There have been a few recent developments in the Eaton v. Frisby litigation.

The case case appears to be bogged down and headed back to the Mississippi Supreme Court for another appeal. You can view a recent agreed order regarding the appeal record here: Order regarding appeal.

Given how things were for Eaton when it last went before the Supreme Court, another pre-trial appeal is likely a delay tactic. Eaton really needs to slow down Frisby’s momentum–even if it takes another losing appeal to do it.

On February 4, 2014, Wayne Drinkwater with Bradley Arant entered an appearance for Eaton. Here is that pleading: Drinkwater appearance.

It will be interesting to see if Drinkwater’s role is limited to the appeal or if he is active in the Circuit Court litigation. Eaton’s legal team is already huge. It’s hard to imagine that switching jockeys at this point is going to change much in the case.

Last week Eaton got around to disclosing the Frisby mess in its 10-k filed with the SEC. Here is a link.

Here is what the disclosure says:

Frisby Corporation, now known as Triumph Actuation Systems, LLC, and other claimants (collectively, the Frisby Parties) asserted claims alleging, among other things, unfair competition, defamation, malicious prosecution, deprivation of civil rights, and antitrust in the Hinds County Circuit Court of Mississippi in 2004 and in the Federal District Court of North Carolina in 2011. Eaton had asserted claims against the Frisby Parties regarding improper use of trade secrets and these claims were dismissed by the Hinds County Circuit Court. On September 25, 2013, the Mississippi Supreme Court issued an order that stayed all proceedings in the Hinds County Circuit Court pending further order of the Mississippi Supreme Court. On November 21, 2013, the Mississippi Supreme Court upheld the dismissal of Eaton’s claims but did not lift the stay on all proceedings in the Hinds County Circuit Court. Prior to the stay, the Frisby Parties submitted various expert damage designations related to their claims to the Hinds County Circuit Court, claiming damages of at least $376 . Eaton disputes liability to the Frisby Parties and Eaton’s experts dispute the amount of damages claimed by the experts for the Frisby Parties. An estimate of any potential loss related to this action cannot be made at this time.

Here is a document that discusses when companies have to disclose pending litigation. Here is a law review article on the issue. Garden variety lawsuits do not have to be disclosed.

My Take:

Eaton probably should have disclosed the Frisby case in its SEC filings years ago. The handwriting has been on the wall for a long time.

But I guess as long as its appeal was alive in the Mississippi Supreme Court, Eaton’s management felt like it could still beat off Frisby’s counter-claim. That seems like an example of willful blindness if there ever was one.

Let’s not forget though, Eaton might win on the Frisby counter-claim. Frisby could get over confident and over-play its hand. There are a few dynamics in the case that make that a larger risk than in most cases.

Meanwhile, it appears that the Frisby litigation has had no impact on Eaton’s stock price, which has gone from under $20 to $75 a share since 2009. Here is a chart:

Chart forEaton Corporation plc (ETN)

With a chart like this the mood is probably pretty good in Eaton’s executive suite regardless of the Frisby litigation.