidence showed Barranco emailed proprietary Quickparts (QP) quoting code to third parties, helped a third party (Breault) create a competing “Pro SLA” site, and developed a new quoting engine; 3D Systems had earlier acquired Quickparts (QP Technology) valued at ~$4.73 million in 2011.
- The court found multiple breaches (private email, Pro SLA assistance, QP emails, quoting‑engine development), but also found no proof that Barranco obtained earnings, profits, or other benefits that directly arose from those breaches or that 3D Systems suffered lost sales or diminished use of QP Technology.
- Applying Hawai‘i law and equitable principles, the court declined to impose a forfeiture of all consideration; instead it apportioned the PSA consideration and ordered disgorgement of the portions attributable to the breached no‑development covenant and unjust enrichment. Judgment awarded 3D Systems $522,860.24 plus interest.
Issues
| Issue | Plaintiff's Argument (Barranco) | Defendant's Argument (3D Systems) | Held |
|---|---|---|---|
| Whether Barranco breached the PSA non‑compete | Denies actionable benefit/harm; some conduct not within covenant | Barranco developed/assisted in competing quoting tech and sites, shared QP code, breaching non‑compete and confidentiality | Jury and court found breach of the non‑compete (multiple incidents) |
| Whether 3D Systems is entitled to equitable accounting/disgorgement | Any remedy should be zero because Barranco received no gains from breaches | PSA §6(f) entitles 3D Systems to equitable accounting and disgorgement of benefits arising from breach | Court held equitable accounting appropriate and 3D Systems entitled to disgorgement attributable to breached promises |
| Causation standard for funds “arising from” the violations | 3D Systems must show payments to Barranco were caused by breaches | Funds must "arise from" breaches (causal link: more than but‑for, less than proximate) | Court held payments (salary, upfront, buyout, royalties) did not "arise from" breaches as but‑for or proximate causes; but portions of consideration tied to non‑development promise are recoverable as unjust enrichment |
| Appropriate scope of equitable relief (forfeiture vs. apportioned disgorgement) | Forfeiture of all or most consideration not required; disgorgement improper where punitive or forfeiture | Seeks disgorgement of $5M QP value, full salary, and all PSA consideration as unjust enrichment | Court disfavored forfeiture/penalties; awarded apportioned disgorgement ($522,860.24) based on portion attributable to breached no‑development covenant and unjust enrichment, not full forfeiture |
Key Cases Cited
- Eckard Brandes, Inc. v. Riley, 338 F.3d 1082 (9th Cir. 2003) (disgorgement available for breach of contract under Hawai‘i law in certain circumstances)
- Beacon Theatres, Inc. v. Westover, 359 U.S. 500 (U.S. 1959) (equitable remedies invoked only when legal remedies are inadequate)
- Beneficial Hawai‘i, Inc. v. Kida, 30 P.3d 895 (Haw. 2001) (equity may mold decrees to do justice; court retaining case to afford complete relief)
- Porter v. Hu, 169 P.3d 994 (Haw. Ct. App. 2007) (restitution appropriate where express contract does not fully address injustice)
- Oahu Transit Servs., Inc. v. Northfield Ins. Co., 112 P.3d 717 (Haw. 2005) ("arising out of" requires causal connection greater than but‑for but less than proximate cause)
- 7's Enterprises, Inc. v. Del Rosario, 143 P.3d 23 (Haw. 2006) (employee access to trade secrets/confidential info supports reasonableness of non‑compete)