Intellectual Property Law Knowledge Center

Sierra Railroaded by Theft of Trade Secrets

May 28th, 2014

By: John D. Simmons, Esq.

On May 1, a federal jury in California awarded $17.4 million in punitive damages be paid by Patriot Rail Company LLC to Sierra Railroad Co. less than two months after awarding a $22.3 million verdict for misappropriation of trade secrets.

The case stems from discussions in 2005 through which Patriot expressed interest in purchasing Sierra. During the discussions, the parties entered into a nondisclosure agreement regarding Sierra’s confidential information. During the negotiations, Sierra introduced Patriot to representative of McClellan Business Park, a customer which accounted for 34 percent of Sierra’s revenue. Patriot then met with McClellan without Sierra’s presence, after which McClellan terminated its contract with Sierra and agreed to hire Patriot instead.

Following the loss of the McClellan project, Patriot significantly reduced its offer to Sierra, which Sierra declined. Sierra then sued Patriot in March 2008. In exchange for dropping the case, Patriot agreed to purchase Sierra, but allegedly stalled on closing the deal to attempt to block Sierra from refilling the suit.

After another deal could not be reached, Patriot sued Sierra for breach of contract. Sierra’s damages, both actual and punitive, were awarded as a result of its counterclaims in this matter after a finding that Patriot used Sierra’s trade secrets to maliciously or fraudulently interfere with Sierra’s business.

The case can be found at Patriot Rail Corp. v. Sierra Railroad Co., case no. 2:09-cv-00009, in the U.S. District Court for the Eastern District of California.

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