STATE OF MINNESOTA DISTRICT COURT

HENNEPIN COUNTY FOURTH JUDICIAL DISTRICT

Case Type: Other Civil
__________________________________________________________________________________
SEAGATE TECHNOLOGY, LLC,
Plaintiff,
v.
WESTERN DIGITAL CORPORATION, and
WESTERN DIGITAL TECHNOLOGIES, INC.,
DR. SINING MAO,
Defendants.

File No. 27-CV-06-19000
Hon. Janet N. Poston

MEMORANDUM OF LAW IN SUPPORT
OF WESTERN DIGITALS PETITION TO
VACATE AN ARBITRATION AWARD
Petitioners Western Digital Corporation and Western Digital Technologies, Inc. (collectively
Western Digital) submit this memorandum of law in support of their petition to vacate an arbitration
award issued by the Arbitrator in Dr. Sining Mao, et al. v. Seagate Technology, LLC, AAA No. 65 160
00129 07 (the Award). Also in support of the petition are a Notice of Motion; the Affidavit of
Michael D. Schissel, Esq. attaching, among other things, the Award (Exhibit A) and materials from the
arbitration; and the Affidavit of Gregory B. Joseph, Esq.
1

PRELIMINARY STATEMENT
Western Digital respectfully petitions to vacate the unprecedented $630,431,501 Award in this
trade secrets case. As a sanction for a co-defendants fabrication of evidence, the Arbitrator refused
to consider any of Western Digitals defenses or evidence refuting Seagates claims that Western
Digital misappropriated three of Seagates alleged trade secrets (Trade Secrets 4-6) and issued an
award in Seagates favor on those claims. This refusal deprived the company of a fundamentally fair
proceeding. The Award which is not based on the merits of the dispute is apparently five times
larger than any sanction ever imposed by any American tribunal, whether in court or in an arbitration.
This sanction was designed not to protect Seagate from the consequences of the co-defendants

1
WD Ex. __ refers to Western Digital exhibits admitted in the arbitration and Vol. __ refers to testimony at the
arbitration, all of which is attached to the Schissel Affidavit.
misconduct, or to deter future misconduct, but could have been intended only to punish.
The Arbitrator found that Dr. Sining Mao? a Western Digital employee and co-defendant,
fabricated three PowerPoint slides that Western Digital offered to show that Dr. Mao publicly presented
the slides at conferences while still employed at Seagate, thereby illustrating that Trade Secrets 4-6 were
not in fact secret. Although Western Digital strongly disagrees with the finding that Dr. Mao fabricated
evidence, the company does not ask this Court to reweigh the evidence on that issue or to set aside that
finding. Nor does Western Digital endorse, minimize, or excuse any fabrication of evidence. Western
Digital's objection to the Award is with the imposition of over a half billion dollars in liability as a
sanction, despite an abundance of evidence supporting Western Digital's defenses, when other sanctions
were available that would have purged the arbitration of any fabricated evidence and protected Seagate
from any harm or disadvantage from the wrongdoing.
The Arbitrator imposed a non-remedial, extreme, and punitive sanction that deprived Western
Digital-which was not found to have played any role in the alleged fabrication-of the right to present
its defenses to Trade Secret Claims 4-6. The Award grossly exceeded the Arbitrator's powers and
violated the Arbitrator's basic obligation to consider material evidence.
The Arbitrator refused not only to consider the Power Point slides and all testimony of Dr. Mao,
but all of Western Digital's other evidence, arguments, and defenses with respect to Trade Secret Claims
4-6. That other evidence was voluminous, highly probative, and could not possibly have been tainted by
the alleged fabrication. The excluded evidence is both qualitatively and quantitatively staggering and
includes the testimony of 22 fact and expert witnesses, public patent applications, and public scientific
articles, journals, and presentations supporting Western Digital's defenses to Trade Secret Claims 4-6.
Additionally, although Western Digital presented the three slides as part of its defense to Seagate's
allegations of secrecy, the Arbitrator precluded Western Digital from defending the claims on any basis,
including whether the company had even made use of Seagate's alleged trade secrets-a distinct issue to
2
which the three slides were irrelevant.
The punitive refusal to consider Western Digital's entire defense is not a run-of-the-mill error
made in the course of the proceeding. The Arbitrator went well beyond what could conceivably be
justified as remedial, or even as necessary to punish and deter similar misconduct, especially for a co-
defendant that had no role in the fabrication. Had the Arbitrator excluded the PowerPoint slides and all
of Dr. Mao's testimony, entered a sanction such as attorneys' fees and costs, or adopted a rebuttable
adverse inference, and arbitrated the merits of Trade Secret Claims 4-6, this Court would "not overturn
[the] award merely because it disagree[d] with the arbitrator's decision on the merits." Cnty. of
Hennepin v. Law Enforcement Labor Servs., Inc., Local No. 19,527 N.W.2d 821, 824 (Minn. 1995).
The defect here, however, is far more fundamental: the Arbitrator failed to decide the case based
on the evidence. That structural failing falls squarely within the statutory grounds for vacatur of an
arbitral award under the Minnesota Uniform Arbitration Act ("MAA"). That law requires vacatur here
because (1) the Arbitrator "exceeded [his] powers" (Minn. Stat. 572.19, subd. 1(3)), and there was
"misconduct prejudicing the rights of [a] party" (id. 572.19, subd. 1(2)); and (2) the Arbitrator
"refused to hear evidence material to the controversy or otherwise so conducted the hearing, contrary to
the provisions of Section 572.12, as to prejudice substantially the rights of a party" (id. 572.19, subd.
1(4)). The defect also warrants vacatur because the Award violates public policy. City of Brooklyn Ctr.
v. Law Enforcement Labor Servs., Inc., 635 N.W.2d 236, 241 (Minn. Ct. App. 2001)_2
The above grounds for vacatur are essential to ensure a fair proceeding. While decisions of
arbitrators are largely immune from judicial review for factual or legal errors, the "proper discharge of
th[is] court's duty requires that it avoid a merely perfunctory approach to appeals of orders confirming
arbitration awards." !d. at 244. "A reviewing court must independently determine the scope of the
2
The current MAA "do[es] not affect an action or proceeding commenced or right accrued before" August 1, 2011. Minn.
Stat. 572B.30 (2011). Because this action commenced before August 1, 2011, we cite to the Act's earlier version.
3
arbitrator's authority de novo." Cnty. of Hennepin, 527 N.W.2d at 824; see also Kashner Davidson Sec.
Corp. v. Mscisz, 531 F.3d 68, 74 (1st Cir. 2008) (vacating arbitral sanction award). In short, "courts owe
no deference to an arbitrator who has failed to provide the parties with a full and fair hearing." Int 'l
Union, United Mine Workers of Am. v. Marrowbone Dev. Co., 232 F.3d 383, 388 (4th Cir. 2000).
The foundational underpinning of arbitration is that the arbitrator determine the merits of the
dispute based on relevant evidence. Minnesota law guarantees parties to an arbitration the right to "be
heard [and] to present evidence material to the controversy." Minn. Stat. 572.12. The Employment
Rules of the American Arbitration Association ("AAA") governing this case state that the arbitrator
"shall exercise [his] authority . . . to afford a full and equal opportunity to all parties to present any
evidence that the arbitrator deems material and relevant to the resolution of the dispute." AAA
Employment Rule 28 (emphasis added), Schissel Aff., Ex. 00.
The Arbitrator found for Seagate on Trade Secret Claims 4-6 by refusing to consider any of
Western Digital's evidence and defenses. This outright refusal to base his decision on the evidence and
imposition of a non-remedial and case-dispositive sanction vastly exceeded the Arbitrator's powers and
rendered the proceeding fundamentally unfair. The fact that the Award concerns hundreds of millions of
dollars in liability, millions more in interest, and interest accruing at $1,212,368.30 per week highlights
how far afield the Arbitrator strayed from his authority.
Importantly, where the Arbitrator did consider material evidence on both sides, he entered a
judgment in favor of Western Digital. For the remaining Trade Secret Claims 1-3, 7, and 8, the
Arbitrator considered the evidence on Western Digital's defenses and ruled that Seagate's claims lacked
merit because those alleged secrets were known publicly before Dr. Mao joined Western Digital. The
Arbitrator relied on the very same types of evidence that he refused to consider with respect to Trade
Secret Claims 4-6, such as public patent applications, public journals, and scientific articles.
Western Digital respectfully requests vacatur of the Award for Trade Secret Claims 4-6 and
4
referral to an arbitrator for adjudication on the merits of those claims. In further support, Western
Digital submits the Affidavit of Gregory B. Joseph, Esq., the country's leading expert on sanctions and
arbitral power. His sanctions treatise has been cited in more than 100 federal and state court decisions.
That Affidavit confirms that the Award is unprecedented and contrary to the rules of arbitration.
FACTUAL BACKGROUND
Western Digital is one of the world's leading producers of hard disk drives. www.wdc.com/en.
Hard disk drives store and retrieve digital information (such as photographs, music, and documents) and
are found in a variety of products including computers, external hard drives, and digital video recorders.
A hard disk drive contains one or more rapidly rotating platter-like disks coated with magnetic material
and a small magnetic head that moves above the surfaces of the disks to write data to the disks and
conversely to read data from the disks. The small magnetic head is the technology at issue and is one of
hundreds of components that comprise a hard disk drive.
This dispute arose when in 2006 Western Digital hired Dr. Sining Mao from Seagate, a
competing producer of hard disk drives. Dr. Mao is an engineer specializing in the physics of the
magnetic head. After Dr. Mao announced he was joining Western Digital, Seagate filed suit in this
Court against Dr. Mao and Western Digital under the Minnesota Uniform Trade Secrets Act.
On June 19, 2007, Dr. Mao sought arbitration and asked this Court for a stay. Western Digital
too sought arbitration because the claims against Dr. Mao were intertwined with the claims against
Western Digital. On September 19, 2007, this Court ordered the parties to arbitrate Seagate's claims.
On January 21, 2010, Seagate identified eight alleged trade secrets (Trade Secrets 1-8) that relate
solely to the reader portion of the head. The particular reader head technology at issue is known as
tunneling magnetoresistance ("TMR"). Trade Secrets 1-3, 7, and 8 are technical specifications and
design rules for constructing TMR heads. Trade Secrets 4, 5, and 6 relate to general engineering
concepts for the design and process requirements of the reader head. Seagate identified three
5
PowerPoint slides as Trade Secrets 4-6. The parties respectively referred to these slides as the "Six
Clean Surfaces" slide (Trade Secret 4), the "Fishbone" slide (Trade Secret 5), and the "PM Design
Rules" slide (Trade Secret 6) (collectively, the "Trade Secret Slides"), attached as Exhibit D to the
Schissel Affidavit. Western Digital presented public sources and fact and expert witnesses to establish
that the concepts were publicly known when Dr. Mao joined Western Digital; that the concepts had no
independent economic value; and that Western Digital did not use Trade Secrets 4-6 in its products.
THE AWARD
The Arbitrator held 34 days of hearings from May 23 to July 11, 2011, in which 40 witnesses
testified and the parties submitted hundreds of exhibits. On November 18, 2011, the Arbitrator issued
his decision. With respect to Western Digital, the Arbitrator considered both sides' evidence concerning
alleged Trade Secrets 1-3, 7, and 8 and found in favor of Western Digital (and Dr. Mao). The Arbitrator
found that those five alleged Trade Secrets were known publicly before Dr. Mao joined Western Digital.
The Arbitrator relied on evidence presented by Western Digital including public patent applications,
public scientific journals, and public conference presentations. 13-14, 17, 20-21, 24, 27.
3
The Arbitrator refused to consider any of Western Digital's evidence with respect to Trade
Secrets 4-6, however, including the same type of evidence the Arbitrator had just relied upon in ruling in
favor of Western Digital on the other Trade Secrets. The Arbitrator considered evidence favorable only
to Seagate and entered judgment against Western Digital. 54, 62, 70.
During discovery, Dr. Mao maintained that while a Seagate employee he publicly presented the
Trade Secret Slides at a 2003 Veeco conference and a 2005 DSI conference, and therefore that the
concepts shown on the slides were not secret. Id. 30. In early 2010, Dr. Mao located thumb drives
3
The Arbitrator rejected Seagate's claim that Western Digital wrongfully induced Dr. Mao to disclose Seagate confidential
information, documents or trade secrets. Award 89-91. The Arbitrator found that Dr. Mao breached his employment
agreement with Seagate by soliciting a former Seagate employee to join Western Digital and by taking confidential
documents, id. 73-87, but that Dr. Mao was not liable for breach of fiduciary duty. 88.
6
(small devices that store electronic documents) containing what he contended were the final
presentations he gave at the conferences. !d. ,-r 40. The presentations on the thumb drives included three
slides (the "Thumb Drive Slides") that were almost identical to Seagate's three Trade Secret Slides.
The Arbitrator found that Dr. Mao fabricated the Thumb Drive Slides. !d. ,-r,-r 41-42. The
Arbitrator relied on Seagate's contention that it could not locate the thumb drive versions of the
presentations in its own files and on stylistic differences between the Thumb Drive Slides and the
versions ofthe slides from Seagate's files. !d. ,-r,-r 31-39.
The Arbitrator did not find that any Western Digital officer responsible for presenting the
defense actually knew that Dr. Mao had fabricated the Thumb Drive Slides. Indeed, he found that even
though Western Digital's presentation of the Thumb Drive Slides was "willful," its conduct was not
"malicious." !d. ,-r 47. Seagate-which had the burden of proof on this issue-presented no evidence
that any Western Digital officers responsible for the defense in the arbitration actually knew that the
Thumb Drive Slides were fabricated. Tellingly, the Arbitrator exonerated the lawyers for Western
Digital and Dr. Mao of any knowledge of the wrongdoing because there was "insufficient evidence to
conclude" that any attorneys "were complicit in the presentation of the ... fabricated evidence." !d. ,-r
46. Despite this, the Arbitrator stated that Western Digital "had to know" that Dr. Mao fabricated the
slides because the fabrication was "obvious" (id. ,-r 43), which in his view made Western Digital
"complicit[]" in the submission of the "obviously fabricated evidence." !d. ,-r 44 (emphasis added).
Because the Arbitrator found that the evidence was not obvious to the lawyers who submitted the
slides and who had an ethical duty to tell both the company and the Arbitrator about "obviously
fabricated evidence," one would expect the Arbitrator to have explained how the falsity could have been
obvious to Western Digital. The Award is silent on that salient point. In any event, the Arbitrator's
conclusions that Western Digital's lawyers were not complicit in the presentation of fabricated evidence
but that Western Digital somehow "had to know" that the Thumb Drive Slides were fabricated-even
7
though its conduct was not "malicious"-means that this massive sanction against Western Digital rests
only on a finding of negligence and not a malicious presentation of fabricated evidence.
Nor does the Award square the finding of obviousness with Western Digital's forensic evidence
that the thumb drives had not been modified since 2003 and 2005. The Award also does not mention
that a neutral, third-party witness, Dr. Jacques Kools, testified at the arbitration that he saw in 2003 Dr.
Mao publicly present the very slide (alleged Trade Secret 4) that was the focus of the Arbitrator's
fabrication finding. There is no finding that this expert and fact witness testimony was not credible or
that Western Digital, like its attorneys, could not have believed it.
The Arbitrator "impose[ d] the following sanctions" on both Dr. Mao and the company:
a) Preclusion of any evidence or defense by Western Digital and Dr. Mao disputing the
validity of Seagate's asserted trade secrets 4, 5, and 6;
b) Preclusion of any evidence or defense by Western Digital and Dr. Mao regarding
misappropriation by Western Digital and Dr. Mao ofSeagate's asserted trade secrets 4, 5,
and 6;
c) Preclusion of any evidence or defense by Western Digital disputing that it has used or
is using Seagate's asserted trade secrets 4, 5, and 6 in Western Digital's manufactured
TMR read heads; and
d) Entry of judgment against Western Digital and Dr. Mao of liability for
misappropriation and use ofSeagate's asserted trade secrets 4, 5, and 6.
Award ,-r 45.
The Arbitrator thus refused to consider a panoply of exculpatory testimony and documentary
evidence (untainted by any misconduct) whose relevancy, veracity, and authenticity were unquestioned.
The Arbitrator precluded all of Western Digital's evidence and defenses as to all the elements of
secrecy, misappropriation, and use, when the alleged fabrication related only to one aspect of secrecy,
i.e., whether Dr. Mao ever showed the slides publicly while still employed at Seagate. The Arbitrator
made no mention of any authority he had to impose punitive sanctions or to ignore the requirement that
8
any punishment be the least drastic sanction. The Award therefore does not address whether any lesser
sanction would fully remedy the wrongful conduct as to Seagate.
The Award also was not conceivably necessary to deter future misconduct or to protect the
integrity of the proceeding. The Arbitrator did not inform the parties of his finding that Dr. Mao had
fabricated evidence until after the close of the proceeding. Seagate, in April 2010, accused Dr. Mao of
fabrication and the Arbitrator deferred decision on the issue until the merits hearing from May-July
2011. !d. ~ 29. Although the Arbitrator heard the evidence on which he focused for his fabrication
finding on June 10, 2011 (id. ~ ~ 36-42; Vol. 14, 158:8-164:9), a finding of "obvious[]" fabrication first
appears in the Award on November 18, 2011, well after the proceeding concluded. The Arbitrator thus
did not give Western Digital and Dr. Mao the opportunity to take corrective measures and the sanction
could have no effect on future conduct or the course of the arbitration.
The Arbitrator awarded unjust enrichment damages of $525 million and interest of $105,431,501
million, for a total of $630,431,501. Based on our research, as confirmed by the Affidavit of Gregory B.
Joseph, Esq., the Award far exceeds the largest case-ending sanction ever imposed by any American
court or arbitrator. See Joseph Aff. ~ 9.
4
ARGUMENT
Western Digital does not ask this Court to weigh the evidence on Trade Secret Claims 4-6.
Rather, the basis of the petition is that the Arbitrator failed to do so and thereby deprived Western
Digital of its right under the MAA and the AAA Employment Rules to be heard on those claims.
The Award satisfies three grounds for vacatur. First, the Arbitrator exceeded his powers and
engaged in prejudicial misconduct by awarding $630,431,501 million based on a punitive sanction that
4
Seagate argued that Western Digital's use of the alleged Trade Secrets substantially caused its 2007-2010 decrease in
market share (and Western Digital's increase). Seagate admitted, however, that it lost market share due to delayed product
introductions and severe product quality problems. WD Ex. 2129; WD Ex. 1760, at 4-5; WD Ex. 1078; WD Ex. 1634; WD
Ex. 1781; WD Ex. 325; WD Ex. 2739; WD Ex. 2011; Vol. 12,25:20-26:10,57:2-11,77:10-23,90:15-24.
9
excluded massive, relevant, and untainted evidence. Second, the Arbitrator's refusal to hear material
evidence deprived Western Digital of a fair hearing and rendered the proceeding structurally defective.
Third, the Award violates Minnesota public policy favoring dispositions on the merits.
This arbitration was purely private; the proceeding was confidential (AAA Employment Rule
23); and the Arbitrator could not make law. Arbitrators are private citizens, not judges with supervisory
and disciplinary power over attorneys who appear before them. Unlike judges, arbitrators do not have
an institutional responsibility that includes the power to punish contempt and to enforce society's norms.
The powers of arbitrators are derived from the agreement of the parties. Western Digital did not agree
to confer upon this private Arbitrator the power to impose punitive sanctions.
At a minimum, Western Digital did not agree to confer upon the Arbitrator a sanction power
completely untethered from the limitations on a court's authority to impose sanctions. Courts have
authority under Minnesota law to impose a punitive sanction for evidentiary misconduct only if (1) the
party "is seriously at fault," i.e., acted maliciously; (2) the opposing party was severely prejudiced; and
(3) there is no "lesser sanction that will avoid substantial unfairness to the opposing party and ... will
serve to deter such conduct by others in the future." Miller v. Lankow, 801 N.W.2d 120, 132 (Minn.
2011) (quoting Schmid v. Milwaukee Elec. Tool Corp., 13 F.3d 76, 79 (3rd Cir. 1994)). See infra pp. 15-
21. Even assuming the Arbitrator had limited power to impose sanctions, he vastly exceeded his
authority here in a manner that denied Western Digital an opportunity to be heard.
I. THE ARBITRATOR EXCEEDED HIS POWERS BY REFUSING TO ADJUDICATE
TRADE SECRET CLAIMS 4-6 ON THEIR MERITS
The MAA provides that "the court shall vacate an award" when an arbitrator "exceeded [his]
powers" (Minn. Stat. 572.19, subd. 1 (3)) or there was "misconduct prejudicing the rights of any party"
(id. 572.19, subd. 1(2)). "A reviewing court must independently determine the scope of the
arbitrator's authority de novo" by determining the parties' intent. Cnty. of Hennepin, 527 N.W.2d at
824; AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740, 1752 (2011) ("Arbitration is a matter of
10
contract, and the FAA requires courts to honor parties' expectations."); accord Stolt-Nielsen SA. v.
Anima!Feeds Int'l Corp., 130 S. Ct. 1758, 1767-68 (2010).
5
A. The Arbitrator Lacked The Power To Impose Punitive Sanctions
"[A]ny intent of the parties to afford contempt-like power on the arbitrator must be clearly
evident." Certain Underwriters at Lloyd's, London v. Argonaut Ins. Co., 264 F. Supp. 2d 926, 944
(N.D. Cal. 2003) (emphasis added). The parties' agreement to arbitrate this dispute neither confers nor
even hints at a power to impose punitive sanctions-and certainly not a power to disregard all of one
party's evidence as a sanction-especially where sanctions are neither necessary to remediate a party's
wrongful conduct nor to prevent that party from engaging in future misconduct in the arbitration.
6
Nor is any such power given by the AAA Employment Rules that governed this case. Those
rules are silent as to sanctions and allow an arbitrator to impose attorneys' fees and costs only when
recoverable by the prevailing party with respect to the underlying arbitral claim. Rule 39( d) of the AAA
Employment Rules states that an arbitrator "may grant any remedy or relief that would have been
available to the parties had the matter been heard in court including awards of attorney's fees and costs,
in accordance with applicable law." That language, however, does not grant the power to impose a non-
remedial, punitive sanction but rather addresses the type of "remedy or relief' available for a claim, such
as back pay, injunctive relief or unjust enrichment. In MCR of America, Inc. v. Greene, 811 A.2d 331,
344-45 (Md. Ct. App. 2002), the court explained that an earlier (but in all material respects identically
5
Dr. Mao's At-Will Employment, Confidential Information and Invention Assignment Agreement ("Mao Agreement"),
which contains the arbitration clause, states (at 4): "This Agreement will be governed by the laws ofthe State of Minnesota."
Onvoy, Inc. v. SHAL, LLC, 669 N.W.2d 344, 351 (Minn. 2003), holds that the Federal Arbitration Act's arbitrability clause, 9
U.S.C. 2, preempts Minnesota law. The vacatur grounds of 9 U.S.C. 10, however, do not apply in state courts. Cable
Connection, Inc. v. DIRECTV, Inc., 190 P.3d 586, 597-98 & n.12 (Cal. 2008); Raymond James Fin. Servs., Inc. v. Honea, 55
So.3d 1161, 1168-69 (Ala. 2010); but cf Wien & Malkin LLP v. Helmsley-Spear, Inc., 846 N.E.2d 1201, 1206 (N.Y. 2006).
In all events, "[t]he grounds for vacating an arbitration award under the Federal Arbitration Act are similar to those under the
Minnesota act." Hunter, Keith Indus. v. Piper Capital Mgmt. Inc., 575 N.W.2d 850, 854 (Minn. Ct. App. 1998).
6
The Mao Agreement states (at 4): "I agree that any dispute or controversy arising out of ... this Agreement, shall be settled
by arbitration to be held in Hennepin County, Minnesota, in accordance with the rules then in effect of the [AAA]. The
arbitrator may grant injunctions or other relief in such dispute or controversy. The decision of the arbitrator shall be fmal,
conclusive and binding on the parties to the arbitration."
11
worded) version of Rule 39 "does not mention sanctions, and it is simply too vague and ambiguous for
us to conclude that it granted the arbitrator the right to impose sanctions."
When the AAA gives sanctioning power to an arbitrator, it has done so explicitly. See Rule 16,
AAA Multi-Employer Pension Plan Rules (arbitrator "may impose appropriate sanctions"), Schissel
Aff., Ex. SS. Similarly, when other arbitration organizations vest their arbitrators with sanctioning
power they also do so expressly. Rule 46 of the National Arbitration Forum, Code of Procedure states:
"An Arbitrator may Sanction a Party or Representative, or both, for violating any Rule, notice, ruling or
Order, or for asserting an unsupportable Claim or Response." ld., Ex. PP. The Financial Industry
Regulatory Authority (FINRA) arbitration rules likewise provide that "[t]he panel may sanction a party
for failure to comply with any provision in the Code, or any order of the panel or single arbitrator."
FINRA Rules, Code of Arbitration Procedure for Customer Disputes, Rule 12212(a), id., Ex. QQ;
accord JAMS Comprehensive Arbitration Rules & Procedures, Rule 29 ("The Arbitrator may order
appropriate sanctions."), id., Ex. RR. See also Joseph Aff. '1[7.
The parties here assumed that the Arbitrator had some authority to impose appropriate corrective
sanctions (such as attorneys' fees) as a remedy for litigation misconduct.
7
But Western Digital did not
agree to empower the Arbitrator to exclude a party's entire case.
Indeed, the deference owed to an arbitrator's decision on the merits is based on the premise that the
arbitrator conducts the proceeding consistent with basic procedural safeguards such as the right to
present evidence. See, e.g., Rodriguez de Quijas v. Shearson/Am. Express, Inc., 490 U.S. 477, 481
(1989). To this end, Minnesota law guarantees three structural protections to ensure that parties receive
a fundamentally fair arbitration hearing that preserves the central truth-seeking function of the process.
7
For instance, Western Digital requested attorneys' fees and costs on the ground that Seagate had an insufficient basis to
allege fabrication. Western Digital Br. in Opp. to Seagate 's Mot. for Sanctions, pp. 2-3 (May 11, 2010).
12
' .
Section 572.12(b) of the MAA states that "[t]he parties are entitled [1] to be heard, [2] to present
evidence material to the controversy and [3] to cross-examine witnesses appearing at the hearing."
The AAA Employment Rules reiterate that an arbitrator "shall exercise [his] authority [over the
proceedings] to afford a full and equal opportunity to all parties to present any evidence that the
arbitrator deems material and relevant to the resolution of the dispute." Employment Rule 28 (emphasis
added). AAA Employment Rule 29 even forbids a default when a party fails to appear at the arbitration:
"An award shall not be based solely on the default of a party" when a party to the arbitration "fails to be
present or fails to obtain a postponement." Rule 29 requires the party in attendance to present "such
evidence as the arbitrator may require for the making of the award."
An arbitrator's powers are limited by those procedural safeguards. Categorical preclusion of one
party's entire case patently violates MAA Section 572.12(b). Here, the Arbitrator had no authority to
deny Western Digital a full and equal right to present material evidence, much less to deny the company
the right to be heard on all of its defenses and to present any evidence with respect to Trade Secrets 4-6.
The Arbitrator imposed the most punitive form of sanctions imaginable by refusing to consider all of
Western Digital's evidence and defenses and ordering it to pay a massive sum to Seagate, its largest
competitor, regardless of whether Western Digital actually misappropriated any trade secret. The
Arbitrator vastly exceeded his authority and engaged in misconduct in so sanctioning Western Digital.
As to Trade Secret 4, the Arbitrator refused to consider numerous public documents showing that
the allegedly secret items depicted therein were known publicly as of October 2006. Such evidence
included a United States patent application (U.S. Patent No. 7,148,072) published on December 15,
2005 (WD Ex. 246; Vol. 31, 76:23-77:19, 80:23-81:19); an October 2006 IEEE Transactions on
Magnetics article (WD Ex. 257; Vol. 31, 81:20-83:9); a September 2004 Solid State Technology article
(WD Ex. 294; Vol. 31, 88 :20-90:2); a November 2002 presentation at a large industry symposium (WD
Ex. 245; Vol. 30, 206:13-207:17); a September 2003 presentation at a large industry symposium (WD
13
' .
Ex. 247; Vol. 31, 73:12-75:3); a September 2004 presentation at a large industry symposium (WD Ex.
248; Vol. 31, 75:4-76:22); and an October 2005 presentation (WD Ex. 249; Vol. 31, 86:9-88:19). The
Arbitrator also refused to consider testimony from a Seagate engineer that one of the concepts was part
of"grad school training." (Song Depo. 71 :5-9).
For Trade Secret 5, the Arbitrator refused to consider numerous industry publications showing
that the allegedly secret concepts were widely known before October 2006. The excluded evidence
included a November 1995 IEEE Transactions On Magnetics article (WD Ex. 306; Vol. 31, 102:9-
103:16); a January 1996 article (WD Ex. 305; Vol. 31, 101:13-102:8); a September 1996 article (WD
Ex. 304; Vol. 31, 100:1-101:6); a July 2004 article (WD Ex. 2644; Vol. 31, 98:24-99:15); and a
September 2004 public presentation (WD Ex. 248; Vol. 31, 104:24-105:19).
For Trade Secret 6, the Arbitrator refused to consider a July 2001 IEEE Transactions On
Magnetics article (WD Ex. 311; Vol. 31, 125:6-21); a September 2002 article (WD Ex. 310; Vol. 31,
122:14-124:3); a July 2004 article (WD Ex. 2644; Vol. 31, 116:3-17); a United States patent application
(U.S. Patent No. 7,194,797) published on January 5, 2006 (WD Ex. 307; Vol. 31, 114:6-115:8); a March
2006 public presentation (WD Ex. 2115; Vol. 31, 119:6-24); and an October 2006 article (WD Ex. 257;
Vol. 31, 115:9-116:2, 121:13-122:13). The Arbitrator also refused to consider material admissions by
Seagate's witnesses, including the concession by a Seagate engineer that he had previously published
papers concerning Trade Secret 6 concepts (Vol. 31, 116: 18-117:25); the admission by another Seagate
engineer that as of 2006 that same concept was generally known (Vol. 31, 118: 1-12); and admissions by
Seagate's own engineers that the concepts comprising Trade Secret 6 were known outside of Seagate
before October 2006 (Heinonen Depo. 65:5-14; Vol. 31, 125:22-127:4; 127:9-129:10).
The MAA and the AAA Employment Rules required the Arbitrator to hear this material and
untainted evidence and to decide Trade Secret Claims 4-6 based on weighing both sides' evidence.
14
' ' '
B. The Arbitrator Imposed A Punitive Sanction That Even A Court Could Not Impose
Even in a court, a case-ending sanction is an "extreme measure, reserved only ... as a last resort
if no alternative remedy by way of a lesser, but equally efficient, sanction is available." Capellupo v.
FMC Corp., 126 F.R.D. 545, 552 (D. Minn. 1989). It may be imposed only in "exceptional
circumstances." Firoved v. Gen. Motors Corp., 152 N.W.2d 364, 368 (Minn. 1967). Minnesota law
permits a punitive sanction that disposes of a case only if (1) the party who altered or destroyed evidence
is "seriously at fault," i.e., acted maliciously; (2) the opposing party was severely prejudiced; and (3)
there is no "lesser sanction that will avoid substantial unfairness to the opposing party and ... will serve
to deter such conduct by others in the future." Miller, 801 N.W.2d at 132 (quoting Schmid, 13 F.3d at
79). Principles of due process, i.e., fundamental fairness cabin such authority particularly when other
sanctions are available. Fjelstad v. Am. Honda Motor Co., Inc., 762 F.2d 1334, 1342-43 (9th Cir. 1985).
Schmid, which provided the "analytical framework" for the Minnesota Supreme Court's decision
in Miller (801 N.W.2d at 133), is instructive. Schmid reversed a trial court's sanction that "barred all
evidence" in a way that "thereby deprived Schmid of any opportunity to prove his case." 13 F.3d at 79.
The Third Circuit explained that dismissal of the action was "not commensurate with the limited fault
and prejudice present in [the] case." !d. at 81.
Without finding any prejudice to Seagate, without considering less severe alternatives, and
without finding culpability of Western Digital that distinguishes the company from its lawyers for whom
the Arbitrator found no complicity in the misconduct, the Arbitrator proceeded as if Western Digital had
never presented a defense to Trade Secret Claims 4-6. The Arbitrator had no authority to enter judgment
on liability by ignoring untainted, material, and voluminous exculpatory evidence. Western Digital
agreed to an arbitral resolution of the parties' dispute on the merits, not an award issued regardless of
whether Seagate was right on the merits.
15
1. Seagate Was Not Prejudiced In Its Ability To Prove Its Case
In judicial cases involving allegations of "document destruction or alteration," courts must
consider if the misconduct prejudiced the other party who may have needed the destroyed evidence to
prove its case. Courts must examine the nature of the evidence "in the context of the claims asserted and
the potential for remediation of the prejudice." Patton v. Newmar Corp., 538 N.W.2d 116, 119 (Minn.
1995); accord Miller, 801 N.W.2d at 132; Smothers v. Ins. Restoration Specialist, Inc., No. A04-1036,
2005 WL 624511, at *6 (Minn. Ct. App. Mar. 17, 2005) (the sanction "should be proportional to the
prejudice suffered by the opposing party"); Wajda v. Kingsbury, 652 N.W.2d 856, 860 (Minn. Ct. App.
2002) ("The appropriateness of a sanction for spoliation of evidence is determined by the prejudice to
the opposing party."); Hoffman v. Ford Motor Co., 587 N.W.2d 66, 71 (Minn. Ct. App. 1998)
(legitimacy of sanction "is determined by the prejudice resulting to the opposing party"); Chi.
Greatwestern Office Condo. Ass 'n v. Brooks, 427 N.W.2d 728, 730-31 (Minn. Ct. App. 1988) (same).
Dismissal is not an option unless the destroyed evidence was essential to the party's case. Patton, 528
N.W.2d at 118-19; Capellupo, 126 F.R.D. at 553.
8
The same analysis applies to fabrication. The Arbitrator entered judgment against Western
Digital on liability based, in effect, on a conclusive, i.e., irrebuttable presumption that Western Digital
had no defense to Seagate's Trade Secret Claims 4-6. A w a r d ~ ~ 44-45. Where a defendant fabricates
evidence that is cumulative of other evidence supporting the defense, a remedial sanction can preclude
use of the fabricated evidence and compensate the plaintiff for attorneys' fees and costs related to the
misconduct. But in such circumstances the fabrication does not prejudice the plaintiff in establishing its
case because the defendant's other evidence also undermined the plaintiffs claims.
8
The Eighth Circuit also requires prejudice and holds that a court lacks the power to impose an irrebuttable inference that
destroyed evidence would have been adverse. Stevenson v. Union Pac. R.R. Co., 354 F.3d 739, 750-51 (8th Cir. 2004);
Shelton v. Am. Motors Corp., 805 F.2d 1323, 1330 (8th Cir. 1986).
16
' . ,
The Arbitrator cited a 1981 Illinois intermediate court decision that relied on a 1964 treatise on
Illinois evidence for the notion that "[when] evidence is shown to have been fabricated, a presumption
arises that the ... defense it was intended to support is without substantial foundation." !d. ~ 44
(quoting Harris Trust & Sav. Bank v. Ali, 425 N.E.2d 1359, 1366 (Ill. App. Ct. 1981) (quoting 2
Callaghan's Illinois Evidence 3.152 (1964))). But the very next sentence of that treatise, not reiterated
by the Arbitrator, states that the "presumption ... will yield if other evidence in the case establishes the
cause of action or the defense." 2 Callaghan's Illinois Evidence 3.152 (emphasis added); 31A C.J.S.
Evidence 253 (2011) (same); cf Jacobson v. $55,900 in US. Currency, 728 N.W.2d 510, 522 (Minn.
2007) (A presumption "has no additional function other than the limited one of dictating the decision
where there is an entire lack of competent evidence to the contrary.") (emphasis in original and citation
omitted); Kath v. Kath, 55 N.W.2d 691, 694 (Minn. 1952) ("[T]he very moment substantial
countervailing evidence appears from any source [a presumption] ceases to have any function and
vanishes completely from the cause as if it had never existed.").
The absence of prejudice to Seagate (other than attorneys' fees and costs) means that the
Arbitrator had no authority to issue a case-ending sanction. In ruling in favor of Western Digital on
Trade Secret Claims 1-3, 7, and 8, the Arbitrator relied on published patent applications, patents,
industry presentations, and published scientific articles. A w a r d ~ ~ 13-14 (Trade Secret 1); 17 (Trade
Secret 2); 20-21 (Trade Secret 3); 24 (Trade Secret 7); and 27 (Trade Secret 8). Western Digital
presented the very same types of evidence to disprove Trade Secret Claims 4-6. Seagate could not have
been prejudiced by the fabrication when the same types of evidence were also before the Arbitrator on
Trade Secret Claims 4-6.
Western Digital argued that Dr. Mao, while still employed at Seagate, presented the three Thumb
Drive Slides at two public conferences, and therefore that the concepts comprising Trade Secrets 4-6
were publicly known. But even without the slides, Western Digital's defenses were "independently
17
prov[able] by untainted means." Suntrust Mortg., Inc. v. AIG United Guar. Corp., No. 3:09cv529, 2011
WL 1225989, at *27 (E.D. Va. Mar. 29, 2011). In addition to the three slides, the Arbitrator had before
him two published patent applications (WD Exs. 246 & 307), seven articles in scientific journals (WD
Exs. 257, 304, 306, 310, 311, 2644), three public presentations where individuals other than Dr. Mao
discussed the concepts (WD Exs. 247-49), expert testimony (e.g., Vol. 30, 205:12-206:1; 206:13-
207:17; 207:23-210:21; Vol. 31, 83:11-86:1; 104:18-23), and fact testimony by both Western Digital
and Seagate witnesses (e.g, Vol. 26, 78:17-20, 167:19-169:4; Vol. 25, 77:13-24; Vol. 12, 122:8-19).
That evidence, independent of the three slides, showed that the concepts were both public and known by
Western Digital engineers before Western Digital hired Dr. Mao.
Worse still, Western Digital also presented abundant evidence that there was no importance or
uniqueness in the way the concepts depicted on Trade Secret Slides 4-6 were ordered or arranged (Vol.
31, 90:19-91:3, 108:9-20, 129:19-23), and that the concepts, even if secret, were not used by Western
Digital and thus Seagate could not establish the elements of a misappropriation claim. At a minimum,
the Arbitrator had no authority to exclude evidence that Western Digital had not "used" Trade Secrets 4-
6 in connection with its products. Award ~ ~ 54, 62, 70. The element of "use" is completely distinct
from the issue of secrecy, i.e., the issue to which the Thumb Drive Slides related. Even assuming the
Arbitrator could have presumed that the Trade Secrets 4-6 concepts were secret (despite massive,
untainted, material evidence to the contrary), the Arbitrator had no authority to refuse to consider the
testimony of numerous witnesses that Western Digital engineers were aware of the concepts depicted in
the Trade Secret Slides well before Dr. Mao joined Western Digital. See, e.g., Vol. 26, 78:17-20,
167:19-169:4; Vol. 25, 77:13-24. The Arbitrator also improperly refused to consider expert testimony
that Western Digital had made no changes to its products or processes based on the Trade Secret Slides
(Vol. 30, 99:24-100:6, 104:16-22, 111:19-113:6), and that Western Digital's TMR development work
was consistent with the expert's industry experience, including his personal experience in MgO TMR
18
I.
stack development at Hitachi. Vol. 30, 67:1-68:5, 70:22-71:24, 87:1-9, 88:21-89:10. It was also
improper for the Arbitrator to decline to consider the concession by Seagate's CFO that by the time Dr.
Mao joined Western Digital in October 2006, "TDK [a competing recording head manufacturer] had
already launched heads using MgO-based TMR"-to which the alleged Trade Secrets 4-6 relate-and
was supplying all of Seagate's competitors with those heads. Vol. 12, 122:8-19. Indeed, Western
Digital's initial MgO TMR product launch included hard drives with TMR heads manufactured by
TDK. Vol. 20, 79:10-13, 100:5-16.
Again, Western Digital does not seek this Court's review of the merits based on the evidence.
Western Digital seeks to have an arbitrator do that. This Court need find only that this evidence
existed, that it was presented and admitted, but that the Arbitrator nevertheless refused to consider it.
2. Lesser Alternative Sanctions Were Available
Minnesota law requires "the least restrictive sanction available under the circumstances." State
Farm Ins. v. Chase, No. C6-01-969, 2002 WL 47796, at *4 (Minn. Ct. App. Jan. 15, 2002) (internal
quotation marks and citations omitted); accord Miller, 801 N.W.2d at 132 (court has a "duty to tailor the
sanction," so must consider "whether there is a lesser sanction that will avoid substantial unfairness to
the opposing party"). That requirement reflects the strong public policy that "the primary objective of
the law [is] to dispose of cases on the merits." Firoved, 152 N.W.2d at 368.
Here, effective alternatives short of a case-ending sanction included excluding the Thumb Drive
Slides and the testimony of Dr. Mao,
9
imposing a rebuttable inference that the contents of the slides
were not publicly known,
10
or requiring payment of Seagate's attorneys' fees and costs incurred in
9
See, e.g., State Farm Ins., 2002 WL 47796, at *4 (reversing summary judgment for destroying evidence and directing trial
court to consider excluding evidence and lesser sanctions).
10
See, e.g., Stevenson, 354 F.3d at 750 (holding rebuttable adverse inference instruction appropriate as sanction for
spoliation); Moore v. R.TL. Constr., Inc., Nos. 09-3178; 09-3177, 2011 WL 4729861, at *2 (D. Minn. Oct. 6, 2011)
(imposing adverse factual finding but not default judgment for falsifying evidence in bad faith and improper withholding of
documents).
19
\.
connection with investigating and litigating the fabrication issue.
11
In Kashner, supra, the First Circuit
vacated an award as a manifest disregard of the law where the panel dismissed a case as a sanction for a
party's misconduct. The arbitral rules in that case expressly granted the arbitration panel the power to
dismiss as a sanction "iflesser sanctions have proven ineffective." 531 F.3d at 75 (quoting NASD Rule
10305). The court vacated the Award because "[t]here was no history of lesser sanctions having been
tried." Id. at 79. The requirement that lesser sanctions first be exhausted should be even stronger here,
where neither the parties' agreement nor the applicable arbitration rules conferred sanctioning power on
the Arbitrator. Because the Award makes no pretense of tailoring and is grossly excessive under the
circumstances, it must be vacated.
3. The Arbitrator's Findings Do Not Support The Sanction Imposed
Any punitive sanction must be predicated on the party's malicious intent. Miller, 801 N.W.2d at
132; accord Schmid, 13 F.3d at 79; Shelton, 805 F.2d at 1330; Browning Debentures Holders' Comm. v.
DASA Corp., 560 F.2d 1078, 1089 (2d Cir. 1977); cf Patton, 538 N.W2d at 119 (upholding purely
remedial sanctions for negligent spoliation).
The Arbitrator had no authority to enter a punitive judgment against Western Digital for the
actions of Dr. Mao. The Arbitrator did not find that Western Digital acted maliciously; that Western
Digital participated in the fabrication of the evidence; or that Dr. Mao told Western Digital about the
fabrication. A party's failure to recognize something that should be "obvious" is negligence, not
malicious conduct that could support a punitive award.
11
See, e.g., Olson v. Babler, No. A05-395, 2006 WL 851798, at *8 (Minn. Ct. App. Apr. 4, 2006) (attorneys' fees when party
"consistently lied under oath and fabricated facts that were to be considered by court in making its decision"); Chase v.
Burlington N. Santa Fe Corp., No. 02-C0-04-10312, 2009 WL 6356932 (Minn. Dist. Ct. Oct. 15, 2009) (fees, costs, and
disgorgement of profits gained from delaying litigation where party compromised critical evidence, interfered with witnesses,
impeded investigation by law enforcement, and misled plaintiffs and court), aff'd in relevant part sub nom., Frazier v.
Burlington N. Santa Fe. Corp., 788 N.W.2d 770 (Minn. Ct. App. 2010); Suntrust Mortg., 2011 WL 1225989, at *28-29
(attorneys' fees and expenses for alteration of emails); Capellupo, 126 F.R.D. at 552-53 (double attorneys' fees and
$1,432.00 payment to the court for consumption of court's time where company systematically destroyed documents).
20
Moreover, the Arbitrator found that the fabrication was not "obvious" to the lawyers who
presented the evidence and who had the ethical duty not to present false evidence. Minn. R. Prof.
Conduct 3.3(a)(3) (2005). If the fabrication was not obvious to Western Digital's lawyers, it could
not have been obvious to Western Digital. Furthermore, Western Digital's forensic expert testified
that the relevant thumb drives had not been modified, and an impartial third-party (Dr. Kools) testified
that he recalled Dr. Mao presenting the Trade Secret 4 slide at the 2003 public Veeco conference. The
Arbitrator did not question the credibility or veracity of this evidence. As previously explained (see
supra pp. 7-8), the Arbitrator's findings taken together mean that Western Digital may have been
negligent-not that it proffered fabricated evidence maliciously.
II. THE AWARD MUST BE VACATED BECAUSE THE ARBITRATOR REFUSED TO
HEAR MATERIAL EVIDENCE
Minnesota law requires vacatur if the Arbitrator "refused to hear evidence material to the
controversy or otherwise so conducted the hearing, contrary to the provisions of section 572.12, as to
prejudice substantially the rights of a party." Minn. Stat. 572.19, subd. 1(4). This basis for vacatur
offers "a safety valve in private arbitration that permits a court to intercede when an arbitrator has
prevented a party from fairly presenting its case." Bur/age v. Super. Ct., 100 Cal. Rptr. 3d 531, 535
(Cal. Ct. App. 2009) (California Arbitration Act). The Award profoundly violates Western Digital's
rights under Section 572.12 "to be heard" and "to present evidence material to the controversy."
Courts are required to vacate arbitration awards where an arbitrator's improper refusal to hear
substantial, probative evidence has deprived a party of the opportunity to present its case. Thus, in
Redner v. NY Fire Ins., 99 N.W. 886, 887 (Minn. 1904), the Supreme Court held that an award must be
set aside based on an arbitrator's "refusal to hear any evidence whatever on [the party's] behalf."
Similarly, in Bur/age, supra, the court held that an arbitrator's exclusion of material evidence required
vacatur. 100 Cal. Rptr. 3d. at 536-37. The court observed that although "parties to an arbitration have
21
, ' '
bargained for a final and binding decision," "without the opportunity to present material evidence, [the
party] did not receive the benefit of that bargain." Id.
Many other cases vacating arbitral awards are to the same effect. City of Bridgeport v. Kasper
Group, Inc., 899 A.2d 523, 529-35 (Conn. 2006) (arbitrator refused to admit "highly probative"
evidence); Bordonaro v. Merrill Lynch, Pierce, Fenner & Smith, 805 N.E.2d 1138, 1140-44 (Ohio Ct.
App. 2004) (arbitrator's exclusion of expert testimony "eviscerated plaintiff's case and thus amounts to
a gross procedural impropriety"); Gulf Coast Indus. Workers Union v. Exxon Co. USA, 70 F.3d 847, 850
(5th Cir. 1995) (failure to consider relevant evidence of drug test); In re Bevona, 611 N.Y.S.2d 193, 196
(N.Y.A.D. 1st Dep't 1994) ("[B]oth parties had already presented substantial evidence, [but] the
arbitrator rendered a default award."); Prudential Sec., Inc. v. Dalton, 929 F. Supp. 1411, 1417 (N.D.
Okla. 1986) (failure to hear factual evidence and instead deciding case on basis of a presentation by
counsel and documents in the file); Hoteles Condado Beach, La Concha & Convention Ctr. v. Union De
Tronquistas Local 901, 763 F.2d 34, 40 (1st Cir. 1985) (refusal to consider "central" evidence);
Teamsters eta!. v. E.D. Clapp Corp., 551 F. Supp. 570, 578 (N.D.N.Y. 1982) (hearing at which a party
was not allowed to complete its presentation of proof); Transamerica Ins. v. Kemper Ins., 79 A.D.2d 69,
71-72 (N.Y.A.D. 4th Dep't 1981) (panel dismissed case because party failed to appear).
The prejudice to Western Digital from the preclusion of its entire case on Trade Secrets 4-6 is
plain. As described in some detail above, the disregarded defense evidence was voluminous and highly
material. See supra pp. 13-14, 18-19. It is highly likely that, had this evidence been considered, Trade
Secret Claims 4-6 would have met the same fate as all ofSeagate's other Trade Secret claims.
The Arbitrator's refusal to consider untainted evidence falls squarely within settled grounds for
vacatur. The Award on its face deprived Western Digital of the right to present its case by barring all
defenses and the presentation of any evidence on the elements of Seagate's Trade Secret Claims 4-6-
even evidence that was in no way tainted by the Thumb Drive Slides and even evidence that pertained to
22
elements of Seagate's misappropriation claims other than secrecy. Because the pertinent exculpatory
evidence was disregarded, the Arbitrator found that each of those alleged Trade Secrets "was not
generally known or readily ascertainable." Award ,-r,-r 51, 59, 67. That was a finding based solely on the
sanction and on the refusal to consider any evidence to the contrary favoring Western Digital. See supra
pp. 13-14, 18. And the Arbitrator likewise reached the conclusion that Western Digital engaged in
"improper use" of those secrets (Award ,-r,-r 55, 63, 71) solely by refusing to hear the contrary evidence.
See suprapp. 18-19.
In short, vacatur is required because the Arbitrator excluded evidence that was indisputably
"material to the controversy," Minn. Stat. 572.19, subd. 1(4), and with obvious prejudice to Western
Digital's right to a fair proceeding under Section 572.12.
III. THE AWARD ALSO VIOLATES MINNESOTA'S WELL-DEFINED PUBLIC POLICY
IN FAVOR OF DECIDING CASES ON THE MERITS
Under Minnesota law, an arbitration award may be vacated where the decision violates a policy
that is "well defined and dominant, and is to be ascertained by reference to the laws and legal precedents
and not from general considerations of supposed public interests." City of Brooklyn Ctr., 63 5 N. W .2d at
241. Thus in City of Brooklyn Center, the Court of Appeals vacated an arbitration award where judicial
enforcement would have violated public policy protecting the public from police sexual harassment.
12
"[D]eciding cases on their merits, and against depriving a party of his fair day in court" is a well-
recognized and bedrock public policy in Minnesota. Chi. Greatwestern Office Condo. Ass 'n, 427
N.W.2d at 731. Minnesota thus embraces the "strong policy in favor of deciding a case on its merits."
Allen v. Tobacco Superstore, Inc., 475 F.3d 931,936 (8th Cir. 2007). After all, "the goal of all litigation
12
The Supreme Court has left open whether an arbitrator's "manifest disregard of the law" may form the basis for vacating
awards governed by the Federal Arbitration Act, 9 U.S.C. 1 et seq. See Stolt-Nielsen S.A., 130 S. Ct. at 1768 n.3. The
Award here meets that standard. Kashner, 531 F.3d at 68, 74, 79.
23
'is to bring about judgments after trials on the merits."' Petrich v. Dyke, 419 N.W.2d 833, 835 (Minn.
Ct. App. 1988) (Schumacher, J.) (quoting Sommers v. Thomas, 88 N.W.2d 191, 196 (Minn. 1958)).
Minnesota arbitration law expressly reflects this public policy by providing that parties "are
entitled to be heard [and] to present evidence material to the controversy." Minn. Stat. 572.12(b).
Because the Arbitrator imposed an unprecedented sanction that violates Minnesota public policy, "the
proper discharge ofth[is] court's duty requires that it avoid a merely perfunctory approach to appeals of
orders confirming arbitration awards." City of Brooklyn Ctr., 635 N.W.2d at 244.
Rather than decide the case on the merits, the Arbitrator refused to weigh highly probative
evidence with respect to Trade Secret Claims 4-6, including testimony from 22 witnesses and numerous
exhibits that included voluminous materials in the public domain. This unprecedented Award was
wholly unwarranted and grossly disproportionate to the Arbitrator's finding of the level of fault of
Western Digital. Confirmation would violate public policy, be grossly punitive against a company, and
undermine the legitimacy of the arbitral process.
CONCLUSION AND RELIEF REQUESTED
Western Digital respectfully asks this Court to issue an Order (1) vacating the Award with regard
to Trade Secret Claims 4-6, and (2) compelling arbitration of Trade Secret Claims 4-6 on the merits. In
addition, Western Digital asks that the Court issue an Order compelling the appointment of a new
arbitrator to arbitrate Trade Secret Claims 4-6. See Manchester Twp. Bd. of Educ. v. Thomas P. Carney,
Inc., 489 A.2d 682, 690-91 (N.J. Super. Ct. App. Div. 1985).
24
Dated: January 23, 2012
By __ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ -
Clifford M Greene, . No. 37436
Larry D. Espel, Reg. No. 27595
200 S. Sixth Street, Suite 1200
Minneapolis, MN 55402
(612) 373-0830
(612) 373-0929
ARNOLD & PORTER LLP
Michael D. Schissel
399 Park A venue
New York, NY 1 0022
(212) 715-1157
(212) 715-1399
Lisa S. Blatt
555 Twelfth Street NW
Washington, DC 20004
(202) 942-5842
(202) 942-5999
Attorneys for Western Digital Corporation and Western Digital Technologies, Inc.
ACKNOWLEDGMENT
The undersigned hereby acknowledges that costs, disbursements and reasonable attorney and
witness fees may be awarded pursuant to Minn. Stat. 549.211, subdivision 2, to the party against
whom the allegations in this pleading are asserted.
25