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Fastship, LLC v. Lockheed Martin Corp.

United States District Court, D. New Jersey

June 25, 2018

FASTSHIP, LLC and LIQUIDATING TRUST OF FASTSHIP, INC., Plaintiffs,
v.
LOCKHEED MARTIN CORPORATION and GIBBS & COX, INC., Defendants.

          CHRISTOPHER JOHN LEAVELL On behalf of Plaintiffs

          RAYMOND HOWARD On behalf of Plaintiffs

          GREGORY M. WILLIAMS (pro hac vice) RICHARD W. SMITH (pro hac vice) SCOTT A. FELDER (pro hac vice) KATHERINE C. CAMPBELL (pro hac vice) On behalf of Plaintiffs

          DONALD E. STOUT (pro hac vice) On behalf of Plaintiffs

          MARK SIGMUND On behalf of Defendant Lockheed Martin Corporation

          MICHAEL J. SONGER (pro hac vice) ASTOR H.L. HEAVEN (pro hac vice) On behalf of Defendant Lockheed Martin Corporation

          LIZA M. WALSH, CHRISTOPHER MATTHEW HEMRICK, COLLEEN M. MAKER On behalf of Defendant Gibbs & Cox, Inc.

          PASQUALE A. RAZZANO (pro hac vice), DOUGLAS SHARROTT JOSH CALABRO (pro hac vice) On behalf of Defendant Gibbs & Cox, Inc.

          OPINION

          NOEL L. HILLMAN, U.S.D.J.

         This matter concerns non-disclosure agreements (NDAs) between FastShip, Inc. and Defendants Lockheed Martin Corporation (“Lockheed”) and Gibbs & Cox, Inc. (“G&C”) concerning the design of a semi-planing monohull (“SPMH”). The design is used in large ships to maintain higher speeds in heavy seas. Plaintiffs FastShip, LLC and the Liquidating Trust of FastShip, Inc. (“Liquidating Trust”) purport to be the assignees of FastShip, Inc. pursuant to a confirmed plan of reorganization (“Confirmed Plan”).

         Before the Court are Lockheed's Motion to Dismiss and G&C's Motion to Dismiss. For the reasons that follow, the Court will deny both Motions to Dismiss. This matter will proceed through a limited period of discovery on the issue of the statute of limitations defense, and, if warranted, dispositive motions on that isolated issue.

         I.

         The Court takes its facts from Plaintiffs' September 6, 2017 Second Amended Complaint. For both commercial and military purposes, the faster a large ship can go in heavy seas the better. Conventional wisdom says large ships should use displacement hulls, which are limited in their capacity to reach speeds over forty knots. David Giles, FastShip, Inc.'s[1] founder and technical director, considered this problem and determined the solution was an enlarged SPMH design, which had not been used for larger vessels, combined with waterjets, rather than propellers.

         After the navies of Great Britain and the United States rejected his idea, Giles established Thornycroft, Giles & Company Inc. in March 1988. Giles and this company continued developing the SPMH design and filed for patent protection in the United Kingdom on October 11, 1989. This eventually resulted in the issuance of U.S. patents 5, 080, 032 and 5, 231, 946 covering the SPMH design for large vessels. FastShip, Inc. was the sole owner of these patents.

The patented concept used the shape of the hull and placement of waterjets to provide lift for larger vessels to reduce resistance and thus achieve higher speeds without impairing stability or cargo capacity. The design allowed such higher speeds without the need to increase the vessel's length (which would have reduced seaworthiness and stability) or decrease its beam (which would have reduced stability and the available stern width for the installation of water jets), an accomplishment long considered the equivalent of “breaking the sound barrier” in aeronautical technology.

         Due to continued skepticism in the field, FastShip, Inc. paid experts for analysis and testing to prove the viability of the design. FastShip, Inc. also prepared extensive drawings to enable the construction of an SPMH vessel. FastShip, Inc. engaged entities to run simulations of the design and to conduct elaborate tank testing to prove the design's viability. FastShip, Inc. paid approximately $40 million for these tests and data. Plaintiffs refer to this testing and data cumulatively as the “Trade Secrets.”

         In 2001, in contemplation of a commercial collaboration, FastShip, Inc. and Lockheed entered into an NDA. In February 2003, FastShip, Inc. and Lockheed entered into another NDA in connection with possibly collaborating on the U.S. Navy's Littoral Combat Ship (LCS) Program (“LCS Program”). Also in February 2003, FastShip, Inc. and G&C entered into a separate NDA. These NDAs were “for the purpose of sharing information regarding potential collaboration on the LCS Program” and “did not authorize or allow Defendants to use FastShip's Trade Secrets on the LCS Program without further written approval from FastShip.” Under the February 2003 NDAs, and other confidentiality agreements entered into, FastShip, Inc. shared its Trade Secrets with Defendants.

         Prior to the 2003 NDAs, Lockheed had pursued the LCS Program independently using a different hull design. In October 2002, Lockheed withdrew that proposal and joined with G&C, which was competing with another distinct design.

         On February 26, 2003, following a U.S. Navy announcement greatly increasing its operational requirements for the LCS Program, Lockheed invited FastShip, Inc. to give a detailed presentation on its SPMH technology. FastShip, Inc. provided the full details of its research and development. Following this presentation, Lockheed verbally invited FastShip, Inc. to participate in the LCS Program. The request was repeated in writing on March 10, 2003. On March 20, 2003, FastShip, Inc. agreed to be included in the Lockheed team for the LCS Program, which also included G&C and later another entity. A March 2003 announcement stated:

Lockheed and FastShip, Inc. are parties to a Memorandum of Understanding dated November 2, 2001 relating to cooperation with respect to commercialization of vessels to be built to a patented design developed by FastShip, Inc. While this MOU relates primarily to the development of the TG770 [commercial] vessel, it also contemplates cooperation in marketing the FastShip design to the U.S. Military. Lockheed has determined that a variant of the TG-770 patented design and expertise developed by FastShip, Inc. in high speed ships may be applicable to the Littoral Combat Ship. Lockheed desires to have access to FastShip, Inc.'s technology and technical expertise (1) to assist in responding to the FRP (Request for Proposals) and, (2) should the Lockheed team be selected as one of the preliminary design teams, for development of the preliminary design for the Littoral Combat Ship.

         The parties agreed Lockheed was permitted to include FastShip, Inc. as a participant on its team for the purpose of responding to the LCS Program request for proposals. It was also agreed that FastShip, Inc. would provide Lockheed and G&C with information to help define FastShip, Inc.'s involvement. It was agreed that all information was exchanged subject to the 2003 NDAs.

         In Lockheed's submission to the U.S. Navy for the preliminary design contract for the LCS Program, Lockheed specifically noted the contributions of FastShip, Inc. On May 27, 2004, the U.S. Navy selected Lockheed to conduct the preliminary design work for the LCS Program. However, Lockheed did not include FastShip, Inc. on its team nor was FastShip, Inc. included in the subsequent design and build work Lockheed was awarded on the LCS Program.

         Plaintiffs allege Defendants “used FastShip's Trade Secrets to perform the preliminary design contract and to win and perform the subsequent aspects of the LCS Program” and that such use “was without FastShip's permission and thus was a breach of the February 2003 NDAs with those parties as well as a misappropriation of FastShip's Trade Secrets.” Plaintiffs allege Defendants conducted extremely limited tank testing on its vessels. Plaintiffs allege that the testing Defendants did conduct was largely to fill a “gap” in FastShip, Inc.'s testing. Plaintiffs plead:

That Defendants did not conduct the extensive tank tests that the U.S. Navy typically requires for a new hull design, particularly when the LCS used a hull design that was not only previously unused, but also previously rejected by the Navy, strongly suggests that Defendants improperly relied on FastShip's testing in connection with the LCS Program. That the limited testing Defendants did conduct was directed at calm water conditions for which FastShip did not test further strengthens that conclusion.

         Plaintiffs allege Defendants concealed their use of the Trade Secrets, in one instance stating that the LCS ship design was a multi-chined hull and not based on FastShip, Inc.'s hull design.

         On November 8, 2008, the U.S. Navy commissioned the USS Freedom (LCS-1), a ship publicly claimed by the U.S. Navy and Lockheed to incorporate a revolutionary semi-planing monohull. On September 22, 2012, the Navy commissioned the USS Fort Worth (LCS-3). Eleven other Lockheed vessels are under construction or on order.

         FastShip, LLC[2] separately filed a patent suit against the United States under 28 U.S.C. § 1498 based on the LCS-1 vessel. On April 28, 2017, the court found the LCS-1 infringed the patents.

         Plaintiffs' Second Amended Complaint asserts two counts: (1) breach of contract (Count I) and (2) misappropriation of trade secrets (Count II). On September 27, 2017, Defendants separately filed Motions to Dismiss Plaintiffs' Second Amended Complaint.

         II.

         “[A] federal court generally may not rule on the merits of a case without first determining that it has jurisdiction over the category of claim in suit (subject-matter jurisdiction) and the parties (personal jurisdiction).” Sinochem Int'l Co. v. Malay. Int'l Shipping Corp., 549 U.S. 422, 430-31 (2007). “'Without jurisdiction the court cannot proceed at all in any cause'; it may not assume jurisdiction for the purpose of deciding the merits of the case.” Id. at 431 (quoting Steel Co. v. Citizens for Better Env't, 523 U.S. 83, 94 (1998)). Accordingly, the Court must first determine that it has subject matter jurisdiction over this matter and personal jurisdiction over Defendants.

         As part of its inquiry into subject matter jurisdiction, the Court must determine whether Plaintiffs have standing to pursue this action. Petroleos Mexicanos Refinacion v. M/T King A (EX-TBILISI), 377 F.3d 329, 334 (3d Cir. 2004) (“Standing is a question of subject matter jurisdiction.”). As “[s]ubject matter jurisdiction is ‘fundamentally preliminary' to both the issues of personal jurisdiction and venue, ” the Court begins there. See Tifa, Ltd. v. Republic of Ghana, 692 F.Supp. 393, 398 (D.N.J. 1988) (quoting Leroy v. Great W. United Corp., 443 U.S. 173, 180 (1979)).

         A. Subject Matter Jurisdiction

         1. Diversity Jurisdiction

         This Court has subject matter jurisdiction over this matter pursuant to 28 U.S.C. § 1332. FastShip, LLC is a limited liability company whose sole member is the Liquidating Trust. See Zambelli Fireworks Mfg. Co. v. Wood, 592 F.3d 412, 418 (3d Cir. 2010) (stating that the citizenship of an LLC is determined by the citizenship of each of its members). The Liquidating Trust is pleaded as a “traditional trust.” “[T]he citizenship of a traditional trust is only that of its trustee . . . .” GBForefront, L.P. v. Forefront Mgmt. Grp., LLC, No. 16-3905, 2018 WL 1866693, at *7 (3d Cir. Apr. 19, 2018). The trustee of the Liquidating Trust is the Brownstein Corporation, which is incorporated, and has its principal place of business, in Pennsylvania. See 28 U.S.C. § 1332(c)(1) (“[A] corporation shall be deemed to be a citizen of every State and foreign state by which it has been incorporated and of the State or foreign state where it has its principal place of business . . . .”). Accordingly, both Plaintiffs are citizens of Pennsylvania.

         Lockheed is incorporated in Maryland and has its principal place of business there. G&C is incorporated in New York and has its principal place of business in Virginia. Accordingly, the citizenship of Plaintiffs is diverse from the citizenship of Defendants. Plaintiffs plead an amount in controversy in excess of $75, 000, exclusive of interest and costs, giving this Court diversity jurisdiction under 28 U.S.C. § 1332.

         2. Article III Standing

         “A motion to dismiss for want of standing is . . . properly brought pursuant to Rule 12(b)(1), because standing is a jurisdictional matter.” Constitution Party v. Aichele, 757 F.3d 347, 357 (3d Cir. 2014) (quoting Ballentine v. United States, 486 F.3d 806, 810 (3d Cir. 2007)). “A district court has to first determine, however, whether a Rule 12(b)(1) motion presents a ‘facial' attack or a ‘factual' attack on the claim at issue, because that distinction determines how the pleading must be reviewed.” Id.

A facial attack, as the adjective indicates, is an argument that considers a claim on its face and asserts that it is insufficient to invoke the subject matter jurisdiction of the court, because, for example, it does not present a question of federal law, or because there is no indication of a diversity of citizenship among the parties, or because some other jurisdictional defect is present. . . . A factual attack, on the other hand, is an argument that there is no subject matter jurisdiction because the facts of the case - and here the District Court may look beyond the pleadings to ascertain the facts - do not support the asserted jurisdiction. . . . In sum, a facial attack “contests the sufficiency of the pleadings, ” “whereas a factual attack concerns the actual failure of a [plaintiff's] claims to comport [factually] with the jurisdictional prerequisites.”

Id. at 358 (alterations in original) (citations omitted) (first quoting In re Schering Plough Corp. Intron, 678 F.3d 235, 243 (3d Cir. 2012); and then quoting CNA v. United States, 535 F.3d 132, 139 (3d Cir. 2008)).

         “A Rule 12(b)(1) standing challenge may attack the complaint facially or may attack the factual basis for standing.” Askew v. Trs. of the Gen. Assembly of the Church of the Lord Jesus Christ of the Apostolic Faith, Inc., 684 F.3d 413, 417 (3d Cir. 2012). The Court finds that, in light of recent case law within the Third Circuit, it must consider any challenge at this stage of the litigation to be facial.

         “[R]ecent Third Circuit cases suggest that only facial attacks, and not factual attacks, can be brought in a motion to dismiss before an answer is filed.” Bustamante v. D.O. Prods., LLC, No. 16-4618, 2017 WL 3782793, at *2 (D.N.J. Aug. 30, 2017); accord Curlin Med. Inc. v. ACTA Med., LLC, No. 16-2464, 2016 WL 6403131, at *2 (D.N.J. Oct. 27, 2016) (“[T]he Third Circuit's recent cases suggest that only facial attacks, and not factual attacks, can be brought in a motion to dismiss before an answer is filed.”); Smalls v. Jacoby & Myers, LLP, No. 15-6559, 2016 WL 354749, at *2 (D.N.J. Jan. 26, 2016) (“While [Berardi v. Swanson Memorial Lodge No. 48 of the Fraternal Order of Police, 920 F.2d 198 (3d Cir. 1990)] does appear to support Defendants' proposition [that “both facial and factual attacks may occur prior to an answer being filed”], the Third Circuit's recent cases do not.”); see, e.g., Aichele, 757 F.3d at 358 (“The Commonwealth filed the attack before it filed any answer to the Complaint or otherwise presented competing facts. Its motion was therefore, by definition, a facial attack.”); Hendrick v. Aramark Corp., 263 F.Supp.3d 514, 517 (E.D. Pa. 2017) (“Where a Rule 12(b)(1) motion is filed prior to an answer, . . . it will be considered a facial challenge to jurisdiction.”).

         This Court finds that, in light of recent case law from this Circuit, it must consider Defendants' standing argument to be a facial attack, as Defendants have not yet filed an answer. Nonetheless, as in considering any Rule 12(b)(6) motion, the Court will consider matters of public record and undisputed documents that form the basis of Plaintiffs' Second Amended Complaint.[3]

         The Constitution confines the power of federal courts as extending only to “Cases” and “Controversies.” Art. III, § 2. “No principle is more fundamental to the judiciary's proper role in our system of government than the constitutional limitation of federal-court jurisdiction to actual cases or controversies.” Raines v. Byrd, 521 U.S. 811, 818 (1997) (quoting Simon v. E. Ky. Welfare Rights Org., 426 U.S. 26, 37 (1976)).

There are three well-recognized elements of Article III standing: First, an “injury in fact, ” or an “invasion of a legally protected interest” that is “concrete and particularized.” Second, a “causal connection between the injury and the conduct complained of[.]” And third, a ...

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