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UGS Corp. v. Musti

February 1, 2007

UGS CORPORATION, PLAINTIFF,
v.
SATYADEV MUSTI, DEFENDANT.



The opinion of the court was delivered by: Sandra S. Beckwith, Chief Judge United States District Court

ORDER

Before the Court are the parties' cross motions for summary judgment. Plaintiff UGS Corporation seeks a partial summary judgment of liability against Defendant Musti, based on Musti's alleged breach of certain non-competition and non-solicitation agreements with UGS, Musti's former employer. (Doc. 70) Musti seeks summary judgment on all claims against him, contending he has not breached the terms of any applicable agreement. (Doc. 68) Musti also seeks judgment on his counterclaim for commissions and stock options, which he contends UGS has wrongfully refused to pay him. Both parties have filed responses and replies to each other's motions.

FACTUAL BACKGROUND

1. Musti's Employment with UGS

Musti began working for Structural Dynamics Research Corporation on June 1, 1987, following his graduation from Arizona State University. This was Musti's first job. SDRC later paid for Musti to obtain an MBA from the University of Cincinnati. SDRC also sponsored Musti's immigration to the United States.

SDRC was acquired by Electronic Data Systems (EDS) in 2001. EDS merged SDRC with Unigraphics, another company EDS acquired, and the merged company became known as EDS PLM Solutions. This merged company was then bought from EDS by a private equity group, and became the current UGS Corporation, headquartered in Plano, Texas. Musti was continuously employed by these entities from June 1, 1987 through January 2006 (excepting only a brief period in 1998).

UGS develops and sells engineering software generally known as Product Lifecycle Management, or PLM. According to UGS, these products include engineering and manufacturing software (CAD, CAM and CAE), and product data management software (PDM). According to Keith Charron (UGS Vice President and General Manager for Global Sales), UGS has three fundamental businesses: mechanical design (NX), product data management (PDM), and digital manufacturing. Despite the different products and business categories, UGS describes its overall sales efforts as collaborative, intended to encourage cross-selling of all UGS product lines. UGS has annual global sales meetings for all sales employees and selected customers, concerning overall sales strategy and product lines. All UGS sales employees have access to the UGS intranet, which contains information about UGS customers, product characteristics and development, and company marketing activities.

Musti's positions changed over time. Musti joined a UGS division called Industry Solutions in 1999. This group concentrated on PDM software sales to the consumer packaged goods and retail apparel industries. Musti became the sales manager for Industry Solutions at the end of 2003, after several years of experience with UGS' product data management software ("Metaphase" and "Teamcenter Enterprise"). Musti reported to Jim Menego, his direct supervisor.

2. Musti's Separation from UGS

A company named MSC approached Musti in late 2005, asking him to leave UGS and offering him a substantial increase in pay and other benefits. Other SDRC/UGS employees had left UGS to join MSC, including Jim Howaniec, whom Musti describes as the former head of the UGS consumer products group sales team.

In mid January 2006, Musti was questioned by Keith Charron about whether MSC was recruiting Musti. Musti testified that he was upset that those conversations had been discovered, but he disclosed the details of MSC's offer to Charron. A few days later, Jim Menego (with approval of UGS management) told Musti he had to leave the building; Menego took Musti's computer, key card and telephone. (Menego's email of January 12, 2006, Charron Exhibit 2, summarizes the chain of events over several days during the week of January 9, 2006.) Part of UGS' response was a January 12, 2006 letter from UGS' general counsel to Musti (Doc. 68, Exhibit C), stating that Musti's departure to MSC would violate Musti's non-compete and non-solicitation agreements.

Musti decided to leave UGS on Sunday morning, January 15, 2006, and called Menego to tell him of his decision. Musti then went to his UGS office to clean out his things. Musti testified that Jim Menego was with him the entire time Musti was on UGS premises. Musti asked Menego what he should do with his old notebooks, and Musti took the notebooks to his car with Menego's knowledge and consent. (Menego even helped Musti push them to Musti's car on a cart.)

Musti was hired as Vice President, Enterprise Clients, at MSC

Before Musti's departure, other UGS sales employees had left UGS for jobs at MSC. One salesman on the Industry Solutions team moved to MSC in mid-2005. He gave notice but continued to work at UGS and retained access to his computer during his transition. Another salesman in the same group gave notice of his departure, and was permitted to complete a UGS project. Two more UGS salesmen also left for MSC, but none of these individuals faced legal action from UGS based on their departure for MSC. Musti's second declaration states that 20 former SDRC employees work for MSC, and that many others work at a variety of other software companies.

UGS did take notice of the number of its employees leaving for MSC. Keith Charron described it as "MSC is clearly on a hiring spree they clearly have targeted SDRC guys and they probably are targeting the veterans within those ranks." (Charron Depo p. 91.) There is also a suggestion of friction between executives at UGS and MSC, based on prior relationships formed when EDS bought SDRC and UGS, and merged them into one division.

3. The Agreements At Issue

UGS alleges that Musti has breached three separate agreements he signed during his tenure with UGS and the prior entities. The agreements are attached to UGS' Second Amended Complaint (Doc. 66).

A. The September 6, 2004 Employment Agreement

Musti and UGS executed this Agreement in consideration of Musti's ongoing employment and his participation in a management incentive plan. Musti agreed that he would never use or disclose any UGS confidential information, which is defined to include the identity of UGS customers, customer lists and sales records, the identity of contacts at UGS purchasers, and people and organizations with whom UGS has a business relationship. (¶2a) Musti also agreed that all documents relating to UGS belonged to the company, and that he would not remove or copy them. (¶2b) Musti agreed that for a 12-month period after leaving UGS, he would not compete with UGS by working for any of several specifically named competitors. MSC is not listed as a forbidden competitor. (¶4) Musti also promised that, for 24 months following his termination, he would not solicit any UGS employees or customers, nor seek to persuade any UGS customer to conduct with any other company the business "which such customer conducts or could conduct with [UGS]." (¶5a)

The Agreement's merger clause states that the Agreement is in addition to, and does not terminate or supersede, any additional obligations Musti may have under any prior employment or non-disclosure agreements, or under applicable law. In the event of a conflict, the 2004 Agreement governs. (¶8)

B. The May 2, 2003 Equity Related Agreement

This Agreement between Musti and EDS also contains non-disclosure and non-competition covenants. "Confidential Information" is broadly defined, and includes client lists and specifications, pricing and cost information. (¶1b) "Competitor" is defined as any entity engaged in EDS' business, which is broadly defined as providing information technology and related services such as process management, information processing and solutions, management and electronic business consulting. (¶1c) Musti agreed never to use EDS' confidential information. (¶2) He also agreed not to directly compete with EDS for six months after his termination; this covenant, however, is limited to the geographic region where Musti worked for the six months preceding his termination. (¶3a) Musti also agreed not to work for any current or prospective EDS client, with whom Musti interacted prior to his termination, for twelve months after his termination. (¶3b) He also promised not to induce, encourage or solicit other EDS employees or clients to leave EDS for twelve months following Musti's termination. (¶¶3c and 4)

This Agreement's merger clause unambiguously provides that the Agreement supersedes all prior agreements between the parties (with exceptions not applicable to this dispute). (¶ 14)

C. The November 27, 2001 Non-Compete Agreement

This Agreement between Musti and UGS is described as a supplement to a "Proprietary Rights and Confidentiality Agreement," a document that is not in the record. The non-compete agreement generally prohibited Musti from competing, or working for any customer with whom Musti had substantial contact while at UGS, for twelve months after his termination. It also barred solicitation of UGS employees and customers for the same time period.

As a preliminary matter, the Court finds the 2001 Non-Compete Agreement is irrelevant to this case. The 2003 Agreement expressly states that it supersedes "all" prior agreements on the topics covered, thus the 2003 Agreement extinguished the 2001 Agreement. UGS argues that the 2004 Agreement's merger clause somehow "revived" the defunct 2001 Agreement. The Court disagrees. The 2004 merger clause clearly states that it does not terminate additional obligations Musti "may have" under prior agreements. The use of the present tense clearly describes then-existing obligations, and does not revive any obligations under agreements which were no longer valid when Musti signed the 2004 Agreement.

4. The Claims At Issue

UGS' Second Amended Complaint alleges breach of Musti's employment contracts; tortious interference with UGS customer and employee contracts; tortious interference with prospective economic relationships between UGS and its customers; and theft and/or misappropriation of trade secrets under Ohio statutory and common law. The complaint seeks preliminary and permanent injunctive relief, disgorgment of ...


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