STATUS OF LIONEL'S LEGAL MATTERS IN BOTH
THE K-LINE AND MTH LAWSUITS.***
by Erol Gurcan, Esquire , RM-6598 As many of you know by now, on August 23, 2005, K-Line filed for chapter 11 bankruptcy protection in bankruptcy court in North Carolina, its home state (if you are not aware of the current status, you can read my previous two articles on the case which are posted under the "articles/reviews" section of the LOTS website). This came one day after K-Line made a motion (an application for a court order) in the bankruptcy court in New York where Lionel's trade secrets case against them is pending, to enforce the August 9th settlement which later fell apart. Not only did the court deny K-Line's motion, it issued a temporary restraining order in Lionel's favor prohibiting them from selling any of its products which contain the alleged disputed trade secrets involving Lionel's Odyssey system (cruise control for trains), "train sounds" audio technology and technology involving its C.P.A. transformer (thetransformer for all Lionel's starter sets).
The questions now becomes, what effect will K-Line filing for bankruptcy protection have on Lionel's trade secrets case and the temporary restraining order issued by the New York court one day before. Simply stated, Lionel's trade secrets case is now stayed under 362a of the bankruptcy code due to K-Line's filing for bankruptcy protection. A stay means the case can not proceed until the stay is lifted by the North Carolina Bankruptcy Court judge. The stay would also probably nullify the temporary restraining order issued by the New York court one day before K-Line filed for bankruptcy, allowing them to continue to sell the trains and accessories containing Lionel's alleged stolen technology. Practically speaking, in order for the stay to be lifted, Lionel next move would be to make a motion in the North Carolina Bankruptcy Court to have the stay lifted and/or allow the restraining order issued by the New York court to be enforced. Lionel certainly has standing to do this since they are a named defendant in K-Line's bankruptcy case (something that is very unusual in a such a proceeding), and it also directly affects their trade secrets case and own bankruptcy proceeding. What Lionel what ultimately do is unknown at this point in time.
I believe K-line filed for bankruptcy for three non-economic reasons; 1) to temporarily stay Lionel' trade secrets case, 2) to get better settlement terms in the future in the trade secrets case and 3) the bankruptcy laws change in October, where they will become less debtor friendly, so filing now was the better course of action.
Concerning the MTH Lionel lawsuit, most know by now that on June 7, 2004, a Detroit, Michigan jury awarded MTH $40.7 million dollars against Lionel in another trade secrets case where MTH alleged that Lionel misappropriated its design plans involving articulated locomotives (locos with two sets of drivers). In November 2004, the judge who tried the case affirmed the jury's award and issued an injunction against Lionel, prohibiting them from using the alleged stolen design plans in the future. Lionel then filed for bankruptcy protection in New York on November 15, 2004 and also filed an appeal of the jury's decision.
In the 9 month period since then, not much has been said about Lionel's appeal. So, the question becomes, what is the current status of Lionel's appeal. Well, since you asked, and because no other publication has told you, I am going to do it. Lionel's appeal is currently pending in the Sixth Circuit Court of Appeals, a federal court located in Cincinnati, Ohio. I called that court on August 29,2005. (for you attorneys, the index number for the case is 1095/05). The clerk told me that all but one of the legal briefs for both sides (they contain the parties legal arguments requesting reversal or affirming the jury's 40.7 million verdict) have been filed, and that one is due on August 30 unless a motion is made for an extension of time. Oral argument of the appeal (by each sides lawyers where they advocate their positions, Lionel wanting a reversal or new trial, and MTH wanting an affirmance) before the court would be the next step in the process. At the current time, no date has been set by the court. It is not expected to occur until at least next spring or summer. After that, the court will still need to issue a written opinion/decision. This will also take at least several months. Realistically speaking, this matter will not be concluded for another 1 to 2 years. As they say, the wheels of justice turn slowly. However the good news is that, once the court issues a decision, it will likely be the final one. If the losing party were appeal to the United States
Supreme Court., it is very unlikely they would agree to hear it.
In the alternative, the possibility also exists that the case could be
settled anytime before the appeal is decided by the court.
I will continue to keep LOTS members updated as necessary. .***The opinions/summary expressed in this article are strictly those of the author and are not necessarily those of the Officers and Directors of LOTS, nor of the LOTS organization as a whole.
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