(CN) - A class of shareholders says that Eaton Corp. executives covered-up their part in a scheme to influence a state court judge in "high-stakes trade secrets" litigation against a rival company.
Lead plaintiff Florida Carpenters Regional Council Pension Plan sued Eaton Corp. and senior executives Alexander Cutler, Mark McGuire, Victor Leo and Taras Szmagala Jr. in Federal Court.
"This action arises out of a fraudulent scheme and wrongful course of conduct whereby defendants caused Eaton to issue false and misleading statements to the investing public concerning the involvement of Eaton executives in a scheme to improperly influence the Mississippi state court judge in the company's high-stakes trade secrets lawsuit against Frisby Aerospace Inc. ('Frisby'), a rival manufacturer," the complaint states.
Eaton sued Frisby in 2004, claiming that six Eaton engineers had stolen Eaton's trade secrets after leaving for Frisby, the class says.
"Eaton filed its lawsuit in Hind County Circuit Court in Mississippi. It was assigned to Judge Bobby DeLaughter," the lawsuit states. "Soon after filing the case, Eaton hired Ed Peters, a longtime Hinds County District Attorney who happened to be Judge DeLaughter's boss when DeLaughter was an Assistant District Attorney."
According to the class, DeLaughter was then forced to recuse himself after federal prosecutors probed him for his part in an alleged scheme to bribe an attorney named Richard Scruggs.
DeLaughter was later convicted for obstruction of justice and served 18 months in prison, the complaint says.
"The attorney hired by Eaton, Ed Peters, was later named as the middle man in the scheme between Scruggs and DeLaughter," the complaint states. "The case against DeLaughter raised serious questions about whether Peters had attempted to improperly influence DeLaughter on Eaton's behalf."
The complaint says that in August and September 2009, Eaton assured the investing public that it never asked Peters to unlawfully influence DeLaughter.
But during discovery in the summer of 2010, Frisby unraveled "improper, and possibly illegal, contacts with Judge DeLaughter through Ed Peters," the complaint states.
"On December 22, 2010, the court dismissed the Frisby litigation, specifically citing Eaton's contacts with Judge DeLaughter through Ed Peters. The court also fined Eaton $1.5 million for discovery violations. Eaton appealed the dismissal to the Mississippi Supreme Court, asking it to restore the original litigation. That appeal is currently pending," the lawsuit says.
After Frisby pursued a counterclaim against Eaton, a Hinds County Circuit Court Judge ordered Eaton to hand over records of any contacts between DeLaughter and Peters, the class says.
"On May 31, 2012, Eaton executives admitted in affidavits filed with the court that the company had failed in its duty to turn over records, including damaging emails, causing Eaton's stock price to decline," the complaint says.
Eaton shareholders were damaged by millions of dollars after their already inflated stock plummeted in value, the lawsuit adds.
The class is represented by Geoffrey Johnson with Scott + Scott of Cleveland Heights, Ohio, and seeks unspecified compensatory damages for securities fraud.