Jerry Calabrese and Mike Wolf Comment
on the June 7, 2006 Trade Secrets Appeal By Erol Gurcan June 13, 2006-Those who have been following the legal proceedings in MTH's trade secrets case against Lionel, know that each side's lawyers squared off in the Sixth Circuit Court of Appeals in Cincinnati, Ohio on June 7. OGR forumite BOB (Bob Baritzek) attended the oral argument of the appeal and wrote an article on the OGR on line three rail forum summarizing what took place. Bob's report noted that Lionel's CEO Jerry Calabrese, and MTH's owner, Mike Wolf, attended the oral argument of the appeal. Since that time, neither side has publicly commented about the appeal on their respective web sites or other media, until now. Lionel CEO Jerry Calabrese emailed me on June 10 with the following statement which I am setting forth in its entirety; "As for the hearing in Cincinnati, I can only say that I was very impressed with the quality of our representation and extremely encouraged with the reception the justices seemed to give our arguments. Having said that, it's anyone's guess as to the outcome or when it will be handed down." MTH owner Mike Wolf also sent me an email on June 12 which I am also posting in its entirety: "Throughout this process, M.T.H. has steadfastly stood by our belief that we were wronged. A federal jury and judge agreed with our assessment, and the appeals process and the bankruptcy tactics are expected legal methods Lionel has employed to postpone remittance. Regardless of whatever loopholes and technicalities they have attempted to place before the Appeals Court, we're confident the judges will agree with the decision arrived at by the Federal Court 24 months ago." For those of you not too familiar with the timeline of the case, here is a quick recap. In April, 2000, MTH sued Lionel and an entity named Korea Brass for trade secrets infringement, alleging theft of both MTH design plans for articulated locomotives (locos with two sets of drive wheels) and MTH production schedules. On June 7, 2004, a jury in Detroit, Michigan sided with MTH and awarded them $40.7 million dollars, $38.6 against Lionel and $2.1 million against Korea Brass. In September of 2004, Lionel hired Jerry Calabrese as its CEO. In early November, 2004, the trial judge who tried the case, John Corbett O'Meara, affirmed the jury's verdict and denied Lionel's post trial motions. The court even went a step further and issued an injunction, prohibiting Lionel from using the design plans in the future. Shortly thereafter, on November 15, 2004, Lionel filed for Chapter 11 bankruptcy, with Mr. Calabrese stating the only reason they did so was because of the verdict in the case. In January 2005, Lionel filed an appeal (Korea Brass did not appeal. However, MTH filed a lawsuit against them in late January 2006, alleging they began fraudulently transferring assets to a company named Hagye Trading a/k/a Model Korea Trading Company, beginning two weeks after the June 7, 2004 judgment, to avoid paying the trade secrets judgment against them). The oral argument of the appeal was heard on June 7, 2006. A decision is expected in about 4-8 months, in late 2006 or early 2007. It is also expected this will be the last appeal in the case, as the only place to appeal to, would be the United States Supreme Court, and it would be very unlikely if they agreed to hear it. As a side note, settlement conferences were held before the jury's verdict on June 7, 2004. Mediation in the appeals court was also held prior to oral argument last Wednesday. Obviously, in both instances, the case did not settle. At this point in time, both sides appear to be letting the appeals process run its course, rather than attempting settlement. I will continue to keep all updated as necessary. | 
