Kolon USA, Inc., the U.S. subsidiary of South Korea-based Kolon Industries Inc. (“Kolon”), recently was ordered by New Jersey District Court Judge Esther Salas to turn over its property to DuPont as part of DuPont’s efforts to enforce the $920 million damages award that DuPont won against Kolon during a 2011 trade secrets litigation in the Eastern District of Virginia.
This case, E.I. du Pont De Nemours & Co. v. Kolon Indus., Inc. a/ka/ Kolon Corp., has an interesting history: in 2009, DuPont sued Kolon in EDVA, including five of its executives, for allegedly stealing confidential information related to making Kevlar, an anti-ballistic fiber commonly used in body armor, military helmets, ropes, cables and tires. DuPont has been selling this fiber since 1965 and has spent more than $500 million in its marketing and production. Kevlar and Nomex, a fiber used in firefighting gear, together accounted for $1.5 billion of DuPont’s $38 billion in sales for 2011. Kolon began making the Heracrone line of fibers, its own version of DuPont’s Kevlar, in 2005.
In 2006, Kolon hired Michael Mitchell as a consultant to improve Kolon’s Heracrone products. Mitchell previously worked at DuPont for twenty-five (25) years as an engineer and as a marketing executive for DuPont’s Kevlar. Mitchell later was charged and pled guilty to trade secrets theft and obstruction of justice relating to his work while at Kolon, and stemming from his DuPont background. In March of 2010, he was sentenced to eighteen (18) months in prison. Although Mitchell pled guilty to stealing DuPont’s trade secrets, that did not release Kolon from liability. In September 2011, a federal jury in Virginia found Kolon and its U.S. subsidiary guilty for wrongfully obtaining DuPont’s proprietary information about Kevlar and granted a $920 million judgment against Kolon. The five individual executives at Kolon who were originally sued in 2009 still worked for Kolon in South Korea. Unfortunately for DuPont, the ruling from the Court in Virginia cannot itself prevent Kolon from selling its Heracrone fibers.
After DuPont obtained the $920 million judgment against Kolon in EDVA, DuPont obtained leave to execute the judgment outside of that district. Enter the District of New Jersey. DuPont registered the judgment in the DNJ under 28 U.S.C. § 1963, the statutory procedure for registering and enforcing judgments in other districts. During August of 2013, DuPont obtained a levy on the $920 million judgment by serving a Writ of Execution on Kolon USA, which currently owes Kolon $3.6 million.
In determining whether Kolon USA would be required to turn over its property, the New Jersey Court determined that DuPont satisfied the three requirements as set forth in N.J.S.A. 2A:17-63 regarding garnishment : 1) Kolon and Kolon USA have been noticed; 2) DuPont has obtained a valid levy upon the property and 3) Kolon USA has admitted the debt. Thus, DuPont’s application for a turnover order was granted.
Among the takeaways from this case is that if a subsidiary corporation owes its parent corporation money, the subsidiary may be required to turn over its property in order to satisfy a judgment against the parent.