| LIONEL AND MTH LEGAL RECAP By Erol Gurcan, Esq. April 26, 2006-Last week, I posted several articles concerning the current state of Lionel's legal matters. However, last week was also a vacation week since it was right after Easter, and many kids were off from school. Thus, many O gauge enthusiasts may have been away with their kids or grandchildren, and not read some or any of my legal posts. Many also went to the York meet and may not have read the on line forums in the few days before it. This article will bring you up to speed as there were several important and interesting legal matters last week that directly affected Lionel and/or MTH. Even if you read my posts last week, I think you will learn something new in this article. - 1) I reported on April 17 the Sanda Kan K-Line sale of assets agreement was scheduled to be signed and completed in a couple of days. The deal was completed last week and Sanda Kan now owns the former K-Line assets.
- 2) Since the Sanda Kan K-Line deal was competed, this also paved the way for Lionel to enter into and complete its licensing and marketing agreement with Sanda Kan. I announced on April 19 that the Lionel Sanda Kan deal was complete. It was confirmed later that day at the York meet by Lionel CEO Jerry Calabrese, and on Lionel's web site on April 25. Under the Sanda Kan Lionel licensing deal, Lionel will be allowed to use the old K-Line tooling and assets, and market trains under its name.
- 3) Oral argument of Lionel's appeal in the MTH trade secrets case, pending in the Sixth Circuit court of Appeals in Cincinnati, Ohio, is scheduled for June 7, 2006. On that day, both MTH's and Lionel's lawyers will appear before the court. MTH's lawyers will argue the jury's June $40.7 million dollar verdict against Lionel and Korea Brass was reasonable and correct, and the decision should be affirmed on appeal. Lionel's lawyers will seek to convince the court the jury's verdict was wrong and/ or against the weight of the evidence, or the trial judge's evidentiary rulings or legal instructions to the jury on the applicable law were incorrect. Ultimately, their goal is to have the jury's verdict reversed and a new trial ordered, or the verdict reduced. It is expected the court will issue a written decision in Late 2006 or early 2007. This decision will also likely be the final one. If the losing party were to appeal, the only higher tribunal is the United States Supreme Court. It is very unlikely they would agree to hear the case, since thousands of appeals are made to it each year, but the court only decides about 100 cases in that time frame.
- 4) We also learned last week that Lionel's attorneys had filed a motion (an application for a court order) with its bankruptcy court, requesting it be allowed to enter in to a joint venture limited licensing agreement with Creative Trains, under the name Liontech Trains LLC, to develop TMCC 2.0. The motion was heard by the court on April 25, and it signed an order allowing the parties to enter into that agreement. The contract between the two requires Creative Trains to develop and deliver TMCC 2.0 to Lionel by October 31, 2006 (six months from now).
- 5) Pursuant to a review of a new motion made by Lionel's attorneys seeking compensation for past legal work they have done, one of the items listed was the drafting of a settlement letter to MTH. After hearing of this, many model train enthusiasts became hopeful a settlement was in the works, or settlement talks in the trade secrets case had begun. I asked MTH's Mike Wolf about the settlement offer on Friday, April 21 at York, and was told it was a non-offer from MTH's perspective. In an effort to be fair to both sides, I also went to the Lionel booth at York on Friday several times looking for CEO Jerry Calabrese, or Vice President of Marketing Mark Erickson to get their position on any settlement offers. I was not able to find either of them. Thus, it appears at the current time, a settlement is unlikely before oral argument of the appeal on June 7.
- 6) Lionel's attorney's motion seeking compensation also established that inquiries were made to Union Pacific concerning the settlement of its trade mark infringement suit against Lionel. However, as of this time, there is no known settlement, as it would require bankruptcy court approval.
- 7) Regarding MTH, Dave Hartmann of Ogaugewatch.com posted on April 19, MTH president and owner Mike Wolf stated he expected the Union Pacific's trademark infringement suit against them to be completed by the end of this year (the suit was only filed on December 30, 2005). As soon as I heard about this short time frame, my first thought was that MTH's lawyers would have to make a motion for summary judgment in order to conclude the case that quickly. Mike Wolf confirmed to me that MTH's lawyers would be making a motion for summary judgment in the case. In laymen's terms, a motion for summary judgment is a motion to dismiss a case. The party who makes it, usually a defendant, will attempt to convince the judge there is no legal theory upon which plaintiff can recover, and the moving party is entitled to judgment as a matter of law without the need for a jury trial. Ultimately, if MTH's motion is granted, Union Pacific's case would be dismissed. If that motion is granted, and there are similar issues in Union Pacific's separate trademark case against Lionel (such as a claim to enforce the abandoned trademarks of "fallen flag" railroads now under the UP banner such as the Western Pacific or Southern Pacific), they may be able to cite the judge's decision in the MTH case favorably, if they wind up moving for summary judgment as well in the future.
- 8) Some have also asked about the status of QSI's patent infringement suit against MTH. Pursuant to a review of the federal judiciary's PACER web site, at the present time, that case is "administratively closed with leave to be re-opened…" when MTH's lawsuit against Korea Brass for the fraudulent transfer of assets, currently pending in Michigan, is resolved. Korea Brass was also a co-defendant in the trade secrets case brought by MTH against Lionel. MTH's allegations were that a Korea Brass employee passed MTH confidential trade secrets (design plans for articulated locomotives) to an employee at Lionel. As is now well known, the jury sided with MTH and awarded them $40.7 million dollars against both Lionel ($38.6 million) and Korea Brass ($2.1 million). Although Lionel appealed the jury's decision, Korea Brass never did. On January 27, 2006, MTH sued Korea Brass for allegedly illegally transferring its assets to a company named Model Korea Trading Company, beginning two weeks after the June 7, 2004 trade secrets verdict, in order to avoid paying MTH any money from the jury's $2.1 million verdict against them.
MTH's Mike Wolf emailed me last week and stated the QSI patent infringement case against MTH was financed by Korea Brass, and QSI signed over all its rights to Korea Brass to be able to settle it. When the QSI court ordered it and MTH to go to mediation before trial, and when the mediator found out about QSI's assignment to Korea Brass, the case was closed until the fraudulent transfer of assets case pending in Michigan is completed. MTH's position is that the QSI patent infringement case was all about trying to somehow force MTH into dropping the transfer of assets case against Korea Brass. I will continue to keep all up to date as necessary. |
