E.J. Brooks Co. v. Cambridge Security Seals
858 F.3d 744
2d Cir.2017Background
- TydenBrooks (plastic security seals manufacturer) sued CSS and former TydenBrooks employees for trade secret misappropriation, unfair competition, and unjust enrichment under New York law; jury found CSS liable.
- At trial TydenBrooks abandoned lost-profits and disgorgement theories and instead sought damages measured by CSS’s "avoided costs" (costs CSS did not incur by using TydenBrooks’s process).
- TydenBrooks’s expert estimated avoided-cost savings for CSS of roughly $6.1–$12.2 million (or $7.8–$16.6 million including benefits); CSS offered no damages expert.
- The district court instructed the jury to measure damages by comparing CSS’s actual costs with the costs it would have incurred absent the misappropriation, and the jury awarded TydenBrooks $3.9 million.
- District court denied TydenBrooks’s motion for prejudgment interest under CPLR §5001(a), concluding the jury award already covered the pre-verdict period and that additional interest would be a windfall.
- The Second Circuit affirmed liability, reserved decision on damages, and certified two New York law questions to the NY Court of Appeals: (1) whether avoided costs are an allowable measure of damages for these claims; and (2) if so, whether §5001(a) prejudgment interest is mandatory when damages are measured by avoided costs.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Can damages for misappropriation/unfair competition/unjust enrichment be measured by defendant’s avoided costs under NY law? | TydenBrooks: avoided costs are appropriate where the defendant’s benefit chiefly consists of cost savings (expert testimony and Restatement support). | CSS: New York law requires damages to correspond to plaintiff’s losses (or defendant’s profits) when those are calculable; avoided-costs is improper if plaintiff losses or defendant profits are ascertainable. | Court: Question unresolved under NY law; certification to NY Court of Appeals because state courts best decide the policy question. |
| If avoided costs are allowable, is CPLR §5001(a) prejudgment interest mandatory on such awards? | TydenBrooks: §5001(a) mandates prejudgment interest for awards tied to deprivation of property or intangible interests. | CSS: If damages are avoided costs (not a deprivation of plaintiff’s use of money), awarding statutory interest can create a windfall; some NY cases limit §5001(a) to avoid double recovery. | Court: Tension exists between §5001(a)’s mandatory language and NY decisions avoiding windfalls; question certified to NY Court of Appeals. |
| Evidentiary challenges (CSS) | CSS argued excluded documents and witness testimony undermined trade-secret value. | TydenBrooks defended exclusions as proper (lack of expert, witness not qualified). | Court: District Court did not abuse discretion; evidentiary rulings and other attacks (aside from certified questions) rejected. |
| Whether jury instructions on avoided costs were erroneous | CSS: instructing jury on avoided-costs was error because not an accepted NY measure here. | TydenBrooks: instructions matched plaintiff’s theory and expert evidence. | Court: Did not decide merits on instructions; instead certified the core damages question to state court. |
Key Cases Cited
- Softel, Inc. v. Dragon Med. & Sci. Commc’ns, Inc., 118 F.3d 955 (2d Cir. 1997) (defendant’s profits recognized as appropriate damages measure in trade-secret cases)
- Vt. Microsystems, Inc. v. Autodesk, Inc., 88 F.3d 142 (2d Cir. 1996) (reasonable royalty as alternative damages when profits or plaintiff losses are hard to measure)
- New York Bank Note Co. v. Hamilton Bank Note Engraving & Printing Co., 180 N.Y. 280 (N.Y. 1905) (court endorsed recovery measured by difference in costs where full defendant profits would be a windfall)
- Matarese v. Moore-McCormack Lines, 158 F.2d 631 (2d Cir. 1946) (approved damages based on savings/benefit to defendant in unjust enrichment context)
- Trademark Research Corp. v. Maxwell Online, Inc., 995 F.2d 326 (2d Cir. 1993) (no prejudgment interest where jury award may already have compensated pre-verdict period)
- New England Ins. Co. v. Healthcare Underwriters Mut. Ins. Co., 352 F.3d 599 (2d Cir. 2003) (prejudgment interest under NY law is normally mandatory when a party is entitled as a matter of right)